Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-01358/USCOURTS-caed-2_04-cv-01358-33/pdf.json

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

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

JAMES P. DEFAZIO, et al.,

NOS. CIV. S-04-1358 WBS GGH

 S-05-0559 WBS GGH

Plaintiffs, S-05-1726 WBS GGH

CONSOLIDATED 

v. ORDER RE: MOTIONS TO STRIKE

AND MOTION TO DISMISS

HOLLISTER, INC., et al.,

Defendants.

 ----oo0oo----

Plaintiffs James P. DeFazio, Theresa Beetham, Brenda

Dimaro, Kathleen Ellis, DeLane Humphries, Hallie Lavick, Michael

McNair, Sonya Pace, Judy Seay, Nancy Russell Stanton, and Cindy

Worth brought this action alleging several claims pursuant to

pertinent sections of the Employee Retirement Income Security Act

(ERISA), 29 U.S.C. §§ 1001-1461, against defendants Hollister,

Inc. (“Hollister”), Hollister Employee Share Ownership Trust

(“HolliShare”), The Firm of John Dickinson Schneider, Inc.

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1 With the exception of plaintiff Ellis, all plaintiffs

are represented by the same counsel and stand by the substance of

their Fourth Amended Complaint. Ellis, through separate counsel,

has filed her own Fourth Amended Complaint. Both Fourth Amended

Complaints are substantially similar and, for the most part,

contain identical allegations. Unlike the claims in her

co-plaintiffs’ Fourth Amended Complaint, however, Ellis foregoes

the class action allegations and does not assert any claims

against defendants Fremgen, Stempinski, and Winn. Accordingly,

when a distinction is necessary, the court will refer to the

Fourth Amended Complaints as the Defazio FAC and the Ellis FAC. 

2

(“JDS”), Samuel Brilliant, Richard I. Fremgen, Donald K.

Groneberg, Charles H. Gunderson, Alan F. Herbert, James A.

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

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

C. Winn, and Richard T. Zwirner. Defendants now move to dismiss

plaintiffs’ claims against defendants Fremgen and Herbert as well

as strike additional allegations contained within plaintiffs’

Fourth Amended Complaints (Defazio Fourth Am. Compl. (FAC); Ellis

FAC).1 In a separate motion, defendants Stempinski and Winn also

move to strike relevant portions of the Defazio FAC. 

I. Factual and Procedural Background

To avoid repetition, the court will refrain from

reciting the entire factual and procedural background, which

essentially remains the same as in its November 1, 2007 Order. 

Defazio v. Hollister, Inc., No. 04-1358, 2007 WL 3231670, at *1-2

(E.D. Cal Nov. 1, 2007). Below, the court only highlights facts

relevant to this motion as well as significant events that

occurred after the November 1, 2007 Order.

Defendant Hollister is an independently-owned

corporation that develops, manufactures, and markets healthcare

products. (Defazio FAC ¶ 24.) Plaintiffs are various

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participants and beneficiaries of defendant Hollishare, a

contribution pension plan designed by Hollister to provide

retirement benefits to Hollister employees and their

beneficiaries. (Id. at ¶ 3.) 

In a fourteen month period during the years 2004 and

2005, three factions of the current makeup of plaintiffs

independently filed complaints alleging that defendants--various

Hollishare Trustees as well as members of defendant JDS and/or

Hollister’s Board of Directors--abused their fiduciary

responsibilities related to the administration of Hollishare in

violation of ERISA. (Id. at ¶¶ 7-10.) On May 24, 2006, Judge

Karlton consolidated the three cases in order to effectuate “the

most fair and efficient” manner in which to litigate the matters. 

(May 24, 2006 Order.) After being transferred from Judge Karlton

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

transferred to the undersigned on March 28, 2007. (Docket No.

180 (“Reassignment Notice”).) 

Pursuant to a June 25, 2007 Stipulation Order (Docket

No. 220), plaintiffs filed their Third Amended Complaints on June

29 and 30, 2007. (Defazio Third Am. Compl. (TAC); Ellis TAC.) 

In response, defendants filed seven separate motions to dismiss

certain claims and/or defendants as well as strike portions of

plaintiffs’ TACs. Defazio, 2007 WL 3231670, at *2. On November

1, 2007, this court granted in part and denied in part

defendants’ motions to dismiss and strike plaintiffs’ TACs. Id.

at *12-13. Because this dismissal was without prejudice,

plaintiffs subsequently filed their FACs on January 23, 2008. 

On February 6, 2008, defendants brought the instant

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motions seeking (1) to strike several allegations found in both

the Defazio and Ellis FACs pursuant to Rule 12(f) and (2) to

dismiss claims against Fremgen and Herbert pursuant to Federal

Rule of Civil Procedure 12(b)(6) for failure to state a claim

upon which relief may be granted. On the same day, defendants

Stempinski and Winn filed a separate motion to strike portions of

Defazio’s FAC, also pursuant to Rule 12(f). 

II. Discussion

A. Motions to Strike

“Upon a motion made by a party . . . the court may

order stricken from any pleading any insufficient defense or any

redundant, immaterial, impertinent, or scandalous matter.” Fed.

R. Civ. P. 12(f). A “motion to strike is appropriate to address

requested relief . . . which is not recoverable as a matter of

law.” Wilkerson v. Butler, 229 F.R.D. 166, 172 (E.D. Cal. 2005). 

“[T]he function of a [Rule] 12(f) motion to strike is to avoid

the expenditure of time and money that must arise from litigating

spurious issues by dispensing with those issues prior to trial .

. . .” Sidney Vinstein v. A.H. Robins Co., 697 F.2d 880, 885

(9th Cir. 1983). When ruling on a motion to strike, the court

must view the challenged pleadings in the light most favorable to

the pleader. See Pillsbury, Madison & Sutro v. Lerner, 31 F.3d

924, 928 (9th Cir. 1994).

