Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-casd-3_06-cv-00921/USCOURTS-casd-3_06-cv-00921-6/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 29:1132 E.R.I.S.A.-Employee Benefits

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 1 - 06cv0921

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF CALIFORNIA

OMNI HOME FINANCING, INC., KEITH

W. MURPHY, ANTHONY A. GAGLIONE,

DAVID A. BANCROFT, and OMNI HOME

FINANCING, INC. 412(i) DEFINED

BENEFIT PLAN,

Plaintiffs,

CASE NO. 06cv0921 IEG (JMA)

ORDER:

(1) GRANTING DEFENDANTS’

MOTION FOR SUMMARY

JUDGMENT; [Doc. No. 122]

(2) DENYING PLAINTIFFS’

MOTION FOR SUMMARY

JUDGMENT; [Doc. No. 139] 

(3) GRANTING IN PART AND

DENYING IN PART

DEFENDANTS’ FIRST MOTION

TO STRIKE; [Doc. No. 143]

(4) GRANTING IN PART AND

DENYING IN PART

DEFENDANTS’ SECOND

MOTION TO STRIKE [Doc. No.

150].

vs.

HARTFORD LIFE AND ANNUITY

INSURANCE COMPANY, PAUL

BANNOCK, and DOES 1 through 100,

inclusive,

Defendants.

Presently before the Court are: (1) a motion for summary judgment on all of plaintiffs’

claims, filed by defendants Paul Bannock (“Bannock”) and Hartford Life and Annuity Insurance 

Company (“Hartford”) (collectively “defendants”); (2) a motion for summary judgment on

plaintiffs’ claim for rescission, filed by plaintiffs; (3) a motion to strike the evidence in support of

plaintiffs’ motion for summary judgment, filed by defendants; and (4) a motion to strike the

evidence in support of plaintiffs’ opposition to defendants’ motion for summary judgment, filed by

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 1 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

1

Plaintiffs have admitted that prior to communicating with Hartford or Bannock, plaintiffs decided to create a

412(i) plan to minimize Omni’s income tax liability and communicated with other persons or entities regarding the creation

of 412(i) plan. “412(i)” refers to a former provision of the Internal Revenue Code which allows insurance contract

employee benefit plans meeting certain requirements to qualify for favorable tax treatment. After the 2006 amendments

to this section, a similar provision is found in Section 412(e)(3). 

- 2 - 06cv0921

defendants. For the following reasons, the Court (1) grants defendants’ motion for summary

judgment; (2) denies plaintiffs’ motion for summary judgment; (3) grants in part and denies in part

defendants’ first motion to strike; and (4) grants in part and denies in part defendants’ second

motion to strike. 

BACKGROUND

A. Factual Background

The following facts are undisputed. Omni Home Financing, Inc. (“Omni”) is a California

corporation and employer sponsor of the Omni Home Financing, Inc. 412(i) Defined Benefit Plan

(“the Plan”). Omni is a residential mortgage brokerage firm. Plaintiffs Anthony Gaglione, Keith

Murphy, and David Bancroft are principal employees of Omni and individual participants in the

Plan. 

Omni’s accountant, Richard Goldberg, advised Omni to look into creating a retirement

plan after Omni’s financial success in 2003. The Omni principals attended a half-hour meeting

with two representatives from a company called Financial Coach in early 2004 and discussed

retirement plans. The Omni principals then contacted Anthony Gaglione’s brother, Andrew

Gaglione, to discuss further their retirement plan options. Andrew Gaglione is a financial advisor

employed by Citigroup who worked with the Omni principals in their personal investments. 

Andrew Gaglione referred Omni to Paul Bannock, to further discuss implementing a retirement

plan for Omni.1

 

Bannock is a Hartford “account executive” who markets Hartford insurance products,

including insurance products for 412(i) plans. Bannock had previously assisted other financial

advisors with the sale of insurance to 412(i) plans. At Bannock’s first meeting with the Omni

principals, he asked them questions about the company. He put this information into a “Plan

Design Guide,” which he gave to Benefit Systems, Inc. (“BSI”), a plan administrator. BSI used

the information to create a proposal for Omni’s 412(i) plan using Hartford insurance products. 

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 2 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 3 - 06cv0921

Bannock and Andrew Gaglione presented the proposal at two meetings with the Omni principals. 

The proposal included statements that Omni’s contributions to the Plan would be tax deductible. 

