Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-01358/USCOURTS-caed-2_04-cv-01358-27/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1145 E.R.I.S.A.

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

JAMES P. DeFAZIO, et al.,

NO. CIV. S-04-1358 WBS GGH

Plaintiffs,

v. MEMORANDUM AND ORDER RE:

DEFENDANTS’ MOTIONS TO 

DISMISS; DEFENDANTS’ MOTION TO

STRIKE; PLAINTIFFS’ MOTION TO 

SET ASIDE JUDGMENT

HOLLISTER, INC.; et al.,

Defendants.

 ----oo0oo----

Currently before the court are seven separate motions 

to dismiss this action by all or various defendants pursuant to

Federal Rules of Civil Procedure 8(a), 12(b)(1), and 12(b)(6), as

well as a motion to strike certain requests from plaintiffs’

third amended complaint pursuant to Federal Rule of Civil

Procedure 12(f). Also pending is a motion by plaintiffs to set

aside judgment in favor of defendants Stempinski, Winn, and

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1 The significant factual and procedural history of this

case are described in greater detail in Judge Karlton’s prior

orders of April 12, 2006 and February 23, 2005. For the purposes

of these motions, familiarity with those documents are assumed. 

2 Except for Kathleen Ellis, all plaintiffs are

represented by Lynn Hubbard and Scottlynn Hubbard. Both

complaints contain similar, if not identical, allegations. Ellis

alleges an additional cause of action for failure to comply with

a valid qualified domestic relation order (“QDRO”). Accordingly,

the court will refer to the third amended complaints as the

DeFazio TAC and the Ellis TAC. 

2

Herbert by acts of fraud, misrepresentation, and misconduct. 

I. Factual and Procedural Background1

In these consolidated cases, plaintiffs James P.

DeFazio, Kathleen Ellis, Brenda Dimaro, Hallie Lavick, Theresa

Beetham, DeLane Humphries, Sonya Pace, Judy Seay, Nancy Russell

Stanton, and Cindy Worth (“plaintiffs”) allege that defendants

Hollister, Inc., Hollister Employee Share Ownership Trust

(“HolliShare” or the “Plan”), The Firm of John Dickinson

Schneider, Inc. (“JDS”), Samuel Brilliant, Richard I. Fremgen,

Donald K. Groneberg, Charles H. Gunderson, Alan F. Herbert, James

A. Karlovsky, Lori Kelleher, James J. McCormack, Charles C.

Schellentrager, Howard I. Simon, Loretta L. Stempinski, Michale

C. Winn, and Richard T. Zwirner (“defendants”) violated the

Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. §§

1001 et seq. (DeFazio Third Amended Complaint (“TAC”); Ellis

TAC.)2 

 Plaintiffs are beneficiaries of HolliShare. (DeFazio

TAC ¶ 1; Ellis TAC ¶ 1.) Defendants are the Plan, the entities

that own or owned the voting shares of JDS stock, and the

trustees of those entities. (DeFazio TAC ¶ 2; Ellis TAC ¶ 2.) 

On February 23, 2005, Judge Karlton denied defendants’

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motion to transfer venue, but granted defendants’ motions to

dismiss causes of actions related to certain ERISA prohibited

transactions and stock valuation because they were barred by the

statute of limitations. (February 23, 2005 Order.) Judge

Karlton also denied defendants’ motion to dismiss DeFazio’s QDRO

claims. On April 12, 2006, Judge Karlton found that (1)

plaintiffs stated a valid claim that defendants engaged in

prohibited ERISA transactions; (2) Ellis stated a valid QDRO

claim; (3) plaintiffs had standing to sue under ERISA; (4) the

“Settlor Doctrine” did not prohibit plaintiff’s claims; (5) JDS

is a de facto fiduciary under the pleadings; (6) claims against

Stepinski were barred by the statute of limitations. (April 12,

2006 Order (Case Nos. 05-559 Docket No. 102).) Judge Karlton

deferred his ruling on defendants’ motion to dismiss with respect

to defendants Winn and Herbert. (Id.) On June 27, 2007, Judge

Karlton held that plaintiffs did not comply with the court’s

order to file a further opposition or concession of nonopposition within the prescribed time and entered final judgment

dismissing Winn and Herbert pursuant to its April 12, 2006

opinion. (June 27, 2006 Order (Docket No. 111).) 

After being transferred from Judge Karlton to Judge

Levi and back to Judge Karlton, this case was transferred to the

undersigned on March 28, 2007. Pursuant to a stipulation order

of June 25, 2007, plaintiffs filed their TACs on June 29 and 30,

2007. The DeFazio complaint alleges twelve causes of action

under ERISA: (1) defendants allowed Plan assets to improperly

benefit the employer sponsor; (2) defendants violated fiduciary

duties to Plan participants and beneficiaries; (3) defendants

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3 DeFazio’s QDRO claims appear in paragraphs 72 through

74 of his TAC. It is not plead as a separate cause of action,

but a part of his general breach of fiduciary duty claims. 

4

breached their duty of care; (4) defendants failed to diversify

Plan investments and act prudently; (5) defendants violated the

terms of the Plan; (6) defendants concealed breaches of fiduciary

duty by their co-fiduciaries; (7) defendants failed to prevent

breaches of fiduciary duties by their co-fiduciaries; (8)

defendants failed to cure breaches of fiduciary duty by their cofiduciaries; (9) defendants failed to use reasonable care; (10)

defendants used an instrument to relieve themselves of their

responsibilities under ERISA; (11) defendants engaged in

prohibited transactions by selling Plan assets to JDS for

inadequate consideration; and (12) defendants engaged in

prohibited transactions by selling Plan assets to JDS for a

promissory note. Ellis does not join in DeFazio’s fourth and

eleventh causes of action, and adds a cause of action for failure

to comply with a valid QDRO.3 (Ellis TAC ¶¶ 96-102.) 

On August 29, 2007, defendants filed seven motions to

dismiss and a one motion to strike. On September 12, 2007,

plaintiffs filed a motion to set aside the judgments obtained in

favor of defendants Winn, Stepinski, and Herbert, because of acts

of fraud, misrepresentation, and concealment. The court heard

oral arguments on October 29, 2007.

