Swartz v. Kpmg, LLP ( 2007 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
THEODORE C. SWARTZ, 
Plaintiff-Appellant,
v.
KPMG LLP, No. 05-35167
Defendant,
 D.C. No.
CV-03-01252-MJP
and
PRESIDIO ADVISORY SERVICES INC.; OPINION
DEUTSCHE BANK AG; DEUTSCHE
BANK SECURITIES, INC.,
Defendants-Appellees.

Appeal from the United States District Court
for the Western District of Washington
Marsha J. Pechman, District Judge, Presiding
Argued and Submitted
October 20, 2006—Seattle, Washington
Filed February 12, 2007
Before: Dorothy W. Nelson and Richard A. Paez,
Circuit Judges, and Edward Rafeedie,* District Judge.
Per Curiam Opinion
*The Honorable Edward Rafeedie, Senior United States District Judge
for the Central District of California, sitting by designation.
1731
SWARTZ v. KPMG 1735
COUNSEL
Philip A. Talmadge, Anne E. Melley, Talmadge Law Group,
Tukwila, Washington, Brian G. Isaacson, The Isaacson Law
Firm, Seattle, Washington, for the plaintiff-appellant.
David H. Smith, Garvey Schubert Barber, Seattle, Washing-
ton, Lawrence M. Hill, Seth C. Farber, Dianne F. Coffino,
Dewey Ballantine LLP, New York, New York, for
defendants-appellees Deutsche Bank AG and Deutsche Bank
Securities, Inc.
Stephen C. Willey, Savitt & Bruce LLP, Seattle, Washington,
Steven M. Bauer, Karli E. Sager, Latham & Watkins LLP,
San Francisco, California, for defendant-appellee Presidio
Advisory Services, Inc.
1736 SWARTZ v. KPMG
OPINION
PER CURIAM:
I. INTRODUCTION
This suit arises out of a failed tax shelter, which defendants
allegedly sold to plaintiff-appellant Theodore Swartz, charg-
ing over a million dollars, even though they knew the scheme
would be considered unlawful by the IRS. Among the named
defendants were accounting firm KPMG, law firm Sidley
Austin Brown & Wood (“B&W”), Deutsche Bank AG and
Deutsche Bank Securities (collectively “DB” or “Deutsche
Bank”), and Presidio Advisory Services (“Presidio”). Against
all defendants, Swartz asserted claims (1) under the Racketeer
Influenced and Corrupt Organizations Act (“RICO”), 18
U.S.C. § 1964, (2) under the Washington Consumer Protec-
tion Act (“WCPA”), Wash. Rev. Code § 19.86.010 et seq., (3)
for common-law fraud, and (4) for civil conspiracy. Swartz
also sought a judicial declaration of defendants’ liability for
interest and penalties that might have arisen during an IRS
audit, incomplete at the time he filed his lawsuit. Swartz
advanced separate claims against KPMG and B&W for
breach of contract, breach of fiduciary duty, and professional
malpractice. In a published order,1 the district court dismissed
all causes of action against Presidio and DB concluding both
that Swartz’s complaint failed to state any claims upon which
relief could be granted and that it contained insufficient alle-
gations to establish personal jurisdiction.2 Swartz sought leave
to cure the substantive and jurisdictional defects in the com-
plaint and to add alternative securities fraud claims. Believing
amendment would be futile and that the request was procedur-
ally improper, the district court denied leave to amend. Swartz
appeals each of these rulings.3
1
Swartz v. KPMG, 401 F. Supp. 2d 1146 (W.D. Wash. 2004) (Swartz
I).
2
The district court also dismissed many but not all of the claims against
the remaining defendants. This appeal concerns only Swartz’s claims
against Presidio and DB.
3
Swartz also argues, for the first time on appeal, that the district court
should have taken judicial notice of certain documents attached to his
opposition to defendants’ motions to dismiss. Because he never presented
this argument to the district court and has not demonstrated any excep-
SWARTZ v. KPMG 1737
With the exception of its holding that the allegations in the
complaint ruled out “reasonable reliance” as a matter of law,
the district court did not err in Swartz I and we adopt its deci-
sion in large measure. Specifically, we affirm the district
court’s dismissal with prejudice of the RICO and WCPA
claims as well as the request for declaratory relief because
each was properly resolved on grounds independent of the
reasonable reliance inquiry and because amendment would be
futile in each case.
However, we reverse the district court’s denial of leave to
amend the common-law fraud and conspiracy claims.
