BETA Plan

A. FACTS

For the purposes of the instant motions, the Court assumes the facts, although not the legal conclusions, in the Second Amended Complaint to be true. Plaintiff Leland Eaves is a Colorado resident and the owner of Plaintiff Cando Consultant Services, Inc. ("Cando"), a Florida-based construction services company. (SAC ¶¶ 89.)¹ Plaintiffs allege that in the late 1990s and early 2000s, Defendants Designs for Finance, Inc. ("Designs"), Moritt, Hock, Hamroff & Horowitz LLP ("Moritt"), and Prusky Law Associates, P.C. ("Prusky") devised a scheme to market and sell illegal tax shelters, including, and most notably for the purposes of this case, the BETA Multiple Employer Death Benefit Plan (the "BETA Plan"). (Id. ¶¶ 1, 31.) Despite knowing it to be an illegal tax shelter, Defendants represented the BETA Plan as a legitimate multiple-employer welfare benefit plan under Section 419A(f)(6) of the Internal Review Code ("IRC"). (Id. ¶ 2.) Such plans are funded through the purchase of life insurance and annuities, and their purpose is to fund the insurance needs of the small businesses that buy into them. (Id. ¶ 32.) As such, the Internal Revenue Service ("IRS") permits participating businesses to take tax deductions for contributions to the plan — but only to the extent that such contributions are for legitimate insurance needs, not as a form of deferred compensation. (Id.)

Designs acted as the BETA Plan Sponsor and, in that capacity, created and "primarily advocated" for the plan. (Id. ¶¶ 2, 36a.) Knowing that the IRS considered plans structured similarly to the BETA Plan to be illegal tax shelters, Designs opted not to obtain a private letter ruling from the IRS regarding the plan; instead, it sought legal analysis from Defendant Moritt, a New York-based law firm. (Id. ¶¶ 6, 12.) Despite knowing that, as Plaintiffs allege, "IRS laws were not strong and that it was skating on thin ice by approving the BETA Plan," Moritt endorsed the plan in a 54-page opinion letter to Designs dated September 24, 2000-a letter, Plaintiffs allege, that contained "questionable analysis of IRS code and case law." (Id. ¶¶ 6, 36b.)

In July 2001, Plaintiffs' accountant Jack Winebrenner suggested to Eaves that he look into the BETA Plan for use with his small business, Cando. (Id. ¶ 37.) Winebrenner had received information regarding the plan from John Rau, an agent of CNA, one of the plan's marketers and funders, who himself had received information from Designs. (Id. ¶ 38.) Winebrenner prepared a packet of information for Plaintiffs (the "BETA Plan Sales Packet"), which included a letter from Rau, an overview of the plan, questions and answers regarding the plan, cost information, and Moritt's September 24, 2000 opinion letter to Designs. (Id. ¶¶ 3839, Ex. B.) After reading through the BETA Plan Sales Packet, which Plaintiffs allege was "endorsed" by both Designs and Moritt, Plaintiffs decided to enroll in the BETA Plan in October 2001. (Id. ¶ 40.)