Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01726/USCOURTS-caed-2_05-cv-01726-4/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 28:1132 E.R.I.S.A.

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

KATHLEEN ELLIS,

Plaintiff,

v. NO. CIV. S-05-559 LKK/GGH

HOLLISTER, INC., et al.,

Defendants.

 /

BRENDA DIMARO; and HALLIE LAVICK,

Plaintiffs,

v. NO. CIV. S-05-1726 LKK/GGH

HOLLISTER, INC., et al.,

O R D E R

Defendants.

 /

Plaintiffs Kathleen Ellis, Brenda Dimaro, and Hallie Lavick

(“plaintiffs”) bring this action against defendants Hollister,

Inc., Hollister Employee Share Ownership Trust, John Dickinson

Schneider, Inc. (“JDS”), Samuel Brilliant, James A. Karlovsky,

James McCormack, and Richard Zwirner alleging violations of the

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1 Although the court has not previously considered the

instant cases, it has issued an order in a related case DeFazio v.

Hollister, Inc., et al., No. Civ. S-04-1358, denying defendants’

motion to transfer venue, but granting defendants’ motions to

dismiss causes of actions related to ERISA prohibited transactions

and stock valuation because they were barred by the statute of

limitations. The court, however, denied defendants’ motions to

dismiss DeFazio’s QDRO claims. 

2 The summary of plaintiffs’ allegation is derived from

Dimaro’s and Lavick’s complaint and from Ellis’ first amended

complaint. Dimaro’s and Lavick’s complaint contain similar, if not

identical, allegations to Ellis’ first amended complaint. Ellis

filed her complaint two months prior to Dimaro and Lavick. 

2

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

§§ 1001 et. seq. Plaintiff Ellis additionally contends that

defendants approved a series of Superior Court Domestic Relations

Orders (DROs) issued pursuant to her divorce proceedings that she

claims do not comply with ERISA and the terms of the Plan.1

Pending before the court are defendants’ motions to dismiss.

I.

PLAINTIFFS’ ALLEGATIONS2

These two cases concern Hollishare, the Hollister Employee

Share Ownership Trust, an employee-profit sharing plan governed by

ERISA.

Plaintiffs allege that JDS is the parent company of Hollister

and a de facto fiduciary of the Plan by virtue of its ability to

control management and disposition of trust fund assets, to

artificially limit the value of JDS shares to “book value,” to

retain the right to buy all shares of JDS stock, and to limit the

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3 As the court explained in DeFazio, “book value” is defined

as a method or formula used to determine the value of corporate

stock. As I noted in the previous order, it appears that “[t]he

term ‘book value’ has no generally accepted meaning; its

significance varies according to the particular definitions or

stipulations under which it is to be determined.” 51 A.L.R.2d 606

§2. “‘[T]he law does not define 'book value' as denoting a

particular method of arriving at the value of fixed or other assets

of a corporation.’” Id. (quoting Lassallette v. Parisian Baking

Co., 110 Cal.App.2d 375 (1952)). “[G]enerically and irrespective

of ultimate form, the term contemplates a theoretical value

resulting from depreciation or appreciation as computed upon an

originally determined base. The formula whereby variation from the

base figure is to be determined is supplied by some form of

stipulation or acquiescence, either through express provisions of

some kind, or through acceptance of particular accounting

procedures previously applied.” Id. See Order at 3.

4 Ellis’ complaint alleges that she retired from Hollister

on June 3, 2004. It is unclear from Dimaro’s and Lavick’s

complaint when they retired. 

3

pool of available buyers.3 Plaintiffs further allege that

Brilliant, McCormack, Karlovsky, Zwirner, Winn, Stempinski, Matson

and Herbert are current and former trustees of the Plan and named

fiduciaries of Hollishare, and that plaintiffs are all participants

of the Plan. See 29 U.S.C. § 1002(7).