Whether Swartz could demonstrate reasonable reliance on
defendants’ alleged misrepresentations was not properly set-
tled as a matter of law under the allegations in the complaint.
Furthermore, even if the original complaint otherwise failed
to satisfy the heightened pleading requirements of Federal
Rule of Civil Procedure 9(b), it would not have been futile for
Swartz to amend. Additionally, although the original com-
plaint failed to allege sufficient jurisdictional facts, Swartz
should have been given an opportunity to cure this defect
through amendment. Finally, Swartz should have been
granted leave to add alternative claims for securities fraud.
II. BACKGROUND
A. Factual Allegations4
tional circumstances explaining his silence, we decline to address it here.
See United States v. Oregon, 769 F.2d 1410, 1414 (9th Cir. 1985). We
also reject Swartz’s invitation to take judicial notice of various documents
outside the pleadings. The facts recited in the documents and Swartz’s
characterization of them are “subject to reasonable dispute” and are there-
fore not properly noticed. Fed. R. Evid. 201(b).
4
Because we are primarily concerned with the sufficiency of Swartz’s
pleadings, we focus on the allegations in his complaint and take them as
true for purposes of this appeal. See Jackson v. Carey, 353 F.3d 750, 753
(9th Cir. 2003).
1738 SWARTZ v. KPMG
In 1999, Swartz sold a business and realized an approxi-
mately $18 million gain representing potentially taxable
income. KPMG approached Swartz and “lured” him into pur-
chasing a tax-reduction product called BLIPS (Bond Linked
Issue Premium Structure), represented as a strategy that
would allow Swartz to claim a loss sufficient to offset his cap-
ital gain. KMPG advised Swartz of the possibility of an audit,
but assured him that KPMG and law firm B&W would pro-
vide tax “opinion letters” testifying to the legitimacy of the
scheme to the satisfaction of the IRS. According to the com-
plaint, the BLIPS transactions had been devised by KPMG
and B&W as a means of charging unwarranted and excessive
fees to a “ ‘select audience’ of individuals who had sold large
businesses or otherwise incurred large capital gains.” Swartz
alleged Presidio and DB “were active participants in the con-
spiracy” and “knew that the series of BLIPS transactions were
predetermined steps to generate sham losses for the purpose
of obtaining tax benefits.” Swartz further alleged that Presidio
and DB knew that KPMG and B&W promoted the BLIPS
transactions through the allegedly fraudulent representations
outlined above and that the defendants acted in concert and as
mutual agents.
In fall 1999, Swartz entered into various BLIPS-related
contracts including an “engagement letter,” executed Septem-
ber 4, 1999, between himself and KPMG. The letter outlined
KPMG’s role in the transactions, disclosed that the IRS might
question the BLIPS losses, and stated that KPMG “would not
guarantee tax results, but would provide that . . . there is a
greater than 50 percent likelihood . . . that [the promised tax
benefits] would be upheld if challenged by the [IRS].”
Despite this caveat, Swartz alleged that he reasonably relied
on KPMG’s oral representations that BLIPS would succeed in
eliminating his income tax liability.
The transactions comprising the BLIPS strategy occurred
between September 30 and December 13, 1999. Because the
details are largely irrelevant, they are recounted here in very
SWARTZ v. KPMG 1739
rough form. KPMG and Presidio facilitated the extension of
a multi-million dollar line of credit from DB to Swartz.
Swartz created a new limited liability company, Longs Strate-
gic Investment Fund (“Longs”), and engaged Presidio as its
manager. The credit facility was contributed to Longs. Longs
held various assets including a number of shares of Microsoft
common stock. After engaging in two foreign currency trans-
actions intended to give Longs the appearance of a legitimate
business, Presidio directed that Longs be dissolved. On
December 13, 1999, the company was dissolved and the
Microsoft stock was transferred to Swartz as part of his own-
ership assets.
The intended effect of these transactions was to artificially
inflate Swartz’s basis in the Microsoft stock so that he could
sell it and claim a capital “loss” in the amount of the differ-
ence between his inflated basis and the value of the stock. In
this case, KPMG represented that “the sale of 364 shares of
Microsoft stock would trigger a purported 1999 capital loss of
[approximately $18 million].” Swartz paid significant fees to
defendants to implement these transactions including a
$550,000 management fee to Presidio and more than
$800,000 in fees and interest to DB.
