Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_04-cv-06405/USCOURTS-caed-1_04-cv-06405-13/pdf.json

Nature of Suit Code: 370
Nature of Suit: Other Fraud
Cause of Action: 31:3731 Fraud

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28 This case was later transferred from the docket of Judge Wanger to the undersigned. 1

IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

JOE FLORES, et al., )

)

Plaintiffs, )

)

v. )

)

)

DENNIS HAGOBIAN, et al., )

)

Defendants. )

)

____________________________________)

1:04-CV-6405 AWI DLB

ORDER STRIKING AMENDED

COMPLAINT FILED ON MAY 10, 2007

ORDER DENYING MOTIONS TO

DISMISS AND MOTION TO STRIKE

AS MOOT

(Documents #100, #104, #107, #130, #138,

#167, #194, and #198)

BACKGROUND

On October 15, 2004, Plaintiffs, two individuals in pro se and several agricultural

corporations and limited liability companies, filed suit against a number of individuals, trusts,

and corporations (collectively “Defendants”) for alleged fraudulent transfers under the Uniform

Fraudulent Transfer Act, Cal. Civ. Code § 3439, and for alleged improper distributions made in

violation of the California Corporations Code. 

On November 18, 2004, several of the Defendants filed a motion to dismiss for lack of

subject matter jurisdiction, or, in the alternative, to stay Plaintiffs’ complaint pending the

outcome of an appeal in the related case of Flores v. DDJ, Inc., et al., 1:99-CV-AWI DLB. On

January 10, 2005, a hearing was held concerning the motion before District Court Judge Oliver

W. Wanger. At this hearing, Plaintiffs advised the court that involuntary bankruptcy

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proceedings had been instituted against Plaintiff DDJ, Inc. and Plaintiff DDJ LLC, an automatic

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stay was in place, and a trustee had not yet been appointed. On January 11, 2005, Judge Wanger

issued an order stating that the court would defer ruling on the motion to dismiss pending

notification whether the case would proceed in Bankruptcy Court. Judge Wanger noted that a

determination should expeditiously be made whether this case will go forward or whether the

case would be pursued on behalf of the non-bankrupt parties, and ordered the parties to file a

status report on or before January 21, 2005. 

On January 27, 2005, Plaintiff Connie Flores filed a status report that stated that Plaintiff

DDJ, Inc. and Plaintiff DDJ LLC had filed for bankruptcy on January 7, 2005. The report

identified the Chapter 7 Trustees and informed the court of the dates of the creditors’ meetings. 

On March 1, 2005, Judge Wanger issued an order regarding the January 27, 2005 status report. 

In relevant part, this order stated:

The report did not, however, inform the Court whether the Trustees will be

joined as plaintiffs in this case and whether the Trustees will allow the case to

proceed. The dates for the creditor meetings have come and gone, and Plaintiffs

have not informed the Court whether this case will proceed. In their status report,

Plaintiffs also requested 60 days to file an amended complaint, in order to

complete the meetings of creditors and seek the joinder of the Chapter 7 Trustees. 

The automatic stay prevents this Court from making any rulings in this

case, including ruling on the unopposed motion to dismiss and on any motions to

file an amended complaint. The Court cannot move forward until a definite

determination has been made as to whether this case will proceed or whether the

automatic stay will continue to be in effect.

Counsel are requested to furnish the Court with another status report

within ten days on or before March 8, 2005.

On March 9, 2005, Plaintiff Connie Flores filed another status report indicating that she

and Plaintiff Joe Flores had met with both Trustees and discussed the fraudulent transfers. The

report states that the Trustees indicated they were in favor of proceeding with the action. 

Plaintiff Connie Flores requested 60 days to substitute counsel, review the case, prepare

summaries for the Trustees and file an amended complaint.

The court did not issue an order in response to the second status report. Plaintiffs never

filed another status report. Over a year passed, and no document, other than an order

substituting attorneys, was filed by the court or any party.

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On April 25, 2006, Trustee James Edward Salven, Trustee for Plaintiff DDJ, Inc., and

Trustee Beth Maxwell Stratton, Trustee for Plaintiff DDJ LLC, filed a joint motion to intervene

in this action. Trustee Salven and Trustee Stratton contended that as Trustees for Plaintiff DDJ,

Inc. and Plaintiff DDJ LLC, they should be allowed to intervene in this action. While Plaintiff

Joe Flores and Plaintiff Connie Flores opposed this request, on September 13, 2006, Magistrate

Judge Dennis L. Beck granted the Trustee’s request.

