Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_04-cv-01358/USCOURTS-caed-2_04-cv-01358-58/pdf.json

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

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1

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

JAMES P. DEFAZIO, et al.,

Plaintiffs,

 v.

 HOLLISTER, INC., et al.,

Defendants. /

NOS. CIV. 04-1358 WBS GGH

 05-0559 WBS GGH

 05-1726 WBS GGH

 CONSOLIDATED

MEMORANDUM AND ORDER RE: CROSSMOTIONS FOR PARTIAL SUMMARY

JUDGMENT, DEFENDANTS’ MOTION TO

STRIKE CLASS ACTION ALLEGATIONS,

AND PLAINTIFFS’ MOTION TO REMOVE

PLAN TRUSTEES

----oo0oo----

Plaintiffs James P. DeFazio, Theresa Beetham, Brenda

DiMaro, DeLane Humphries, Hallie Lavick, Michael McNair, Sonya

Pace, Judy Seay, Nancy Russell Stanton, Cindy Worth, and Kathleen

Ellis filed these consolidated actions against defendants

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

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

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

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

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

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1 The following facts are undisputed unless otherwise

noted.

2 A “defined contribution plan” or “individual account

plan” pays the participant the value of his or her retirement

account at retirement. LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S. Ct. 1020, 1022 n.1 (2008). In contrast, a “defined

benefit plan,” not at issue in this case, pays the participant a

fixed level of retirement income. Id.

2

Schellentrager, Loretta L. Stempinski, Michael C. Winn, and

Richard T. Zwirner alleging violations of the Employee Retirement

Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001-1144. 

Presently before the court are plaintiffs’ and defendants’ crossmotions for partial summary judgment, defendants’ motion to

strike class action allegations, and plaintiffs’ motion to remove

the plan trustees.

I. Factual and Procedural Background1

In a fourteen-month period between 2004 and 2005, three

groups of the current makeup of plaintiffs--former participants

and beneficiaries of HolliShare, a defined contribution plan2

established by Hollister (see 1st Zwirner Decl. (Docket No. 399)

¶ 7)--independently filed complaints against defendants

Hollister, its parent company JDS, the HolliShare trustees, and

various members of the boards of directors of both companies. 

The cases were consolidated by court order on May 25, 2006. 

(Docket No. 87.) Currently, the plaintiffs are divided into two

groups based upon the two operative complaints in this

litigation. Ten of the plaintiffs (“DeFazio/DiMaro plaintiffs”)

are represented by the same counsel and filed their Fifth Amended

Complaint (“HAC”) on July 22, 2008. (See Docket No. 368.) 

Ellis, the only plaintiff represented by separate counsel, filed

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3 As used in this Order, the term “plaintiffs” refers

collectively to all eleven plaintiffs unless otherwise noted.

4 The parties have filed numerous purported evidentiary

objections to the materials submitted in support of the parties’

respective motions. The bulk of these so-called objections do

not raise cognizable arguments under the Federal Rules of

Evidence, and many consist simply of argument on the merits of

the motions. To the extent that the objections concern evidence

not relied upon, they are moot. The court will address only

those specific objections raising cognizable evidentiary

objections to material relied upon in the court’s analysis.

Here, plaintiffs do not dispute the facts concerning

the structure of Hollister and JDS, but object to this evidence

on relevance grounds. (Pls.’ Reply to Disputed Material Facts

(Docket No. 540) No. 2.) The court overrules this objection, as

these facts are relevant to a background understanding of the

relationship between the various entities in this litigation.

3

her Fourth Amended Complaint (“FAC”) on January 23, 2008.3 (See

Docket No. 314.) Though they differ in some respects--most

notably, the HAC contains class action allegations while the FAC

does not--the allegations asserted against defendants are

substantially similar in both the HAC and FAC. 

The claims in this case are based upon the alleged

misconduct by the fiduciaries of HolliShare. HolliShare is

funded through contributions by Hollister from the company’s

profits; participants are not permitted to make personal

contributions. (See Defs.’ 1st App’x (Docket Nos. 486-488) Ex. 1

(“Trust Instrument”) §§ 6.01, 6.02.) Hollister is a privatelyheld Illinois corporation that manufactures and markets

healthcare products. (1st Zwirner Decl. (Docket No. 399) ¶¶ 4,

8.) It is the operating subsidiary of JDS, an Illinois

corporation that holds all of Hollister’s capital stock.4 (Id. ¶

5.) Consistent with the terms of the HolliShare Trust

Instrument, the plan’s principal investment is common shares of

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5 Under the terms of the Trust Instrument, participants’

accounts are not valued in numbers of shares of JDS common stock. 

Instead, HolliShare invests in JDS common stock with

contributions from Hollister, and participants’ accounts are

valued based on their proportional interest in the total value of

that trust fund. (Trust Instrument § 7.02(1).)

6 In contrast, plaintiffs in their complaints have

divided their claims by the specific provisions of ERISA that

defendants allegedly breached. Each claim is then premised on

multiple factual bases.

7 The JDS Articles were amended multiple times between

1978 and 1999. (See Defs.’ 1st App’x Ex. 4.) Unless otherwise

noted, the cited paragraphs of JDS Articles are common to all of

the versions. 

4

JDS.5 (Trust Instrument § 11.01(1); 2d Zwirner Decl. (Docket No.

494) ¶ 8.)

In their papers on the instant motions, the parties

have divided plaintiffs’ claims into three rough categories

according to the three primary factual bases upon which they are

premised: the prohibited transactions between HolliShare and JDS,

the 1999 Transaction (a series of events culminating in the

transfer of all of the preferred shares of JDS to a new trust),

and the DeFazio-Ellis divorce proceedings.6 Though these

categorizations overlap in certain areas, given the complexity of

the factual issues in this case, the court will follow the

convention adopted by the parties.

A. Prohibited Transactions

JDS has two classes of shares, preferred and common,

neither of which has a generally recognized public market. (2d

Zwirner Decl. ¶¶ 10-11.) The JDS Articles of Incorporation (“JDS

Articles”) provide several restrictions on JDS shares relevant to

this case.7 First, pursuant to article five, paragraph II.C

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8 Paragraph II.C was amended in 1984 to allow certain

directors and officers of JDS and Hollister to own stock and

again in 1999 to allow The Firm of John Dickinson Schneider, Inc.

Preferred Share Trust April 21, 1999 to hold shares. (JDS

Articles 35, 51.)

9 As noted in an earlier Order, “book value” refers to a

method used to value corporate stock, but the term has no

generally accepted definition. DeFazio v. Hollister Employee

Share Ownership Trust, 406 F. Supp. 2d 1085, 1087 n.2 (E.D. Cal.

2005) (Karlton, J.) (citing 51 A.L.R. 2d 606 § 2). “[T]he term

contemplates a theoretical value resulting from depreciation or

appreciation as computed upon an originally determined base.” 

Id.

5

(“paragraph II.C”), only certain persons and entities are

entitled to own JDS shares, including holders of shares as of May

5, 1978, employees of JDS and/or Hollister, and any deferred

benefit plan maintained by JDS and/or Hollister.8

 (Defs.’ 1st

App’x Ex. 4 (“JDS Articles”) 9.)

Second, article five, paragraph II.D (“paragraph II.D”)

restricts the manner in which holders of JDS stock may transfer

ownership. Specifically, paragraph II.D.2 gives JDS a first

right of refusal by requiring that any holder of JDS stock who

intends to transfer one or more shares to another must first

offer to sell those shares to JDS. (JDS Articles 10.) Paragraph

II.D.3 further provides that the price paid for any common share

purchased by JDS “shall be its book value as of the end of the

calendar month in which the Repurchase Date occurs. . . . The

book value of each common share shall be computed in accordance

with generally accepted accounting principles . . . .”9 (Id.

12.) Despite these requirements, paragraph II.D.7 provides that:

“Under exceptional circumstances and in the discretion of

the Corporation’s Board of Directors, shares may be

repurchased by the Corporation at such other times, upon

such other terms, in such other manners, over such other

periods of time, or on such other conditions as the

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6

Corporation and the owner or holder of such shares may

from time to time agree.”

(JDS Articles 15.)

JDS common shares are HolliShare’s primary investment,

and HolliShare must sell those shares in order to raise the cash

needed to pay benefits to participants and beneficiaries. (3d

Zwirner Decl. (Docket No. 515) ¶ 7.) Since the mid-1980s,

HolliShare has sold its holdings of JDS common shares to JDS

pursuant to the “exceptional circumstances” provision of

paragraph II.D.7, not the first right of refusal embodied in

paragraph II.D.2. (Pls.’ Stmt. of Undisputed Facts Ex. B

(“Zwirner Dep.”) 237:19-238:8; 3d Zwirner Decl. ¶¶ 9, 16, 18.) 

Defendants contend that HolliShare and JDS entered into an

agreement (“mid-80s buy-back agreement”) that has since governed

JDS’s repurchase of common shares from HolliShare in order to

avoid certain complications. (See 3d Zwirner Decl. ¶ 16.) 

The JDS Articles provide that when JDS repurchases

shares pursuant to the first right of refusal, it is obligated to

pay a only minimal amount in cash (set originally at $5,000 and

then increased to $250,000 in 1999) and can pay the remainder

with a promissory note. (JDS Articles 12, 44.) Because

HolliShare, as an ERISA plan, is prohibited from accepting a

promissory note as payment from an employer, see 29 U.S.C. §

1106(a)(1)(B), and HolliShare’s cash needs often exceeded the

$5,000 and $250,000 minimums, HolliShare could not have sold its

shares to JDS under the terms of that provision. (3d Zwirner

Decl. ¶ 15.) If JDS did not waive its right of refusal,

HolliShare would thus have been unable to sell its JDS stock to

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10 Though plaintiffs have only moved for partial summary

judgment based on the sales of JDS common shares to JDS to raise

cash for its obligations, the overall impact of the book value

method was broader. The book value method was also used to

determine the annual value of both the HolliShare trust as a

whole and the proportionate value of each participant’s account. 

