Date: 01-17-2014

Case Style: Gene Muse, M.D. v. Aviva Life and Annuity Company, n/k/a Indianapolis Life Insurance Company

Case Number: CJ-2011-4469

Judge: Patricia G. Parrish

Court: District Court, Oklahoma County, Oklahoma

Plaintiff's Attorney: David Burrage, Anthony L. Vitullo, Justin P. England, John L. Malesovac

Defendant's Attorney: Klint Austin Cowan for Aviva Life and Annunity Company

Fred Albert Leibrock, Thomas Gilmer Wolfe and Jennifer Miller Ventura for The Pension People, Inc.

James K. Secrest II and James L. Colvin for Early & Means CPA's, P.L.L.C.

George S. Corbyn Jr. and Amy M. Pierce for Willaims Shannahan

Description: Gene Muse, M.D. sued Aviva Life and Annuity Company, n/k/a Indianapolis Life Insurance Company; L. Donald Guess; The Pension People, ind. d/b/a Coast Consultants; Stanley B. Rossman; William Shannahan; Kenneth Early, Early & Means CPAs, PLLC on negligence theories claiming:

I. NATURE OF ACTION

1.01 This case is about an insurance sales scheme disguised as a purported tax advantaged way for a small business owner to save for retirement and provide other benefits to his/her employees in a legitimate tax advantaged manner, Plaintiffs complain about preinvestment misrepresentations made to induce them into investing in a 412(1) Defined Benefit Plan (hereinafter referred to as the “Plan”). These investments were touted as safe ways to save for retirement in a tax advantaged way that was compliant with the Internal Revenue Code. Defendants represented that Plaintiffs’ money would accumulate interest and the principal would always be protected. These representations were false. Plaintiffs have lost nearly all of their investment and have been assessed taxes, penalties, and interest because the plan, as sold, was not compliant with the Internal Revenue Code.

II. JURISDICTION AND VENUE

2.01 This Court also has personal jurisdiction, both general and specific, over Defendants. Defendant Early is an Oklahoma resident. Defendant E&M is an Oklahoma professional limited liability corporation doing business in Oklahoma. All Defendants have purposefully availed themselves of the privileges and benefits of conducting business in Oklahoma. All Defendants have: (a) contracted by mail or otherwise with an Oklahoma residents or corporation and, which contracts were to be performed in whole or in part in Oklahoma; (b) committed certain torts, which are the subject of this action, in whole or in part in Oklahoma; and (c) otherwise transacted business in Oklahoma. Plaintiffs are not making a claim or cause of action which pertains to a federal question. All of Plaintiffs’ claims are for preinvestment misrepresentations.

2.02 Venue is proper in this Court because it is the county where the cause of action or some part thereof arose. OKLA. STAT. tit. 12 § 134.

III. PARTIES AND SERVICE

A. Plaintiffs

3.01 Plaintiff Gene Muse, M.D. is an individual residing in Oklahoma. Plaintiff Northwest Institute of Sports Medicine and Orthopaedic Surgery, P.C. is a professional corporation organized under the laws of the State of Oklahoma, which at the time of the transactions made the subject of this suit, was owned by Gene Muse, M.D.

B. Defendants

3.02 Defendant ILIC is a corporation organized under the laws of the State of Indiana, with its principal offices located at 611 5th Avenue, Des Moines, Iowa 50309-1603. On September 30, 2008, ILIC was merged into Aviva Life and Annuity Company. ILIC may be served with process through its registered agent as follows:

CT Corporation System 2222 Grand Avenue Des Moines, Iowa 50312.

3.03 Defendant L. Donald Guess is an individual residing in the State of California and may be served with process at his personal address as follows:

501B Broadway Apt. 109, San Diego, CA 92101.

3.04 Defendant The Pension People dlb/a as Coast consultants may be sewed by serving its Registered Agent Stanley B. Rossman at the following address:

8380 Miramar Mall Suite 222 San Diego California 92121.

3.05 Defendant Stanley B. Rossman is an individual, and during the time period at issue was an actuary for and President of Coast Consultants and may be sewed with process at his business address as follows: 8380 Miramar Mall Suite 222 San Diego California 92121.

3.06 Defendant William Shannahan is an individual residing in California and may be served at his business address William P. Shannahan, a professional law corporation located at the follow address:

William P. Shannahan 7855 Ivanhoe Aye, Suite 420, LA Jolla, CA 92037.

3.07 Defendant Kenneth Early is an individual residing in Oklahoma and may be served at the following business address: Kenneth Early Early & Means CPA’s

1000 W. Wilshire Blvd. ft 121 Okiahoma City, Oklahoma 73116.

3.08 Defendant Early & Means, CPA’s, P.L.L.C is a professional limited liability company organized under the laws of Oklahoma and may be served by serving its registered agent, Cynthia Cohenour, at the following address:

Cynthia Cohenour 4101 Perimeter Center Dr., Suite 200 Oklahoma City, Oklahoma 73112.

