Chau v. Life

• Court: U.S. District Court — Northern District of Texas
• Writing for the Court: JANE J. BOYLE
• Decision Date: 20 May 2011
• Docket Number: CIVIL ACTION NO. 3:09-CV-2305-B
• Citation: Chau v. Aviva Life & Annuity Co., CIVIL ACTION NO. 3:09-CV-2305-B (N.D. Tex. May 20, 2011)
• Parties: WING C. CHAU, M.D., et al., Plaintiffs, v. AVIVA LIFE AND ANNUITY COMPANY, Defendant.

WING C. CHAU, M.D., et al., Plaintiffs,

v. AVIVA LIFE AND ANNUITYCOMPANY, Defendant.

CIVIL ACTION NO. 3:09-CV-2305-B

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF TEXAS DALLAS DIVISION

DATED: May 20, 2011.

MEMORANDUM OPINION AND ORDER

Before the Court are Plaintiffs' Request for the Court to Issue a Suggestion of Remand to the Judicial Panel of Multidistrict Litigation filed March 3, 2011 (doc. 69) and Defendant Aviva Life and Annuity Company's ("Aviva") Motion to Dismiss Plaintiffs' Second Amended Complaint filed February 5, 2010 (doc. 58). Having considered the Request and the Motion, the Court finds that Plaintiffs' Request for the Court to Issue a Suggestion of Remand should be and hereby is DENIED WITHOUT PREJUDICE. Further, Aviva's Motion to Dismiss should be and hereby is GRANTED IN PART and DENIED IN PART. Plaintiffs' claims for common law fraud/negligent misrepresentation, Washington securities fraud, breach of duty of good faith, unjust enrichment, civil conspiracy, and violation of the Washington Consumer Protection Act against Aviva are hereby DISMISSED WITHOUT PREJUDICE. Aviva's Motion, to the extent it seeks dismissal of Plaintiffs' breach of contract claim, is DENIED.

I.FACTUAL BACKGROUND¹

Plaintiffs² in this lawsuit are physicians and dentists and their professional corporations, all of whom are citizens of the State of Washington. SAC ¶¶ 1-31. Plaintiffs allege that Indianapolis Life Insurance Company ("Indianapolis Life")³ advertised, marketed, and consummated fraudulent business transactions, resulting in Plaintiffs' damages. Id. at 1 33. In the late 1990s, Indianapolis Life and Donald Guess created a "tax-sheltered investment to be offered to high-income professionals through a welfare benefit trust." Id. at ¶ 36. The trust, known as a "§ 419 Plan," because it was governed by Internal Revenue Code section 419, was designed to market an Indianapolis Life insurance policy as an investment "promising the investor a valuable benefit of tax-favored retirement funds from tax-free cash flow where the investor did not contract or participate in management decisions." Id. at ¶¶ 36-37. The policy had "artificially high initial surrender charges which suppressed the cash value of the policy for the initial period." Id. at ¶ 39. The investor would then purchase the policy at a discount from the trust, shortly before surrender charges were to bereduced and while the cash value of the policy was low, and then the value would "spring" to a higher level. The purchase could then borrow from his policy for tax-free cash flow. Id. However, Indianapolis Life knew that the IRS had looked askance at the legality of similar arrangements and indicated that these arrangements may be deemed abusive tax shelters, yet continued to market its § 419 Plan as a tax-avoidance plan. Id. at ¶¶ 40-41.

In 1998, Aaron Burns ("Burns"), an agent of Indianapolis Life, began marketing and selling Indianapolis Life policies to fund § 419 Plans in eastern Washington. Id. at ¶ 42. Burns proceeded to meet with the various Plaintiffs from 1998 through 2001 multiple times, and represented, both orally and in writing, that their payments to the trust would be tax-deductible, their investment earnings would be tax-free, and they would enjoy tax-free cash flow which could be used for retirement income.⁴ Id. at ¶¶ 44, 46-59. In reliance on these representations, Plaintiffs initiated their § 419 trusts and purchased Indianapolis Life insurance policies. Id. at ¶¶46-59, 67. These representations were false and misleading regarding the nature of the policy benefits and federal tax consequences of the § 419 Plan, leading to IRS audits of the Plaintiffs, substantial tax penalties and interest, and ultimately damages in excess of $1,000,000. Id. at ¶¶ 62, 76-77.

II.PROCEDURAL HISTORY

Plaintiffs' original complaint was filed on April 22, 2009 in Washington state court, and Aviva filed its notice of removal on May 29, 2009, removing the case to the United States DistrictCourt for the Eastern District of Washington. Plaintiffs filed their Second Amended Complaint on September 14, 2009 after the trial court granted Plaintiffs' Motion to Amend and denied Aviva's Motion to Dismiss as moot with leave to refile on September 9, 2009. On December 3, 2009, the United States Panel on Multidistrict Litigation ("MDL Panel") ordered the case transferred to the Northern District of Texas. Aviva then filed its Motion to Dismiss Plaintiffs' Second Amended Complaint on February 5, 2010. On March 3, 2011, Plaintiffs filed their Request for the Court to Issue a Suggestion of Remand to the Judicial Panel of Multidistrict Litigation. The Motion and Request are now ripe for disposition.

