Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_05-cv-00032/USCOURTS-caed-1_05-cv-00032-7/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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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

ARTURO AGUILAR, individually and

on behalf of all other similarly

situated,

 Plaintiffs,

 v. 

MELKONIAN ENTERPRISES, INC., and

MARK MELKONIAN,

 Defendants.

1:05-CV-00032 OWW LJO

MEMORANDUM DECISION AND

ORDER RE: MOTION FOR

CONDITIONAL CERTIFICATION

AND MANDATORY CLASS AND

PRELIMINARY APPROVAL OF

SETTLEMENT STIPULATION AND

APPROVAL OF NOTICE TO CLASS

MEMBERS

I. INTRODUCTION

Plaintiff Arturo Aguilar brought this ERISA case as a

putative class action to represent participants and beneficiaries

of the Melkonian Enterprises Inc. Employees’ Pension Plan (“Money

Purchase Plan”) and the Melkonian Enterprises Inc. Employees’

Profit Sharing Plans (“Profit Sharing Plan”)(collectively “the

Plans”) against Melkonian Enterprises and Mark Melkonian. The

complaint alleges that the Plans suffered substantial losses due

to Defendants’ breach of fiduciary duty. 

The parties have entered into a Joint Stipulation of

Settlement. Under the terms of the Settlement, the parties seek

preliminary approval of the settlement under Rule 23(e) and move

for conditional certification of a mandatory class for settlement

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purposes under Rule 23(b)(1) and/or 23(b)(2). Specifically,

Plaintiffs request that the court: (1) set a final approval

hearing; (2) approve the form of the Notice of Class Action

Settlement; (3) authorize mailing of the Notice; (4) set dates

for submission of any objections; (5) certify the proposed class;

(6) certify the named Plaintiff as the Class representative and

his counsel as Class Counsel; and (7) preliminarily approve the

settlement for submission to the Class. 

II. FACTUAL BACKGROUND & PROCEDURAL HISTORY

Melkonian is a family owned company in Sanger that grows,

processes, dehydrates, and sells dried fruits. Mark Melkonian

became president in 1997. Mark Melkonian and Melkonian

Enterprises were the designated fiduciaries of the plan for all

relevant time periods. The named Plaintiff, a former Melkonian

employee for over 38 years, was a participant in the Plans. 

It is alleged that Defendants’ failure to prudently invest

the assets of the Plans caused the Money Purchase Plan to lose

over $1.4 million in assets (40%) of its value, and the Profit

Sharing Plan to lose over $1 million in assets (48%) of its

value. As an example, this caused Mr. Aguilar’s Money Purchase

Plan account to lose almost $60,000 and his Profit Sharing Plan

to lose almost $57,000. Specifically, it is alleged that the

losses were due to (1) Defendants’ failure to monitor the

activities of the Plans’ investment advisor, (2) investment of

the assets in risky high-technology and internet mutual funds,

and (3) engaging in risky margin trading. 

In addition, Defendants terminated the Money Purchase Plan

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on July 1, 2001. It is alleged that Defendants failed to give

participants adequate written notice of the termination. 

Defendants deny the allegations.

It is undisputed that approximately 90% of the assets

invested in the Plans belonged to members of the Melkonian

family. As explained below, those individuals are to be excluded

from the Class. The remaining approximately 10% of the assets

belonged to the approximately 50 other participants/

beneficiaries in the Plans, those who make up the proposed Class.

The lawsuit was filed January 6, 2005, alleging (1) breach

of fiduciary duty with respect to both Plans and (2) failure to

provide adequate notice of termination of the Money Purchase

Plan. 

Defendants tendered the defense of this action to its

insurer, Fireman’s Fund. In February 2005, Fireman’s Fund denied

the tender. (Doc. 37, Ex. B, Defendant’s Suppl. Brief, at 1.) 

Defendants spent eight months seeking retraction of the tender

denial. In October 2005, Fireman’s Fund partially retracted its

denial and agreed to accept the tender of defense only as to

Melkonian Enterprises Inc., under reservation of rights, and only

as to the Second Claim for Relief (failure to provide adequate

notice of termination). (Id. at 2.) 

After a settlement conference before the magistrate judge,

the parties agreed that settlement would be in their mutual best

interest. In addition to the settlement between the parties to

this action described in detail below, Fireman’s Fund agreed to

contribute $95,000 toward the settlement of this action. (Id.)

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A. Summary of the Settlement.