Plaintiffs allege that the individual defendants breached

their fiduciary duties by assigning “book value” to Hollishare’s

assets without a diligent and prudent investigation and without an

independent third-party appraisal. Plaintiffs additionally allege

that when they retired from Hollister, the trustees inappropriately

determined the final value of their individual accounts in the

Hollishare plan based on book value, a figure that did not

accurately reflect the true market value of the shares.4

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4

Defendants allegedly failed to undertake an independent evaluation

to determine the true value of the shares as required under the

Plan, and thus, the amounts paid to plaintiffs do not reflect

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

Plaintiffs further maintain that defendants engaged in

prohibited transactions with JDS, a party in interest, to the

detriment of plan participants and beneficiaries. Plaintiffs

allege that these transactions allowed “assets of the plan to

wrongfully inure to the benefit of JDS.” Defendants allegedly

purchased employer stock from plaintiffs and others for less than

adequate consideration and that they subsequently sold these stocks

to JDS at a price reflecting so-called book value, rather than a

“price not less favorable to the plan than the offering price for

the security as established by the current bid and asked prices

quoted by persons independent of the issuer and of any part in

interest.” See 28 U.S.C. § 1002(18). Plaintiffs explain that JDS’

Articles of Incorporation reinforce such transactions by granting

JDS a right of first refusal, a buy-back provision, and a

restriction on ownership of their common stock. According to

plaintiffs, “defendants are using the plan as a personal holding

company, and as a billion dollar tax shelter.” Plaintiffs allege

that because defendants improperly valued the Plan’s assets and

allowed the assets to revert back to the plan sponsor, plaintiffs’

retirement benefits were improperly valued.

In addition to these allegations, Ellis’ complaint contains

claims specific to her lawsuit, which relate to various Domestic

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5 As the court previously noted in the DeFazio order, the

term “alternate payee” for ERISA purposes means any spouse, former

spouse, child, or other dependent of a participant who is

recognized by a domestic relations order as having a right to

receive all, or a portion of, the benefits payable under a plan

with respect to such participant.” 29 U.S.C. § 1056(d)(3)(K).

6 A DRO is a QDRO if it creates or recognizes the existence

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

the right to, receive all or part of the benefits payable with

respect to a participant under an ERISA plan. Ellis Compl. at 11,

citing 29 U.S.C. § 1056(d)(3)(B). 

5

Relations Orders entered by the state court upon her divorce. She

alleges that on January 16, 1998, the Superior Court of California

entered no fewer than eight Domestic Relations Orders

(“DROs”)(seven support DROs and one community property DRO) which

distributed to Jim DeFazio (“DeFazio”), her former husband, his

alleged community property share of her vested benefits in

Hollishare. The Superior Court ordered that DeFazio, as an

alternate payee of the Plan5, should have his interest held in a

“segregated account” and credited with a “proportionate share of

earnings, interest, gains, losses allocated to . . . [Ellis’]

account from each full plan year from January 1, 1998 to the date

of segregation.” Ellis maintains that ERISA plans are required to

comply with any valid “qualified” domestic relation order

(“QDRO”).6 Ellis contends, however, that, as plan administrator,

defendants were responsible for determining whether the

requirements for qualified status were satisfied. Ellis asserts

that trustees of the Plan acted on the Superior Court orders 

despite the fact that do not comply with the requirements of ERISA

and the terms of the Plan. 

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6

II.

ANALYSIS

Defendants contend that plaintiffs fail to state a claim under

ERISA and urge the court to dismiss plaintiffs’ lawsuits. As a

threshold matter, I note that defendants raise arguments which the

court previously rejected in DeFazio. I address those arguments

before turning to new arguments raised by defendants. 

A. VALUATION OF JDS SHARES AT BOOK VALUE AND PROHIBITED 

TRANSACTIONS

ERISA is a “comprehensive statute designed to promote the

interests of employees and their beneficiaries in employee benefit

plans.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90 (1983);

Nachman Corp. v. PBGC, 446 U.S. 359, 375 (1980). One of the

primary purposes for the enactment of ERISA was to establish

"standards of conduct, responsibility, and obligation for

fiduciaries of employee benefit plans." 

I turn first to plaintiffs’ allegations that defendants

breached their fiduciary duties by assigning “book value” to

Hollishare’s assets without a diligent and prudent investigation

and without an independent third-party appraisal, and when they

then entered into transactions with JDS.