C. Agency

3.09 Unless otherwise stated herein, whenever it is alleged in this pleading that ILIC committed an act, made a representation or statement, failed to perform an act, or failed to make a statement, it means that Defendant ILIC was acting or failing to act through its authorized agents, partners and/or employees, Guess, who was acting with either express, implied, apparent and/or ostensible authority and that Defendant ILIC subsequently ratified and benefited financially from these acts, failures to act, representations, statements or conduct.

3.10 Unless otherwise stated herein, whenever it is alleged in this pleading that Defendant Coast committed an act, made a representation or statement, failed to perform an act, or failed to make a statement, it means that Defendant Coast was acting or failing to act through its authorized agent[sj, partner[s] and/or employee[s], Rossman and Shannahan, who were acting with either express, implied, apparent and/or ostensible authority and that Defendant Coast subsequently ratified and benefited financially from these acts, failures to act, representations, statements or conduct.

3.11 Unless otherwise stated herein, whenever it is alleged in this pleading that Defendant E&M committed an act, made a representation or statement, failed to perform an act, or failed to make a statement, it means that Defendant E&M was acting or failing to act through its authorized agent, partner and employee, Early, who were acting with either express, implied, apparent and/or ostensible authority and that Defendant E&M subsequently ratified and benefited financially from these acts, failures to act, representations, statements or conduct.

3.12 Guess was acting as the agent of ILIC, with the express or implied authority to engage in the acts complained of, and ILIC subsequently benefited financially from those acts and ratified the conduct. ILIC is jointly and severally responsible for the actions of Guess.

IV. FACTUAL BACKGROUND

4.01 Guess and Plaintiffs have had a long standing relationship which began prior to the Muse’s participation in a 412(i) plan at issue in this matter, Guess was acting as an agent of ILIC at all times referenced herein.

4.02 In 2000, Guess began soliciting Muse’s participation in a 412(i) plan. Guess met several times with Muse and held numerous conference calls with Muse and the E&M Defendants to discuss the 412(i) Plan. During the course of these meetings, Guess made several oral representations regarding the 412(i) plan, which were blatantly false statements, including but not limited to the following:

a. A 4 12(i) plan was like a retirement plan;

b. Muse could save money for retirement on a tax-favored basis by investing in a 412(i) plan;

c. The money invested in the 4120) plan was “tax-free in” and “tax-free out”;

d. The money Plaintiffs invested in the 412(i) plan would accumulate interest and the principal would always be protected.

4.03 Guess also made written misrepresentations to Muse in these meetings, and in later correspondence, though advertising and marketing materials, including but not limited to the following:

• The 4 12(i) plan is a legitimate tax deductible way to save for retirement;

• The 412(i) plan uses life insurance policy to accumulate growth on Plaintiffs’ initial contributions;

• Plaintiffs can take a tax-deduction for contributions;

• All earnings are tax deferred as well; and

• Most of the assets invested can be withdrawn tax free by purchasing the insurance policy from the plan at a reduced rate and then borrowing money from the policy tax free, These representations were blatantly false as well.

4.04 Guess also failed to disclose information to Muse that would have affected his decision to participate in the 412(i) Plan. Guess failed to disclose that a substantial portion of the Muse’s contributions would be used to pay exorbitant commissions to himself. He also failed to disclose the significant tax risks associated with participation in the 4 12(i) Plan. Neither Guess nor the E&M Defendants informed Muse that he should file IRS form 8886 in relation to his plan which could be deemed by the IRS as a “listed transaction.”

4.05 Based on ILIC and Guess’ written and verbal misrepresentations and omissions, Muse decided to participate in the 412(i) Plan contributing approximately $200,000 per year for the years 2000, 2001, 2002, $245,000 in 2003 and $150,000 in 2004. Muse’s C.P.A., the E&M Defendants, subsequently took a tax deduction on each year he contributed to the non-qualified Plan. Muse has not been able to recover his initial investment, and has been assessed significant back taxes, penalties and interest for his participation in the 4120) Plan.

4.06 At the time of the misrepresentations and omissions complained of; Guess was acting as the agent of ILIC. An ILIC policy, which was specially designed by ILIC to fund the 412(i) plan, was purchased with Muse’s money, and ILIC paid commissions to Guess on the sale. The conduct of Guess and ILIC is the direct, proximate and producing cause of the actual damages to Muse.

4.07 In early 2005, Guess put Plaintiffs in contact with the Coast Defendants. The Coast Defendants, knowing that the Plaintiffs already had one 4 12(i) plan, solicited the Plaintiffs to contribute to another fraudulent retirement plan known as the Gene L. Muse, M.D., Northwest Institute of Sports Medicine and Orthopedic Surgery, P.C. Defined Benefit Plan (the “second Plan”).

