Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_03-cv-05439/USCOURTS-caed-1_03-cv-05439-12/pdf.json

Nature of Suit Code: 470
Nature of Suit: Civil (Rico)
Cause of Action: 18:1961 Racketeering (RICO) Act

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

FOX HOLLOW OF TURLOCK OWNERS’

ASSOCIATION, et al., 

 Plaintiff,

 v. 

RICHARD SINCLAIR, et al., 

 Defendants;

AND OTHER CONSOLIDATED ACTIONS.

1:03-CV-05439 OWW DLB

ORDER (1) DENYING

DEFENDANTS’ MOTION TO STRIKE

(247); (2) GRANTING IN PART

AND DENYING IN PART

DEFENDANTS’ MOTION FOR MORE

DEFINITE STATEMENT (251);

AND (3) REFERRING PENDING

SANCTIONS MOTION TO

MAGISTRATE JUDGE BECK (258). 

I. INTRODUCTION

Defendants Mauctrst LLC, Capstone LLC, LairTrust LLC,

Stanley Flake, as Trustee of Capstone Trust, Gregory Mauchley,

Brandon Sinclair, and Richard Sinclair (collectively, “the

Defendants”) move to strike the Second Amended Complaint, filed

by Plaintiff California Equity Management Group, Inc. (“CEMG”) on

August 26, 2005, for failure to comply with Federal Rule of Civil

Procedure Rule 15(a). The Defendants also move, under Federal

Rule of Civil Procedure 12(e), to require Plaintiff to more

definitely state the First, Second, Third, Tenth, Thirteenth,

Fifteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second,

and Twenty-Third Causes of Action in the Second Amended

Complaint. 

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II. MOTION TO STRIKE

A. Background.

On April 7, 2005, CEMG moved for permission to file a second

amended complaint to allege new causes of action, and to support

with new theories, causes of action already alleged. A May 24,

2005, order authorized amendment. (Doc. 147.) Counsel of record

for both CEMG and Plaintiff Fox Hollow of Turlock Owners’

Association (“the Association”) filed a Second Amended Complaint

the following day. (Doc. 149.) The caption inadvertently

identified the Association as the filing party, not CEMG, as

contemplated by the order of May 24. 

The Defendants filed a Motion to Strike the Second Amended

Complaint, on the grounds that the Association had not obtained

leave to file it. The attorneys subsequently stipulated to

correct the erroneous caption, and agreed that CEMG would file a

Second Amended Complaint. An August 3, 2005, order gave CEMG

until August 24, 2005, to file. (Doc. 244.) 

CEMG, however, did not file its Second Amended Complaint

until August 26, 2005. CEMG’s counsel states that he was on

vacation on August 24, and had left to his staff the task of

filing the Second Amended Complaint, which they did not

accomplish. 

B. Legal Standard for Motion to Strike.

Federal Rule of Civil Procedure 15(a) reads, in relevant

part: 

A party may amend the party's pleading once as a matter

of course at any time before a responsive pleading is

served or, if the pleading is one to which no

responsive pleading is permitted and the action has not

been placed upon the trial calendar, the party may so

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amend it at any time within 20 days after it is served. 

Otherwise a party may amend the party's pleading only

by leave of court or by written consent of the adverse

party; and leave shall be freely given when justice so

requires.

(emphasis added). 

Defendants argue that the district court’s grant to CEMG of

leave to amend expired with the expiration of the 15-day period

allowed in its order, so that the late amendment was without

leave and is without legal effect. 

A pleading cannot be amended without leave of court or

consent of the opposition, and where (as here) such leave or

consent is required and not obtained, the amendment is a nullity. 

See, e.g., United States ex rel. Mathews v. HealthSouth Corp.,

332 F.3d 293, 296 (5th Cir. 2003); Wright, Miller & Kane, Federal

Practice and Procedure § 1484. However, CEMG’s Opposition to the

Motion to Strike may fairly be considered a motion for the

enlargement of the period within which to file the Second Amended

Complaint. 

In the Ninth Circuit, there is no rigid rule against

allowing a late filing attributable to attorney negligence,

particularly where no prejudice results. Pincay v. Andrews, 389

F.3d 853, 860 (9th Cir. 2004)(citing Pioneer Inv. Serv. v.

