Opinion
CV 15-02152 RSWL (DFMx)
07-28-2016
DR. SUJATA VYAS, an individual, Plaintiff, v. BHASKAR VYAS, an individual; NANCY BUNN, an individual; LOCKHEED MARTIN PENSION PLAN AND CHAMBERS QDRO CONSULTING SERVICES, LLC; CHARLES SCHWAB AND SCHWAB RETIREMENT PLAN SERVICES COMPANY AS PLAN ADMINISTRATOR; and DOES 1 through 100, inclusive, Defendants.
ORDER Re: MOTION TO DISMISS OF DEFENDANT BHASKAR VYAS AS TO FIRST AMENDED COMPLAINT [FRCP 12(b)(1) AND 12(b)(6)] [27]
Currently before the Court is Defendant Bhaskar Vyas's ("Defendant") Motion to Dismiss Plaintiff's First Amended Complaint [27] ("Motion"). The present Motion stems from a pension and securities fraud action arising under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seq. ("ERISA") and the U.S. Securities and Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5. Plaintiff Dr. Sujata Vyas ("Plaintiff") filed this Action claiming undisclosed and undivided community assets in the form of a Lockheed Martin Pension Plan ("Lockheed Plan") and Rollover Individual Retirement Accounts ("Rollover IRAs") that Defendant Bhaskar Vyas ("Defendant") allegedly concealed from Plaintiff during their divorce proceedings in state court. For the reasons set forth below, the Court GRANTS in part and DENIES in part Defendant's Motion.
I. BACKGROUND
Plaintiff is a California resident who married Defendant in 1981. First Am. Compl. ("FAC") 10:8-11:6, ECF No. 19. Their divorce was finalized in 2009. Id. During their marriage, Plaintiff and Defendant accumulated assets, specifically in the form of the Lockheed Plan and Rollover IRAs. Plaintiff alleges she is the alternate payee of these ERISA assets, and Defendant is the beneficiary. Id.
On December 21, 2015, the Orange County Superior Court Family Law Division finalized the division of the parties' marital assets, which was reflected in the Qualified Domestic Relations Order ("QDRO"). Id. However, neither the Lockheed Plan nor the Rollover IRAs appear on the QDRO, because, as Plaintiff alleges, Defendant concealed these plans from Plaintiff throughout all court-mandated disclosures and proceedings. Id. at 10:8-12:20. Plaintiff maintains that she only recently learned of these plans when Nancy Bunn ("Bunn"), the jointly stipulated QDRO attorney, discovered them whilst drafting and filing the QDRO documents. Id. at 15:12-16:11. Thus, the assets have not been presented to any state court. Id. Plaintiff argues generally that Defendant's failure to disclose the assets violates both ERISA and federal securities laws. Id.
In August 2014, Plaintiff claims that Defendant gained discretionary control of the Lockheed Pension Plan when he became eligible to take a lump sum distribution or an annuity. Id. at 13:2-23. Plaintiff contends that this qualifies Defendant as a fiduciary with respect to this Plan under ERISA and federal securities regulations. Id. In addition, Plaintiff argues that Defendant is a fiduciary of any and all undisclosed Rollover IRAs. Id.
On an undisclosed date, Plaintiff filed a Notice of Objection to the QDRO at the Orange County Family Law Court. Id. at 18:1-17. Furthermore, Plaintiff maintains that she made multiple attempts, to no avail, to add the missing plans by calling Bunn. Id. On December 21, 2015, the Orange County court finalized the QDRO. Id. at 18:18-19:2. Plaintiff alleges that the court never provided her the opportunity to be heard before issuing the final order. Id. // // // //
II. DISCUSSION
A. Legal Standards
1. Federal Rules of Civil Procedure Rule 12(b)(1)
Federal Rules of Civil Procedure Rule 12(b)(1) allows a litigant to seek dismissal of an action for lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1). A motion to dismiss for lack of standing pertains to the Court's subject matter jurisdiction, and is properly raised under Federal Rule of Civil Procedure 12(b)(1). White v. Lee, 227 F.3d 1214, 1242 (9th Cir. 2000). The party bringing the action bears the burden of establishing standing. DaimlerChrysler Corp. v. Cuno, 547 U.S. 332, 342 (2006). If a plaintiff lacks standing, the court has no subject matter jurisdiction over the case and must dismiss it. See Cole v. Oroville Union High Sch. Dist., 228 F.3d 1092, 1099 (9th Cir. 2000).
