Nevada Supreme Court Reports


Appeal from a district court order, certified as final
under NRCP 54(b), granting respondent’s motion to dismiss
for lack of personal jurisdiction and failure to state a
claim upon which relief can be granted. Eighth Judicial
District Court, Clark County; Valerie Adair, Judge.

Vacated in part, reversed in part and remanded with

Gerard & Osuch, LLP, and Robert B. Gerard and Lawrence T.
Osuch, Las Vegas; Blumenthal & Markham and Norman B.
Blumenthal, David R. Markham and Kyle R. Nordrehauq, La
Jolla, California; Greco Traficante and Clyde C. Greco Jr.
and Paul A. Traficante, San Diego, California; Smaha & Daly
and John Smaha, San Diego, California, for Appellants.

John H. Cotton & Associates, Ltd., and John H. Cotton and
Mara E. Fortin, Las Vegas; Howrey LLP and Gary Bendinger,
Salt Lake City, Utah, for Respondent.


[fn1] The Honorable James W. Hardesty, Justice, voluntarily
recused himself from participation in the decision of this


By the Court, ROSE, C.J.:

In this case, we adopt the relaxed pleading requirements
that the federal courts utilize under Federal Rule of Civil
Procedure 9(b) for cases when facts necessary for the
plaintiff to plead a cause of action for fraud with
particularity under NRCP 9(b) are peculiarly within the
defendant’s knowledge or possession. When a complaint
includes a claim of fraud, NRCP 9(b) requires a plaintiff
to plead with particularity the fraudulent activity’s time
and place, the parties’ identities, and the nature of the
fraud. If a plaintiff does not plead fraud with
particularity, his complaint is subject to dismissal.
However, in certain cases, a plaintiff cannot plead with
particularity because the facts of the fraudulent activity
are in the defendant’s possession. In those cases, if the
plaintiff pleads specific facts giving rise to an inference
of fraud, the plaintiff should have an opportunity to
conduct discovery and amend his complaint to include the
particular facts.

In this case, we conclude that the facts necessary for the
appellants to plead with particularity are peculiarly
within the respondent’s knowledge, and the appellants have
pleaded facts supporting a strong inference of fraud.
Accordingly, we reverse the district court’s order and
remand this case for further proceedings. The appellants
should be given an opportunity to conduct discovery and
amend their complaint to conform with NRCP 9(b), after
which the respondent may renew its motion to dismiss for
failure to plead with particularity.


This case arises from extended vehicle service contracts
(VSCs) sold nationwide through automobile dealerships to
individual automobile purchasers (collectively the
consumers), who are the appellants. Under the VSCs, the
consumers could make claims for covered repairs. The VSCs
were promoted and marketed to the automobile dealerships
through the Delta Group and were sold to the consumers as
insurance products that were insured by National Warranty
Insurance Corporation, Risk Retention Group (NWIG). The
Delta Group, the automobile dealers, and others were
members of NWIG. Respondent KPMG LLP provided accounting
services to NWIG.

In addition, NWIG obtained reinsurance on the VSCs and used
the reinsurers’ names in the advertising materials.
However, the reinsurance amounted to excess loss insurance,
which would be triggered at a point far above any
collectible insurance or available reserves.

On each VSC, the automobile dealers, promoters, and
marketers took as much as 85 to 90 percent of the premium
as a commission. The remaining amount was allocated as an
insurance reserve to pay claims. Some large-volume VSC
sellers set up offshore “reinsurance companies” to pay
covered claims to take advantage of Internal Revenue Service
tax exemptions available to small, offshore insurance
companies. KPMG marketed its services to enable the VSC
sellers to take advantage of the tax exemption.

When consumers purchased a VSC, the VSC’s cost was financed
by their lender and was included with the cost of the
automobile in the consumers’ loans. Without such financing,
the consumers might not have been able to afford the VSC.
For the consumers to obtain financing, NWIG was required to
maintain an “A-” or better rating from A.M. Best, an
organization that reviews and rates an insurer’s financial
condition. Without an “A-” or better rating, a bank
financing an automobile purchase would refuse to finance a
VSC as part of an automobile purchase.