Brunswick Assoc. Ltd P’ship, 507 U.S. 380, 395 n. 14 (1993)). 

Rather, a district court entrusted with discretion to weigh the

equitable factors enunciated by the Supreme Court in Pioneer. 

These include, “[1] the danger of prejudice to the [opposing

party], [2] the length of the delay and its potential impact on

judicial proceedings, [3] the reason for the delay, including

whether it was within the reasonable control of the movant, 

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[4] and whether the movant acted in good faith. 507 U.S. at 395. 

Here, where there was no showing of any prejudice or bad faith

and the delay was negligible(only three days), striking the

complaint is not warranted. 

The motion to strike is DENIED.

III. MOTION FOR A MORE DEFINITE STATEMENT

A. Summary of the Motion.

The Second Amended Complaint alleges twenty-three separate

causes of action. The Defendants request more definite statement

of eleven of these. 

CEMG’s First, Second, and Third Causes of Action request

equitable reformation of certain deeds of trust. The First Cause

of Action alleges mutual mistake as the grounds for the request;

the Second, unilateral mistake; and the Third, fraud. The

Defendants claim that CEMG fails to plead fraud and mistake with

particularity. 

California Business and Professional Code § 17200 (“Unfair

competition; prohibited activities”) forms the basis for CEMG’s

Tenth, Thirteenth, and Fifteenth Causes of Action. The

Defendants seek more definite statements of these claims on the

grounds that in their present form the allegations do not specify

whether the acts by which the Defendants allegedly violated a

statute were unlawful, unfair, or fraudulent. 

The Defendants argue that the Nineteenth Cause of Action,

which alleges violations of the Racketeer Influenced and Corrupt

Organizations Act (“RICO”), 18 U.S.C. § 1961, et seq., does not

plead racketeering activity with requisite particularity.

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The Twentieth Cause of Action seeks an accounting of

deposits and rents received. Defendants argue that the Plaintiff

should be required to state the period for which it seeks an

accounting. 

Finally, Defendants claim that Causes of Action Twenty-One,

Twenty-Two, and Twenty-Three –- for breach of contract, money had

and received, and bad faith retention of security deposit,

respectively –- fail to allege whether the contract is written or

oral, and move the court upon this basis to require the Plaintiff

to make them more definite. 

B. Motion for a More Definite Statement as to the First,

Second, and Third Causes of Action.

1. Overview of the First, Second, and Third Causes of

Action. 

CEMG alleges that, in the course of developing the Fox

Hollow subdivision (“Fox Hollow,” or “the subdivision”), the

Defendants sought refinancing for certain loan obligations which

were secured by deeds of trust on each lot of the subdivision. 

(Second Amended Complaint (“SAC”) ¶42.) The lots were appraised

as part of the refinancing process, and the values assigned were

based in large measure on the assumption that each unit would

have access or legal right to at least one garage appurtenant to

the lot on which the unit was located. (SAC ¶43.) Most of Fox

Hollow’s twenty lots featured a garage for each housing unit. 

For Lots 2, 6, 7, 8, 9, 10, and 18, there was also one garage

sited on a second lot. (SAC ¶36.) The Defendants secured

refinancing on the lots, and deeds of trust were drafted. The

“Garage Lots,” identified as Lots 2A, 6A, etc., however, were not

mentioned in the trust deeds, despite the fact that their

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corresponding housing-unit lots’ appraisal values depended on

access to the garages. 

The Defendants later defaulted on their loans, and the

lenders foreclosed upon the Fox Hollow lots, including Lots 2, 6,

7, 8, 9, 10, and 18. (SAC ¶50.) After purchasing the lenders’

rights to the lots at a foreclosure sale, CEMG discovered that

the deeds of trust did not encumber the Garage Lots, which were

not collateral for the new loan. (SAC ¶53.)

CEMG seeks equitable reformation of the trust deeds, as well

as the deeds of conveyance, to include the Garage Lots. (SAC

¶55.) CEMG advances three alternative legal theories in support

the requested relief. 