Nothing then happened in this action until May 10, 2007, when Plaintiffs filed an

amended complaint. 

Also on May 10, 2007, Plaintiffs filed a motion to calendar a hearing date certain to

commence proceedings. The basis of Plaintiffs’ motion was that the stay had been lifted when

the Trustees lost their avoidance power under 11 U.S.C. § 544(a). Trustee Stratton, filed an

opposition on May 16, 2007. On June 19, 2007, Magistrate Judge Beck denied Plaintiffs’

motion, reasoning that an automatic stay pursuant to 11 U.S.C. § 362(a)(1) applied to this action

and the Trustee’s failure to take certain steps during the bankruptcy case did not lift the stay.

On July 19, 2007, Defendants Taft & Traner, Inc., Eco Farm Fields, Inc., ECO Farms

Sales, Inc., Norman Traner, and Steven Taft (“T&T Defendants”) filed an answer to the amended

complaint.

On July 23, 2007, Defendants Georgeson & Belardinelli, C. Russell Georgeson, and

Richard Belardinelli (“Georgeson Defendants”) filed a motion to strike and a motion to dismiss

for lack of jurisdiction. On July 24, 2007, Georgeson Defendants filed a motion to dismiss for

failure to state a claim. 

On August 8, 2007, Trustee Salven, on behalf of Plaintiff DDJ, Inc., joined in the

amended complaint.

On August 8, 2007, the court vacated the pending hearing on the Georgeson Defendants’

motions and set a new hearing date. Plaintiffs were ordered to file any opposition by August

27, 2007 and Georgeson Defendants were ordered to file any reply brief by September 10, 2007.

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 It appears that at some point Trustee Stratton was replaced by Trustee Salven as trustee 2

for Plaintiff DDJ LLC.

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On August 20, 2007, Plaintiff Joe Flores filed a copy of orders issued by the Bankruptcy

Court, along with a request that the court calender a hearing date to commence proceedings in

this action. The first Bankruptcy Court order, dated August 9, 2007 and signed by Bankruptcy

Court Judge Whitney Rimel, denied Plaintiff Joe Flores’s and Plaintiff Connie Flores’s motion

for relief from the automatic stay in this action as to DDJ, Inc. as unnecessary because the

Trustee for DDJ, Inc. had joined in the amended complaint. The second Bankruptcy Court

order, also dated August 9, 2007 and signed by Judge Rimel, grants Plaintiff Joe Flores and

Plaintiff Connie Flores’s motion for relief from the automatic stay in this action as to DDJ LLC. 

On August 27, 2007, Defendants Dennis Hagobian, Victoria Hagobian, the Dennis

Hagobian Residential Trust, the Victoria Hagobian residential trust, Yosemite Technologies ,

Inc., and Rod Christensen (“Hagobian Defendants”) filed a motion to dismiss. On August 28,

2007, Defendant Russell Davidson joined in the Hagobian Defendants’ motion. 

On August 27 2007 and August 28, 2007, Plaintiff Joe Flores filed oppositions, which

Plaintiff Connie Flores joined, to Georgeson Defendants’ motion to dismiss for lack of subject

matter jurisdiction and motion to strike. 

Pursuant to Plaintiffs’ request, on August 31, 2007, Magistrate Judge Beck issued an

order that recognized the stay in this action had been lifted on August 9, 2007 and ordering

Defendants to respond to the amended complaint within twenty days.

On September 8, 2007, Trustee Salven, on behalf of Plaintiff DDL LLC, joined in the

amended complaint.

2

On September 17, 2007, Trustee Salven filed an objection to Georgeson Defendants’

motions. Trustee Salven contends that Georgeson Defendants’ motion were filed prematurely

because this action was stayed when the Georgeson Defendants filed their motions. On

September 19, 2007, Plaintiff Joe Flores and Plaintiff Connie Flores joined in Trustee Salven’s

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objections.