At these meetings, Bannock gave Anthony Gaglione documents to sign as the trustee of

the Plan. These documents included statements that Bannock and Hartford were not providing tax

and legal advice and that Omni should seek such advice from its tax and legal advisors. The

documents also included information about the treatment of 412(i) plans by the Internal Revenue

Service (“IRS”). 

The Omni principals then decided how much to contribute to the Plan, and BSI created

the final plan documents. Omni adopted the Plan in December of 2003, to be effective January 1,

2003. Hartford issued insurance policies to the Plan. Bannock and Andrew Gaglione both

received commissions from Hartford for the sale of insurance products to the Plan.

Omni took deductions on its 2003 and 2004 income tax returns in the amount of

$420,000 contributed to the Plan in 2004 and 2005. The IRS audited the Plan’s return and

determined the Plan did not comply with several of the requirements for qualified plans. The IRS

therefore disallowed Omni’s deductions for amounts contributed to the Plan.

B. Procedural Background

On April 21, 2006, plaintiffs filed their complaint, stating multiple causes of action under

the Employee Retirement Income Security Act (“ERISA”) and state law. (Doc. No. 1.) The

complaint named Bannock, Hartford, and BSI as defendants. On July 6, 2006, plaintiffs filed a

First Amended Complaint (“FAC”), adding Citigroup Global Markets, Inc. (“Citigroup”) and

Andrew Gaglione as defendants. (Doc. No. 13.) On September 25, 2006, the Court granted in part

and denied in part defendants’ motion to dismiss the complaint, and granted leave to amend certain

claims. (Doc. No. 46.) Plaintiffs did not file a second amended complaint. On November 7,

2006, and November 8, 2006, the Court granted in part and denied in part motions to compel

arbitration on behalf of BSI and Citigroup. (Doc. Nos. 54 & 55.)

Plaintiffs’ surviving FAC states four causes of action: (1) rescission and unwinding of all

transactions and restoration of all amounts paid by plaintiffs to defendants, in violation of ERISA;

(2) breach of fiduciary duty, fraud, and misrepresentation, in violation of ERISA; (3) pre-Plan

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 3 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 4 - 06cv0921

negligent misrepresentation; and (4) pre-Plan fraud, deceit, concealment, misrepresentation, and

fraudulent acts by agents, in violation of the California Civil Code.

On June 16, 2007, the Court granted the parties’ joint motion to dismiss defendant

Andrew Gaglione. (Doc. No. 71.) On November 5, 2007, the Court approved plaintiffs’

settlements with BSI and Citigroup. (Doc. No. 110.) On November 14, 2007, the Court granted

the parties’ joint motion for dismissal of these two defendants. (Doc. No. 115.) Bannock and

Hartford are the only remaining defendants. 

On December 27, 2007, Magistrate Judge Jan M. Adler denied plaintiffs’ motion to

amend or withdraw certain admissions. (Doc. No. 123.) Plaintiffs’ late responses to Defendants’

requests for admissions were stricken and the matters deemed admitted. (Id.)

Pending Motions

On December 13, 2007, defendants filed a motion for summary judgment. (Doc. No.

122.) On January 17, 2008, the Court granted the parties’ joint motion to postpone the hearing

date on defendants’ motion for summary judgment until April 14, 2008. (Doc. No. 130.) On

March 12, 2008, plaintiffs filed a cross-motion for summary judgment. (Doc. No. 139.) On

March 24, 2008, plaintiffs opposed defendants’ motion for summary judgment. (Doc. No. 142.) 

On March 31, 2008, defendants filed a motion to strike plaintiffs’ summary judgment evidence

(the “first motion to strike”). (Doc. No. 143.) Defendants filed an opposition to plaintiffs’ motion

for summary judgment on March 31, 2008 (Doc. No. 145), and on April 7, 2008, plaintiffs filed a

reply. (Doc. No. 149.) Defendants also filed a reply in support of their motion for summary

judgment on April 7, 2008 (Doc. No. 148), and a motion to strike the evidence in support of

plaintiffs’ opposition to defendants’ motion for summary judgment (the “second motion to strike”)

(Doc. No. 150). Plaintiffs opposed defendants’ motion to strike on April 7, 2008. (Doc. No. 151.) 