In its First Cause of Action, CEMG seeks reformation of the

trust deeds on the grounds of mutual mistake. (SAC ¶48.) 

Specifically, CEMG alleges that the lenders and the Defendants

agreed and intended that the trust deeds should include the

Garage Lots among the collateral for the prospective refinancing,

that these lots were included in the original grant deeds for

later individual lots after the subdivision was established, but

that the title company to which they left the task of drafting

the relevant conveyance and security documents omitted the Garage

Lots from the legal description through error. (SAC ¶¶ 45-49.) 

Due to this clerical scrivener’s error, the instruments do not

reflect the true understanding of the parties. (SAC ¶51.) In

addition, CEMG alleges that “sometime after the Lenders’ Deeds of

Trust were executed and delivered to the Lenders, the

Defendants...became aware of the mutual mistake regarding the

legal description in such deeds of trust,” and nonetheless

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“failed to notify the Lenders of the mutual mistake or to take

any action to correct the error.” (SAC ¶54.) Finally, CEMG

argues that the Defendants should be estopped from claiming that

the trustee deeds and deeds of trust did not incorporate the

Garage Lots into the collateral, on the grounds that the

Defendants benefitted from the real property appraisals which

included the Garage Lots, which facilitated refinancing. (SAC

¶56.)

In its Second Cause of Action, CEMG seeks reformation of the

trust deeds on the grounds of unilateral mistake with knowledge. 

(SAC ¶¶61-62.) CEMG alleges that the lenders drafted the deeds

of trust, and each failed to include the Garage Lot or Lots as

part of the collateral. (SAC ¶61.) CEMG further alleges that

the Defendants, “and each of them,” knew of the lenders’ mistake

when the deeds of trust were executed, but failed to raise the

issue. (SAC ¶62.) 

In its Third Cause of Action, CEMG seeks reformation of the

trust deeds on the grounds of fraud, alleging that the Defendants

actively misled the lenders into believing that the collateral

for the trust deeds, as drafted, included the Garage Lots. (SAC

¶65.)

2. Analysis of the First, Second and Third Causes of

Action. 

Federal Rule of Civil Procedure Rule 9(b) demands that, when

allegations of fraud or mistake are made, the circumstances

constituting the alleged fraud must be stated with

“particularity.” The allegations must be specific enough to give

Defendants notice of what they are alleged to have done, so that

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The Defendants point out that CEMG states these causes 1

of action on information and belief only. Though it is true that

CEMG avers its first three causes of action only on “information

and belief,” see, e.g., SAC, ¶¶ 43, 47, this alone is not fatal

to the complaint: 

Allegations of the circumstances of a fraud based on

information and belief, which are commonplace and often

a necessity in many litigation contexts, usually do not

satisfy the particularity requirement of Rule 9(b),

unless accompanied by a statement of the facts upon

which the pleader's belief is founded, but the

application of the rule may be relaxed as to matters

peculiarly within the opposing party's knowledge that

the pleader is not privy to at the time the document is

being drafted. 

5A Wright & Miller, Federal Practice and Procedure: Civil 3d 

§ 1298.

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they may defend against the accusations. Concha v. London, 62

F.3d 1493, 1502 (9th Cir. 1995).1

Actions for the reformation of a contract is governed by

California Civil Code Section 3399, which provides:

When, through fraud or a mutual mistake of the parties,

or a mistake of one party, which the other at the time

knew or suspected, a written contract does not truly

express the intention of the parties, it may be revised

on the application of a party aggrieved, so as to

express that intention, so far as it can be done

without prejudice to rights acquired by third persons,

in good faith and for value. 

See also Shupe v. Nelson, 254 Cal. App. 2d 693 (1967) (in action

based on mistake, “aggrieved party” under § 3399 need not be an

original party to transaction). 

With respect to the First Cause of Action, which alleges

mutual mistake on the part of the lenders, the Defendants, and a

scrivener’s error by the title company, the SAC does not allege

that the responsibility for the scrivener’s error lies with the

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This necessarily implicates that title company, which 2

is not a party to this lawsuit. The title company, potentially

responsible party, is not identified. It is hard to understand

how the Plaintiff has not ascertained the identity of the title

company. 