Previously dismissed allegations that failed to state a

claim upon which relief can be granted under any applicable legal

theory should be stricken from an amended complaint. See Davis

v. Astrue, No. 06-6108, 2007 WL 2088580, at *3-4 (N.D. Cal. July

18, 2007) (striking portions of a second amended complaint that

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reallege verbatim claims previously dismissed); Tavake v. Alameda

County Bd. of Supervisors, No. 05-0744, 2005 WL 2290308, at *2

(N.D. Cal. Sept. 20, 2005) (striking portions of an amended

complaint that incorporated by reference any matter from the

dismissed complaint). 

1. Allegations Regarding the 1999 Transaction

In their FACs, plaintiffs reassert their allegations

from the TACs that defendants’ 1999 reconfiguration of the

Preferred Share Trust and the contemporaneous amendment to JDS’

Articles of Incorporation (the “1999 Transaction”) constituted an

illicit attempt by defendants to entrench themselves as perpetual

managers over Hollister. (Defazio FAC ¶ 42; Ellis FAC ¶ 31.) 

The pre-amendment version of the Preferred Share Trust

eviscerated by the 1999 Transaction was set to expire in April of

2001 and purportedly distribute the majority of JDS preferred

stock to individual Hollister employees and beneficiaries. 

(Defazio FAC ¶ 37; Ellis FAC ¶ 26.) Plaintiffs aver that the

Hollister directors initiated the 1999 Transaction in order to

keep the majority of JDS preferred stock within the charge of JDS

and Hollister management, therein depriving the Hollishare

beneficiaries of the eventual control over JDS stock and negating

their ability to effectuate employee ownership of JDS and

Hollister. (See Defazio FAC ¶ 40 (“Had ownership of the JDS

preferred shares transferred to Hollister’s employees, these

defendants could no longer appoint themselves as directors,

officers, and managers of JDS and Hollister, and would lose their

absolute control.”); accord Ellis FAC ¶ 29.)

In its November 1, 2007 Order, this court dismissed

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2 The Defazio FAC reasserts claims against all four of

these defendants. As mentioned above, see supra n.2, the Ellis

FAC omits any reference to Stempinski and Winn.

6

plaintiffs’ claims related to the 1999 Transaction against

defendants Herbert, Stempinski, Winn, and Zwirner2--all of whom

are or were Hollister directors. (Nov. 1, 2007 Order 20:4-10.) 

The court found that plaintiffs failed to bring these claims

within ERISA’s applicable statute of limitations. See 29 U.S.C.

§ 1113 (providing that no action may be brought against a

fiduciary more than six years after the violation or three years

after a plaintiff knew of the violation). 

Cognizant of this timing dilemma, plaintiffs had argued

for application of § 1113’s fraud and concealment

exception--i.e., that they should be allowed to commence suit

beyond the statute’s time limitation because defendants engaged

in fraud related to the 1999 Transaction. See id. (“[E]xcept . .

. in the case of fraud or concealment, such action may be

commenced not later than six years after the date of discovery of

such breach or violation.”) (emphasis added). Plaintiffs claimed

that Herbert, Stempinski, Winn, and Zwirner--harboring the intent

to deceive Hollister employees and beneficiaries in order to

maintain control over Hollister and JDS--made misrepresentations

to employee shareholders that the 1999 Transaction was necessary

to effectuate deceased Hollister founder John Schneider’s

policies and principles in establishing an independent and

employee-owned corporation. 

When allegations sound in fraud, a plaintiff must

satisfy the heightened pleading requirements of Federal Rule of

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3 For example, the Defazio TAC consisted of ninety pages

of conclusory rhetoric, overlapping dates, inconsistent

allegations, and inane historical quotations--all of which were

besieged by over 150 endnotes that made scarce attempt to

distinguish between important evidentiary support and superfluous

idiom. Courts in this circuit have repeatedly lamented this

tendency to place “the burden [] on the reader to sort out the

statements and match them with the corresponding adverse facts to

solve the ‘puzzle’ of interpreting Plaintiffs’ claims.” Wenger

v. Lumisys, Inc., 2 F. Supp. 2d 1231, 1244 (N.D. Cal. 1998)

(quoting In re Oak Sec. Litig., No. 96-20552, 1997 WL 448168, at

*5 (N.D. Cal. Aug. 1, 1997)); see also Decker v. GlenFed, Inc., 42 F.3d 1541, 1554 (9th Cir. 1994) (These “puzzle-style”

complaints are an “unwelcome and wholly unnecessary strain on

defendants and the court system.”); Chan v. Orthologic Corp., No.

96-1514, 1998 WL 1018624, at *14 n.11 (D. Ariz. Feb. 5, 1998)

(“This tactic not only makes it difficult to ascertain whether

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Civil Procedure 9(b). Fed. R. Civ. P. 9(b); Swartz v. KPMG

L.L.P., 476 F.3d 756, 764 (9th Cir. 2007). Rule 9(b)’s

specificity requirements include an account of the “time, place,

and specific content of the false representations as well as the

identities of the parties to the misrepresentations.” Edwards v.

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

omitted); see also Neubronner v. Milken, 6 F.3d 666, 672 (9th

Cir. 1993) (“The complaint must specify such facts as the times,

dates, places, benefits received, and other details of the

alleged fraudulent activity.”).

