Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_08-cv-01140/USCOURTS-casd-3_08-cv-01140-2/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1104 Recovery of Benefits to Employee

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UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

TJRK, INC.; JOSEPH CHRISTENSON; and

PATRICIA CHRISTENSON,

Plaintiffs,

CASE NO. 08cv1140 JM(RBB)

ORDER GRANTING MOTION TO

DISMISS FRAUD CLAIM;

vs. GRANTING LEAVE TO AMEND

SCOTT WAAGE; THE WAAGE LAW

FIRM; JERRY WAAGE; PROVERBIAL

INVESTMENTS, INC.; ROBERT JENSEN;

and INDIANAPOLIS LIFE INSURANCE

COMPANY nka AVIVA USA

CORPORATION,

Defendants. ____________________________________

AND RELATED COUNTERCLAIM

Defendants Scott Waage, The Waage Law Firm, and Robert Jensen move to dismiss the fraud

claim and to strike the prayer for treble damages under California’s Unfair Competition Law, the

prayer for emotional distress damages, and the prayer for punitive damages. Plaintiff’s TJRK, Inc.,

Joseph Christenson, and Patricia Christenson (“Plaintiffs”) oppose the motion to dismiss the fraud

claim and concede that the prayer for treble damages and emotional distress damages should be

stricken. Defendants Jerry Wage and Proverbial Investments, Inc. filed a notice of joinder to the

motion to dismiss. Defendant Indianapolis Life Insurance Company has not responded to the motion.

Case 3:08-cv-01140-JM-RBB Document 34 Filed 10/27/08 Page 1 of 5
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Pursuant to Local Rule 7.1(d)(1), this matter is appropriate for decision without oral argument. For

the reasons set forth below, the court grants the motion to dismiss the fraud claim and strikes the

prayer for treble damages, emotional distress damages, and punitive damages. The court also grants

Plaintiffs 20 days leave to amend from the date of entry of this order.

BACKGROUND

On June 25, 2008 Plaintiffs commenced this action alleging three claims arising under ERISA

and six pendent state law claims. Joseph Christenson is the owner of Remodel Works Bath &

Kitchen, Inc. (“Remodel Works”) and Plumbing Plus, Inc. (“Plumbing Plus”). In 2001, Remodel

Works and Plumbing Plus, employing 43 individuals, had a financially successful year. (Compl. ¶21).

In response to a spam e-mail, Joseph Christenson attended a tax strategies seminar offered by Scott

Waage and Waage Law Firm. The goal of attending the seminar was to find a “way to legitimately

defer tax on some of the year’s profits.” Id.

The plan proposed by Scott Waage and his law firm consisted of establishing a corporation,

TJRK, Inc., whose stock was owned by an irrevocable trust and the corporation sponsored a Deferred

Benefit Pension Plan. (Compl. ¶¶22-23). The tax plan also included a lease agreement between the

Christensons and TJRK whereby the Christensons would rent a portion of their home to TJRK and

TJRK would claim a tax deduction. (Compl. ¶31). The lease agreement provided that TJRK would

be responsible for all utilities and would be responsible to maintain the property and conduct all

repairs. Id.

In 2003, as Remodel Works and Plumbing Plus continued to experience financial success,

Scott Waage established a 419(e) welfare benefit plan funded on life insurance policies for the

Christensons. (Compl. ¶¶26, 29). The tax strategy proposal required Plaintiffs to purchase insurance

through the brother of Scott Waage, Jerry Waage. The insurance policies were purchased through

Proverbial Investments and Indianapolis Life. The Christensons inquired about purchasing life

insurance from other carriers but were informed by Scott Waage that “he couldn’t guarantee the

structure would work if he didn’t use his brother.” (Compl. ¶28). Defendant Jensen is a certified

public account and employee of the Waage law firm. (Compl. ¶15).

On September 22, 2006, TJRK received a notice of audit from the IRS. The IRS indicated that

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the Defined Benefit Pension Plan was disqualified for failure to include the employees of Remodel

Works and Plumbing Plus. (Compl. ¶32). The IRS also sought to impose the taxes, penalties, and

interest. Id.

On August 4, 2008 Indianapolis Life Insurance Company filed a counterclaim against TJRK.

Indianapolis Life alleges claims for breach of contract and for indemnity based upon the indemnity

and hold harmless provisions contained in the contracts for insurance. 

