Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_08-cv-04119/USCOURTS-cand-5_08-cv-04119-34/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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Case No. 08-CV-04119-LHK 

ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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United States District Court

Northern District of California

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

NORTHSTAR FINANCIAL ADVISORS 

INC.,

Plaintiff,

v.

SCHWAB INVESTMENTS, et al.,

Defendants.

Case No. 08-CV-04119-LHK 

ORDER DENYING MOTION FOR 

LEAVE TO FILE MOTION FOR 

RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE 

PLEADINGS, AND DENYING AS 

MOOT MOTION FOR CLASS 

CERTIFICATION

Re: Dkt. Nos. 243, 249, 252

Plaintiff Northstar Financial Advisors, Inc. (“Northstar”) brings this action against Schwab 

Investments, the Board of Trustees of Schwab Investments, and Charles Schwab Management, 

Inc. (collectively, “Defendants”). Before the Court is (1) Northstar’s motion for leave to file a 

motion for reconsideration of this Court’s October 5, 2015 Order; (2) Defendants’ motion for 

judgment on the pleadings of Northstar’s Fourth Amended Complaint; and (3) Northstar’s motion 

for class certification. ECF No. 243 (“MFR”); ECF No. 249 (“MJP”); ECF No. 252 (“Class Cert. 

Mot.”). The Court finds these motions suitable for decision without oral argument pursuant to 

Civil Local Rule 7-1(b) and thus vacates the motions hearings set for February 25, 2016, at 1:30 

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Case No. 08-CV-04119-LHK 

ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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p.m., and April 21, 2016, at 1:30 p.m. Having considered the parties’ submissions, the relevant 

law, and the record in this case, the Court DENIES Northstar’s motion for reconsideration, 

GRANTS Defendants’ motion for judgment on the pleadings, and DENIES AS MOOT 

Northstar’s motion for class certification.

I. BACKGROUND

A. Factual Background

On August 28, 2008, Northstar filed its first complaint (“Original Complaint”) in this 

putative class action on behalf of itself and all shareholders of the Schwab Total Bond Market 

Fund (the “Fund”) at any time from August 31, 2007 to the present. ECF No. 1 (“Compl.”) ¶ 1. 

Northstar is a registered investment advisory and financial planning firm that serves both 

institutional and individual clients. Id. ¶ 9. Northstar manages both discretionary and 

nondiscretionary accounts on behalf of investors in its role as an investment advisor. Id. 

Northstar traded through Charles Schwab’s Institutional Advisor Platform, where it purchased 

shares in the Fund for its clients. Id. ¶¶ 11–12.

Although Northstar has filed five complaints, Northstar’s core allegations have remained

the same. Northstar alleges that Defendants deviated from the Fund’s investment objective to 

track the Lehman Brothers U.S. Aggregate Bond Index (the “Lehman Index”) in two ways. First, 

Northstar alleges that, starting around August 31, 2007, the Fund began investing in high risk 

non-U.S. agency collateralized mortgage obligations (“CMOs”) that were not part of the Lehman 

Index and that were substantially more risky than the U.S. agency securities and other 

instruments that comprised the Lehman Index. See id. ¶ 3; ECF No. 214 ¶ 5. Second, Northstar 

alleges that, beginning around August 31, 2007, the Fund deviated from the Fund’s investment 

objectives (which prohibited investing more than 25% of the Fund’s assets in any one industry, 

unless such concentration was necessary to track the Lehman Index) by investing more than 25% 

of the Fund’s assets in U.S. agency and non-agency mortgage-backed securities and CMOs. 

Compl. ¶ 4; ECF No. 214 ¶ 6. Northstar alleges that these actions exposed the Fund and Fund

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Case No. 08-CV-04119-LHK 

ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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shareholders to tens of millions of dollars in losses due to a sustained decline in the value of nonagency mortgage-backed securities. According to Northstar, the Funds’ deviation from its 

fundamental investment objectives caused the Fund to incur a negative return of 4.80% for the 

period of September 1, 2007 through February 27, 2009, compared to a positive return of 7.85% 

for the Lehman Index over this same period. ECF No. 214 ¶ 7.

B. Procedural History

1. Northstar I

Based on the allegations described above, Northstar asserted the following four causes of 

action against a number of Schwab-related entities1in the Original Complaint: (1) violation of § 

13(a) of the Investment Company Act of 1940 (“ICA”); (2) breach of fiduciary duty; (3) breach 

of contract; and (4) breach of the covenant of good faith and fair dealing. Compl. ¶¶ 85–99. 

Northstar’s § 13(a) claim was asserted under federal law; Northstar’s remaining causes of action

were asserted under state law. On November 20, 2008, Defendants moved to dismiss the 

Original Complaint. ECF No. 33. U.S. District Judge Susan Illston, to whom this case was 

originally assigned, granted in part and denied in part Defendants’ motion. See ECF No. 74 

(“Northstar I”). 

First, Judge Illston found that Northstar did not have standing to bring suit because 

Northstar “only purchased shares for its clients and not for itself.” Northstar I at 3. Judge Illston, 

however, granted Northstar leave to amend because Northstar could cure this deficiency by 

receiving an assignment of claims from one of Northstar’s clients. Id. at 4. Second, Judge Illston 

found that there was an implied private right of action under § 13(a) of the ICA and that Northstar 

 

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In Northstar’s Original Complaint, Northstar brought suit against Schwab Investments, Charles 

Schwab & Co., Charles Schwab Investment Management, Inc., and Schwab Total Bond Market 

Fund. Compl. ¶¶ 14–17. In Northstar’s First Amended Complaint, Northstar brought suit against 

Schwab Investments and Charles Schwab Investment Management, Inc. ECF No. 75 ¶¶ 16–17. 

Northstar’s Second Amended Complaint, Third Amended Complaint, and Fourth Amended 

Complaint brought suit against Schwab Investments, the members of the Board of Trustees of 

Schwab Investments, and Charles Schwab Management, Inc. as Defendants. ECF Nos. 127, 181, 

214. 

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ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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had plausibly stated a cause of action for violation of shareholders’ voting rights under this 

section. Northstar I at 7, 9–12. Finally, on Northstar’s state law causes of action, Judge Illston 

dismissed Northstar’s breach of fiduciary duty claim with leave to amend. Judge Illston 

instructed Northstar “to carefully examine whether each of the [D]efendants named in this claim 

can in fact be named in such a claim, and under which state’s laws such a claim [may be] 

properly brought.” Id. at 14–15. Because of the close relationship between Northstar’s breach of 

fiduciary duty claim and Northstar’s breach of contract claim, Judge Illston also dismissed with 

leave to amend Northstar’s breach of contract claim. Id. at 15. Judge Illston denied Defendants’ 

motion to dismiss Northstar’s breach of the covenant of good faith and fair dealing claim. Id. at

15–16. 

2. Northstar II

On March 2, 2009, Northstar filed its First Amended Complaint. On March 5, 2009, 

Defendants filed a motion seeking leave to file an interlocutory appeal in which Defendants 

would challenge Judge Illston’s finding that Northstar could assert a private right of action under 

§ 13(a) of the ICA. This motion was granted, ECF No. 108, and this action was stayed pending 

the outcome of Defendants’ appeal. This case was stayed from April 27, 2009 through August 

13, 2010. In the interim, this case was reassigned, first to U.S. District Judge Richard Seeborg, 

and then to the undersigned Judge. See ECF Nos. 115 & 117. On August 13, 2010, the Ninth 

Circuit reversed Judge Illston’s order, and held that there is no private right of action under § 

13(a). Northstar Fin. Advisors, Inc. v. Schwab Invs. (“Northstar II”), 615 F.3d 1106, 1122 (9th 

Cir. 2010). 

