Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_07-cv-01988/USCOURTS-caed-2_07-cv-01988-0/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

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 Cassell and Fuchs point out that this is a misnomer. Their

former employer was, in actuality, Central Pacific Mortgage

Company.

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

MARK GELOW, et al.,

NO. CIV. S-07-1988 LKK/KJM

Plaintiffs,

v. O R D E R

CENTRAL PACIFIC MORTGAGE

CORPORATION, et al.,

Defendants.

 /

Plaintiff Mark Gelow and ten other individuals (collectively

“Plaintiffs”) bring the present action against their former

employer, Central Pacific Mortgage Corporation1 (“CPM”); its

subsidiary, Ivanhoe Financial, Inc. (“Ivanhoe”); and several

executive officers of the two companies, including John Courson

(“Courson”), John Cassell (“Cassell”), and Ed Fuchs (“Fuchs”)

(collectively “Defendants”). Plaintiffs seek recovery on numerous

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 All allegations originate from Plaintiffs’ complaint.

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grounds, including violation of the Racketeering Influenced and

Corrupt Organizations Act and numerous state law claims. Pending

before the Court is defendants Cassell’s and Fuchs’s motion to

dismiss these claims. For the reasons stated below, the Court now

denies the motion.

I. Allegations and Background2

Defendants CPM and Ivanhoe existed as mortgage loan

companies until their demise in early 2007. During the times

relevant to the complaint, either CPM or Ivanhoe employed

Plaintiffs individually as branch managers. As part of their

employment of Plaintiffs, CPM and Ivanhoe provided employee

benefits and pension plans.

Each branch had an account containing all of the net

profits for that branch. Plaintiffs made monthly salary

withdrawals from these accounts. Plaintiffs also made

withdrawals from the accounts for various other expenses,

including vacation, illness, disability, and retirement.

For a period of over seven years, Defendants Courson,

Cassell, and Fuchs represented to Plaintiffs the availability of

the money in the accounts for the aforementioned purposes. 

Courson, Cassell, and Fuchs also repeatedly stated that the

accounts were not accessible to anyone other than the respective

branch manager associated with each individual account. 

Defendants made written monthly representations as to the

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balances and accessibility of the accounts and sent these

representations to Plaintiffs via the U.S. Postal Service and

the Internet.

On or about February 26, 2007, CPM and Ivanhoe informed

Plaintiffs of the companies’ closures. Defendants also informed

Plaintiffs at this time that the funds in each of the accounts

were no longer available. Consequently, Plaintiffs filed this

action alleging violation of ERISA, violation of RICO, fraud,

conversion, breach of fiduciary duty, and breach of contract.

II. Standard for Motion to Dismiss Under 

Federal Rule of Civil Procedure 12(b)(6) 

In order to survive a motion to dismiss for failure to

state a claim, Plaintiffs must allege "enough facts to state a

claim to relief that is plausible on its face." Bell Atlantic

Corp. v. Twombly, __ U.S. __, 127 S. Ct. 1955, 1974 (2007). 

While a complaint need not plead "detailed factual allegations,"

the factual allegations it does include "must be enough to raise

a right to relief above the speculative level." Id. at 1964-65.

As the Supreme Court observed, Federal Rule of Civil

Procedure 8(a)(2) requires a "showing" that the plaintiff is

entitled to relief, “rather than a blanket assertion” of

entitlement to relief. Id. at 1965 n.3. Though such assertions

may provide a defendant with the requisite "fair notice" of the

nature of a plaintiff's claim, only factual allegations can

clarify the "grounds" on which that claim rests. Id. "The

pleading must contain something more . . . than . . . a

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 The holding in Twombly explicitly abrogates the well

established holding in Conley v. Gibson that "a complaint should

not be dismissed for failure to state a claim unless it appears

beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief." 355 U.S.

41, 45-46 (1957); Twombly, 127 S. Ct. at 1968.

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statement of facts that merely creates a suspicion [of] a

legally cognizable right of action." Id. at 1965 (quoting 5 C.

Wright & A. Miller, Federal Practice and Procedure, § 1216, pp.