4.08 Plaintiffs contacted the Coast Defendants and explained everything that was happening with the 412(i) Plan that Guess initially set up for Plaintiffs. In spite of this, the Coast Defendants still solicited Plaintiffs’ participation in the second Plan. The Coast Defendants knew that Plaintiffs had contributed for five years to their 4120) and would make no fbrther contributions, thus, the Coast Defendants realized that Plaintiffs would have disposable income to invest in the following year, 2005. The Coast Defendants recommended the second Plan as an alternate retirement plan that would supplement any other investment vehicles in which Plaintiffs had invested for their retirement. The Coast Defendants specifically represented to Plaintiffs that the second Plan was compliant with the Internal Revenue Code and was a safe investment. The Coast Defendants further informed Plaintiffs that they would provide them with an actuarial valuation each year to determine the amount of required contributions necessary to maintain the second Plan, and the contribution amount provided by the Coast Defendants would be 100% percent deductible. Additionally, Plaintiffs could take tax-free loans against the money invested in the second Plan.

4.09 The Coast Defendants failed to disclose information to Plaintiffs that would have affected their decision to participate in the second Plan. First, the Coast Defendants did not tell Plaintiffs that they would receive a commission for their participation in the second Plan. They also failed to disclose the significant tax risks associated with the second Plan. Neither the Coast Defendants nor the E&M Defendants disclosed to Plaintiffs that an individual or employer is only allowed to have one 412(i) plan or that Plaintiffs should file IRS Form 8886 to protect themselves from 6707A penalties.

4.10 Based on the Coast Defendants’ written and verbal misrepresentations and omissions, Plaintiffs decided to participate in the second Plan contributing the exact amount of money each year the Coast Defendants instructed them to contribute, which is, to date, in excess of $500,000 in contributions since 2005. E&M Defendants subsequently took a tax deduction equivalent to the amount they contributed for the years 2005 and 2006.

4.11 The Coast Defendants had Plaintiffs maximizing their contribution to the second Plan. However, when the Coast Defendants created the second Plan, they completed the paperwork for the minimum contributions further hindering the compliance of Plaintiffs’ second plan. Plaintiffs have not been able to recover their initial investment and will in all likelihood be assessed heavy taxes, penalties, and interest once the IRS has disallowed the deductions for their second Plan. To date, the Coast Consultant have been paid in excess of $125,000 for their creating and overseeing the second Plan.

4.12 The second plan was purchased with Plaintiffs’ money, and fees have been paid to the Coast Defendants for their services in designing and implementing the second Plan. The conduct of the Coast Defendants is the direct, proximate and producing cause of the actual damages to the Muse Plaintiffs.

V. CAUSES OF ACTION FIRST CAUSE OF ACTION

COMMON LAW FRAUD

(Against All Defendants)

A. As to the 412(i) Plan

5.01 Plaintiffs repeat and re-allege the allegations set forth in all preceding paragraphs of this Complaint, as if fully set forth herein.

5.02 With regard to the 412(i) Plan, Plaintiffs bring this cause of action for common law fraud against Guess, ILIC, and the E&M Defendants.

5.03 Defendants made or caused to be made, inter alia, the following material misrepresentations, omissions, or misleading statements to Plaintiffs regarding 412(i) plan:

a. The 412(i) plan was like a retirement plan;

b. Muse could save money for retirement on a tax-favored basis by investing in a 4 12(i) plan;

c. The money invested in the 4120) plan was “tax-free in” and “tax-free out”;

d. The money Plaintiffs invested in the 4 12(i) plan would accumulate interest and the principal would always be protected;

e. Plaintiffs can take a tax-deduction for their contributions to the 412(i) plan;

f. The accumulate growth on Plaintiffs’ 412(i) contributions is tax deferred as well; and

g. Plaintiffs could borrow against the policy with tax-free loans.

5.04 Defendants knew their misrepresentations were false when they made them. Alternatively, these Defendants made these representations with a conscious disregard of the rights and interests of Plaintiffs, and for the purpose of enriching themselves and jeopardizing the financial well being of Plaintiffs. These Defendants acted maliciously, oppressively, and with the intent to defraud Plaintiffs.

5.05 Defendants also failed to disclose the following material facts (among others) to Plaintiffs:

a. That Plaintiffs’ contributions were used to pay exorbitantly high commissions to Guess and the Coast Defendants;

b. That professional advisors for ILIC had expressly warned ILIC not to market insurance policies for use in 4 12(i) plans;

c. That the 4120) plan in which Plaintiffs participated was likely to be deemed abusive by the IRS; and

d. That Muse should file for 8886 with the Internal Revenue Service.

5.06 Defendants intended for Plaintiffs to rely on each of these misrepresentations and/or omissions and Plaintiffs justifiably relied on each of these misrepresentations and/or omissions by these Defendants. The misrepresentations and/or omissions by these Defendants proximately caused the damages suffered by Plaintiffs, Accordingly, Plaintiffs are entitled to recover their actual damages as well as punitive or exemplary damages.

B. As to the second Plan

5.07 With regard to the second Plan, Plaintiffs bring this cause of action for common law fraud against the Coast Defendants and E&M Defendants,

5.08 Defendants made or caused to be made, inter alia, the following material misrepresentations, omissions, or misleading statements to Plaintiffs regarding the Second plan:

a, The second plan was like a retirement plan;

b. Plaintiffs could save money for retirement on a tax-favored basis by investing in a second plan;

c. The money invested in the second plan was 100% percent deductible if the contributions reflected the amounts the Coast Defendants gave Plaintiffs;

d. Plaintiffs could borrow against the policy with tax-free loans; and

e. The second Plan was compliant with the Internal Revenue Code.