Class definition: All participants in and beneficiaries of

both Plans from January 9, 1999 through the date of the

preliminary approval hearing order in this action, excluding

Dennis Melkonian, Douglas Melkonian, Mark Melkonian, Susan

Melkonian (also known as Marla Sloan), Victoria Melkonian, and

Violet Melkonian. 

The January 9, 1999 cut off date represents the point beyond

which the applicable six year statute of limitations would bar

any actions on behalf of participants and beneficiaries holding

assets prior to that date. 

Relief Provided by the Settlement: Defendants will pay

Plaintiffs $295,000. (The money has already been placed in an

interest bearing escrow account.) $189,000 of the $295,000 will

be allocated to the breach of fiduciary duty claim; $21,000 will

be allocated to the failure to notify claim; $75,000 will go do

Plaintiffs’ counsel; and $10,000 will go directly to the named

Plaintiff in the form of a class representative payment to

compensate him for his service to the Class. 

Plaintiffs believe the settlement will provide certainty to

all parties and will avoid further delay and litigation expenses.

III. DISCUSSION

A. Request for Certification of a Mandatory (non-opt-out)

Class for Settlement. 

Plaintiffs request certification of the Class under Rule

23(a) as defined (see above). Specifically, Plaintiffs request

certification as a mandatory class under either Rule 23(b)(1) or

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(b)(2). 

1. Rule 23(a) Requirements.

Certification of a class of plaintiffs is governed by

Federal Rule of Civil Procedure 23(a), which states in pertinent

part that “[o]ne or more members of a class may sue or be sued as

representative parties on behalf of all.” As a threshold matter,

in order to certify a class, a court must be satisfied that 

(1) the class is so numerous that joinder of all

members is impracticable (the "numerosity"

requirement); (2) there are questions of law or fact

common to the class (the "commonality" requirement);

(3) the claims or defenses of representative parties

are typical of the claims or defenses of the class (the

"typicality" requirement); and (4) the representative

parties will fairly and adequately protect the

interests of the class (the "adequacy of

representation" requirement).

In re Intel Secs. Litig., 89 F.R.D. 104 at 112 (N.D. Cal.

1981)(citing Fed. R. Civ. P. 23(a)). 

a. Numerosity.

There are approximately 50 former and current participants

in the Plans. Courts have routinely found the numerosity

requirement satisfied when the class comprises 40 or more

members. Ansari v. New York Univ., 179 F.R.D. 112, 114 (S.D.N.Y.

1998). Numerosity is also satisfied where joining all Class

members would serve only to impose financial burdens and clog the

court’s docket. In re Intel Secs. Litig. 89 F.R.D. at 112. 

Here, the joinder of approximately 50 individual participant/

beneficiaries with essentially identical claims to that of the

proposed class representative would only further clog this

court’s already overburdened docket. 

///

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b. Commmon Questions of Fact and Law.

Commonality exists when there is either a common legal issue

stemming from divergent factual predicates or a common nucleus of

facts resulting in divergent legal theories. Hanlon v. Chrysler

Corp., 150 F.3d 1011, 1019 (9th Cir. 1998). Here, the potential

Class members’ claims are essentially identical to one another

and to that of Mr. Aguilar. All allege that Defendants breached

their fiduciary duties by imprudently investing the assets of the

plan. 

c. Typicality.

Typicality is satisfied if the representative’s claims arise

from the same course of conduct as the class claims and are based

on the same legal theory. See e.g., Kayes v. Pac. Lumber Co., 51

F.3d 1449, 1463 (9th Cir. 1995). Here, the named Plaintiff’s

claims are typical of the class claims because all focus on the

alleged imprudent investment practices and on the failure to

provide adequate notice of the Plan merger. 

d. Fair & Adequate Representation.

The final Rule 23(a) requirement is that the class

representative fairly and adequately protect the interests of the

class. This requirement has two parts. First, the

representative’s attorney must be “qualified, experienced, and

able to conduct the litigation.” In re United Energy Corp. Solar

Power Modules Tax Shelter Inv. Secs. Litig., 122 F.R.D. 251, 257

(C.D. Cal. 1998). Second, the suit must not be “collusive” and

the named Plaintiff’s interests must not be “antagonistic to the

class.” Id. 

All requirements are satisfied here. Plaintiffs’ counsel,

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Daniel Feinberg, is experienced in the field of ERISA class

action litigation. He has been practicing in the field of

employee benefits law for more than 15 years. (Feinberg Decl.,

Doc. 33, at ¶3.) He is an accomplished writer and instructor on

the subject of employee benefits law, and has served as a

mediator and a Special Master in ERISA-related matters. (Id. at

¶¶ 3-4.) 

