Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_07-cv-02745/USCOURTS-cand-4_07-cv-02745-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Other Contract

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United States District Court

For the Northern District of California

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IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

BRAD LOVESY and PACIFIC

CONSOLIDATED INVESTMENTS,

INC., a Nevada corporation,

Plaintiff,

v.

ARMED FORCES BENEFIT

ASSOCIATION, THE 5STAR

ASSOCIATION, 5 STAR FINANCIAL,

LLC, 5STAR FINANCIAL SERVICES

COMPANY, and 5STAR LIFE

INSURANCE COMPANY; TED

SHUEY, individually, doing business as

THE SHUEY AGENCY, INC., and TGS

GROUP, INC.,

Defendants. /

No. C 07-2745 SBA

ORDER

[Docket Nos. 39, 40, 41, 43, 44 & 48]

Currently before the Court are: 

1. Defendants Armed Forces Benefit Association and 5Star Life Insurance Company’s Motion to

Strike and for a More Definite Statement Regarding Portions of Plaintiff Brad Lovesy's Second

Amended Complaint [Docket No. 39];

2. Defendants Armed Forces Benefit Association and 5Star Life Insurance Company’s Motion to

Dismiss Plaintiff Brad Lovesy's Second Amended Complaint [Docket No. 40];

3. Defendants TGS Group, Inc., The Shuey Agency, Inc., and Ted Shuey’s Motion to Strike the

Amended Complaint or in the Alternative Motion for a More Definite Statement [Docket No.

43];

4. Defendants TGS Group, Inc., The Shuey Agency, Inc., and Ted Shuey’s Motion to Dismiss TGS

for Lack of Personal Jurisdiction, and Plaintiff's Third, Fourth, Seventh, and Eighth Causes of

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1

The Court may consider documents referenced in a complaint if the documents are central to

the plaintiff’s claims. For the purpose of this motion, the Court considers the following documents

referenced in Lovesy’s SAC: (1) Regional Sales Director Agreement dated on or about September 10,

2001 (the “Director Agreement”); (2) Regional Sales Director Compensation Addendum amending the

Regional Sales Director Agreement and dated on or about June 19, 2003 (the “Compensation

Addendum”); (3) Independent Field Service Representative Agreement dated on or about March 22,

2001 (the “Representative Agreement”); and (4) Memorandum of Agreement between Lovesy and Ted

Shuey Agency dated on or about August 31, 2004 (the “TGS Agreement”).

2

Action in the Second Amended Complaint [Docket No. 44];

5. Defendant 5Star Financial LLC’s Motion to Dismiss Plaintiff Brad Lovesy's Second Amended

Complaint for Lack of Personal Jurisdiction [Docket No. 48].

Having read and considered the arguments presented by the parties in the papers submitted to the Court,

the Court finds this matter appropriate for resolution without a hearing. 

BACKGROUND

I. Factual Background

The following allegations are contained in the Second Amended Complaint (“SAC”) and four

contracts referenced in the SAC1

. Lovesy entered into the Representative Agreement and the Director

Agreement (collectively, the “Agreements”) with AFBA Life Insurance Company (“AFBA Life”) and/or

5Star’s Life Insurance on or about March 22, 2001 and September 10, 2001, respectively. SAC at ¶¶ 19,

22. Pursuant to the Agreements, Lovesy was to serve as a Regional Sales Director for AFBA Life and

was permitted to sell 5Star’s Life Insurance products as a Field Service Representative. Id. at ¶¶ 20, 23.

The Agreements provide that any party may terminate the Agreements with or without cause; the

Representative Agreement requires 30 days’ written notice prior to termination. Representative

Agreement, at ¶ VI(A); Director Agreement, at ¶ VIII.

In approximately August 2004, Lovesy entered into a Memorandum of Agreement with The

Shuey Agency, Inc. (the “TGS Agreement”), under which The Shuey Agency, Inc. would provide

administrator services to Lovesy, including implementation of payroll deductions for the premiums due

for all 5Star policies. Id. at ¶¶ 28-29; TGS Agreement, at pp. 1. The TGS Agreement prohibits Lovesy

from marketing life insurance products other than those provided by AFBA Life in presentations for the

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California National Guard. (TGS Agreement, at ¶ 1(a).)

Early in his relationship with TGS, Lovesy became unhappy with the manner in which TGS

processed applications. SAC ¶¶ 32. Lovesy also claims TGS began to solicit business in portions of the

Alleged Assigned Region. Id. ¶ 40. Purportedly as a result of Lovesy raising concerns about the

propriety of the marketing of AFBA Life and 5Star’s insurance offerings, TGS cancelled the TGS

Agreement at some point after February 28, 2006. Id. ¶ 45. Lovesy’s relationship with 5Star ended

when, on May 7, 2007, 5Star sent Lovesy notice of “intent to terminate his agreement” as of June 7,

2007. Id.¶ 50.

II. The Instant Lawsuit

On May 24, 2007, Lovesy filed a complaint for civil damages. The currently operative

complaint, the Second Amended Complaint, was filed on November 16, 2007. The SAC asserts four

causes of action against AFBA and 5Star: (1) breach of contract; (2) breach of the covenant of good

faith and fair dealing; (3) violation of California’s unfair competition law; and (4) an accounting.

Additionally, the SAC alleges claims against Ted Shuey, the Shuey Agency, Inc., and TGS Group Inc.

(collectively, the “Shuey Defendants”) for (1) breach of contract; (2) breach of the covenant of good

faith and fair dealing; (3) violation of California’s unfair competition law; (4) intentional interference

with contract; (5) intentional interference with prospective economic advantage; and (6) fraud. Several

of Lovesy’s theories of recovery are dependent on his allegations that AFBA and 5Star are the alter egos

of the other defendants.

Further, in connection with his unfair competition law claim under California Business and

Professions Code section 17200 (“UCL”), Lovesy seeks damages and nonrestitutionary disgorgement.

