Nasrawi et al v. Buck Consultants, LLC et al, No. 1:2009cv02061 - Document 40 (E.D. Cal. 2010)
Court Description: MEMORANDUM DECISION re defendants' Motion to Dismiss; defendants' Motion to Dismiss plaintiffs' claim against Loeb is GRANTED with leave to amend - no further leave shall be granted; defendants' Motion to Dismiss plaintiffs' claim against Buck is GRANTED with leave to amend; amended complaint due by 8/2/2010; motion 19 TERMINATED; order signed by Judge Oliver W. Wanger on 6/29/2010. (Rooney, M)
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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 EASTERN DISTRICT OF CALIFORNIA 8 9 10 DENNIS NASRAWI, et al, 11 1:09-CV-02061-OWW-GSA MEMORANDUM DECISION RE: DEFENDANTS MOTION TO DISMISS (Doc. 19.) Plaintiffs, 12 v. 13 14 BUCK CONSULTANTS, LLC, et al., 15 Defendants. 16 17 I. 18 19 20 21 22 23 24 25 INTRODUCTION. Before the court for decision is Defendants motion to dismiss Plaintiffs third party beneficiary action pursuant to Fed. R. Civ. P. 12(b)(6), on the grounds that Plaintiffs lack standing. Additionally, Defendants contend that the action against Loeb must be dismissed because Loeb was a sham defendant named solely for removal purposes. Plaintiffs oppose the motion to dismiss on the grounds that they have standing because Buck and Loeb aided and abetted a breach of trust for personal financial gain.1 26 27 1 28 The Plaintiffs have filed a separate motion to remand the case to state court. 1 II. 1 BACKGROUND. 2 This is a negligence action filed by three beneficiaries of a 3 public retirement trust against a provider of actuarial services, 4 Buck Consultants, LLC, ( Buck ) and one of its employees, Harold 5 Loeb ( Loeb ). 6 company,2 7 employee retirement system covering employees of the County of 8 Stanislaus, City of Ceres, the Stanislaus Superior Court, and five 9 special districts located within Stanislaus County, under a written 10 consulting contract. Loeb is not a party to the contact. (Compl. ¶ 11 2.) 12 as an actuary. 13 Resources Solutions, a Pennsylvania Corporation with its principal 14 place of business in New Jersey. 15 16 17 18 19 20 21 22 Defendant Buck, a Delaware limited liability provided actuarial services to StanCERA, a public Loeb, a California resident, is employed by Buck Consultants Plaintiffs (Compl. ¶ 4, 7.) Dennis Buck is wholly owned by ACS Human Nasrawi, Michael O Neal, and Rhonda Biesemeir, California residents and beneficiaries of StanCERA, filed a complaint against Defendants Buck and Loeb in Stanislaus County Superior Court on October 8, 2009.3 The substance of the complaint is that Buck and Loeb breached their duty of care in preparing StanCERA s January 9, 2007 actuarial valuations by using inappropriate actuarial assumptions. (Compl. ¶ 14.) In particular, Plaintiffs allege that the 9.22% employer contribution 23 24 2 25 3 26 27 28 Buck s principal place of business is New York. Plaintiffs, all former employees of Stanislaus County, allege that they obtained vested contractual rights to receive pension and related benefits. (Compl. ¶ 1.) Plaintiffs state that they filed a representative suit because StanCERA has failed or refused to assert a negligence claim on behalf of itself or the pension trust. (Compl. ¶ 22.) 2 1 rate adopted by StanCERA, in reliance upon the actuarial valuation 2 negligently 3 actuarially fund the benefits promised by the County. 4 15.) 5 allege that StanCERA suffered harm in the form of: (1) lost County 6 employer contributions; (2) lost earnings on those contributions; 7 and (3) costs paid to other actuarial firms to discover Defendants 8 negligence. 9 Consulting Actuary for StanCERA. prepared by Buck and Loeb, was insufficient to (Compl. ¶ As a result of Defendants actuarial negligence, Plaintiffs The report is issued on Buck s letterhead as 10 As to Defendant Loeb, Plaintiffs allege that he owed a duty 11 to exercise due care in performing actuarial services for 12 StanCERA, and breached that duty. (Compl. ¶ 13.) They also 13 allege that he actively participated with, aided, and abetted in 14 StanCERA s breach of fiduciary duty by concealing their negligence 15 for almost two years. (Compl. ¶ 18.) According to Plaintiffs, 16 Loeb covered up the effects of his actuarial negligence - and that 17 of Buck and StanCERA - for his own financial gain. (Compl. ¶ 19.) 18 On November 22, 2009, this case was removed to the Federal 19 20 Court on the basis of diversity jurisdiction. 21 notice of removal provides that the presence of Loeb as a defendant 22 in the action does not defeat diversity jurisdiction because Loeb 23 is a fraudulently joined sham defendant. 