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Defendants or the lenders. A mutual mistake occurs where both 2

parties share the same factual misconception. Sutter Youth Org.,

v. Borsen, 214 Cal. App. 2d 676, 680 (1963). The claim for

mutual mistake is sufficiently definite to enable the Defendants

to frame a response. The motion for a more definite statement is

DENIED as to the First Cause of Action. 

The Second Cause of Action is for unilateral mistake, which

requires that the plaintiff be mistaken and the other (nonmistaken) party to the instrument suspected or had knowledge of

the mistake at the time the instrument was drawn up. See Cal.

Civ. Code § 3399; see Pac. State Bank v. Greene, 110 Cal. App.

4th 375, 389 (2003). At oral argument, the court erroneously

observed that the second amended complaint fails to allege that

the non-mistaken party to the original instrument had knowledge

of the mistake. However, Paragraph 62 does allege that

Defendants knew of the mistake at the time the deeds were

executed. The motion for a more definite statement is DENIED as

to the Second Cause of Action. 

The Third Cause of Action is for reformation on the ground

that the deed was executed as a result of fraud. Averments of

fraud must be accompanied by the “who, what, when, where, and

how” of the misconduct charged. A plaintiff must set forth more

than the neutral facts necessary to identify the transaction. 

The plaintiff must set forth what is false or misleading about a

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statement, and why it is false. Vess v. Ciba-Geigy Corp. USA,

317 F.3d 1097, 1106 (9th Cir. 2003) (citations and internal

quotation marks omitted). Here, Plaintiffs allege that the

“failure of the Lender Deeds of trust to contain a legal

description of the Garage Lots resulted from the false

representations of Defendants...to the Lenders that the Lender

Deeds of Trust secured the Lenders against all of the property

constituting the Lot or Lots on which they were securing loans,

and the intentional omission of Defendants...to inform the

Lenders that the Lenders Deeds of Trust were not secured against

the Garage Lots.” (SAC ¶65.) This plainly describes the nature

of the allegedly fraudulent representations and omissions,

putting Defendants on notice of “what is false or misleading” and

“why it is false.” Plaintiffs further allege that the false

representations and omissions were knowingly and intentionally

made by Defendants “in that Defendants were the original owners

of the Fox Hollow Subdivision.” (Id. at ¶66.) This sufficiently

describes who made was involved in the alleged fraud. The motion

for a more definite statement as to the Third Cause of Action is

DENIED.

C. Motion For a More Definite Statement as to the Tenth,

Thirteenth, and Fifteenth Causes of Action.

1. Summary of the Tenth, Thirteenth, and Fifteenth

Causes of Action. 

CEMB alleges that it acquired fee simple title to lots 11

and 18 of the subdivision from the GMAC Mortgage Corporation

(“GMAC”). (See SAC ¶25.) These lots (the “GMAC Lots”) “were

subject to valid and enforceable written residential lease

agreements (the ‘GMAC Leases’).” (SAC ¶82.) 

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CEMG alleges that the Defendants intentionally interfered

with CEMG’s rights under these leases by (a) representing to the

tenants of the GMAC Lots that Defendants “were the owners of such

lots and were entitled to the deposits and rents under the GMAC

Leases,” and (b) collected rents from the tenants under the GMAC

Leases after the date on which title was transferred to Plaintiff

and continuing through the present time. (SAC ¶84, Eighth Cause

of Action.) CEMG claims that the Defendants’ collection of

deposits and rents also constitutes conversion. (SAC ¶87, Ninth

Cause of Action.)

The Tenth Cause of Action alleges that the false

representations and conversion of deposits and rents constitute

an “unfair trade practice” under Business and Professions Code

Section 17200. (SAC ¶91.) 

In the Eleventh and Twelfth Causes of Action, which are not

challenged here, CEMG alleges that the Defendants intentionally

interfered in a similar manner with its lot 7 lease (SAC ¶¶92-

99), and converted to their own use the rents due to it

thereunder (SAC ¶¶100-102), respectively. The Thirteenth Cause

of Action alleges that this intentional interference with

contract and conversion constitutes an unfair trade practice

under § 17200. (SAC ¶¶103-104.) The Fourteenth Cause of Action,

which is not challenged here, alleges that the Defendants

slandered title to certain Fox Hollow subdivision lots. (SAC

¶¶105-110.) The Fifteenth Cause of Action alleges that this

slander constitutes an unfair trade practice under § 17200. (SAC

¶¶111-112.)