LEGAL STANDARDS

I. Motion to Strike

Federal Rule of Civil Procedure 12(f) provides that a court “may order stricken from any

pleading . . . any redundant, immaterial, impertinent or scandalous matter.” Fed. R. Civ. P. 12(f).

“‘Immaterial’ matter is that which has no essential or important relationship to the claim for relief or

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the defenses being pleaded.” Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527 (9th Cir.1993) (citing 5

Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1382, at 706-07 (1990)), rev'd

on other grounds, 510 U.S. 517 (1994). “‘Impertinent’ matter consists of statements that do not pertain,

and are not necessary, to the issues in question.” Id. A motion to strike may be used to strike any part

of the prayer for relief when the relief sought is not recoverable as a matter of law. Bureerong v.

Uvawas, 922 F. Supp. 1450, 1478 (C.D. Cal. 1996).

II. Motion to Dismiss

Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss should be granted if the

plaintiff is unable to articulate “enough facts to state a claim to relief that is plausible on its face.” Bell

Atlantic Corp. v. Twombly, 127 S.Ct. 1955,1960 (2007). For purposes of such a motion, the complaint

is construed in a light most favorable to the plaintiff and all properly pleaded factual allegations are

taken as true. Jenkins v. McKeithen, 395 U.S. 411, 421 (1969); Everest & Jennings, Inc. v. American

Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir. 1994). All reasonable inferences are to be drawn in favor

of the plaintiff. Jacobson v. Hughes Aircraft, 105 F.3d 1288, 1296 (9th Cir. 1997). 

The court does not accept as true unreasonable inferences or conclusory legal allegations cast

in the form of factual allegations. Western Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981);

see Miranda v. Clark County, Nev., 279 F.3d 1102, 1106 (9th Cir. 2002) (“[C]onclusory allegations of

law and unwarranted inferences will not defeat a motion to dismiss for failure to state a claim.”);

Sprewell v. Golden State Warriors, 266 F.3d 979, 987, as amended by 275 F.3d 1187 (9th Cir.

2001)(“Nor is the court required to accept as true allegations that are merely conclusory, unwarranted

deductions of fact, or unreasonable inferences.”).

When a complaint is dismissed for failure to state a claim, "leave to amend should be granted

unless the court determines that the allegation of other facts consistent with the challenged pleading

could not possibly cure the deficiency." Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d

1393, 1401 (9th Cir. 1986). Leave to amend is properly denied "where the amendment would be futile."

DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992).

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III. Personal Jurisdiction

Federal Rule of Civil Procedure 12(b)(2) provides the district court with the authority to dismiss

an action for lack of personal jurisdiction. Data Disc, Inc. v. Systems Tech. Assoc., Inc., 557 F.2d 1280,

1285 (9th Cir. 1977). Where the defendant moves to dismiss under Rule 12(b)(2), the plaintiff bears

the burden of proving personal jurisdiction; he cannot simply rest on the bare allegations of the

complaint. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800 (9thCir. 2004).

In order to withstand a motion to dismiss for lack of personal jurisdiction in the initial stages of

litigation, however, the plaintiff need only "make, through [his] pleadings and affidavits, a prima facie

showing of the jurisdictional facts." Myers v. Bennett Law Offices, 238 F.3d 1068, 1071 (9th Cir. 2001).

"That is, the plaintiff need only demonstrate facts that if true would support jurisdiction over the

defendant." Ballard v. Savage, 65 F.3d 1495, 1498 (9th Cir. 1995). In ruling on a Rule 12(b)(2)

motion, the pleadings are to be viewed in a light most favorable to plaintiff and all doubts are to be

resolved in his favor. See Caruth v. International Psychoanalytical Ass'n, 59 F.3d 126, 128 n.1 (9th Cir.

1995).

IV. Request for Judicial Notice

Federal Rule of Evidence 201(b) permits judicial notice of facts “not subject to reasonable

dispute” in that they are either “(1) generally known within the territorial jurisdiction or the trial court

or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot

reasonably be questioned.” Fed. R. Evid. 201(b). The Court may take judicial notice of matters of

public record outside the pleadings on a motion to dismiss. MGIC Indem. Corp. v. Weisman, 803 F.2d

500, 504 (9th Cir. 1986). Specifically, a court may take judicial notice of the authenticity and existence

of a particular order, motion or pleading. See U.S. v. Southern California Edison Co., 300 F. Supp. 2d

964, 974 (E.D. Cal. 2004); see also Kent v. DaimlerChrysler Corp., 200 F. Supp. 2d 1208 (N.D. Cal.

2002) (taking judicial notice of two state court decisions and a legal memorandum filed in a state court

action on the grounds that they are public documents).

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ANALYSIS

Both AFBA and 5Star on the one hand and the Shuey Defendants on the other have filed motions

to strike as well as motions to dismiss. The Court first addresses the motions to strike.

I. Motions to Strike

A. AFBA and 5Star’s Motion

AFBA and 5Star move to strike portions of the SAC regarding Lovesy’s alter ego allegations

and prayer for damages. 

1. Alter Ego Allegations

AFBA and 5Star contend that Lovesy’s alter ego allegations are conclusory and without any

alleged factual basis, and therefore the Court should strike paragraphs 7 and 12 of the SAC. In Neilson

v. Union Bank of Cal., N.A., 290 F. Supp. 2d 1101 (C.D. Cal. 2003), the court explained that

“[c]onclusory allegations of ‘alter ego’ status are insufficient to state a claim. Rather, a plaintiff must

allege specifically both of the elements of alter ego liability, as well as facts supporting each.” Id. at

1116. These two elements are 1) a unity of interest or ownership between a corporation and its

individual owner and 2) that if the acts are treated as those of the corporation alone, an inequitable result

will follow. Id. at 1115-1116.