II. Discussion

A. Motions to Dismiss

On a motion to dismiss, the court must accept the

allegations in the complaint as true and draw all reasonable

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4 Defendants request the court take judicial notice of

several documents referenced in plaintiffs’ TACs. The court

takes judicial notice of all of these documents referenced in

5

inferences in favor of the pleader. Scheuer v. Rhodes, 416 U.S.

232, 236 (1974); Cruz v. Beto, 405 U.S. 319, 322 (1972). To

survive a motion to dismiss, a plaintiff needs to plead “only

enough facts to state a claim to relief that is plausible on its

face.” Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1974 (2007). 

Dismissal is appropriate, however, where the pleader fails to

state a claim supportable by a cognizable legal theory. 

Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir.

1988).

In general, the court may not consider material other

than the facts alleged in the complaint when deciding a motion to

dismiss. Anderson v. Angelone, 86 F.3d 932, 934 (9th Cir. 1996)

(“A motion to dismiss . . . must be treated as a motion for

summary judgment . . . if either party . . . submits materials

outside the pleadings in support or opposition to the motion, and

if the district court relies on those materials.”). However, the

court may consider materials of which it may take judicial

notice, including matters of public record. Mir v. Little Co. of

Mary Hosp., 844 F.2d 646, 649 (9th Cir. 1988); Fed. R. Evid.

201(b) (defining the scope of judicial notice); see also Mack v.

S. Bay Beer Distribs., 798 F.2d 1279, 1282 (9th Cir. 1986)

(noting that reliance on matters of public record “does not

convert a Rule 12(b)(6) motion to one for summary judgment”),

abrogated on other grounds by Astoria Fed. Sav. & Loan Ass’n v.

Solimino, 501 U.S. 104 (1991).4 

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Docket No. 241. Branch v. Tunnel, 14 F.3d 449, 454 (9th Cir.

1994), overruled on other grounds, Galbraith v. County of Santa

Clara, 307 F.3d 1119 (9th Cir. 2002) (Courts may properly review

“documents whose contents are alleged in the complaint and whose

authenticity no party questions, but which are not physically

attached to the plaintiff’s pleading.”).

6

Federal courts are courts of limited jurisdiction, only

authorized to adjudicate those cases which the Constitution and

Congress permit. Kokkonen v. Guardian Life Ins. Co. of Am., 511

U.S. 375, 377 (1994). “A federal court is presumed to lack

jurisdiction in a particular case unless the contrary

affirmatively appears.” Stock W., Inc. v. Confederated Tribes of

the Colville Reservation, 873 F.2d 1221, 1225 (9th Cir. 1989)

(citing Cal. ex rel. Younger v. Andrus, 608 F.2d 1247, 1249 (9th

Cir. 1979)). 

When considering a motion to dismiss for lack of

subject matter jurisdiction, the district court may properly

review evidence outside the pleadings to resolve factual disputes

concerning the existence of jurisdiction. Land v. Dollar, 330

U.S. 731, 735 n.4 (1947) (“[W]hen a question of the District

Court’s jurisdiction is raised, either by a party or by the court

on its own motion . . . the court may inquire, by affidavits or

otherwise, into the facts as they exist.”); see also Biotics

Research Corp. v. Heckler, 710 F.2d 1375, 1379 (9th Cir. 1983)

(consideration of material outside of the pleadings does not

convert a Rule 12(b)(1) motion into a summary judgment motion). 

However, when the district court does not hold an evidentiary

hearing, the factual allegations in the complaint should be

accepted as true. McLachlan v. Bell, 261 F.3d 908, 909 (9th Cir.

2001). 

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5 There are additional plaintiffs and defendants and

additional causes of action in the TAC compared to the original

complaint. However, for those causes of action that are

substantially the same and involve substantially the same

allegations, the court applies the law of the case doctrine. 

Defendants do not argue or provide adequate support that the

court should disregard that doctrine here. 

7

Defendants’ move to dismiss for the second time in this

case. Since defendants also brought a motion to dismiss in the

related cases, Case Nos. 05-559 and 05-1726, it is really their

third. In addition to challenging claims made in plaintiffs’ TAC

that were not in the original complaint, defendants’ motions

reprise arguments Judge Karlton rejected in the previous motions

to dismiss. The court will first consider issues previously

decided by Judge Karlton before turning to the “new” claims in

the TAC. 

“Under the law of the case doctrine, a court is

generally precluded from reconsidering an issue that has already

been decided by the same court, or a higher court in the

identical case.” United States v. Alexander, 106 F.3d 874, 876

(9th Cir. 1997) (citations and internal quotation marks omitted). 

Courts have discretion to reconsider a previous ruling where “(1)

the first decision was clearly erroneous; (2) an intervening

change in the law has occurred; (3) the evidence on remand is

substantially different; (4) other changed circumstances exist;

or (5) a manifest injustice would otherwise result.” Id.; see

also LR 78-230(k).5 

Defendants ask for reconsideration of Judge Karlton’s

rulings that (1) plaintiffs have standing, (2) the settlor

doctrine does not bar plaintiffs’ claims, (3) the merits of

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plaintiffs’ inadequate compensation claim cannot be decided on a

motion to dismiss, (4) JDS is a de facto fiduciary, and (5) the

merits of DeFazio and Ellis’s QDRO claims cannot be decided on a

motion to dismiss. As discussed below, however, they have failed

to demonstrate that these rulings were clearly erroneous or that

there has been any relevant intervening change in law or fact. 

Accordingly, the court must deny defendants’ motions to dismiss

for lack of subject matter jurisdiction, pursuant to Federal Rule

of Civil Procedure 12(b)(1) (Docket No. 234); JDS’s motion to

dismiss for failure to state a claim, pursuant to Federal Rule of

Civil Procedure 12(b)(6) (Docket No. 236); portions of

defendants’ motion to dismiss for failure to state a claim upon

which relief may be granted, pursuant to Federal Rule of Civil

Procedure 12(b)(6) (Docket No. 233); and portions of Hollister’s

motion to dismiss for failure to state a claim, pursuant to

Federal Rule of Civil Procedure 12(b)(6) (Docket No. 238).