According to the complaint, on December 27, 1999, the
IRS issued a notice concluding that BLIPS did not produce
bona fide losses for income tax purposes. Nevertheless, on
December 31, 1999, KPMG and B&W issued opinion letters
that purported to confirm the propriety of the scheme.
On August 25, 2000, before Swartz filed his 1999 tax
return, his independent tax preparation firm, Moss Adams,
questioned the validity of the scheme, informing Swartz it
believed the IRS would consider the BLIPS losses to be
improper. On September 5, 2000, the IRS issued an additional
notice reiterating its opinion that BLIPS losses were illegiti-
mate and warning that criminal penalties might attach to indi-
viduals who attempted to use them on their tax returns. On
1740 SWARTZ v. KPMG
October 4, KPMG advised Swartz that the promised tax bene-
fits might be disallowed by the IRS. In response, Swartz
sought recision of the BLIPS agreements and a monetary
refund. The defendants refused. On October 10, Moss Adams
resigned from its engagement. KPMG then assisted Swartz in
preparing his 1999 return, which reflected deductions for
BLIPS “losses.”
At some point thereafter, the IRS commenced an audit of
Swartz’s 1999 tax return.5 Swartz did not amend his 1999 tax
return in 2001 or 2002.
On February 21, 2002, KPMG informed Swartz that it was
under IRS investigation in connection with the BLIPS scheme
and that the IRS had announced an amnesty from certain pen-
alties for individual tax filers who disclosed their involve-
ment. KPMG advised Swartz to make a full disclosure to the
IRS. B&W sent a similar letter on March 5. The complaint
does not indicate whether Swartz took advantage of the IRS
initiative.
B. Proceedings Below
On June 6, 2003, Swartz initiated this lawsuit. On February
13, 2004, the district court issued Swartz I granting several
Federal Rule of Civil Procedure 12(b)(6) motions including
Presidio’s and DB’s. As to each cause of action, the court
held there was no conceivable set of facts which could justify
relief and dismissed with prejudice. The court also found
Swartz had not met his burden of pleading personal jurisdic-
5
The IRS had initiated an audit but had not yet disallowed the BLIPS
losses at the time Swartz filed his complaint in June 2003. In September
2003, in opposition to defendants’ motions to dismiss, Swartz submitted
a declaration from his then-current tax attorney indicating that the approxi-
mately $17 million loss claimed on Swartz’s 1999 tax return had been dis-
allowed. The declaration also indicated that Swartz paid back-taxes and
interest. Swartz has not alleged any penalties have been imposed by the
IRS.
SWARTZ v. KPMG 1741
tion and dismissed Presidio and DB from the lawsuit under
Rule 12(b)(2). The court added, “[b]ecause [Presidio and DB]
were only named in regard[ ] to causes of action which are
being dismissed with prejudice, there is no point in permitting
plaintiff to amend and plead sufficient jurisdictional facts.”
Swartz I, 401 F. Supp. 2d at 1149.
On March 9, 2004, Swartz sought leave to amend. In sup-
port, he proposed an amended complaint adding significant
detail to the dismissed claims, supplementing the jurisdic-
tional allegations, and adding alternative causes of action for
securities fraud under federal and Washington state law. The
district court disallowed amendment of the original claims
relying on its February 13, 2004 order.6 The court also denied
leave to add new securities fraud claims. This appeal fol-
lowed.
III. STANDARD OF REVIEW
A trial court’s decision to dismiss for failure to state a
claim is reviewed de novo, Decker v. Advantage Fund, Ltd.,
362 F.3d 593, 595-96 (9th. Cir. 2004), as is a dismissal for
lack of personal jurisdiction, Action Embroidery Corp. v. Atl.
Embroidery, Inc., 368 F.3d 1174, 1177 (9th Cir. 2004).
Assuming a substantive or jurisdictional defect in the plead-
ings, “[d]ismissal without leave to amend is proper only if it
is clear, upon de novo review, that the complaint could not be
saved by any amendment.” McKesson HBOC, Inc. v. N.Y.
State Common Ret. Fund, Inc., 339 F.3d 1087, 1090 (9th Cir.
2003) (quotations, citations omitted).
6
Specifically, the district court noted that it had dismissed the original
claims with prejudice. The court went on to treat the portion of the motion
relating to the dismissed claims as a motion for reconsideration of its Feb-
ruary 13, 2004 order. So construed, the motion was time-barred and was
otherwise improper. Swartz does not argue that he presented a proper
motion for reconsideration. Rather, he argues that he was entitled to
amend his complaint notwithstanding the fact that the district court dis-
missed his claims with prejudice.