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2. Analysis of the Motion for a More Definite

Statement as to the Tenth, Thirteenth, and

Fifteenth Causes of Action.

California’s unfair competition law (“UCL”), Cal. Bus. &

Prof. Code § 17200, et seq., prohibits “unfair competition” which

is defined to “include any unlawful, unfair[,] or fraudulent

business act or practice....” “Because the statute is framed in

the disjunctive, a business practice need only meet one of the

three criteria to be considered unfair competition.” McKell v.

Washington Mut. Inc., 142 Cal. App. 4th 1457, 1471 (2006). 

The purpose of the UCL “is to protect both consumers and

competitors by promoting fair competition in commercial markets

for goods and services.” Kasky v. Nike, Inc., 27 Cal. 4th 939,

949 (2002). The scope of the statute is broad, including

“anything that can properly be called a business practice and

that at the same time is forbidden by law.” Perfect 10, Inc. v.

CCBill, LLC, 340 F. Supp. 2d 1077, 1108 (C.D. Cal. 2004). 

“Although the unfair competition law’s scope is sweeping, it

is not unlimited.” Cel-Tech Communications, Inc. v. Los Angeles

Cellular Tel. Co., 20 Cal. 4th 163, 182 (1999). Its purpose is

to permit courts to enjoin on-going wrongful business conduct to

enable courts to “deal with innumerable new schemes which the

fertility of man’s invention would contrive.” Cel-Tech

Communications, 20 Cal. 4th at 181 (1999)(emphasizing the fact

that § 17200 is an equitable remedy). With this in mind, the

California Supreme Court has narrowed the definition of the term

“unfair” to mean “conduct that threatens an incipient violation

of an antitrust law, or violates the policy or spirit of one of

those laws because its effects are comparable to or the same as a

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A single act of misconduct may form the basis of a UCL 3

suit. Madrid v. Perot Systems Corp., 130 Cal. App. 4th 440, 464

(2005). 

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violation of the law, or otherwise significantly threatens or

harms competition.” Id. at 187. However, Cel-Tech did not

narrow the term “unlawful,” see Kearny v. Salomon Smith Barney,

Inc., 39 Cal. 4th 95, 131 (2006). “Unlawful” acts or practices

include any which are “forbidden by law, be it civil or criminal,

federal, state or municipal, statutory, regulatory, or courtmade.” Saunders v. Superior Court, 27 Cal. App. 4th 832, 838-39

(1994). Nor did Cel-Tech address or narrow the term

“fraudulent.” See Cel-Tech, 20 Cal. 4th at 187 n.12

(acknowledging that the holding does not apply to allegations of

fraudulent or unlawful business practices). However, the second

amended complaint does not explain whether Plaintiffs are

alleging an “unfair” business act or practice, an “unlawful” one 3

or a “fraudulent” one.

Remedies under the UCL are limited injunctive relief or

restitution. Valdez v. Himmelfarb, 144 Cal. App. 4th 1261, 1267

(2006). The complaint is also unclear as to the remedies sought

by these claims.

The motion for a more definite statement as to the Tenth,

Thirteenth and Fifteenth Claims is GRANTED, but Plaintiffs are

reminded that Federal Rule of Civil Procedure 11 requires goodfaith bases for these claims to be re-alleged.

D. The Nineteenth Cause of Action.

CEMG has conceded that its Nineteenth Cause of Action, which

alleges a civil RICO claim, needs to be stated more definitely. 

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Defendants’ motion is GRANTED as to this cause of action. 