3. Northstar III

In light of Northstar II, Northstar filed on September 28, 2010 its Second Amended 

Complaint (“SAC”), which did not include a § 13(a) claim. ECF No. 127 (“SAC”). In an 

attempt to address the standing issue identified by Judge Illston, Northstar also asserted an 

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Case No. 08-CV-04119-LHK 

ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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assignment of claims from Henry Holz, a Northstar client who had owned Fund shares as of 

August 31, 2007. See ¶ 15. 

The SAC named Schwab Investments (the “Trust”), the members of the Board of Trustees 

of Schwab Investments (the “Trustees”),2and Charles Schwab Investment Management, Inc. (the 

“Advisor”) as Defendants.3 According to the SAC, the Trust is an investment trust organized 

under Massachusetts law that “consists of a series of mutual funds, including the Fund.” SAC ¶ 

16. The Trust is managed by the Trustees. Id. ¶¶ 19–20. Pursuant to a contractual agreement 

between the Trust and the Advisor, known as the Investment Advisory Agreement (“IAA”), the 

Advisor handles day-to-day oversight of the Fund. Id. ¶¶ 23, 154. 

In the SAC, Northstar asserted the following causes of action: (1) breach of fiduciary duty 

against all Defendants; (2) breach of contract against the Trust; (3) breach of the covenant of 

good faith and fair dealing against the Trust and the Advisor; and (4) breach of contract as a third 

party beneficiary to the IAA against the Advisor.

This Court dismissed the SAC on March 2, 2011. See ECF No. 175 (“Northstar III”). The 

Court found all of Northstar’s causes of action precluded by the Securities Litigation Uniform 

Standards Act of 1998 (“SLUSA”) because all of Northstar’s causes of action implicated a 

misrepresentation or omission of material fact that was made in connection with the purchase or 

sale of Fund shares. The Court stated that “the central theme . . . of Plaintiffs’ claims is that 

[D]efendants made misrepresentations about how investments in the fund would be managed, 

that Plaintiffs purchased Fund shares relying on these misrepresentations, and that Plaintiffs were 

injured when these statements turned out to be false.” Northstar III at 9. 

 

2 Mariann Byerwalter, Donald F. Dorward, William A. Hasler, Robert G. Holmes, Gerald B. 

Smith, Donald R. Stephens, Michael W. Wilsey, Charles R. Schwab, Randall W. Merk, Joseph H. 

Wender, and John F. Cogan.

3 As noted above, both the Third Amended Complaint and the Fourth Amended Complaint sue the 

same three Defendants. 

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ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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In addition to dismissing Northstar’s causes of action based on SLUSA preclusion, the 

Court found that Northstar had failed to sufficiently allege a breach of contract claim despite 

specific instructions from Judge Illston in Northstar I to “add more specific allegations regarding 

the language [Northstar] relies on to allege the formation of a contract, as well as each 

[D]efendants’ involvement.” Northstar I at 15. The Court thus dismissed with prejudice both

Northstar’s breach of contract claim and Northstar’s related claim for breach of the covenant of 

good faith and fair dealing. Northstar III at 18–19. 

Northstar’s third party beneficiary claim was dismissed with leave to amend so that 

Northstar could “specify . . . what specific provisions of the Investment Advisor Agreement were 

allegedly breached, and how.” Id. at 24. 

Finally, with respect to Northstar’s breach of fiduciary duty claim, the Court recognized

that this claim could fall outside the scope of SLUSA preclusion through a statutory exception 

known as the Delaware carve-out. Accordingly, Northstar was granted leave to amend 

Northstar’s breach of fiduciary duty claim in order to clarify whether this claim fell within the 

Delaware carve-out. Id. at 15. 

4. Northstar IV

Northstar filed its Third Amended Complaint on March 28, 2011. ECF No. 181 (“TAC”). 

For the first time, Northstar bifurcated putative class members into two subclasses. Id. ¶ 65. 

First, Northstar asserted causes of action on behalf of a “Pre-Breach” class, which consisted of 

“all persons or entities who purchased shares of the Fund on or prior to August 31, 2007, and who 

continued to hold their shares as of August 31, 2007.” Id. Second, Northstar asserted causes of 

action on behalf of a “Breach Class,” which consisted of “all persons or entities who purchased 

shares of the Fund during the period of September 1, 2007, through February 27, 2009.” Id. The 

classes were divided between August 31 and September 1 because Northstar alleges that “August 

31, 2007 [was] the last day of the fiscal year preceding the one during which the Fund first began 

deviating from its required fundamental investment policy to seek to track the Lehman Index 

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ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

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through the use of an indexing strategy.” Id. Northstar alleges that the Fund “reverted back to its 

required fundamental investment policy” on or around February 27, 2009. Id. ¶ 66. Northstar 

brought five causes of action on behalf of each of the two classes, for a total of ten causes of 

action. These were: (1) breach of fiduciary duty against both the Trustees and the Trust; (2) 

breach of fiduciary duty against the Advisor; (3) aiding and abetting breach of fiduciary duty 

against the Trustees; (4) aiding and abetting breach of fiduciary duty against the Advisor; and (5) 

breach of contract as third party beneficiary to the IAA against the Advisor. Northstar also 

incorporated by reference the breach of contract and breach of the covenant of good faith and fair 

dealing claims from the SAC. Id. ¶ 120. Northstar did not develop any new arguments with 

respect to these causes of action; it asserted these causes of action solely for purposes of 

preserving them for appeal. Id. 

On April 2, 2011, Defendants moved to dismiss the TAC. On August 8, 2011, this Court 

granted with prejudice Defendants’ motion to dismiss the TAC. ECF No. 190 (“Northstar IV”). 

On the breach of fiduciary duty claims, this Court found that any such claims must be derivative, 

and not direct, in nature. Northstar IV at 12. As such, Northstar could not bring these claims 

directly, and Northstar’s fiduciary duty claims were therefore dismissed with prejudice. This 

Court also dismissed with prejudice Northstar’s related aiding and abetting breach of fiduciary 

duty claims. Id. at 12–13. As to Northstar’s third party beneficiary claims, the Court found that 

the IAA’s terms did not make clear an intention to benefit Fund shareholders. Accordingly, Fund 

shareholders could not be considered third party beneficiaries, and Northstar’s third party 

beneficiary claims were dismissed with prejudice. Id. at 17–18. 

5. Northstar V

On appeal, the Ninth Circuit reversed in part and vacated in part this Court’s order in 

Northstar IV. First, the Ninth Circuit clarified that this Court did not abuse its discretion in 

allowing Northstar to amend its pleadings to establish standing to bring suit. Northstar Fin. 

Advisors, Inc. v. Schwab Invs. (“Northstar V”), 779 F.3d 1036, 1043 (9th Cir. 2015). Second, the 

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Ninth Circuit held “that the mailing of the proxy statement and the adoption of the two 

fundamental investment policies after the shareholders voted to approve them, and the annual 

representations by the Fund” were “sufficient to form a contract between the shareholders on the 

one hand and the Fund and the Trust on the other.” Id. at 1054. Accordingly, the Ninth Circuit 

reversed this Court’s decision dismissing Northstar’s breach of contract claim. Third, the Ninth 

Circuit vacated this Court’s finding that Northstar could only bring its fiduciary duty claims 

derivatively. Id. at 1065. Finally, the Ninth Circuit reversed this Court’s decision to dismiss 

Northstar’s third party beneficiary claims. The Ninth Circuit determined that Northstar had 

sufficiently alleged facts to show that Northstar was a third party beneficiary to the IAA. Id. The 

Ninth Circuit did not discuss whether any or all of Northstar’s causes of action were precluded by 

SLUSA, instead leaving that determination to this Court on remand. Id. at 1050. Judge Bea 

dissented from the majority opinion and argued that Northstar did not have standing to bring suit. 