In early 2003, NWIG and Pacific Fiduciary Investment
Corporation entered into a Bordereaux Assignment,
Assumption and Trust Agreement (the Bordereaux Agreement),
assigning NWIG’s liability to Pacific for VSCs for
automobiles with over 80,000 miles. KPMG advised NWIG
regarding the Bordereaux Agreement. Without the assignment
of the over-80,000-mile-warranty book of business, NWIG
would have been insolvent and would have been unable to
maintain its “A-” or better rating from A.M. Best. Shortly
after the assignment, the Delta Group purchased Pacific’s
liability from the Bordereaux Agreement and subsequently
repudiated the Bordereaux Agreement, refusing to satisfy
claims from VSC purchasers.

As a result of the Delta Group’s repudiation, NWIG was
exposed to approximately $100 million in unpaid VSC claims,
which, combined with its other liabilities, far exceeded
its assets. Soon after, its A.M. Best rating dropped to a
“B” rating. With a “B” rating, banks were unwilling to
finance VSCs guaranteed by NWIG, which dramatically reduced
its VSC business. NWIG’s other business activities were also
adversely impacted. Facing liabilities exceeding its
assets, NWIG commenced insolvency proceedings in the Grand
Cayman Islands in June 2003. Shortly before, in May 2003,
NWIG ceased all payments for repairs covered under the VSCs
and transferred its reserves out of the United States. NWIG
retained KPMG as its trustee/liquidator in the insolvency

The consumers alleged that NWIG and its VSCs were
fundamentally flawed in that too much of the premium was
paid to the automobile dealers, promoters, and marketers,
and not enough money was set aside to adequately pay VSC
claims. Instead of recognizing these flaws and NWIG’s
undercapitalization, the consumers alleged, the automobile
dealers, promoters, and marketers sought to fraudulently
maintain NWIG’s “A-” rating with A.M. Best by transferring,
through the Bordereaux Agreement, the majority of NWIG’s
VSC liability off of NWIG’s balance sheet. As a result,
instead of NWIG’s collapse occurring in late 2002, NWIG
could continue to market VSCs to other consumers in order
to generate revenue to pay pending claims from earlier VSC
purchasers. Thus, the consumers alleged that, although
NWIG’s failure was anticipated, the automobile dealers,
promoters, and marketers engaged in accounting fraud in
order to keep their VSC commissions — defrauding the
VSC purchasers.

Preparing the Bordereaux Agreement and NWIG’s books and
taking advantage of complex Internal Revenue Service tax
exemptions all required complex accounting expertise, which
was provided by several large accounting firms, including

The consumers’ allegations of KPMG’s involvement in fraud

The consumers’ theory of KPMG’s liability rested on KPMG’s
alleged complicity in concealing NWIG’s true financial
condition from A.M. Best, lending institutions, the IRS,
other regulators, and the consumers and “creating the
appearance of a well-capitalized insurance company.”
According to the consumers, but for KPMG’s fraudulent
concealment, NWIG could not have achieved an “A-” rating
with A.M. Best.

Allegedly, from “1988 to present and continuing,” KPMG
“[e]mployees and representatives,” including, but not
limited to, Theo Bullmore, provided to NWIG “accounting,
actuarial, staffing, auditing, consulting and `trustee’
and/or `liquidator’ services.” These services included
“preparation of consolidated tax returns” and advice to NWIG
on the Bordereaux Agreement, from KPMG’s offices in
Nebraska and the Grand Cayman Islands, and also at NWIG’s
offices. During KPMG’s performance of these services, it
allegedly (1) approved financial statements that failed to
report all of NWIG’s liabilities; (2) concealed that NWIG’s
actuarial and accounting practices were not based on
industry standards; (3) “misrepresented potential losses
[and] adequacy of reserves, [reinsurance, surplus, assets,
and capitalization;] . . . [(4)] ignored the patently
deficient and misrepresentative actuarial analysis”
prepared by Milliman USA, Inc.; (5) “provided advice to NWIG
on the fraudulent . . . Bordereaux Agreement” without
revealing that the agreement was a “sham transaction” to
“perpetuate the continued sale of VSCs”; (6) concealed that
the NWIG reinsurance was illusory; and (7) concealed that
NWIG had no liability coverage for itself or its officers.