(Trust Instrument §§ 7.02, 7.03.)

7

anyone pursuant to paragraph II.D.2. (Id.)

To avoid this problem, and to allow JDS to plan ahead

for its cash flow needs, HolliShare and JDS agreed in the mid1980s that: 1) JDS would repurchase HolliShare’s common shares

entirely for cash (i.e., would not tender promissory notes); 2)

the price employed would be the most recent audited December 31

per share book value rather than the month-end book value from

the date of the transaction, as provided in paragraph II.D.3; and

3) such transactions would take place only once a year. (3d

Zwirner Decl. ¶ 16.) 

Plaintiffs contend that these repurchases of JDS common

shares from HolliShare using book value violated defendants’

statutory duties under ERISA. Particularly in light of evidence

that JDS common shares may have had a value in the “outside

world” of up to three-times book value (Pls.’ Stmt. Disputed

Facts Ex. F (“Winn Dep.”) 91:15-92:13), plaintiffs assert that

defendants breached their fiduciary duties, 29 U.S.C.

1104(a)(1)(B), and violated the provision on prohibited

transactions, id. § 1106(a)(1)(A).10 

B. 1999 Transaction

HolliShare does not invest in JDS preferred shares. 

John Schneider, the founder of JDS, owned a majority of the

outstanding preferred shares until he placed all of his holdings

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11 Each share of preferred and common stock is entitled to

one vote. (2d Zwirner Decl. ¶ 13.) However, since 1977, there

have been 61,750,000 outstanding preferred shares compared with

only about 400,000 to 3,000,000 common shares. (2d Zwirner Decl.

¶ 14.)

12 The listed principles included such policies as

pursuing conservative financial and investment strategies,

introducing new and improved products, continuing to sell common

shares directly to certain employees, and maintaining standards

of quality and service. (See Defs.’ 1st App’x Ex. 3 at 13-17.)

8

into a trust in 1977 (“1977 Schneider Trust”). (2d Zwirner Decl.

¶ 24; Defs.’ 1st App’x Ex. 3 at 2-3.) Because those shares

comprised a controlling interest in JDS, the 1977 Schneider

Trust, through its trustees, effectively controlled JDS.11 (2d

Zwirner Decl. ¶ 24.) After 1981, defendants Winn, Stempinksi,

and Zwirner became trustees of the trust. (Id. ¶ 29.)

The terms of the 1977 Schneider Trust provided that it

would expire on April 21, 2001. (Defs.’ 1st App’x Ex. 3 at 11.) 

Upon its expiration, the trust called for its corpus of preferred

shares to be distributed to employees of Hollister who then owned

common shares and agreed to abide by certain principles in

governing JDS.12 (Id.) These employee-beneficiaries would have

received a number of preferred shares in proportion to their

relative holdings of JDS common shares. (Id.) Several years

before the 1977 Schneider Trust was set to expire, however, its

trustees considered the impact of the distribution of preferred

shares on the company. (2d Zwirner Decl. ¶ 32.) Defendants

contend that the trustees perceived several adverse effects from

the distribution, including the possibility that a small number

of employees might form an insulated controlling bloc, the

prospect that the employees might vote to take JDS public, and

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13 Plaintiffs object to this evidence on grounds of lack

of personal knowledge, relevance, and hearsay. (Pls.’ Opp’n

Stmt. Undisputed Facts (Docket No. 523) No. 64.) The court

overrules this objection. Zwirner, who was one of the trustees

of the 1977 Schneider Trust, has personal knowledge of the

trustees’ considerations. This evidence is relevant to

defendants’ positions concerning the legality of the 1999

Transaction. Finally, there is no hearsay because the evidence

does not consist of an out of court statement offered for its

truth.

Plaintiffs simply repeat these same objections to all

of the evidence concerning the trustees’ proposal of the 1999

Trust without providing any particularized argument for each

objection. (See Pls.’ Opp’n Stmt. Undisputed Facts (Docket No.

523) Nos. 66, 67, 69.) For the same reasons, the court overrules

these objections.

9

the potential that votes to appoint members of the JDS and

Hollister boards of directors could lead to factionalism in the

company. (Id.)13

Ultimately, Winn, Stempinski, and Zwirner proposed that

a new trust (“1999 Preferred Share Trust”) be created to hold the

preferred shares that would otherwise be distributed to the

employee beneficiaries of the 1977 Schneider Trust. (See 2d

Zwirner Decl. ¶ 34; Winn Decl. (Docket No. 492) ¶ 28.) On

February 17, 1999, they sent a letter (“1999 Proposal Letter”) to

all employees of Hollister who then owned JDS common shares,

stating that the trustees believed that the 1999 Preferred Share

Trust was desirable to maintain the independent and employeeowned nature of Hollister and adherence to the principles of John

Schneider. (Defs.’ 1st App’x Ex. 5 (“1999 Proposal Letter”) at

2; 2d Zwirner Decl. ¶ 37.) The letter requested that the

recipients transfer the preferred shares to which they would

otherwise be entitled to the new trust. (Id.) The letter

further informed recipients that they would either need to sign

an enclosed “Agreement to Vote,” which stated that the signatory

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14 The record does not indicate the exact number of

employees who would have received preferred shares at the

expiration of the 1977 Schneider Trust. Nonetheless, the 1999

Proposal Letter indicates that ninety-one employees owned common

shares in 1999, and at least eighty-one employees signed the

consent form transferring the shares they would have received to

the 1999 Preferred Share Trust. (See 1999 Proposal Letter 4;

Pls.’ Stmt. Undisputed Facts Ex. P at 6-11.)

10

agreed to adhere to the principles specified by the 1977

Schneider Trust, or the “Consent,” which stated that the

signatory agreed to transfer the preferred shares he or she would

have been entitled to receive to the 1999 Preferred Share Trust.

(1999 Proposal Letter 27; id. Enclosures 4, 5.)

On April 21, 1999, all of the recipients of the 1999

Proposal Letter agreed to transfer their prospective preferred

shares to the 1999 Preferred Share Trust.14 (Zwirner Decl. ¶ 43;

Winn Decl. ¶ 41.) In order to effect the transfer of shares

between the 1977 Schneider Trust and the 1999 Preferred Share

Trust at the expiration of the former in 2001, however, the JDS

Articles had to be amended to allow the 1999 Preferred Share

Trust to own JDS shares. Because the JDS Articles provided that

any changes to the stock restrictions required a two-thirds vote

of all classes of shares--rather than simply a majority of all

outstanding stock (JDS Articles 27)--votes from the shares held

by HolliShare (approximately 69% of all common shares) were

necessary to effect the amendment. (See Thielitz Decl. (Docket

No. 493) ¶ 4; 2d Zwirner Decl. ¶ 49.)

At a meeting on April 28, 1999, the HolliShare

trustees--who at that time were Zwirner, Karlovsky, and

McCormack--agreed to vote HolliShare’s JDS common shares in favor

of the amendment to the JDS Articles. Ultimately, at the April

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15 Defendants have requested that the court take judicial

notice of various filings and orders in the DeFazio-Ellis divorce

proceedings before the Superior Court of Sacramento. Plaintiffs

have not opposed this request. Because the specified documents

comprise public records of a related court proceeding, the court

11

30, 1999 JDS shareholders’ meeting, JDS shareholders voted

unanimously to amend the JDS Articles, and those amendments were

filed with the Illinois secretary of state on June 14, 1999. (2d

Zwirner Decl. ¶ 65; JDS Articles 51-52.) The propriety of the

vote to approve the amendments, as well as the adequacy of the

trustees’ decisionmaking process, form the basis of plaintiffs’

claims related to the 1999 Transaction. Plaintiffs essentially

argue that, but for the 1999 Transaction, HolliShare would have

become the majority shareholder of JDS and its holdings would

have experienced an increase in value. 

For purposes of the instant motions, plaintiffs contend

that all of the HolliShare fiduciaries who voted in favor of the

1999 Transaction violated ERISA by engaging in a self-dealing

transaction, 29 U.S.C. § 1106(b), and breaching their fiduciary

duties, id. §§ 1104, 1105. 

C. DeFazio-Ellis Divorce Proceedings

Particular to plaintiffs DeFazio and Ellis, the HAC and

FAC also assert claims against all defendants based upon

Hollister’s compliance with a series of domestic relations orders

(DROs) issued by the Superior Court of Sacramento as part of

DeFazio and Ellis’s divorce proceedings. (HAC ¶¶ 132-34; FAC ¶¶

69-71.) 

The marriage of DeFazio and Ellis was dissolved by

court order on March 1, 1999.15 (Defs.’ Req. Judicial Notice

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takes judicial notice of the filings and orders from the Superior

Court proceedings. See United States ex rel. Robinson Rancheria

Citizens Council v. Borneo, Inc., 971 F.2d 244, 248 (9th Cir.

1992) (“[W]e may take notice of proceedings in other courts, both

within and without the federal judicial system, if those

proceedings have a direct relation to matters at issue.”

(internal quotation marks omitted)); see also Kourtis v. Cameron, 419 F.3d 989, 994 n.2 (9th Cir. 2005) (taking judicial notice of

an unpublished decision from another court), overruled on other

grounds by Taylor v. Sturgell, 128 S. Ct. 2161 (2008).