A facial challenge to the Court's subject matter jurisdiction asserts that "the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). When evaluating a facial attack on the court's subject matter jurisdiction, the court "must accept all of the plaintiff's factual allegations as true." Dreier v. United States, 106 F.3d 844, 847 (9th Cir. 1996) (citations and quotation marks omitted). By contrast, in a factual attack, the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction. Safe Air, 373 F.3d at 1039.
2. Federal Rules of Civil Procedure Rule 12(b)(6)
Federal Rules of Civil Procedure Rule 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. Fed. R. Civ. P. 12(b)(6). To survive a motion to dismiss on 12(b)(6) grounds, a complaint must "contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). Dismissal can be based on 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. 1990).
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). A court must presume all factual allegations of the complaint 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 presented by a motion to dismiss is not whether the plaintiff will ultimately prevail, but whether the plaintiff has alleged sufficient factual grounds to support a plausible claim to relief, thereby entitling the plaintiff to offer evidence in support of its claim. Iqbal, 556 U.S. at 678; Swierkiewicz v. Sorema N.A., 534 U.S. 506, 511 (2002). While a complaint need not contain detailed factual allegations, a plaintiff must provide more than "labels and conclusions" or "a formulaic recitation of a cause of action's elements." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citation omitted). However, a complaint "should not be dismissed under Rule 12(b)(6) 'unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Balistreri, 901 F.2d at 699 (9th Cir. 1990) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). B. Analysis
1. Subject Matter Jurisdiction and Standing
Federal courts have broad adjudicatory authority over "all civil actions arising under the Constitution, laws, or treaties of the United States." Leeson v. Transamerica Disability Income Plan, 671 F.3d 969, 974 (9th Cir. 2012) (quoting 28 U.S.C. § 1331). Because of this extensive power, jurisdictional dismissals in actions predicated on federal questions are "exceptional." Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004) (quoting Sun Valley Gasoline, Inc. v. Ernst Enters., Inc., 711 F.2d 138, 140 (9th Cir. 1983)). Consequently, a federal court may dismiss a federal question claim for lack of subject matter jurisdiction only (1) when the claim under the federal statutes clearly appears immaterial and made solely for the purpose of obtaining jurisdiction, or (2) the claim is wholly insubstantial and frivolous. Leeson, 671 F.3d at 974.
The plaintiff bears the burden of establishing standing at each and every stage of the litigation. Krottner v. Starbucks Corp., 628 F.3d at 1141. Additionally, a plaintiff is required to establish "'standing for each claim he seeks to press' and 'for each form of relief that is sought.'" Davis v. Fed. Elec. Comm'n, 554 U.S. 724, 734 (2008). This analysis requires "careful judicial examination of complaint's allegations." Allen v. Wright, 468 U.S. 737, 752 (1984).
a. Plaintiff Has Standing to Bring Her ERISA Claims
Plaintiff alleges she is a "beneficiary" or "alternate payee" of the Lockheed Pension Plan and the Rollover IRAs under ERISA. FAC 4:26-5:2, 37:1-9, 49:23-26, 53:5-17. Plaintiff alleges Defendant is a fiduciary with respect to these assets, and is liable to Plaintiff for breaches of his fiduciary duty. Id. Defendant argues that Plaintiff lacks standing to claim beneficiary status to the Lockheed Plan under ERISA because she is not recognized by ERISA as a "participant," "beneficiary," or "alternate payee." Mot. 11:24-26 (discussing Local 159 v. Nor-Cal Plumbing, 185 F.3d 978). Instead, Defendant maintains that Plaintiff is a "nonparticipant spouse," on whom ERISA does not confer beneficiary status unless there is a QDRO that explicitly confers such status. Id. at 14:18-15:2. Further, Defendant argues that Plaintiff is alleging legal conclusions, rather than facts, when recognizing herself as a "beneficiary" (in relation to the Lockheed Martin Pension Plan and IRA Rollovers) and as an "alternate payee" (in relation to only the Lockheed Martin Pension Plan). Id. at 11:15-18. Defendant argues that since the QDRO does not specify Plaintiff's relation to these plans, she lacks standing. Id.