Section 406 of ERISA, 29 U.S.C. § 1106, establishes a blanket

prohibition against certain transactions, such as the sale of stock

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

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

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

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7 Defendants submit various documents, including JDS’

Articles of Incorporation and other documents that purportedly

support their assertion. These arguments were rejected by this

court in DeFazio. The court thus has no qualms in using the same

language here to resolve the instant motion to dismiss. In this

round of briefing, however, defendants contend that they believe

that the court used the wrong definition of “adequate

consideration.” They contend that the court inappropriately used

ERISA § 318(A)(29 U.S.C. § 1002(18)(A)) which they argue only

applies in the case where there is generally a recognized market.

See Defs.’ Mot. to Dism. in Dimaro at 22, n. 12. Whatever the

definition, whether defendants’ utilization of book value

constitutes “adequate consideration” is a question requiring

examination of evidence and the merits, thus precluding dismissal

at this stage.

7

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

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

of employer stock if the sale price is for "adequate

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

traded on a national securities exchange, the term "adequate

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

the offering price for the security as established by the current

bid and asked prices quoted by persons independent of the issuer

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

in the instant cases, like DeFazio, state a cognizable claim

because they allege that HolliShare sold stock to its parent

corporation, JDS, for less than adequate consideration. 

As they did in DeFazio, defendants defend the challenged

transactions on the grounds that the valuation of stock based on

“book value” constitutes adequate consideration.7 They also assert

that plaintiffs’ claims fail because “defendants have not engaged

in any prohibited transactions.” Defs.’ Mot. to Dism. in Ellis at

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8 A fiduciary who claims that a transaction is exempted from

the prohibitions of ERISA § 406 has the burden of proving that the

stock was purchased for no more than adequate consideration. Lowen

v. Tower Asset Management, Inc., 829 F.2d 1209, 1215, (2d Cir.

1987); Donovan v. Cunningham, 716 F.2d 1455, 1467-68 (5th Cir.

1983). For the exemption of ERISA § 408(e) to apply, fiduciaries

must: (1) engage in a prudent investigation; and (2) pay no more

than fair market value for the securities purchased. 

8

29, Dimaro at 20-22. Defendants’ arguments are unavailing. As the

court explained in DeFazio, to consider their arguments would

require the court to examine the merits of the case, which is not

appropriate on a motion to dismiss.8 Plaintiffs have stated a

valid claim under ERISA § 408(e), 29 U.S.C. 1108(e).

B. ELLIS’ QDRO CLAIM

ERISA provides for state court-ordered assignments of plan

benefits to former spouses and dependents. 29 U.S.C. § 1056(d)(3)

provides that pension plans “shall provide for the payment of

benefits in accordance with the applicable requirements of any

qualified domestic relations order (“QDRO”).” QDROs are a type of

Domestic Relations Order (“DRO”) relating “to the provision of

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

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

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

§ 1056(d)(3)(ii). 

A DRO is a QDRO if it "creates or recognizes the existence of

an alternate payee's right to, or assigns to an alternate payee the

right to, receive all or part of the benefits payable with respect

to a participant under a[n] [ERISA] plan," 29 U.S.C. 

§ 1056(d)(3)(B), and does not (1) require the plan to provide any

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26 9 See supra note 5.

9

type of benefit not otherwise provided, (2) require the plan to

provide increased benefits, or (3) require benefits to be paid to

an alternate payee which must be paid to another alternate payee

under another QDRO. 29 U.S.C. § 1056(d)(3)(D). Finally, a QDRO

must specify the name and mailing address of the alternate payee

and the affected plan participant, the amount or percentage of the

participant's benefits to be paid or the means by which that amount

will be determined, the number of payments or time period to which

the order applies, and the plan to which the order applies. 29

U.S.C. § 1056(d)(3)(c). Ellis alleges that the series of DROs

issued pursuant to her divorce proceedings do not comply with these

requirements and are therefore not QDROs. 

Ellis asserts that on January 16, 1998, the Superior Court of

California entered no fewer than eight DROs which distributed to

Jim DeFazio, her former husband, his alleged community property

share of her vested benefits in Hollishare” Ellis maintains that

ERISA plans are required to comply only with valid QDRO.9 Ellis

contends that as plan administrator, defendants were responsible

for determining whether the requirements for qualified status were

satisfied, and that trustees of the Plan failed to do this, and

that the DROs do not comply with the requirements of ERISA and the

terms of the plan. 

