Camp v. Pacific Financial Group

• Decision Date: 11 February 1997
• Docket Number: No. CV 96-2806 MRP.,No. CV 96-3339 MRP.,No. CV 96-1637 MRP.,CV 96-1637 MRP.,CV 96-2806 MRP.,CV 96-3339 MRP.
• Citation: 956 F.Supp. 1541
• Court: U.S. District Court — Central District of California
• Parties: Michael D. CAMP, et al., Plaintiffs, v. PACIFIC FINANCIAL GROUP, et al., Defendants. Donna Jeanne MYERS, et al., Plaintiffs, v. Carlton J. HAGMAIER, et al., Defendants. Michael D. CAMP, et al., Plaintiffs, v. Carlton J. HAGMAIER, et al., Defendants. And Related Cross-Actions.

956 F.Supp. 1541

Michael D. CAMP, et al., Plaintiffs, v. PACIFIC FINANCIAL GROUP, et al., Defendants.

Donna Jeanne MYERS, et al., Plaintiffs, v. Carlton J. HAGMAIER, et al., Defendants.

Michael D. CAMP, et al., Plaintiffs, v. Carlton J. HAGMAIER, et al., Defendants. And Related Cross-Actions.

No. CV 96-1637 MRP.

No. CV 96-2806 MRP.

No. CV 96-3339 MRP.

United States District Court, C.D. California.

February 11, 1997.

Shawn Hanson, Adam E. Sak, James M. Duenow, Pillsbury Madison & Sutro L.L.P., San Francisco, CA, for Plaintiffs.

David L. Bacon, Dean A. Morehous, Jr., Christine Franklin, Thelen, Marrin, Johnson & Bridges L.L.P., San Francisco, CA, for The Guardian Life Insurance Company of America and Guardian Investor Services Corp.

Jana I. Lubert, Joseph Campo, Lewis, D'Amato, Brisbois & Bisgaard, Los Angeles, CA, for Carlton J. Hagmaier and Pacific Financial Group.

OPINION AND ORDER

PFAELZER, District Judge.

Background

The defendants have filed motions to dismiss three of the four claims in the Third Amended Complaint ("TAC") in Michael D Camp, Sue E. Camp, and Dennis M. Camp, as trustees of the PIC Manufacturing Family Trust et al. v. Pacific Financial Group et al., CV 96-1637 MRP (the "PIC Action"). The PIC Action is one of three actions consolidated before this Court arising out of the conduct of defendants Carlton J. Hagmaier ("Hagmaier"), the Pacific Financial Group ("Pacific") and the Guardian Life Insurance Company of America ("Guardian").¹ The TAC in the PIC Action was filed after this Court dismissed with prejudice numerous state law torts and dismissed with leave to amend a state law claim for "Wrongful Inducement to Enter Into an ERISA Plan" and a claim alleging violations of the Racketeer Influenced and Corrupt Organizations provisions of the Organized Crime Control Act of 1970. 29 U.S.C. §§ 1001-1461 ("ERISA"); 18 U.S.C. §§ 1961-1968 ("RICO"). The TAC alleges only four claims: (1) wrongful inducement to enter into an ERISA plan; (2) common law fraud; (3) breach of fiduciary duty under ERISA; and (4) RICO violations.

The PIC Manufacturing Family Trust doing business as PIC Manufacturing Company ("PIC") and the PIC Manufacturing Retirement Plan ("Plan"), an ERISA plan, seek monetary damages against defendants Hagmaier and Pacific (collectively the "Hagmaier defendants") and defendants Guardian and Guardian Investor Services Corporation ("GISC"). The plaintiffs' claims arise out of Hagmaier's misconduct in the sale and servicing of Guardian life insurance policies which were to be purchased and maintained as assets of the Plan and Guardian's alleged failure to supervise and oversee its agent Hagmaier. Hagmaier solicited the plaintiffs to establish the Plan, and, after its creation, Hagmaier became administrator of the Plan.

The plaintiffs have converted a case of mismanagement and self-dealing by an ERISA plan administrator into two relatively tortured state law claims. The first is for wrongful inducement to enter into an ERISA plan which is a theory now recognized in at least four circuits. The plaintiffs allege that Hagmaier and Guardian fraudulently portrayed Hagmaier as an experienced ERISA professional qualified to establish, advise and administer ERISA plans. The plaintiffs allege that Guardian knew Hagmaier was thoroughly unqualified to establish and administer an ERISA plan because Guardian provided only minimal training to its agents. Further, according to the TAC, the Guardian materials which advertised Hagmaier as an ERISA expert were part of a scheme to sell Guardian life insurance policies as ERISA plan assets. The plaintiffs allege that, but for the fraudulent representations of Hagmaier's qualifications and the Guardian's active participation in the management of the Plan through its subsidiary GISC, the plaintiffs would never have established the Plan.