The consumers also alleged that KPMG, as NWIG’s liquidator
and trustee in the insolvency proceedings, was protecting
the reinsurance companies by (1) not accepting VSC claims,
which ensured that the reinsurance was never triggered, and
(2) not seeking enforcement of the Bordereaux Agreement.

Finally, the consumers alleged that KPMG promoted NWIG’s
VSC business to the automobile dealerships as a means of
setting up offshore reinsurance accounts as tax shelters.
This allegedly demonstrated KPMG’s complicity in fraudulent
concealment because “its active promotion of the VSC
warranty business for a fee to Defendant car dealerships
and others as a tax shelter[,] whereby the owners of the
car dealerships could establish offshore reinsurance
companies and/or `reserve accounts,'” enabled the
automobile dealerships to siphon off premiums, receive
exorbitant commissions, and evade consumer protection laws.

The class action litigation

The consumers initially filed two separate lawsuits against
various defendants. The initial lawsuits were consolidated
and, in November 2003, the consumers filed a class action
consolidated complaint against those involved in the VSC
scheme, including auto dealerships, insurance and
reinsurance companies, companies that had promoted and
brokered the VSCs, and the accounting and actuarial firms,
including KPMG. Several of the defendants moved to dismiss
the consolidated complaint for, among other things, failure
to plead fraud with particularity under NRCP 9(b). The
district court denied the motions and granted the consumers
leave to amend their complaint. The consumers filed their
first amended consolidated complaint, which included causes
of action for fraud and unjust enrichment against

KPMG moved to dismiss the consumers’ first amended
consolidated complaint based on the district court’s lack
of personal jurisdiction over KPMG, the consumers’ failure
to plead fraud with particularity under NRCP 9(b), and the
consumers’ failure to state a claim for unjust enrichment
under NRCP 12(b)(5).[fn3] After a hearing, the district
court entered a summary order granting KPMG’s motion to
dismiss. The district court later certified the order as
final under NRCP 54(b). The consumers timely appealed.


On appeal, the consumers argue that the district court has
personal jurisdiction over KPMG and that they have pleaded
fraudulent concealment with particularity, and the district
court erred by granting KPMG’s motion to dismiss. The
district court’s order, however, provided no findings of
fact or any indication as to why it granted KPMG’s motion.
Therefore, we are unable to determine the legal ground or
grounds upon which the district court based its order.

One of KPMG’s arguments in its motion to dismiss was the
district court’s lack of personal jurisdiction. Because the
determination of personal jurisdiction is a fact-intensive
inquiry and the district court provided no factual
findings,[fn4] we are unable to determine whether the
district court erred when it determined that it did not
have personal jurisdiction over KPMG. Accordingly, to the
extent that the district court’s order rests upon a lack of
personal jurisdiction, we vacate the order and remand this
matter to the district court for further consideration and
to make findings of fact.[fn5]

Next, to the extent that the district court’s order was
based on the consumers’ failure to plead fraud with
particularity, we now address NRCP 9(b)’s pleading

NRCP 9(b)’s strict pleading requirements

An order granting a motion to dismiss for failure to state
a claim is subject to a rigorous standard of review on
appeal.[fn6] We must regard all factual allegations in the
complaint as true and must draw all inferences in favor of
the nonmoving party.[fn7] “A complaint should only be
dismissed if it appears beyond a reasonable doubt that the
plaintiff could prove no set of facts, which, if true, would
entitle him to relief. Dismissal is proper where the
allegations are insufficient to establish the elements of a
claim for relief.”[fn8]