1742 SWARTZ v. KPMG
IV. DISCUSSION
A. The RICO Claim
[1] A civil RICO claim requires allegations of the conduct
of an enterprise through a pattern of racketeering activity that
proximately caused injury to the plaintiff. Sedima, S.P.R.L. v.
Imrex Co., 473 U.S. 479, 496 (1985). Swartz’s RICO claim
was predicated on allegations of mail and wire fraud —
namely that the marketing and implementation of the BLIPS
scheme was carried out through the use of interstate mail and
wire communications systems.
The district court dismissed the RICO claim on two alterna-
tive grounds. First, the court held the alleged fraud was “in
connection with” the sale of the Microsoft stock and could not
form the basis of a RICO claim under section 107 of the Pri-
vate Securities Litigation Reform Act (“PSLRA”), Pub. L.
No. 104-67, 109 Stat. 737, 758 (1995). Second, the court held
that allegations in the complaint foreclosed a finding of “rea-
sonable reliance” — a necessary element for all species of
fraud, including mail/wire fraud.
[2] We agree that the PSLRA bars Swartz’s claim and
hereby adopt the district court’s opinion in Swartz I to that
extent. Swartz I, 401 F. Supp. 2d at 1151-52 (Section III. A.
1. “Effect of Private Securities Litigation Reform Act”).
Swartz’s argument on appeal that the BLIPS transactions
were intended to be a swap agreement does not change the
fact that the complaint alleges fraud in connection with the
sale of securities. Neither was the sale of securities “inciden-
tal” to the fraud. The sale of the Microsoft stock was the
lynchpin of the BLIPS scheme. The entire purpose of setting
up Longs and funding it with the loan proceeds from DB was
that, on dissolution, Longs would be able to transfer its assets
(the Microsoft stock) to Swartz and his basis in those assets
would be artificially inflated by the value of the loan. If
Swartz never sold the assets with the inflated basis (the stock)
SWARTZ v. KPMG 1743
he would never realize the “loss” that he required to offset his
real capital gains. As in SEC v. Zandford, “the securities sales
and [appellees’ alleged] fraudulent practices were not inde-
pendent events.” 535 U.S. 813, 820 (2002).
[3] Because the PSLRA bar would apply under any inter-
nally consistent set of facts, it would be futile to amend the
RICO claim. Consequently, it was not error to dismiss this
claim with prejudice. See Albrecht v. Lund, 845 F.2d 193, 195
(9th Cir. 1988) (if “the allegation of other facts consistent
with the challenged pleading could not possibly cure the defi-
ciency, then . . . dismissal without leave to amend is proper.”)
(internal quotation, citation omitted). The reasonable reliance
holding is addressed below.
B. WCPA Claim
[4] The district court properly dismissed the Washington
Consumer Protection Act claim and we adopt its opinion on
that issue. Swartz I, 401 F. Supp. 2d at 1153-54 (Section III.
C. “Washington Consumer Protection Act”). We note that a
scheme marketed to a “select audience” of persons with mil-
lions of dollars of capital gains to shield from taxation lacks
the capacity to deceive a substantial portion of the public. The
claim was properly dismissed with prejudice because amend-
ment would be futile.
C. Common-law Fraud Claim
[5] Under Washington law, a fraud plaintiff must plead and
prove that he justifiably relied on the defendants’ misrepre-
sentations. See Stiley v. Block, 925 P.2d 194, 204 (Wash.
1996); Wash. Pattern Jury Instr. Civ. WPI 160.01 (5th ed.).
“Whether a party justifiably relied upon a misrepresentation
is an issue of fact.” Alejandre v. Bull, 98 P.3d 844, 851
(Wash. Ct. App. 2004).
A party’s reliance is justified when it is “reasonable under
the surrounding circumstances.” ESCA Corp. v. KPMG Peat
1744 SWARTZ v. KPMG
Marwick, 959 P.2d 651, 655 (Wash. 1998). An analysis of the
“surrounding circumstances” is necessarily fact-intensive and
involves multiple considerations. Washington courts have, for
example, discussed the plaintiff’s education, Skagit State
Bank v. Rasmussen, 745 P.2d 37, 38 (Wash. 1988), her expe-
rience and relative sophistication with the subject matter of
the representations, Puget Sound Nat’l Bank v. McMahon,
330 P.2d 559, 561 (Wash. 1958), whether the defendant had
special expertise, Westby v. Gorsuch, 50 P.3d 284, 293
(Wash. Ct. App. 2002), and whether oral misrepresentations
were “contradicted” by written documents in the representee’s
possession, Williams v. Joslin, 399 P.2d 308, 309 (Wash.