Assuming the truth of all of these allegations, the plaintiffs' only injury occurred after the Plan was established and funded. The TAC does not allege any damages sustained by the plaintiffs at the inception of the Plan. Rather, the damages the plaintiffs seek to recover relate to alleged looting and mismanagement of Plan assets by Hagmaier through Pacific.

In the second claim under state law, three individual plaintiffs seek to recover against the defendants for offering fraudulent tax advice. This fraudulent tax advice claim is an attempt by the plaintiffs to bring this case within the scope of Farr v. US West, Inc., 58 F.3d 1361 (9th Cir.1995) (Norris, J.) (finding no ERISA preemption of state law fraud claims by former employees and plan participants against former employer where employees alleged that employer gave fraudulent tax advice about treatment of lump sum benefit plan withdrawals inducing employees to take early retirement and incur substantial tax penalties). The defendants move to dismiss the first and second claims arguing that ERISA preempts these state law claims.

The ERISA claim, which is the third claim in the TAC, is not challenged in these motions. The fourth claim is for violations of RICO. The defendants move to dismiss the RICO claim arguing that the TAC fails to allege with particularity the elements of a RICO claim. The defendants also move to strike the jury demand and prayer for punitive damages arguing that ERISA does not provide for jury trials or the imposition of exemplary damages.

On January 28, 1997, the defendants' motions to dismiss and to strike came before the Court. David L. Bacon argued for the moving parties, and Shawn Hanson argued for the plaintiffs. After hearing the arguments of counsel, the Court took the matter under submission. Having fully considered the arguments presented and the pleadings and papers on file, the Court grants the defendants' motions to dismiss the first, second and fourth claims in the TAC and to strike the demand for a jury trial and the prayer for punitive damages.

Analysis

I. Does ERISA Preempt the Plaintiffs' First Claim for Relief?

Generally, ERISA preempts any state law to the extent the law "relate[s] to" a covered benefit plan. 29 U.S.C. § 1144(a). Early on in defining the scope of ERISA preemption, the key statutory phrase "relate to" was given its broad, common sense meaning such that a state law was held to relate to an ERISA plan if it "ha[d] a connection with or reference to such a plan." Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 2389, 85 L.Ed.2d 728 (1985) (citations omitted). In numerous opinions, the Supreme Court found that various state laws related to covered benefit plans and the Court reiterated the broad and sweeping nature of ERISA preemption. See District of Columbia v. Greater Washington Bd. of Trade, 506 U.S. 125, 113 S.Ct. 580, 121 L.Ed.2d 513 (1992) (stating that ERISA preempts local law prohibiting employers from reducing health benefits to employees receiving workers' compensation); Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S.Ct. 478, 112 L.Ed.2d 474 (1990) (finding that ERISA preempts state wrongful discharge claim by employee alleging that termination was designed to prevent him from receiving benefits under covered plan); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987) (holding that ERISA preempts state tort and breach of contract claims by plan participant alleging improper processing of benefit claim); Metropolitan Life, 471 U.S. at 739, 105 S.Ct. at 2388-89 (stating that Massachusetts law requiring employers to provide mental healthcare benefits for employees clearly relates to ERISA plans); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 103 S.Ct. 2890, 77 L.Ed.2d 490 (1983) (finding that two state laws mandating health and welfare benefits for certain employees relate to ERISA plans). In its most recent venture into the realm of ERISA preemption, the Supreme Court reversed the Second Circuit and held that ERISA does not preempt state laws which impose surcharges on hospital services to be paid by private insurance in the form of ERISA medical plans. New York Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 115 S.Ct. 1671, 131 L.Ed.2d 695 (1995) (hereinafter New York Blues).

The TAC alleges numerous instances of fraud by the defendants before the creation of the Plan. Most of this pre-Plan fraud relates to Guardian's deliberate decision to advertise Hagmaier as an ERISA expert even though Guardian managers knew agents like Hagmaier were not qualified to establish and advise ERISA plans. TAC ¶¶ 11-30. Guardian is charged with supplying Hagmaier and other agents with sales and promotional materials which instruct agents on how to emphasize their "expertise", how to conceal their ignorance, and how to portray Guardian and GISC as backers of the ERISA plans who provide technical and administrative support to the Plan as needed. Hagmaier is charged with making fraudulent oral and written representations about his expertise and qualifications to the PIC trustees.

The TAC alleges that, but for these misrepresentations, the Plan would never have been created by the plaintiffs. TAC ¶ 87. The Plan was created and the plaintiffs believed that Guardian life insurance products would constitute a significant portion of the Plan's assets. PIC made annual contributions to the Plan for several years before realizing that assets were missing from the Plan. In the first claim in the TAC, the plaintiffs seek to recover these missing assets under state law by contending that the defendants' fraudulent representations as to Hagmaier's ability to administer the Plan caused these damages. The defendants argue that this claim is preempted under ERISA because the claim relates to a covered plan and the claim provides an alternative mechanism for enforcing the obligations imposed by ERISA. See, e.g., New York Blues, 514 U.S. at ___, 115 S.Ct. at 1678.

The plaintiffs argue that ERISA does not preempt state law claims relating to...