On September 28, 2007, Georgeson Defendants filed a motion for sanctions. Georgeson

Defendants contend that Plaintiffs’ September 17, 2007 and September 18, 2007 objections are

improper because Plaintiffs were only given until August 27, 2007 to file any oppositions. 

Georgeson Defendants request that the late opposition papers be struck and the court impose

sanctions upon Plaintiffs for costs. On October 19, 2007, Plaintiffs filed an opposition to the

motion for sanctions.

On October 1, 2007 and October 2, 2007, Plaintiffs filed oppositions to Hagobian

Defendants’ motion to dismiss. 

On October 17, 2007, Defendants Judith Yeramian, the Lee Yeramian Family Trust, the

Lee Yeramian Exempt QTIP Trust, and the Judith Mary Yeramian Family Trust (“Yeramian

Defendants”) filed a motion to dismiss. On November 16, 2007, Plaintiffs filed oppositions to

this motion. 

On October 19, 2007, T&T Defendants filed a motion to dismiss for lack of subject

matter jurisdiction. On November 14, 2007 and November 16, 2007, Plaintiffs filed

oppositions to T&T Defendants’ motion.

The court then took the pending motions to dismiss, motion to strike, and motion for

sanctions under submission. The court now issues this memorandum opinion. 

DISCUSSION

A. Validity of Amended Complaint

Before addressing the merits of the pending motions, the court finds it necessary to

address the stay Judge Wanger ordered in the action. The procedural background of this action is

confusing. Some parties have questioned whether actions taken during the stay are valid. Thus,

the court turns to the stay and the validity of filings made during the stay. 

In late 2004 and early 2005, Judge Wanger held hearings concerning Defendants’ motion

to dismiss the original complaint. During those hearings, Plaintiff Joe Flores and Plaintiff

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Connie Flores informed Judge Wanger that Plaintiff DDJ, Inc. and Plaintiff DDJ LLC had filed

for bankruptcy. Plaintiff Joe Flores and Plaintiff Connie Flores told Judge Wanger that this

action had automatically been stayed. It is unclear what statute or rule Plaintiff Joe Flores and

Plaintiff Connie Flores believed automatically stayed this action. 

The court presumes that, as is this court’s custom, Judge Wanger stayed this action in

light of Plaintiff DDJ, Inc.’s and Plaintiff DDJ LLC’s filing for bankruptcy. Before proceeding

further, Judge Wanger determined that the parties and the court needed to know whether the case

would proceed in the Bankruptcy Court and whether the case would be pursued on behalf of the

Trustees in this court and/or the non-bankrupt parties. See Order 1/11/05. Judge Wanger

recognized that there was a stay in this action and the court could not proceed until the parties

informed the court whether the Trustees would join in this action. See Order 3/1/05. On

March 9, 2005, Plaintiff Connie Flores filed a status report indicating that the Trustees had still

not decided whether to join in this case. Based on these orders, the court finds this action was

stayed pursuant to Judge Wanger’s order. 

While the Trustees intervened in this action on September 13, 2006, the amended

complaint filed on May 10, 2007, was filed by Plaintiff Joe Flores and Plaintiff Connie Flores but

lists Plaintiff DDJ, Inc. and Plaintiff DDJ LLC as Plaintiffs. The Trustee for Defendant DDJ,

Inc. joined in the amended complaint on June 6, 2007, thus lifting the stay as to Defendant DDJ,

Inc. On August 9, 2007, Bankruptcy Judge Whitney Rimel lifted the stay in this action as to

Defendant DDJ LLC. The Trustee for Plaintiff DDL LLC joined in the amended complaint on

September 8, 2007.

Based on a careful review of the file, the court finds that this action was stayed from at

least January 18, 2005, when Judge Wanger found the action had been stayed, until August 9,

2007, when Judge Rimel lifted the stay. Judge Wanger explicitly found this action was stayed. 

Plaintiff Joe Flores and Plaintiff Connie Flores clearly recognized there was a stay because they

believed it was necessary to file their May 10, 2007 motion for an order to proceed with this

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action; Such a motion would not have been necessary if this action was not stayed. Judge Beck

confirmed that a stay was in place when he denied Plaintiffs’ motion to proceed. Judge Rimel

further confirmed the stay was in place by ordering that the stay be lifted on August 9, 2007. 