Under NRCP 9(b), a plaintiff must plead the circumstances
constituting fraud with particularity. Pleading with
particularity is required “in order to afford adequate
notice to the opposing part[ies],”[fn9] “‘so that they can
defend against the charge and not just deny that they have
done anything wrong.'”[fn10] To plead with particularity,
plaintiffs must include in their complaint “averments to
the time, the place, the identity of the parties involved,
and the nature of the fraud.”[fn11] “Malice, intent,
knowledge and other conditions of the mind of a person may
be averred generally.”[fn12] Nevada’s NRCP 9(b)
jurisprudence contains no exceptions to this pleading

Whether the consumers’ complaint satisfies NRCP 9(b) is a
reasonably close question. While the consumers alleged
misrepresentation, falsehoods, and the general time frame
during which the fraud occurred, the complaint lacks
specificity about KPMG’s actions. For example, the
consumers’ complaint does not inform KPMG of any specific
dates or time frames, or specify where, in NWIG’s financial
statements, liabilities were concealed or misleading
accounting practices were used.[fn13] Thus, when defending
against the allegations in the complaint, the most KPMG
could aver is that it has “‘[not] done anything
wrong.'”[fn14] Accordingly, the consumers’ complaint does
not meet the NRCP 9(b) particularity requirements.

However, the consumers understandably were not more
specific because a great deal of the information in this
case was in the hands of KPMG and the other defendants.
Therefore, the consumers were unable to make allegations in
their complaint with greater specificity in order to comply
with the requirements of NRCP 9(b) for fraud complaints.
This difficulty places the consumers in a classic catch-22
— they are required to file a complaint to enable
them to conduct discovery to ascertain the relevant
information they need, but they cannot file a complaint
with sufficient particularity because they do not know the
information contained in KPMG’s documents. Many courts have
addressed similar situations and recognize an exception to
the particularized pleading requirements.

Relaxed standards for particularized pleading when
information is in the defendant’s possession

Under Federal Rule of Civil Procedure 9(b), which contains
language identical to NRCP 9(b), federal courts have
recognized an exception to particularized pleading.[fn15]
When the facts necessary for pleading with particularity
“are peculiarly within the defendant’s knowledge or are
readily obtainable by him,” FRCP 9(b)’s pleading rule is
relaxed because the “plaintiff[ ] can not be expected to
have personal knowledge of the relevant facts.”[fn16] In
that situation, the plaintiff may make an allegation on
information and belief but “must state the factual basis
for the belief.”[fn17] When applying this relaxed standard,
the federal courts require the plaintiff to allege more
than suspicious circumstances.[fn18] “Where pleading is
permitted on information and belief, a complaint must
adduce specific facts supporting a strong inference of
fraud or it will not satisfy even a relaxed pleading

Applying this relaxed standard, the United States District
Court for the Southern District of New York, in Dominicus
Americana Bohio v. Gulf & Western,[fn20] held that the
plaintiffs’ complaint alleged facts giving rise to an
inference of fraud. In that case, Gulf & Western Industries
(G & W) owned and operated a tourist resort in the
Dominican Republic. The plaintiffs developed a competing
tourist resort in the same area and alleged that G & W
fraudulently induced the Dominican government to act
against the plaintiffs to disrupt or discourage development
and use of the plaintiffs’ resort. The plaintiffs alleged,
among other things, that, at G & W’s behest, a commission
studied, and the Dominican government endorsed, the
creation of a national park that would require the
appropriation of plaintiffs’ land. One commission member
was a G & W subsidiary’s officer. The Dominican government
abandoned the plan upon discovering that it would have
required confiscating the plaintiffs’ property. The
plaintiffs also alleged that G & W offered to assume the
costs of road construction, if the Dominican government
relocated a road away from the beachfront and the
plaintiffs’ property to an inland route. G & W also
allegedly convinced government officials to prohibit
charter flights from landing at the local airport if they
were carrying passengers staying at the plaintiffs’ resort,
while allowing charter flights carrying passengers staying
at G & W’s resort to land. Finally, the Dominican Tourist
Information Center allegedly gave misleading information
about the plaintiffs’ resort to tourists and steered
tourists to G & W’s resort.[fn21]