1. ERISA Standing

Defendants argue that plaintiffs lack standing to bring

this action because they are not Plan “participants” within the

meaning of ERISA. In ruling on defendants’ last motion to

dismiss, Judge Karlton held that plaintiffs have standing under

Amalgamated Clothing because they allege that defendants “us[ed]

the Plan for their benefit . . . as a personal holding company,

and as a billion dollar tax shelter.” (April 12, 2006 Order 13.)

An ERISA retirement plan “participant” is “any employee

or former employee of an employer or any member or former member

of an employee organization, who is or may become eligible to

receive a benefit of any type from an employee benefit plan.” 29

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U.S.C. § 1002(7). In Kuntz v. Reese, 785 F.2d 1410, 1411 (9th

Cir. 1986), the Ninth Circuit held that retirees who have

withdrawn their full account balance in a lump-sum payment are no

longer Plan “participants” under ERISA and lack standing to sue

for damages. But in Amalgamated Clothing v. Murdock, 861 F.2d

1406, 1418 (9th Cir. 1988), the court created an exception to the

Kuntz rule for plaintiffs who allege that plan fiduciaries have

personally profited through misuse of plan assets. 

In their motion to dismiss (Docket No. 233) and reply

(Docket No. 288), defendants devote over thirty pages to arguing

that the court should overturn Judge Karlton’s decision on

standing. But their lengthy arguments do not include citation to

newly discovered facts or controlling precedent that bolster

their position. Instead, they cite recent district and circuit

court decisions from other circuits and argue that Judge Karlton

misapplied Amalgamated Clothing. But it is irrelevant that

courts not bound by Amalgamated Clothing might have decided

similar issues differently. And defendants’ arguments that Judge

Karlton misapplied Amalgamated Clothing do not persuade the

undersigned that his ruling is clearly erroneous. Accordingly,

defendants’ motion to dismiss for lack of subject matter

jurisdiction is denied. 

2. Settlor Doctrine

Defendants argue that the settlor doctrine precludes

plaintiffs contentions that defendants are violating ERISA by

valuing HolliShare’s JDS common shares at their book value rather

than at “fair market value,” and by selling JDS common shares to

JDS at their book value. (Defs.’ Mot. to Dismiss (Docket No.

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233-2) 6-8.) Judge Karlton held that the settlor doctrine does

not insulate defendants from liability because “plaintiffs

contend that the terms of the plan are unlawful and inconsistent

with ERISA.” (April 12, 2006 Order 16.) He further concluded

that “[e]ven if the plan’s terms dictated how the JDS shares were

to be valued (‘book value’ rather than fair market value),

plaintiffs maintain that those terms are unlawful. That

contention, resting in part in a factual determination of fair

market value, cannot be resolved on a motion to dismiss.” (Id.

at 16.) 

Under the settlor doctrine, a plan administrator is

immune from ERISA liability for breach of fiduciary duty when

acting as a settlor--i.e., when setting or amending the terms of

the plan. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432,

443-44 (1999) (“ERISA’s fiduciary duty requirement simply is not

implicated where [an employer], acting as the Plan’s settlor,

makes a decision regarding the form or structure of the Plan such

as who is entitled to receive Plan benefits and in what amounts,

or how such benefits are calculated.”) (citation omitted). Once

a plan is set up, “ERISA requires that fiduciaries discharge

their duties in accordance with the terms of the plan, except

when such terms conflict with Titles I or IV of ERISA.” Wright

v. Oregon Metallurgical Corp., 360 F.3d 1090, 1094 (9th Cir.

2004). 

Judge Karlton’s conclusion is that the settlor doctrine

cannot insulate defendants from liability for following the terms

of the Plan if those terms violate ERISA. And he believes that

whether the Plan’s terms violate ERISA depends on the fair market

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value of JDS stock--a question of fact--which means that

plaintiffs’ claims cannot be decided on a motion to dismiss. 

Judge Karlton’s conclusions are essentially correct. The settlor

doctrine protects those who create a plan, not fiduciaries who

administer it. Wright, 360 F.3d at 1100. There is no claim in

this lawsuit that HolliShare’s settlors violated ERISA in setting

up the Plan. Rather, plaintiffs claim that the Plan’s

fiduciaries violated ERISA by administering the Plan in violation

of ERISA. The settlor doctrine is not a defense to a claim of

unlawful administration. Accordingly, the court denies

defendants’ motion to dismiss on the basis of the settlor

doctrine. 

3. Whether Plan’s Methodology Violated ERISA

Defendants argue that selling HolliShare’s JDS stock at

book value in accordance with the terms of the Plan is not a

legally cognizable claim. (Defs.’ Mot. to Dismiss (Docket No.

233-2) 8-26.) Judge Karlton concluded that the defendants

violated ERISA if the fair market value of JDS stock exceeded

book value, and that its fair market value is an evidentiary

question that cannot be decided on a motion to dismiss. (April

12, 2006 Order 7 n.7.) (“[W]hether defendants’ utilization of

book value constitutes ‘adequate consideration’ [under 29 U.S.C.

§ 1108(e)] is a question requiring examination of evidence and

the merits, thus precluding dismissal at this stage.”). Judge

Karlton was correct. If there was a market for JDS stock at a

price above book value, and if the Plan’s fiduciaries

nevertheless sold Plan shares at book value, then they may have

violated ERISA’s requirement that securities be sold only for

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“adequate consideration.” 29 U.S.C. § 1002(18). 

As intervening precedent, defendants argue that the

Supreme Court’s recent decision in Twombly retired the Conley v.

Gibson lenient standard for motions to dismiss. As noted above,

Twombly requires a plaintiff to plead “only enough facts to state

a claim to relief that is plausible on its face.” 127 S. Ct. at

1974. Defendants urge reconsideration of Judge Karlton’s orders

in light of Twombly. However, whether book value constituted

“adequate consideration” depends on whether there was any

potential buyer for JDS stock other than JDS itself, and/or

whether JDS could have paid more than book value under the terms

of its corporate charter. These are the central issues in this

case. Plaintiffs allege that the Schneider Charitable Trust was

also a potential buyer of JDS stock, and also that the JDS

Articles of Incorporation allow the company to repurchase its

stock for more than book value “under exceptional circumstances.” 