The court found that plaintiffs’ TACs had failed to

sufficiently allege fraud or concealment with respect to the 1999

Transaction. Defazio v. Hollister, Inc., No. 04-1358, 2007 WL

3231670, at *9-10 (E.D. Cal Nov. 1, 2007). Specifically, the

relevant factual elements in plaintiffs’ TACs were

unceremoniously scattered and disorganized throughout the

pleading so to render any actual claims sounding in fraud utterly

indiscernible.3 The result was a vastly incoherent pleading that

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any of the allegations have more merit than the others, it also

makes the complaint dreadfully oversized . . . [and] make[s] a

mockery of Rule 9(b).”); Zeid v. Kimberly, 973 F. Supp. 910, 918

(N.D. Cal. 1997) (“This method of pleading imposes an unnecessary

burden on Defendants and the Court to sort out the alleged

misrepresentations and match them with the corresponding ‘adverse

facts.’”); May v. Borick, No. 95-84-7, 1997 WL 314166, at *8

(C.D. Cal. Mar. 3, 1997) (“[The complaint’s] organization

obfuscates rather than clarifies. Plaintiff’s failure to address

defendants’ allegedly misleading statements individually, or even

by category, and to state why each statement, or category of

statements is misleading, renders this Court’s task, and the task

of the defendants, excessively difficult.”); Shuster v.

Symmetricom, Inc., No. 94-20024, 1997 WL 820967, at *1 (N.D. Cal.

June 25, 1997) (“The Complaint as it now stands is a rambling set

of allegations which is almost impossible to effectively review.

. . . Plaintiff sets forth lengthy quotes from various releases

by defendants’ officers and a securities analyst but does not

make clear what portion of each quote constitutes a false

representation.”); In re Conner Peripherals, Inc., No. 95-2244,

1996 WL 193811, at *1 (N.D. Cal. Jan. 18, 1996) (“The complaint

as written requires the court to excavate for actionable claims.

. . . Judicial resources are too scarce and worthy cases too

pressing for a court to spend its time rooting around in bloated

complaints drafted by experienced lawyers for a handful of

actionable allegations.”); Strassman v. Fresh Choice, No.

95-20017, 1995 WL 743728, at *4 (N.D. Cal. Dec. 7, 1995) (“The

FAC’s deficiencies do not stem simply from its length, but rather

from its requirement that the reader find the needle in the

haystack.”).

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merely grouped multiple defendants together, a far cry from Rule

9(b)’s requirement that “plaintiffs . . . differentiate their

allegations when suing more than one defendant . . . and inform

each defendant separately of the allegations surrounding his

alleged participation in the fraud.” Swartz, 476 F.3d at 765

(citations omitted); see also Moore v. Kayport Package Express,

Inc., 885 F.2d 531, 541 (9th Cir. 1989) (in the context of a

fraud suit involving multiple defendants, a plaintiff must, at a

minimum, “identif[y] the role of [each] defendant[] in the

alleged fraudulent scheme”).

Because Rule 9(b)’s stated purpose is to assure that a

given defendant, upon reading a complaint, will be sufficiently

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apprised of fraudulent acts upon which he or she is charged,

plaintiffs’ TACs were patently unable to meet the heightened

pleading requirements associated with triggering § 1113’s

exception. See Neubronner, 6 F.3d at 671 (“‘[A]llegations of

fraud [must be] specific enough to give defendants notice of the

particular misconduct which is alleged to constitute the fraud

charged so that they can defend against the charge and not just

deny that they have done anything wrong.’” (quoting Semegen v.

Weidner, 780 F.2d 727, 731 (9th Cir. 1985))). Therefore, the

court properly dismissed plaintiffs’ TACs without prejudice. See

Sparling v. Hoffman Constr. Co., 864 F.2d 635, 640 (9th Cir.

1988) (even if the factual elements of a cause of action are

present but scattered throughout the complaint and not organized

into a statement of the claim, dismissal is proper); Silicon

Knights, Inc. v. Crystal Dynamics, Inc., 983 F. Supp. 1303, 1314

(N.D. Cal. 1997) (granting a motion to dismiss complaint for

failure to plead with particularity under Rule 9(b) “where the

alleged fraudulent statements and omissions are scattered

throughout the complaint’s common factual allegations”) (internal

quotations omitted).

Contending that plaintiffs have simply re-alleged

deficient claims from their TACs, defendants now seek to strike

all allegations in the FACs related to the 1999 Transaction. 

However, heeding the court’s prior admonitions, plaintiffs’ FACs

are considerably more succinct and legible with respect to the

1999 Transaction. Though plaintiffs essentially reassert the

previously-dismissed fraudulent allegations, they have

effectively refined their pleadings to elucidate relevant facts

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4 While a court does not generally consider evidence

outside the pleadings in support of a motion to strike, Farm

Credit Bank of Spokane, 758 F. Supp. at 1371 n. 4, it is allowed

to consider materials of which it may take judicial notice. The

authenticity of the newsletters is not disputed and plaintiffs

rely on them throughout their FACs. See Branch v. Tunne11, 14

F.3d 449, 454 (9th Cir. 1994) (finding that materials may be

considered as part of the pleadings “if the complaint

specifically refers to the document and if its authenticity is

not questioned”) overruled on other grounds by Galbraith v.

County of Santa Clara, 307 F.3d 1119 (9th Cir. 2002). Thus, the

court will take judicial notice of the newsletters and properly

consider them in the scope of the instant motion.

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and proffer precise evidence of the purported fraudulent activity

in a manner that gives defendants Stempinski, Winn, and Zwirner

notice of the allegations so as to enable them to defend against

the charges. See McCoy v. Cal. Med. Review, Inc., 723 F. Supp.

1363, 1372 (N.D. Cal. 1989) (finding re-organized construction of

facts in Second Amended Complaint sufficient under Rule 9(b)

where they identify the allegedly fraudulent documents, provide

the dates the documents were submitted, and particularly describe

each defendant’s part in the fraud). 

Specifically, the FACs cite essential excerpts from two

articles found in Hollister’s 1998 and 1999 quarterly

newsletters, respectively, that depict alleged misrepresentations

aimed at inducing voting support from the employee shareholders

prior to implementation of the 1999 Transaction.4 (Decl. of

Scott Hubbard in Opp’n to Defs.’ Mot. to Dismiss First Am. Compl.