Id. at 1069 (Bea, J., dissenting). Judge Bea’s dissent did not address any of the other issues 

discussed in the majority’s opinion. 

6. Northstar VI

In response to the Ninth Circuit’s decision, Northstar filed its Fourth Amended Complaint 

(“FAC”) on June 25, 2015. ECF No. 214 (“FAC”). This complaint asserted fourteen causes of 

action, with seven causes of action pertaining to the Pre-Breach class and seven causes of action 

pertaining to the Breach class.4 

 

4 Northstar’s thirteenth causes of action is labeled as a cause of action “on behalf of members of 

the Pre-Breach Class for breach of contract.” FAC ¶ 247. This appears to be a misprint. The first 

seven causes of action in the FAC pertain to the Pre-Breach class. The latter seven causes of 

action (with the exception of the thirteenth cause of action) essentially repeat the allegations made 

in the first seven causes of action, but with respect to the Breach class. Read literally, Northstar’s 

thirteenth cause of action would be redundant, as it simply repeats the allegations made in 

Northstar’s sixth cause of action. See id. ¶¶ 177–89 (sixth cause of action); 247–59 (thirteenth 

cause of action). Consistent with the overall organization of the FAC, the Court therefore reads 

the thirteenth cause of action as asserting a breach of contract claim on behalf of the Breach class. 

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ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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Specifically, Northstar asserted the following seven causes of action on behalf of the PreBreach class, which constitute the first through seventh causes of action in the FAC: (1) breach of 

fiduciary duty against both the Trust and the Trustees; (2) breach of fiduciary duty against the 

Advisor; (3) aiding and abetting breach of fiduciary duty against the Trustees; (4) aiding and 

abetting breach of fiduciary duty against the Advisor; (5) breach of contract as third party 

beneficiary to the IAA against the Advisor; (6) breach of contract against the Trust; and (7) 

breach of the covenant of good faith and fair dealing against the Advisor and the Trustees. 

Northstar relied on the same core allegations to assert seven causes of action on behalf of 

the Breach class, which constitute the eighth through fourteenth causes of action in the FAC: (8) 

breach of fiduciary duty against both the Trust and the Trustees; (9) breach of fiduciary duty 

against the Advisor; (10) aiding and abetting breach of fiduciary duty against the Trustees; (11) 

aiding and abetting breach of fiduciary duty against the Advisor; (12) breach of contract as third 

party beneficiary to the IAA against the Advisor; (13) breach of contract against the Trust; and 

(14) breach of the covenant of good faith and fair dealing against the Advisor and the Trustees. 

Defendants filed a motion to dismiss the FAC on July 24, 2015, where Defendants argued 

that all of Northstar’s causes of action were precluded by SLUSA. Defendants also asserted a 

number of other arguments concerning Northstar’s various causes of action. ECF No. 217. On 

October 5, 2015, the Court granted in part and denied in part Defendants’ motion to dismiss. 

ECF No. 229 (“Northstar VI”). 

In particular, the Court granted with prejudice Defendants’ motion to dismiss Northstar’s 

breach of contract claims and breach of the covenant of good faith and fair dealing claims. 

Northstar VI at 41. These claims constituted the fifth, sixth, seventh, twelfth, thirteenth, and 

fourteenth causes of action in the FAC. Id. The Court concluded that SLUSA preclusion applied 

to these causes of action and that these causes of action did not fall within the Delaware carveout. See id. at 36–39. 

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The Court also granted with prejudice Defendants’ motion to dismiss Northstar’s breach of 

fiduciary duty claims “insofar as these claims pertain to an alleged breach of fiduciary duty by the 

Trust.” Id. at 41. As the Court explained, “the Trust consists of various assets managed by the 

Trustees for the benefit of shareholders. . . . [Thus,] [t]o the extent that any fiduciary duties are 

owed at all to Northstar, those duties are owed by those who manage the Trust—not by the Trust 

itself.” Id. at 15. These claims constituted the first and eighth causes of action in the FAC. Id. at 

41. 

Finally, the Court denied Defendants’ motion to dismiss as to the remaining causes of 

action in the FAC. Id. at 41. These causes of action all relate to the Trustees’ and the Advisor’s 

alleged breach of a fiduciary duty owed to shareholders. As background, Defendants had, in 

moving to dismiss the SAC, asserted SLUSA preclusion with respect to all of Northstar’s causes 

of action. However, in moving to dismiss the TAC, Defendants asserted a SLUSA preclusion 

defense as to some of Northstar’s causes of action, but did not assert a SLUSA preclusion defense

as to Northstar’s breach of fiduciary duty claims. 

The Court determined that, under such circumstances, Defendants had abandoned 

Defendants’ SLUSA preclusion defense as to Northstar’s breach of fiduciary duty claims

pursuant to Federal Rule of Civil Procedure 12(g)(2), which states that, “[e]xcept as provided in 

[Federal Rule of Civil Procedure] 12(h)(2) or (3), a party that makes a motion under this rule 

must not make another motion under this rule raising a defense or objection that was available to 

the party but omitted from its earlier motion.” Fed. R. Civ. P. 12(g)(2). The Court went on to

analyze Defendants’ remaining arguments with respect to Northstar’s fiduciary duty claims, and 

found these arguments unavailing. See, e.g., Northstar VI at 14–23.

On October 13, 2015, Defendants filed an answer to the FAC. ECF No. 239. The Court 

held a case management conference on October 14, 2015. During this case management 

conference, Northstar stated that Northstar would move for leave to file a motion for 

reconsideration of Northstar VI, and Defendants stated that Defendants would move for judgment 

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ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

CERTIFICATION

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on the pleadings. ECF No. 241. On October 15, 2015, Northstar filed its motion for leave to file

a motion for reconsideration. On November 4, 2015, Defendants filed their motion for judgment 

on the pleadings. Northstar filed a response on November 18, 2015, and Defendants filed a reply 

on November 25, 2015. See ECF No. 250 (“Opp’n”); ECF No. 251 (“Reply”). Finally, on 

January 21, 2016, Northstar filed its motion for class certification. Defendants filed a response 

on February 23, 2016. ECF No. 258. Northstar has not yet filed a reply. 

II. LEGAL STANDARD

A. Motion for Reconsideration

Pursuant to Civil Local Rule 7–9(a), “[b]efore the entry of a judgment adjudicating all of 

the claims and the rights and liabilities of all the parties in a case, any party may make a motion 

before a Judge requesting that the Judge grant the party leave to file a motion for reconsideration

of any interlocutory order made by that Judge on any ground set forth in Civil L.R. 7–9(b). No 

party may notice a motion for reconsideration without first obtaining leave of Court to file the 

motion.” Civil Local Rule 7-9(b) provides three grounds for reconsideration of an interlocutory 

order:

(1) That at the time of the motion for leave, a material difference in fact or 

law exists from that which was presented to the Court before entry of the 

interlocutory order for which reconsideration is sought. The party also 

must show that in the exercise of reasonable diligence the party applying 

for reconsideration did not know such fact or law at the time of the 

interlocutory order; or

(2) The emergence of new material facts or a change of law occurring after 

the time of such order; or

(3) A manifest failure by the Court to consider material facts or dispositive 

legal arguments which were presented to the Court before such 

interlocutory order. 

Civil Local Rule 7-9(c) further requires that “[n]o motion for leave to file a motion for 

reconsideration may repeat any oral or written argument made by the applying party in support of 

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ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

MOTION FOR JUDGMENT ON THE PLEADINGS, AND DENYING AS MOOT MOTION FOR CLASS 

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or in opposition to the interlocutory order which the party now seeks to have reconsidered.” In 

general, motions for reconsideration should not be frequently made or freely granted. See 

generally Twentieth Century–Fox Film Corp. v. Dunnahoo, 637 F.2d 1338, 1341 (9th Cir. 1981).