5.09 Defendants knew their misrepresentations were false when they made them. Alternatively, these Defendants made these representations with a conscious disregard of the rights and interests of Plaintiffs, and for the purpose of enriching themselves and jeopardizing the financial well being of Plaintiffs. These Defendants acted maliciously, oppressively, and with the intent to defraud Plaintiffs.

5.10 The Coast Defendants and E&M Defendants also failed to disclose the following material facts (among others) to Plaintiffs:

a. That Plaintiffs’ contributions were used to pay exorbitantly high commissions to the Coast Defendants;

b. That the second Plan was likely to be deemed abusive by the IRS;

c. That a person can only have one 412(i) plan, and the second plan, the defined benefit plan, could be deemed as an additional 4 12(i) plan;

d. That participating in the second Plan would likely lead to audit; and

e. That Plaintiffs should file for 8886 with the Internal Revenue Service.

5.11 Defendants intended for Plaintiffs to rely on each of these misrepresentations and/or omissions and Plaintiffs justifiably relied on each of these misrepresentations and/or omissions by these Defendants. The misrepresentations and/or omissions by these Defendants proximately caused the damages suffered by Plaintiffs. Accordingly, Plaintiffs are entitled to recover their actual damages as well as punitive or exemplary damages.

SECOND CAUSE OF ACTION NEGLIGENCE

(Against All Defendants)

A. As to the 412(i) plan

5.12 Plaintiffs repeat and re-allege the allegations set forth in all preceding paragraphs of this Complaint, as if hilly set forth herein.

5.13 With regard to the 4 12(i) Plan, Plaintiffs bring this cause of action for negligence against Guess, ILIC, and the E&M Defendants.

5.14 Defendants owed Plaintiffs a duty to act in a manner conforming to the professional standards of care applicable to prudent investment advisors, insurance advisors and/or Certified Public Accountants in the case of the E&M Defendants.

5.15 Defendants represented to Plaintiffs that they had special expertise regarding

4 12(i) plans. Plaintiffs, in turn, justifiably relied upon Defendants to provide them with advice and services related to 4 12(i) plans and the tax deductions associated with such plans.

5.16 Defendants owed Plaintiffs a duty to perform these services in a manner conforming to the professional standards of care applicable to pension plan advisors, insurance carrier and/or Certified Public Accountants.

5.17 Guess and ILIC negligently failed to adhere to these professional standards of care by:

a. Representing that they had sufficient knowledge in the field of 412(i) plans;

b. Failing to perform any independent analysis or due diligence regarding the propriety or viability of the 412(i) plans, ILIC policies that they marketed to Plaintiffs;

c. Failing to perform any independent analysis or due diligence regarding whether the 412(i) that they marketed to Plaintiffs were in compliance with the Internal Revenue Code;

d. Failing to review the IRS announcements, notices, and statements regarding 4 12(i), or the use of solely life insurance policies to fund such plans;

e. Representing that the 4 12(i) plans that they marketed to Plaintiffs were in compliance with the Internal Revenue Code;

f. Failing to disclose any risks associated with participation in the 4t2(i) plan;

g. Representing that Plaintiffs could take a federal income tax deduction for the entire amount of premiums paid in connection with ILIC and policies used to fund their participation in the 4120) plan;

h. Failing to disclose to Plaintiffs the significant commissions that Defendants were earning with respect to the marketing and sales of ILIC policies; and

i. Failing to perform any independent analysis or due diligence regarding the risk associated with either the 4 12(i) plan.

5.18 The E&M Defendants were negligent in the following ways:

a) E&M Defendants had insufficient expertise in §412(i) plans and insufficient knowledge about the plans to accurately analyze the structure of the 412(i) plan in order to determine whether, in reasonable probability, tax deductions for contributions to the plans would be allowed by the IRS;

b) E&M Defendants accepted representations about the character and operation of the 412(i) Plan without performing their own adequate investigation of the plan;

c) E&M Defendants failed to adequately advise the Muse Plaintiffs of the substantial tax and investment risks of investing in the 412(i);

d) E&M failed to act as a reasonably prudent CPA would and should have acted under the same or similar circumstances; and

e) Failing to advise Plaintiffs to file Form 8886 with the IRS, file it on their behalf or to participate in the ‘s Global Settlement Initiative.

B. As to the second Plan

5.19 With regard to the second Plan, Plaintiffs bring this cause of action for negligence against the Coast Defendants and the E&M Defendants.

5.20 Defendants owed Plaintiffs a duty to act in a manner conforming to the professional standards of care applicable to prudent investment advisors, insurance advisors and/or Certified Public Accountants in the case of the E&M Defendants.