12

(Docket No. 530) Ex. A at 14.) In that order, the Superior Court

reserved decision for a later date on the division of Ellis’s

retirement assets and the amount of DeFazio’s share of those

assets that would be held as security for the payment of child

support. (Id. at 6-8.) The issue of the division of Ellis’s

retirement account with HolliShare was finally determined by a

March 29, 2002 stipulation and order (“March 2002 order”). In

that order, entitled “Stipulated Qualified Domestic Relations

Order,” DeFazio and Ellis agreed that DeFazio was entitled to

one-half the value of Ellis’s HolliShare account as community

property, and HolliShare was ordered to hold DeFazio’s share in a

segregated account. (Req. Judicial Notice Ex. G (“March 2002

order”) ¶¶ 4-5.) The order further provided that the Superior

Court “retains jurisdiction over Husband’s Share in the entire

amount up to One Million Five Hundred Thousand and No/100 Dollars

($1,500,000.00), pending resolution of child support and property

settlement issues between Husband and Wife,” and ordered

HolliShare to retain possession of those funds “pending further

order of this court.” (Id. ¶ 7.) The March 2002 order also

stated that “this Order is intended to be a Qualified Domestic

Relations Order, as that term is defined in [the Internal

Revenue] Code section 414(p) and section 206(d)(3) of the

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16 The Superior Court also issued an order dated December

28, 2002, correcting the March 2002 stipulation’s division of

Ellis’s HolliShare account by reducing DeFazio’s community

property portion by $53,750. (Req. Judicial Notice Ex. H ¶ 1.)

13

Employee Retirement Income Security Act.” (Id. 1:26-28.) 

Pursuant to the March 2002 order, the Superior Court

issued six subsequent orders ordering HolliShare to distribute

payments to Ellis that comprised child support payments that

DeFazio failed to make and advances on future anticipated child

support obligations, as well as associated attorneys fees and

costs for the collection of past-due child support payments. 

(See id. Exs. I (order dated August 5, 2002), J (order dated

April 2, 2003), K (order dated May 4, 2004), N (order dated June

20, 2004), T (order dated November 9, 2005), U (order dated

December 13, 2007).)16 

Presently before the court are the parties’ seven

separate motions: 1) defendants’ motion to strike plaintiffs’

class action allegations (Docket No. 495); 2) defendants’ motion

for partial summary on claims barred by the statute of

limitations (Docket No. 483); 3) defendants’ motion for partial

summary judgment on the fiduciary status of the Hollister Board

and JDS (Docket No. 484); 4) plaintiffs’ motion for partial

summary judgment on claims related to the prohibited transactions

and 1999 Transaction (Docket No. 477); 5) defendants’ motion for

partial summary judgment on the claims related to the 1999

Transaction (Docket No. 489); 6) DeFazio’s motion for partial

summary judgment on claims related to the divorce proceedings

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17 Though Ellis also asserts claims based on defendants’

compliance with the Superior Court orders, she does not join

DeFazio’s motion. (See Docket No. 476 (joining only plaintiffs’

motion for partial summary judgment on claims related to the

prohibited transactions and 1999 Transaction).) 

14

(Docket No. 474);17 and 7) plaintiffs’ motion to remove the plan

trustees (Docket No. 475).

Before turning to the merits of these motions, the

court notes that despite the submission of twenty briefs and

hundreds of pages of evidence in support of the instant motions,

the parties have declined to address numerous claims and have

chosen not to discuss specific arguments and factual issues. 

Plaintiffs in particular expressly chose to withhold certain

theories and evidence in their motions. (See Docket No. 537 at

20:3-9 (“[P]laintiffs are smarter than that. Our motion for

partial summary judgment of the prohibited transaction claims was

tailored to narrow questions of law. . . . We also intentionally

avoided disputed factual questions . . . .”). Even assuming the

wisdom of this strategy, the parties have pursued it haphazardly,

creating a disjointed record and often confusing each other as to

whether certain issues had been raised or whether plaintiffs had

abandoned particular claims. The rationale underlying this

strategy is not immediately apparent. Nevertheless, the court

shall confine its analysis to the particular theories and

arguments presented in the parties’ moving papers.

II. Discussion

A. Motion to Strike Class Allegations

Defendants move to strike the DeFazio/DiMaro

plaintiffs’ class allegations, which were first alleged in the

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Fourth Amended Complaint filed on January 23, 2008. (See Docket

No. 312 ¶¶ 13-20.) With discovery now closed and the trial date

approaching, plaintiffs have not yet moved for class

certification, and defendants contend that they have suffered

prejudice as a result of the DeFazio/DiMaro plaintiffs’ delay in

doing so. (See Docket No. 495 2:20-26); Siskind v. Sperry Ret.

Program, Unisys, 47 F.3d 498, 503 (2d Cir. 1995) (“[F]undamental

fairness requires that a defendant named in a suit be told

promptly the number of parties to whom it may ultimately be

liable for money damages.” (citing McCarthy v. Kleindienst, 741

F.2d 1406, 1412 (D.C. Cir. 1984))); see also Sterling v. Envtl.

Control Bd. of N.Y., 793 F.2d 52, 58 (2d Cir. 1986) (holding that

a plaintiff’s “failure to move for class certification until a

late date is a valid reason for denial of such a motion”).

In response to defendants’ motion to strike, the

DeFazio/DiMaro plaintiffs submitted a statement of nonopposition. (Docket No. 533.) Having considered defendants’

arguments and in light of plaintiffs’ non-opposition, the court

will grant defendants’ motion to strike the DeFazio/DiMaro

plaintiffs’ class allegations. See, e.g., Rones v. N.A.A.C.P.,

170 F.R.D. 80, 82 (D.D.C. 1997); Roberson v. Danny Ontiveros

Trucking, No. 08-552, 2008 WL 4809960, at *6 (E.D. Cal. Nov. 3,

2008) (O’Neill, J.); Valdez v. St. Francis Mem’l Hosp., No. 78-

2174, 1979 WL 146, at *1 (N.D. Cal. Jan. 17, 1979); see also Read

v. Input/Output, Inc., No. 05-108, 2005 WL 2086179, at *2-3 (S.D.

Tex. Aug. 26, 2005). Accordingly, paragraphs twelve through

nineteen of the HAC shall be stricken.

B. Cross-Motions for Partial Summary Judgment

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Summary judgment is proper “if the pleadings, the

discovery and disclosure materials on file, and any affidavits

show that there is no genuine issue as to any material fact and

that the movant is entitled to judgment as a matter of law.” 

Fed. R. Civ. P. 56(c). A material fact is one that could affect

the outcome of the suit, and a genuine issue is one that could

permit a reasonable jury to enter a verdict in the nonmoving

party’s favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

248 (1986). The moving party bears the burden of demonstrating

the absence of a genuine issue of material fact. Id. at 256. On

issues for which the ultimate burden of persuasion at trial lies

with the nonmoving party, the moving party bears the initial

burden of establishing the absence of a genuine issue of material

fact and can satisfy this burden by presenting evidence that

negates an essential element of the nonmoving party’s case or by

demonstrating that the nonmoving party cannot produce evidence to

support an essential element of its claim or defense. Nissan

Fire & Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099,

1102 (9th Cir. 2000).

Once the moving party carries its initial burden, the

nonmoving party “may not rely merely on allegations or denials in

its own pleading,” but must go beyond the pleadings and, “by

affidavits or as otherwise provided in [Rule 56,] set out

specific facts showing a genuine issue for trial.” Fed. R. Civ.

P. 56(e); accord Celotex Corp. v. Catrett, 477 U.S. 317, 324

(1986); Valandingham v. Bojorquez, 866 F.2d 1135, 1137 (9th Cir.

1989). On those issues for which it will bear the ultimate

burden of persuasion at trial, the nonmoving party “must produce

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18 As part of their motion, defendants argue that

plaintiffs’ claims related to the 1999 Transaction are barred by

the statute of limitations. The parties’ contentions regarding

the 1999 Transaction, including the related amendments to the JDS

Articles, are addressed in Section II.B.4, infra.

17

evidence to support its claim or defense.” Nissan Fire, 210 F.3d

at 1103. 

In its inquiry, the court must view any inferences

drawn from the underlying facts in the light most favorable to

the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith

Radio Corp., 475 U.S. 574, 587 (1986). The court also may not

engage in credibility determinations or weigh the evidence, for

these are jury functions. Anderson, 477 U.S. at 255.

When the parties submit cross-motions for summary

judgment, the court must consider each motion separately to

determine whether either party has met its burden, “giving the

nonmoving party in each instance the benefit of all reasonable

inferences.” ACLU of Nev. v. City of Las Vegas, 333 F.3d 1092,

1097 (9th Cir. 2003); see also Fair Hous. Council v. Riverside

Two, 249 F.3d 1132, 1136 (9th Cir. 2001) (when parties submit

cross-motions for summary judgment, “each motion must be

considered on its own merits” and “the court must review the

evidence submitted in support of each cross-motion”).

1. Defendants’ Motion on the Statute of Limitations

Defendants move for partial summary judgment on several

of plaintiffs’ claims as time barred.18 ERISA’s statute of

limitations provides:

No action may be commenced under this subchapter with

respect to a fiduciary’s breach of any responsibility,

duty, or obligation under this part, or with respect to

a violation of this part, after the earlier of--

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18

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

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

the case of an omission the latest date on which the

fiduciary could have cured the breach or violation, or 

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

plaintiff had actual knowledge of the breach or

violation; 

except that in the case of fraud or concealment, such

action may be commenced not later than six years after

the date of discovery of such breach or violation.