B. Motion for Judgment on the Pleadings

“After the pleadings are closed—but early enough not to delay trial—a party may move for 

judgment on the pleadings.” Fed. R. Civ. P. 12(c). “Judgment on the pleadings is properly 

granted when, accepting all factual allegations in the complaint as true, there is no issue of 

material fact in dispute, and the moving party is entitled to judgment as a matter of law.” Chavez 

v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012) (internal quotation marks and alteration 

omitted). Like a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a motion 

under Rule 12(c) challenges the legal sufficiency of the claims asserted in the complaint. See id. 

Indeed, a Rule 12(c) motion is “functionally identical” to a Rule 12(b)(6) motion, and courts apply 

the “same standard.” Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989) 

(explaining that the “principal difference” between Rule 12(b)(6) and Rule 12(c) “is the timing of 

filing”); see also U.S. ex rel. Cafasso v. Gen. Dynamics C4 Sys., 637 F.3d 1047, 1054 n.4 (9th Cir. 

2011).

Judgment on the pleadings should thus be entered when a complaint does not plead 

“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 

550 U.S. 544, 570 (2007). “A claim has facial plausibility when the plaintiff pleads factual 

content that allows the court to draw the reasonable inference that the defendant is liable for the 

misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “The plausibility standard is

not akin to a probability requirement, but it asks for more than a sheer possibility that a defendant 

has acted unlawfully.” Id. (internal quotation marks omitted). For purposes of ruling on a Rule 

12(c) motion, the Court “accept[s] factual allegations in the complaint as true and construe[s] the 

pleadings in the light most favorable to the nonmoving party.” Manzarek v. St. Paul Fire & 

Marine Ins. Co., 519 F.3d 1025, 1031 (9th Cir. 2008).

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ORDER DENYING MOTION FOR LEAVE TO FILE MOTION FOR RECONSIDERATION, GRANTING 

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The Court, however, need not accept as true allegations contradicted by judicially 

noticeable facts, see Shwarz v. United States, 234 F.3d 428, 435 (9th Cir. 2000), and it “may look 

beyond the plaintiff’s complaint to matters of public record” without converting the Rule 12(c) 

motion into a motion for summary judgment, Shaw v. Hahn, 56 F.3d 1128, 1129 n.1 (9th Cir. 

1995). Nor must the Court “assume the truth of legal conclusions merely because they are cast in 

the form of factual allegations.” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per 

curiam) (internal quotation marks omitted). Mere “conclusory allegations of law and unwarranted 

inferences are insufficient” to defeat a motion for judgment on the pleadings. Adams v. Johnson, 

355 F.3d 1179, 1183 (9th Cir. 2004).

C. Leave to Amend

If the Court determines that judgment on the pleadings is warranted, it must then decide 

whether to grant leave to amend. See Harris v. Cnty. of Orange, 682 F.3d 1126, 1131 (9th Cir. 

2012) (affirming district court’s dismissal under Rule 12(c) but reversing for failure to grant leave 

to amend). Under Rule 15(a) of the Federal Rules of Civil Procedure, leave to amend “shall be 

freely given when justice so requires,” bearing in mind “the underlying purpose of Rule 15 to 

facilitate decisions on the merits, rather than on the pleadings or technicalities.” Lopez v. Smith, 

203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (internal quotation marks and alteration omitted). 

When granting judgment on the pleadings, “a district court should grant leave to amend even if no 

request to amend the pleading was made, unless it determines that the pleading could not possibly 

be cured by the allegation of other facts.” Id. at 1130 (internal quotation marks omitted). 

Accordingly, leave to amend generally shall be denied only if allowing amendment would unduly 

prejudice the opposing party, cause undue delay, or be futile, or if the moving party has acted in 

bad faith. Leadsinger, Inc. v. BMG Music Publ’g, 512 F.3d 522, 532 (9th Cir. 2008). “[W]hen a 

district court has already granted a plaintiff leave to amend, its discretion in deciding subsequent 

motions to amend is particularly broad.” Chodos v. W. Publ’g Co., 292 F.3d 992, 1003 (9th Cir. 

2002) (internal quotation marks omitted). 

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III. DISCUSSION

A. SLUSA Preclusion

1. Causes of Action Dismissed in Northstar VI

In Northstar VI, the Court dismissed the following causes of action from the FAC, which 

were asserted on behalf of the Pre-Breach Class, after finding them to be precluded by SLUSA: 

(5) breach of contract as third party beneficiary to the IAA against the Advisor; (6) breach of 

contract against the Trust; and (7) breach of the covenant of good faith and fair dealing against the

Trust and the Advisor. Likewise, the Court dismissed the following causes of action from the 

FAC on behalf of the Breach Class, after finding them to be precluded by SLUSA: (12) breach of 

contract as third party beneficiary to the IAA against the Advisor; (13) breach of contract against 

the Trust; and (14) breach of the covenant of good faith and fair dealing against the Trust and the 

Advisor. 

Northstar moves for reconsideration of the Court’s decision to dismiss these causes of 

action pursuant to Civil Local Rule 7-9(b)(3). See MFR at 1; Civ. L.R. 7-9(b)(3) (moving party 

must show “[a] manifest failure by the Court to consider material facts or dispositive legal 

arguments which were presented to the Court.”). According to Northstar, this Court’s order in 

Northstar VI is (a) “inconsistent with the clear and unequivocal language of SLUSA” and is (b) 

“inconsistent with the Ninth Circuit’s Northstar [V] and Freeman decisions.” MFR at 3, 5. The 

Court disagrees with Northstar’s contentions, and addresses them in turn. 

a. Inconsistent with SLUSA

First, Northstar argues that it removed phrases such as “misrepresentation,” “inform,” and 

“relied on” from the FAC. MFR at 3. In taking these measures, Northstar contends that it 

removed its causes of action from SLUSA’s purview, and that Northstar VI is therefore

“inconsistent with the clear and unequivocal language of SLUSA.” Id.

SLUSA preclusion applies to “covered class action[s]” that “alleg[e] a misrepresentation or 

omission of a material fact in connection with the purchase or sale of a covered security.” 15 

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U.S.C. § 78bb(f)(1)(A). The Ninth Circuit has interpreted this provision to apply whenever 

“deceptive statements or conduct form the gravamen or essence of the claim.” Freeman Invs., 

L.P. v. Pac. Life Ins. Co., 704 F.3d 1110, 1115 (9th Cir. 2013). “Because [courts must] look to the 

substance of the allegations, plaintiffs cannot avoid preclusion through artful pleading that 

removes the covered words but leaves in the covered concepts.” Id. (internal quotation marks and 

alteration omitted). “Were it otherwise, SLUSA enforcement would reduce to a formalistic search 

through the pages of the complaint for magic words—‘untrue statement,’ ‘material omission,’ 

‘manipulative or deceptive device’—and nothing more.” Id. (internal quotation marks omitted).

Consistent with Freeman, every circuit court to have considered this issue has held that, in 

order to determine whether or not SLUSA preclusion applies, district courts must review the 

gravamen behind the allegations in a complaint, rather than the exact words used in the complaint. 

See, e.g., Segal v. Fifth Third Bank, N.A., 581 F.3d 305, 310–11 (6th Cir. 2009) (“Courts . . . must 

look to . . . the substance of a complaint’s allegations in applying SLUSA. . . . It is whether the 

complaint covers the prohibited theories, no matter what words are used (or disclaimed) in 

explaining them.”); Rowinski v. Salomon Smith Barney Inc., 398 F.3d 294, 300 (3d Cir. 2005) 

(“[P]reemption does not turn on whether allegations are characterized as facts or as essential legal 

elements of a claim, but rather on whether the SLUSA prerequisites are alleged in one form or 

another. A contrary approach, under which only essential legal elements of a state law claim 

trigger preemption, is inconsistent with the plain meaning of the statute.”). 

