Opinion ID: 410958
Heading Depth: 2
Heading Rank: 3

Heading: Failure to State a Claim for Conspiracy to Defraud the Fund

Text: 53 The final ground asserted by the district court for dismissing plaintiffs' second amended complaint filed on July 4, 1980 was that plaintiffs did not state claim against the defendants under ERISA. Although at one point characterizing the issue as one of lack of a justiciable claim, Order of Nov. 24, 1980, at 4, the district court's concern appears to have been, first, that the complaint did not, with the conciseness and detail required by Fed.R.Civ.P. 8(e) and 9(b), tie the defendants to a conspiracy to defraud the Fund in breach of relevant fiduciary duties. Second, the complaint allegedly failed to state a claim cognizable under ERISA upon which relief could be granted. We believe the district court's characterization of the July 14 second amended complaint is unjustified and constitutes an abuse of discretion. 54 Throughout the course of the litigation, the district court apparently perceived the plaintiffs' claims as charging that the defendants participated in a conspiracy to defraud the Fund, thus stating a claim which could withstand dismissal under Fed.R.Civ.P. 12(b)(6). In denying the motions of American, Evans and Klekamp to dismiss the first amended complaint for failure to state a claim, the court summarized the complaint as follows: 55 The gravamen of the amended complaint is that defendants participated in a conspiracy to defraud the [Fund] by assisting non-parties to evade regulatory directions and an investigation by the Arizona Director of Insurance. Plaintiffs allege that defendants' efforts prevented the suspension of Family Provider's license to conduct insurance business in Arizona and delayed the uncovering of the scheme to defraud the Fund .... 56 The allegations of the amended complaint are sufficient to state a claim under E.R.I.S.A. 57 Order of Dec. 5, 1979, at 2-3. The district court reaffirmed this conclusion on June 30, 1980, when it again denied defendants' motion to dismiss the February 19, 1980 complaint for failure to state a claim under ERISA. Order of June 30, 1980, at 2. 58 But the district court radically changed course in its November 24, 1980 order. Although plaintiffs' July 14 second amended complaint contained the same factual claims as the previous complaints, the court found that this second amended complaint failed to tie American, Evans and Klekamp to the effort to defraud the Fund and thus failed to state a claim under ERISA. This finding was erroneous. Construing the allegations of the complaint, which we must take to be true for purposes of a motion under Fed.R.Civ.P. 12(b)(6), in the light most favorable to the plaintiffs, we must conclude that the complaint alleges that the defendants American, Evans and Klekamp facilitated the unlawful actions of Hauser and his associates. Indeed, the complaint alleges that Evans and Klekamp drafted the documents creating the encumbrance as part of a deceptive transfer of funds among American, Great Pacific and their subsidiaries. These actions allegedly facilitated the fraud on the Fund in breach of fiduciary duties under ERISA since these acts allowed Hauser to divert money paid by the Fund as premiums to Family Provider and to prevent the discovery of these transfers by Trimble. We believe that these allegations sufficiently tie the actions of American, Evans and Klekamp to the efforts by Hauser and others to defraud the Fund, in apparent breach of fiduciary duties under ERISA. 59 The relationship of Kleindienst to the fraud perpetrated upon the Fund is, as alleged in the complaint, even more direct. Thus the complaint alleges that Kleindienst took part in the negotiations that created the encumbrance upon Family Provider's Provident Bank account. Moreover, Kleindienst, acting as an attorney for the Hauser-controlled Great Pacific company, allegedly tried to hide this encumbrance from Trimble. These alleged actions also facilitated Hauser's fraud upon the Fund and prevented the fraud from being uncovered at an earlier time, all in breach of fiduciary duties imposed by ERISA. The second amended complaint thus states a claim against Kleindienst (and against his principal, the law firm of Welch, Morgan and Kleindienst) under ERISA. 40 60 The district court also held that the allegations of conspiracy among these defendants and others to facilitate the fraud upon the Fund were too conclusory and tenuous under Fed.R.Civ.P. 8(e) and 9(b). Rule 8(e)(1) provides that the allegations of a complaint shall be simple, concise, and direct, and Rule 9(b) imposes the additional requirement that circumstances constituting allegations of fraud must be stated with particularity. We believe that the second amended complaint filed on July 14, 1980 satisfies these requirements. Plaintiffs have set out in concise yet detailed pleadings the circumstances constituting the fraud upon the Fund perpetrated by Hauser and his associates as well as the conspiratorial actions taken by defendants to facilitate that fraud. 41 Although the elements of a common law fraud claim are typically pleaded in detail to comply with Rule 9(b), these elements are not required here since plaintiffs' cause of action is predicated upon ERISA, not the common law. Plaintiffs claim that the actions of these defendants, in combination with ERISA fiduciaries, amounted to a conspiracy to facilitate violations of ERISA by co-conspirators (who may or may not be parties to this action). 42 The breach of fiduciary duties under ERISA, which was allegedly caused by a fraudulent scheme to bilk the Fund, is the crux of the instant action. Allegations of fraud per se are only part of the plaintiffs' conspiracy claim. In alleging a conspiracy to facilitate the fraudulent diversion of the Fund's insurance premiums, plaintiffs have set forth in sufficient detail facts necessary to state a claim upon which relief may be granted. 43