In Paragraph 12, Plaintiffs asserts AFBA and 5Star are each the “agent, servant, employee,

successor, assign, or alter ego” of the Shuey Defendants, and that AFBA and 5Star performed each of

the acts alleged in the complaint “within the scope of [its] authority, and with the permission and

consent of each other Defendant.” However, Lovesy fails to allege any facts supporting these

allegations. Such a conclusory recitation of the elements of alter ego liability are insufficient to plead

alter ego liability under Federal Rule of Civil Procedure 8(a). Neilson, 290 F. Supp. 2d 1101. At a

minimum, Lovesy must set forth “sufficiently specific factual allegations” to support an alter ego claim

in order to overcome a motion to dismiss. It is not sufficient, at the pleading stage, to make conclusory

allegations of control. In re Sunbeam Corp., 284 B.R. 355, 366 (Bkrtcy. S.D.N.Y. 2002). In order to

withstand a motion to dimiss, the plaintiff must, at a minimum, “se[t] forth some examples of alleged

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domination;” Plaintiffs have failed to do so. Id.

Plaintiffs respond that they have sufficiently pleaded the elements of alter ego liability, in that

they have sufficient alleged that the parties were jointly engaged in a common tortious and fraudulent

scheme against plaintiff, and therefore, there is a “unity of interest” between the parties. Reply at 3.

However, this response misapprehends the nature of the “unity of interest” requirement. The question

is not whether the alleged alter egos engaged in a common scheme; the question is rather whether there

is “a unity of interest” as to ownership between a corporation and its individual owner. Neilson, 290 F.

Supp. 2d 1101. The mere fact that two entities allegedly jointly committed torts against Plaintiffs has

no bearing on the question of alter ego liability.

Additionally, in order to withstand a motion to strike, Lovesy must allege that AFBA, 5Star, and

5Star Financial abused their corporate status to effectuate a fraud or injustice. See Erkenbrecher, 187

Cal. at 11; see also Acciai Speciali Terni USA, Inc. v. Momene, 202 F. Supp. 2d 203, 207 (S.D.N.Y.

2002). With respect to this element, “that if the acts are treated as those of the corporation alone, an

inequitable result will follow,” plaintiff offers no argument at all other than to point to various

paragraphs of the SAC that allegedly support this element (i.e. SAC ¶¶ 32-35, 39, 43-44). However,

these paragraphs relating factual portions of plaintiff’s claims against defendants simply have no

bearing on the question of alter ego liability and Plaintiffs make no attempt to connect these allegations

to the alter ego claims.

As a result, the allegations in paragraphs 7 and 12 cannot establish alter ego liability and

therefore have no bearing on any issue involved in this litigation. See Colaprico v. Sun Microsystems,

Inc., 758 F.Supp. 1335, 1339 (N.D.Cal. 1991). The Court grants AFBA and 5Star’s motion to strike

paragraphs 7 and 12. See Fed. R. Civ. Proc. 12(f).

2. Constructive Trust Allegations

Lovesy alleges a constructive trust in connection with his cause of action under the UCL.

Specifically, Lovesy claims that AFBA and 5Star “deprived [Lovesy] of the benefits to which he is

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entitled” and therefore “Defendants are involuntary trustees holding any proceeds obtained therefrom

in constructive trust.” SAC ¶ 102. Lovesy then alleges, “defendants have unjustly enriched by their

wrongful conduct, which thereby justifies the imposition of a constructive trust.” SAC¶ 103.

However, Lovesy is not entitled to restitution under any theory alleged in the SAC. Lovesy has

no vested right to the commissions purportedly deprived of him, and therefore, his request for restitution

is improper. Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1146-47 (2003). Lovesy’s

allegations in paragraphs 102 and 103 of the SAC can only relate to an improper claim for

nonrestitutionary disgorgement, and are in that respect, impertinent and immaterial. Bureerong, 922 F.

Supp. at 1479 n.34. Accordingly, AFBA and 5Star’s motion to strike is granted with respect to

paragraphs 102 and 103 of the SAC.

B. Shuey Defendants’ Motion

1. Alter Ego Allegations

Defendants argue that Plaintiffs have not sufficiently alleged that the Shuey defendants have

abused the corporate form such that “if the acts are treated as those of the corporation alone, an

inequitable result will follow.” In paragraph 11, Plaintiffs allege, without any explanation, that honoring

the corporate form of The Shuey Agency and TGS "would perpetrate a fraud upon the creditors of TSA

[The Shuey Agency] and TGS, including Mr. Lovesy." SAC ¶ 11. However, aside from this boilerplate

recitation of this element of alter ego liability, there is nothing alleged to support any claim that The

Shuey Agency or TGS abused their corporate privilege in bad faith or with the intent of prejudicing

creditors, such as Mr. Lovesy. See Cambridge Electronics Corp. v. MGA Electronics, Inc., 227 F.R.D.

313, 330 (C.D. Cal. 2004). Accordingly, Plaintiffs' conclusory allegations are insufficient to support a

finding of alter ego liability among Defendants. As such, the Court grants the Shuey Defendants'

Motion to Strike paragraph 11. 

2. Motion for a More Definite Statement

In the absence of any proper alter ego allegations, the SAC is vague and ambiguous in that it

references Defendants jointly in all causes of action against them. Accordingly, the Shuey Defendants'

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2

In recognition of the deficiency of their claims for damages, Plaintiffs provided the Court with

“proposed amendments” to their complaint. However, Plaintiffs have not properly noticed any motion

for leave to amend, and therefore the Court disregards these proposed amendments in analyzing the

9

Motion for a More Definite Statement is GRANTED with respect to all references to "the Shuey

Defendants". Plaintiffs must clarify each reference to "the Shuey Defendants" by specifying to which

of TGS, The Shuey Agency, or Ted Shuey the phrase refers each time it appears in the SAC. 

3. Punitive Damages

The Shuey Defendants next argue that Plaintiffs' prayer for relief for punitive damages is

improper because (1) Plaintiffs' claims sound in contract, not tort; (2) Plaintiffs cannot show by clear

and convincing evidence that Defendants' conduct was oppressive, fraudulent, or malicious; and (3) no

allegation of fraud has been properly pled by Plaintiffs. To be awarded punitive damages, Plaintiffs

must show: (1) breach of an obligation by Defendants not arising from contract (i.e. that Defendants

committed a tort); (2) Defendants committed a tort by clear and convincing evidence; and (3) in doing

so, Defendants were guilty of oppression, fraud or malice. Cal. Civ. Code § 3294(a). 