The Supreme Court has explained that "[t]he express grant of federal question jurisdiction in ERISA is limited to suits brought by certain parties . . . ." Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 21 (1983). Specifically, "a federal court has no jurisdiction to hear a civil action under ERISA that is brought by a person who is not a 'participant, beneficiary, or fiduciary.'" Harris v. Provident Life & Accident Ins. Co., 26 F.3d 930, 933 (9th Cir. 1994). //
Whether a party is a "beneficiary" or "participant" within the meaning of ERISA is an issue that has previously been raised within both a Rule 12(b)(1) motion to dismiss for lack of jurisdiction, arising from a lack of standing, as well as a Rule 12(b)(6) motion to dismiss for failure to state a claim, specifically, failure to plausibly allege "beneficiary" status as an element of an ERISA claim. See Freeman v. Jacques Orthopaedic & Joint Implant Surgery Med. Grp., Inc., 721 F.2d 654, 655-56 (9th Cir. 1983) (holding that the district court lacked subject matter jurisdiction because the plaintiff was not a participant in the plan as defined in § 1002(7)); Harris v. Provident Life Accident Ins. Co., 26 F.3d 930, 934 (9th Cir. 1994) (concluding that "a federal court has no jurisdiction to hear a civil action under ERISA that is brought by a person who is not a 'participant, beneficiary, or fiduciary.'" (quoting Franchise Tax Bd., 463 U.S. at 27, 103 S.Ct. 2841)); Curtis v. Nevada Bondong Corp., 53 F.3d 1023, 1027 (9th Cir. 1995) (holding that "a plaintiff's standing under section 1132(a)(1) is a prerequisite to ERISA jurisdiction."); contra Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428 (2011); Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154 (2010).
However, the Ninth Circuit recently resolved this "'subject-matter jurisdiction / ingredient-of-claim-for-relief dichotomy,'" addressing a "muddled state of the case law" by reviewing and interpreting precedent, including the Supreme Court's ruling in Arbaugh v. Y&H Corp., 126 S/ Ct. 1235 (2006). See Leeson, 671 F.3d at 976. The Ninth Circuit held that a dismissal based on a plaintiff's failure to satisfy ERISA's definition of the term "participant" would be properly viewed as a dismissal for failure to state of claim, "rather than a dismissal for lack of subject matter jurisdiction." Vaughn v. Bay Environmental Management, Inc., 567 F.3d 1021, 1023 (9th Cir. 2008). Specifically, the Ninth Circuit held that a dispute over ERISA "participant" or "beneficiary" status is a "merits-based determination, not a subject matter jurisdiction issue." Leeson, 671 F.3d at 974 (quoting Vaughn, 567 F.3d at 1023). In so holding, the Ninth Circuit overruled previous caselaw that held that participant status as defined by [ERISA] is a prerequisite to federal court subject matter jurisdiction. Leeson, 671 F.3d at 977.
Accordingly, this Court finds that Plaintiff's standing is not defeated by her status as a "beneficiary" or "alternate payee" as defined by ERISA. This Court thus DENIES Defendant's Motion to Dismiss on these grounds. // // // // b. The Rooker-Feldman Doctrine Does Not Bar Plaintiff's Action
Defendant then challenges Plaintiff's standing by citing the Rooker-Feldman Doctrine for the proposition that federal district courts do not have jurisdiction to hear de facto appeals from state court judgements. Mot. 9:19. Defendant states that the Supreme Court is the only federal court with jurisdiction to hear such an appeal. Id. Rooker-Feldman arises out of Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983). In Rooker, the Supreme Court held that a losing plaintiff in state court is forbidden from bringing a de facto appeal to federal district court to assert, as a legal wrong, the state court's allegedly erroneous legal rulings, in an attempt to vacate or set aside the judgment. 2 63 U.S. at 415. In Feldman, the Supreme Court held that a federal district court has jurisdiction to challenge the validity of a rule discussed in state court, but lacks jurisdiction to challenge an application of a rule in state court. 460 U.S. at 478. The result of the Rooker-Feldman doctrine is essentially that a losing party cannot appeal a state court decision to a federal district court, regardless of the presence of a federal question or diversity of citizenship. Furthermore, a losing party cannot make a de facto appeal equivalent to a direct appeal to a federal district court.