Thus, at the time the amended complaint was filed on May 10, 2007, this action was stayed. 

Although the parties have not raised the issue, the court may sua sponte consider whether

filings done in violation of the stay are void. See O'Donnell v. Vencor Inc., 466 F.3d 1104, 1110

(9 Cir. 2006) (applying stay found in Section 362). Actions taken in violation of a bankruptcy th

stay are void. See O'Donnell, 466 F.3d at 1110 (applying stay found in Section 362); Gruntz v.

County of Los Angeles, 202 F.3d 1074, 1082 (9 Cir. 2000) (en banc). The court does recognize

th

the legal basis of stay ordered by Judge Wanger is subject to question. It appears to the

undersigned that Judge Wanger entered the stay to protect the bankruptcy parties’ estate until

such time as the Trustee for Plaintiff DDJ, Inc. and Trustee for Plaintiff DDJ LLC could decide if

they desired to proceed with this action. While the Trustee for Plaintiff DDJ, Inc. and Trustee

for Plaintiff DDJ LLC both intervened prior to the filing of the amended complaint, the Trustee

for DDJ, Inc. did not join in the amended complaint until June 6, 2007 and the Trustee for DDJ

LLC did not join in the complaint until after the stay had been lifted by Judge Rimel. Finally, a

finding that the stay in this action was in place until August 9, 2007 is supported by the fact that

Judge Wanger and Judge Beck both found a stay in place. In addition, Judge Rimel lifted a stay. 

Had the action not really been stayed or the Trustee’s intervention automatically lifted the stay,

Judge Rimel would have had no stay to lift on August 9, 2007. The fact Judge Wanger, Judge

Beck, and Judge Rimel all took actions under the belief that this action was stayed is evidence to

bolster the court’s belief this action was stayed until August 9, 2007. Because the stay ordered

by Judge Wanger in early January 2005 was still in place on May 10, 2007, when Plaintiffs filed

the amended complaint, the court finds the amended complaint must be struck. 

The court does recognize that Judge Wanger’s orders mentioned an automatic stay in this

action. Judge Wanger’s conclusion concerning an automatic stay appears to stem from Plaintiff

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 As stated above, the court finds Judge Wanger entered the stay pursuant to his inherent 3

authority to allow the Trustees time to decide if they wished to join the complaint. Such a stay

has no bearing on whether a stay pursuant to Section 362 was also in place.

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Joe Flores and Plaintiff Connie Flores informing Judge Wanger that an automatic stay was in

place. The court is unclear as to what statute automatically stayed this action. The automatic

stay provisions found in 11 U.S.C. § 362 prohibit judicial actions against the debtor and acts to

obtain possession of the property of the estate. 11 U.S.C. § 362; In re White, 186 B.R. 700, 703

(B.A.P. 9 Cir. 1995). This action is not against Plaintiff DDJ, Inc. or Plaintiff DDJ LLC nor is

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it an attempt to obtain the property of Plaintiff DDJ, Inc. or Plaintiff DDJ LLC. Thus, it does

not appear Section 362 automatically stayed this action.3

However, even if the court assumes Judge Wanger stayed the case based solely on the

parties’ misapplication of Section 362, the result is still a finding that the amended complaint

must be struck. It is a basic proposition that “all orders and judgments of courts must be

complied with promptly.” Maness v. Meyers, 419 U.S. 449, 458 (1975); Britton v. Co-op

Banking Group, 916 F.2d 1405, 1410 (9 Cir. 1990). If a party believes that an order is

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incorrect, the remedy is to appeal. Maness, 419 U.S. at 458. This proposition does “not mean,

of course, that every ruling by a presiding judge must be accepted in silence,” and parties may

object. Id. at 459. “But, once the court has ruled, counsel and others involved in the action must

abide by the ruling and comply with the court's orders.” Id. at 459. Thus, even assuming that

the stay in this action was somehow entered in error, the parties were still obligated to follow

Judge Wanger’s order staying this action. If the parties believed Judge Wanger had adopted an

impermissible practice by staying this action, the remedy would have been to raise the issue in a

further motion or on appeal rather than to repeatedly violate Judge Wanger's order by filing an

amended complaint and motions. See United States v. Galin, 222 F.3d 1123, 1127 (9 Cir. th

2000). Any party to this action was free to file a motion requesting the stay be lifted because an

automatic stay pursuant to Section 362 was improper. No party filed such a motion. In fact, the

parties’ and Trustees’ actions indicate they too believed a stay was in place. Thus, any questions

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as to the validity of the stay are not grounds for the court to find that no stay was in place. 