On April 11, 2008, defendants filed replies in support of each motion to strike. (Doc. Nos. 152 &

153.) The Court heard oral argument on the cross-motions for summary judgment at 10:30 a.m. on

April 14, 2008. Marc Schechter and Susan Meter appeared on behalf of the plaintiffs. David

Jones and Jessica Spangler Taylor appeared on behalf of the defendants. 

//

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 4 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 5 - 06cv0921

DISCUSSION

Legal Standard

Summary judgment is proper where the pleadings and materials demonstrate “there is no

genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of

law.” Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). A material issue

of fact is a question the trier of fact must answer to determine the rights of the parties under the

applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute

is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving

party.” Id. at 248. Summary judgment may be granted in favor of a defendant on an ultimate issue

of fact where the defendant carries its burden of “pointing out to the district court that there is an

absence of evidence to support the nonmoving party’s case.” Celotex, 477 U.S. at 325; see Nissan

Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1106 (9th Cir. 2000).

The moving party bears “the initial responsibility of informing the district court of the

basis for its motion.” Celotex, 477 U.S. at 323. To satisfy this burden, the moving party must

demonstrate that no genuine issue of material fact exists for trial. Id. at 322. However, the

moving party is not required to negate those portions of the non-moving party’s claim on which

the non-moving party bears the burden of proof. Id. at 323. To withstand a motion for summary

judgment, the non-movant must then show that there are genuine factual issues which can only be

resolved by the trier of fact. Reese v. Jefferson School Dist. No. 14J, 208 F.3d 736, 738 (9th Cir.

2000) (citing Fed. R. Civ. P. 56; Celotex, 477 U.S. at 323). The nonmoving party may not rely on

the pleadings but must present specific facts creating a genuine issue of material fact. Nissan

Fire, 210 F.3d at 1103. The inferences to be drawn from the facts must be viewed in a light most

favorable to the party opposing the motion, but conclusory allegations as to ultimate facts are not

adequate to defeat summary judgment. Gibson v. County of Washoe, Nev., 290 F.3d 1175, 1180

(9th Cir. 2002). The Court is not required “to scour the record in search of a genuine issue of

triable fact,” Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996), but rather “may limit its review

to the documents submitted for purposes of summary judgment and those parts of the record

specifically referenced therein.” Carmen v. San Francisco Unified Sch. Dist., 237 F.3d 1026, 1030

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 5 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 6 - 06cv0921

(9th Cir. 2001).

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 6 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

2

See In re Daisy Sys. Corp., 97 F.3d 1171, 1180 (9th Cir. 1996) (negligent misrepresentation under California

law includes element of justifiable reliance by the plaintiff who does not know that the representation is false); In re Jogert,

Inc., 950 F.2d 1498, 1504 (9th Cir. 1991) (fraud); City Solutions, Inc. v. Clear Channel Commc’ns, 265 F.3d 835, 840-41

(9th Cir. 1991) (deceit).

3

 These disclosures were:

• The design, adoption and implementation of a 412(i) or other qualified retirement plan can be

complicated and depends upon the particular facts and circumstances applicable to You. So, in

designing and implementing the Plan, You should consult with Your legal and tax advisors.

(Defendants’ Memo. ISO Motion, Ex. 13 at 1.)

• We are bound by only those promises in the Contracts and no others. We do not endorse the Plan, its

design, its adoption or implementation. Decisions on the advisability of the Plan, its adoption,

implementation and design are decisions that are made by You, the Plan sponsor and Plan actuaries

in consultation with Your legal and tax advisors. (Id.)

• Neither We [Hartford] (nor anyone on Our behalf) have made representations to You regarding the

federal and state tax consequences (to You or others) of participation in or termination from the Plan,

transactions involving the Contracts, or any other ERISA or other legal issues, including but not

limited to: deductibility of contributions to the Plan; non-discrimination requirements (including

eligibility, participation, amounts of coverage, and rules governing control groups and affiliated

service groups); plan permanency requirements . . . and any funding limitations and requirements.

(Id.)

4

 These disclosures stated:

• NOTE: New Guidance - On February 13, 2004 the U.S. Treasury Department and Internal Revenue

Service issued proposed regulations and interim guidance on the valuation of life insurance distributed

or purchased from qualified retirement plan (such as 412(i) or other qualified retirement plans).