Defendants argue that Ellis’ amended complaint fails to

provide them with adequate notice of her claim and that the court

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10 Under ERISA, a civil action may be brought by either a

participant, beneficiary, or fiduciary. See ERISA § 502, 29 U.S.C.

10

should therefore dismiss her QDRO claim. I cannot agree. Fed. R.

Civ. P. 8(a)(2) requires only notice pleading, “a short and plain

statement of the claim showing that the pleader is entitled to

relief.” The Rule’s standard only requires that “the averments of

the complaint sufficiently establish a basis for judgment against

the defendant.” See Yamaguchi v. United States Depot of the Air

Force, 109 F.3d 1475, 1481 (9th Cir. 1997). The court is required

to take all allegations of material fact in the complaint as true

and construe them in the light most favorable to Ellis. Jensen v.

City of Oxnard, 145 F.3d 1078 (9th Cir. 1998). Where, as here,

Ellis has alleged that defendants have failed to ensure that the

state court DROs were “qualified,” she has provided “a short and

plain statement of her claim that would give defendant fair notice

of what her argument is and the legal grounds upon which it rests.

Coney v. Gibson, 355 U.S. 41, 47 (1957). Defendants’ motion to

dismiss Ellis’ QDRO claim must be DENIED. 

C. STANDING TO SUE UNDER ERISA

Defendants argue that plaintiffs lack standing to sue under

ERISA. Relying on Kuntz v. Reese, 785 F.2d 1410 (9th Cir. 1986),

defendants claim that plaintiffs lack standing because they have

retired and they requested and received a full distribution of

their vested benefits. They argue that under the statute,

plaintiffs are not “participants” under ERISA and cannot bring

suit.10 Again, I cannot agree. 

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§ 1132. Plaintiffs allege in their complaint that they are

“participants” under the plan. Ellis Compl. at 4; Dimaro and

Lavick Compls. at 3. 

11 The court reiterated that plaintiffs “already received

their vested benefits,” “accepted the payment of everything due to

them in a lump sum,” and “received the full extent of their

benefits.” Kuntz, 785 F.2d at 1411-12. 

11

The Supreme Court has explained that in the ERISA context

“participant” means either “employees in, or reasonably expected

to be in, currently covered employment,” or “former employees who

“have . . . a reasonable expectation of returning to covered

employment” or who have “colorable claim[s] to vested benefits.”

Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 117-118

(1989)(citations omitted). Plaintiffs contend that they are

participants as defined by ERISA because they have “colorable

claims” to vested benefits. It is correct, as defendants maintain,

that in Kuntz the Ninth Circuit held that plaintiffs there lacked

standing where their benefits were distributed in a lump sum, and

they were no longer plan participants. The Circuit explained that

the plaintiffs were not eligible to receive benefits because if

successful, their claims would result in a “damage award,” “not an

increase of vested benefits.” 785 F.2d at 1411. The court

stressed that the Kuntz plaintiffs - unlike the plaintiffs in the

cases at bar – “do not allege that their vested benefits were

improperly computed.” Id.

11 The Circuit has distinguished Kuntz

and allowed suit even when plaintiffs have received their vested

benefits if they allege that fiduciaries “personally profited” from

a beach of their duty of loyalty to the plan. Amalgamated Clothing

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12 In Amalgamated Clothing, plaintiffs alleged that plan

fiduciaries breached their duty of loyalty to the plan by using

plan assets to further the interests of David H. Murdock, another

plan fiduciary, rather than to further solely the interests of the

plan participants and beneficiaries as required by ERISA. Id. at

1408. The Ninth Circuit explained that were it to find for

defendants and conclude that plaintiffs did not have standing to

sue they would allow fiduciaries to “misuse ERISA plan assets.”

12

v. Murdock, 861 F.2d 1406, 1418 (9th Cir. 1988).12 The court

emphasized that the “critical difference” between Kuntz and the

case in Amalgamated Clothing was that although the Kuntz plaintiffs

alleged that plan fiduciaries had “lied about the amount of

benefits that plaintiffs would get under the plan and failed to

comply with ERISA,” “the Kuntz plaintiffs did not allege that the

fiduciaries personally profited from a breach of their duty of

loyalty to the plan.” Id. at 1418 (emphasis in original). Despite

the previous distribution of plan assets, the court concluded that

plaintiffs had standing to sue under such facts. Id. 1418-19. 