Here, this Court finds Plaintiff's suit is not a forbidden de facto appeal of the earlier state court judgment. In bringing this suit, Plaintiff is pursuing claims that are related to those previously litigated in state court, however she is not seeking to re-litigate those issues. See FAC 68:5-15. Rather, Plaintiff now alleges that Defendant violated ERISA and federal securities law by not disclosing certain property during the state court proceedings. Id. When a plaintiff "asserts as a legal wrong an allegedly illegal act or omission by an adverse party, Rooker-Feldman does not bar jurisdiction." Noel, 341 F.3d at 1155. Accordingly, this Court finds that Plaintiff's Action is not barred by the Rooker-Feldman doctrine.
c. Plaintiff Lacks Standing Under SEC Rule 10b-5 to Bring Her Securities Fraud Claims
Section 10b and Rule 10b-5 both prohibit fraud "'in connection with the purchase or sale' of securities." Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 737-737 (1975). Accordingly, "only actual purchasers and sellers of securities have standing to bring private civil suits for damages under section 10(b) and Rule 10b-5." Embraceable You Designs, Inc. v. First Fidelity Group, Ltd., 2012 WL 6012852 at *4 (C.D. Cal. Dec. 3, 2012); see Blue Chip Stamps, 421 U.S. at 737-737; Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952); Brown v. Kinross Gold, U.S.A., 343 F.Supp.2d 957 (D. Nev. 2004). The Supreme Court has explained that the aim of this limitation was to address concerns over "vexatious litigation." Blue Chip Stamps, 421 U.S. at 740.
Plaintiff argues that she has standing to bring this action under SEC Rule 10b-5 because a contributory pension plan is considered a security that is regulated by federal securities law. Pl.'s Opp'n at 8:13-18. Plaintiff believes that since the Lockheed Pension Plan is a contributory plan, Defendant's concealment of that plan is an act of securities fraud. Id. Plaintiff states that "Defendant traded, purchased, and sold various securities on the IRAs and had discretionary control over the investments in the Pension Plan." FAC 64:23-28. Defendant contests that there is not a "purchase" or "sale" in relation to Plaintiff and the assets in question. Mot. 20:13-16.
Though Plaintiff alleges that Defendant traded, purchased, and sold various securities, Plaintiff does not allege anywhere in her FAC that she is an actual purchaser or seller of securities. As such, this Court finds that Plaintiff has failed to demonstrate standing under Rule 10b-5. Accordingly, this Court GRANTS Defendant's Motion to Dismiss Plaintiff's securities claim for lack of subject matter jurisdiction. This Court thus dismisses claim eight, Plaintiff's securities claim against Defendant.
2. Defendant's 12(b)(6) Motion
Defendant seeks dismissal of Plaintiff's FAC, pursuant to Rule 12(b)(6), on the grounds that each of the five claims Plaintiff alleged against Defendant fail to state a plausible claim for relief. Mot. 13:15-18.
a. Claim I - Breach of Fiduciary Duty, Prohibited Transactions
Plaintiff alleges that Defendant's concealment of the Lockheed Pension Plan and the Rollover IRAs was a prohibited transaction in violation of ERISA, which provides: "[a] fiduciary with respect to a plan shall not deal with the assets of the plan in his own interest or for his own account." FAC 68:4-16 (citing 29 U.S.C § 1106(b)(1)).
ERISA allows for a civil action to be brought by a "participant or beneficiary to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or the clarify his rights to future benefits under the terms of the plan." Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004) (quoting ERISA provision 29 U.S.C. § 1132(a)(1)(B)). Essentially, "if a participant or a beneficiary believes that benefits promised to him under the terms of the plan are not provided, he can bring suit seeking provision of those benefits." Id. Plaintiff need only provide a "short and plain statement of the grounds for the court's jurisdiction in accordance with the Federal Rules of Civil Procedure" and a plaintiff "must allege facts, not mere legal conclusions." Bell Atlantic Corp v. Twombly, 550 U.S. 544, 552 (2007).
This Court finds that Plaintiff alleges a viable prohibited transaction claim. Plaintiff alleges that the "hidden" Rollover IRA's are covered by the ERISA framework. FAC 37:1-9. Plaintiff then alleges that Defendant was a fiduciary pursuant to ERISA § 3(21)(A) at the time of the divorce proceedings. Id. at 66:16-20. Finally, Plaintiff argues that by concealing the Lockheed Pension Plan and other Rollover IRAs during the divorce proceedings in state court, Defendant was dealing with the assets in his own interest and for his own account, which was a "clear breach" of his fiduciary duty under ERISA. Id.