- 7 - 06cv0921

I. Defendants’ Motion for Summary Judgment on Plaintiffs’ State Law Claims

Defendants argue the Court should grant summary judgment in their favor on plaintiffs’

state-law claims for fraud, negligent misrepresentation, concealment and deceit. To establish each

of these state law causes of action, plaintiffs must show they reasonably relied on defendants’

misrepresentations.2 Defendants argue plaintiffs cannot show reasonable reliance because plaintiff

Anthony Gaglione, as trustee of the Plan, signed multiple documents regarding his expectations

and the representations made to him. One document, entitled “Disclosure and Acknowledgment

Statement Stag Whole Life in 412(i) or Other Qualified Retirement Plans” included

acknowledgments that defendants had not provided tax or legal advice or representations regarding

the Plan and that plaintiffs should consult their legal and tax advisors for such advice.3 The

disclaimers also informed plaintiffs of Revenue Rulings 2004-20 and 2004-21 (discussing the

IRS’s rules for 412(i) plans) and the fact that the Plan was a listed transaction.4

 Finally, the form

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 7 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Additional accompanying guidance in Revenue Rulings 2004-20 and 2004-21 discusses deduction and

non-discrimination issues with respect to such Plans. (Defendants’ Memo. ISO Motion, Ex. 13 at 1.)

• Pursuant to Revenue Ruling 2004-20, 412(i) (and possibly other qualified retirement plans) with life

insurance policies providing certain amounts of excess death benefits are identified as listed transactions

for which disclosure is required on any applicable tax return. (Id. at 2.)

5

During their depositions, Bannock testified Anthony Gaglione read the document before signing it (Defendants’

Memo. ISO Motion, Ex. 5 at 109) and Andrew Gaglione testified he “assume[d]” his brother read it (id. Ex. 3 at 76).

Anthony Gaglione testified in part:

I didn’t think I needed to read any of this. I assumed my brother and Paul Bannock were selling me

something that wasn’t going to, you know, wreck my business and my personal life. 

I – I just assumed this was all right, you know. I equate this to a borrower signing docs. A borrower

sits down at my company and signs a whole set of documents, they don’t read every page, you know.

I sell them a good interest rate and charge them a certain amount of money and that’s what happens, you

know, period. 

So you’re asking me why didn’t I read it? I don’t know. I’m pissed I didn’t read it. I wish I read all of

it. We wouldn’t have done it if I had read all of this. 

(Plaintiffs’ Opp., Ex. 4, at 80.)

- 8 - 06cv0921

stated “You have read this form, understand its provisions or have sought legal advice concerning

it.” (Defendants’ Memo. ISO Motion, Ex. 13 at 2.) The parties dispute whether Anthony Gaglione

read this document before signing it.5

 

Anthony Gaglione signed a similar form on May 25, 2004, which contained identical

disclosures. (Id. Ex. 19 at 1-2.) Other documents he signed also included the acknowledgment “I

understand that . . . . Neither Hartford Life and Annuity Insurance Company nor its employees, its

agents, or its representatives provide tax or legal advice.” (Id. Ex. 16 at 6, Ex. 17 at 6, & Ex. 18 at

6.) Andrew Gaglione stated at his deposition he believed his brother read these documents before

signing them. (Id. Ex. 3 at 101.) Anthony Gaglione testified he did not read them. (Plaintiffs’

Opp., Ex. 4, at 80.) 

Defendants argue plaintiffs cannot have reasonably relied on alleged representations

which contradicted these disclaimers. Plaintiffs claim Bannock made the alleged

misrepresentations by presenting BSI’s proposal to them and orally stating the contributions to the

Plan would be tax deductible. Plaintiffs also claim Bannock failed to inform plaintiffs of the

service, eligibility, and contribution requirements of the Plan and failed to inform plaintiffs of the

tax risks of the Plan. (Defendants’ Memo. ISO Motion at 20, citing FAC at ¶¶ 27, 38, & 117.) 

Defendants argue plaintiffs cannot have relied reasonably on these alleged misrepresentations and

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 8 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 6

At oral argument, plaintiffs contended Bannock had a duty to orally disclose the contents of the document. This

position was expressly rejected by the court in Cohen. 841 F.2d at 287 (“We know of no case holding that parties dealing

at arm’s length have a duty to explain to each other the terms of a written contract.”). 

- 9 - 06cv0921

omissions because merely by reading the documents they signed, plaintiffs would have known not

to rely on the alleged oral statements and would have learned of the IRS’s requirements for the

Plan. 