As discussed more fully below, the Court concludes that plaintiffs have properly alleged tort

claims against the Shuey Defendant, and therefore Plaintiffs may allege punitive damages. As such, the

Court denies Defendants' Motion to Strike Plaintiffs' prayer for relief for punitive damages at lines 1-2,

9-10 on page 21 and lines 1-2 on page 22 of the SAC.

4. Damages Under the UCL 

Plaintiffs seek "damages according to proof" for violation of the Unfair Competition Law

("UCL"). SAC at 22, ln. 7. Under California law, there is no doubt that damages are not permissible

under the UCL. Cal. Bus. & Prof. Code § 17203; see also, e.g., Bank of the West v. Superior Court, 2

Cal. 4th 1254, 1266 (1992) ("damages are not available under Section 17203"). Federal courts have

uniformly applied California law declaring damages impermissible under the UCL. See, e.g., Cacique,

Inc. v. Robert Reiser & Co., 169 F.3d 619, 624 (9th Cir. 1999). Accordingly, Defendants' Motion to

strike Plaintiffs' prayer for relief for damages under the UCL is granted, and the Court strikes line 7 on

page 22 of the SAC.2

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motions to strike and to dismiss.

10

II. Motions to Dismiss

A. AFBA and 5Star’s Motion

In addition to their motion to strike, defendants AFBA and 5Star have moved for dismissal of

the entire complaint.

1. Unfair Competition Law Claim

The Second Amended Complaint describes three theories under which Defendants allegedly

violated the UCL: (1) Defendants allegedly required Lovesy to employ the Shuey Defendants to process

policies, and the contract into which Lovesy and the Shuey Defendants entered prohibited Lovesy from

selling insurance products to members of the California National Guard other than those offered by

Defendants, in violation of California Business and Professions Code section 16600; (2) Defendants

allegedly failed to process policies sales representatives, like Lovesy, sold to the public; and (3)

Defendants allegedly refused to pay Lovesy commissions, overrides, and bonuses on sales made in the

region purportedly assigned to him. SAC ¶¶ 18-19.

Allegations of unlawful, unfair, or fraudulent acts under the UCL must be pled with a reasonable

degree of particularity. Silicon Knights, Inc. v. Crystal Dynamenics, Inc., 983 F. Supp. 1303, 1316

(N.D. Cal. 1997). To sufficiently plead a cause of action under the UCL, a plaintiff must state the

practice it believes is unfair, unlawful, or fraudulent; allege facts showing the unfair, unlawful, or

fraudulent nature of the practice; and generally aver that the harm associated with the unfair, unlawful,

or fraudulent practice outweighs its benefits. See Marshall v. Standard Ins. Co., 214 F. Supp. 2d 1062,

1071 (C.D. Cal. 2000) (claim dismissed where party failed to specify, with sufficient clarity, particular

practices which the party had alleged were unlawful).

i. California Business and Professions Code Section 16600

As part of their unfair business practices claim, plaintiffs allege that defendants have violated

California Business and Professions Code section 16600, which states “Except as provided in this

chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or

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business of any kind is to that extent void.” SAC ¶ 98.

Here, the SAC alleges that Defendants required Plaintiffs to “enter into an agreement with the

Shuey Defendants,” and that the “agreement presented by the Shuey Defendants” prohibits Plaintiffs

from selling to members of the California National Guard products other than those offered by

Defendants. SAC ¶ 97. However, the SAC fails to allege that Defendants were aware of the allegedly

offensive provision or that they played any role in ensuring that clause would be included in the Shuey

Defendants’ contract. Plaintiffs do not dispute this fact. See Pl.’s Opp’n to Motion to Dismiss, at 13.

Rather, Plaintiffs argue that the Court can infer that Defendants had knowledge of the provision. Id.

However, in deciding a motion to dismiss, the Court should not accept conclusory allegations

as true and should not assume that a plaintiff can prove facts different from those it has alleged.

Transphase Sys., Inc. v. S. Cal. Edison Co., 839 F. Supp. 711, 718 (C.D. Cal. 1993); Assoc. Gen.

Contractors of Cal., Inc. v. Cal. State Council of Carpenters, Inc., 459 U.S. 519, 526 (1983). Plaintiffs

do not allege that AFBA and 5Star were either signatories to the restrictive agreements or that they were

even aware of the restrictive terms. Accordingly, plaintiffs have failed to allege a violation of section

16600 with respect to AFBA and 5Star.

ii. Failure to Process Policies

Plaintiffs’ second theory for relief under the UCL fails because Defendants had no independent,

non-contractual duty to process the policies. Moreover, all of the facts cited by Plaintiffs in their support

of their argument on this point are being raised for the first time in their opposition papers, and may not

be considered by the Court. See Pl.s’ Opp’n to Motion to Dismiss at 16; Broam v. Bogan, 320 F.3d

1023, 1026 n.2 (9th Cir. 2003).

iii. Interference with Income from the Assigned Region

Defendants argue that Plaintiffs’ third theory of relief under the UCL also fails as a matter of law

because the allegations regarding exclusivity in the Second Amended Complaint are contradicted by the

Agreements. In the Second Amended Complaint, Plaintiffs allege that Lovesy was entitled to sell

Defendants’ insurance products exclusively in five states. Plaintiffs allege that, “[u]nder the September

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10, 2001 Regional Sales Director Agreement,” Lovesy was entitled to serve as regional director in the

States of Arizona, California, Nevada, New Mexico, and Utah. SAC ¶ 20. However, the Regional Sales

Director Agreement contains an empty field for the assigned region. Plaintiffs argue that they will offer

parol evidence showing that the regional terms were in fact included in the agreement, though not

drafted into the contract. Plaintiffs fail to reference this purported parol evidence in the Second

Amended Complaint. Moreover, even if parol evidence might demonstrate the existence of an

exclusivity agreement, Plaintiffs must provide Defendants with notice of the fact of the agreement.