1965).
[6] The district court first found that because the engage-
ment letter between Swartz and KPMG advised that BLIPS
was aggressive in nature and involved the possibility of a suc-
cessful IRS audit, Swartz was precluded from establishing
reasonable reliance. We are unaware of any Washington
authority creating a bright-line rule that “[oral] representa-
tions cannot establish reasonable reliance as a matter of law
where there are written documents which contradict [the] oral
statements.” Swartz I, 401 F. Supp. 2d at 1152.7 To be sure,
the existence of truth-containing documents in a plaintiff’s
possession ought to be relevant to the question of whether he
7
The non-Washington cases cited by the district court and appellees
similarly fail to establish such a rule or are otherwise inapposite. See e.g.
Chaset v. Fleer/Skybox Int’l, 300 F.3d 1083 (9th Cir. 2002) (addressing
injury, not reasonable reliance); Paracor Fin., Inc. v. Gen. Elec. Capital
Corp., 96 F.3d 1151, 1159 (9th Cir. 1996) (explicit written statement dis-
claiming reliance “goes far to defeat” claim but is not dispositive); Bank
of the West v. Valley Nat’l Bank of Ariz., 41 F.3d 471, 477-78 (9th Cir.
1994) (bank’s explicit written statement that it exercised independent
judgment in extending credit undermines claim of reliance); Zobrist v.
Coal-X, Inc., 708 F.2d 1511, 1516-17 (10th Cir. 1983) (holding that writ-
ten statements are not determinative but are one factor among many in
determining reasonable reliance); Townsend v. Columbia Operations, 667
F.2d 844 (9th Cir. 1982) (addressing dismissal on statute of limitations
grounds).
SWARTZ v. KPMG 1745
reasonably relied on oral falsehoods. But this single factor
will usually not be dispositive. See Stewart v. Estate of
Steiner, 93 P.3d 919, 927 (Wash. Ct. App. 2004) (requiring
consideration of multiple factors in context of securities fraud
suit).
[7] Even if there were such a rule, it is not at all clear that
the engagement letter “contradicts” any oral misrepresenta-
tions alleged by Swartz. The gravamen of Swartz’s complaint
is that the defendants represented BLIPS as an effective tax-
avoidance strategy and collected substantial fees to implement
the scheme despite knowing that it had no chance of success.
While the engagement letter acknowledges the possibility of
an audit, it also contains assurances that the plan would more
likely than not be upheld over an IRS challenge. Whether this
contradicts any oral representations is not self-evident and
should not result in a dismissal with prejudice at this stage in
the litigation. In addition, Swartz attempted to allege addi-
tional misrepresentations by defendants in his proposed
amended complaint that may have demonstrated reasonable
reliance even in the face of the engagement letter. Although
the engagement letter may undermine Swartz’s claim of rea-
sonable reliance, we are not prepared, at the motion to dismiss
stage, to conclude that the letter demonstrates “beyond doubt
that the plaintiff can prove no set of facts in support of the
claims that would entitle him to relief.” Osborne v. District
Attorney’s Office for Third Judicial Dist., 423 F.3d 1050,
1052 (9th Cir. 2005) (emphasis added).
Swartz also argues that the district court erred by consider-
ing the contents of the engagement letter in deciding the
motions to dismiss. The letter itself was proffered in support
of KPMG’s motion and was arguably a matter outside the
pleadings and therefore not cognizable.
