AMENDED MEMORANDUM OF OPINION AND ORDER 1
Plaintiffs move for leave to file a second amended complaint to add a RICO cause of action. Defendants Security Connecticut Life Insurance Company and the Bank of Edwardsville together move for summary adjudication on the issue of damages. Defendant Grant Thornton also moves for summary adjudication on the issue of damages. 2
I.
Plaintiffs move for leave to add a sixth cause of action to their complaint, alleging violations of the RICO statute by defendants Security Connecticut Life Insurance Company (“Security
1
!) and the Bank of Edwardsville (“the Bank”). Both plaintiffs and defendants would have the court apply the standards of Rule 15(a) to determine whether the proposed amendment should be allowed. Under Rule 15(a), a party may amend its pleadings only by leave of court or by written consent of the adverse party, and leave “shall be ireely given when justice so requires.” Leave to amend should be granted under Rule 15(a) unless the amendment would cause prejudice to the opposing party, is sought in bad faith, is futile or creates undue delay.
Moore v. Kayport Package Express,
However, the standards of Rule 15 do not control the consideration of plaintiffs’ motion. In August of 1994 the court issued an order establishing that no further amendments would be allowed absent leave of court, “good cause having been shown.” Upon the expiration of the deadline established in a Rule 16 scheduling order, a party seeking to amend its pleadings must satisfy the standards of Rule 16 before the amendment will be allowed.
Johnson v. Mammoth Recreations,
Rule 16 provides that the scheduling order “shall not be modified except upon a showing of good cause and by leave of the
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district judge ...” Fed.R.Civ.P. 16(b);
Johnson,
The focus of the Rule 16 “good cause” inquiry is on the on the moving party’s diligence, or lack thereof, in seeking amendment.
Johnson,
Plaintiffs’ motion for leave to add a RICO cause of action comes nearly one year after the expiration of the amendment deadline. By way of explanation, plaintiffs’ counsel asserted at oral argument that he did not receive the information he needed to allege the RICO claim until sometime between December 1994 and March 1995. However, plaintiffs fail to specify what new and previously unavailable information they obtained that leads them to believe that a RICO cause of action is now appropriate. See Pl.’s P & A at 2:27-3:1; Pl.’s Reply at 8:14,10:11. Moreover, plaintiffs have not adequately explained why they waited up to seven months after receiving the necessary documents before filing the motion to amend. Therefore, the eourt finds that plaintiffs have failed to demonstrate diligence in seeking amendment.
The addition of the RICO claim at this late date threatens the sort of disruption that Rule 16(b) was designed to prevent. Plaintiffs have not demonstrated diligence in pursuing the RICO claim, and thus have failed to show good cause for allowing this tardy and potentially disruptive amendment. The motion for leave to file a second amended complaint is denied.
II.
Pláintiffs allege that defendant Grant Thornton (“Grant”) rendered inaccurate advice when it confirmed Behl’s representations regarding the tax benefits of the TTC program. Plaintiffs seek recovery from Grant of more than $1,000,000 in back taxes and $500,000 in interest paid to the I.R.S. and Franchise Tax Board when the TTC deductions were disallowed. Grant now moves for summary adjudication on the issue of damages, contending that as a matter of law Grant cannot be liable to plaintiffs for their back taxes and interest. Because plaintiffs proceed under a theory of common-law misrepresentation,
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California law will determine whether tax damages may be recovered.
See Berg v. First State Insurance Co.,
A. Back Taxes
California Civil Code section 3333 sets forth a broad measure of damages generally recoverable in tort actions: “the measure of damages ... is the amount which will compensate for all the detriment proximately caused” by the defendant’s tortious -conduct. 5 Plaintiffs argue that under section 3333 they are entitled to recover “benefit of the bargain” damages — an amount equal to the difference between the actual value of what *1234 they received and the value of what they expected to receive in light of Grant’s representations. In the circumstances here, benefit of the bargain damages would give plaintiffs the monetary value of the illusory tax benefits they expected to receive. Plaintiffs contend that such broad recovery is permissible under section.3333 because Grant acted as a fiduciary when it advised them regarding the tax consequences of the TTC investment.