Otherwise, Plaintiffs would be allowed to deliberately omit references to documents upon which their

claims are based in order to withstand a motion to dismiss. Parrino v. FHP, Inc., 146 F.3d 699, 706

(1998). Therefore, given that the judicially noticeable agreements to do not support Plaintiffs’

allegations, Plaintiffs are under the obligation to at least identify the parol evidence on which their

allegations rely. They have failed to do so.

Therefore, based on the facts alleged in the SAC, Plaintiffs cannot state a cause of action under

the UCL. Accordingly, Plaintiffs’ UCL claim is dismissed with respect to AFBA and 5Star.

2. Breach of Contract and the Covenant of Good Faith and Fair Dealing

i. Contract Claims as to 5Star

Plaintiffs allege that AFBA and 5Star breached the Agreements by refusing to pay various

commissions, bonuses, and overrides purportedly owed to Lovesy. Specifically, Plaintiffs claim an

entitlement to commissions that Lovesy would have earned (1) selling products offered by Defendants’

competitors, (2) selling products in the assigned region, and (3) selling products under the Agreements

had Defendants not terminated the Agreements. SAC ¶¶ 53-56.

Defendants offer the specious argument that plaintiffs are required to allege the specific

provisions of the contract that were allegedly breached, as well as identify the specific sales for which

payment is allegedly due. Mot. at 14. Defendants provide absolutely no legal support for these

propositions, and on their face they contravene Rule 8’s “short and plain statement.” requirement. While

the absence of any particular contract provisions of identifiable sales may be dispositive issues at

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summary judgment, they are not relevant at the dismissal stage.

As Defendants’ arguments related to the breach of the covenant of good faith and fair dealing

claims are based on their arguments against the breach of contract claims (See Mot. at 16-19), those

argument are similarly ineffectual. Therefore, the breach of contract claims will not be dismissed as to

5Star.

ii. Contract Claims as to AFBA

Unlike 5Star, AFBA is not a party to any of the contracts at issue in this case. Plaintiff argues

that because AFBA’s logo appears on the top page of one the contracts, and therefore the Court can infer

that AFBA was somehow connected with the contracts. See Opp’n at 2. However, whether or not

AFBA’s logo appears on the top page of one the contracts has no bearing on whether AFBA is a party

to the contracts, which requires the manifestation or expression of consent to the contract. See Cal. Civ.

Code §§ 1550, 1565. The complaint’s sole alleged source of contractual liability as to AFBA are the

alter ego allegations, which the Court has stricken. Accordingly, the contract claims as to AFBA are

dismissed without prejudice.

3. Accounting

Defendants contend that no claim for an accounting may lie here, relying primarily on their

arguments related to the dismissal. See Reply at 10. An action for accounting may lie where in cases

in which the accounts involved are so complicated that an ordinary action at law demanding a fixed sum

is not practicable. See San Pedro Lumber Co. v. Reynolds, 111 Cal. 588, 596-97 (1896); Brea v.

McGlashan, 3 Cal. App. 2d 454, 460 (1934). The plaintiff must allege that the defendant committed

some form of misconduct, violated a fiduciary duty, or otherwise owes money to the plaintiff. See Union

Bank, 31 Cal. App. 4th at 593-94.

An accounting is proper here on the facts alleged in the SAC. As alleged, the amount at issue

here (i.e., commissions that Lovesy would have earned) is not certain and cannot be determined without

discovery.

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B. The Shuey Defendants’ Motion

Defendants Theodore G. Shuey, Jr., TGS Group, Inc., and The Shuey Agency, Inc. (collectively

"the Shuey Defendants") also move for dismissal of the claims against TGS for lack of personal

jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2), the Second Amended Complaint as

a whole for lack of standing on behalf of Brad Lovesy and Pacific Consolidated Investments, Inc., and,

additionally, to dismiss Plaintiffs’ Third, Fourth, Seventh and Eighth Causes of Action pursuant to

Federal Rule of Civil Procedure 12(b)(6). 

1. Personal Jurisdiction Over TGS

Defendants have moved to dismiss TGS from this action based on lack of personal jurisdiction.

To establish that personal jurisdiction over a defendant is proper, laintiff must show that (1) California's

long-arm statute confers personal jurisdiction over a defendant, and (2) that the exercise of jurisdiction

comports with the constitutional principles of due process. See Haisten v. Grass Valley Medical

Reimbursement Fund, Ltd., 784 F.2d 1392, 1396 (9th Cir. 1986). This second element is satisfied if a

defendant has minimum contacts with the forum state "such that maintenance of the suit does not offend

traditional notions of fair play and substantial justice." Int'l Shoe Co. v. Washington, 326 U.S. 310, 316

(1945). Moreover, personal jurisdiction may arise as either general jurisdiction over the defendant for

all purposes or as specific jurisdiction over a specific cause of action involving the defendant. See Data

Disc, 557 F.2d at 1287. General jurisdiction over a defendant is appropriate if the defendant's activities

in the state are "substantial" or "continuous and systematic." Haisten, 784 F.2d at 1396; Data Disc., 557

F.2d at 1287. 

With respect to specific jurisdiction, the Ninth Circuit has adopted the following test: 

(1) The nonresident defendant must do some act or consummate some transaction with

the forum or perform some act by which he purposefully avails himself of the privilege

of conducting activities in the forum, thereby invoking the benefits and protections of

its laws. 

(2) The claim must be one which arises out of or results from the defendant's

forum-related activities.

(3) Exercise of jurisdiction must be reasonable.

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Doe v. Unocal Corp., 248 F.3d 915, 923 (9th Cir. 2001).

In support of their Motion, Defendants submitted a Declaration from Theodore G. Shuey, Jr.

claiming that TGS is a Virginia corporation and that TGS does not engage in any business in California.