Ex. L.) The 1998 article refers to Winn’s “advi[ce that] the

[proposed 1999 Transaction] will insure that [Hollister] remains

employee owned, private and independent . . . as it has been for

decades . . . and will include a successor entity similar in

function and purpose to the [prior trust].” (Id. (quoting Al

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Herbert Elected to the Board of Directors, 1998 Hollister

Highlights 2nd Qtr., Vol. 34, No. 2 at 1).) The 1999

article--authored by Stempinski, Winn, and Zwirner--thanks the

employee shareholders for supporting the 1999 Transaction and

recounts that “[w]hen we proposed the new Trust to our fellow

employee-owners of common shares of [JDS], we advised that we

believe the continuation of the independent and employee-owned

nature of Hollister, and its governance in accordance with John

Schneider’s policies and principles, is in the best interests of

all Hollister employees.” (Id. (quoting A Great Company: An

Enduring Company, A Message from Michael C. Winn, Loretta L.

Stempinski, and Richard T. Zwirner, 1999 Hollister Highlights 2nd

Qrt/Special Ed., Vol. 35, No. 2 at 3).)

This specific evidence-together with plaintiffs’

allegations--accurately identifies the time (directly prior to

shareholder voting on the 1999 Transaction), place (shareholder

meetings and a written proposal to the employee shareholders),

specific content (explicit assertions that the 1999 Transaction

would further John Schneider’s policies and principles in

establishing an independent and employee-owned corporation) of

the false representations, as well as the identities of the

parties to the alleged misrepresentations (Stempinski, Winn, and

Zwirner). Edwards v. Marin Park, Inc., 356 F.3d 1058, 1066 (9th

Cir. 2004). Because plaintiffs have met Rule 9(b)’s

particularity requirement with respect to Stempinksi, Winn, and

Zwirner’s alleged fraud, the statute of limitations may well have

been tolled on plaintiffs’ § 1113 claims stemming from the 1999

Transaction. Accordingly, the court will deny defendants’ motion

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5 Stempinski, Winn, and Zwirner in the Defazio FAC;

Zwirner in the Ellis FAC.

12

to strike allegations in plaintiffs’ FACs related to the 1999

Transaction that pertain to these three defendants.5

Nonetheless, plaintiffs have not met Rule 9(b)’s

pleading requirement with respect to the remaining defendants

listed in the FACs’ § 1113 claims related to the 1999

Transaction--Brilliant, Herbert, Karlovsky, Kelleher, and

McCormack. While plaintiffs allege that these defendants made

misrepresentations concerning the 1999 Transaction, these

allegations lack the requisite particularity and primarily assume

guilt based on defendants’ fiduciary status. As mentioned above,

Rule 9(b) does not allow a complaint to merely lump multiple

defendants together. Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th

Cir. 2007). Rather, plaintiffs must differentiate their

allegations and inform each defendant separately of the

particularized allegations and specific evidence surrounding his

or her alleged participation in the fraud. Id. 

The FACs are devoid of specific allegations regarding

misrepresentations traceable to Brilliant, Karlovsky, Kelleher,

or McCormack, and thus allegations against them related to the

1999 Transaction must be stricken. In contrast, the FACs do cite

to articles indicating that Herbert–-who, in addition to

Stempinski, Winn, and Zwirner, was a member of the Hollister

Board of Directors during the 1999 Transaction--believes the 1999

Transaction upheld the principles and policies of John Schneider. 

(Decl. of Scott Hubbard in Opp’n to Defs.’ Mot. to Dismiss First

Am. Compl. Ex. L (A Commitment to Continued Success: A Message

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6 In this respect, plaintiffs’ submitted evidence

ironically provides a rather exculpatory medium for Herbert. One

article after another in the Hollister Newsletters states that

the written proposal detailing the 1999 Transaction, as well as

its subsequent solicitation, was within the sole control and

creative development of Herbert’s fellow Hollister Board members-

-Stempinski, Winn, and Zwirner. (See, e.g., Decl. of Scott

Hubbard in Opp’n to Defs.’ Mot. to Dismiss First Am. Compl. Ex.

L. (Al Herbert Elected to the Board of Directors, 1998 Hollister

Highlights 2nd Qtr., Vol. 34, No. 2 at 1) (“Winn advised . . .

Shareholders that [Herbert’s] appointment [to Hollister’s Board

of Directors] last year allowed [Stempinski, Winn, and Zwirner]

to focus on the [1999 Transaction] under development by Loretta

Stempinski, Richard Zwirner and [Winn] . . . .”); id. (New Trust

Established, 1999 Hollister Highlights 2nd Qrt./Special Ed., Vol.

35, No. 2 at 1 (“[B]eliev[ing] that continued independence,

employee-ownership, and the adherence to the policies and

principles set forth by John Schneider would be in the best

interest of Hollister in the future”, “Michael C. Winn, Loretta

L. Stempinski, and Richard T. Zwirner reduced their thoughts to a

written proposal [detailing the 1999 Transaction] which they

shared with common shareholders who own shares directly as

employees.”).

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from Alan F. Herbert, 1999 Hollister Highlights 2nd Qrt/Special

Ed., Vol. 35, No. 2 at 4).) However, these alleged sentiments

were all expressed following the passing of the 1999 Transaction

and thus logically could not have played a role in fraudulently

inducing the employee shareholders to support Stempinski, Winn,

and Zwirner’s written proposal regarding the 1999 Transaction.6

See Yourish v. Cal. Amplifier, 191 F.3d 983, 993 (9th Cir. 1999)

(“Th[e] falsity requirement can be satisfied by pointing to

inconsistent contemporaneous statements . . . .”) (citation

omitted) (emphasis added). 