We reject Swartz’s argument. First, it was not presented to
the district court, and indeed was raised for the first time in
Swartz’s reply brief to this court. The claim was therefore
1746 SWARTZ v. KPMG
waived. RUI One Corp. v. City of Berkeley, 371 F.3d 1137,
1152 (9th Cir. 2004). In addition, the district court did not err
here. In ruling on a 12(b)(6) motion, a court may generally
consider only allegations contained in the pleadings, exhibits
attached to the complaint, and matters properly subject to
judicial notice. Jacobson v. Schwarzenegger, 357 F. Supp. 2d
1198, 1204 (C. D. Cal. 2004). However, in order to
“[p]revent[ ] plaintiffs from surviving a Rule 12(b)(6) motion
by deliberately omitting . . . documents upon which their
claims are based,” a court may consider a writing referenced
in a complaint but not explicitly incorporated therein if the
complaint relies on the document and its authenticity is
unquestioned. Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th
Cir. 1998), superseded by statute on other grounds as stated
in Abrego v. Dow Chem. Co., 443 F.3d 676 (9th Cir. 2006);
see also Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th
Cir. 2001). Here, Swartz brought a breach of contract claim
against KPMG and referred explicitly to the engagement let-
ter. The authenticity of the letter is not in dispute. Therefore,
the letter was properly considered on the 12(b)(6) motions.8
The district court also ruled that circumstances alleged in
the complaint apart from the engagement letter precluded a
finding of reasonable reliance. It highlighted (1) that Moss
Adams warned of the likely failure of the BLIPS claim and
resigned from preparing Swartz’s taxes in October 2000, (2)
that KPMG advised that the tax advantages might be disal-
lowed by the IRS around the same time, and (3) that Swartz
nevertheless filed his 1999 tax return claiming BLIPS losses
and failed to amend it through 2002. While these facts may
also undermine Swartz’s claim of reasonable reliance, they do
8
DB suggests that we may affirm the reasonable reliance holding on the
ground—not considered by the district court—that a separate contract
between Swartz and DB contained an express statement of non-reliance.
However, because Swartz neither asserted a breach of contract claim
against DB nor referenced this document in his complaint, the exception
described in the main text does not apply and this material outside the
pleadings may not be considered.
SWARTZ v. KPMG 1747
not warrant a dismissal under the demanding Rule 12(b)(6)
standard. Jackson, 353 F.3d at 755 (“The issue is not whether
a plaintiff will ultimately prevail but whether the claimant is
entitled to offer evidence to support the claims. Indeed it may
appear on the face of the pleadings that a recovery is very
remote and unlikely but that is not the test.”) (citation omit-
ted).
In addition, the district court neglected that Swartz essen-
tially claimed two different injuries occurring at different
times: First, Swartz seeks to recover substantial fees paid at
the outset of the BLIPS dealings in the fall of 1999 in reliance
on KPMG’s sales pitch (allegedly as an agent and co-
conspirator of Presidio and DB) that BLIPS would eliminate
his tax burden. Second, Swartz seeks to recover for harms (in
the form of back taxes, interest, potential penalties, and other
costs) flowing from actually claiming the BLIPS losses on his
tax return filed in fall 2000. That warnings about the scheme’s
unlawfulness began mounting and eventually reached a fever
pitch in the fall of 2000 has little to do with the first injury.
In other words, even if it became unreasonable to rely on
promises of a tax-free future at some point in the fall of 2000,
it was not necessarily unreasonable to pay substantial fees in
the fall of 1999 in connection with what might have then
appeared to be a watertight tax dodge.
Finally, Swartz’s proposed amended complaint contained
additional allegations that, if proven, could potentially ground
a finding of reasonable reliance even with respect to the sec-
ond set of harms. For example, Swartz sought to add allega-
tions that KPMG assured Swartz that Moss Adams did not
understand the complexities of BLIPS and that KPMG
remained committed to the viability of the scheme for some
period even after its fall 2000 warning.
Presidio and DB argue that we may affirm the dismissal of
Swartz’s fraud claim on the ground—not addressed by the
district court—that Swartz failed to adequately plead any mis-
1748 SWARTZ v. KPMG
representations attributable to them. “To survive a motion to
dismiss for failure to state a claim under Rule 12(b)(6), a
complaint generally must satisfy only the minimal notice
pleading requirements of [Federal] Rule [of Civil Procedure]
8(a)(2).” Porter v. Jones, 319 F.3d 483, 494 (9th Cir. 2003).
However, where a complaint includes allegations of fraud,
Federal Rule of Civil Procedure 9(b) requires more specificity
including an account of the “time, place, and specific content
of the false representations as well as the identities of the par-
ties to the misrepresentations.” Edwards v. Marin Park, Inc.,
356 F.3d 1058, 1066 (9th Cir. 2004) (citation omitted). “To
comply with Rule 9(b), allegations of fraud must be specific
enough to give defendants notice of the particular misconduct
which is alleged to constitute the fraud charged so that they
can defend against the charge and not just deny that they have
done anything wrong.” Bly-Magee v. California, 236 F.3d
1014, 1019 (9th Cir. 2001) (citation, quotations omitted).