5.21 Defendants represented to Plaintiffs that they had special expertise regarding 412(i) plans. Plaintiffs, in turn, justifiably relied upon Defendants to provide them with advice and services related to the second Plan and the tax deductions associated with such plans.

5,22 Defendants owed Plaintiffs a duty to perform these services in a manner conforming to the professional standards of care applicable to pension plan advisors, attorneys and/or Certified Public Accountants. 5.23 The Coast Defendants negligently failed to adhere to these professional standards of care by:

a. Representing that they had sufficient knowledge in the field of defined benefit plans;

b. Failing to perform any independent analysis or due diligence regarding the propriety or viability of the defined benefit plan they marketed;

c. Failing to perform any independent analysis or due diligence regarding whether the defined benefit plans that they marketed to Plaintiffs were in compliance with the Internal Revenue Code;

d, Representing that the defined benefit plans that they marketed to Plaintiffs were in compliance with the Internal Revenue Code;

e. Failing to disclose any risks associated with participation in the 4 120) and defined benefit plans simultaneously;

g. Representing that Plaintiffs could take a federal income tax deduction for the entire amount of contributions paid in connection with the second Plan;

h. Representing that Plaintiffs could take a federal income tax deduction for the entire amount of contributions paid in connection with the second plan, the defined benefits plan;

i. Failing to disclose to Plaintiffs the significant commissions that Defendants were earning with respect to the marketing and sales of the second Plan; and

j. Failing to perform any independent analysis or due diligence regarding the risk associated with either the 4120) plan or the defined benefit plan especially when participating in both plans simultaneously.

5.24 The E&M Defendants were negligent in the following ways:

a) E&M Defendants had insufficient expertise in Defined Benefit Plans, and insufficient knowledge about the plans to accurately analyze the structure of second Plan in order to determine whether, in reasonable probability, tax deductions for contributions to the plans would be allowed by the IRS, especially when participating in the 412(i) plan and the second Plan simultaneously;

b) E&M Defendants accepted representations about the character and operation of the first and second Plans without performing their own adequate investigation of the plans;

c) E&M Defendants failed to adequately advise the Muse Plaintiffs of the substantial tax and investment risks of investing in the 4 12(i) Plan and the second Plan, and the increased risk of participating in both plans;

d) E&M failed to act as a reasonably prudent CPA would and should have acted under the same or similar circumstances;

e) Failing to advise Plaintiffs to file Form 8886 with the IRS, file it on their behalf or to participate in the IRS’s Global Settlement Initiative.

5.25 Defendants failed to exercise reasonable care or competence in communicating information regarding the ability to deduct contributions into the 412(i) plan and the second plan. Defendants knew Plaintiffs would rely on their advice regarding the deductibility of contributions. Additionally, Defendants knew Plaintiffs would rely on Defendants to properly file the required form 8886. Plaintiffs’ justifiably relied on Defendants’ advice and actions. Defendants’ negligence has proximately caused Plaintiffs to suffer damages. See Affidavit of Gene L. Muse, M.D. attached hereto as Exhibit “A: and incorporated herein by reference. The negligence of Defendants proximately caused the damages suffered by Plaintiffs. Accordingly, Plaintiffs are entitled to recover their damages,

THIRD CAUSE OF ACTION

NEGLIGENT MISREPRESENTATION

(Against All Defendants)

5.26 Plaintiffs repeat and re-allege the allegations set forth in all preceding paragraphs of this Complaint, as if hilly set forth herein.

A. As to the 412(i) Plan

5.27 With regard to the 4 12(i) Plan, Plaintiffs bring this cause of action for negligent misrepresentation against the Guess, ILIC and the E&M Defendants.

5.28 Additionally and in the alternative, Defendants made or caused to be made the following false representations (among others) to Plaintiffs:

a. A 4120) plan was like a retirement plan;

b. Muse could save money for retirement on a tax-favored basis by investing in a 4120) plan;

c. The money invested in the 4120) plan was “tax-free in” and “tax-free out”;

d. The money Plaintiffs invested in the 412(i) plan would accumulate interest and the principal would always be protected;

e. Plaintiffs can take a tax-deduction for their contributions;

f. The accumulate growth on Plaintiffs’ 412(i) contributions is tax deferred as well; and

g. Plaintiffs could borrow against the policy with tax-free loans.

5.29 The Defendants did not exercise reasonable care or competence in obtaining or communicating the information contained in these false representations.

5.30 Plaintiffs justifiably relied on each of these representations by the Defendants. The negligent misrepresentations by the Defendants proximately caused the damages suffered by Plaintiffs. Accordingly, Plaintiffs are entitled to recover their actual damages.

B. As to the second Plan

5.31 With regard to the second Plan, Plaintiffs bring this cause of action for negligent misrepresentation against the Coast Consultants and the E&M Defendants.

5.32 Additionally and in the alternative, Defendants made or caused to be made the following false representations (among others) to Plaintiffs:

a. The second plan was like a retirement plan;

b. Plaintiffs could save money for retirement on a tax-favored basis by investing in a second plan;

c. The money invested in the second plan was 100% percent deductible if the contributions reflected the amounts the Coast Defendants gave Plaintiffs;

d. Plaintiffs could borrow against the policy with tax-free loans; and e. The second Plan was compliant with the Internal Revenue Code.