235-36 (3d ed. 2004)).3

On a motion to dismiss, the Court accepts the allegations

within the complaint as true. See Cooper v. Pate, 378 U.S. 546,

546 (1964). The non-moving party receives the benefit of every

reasonable inference drawn from the “well-pleaded” allegations

of its complaint. See Retail Clerks Int’l Ass’n, Local 1625 v.

Schermerhorn, 373 U.S. 746, 753 n.6 (1963). In general, the

complaint is construed favorably to the pleader. See Scheuer v.

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

Harlow v. Fitzgerald, 457 U.S. 800 (1982). That said, the court

does not accept as true unreasonable inferences or conclusory

legal allegations cast in the form of factual allegations. W.

Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir. 1981).

III. Analysis

Defendants Cassel and Fuchs have moved to dismiss the

plaintiffs’ second cause of action, for RICO violations, and

plaintiffs’ third, fourth, fifth, and sixth causes of action, on

the basis of ERISA preemption. For the reasons provided herein,

the court denies the motion.

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 Plaintiffs do not specifically allege what sections of 1962

Defendants violated. However, § 1962(b) pertains to the

“collection of unlawful debt” and appears inapplicable to facts

alleged in the complaint. 18 U.S.C. § 1962(b).

5

 While Defendants do not concede the existence of either

“conduct” or “an enterprise,” they do not dispute Plaintiffs’

establishment of either requirement in their motion.

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A. RICO Claims

18 U.S.C. § 1962 provides the basis for civil liability

under RICO. Turner v. Cook, 362 F.3d 1219, 1228 (9th Cir 2004). 

Section 1962(a) imposes liability for the use or investment in

foreign or interstate commerce of income derived from a pattern

of racketeering activity. 18 U.S.C. § 1962(a). Section 1962(c)

imposes liability on anyone involved in an “enterprise”

affecting foreign or interstate commerce which conducts its

business through a pattern of racketeering activity.4 18 U.S.C.

§ 1962(c). The Supreme Court noted in Sedima v. Imrex Co., 473

U.S. 479 (1985), that a § 1962(c) claim requires four elements:

“(1) conduct (2) of an enterprise (3) through a pattern (4) of

racketeering activity.”5 Sedima, 473 U.S. at 496.

In order to state a claim under either § 1962(a) or (c), a

plaintiff must plead facts sufficient to establish a “pattern of

racketeering activity.” 18 U.S.C. § 1962(a), (c); see also

Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d

1393, 1398 (9th Cir. 1986). RICO’s requirement of a pattern

requires the occurrence of certain “predicate acts” that

cumulatively amount to a continuing threat of racketeering

activity. H.J. Inc. v. Nw. Bell. Tel. Co., 492 U.S. 229, 240

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(1989). Predicate acts involve chargeable or indictable conduct

punishable under a number of criminal statutes. Sedima, 473

U.S. at 488 (citing 18 U.S.C. § 1961(1)).

Within RICO’s definition of a pattern, courts have further

defined the concept of continuity, referring to the concepts of

“closed-ended” and “open-ended” continuity. See H.J. Inc., 492

U.S. at 241; Howard v. Am. Online, 208 F.3d 741, 750 (9th Cir.

2000); Server v. Alaska Pulp Corp., 978 F.2d 1529, 1535-36 (9th

Cir. 1992). Closed-ended continuity refers to a period of past

conduct occurring over a considerable length of time, while

open-ended continuity refers to a period of conduct beginning in

the past and carrying with it a threat of being repeated in the

future. H.J. Inc., 492 U.S. at 241. With respect to closedended continuity, courts have demonstrated reluctance to

establish a “hard and fast, bright line” rule. Allwaste Inc. v.

Hecht, 65 F.3d 1523, 1528 (9th Cir. 1995). However, courts

recognize that such activities must equate to repeated criminal

conduct, H.J. Inc. 492 U.S. at 242, or occur over a significant

time period, id.; Allwaste, 65 F.3d at 1528.

The Ninth Circuit gives a generous reading to § 1962's

pattern requirement. Cal. Architectural Bldg. Prods., Inc. v.