Swartz’s original complaint included several allegations
detailing the time, place, and content of representations made
by KPMG and B&W to Swartz. No one disputes that Swartz
satisfied his pleading burden with respect to those defendants.
Rather, Presidio and DB claim that because the complaint
failed to specify any false representations made by them, it
failed the Rule 9(b) standard. Swartz argues that since DB and
Presidio would be liable for the misrepresentations of their
co-conspirators, and since he pled a conspiracy, the allega-
tions concerning the KPMG and B&W misrepresentations are
sufficient. See e.g., Beltz Travel Serv., Inc. v. Int’l Air Transp.
Ass’n, 620 F.2d 1360, 1367 (9th Cir. 1980).
[8] First, there is no absolute requirement that where sev-
eral defendants are sued in connection with an alleged fraudu-
lent scheme, the complaint must identify false statements
made by each and every defendant. “Participation by each
conspirator in every detail in the execution of the conspiracy
is unnecessary to establish liability, for each conspirator may
be performing different tasks to bring about the desired
SWARTZ v. KPMG 1749
result.” Beltz Travel Service, Inc., 620 F.2d at 1367. On the
other hand, Rule 9(b) does not allow a complaint to merely
lump multiple defendants together but “require[s] plaintiffs to
differentiate their allegations when suing more than one
defendant . . . and inform each defendant separately of the
allegations surrounding his alleged participation in the fraud.”
Haskin v. R.J. Reynolds Tobacco Co., 995 F. Supp. 1437,
1439 (M.D. Fla. 1998) (citation, quotation omitted). In the
context of a fraud suit involving multiple defendants, a plain-
tiff must, at a minimum, “identif[y] the role of [each] defen-
dant[ ] in the alleged fraudulent scheme.” Moore v. Kayport
Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989).
[9] With respect to Presidio and DB, the allegations in
Swartz’s original complaint patently fail to comply with Rule
9(b). The complaint is shot through with general allegations
that the “defendants” engaged in fraudulent conduct but attri-
butes specific misconduct only to KPMG and B&W. Conclu-
sory allegations that Presidio and DB “knew that [KPMG and
B&W] were making . . . false statements to clients, including
Swartz, and thus were acting in concert with [KPMG and
B&W]” and “were acting as agents [of KPMG and B&W]”
and were “active participants in the conspiracy” without any
stated factual basis are insufficient as a matter of law.
[10] However, we cannot say on de novo review that the
pleading “could not possibly be cured by the allegation of
other facts.” Bly-Magee, 236 F.3d at 1019 (quotation, citation
omitted). Indeed, we note that Swartz’s proposed amended
complaint contained detailed allegations of an agreement
between the defendants and the various roles played in the
alleged conspiracy. Consequently, although the lack of speci-
ficity in Swartz’s allegations of fraud provides an independent
reason, not relied on by the district court, to affirm its dis-
missal of Swartz’s fraud based claims, that dismissal would
necessarily be without prejudice. Id.; see also Vess v. Ciba-
Geigy Corp. USA, 317 F.3d 1097, 1107 (9th Cir. 2003) (dis-
missals under Rule 9(b) are “functional[ly] equivalent” to dis-
1750 SWARTZ v. KPMG
missals under Rule 12(b)(6) and should be without prejudice
if defects are curable). For the foregoing reasons, we reverse
the district court’s denial of leave to amend the fraud claim.
D. Civil Conspiracy
[11] The district court dismissed the civil conspiracy claim
on the ground that it was derivative of Swartz’s other claims,
each of which had been dismissed. Because Swartz is entitled
to an opportunity to re-plead the common-law fraud claim, we
reverse the denial of leave to amend the civil conspiracy claim
as well.
Presidio and DB argue that the civil conspiracy claim fails
for lack of specificity in the pleadings. Rule 9(b) imposes
heightened pleading requirements where “the object of the
conspiracy is fraudulent.” Wasco Prods, Inc. v. Southwall
Techs, Inc. 435 F.3d 989, 991 (9th Cir.) cert. denied, 127
S. Ct. 83 (2006). As stated in the previous section, we agree
that Swartz failed to sufficiently detail the roles played by the
defendants in the alleged conspiracy to defraud. However, we
repeat that the defects may be curable and reverse the denial
of leave to amend this claim.
E. Declaratory Judgment
[12] The district court did not err in dismissing Swartz’s
request for declaratory judgment and we adopt its opinion to
that extent. Swartz I, 401 F. Supp. 2d at 1154-55 (Section III.