Consequently, Plaintiff must make some affirmative showing establishing that TGS is subject to

personal jurisdiction in California. See Rio Properties, Inc. v. Rio Int'l Interlink, 284 F.3d 1007, 1019

(9th Cir. 2002). 

Here, Plaintiffs have specifically set forth evidence that TGS, a Virginia corporation, has

conducted "substantial" or "continuous and systematic" business activities in California. Plaintiffs have

provided numerous communications between Lovesy, a California resident, and TGS that

unambiguously demonstrate that TGS was engaged in business in California through the processing of

policies on Lovesy’s behalf. See Grover Decl., Exs A-C. The only substantive response offered by the

Shuey Defendants to this evidence is that “the communications between Mr. Lovesy and TGS occured

in response to contact initiated by Mr. Lovesy,” and therefore “these communications cannot be used

as evidence of TGS’ “purposefulness to engage in business activities in California.” Opp’n at 2.

However, the evidence evinces mutual communications between the parties regarding the

consummation of business transactions. See Grover Decl. Ex B. Accordingly, plaintiffs have sufficiently

demonstrated that TGS has “purposefully avail[ed] [itself] of the privilege of conducting activities” such

that this Court may properly exercise specific personal jurisdiction over it. Unocal Corp., 248 F.3d at

923. Therefore, the Shuey Defendants’ motion to dismiss the claims against TGS for lack of personal

jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(2) is DENIED.

2. Standing To Maintain The Instant Action 

However, the Shuey Defendants’ arguments that neither Pacific Consolidated, nor Brad Lovesy

as an individual, currently have standing to maintain the contract actions have more merit. The Court

addresses them in turn.

i. Pacific Consolidated

Plaintiffs' claims against Defendants in the SAC arise out of the Shuey Agreement, which was

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However, Defendants do not deny that to the extent the SAC contains viable tort claims, Pacific

Consolidated has standing to bring those claims. See Shuey Defendants’ Reply at 4.

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an agreement between The Shuey Agency and The Brad Lovesy Group, signed by Mr. Shuey and Mr.

Lovesy, respectively. The Shuey Agreement does not reference Pacific Consolidated as a party to the

contract, nor has Mr. Lovesy alleged any facts to indicate Pacific Consolidated was a party to the

contract. To the extent that the claims in the SAC against Defendants arise from breach of the Shuey

Agreement, Pacific Consolidated has not suffered any injury, and thus, does not have standing to state

a claim for relief against Defendants. See Pillsbury v. Karmgard, 22 Cal. App. 4th 743, 757-758 (1994)

(finding standing to sue goes to the existence of a cause of action); Stocks v. City of Irvine, 114 Cal.

App. 3d 520, 531 (1981) (stating standing requires a plaintiff to have suffered or is about to suffer an

injury). The breach of contract claims by Pacific Consolidated against Defendants are therefore

dismissed with prejudice.3 

ii. Brad Lovesy

California Business and Profession Code section 17918 prohibits a person transacting business

under a fictitious business name from maintaining any action upon or on account of any contract made

in the fictitious business name, until that person has properly executed, filed, and published a fictitious

business name statement. See Cal. Bus. & Prof. Code § 17918. Here, the Shuey Agreement was

between The Brad Lovesy Group and The Shuey Agency. Plaintiffs have admitted that Mr. Lovesy

conducted business under the name of The Brad Lovesy Group. Therefore, for Mr. Lovesy to maintain

the instant action, he must have properly registered his fictitious business name of The Brad Lovesy

Group in accordance with § 17918. Failure to do so prevents Mr. Lovesy from maintaining this action.

Plaintiffs concede that Mr. Lovesy has failed to file a the fictitious business name statement in

accordance with § 17918. Therefore, Mr. Lovesy cannot maintain the instant action against Defendants.

However, the remedy for non-compliance with § 17918 is abatement, rather than dismissal, of the

action. The California Supreme Court has said of the fictitious business name statute: "Noncompliance

merely prevents a fictitiously named business from enforcing obligations owed to it until it places on

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record its true nature and ownership." Duffy v. Ladbroke Corp., 246 F.3d 673 (9th Cir. 2000) (quoting

Hydrotech Systems, Ltd. v. Oasis Waterpark, 52 Cal.3d 988, 1001 (1991)). The remedy for failure to file

a fictitious business name statement is abatement of the action until the plaintiff files the statement. Id.

(citing Rushing v. Powell, 130 Cal.Rptr. 110, 113 (1976)).

Given the Court will provide plaintiffs with leave to amend, plaintiffs are advised to include the

requisite allegations of compliance with § 17918 in any amended complaint; failure to do so may result

in sua sponte dismissal of the action as to Brad Lovesy.

3. Tort Causes of Action 

i. Interference with contract

As a matter of law, a claim for interference with contract is improper if the contract is "at-will."

Reeves v. Hanlon, 33 Cal. 4th 1140, 1151 (2004) (interference with an at-will contract is more properly

viewed as interference with a prospective economic advantage). Plaintiffs' claim for intentional

interference with contract fails as a matter of law because the AFBA/5Star Agreements permitted either

Plaintiffs or AFBA and 5Star to terminate the agreements with or without cause, thereby making them

"at-will" contracts. Therefore, Plaintiffs' claim for interference with contract is dismissed with

prejudice. 

ii. Intentional interference with prospective economic advantage 

claim

The gravamen of Plaintiffs' causes of action for intentional interference with contract and

intentional interference with prospective economic advantage is that the Shuey Defendants interfered

with the AFBA/5Star Agreements by breaching the Shuey Agreement. SAC ¶¶ 64-65, 72-73. To state

a cause of action for intentional interference with prospective economic advantage, Plaintiffs must plead

(1) an economic relationship between the plaintiff and some third party, with the probability of future

economic benefit to the plaintiff; (2) the defendants' knowledge of the relationship; (3) intentional acts

on the part of the defendant designed to disrupt the relationship; (4) actual disruption of the relationship;

and (5) economic harm to the plaintiff proximately caused by the acts of the defendant. Korea Supply

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Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1153 (2003). Intentional interference with prospective

economic advantage also requires Plaintiffs to allege that the conduct alleged to constitute the

interference was unlawful for reasons other than that it interfered with a prospective advantage. See

CRST Van Expedited, Inc. v. Werner Enters., 479 F.3d 1099, 1108 (9th Cir. 2007).