Plaintiffs’ position is not supported by the main line of case authority. Under this precedent, section 3333 does not provide for benefit of the bargain recovery, even if Grant acted as plaintiffs’ fiduciary.
See Alliance Mortgage Company v. Rothwell,
Although plaintiffs are not entitled to expectation damages, it does not follow, as Grant would have it, that the tax liability incurred by plaintiffs is not recoverable under any set of circumstances. Under § 3333, plaintiffs may be entitled to damages due to the tax liability, if they can prove that this liability was caused by Grant’s negligent or fraudulent advice and would not otherwise have been incurred. To make this showing plaintiffs must prove that they would have sheltered their income in an alternative available investment. Plaintiffs may not be able to recoup the entire amount of the tax liability given that the TTC program apparently promised fanciful tax benefits like no other shelter. But to the extent that plaintiffs would have avoided some of the tax liability through investment in shelters that were available to them at the time, they may recover as damages a portion of the tax liability-
Grant concedes that an accountant “causes” its client to incur tax liability when its advice induces the client to earn taxable income.
See, e.g., Deloitte, Haskins & Sells v. Green,
Grant’s argument raises semantics above economic reality; if income that is presumptively taxable when earned may be invested in such a way as to avoid tax liability on that income, tax liability does not attach at the moment the income is earned, but rather when it is earned but not sheltered. There is no principled basis for distinguishing between negligent advice that induces a taxpayer to earn taxable income, and negligent advice that induces a taxpayer to forego sheltering income from tax liability. In either case, the accountant “causes” its client’s tax liability, and to award the client tax damages is only to place the client back into the position the client occupied prior to the ac
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countant’s rendering of negligent advice.
See Vogt v. Abish,
In order for plaintiffs to prove their claim under a theory of alternative investment, they must establish with “reasonable certainty” that other investments available at the time would have provided successful tax shelter, and that they would have placed their money in those investments had Grant not made the misrepresentations.
See Christiansen,
To this point plaintiffs have failed to carry their burden. 8 However, in light of the settlement approach designed by the magistrate judge and because the focus of Grant’s motion was on plaintiffs’ entitlement as a matter of law to tax damages, it would be inappropriate to grant judgment at this time on the ground that plaintiffs have not adequately supported their alternative investment claim. Accordingly, Grant’s motion for summary judgment will be denied.
B. Interest
In addition to back taxes, plaintiffs seek recovery of the interest they paid when the IRS disallowed their tax deductions for the TTC payments. However, interest paid to the I.R.S. represents a payment for the plaintiffs’ use of the tax money during the period after the taxes came due and before they were paid; as such, to the extent that the I.R.S. charges the market rate, interest is not a proper element of damages.
See Ackerman v. Price Waterhouse,
*1236 III.
Defendants Security and the Bank also move for summary adjudication on the issue of plaintiffs’ entitlement to certain elements of damages. 10 The moving defendants argue that plaintiffs’ only viable damages claim against them is for plan benefits under 29 U.S.C. § 1132(a)(1)(B).
A. Tax Damages
Security and the Bank argue that plaintiffs cannot recover from them for the back taxes and interest paid when the I.R.S. disallowed the TTC deductions. Plaintiffs concede that the tax damages are not recoverable under ERISA. PL’s Opp. at 4. However, plaintiffs seek to recover their tax damages from Security under their fourth cause of action, which alleges that Douglas Behl misrepresented the tax benefits of the TTC program. Plaintiffs contend that Security is liable under this cause of action on a theory of respondeat superior because Behl acted as Security’s agent when he made the misrepresentations.