In the instant case, the central theme in Northstar’s numerous complaints is that 

“[D]efendants made misrepresentations about how investments in the Fund would be managed, 

that Plaintiffs purchased Fund shares relying on these misrepresentations, and that Plaintiffs were 

injured when these statements turned out to be false.” Northstar VI at 29 (quoting Northstar III at 

9–10). Indeed, even though the FAC does not specifically use words such as “misrepresentation” 

or “omission,” the substantive allegations in the FAC nonetheless premise liability on a 

misrepresentation or an omission of material fact. As the Court pointed out in Northstar VI, for 

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instance, the FAC states that “[i]t would make no sense if the Schwab Advisor were free to deviate 

from the Fund’s fundamental investment objectives during its management of the Fund.” Id. at 30 

(quoting FAC ¶ 166). The Advisor did, however, deviate from these objectives. See, e.g., id. ¶¶ 7, 

111–113, 121. The Advisor thus represented to the Trust (and, ultimately, to shareholders) that 

the Advisor would do one thing, but ended up doing another. This, as the Court observed in 

Northstar VI, was “a misrepresentation in the most classic sense.” Northstar VI at 30. Thus, 

Northstar’s argument in its motion for reconsideration that Northstar removed words such as 

“relied on” and “inform” from its pleadings is of no consequence. The gravamen of Northstar’s 

allegations, from the Original Complaint to the FAC, have remained the same: that Defendants 

misrepresented or omitted a material fact in their management of the Fund. As this Court properly 

determined in Northstar VI, such allegations are subject to SLUSA preclusion. 

b. Inconsistent with Northstar V and Freeman

Northstar’s contention that Northstar VI is inconsistent with Northstar V and Freeman is

also not well taken. In Northstar V, the Ninth Circuit expressly declined to “reach the question of 

whether any of Northstar’s claims [we]re barred by SLUSA.” 779 F.3d at 1050 (emphasis added). 

Instead, the Ninth Circuit stated that the issue of “whether the allegations in [Northstar’s 

complaint] can survive under SLUSA” should be left for “[this Court] . . . to determine . . . in the 

first instance.” Id. There is thus no conflict between Northstar V and Northstar VI. In Northstar 

V, the Ninth Circuit did not consider arguments related to SLUSA preclusion, and instead left such 

arguments for this Court to consider in Northstar VI.

Northstar’s reliance on Freeman is likewise unavailing. This Court discussed Freeman at 

length in Northstar VI, and distinguished Freeman from the instant case. See Northstar VI at 30 

n.7. As this Court noted, Freeman involved a dispute over the meaning of a specific contractual 

term. Plaintiffs in Freeman contended that a particular term should have been interpreted

according to certain industry standards, while defendant argued that the term should have been

interpreted based on other language in the insurance policy. Thus, in order to “succeed on th[eir] 

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claim, plaintiffs need not show that [defendant] misrepresented the cost of insurance or omitted 

critical details. They need only persuade the court that theirs is the better reading of [a] contract 

term.” Freeman, 704 F.3d at 1115. 

In the instant case, the parties do not dispute the meaning of the terms at issue. There is no 

dispute that the Fund’s investment objectives stated that Defendants would track the Lehman 

Index and that Defendants were not to concentrate more than 25% of the Fund’s assets in any one

industry. The only issue is whether Defendants in fact deviated from these objectives. If, as 

Northstar alleges, Defendants did deviate from the Fund’s investment objectives, then Defendants 

committed a misrepresentation or omission of material fact. Specifically, Defendants promised to 

manage the Fund one way, but ended up managing the Fund in a different way. 

The Central District of California’s recent decision in Hampton v. Pacific Investment 

Management Company, LLC, 2015 WL 7292128 (C.D. Cal. Nov. 2, 2015), lends further support 

to the Court’s finding. In Hampton, shareholders of a fund managed by defendants had been

informed, via various prospectuses, that “up to 15% of [the fund’s] assets” would be invested “in 

securities and instruments . . . tied to emerging market countries.” Id. at *1. The parties referred 

to this limit as the “Cap” or the “15% Cap.” Id. By September 2014, however, 23% of the fund’s

assets were being invested in emerging markets, thereby significantly exceeding the 15% Cap. Id. 

Accordingly, plaintiff brought suit against defendants and asserted “state law claims for breach of 

contract, breach of trust, breach of the covenant of good faith and fair dealing, and aiding and 

abetting.” Id. at *2. Defendants, “arguing that each of [p]laintiff’s claims [was] precluded by 

SLUSA,” moved to dismiss. Id.

The Hampton court granted defendants’ motion to dismiss with prejudice. In reaching this 

conclusion, the district court noted that “[d]efendants [had] promised to do one thing, ended up 

doing another thing, and in the process harmed [p]laintiff and other putative class members, who 

believed that the [d]efendants would keep their word.” Id. at *4. “That,” the district court 

observed, “is a misrepresentation claim.” Id. 

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The Hampton court went on to discuss and distinguish Hampton from Freeman. As the 

Hampton court explained, the Freeman plaintiffs could have prevailed on their contract claim 

without needing to show that the defendant misrepresented or omitted relevant material 

information. “By contrast, here each of [p]laintiff’s claims turns on whether or not representations 

made by [d]efendants—namely, that they would not exceed the 15% Cap—were true or not.” Id. 

Thus, plaintiff “may not prevail on any of his claims without a showing of a misrepresentation.” 

Id.; see also id. at *5 (“In short, [p]laintiff’s claims all rise and fall with his allegation that 

[d]efendants made an important misrepresentation about how the Fund would invest their money.

That is precisely the sort of claim SLUSA was intended to preclude in order to give the PLSRA 

procedural requirements teeth.”). 

In sum, when presented with a substantially similar set of facts, the Hampton court found 

Freeman distinguishable, and determined that claims based on a failure to follow certain 

investment objectives were precluded by SLUSA. Consistent with the reasoning in Hampton and 

for the reasons stated above, the Court finds that Northstar VI was not inconsistent with the Ninth 

Circuit’s decisions in Northstar V and in Freeman. 

Accordingly, the Court finds that Northstar has not demonstrated “[a] manifest failure by 

the Court to consider material facts or dispositive legal arguments which were presented to the 

Court,” as required for motions for leave to file a motion for reconsideration. Civ. L.R. 9-3(b). 

Accordingly, Northstar’s motion for leave to file a motion for reconsideration is therefore 

DENIED.5

 

5 Northstar also contends that Northstar VI is inconsistent with the ICA. MFR at 8. As noted 

above, in Northstar I, Judge Illston determined that § 13(a) of the ICA provided an implied private 

right of action, and that Northstar had properly stated a cause of action under this section. In 

Northstar II, the Ninth Circuit reversed Judge Illston’s determination, with the Ninth Circuit 

holding that “[n]either the language of § 13(a), the structure of the ICA, nor the statute’s 

legislative history . . . reflect any congressional intent to create, or recognize a previously 

established, private right of action to enforce § 13(a).” 615 F.3d at 1122. In light of the Ninth 

Circuit’s decision in Northstar II, Northstar did not assert an ICA claim in the SAC, TAC, or 

FAC, and neither this Court nor the Ninth Circuit examined the ICA in Northstar III, Northstar IV, 

Northstar V, or Northstar VI. Accordingly, Northstar VI does not conflict with the ICA. 