III.LEGAL STANDARD

A. Law Applicable in MDL Cases

This action is before the Court as a result of a forum transfer by the MDL Panel. Therefore, as to matters of state law, the Court is bound to apply the state law of the transferor forum. 15 Charles Alan Wright, Arthur R. Miller, and Edward H. Cooper, Fed. Practice and Procedure ("Wright & Miller") § 3866 (3d ed. 2004) at 528-29 (2007) (citing In re Air Disaster at Ramstein Air Base, 81 F.3d 570, 576 (5th Cir. 1996) and Menowitz v. Brown, 991 F.2d 36, 40 (2d Cir. 1993)) (other citations omitted). As to matters of federal law, however, the Court applies the law of the transferee court. Menowitz, 99 F.2d at 40 (citing In re Korean Air Lines Disaster, 829 F.2d 1171, 1175 (D.C. Cir. 1987)) (other citations omitted). Therefore, as this case was originally filed in Washington state court (prior to removal and transfer), the Court applies Washington state substantive law as to matters of state law. On the other hand, because pleading requirements are purely matters of federal law, the Court looks to the law of this Court and this Circuit for the controlling Federal Rules ofCivil Procedure 12(b)(6) ("Rule 12(b)(6)") and 9(b) ("Rule 9(b)") standards. See, e.g., Prudential Ins. Co. of Amer. v. Clark Consulting, Inc., 548 F. Supp. 2d 619, 623 (N.D. Ill. 2008) (explaining that, as an initial matter, pleading requirements in federal courts are governed by the federal rules and not by state law).

B. Suggestion of Remand

Although the power to remand a case to the transferor court lies solely with the MDL Panel, In re Bridgestone/Firestone, Inc., ATX, ATX II, and Wilderness Tires Prods. Liab. Litig., 128 F. Supp. 2d 1196, 1197 (S.D. Ind. 2001) (citing 28 U.S.C. § 1407(a)), the transferee court may issue a suggestion of remand, which is given great weight by the Panel. In re Managed Care Litig., 416 F. Supp. 2d 1347, 1348 (J.P.M.L. 2006) (citation omitted). The Panel will remand an action prior to the completion of pretrial proceedings "only upon a showing of good cause." In re CBS Color Tube Patent Litig., 342 F. Supp. 1403, 1405 (J.P.M.L. 1972). Further, the party seeking remand has the burden of establishing that such remand is warranted. In re Nat'l Century Fin. Enters. Fin. Inv. Litig., 2004 WL 882456, at *2 (S.D. Ohio Nov. 18, 2003) (citation omitted). When deciding whether to issue a suggestion of remand to the MDL Panel, "a transferee court is guided by the standards for remand the Panel uses." In re Express Scripts, Inc., PBM Litig., 2010 WL 5149270, at *1 (E.D. Mo. Dec. 13, 2010). "The exercise of that discretion generally turns on the question of whether the case will benefit from further coordinated proceedings as part of the MDL." In re Bridgestone/Firestone, Inc., 128 F. Supp. 2d at 1197. "Remand is inappropriate . . . when continued consolidation will eliminate duplicative discovery, prevent inconsistent pretrial rulings, and conserve the resources of the parties, their counsel and the judiciary." In re Silica Prods. Liab. Litig., 398 F. Supp. 2d 563, 668 (S.D. Tex. 2005) (citation omitted).

C. Rule 9(b) Standard

A dismissal for failure to plead with particularity in accordance with Rule 9(b) is treated as a Rule 12(b)(6) dismissal for failure to state a claim. Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017 (5th Cir. 1996). Rule 9(b) provides, in pertinent part, that, "[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake." Fed. R. Civ. P. 9(b). The amount of particularity required for pleading fraud differs from case to case. See, e.g., Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir. 2003), modified on other grounds, 355 F.3d 356 (5th Cir. 2003); see also Williams v. WMXTechs., Inc., 112 F.3d 175, 178 (5th Cir. 1997) (noting that "courts have emphasized that Rule 9(b)'s ultimate meaning is context-specific"). In the Fifth Circuit, the Rule 9(b) standard requires "specificity as to the statements (or omissions) considered to be fraudulent, the speaker, when and why the statements were made, and an explanation of why they were fraudulent." Plotkin v. IP Axess, Inc., 407 F.3d 690, 696 (5th Cir. 2005) (citation omitted); see also Southland Secs. Corp. v. INSpire Ins. Solutions, Inc., 365 F.3d 353, 362 (5th Cir. 2004). In other words, the complaint must provide "the essentials of the first paragraph of any newspaper story." Melder v. Morris, 27 F.3d 1097, 1100 n.5 (5th Cir. 1994).

D. Rule 12(b)(6) Standard

In analyzing a motion under Rule 12(b)(6), the Court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff. Martin K. Eby Constr. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004). The motion should be granted only if the complaint does not include enough facts to state a claim to relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim must be "nudged . . . across the line from conceivable to plausible." Id. "A pleading that offers 'labels and conclusions' or 'a formulaicrecitation of the elements of a cause of action will not do.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (quoting Twombly, 550 U.S. at 555). "Factual allegations must...