In addition, Mr. Aguilar’s interests are completely aligned

with those of the class. His interest is in maximizing their

recovery. Although Mr. Aguilar is receiving an additional

$10,000, this appears to be reasonable to compensate him for the

time and expense he devoted to pursuing this case.

2. Certification as a Mandatory Class under Rule

23(b)(1) or (b)(2).

Once the threshold requirements of Rule 23(a) are satisfied,

a class may be certified only if the class action satisfies the

requirements of Rule 23(b)(1), (b)(2), and/or (b)(3). Here, the

parties seek certification of a mandatory class under either Rule

23(b)(1) and/or (b)(2). 

a. Rule 23(b)(1).

Under Rule 23(b)(1) a class may be maintained if “the

prosecution of separate actions by or against individual members

of the class would create a risk of (A) inconsistent or varying

adjudications with respect to individual members of the class

which would establish incompatible standards of conduct for the

party opposing the class, or (B) adjudications with respect to

individual members of the class which would, as a practical

matter, be dispositive of the interests of the other members not

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parties to the adjudications or substantially impair or impede

their ability to protect their interests.” 

Here, either prong can be satisfied. Defendants’ allegedly

unlawful conduct applied to the Plans as a whole. If individual

members pursued litigation independently, there would be a risk

of inconsistent results. In addition, a determination in one

case that Defendants breached their fiduciary duty to the Plan

beneficiaries would be dispositive of other cases. Moreover,

under ERISA, although plan participants and beneficiaries have a

statutory right to bring actions for breach of fiduciary duty,

any recovery belongs to the plan as a whole. Mass. Mutual Life

Ins. Co. v. Russell, 472 U.S. 134, 140 (1985). Here, although

each plan participant will have a different proportional interest

in the outcome, based on each individual’s history and account

balance, the alleged unlawful activity still affects the class as

a whole. See In re Syncor Erisa Litigation, 227 F.R.D. 338, 346

(C.D. Cal. 2005)(“A classic example of a Rule 23(b)(1)(B) action

is one which charges a breach of trust by an indenture trustee or

other fiduciary similarly affecting the members of a large class

of beneficiaries, requiring an accounting or similar procedure to

restore the subject of the trust.”). 

It is appropriate to certify ERISA actions such as this one

as mandatory (non-opt-out) classes because the risk of

inconsistent decisions is considerable. See Rankin v. Rots, 220

F.R.D. 511, 522-23 (E.D. Mich. 2004); In re IKON Office Solutions

Inc. Sec. Litig., 209 F.R.D. 94, 102 (E.D. Pa. 2002). 

b. Rule 23 (b)(2).

Alternatively, Plaintiffs seek certification under Rule

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23(b)(2) which permits the maintenance of a class action

(assuming Rule 23(a) is also satisfied) if “the party opposing

the class has acted or refused to act on grounds generally

applicable to the class, thereby making appropriate final

injunctive relief or corresponding declaratory relief with

respect to the class as a whole.” 

Here, Plaintiffs seek a declaration that Defendants violated

ERISA, an injunction enjoining Defendants’ acts or practices that

violate ERISA, and an injunction requiring the removal of Mark

Melkonian as plan fiduciary and imposing an independent

fiduciary. Rule 23(b)(2) is properly used as a vehicle in

similar ERISA actions. See Becher v. Long Island Lighting Co.,

164 F.R.D. 144, 153-54 (E.D.N.Y. 1996)(certifying class under

23(b)(2) where plaintiffs sought injunctive relief “compelling

the defendants to credit the class member for years of service

prior to their withdrawals of employee contributions and to award

all such credits in the future”); see also Stoetzner v. U.S.

Steel. Corp., 897 F.2d 115, 119 (3d Cir. 1990) (certification

under 23(b)(2) appropriate where plaintiffs sought entitlement to

benefits and alleged defendants breached their fiduciary duty by

denying benefits); Bower v. Bunker Hill Co., 114 F.R.D. 587, 596

(E.D. Wash. 1986) (certifying under 23(b)(2) class of plaintiffs

seeking declaration that vested benefits were improperly

terminated).

The class can be preliminarily certified under both Rule

23(b)(1) and/or (b)(2).

///

///

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B. Proposed Class Notice & Administration.

1. The Notice is Appropriate.

The proposed notice provides the definition of the class,

describes the nature of the action and the proposed settlement

(including the attorney’s fees and class representative fee),

explains the procedure for submitting claims, explains the timing

of the final approval hearing, and explains that they may object

to the settlement. 