29 U.S.C. § 1113 (emphasis added).

Unless the “fraud or concealment” exception applies, a

plaintiff must file a claim within six years of the date of the

last act constituting a part of the alleged violation, regardless

of when the plaintiff actually learned of the violation. Kanawi

v. Bechtel Corp., 590 F. Supp. 2d 1213, 1225 (N.D. Cal. 2008). 

“The fraud or concealment exception applies only when an ERISA

fiduciary either misrepresents the significance of facts the

beneficiary is aware of (fraud) or . . . hides facts so that the

beneficiary never becomes aware of them (concealment).” Barker

v. Am. Mobil Power Corp, 64 F.3d 1397, 1401 (9th Cir. 1995)

(quoting Radiology Ctr., S.C. v. Stifel, Nicolaus & Co., 919 F.2d

1216, 1220 (7th Cir. 1990)); see Ranke v. Sanofi-Synthelabo Inc.,

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

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

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

concealment’ exception to apply”).

Some courts have recognized that the “fraud or

concealment” exception to § 1113 incorporates the common law

doctrine of “fraudulent concealment.” Barker, 64 F.3d at 1402. 

Under that common law doctrine, passive concealment alone may

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19 In their opposition to defendants’ motion, plaintiffs

request that the court grant summary judgment sua sponte in their

favor based on the absence of evidence of complete and accurate

19

toll the statute of limitations if the defendant has a duty to

disclose material information. Thorman v. Am. Seafoods Co., 421

F.3d 1090, 1092 (9th Cir. 2005). Courts that have considered the

question, however, have rejected the doctrine of passive

concealment as applied to § 1113. See, e.g., Larson v. Northrop

Corp., 21 F.3d 1164, 1174 (D.C. Cir. 1994) (“While a fiduciary’s

mere silence could, in some circumstances, amount to fraud, it

would still fall short of the fraudulent concealment that courts

have required for purposes of § 1113.”); Schafer v. Ark. Med.

Soc’y, 853 F.2d 1487, 1491 (8th Cir. 1988) (holding that active

concealment under § 1113 requires “more than merely a failure to

disclose”). 

The Ninth Circuit in Barker also implicitly found

passive concealment insufficient to toll the six-year statute of

limitations. In holding that the defendants in that case did not

engage in “fraud or concealment,” the Barker court focused only

on whether the defendants had affirmatively concealed their

breach, see 64 F.3d at 1401, even though the Court of Appeals

recognized that an ERISA fiduciary generally has a duty to

disclose accurate information to beneficiaries, see id. at 1403

(noting the fiduciary’s duty “to convey complete and accurate

information material to the beneficiary’s circumstance”). The

“fraud or concealment” exception, therefore, does not apply

simply because an ERISA fiduciary fails to disclose material

information.19

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disclosures by HolliShare fiduciaries. (Docket No. 532 at 7:9-

13.) The statute of limitations defense presented in defendants’

motion does not involve the duty to disclose. The court will not

enter summary judgment in favor of plaintiffs under these

circumstances. See Kassbaum v. Steppenwolf Prods., Inc., 236

F.3d 487, 495 (9th Cir. 2000) (noting that “great care” must be

exercised in granting summary judgment to a non-movant on certain

claims to ensure that the movant has had an adequate opportunity

to respond). 

20

a. Amendments to the JDS Articles

Defendants first move for summary judgement on

plaintiffs’ claims based upon HolliShare trustees’ votes in favor

of amending the JDS Articles in 1978, 1980, 1984, and 1999. 

(Docket No. 483 7:9-16.) According to the complaints,

defendants’ breached their fiduciary duties by voting for these

amendments, which allegedly harmed HolliShare’s assets. For

example, the 1978 amendments reinstated the stock transfer

restrictions on repurchases of JDS common shares. (HAC ¶ 66; FAC

¶ 50.) The 1980 amendment allegedly reduced JDS cash reserves

and thus JDS’s ability to repurchase HolliShare’s holdings, while

the 1984 amendment allegedly reduced the reliability of JDS

audits. (See HAC ¶¶ 67-68; FAC ¶¶ 51-52.) The 1999 amendments--

the votes for the last of which were cast on April 30, 1999--

indemnified corporate directors from suit by shareholders and

prohibited any natural persons from owning more than 10% of JDS

stock. (See HAC ¶¶ 69-70, 76; FAC ¶¶ 53; Thielitz Decl. ¶ 40.) 

The first of the complaints in this consolidated action

was filed on July 15, 2004. (Docket No. 1.) However, the first

complaints that asserted claims related to these amendments were

not filed until April 19 and 20, 2007 (see Docket Nos. 182-183),

more than six years after the vote for the last amendment at

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issue. Based on the record before the court, there is no

evidence from which a reasonable inference could be drawn that

defendants took steps to conceal any of the votes in favor of the

amendments. Furthermore, all of the amendments to the JDS

Articles were filed with the Illinois Secretary of State. (See

JDS Articles 6, 32, 40, 42, 49.) Though it does not appear that

HolliShare fiduciaries affirmatively disclosed to beneficiaries

and participants that they had voted HolliShare’s holdings of JDS

common shares in favor of these amendments, such passive

concealment does not qualify for the “fraud or concealment”

exception of § 1113. Accordingly, because there is no dispute

that the first complaints to assert claims based on votes in

favor of amendments to the JDS Articles were filed after the sixyear limitations period expired for the 1978, 1980, 1984, and

certain 1999 amendments, defendants are entitled to summary

judgment on plaintiffs’ claims based upon any fiduciary’s

affirmative vote in favor of these amendments.

Nonetheless, plaintiffs have also asserted claims

pursuant to 29 U.S.C. § 1105(a)(3), which makes a fiduciary

liable for the breach of another fiduciary if “he has knowledge

of a breach by such other fiduciary, unless he makes reasonable

efforts under the circumstances to remedy the breach.” The

failure to remedy such a breach constitutes a separate breach of

duty. See Dep’t of Labor Opinion No. 76-95 (Sept. 30, 1976)

(providing that the failure to take action to cure the breaches

of another fiduciary despite knowledge constitutes a separate

breach of fiduciary responsibility of a successor fiduciary). 

Pursuant to § 1113(1)(B), the six-year statutory period does not

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begin to run in the case of a fiduciary omission until the date

on which the fiduciary “could have cured the breach or

violation.” 

One form of remedying the breaches of a co-fiduciary

would be to file a suit against the breaching co-fiduciary to

restore the losses to the plan or redress any violations of

ERISA. See Fernandez v. K-M Indus. Holding Co., 585 F. Supp. 2d

1177, 1185 (N.D. Cal. 2008) (holding that the statute of

limitations did not begin until the last day defendant could have

brought an action against co-fiduciaries for engaging in a

prohibited transaction). See generally Concha v. London, 62 F.3d

1493, 1500 (9th Cir. 1995) (holding that 29 U.S.C. § 1132(a)(2)-

(3) authorizes suits by fiduciaries against co-fiduciaries

seeking relief on behalf of the plan). 

Assuming HolliShare fiduciaries had actual knowledge of

the votes at the time they were cast and that such votes

constituted ERISA violations, they would have had three years to

file a suit. 29 U.S.C. § 1113(2). With regard to votes in favor

of the 1999 amendments at issue, that three-year period would

have expired in April 2002, and there is no evidence indicating

that any fiduciary took steps to remedy the breach in question. 

Since the complaints asserting claims based on these votes were

filed on April 19 and 20, 2007, plaintiffs’ § 1105(a)(3) claims

related to the votes in favor of the 1999 amendments are not time

barred.

As part of their motion for partial summary judgment,

defendants have also requested that Gunderson be dismissed as a

defendant from this action because no basis for his liability

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20 Defendants do not contend in the instant motion that

Humphries, DiMaro, and Seay had actual knowledge of their claims,

which would invoke the shorter three-year limitations period.

23

appears in the record. (Docket No. 483 at 7:17-8:3.) In

response, plaintiffs have not identified any conduct for which

Gunderson could be liable other than a purported failure to

challenge the 1978 amendments while he served as a HolliShare

trustee in 1979. (Docket No. 532 at 14:27-15:8.) Since claims

based on the conduct of fiduciaries associated with the 1978

amendments are time barred, however, the court will grant

defendants’ request to dismiss Gunderson as a defendant in this

action.

 b. DiMaro, Humphries, and Seay

Defendants also move for summary judgment on the claims

asserted by DiMaro, Humphries, and Seay related to HolliShare’s

use of book value both in the calculation of the balance of

individual accounts and in the sales of JDS common shares to JDS

(the prohibited transactions). (Docket No. 483 at 8:6-12:11.) 

They contend that, because these plaintiffs terminated their

employment with Hollister more than six years before they filed

suit, any claims based on the use of book value that affected

these plaintiffs’ retirement accounts are time barred.20 (Docket

No. 483 at 11-23.) The record shows that Humphries’ employment

with Hollister terminated on January 3, 1998; Seay’s employment

terminated on July 16, 1999; and DiMaro’s employment terminated

on September 30, 1999. (Thielitz Decl. ¶ 4.) 

The statute of limitations must be applied separately

to the claims concerning the valuation of individual accounts and

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the use of book value in the prohibited transactions, as these

claims are based on distinct facts. With regard to the use of

book value to determine the value of individual accounts, the

Trust Instrument provides that, when participants become “former

participants”--such as by terminating their Hollister employment

(Trust Instrument § 3.14)--their account balances are determined

using the most recent December 31 valuation preceding the

employee’s termination date. (Id. § 7.02(2).) Those

calculations are apparently not made until after the annual audit

of JDS year-end financial statements is available, usually by

late April or May. (3d Zwirner Decl. ¶ 10.) Thus, the last use

of the book value method that affects the determination of a

terminated employee’s account occurs in the middle of the year

following the December 31 preceding termination. Consequently,

the ERISA violations applicable to the claims at issue occurred,

at the latest, by late April or May 1998 for Humphries and late

April or May 1999 for DiMaro and Seay. 