Moreover, plaintiffs have failed to plead with

particularity that Brilliant, Herbert, Karlovsky, Kelleher, or

McCormack took any affirmative steps to conceal any alleged

fiduciary breaches. See Ranke v. Sanofi-Synthelabo Inc., 436

F.3d 197, 204 (3d Cir. 2006) (stating that an ERISA fiduciary

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7 The court will strike the Defazio FAC as follows:

14:18-24 (Herbert’s statements); ¶ 34 (all references to Herbert,

Karlovsky, and McCormack); ¶ 40 (reference to Herbert); ¶ 42

(reference to Herbert); ¶ 43 (reference to Herbert but not

including article with Winn statement); ¶ 44 (in its entirety); ¶

51 (reference to Herbert); ¶ 52 (reference to Herbert); ¶ 53

(reference to Herbert); ¶¶ 56-58 (references to Herbert); ¶ 65

(reference to Karlovsky and McCormack); ¶ 71 (second sentence

only); ¶ 119 (all references to Brilliant, Karlovsky, Kelleher,

and McCormack); ¶ 124 (all references in first half of sentence

to Brilliant, Herbert, Karlovsky, Kelleher, and McCormack); ¶ 125

(all references to Herbert, Karlovsky, and McCormack); ¶ 132 (all

references in first half of sentence to Brilliant, Herbert,

Karlovsky, Kelleher, and McCormack); and ¶ 133 (all references to

Herbert, Karlovsky, and McCormack).

The court will strike the Ellis FAC as follows: 10:16-

21 (Herbert’s statements); ¶ 23 (all references to Herbert,

Karlovsky, and McCormack); ¶ 29 (reference to Herbert); ¶ 33 (in

its entirety); ¶ 41 (reference to Herbert); ¶ 42 (reference to

14

must “have taken affirmative steps to hide an alleged breach of

fiduciary duty from a beneficiary in order for the ‘fraud or

concealment’ exception to apply”). “The fraud or concealment

exception applies only when an ERISA fiduciary either

misrepresents the significance of facts the beneficiary is aware

of (fraud) or . . . hides facts so that the beneficiary never

becomes aware of them (concealment).” Barker v. Am. Mobil Power

Corp, 64 F.3d 1397, 1401 (9th Cir. 1995) (quoting Radiology Ctr.,

S.C. v. Stifel, Nicolaus & Co., 919 F.2d 1216, 1220 (7th Cir.

1990)).

Absent sufficient pleading of fraud on the parts of

Brilliant, Herbert, Karlovsky, Kelleher, and McCormack,

plaintiffs’ § 1113 claims against these defendants fail because

they were not brought within the applicable statute of

limitations. Accordingly, the court will grant defendants’

motion to strike allegations in plaintiffs’ FACs related to the

1999 Transaction with respect to these five defendants.7 

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Herbert); ¶ 77 (all references to Brilliant, Karlovsky, Kelleher,

and McCormack); ¶ 82 (all references in first half of sentence to

Brilliant, Herbert, Karlovsky, Kelleher, and McCormack); ¶ 83

(all references to Herbert, Karlovsky, and McCormack); ¶ 90 (all

references in first half of sentence to Brilliant, Herbert,

Karlovsky, Kelleher, and McCormack); and ¶ 91 (all references to

Herbert, Karlovsky, and McCormack).

8 In their prior motions, Stempinski and Winn suggested

that neither one had any responsibility for the policies,

operations, and administration of Hollishare six years prior to

being named in this suit. Ellis v. Hollister, Inc., No. 05-0559,

2006 WL 988529, at *8 (E.D. Cal Apr. 14, 2006). Based partially

on this premise, Judge Karlton dismissed, with prejudice,

plaintiffs Dimaro and Lavick’s claims against Stempinski (id. at

23:14-15) and Winn based on statute of limitations. (June 27,

2006 Status (Pretrial Scheduling) Conference 10:24-25.) 

Judge Karlton initially deferred resolution of

defendants’ motion to dismiss plaintiffs Dimaro and Lavick’s

claims against Winn--along with defendant Herbert and former

defendant Donna Matson--therein allowing these plaintiffs

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2. Non-1999 Transaction Claims Against Stempinski and

Winn

Contending that the November 1, 2007 Order’s dismissal

of claims against them was not restricted to events surrounding

the 1999 Transaction, Stempinski and Winn move to strike the

Defazio FAC’s claims unrelated to the 1999 Transaction on two

grounds. First, Stempinski and Winn argue that they effectively

delegated their fiduciary status to the Hollishare trustees and

therefore have no actual fiduciary relationship to Hollishare for

which they could be found liable. Second, even if found to be

Hollishare fiduciaries, Stempinksi and Winn next argue by analogy

that because the November 1, 2007 Order dismissed the TACs’

claims against defendant Fremgen--who, like Stempinski and Winn,

was sued in his capacity as a director of JDS and

Hollister--plaintiffs likewise cannot state cognizable claims

against them in their purported fiduciary capacities.8

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forty-five days to conduct discovery and file another opposition

or concession of non-opposition. Ellis, 2006 WL 988529, at *8. 

Because Dimaro and Lavick failed to file an opposition or request

an extension within the forty-five day period set forth in the

April 12, 2006 Order, Judge Karlton subsequently granted

defendants’ motion to dismiss the claims against Winn, Herbert,

and Matson. (June 27, 2006 Status (Pretrial Scheduling)

Conference 10:24-25.)

However, it has come to this court’s attention that

Winn and Stempinski were indeed directors of Hollister and thus

were “named fiduciaries” of Hollishare, until May 11, 2001--well

within ERISA’s six year statute of limitations. (See Defs.’ Mem.

in Opp’n to Pls.’ Mot. to Set Aside J. 2:10-15 (“[U]nder the

HolliShare Plan documents, members of the Board of Directors of

Hollister [including defendants Winn and Stempinski] are

designated as “named fiduciaries” of Hollishare . . . [a]s such,

defendants’ statements in their memorandum filed in support of

their motion to dismiss were not consistent with the HolliShare

plan documents in this respect.”).)

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In their capacity as Hollister directors, Stempinski

and Winn contend that their core responsibilities revolved solely

around the appointment, removal, and monitoring of Hollishare

trustees. (Defazio TAC App. Ex. A §§ 11.05, 11.07, 11.11

(Hollishare Employee Ownership Share Trust instrument (the

“Hollishare instrument”)).) In all other respects, their

Hollishare-related responsibilities were purportedly delegated to

the appointed trustees in accord with the Hollishare instrument. 