24 25 26 27 (Doc. 1.) The (Id.) On January 19, 2010, Defendants moved to dismiss this action based on their assertion that Plaintiffs lack standing and that Loeb cannot be sued individually. (Doc. 19.) According to Defendants, the action can only be brought by StanCERA in its 28 3 1 capacity as trustee, and cannot be brought by Plaintiffs as trust 2 beneficiaries. (Id.) 3 claim against Loeb is established by the Court s Order (Doc. 37) 4 finding that Loeb is a sham defendant . Further, Plaintiffs failure to state a 5 Plaintiffs opposed the motion on April 26, 2010. (Doc. 26.) 6 Plaintiffs argue that they have standing to sue because Buck is a 7 third party who aided and abetted a breach of trust and the trustee 8 declined to sue. Additionally, that Loeb has personal liability 9 for personally aiding and abetting the breach of trust. (Id.) 10 III. 11 LEGAL STANDARD. A motion to dismiss brought under Federal Rule of Civil 12 13 Procedure 12(b)(6) tests the legal sufficiency of a claim. 14 Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). In deciding 15 whether to grant a motion to dismiss, the court accept[s] all 16 factual allegations of the complaint as true and draw[s] all 17 reasonable inferences in the light most favorable to the nonmoving 18 party. Rodriguez v. Panayiotou, 314 F.3d 979, 983 (9th Cir. 2002). 19 To 20 sufficient factual matter, accepted as true, to state a claim to 21 relief that is plausible on its face. 22 Ct. 1937, 1949 (May 18, 2009) (quoting Bell Atl. Corp v. Twombly, 23 550 U.S. 544, 570 (2007)). 24 25 26 27 28 survive a motion to dismiss, a complaint must contain Ashcroft v. Iqbal, 129 S. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a probability requirement, but it asks for more than a sheer possibility that defendant has acted unlawfully. Where a complaint pleads facts that are merely 4 consistent with a defendant s liability, it stops short of the line between possibility and plausibility of entitlement to relief. 1 2 3 Id. (citing Twombly, 550 U.S. 556-57). Dismissal also can be based 4 on the lack of a cognizable legal theory. 5 Police Dep t, 901 F.2d 696, 699 (9th Cir. 1990). 6 IV. DISCUSSION. 7 A. 8 9 10 11 12 13 14 15 16 17 18 Balistreri v. Pacifica Motion to Dismiss Loeb Individually Defendants move to dismiss Loeb from the action on the grounds that as agent (corporate employee) for a disclosed principal(corporation) acting within the scope of his corporate employment, Loeb is not individually liable. Plaintiffs contend that Loeb is individually liable because he breached professional duties owed to the trust and beneficiaries. This issue was fully briefed and heard by the Court on May 10, 2010, during Plaintiffs motion for remand. The Court held: Defendants have met their burden of establishing Loeb is a sham defendant whose presence in this action does not bar removal and exists for the purposes of defeating diversity jurisdiction. (Doc. 37 at 2:3-5.) 19 20 Directors and/or officers of a corporation do not incur 21 personal liability for torts of the corporation merely by reason of 22 their official position, unless they personally participate in the 23 wrong. United States Liability Ins. Co. V. Haidinger-Hayes, Inc., 24 1 Cal. 3d 586, 594-595 (Cal. 1970). 25 within the scope of employment, Loeb cannot be held personally 26 liable for his negligence in performing employment duties for the 27 corporation. 28 independently, outside his scope of employment, participated in the Loeb can be held 5 As a corporate employee acting personally liable only if he 1 breach of trust. Plaintiffs do not specifically allege any 2 independent 3 Disregarding the conclusions of law that Loeb aided and abetted 4 his employer, the complaint does not allege any specific acts of 5 affirmative misfeasance with respect to the performance of his 6 actuarial duties. 7 entitled to be dismissed for failure to state a claim. wrongdoing by Loeb to gain (Doc. 34 at 19:7-10.) a personal benefit. Accordingly, Loeb is 8 B. Plaintiff s Standing as Trust Beneficiaries 9 Defendants move the court to dismiss the claim against Buck 10 for lack of standing. Defendants argue that Plaintiffs lack 11 standing because: (1) trust beneficiaries generally lack standing 12 to sue on behalf of a trust; and (2) Plaintiffs conclusory 13 allegations do not meet the requirements of the exception to that 14 rule. 15 16 Plaintiffs assert that they met the standing requirement by 17 pleading: 18 abetted in StanCERA s breach of fiduciary duty by concealing 19 their negligence for almost two years; (2) Defendants did so for 20 their 21 assisted with StanCERA s breach of trust ; and (4) Plaintiffs 22 therefore can pursue this action because StanCERA has not done so 23 itself. 