DiMaro did not file a complaint until August 25, 2005

(Case No. 05-1726, Docket No. 1), and Humphries and Seay did not

assert claims in this action until April 19, 2007 (Second Am.

Compl. (Docket No. 183))--both more than six years after the last

valuations of their respective accounts. Furthermore, the “fraud

or concealment” exception does not apply, as plaintiffs have not

identified acts by defendants that concealed or misrepresented

the fact that HolliShare accounts are valued using book value. 

Accordingly, defendants have demonstrated an absence of genuine

issues of material fact concerning the expiration of the statute

of limitations for DiMaro’s, Humphries’, and Seay’s claims

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related to HolliShare’s valuations of their accounts using book

value, and defendants are entitled to judgment as a matter of law

on those claims.

These plaintiffs have also asserted claims pursuant to

§ 1105(a)(3) based on the valuations of their accounts. As

described earlier, fiduciaries with knowledge of the breaches of

a co-fiduciary have three years to bring suit to remedy the

breach, and there is no indication in the record that any

fiduciary took steps to remedy the breaches in question. 

Even assuming that all HolliShare fiduciaries were

aware of the valuations at the earliest possible date, the

limitations period did not begin to run for the § 1105(a)(3)

claims until three years after the last valuation of the

accounts--i.e., late April or May 2001 for Humphries and late

April or May 2002 for DiMaro and Seay. DiMaro’s complaint filed

on August 25, 2005, and Seay’s complaint filed on April 19, 2007,

were thus timely for their § 1105(a)(3) claims. Humphries’

complaint, filed on April 19, 2007, may have been filed more than

six years after the last date on which a co-fiduciary could have

brought suit in late April or May 2001, assuming that all

HolliShare fiduciaries had knowledge of the valuation when it was

made in 1998. However, in the absence of evidence of the exact

date on which Humphries’ account was valued in 1998 and the date

on which all co-fiduciaries acquired knowledge of that valuation,

defendants have not shown that her claims are barred as a matter

of law. Accordingly, defendants are not entitled to summary

judgment on the § 1105(a)(3) claims asserted by DiMaro,

Humphries, and Seay related to the use of book value in

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calculating the balances of their accounts.

With regard to claims based upon the use of book value

in the prohibited transactions, the last violation occurred on

the date of HolliShare’s annual sale of JDS common shares to JDS

preceding the final valuation of DiMaro’s, Humphries’, and Seay’s

accounts, as that is the last sale of plan assets that could have

affected the balances of those plaintiffs’ accounts. Those sales

took place in the middle of the year after the completion of

JDS’s year-end audit. (3d Zwirner Decl. ¶ 11.) Thus, the last

sale that affected Humphries’ account took place in mid-1997, and

the last transaction that affected DiMaro’s and Seay’s accounts

took place in mid-1998. Because these plaintiffs did not file

complaints until more than six years later on August 25, 2005,

and April 19, 2007, their claims are time-barred unless acts of

“fraud or concealment” tolled the statute of limitations.

Plaintiffs seek to toll the statute of limitations by

identifying disclosures made to HolliShare participants that

appear to misrepresent the circumstances and conditions of sales

of JDS common shares by HolliShare to JDS. For example, the

HolliShare trustees provide each HolliShare participant with an

annual publication entitled “HolliShare Highlights.” (See 2d

Zwirner Decl. ¶ 25; Defs.’ 1st App’x Ex. 9.) That publication,

at least since 1997, has stated that “[JDS common shares] are

subject to severe transfer restrictions which require that the

Trust [i.e., HolliShare] first offer them to JDS at their book

value. To date, JDS has repurchased common shares from the Trust

at their book value to provide the plan with needed cash.” 

(Ellis’s App’x (Docket Nos. 513, 517, 519-20) Ex. E at 7 (1997

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edition); Pls.’ Stmt. Undisputed Facts Ex. C at 1 (1999 edition);

Defs.’ 1st App’x Ex. 9 at 1 (2005 edition).) 

Upon reading these two sentences, a recipient of

“HolliShare Highlights” could have reasonably believed that

HolliShare sold its holdings of JDS common shares pursuant to the

sale price specified in the “transfer restrictions” of the JDS

Articles. Under paragraph II.D.3 of the JDS Articles, those

restrictions require the use of month-end book value from the

month in which the transaction occurs. The evidence shows,

however, that all sales since the mid-1980s have occurred

pursuant to the mid-80s buy-back agreement whereby the prior

December 31 book value is used. (Zwirner Dep. 237:19-238:8; 3d

Zwirner Decl. ¶¶ 9, 16, 18.) 

In addition, because this disclosure references the

stock restrictions in connection with the sale of JDS common

shares, it appears to conceal the fact that HolliShare’s sales to

JDS occurred pursuant to a negotiated agreement under the

“exceptional circumstances” provision of paragraph II.D.7 rather

than the absolute right of first refusal contained in paragraph

II.D.2. These disclosures could thus be read to misrepresent not

only the sale price used in HolliShare’s sales of JDS common

shares, but also the flexibility and discretion HolliShare

fiduciaries may have had in setting the terms of those sales. 

Making inferences in favor of plaintiffs, such misrepresentations

could have reasonably hindered DiMaro, Humphries, and Seay from

discovering the alleged breaches of fiduciary duty. See Montrose

Med. Group Participating Sav. Plan v. Bulger, 243 F.3d 773, 789

(3d Cir. 2001) (finding that a fiduciary’s misrepresentations as

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to the reasons justifying particular transactions could have

inhibited the plaintiffs’ capacity to discovery the breaches of

fiduciary duty). 

Defendants have identified another disclosure made to

HolliShare participants that appears to disclose the use of the

December 31 book value in sales of JDS common shares. (See 3d

Zwirner Decl. Ex. A at 16.) This other, seemingly conflicting

disclosure, however, simply provides additional evidence of a

genuine issue of material fact over whether the information

provided to HolliShare participants affirmatively misrepresented

or concealed facts concerning the use of book value in the

prohibited transactions.

Despite evidence of “fraud or concealment,” the statute

of limitations would not be tolled as to claims asserted against

defendants who did not actually engage in the acts designed to

conceal the alleged fiduciary breaches. See Barker, 64 F.3d at

1402 (noting that the “fraud or concealment” exception applies

only when “the defendant himself has taken steps to hide his

breach”). The evidence does not indicate whether all of the

defendants played a role in the production or distribution of the

disclosures in question. Nevertheless, in light of evidence that

at least some of the defendants, including individuals who served

as HolliShare trustees, were responsible for the disclosures in

question, the court cannot determine as a matter of law that all

of the claims related to the use of book value in the sales of

JDS common shares asserted by DiMaro, Humphries, and Seay are

time barred.

Finally, assuming defendants did engage in acts of

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“fraud or concealment,” the statute of limitations was tolled

only until the point at which plaintiffs could have discovered

the breaches or misrepresentations with reasonable diligence. 

See Bulger, 243 F.3d at 788 (“The statute of limitations is

tolled until the plaintiff in the exercise of reasonable

diligence discovered or should have discovered the alleged fraud

or concealment.” (internal quotation marks omitted)); Schaefer v.

Ark. Med. Soc’y, 853 F.2d 1487, 1491-92 (8th Cir. 1988)

(providing that, under the “fraud or concealment” exception to §

1113, the plaintiffs had to show that “despite their exercise of

due diligence or care, they were not on notice of [defendant’s]

breach of duty”). 

The evidence indicates that the minutes of the annual

JDS Board of Directors meetings state that JDS repurchased JDS

common shares from HolliShare at December 31 book value based on

the recommendation of the HolliShare trustees. (See, e.g., Pls.

Stmt. Disputed Facts Ex. A at H02445.) Those Board minutes could

have put plaintiffs on notice of the purported concealment of the

facts concerning the circumstances of HolliShare’s sales of JDS

common shares. The record, however, does not indicate whether

(or when) plaintiffs or other HolliShare participants had access

to these JDS Board minutes. Making inferences in favor of

plaintiffs, there thus exists a genuine issue of material fact

concerning whether DiMaro, Humphries, and Seay could have

discovered the alleged breaches and acts of concealment more than

six years before they filed their claims in this action, and

defendants are not entitled to summary judgment on these claims.

Defendants are also not entitled to summary judgment on

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these plaintiffs’ § 1105(a)(3) claims related to the use of book

value in the prohibited transactions for the same reasons that

the § 1105(a)(3) claims related to the valuation of plaintiffs’

accounts survive summary judgment.

Accordingly, defendants are entitled to summary

judgment only on the non-§ 1105(a)(3) claims asserted by DiMaro,

Humphries, and Seay related to the valuation of their accounts

using the book value method.

c. Ellis

Defendants claim that Ellis had actual knowledge of her

claims related to HolliShare’s valuation of her account and the

use of book value in the sales of JDS common shares more than

three years before she filed her complaint on March 22, 2005. 

(Docket No. 483 at 9:15-18; see Case No. 05-559, Docket No. 1.) 

Actual knowledge of a breach or violation starts the shorter

three-year statute of limitations pursuant to 29 U.S.C. §

1113(a)(2). See Ziegler v. Conn. Gen. Life Ins. Co., 916 F.2d

548, 552 (9th Cir. 1990). Unlike the “fraud or concealment”

exception, under which a plaintiff’s constructive knowledge may

start the statutory period, J. Geils Band Employee Benefit Plan

v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1255 (1st Cir.