The notice will be translated into Spanish and submitted in

both English and Spanish to all potential class members.

2. The Notice Plan is Appropriate. 

The parties plan to mail the notice to the last known

address of class members as identified through Defendants’

records by November 3, 2006. Should any mail be returned,

follow-up mailing will be completed no later than November 20,

2006. Objections will be due in writing, served upon the Court,

Class Counsel, and Defendants’ Counsel on or before December 11,

2006, and the Final Settlement Hearing will be held January 15,

2007. 

Both the Proposed Notice and the Notice Plan are reasonable

and will provide potential class members with appropriate notice

and opportunity to object. 

C. Preliminary Approval of the Settlement.

In reviewing the settlement, although it is not a court’s

province to “reach any ultimate conclusions on the contested

issues of fact and law which underlie the merits of the dispute,

a court should weigh the strength of the plaintiff’s case, the

risk, expense, complexity, and likely duration of further

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litigation, the stage of the proceedings, and the value of the

settlement offer. Chemical Bank v. City of Seattle, 955 F.2d

1268, 1291 (9th Cir. 1992). The court should also watch for

collusion between class counsel and defendants. Id. 

According to the complaint, the Plans lost approximately

$2.4 million as a result of Defendants’ allegedly wrongful

conduct. The settlement provides that $210,000 will be

distributed among Class Members. Although, at first glance, the

overall recovery is modest, it is undisputed that approximately

90% of the assets invested in the Plans were owned by members of

the Melkonian family, who are excluded from the Class. 

Accordingly, assuming the $2.4 million loss figure is correct,

only a proportional loss of approximately $240,000 is

attributable to the assets held by the Class. In this light, the

$210,000 settlement represents a recovery of approximately 87.5

cents to the dollar. This is a sizeable recovery. 

Plaintiffs assert that the settlement is fair because “it is

not clear by any means that Plaintiff would prevail at trial and

be awarded a greater sum of money than the Stipulation awards to

the class.” (Doc. 32 at 15.) A review of the nature of the

claims and of Defendants’ potential defenses supports such a

conclusion. 

1. Breach of Fiduciary Duty.

Plaintiffs’ first claim is that Defendants violated their

fiduciary duty of prudence by, among other things, (1) failing to

adequately monitor their Quick & Reilly broker’s activities, (2)

failing to adequately review the Plans’ investments or investment

strategy, and (3) investing the Plans’ assets in risky highCase 1:05-cv-00032-OWW -LJO Document 43 Filed 11/03/06 Page 11 of 16
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technology and internet mutual funds. Plaintiff also alleges

that Defendants violated their fiducuary duty of diversification

under ERISA § 404(a)(1)(C), causing substantial loss to the

Plans, by investing almost exclusively in equities. Finally,

Plaintiffs assert that the Plans’ investments were

disproportionately concentrated in high risk technology and large

capitalization growth mutual funds. 

Defendants dispute all of these allegations, emphasizing

that the prudence of a fiduciary is measured by the “prudent

person” standard, which judges the fiduciary’s actions

objectively, based on how a person, experienced or familiar with

the matter at hand, would act. See Katsaros v. Cody, 744 F.2d

270, 279 (2d Cir. 1984). The prudent person standard normally

focuses on the process the fiduciary undertakes to make

investment decisions, judged at the “time of the decision” rather

than in hindsight. Id. 

Here, Defendants assert that Mark Melkonian “reasonably

enlisted, consulted and relied upon investment advice from Quick

& Reilly.” (Doc. 37, Ex. B at 4.) In addition, Defendants

believe that expert testimony would show that many pension

fiduciaries were investing regularly and significantly in

technology stocks during 1999 and 2000 and that “it would have

been imprudent not to so invest.” (Id.) Specifically,

Defendants assert that:

While the balances in the plans decreased from their

respective peaks, those decreases were not due to

Defendants’ imprudent investments. The stock market

plunged significantly in 2000 after many of these

purchases were made. Expert testimony will demonstrate

that the decline was not reasonably forecast or

anticipated by prudent investors. Many plans lost

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money. The decline in the plans’ balances, in large

part, was due to losses that would normally be expected

due to the effects of the stock market during the

relative time frame.

(Id.)

Defendants also dispute the amount of the alleged loss. 