(Id. Ex. A.) Therefore, under the premise that the Hollister

directors retained only minor, post-delegation oversight

responsibilities, Winn and Stempinski argue that they were

released from any fiduciary liability with respect to Hollishare. 

See Madden v. ITT Long Term Disability Plan for Salaried

Employees, 914 F.2d 1279, 1283-84 (9th Cir. 1990) (Board of

Director’s delegee became sole fiduciary when, as expressly

authorized in ERISA plan, the Board designated “responsibility

for carrying out all phases of the Administration of the Plan”)

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(emphasis added); Gelardi v. Pertec Computer Corp., 761 F.2d

1323, 1325 (9th Cir. 1985) (once the employer appointed a plan

administrator and gave it total control over the benefit plan,

employer was no longer a fiduciary). 

The text of the Hollishare instrument, however,

explicitly refers to the Hollister directors as “named

fiduciaries” and sets forth that “in addition to the duties

[i.e., appointment, removal, and monitoring of trustees] imposed

on [Hollister] by this Trust, [Hollister] shall also serve as

[Hollishare] Administrator and shall, in such capacity, be

responsible for carrying out the duties of [Hollishare] and

compliance with all applicable law and regulations.” (Defazio

TAC App. Ex. A, § 11.11.) 

Given the Hollishare instrument’s plain language, in

combination with persuasive congressional intent that the

definition of “fiduciary” in ERISA is “to be broadly construed,”

Credit Managers Ass’n v. Kennesaw Life & Accident Ins. Co., 809

F.2d 617, 625 (9th Cir. 1987), the court finds that Hollister’s

directors--despite delegating substantial authority to the

Hollishare trustees--appear to retain a substantive level of

fiduciary responsibility which could subject them to liability

for breach of that duty. See Stewart v. Thorpe Holding Co.

Profit Sharing Plan, 207 F.3d 1143, 1157 (9th Cir. 2000) (even

when a committee or separate entity is named as the plan

fiduciary, the corporate officers who continue to carry out

fiduciary functions are themselves fiduciaries and cannot be

shielded from liability); Kayes v. Pac. Lumber Co., 51 F.3d 1449,

1459-61 (9th Cir. 1995) (rejecting the Third Circuit’s approach

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that relieves individual officers or directors of liability as

fiduciaries unless the entity that is anointed plan’s fiduciary

officially delegates its fiduciary duties back to them).

Plaintiffs’ second argument based on the November 1,

2007 Order’s dismissal of claims against Fremgen is also

unavailing. Specifically, the court dismissed charges against

Fremgen because the TACs hastily lumped all of the defendants

together, therein failing to identify which defendant committed

which alleged breach of fiduciary duty and that said defendant

was acting as a Hollishare fiduciary at the time he or she

engaged in the alleged activity. (Nov. 1, 2007 Order

24:22-25:2); see also Ariz. State Carpenters Pension Trust Fund

v. Citibank, 125 F.3d 715, 719 (9th Cir. 1997) (“Generally, if an

ERISA plan expressly provides for a procedure allocating

fiduciary responsibilities to persons other than named

fiduciaries under the plan, the named fiduciary is not liable for

an act or omission of such person in carrying out such

responsibility.”). Rather, liability under ERISA can be based

only upon each defendant’s individual fiduciary responsibilities. 

See Pegram v. Herdrich, 530 U.S. 211, 227 (2000) (pleadings must

be parsed very carefully to understand what acts by each person

are alleged to be fiduciary in nature). 

In the Defazio FAC, plaintiffs cure these deficiencies

by alleging that each director defendant (thus incorporating

Stempinski and Winn) committed the purported breaches while

explicitly acting within their capacity as “named fiduciaries” of

Hollishare as defined by the instrument--i.e., related to their

duty to appoint, remove, and monitor Hollishare trustees. See

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9 In light of Judge Karlton’s previous orders, however,

plaintiffs Dimaro and Lavick are precluded from pursuing any

claims against defendants Winn, Stempinski, and Herbert. (Apr.

12, 2006 Order; June 27, 2006 Status (Pretrial Scheduling)

Conference.) While plaintiffs previously filed a motion to set

aside these orders under Federal Rule of Civil Procedure 60(b)(3)

that motion was clearly time-barred. Specifically, plaintiffs

filed their motion to set aside the orders on September 12, 2007,

evading the requirement that they bring such motion within one

year of Judge Karlton’s April 12, 2006 and June 27, 2006 Orders

dismissing their claims. See Fed. R. Civ. P. 60(c) (“A motion

under [Rule 60(b)(3)] must be made . . . no more than a year

after the entry of the judgment or order or the date of the

proceeding.”); see also Butz v. Mendoza-Powers, 474 F.3d 1193,

1195 (9th Cir. 2007) (motion to set aside judgment under Rule

60(b)(3) must be brought within one year of the judgment that is

being attacked). Thus, this court defers to Judge Karlton’s

orders dismissing all of Dimaro and Lavick’s claims against the

aforementioned defendants. 

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Defazio FAC ¶ 10 (“The Hollister’s Board was responsible for

appointing and overseeing HolliShare’s trustees; and,

consequently, had fiduciary responsibilities for [Hollishare]. 

Even so, they never monitored HolliShare’s trustees’ performance

of its responsibilities; never supplied the trustees with

critical adverse information known to them about JDS’s financial

condition; and never sought to remove HolliShare trustees for

failing to discharge their obligations at any time.”).) 

Accordingly, the court will deny Stempinski and Winn’s motion to

strike plaintiffs’ non-1999 Transaction ERISA claims against them

in the Defazio FAC.9

3. Class Action Allegations

It is well established that Federal Rule of Civil

Procedure 23 places the burden on the party seeking class

certification to allege and thereafter establish “numerosity,”

“commonality,” “typicality,” and “adequacy of representation.” 

