Zarrella v. Pacific Life Ins. Co.
Decision Date | 22 August 2011 |
Docket Number | Case No. 10–60754–CIV. |
Citation | 809 F.Supp.2d 1357,52 Employee Benefits Cas. 1579 |
Parties | Larry ZARRELLA, an individual, Zarrella Construction, Inc., a Florida Corporation, on Behalf of All Others Similarly Situated, Plaintiffs, v. PACIFIC LIFE INSURANCE COMPANY, Defendant. |
Court | U.S. District Court — Southern District of Florida |
OPINION TEXT STARTS HERE
John Marion Quaranta, Weil Quaranta, P.A., Miami, FL, for Plaintiffs.
Enrique Daniel Arana, Jorden Burt LLP, Todd Matthew Fuller, Jorden Burt LLP, Miami, FL, for Defendant.
Ronald Peter Weil, Ronald Weil PA, Miami, FL.
ORDER GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS PLAINTIFFS' SECOND AMENDED CLASS ACTION COMPLAINT
THIS CAUSE is before the Court upon Defendant Pacific Life Insurance Company's (“Pacific Life's”) Motion to Dismiss Plaintiffs' Second Amended Class Action Complaint [DE 74] (“Motion to Dismiss”). The Court has considered the Motion to Dismiss, Plaintiffs Larry Zarrella and Zarrella Construction, Inc.'s (“Plaintiffs' ”) Response [DE 99], Pacific Life's Reply [DE 112], the record in this case, and is otherwise fully advised in the premises.
On May 10, 2010, Plaintiffs brought this class action for a variety of claims arising out of individual life insurance policies that Pacific Life sold to Plaintiffs for use in Zarrella Construction's 412(i) plans. Class Action Complaint [DE 1] (“Complaint”); Second Amended Class Action Complaint [DE 69] (“Second Amended Complaint”). A “412(i)” plan is an employer-sponsored defined benefit plan that provides retirement and death benefits to its participants under § 412(i) of the Internal Revenue Code.1 26 U.S.C. § 412(i) (2000) (amended as 26 U.S.C. § 412(e)(3) (2006)). To create a 412(i) plan, an employer establishes a trust to hold the plan's assets, and the trust uses tax-deductible employer contributions to purchase and maintain life insurance and/or annuity policies for the plans. See 26 U.S.C. § 401(a) (2006); 26 C.F.R. § 1.412(i)–1(b)(2)(i) (2006).
Plaintiffs purchased their policies from Pacific Life in March 2003. Sec. Am. Compl. ¶ 23. Almost one year later, in February of 2004, the Internal Revenue Service (“IRS”) issued two Revenue Rulings declaring certain policies as illegal and abusive tax shelters. Rev.Rul. 2004–20, 2004–1 C.B. 546, 2004 WL 259195 (Feb. 13, 2004); Rev.Rul. 2004–21, 2004–1 C.B. 544, 2004 WL 259196 (Feb. 13, 2004).
In 2005, the IRS began a nationwide audit campaign directed at abusive 412(i) plans. As part of the audit, the IRS examined Zarrella Construction's retirement plan for the year ending on December 31, 2003. Sec. Am. Compl. ¶ 28. On September 7, 2007, the IRS sent Zarrella Construction a memorandum stating, “[t]he Internal Revenue Service believes your Plan fails 412(i)(3).” Id. ¶ 29. Plaintiffs represent that as a result of the audit, they have incurred substantial and ongoing fees and expenses. Id. ¶¶ 28–29.
Plaintiffs allege that Pacific Life misrepresented that “(a) the Policies were appropriate for use in funding 412(i) plans; (b) the premiums paid on the policies were fully tax deductible; and (c) the purchaser could pay five annual premiums and then purchase the policy for its suppressed cash value, while taking tax-free loans against the policy.” Sec. Am. Compl. ¶ 1. Plaintiffs further allege that Pacific Life “knew, or should have known, that it structured, marketed, and sold Policies posing numerous material tax risks, including disqualification under § 412(i), the loss of tax deductions for plan contributions, Internal Revenue Service (IRS) audits of the 412(i) Plan and the concomitant fees and costs, and severe IRS financial penalties stemming from the failure to qualify under § 412(i).” Id. at ¶ 2. Additionally, Plaintiffs allege that the IRS determined that Pacific Life's issuance of the policies under a 412(i) plan constituted an abusive and illegal tax shelter and that, as a result, Plaintiffs suffered substantial damages. Id.