5.33 The Defendants did not exercise reasonable care or competence in obtaining or communicating the information contained in these false representations.

5.34 Plaintiffs justifiably relied on each of these representations by the Defendants. The negligent misrepresentations by the Defendants proximately caused the damages suffered by Plaintiffs. Accordingly, Plaintiffs are entitled to recover their actual damages.

FOURTH CAUSE OF ACTION

UNJUST ENRICHMENT

(Against All Defendants)

5.35 Plaintiffs repeat and re-allege the allegations set forth in all preceding paragraphs of this Complaint, as if fully set forth herein.

5.36 Defendants obtained funds and profits from the Plaintiffs by fraud perpetrated by the Defendants and the taking of undo advantage of the Plaintiffs in the manner described more fully above. Defendants’ conduct gives rise to a cause of action on behalf of Plaintiffs under the equitable remedy of unjust enrichment, which cause of action is hereby stated.

FIFTH CAUSE OF ACTION

MONEY HAD AND RECEIVED

(Against All Defendants)

5.37 Plaintiffs repeat and re-allege the allegations set forth in all preceding paragraphs of this Complaint, as if fully set forth herein.

5.38 Defendants obtained money from Plaintiffs which in equity and good conscious belongs to Plaintiffs. Said actions of Defendants give rise to a cause of action on behalf of Plaintiffs under the equitable theory of money had and received, which cause of action is hereby stated.

SIXTH CAUSE OF ACTION VIOLATION OF THE OKLAHOMA CONSUMER PROTECTION ACT (OIaA. STAT. tit. 15 § 751 —763)

(Against All Defendants)

5.39 Plaintiffs repeat and re-allege the allegations set forth in the preceding paragraphs of this Complaint, as if fully set forth herein.

5.40 Plaintiffs have standing to assert this claim because each of them is a ‘consumer,” and may bring a cause of action under Section 761.1 of the Oklahoma Consumer Protection Act.

5.41 Defendants are properly subject to liability on this claim because each of them is a “person,” as defined under section 752(1) of the Oklahoma Consumer Protection Act. ILIC, Coast Consultants, and E&M are corporations. Guess, Rossman, Shannahan, and Early are natural persons.

5.42 Defendants made or caused to be made, inter aim, the material misrepresentations or misleading statements to Plaintiffs as described above.

5.43 Defendants failed to disclose, inter alma, the material facts to Plaintiffs as described above.

5,44 By virtue of these and other misrepresentations, omissions, or misleading statements, Defendants engaged in unlawful, unfair, or deceptive acts or practices in violation of, inter alia, section 753 (2), (5), (7), and (20) of the Oklahoma Consumer Protection Act. Defendants acted willfully and/or with actual awareness of the falsity, deception, or unfairness of these acts or practices.

5.45 As a direct and proximate result of such conduct by Defendants, Plaintiffs suffered an ascertainable loss of money or other things of value. Accordingly, Plaintiffs are entitled to recover their actual damages, plus costs and attorneys’ fees, from Defendants pursuant to Section 761.1 of the Oklahoma Consumer Protection Act.

VI. DISCOVERY RULE/FRAUDULENT CONCEALMENT

6.01 Plaintiffs did not discover that Defendants had engaged in the false, misleading, or deceptive acts or practices set forth above until long after their improper conduct began. Nor should Plaintiffs have discovered such acts or practices prior to that time. Defendants’ false,

5.40 Plaintiffs have standing to assert this claim because each of them is a ‘consumer,” and may bring a cause of action under Section 761.1 of the Oklahoma Consumer Protection Act.

5.41 Defendants are properly subject to liability on this claim because each of them is a “person,” as defined under section 752(1) of the Oklahoma Consumer Protection Act. ILIC, Coast Consultants, and E&M are corporations. Guess, Rossman, Shannahan, and Early are natural persons.

5.42 Defendants made or caused to be made, inter aim, the material misrepresentations or misleading statements to Plaintiffs as described above.

5.43 Defendants failed to disclose, inter alma, the material facts to Plaintiffs as described above.

5,44 By virtue of these and other misrepresentations, omissions, or misleading statements, Defendants engaged in unlawful, unfair, or deceptive acts or practices in violation of, inter alia, section 753 (2), (5), (7), and (20) of the Oklahoma Consumer Protection Act. Defendants acted willfully and/or with actual awareness of the falsity, deception, or unfairness of these acts or practices.

5.45 As a direct and proximate result of such conduct by Defendants, Plaintiffs suffered an ascertainable loss of money or other things of value. Accordingly, Plaintiffs are entitled to recover their actual damages, plus costs and attorneys’ fees, from Defendants pursuant to Section 761.1 of the Oklahoma Consumer Protection Act.