Here, Plaintiffs allege that the Shuey Defendants "engaged in intentional acts designed to disrupt

the relationship" including "failing and refusing to collect the initial premiums on contracts that were

sold, failing and refusing to follow up when service members were not making timely payments, and

engaging in direct sales within the Assigned Region." SAC ¶ 74. Such alleged wrongful acts are not

independent of the Shuey Defendants' purported interference with the AFBA/5Star Agreements and

cannot form the basis of an intentional interference with prospective economic advantage claim.

However, Plaintiffs argue they satisfy the independent wrongful act requirement insofar as they allege

that "the Shuey Defendants' actions were wrongful in that they constituted a fraud upon the service

members who purchased the policies" SAC ¶ 75. Defendants counter that such this allegation is wholly

conclusory and does not specifically identify the independent wrongful acts Defendants committed, nor

does it plead the fraud with any particularity. See Fed. R. Civ. P. 9(b). 

The Court agrees that merely alleging, without any further explanation that “Defendants'

[unidentified] actions were wrongful in that they constituted a fraud upon the service members who

purchased the policies,” is insufficient to allege an independently wrongful act. Plaintiffs must, at the

very least, identify the wrongful actions that allegedly constitute “fraud upon the service members who

purchased the policies.” Accordingly, Plaintiffs fail to state a claim for intentional interference with

prospective economic advantage, and this claim is dismissed. 

iii. Fraud

In California, common law fraud requires pleading five elements: (1) misrepresentation; (2)

knowledge of falsity; (3) intent to defraud or induce reliance; (4) justifiable reliance; and (5) resulting

damage. Cal. Civ. Code § 1709; see Philipson & Simon v. Gulsuig, 154 Cal. App. 4th 347, 363 (2007).

Moreover, fraud must be pled with particularity. Fed. R. Civ. P. 9(b). Allegations of fraud must be

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"specific enough to give defendants notice of the particular misconduct . . . so that they can defend

against the charge and not just deny that they have done anything wrong." Vess, 317 F.3d at 1106

(internal citations omitted). 

Plaintiffs allege that Shuey fraudulently made a verbal representation to Lovesy that all

premiums due for the AFBA and 5Star policies would be timely collected through payroll deduction and

there would be no resulting charge backs. However, Plaintiffs have failed to allege an essential element

of a claim for fraud, namely, that Shuey knew, at the time of the alleged misrepresentation, that

Defendants could not collect the premiums due for the AFBA and 5Star policies as represented and that

AFBA and 5Star would assess charge backs to Plaintiffs. While Plaintiffs argue that the mere fact the

Shuey allegedly failed to timely process the applications is sufficient for the Court to infer that he knew

that his representations prior to entering in to the contract were false (see SAC ¶¶ 32-38), this is simply

not the case; Shuey’s failure to perform is wholly consistent with a good faith belief, prior to entering

the contract, that he would be able to perform. The SAC is simply devoid of any allegations that Shuey

made a knowingly false statement, and therefore Plaintiffs' seventh cause of action for fraud against the

Shuey Defendants is dismissed. 

4. UCL claim

In order to state a violation of section 16600, a plaintiff is required to allege that the contract

placed a "substantial segment of the market off limits,"such that the contract "effectively destroy[ed]

the signatory's ability to conduct a trade or business." Gen. Comm. Packaging v. TPS Package, 126 F.3d

1131, 1133 (9th Cir. 1997). The Shuey Defendants contend that Plaintiffs fail to state sufficient facts

to support the contention that The Shuey Agreement prevented Lovesy from engaging in his profession

of selling insurance products by placing a substantial segment of the market off limits. 

However, the question of whether the Shuey Agreement “effectively destroy[ed] the signatory's

ability to conduct a trade or business” is a factual question not appropriate for resolution at this stage.

Plaintiffs allege that the Shuey Agreement “inhibited Plaintiffs from doing business with a substantial

portion on the market . . . which deprived Mr. Lovesy of the benefits and privileges and concomitant

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monetary gains to which he was entitled.” SAC ¶ 98. Whether this amounts to "effectively destroying

the signatory's ability to conduct a trade or business" in this case would require the examination of

extrinsic factual matters, and therefore this issue is not appropriate for resolution pursuant to Rule

12(b)(6). Accordingly, the Court finds that Plaintiffs have sufficiently plead an UCL claim with respect

to the Shuey Defendants, subject to the Courts granting of the motion for a more definite statement.

C. 5Star Financial’s Motion

Defendant 5Star Financial LLC (“5Star Financial) specially appears in order to move to dismiss

the SAC under Rule 12(b)(2) of the Federal Rules of Civil Procedure on the ground that this Court lacks

personal jurisdiction over 5Star Financial.

5Star Financial submitted the declaration of Michael Kimo Wong in support of its contention

that 5Star Financial has no direct contacts with the State of California. According to Wong, 5Star

Financial is a limited liability company existing under the laws of the Commonwealth of Virginia, with

its only place of business in Alexandria, Virginia. See Wong Decl. ¶ 3. 5Star Financial is a holding

company, which houses for-profit corporations in which AFBA, a non-profit voluntary employees’

beneficiary association, has made arm’s length investments and, which in turn, provide services and

products to the general marketplace, including to members of AFBA. Wong Decl. ¶ 7. Under 5Star

Financial’s umbrella are three for-profit entities, 5Star Bank, 5Star Life, and AFBA5Star Fund, Inc., as

well as four limited operational subsidiaries. Wong Dec. ¶ 6.