Defendants in the case at bar adamantly urge this court to 

follow Kuntz because they argue, inter alia, that Amalgamated

Clothing is no longer good law. I cannot agree. The Ninth Circuit

has continued to reject the Kuntz doctrine where plaintiffs, former

employees who have received lump sum payments for their benefits,

allege that defendants have profited and that payment of plan

benefits was part of the fiduciaries’ scheme to misuse plan assets.

See Waller v. Blue Cross of California, 32 F.3d 1337, 1339 (9th

Cir. 2004)(holding that even after defendants had terminated its

retirement plan, plaintiffs had standing to bring suit under ERISA

to pursue “equitable remed[ies] of a constructive trust to

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13

distribute defendants’ allegedly ill-gotten profits to the former

participants and beneficiaries of the Plan”). In the cases at bar,

plaintiffs allege that defendants were fiduciaries by virtue of

their roles as trustees and administrators of the Hollishare Plan.

Ellis Compl. at 3; Dimaro Compl. at 3. Plaintiffs also allege that

defendants sought to profit by breaching their fiduciary duties by

valuing JDS stock which “did not accurately reflect the true market

value of the shares.” Ellis Compl. at 6; Dimaro Compl. at 4.

Plaintiffs further allege that by doing so and by granting JDS the

right of first refusal and restricting ownership on common stock,

defendants are “using the Plan for their benefit” - instead of the

exclusive benefit of participants and beneficiaries. Ellis Compl.

at 7; Dimaro Compl. at 4. According to plaintiffs, these actions

allow defendants to “use the Plan as a personal holding company,

and as a billion dollar tax shelter.” Id. Finally, plaintiffs

pray for the equitable remedy of disgorgement of defendants’ illgotten profits. Ellis Compl. at 14; Dimaro Compl. at 7. 

Plaintiffs’ allegations place their cases directly within the

purview of Amalgamated Clothing and Waller. I conclude that

plaintiffs have standing as “participants” to proceed with their

lawsuits.

D. THE SETTLOR DOCTRINE

Defendants maintain that plaintiffs challenge the “design” of

Hollishare, and that as a matter of law, plaintiffs’ claims cannot

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13 Section 7.03 of the Plan, provides:

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

Trustees at their respective fair market values as of

each December 31st. The fair market value of Common

Shares of JDS Inc. held in the Trust Fund shall, subject

to the provisions of the remainder of this Section 7.03,

be their book value as of the valuation date as

reflected on the books of JDS Inc. The Trustees shall

accept such book value as the fair market value if such

book value is computed in accordance with generally

accepted accounting principles. If such book value was

not computed in accordance with generally accepted

accounting principles, the Trustees shall investigate

the actual method of computation. If after

investigation they determine that such book value fairly

reflects the value of the shares under the

circumstances, they shall make such adjustment thereto,

taking into consideration generally accepted accounting

principles, as they deem reasonable and appropriate to

fairly reflect the value of the shares under the

circumstances, provided however, that such adjustment

shall not exceed the difference between such book value

and book value computed in accordance with generally

accepted accounting principles. 

14

lie under the “Settlor Doctrine.”13 Defendants argue that they are

charged with “nothing other than having administered the Plan in

compliance with its express terms.” As defendants put it,

plaintiffs’ claims attack “only the fundamental design of the Plan,

specifically the method by which the Plan provides the JDS shares

held by it are to be valued.” As I explain below, defendants’

argument are unavailing on several bases.

ERISA provides that a “‘person is a fiduciary with respect to

a plan,’ and therefore subject to ERISA fiduciary duties, ‘to the

extent’ that he or she ‘exercises any discretionary authority or

discretionary control respecting management’ of the plan, or ‘has

any discretionary authority or discretionary responsibility in the

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15

administration’ of the plan.” Varity Corp. v. Howe, 516 U.S. 489,

498 (1996)(quoting ERISA § 3(21)(A), 29 U.S.C. § 1102(21)(A)).