In opposition, plaintiffs argue the disclosure documents should not preclude finding

plaintiffs reasonably relied because Bannock never orally informed plaintiffs of the specific

contents of those documents.

Analysis

“Reasonable reliance” under California law ordinarily cannot be shown when written

documents contradict alleged oral misrepresentations. Cohen v. Wedbush, Noble, Cooke, Inc.,

841 F.2d 282 (9th Cir. 1988) (overruled on other grounds by Ticknor v. Choice Hotels Intern.,

Inc., 265 F.3d 931 (9th Cir. 2001)). In Cohen, the court upheld an arbitration clause despite

allegations the plaintiff was told the contract did not affect any of his rights. The court explained:

[R]eliance on a misrepresentation is not reasonable when the plaintiff could have,

through the exercise of reasonable diligence, ascertained the truth of the matter. 

Requiring reasonable investigation by the party claiming fraud is particularly appropriate

in cases where, as here, the explicit language of the contract directly contradicts the

alleged misrepresentation. We see no unfairness in expecting parties to read contracts

before they sign them. As the First Circuit stated in Turner, “if a jury is allowed to

ignore contract provisions directly at odds with oral representations allegedly made

during negotiations, the language of a contract simply would not matter anymore . . . .

Contracts would become no more than presumptive statements of the parties’ intentions,

instead of legally enforceable agreements.”

Cohen, 841 F.2d at 287-88 (internal citations omitted). The court found the Cohen plaintiffs,

whether or not they had read the agreement, could not have reasonably relied on an alleged

misrepresentation contradicted by the “clear and explicit language of the contract.” Id. at 288.6

 In

Fisher v. Pennsylvania Life Co., 69 Cal. App. 3d 506 (Cal. Ct. App. 1977), the court found

plaintiff was bound by the representations in a contract that he:

had entered into the 1971 agreement in reliance only on the representations set forth in

that agreement. Such an agreement amounts to a statement, now binding on plaintiff, that

any other representations made to him were not material inducements to his execution of

the 1971 agreement. Since he thus, in 1971, agreed that he had not relied on the

representations on which he now seeks recovery, he cannot now claim otherwise.

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 9 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

7

Wilke v. Coinway, Inc., 257 Cal. App. 2d 126 (Cal. Ct. App. 1967), cited by plaintiffs, is also distinguishable

because defendants in that case affirmatively misrepresented the significance of the document and the plaintiff in that case

had no business experience of any kind. Cf. Hinesley, 135 Cal. App. 4th at 303 (discussing business sophistication of

plaintiff). 

- 10 - 06cv0921

Id. at 511.

Plaintiffs argue these cases do not apply because California courts have, in other cases,

found express contractual language did not prevent a showing of reasonable reliance on

contradictory oral statements. As plaintiffs note, another California Court of Appeal declined to

follow Fisher in 1995, finding a general integration clause does not make reliance on oral

statements automatically unreasonable. Ron Greenspan Volkswagen, Inc. v. Ford Motor Land

Dev. Corp., 32 Cal. App. 4th 985 (Cal. Ct. App. 1995). But other recent cases distinguishing Ron

Greenspan have held specific written language directly contradicting alleged oral statements does

preclude a showing of reasonable reliance. Applied Elastomerics, Inc. v. Z-Man Fishing Prods.,

No. 06-2469, 2006 WL 3251732 at *6 (N.D. Cal. Nov. 8, 2006) (distinguishing Ron Greenspan

because the written disclaimer specifically related to the content of alleged oral

misrepresentations); Hinesley v. Oakshade Town Ctr., 135 Cal. App. 4th 289, 300-01 (Cal. Ct.

App. 2005) (explaining Ron Greenspan “does not mean the contract provision is in every case

irrelevant,” and holding parties are bound by provisions in which “express language should have

conveyed the implication” oral representations were not to be relied upon).

The decisions in Cohen and Applied Elastomerics are more persuasive than Ron

Greenspan in this case. The written disclaimers signed by Anthony Gaglione clearly explained

plaintiffs should not rely on defendants for legal and tax advice, and they should consult their own

legal and tax advisors. The contents of the disclaimers were specific and by reading them,

plaintiffs would have understood defendants were not providing tax advice. No facts indicate

Bannock or Hartford affirmatively misrepresented the significance of the disclosure documents. 