Fed. R. Civ. P. 23(a); Doninger v. Pac. Nw. Bell, Inc., 564 F.2d

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1304, 1309 (9th Cir. 1977). Plaintiffs’ class action allegations

in the Defazio FAC meet this burden. (Defazio FAC ¶¶ 13-20.) 

Defendants nonetheless argue that the Defazio FAC’s class action

allegations--added for the first time in this version of the

Compaint--should be stricken because converting the matter to a

class action over three years after these consolidated cases were

initially filed “would further delay and complicate this already

protracted case.” (Defs.’ Mem. in Supp. of Mot. to Dismiss

5:5-15.)

While the court is empathetic to arguments regarding

the prolonged nature of this matter, it also recognizes that

amendments adding class action allegations “are not normally

denied solely on the ground that the new claim was offered late

in the case.” Henderson v. Nat’l R. Passenger Corp., 117 F.R.D.

620, 622 (N.D. Ill. 1987) (finding that because a stand alone

assertion of “undue delay” is unlikely to justify dismissal,

plaintiff’s addition of class action allegations would be

dismissed only where defendant could show that the proposed

amendment would cause undue delay and prove futile for failure to

meet the requirements for class certification). Moreover, though

this case’s origins indeed date back over three years, this

matter regrettably is still in its early litigious stages. See

Contract Buyers League v. F & F Inv., 48 F.R.D. 7, 14 (N.D. Ill.

1969) (“[T]he earlier the stage of the proceeding, the more

liberally should the court construe the applicability of Rule

23.”). Due to three judicial reassignments as well as four

amendments to the Complaints, and the scorched-earth litigation

tactics in this case, the parties have only recently been

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apprised of the Scheduling Order and are not required to make

their initial discovery disclosures until later this month. 

(Feb. 19, 2008 Status (Pretrial Scheduling) Order (setting an

April 11, 2008 due date for initial discovery disclosures)); see

also Siegel v. Chicken Delight, Inc., 271 F. Supp. 722, 728 (S.D.

Cal. 1967) (allowing plaintiffs to add class action allegations

because “[t]o rule otherwise at this early stage of the

proceedings would be to give credence and substance to factual

assertions on the part of the defense which have yet to make

their appearance on the judicial stage”).

Where the Defazio FAC’s class action allegations

“address each of the elements of Rule 23, relate to the subject

matter of the litigation, and are not redundant, immaterial, or

impertinent,” the court must find that the allegations--viewed in

the light most favorable to plaintiffs--are sufficient to survive

a motion to strike. Clark v. State Farm Mut. Auto. Ins. Co., 231

F.R.D. 405, 407 (C.D. Cal. 2005). Whether plaintiffs will be

able to succeed on a motion for class certification, however, is

an entirely separate matter to be decided at a later date. See

Rodriguez v. Cal. Highway Patrol, 89 F. Supp. 2d 1131, 1143 (N.D.

Cal. 2000) (declining to strike the Complaint’s class allegations

because “the appropriateness of [the class allegations] will be

tested in the context of a motion for certification of the

class”). Accordingly, the court will deny defendants’ motion to

strike the Defazio FAC’s class action allegations.

4. Allegations Based on Defendants’ Statements in

Court Filings 

In portions of both FACs, plaintiffs allege that

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several of defendants’ statements made in their court filings

throughout the course of this litigation constitute fraudulent

misrepresentations that may serve as a separate basis for

plaintiffs’ ERISA claims. For example, in paragraphs eightythree through eighty-six of the Defazio FAC, plaintiffs cite

to--and reproduce verbatim--large excerpts from arguments that

defendants made in past submissions of legal memoranda in an

attempt to support plaintiffs’ allegations of fraud and

concealment. (Defazio FAC ¶¶ 83-86.) 

In their opposition to defendants’ motion to strike

allegations based on these statements, plaintiffs do not (and

cannot) provide the court with any support for their distorted

argument that statements from legal memoranda may substantiate

ERISA claims against defendants in the very same judicial

proceeding in which the material was submitted. Foremost, the

statements in defendants’ filings were not directed to any plan

participants and/or beneficiaries, but were instead made to this

court in the course of pending litigation. See Lincoln Alameda

Creek v. Cooper Indus., Inc., 829 F. Supp. 325, 330 (N.D. Cal.

1992) (“The class of persons entitled to rely upon the

representation is restricted to those to whom or for whom the

misrepresentations were made.”). Thus, if defendants have indeed

submitted fraudulent filings, the proper reaction--as opposed to

a plaintiffs’ improper manufacturing of additional allegations in

their FACs–-may well be a Rule 11 assessment or a “fraud on the

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10 “‘Fraud upon the court’ should, we believe, embrace

only that species of fraud which does or attempts to, defile the

court itself, or is a fraud perpetrated by officers of the court

so that the judicial machinery can not perform in the usual

manner its impartial task of adjudging cases that are presented

for adjudication.” Gumport v. China Int’l Trust & Inv. Corp., 926 F.2d 912, 916 (9th Cir. 1991) (citation omitted). Here, a

“fraud on the court” inquiry is premature. See Chambers v.

NASCO, Inc., 501 U.S. 32, 43 (1991) (“A court must exercise its

inherent powers with restraint and discretion in light of their

potency.”); Toscano v. Comm’r, 441 F.2d 930, 934 (9th Cir. 1971)

(noting that the phrase “fraud on the court” “should be read

narrowly, in the interest of preserving the finality of

judgments”).

11 The court will strike the Defazio FAC as follows: ¶ 81

(“Nevertheless, the original defendants have continually

represented to the Court that no other market for JDS stock

existed.”); ¶¶ 82-90, 107-08 (in their entirety). The Court will

also strike paragraph fifty-six of the Ellis FAC in its entirety.