1996), actual knowledge requires that “a plaintiff [] know of the

essential facts of the transaction or conduct constituting the

violation.” Martin v. Consultants & Adm’rs, Inc., 966 F.2d 1078,

1086 (7th Cir. 1992); see Waller v. Blue Cross of Cal., 32 F.3d

1337, 1341 (9th Cir. 1994) (holding that knowledge of a

transaction that was not inherently a breach of fiduciary duty

was not the equivalent of actual knowledge of the breach of the

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duties of care and loyalty). 

Whether a plaintiff had actual knowledge more than

three years before filing a claim involves a two-step analysis:

“first, when did the alleged ‘breach or violation’ occur; and

second, when did [plaintiff] have ‘actual knowledge’ of the

breach or violation?” Ziegler, 916 F.2d at 550.

With regard to Ellis’s claims related to the valuation

of her account, the alleged breach or violation occurred in late

April or May each year when book value of JDS common shares was

used to value her account. As for Ellis’s knowledge of that

violation, the evidence shows that Ellis was in receipt of

several letters beginning in 1997 discussing HolliShare’s use of

book value to calculate account balances. First, on May 25,

1997, Ellis drafted a letter to the HolliShare plan administrator

asking whether book value was “a fair representation of the value

of the Company.” (Defs.’ 2d App’x Ex. 5 at 45.) Though Ellis

wrote the letter, DeFazio, her husband at the time, instructed

her what to write. (Ellis’s App’x Ex. I (“Ellis Dep.”) 67:5.) 

Ellis then received a reply to this letter from Hollister, which

stated that “the fair value of HolliShare’s investment in JDS

Inc. shares is the book value of such shares,” and that any

“hypothesis as to what JDS Inc. might be sold for as an entity is

highly speculative and irrelevant given the [Trust Instrument].” 

(Id. Ex. K at 1.) 

In addition, on December 24, 1997, Ellis received and

read a copy of a September 26, 1997 letter sent by DeFazio to

Hollister. (Ellis Dep. 83:14-19.) That letter described

DeFazio’s concern over the use of the book value method “as the

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basis for determining account balances,” and how “all the tax

attorneys and pension consultants [DeFazio] discussed this matter

with say that this is definitely an incorrect practice.” (Defs.’

2d App’x Ex. 5 at 49.) The letter goes on to say that the

“current value should reflect what the stock would sell for.” 

(Id.) Finally, in the DeFazio-Ellis divorce proceeding, Ellis

filed a declaration on September 20, 2001, in which she indicated

that DeFazio had been labeled a “whistle blower” at Hollister

with respect to his investigation into the value of Ellis’s

HolliShare account. (Id. at 53.) 

The collection of letters from 1997 provides sufficient

evidence of Ellis’s actual knowledge of her claims related to the

use of book value to calculate the balance of her HolliShare

account. Even though she testified that she did not understand

the distinctions between book value and fair market value at the

time she drafted the May 25, 1997 letter (Ellis Dep. 68:1-2),

DeFazio’s September 26, 1997 letter, which Ellis read, explained

DeFazio’s opinion that book value is not an appropriate measure

of JDS stock. These letters were sufficient to give Ellis

awareness that HolliShare used book value to determine the value

of her account, that HolliShare relied upon the Trust Instrument

and JDS Articles to justify the use of book value, and that there

was a question as to whether that method represented the market

value of the stock. That knowledge constituted the essential

facts underlying her claims related to HolliShare’s valuation of

her account. 

Whether Ellis knew or agreed with DeFazio that the

facts surrounding HolliShare’s use of book value to value her

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account constituted a violation of ERISA is irrelevant. See

Blanton v. Anzalone, 760 F.2d 989, 992 (9th Cir. 1985) (holding

that the ERISA statute of limitations is triggered by “knowledge

of the transaction that constituted the alleged violation, not by

[] knowledge of the law”). Furthermore, even though the final

valuation of Ellis’s account occurred in 2004, the year of the

termination of her employment, the three-year statute of

limitations began to run at the latest in 1997, as that was the

earliest time she became aware of the breaches in question. See

Phillips v. Alaska Hotel & Rest. Employees Pension Fund, 944 F.2d

509, 520 (9th Cir. 1991) (holding that, pursuant to § 1113(2),

the statute of limitations begins to run upon the earliest date

that the plaintiff becomes aware of any breach in a series of

breaches of the same character). Finally, the plan

administrator’s denial of wrongdoing does not constitute an act

of fraud or concealment. See Whitlock Corp. v. Deloitte &

Touche, L.L.P., 233 F.3d 1063, 1066 (7th Cir. 2000) (“Simple

denials of liability do not toll the period of limitations or

estop the adverse party to rely on it.”). 

Ellis’s knowledge in 1997 therefore started the threeyear statute of limitations, and her claims filed on March 22,

2005, related to HolliShare’s use of book value to calculate the

balance of her account and the failure to correct that practice

are time-barred. 

With regard to Ellis’s claims related to the use of

book value in the prohibited transactions, the relevant violation

occurred each year when HolliShare sold shares to JDS for the

allegedly improper sale price. As for Ellis’s knowledge, the

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evidence does not indicate that she had actual knowledge of the

essential facts related to the use of book value in the

prohibited transactions more than three years before she filed

her complaint on March 22, 2005. None of the correspondence

identified by defendants describes the circumstances of the sales

of JDS common shares by HolliShare; instead, the letters focus on

the use of book value in calculating the balance of individual

accounts and the value of HolliShare’s holdings generally. (See,

e.g., Defs.’ 2d App’x Ex. 5 at 50 (describing DeFazio’s concern

only with “the practice of using the book value of the JDS stock

as the current value for that stock in the annual report of the

plan, and more important as the basis for determining the account

balances and the amount of the distributions to former

employees”).) 

Furthermore, Ellis’s declaration submitted in her

divorce proceedings references the “valuation of HolliShare” (id.

at 49) and does not indicate that she was aware of the use of

book value in the annual sales of JDS common shares to JDS. The

evidence therefore does not show that Ellis had actual knowledge

of the essential facts underlying her claims related to the use

of book value in the sales of JDS common shares.

Accordingly, defendants are entitled to summary

judgment only on Ellis’s claims related to HolliShare’s use of

book value in calculating the balance of her account.

d. DeFazio 

Defendants move to dismiss DeFazio’s claims based on

HolliShare’s alleged mishandling of his alternate payee account

by not providing the same return as other HolliShare accounts. 

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(Docket No. 483 at 12:20-13:3.) They argue that DeFazio had

actual knowledge of his claim in 1997. In his September 26, 1997

letter, DeFazio expressed some concern regarding HolliShare’s

handling of alternate payee accounts, stating, “I believe the

plan automatically invests the account balances of former

employees or alternate payees in an investment, similar to a

money market account, until those balances are paid out.” 

(Defs.’ 2d App’x Ex. 5 at 49.) The letter also expressed that

“this is not a correct practice.” (Id.) In response to an

inquiry from DeFazio, Hollister sent a letter on October 18,

2002, stating that his “funds are in a segregated account within

HolliShare earning the 90-Commercial Paper Rate as per the Wall

Street Journal.” (Pls.’ Supplemental Stmt. Undisputed Facts

(Docket No. 528) Ex. HH at 2.)

DeFazio appeared to recognize as early as 1997 that he

would not be receiving the same increase in value on his

alternate payee account as did HolliShare participants, and

claims based only on that difference are time barred. 

Nevertheless, his letter does not demonstrate that he had actual

knowledge that the plan retained possession of the funds within

HolliShare. That distinction is an essential fact to any claim

that HolliShare fiduciaries retained the difference in interest

between the shares held in DeFazio’s alternate payee account and

the 90-day commercial paper rate, which DeFazio has identified as

his basis for asserting claims based upon the segregation of his

alternate payee account. (See Docket No. 532 at 11:17-24.) 

Moreover, the evidence does not indicate that DeFazio became

aware of this distinction before he received Hollister’s letter

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on October 18, 2002. Since he filed his first amended complaint

containing allegations related to the segregation of his

alternate payee account on October 6, 2004, his claims are not

time barred. Accordingly, defendants are not entitled to summary

judgment on DeFazio’s claims.

2. Defendants’ Motion on the Fiduciary Status of JDS

and the Hollister Board

Defendants move for summary judgment on all claims

asserted against certain individual defendants in their

capacities as members of the Hollister Board of Directors on the

basis that these defendants properly discharged their duties

under ERISA. They also move to dismiss the claims asserted

against JDS, contending that the company does not qualify as a de

facto ERISA fiduciary. (Docket No. 484 1:19-2:2.)

a. Hollister Board

To qualify as an ERISA fiduciary, an individual or

entity may either be named as a fiduciary under the terms of an

ERISA plan, see 29 U.S.C. § 1102(a), or act as a functional or de

facto fiduciary by exercising discretionary control over the

management or administration of the plan or its assets, see 29

U.S.C. § 1002(21)(A). When an individual or entity is a named

fiduciary, that fiduciary’s liability may be limited pursuant to

provisions of a plan instrument that allocate responsibility

among named fiduciaries. See Walker v. Nat’l City Bank of

Minneapolis, 18 F.3d 630, 633 (8th Cir. 1994) (“[U]nless ERISA

mandates otherwise, division of authority in the plan determines

the duties of the various fiduciaries.”); 29 C.F.R. §

2509.75-8(D-4) (noting that a plan instrument may allocate

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responsibility among named fiduciaries). 