VI. DISCOVERY RULE/FRAUDULENT CONCEALMENT

6.01 Plaintiffs did not discover that Defendants had engaged in the false, misleading, or deceptive acts or practices set forth above until long after their improper conduct began. Nor should Plaintiffs have discovered such acts or practices prior to that time. Defendants’ false, misleading, or deceptive acts or practices related to a variety of complex legal and/or tax issues, which were well beyond the knowledge and understanding of Plaintiffs. For that reason, Plaintiffs justifiably relied on the advice and expertise of Defendants.

6.02 In addition, Defendants fraudulently concealed their wrongdoing from Plaintiffs. Despite having actual knowledge that they had engaged in false, misleading, or deceptive acts or practices, Defendants concealed their wrongdoing from Plaintiffs by making misrepresentations and/or by remaining silent when they had a duty to disclose such wrongdoing to Plaintiffs. Defendants made or caused to be made specific misrepresentations to Plaintiffs as described above. Defendants also failed to disclose material facts to Plaintiffs as described above.

6.03 Defendants had a fixed purpose to conceal their wrongdoing. Plaintiffs reasonably relied on the above-referenced misrepresentations and/or silence to their detriment.

VII. JURY DEMAND

7.01 Plaintiffs hereby demand a trial by jury in this action.

VIII. PRAYER

WHEREFORE, Plaintiffs respectfully request that a jury be empanelled to hear this cause, Defendants be cited to appear and answer, and that Plaintiffs have judgment against Defendants for the following:

a. Compensatory Damages in an amount to be ascertained at trial and/or rescission;

b. Punitive or Exemplary damages in an amount to be ascertained at trial;

c. Additional or threefold economic damages pursuant to state law;

d. Prejudgment interest at the maximum rate permitted by contract, law or equity; and

e, Reasonable attorney’s fees and costs.

f. All other relief, in law or in equity, to which Plaintiffs may be entitled.

Early & Means and Kenneth Early moved for summary judgment claiming that the following facts were not in dispute:

1. As alleged by Plaintiffs, “[t]his case is about an insurance sales scheme. . . touted to be tax deductible under [26 U.S.C. §1 412(i) of the Internal Revenue Code”; “Plaintiffs complain about pre-investment misrepresentations made to induce them into investing in a [] 412(i) Defined Benefit Plan (hereinafter referred to as the ‘Plan’).” Exhibit A, Plaintiffs’ First Amended Petition, ¶1.01, p. 1.

2. Plaintiffs’ allege that the Plan was funded solely with insurance policies, that all “Defendants failed to disclose. . . [t]hat the Plan would be funded with policies”, that Plaintiffs’“benefits are guaranteed by the insurance company” and that “[tihe [J 4 12(i) plan uses life insurance policy to accumulate growth on Plaintiffs’ initial contributions. . . .“ Exhibit A. Plaintiffs’ First Amended Petition, ¶J 1.01, 1.02, 1.03 & 4.03, pp. 2, 3, 5, & 9.

3. Early is a Certified Public Accountant duly licensed under Oklahoma law; he was first certified as a public accountant in 1970 and his certificate has not been revoked or suspended since that date. Exhibit A, Plaintiffs’ First Amended Petition, ¶J 1.01, 1.03 & 4.05, pp. 3, 5, & 10; Exhibit B, Declaration of Kenneth Early, ¶J 2, 3, p.1.

4. Early & Means is a Professional Limited Liability Company duly organized under the laws of the State of Oklahoma, originally formed in December, 1998. Exhibit B, Declaration of Kenneth Early, ¶ 4, p.1; see, Exhibit A, Plaintiffs’ First Amended Petition, ¶J 2.01 & 3.05, pp. 6 & 7.

5. Early & Means, CPA’s, P.L.L.C., has been issued a firm permit to practice public accounting by the Oklahoma Accountancy Board, a copy of which I attach hereto as Exhibit 2. Exhibit B, Declaration of Kenneth Early, ¶ 5, p.2.

6. Plaintiffs allege that Early & Means is vicariously liable for the alleged acts and omissions of Early. Exhibit A, Plaintiffs’ First Amended Petition, ¶J 1.01 & 3.07, pp. 3&8.

7. The practice of public accounting is governed by the Oklahoma Accountancy Act and by rules and regulations promulgated by the Oklahoma Accountancy Board. Exhibit B, Declaration of Kenneth Early, ¶ 6, p.2.

8. Plaintiff Gene Muse, M.D. (hereinafter “Muse”), alleges that “he sought the advice of his longtime accountant, Kenneth Early”, with whom he “had a longstanding relationship”, and further alleges that Early made representations regarding the Plan, and that this Plaintiff “relied on the. . . expertise of his accountant, Kenneth Early, to commit to participating in the Plan.” Exhibit A, Plaintiffs’ First Amended Petition, ¶J 1.01, 1.03 & 4.05, pp.3,5 & 10.

9. Plaintiffs’ allege that Early was to research tax law regarding the Plan and that Early prepared tax returns for Plaintiff which took Plaintiffs’ contributions to the Plan as deductions. Exhibit A, Plaintiffs’ First Amended Petition, ¶J 1.01, 4.05, 4.06 & 5.05, pp.3,10-li & 14.