Franciscan Ceramics, Inc., 818 F.2d 1466, 1469 n.1 (9th Cir.

1987). In cases of closed-ended continuity, the Ninth Circuit

has held that predicate acts carrying out a single scheme or

occurring over a short period of time meet § 1962's pattern

requirement. See Ticor Title Ins. Co. v. Florida, 937 F.2d 447,

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450-51 (9th Cir. 1991) (holding three forgeries over thirteenmonth period to secure lien release sufficient to constitute

pattern of racketeering activity even when subsequent lien

releases were obtained legitimately); Sun Sav. & Loan Ass’n v.

Dierdorff, 825 F.2d 187, 190-94 (9th Cir. 1987) (holding four

predicate acts of mail fraud occurring over six-month period

sufficient to constitute pattern of racketeering activity); Cal.

Architectural Bldg. Prods., Inc., 818 F.2d at 1469 (holding

multiple predicate acts of fraud targeting multiple victims over

five-month period sufficient to satisfy RICO’s pattern

requirement). Furthermore, the Ninth Circuit has found closedended continuity when a threat ceases to exist due to the

closure of a business. See Ikuno v. Yip, 912 F.2d 306, 309 (9th

Cir. 1990) (holding two filings of false annual reports

sufficient to constitute pattern even when company associated

with reports ceased doing business).

Defendants argue that Plaintiffs fail to plead sufficient

facts to establish a pattern of racketeering activity under

either § 1962(a) or (c). Plaintiffs’ complaint does not allege

that Defendants continue to pose any future threat with respect

to their alleged criminal activity. See H.J. Inc., 492 U.S. at

241. The Court therefore evaluates Plaintiffs’ RICO claims by

determining whether or not the allegations of the complaint

sufficiently establish closed-ended continuity needed for a

pattern of racketeering activity. See, e.g., H.J. Inc, 492 U.S.

at 240.

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Plaintiffs allege in their complaint that Defendants

repeatedly used the U.S. Postal Service, and telephone, fax, and

Internet communications to perpetuate a scheme depriving

plaintiffs of the funding of the individual branch manager

accounts. Such activities constitute predicate acts under §

1961. See § 1961 (listing embezzlement, mail fraud, and wire

fraud); see also Sun Sav. & Loan Ass’n v. Dierdorff, 825 F.2d

186, 191 (9th Cir. 1987). This conduct occurred for a period of

approximately seven years. Plaintiffs’ complaint alleges that

they relied on these representations and opted not to withdraw

the funding from their respective branch manager accounts before

CPM’s and Ivanhoe’s closure. While such activity, if criminal,

terminated upon the closure of CPM and Ivanhoe, this fact does

not automatically preclude the existence of continuity

sufficient for a pattern of racketeering activity. See Sun Sav.

& Loan Ass’n, 825 F.2d at 194 n.5. Because the threat of

continuing activity existed during the alleged seven-year period

in which these predicate acts occurred, Plaintiffs’ complaint

appears to allege facts sufficient to resist Defendants’ motion

to dismiss Plaintiffs’ RICO claims. See id.

Defendants counter that such circumstances do not equate to

a pattern of racketeering activity because they constituted a

“single scheme” aimed at delaying the demise of CPM and Ivanhoe,

which Defendants characterize as a “single act.” Defendants

primarily rely on McColm v. Restoration Group, Inc., 2007 U.S.

Dist. LEXIS 36478 (E.D. Cal. May 18, 2007), and Gamboa v. Velez,

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457 F.3d 703 (7th Cir. 2006), to support this proposition.

In McColm, the court dismissed plaintiff’s civil RICO claim

based on her failure to specify more than one predicate act

under § 1961. McColm, 2007 U.S. Dist. LEXIS 36478, at *16-*18. 

In dicta, the court discussed how the continuity element might

be met:

When . . . a complaint explicitly presents a

distinct and non-reoccurring scheme with a

built-in termination point and provides no

indication that the perpetrators have

engaged or will engage in similar

misconduct, the complaint does not

sufficiently allege continuity for § 1962(c)

purposes even if the purported scheme takes

several years to unfold, involves a variety

of criminal acts, and targets more than one

victim.