Cf. Cohen, 841 F.2d at 287-88 (finding no reasonable reliance on oral representations despite oral

misrepresentation regarding significance of contract).7

 The two “disclosure” documents were only

two pages each, and the Omni principals are reasonably sophisticated businesspeople. Plaintiffs

cannot show reasonable reliance on these facts, and defendants are thus entitled to summary

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 10 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

8

While Andrew Gaglione is no longer a defendant, his fiduciary status remains relevant because ERISA provides

for rescission of a prohibited transaction by a fiduciary. Thus if Andrew Gaglione is a fiduciary and his receipt of a

commission on the Plan’s purchase of the insurance products was prohibited by ERISA, the Plan may be entitled to rescind

those transactions. 

- 11 - 06cv0921

judgment on plaintiffs’ state law claims. Accordingly, the Court does not reach the other grounds

advanced by defendants in support of summary judgment on those claims. 

II. Cross-Motions for Summary Judgment on Plaintiffs’ ERISA Claims

Plaintiffs move for summary judgment on their cause of action for rescission of the

purchase of the Plan’s insurance products under 29 U.S.C. §§ 1132(a)(2) & (a)(3). Plaintiffs argue

the undisputed facts show defendants were fiduciaries of the Plan and engaged in a prohibited

transaction with the Plan, thereby entitling the Plan to rescind those transactions. Defendants

move for summary judgment on this cause of action and plaintiffs’ claim for breach of fiduciary

duty pursuant to ERISA, arguing the facts show they were not fiduciaries of the Plan.

Legal Standard

The parties agree plaintiffs, in order to prevail on either ERISA claim, must show

defendants were fiduciaries under the test set forth in Thomas, Head & Griesen Employees Trust

v. Buster, 24 F.3d 1114, 1117 (9th Cir. 1994). The five elements of the Buster test must all be

present to conclude defendants were fiduciaries. Id. Defendants must have (1) “provided

individualized investment advice”; (2) “pursuant to a mutual understanding”; and (3) “on a regular

basis.” Id. The advice must have (4) “pertained to the value of the property or consisted of

recommendations as to the advisability of investing in certain property”; and (5) been provided for

a fee. Id. 

Analysis

Each side argues the undisputed facts support summary judgment in its favor as to the

fiduciary status of Bannock, Hartford, and Andrew Gaglione.8

 

1. Bannock and Hartford

The undisputed evidence shows Bannock does not meet the third prong of the Buster test. 

Even if Bannock’s advice to plaintiffs is properly considered “investment advice,” it was not given

on a “regular basis.” Bannock allegedly advised plaintiffs to fund the 412(i) Plan with Hartford

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 11 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28 9

At oral argument, counsel also mentioned the Omni principals’ decision to make smaller contributions to the Plan

for fiscal year 2004 and noted this “would have involved” Bannock. The record contains no facts suggesting anyone at

Omni discussed this decision with Bannock, and thus the Court disregards this argument. 

- 12 - 06cv0921

insurance products and take corresponding tax deductions. “Investment advice,” as defined in the

regulations of the Department of Labor, is “advice to the plan as to the value of securities or other

property” or a “recommendation as to the advisability of investing in, purchasing or selling

securities or other property.” Buster, 24 F.3d at 1117 (citing 29 C.F.R. § 2510.3-21(c)(1)). 

While it is a close question whether Bannock provided investment advice, it is clear

Bannock’s advice was only provided at the outset of the Plan. Plaintiffs argue Bannock meets the

“regular basis” prong because he admits he had an obligation to “service” the account into the

future. Specifically, Bannock testified at his deposition he had “a continuing obligation . . . to

assist Andrew Gaglione to the extent that he needs a direction to our policy owner service

department, and that is true of all policies that we assist financial advisors with.” (Plaintiffs’

Memo. ISO Motion, Ex. 1, at 47.) This service does not fit the definition of “investment advice.” 

