Lucero v. IRA Services, Inc.

Background

Luis Hurtado Lucero alleged that he invested retirement savings through a self-directed individual retirement account in the “Lazzaro & Associates five-year trading portfolio.” The program allegedly promised to pay him $2,000 per month for five years and then return his principal or allow him to renew the investment. Lucero alleged that the program was an illegal Ponzi scheme operated by Christopher Lazzaro and William Peavey.

Lucero alleged that he invested $358,013.21 through his account between October 2012 and January 2013. IRA Services, Inc. and IRA Services Trust Company were the administrator and custodian of the account. The IRA defendants transferred $10,000 to purchase membership units in Atlas Enterprise Technologies and transferred $340,000 to purchase Liber Abaci shares. Lucero also alleged that the IRA defendants later transferred an additional $40,000 to purchase Liber Abaci shares.

Lucero alleged that the account statements reported his Liber Abaci shares at $20 per share even though Peavey had purchased shares at $0.16 per share. In September 2016, the account statement showed a much lower valuation, and the IRA defendants later sent a corrected statement changing the date associated with that valuation. Lucero alleged that these facts showed the IRA defendants knew the shares were worth less than the amounts reported and paid.

Procedural History

In an earlier order, the court dismissed Lucero’s Racketeer Influenced and Corrupt Organizations Act claims with prejudice because the Private Securities Litigation Reform Act barred them. The court dismissed the aiding-and-abetting claim against the IRA defendants without prejudice and allowed Lucero to amend because he had not identified the duty allegedly breached, the IRA defendants’ knowledge of the breach, or their substantial assistance.

Lucero filed a second amended complaint asserting the same claims against Lazzaro and Peavey and an amended aiding-and-abetting claim against the IRA defendants. The IRA defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim.

Analysis

Under California law, a person may be liable for aiding and abetting an intentional tort if the person knows that another’s conduct breaches a duty and gives substantial assistance or encouragement, or gives substantial assistance while separately breaching a duty to the affected person. For aiding and abetting a breach of fiduciary duty, the plaintiff must identify the specific fiduciary-duty breach and plead that the defendant had actual knowledge of that specific breach. General suspicions or knowledge that someone was engaged in wrongdoing are not enough.

The court held that Lucero’s allegations did not meet that standard. The fact that Peavey bought Liber Abaci shares for $0.16 per share shortly before the IRA defendants transferred Lucero’s money to purchase shares for $20 per share did not adequately plead that the IRA defendants knew Lazzaro and Peavey were breaching a fiduciary duty to Lucero. The court also noted that Lucero did not adequately plead that the IRA defendants substantially assisted the alleged wrongdoing or acted with knowledge of the objective to be accomplished.

Disposition

The court granted the IRA defendants’ motion to dismiss. Because Lucero had not pleaded a cognizable claim against them in three complaints, the court dismissed the claim against the IRA defendants with prejudice. The order disposed of ECF No. 92.