The court realizes that by striking the amended complaint this action will be delayed. 

The court also realizes that, most likely, the parties and the court will find themselves back in the

present situation at some point in the future. Most likely, Plaintiffs will file a second amended

complaint that contains claims and causes of action similar, if not identical, to the amended

complaint. Defendants will then file motions attacking any second amended complaint that are

essentially the same as the motions currently pending before the court. While it is tempting to

find that the issue of judicial economy would best be served by simply proceeding on the

amended complaint, the court believes this is a situation where “form must be placed over

substance” given the totality of the circumstances of this action. The court is not unfamiliar

with many of the parties in this action. The court has grave concerns that if the issue of the

amended complaint being filed during the stay is not resolved now at some later time a party will

raise the issue of the amended complaint’s validity. Several parties have already suggested that

the amended complaint and some of the motions should be disregarded because they were filed

during the stay. The delay that will be caused by “starting over” at this time will result in far less

delay than if the parties are allowed to continue to litigate on the amended complaint only for

some party to challenge the amended complaint’s validity in the future when that party decides it

would be a good strategy. Thus, despite the equitable reasons to allow this action to proceed on

the amended complaint, the court finds that it must be struck.

B. Operative Pleading and Filing a Second Amended Complaint

Having struck the amended complaint, the operative pleading on file becomes the original

complaint. The November 18, 2004 motion to dismiss for lack of subject matter jurisdiction

over the original complaint remains pending. However, the court will not address that motion at

this time. Plaintiffs have clearly indicated that do not wish to proceed on the original complaint

and wish to file an amended complaint. As such, the court will give Plaintiffs leave to file a

second amended complaint.

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Some Defendants have questioned whether Plaintiffs need leave of court to file an

amended complaint because some Defendants responded to the original complaint by filing a

motion to dismiss. Rule 15(a) of the Federal Rules of Civil Procedure provides that a “party

may amend the party's pleading once as a matter of course at any time before a responsive

pleading is served. . . . Otherwise a party may amend only by leave of court. . . .” A motion to

dismiss is not a “responsive pleading” that would terminate a plaintiff’s right to amend the

complaint. Doe v. United States, 58 F.3d 494, 497 (9 Cir.1995); Schreiber Distrib. v. Serv-Well th

Furniture Co., 806 F.2d 1393, 1401 (9 Cir.1986); Mayes v. Leipziger, 729 F.2d 1389 605, 607 th

(9 Cir.1984); Breier v. Northern California Bowling Proprietors' Ass'n, 316 F.2d 787, 789 (9

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Cir.1963). Because no defendant filed an answer to the original complaint, Plaintiffs did not

need leave of court to file an amended complaint. See Allwaste, Inc. v. Hecht, 65 F.3d 1523,

1530 (9 Cir. 1995); Doe, 58 F.3d at 497. Thus, while the court gives leave to amend, Plaintiffs th

are free to file a second amended complaint even without leave of court. 

C. Motion for Sanctions

Georgeson Defendants have filed a motion for sanctions. The basis of this motion is

Trustee Salven’s objection to the Georgeson’s motions on behalf of Plaintiff DDJ, Inc. and

Plaintiff DDJ LLC, which was then joined by Plaintiff Joe Flores and Plaintiff Connie Flores. 

Georgeson Defendants point out that by court order Plaintiffs needed to file any opposition to

Georgeson Defendants’ motions by August 27, 2007, but Plaintiffs filed oppositions on

September 17, 2007 and September 18, 2007. In opposing Georgeson Defendants’ motion for

sanctions, Plaintiff Joe Flores contends that the September 17, 2007 and September 18, 2007

filings were not oppositions but merely an objection that pointed out Georgeson Defendants’

motions were filed during the stay. 