Here, the Trust Instrument specifies Hollister, the

HolliShare trustees, and the Hollister Board as named

fiduciaries. (Trust Instrument § 11.11.) Hollister is

responsible for plan administration (id.), the trustees are

responsible for management of the plan’s assets (id. §§ 11.01,

11.02), and the Hollister Board has the authority to appoint and

remove trustees, (id. §§ 11.05-11.07). The Board also has the

authority to inspect and audit plan records and receive reports

from the plan trustees. (Id. § 11.04.) The parties do not

dispute that the Hollister Board’s potential liability therefore

arises from its fiduciary duty to appoint and monitor the

HolliShare trustees. (See Docket No. 484 3:24-25; Docket No. 531

20:1-3); Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1325

(9th Cir. 1985) (per curiam) (holding that an employer who

appointed the plan administrator was only a fiduciary and liable

as such with respect to the selection of the administrator); In

re Calpine Corp., No. 03-1685, 2005 WL 1431506, at *3 (N.D. Cal.

Mar. 31, 2005) (noting that the “power of appointment gives rise

to a limited duty to monitor”).

Plaintiffs do not dispute that over the years, the

Hollister Board appointed competent individuals as trustees,

including the General Counsel of JDS and Hollister (Zwirner),

Hollister’s Chief Financial Officers (Gunderson, McCormack, and

Brilliant), and Hollister’s heads of human resources (Simon,

Schellentrager, Karlovsky, and Kelleher). (2d Zwirner Decl. ¶

70; Winn Decl. ¶ 57.) The Hollister Board received annual

reports from the trustees covering the performance of HolliShare

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21 Plaintiffs object to this evidence for lack of

foundation and lack of personal knowledge. (Pls.’ Opp’n Stmt.

Undisputed Facts (Docket No. 523) No. 128.) The court overrules

this objection. Winn and Zwirner, who have both served as

Hollister Board members, have sufficient personal knowledge to

give evidence as to the Board’s monitoring of the annual change

in book value.

38

assets, its benefit obligations, and the sales of JDS common

shares. (2d Zwirner Decl. ¶ 71; Winn Decl. ¶ 58.) The Board

also monitored the returns on HolliShare’s investments, including

the annual increases in the book value of JDS common shares.21

(2d Zwirner Decl. ¶ 72; Winn Decl. ¶ 59.)

The adequacy of such monitoring, however, depends

largely on the factual circumstances of the plan’s investments

and the trustees’ conduct. See 29 C.F.R. § 2509.75-8 (FR-17)

(“[T]rustees and other fiduciaries should be reviewed by the

appointing fiduciary in such manner as may be reasonably expected

to ensure that their performance has been in compliance with the

terms of the plan and statutory standards . . . .”). The

evidence shows that the vast majority of HolliShare’s holdings

consisted of JDS common shares (2d Zwirner Decl. ¶ 8), meaning

that most of the plan’s transactions fell explicitly within the

ERISA’s prohibited transaction provision. See 29 U.S.C. §

1106(a)(1)(A) (prohibiting transactions “between the plan and a

party in interest”); id. § 1002(14) (defining “party in interest”

to include “an employer any of whose employees are covered by

such plan”). The HolliShare trustees may therefore have had

conflicts of interest in those transactions, especially since at

least one trustee--Zwirner--also held positions with JDS and

Hollister. 

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The Hollister Board would have reasonably been aware of

these potential conflicts of interest since they flowed directly

from the formal positions held by the parties to the

transactions. The Hollister Board should have known that ERISA

required that the trustees perform a good faith determination of

the fair market value of plan assets. In light of these

circumstances, a factfinder could reasonably infer that the

Hollister Board’s limited annual monitoring of HolliShare

trustees was insufficient. See Leigh v. Engle, 727 F.2d 113,

135-36 (7th Cir. 1984) (holding that appointing fiduciaries who

were aware of the plan trustees’ conflicting loyalties in certain

transactions were obliged to take extra measures to monitor the

trustees’ actions). A genuine issue of material fact thus exists

as to the adequacy of the Hollister Board’s monitoring of the

plan trustees.

b. JDS

The Trust Instrument does not make JDS a named

fiduciary. Nevertheless, to the extent that JDS exercised

discretionary control or authority over the management of

HolliShare’s assets, it can be considered a de facto, or

functional, fiduciary of the plan. See Wright v. Or.

Metallurgical Corp., 360 F.3d 1090, 1100 (9th Cir. 2004) (citing

29 U.S.C. § 1002(21)(A)); Beddall v. State Street Bank & Trust

Co., 137 F.3d 12, 18 (1st Cir. 1998) (“The key determinant of

whether a person qualifies as a functional fiduciary is whether

that person exercises discretionary authority in respect to, or

meaningful control over, an ERISA plan, its administration, or

its assets . . . .”).

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22 Plaintiffs object to this evidence for lack of personal

knowledge. The objection is overruled. Zwirner, who serves not

only as a HolliShare trustee but also as a JDS Board member (1st

Zwirner Decl. ¶¶ 6-7), has sufficient personal knowledge of the

market for JDS common shares and HolliShare cash needs to testify

thereto.

40

Here, though JDS did not actually manage HolliShare’s

assets, the evidence indicates that JDS exercised discretion over

HolliShare’s sales of its primary asset--JDS common shares. It

is undisputed that, as a result of the JDS stock ownership and

transfer restrictions, no generally recognized market exists for

HolliShare’s holdings of JDS common shares. (See 1st Zwirner

Decl. ¶ 10; Pls.’ Resp. Defs.’ Stmt. Disputed Facts (Docket No.

540) No. 5.) Zwirner stated in his declaration that, given the

number of shares that HolliShare must sell each year to meet its

cash needs, HolliShare might not be able to sell its holdings for

even book value without JDS’s commitment to purchase its

shares.22 (1st Zwirner Decl. ¶ 50.)

This evidence alone is sufficient to create a genuine

issue of material fact as to JDS’s discretionary control over

HolliShare’s holdings of JDS common shares. If, for example,

HolliShare had a particularly strong need for cash in a

particularly lean year for JDS, JDS could choose not to

repurchase HolliShare’s shares or to repurchase fewer than all of

the shares HolliShare sought to sell. According to Zwirner,

HolliShare would thereafter be forced to sell its holdings for a

lower price. JDS has, of course, agreed to repurchase

HolliShare’s holdings pursuant to the mid-80s buy-back agreement

and currently through three-year commitments. (See id. ¶ 49). 

Defendants contend that under those arrangements, HolliShare

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trustees determine the number of shares that JDS will repurchase

in a given transaction. (2d Zwirner Decl. ¶ 77.) Nevertheless,

no evidence suggests that those commitments are legally binding

on JDS, and a reasonable factfinder could infer that HolliShare

would have no recourse if JDS decided to stop or reduce its

repurchases. 

Accordingly, because there exist genuine issues of

material fact regarding the fiduciary status of the Hollister

Board and JDS, defendants are not entitled to partial summary

judgment in their favor, and the court must deny their motion. 

3. Prohibited Transactions

Plaintiffs move for partial summary judgment on their

claims arising out of the annual sales of JDS common shares by

HolliShare to JDS. Specifically, plaintiffs argue that

HolliShare’s sales of JDS common shares to JDS for per-share book

value breached ERISA’s fiduciary duty of prudence and violated

the prohibition on certain types of transactions. (Docket No.

479 at 6:10-8:26); see 29 U.S.C. §§ 1104(a)(1)(B), 1106(a)(1)(A).

a. Good Faith Determination

ERISA establishes a blanket prohibition on certain

transactions, including the sale or exchange of property between

an ERISA plan and a “party in interest,” because such

transactions “entail a high potential for abuse.” Donovan v.

Cunningham, 716 F.2d 1455, 1465 (5th Cir. 1983) (discussing 29

U.S.C. § 1106(a)(1)). As used in this section, a “party in

interest” includes the employer of the employees covered by the

ERISA plan in question. 29 U.S.C. § 1002(14). Nevertheless,

ERISA provides an exemption for transactions that meet certain

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23 In addition to the thoroughness of investigation, the

assessment of the transaction ordinarily includes consideration

of “the merits of the transaction.” Howard, 100 F.3d at 1488.

Plaintiffs, however, have moved only on the basis that the

HolliShare fiduciaries did not engage in an adequate

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requirements. Section 1108(e) provides an exemption for the sale

or acquisition by a plan of employer stock if the sale price is

for “adequate consideration.” When a security has no generally

recognized market, the term “adequate consideration” means “the

fair market value of the asset as determined in good faith by the

trustee or named fiduciary pursuant to the terms of the plan and

in accordance with regulations promulgated by the Secretary [of

Labor].” Id. § 1002(18); see also 29 C.F.R. § 2550.408e (crossreferencing 29 U.S.C. § 1002(18) in defining “adequate

consideration” for purposes of § 1108(e)).

In addition to prohibiting certain transactions with

plan assets, ERISA also imposes a general duty on fiduciaries to

act for the exclusive benefit of plan beneficiaries “with the

care, skill, prudence, and diligence . . . that a prudent man

acting in a like capacity and familiar with such matters would

use in the conduct of an enterprise of a like character and with

like aims.” 29 U.S.C. § 1104(a)(1)(B). Thus, when an ERISA plan

transacts in employer securities, its fiduciaries bear the burden

of showing that the transaction satisfies the requirements of

both §§ 1104(a)(1)(B) and 1108(e). See Howard v. Shay, 100 F.3d

1484, 1488 (9th Cir. 1996). 

Whether a particular transaction with an interested

party complies with both §§ 1104(a)(1)(B) and 1108(e) depends

upon the conduct of the fiduciaries.23 See Howard, 100 F.3d at

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investigation, not that they did not receive sufficient value in

exchange for the JDS shares. (See Docket No. 479 at 7:23-25;

Docket No. 537 at 20:9-12.) 