In a clarifying order of November 1993, the court allowed plaintiffs to go forward with their state law misrepresentation claim under the court’s pendent jurisdiction. The court also instructed plaintiffs to “specify which of the named defendants are sued on which causes of action.” Order of Nov. 30 at 3. In response, plaintiffs filed a “Clarification of Claim” on December 7, 1993. Plaintiffs therein stated that the fourth cause of action “is directed against defendant Douglas Behl,” and made no mention that Security was involved in this cause of action. Pis.’ Clarification of Claim at 2. Moreover, plaintiffs stated that paragraph 56 of the complaint, the only place where Security is mentioned in the fourth cause of action, should be removed from the fourth cause of action and read in sequence after paragraph 14 of the complaint. Id.,
In light of plaintiffs’ previous representations, the court finds that they cannot now sue Security under their fourth cause of action on an entirely new theory of recovery. Accordingly, plaintiffs cannot recover their tax damages from Security or the Bank under ERISA or under their common law misrepresentation claim.
' B. Punitive Damages
The- six civil enforcement provisions found at 29 U.S.C. § 1132(a) provide the exclusive remedies to redress ERISA violations.
Pilot Life Ins. Co. v. Dedeaux,
Section 1132(a)(3) authorizes civil actions to enjoin violations of ERISA and to obtain “other appropriate equitable relief’ to redress violations or enforce ERISA provisions. 29 U.S.C. § 1132(a)(3). It is now well-established that punitive damages are not available under section 1132(a)(3).
Mertens v. Hewitt Associates,
Section 1132(a)(2) authorizes civil suits for relief under section 1109. Section 1109 provides that a fiduciary who breaches its duties to an ERISA plan “shall be subject to such other equitable or remedial relief as the court may deem appropriate.” 29 U.S.C. § 1109(a).
The Supreme Court has held that an individual beneficiary may not recover extracon-tractual damages, such as punitive damages,
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under section 1109.
Russell,
Plaintiffs cite two Ninth Circuit cases in support of their argument that the Eckert plan is entitled to punitive damages under ERISA:
Kuntz v. Reese,
In
Winterrowd,
the court held that punitive damages are available under section 1132(g)(2), which authorizes “legal or equitable relief’ when an employfer fails to make contributions according to the terms of the plan.
Winterrowd,
The
Winterrowd
court did make the more general statement that “a punitive award is appropriate [under ERISA] where a fiduciary duty has been breached.”
Winterrowd,
In
Kuntz, supra,
the court held that Congress intended to permit punitive damages awards when a fiduciary breached its duties to the plan.
Kuntz,
In light of the absence of Ninth Circuit authority on the availability of punitive damages under section 1109(a), the court elects to follow the Fifth Circuit’s decision in
Sommers Drug Stores v. Corrigan Enterprises,
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First, the court noted that “equitable or remedial relief’ generally includes the kinds of relief available “to restore the plaintiffs losses or protect him from future harm.”
Id.
Punitive damages do not fall within this category because, “rather than restoring the plaintiffs losses and protecting him from future harm, punitive damages are designed to punish the wrongdoer and deter others from similar misconduct.”
Id.
Second, the court reasoned that Congress intended to import into ERISA the fiduciary principles of the law of trusts, and that the law of trusts does pot permit recovery of punitive damages for breach of fiduciary duty.
Id.
at 1463-64 (with citations);
see also Mertens,
The court is persuaded by the reasoning of Sommers, and therefore finds that plaintiffs’ ERISA plan may not recover punitive damages under section 1132(a)(2) and 1109(a) for the defendants’ alleged breaches of fiduciary duty. Because punitive awards are foreclosed as a matter of law under both section 1132(a)(2) and 1132(a)(3), plaintiffs may not recover punitive damages under ERISA from Security or the Bank.
C. Plan Losses
Section 1132(a)(2) authorizes plan beneficiaries to sue to enforce section 1109. Section 1109 provides that plan fiduciaries who breach their duties to the plan “shall be personally liable to make' good to such plan any losses to the plan resulting from each such breach.” 29 U.S.C. § 1109(a). In the first cause of action plaintiffs ask that Security and the Bank be required to “make good to the plan all losses resulting from their conduct.” Compl. at ¶ 47.