Plaintiffs claims, citing to the corporate charter, are

plausible. Defendants contend that the Schneider Trust could not

have bought JDS shares because the trust’s settlor was Hollister,

not Mr. or Mrs. Schneider, and because “the terms of the

Schneider Trust required that any cash contained in the corpus of

the trust be paid either to Mrs. Schneider (before her death) or

to charity.” 

Whether there was any way the defendants could have

sold HolliShare’s JDS stock for more than book value is an open

question. There is no need to explore the debate further at this

point, however, because, as Judge Karlton held, these are

disputed questions of material fact not amenable to resolution on

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a motion to dismiss. The court follows Judge Karlton’s lead and

will refrain from wading into this dispute until discovery is

finished and both sides have filed proper motions for summary

judgment. Accordingly, the court denies defendants’ motion to

dismiss with regard to whether defendants’ sale of JDS stock at

book value violated ERISA. 

4. JDS as a De Facto Fiduciary

Defendant JDS moves separately for dismissal on the

ground that it is not a fiduciary of the Plan and hence no valid

claim can be stated against it. Judge Karlton held that

plaintiffs stated a valid cause of action because “[t]he parties

do not dispute that JDS’s Articles of Incorporation contain a

share transfer restriction that limits ownership of shares to

JDS, and that JDS had the absolute right to buy any and all JDS

shares that are offered for sale by anyone.” (April 12, 2006

Order 19.) 

ERISA provides that: “[A] person is a fiduciary with

respect to a plan to the extent (i) he exercises any

discretionary authority or discretionary control respecting

management of such plan or exercises any authority or control

respecting management or disposition of its assets . . . or (iii)

he has any discretionary responsibility in the administration of

such plan.” 29 U.S.C. § 1002(21)(A). For purposes of ERISA, the

definition of “fiduciary” is functional rather than formal. See

Mertens v. Hewitt Assocs., 508 U.S. 248,(1993); Kayes v. Pacific

Lumber Co., 51 F.3d 1449, 1459 (9th Cir. 1995), cert. denied, 516

U.S. 914 (1995). As Judge Karlton concluded, “if JDS in fact

exercised any discretionary authority over plan assets, it is an

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ERISA fiduciary, whether the Plan itself named it as such.” 

(April 12, 2006 Order 19 (citing Yeseta v. Baima, 837 F.2d 380,

386 (9th Cir. 1988) (a fiduciary includes a person who withdraws

money from a pension plan and places it into the company’s

account in order to pay operating expenses)).)

Defendants urge reconsideration in light of Twombly and

the fact that plaintiffs admit that HolliShare’s trustees were

under no obligation to sell JDS common shares to JDS. However,

neither compels the court to conclude that Judge Karlton’s

conclusion that “[t]he allegations appear to support plaintiffs’

contention that JDS controls the market for Hollishare and the

price of the shares” was clearly erroneous. The fact that JDS’s

repurchase right is triggered when a holder of JDS common shares

decides to offer those shares for sale would appear to support a

finding that JDS is able to “exercise authority or control

respecting management or disposition” of Hollishare assets. 29

U.S.C. § 1002(21)(A). Accordingly, the court denies the JDS’s

separate motion to dismiss. 

5. DeFazio and Ellis’s QDRO Claims

Defendant Hollister moves to dismiss DeFazio and

Ellis’s claims that Hollister improperly administered a series of

domestic relations orders decreed by the Sacramento County

Superior Court. In the court’s February 23, 2005 Order, Judge

Karlton denied defendants’ motion to dismiss DeFazio’s QDRO

claims on the ground that whether the state court orders were

QDROs is best examined in a summary judgment motion. (February

23, 2005 Order 22.) For the reasons discussed below, this now

court ratifies Judge Karlton’s ruling and extends it to Ellis’s

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claims. 

 ERISA authorizes state court-ordered assignments of

plan benefits to former spouses and dependents. 29 U.S.C. §

1056(d)(3) provides that pension plans “shall provide for the

payment of benefits in accordance with the applicable

requirements of any [QDRO].” QDROs are a type of domestic

relations order (“DRO”) relating “to the provision of child

support, alimony, or marital property rights to a spouse, former

spouse, child, or other dependent of a plan participant . . .

made pursuant to a State domestic relations law.” 29 U.S.C. §

1056(d)(3)(ii). A DRO is a QDRO if it “creates or recognizes the

existence of an alternate payee’s right to, or assigns to an

alternate payee the right to, receive all or part of the benefits

payable with respect to a participant under a[n ERISA] plan,” 29

U.S.C. § 1056(d)(3)(B), and does not (1) require the plan to

provide any type of benefit not otherwise provided, (2) require

the plan to provide increased benefits, or (3) require benefits

to be paid to an alternate payee which must be paid to another

alternate payee under another QDRO. 29 U.S.C. § 1056(d)(3)(D).

Finally, a QDRO must specify the name and mailing address of the

alternate payee and the affected plan participant, the amount or

percentage of the participant’s benefits to be paid or the means

by which that amount will be determined, the number of payments

or time period to which the order applies, and the plan to which

the order applies. 29 U.S.C. § 1056(d)(3)(c). DeFazio and Ellis

allege that a series of DROs issued pursuant to divorce

proceedings do not comply with these requirements and are

therefore not QDROs.

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As Judge Karlton found, “[t]he allegations in this

case, whether the Plan improperly administered the state court

DROs as QDROs, ‘turns on the precise manner in which an alternate

payee’s state-law-created interest in an ERISA plan is enforced

under ERISA’s QDRO provisions.’” (February 23, 2005 Order 21

(quoting Trustees of Directors Guild of America-Producer Pension

Benefits Plans v. Tise, 234 F.3d 415, 420 (9th Cir. 2000))). As

they did before, defendants ask that the court examine the QDROs

and other documents attached to the parties’ papers and argue

that the case law proves their compliance with the applicable

ERISA provisions. As Judge Karlton held, such arguments are best

made in a summary judgment motion, and not on a motion to

dismiss. For the same reason, the court denies Hollister’s

motion to dismiss the QDRO claims. 