On occasion, courts have suggested that defendants cannot be

held liable for breach of fiduciary duty under ERISA for design

decisions when the fiduciary is acting in his or her “settlor

capacity.” See Hughes Aircraft Co. v. Jacobsen, 525 U.S. 432, 444

(1999); see also Lockheed Corp. v. Spink, 517 U.S. 882, 890-91

(1996)(holding that the act of amending a plan to establish early

retirement programs did not trigger ERISA's fiduciary duties); Bins

v. Exxon Co., 220 F.3d 1042, 1047 (9th Cir. 2000)(“[A]n employer

does not act in its fiduciary capacity as a plan administrator when

it makes a business decision to amend a plan.”). 

Defendants direct the court to Wright v Oregon Metallurgical

Corp., 360 F.3d 1090 (9th Cir. 2004), where the issue before the

court was whether an ERISA violation occurred when the fiduciaries

and plan administrators failed to amend the stock bonus plan to

allow participants to sell a higher percentage of employer

securities than permitted by the express terms of the plan. The

Ninth Circuit held that a fiduciary who invests in employer stock,

under those circumstances, “is presumed to have acted consistently

with ERISA.” Id. at 1097. To rebut that presumption, the

plaintiff must show that the fiduciary could not have “believed

reasonably that continued adherence to the plan’s terms was in

keeping with the settlor’s expectations of how a prudent trustee

would operate.” Id. Defendants contend that because the

Hollishare Plan directs the Trustees to invest the Plan’s assets

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in JDS shares, and because the Plan also specifies how those shares

are to be valued, defendants are insulated from liability for

following the plan. Their argument is not dispositive.

First, as plaintiffs note, the court in Wright did not hold

that by following the plan’s terms, those with fiduciary duties

would not be liable under ERISA. Indeed, Wright’s explanation

directly contradicts defendants’ contention. The Wright court

explained that “ERISA requires that fiduciaries discharge their

duties in accordance with the terms of the plan, except when such

terms conflict with Titles I or IV of ERISA.” Id. at 1094. Where,

as here, plaintiffs contend that the terms of the plan are unlawful

and inconsistent with ERISA, the Settlor Doctrine does not dispose

of plaintiffs’ claims. In sum, even if the plan’s terms dictated

how the JDS shares were to be valued (“book value” rather than fair

market value), plaintiffs maintain that those terms are unlawful.

That contention, resting in part in a factual determination of fair

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

Moreover, plaintiffs allege that defendants sold assets to JDS

for less than adequate consideration in violation of 29 U.S.C. 

§§ 1106, 1108(e), allowed assets of the Plan to inure to the

benefit of JDS in violation of 29 U.S.C. § 1103, and administered

improper QDROS in violation of ERISA. Because all such conduct

would violate ERISA, the Settlor Doctrine is irrelevant.

Secondly, the court cannot dispose of plaintiffs’ ERISA claims

under the Settlor Doctrine because defendants are charged with more

than “having administered the Plan in compliance with its express

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terms.” Plaintiffs’ claims attack more than the fundamental design

of the Plan, they attack defendants’ administration of the Plan.

Although plaintiffs challenge the method under which the Plan

provides the JDS shares are to be valued, they also allege that

defendants failed to investigate whether book value reflects the

true value of the shares. See Ellis Compl. at 6. They also allege

that defendants resold plaintiffs’ shares to JDS at a price not

reflecting fair market value, at their expense and for JDS’

benefit. Id. at 7. Finally, Ellis charges defendants with failing

to correctly “qualify” the state court domestic relations orders.

All these accusations pertain to the administration of the Plan

rather than its design.

For the forgoing reasons, defendants’ reliance on the Settlor

Doctrine is unavailing. 

E. JDS AS A DE FACTO FIDUCIARY

Defendants urge the court to dismiss JDS from the suit because

they claim JDS is not a fiduciary pursuant to the plan terms and

under ERISA. Plaintiffs’ disagree. I examine the parties’

contentions.

Plaintiffs allege that:

JDS is a parent company of Hollister and a de facto

fiduciary of the Plan by their ability to control both

management and disposition of trust fund assets, to

artificially limit the value of JDS shares to book value

(even if the fair market value substantially exceeds

that amount), to retain the right to buy all shares of

JDS stock at book value, and to limit the pool of

available buyers. 

Ellis Compl. at 7. Dimaro Compl. at 3.

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Elsewhere, plaintiffs allege that the Articles of Incorporation:

grant JDS a right of first refusal, a buy-back

provision, and a restriction, and a restriction on

ownership of their common stock. 

Id.