The Court notes that Plaintiff is not required to assert anything more than a "colorable claim" in order to state a viable ERISA claim. Leeson, 671 F.3d 969, 978 (9th Cir. 2012). The Court finds Plaintiff has met this burden. Although the Ninth Circuit previously held that a plaintiff was required to prove that he or she was a participant to state a viable ERISA claim, the court has since clarified that they are "reluctant to infer such a restriction where Congress has not made it explicit." Id. (quoting Payne v Peninsula School Dist., 653 F.3d 863, 869 (9th Cir. 2011)). Upon review of Defendant's Motion, the Court finds Plaintiff alleged a viable prohibited transaction claim, and thus DENIES Defendant's Motion to Dismiss as to this claim.
b. Claim II - Breach of Fiduciary Duty, Adverse Actions
With her second cause of action, Plaintiff alleges that Defendant breached his fiduciary duty by not providing full disclosure of the Lockheed Martin Pension Plan and Rollover IRAs, in violation of ERISA §§ 406(b)(2), 104(b)(4), and 404(a)(1)(A). FAC 68:18-69:2.
ERISA § 406(b)(2) "prohibits a fiduciary from engaging in certain types of transactions with respect to a plan: A fiduciary with respect to a plan shall not . . . in his individual or in any other capacity act in any transaction involving the plan on behalf of a party (or represent a party) whose interests are adverse to the interests of the plan or the interests of its participants or beneficiaries." Barboza v. California Ass'n of Professional Firefighters, 799 F.3d 1257, 1269 (9th Cir. 2 015); see 29 U.S.C § 1106(b)(2). Section 404(a)(1)(A) provides that "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and - (A) for the exclusive purpose of: (i) providing benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of administering the plan." 29 U.S.C. § 1104(a)(1)(A).
Plaintiff states that Defendant failed to disclose the Lockheed Martin Pension Plan and Rollover IRAs, which constituted a fiduciary acting adversely to the interests of a plan's beneficiary in a transaction. FAC 68:21-23. This Court finds that Plaintiff has sufficiently alleged her claim for breach of fiduciary duty in violation of ERISA §§ 406(b)(2) and 404(a)(1)(A). This Court further finds Plaintiff failed to allege any facts sufficient to support her claim that Defendant violated section 104(b)(4). Accordingly, this Court DENIES Defendant's Motion as to claim two, on the grounds that Plaintiff plausibly alleged Defendant violated ERISA §§ 406(b)(2) and 404(a)(1)(A).
c. Claim V - Breach of Contract
In California, a cause of action for breach of contract requires proof of: (1) existence of a contract; (2) plaintiff's performance or excuse for non-performance; (3) defendant's breach; and (4) damages to plaintiff as a result of the breach. Firefighters v. Maldonado, 70 Cal. Rptr. 3d 667, 679 (Cal. Ct. App. 2008).
Plaintiff alleges that Defendant has breached a contract, specifically the "Request Court Order," by failing to provide a full accounting of his assets. FAC 70:6-16. Plaintiff alleges that the "Request Court Order" was a contract that instructed Defendant to provide such an accounting. Id. Plaintiff claims that despite the "Request Court Order," Defendant concealed various accounts, including the Lockheed Pension Plan and Rollover IRAs. Plaintiff argues Defendant's failure to comply with the Request Court Order was a breach of contract. Id. This Court finds Plaintiff has sufficiently alleged her breach of contract claim, and thus this Court DENIES Defendant's Motion as to this claim.
d. Claim IX - Request for Remedies Under Various Equitable Theories
With Plaintiff's ninth claim, the Court finds Plaintiff has failed to state a plausible claim for relief. Plaintiff "requests remedies under various equitable theories . . . Under the equitable common law and equitable remedies under ERISA, Plaintiff requests that adequate restitution, rescission and any other equitable principles be applied to the various acts." FAC 72:18-28. Here, Plaintiff is inappropriately seeking remedies rather than stating a claim for relief. Thus, this Court should GRANT Defendant's Motion as to Plaintiff's ninth claim for relief. // // // // // //
III. CONCLUSION
Based on the forgoing, this Court GRANTS in part and DENIES in part Defendant's Motion to Dismiss [27]. The Court finds Plaintiff has sufficiently alleged standing to bring her ERISA claims against Defendant, however lacks standing to pursue her securities fraud claims. Accordingly, the Court GRANTS Defendant's Motion to Dismiss for lack of subject matter jurisdiction as to Plaintiff's securities claim, claim eight. This Court DENIES Defendant's Motion to Dismiss for failure to state a claim as to claims one, two, and five. This Court GRANTS Defendant's Motion as to Plaintiff's ninth claim for relief. DATED: July 28, 2016
RONALD S.W. LEW
Honorable Ronald S.W. Lew
Senior U.S. District Judge