Id. at *23 (quoting Gamboa, 457 F.3d at 709).

Assuming arguendo, the McColm court correctly stated the

rule applied in this Circuit, Plaintiffs’ RICO claim is

factually distinguishable from McColm and Gamboa. In its

discussion, the McColm court assumed the existence of two

predicate acts directed at a single victim over the course of

nine months. Id. at *20-*21. Here, Plaintiffs’ complaint

covers a period of over seven years containing allegations of

multiple instances of mail and wire fraud targeting eleven

former branch managers.

The facts alleged in Plaintiffs’ complaint also differ from

those presented in Gamboa. There, the plaintiff, a bar owner,

alleged Chicago police officers conspired to frame him for the

killing of a patron. Gamboa, 457 F.3d at 704. After the true

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killers were found and convicted, the plaintiff alleged

violation of § 1962(c) on the basis that the police had

committed several predicate acts over the course of several

years in order to frame plaintiff and four alleged accomplices

for the murder of the patron. Id. at 704-05.

On an interlocutory appeal, the Seventh Circuit held that

such facts failed to state a claim under § 1962(c). Id. at 710-

11. Despite the fact that the alleged scheme involved multiple

actors and victims and occurred over a number of years, the

Gamboa court based its decision on the fact that the alleged

scheme, if true, had a definitive and “built in” ending point. 

Id. at 708. At this point, the alleged scheme achieved its

objective, and the threat of future criminal activity no longer

existed. Id.; see also Roger Whitmore’s Auto. Servs., Inc. v.

Lake County, Ill., 424 F.3d 659, 673-74 (7th Cir. 2005) (holding

closed-ended continuity did not exist when alleged pattern of

racketeering activity occurred with purpose of funding single

political campaign). 

Here, Plaintiffs present a scenario with no such built-in

termination point. According to the complaint, the Defendants’

alleged fraudulent scheme arose with the objective of keeping

both CPM and Ivanhoe viable for as long as possible. Unlike

Gamboa, such a scheme is not one where there is a necessary

termination point or final act where Defendants’ efforts were to

culminate. Gamboa, 457 F.3d at 709. Instead, CPM and Ivanhoe

simply went out of business, which does not preclude the

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existence of closed-ended continuity. See Ikuno, 912 F.2d at

309. Defendants cite nothing to suggest that the scheme alleged

by the plaintiffs contains the same sort of “built-in

termination point” detailed in Gamboa. Gamboa, 457 F.3d at 709.

The Court therefore finds that Plaintiffs’ complaint

alleges sufficient facts to resist Defendants’ motion to dismiss

Plaintiffs’ RICO claims. See Twombly, 127 S. Ct. at 1974.

Accordingly, the defendants’ motion to dismiss this cause of

action must be denied.

B. ERISA Preemption

Plaintiffs’ state law claims include breach of contract,

breach of fiduciary duty, fraud, and conversion. Defendants seek

dismissal premised on ERISA preemption. For the reasons stated

herein, the court denies the defendants’ motion as to these

claims.

First, Plaintiffs’ breach of contract claim is directed

only against CPM and Ivanhoe. Plaintiffs allege they entered

into written contracts with CPM and Ivanhoe regarding the

distribution and control of profits to the individual branch

accounts; however, they do not allege that Cassell and Fuchs

were parties to these agreements. Cassell and Fuchs therefore

have no standing to contest this claim as it addresses only the

conduct of defendants CPM and Ivanhoe. See McGowan v. Maryland,

366 U.S. 420, 429-30 (1961); see also Warth v. Seldin, 422 U.S.

490, 501 n.12 (1975). Accordingly, defendants Cassell’s and

Fuchs’s motion to dismiss with respect to Plaintiffs’ breach of

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contract claim on this basis must be denied.