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2. Causes of Action Not Dismissed in Northstar VI

a. Northstar’s Fiduciary Duty Claims are Subject to SLUSA Preclusion

The following causes of action from the FAC, which were asserted on behalf of the PreBreach Class, survived dismissal in Northstar VI: (1) breach of fiduciary duty against the Trustees; 

(2) breach of fiduciary duty against the Advisor; (3) aiding and abetting breach of fiduciary duty 

against the Trustees; and (4) aiding and abetting breach of fiduciary against the Advisor. In 

addition, the following causes of action, which were asserted on behalf of the Breach Class, also 

survived dismissal in Northstar VI: (8) breach of fiduciary duty against the Trustees;6(9) breach of 

fiduciary duty against the Advisor; (10) aiding and abetting breach of fiduciary duty against the 

Trustees; and (11) aiding and abetting breach of fiduciary against the Advisor. For purposes of 

simplicity, the Court refers to these causes of action collectively as Northstar’s “fiduciary duty” 

claims.

Defendants attempted to assert SLUSA preclusion as to Northstar’s fiduciary duty claims 

in moving to dismiss the FAC. However, Defendants were precluded from asserting this defense 

because Defendants did not move to dismiss Northstar’s fiduciary duty claims in the TAC on the 

basis of SLUSA preclusion. Federal Rule of Civil Procedure 12(g)(2) provides that, “a party that 

makes a motion under [Federal Rule of Civil Procedure 12] must not make another motion under 

[Federal Rule of Civil Procedure 12] raising a defense or objection that was available to the party 

but omitted from its earlier motion,” except “as provided in [Federal Rule of Civil Procedure] 

12(h)(2) or (3).” Fed. R. Civ. P. 12(g)(2). Thus, pursuant to Federal Rule of Civil Procedure 

12(g)(2), the Court concluded in Northstar VI that Defendants were foreclosed from asserting a 

SLUSA preclusion defense as to Northstar’s fiduciary duty claims in moving to dismiss the FAC. 

However, the Court in Northstar VI noted that, pursuant to Federal Rule of Civil Procedure 

12(h)(2), Defendants may re-raise a previously abandoned defense in a motion for judgment on 

 

6

In the FAC, Northstar asserted, in the first and eighth causes of action, a breach of fiduciary duty 

claim against both the Trust and the Trustees. However, in Northstar VI, the Court dismissed with 

prejudice Northstar’s breach of fiduciary duty claim against the Trust. Northstar VI at 18. 

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the pleadings. See Fed. R. Civ. P. 12(h)(2) (“Failure to state a claim upon which relief can be 

granted . . . may be raised . . . by a motion under [Federal Rule of Civil Procedure] 12(c).”). In 

moving for judgment on the pleadings, Defendants argue that Northstar’s fiduciary duty claims are 

subject to SLUSA preclusion, and the Court must now consider Defendants’ SLUSA preclusion 

defense on the merits. 

As the Court previously noted in Northstar VI, “SLUSA bars private plaintiffs from 

bringing (1) a covered class action (2) based on state law claims (3) alleging that defendant made a 

misrepresentation or omission or employed any manipulative or deceptive device (4) in connection 

with the purchase or sale of (5) a covered security.” Northstar VI at 27 (citing Freeman, 704 F.3d 

at 1114). Of these requirements, “Northstar does not dispute that the instant action constitutes a 

covered class action, that shares in the Fund are covered securities, that Plaintiff’s claims are 

based entirely on the common or statutory law of a state, and that the class action is ‘in connection 

with the purchase or sale’ of a covered security.” See Northstar VI at 29; see also Opp’n at 1.

7

 

Thus, the only requirement at issue is whether Northstar’s fiduciary duty claims “are based on [an] 

alleged misrepresentation[] or omission[].” MJP at 4. 

As the Court explained in Northstar VI, the central theme in Northstar’s five complaints is 

that Defendants committed a misrepresentation or omission of material fact because Defendants 

promised to manage the Fund according to certain fundamental investment objectives, but did not 

actually do so. This theme applies with equal force to Northstar’s fiduciary duty claims. Indeed, 

in opposing Defendants’ motion for judgment on the pleadings, Northstar has itself described “the 

gravamen of [its]’s breach of fiduciary duty claims [as] requir[ing] proof . . . that defendants 

 

7

Federal law also provides an exception to SLUSA preclusion, known as the Delaware carve-out. 

Northstar, however, has declined to assert “arguments addressed to the applicability of the 

Delaware carve-out” in response to Defendants’ motion for judgment on the pleadings. Opp’n at 2 

n.1. As Northstar acknowledges, Northstar’s “arguments were previously made in [Northstar]’s 

Memorandum In Opposition to Defendants’ Motion to Dismiss [the FAC,] . . . and [were] rejected 

by this Court in Northstar VI.” Id. (citation omitted). In light of Northstar’s position, the Court 

does not undertake a Delaware carve-out analysis in this Order. However, such an analysis may 

be found in the Court’s discussion on pages 36 through 39 of Northstar VI. Northstar VI at 36–39.

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Charles Schwab Investment Management, Inc. (the ‘Advisor’) and the trustees of Schwab 

Investments (the ‘Trustees’) breached their fiduciary duties to adhere to the Schwab Total Bond 

Fund (the ‘Fund’)’s fundamental investment objectives (i) to track the Lehman Brothers 

Aggregate Bond Index (the ‘[Lehman] Index’) and (ii) not concentrate in excess of 25% of its 

assets in any one industry.” Opp’n at 1. Thus, for the same reasons outlined in Northstar VI and 

reiterated above with regard to Northstar’s motion for leave to file a motion for reconsideration,

Northstar’s fiduciary duty claims are also subject to SLUSA preclusion.

Moreover, in addition to the reasoning in Northstar VI and the reasoning above, several 

other factors counsel in favor of finding Northstar’s fiduciary duty claims precluded by SLUSA. 

First, the allegations in the FAC describe the Trustees’ fiduciary duty as follows: “The Schwab 

Trustees . . . understood that the Fund’s shareholders were reliant on them for the operation of the 

Fund and for the discharge of the Fund’s fundamental investment objectives and policies.” FAC ¶ 

129 (emphasis added). Similarly, the FAC describes the Advisor’s fiduciary duty as follows: 

“[T]he Schwab Advisor was given, accepted and had delegated responsibility for the investment 

and preservation of the property of Schwab Investments, including to invest the Trust’s property . . 

. in accordance with the Fund’s stated fundamental investment objectives and policies.” Id. ¶ 138

(emphasis added). Finally, Northstar’s aiding and abetting claims allege that the Trustees assisted 

the Advisor in deviating from the Fund’s investment objectives, and vice versa. See, e.g., id. ¶ 

148 (“[The] Trustees knew of such breaches and actively participated in, rendered substantial 

assistance to, or encouraged such breaches of fiduciary duty by the Schwab Advisor, by enabling 

the Schwab Advisor to invest in assets that did not track the [Lehman] Index.”); id. ¶ 154 (“[The] 

Advisor knew of such breaches and actively participated in, rendered substantial assistance to, or 

encouraged such breaches of fiduciary duty by the Schwab Trustees, by maintaining investments 

in securities that did not track the [Lehman] Index.”). 

Thus, based upon the allegations in the FAC, all of Northstar’s fiduciary duty claims arise 

out of the fact (1) that Defendants represented that the Fund’s assets would be invested according 

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to certain fundamental investment objectives, (2) that shareholders relied upon these 

representations, and (3) that Defendants did not invest in accordance with these representations. 

As the Court observed in Northstar VI, such claims constitute “a misrepresentation in the most 

classic sense:” the Advisor and Trustees represented to shareholders that they would do one thing, 

but ended up doing another. See, e.g., Northstar VI at 30. 