5Star Financial has no operations of its own. Wong Dec.¶ 8. It does not have any offices,

employees, telephone listings, or mailing addresses in California, and has never paid taxes to or owned

real property in California. Wong Dec. ¶ 9. 5Star Financial is not, and has never been, required to have

a designated agent for service of process in California, and has never held board or shareholder meetings

in California. Wong Dec.¶¶ 12-13. 5Star Financial owns only one piece of real property and has only

one member (shareholder) – both of which are located in Virginia. Wong Dec.¶¶ 4-5.

On a motion to dismiss challenging the Court’s exercise of jurisdiction over the defendant under

Rule12(b)(2), the plaintiff bears the burden of establishing that the court has jurisdiction over the

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defendant. Data Disc, 557 F.2d at 1285 (“[i]t is clear that the party seeking to invoke the jurisdiction

of the federal court has the burden of establishing that jurisdiction exists.”). A court “may not assume

the truth of allegations in a pleading which are contradicted by affidavit.” Id. at 1284.

Plaintiffs have come forward with no evidence challenging the assertions in Wong’s affidavit,

but instead oppose the motion on the confused theory that they must only demonstrate that they have

pled a “prima facie” showing of jurisdiction and are under no obligation to come forward with any

evidence supporting their jurisdictional allegations. This is simply mistaken. For purposes of a motion

to dismiss pursuant to Rule 12(b)(2), “it is appropriate when considering jurisdictional issues to look

beyond the pleadings to any evidence before the Court.” Mitan v. Feeney, 497 F.Supp.2d 1113, 1118

(C.D. Cal.2007). 

Plaintiffs bear the burden of demonstrating that the court has jurisdiction over the defendant, and

may not simply rest on allegations in a pleading which are contradicted by affidavit. Data Disc, 557

F.2d at 1285. Here, plaintiffs have provided no evidence, instead, arguing that, to the extent they are

required to do so, they should be provided with any opportunity to obtain jurisdictional discovery. In

order to obtain discovery on jurisdictional facts, the plaintiff must at least make a “colorable” showing

that the Court can exercise personal jurisdiction over the defendant. Id. This “colorable” showing “could

be equated as requiring the plaintiff to come forward with ‘some evidence’ tending to establish personal

jurisdiction over the defendant.” Id. (citing eMag Solutions, LLC v. Toda Kogyo Corp., 2006 WL

3783548, at *2 (N.D.Cal. Dec.21, 2006).

However, Plaintiffs have failed to make even a “colorable” showing, and instead rely entirely

on their allegations in the complaint, which are contradicted by Wong’s sworn affadavit. “Where a

plaintiff's claim of personal jurisdiction appears to be both attenuated and based on bare allegations in

the face of specific denials made by the defendants, the Court need not permit even limited

discovery....”Pebble Beach Co. v. Caddy, 453 F.3d 1151, 1160 (9th Cir. 2006) (quoting Terracom v.

Valley Nat. Bank, 49 F.3d 555, 562 (9th Cir.1995)). Given that Plaintiffs’ claim of personal jurisdiction

are “based on bare allegations in the face of specific denials made by the defendants,” the Court holds

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that Plaintiffs are not entitled to jurisdictional discovery. Accordingly, 5Star Financial LLC motion to

dismiss pursuant to Rule 12(b)(2) is GRANTED.

CONCLUSION

Accordingly, for the reasons articulated above, the Court rules as follows:

 1. AFBA and 5Star’s Motion to Strike [Docket No. 39] is GRANTED. Paragraphs 12, 102, and

103 are hereby STRICKEN.

2. The Shuey Defendants' Motion to Strike [Docket No. 43] is GRANTED with respect to

Paragraphs 11 and 12 in their entirety and Line 7 on page 22: "For damages according to proof,” and

DENIED in all other respects, however the Shuey Defendants' Motion for a More Definite Statement

[Docket No. 43] is GRANTED. Plaintiffs' shall provide a more definite statement with respect to all

references to "the Shuey Defendants" in the Second Amended Complaint. Specifically, Plaintiffs must

state, with respect to each reference to "the Shuey Defendants", whether the phrase refers to TGS, The

Shuey Agency, or Ted Shuey. 

3. AFBA and 5Star’s Motion to Dismiss [Docket No. 40] is GRANTED WITHOUT

PREJUDICE with respect to the UCL claim as to AFBA and 5Star, the breach of contract claim as to

AFBA only, and breach of the covenant and good faith and fair dealing as to AFBA only, and is

DENIED in all other respects.

4. The Shuey Defendants’ Motion to Dismiss [Docket No. 44] is GRANTED WITH

PREJUDICE with respect to the breach of contract claim as to Pacific Consolidated and the interference

with contract claim, WITHOUT PREJUDICE as to the intentional interference with prospective

economic advantage and fraud claims, and is DENIED in all other respects..

5. 5Star Financial LLC’s Motion to Dismiss pursuant to Rule 12(b)(2) [Docket No. 48] is

GRANTED WITH PREJUDICE.

6. Defendants’ request for judicial notice of the complaint and the Case Management

Statement [Docket No. 41] is GRANTED.

 Plaintiffs are hereby granted leave to filed an amended complaint no later than 20 days of the

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filing date of the Court's Order only if they can allege, in good faith, an adequate factual basis for their

allegations and can allege specific facts supporting all of the required elements of their causes of action

with respect to each named defendant. 

IT IS FURTHER ORDERED THAT a case management conference is scheduled for May 21,

2008 at 2:45 p.m. The parties shall meet and confer prior to the conference and shall prepare a joint Case

Management Conference Statement which shall be filed no later than 10 days prior to the Case

Management Conference that complies with the Standing Order For All Judges Of The Northern

District Of California and the Standing Order of this Court. Plaintiffs shall be responsible for filing the

statement as well as for arranging the conference call. All parties shall be on the line and shall call (510)

637-3559 at the above indicated date and time. 

IT IS SO ORDERED.

 Dated: 3/13/08 SAUNDRA BROWN ARMSTRONG

United States District Judge

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