For purposes of this motion, Security and the Bank do not dispute that they were fiduciaries to plaintiffs’ ERISA plan, or that they breached their fiduciary duties to the plan. Def.s’ P & A at 6 and n. 7. Further, it appears there is a material dispute as to whether the plaintiffs’ plan suffered losses as a result of the defendants’ conduct. Contrary to the position taken in their briefs, it appears defendants no longer contend otherwise. See Rptr’s Tr. at 13:2-13:11.
Consequently, the court cannot conclude as a matter of law that plaintiffs are unable to recover under section 1132(a)(2) and 1109(a) for plan losses occasioned by the moving defendants’ alleged breaches. Summary adjudication is therefore inappropriate as to plaintiffs’ entitlement to this element of damages.
IV.
For the forgoing reasons, the court orders the following:
1. Plaintiffs’ motion for leave to file a second amended complaint is DENIED;
2. Grant’s motion for summary adjudication on the issue of the availability of back taxes as damages is DENIED;
3. Grant’s motion for summary adjudication on the issue of the availability of interest as damages is GRANTED to the extent that the interest charged was equal to the market rate;
4. The motion for summary adjudication by Security and the Bank is GRANTED as to plaintiffs’ claim for tax damages and punitive damages; and
5. The motion for summary adjudication by Security and the Bank is DENIED as to plaintiffs’ claim for recovery of plan losses.
IT IS SO ORDERED.
Notes
. Section II of this order has been amended upon reconsideration.
. Defendant Douglas Behl also moved for summary adjudication on the issue of damages. However, at the hearing on the motion counsel represented that plaintiffs had reached a settlement with Behl that would dismiss him from the action.
. Once a party demonstrates good cause to amend under Rule 16(b), the court next must apply the standards of Rule 15(a) to determine whether the proposed amendment should be allowed.
See e.g., Marcum v. Zimmer,
. Under the order of November 30, 1993 plaintiffs may proceed with their pendent state law claims for misrepresentation of tax benefits.
. Plaintiffs alternatively seek recovery under Civil Code section 3343, which sets forth the measure of damages for plaintiffs “defrauded in the purchase, sale or exchange of property.” However, it appears this provision applies only to actions between vendors and vendees of property, or their agents; section 3333 provides the measure of recovery in actions brought by purchasers against third-party advisors for negligent misrepresentation that induces the purchaser to enter the transaction.
See Gagne v. Bertran,
. Plaintiffs argue that the California Supreme Court in
Alliance
left open the question whether benefit of the bargain damages were available in cases of
intentional
fiduciary fraud. However, the
Alliance
court merely declined to address the question,
see Alliance, 44
Cal.Rptr.2d at 367,
.The court recognizes that several other courts have reached the opposite conclusion regarding the availability of tax damages in fraud cases.
See Alpert v. Shea Gould Climenko & Casey,
. It is not sufficient that plaintiffs show that they "would have sought to invest the, funds in a manner in which [they] would obtain similar tax deductions.” See Thompson Dec. at 2-3. Nor is it sufficient that plaintiffs merely assert that "there was a panoply of options available to [them] that would have yielded the identical tax deduction.” See Pl.’s Rec.Mot. at 5. Rather, plaintiffs must prove, most likely with expert testimony, that other investments were available at the time and would have yielded the desired tax results.
. Plaintiffs argue that they did not have use of the tax money because it was invested in the TTC program. However, plaintiffs' investment of the tax money in the TTC program constitutes "use” of that money.
. Included in this motion is the moving defendants' argument that plaintiffs have no right to a jury trial for their ERISA claims. Without deciding whether plaintiffs are so entitled, the court notes that plaintiffs' counsel conceded the point at the hearing on the motion. Rptr’s Tr. at 4:23-5:6.
. Plaintiffs fail to specify under what provision they seek to recover punitive damages from Security and the Bank.
. Punitive damages are most definitely not available as a form of "equitable relief" under either section 1132(g)(2)(E) or 1109(a).
Mertens v. Hewitt Associates,
. Because Kuntz was decided in May 1985, the court did not have the benefit of the Supreme Court's decision in Russell, which was handed down in June 1985.