24 25 (1) own Defendants financial actively gain ; (3) participated Defendants and aided participated 28 and (Compl. ¶ 18-19, 21-22.) Under Cal. Gov. Code § 53216.6, the trustees of the StanCERA trust have a fiduciary duty to the trust beneficiaries: 26 27 and The legislative body, trust, or other body authorized to make investments for a pension trust, shall discharge its duties with respect to investing the assets of the pension trust. 6 1 1. (a) Solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the trust. 2 3 4 (b) With the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with these matters would use in the conduct of an enterprise of a like character and with like aims. 5 6 7 (c) Shall diversify the investments of the trust so as to minimize the risk of loss and to maximize the rate of return, unless under the circumstances it is clearly prudent not to do so. 8 9 10 Id. 11 The 12 violation beneficiaries of by the a trustee trust of any constitutes 13 Restatement (Second) Trusts § 201 (1959). 14 entitles 15 trustees. 16 a duty owed breach of to the trust. trustee is StanCERA. trust beneficiaries to file an Cal. Prob. Code § 16420 (1991). A breach of trust action against the Here the statutory 17 In general, a trust beneficiary does not have standing to sue 18 a third party on behalf of a trust because the beneficiary is not 19 a real party in interest. 20 Cal. App. 4th 445, 462, 80 Cal. Rptr. 2d 329 (Cal. Ct. App. 1998). 21 The exception to the general rule is that beneficiaries have 22 City of Atascadero v. Merrill Lynch, 68 standing to sue third parties who; (1) For their own financial gain or advantage, (2) Induced the trustee to commit the breach of 23 trust, and (3) actively participated with, aided or abetted the 24 trustee in that breach, or received and retained trust property 25 from the trustee in knowing breach of trust. Id. Under this 26 exception, standing hinges on whether there was a breach of duty by 27 the trustee. 28 Id. Trust beneficiaries have a limited right to sue in situations 7 1 where the third party acted for her or his own financial gain or 2 advantage. 3 Cal. Rptr. 2d 236. (Cal. Ct. App. 1991). 4 parties were acting to further their own individual economic 5 interest, they may be liable for actively participating in a 6 fiduciary s breach of his or her trust. 7 Cal. App. at 464; see also Pierce, 1 Cal. App. 4th at 1105-1106 8 (holding that personal gain in the form of fees and investment 9 opportunities Pierce v. Lyman, 1 Cal. App. 4th 1093, 1103-1106, 3 constituted financial As long as the third City of Atascadero, 68 gain); Wolf v. Mitchell, 10 Silberberg & Knupp, 76 Cal. App. 4th 1030, 1040 (Cal. Ct. App. 11 1999) (holding that allegations of a greater amount of fees met the 12 requirements for personal financial gain). 13 Plaintiffs cite City of Atascadero v. Merrill Lynch, 68 Cal. 14 App. 4th 445 (Cal. Ct. App. 1998) for the proposition that it is 15 well established that where a trustee has committed a breach of 16 trust, the trust beneficiaries may prosecute an action against 17 third persons who, for their own financial gain or advantage [...] 18 actively participated with, aided or abetted the trustee in that 19 breach. (Doc. 26 at 4:15-4:19.) 20 beneficiaries alleged in their complaint that Merrill Lynch made 21 direct misrepresentations, actively concealed information, and 22 participated with the trustee in breaches of trust for financial 23 gain. Id. at 457-458. 24 advised the trustees to undertake a program of investment which 25 was 26 Additionally, Merrill Lynch actively concealed the risks of the 27 investment program and misled beneficiaries for financial gain. 28 The court held that the beneficiaries had standing to sue Merrill imprudent and In City of Atascadero, the The complaint alleged that Merrill Lynch unsuitable for 8 the trust . Id. at 484. 1 Lynch for breach of fiduciary duty and aiding and abetting a breach 2 of fiduciary duty. Id. 3 Plaintiffs cite three additional cases which illustrate the 4 requirements to meet the standing exception. 5 held that the beneficiaries had standing because the complaint 6 alleged that third party attorneys actively concealed breaches of 7 trust, made misrepresentations to the court, and acted for personal 8 gain. 9 in Pierce involved one trustee s self-dealing and another trustee s 10 failure to stop that self-dealing. Id. at 1105. The beneficiaries 11 in Pierce alleged that the third party attorneys knew about the 12 breaches and took affirmative steps to conceal the breaches from 13 the court. 14 had standing to sue a third party based on the allegations that 15 third 16 misrepresentations to the beneficiary. 17 1040. 