Plaintiffs argue Bannock continued to provide investment advice when he responded to

an inquiry from Omni in response to an audit. On March 8, 2005, Plaintiff Keith Murphy

forwarded Bannock an e-mail from his accountant’s office inquiring about the Plan. (Plaintiffs’

Opp., Ex. 10.) The e-mail asked (1) what “type of plan” Omni had; (2) “who are covered”; and (3)

“employee contributory?” (Id.) Bannock responded:

Omnihome has a Defined Benefit Pension Plan. The Plan has three participants

so far, they are the principals of the business. As other employees become

eligible, Omnihome will enroll them in the plan. The pension plan is fully funded

by the corporation. The investment advisor and plan originator is Andrew

Gaglione of Smith Barney. The Pension Administrator is Benefit Systems of

Austin Tx. the contact at Benefit Systems is Andre Fleener at [number]. I act as

an advisor to Smith Barney on Retirement Planning Solutions. All tax reporting

questions about the plan should be directed to Andre and all investment questions

about the plan should be directed to Andrew. 

(Id.) This e-mail merely reported Bannock’s understanding of the Plan and did not contain any

“investment advice.”9

 

 Thus, Plaintiffs have not met this essential element of the Buster test as to Bannock. See

Buster, 24 F.3d at 1119 (“A finding that the investment advisor rendered advice on a ‘regular

basis’ is essential to a determination that a fiduciary relationship existed.”) (internal citations

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 12 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 13 - 06cv0921

omitted); Damasco & Assocs. 401(K) Profit Sharing Plan v. Mfrs. Life Ins. Co., No. C 99-2135

CRB, 1999 WL 672322 at *6 (Aug. 20, 1999) (finding one alleged instance of investment advice

is insufficient to meet Buster test); see also Am. Fed. of Unions Local 105 Health Assurance &

Welfare Fund v. Equitable Life Assurance Soc’y of the U.S., 841 F.2d 658, 664 (5th Cir. 1988)

(holding the “regular basis” requirement is not met by urging purchase of insurance products and

not providing additional investment advice after purchase).

The only basis advanced for finding Hartford a fiduciary is based on Bannock’s actions,

and thus Hartford is also not a Plan fiduciary.

2. Andrew Gaglione

The undisputed facts also show Andrew Gaglione was not a fiduciary to the Plan. Under

the Buster test, Andrew Gaglione’s advice to invest in Hartford’s insurance policies must have

served as a “primary basis” for plaintiffs’ investment decision. Buster, 24 F.3d at 1117-19, 1123-

24; id. at 1117 (citing 29 C.F.R. § 2510.3-21(c)(1)). Plaintiffs make it clear it was Bannock’s

interpretation of the deductibility of the contributions to the Plan, not Andrew Gaglione’s, that

served as the primary basis for their investment decision. (Plaintiffs’ Opp. at 6, 19-22, citing id.

Ex. 2 at 61 & 86; see also id. Ex. 3 at 135 (providing plaintiff Murphy’s testimony that Bannock

was the “major consultant for implementing the plan” and the source for “the majority of the

information”)). Andrew Gaglione had never implemented a 412(i) Plan before and for that reason

plaintiffs claim they relied solely on Bannock. (Plaintiffs’ Memo. ISO Motion, Ex. 2 at 51;

Plaintiffs’ Opp. at 6, 19-22.) Plaintiffs only claim Andrew Gaglione connected them to Bannock. 

(Plaintiffs’ Memo. ISO Motion at 16.) No evidence indicates Andrew Gaglione evaluated the

value of the insurance products or their suitability for Omni. 

Even if Andrew Gaglione’s role was to give investment advice with Bannock, his actions

also do not meet the “regular basis” prong of the Buster test. Plaintiffs rely on Andrew Gaglione’s

investment advice to the Omni principals prior to the formation of the Plan. But his fiduciary

status with regard to the Omni principals does not translate into fiduciary status with regard to the

Plan, nor does his investment advice in other contexts make one-time investment advice to the

Plan constitute a “regular basis.” See Pegram v. Hedrich, 530 U.S. 211, 225 (2000) (explaining an

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 13 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

10In Coleman, the Fourth Circuit overruled a district court which:

seemed to regard fiduciary status as an all-or-nothing concept. . . . [T]he inclusion of the phrase ‘to the

extent’ in § 1002(21)(A) means that a party is a fiduciary only as to the activities which bring the person

within the definition. . . . In other words, a court must ask whether a person is a fiduciary with respect

to the particular activity at issue.

 969 F.2d at 61.

- 14 - 06cv0921

ERISA trustee “may wear different hats” and is not necessarily acting as a fiduciary at all times);

Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 61 (4th Cir. 1992) (holding fiduciary status is

only as to a particular activity, not as to all activities).10

Accordingly, the Court finds Andrew Gaglione was not a fiduciary to the Omni Plan. As

a result, plaintiffs have not claimed any fiduciary breached a duty or participated in a prohibited

transaction, and defendants are entitled to summary judgment on plaintiffs’ ERISA claims. 