Turning to the remaining state law claims for breach of

fiduciary duty, fraud, and conversion, 29 U.S.C. § 1144(a)

provides that ERISA preempts both state laws and claims based on

such laws insofar as such laws and claims relate to an employee

benefit plan falling under ERISA’s protection. Id. Plaintiffs

argue that they may plead both state law and ERISA claims in the

alternative. While correct, see Fed. R. Civ. P. 8(e)(2);

McCalden v. Cal. Library Ass’n, 955 F.2d 1214, 1219 (9th Cir.

1990); Molsbergen v. United States, 757 F.2d 1016, 1019 (9th

Cir. 1985), this is only true if one alternative claim is not

barred as a matter of law. See Sidebotham v. Robinson, 216 F.2d

816, 831 (9th Cir. 1955) (requiring violation of legal right for

entitlement to relief). Turning to the issue of preemption, the

first question is whether the plan at issue is one governed by

ERISA. If so, then Plaintiffs’ state law claims are preempted

under § 1144(a). 

ERISA defines “employee welfare benefit plan” as any

benefits plan established for one of many purposes, including

surgical, medical, hospital, accident and sickness benefits;

vacation pay; and death, unemployment, or long-term disability

benefits. 29 U.S.C. § 1002(1). ERISA further defines “employee

pension benefit plan” as any plan providing retirement benefits

or termination pay. 29 U.S.C. § 1002(2)(A)(i), (ii). To

qualify as an employee benefits plan, the accounts at issue must

demonstrate an ongoing administrative structure and allow

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6 In their reply, defendants Cassell and Fuchs argue that,

according to Plaintiffs’ complaint, ERISA is the “sole basis pled

by plaintiffs for this Court’s jurisdiction and venue.” Reply at

2:10-13. Therefore, if the Plaintiffs allege that the plans at

issue are not ERISA plans, then the court would have no

jurisdiction. However, Plaintiffs allege within the same section

cited by Cassell and Fuchs that jurisdiction and venue also rest

on 28 U.S.C. §§ 1331 (the Plaintiffs appear to mistakenly label

this section “1131") and 1391, respectively. Simply put, if the

funds in issue are not ERISA plan funds, then plaintiffs’ RICO

claims provide federal jurisdiction.

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reasonable persons to identify and distinguish the plan’s

beneficiaries, intended benefits, funding source, and the

procedures beneficiaries utilize to receive benefits. 

Winterrowd v. Am. Gen. Annuity Ins. Co., 321 F.3d 933, 938-39

(9th Cir. 2003).

ERISA’s preemptive provision is deliberately broad as a

means to bring exclusively within federal control the regulation

of pension and welfare plans. Pilot Life Ins. Co. v. Dedeaux,

481 U.S. 41, 45-46 (1987). Thus, ERISA preempts state law

claims if such claims are brought as an attempt to recover

benefits owed under a plan governed by ERISA. Crull v. Gem Ins.

Co., 58 F.3d 1386, 1390 (9th Cir. 1995); see, e.g., Briscoe v.

Fine, 444 F.3d 478, 500 (6th Cir. 2006) (preempting state law

conversion claim); Nevill v. Shell Oil Co., 835 F.2d 209, 212

(9th Cir. 1987) (preempting state law fraud claim); Scott v.

Gulf Oil Corp., 754 F.2d 1499, 1506 (9th Cir. 1983) (preempting

state law claim for breach of fiduciary duty). Relying on such

a basis, Defendants move to dismiss each of Plaintiffs’ state

law claims on the grounds of preemption.6

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 Thus, plaintiffs’ allegation that there is an ERISA plan is

a conclusion of law not binding on the court.

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While the question of ERISA preemption is one of law, see

Waks v. Empire Blue Cross/Blue Shield, 263 F.3d 872, 874 (9th

Cir. 2001), whether an ERISA plan exists is a question of fact,

decided from the view of the reasonable person while accounting

for all of the surrounding circumstances and facts, see Kanne v.

Conn. Gen. Life Ins. Co., 867 F.2d 489, 492 (9th Cir. 1988).7

The Court’s determination as to preemption must turn on its

ability to classify the branch manager accounts as ERISAgoverned plans given the factual allegations of Plaintiffs’

complaint. Courts reach varying results when considering this

issue on a motion to dismiss. Generally, if the plaintiff

pleads that the plan possesses elements that do not resemble an

ERISA-governed plan, then dismissal on preemption grounds is

inappropriate, even if the complaint also pleads elements to the

plan that are characteristic of ERISA plans. See Harper v. Am.