The court has the inherent power to levy sanctions, including attorneys’ fees, when a

party has acted in “bad faith, vexatiously, wantonly, or for oppressive reasons.” Roadway

Express, Inc. v. Piper, 447 U.S. 752, 766 (1980); Rink v. Gomez, 239 F.3d 989, 991 (9 Cir. th

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2001). While the court’s inherent power extends to all litigation abuses, the litigant must have

“engaged in bad faith or willful disobedience of a court’s order.” Chambers v. NASCO, Inc.,

501 U.S. 32, 46-47 (1991); Fink, 239 F.3d at 992. The court also may levy sanctions pursuant

to 28 U.S.C. § 1927 against any attorney who “so multiplies the proceedings in any case

unreasonably and vexatiously may be required by the court to satisfy personally the excess costs,

expenses, and attorneys' fees reasonably incurred because of such conduct.” 28 U.S.C. § 1927. 

Sanctions under Section 1927 also require the court to find recklessness or bad faith. Cline v.

Industrial Maintenance Engineering & Contracting Co., 200 F.3d 1223, 1236 (9 Cir. 1999). th

The Ninth Circuit assesses “an attorney’s bad faith under a subjective standard. Knowing or

reckless conduct meets this standard.” MGIC Indem. Corp. v. Moore, 952 F.2d 1120, 1121-22

(9 Cir.1991). “Bad faith is present when an attorney knowingly or recklessly raises a frivolous th

argument, or argues a meritorious claim for the purpose of harassing an opponent.” Cline, 200

F.3d at 1236; Estate of Blas v. Winkler, 792 F.2d 858, 860 (9 Cir. 1986). Bad faith can be th

found based on, among other factors, the number and length of the pleadings, the timing involved

in many of the filings, and the substance of the claims asserted. Salstrom v. Citicorp Credit

Services, Inc., 74 F.3d 183, 185 (9 Cir. 1995). A finding of frivolous by itself is insufficient to

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support an award under section 1927. Estate of Blas v. Winkler, 792 F.2d 858, 861 (9 Cir. th

1986).

 Given the fact that the amended complaint is being struck and the oppositions at issue in

the motion for sanctions are now moot, the court is not inclined to issue sanctions. The court

does recognize that Georgeson Defendants’ motion is not completely misplaced. Neither the

Local Rules nor the Rules of Civil Procedure provide for “objections” to motions. The 

September 17, 2007 and September 18, 2007 filings were clearly an attempt to convince the court

not to grant Georgeson Defendants’ motions, and as such, these documents were oppositions to

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 At the time the opposition to Georgeson Defendants’ motions were due, Trustee 4

Salven had not joined the complaint on behalf of Plaintiff DDJ LLC. Had he asked, Trustee

Salven would have been given additional time to oppose Georgeson Defendants’ motions. 

Because Plaintiff DDJ LLC had not yet had the opportunity to oppose the Georgeson Defendants’

motions, the court wishes to clarify that it is primarily concerned with the late oppositions filed

on behalf of Plaintiff DDJ, Inc., Plaintiff Joe Flores, and Plaintiff Connie Flores. 

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Georgeson Defendants’ motions. This file already contains a significant amount of filings, and 4

all parties are reminded that any filing must be one allowed for by the Local Rules and Rules of

Civil Procedure. While the court wishes to encourage the parties to only file legitimate filings,

the motion for sanctions before the court requests too much. The remedy for a party filing a late

opposition one time would be for the court to simply ignore the late opposition and/or strike the

late opposition. Ironically, it is Plaintiffs’ September 17, 2007 and September 18, 2007

oppositions and the motion for sanctions arising from these filings that convinces the court that

the validity of the amended complaint must be addressed now. The court will deny the motion

for sanctions at this time. All parities are reminded of their responsibility to file only legitimate

motions. 

ORDER

Accordingly the court ORDERS that:

1. The amended complaint filed on May 10, 2007 is hereby STRUCK;

2. The pending motions to dismiss (Documents #100, #104, #107, #130,

#138, #194, and #198) are DENIED as moot;

3. Plaintiffs may file any second amended complaint within thirty days of this

order’s date of service; and

4. Georgeson Defendants’ motion for sanctions (Document #167) is

DENIED.

IT IS SO ORDERED.

Dated: January 18, 2008 /s/ Anthony W. Ishii 

0m8i78 UNITED STATES DISTRICT JUDGE

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