III. Defendants’ Motions to Strike

Legal Standard

Pursuant to Rule 12(f) of the Federal Rules of Civil Procedure, “the court may order

stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or

scandalous matter.” A motion to strike “should not be granted unless the matter to be stricken

clearly could have no possible bearing of the subject of the litigation. If there is any doubt

whether the portion to be stricken might bear on an issue in the litigation, the court should deny

the motion.” Platte Anchor Bolt, Inc. v. IHI, Inc., 352 F. Supp. 2d 1048, 1057 (N.D. Cal. 2004)

(internal citations omitted). The court views the pleading in the light most favorable to the

nonmoving party. In re 2TheMart.com, Inc. Sec. Litig., 114 F. Supp. 2d 955, 965 (C.D. Cal.

2000). 

Analysis

Defendants make several challenges to the admissibility of evidence in support of

plaintiffs’ motion for summary judgment and plaintiffs’ opposition to defendants’ motion for

summary judgment. Both the first and second motions to strike object to the same two exhibits

and to the same types of statements made by plaintiffs in their briefs. 

//

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 14 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 15 - 06cv0921

First, defendants move to strike the declaration of Brian Uecker as the Person Most

Knowledgeable at BSI. (Plaintiffs’ Memo. ISO Motion, Ex. 15.) Defendants argue the declaration

was not disclosed during discovery and is not based on personal knowledge. The Court finds the

issues moot because the Uecker declaration is not relied upon to establish any fact relevant to the

motion for summary judgment. 

Defendants also move to strike a document purportedly published by Hartford’s

marketing department. (Plaintiffs’ Memo. ISO Motion, Ex. 19.) Defendants argue the document

is unauthenticated and irrelevant. The Court finds the Hartford marketing document regarding

412(i) plans was properly authenticated by Bannock at his deposition, and denies the motion to

strike the document. 

Finally, defendants argue plaintiffs’ briefs made certain arguments and representations

which conflict with their deemed admissions. The deemed admissions which are relevant to this

motion are:

• Prior to communicating with Hartford or Bannock, plaintiffs had already decided

to create a 412(i) Plan to minimize Omni’s income tax liability.

• Prior to communicating with Hartford or Bannock, plaintiffs had communicated

with other persons or entities regarding the creation of a 412(i) Plan to minimize

Omni’s income tax liability.

• Richard Goldberg provided Omni with tax advice in connection with the Omni

Plan.

Many of the challenged statements, however, do not cover the same substance as the

deemed admissions. The Court grants the motion to strike only as to the statements which do

conflict with the deemed admissions:

• “At this point Omni had not decided whether or not to create a defined benefit

plan or a defined contribution plan.” (Plaintiffs’ Memo. ISO Motion at 2.).

• “At the time they met with A. Gaglione and Bannock, they had not done anything

to begin the process of setting up a plan, nor had they even decided what type of

plan they would establish.” (Plaintiffs’ Opp. to Defendants’ Motion at 2.)

• “At this point Omni had not decided whether or not to create a defined benefit

plan or a defined contribution plan.” (Id. at 3.) 

The remaining statements, however, do not conflict and the Court denies defendants’ motions to

strike those portions of the briefs. 

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 15 of 16
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

- 16 - 06cv0921

CONCLUSION

For the foregoing reasons, the Court (1) GRANTS defendants’ motion for summary

judgment; (2) DENIES plaintiffs’ motion for summary judgment; (3) GRANTS IN PART and

DENIES IN PART defendants’ motion to strike plaintiffs’ summary judgment evidence, as set out

in this Order; and (4) GRANTS IN PART and DENIES IN PART defendants’ motion to strike

evidence in support of plaintiffs’ opposition to defendants’ motion for summary judgment, as set

out in this Order. 

The Clerk of the Court SHALL ENTER judgment in favor of defendants and against

plaintiffs and SHALL CLOSE the case. 

IT IS SO ORDERED.

DATED: April 29, 2008

IRMA E. GONZALEZ, Chief Judge

United States District Court

Case 3:06-cv-00921-IEG-JMA Document 160 Filed 04/30/08 Page 16 of 16