 6. Defendants’ Motion to Dismiss under Rule 8(a)

(Docket No. 249 correcting Docket No. 235.)

Defendants file an alternative motion to dismiss the

TACs for failure to comply with Federal Rule of Civil Procedure

8(a). Rule 8(a)(2) provides that pleading shall contain “a short

and plain statement of the claim showing that the pleader is

entitled to relief.” 

Defendants argue that the Ninth Circuit vigorously

enforces Rule 8(a)(2)’s short and plain statement requirement. 

However, the case cited for that proposition indicates that the

decision is within the discretion of the district court. McHenry

v. Renne, 84 F.3d 1172, 1177 (9th Cir. 1996) (“We review

dismissal of a complaint with prejudice for failure to comply

with a court’s order to amend the complaint to comply with Rule 8

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for abuse of discretion.” (citing Nevijel v. North Coast Life

Ins. Co., 651 F.2d 671, 673-74 (9th Cir. 1981); Schmidt v.

Herrmann, 614 F.2d 1221, 1223-24 (9th Cir. 1980))). 

The court declines to exercise is discretion to dismiss

the TACs for failure to follow Rule 8(a). Although plaintiffs

complaints are long-winded and excessive, defendants managed to

file six other motions to dismiss and a motion to strike. If

plaintiffs’ complaints were so unintelligible, then the proper

remedy is not dismissal under Rule 8(a), but a motion for a more

definite statement under Federal Rule of Civil Procedure 12(e). 

Rule 12(e) provides: “If a pleading to which a responsive

pleading is permitted is so vague or ambiguous that a party

cannot reasonably be required to frame a responsive pleading, the

party may move for a more definite statement before interposing a

responsive pleading.” 

However, “[m]otions for a more definite statement are

viewed with disfavor and are rarely granted because of the

minimal pleading requirements of the Federal Rules. Parties are

expected to use discovery, not the pleadings, to learn the

specifics of the claims being asserted.” Sagan v. Apple

Computer, Inc., 874 F. Supp. 1072, 1077 (C.D. Cal. 1994); see

also Advanced Microtherm, Inc. v. Norman Wright Mech. Equip.

Corp., No. 04-02266, 2004 WL 2075445, at *12 (N.D. Cal. Sept. 15,

2004) (“Motions for more definite statement are proper only where

a complaint is so indefinite that the defendant cannot ascertain

the nature of the claim being asserted.”). 

 Lastly, citations to Strunk & White’s The Elements of

Style are completely irrelevant. Defendants would be well-served

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to remember such citations in their future filings. Accordingly,

defendants’ motion to dismiss for failure to comply with Rule

8(a) is denied. 

7. Motions to Dismiss on the Basis of Statute of 

Limitations (Docket Nos. 232 and 233)

a. Defendants Winn and Stempinski’s Motion to 

Dismiss

Defendants Winn and Stempinski move to dismiss the

TACs, arguing that plaintiffs claims, as against them, are barred

by the statute of limitations. (Docket No. 232.) ERISA’s

statute of limitations provides that no action may be brought

against a fiduciary more than six years after the violation or

three years after the plaintiff knew of the violation. 29 U.S.C.

§ 1113. The amendments to the JDS Articles that authorize the

Preferred Share Trust to own JDS shares occurred on April 30,

1999. (DeFazio TAC ¶¶ 27-28; Ellis TAC ¶¶ 30-31.) Plaintiff

Ellis filed her first complaint against Winn and Stempinski on

June 24, 2005, which represents the first time that Winn or

Stempinski were named defendants in any of these consolidated

cases. (Docket No. 89.) 

Plaintiffs argue that in cases of fraud and

concealment, the statute of limitations does not begin to run

until the violation is discovered, and that defendants’

fraudulent misrepresentations tolled the statute of limitations. 

Their argument is unpersuasive. In order to trigger the fraud or

concealment exception to ERISA’s statute of limitations, a

plaintiff must produce “specific evidence of fraudulent activity

or concealment.” Barker v. American Mobil Power Corp., 64 F.3d

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1397, 1401 (9th Cir. 1995). “The fraud or concealment exception

applies only when an ERISA fiduciary either misrepresents the

significance of facts the beneficiary is aware of (fraud) or 

. . . hides facts so that the beneficiary never becomes aware of

them (concealment).” Id. (quoting Radiology Ctr., S.C. v.

Stifel, Nicolaus & Co., 919 F.2d 1216, 1220 (7th Cir. 1990)

(internal quotation marks omitted)); see also Ranke v.

Sanofi-Synthelabo Inc., 436 F.3d 197, 204 (3d Cir. 2006) (stating

that an ERISA fiduciary must “have taken affirmative steps to

hide an alleged breach of fiduciary duty from a beneficiary in

order for the ‘fraud or concealment’ exception to apply”). 

Plaintiffs have pleaded no specific evidence of such fraud or

concealment by defendants. The allegations raised in paragraphs

10 and 12 of the DeFazio TAC fail to rise to the necessary level. 

Moreover, these allegations fail to identify statements

actually made by Winn or Stempinski or any individual defendant.

When allegations sound in fraud, they must satisfy the heightened

pleading requirements of Federal Rule of Civil Procedure 9(b). 

See, e.g., J. Geils Band Employee Benefit Plan v. Smith Barney

Shearson, Inc., 76 F.3d 1245, 1255 (1st Cir. 1996); Larson v.

Northrop Corp., 21 F.3d 1164, 1173 (D.C. Cir. 1994). Rule 9(b)

provides that “[i]n all averments of fraud or mistake, the

circumstances constituting fraud or mistake shall be stated with

particularity.” “To avoid dismissal for inadequacy under Rule

9(b), [a] complaint would need to ‘state the time, place, and

specific content of the false representations as well as the

identities of the parties to the misrepresentation.’” Edwards v.