Chambers Life Ins. Co., 898 F.2d 1432, 1432-33 (9th Cir. 1990)

(reversing dismissal of state law claims due to ERISA preemption

on grounds of insufficient factual record to support existence

of ERISA-governed plan); Aiena v. Olsen, 69 F. Supp. 2d 521,

531-32 (S.D.N.Y. 1999) (rejecting preemption argument on motion

to dismiss due to court’s inability to determine, based on

pleadings, whether plan qualified as employee benefits plan

under § 1002); see also Zipperer v. Raytheon Co., 493 F.3d 50,

53-55 (1st Cir. 2007) (preempting state law claims on motion to

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 Plaintiffs also allege that Defendants told them “regularly

and repeatedly” that the “accounts were an employee benefit plan

device.” Compl. at ¶ 23, lns. 25-26. However, promises alone do

not suffice to create an ERISA plan unless the plan presents an

organizational structure allowing a reasonable person to identify

the plan’s beneficiaries, benefits, and source of funding. Miller

v. Rite Aid Corp., 504 F.3d 1102, 1108 (9th Cir. 2007) (citing

Winterrowd, 321 F.3d at 939).

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dismiss when plan clearly fit § 1002's definition of employee

benefit plan).

In accepting all of its allegations as true, see Cooper,

378 U.S. at 546, Plaintiffs’ complaint appears open to two

reasonable interpretations -- one that leads to the existence of

an ERISA-governed plan, and the other that does not. Plaintiffs

have alleged facts sufficient to permit the inference that the

accounts at issue are not employee benefits plans as defined in

§ 1002. 

On one hand, Plaintiffs allege that they were the

beneficiaries of the branch manager accounts, and that

Defendants established the accounts to provide, in part,

“payment . . . for reasons including sickness, disability, . . .

vacation pay, . . . [and] periodic retirement payment.” Compl.

at ¶ 23, lns. 28-1. Such purposes are in accord with those

expressed under ERISA. See 29 U.S.C. § 1002(1), (2). 

Plaintiffs’ complaint alleges that the net profits from each

branch financed that branch’s respective account, and that the

procedure for withdrawal of funds for these purposes came by way

of Plaintiffs’ request for such funding.8 Plaintiffs further

allege they received monthly statements via the Internet and

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U.S. Postal Service and that Defendants told them how to go

about accessing the accounts. By drawing all reasonable

inferences from the allegations of the complaint, Retail Clerks

Int’l Ass’n, 373 U.S. at 753 n.6, these activities may

constitute the required ongoing administrative program required

for an ERISA-governed plan. Winterrowd, 321 F.3d at 938-39. 

On the other hand, however, according to the allegations in

Plaintiffs’ complaint, the accounts also provided salaries and

funding for economic need and other discretionary purposes. 

Funding for such purposes is nowhere to be found under an

employee welfare benefit or pension plan as defined in § 1002.

On a motion to dismiss based on ERISA preemption, courts

may only dismiss state law claims if no reasonable inference

allows the conclusion that the plan at issue is a plan not

governed by ERISA. See Retail Clerks Int’l Assn, 373 U.S. at

753 n.6; Harper, 898 F.2d at 1432-33. Based on Plaintiffs’

allegations, the Court is unable to conclude that § 1144(a)

preempts Plaintiffs’ state law claims. The Court therefore

denies Defendants’ motion to dismiss Plaintiffs’ remaining state

law claims for breach of fiduciary duty, fraud, and conversion.

IV. Conclusion

For the reasons stated above, defendants Cassell’s and

Fuchs’s motion to dismiss Plaintiffs’ RICO and state law claims

is DENIED.

IT IS SO ORDERED.

DATED: February 14, 2008.

Case 2:07-cv-01988-LKK -KJM Document 27 Filed 02/14/08 Page 16 of 16