According to plaintiffs, the Hollishare Trust agreement

“artificially defines the market value of the common shares of 

Hollister,” and because “JDS retains the right to buy all shares

of JDS stock” at this artificial value, defendants are ultimately

able to “use the plan as a personal holding company, and as a

billion dollar shelter.” Id. Defendants nevertheless argue that

JDS lacks the discretionary power or authority to cause Hollishare

to sell its JDS shares, and that JDS “has no control whatsoever

over Hollishare’s transaction.” Ellis Compl. at 3, 9, 10.

Defendants point out that the Articles of Incorporation establish

the transfer restrictions that limit ownership of JDS shares, and

that JDS’ repurchase right is triggered only if and when a holder

of JDS common shares “desires or intends to transfer” those shares.

According to defendants, plaintiffs fail to allege that JDS has

instructed Hollishare Trustees whether or when they should

effectuate transactions in JDS common shares . . . . Under

ERISA, “[A] person is a fiduciary with respect to a plan to the

extent (i) he exercises any discretionary authority or

discretionary control respecting management of such plan or

exercises any authority or control respecting management or

disposition of its assets . . . or (iii) he has any AAA

discretionary responsibility in the administration of such plan.”

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29 U.S.C. § 1002(21)(A). ERISA's definition of “fiduciary” is

functional rather than formal. See Mertens v. Hewitt Assocs., 508

U.S. 248 (1993); Kayes v. Pacific Lumber Co., 51 F.3d 1449, 1459

(9th Cir. 1995), cert. denied, 516 U.S. 914 (1995). Thus, if JDS

in fact exercised any discretionary authority over plan assets, it

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

See Yeseta v. Baima, 837 F.2d 380, 386 (9th Cir. 1988)(holding that

a person who withdraws money from a pension plan and places it into

the company's account in order to pay operating expenses is a

fiduciary). Put differently, a “de facto” fiduciary may be liable

even if it lacks formal power to control or manage a plan, but

nonetheless informally exercises the requisite “discretionary

control” over plan management and administration.

Plaintiffs have alleged facts which suggest that JDS may be

considered a de facto fiduciary. The parties do not dispute that

JDS’ Articles of Incorporation contain a share transfer restriction

that limits ownership of shares to JDS, and that JDS had the

absolute right to buy any and all JDS shares that are offered for

sale by anyone. Plaintiffs allege that the arrangement is to their

determent and JDS’ benefit.

The allegations appear to support plaintiffs’ contention that

JDS controls the market for Hollishare and the price of the shares.

Given the “scheme” alleged by plaintiffs between the defendants,

the court cannot credit defendants’ argument that JDS is not a

fiduciary because its “repurchase right is triggered only if and

when a holder of JDS common shares desires or intends to transfer

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those shares.” Rather, this fact would appear to support a finding

that JDS is able to “exercise authority or control respecting

management or disposition” of Hollishare assets. 29 U.S.C. 

§ 1002(21)(A). 

The court is bound to give plaintiffs the benefit of every

reasonable inference to be drawn from the "well-pleaded"

allegations of the complaint. See Retail Clerks Intern. Ass'n,

Local 1625, AFL-CIO v. Schermerhorn, 373 U.S. 746, 753 n.6 (1963).

Thus, plaintiffs need not necessarily plead a particular fact if

that fact is a reasonable inference from facts properly alleged.

See id.; see also Wheeldin v. Wheeler, 373 U.S. 647, 648 (1963)

(inferring facts from allegations of complaint). Reading all of

plaintiffs’ allegations in the most favorable light to plaintiff,

the inference is that JDS was part of this scheme to undervalue the

JDS stock, to limit the market of buyers, and to keep it within the

defendants’ control. Under the pleadings, JDS is a de facto

fiduciary. 

F. OTHER NAMED DEFENDANTS

Defendants move to dismiss a number of the individually named

defendants. 

1. Michael Winn, Donna Matson, and Alan F. Herbert

Defendants have tendered evidence suggesting that Winn,

Matson, and Herbert have never been trustees or fiduciaries of

Hollishare and have not exercised discretionary control over

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14 Of course, a motion to dismiss tests the pleadings.

Accordingly, the court must treat the motion as one for summary

judgment.