23

court”10 inquiry that weighs whether such misconduct “harm[s] . .

. the integrity of the judicial process.” Alexander v.

Robertson, 882 F.2d 421, 424 (9th Cir. 1989). 

Moreover, where plaintiffs’ claims arise from

defendants’ alleged pre-litigation acts or omissions, it is

illogical to treat defendants’ responses and representations made

after plaintiffs’ claims were asserted as a basis for the claims

themselves. Indeed, once the initial claims of fraud or

concealment have been made, plaintiffs can hardly maintain that

they are relying to their detriment on defendants’ subsequent

statements defending against those claims. Accordingly, the

court will grant defendants’ motion to strike plaintiffs’

allegations based on defendants’ statements made in court

filings.11

B. Motion to Dismiss Claims Against Fremgen and Herbert

Defendants also move to dismiss plaintiffs’ claims

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12 While the Defazio FAC reasserts claims against both

Fremgen and Herbert, the Ellis FAC omits any reference to

Fremgen.

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against Fremgen12 and Herbert. On a motion to dismiss, the court

must accept the allegations in the complaint as true and draw all

reasonable inferences in favor of the plaintiff. Scheuer v.

Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds by

Davis v. Scherer, 468 U.S. 183 (1984); Cruz v. Beto, 405 U.S.

319, 322 (1972). To survive a motion to dismiss, a plaintiff

needs to plead “only enough facts to state a claim to relief that

is plausible on its face.” Bell Atl. Corp. v. Twombly, 127 S.

Ct. 1955, 1974 (2007). Dismissal is appropriate, however, where

the plaintiff fails to state a claim supportable by a cognizable

legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696,

699 (9th Cir. 1990); see also Conley v. Gibson, 355 U.S. 41, 47

(1957) (complaint must “give the defendant fair notice of what

the plaintiff’s claim is and the grounds upon which it rests”)

abrogated on other grounds by Twombly, 127 S. Ct. at 1968. 

Duplicating the assertions in Stempinski and Winn’s

above-referenced motion to strike, defendants contend that

dismissal of Fremgen and Herbert is warranted because acts taken

in their capacity as Hollister directors cannot render them

liable for breaches of fiduciary duties in connection with

Hollishare--duties which they argue were delegated to the

Hollishare trustees. Like Stempinski and Winn, however,

defendants overlook the allegation that, as Hollister directors,

Fremgen and Herbert remained “named fiduciaries” of Hollishare

even after the delegation. In this capacity, Fremgen and Herbert

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retained the substantial fiduciary duty to appoint, remove, and

monitor Hollishare trustees as well as serve as Hollishare

administrators charged with the obligation to keep Hollishare

compliant “with all applicable law and regulations.” (Defazio

TAC App. Ex. A, § 11.11.); see also Stewart v. Thorpe Holding Co.

Profit Sharing Plan, 207 F.3d 1143, 1157 (9th Cir. 2000) (even

when a committee or separate entity is named as the plan

fiduciary, the corporate officers who continue to carry out

fiduciary functions are themselves fiduciaries and cannot be

shielded from liability).

As discussed above, the November 1, 2007 Order

dismissed claims against Hollister directors not for a lack of

fiduciary responsibilities to Hollishare, but because plaintiffs’

TACs carelessly failed to identify which defendant committed

which alleged breach of fiduciary duty or allege that a

defendant, once identified, was acting as a Hollishare fiduciary

at the time he or she committed the breach. (Nov. 1, 2007 Order

24:22-25:2.). See Pegram v. Herdrich, 530 U.S. 211, 227 (2000)

(pleadings must be parsed very carefully to understand what acts

by each person are alleged to be fiduciary in nature). Again,

the Defazio FAC cures these deficiencies by alleging that each

director defendant (including Fremgen and Herbert) committed the

purported breaches while explicitly acting within their capacity

as a “named fiduciaries” of Hollishare. See Defazio FAC ¶ 10

(“[The Hollister’s Board] never monitored HolliShare’s trustees’

performance of its responsibilities; never supplied the trustees

with critical adverse information known to them about JDS’s

financial condition; and never sought to remove HolliShare

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13 Because the court granted defendants’ motion to strike

allegations related to the 1999 Transaction against Herbert, the

instant denial of defendants’ motion to dismiss claims against

Herbert applies only to plaintiffs’ non-1999 Transaction claims. 

26

trustees for failing to discharge their obligations at any

time.”).) Accordingly, the court will deny defendants’ motion to

dismiss plaintiffs’ claims against Fremgen and Herbert.13 

IT IS THEREFORE ORDERED that:

(1) defendants’ motion to strike plaintiffs’

allegations regarding the 1999 Transaction with respect

defendants Stempinski, Winn, and Zwirner be, and the same hereby

is, DENIED; 

(2) defendants’ motion to strike plaintiffs’

allegations regarding the 1999 Transaction with respect to

defendants Brilliant, Herbert, Karlovsky, Kelleher, and McCormack

be, and the same hereby is, GRANTED; 

(3) defendants Stempinski and Winn’s motion to strike

plaintiffs’ non-1999 Transaction claims in the Defazio FAC with

respect to them be, and the same hereby is, DENIED;

(4) defendants’ motion to strike plaintiffs’ class

action allegations in the Defazio FAC be, and the same hereby is,

DENIED;

(5) defendants’ motion to strike plaintiffs’

allegations based on defendants’ statements in the court filings

of this case be, and the same hereby is, GRANTED; 

(6) defendants’ motion to dismiss plaintiffs’ claims

against defendant Fremgen be, and the same hereby is, DENIED; and

(7) defendants’ motion to dismiss plaintiffs’ non-1999

Transaction claims against defendant Herbert be, and the same

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hereby is, DENIED.

Plaintiffs are not specifically invited to amend their

complaint yet a fifth time, but if they seek to do so, any fifth

amended complaint shall be filed no later than 30 days from the

date of this order.

DATED: April 7, 2008

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