Second, as noted above, Northstar’s own opposition to Defendants’ motion for judgment 

on the pleadings describes “the gravamen of [Northstar]’s breach of fiduciary duty claims [as] 

requir[ing] proof . . . that defendants Charles Schwab Investment Management, Inc. (the 

‘Advisor’) and the trustees of Schwab Investments (the ‘Trustees’) breached their fiduciary duties 

to adhere to the Schwab Total Bond Fund (the ‘Fund’)’s fundamental investment objectives (i) to 

track the Lehman Brothers Aggregate Bond Index (the [Lehman] ‘Index’) and (ii) not concentrate 

in excess of 25% of its assets in any one industry.” Opp’n at 1. Thus, under Northstar’s own 

theory of the case, Defendants owed shareholders a fiduciary duty to execute specific investment 

objectives—to track the Lehman Index and to avoid concentrating more than 25% of the Fund’s

assets in any one industry. In order to show breach of Defendants’ fiduciary duty, Northstar must 

show that these investment objectives were not followed. Such a showing would necessarily 

implicate a material misrepresentation or omission: Defendants had a duty to invest the Fund’s

assets in a particular manner, which Defendants allegedly did not do, to the harm of shareholders 

who “relie[d] on [Defendants] for the operation of the Fund and for the discharge of the Fund’s 

fundamental investment objectives and policies.” FAC ¶ 129. 

Third, at the October 16, 2015 case management conference, counsel for Northstar 

described Northstar’s “breach of fiduciary [duty] claim[s] . . . [as] essentially the same claim as 

[Northstar’s] breach of contract claims.” ECF No. 246 at 11–12. According to counsel, 

Northstar’s breach of fiduciary duty claims are “just pled somewhat differently because it’s based 

on the conduct and in enforcing the contract rather than the contract itself.” Id. at 12. Northstar

has thus acknowledged that its breach of fiduciary duty claims are essentially the same as its 

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breach of contract claims—the very same breach of contract claims that were dismissed in 

Northstar VI because they were found to be subject to SLUSA preclusion. See Northstar VI at 40.

As a final point, Northstar alleges that the Advisor aided and abetted the Trustees’ breach 

of fiduciary duty and that the Trustees aided and abetted the Advisor’s breach of fiduciary duty. 

However, neither the Advisor nor the Trustees can “be held liable . . . as an aider and abettor” 

unless Northstar can establish that “the underlying tort alleged here, i.e., breach of fiduciary duty” 

was “committed.” Richard B. LeVine, Inc. v. Higashi, 32 Cal. Rptr. 3d 244, 250 (Ct. App. 2005). 

As the Higashi court explained, “[t]he unifying principle under[lying] . . . aiding and abetting 

[liability], is that [the aider or abettor’s] liability depends upon the actual commission of a tort.” 

Id. In other words, the Advisor and the Trustees may be held liable for aiding and abetting only if

Northstar can bring a viable breach of fiduciary duty claim. Here, because Northstar’s breach of 

fiduciary duty claims are precluded by SLUSA, Northstar’s aiding and abetting breach of fiduciary 

duty claims must also fail. 

b. Northstar’s Contentions to the Contrary are Unavailing

In response to Defendants’ arguments, Northstar contends (1) that the Ninth Circuit and 

this Court have already sustained Northstar’s breach of fiduciary duty claims in Northstar V and 

Northstar VI, respectively; and (2) that Northstar’s breach of fiduciary duty claims do not require 

Northstar to allege or prove a material misrepresentation or omission. The Court briefly examines 

these contentions in turn. 

First, as noted above, the Ninth Circuit declined to “reach the question of whether any of 

Northstar’s claims [we]re barred by SLUSA” in Northstar V. 779 F.3d at 1050 (emphasis added). 

Likewise, as noted above, this Court could not, pursuant to Federal Rule of Civil Procedure 

12(g)(2), consider Defendants’ SLUSA preclusion defense with respect to Northstar’s breach of 

fiduciary duty claims in Northstar VI. Thus, in both Northstar V and Northstar VI, neither the 

Ninth Circuit nor this Court sustained Northstar’s fiduciary duty claims as neither the Ninth 

Circuit nor this Court had opportunity to address Defendants’ SLUSA preclusion defense on the 

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merits. 

Second, Northstar argues that its “breach of a fiduciary duty [claim] . . . does not require 

allegations or proof of a material misrepresentation or omission.” Opp’n at 2; see also id. (reciting 

elements of a breach of fiduciary duty claim). This fact, Northstar contends, removes its fiduciary 

duty claims from SLUSA’s purview. 

The Ninth Circuit has considered and rejected this argument. In Proctor v. Vishay 

Intertechnology Inc., 584 F.3d 1208, 1222 n.13 (9th Cir. 2009), the Ninth Circuit specifically 

observed that a “[m]isrepresentation need not be a specific element of the claim to fall within

[SLUSA’s] preclusion.” In reaching this determination, the Ninth Circuit relied upon supporting 

case law from the Third, Fifth, Sixth, and Eighth Circuits. Id. As the Proctor court further 

observed, allegations of a material misrepresentation need only serve as the factual predicate of a 

state law claim in order to satisfy SLUSA’s “misrepresentation” or “omission” prong. Id. Here, a 

material misrepresentation or omission clearly serves as the factual predicate to Northstar’s 

fiduciary duty claims. In order to prove that Defendants breached their fiduciary duties, Northstar 

must demonstrate that Defendants promised to invest the Fund’s assets in accordance with certain 

specific objectives and that Defendants deviated from these objectives. 

None of the cases cited by Northstar compel a different result. Northstar, for instance, 

cites the U.S. Supreme Court’s decision in Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058 

(2014). According to Northstar, Chadbourne instructs federal courts to interpret SLUSA 

narrowly, in contrast to the U.S. Supreme Court’s earlier decision in Merrill Lynch, Pierce, 

Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 85–86 (2006), which instructed federal courts to 

construe SLUSA broadly. In Dabit, for instance, the U.S. Supreme Court stated that “[t]he 

presumption that Congress envisioned a broad construction follows not only from ordinary 

principles of statutory construction but also from the particular concerns that culminated in 

SLUSA’s enactment.” Id. at 86. 

Northstar’s reliance on Chadbourne is misplaced. In Chadbourne, the U.S. Supreme Court 

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stated only that SLUSA’s “covered security” requirement should be read narrowly. Specifically, 

the question before the U.S. Supreme Court in Chadbourne was “whether [SLUSA] encompasses 

a class action in which [] plaintiffs allege (1) that they purchased uncovered securities . . ., but (2) 

that [] defendants falsely told the victims that the uncovered securities were backed by covered

securities.” 134 S. Ct. at 1062 (internal quotation marks and alterations omitted). As noted above, 

SLUSA does not apply to uncovered securities, and the U.S. Supreme Court held in Chadbourne 

that the covered security requirement should be construed narrowly. Id. at 1066. Moreover, to 

reinforce the fact that Chadbourne sought only to construe the covered security requirement

narrowly, and not any other part of SLUSA, the Chadbourne Court specifically stated that “[w]e 

do not here modify Dabit,” id. at 1066, which held that SLUSA as a whole should be construed 

broadly, because Dabit—like the instant case—concerned covered securities. 

Northstar’s reliance on Beckett v. Mellon Investor Services LLC, 329 F. App’x 721 (9th 

Cir. 2009), is likewise inapposite. In Beckett, the district court dismissed plaintiff’s complaint 

with prejudice upon finding all of plaintiff’s claims preempted by SLUSA. Id. at 722. The Ninth 

Circuit agreed with the district court’s finding, and noted that all of plaintiff’s claims “to some 

extent rely on the allegation that [defendant] did not disclose its fees; they are all therefore based 

on allegations of omission and are prohibited by SLUSA.” Id. at 723. 

The Ninth Circuit nonetheless remanded Beckett to the district court because it determined 

that the plaintiff “could amend his class complaint to allege claims . . . not preempted” by SLUSA. 