Plaintiffs do not oppose the request to dismiss the prayer for treble damages and damages for

emotional distress. Plaintiffs oppose the motion to dismiss the prayer for punitive damages on the

ground that the complaint adequately states a claim for fraud.

DISCUSSION

Legal Standards

Federal Rule of Civil Procedure 12(b)(6) dismissal is proper only in "extraordinary" cases.

United States v. Redwood City, 640 F.2d 963, 966 (9th Cir. 1981). Courts should grant 12(b)(6) relief

only where a plaintiff's complaint lacks a "cognizable legal theory" or sufficient facts to support a

cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1990). Courts

should dismiss a complaint for failure to state a claim when the factual allegations are insufficient “to

raise a right to relief above the speculative level.” Bell Atlantic Corp v. Twombly, __550 U.S. __, 127

S.Ct. 1955 (2007). The defect must appear on the face of the complaint itself. Thus, courts may not

consider extraneous material in testing its legal adequacy. Levine v. Diamanthuset, Inc., 950 F.2d

1478, 1482 (9th Cir. 1991). The courts may, however, consider material properly submitted as part

of the complaint. Hal Roach Studios, Inc. v. Richard Feiner and Co., 896 F.2d 1542, 1555 n.19 (9th

Cir. 1989). 

Finally, courts must construe the complaint in the light most favorable to the plaintiff. Concha

v. London, 62 F.3d 1493, 1500 (9th Cir. 1995), cert. dismissed, 116 S. Ct. 1710 (1996). Accordingly,

courts must accept as true all material allegations in the complaint, as well as reasonable inferences

to be drawn from them. Holden v. Hagopian, 978 F.2d 1115, 1118 (9th Cir. 1992). However,

conclusory allegations of law and unwarranted inferences are insufficient to defeat a Rule 12(b)(6)

motion. In Re Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996).

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The Fraud Claim

Plaintiffs argue that the complaint fails to comply with the specificity requirements of Rule

9(b). Plaintiffs characterize the complaint as one that alleges “that the Waage Defendants overstated

the effectiveness and failed to disclose risks associated with the plan.” (Motion at p.3:25-26). Under

Rule 9(b), a party alleging fraud must state with particularity the circumstances constituting the fraud.

Fed. R. Civ. P. 9(b). Rule 9(b) is satisfied by allegations of the time, place, and nature of the alleged

fraudulent statements. Fecht v. Price Co., 70 F.3d 1078, 1082 (9th Cir. 1995), cert. denied, 116 S. Ct.

1422 (1996). Essentially, the plaintiff must set forth an explanation of why the disputed statement was

untrue or misleading when made. Id.

Here, the court concludes that the complaint fails to comply with Rule 9(b). In large part, the

complaint alleges that Defendants “misrepresented” the true nature of the tax strategy plan. (Compl.

¶¶111-113). The complaint generally fails to identify the who, what, where, and when the

representations were made. The complaint broadly asserts claims against all Defendants, even though

certain defendants, Proverbial Investments, Robert Jensen, Indianapolis, and Jerry Waage were on the

periphery of the events alleged in the complaint. Such broad-based allegations of fraud fail to

adequately inform Defendants of the alleged wrongful conduct such that they can adequately prepare

a response to the complaint. See id. at 1082. 

The allegations, primarily set forth at ¶¶21-32, provide a general overview of the

circumstances under which Plaintiffs retained Defendants and the general characteristics of the

underlying transactions. Such generalities are insufficient to comply with Rule 9(b). Under these

circumstances, the court grants the motion to dismiss the fraud claims with 20 days leave to amend

from the date of entry of this order. 

The court also dismisses, without prejudice and with leave to amend, the prayer for punitive

damages. As the prayer for punitive damages is based upon successfully stating a claim for fraud, this

prayer is dismissed with 20 days leave to amend. 

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In sum, the motion to dismiss the fraud claim and prayer for punitive damages is granted with

20 days leave to amend. The court also dismisses the prayer for treble damages and the prayer for

emotional distress damages without leave to amend.

IT IS SO ORDERED.

DATED: October 27, 2008

 Hon. Jeffrey T. Miller

 United States District Judge

cc: All parties

Case 3:08-cv-01140-JM-RBB Document 34 Filed 10/27/08 Page 5 of 5