Marin Park, Inc., 356 F.3d 1058, 1066 (9th Cir. 2004); see also

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Neubronner v. Milken, 6 F.3d 666, 672 (9th Cir. 1993) (“The

complaint must specify such facts as the times, dates, places,

benefits received, and other details of the alleged fraudulent

activity.”). Plaintiffs fall well short. Accordingly,

defendants Winn and Stempinski’s motion to dismiss is granted.

Counsel for defendants Herbert and Zwirner appear on

the brief submitted by counsel for Winn and Stempinski. Given

that Herbert and Zwirner’s arguments with respect to the

transaction in 1999 are identical to those of Winn and

Stempinski, this ruling extends to Herbert and Zwirner. Because

this ruling dismissed Winn and Stempinski from the lawsuit,

plaintiffs’ motion to set aside the judgments obtained in favor

of defendants Winn and Stepinski because of acts of fraud,

misrepresentation, and concealment is mooted and denied. With

respect to plaintiffs’ motion to set aside the judgment obtained

in favor of Herbert, the court’s ruling that the 1999 transaction

is barred by the statute of limitations may moot that motion as

well. The court denies plaintiffs’ motion with respect to

Herbert, but will entertain another motion provided that there

are claims against Herbert not barred by the statute of

limitations and adequate allegations of fraud and concealment on

the part of Herbert. 

b. Defendants’ Motion to Dismiss Certain Votes 

by HolliShare Trustees as Not Actionable 

(Docket No. 233)

Defendants move to dismiss claims based on the votes

cast by the Hollishare Trustees in favor of various amendments to

the JDS Articles as barred by the statute of limitations. The

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6 ERISA § 404(a) provides: 

 (1) Subject to sections 403(c) and (d), 4042, and 4044 [29

U.S.C. §§ 1103(c), (d), 1342, 1344], a fiduciary shall

discharge his duties with respect to a plan solely in the

interest of the participants and beneficiaries and--

 (A) for the exclusive purpose of:

 (i) providing benefits to participants and

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votes at issue were cast between 1978 and 1999. (DeFazio ¶¶ 28,

54-61; Ellis TAC ¶¶ 31-34.) Defendants make a strong argument

that claims based on these votes are barred by the statute of

limitations. However, portions of these claims that the court

has found state a valid claim--namely that defendants breached

fiduciary duties--cannot be easily separated from those that are

barred by the statute of limitations. Unlike the motion with

respect to Winn and Stempinski, granting this motion would

neither dispose of a party nor a claim. Accordingly, the court

denies this motion. 

8. Defendants’ Motion to Dismiss Plaintiffs’ Claim 

that Defendants’ Engaged in Prohibited 

Transactions (Docket No. 233)

Defendants move to dismiss plaintiffs’ claim that

HolliShare’s sale of JDS common shares were prohibited

transaction under ERISA, which is the DeFazio plaintiffs’ twelfth

cause of action. Plaintiffs allege that HolliShare’s fiduciaries

engaged in prohibited transactions when HolliShare sold Plan

assets to JDS for inadequate consideration in violation of 29

U.S.C. §§ 1106(a)(1)(A) and 1108(e)(1). 

ERISA imposes a fiduciary duty to act “solely in the

interest of the participants and beneficiaries.” 29 U.S.C.

§1104(a).6 No defendant argues that he or she is not an ERISA

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their beneficiaries; and

 (ii) defraying reasonable expenses of

administering the plan;

 (B) with the care, skill, prudence, and diligence

under the circumstances then prevailing that a

prudent man acting in a like capacity and familiar

with such matters would use in the conduct of an

enterprise of a like character and with like aims;

 (C) by diversifying the investments of the plan

so as to minimize the risk of large losses, unless

under the circumstances it is clearly prudent not

to do so; and

 (D) in accordance with the documents and

instruments governing the plan insofar as such

documents and instruments are consistent with the

provisions of this title and title IV.

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fiduciary. Section 406 of ERISA establishes a blanket

prohibition against certain transactions, such as the sale of

stock to an ERISA plan by a party in interest, because of the

high potential for abuse. ERISA does, however, provide an

exemption from § 406 for these types of transactions if they meet

certain requirements. § 408(e), 29 U.S.C. § 1108(e). Section

408(e) provides an exemption for the sale or acquisition by a

plan of employer stock if the sale price is for “adequate

consideration.” 29 U.S.C. § 1108(e). When the security is not

traded on a national securities exchange, the term “adequate

consideration” means “a price not less favorable to the plan than

the offering price for the security as established by the current

bid and asked prices quoted by persons independent of the issuer

and of any party in interest.” 29 U.S.C. § 1002(18).

Judge Karlton determined that plaintiffs stated a

cognizable claim because plaintiffs allege that HolliShare sold

stock to its parent corporation for less than adequate

consideration. (February 23, 2005 Order 14; April 12, 2006 Order

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7 Section 7.03 of the Plan, provides:

7.03 The assets in the Trust Fund shall be valued by the

Trustees at their respective fair market values as of each

December 31st. The fair market value of Common Shares of JDS

Inc. held in the Trust Fund shall, subject to the provisions

of the remainder of this Section 7.03, be their book value

as of the valuation date as reflected on the books of JDS

Inc. The Trustees shall accept such book value as the fair

market value if such book value is computed in accordance

with generally accepted accounting principles. If such book

value was not computed in accordance with generally accepted

accounting principles, the Trustees shall investigate the

actual method of computation. If after investigation they

determine that such book value fairly reflects the value of

the shares under the circumstances, they shall make such

adjustment thereto, taking into consideration generally

accepted accounting principles, as they deem reasonable and

appropriate to fairly reflect the value of the shares under

the circumstances, provided however, that such adjustment

shall not exceed the difference between such book value and

book value computed in accordance with generally accepted

accounting principles.

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8.) Judge Karlton further denied defendants’ motion to dismiss

because whether “book value” is adequate consideration involves

issues of fact. (Id.) Plaintiffs argue that “book value,”

determined according to Section 7.03 of the Plan,7

 is expressly

prohibited because it “bears little semblance to the standards

set forth by the Department of Labor.” As defendants correctly

argue, courts “decline to take cognizance of the proposed

regulations . . . because a ‘proposed regulation does not

represent an agency’s considered interpretation of its statute .