E. “Declaratory Judgment”).9 To the extent Swartz seeks a
declaration of defendants’ liability for penalties that may be
9
To be clear, we adopt only the district court’s reasons for dismissing
the declaratory judgment claim with prejudice. We do not adopt those
parts of Section III. E. dismissing the common-law fraud and civil con-
spiracy claims with prejudice. Specifically, we do not adopt the last para-
graph in the section beginning with “The above causes of action . . .”
Swartz I, 401 F. Supp. 2d at 1155.
SWARTZ v. KPMG 1751
assessed in the future, the claim is not ripe. To the extent
Swartz seeks a declaration of defendants’ liability for dam-
ages sought for his other causes of action, the claim is merely
duplicative and was properly dismissed.
F. Personal Jurisdiction
At the motion to dismiss stage, a plaintiff is generally
required only to make out a prima facie showing of personal
jurisdiction to overcome a 12(b)(2) motion. See Glencore
Grain Rotterdam B.V. v. Shivnath Rai Harnarain Co., 284
F.3d 1114, 1119 (9th Cir. 2002). Even so, mere “bare bones”
assertions of minimum contacts with the forum or legal con-
clusions unsupported by specific factual allegations will not
satisfy a plaintiff’s pleading burden. See Alperin v. Vatican
Bank, 410 F.3d 532, 539 n.1 (9th Cir. 2005); Butcher’s Union
Local No. 498, United Food and Commercial Workers v. SDC
Inv., Inc., 788 F.2d 535, 540 (9th Cir. 1986).
Appellees are correct that conclusory allegations that “[de-
fendants] directed communication into the U.S. Western Dis-
trict of Washington and otherwise conducted business therein
sufficient to establish minimum contacts within the forum that
support the exercise of jurisdiction over their persons by this
Court” are insufficient to establish a prima facie showing of
personal jurisdiction. Swartz has pointed to nothing more in
his original complaint that would satisfy the requirements of
due process.
[13] The district court, in its order dismissing Presidio and
DB stated that “[b]ecause those . . . defendants were only
named in regards to causes of action which are being dis-
missed with prejudice, there is no point in permitting plaintiff
to amend and plead sufficient jurisdictional facts as regards
them.” Swartz I, 401 F. Supp. 2d at 1149. However, because
we reverse the district court’s denial of leave to amend the
common-law fraud and civil conspiracy claims, Swartz may
attempt to cure the jurisdictional defects as well. We note that
1752 SWARTZ v. KPMG
Swartz’s proposed amended complaint contained numerous
factually detailed allegations of appellees’ contacts with the
State of Washington. The sufficiency of those allegations
should, of course, be determined by the district court in the
first instance.
G. Securities Fraud Claims
[14] In his proposed amended complaint, Swartz sought to
add alternative claims for violations of federal and Washing-
ton securities fraud statutes. The district court disallowed
these new claims primarily on the ground that it had already
held Swartz’s original complaint ruled out the possibility of
reasonable reliance. Since we reverse the district court’s rea-
sonable reliance holding, we also reverse the denial of leave
to add the securities fraud claims.
[15] The court also noted, but did not reach, B&W’s argu-
ment that Swartz’s federal securities fraud claim was time-
barred. The issue has not been raised on appeal and we
express no opinion as to whether the claim fails for reasons
other than the reasonable reliance holding. Finally, the district
court objected that because Swartz’s proposed amended com-
plaint sought to disassociate the fraud from the sale of securi-
ties in connection with the re-stated RICO claim, he could not
simultaneously plead a securities fraud cause of action. How-
ever, because “[a] party may . . . state as many separate claims
. . . as the party has regardless of consistency,” Fed. R. Civ.
P. 8(e)(2), denial of leave to add the securities fraud claims
on this basis was improper.
V. CONCLUSION
For the foregoing reasons, we affirm the district court’s dis-
missal with prejudice of the RICO, WCPA, and declaratory
judgment claims. We also adopt in part the district court’s
opinion in Swartz I as described supra. We reverse the denial
of leave to amend the common-law fraud and civil conspiracy
SWARTZ v. KPMG 1753
claims as well as the denial of leave to add statutory securities
fraud claims.
AFFIRMED IN PART, REVERSED IN PART, AND
REMANDED FOR FURTHER PROCEEDINGS CONSIS-
TENT WITH THIS OPINION. APPELLANT TO RECOVER
COSTS ON APPEAL.