Based on these facts, the Second Amended Complaint asserts the following claims: breach of contract (Count I); equitable fraud based on written misrepresentations (Count II); deceit based upon written misrepresentations (Count III); fraud based on oral misrepresentations (Count IV); negligence (Count V); unlawful business acts and practices in violation of California Business and Professions Code § 17200 et seq. (“California UCL”) (Count VI); and, in the alternative, civil action pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. (“ERISA”) (Count VII). On April 27, 2011, Pacific Life filed its Motion to Dismiss the Second Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b).
Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss lies for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To state a claim, Federal Rule of Civil Procedure 8(a)(2) requires “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of [its] ‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (citations omitted). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955).
At this stage in the litigation, the Court must consider the factual allegations in the Second Amended Complaint as true, and accept all reasonable inferences therefrom. Jackson v. Okaloosa Cnty., Fla., 21 F.3d 1531, 1534 (11th Cir.1994). Nevertheless, the Court may grant a motion to dismiss when, “on the basis of a dispositive issue of law, no construction of the factual allegations will support the cause of action.” Marshall Cnty. Bd. of Educ. v. Marshall Cnty. Gas Dist., 992 F.2d 1171, 1174 (11th Cir.1993).
Pacific Life moves to dismiss the breach of contract claim (Count I) and negligence claim (Count V) for failure to state a claim upon which relief can be granted. Pacific Life also moves to dismiss the fraud-based claims (Counts II, III, IV, VI, and VII) for lack of particularity, and argues that even if these claims meet the particularity requirements, each claim fails as a matter of law. Further, Pacific Life seeks dismissal of the ERISA claim (Count VII) as untimely and prejudicial. The Court finds that the breach of contract claim (Count I) and the California UCL claim based on the false advertising predicate violation (Count VI) sufficiently state claims to relief. All other claims will be dismissed for the reasons discussed below.
(Count I)
To survive dismissal for a breach of contract claim, a plaintiff must allege “(1) the existence of a contract, (2) a breach of the contract, and (3) damages resulting from the breach.” Textron Fin. Corp. v. Lentine Marine, Inc., 630 F.Supp.2d 1352, 1356 (S.D.Fla.2009) (citing Rollins, Inc. v. Butland, 951 So.2d 860, 876 (Fla.Dist.Ct.App.2006)). The parties do not dispute that Plaintiffs have pled the existence of a contract and damages. Their contention centers on whether Plaintiffs have alleged a breach of the contract.
The Second Amended Complaint alleges that “Pacific Life contracted with Plaintiffs to provide Policies that were intended to ‘qualify as part of a tax-qualified retirement plan’ that met the ‘requirements of Code Sec. 401(a) and 412(i) and the related regulations ...,’ ” Sec. Am. Compl. ¶ 39 (emphasis added), and that “Plaintiffs purchased the Policies based on the express representation made in the contract with Pacific Life that the Policies could be used to fund 412(i) Plans,” id. (emphasis added). The breach allegedly occurred “because the Policies when used to fund 412(i) Plans, did not and could not satisfy the requirements of Section 412(i), and related regulations that apply to it.” Id. ¶ 40. “Alternatively,” Plaintiffs allege, “Pacific Life breached its agreement with Plaintiffs, as logically, Pacific Life never intended such compliance when it knew or should have known that its sale of abusive tax shelters would fail to comport with rulings and regulations published by the IRS prior to Plaintiffs' purchase from Pacific Life.” Id.
The 412(i) Life Insurance Rider [DE 99–5] (“Rider”) states, the “rider and any Policy covered by it are intended to qualify as part of a tax-qualified retirement plan or arrangement that meets the requirements of Code Sec. 401(a) and 412(i) and any regulations relating to it that apply.” Rider at 2 ¶ 5 (emphasis added). The allegation that Pacific Life never intended such compliance alleges a breach of this agreement. Additionally, the statement that the Policies could not satisfy 412(i) alleges a breach of any express representation that the Policies could be used to fund 412(i) plans. Accordingly, considering the factual allegations as true and accepting all reasonable inferences therefrom, Jackson, 21 F.3d at 1534, Plaintiffs have alleged a breach of contract. Therefore, the breach of contract claim survives dismissal.
(Count V)
To plead a negligence claim under Florida law, a plaintiff must allege “(1) a legal duty on the defendant to protect the plaintiff from particular injuries; (2) the defendant's breach of that duty; (3) the plaintiff's injury being actually and proximately caused by the breach, and (4) the plaintiff suffering actual harm from the injury.” Zivojinovich v. Barner, 525 F.3d 1059, 1067 (11th Cir.2008). “Although the issue of whether a...
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