The federal district court found that the plaintiffs’
allegations did not meet the strict requirement of FRCP
9(b), but it also found that “[w]here a plaintiff is
claiming . . . to have been injured as the result of a
fraud perpetrated on a third party, the circumstances
surrounding the transaction are peculiarly within the
defendant’s knowledge.”[fn22] Therefore, the court applied
the relaxed standard and, pointing to the above facts,
allowed the plaintiffs to conduct discovery and to amend
their complaint to meet FRCP 9(b)’s pleading

This exception strikes a reasonable balance between NRCP
9(b)’s stringent requirements for pleading fraud and a
plaintiff’s inability to allege the full factual basis
concerning fraud because information and documents are
solely in the defendant’s possession and cannot be secured
without formal, legal discovery. Therefore, we adopt this
relaxed standard in situations where the facts necessary
for pleading with particularity “are peculiarly within the
defendant’s knowledge or are readily obtainable by

In addition to requiring that the plaintiff state facts
supporting a strong inference of fraud, we add the
additional requirements that the plaintiff must aver that
this relaxed standard is appropriate and show in his
complaint that he cannot plead with more particularity
because the required information is in the defendant’s
possession. If the district court finds that the relaxed
standard is appropriate, it should allow the plaintiff time
to conduct the necessary discovery.[fn25] Thereafter, the
plaintiff can move to amend his complaint to plead
allegations of fraud with particularity in compliance with
NRCP 9(b).[fn26] Correspondingly, the defendant may renew
its motion to dismiss under NRCP 9(b) if the plaintiff’s
amended complaint still does not meet NRCP 9(b)’s
particularity requirements.

Returning to the instant case, the consumers have presented
facts from which an inference of fraud on KPMG’s part can
be drawn. Offshore insurance requires complex accounting.
KPMG advised NWIG regarding the Bordereaux Agreement, which
transferred a large piece of liability to a company that
was an NWIG member, and that later repudiated the
agreement. KPMG provided staffing for NWIG when it needed
accounting help. KPMG promoted offshore reinsurance
companies to enable automobile dealerships to sell the NWIG
VSCs and avoid taxes. Finally, NWIG transferred all of its
assets outside of the United States when it filed for
insolvency proceedings and KPMG is now NWIG’s
liquidator/trustee that is refusing to pay any VSC claims.

Therefore, we conclude that the consumers pleaded
sufficient facts in their complaint to support a strong
inference of fraud. Accordingly, to the extent that the
district court’s order was based on noncompliance with NRCP
9(b), we reverse that part of the district court’s order
and remand this case to the district court. The district
court should allow the consumers an opportunity to conduct
discovery with KPMG and, afterwards, an opportunity to
amend their complaint to state their allegations with
specificity. Once the consumers amend their complaint, KPMG
may renew its motion to dismiss for a lack of particularity.


While we agree with the district court that the plaintiffs
failed to state their claim of fraud with particularity in
every instance under NRCP 9(b), we adopt the relaxed
standard of pleading utilized by the federal courts under
FRCP 9(b) when the facts necessary for pleading with
particularity “are peculiarly within the defendant’s
knowledge.”[fn27] In this case, we conclude that the facts
necessary for the consumers to plead with particularity are
peculiarly within the defendants’ knowledge, and the
consumers have pleaded facts supporting a strong inference
of fraud. Therefore, the consumers should be allowed an
opportunity to conduct discovery and amend their complaint
to conform with NRCP 9(b).

We also conclude that we cannot determine whether the
district court erred when it granted KPMG’s motion to
dismiss for lack of personal jurisdiction because the
district court did not provide any findings of fact.

Accordingly, we vacate in part the district court’s order
concerning personal jurisdiction and we reverse in part the
district court’s order concerning pleading fraud with
particularity. We remand this case to the district court
for proceedings consistent with this opinion.

We concur:

Becker, J.

Maupin, J.

Gibbons, J.

Douglas, J.

Parraguirre, J.