. . .’” Cal. Rural Legal Assistance v. Legal Servs. Co., 917

F.2d 1171, 1173 n.5 (9th Cir. 1990) (quoting Commodity Futures

Trading Comm’n v. Schor, 478 U.S. 833, 845 (1986)). 

Nevertheless, a cognizable claim exists for reasons discussed in

Judge Karlton’s order. (February 23, 2005 Order 14; April 12,

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8 Judge Karlton dismissed DeFazio’s original ERISA § 406

claims on statute of limitations grounds. (February 23, 2005

Order 19.) This claim--whether the Plan sold JDS stock for a

promissory note--involves different allegations and is not

clearly precluded by the statute of limitations. 

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2006 Order 8.)8 Accordingly, the court denies defendants’ motion

to dismiss plaintiffs’ prohibited transactions claims. 

9. Defendant Fremgen’s Separate Motion to Dismiss 

(Docket No. 237)

Defendant Fremgen moves separately to dismiss the TACs

on the ground that his position as a director of JDS and

Hollister does not render him liable for alleged breaches of

fiduciary duties in connection with the Plan. 

Fregmen argues that ERISA permits the same person to

serve as both a Plan trustee and a corporate officer, and that

acts taken as a corporate officer are not considered acts taken

as a Plan fiduciary. See Pegram v. Herdrich, 530 U.S. 211,

225-26 (2000) (“In every case charging breach of ERISA fiduciary

duty . . . the threshold question is not whether the actions of

some person employed to provide services under a plan adversely

affected a plan beneficiary’s interest, but whether that person

was acting as a fiduciary (that is, was performing a fiduciary

function) when taking the action subject to complaint.”). 

Second, Fregmen contends that plaintiffs’ allegations fail

adequately to specify which fiduciaries violated their duties, or

how. 

As Fregmen asserts, these claims are vague as to which

defendants are alleged to have committed the breach. More

important, though, it fails to allege that the defendants were

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acting as HolliShare fiduciaries at the time they engaged in the

alleged activities. Thus, these claims are deficient under

Pegram, and the court grants defendant Fregmen’s motion.

10. Defendants’ Motion to Dismiss Co-Fiduciary 

Liability Claims (Docket No. 233)

Defendants move to dismiss claims six through nine of

the DeFazio TAC and five through eight of the Ellis TAC, arguing

that plaintiffs indiscriminately seek to hold each defendant

liable for the acts or omissions of all their co-fiduciaries. 

Plaintiffs state a cognizable claim on the basis of facts alleged

preceding these claims, except as noted above with respect to

Winn and Stempinski’s motion to dismiss and Fregmen’s motion to

dismiss. If defendants are unclear as to which allegations are

directed at which defendants, the correct motion is one for a

more definite statement. Accordingly, defendants motion is

denied. 

11. Defendant Hollister’s Motion to Dismiss 

Plaintiffs’ ERISA §§ 104(b)(4) and 502(c) Claims

(Docket No. 238)

Defendant Hollister separately moves to dismiss

plaintiffs’ claims that it violated ERISA by failing to provide

certain documents to Plan participants and beneficiaries and that

it violated ERISA by complying with various orders entered by the

Sacramento County Superior Court in the Ellis/DeFazio divorce. 

For reasons discussed above, the latter request is denied. For

reasons discussed below, the former request is granted. 

Plaintiffs claim that their attorneys requested certain

HolliShare documents from defendants on November 12, 2005, and

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that defendants have not produced them. ERISA mandates that a

plan administrator “shall, upon written request of any

participant or beneficiary, furnish a copy of the latest updated

summary, plan description, and the latest annual report, any

terminal report, the bargaining agreement, trust agreement,

contract or other instruments under which the plan is established

or operated.” 29 U.S.C. §1024(b)(4). A court has discretion to

award a penalty of up to $100 a day from the date that an

administrator fails to respond to a participant’s request, or a

court may order such other relief as it deems proper. 29 U.S.C.

§ 1132(c)(1)(B).

However, “[t]he clear weight of authority indicates

that penalties will not be imposed on a plan administrator absent

a showing by the plaintiff that he has suffered some degree of

harm resulting from the delay.” Kelly v. Chase Manhattan Bank,

717 F. Supp. 227, 233 (S.D.N.Y. 1989) (citing Pollock v.

Castrovinci, 476 F. Supp. 606, 618 (S.D.N.Y. 1979), aff’d mem.,

622 F.2d 575 (2d Cir. 1980)). Plaintiffs make no argument that

they were prejudiced by defendants’ failure to furnish these

documents. In fact, while defendants admit that they did not

furnish these documents in response to plaintiffs’ request, they

assert that plaintiffs’ attorneys were already in possession of

each of the documents in question, having attached copies of them

to the FAC. It is difficult to see how plaintiffs could make an

argument that they were prejudiced. 

Furthermore, plaintiffs’ attorneys’ request was made in

the course of pre-trial discovery, and “requests for plan

documents made pursuant to the Rules of Civil Procedure in the

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course of pre-trial discovery do not trigger the application of §

1132(c).” Hughes v. Nat. Res. Consultants, 77 Fed. Appx. 973

(9th Cir. 2003); see also Boucher v. Williams, 13 F. Supp. 2d 84,

108 (D. Me. 1998) (Statutory penalties not imposed where

“[p]laintiffs’ attorney’s requests for virtually every document

related to the Plan were in the nature of litigation discovery

requests.”). Accordingly, the court grants Hollister’s motion to

dismiss this claim.

B. Defendants’ Motion to Strike Certain Portions of the 

Third Amended Complaint (Docket No. 240)

Federal Rule of Civil Procedure 12(f) provides that

“redundant, immaterial, impertinent, or scandalous matters” may

be “stricken from any pleading.” Such motions are designed “to

avoid the expenditure of time and money that must arise from

litigating spurious issues by dispensing with those issues prior

to trial . . . .” Sidney-Vinstein v. A.H. Robins Co., 697 F.2d

880, 885 (9th Cir. 1983). However, “[m]otions to strike are

generally disfavored.” Abney v. Alameida, 334 F. Supp. 2d 1221,

1234 (S.D. Cal. 2004); Bureerong v. Uvawas, 922 F. Supp. 1450,

1478 (C.D. Cal. 1996) (“Rule 12(f) motions are generally

‘disfavored’ because they are ‘often used as delaying tactics,

and because of the limited importance of pleadings in federal

practice.’” (quoting William W. Schwarzer et al., California

Practice Guide: Federal Civil Procedure Before Trial § 9:375)). 