In re-pleading this cause of action, CEMG must meet RICO’s

civil action requirements. A RICO civil complaint must at least

allege: (1) that a ‘person’ within the scope of the statute 

(2) has utilized a ‘pattern of racketeering activity’ or the

proceeds thereof (3) to infiltrate an interstate ‘enterprise’ (4)

by (a) investing the income derived from the pattern of

racketeering activity in the enterprise; (b) acquiring or

maintaining an interest in the enterprise through the pattern of

racketeering activity; (c) conducting the affairs of the

enterprise through the pattern of racketeering activity; or (d)

conspiring to commit any of the above acts. 18 U.S.C. § 1962. A

plaintiff in a private, civil RICO action must also allege that

he was injured in his business or property ‘by reason of’ one of

the foregoing. 18 U.S.C. § 1964[c]. The racketeering enterprise

must be separate from the racketeering acts or activity. Chang

v. Chen, 80 F.3d 1293, 1298-99 (9th Cir. 1996). 

Section 1961 enumerates acts which are each considered to be

acts of “racketeering activity” and which, in RICO parlance, are

often called the “predicate acts.” The most important predicate

acts for RICO violation are: (1) “any act or threat involving

murder, kidnaping, gambling, arson, robbery, bribery, extortion,

dealing in obscene matter, or dealing in a controlled substance

or listed chemical (as defined in Section 102 of the Controlled

Substances Act), which is chargeable under State Law and

punishable by imprisonment for more than one year;” (2) any of

more than twenty types of conduct indictable under enumerated

provisions of the United States Code, ranging from mail fraud and

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wire fraud, through robbery and extortion, to white slave trade;

or (3) any offense involving fraud “connected with” a bankruptcy

case, “fraud in the sale of securities,” or any act related to a

controlled substance or listed chemical “punishable” under

federal law. 18 U.S.C. § 1961; see generally Wagh v. Metris

Direct, Inc., 363 F.3d 821 (9th Cir. 2003). No such predicate

acts are alleged in the complaint. 

The motion for a more definite statement as to the

Nineteenth Cause of Action is GRANTED.

E. The Twentieth Cause of Action.

The Twentieth Cause of Action seeks an accounting of

deposits and rents paid. However, CEMG specifies neither the

period for which it seeks the accounting, nor if it seeks an

accounting of any sums more than deposits taken and the amount of

rents paid under leases. Defendants are entitled to be apprised

of what must be accounted for and for what period. The motion

for a more definite statement is GRANTED with regard to the

Twentieth Cause of Action. 

F. The Twenty-First, Twenty-Second, and Twenty-Third

Causes of Action.

The Twenty-First, Twenty-Second, and Twenty-Third Causes of

Action are for breach of contract, money had and received, and

bad faith retention of tenants’ security deposits. Defendants

seek more definite statements of these causes of action on the

grounds that CEMG fails to allege whether the contracts upon

which the causes of action are based are oral or written. 

CEMG responds by referring the court to the Eighth, Tenth,

and Eleventh Causes of Action, which, according to CEMG, “each

allege written residential lease agreements.” Mem. in Opp. at 9. 

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The lots described in those claims are not the same as those

alleged in the Twenty-First through Twenty-Third causes of

action. 

The Defendants’ motion with regard to these causes of action

is GRANTED. Plaintiffs shall re-plead the Twenty-First, TwentySecond, and Twenty-Third causes of action in a manner that

indicates the nature of the contract at issue. 

VI. CONCLUSION

For the reasons set forth above:

(1) Defendants’ motion to strike is DENIED.

(2) Defendants’ motion for a more definite statement is

GRANTED IN PART AND DENIED IN PART. The motion is

DENIED as to the First, Second, and Third Causes of

Action, and GRANTED as to the Tenth, Thirteenth,

Fifteenth, Nineteenth, Twentieth, Twenty-First, TwentySecond, and Twenty-Third Causes of Action.

(3) As indicated during oral argument, the still-pending

motion to amend/correct a prior sanctions order (Doc.

258) is referred back to Magistrate Judge Dennis L.

Beck, who issued the original sanctions order. If the

parties are mutually satisfied that there is no further

need for this motion to be heard, they are instructed

to file a stipulation taking the motion off calendar. 

IT IS SO ORDERED.

Dated: March 30, 2007 /s/ Oliver W. Wanger 

b2e55c UNITED STATES DISTRICT JUDGE

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