Id. Specifically, “plaintiff . . . claims [that defendant] excessively delayed in selling stock and 

failed to pay him and other class members the proper value of their shares.” Id. Plaintiff did “not 

allege that [defendant] made any statements regarding these actions or that some material fact 

relating to them was omitted.” Id. Thus, the Ninth Circuit determined that plaintiff “could 

conceivably allege a breach of contract class claim [with respect to these actions] that was not 

preempted.” Id. 

Here, unlike Beckett, Northstar’s fiduciary duty claims have hinged upon and continue to 

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hinge upon the same material misrepresentation or omission, even though Northstar has now filed 

five complaints. Specifically, Defendants represented, pursuant to a shareholder vote, that the 

Fund would track the Lehman Index and that no more than 25% of the Fund’s assets would be 

concentrated in any one industry. These representations were memorialized in a proxy statement 

and in various other documents. See, e.g., Northstar VI at 26. At some point, Defendants

allegedly breached their fiduciary duty to shareholders by deviating from these representations. 

Thus, unlike in Beckett, Northstar has not alleged that Defendants owed shareholders a fiduciary 

duty separate and apart from the material misrepresentations or omissions at issue. 

Finally, neither Falkowski v. Imation Corp., 309 F.3d 1123 (9th Cir. 2002), nor In re 

Kingate Management Ltd. Litigation, 784 F.3d 128 (2d Cir. 2015), supports Northstar’s position. 

As Northstar acknowledges, the Falkowski court simply held that breach of contract claims which

are “garden variety state law claims” are not preempted by SLUSA. 309 F.3d at 1131–32. The 

holding in Falkowski is thus no different from the holding in Freeman: both cases involved breach 

of contract claims which did not implicate a material misrepresentation or omission. In In re 

Kingate, the Second Circuit found certain claims not subject to SLUSA preclusion because these

claims “d[id] not require a showing of false conduct on the part of Defendants.” 784 F.3d at 152. 

However, in the instant case, Northstar’s fiduciary duty claims would require such a showing. As 

the Court has explained, in order to prevail on its claims, Northstar would need to show that 

Defendants promised to do one thing, but ended up doing another. See also Hampton, 2015 WL 

7292128, *5 (applying same reasoning). 

Accordingly, the Court GRANTS Defendants’ motion for judgment on the pleadings. The 

Court therefore dismisses the following eight causes of action from the FAC: breach of fiduciary 

duty against the Trustees (first and eighth causes of action); breach of fiduciary duty against the 

Advisor (second and ninth causes of action); aiding and abetting breach of fiduciary duty against 

the Trustees (third and tenth causes of action); and aiding and abetting breach of fiduciary against 

the Advisor (fourth and eleventh causes of action). 

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3. Leave to Amend

In addition, the Court denies Northstar leave to amend. Although Northstar has filed five 

complaints, the thrust of Northstar’s various causes of action—as Northstar itself acknowledges—

have remained the same: that “Defendants breached their fiduciary duties to adhere to the Schwab 

Total Bond Fund’s fundamental investment objectives (i) to track the Lehman Brothers Aggregate 

Bond Index and (ii) not concentrate in excess of 25% of its assets in any one industry.” Opp’n at 1 

(parentheticals removed). 

By way of illustration, in the Original Complaint, filed in August 2008, Northstar stated 

that “[t]he Fund deviated from its stated investment objective by investing in high risk non-U.S. 

agency collateralized mortgage obligations (‘CMOs’). The non-U.S. agency CMOs were not part 

of the Lehman Index. . . . The Fund also deviated from its stated fundamental investment 

objective by investing more than 25% of its total assets in U.S. agency and non-agency mortgagebacked securities and CMOs.” Compl. ¶¶ 3–4; id. ¶ 88 (incorporating above allegations into 

breach of fiduciary duty claim). 

In the First Amended Complaint, filed in March 2009, Northstar once again stated that 

“[t]he Fund deviated from its stated investment objective by investing in high risk non-U.S. 

agency collateralized mortgage obligations (‘CMOs’). The non-U.S. agency CMOs were not part 

of the Lehman Index. . . . The Fund also deviated from its stated fundamental investment 

objective by investing more than 25% of its total assets in U.S. agency and non-agency mortgagebacked securities and CMOs.” ECF No. 75 ¶¶ 3–4. Northstar also described Defendants as 

“ow[ing] Class members a fiduciary duty to manage the Fund’s assets with the care and prudence 

of a professional in like circumstances and to adhere to the Fund‘s investment objective and 

policies.” Id. ¶ 105 (emphasis added). 

In the Second Amended Complaint, filed in September 2010, Northstar again alleged that 

“[t]he Fund deviated from its stated investment objective by investing in high risk non-U.S. 

agency collateralized mortgage obligations (‘CMOs’). The non-U.S. agency CMOs were not part 

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of the Lehman Index. . . . The Fund also deviated from its stated fundamental investment 

objective by investing more than 25% of its total assets in U.S. agency and non-agency mortgagebacked securities and CMOs.” SAC ¶¶ 3–4. Northstar also stated that Defendants had “breached 

their fiduciary duties to [P]laintiff and the members of the Class by the acts and omissions set 

forth above in violation of the shareholders’ voting rights and the Fund’s stated investment 

objectives.” Id. ¶ 134. 

In the Third Amended Complaint, filed in March 2011, Northstar stated that “Defendants, 

acting in breach of their fiduciary duties and in violation of shareholders’ rights, caused the Fund 

to deviate from the Fund’s fundamental investment objective to seek to track the investment 

results of the Lehman Brothers U.S. Aggregate Bond Index.” TAC ¶ 4 (internal quotation marks 

omitted). Once again, Northstar emphasized that Defendants had deviated from the Fund’s 

fundamental investment objectives by purchasing high risk non-U.S. agency CMOs and by 

investing more than 25% of total Fund assets into such CMOs. Id. ¶¶ 5–6.

Finally, in the Fourth Amended Complaint, filed in June 2015, Northstar states that 

“[D]efendants, acting in breach of their fiduciary duties and in violation of shareholders’ 

contractual rights, caused the Fund to deviate from the Fund’s fundamental investment objective 

to seek to track the investment results of the Lehman Brothers U.S. Aggregate Bond Index.” FAC 

¶ 4 (internal quotation marks omitted). Once again, Northstar emphasizes that Defendants had 

deviated from the Fund’s fundamental investment objectives by purchasing high risk non-U.S. 

agency CMOs and by investing more than 25% of the Fund’s assets into such CMOs. Id. ¶¶ 5–6.

To summarize, over five successive complaints, Northstar’s fiduciary duty claims have 

hinged upon and continue to hinge upon the same misrepresentation or omission of material fact. 

“[W]hen a district court has already granted a plaintiff leave to amend, its discretion in deciding 

subsequent motions to amend is particularly broad.” Chodos, 292 F.3d at 1003 (internal quotation 

marks omitted). Here, in light of the circumstances recited above, the Court finds that providing 

Northstar additional leave to amend would be futile. See Bonin v. Calderon, 59 F.3d 815, 845 (9th 

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Cir. 1995) (“Futility of amendment can, by itself, justify the denial of a motion for leave to 

amend.”). Accordingly, Defendants’ motion for judgment on the pleadings is GRANTED with 

prejudice. 

B. Motion for Class Certification

Given the Court’s decision to deny Northstar’s motion for reconsideration and to grant 

Defendants’ motion for judgment on the pleadings, Northstar’s motion for class certification is

moot. Accordingly, Northstar’s motion for class certification is DENIED AS MOOT.

IV. CONCLUSION

For the foregoing reasons, Northstar’s motion for leave to file a motion for reconsideration 

is DENIED, Defendants’ motion for judgment on the pleadings is GRANTED with prejudice, and 

Northstar’s motion for class certification is DENIED as moot. The Clerk shall close the file. 

IT IS SO ORDERED.

Dated: February 23, 2016

______________________________________

LUCY H. KOH

United States District Judge

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