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Hausmann v. Union Bank of California

May 8, 2009

ARTHUR R. HAUSMANN, ET AL., PLAINTIFFS,
v.
UNION BANK OF CALIFORNIA, N.A., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Alicemarie H. Stotler United States District Judge

ORDER (1) REMANDING ACTION TO STATE COURT (2) DENYING HARTFORD/FORTNER'S AND ECI'S MOTIONS FOR SUMMARY JUDGMENT WITHOUT PREJUDICE AND (3) VACATING ALL HEARING DATES

I. PROCEDURAL BACKGROUND

Plaintiffs Arthur R. Hausmann, Arthur R. Hausmann P.C. Benefit Pension Plan, and Arthur R. Hausmann P.C. Defined Benefit Pension Plan Trust (collectively, "plaintiffs") filed their complaint in Orange County Superior Court on July 23, 2007. The First Amended Complaint ("FAC"), filed October 25, 2007, asserts claims for: (1) negligence; (2) breach of fiduciary duty; (3) fraud; (4) negligent misrepresentation; and (5) unfair competition under Business and Professions Code § 17200.

On December 12, 2007, defendants Union Bank of California, N.A., UnionBanc of California Investment Services LLC, Hartford Life and Annuity Insurance Company ("Hartford"), Christopher Montagna ("Montagna"), William Fortner ("Fortner"), and Economic Concepts, Inc. ("ECI") removed the case to district court under 28 U.S.C. § 1331 because the matter involved a federal question, namely, that plaintiffs' state law claims were completely preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1144(a). The FAC states that defendant Union Bank of California N.A.'s principal place of business is in San Francisco, California, and that defendants Christopher Montagna and William Fortner are California residents. (FAC ¶¶ 5, 7, 8.)

On March 23, 2009, defendants Hartford and Fortner ("Hartford/Fortner") filed a Motion for Summary Judgment. Also on March 23, 2009, ECI filed a Motion for Summary Judgment. On the same day, defendants Union Bank of California, N.A., UnionBanc of California Investment Services LLC, and Christopher Montagna ("Union Bank/Montagna") filed a Motion for Summary Judgment. On April 20, 2009, plaintiffs filed opposition to the Hartford/Fortner and ECI motions for summary judgment. The plaintiffs and Union Bank/Montagna parties have reported reaching a tentative settlement.

On May 4, 2009, the Court heard Hartford/Fortner's and ECI's motions for summary judgment and thereafter took the matters under advisement. After considering the parties' filings and the arguments of counsel at the hearing, the Court concludes that it lacks jurisdiction and must, therefore, order the case remanded to state court.

II. SUMMARY OF COMPLAINT

In early 2003, plaintiffs met with Montagna, who was a Senior Financial Advisor at defendant Union Bank of California Investment Services at the time. Plaintiffs wanted to obtain retirement planning and life insurance. After talking with plaintiffs, Montagna contacted Fortner about plaintiffs' interest in life insurance and retirement planning around May 2003. Fortner is an account executive for Hartford.

Plaintiffs fit Hartford's profile for the ideal candidate for a 412(i) plan, a retirement plan created pursuant to Internal Revenue Code section 412(i). Fortner contacted ECI, a company that designs and plans 412(i) policies, and requested a proposed plan for Hausmann. Plaintiffs were enticed to purchase this plan because they believed that the entire amount they contributed to the plan would be tax deductible. Plaintiffs allege that at all relevant times, Montagna and Fortner represented that the Internal Revenue Service ("IRS") had pre-approved this type of retirement plan. In August of 2003, plaintiffs entered into contracts and purchased the plan.

In early 2004, the IRS issued two revenue rulings that the type of 412(i) plan plaintiffs had purchased needed to be listed on tax returns as a "listed transaction." Plaintiffs did not do so. In August 2006, the IRS notified plaintiffs that they would be audited. The IRS has not made a final decision in the matter, but plaintiffs could be subjected to hundreds of thousands of dollars in fines.

Plaintiffs allege that all of the defendants knew prior to the activation of plaintiffs' plan that the validity of these types of plans was "very much in question." Plaintiffs allege that defendants induced them to sign the plan nonetheless because they had already invested money in those types of plans and would also receive a large commission, which was not disclosed. Plaintiffs further allege that after the IRS issued its revenue rulings defendants failed to notify them of the rulings and a "safe harbor" the IRS offered because defendants wanted to continue to profit from the plan.

III. SUMMARY OF PARTIES' CONTENTIONS AS TO ERISA PREEMPTION

A. Defendants Hartford/Fortner's and ECI's Motion*fn1

1. Defendants are Entitled to Judgment on Plaintiffs' Claims for Post-Plan Negligence and Deceit Because they are Preempted by ERISA

The Arthur Hausmann, P.C. Defined Benefit Plan is an ERISA plan. See 29 U.S.C. § 1002(2)(A) (defining "employee benefit plan" as a plan established or maintained by an employer for employees for the purpose of providing pension benefits); FAC ¶ 34 (each contribution under the 412(i) plan included a contribution to an annuity to benefit an employee). ERISA expressly preempts state ...


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