“If there is any doubt as to whether the allegations might be an

issue in the action, [the] court [should] deny the motion.” In

re 2TheMart.com, Inc. Sec. Litig., 114 F. Supp. 2d 955, 965 (C.D.

Cal. 2000) (citing Fantasy, Inc. v. Fogerty, 984 F.2d 1524, 1527

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(9th Cir. 1993) rev’d on other grounds, 510 U.S. 517, 534-35

(1994)).

Defendants move to strike the TAC’s requests for relief

that seek to alter JDS’s Articles of Incorporation and to replace

JDS and Hollister’s directors as well as Zwirner’s ability to

practice law. Plaintiffs argue that ERISA preempts Illinois law,

under which JDS is incorporated. Defendants argue that JDS’s

Articles are fundamental to the corporation and should not be

cast aside even if defendants violated ERISA. To do so,

defendants argue, would be to abrogate the rights of other JDS

shareholders. 

 ERISA does not preempt state corporations law except

where “ERISA and the state law conflict regarding the

distribution of an already defined sum.” Kreuger Int’l, Inc. v.

Blank, 225 F.3d 806, 813 (7th Cir. 2000). Based on defendants’

arguments and Kreuger, defendants are likely correct that

ordering JDS to change its Articles of Incorporation would be

inappropriate even if plaintiffs were to prevail. 

However, defendants have not demonstrated why they

would be prejudiced by allowing the challenged requests for

relief to stand. While prejudice is not a prerequisite to

granting a motion to strike in the Ninth Circuit, Fantasy, 984

F.2d at 1528, the decision to grant a motion to strike rests with

the discretion of the district court. Fed. Sav. & Loan v. Gemini

Mgmt., 921 F.2d 241, 243 (9th Cir. 1990). Other circuits take a

different view. See, e.g., Davis v. Ruby Foods, Inc., 269 F.3d

818 (7th Cir. 2001). Accordingly, defendants’ motion to strike

will be denied with respect to the TAC’s requests for relief that

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seek to alter JDS’s Articles of Incorporation and to replace JDS

and Hollister’s directors.

The court grants defendants’ motion to strike the

DeFazio plaintiffs’ request for an order enjoining Zwirner “from

providing any further services to ERISA plans.” (DeFazio TAC

(Docket No. 224) p. 52, Request for Relief No. 13.) On June 28,

2007, in response to a motion seeking to preclude plaintiffs’

counsel Lynn and Scottlynn Hubbard from further soliciting

Hollister employees, this court wrote: 

“What defendants ask this court to do extends far

beyond the purview of its responsibilities. Under

defendants’ proposal the court would have to proofread

and correct all of Hubbard’s correspondence to his

targeted clientele. Presumably, in order to maintain

the adversary process, before approving any

correspondence the court would also invite a response

from defendants and consider their suggestions. This

the court will not do.” 

(June 28, 2007 Order 5.) Likewise, the court will not enjoin

Zwirner from providing any further services to ERISA plans. The

scope of Zwirner’s ability to practice law is properly left to

the State Bar of Illinois, where he is a licensed attorney.

III. Conclusion

This order represents the third time that a court in

the Eastern District has issued a decision on the merits of

whether the allegations in this complaint state cognizable

claims. The parties are urged to proceed onto the discovery

phase. In future motions before this court, the parties are

advised that it is the rare request that cannot be effectively

argued in less than twenty-five pages. 

IT IS THEREFORE ORDERED that:

(1) defendants Winn and Stempinski’s motion to dismiss

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for failure to state a claim (Docket No. 232) be, and the same

hereby is, GRANTED;

(2) defendants’ motion to dismiss for failure to state

a claim (Docket No. 233) be, and the same hereby is, DENIED;

(3) defendants’ motion to dismiss for lack of subject

matter jurisdiction (Docket No. 234) be, and the same hereby is,

DENIED;

(4) defendants’ alternative motion to dismiss for

failure to provide a short and plain statement (Docket No. 249

correcting Docket No. 235) be, and the same hereby is, DENIED;

(5) defendant The Firm of John Dickinson Schneider’s

separate motion to dismiss for failure to state a claim (Docket

No. 236) be, and the same here by is, DENIED; 

(6) defendant Fregmen’s motion to dismiss for failure

to state a claim (Docket No. 237) be, and the same hereby is,

GRANTED;

(7) defendant Hollister’s motion to dismiss for failure

to state a claim (Docket No. 238) be, and the same hereby is,

GRANTED, with respect to the ERISA §§ 104(b)(4) and 502(c)

claims, but DENIED, with respect to DeFazio and Ellis’s QDRO

claims;

(8) defendants’ motion to strike certain requests for

relief from the third amended complaint (Docket No. 240) be, and

the same hereby is, DENIED, as to all requests for relief except

with respect to the thirteenth request for relief in the DeFazio

third amended complaint, which hereby is STRICKEN;

(9) with respect to all other defendants and/or claims,

defendants’ motions to dismiss and to strike, be, and the same

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hereby are, DENIED.

(10) plaintiffs’ motion to set aside the judgments

obtained in favor of defendants Winn, Stepinski, and Herbert,

because of acts of fraud, misrepresentation, and concealment

(Docket No. 255 correcting Docket No. 251) be, and the same

hereby is, DENIED;

(11) plaintiffs are hereby given thirty days to file a

fourth amended complaint consistent with this order or the court

will dismiss this action. Failure to follow this order by

including already dismissed causes of action in the fourth

amended complaint will result in sanctions. 

DATED: November 1, 2007

Case 2:04-cv-01358-WBS-GGH Document 291 Filed 11/01/07 Page 31 of 31