Specifically, Defendants maintain that the Plans’ assets

increased greatly shortly before they lost value and that a

significant reason for the increase was the nature of the

allegedly imprudent investments. (Id. at 4-5.) In fact,

Defendants assert that, overall, the assets grew by about

$600,000 after Mark Melkonian took over as fiduciary. (Id. at

5.) 

The substantial relative value of the settlement, coupled

with the strength of Defendant’s arguments against liability,

support a conclusion that the settlement is fair with respect to

the first claim for relief. 

2. Failure to Provide Proper Notice of Plan

Amendment.

Plaintiffs’ second claim is for failure to provide proper

notice of the Pension Plan’s termination and merger into the

Profit Sharing Plan. Plaintiffs allege that the merger violated

ERISA § 204(h), 29 U.S.C. § 1054(h). Again, Defendants deny the

allegations. 

In 1998, Retirement Plan Consultants, the third-party

administrator for the Plans since 1996, recommended to Melkonian

Enterprises that it should terminate the Pension Plan and merge

it into the Profit Sharing Plan in order to provide additional

flexibility to the company regarding contributions and to reduce

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administrative costs. (Doc. 37, Ex. B at 6.) At a Board of

Directors meeting held on May 30, 2001, the Directors of

Melkonian Enterprises agreed to terminate the Pension Plan

effective July 1, 2001 and to merge the assets into the Profit

Sharing Plan. Also on May 30, 2001, Melkonian Enterprises

executed a 15-day Notice of Intent to Terminate the Pension Plan

effective July 1, 2001. (Id. at 6-7.) According to Defendants,

it was the general practice of Melkonian Enterprises to

distribute such notices to employees with their paychecks. The

notice was distributed to non-employees by mail. The next

paydate after the May 30, 2001 meeting was June 1, 2001, followed

by pay dates June 8, 2001 and June 15, 2001. All employees

signed for their paychecks on these dates. (Id. at 7.) 

Defendant maintains that 15 days of notice was all that was

required under ERISA. ERISA was amended by the Economic Growth

and Tax Relief and Reconciliation Act of 2001 (“EGTRRA”). The

amendments applied to plan amendments taking effect on or after

June 7, 2001, but implementing regulations were not promulgated

until 2003. Accordingly, those plans with amendments taking

effect between June 7, 2001 and the issuance of the regulations

in 2003 are considered to be in compliance with EGTRRA if the

plan administrator makes a “reasonable, good faith effort to

comply with those requirements.” 68 Fed. Reg. 17277, 17290 (Apr.

9, 2003). 

Prior to EGTRRA, only 15 days notice was required prior to

the effective date of a plan amendment. Subsequent to EGTRRA,

the general period of advanced notice was changed to 45 days. 

However, the 15 day period still applied to “small plans.” Id.

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at 17282. A small plan is defined as a plan that the plan

administrator reasonably expects to have fewer than 100

participants who have accrued benefits under the plan. Id. at

17283. According to this definition, Defendants assert that the

Melkonian Plans would have qualified as small plans and that the

15 day notice was reasonable. 

Finally, Defendants point out that EGTRRA only provides a

remedy for notice violations where the violation is egregious,

such as where a failure is either intentional or constitutes a

failure to provide most of the individuals with most of the

information they are entitled to receive. See id. at 17288-89;

see also Doc. 37, Ex. B. at 9. Defendants maintain that there is

no evidence of an egregious violation. 

Again, although only $21,000 of the $210,000 settlement is

allocated to the second claim for relief, this figure is fair

given the arguments Defendant could raise in opposition to

liability. 

3. Collusion. 

Finally, there is no evidence of collusion here. The fee

awarded Plaintiffs counsel, $75,000, is modest. 

The settlement is preliminarily approved as fair and

reasonable. 

IV. CONCLUSION

For the reasons set forth above:

(1) The Class, as proposed, is preliminarily certified

under both Federal Rule of Civil Procedure 23(b)(1)

and/or 23(b)(2); 

(2) Arturo Aguilar is appointed and designated as the

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Representative Plaintiff and the Class Representative. 

(3) Daniel Feinberg, Esq. and Vincent Cheng, Esq. are

appointed and designated Class Counsel;

(4) The Class Notice is adequate, as is the Notice Plan;

and 

(5) The Settlement is preliminarily approved as fair and

reasonable. 

Additional details regarding the deadlines for class

administration, objections, and the final settlement hearing are

addressed in a separate order. 

IT IS SO ORDERED.

Dated: November 3, 2006 /s/ Oliver W. Wanger 

b2e55c UNITED STATES DISTRICT JUDGE

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