18 satisfied City of Atascadero and Pierce by alleging identifiable 19 breaches of trust by the trustee. Pierce, 1 Cal. App. 4th at 1105-1106. party Id. In Pierce, the court The breaches of duty In Wolf, the court held that a trust beneficiary attorneys concealed breaches of trust and made Wolf, 76 Cal. App. 4th at The court reasoned that the specific allegations in Wolf Id. 20 Plaintiffs rely on Harnedy v. Whitty, 110 Cal. App. 4th 1333 21 (Cal. Ct. App. 2003). In Harnedy, a trust beneficiary alleged 22 misfeasance by the trustee and a third party. Id. at 1342. The 23 court rationalized the holdings from City of Atascadero, Pierce, 24 and Wolf: 25 26 27 28 When the claim being asserted rests in whole or in part on alleged breaches of trust by the trustee, a beneficiary has standing to pursue such a claim against either (1) the trustee directly, (2) the trustee and third parties participating in or benefitting from his, 9 1 her or its breach of trust, or (3) such third parties alone 2 Id. at 1341-1342. The court held that the beneficiary had standing 3 because he alleged misfeasance by both the trustee and a third 4 party. 5 6 To meet the requirements under the standing exception 7 Plaintiffs must allege that the StanCERA trustees breached a 8 statutory duty owed to the employee-beneficiaries. 9 allege that StanCERA failed to assert a negligence claim against 10 Buck, a service provider and Loeb, its actuary, in breach of 11 fiduciary obligations to its members, including the Plaintiffs. 12 (Compl. at ¶ 16.) Plaintiffs do not specifically allege how Buck s 13 actions aided and abetted this breach of trust. 14 15 16 17 18 19 20 Plaintiffs As in City of Atascadero, the Plaintiffs in this case allege that based on Buck s negligent actuarial services, StanCERA adopted an imprudent employer contribution rate. The complaint also alleges that Buck concealed its negligence for close to two years. (Compl. at ¶ 18.) As a result of this concealment, Buck participated with, aided, and abetted in StanCERA s breach of fiduciary duty for their own financial gain. (Compl. at ¶ 19). 21 22 The complaint further alleges that Buck and Loeb have 23 actively participated with, aided, and abetted in StanCERA s breach 24 of fiduciary duty by concealing their negligence for almost two 25 years. (Compl. at ¶ 18.) 26 insofar 27 concealment, 28 concealment. as the third without This is similar to Pierce and Wolf only party actions describing the are alleged nature of to involve the alleged Buck s actions are distinguishable from those in 10 1 Pierce and Wolf. 2 concealed 3 Plaintiffs here allege that Buck concealed its own actuarial 4 negligence, in turn causing StanCERA, the fiduciary, to breach 5 underlying duties. Although this difference is likely not fatal to 6 the 7 requisite factual detail to survive a motion to dismiss. the In Pierce and Wolf, the third parties knowingly fiduciary Plaintiffs claim, breaches the of Plaintiffs the trustees, allegations whereas lack the 8 City of Atascadero, Pierce, and Wolf, require beneficiaries to 9 allege that the third party acted for personal financial gain. Id. 10 at 1040. Plaintiffs case can be distinguished from Pierce and 11 Wolf in that Plaintiffs conclusorily allege a breach of fiduciary 12 duty for financial gain by Buck (Compl. at ¶ 19.), without 13 describing the nature of the gain. The beneficiaries in Pierce 14 specifically alleged personal financial gain in the receipt of 15 greater fees and investment opportunities. Pierce, 1 Cal. App. 4th 16 at 1105-1106. The beneficiaries in Wolf also alleged financial 17 gain of receiving a greater amount of fees . Wolf, 76 Cal. App. 18 4th at 1040. Here, Plaintiffs only allege that Buck and Loeb acted 19 for personal financial gain, a legal conclusion, without describing 20 the nature of the wrongful conduct and type of gain. 21 22 23 V. CONCLUSION. 24 25 Taking the allegations in the complaint as true, these 26 allegations fail to state a claim against Defendants, Buck and Loeb. 27 The claim against Loeb must be dismissed as he is a corporate 28 employee for Buck sued for malfeasance (negligence in providing 11 1 actuarial services) in breach of the duty owed to Plaintiffs by Buck 2 under contract in the court and scope of his employment. Self- 3 Insurers Sec. Fund v. ESIS, Inc., 204 Cal. App. 3d 1148, 1162 (Cal. 4 Ct. App. 1988). These allegations are insufficient. The inclusion 5 of Loeb, as the case has been pleaded is a transparent attempt to 6 defeat federal jurisdiction. 7 For the reasons stated: 8 1. Defendants motion to dismiss Plaintiffs claim against Loeb is GRANTED WITH LEAVE TO AMEND. NO FURTHER LEAVE SHALL BE GRANTED 2. Defendants motion to dismiss Plaintiffs claim against Buck is GRANTED WITH LEAVE TO AMEND. 3. Plaintiffs are ORDERED to amend their complaint within 30 days of service of this Order. 9 10 11 12 13 14 IT IS SO ORDERED. 15 16 DATED: June 29, 2010 /s/ OLIVER W. WANGER UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 12
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