21

Hollishare’s assets. Saxon Dec., Ex. A at ¶ 6.14 Ellis does not

oppose this motion, and thus, it will be granted with respect to

her. Dimaro and Lavick, however, ask the court to continue the

defendants’ motion until the close of discovery. They direct the

court to a newsletter for Hollishare which they claim “identifies

Winn, Matson and Herbert as trustees of the plan.” Hubbard Dec.,

Ex. A. 

The court has examined that document and it appears that

defendants are correct in asserting that the trust referred to in

that article is not Hollishare, but a separate trust which holds

shares of the firm of John Dickinson Schneider. Because plaintiffs

have alleged a complex scheme between JDS and Hollishare, the court

at this juncture will defer resolution of this portion of the

motion to permit plaintiffs discovery as to the relationship

between Hollishare and Winn, Matson and Herbert. Plaintiffs shall

file a further opposition to the motion or a concession of nonopposition not later than forty five days from the date of this

order. If plaintiffs file a further opposition, defendants are

granted twenty days to respond. That portion of defendants’ motion

will then stand submitted unless the court orders further oral

argument.

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2. Loretta Stimpinski

Defendants move to dismiss Stimpinski from these law suits.

Defendants tender evidence suggesting that Stempinski is not a

current Trustee of the Plan. See n.14. She admits that she was

a Trustee of the Plan from 1974-1978, over twenty-seven years ago.

Saxon Dec., Ex. A at ¶ 6. Plaintiff Ellis does not oppose this

motion, and thus it will be granted with respect to Ellis.

Plaintiffs Dimaro and Lavick do not dispute that Dimaro worked

for Hollister from December 28, 1992 to September 30, 1999 and that

Lavick worked for Hollister from November 15, 1995 to January 7,

2000. Dimaro and Lavick, however, oppose this motion because they

argue that Stempinski should still be held liable under ERISA. I

cannot agree.

ERISA imposes a statute of limitations on claims alleging a

breach of fiduciary duty. Section 413 provides that: 

No action may be commenced under this subchapter with respect

to a fiduciary's breach of any responsibility, duty, or

obligation under this part, or with respect to a violation of

this part, after the earlier of-- 

(1) six years after (A) the date of the last action which

constituted a part of the breach or violation, or (B) in the

case of an omission, the latest date on which the fiduciary

could have cured the breach or violation, or 

(2) three years after the earliest date on which the

plaintiff had actual knowledge of the breach or violation; 

except that 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. 

The plaintiffs filed their breach of fiduciary claim against

defendants, including Stempenski, in August 2005, when they claim

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15 The Ninth Circuit found that the district court did not

err where plaintiffs did not bring their action within six years

of the trustees’ resignation. Plaintiffs’ claims were barred,

unless they could show that trustees’ alleged breach involved

"fraud or concealment." Finding that the trustees did not commit

fraud, the court concluded that the plaintiffs' claim did not fall

within the "fraud or concealment" exception to ERISA's statute of

limitations and that therefore, the claim was barred.

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they first had actual knowledge of any breaches from their counsel.

It is undisputed, however, that Stempinski was last a trustee in

1978. Even given the requirement that the court give all

reasonable inferences to plaintiffs’ pleadings, nothing suggests

that once she resigned as a plan trustee, Stempinski had any

responsibility for the policies, operations and administration of

Hollishare. Because plaintiffs have failed to bring their claim

within six years of 1978, when she was last a trustee and

administrator of the Plan, their claim is barred, unless they

allege that Stempinski’s alleged breach involved "fraud or

concealment." Because plaintiffs fail to allege fraud, plaintiffs’

claim against Stempinski is barred by § 413 of ERISA. See Barker

v. American Mobil Power Corp., 64 F.3d 1397, 1401 (9th Cir.

1995).15 For the reasons stated above, all claims against

Stempinski are dismissed with prejudice.

III.

CONCLUSION

Accordingly, the court hereby ORDERS as follows:

1. The motion to dismiss Stempinski is GRANTED. 

2. Resolution of the motions of Winn, Matson, and Herbert is

DEFERRED;

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3. All other motions are DENIED.

IT IS SO ORDERED. 

DATED: April 12, 2006

/s/Lawrence K. Karlton 

LAWRENCE K. KARLTON

SENIOR JUDGE

UNITED STATES DISTRICT COURT

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