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Klein v. Mony Life Insurance Company of America

United States District Court, C.D. California

May 30, 2018

ROSS KLEIN; KLEIN METALS, INC.; and KLEIN ENTERPRISES, INC., Plaintiffs,
v.
MONY LIFE INSURANCE COMPANY OF AMERICA, Defendant.

          ORDER RE: DEFENDANT'S MOTION TO DISMISS SECOND AMENDED COMPLAINT PURSUANT TO F.R.C.P. 12(B)(6) [45]; DEFENDANT'S MOTION TO STRIKE AND DISMISS PLAINTIFFS' REQUESTS FOR ATTORNEYS' FEES AND PUNITIVE DAMAGES FROM THE SECOND AMENDED COMPLAINT [46]

          Ronald S.W. Lew, Senior U.S. District Judge

         Currently before the Court is Defendant MONY Life Insurance Company of America's (“Defendant”) Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6) (“Motion to Dismiss”) [45] and Motion to Strike and Dismiss Requests for Attorneys' Fees and Punitive Damages from the Second Amended Complaint (“Motion to Strike”) [46]. Having reviewed all papers submitted pertaining to these Motions, the Court NOW FINDS AND RULES AS FOLLOWS: the Court GRANTS Defendant's Motion to Dismiss WITHOUT LEAVE TO AMEND and DENIES as MOOT Defendant's Motion to Strike.

         I. BACKGROUND

         A. Factual Background

         In 2004, Plaintiffs Ross Klein; Klein Metals, Inc.; and Klein Enterprises, Inc. (collectively, “Plaintiffs”) sought advice from Defendant's purported agent, Kathleen Novotny (“Novotny”). Second Am. Compl. (“SAC”) ¶ 16, ECF No. 44. According to the Second Amended Complaint (“SAC”), Novotny wrongfully advised Plaintiffs to invest in a Section 419 plan, called the PREPare Plan (the “Plan”), through which Defendant sold its insurance products. Id. ¶¶ 14-15. The Internal Revenue Service (“IRS”) had issued a notice in 1995 stating that such plans violated the Internal Revenue Code, and 2004 Treasury Regulations confirmed this prohibition because individualized accounting within a plan-like Defendant did with the Plan here-is considered a tax shelter. Id. ¶ 12. Nevertheless, Novotny prepared marketing materials promising that: (1) employers, such as Plaintiffs, may deduct contributions to the Plan; (2) Plaintiffs would receive tax savings for their first-year contributions; and (3) in each following year, Plaintiffs' after-tax cost would be reduced. Id. ¶¶ 18, 20, Ex. A.

         Plaintiffs contributed to the Plan until 2010, in reliance upon Novotny's alleged misrepresentations that the Plan was tax deductible and IRS-compliant. Id. ¶¶ 27, 32. Meanwhile, neither Novotny nor Defendant informed Plaintiffs that Defendant had a policy against selling its insurance products in such plans. Id. ¶¶ 28, 30-31. Eventually, the IRS audited Plaintiff Ross Klein and assessed significant back taxes, interest, and penalties. Id. ¶¶ 33-34. Specifically, the IRS took issue with Defendant's individualized accounting. Id. ¶ 34. Defendant's representatives admitted in depositions to Defendant's use of separate accounting for each employer within the Plan. Id. ¶ 24. Plaintiffs claim they discovered this practice after the depositions became public record in 2015. Id. ¶ 35.

         B. Procedural Background

         On September 22, 2017, Plaintiffs filed their Complaint [1] against Defendant. Thereafter, on November 8, 2017, Plaintiffs filed their First Amended Complaint (“FAC”) [18]. The Court dismissed the FAC with leave to amend [43] on February 27, 2018, warning Plaintiffs of the possibility of dismissal with prejudice for a subsequent, deficient pleading.

         On March 19, 2018, Plaintiffs filed their SAC [44]. Defendant filed the instant Motion to Dismiss [45] and Motion to Strike [46] on April 2, 2018. Plaintiffs timely opposed [49, 51], and Defendant timely replied [53, 54].

         II. DISCUSSION

         A. Legal Standard

         Federal Rule of Civil Procedure 12(b)(6) allows a party to move for dismissal of one or more claims if the pleading fails to state a claim upon which relief can be granted. A complaint must contain sufficient facts, accepted as true, to state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quotation omitted). Dismissal is warranted for a “lack of a cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988) (citation omitted).

         “In ruling on a 12(b)(6) motion, a court may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice.” Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007) (citation omitted). A court must presume all factual allegations to be true and draw all reasonable inferences in favor of the non-moving party. Klarfeld v. United States, 944 F.2d 583, 585 (9th Cir. 1991). The question is not whether the plaintiff will ultimately prevail, but whether the plaintiff is entitled to present evidence to support the claims. Jackson v. Birmingham Bd. of Educ., 544 U.S. 167, 184 (2005) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). While a complaint need not contain detailed factual allegations, a plaintiff must provide more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         B. ...


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