Grant v. Pensco Trust Company, LLC, 3:12-cv-06084

Background

Grant invested over $600,000 in Gibraltar investments via a Pensco SDIRA; Pensco acted as custodian, not fiduciary.
Promoter Garfield Taylor and Gibraltar allegedly led a fraudulent scheme; SEC investigated in 2010.
Pensco devalued Grant’s SDIRA to $0 in 2010 after SEC subpoena; Grant’s other Gibraltar investment also became worthless.
Pensco charged ongoing maintenance fees and later resigned as custodian; 1099-R issued for $2.00, with distributions to Grant.
Grant asserts Pensco knew of the fraud and enabled it by reporting false balances and marketing with the promoters; seeks multiple tort and statutory claims.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Grant plausibly pleads intentional fraud	Grant claims Pensco knew falsity and intended reliance by issuing false statements.	Pensco had no knowledge of falsity and no duty that would make reliance plausible; statements post-investment not causally actionable.	No; knowledge and reasonable reliance not adequately pled; claim dismissed.
Whether Grant adequately pleads justifiable reliance	Pensco owed duty to report fair market value via forms and market valuation.	Custodial Agreement excludes duty to appraise or verify asset values; SDIRA custodians are not trustees.	No; no duty to ascertain value; reliance not justifiable.
Whether Grant adequately pleads conspiracy	Pensco conspired with fraud promoters to promote the scam and evade detection.	Conspiracy allegations lack specificity about participants and actions, and are implausible.	No; failure to plead conspiracy elements and lack of actionable fraud undermine the claim.
Whether Grant can state a claim for conversion or aiding/abetting	Pensco aided conversion by enabling promoters and reporting false values.	No dominion over Grant’s property by Pensco and aiding/abetting fails for the same reasons as conspiracy.	No; no dominion or viable aiding/abetting theory.
Whether Grant’s UCL and negligent misrepresentation claims survive	UCL based on the same fraudulent conduct; negligent misrepresentation based on duty to report.	Claims fail for the same defects as the fraud/conspiracy theories and lack of duty/justifiable reliance.	No; failures in other counts doom the UCL and negligent misrepresentation claims.

Key Cases Cited

Ashcroft v. Iqbal, 556 U.S. 662 (U.S. Supreme Court 2009) (pleading must contain plausible claims)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. Supreme Court 2007) (pleadings must show plausible entitlement to relief)
Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097 (9th Cir. 2003) (fraud claims require falsity, knowledge, intent, reliance, and damages)
In re Emery, 317 F.3d 1064 (9th Cir. 2003) (conversion requires dominion/control over property)
Coto Settlement v. Eisenberg, 593 F.3d 1031 (9th Cir. 2010) (incorporation by reference doctrine for documents relied upon in complaint)