10. Plaintiffs’ allege that the Plan was funded by life insurance policies issued by the Defendant Aviva Life & Annuity Co., f/k/a Indianapolis Life Insurance Co. (hereinafter “Aviva”). Exhibit A, Plaintiffs’ First Amended Petition, ¶J 1.03, 3.02, 4.03, 4.07& 5.04., pp. 5,6-7,9,11 & 13.

11. Plaintiffs’ allege that the Defendant Donald Guess (hereinafter “Guess”) was the agent of Aviva with respect to communications and representations regarding the Plan. Exhibit A, Plaintiffs’ First Amended Petition, ¶J 1.01, 1.03, 3.06, 3.08, 4.01 & 4.07, pp. 2,5,7,8, & 11.

12. Plaintiffs’ allege that they participated in conferences with Guess and the Early Defendants regarding the Plan. Exhibit A, Plaintiffs’ First Amended Petition, ¶ 4.02, p.8.

13. Plaintiffs’ First Cause of Action alleges fraud as to all Defendants and more particularly alleges: Kenneth Early perpetrated the fraud by filing erroneous taxes on behalf of Muse. Early had multiple conversations with Guess and probably never conducted any independent research regarding the tax requirements of the Plan. Instead he went along with Guess and ILIC to misguide Muse to assure his participation in the Plan. Exhibit A, Plaintiffs’ First Amended Petition, ¶ 5.05, p. 14.

14. Plaintiffs’ Second Cause of Action alleges fraud as to all Defendants and more particularly alleges: Defendants owed Plaintiffs a duty to act in a manner conforming to the professional standards of care applicable to prudent investment advisors, insurance advisors and/or Certified Public Accountants in the case of the E&M Defendants. Exhibit A, Plaintiffs’ First Amended Petition, ¶ 5.09, p. 15.

15. Regarding the Early Defendants, Plaintiffs’ allege:

The E&M Defendants were negligent in the following ways:

a) E&M Defendants had insufficient expertise in §412(i) plans and insufficient knowledge about the plans to accurately analyze the structure of the 412(i) plan in order to determine whether, in reasonable probability, tax deductions for contributions to the plans would be allowed by the IRS;

b) E&M Defendants conducted erroneous research about the character and operation of the 412(i) Plan;

c) E&M Defendants failed to adequately advise the Muse Plaintiffs of the substantial tax and investment risks of investing in the 412(i);

d) E&M Defendants failed to advise the Muse Plaintiffs that contributions into the Plan is not a necessary and ordinary business expense according to the IRS;

e) E&M failed to act as a reasonably prudent CPA would and should have acted under the same or similar circumstances; and

f) Failing to advise Plaintiffs to file Form 8886 with the IRS, file it on their behalf or to participate in the IRS’ Global Settlement Initiative. Exhibit A, Plaintiffs’ First Amended Petition, ¶ 5.13, p. 16.

16. Plaintiffs’ Third Cause of Action alleges Negligent Misrepresentation by all Defendants regarding the nature of the Plan and its status under the tax code. Exhibit A, Plaintiffs’ First Amended Petition, ¶J 5.15-5.25, pp. 17-18.

17. Plaintiffs’ Sixth Cause of Action alleges Violation of the Oklahoma Consumer Protection Act based upon the allegedly material misrepresentations and the alleged failure to disclose material facts as previously alleged by Plaintiffs. Exhibit A, Plaintiffs’ First Amended Petition, ¶J 5.34-5.40, pp. 18-19.

18. Aviva moved to dismiss Plaintiffs’ claims arguing that, among other issues, the exemption in 15 O.S. 2011 §754(2) barred Plaintiffs’ Sixth Cause of Action under the Oklahoma Consumer Protection Act stating:

Plaintiffs’ allege that “[t]his case is about an insurance sales scheme disguised as a legitimate way for a small business owner to save and grow money for retirement and provide other benefits to his/her employees while deducting premium payments as a business expense.” Plaintiffs’ allegations, therefore, involved an alleged dispute regarding the sale of insurance. Accordingly, Plaintiffs’ claims fall outside the scope of the Oklahoma Consumer Protection Act, and the Sixth Count of their Amended Petition should be dismissed.

Exhibit C, Defendant Aviva’s Motion to Dismiss Plaintiffs’ First Amended Petition, filed February 27, 2012, p. 20, quoting Exhibit A, Plaintiffs’ First Amended Petition, ¶ 1.01, citing Thomas v. Metropolitan Life Insurance Co., 540 F.Supp. 2d 1212, 1229 (W.D. Okia., 2008).

19. This Court granted Aviva’s Motion to Dismiss Plaintiffs’ Claim under the Oklahoma Consumer Protection Act. Exhibit D, Docket Report, entry for April 10, 2012, p. 9.

Outcome: Dismissal with prejudice as to Kenneth Early; Early & Means, P.L.L.C.; and Aviva Life and Annuity Company

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