[fn2] The consumers asserted both in their appellate briefs
and during oral argument before this court that they were
proceeding against KPMG on theories of fraudulent
concealment, accessory liability, aiding and abetting, and
concert of action. See generally Dow Chemical Co. v.
Mahlum, 114 Nev. 1468, 970 P.2d 98 (1998) (discussing
fraudulent concealment, aiding and abetting, and concert of
action). However, while the consumers’ first amended
consolidated complaint contained general allegations of
accessory liability, the only causes of action asserted
against KPMG were for fraudulent concealment and unjust
enrichment. Accordingly, we do not address aiding and
abetting or concert of action.

[fn3] Both KPMG LLP and KPMG of Grand Cayman Islands were
named defendants. Only KPMG LLP moved to dismiss the first
amended consolidated complaint.

[fn4] See MGM Grand, Inc. v. District Court, 107 Nev. 65,
67-68, 807 P.2d 201, 202 (1991).

[fn5] KPMG also argued in its motion to dismiss that the
consumers’ unjust enrichment cause of action failed to
state a claim. On appeal, the consumers have neglected to
address in their briefs or during argument before this
court the matter of whether the district court correctly
granted KPMG’s motion to dismiss to the extent that it was
based upon the consumers’ failure to state a claim for
unjust enrichment. Accordingly, the consumers have waived
this issue by failing to raise it, and we will not disturb
this portion of the district court’s order. Kahn v. Morse &
Mowbray, 121 Nev. 464, 480 n. 24, 117 P.3d 227, 238 n. 24
(2005); see State, Emp. Sec. Dep’t v. Weber, 100 Nev. 121,
123, 676 P.2d 1318, 1319 (1984); NRAP 28(a).

[fn6] Hampe v. Foote, 118 Nev. 405, 408, 47 P.3d 438, 439

[fn7] Id.

[fn8] Id.

[fn9] Ivory Ranch v. Quinn River Ranch, 101 Nev. 471,
472-73, 705 P.2d 673, 675 (1985).

[fn10] Neubronner v. Milken, 6 F.3d 666, 671 (9th Cir. 1993)
(quoting Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir.

[fn11] Brown v. Kellar, 97 Nev. 582, 583-84, 636 P.2d 874,
874 (1981).

[fn12] Id. at 584, 636 P.2d at 874; NRCP 9(b).

[fn13] Our examples here are not a comprehensive list of
the deficiencies in the consumers’ complaint.

[fn14] Neubronner, 6 F.3d at 671 (quoting Semegen, 780 F.2d
at 731).

[fn15] “We have previously recognized that federal decisions
involving the Federal Rules of Civil Procedure provide
persuasive authority when this court examines its rules.”
Nelson v. Heer, 121 Nev. 832, 834, 122 P.3d 1252, 1253
(2005) (citing Executive Mgmt. v. Ticor Title Ins. Co., 118
Nev. 46, 53, 38 P.3d 872, 876 (2002)).

[fn16] Neubronner, 6 F.3d at 672.

[fn17] Id.

[fn18] Id. While Neubronner v. Milken, 6 F.3d 666 (9th Cir.
1993), is a securities case and Hockey v. Medhekar, 30 F.
Supp. 2d 1209, 1214-16 (N.D. Cal. 1998), has recognized
that the United States Congress mandated that
particularized pleading be applied to all securities cases,
the relaxed pleading standard is applicable to other forms
of fraud. See Creative Waste v. Capitol Environmental
Services, 429 F. Supp. 2d 582, 607 (S.D.N.Y. 2006)
(fraudulent inducement); Remmes v. International Flavors &
Fragrances, No. C04-4061-MWB, 2006 WL 2728959, at *12 (N.D.
Iowa Sept. 26, 2006) (fraudulent concealment).

[fn19] Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d
Cir. 1990).

[fn20] 473 F. Supp. 680 (S.D.N.Y. 1979).

[fn21] Id. at 684-86, 693.

[fn22] Id. at 693.

[fn23] Id.

[fn24] Neubronner, 6 F.3d at 672.

[fn25] Dominicus Americana Bohio, 473 F. Supp. at 693.

[fn26] Id.

[fn27] Neubronner, 6 F.3d at 672.