43

1488 (citing Donovan v. Cunningham, 716 F.2d 1455, 1467-68 (5th

Cir. 1983)). Fiduciaries “are obliged at a minimum to engage in

an intensive and scrupulous independent investigation of their

options.” Id. at 1488-89; see Cosgrove v. Circle K Corp., 915 F.

Supp. 1050, 1064 (D. Ariz. 1995) (“Good faith requires that the

trustees of the Plan have used a prudent method of determining

value.”), aff’d, 107 F.3d 877 (9th Cir. 1997). Nevertheless, the

precise scope and nature of the required investigation depends

upon the circumstances surrounding the transaction and the asset. 

See Keach v. U.S. Trust Co., 419 F.3d 626, 637 (7th Cir. 2005)

(evaluating the sufficiency of the fiduciary’s investigation

“within the context of the totality of the circumstances”);

Cunningham, 716 F.2d at 1467-68 (noting that fiduciaries may

satisfy their burden by showing they determined fair market value

based upon “a prudent investigation in the circumstances then

prevailing”); see also Henry v. Champlain Enters., Inc., 445 F.3d

610, 619 (2d Cir. 2006) (“Whether a fiduciary has made a proper

determination of fair market value depends on whether the parties

are well-informed about the asset and the market for that asset.”

(internal quotation marks omitted)).

Here, plaintiffs contend that HolliShare fiduciaries

inadequately investigated whether JDS common shares could be sold

at a sale price above the December 31 book value employed under

the mid-80s buy-back agreement given their awareness of higher

estimates of the value of JDS common shares. (Docket No. 479 at

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3:8-10.) For example, plaintiffs direct the court’s attention to

a 1997 memorandum in which Zwirner stated that he discussed with

McCormack, another HolliShare trustee (see Defs.’ 2d App’x Ex. 9

at 17:24-18:24), an “analysis” performed by First Union that

estimated the value of JDS to be 3.34 times the book value. 

(Pls. Stmt. Undisputed Facts Ex. H at 1.) Additionally, Winn,

who served on the Hollister Board of Directors until 2001 (Winn

Decl. ¶ 2), testified that he knew that JDS common shares had a

value in the “outside world” of up to three-times book value. 

(Winn Dep. 91:15-92:13.) Though the record does not contain a

description of the bases for these higher estimates of the value

of JDS common shares or whether they included consideration of

the applicable stock restrictions, this evidence suggests that

multiple defendants had knowledge that JDS common shares could

have a value higher than book value.

Defendants respond that the existence of such estimates

does not render their determination of the fair market value

inadequate in light of the stock ownership and transfer

restrictions applicable to JDS common shares. (Docket No. 511 at

5:20-24.) It is undisputed that these restrictions limited the

market for JDS common shares. (See 1st Zwirner Decl. ¶ 10; Pls.’

Resp. Defs.’ Stmt. Disputed Facts (Docket No. 540) No. 5.) The

restricted nature of JDS common shares thus provides part of the

relevant context for the investigation into the fair market value

of that asset. See Krueger Int’l, Inc. v. Blank, 225 F.3d 806,

812 (7th Cir. 2000) (“Before the accounting rules of an ERISA

plan can be applied, the basic terms of the asset to be accounted

for must be determined. That is what the [shareholder agreement]

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does--it defines the bundle of rights to which a [] shareholder

(whether a direct shareholder or a shareholder through an ERISA

plan) is entitled.”); see also Foltz v. U.S. News & World Report,

Inc., 865 F.2d 364, 370-71, 374 (D.C. Cir. 1989) (upholding a

plan’s valuation of closely-held stock based upon the valuation

method specified in the corporation’s certificate of

incorporation).

The parties also do not dispute that the HolliShare

trustees were well-informed regarding the restrictions applicable

to JDS common shares held by HolliShare as a consequence of their

roles in Hollister and JDS. (Pls.’ Resp. Defs.’ Stmt. Disputed

Facts (Docket No. 540) No. 40.) The three trustee positions have

been filled by the Hollister General Counsel, Chief Financial

Officer, and head of human resources. (1st Zwirner Decl. ¶ 28.) 

Plaintiffs do not dispute that the trustees were also aware of

JDS’s historical practice of redeeming common shares offered to

it pursuant to the right of first refusal. (1st Zwirner Decl. ¶

22; Pls.’ Resp. Defs.’ Stmt. Disputed Facts (Docket No. 540) Nos.

17, 40.) 

Zwirner stated in his declaration that the HolliShare

trustees consciously considered these factors whenever they

decided the amount of shares to sell to JDS and the price they

would receive pursuant to the mid-80s buy-back agreement. (1st

Zwirner Decl. ¶¶ 41-42.) Furthermore, Zwirner testified that he

determined the fair market value for any particular sale of

shares to JDS by taking into account “the totality of the

circumstances” then prevailing. (Zwirner Dep. 21:23-22:9.) Even

though conditions changed from year to year, he testified that no

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24 Focusing on defendants’ response to certain

interrogatories, plaintiffs contend that defendants believed they

lacked the power to “assign a value” to JDS common stock. 

(Docket No. 479 8:18-22 (citing Docket No. 375).) This evidence

is at best ambiguous, since in the context of the

interrogatories, it is not clear whether defendants’ answers

address the ability to perform an investigation into the price or

the ability to set the price of JDS common stock. Furthermore,

given the evidence of the HolliShare trustees’ consideration of

46

such changes “led [him] to reconsider the agreement in practice.” 

(Id. at 22:10-14.) 

This evidence of the HolliShare trustees’ general

consideration of the market for JDS common shares in light of the

applicable stock restrictions is sufficient to create a genuine

issue of material fact regarding the adequacy of the

investigation into the possibility of selling JDS common shares

at prices higher than book value. Plaintiffs are therefore not

entitled to summary judgment in their favor on the claims related

to the prohibited transactions.

In addition to their arguments that defendants failed

to conduct an adequate investigation, plaintiffs also argue that,

because ERISA’s exemption to 29 U.S.C. § 1106(a)(1)(B) requires

that the value of the asset be determined “by the trustee or

named fiduciary,” 29 U.S.C. § 1002(18), the sales of common

shares to JDS constituted per se violations of § 1106(a)(1)(B)

because book value was determined solely by JDS, which is neither

a trustee or named fiduciary. (Docket No. 479 at 7:10-22.) As

discussed, however, the record suggests that the HolliShare

fiduciaries performed an investigation to determine whether the

repurchase price of JDS common shares represented the fair market

value for JDS common shares.24 

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the market for the asset, the interrogatory responses at best

create a genuine issue of material fact concerning the adequacy

of investigation.

25 Plaintiffs’ additional argument that HolliShare

trustees may not rely on section 7.03 of the Trust Instrument,

which provides that the assets of HolliShare “shall be valued . .

. at their respective fair market values as of each December

31st,” to excuse their statutory duty of a good faith

determination is moot because defendants do not rely on that

provision to justify a complete absence of investigation into the

transactions with JDS. Rather, evidence suggests that the

December 31st valuation date influenced the timing of sales to

JDS. (3d Zwirner Decl. ¶ 10.)

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Plaintiffs’ argument further fails to recognize that

book value is simply a particular method of calculating the value

of corporate stock. The JDS articles do not empower JDS

management to simply determine the repurchase price of its

shares; rather, the JDS articles, at least since 1978, establish

book value as the method of valuation for the repurchase of JDS

shares. (JDS Articles 12.) Though the parties have not

submitted evidence of the precise formula underlying that method,

they do not dispute that the book value was computed from audited

JDS financial statements. (Pls.’ Resp. Defs.’ Stmt. Undisputed

Facts (Docket No. 540) No. 53.) The increase in book value from

year-to-year is also apparently driven by the profitability of

Hollister. (1st Zwirner Decl. ¶ 36.) There is no evidence

suggesting that the book value employed for any particular

transaction was simply a figure chosen by JDS--rather than the

valuation method called for in the JDS Articles--and thus

plaintiffs’ argument that JDS determined the repurchase price is

unsupported by the record.25

b. ERISA Preemption

Plaintiffs contend that, because specific provisions of

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the JDS Articles and the mid-80s buy-back agreement set the

repurchase price of JDS common shares at book value, the

provisions prevent HolliShare trustees from performing their

duties under the statute and are therefore preempted by ERISA. 

(Docket No. 479 at 14:18-15:11.) Plaintiffs request that the

court order these provisions stricken “in their entirety[] so

that plan fiduciaries can fulfill their duties under ERISA.” 

(Id. at 15:10.)

ERISA provides that it “shall supersede any and all

State laws insofar as they may now or hereafter relate to any

employee benefit plan.” 29 U.S.C. § 1144(a). Though ERISA’s

“pre-emption clause is conspicuous for its breadth,” FMC Corp. v.

Holliday, 498 U.S. 52, 58 (1990), its applicability is plainly

limited by its terms to “State laws,” defined as “decisions,

rules, regulations, or other State action having the effect of

law.” 29 U.S.C. § 1144(c); see Associated Gen. Contractors of

Am. v. Metro. Water Dist. of So. Cal., 159 F.3d 1178, 1182 (9th

Cir. 1998) (“‘ERISA [] does not preempt state action which

relates to an ERISA plan so long as the state action does not

have the effect of law.’” (quoting Minn. Chapter of Associated

Builders & Contractors, Inc. v. County of St. Louis, 825 F. Supp.

238, 243 (D. Minn. 1993)); see also id. at 1184 (holding that

ERISA did not preempt a state entity’s contracts requiring

vendors to participate in employee benefit funds because the

contracts did not qualify as “State laws” under 29 U.S.C. §

1144(c)). 

Here, plaintiffs have failed to identify any

“decisions, rules, regulations” or other state action having the

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effect of law that requires or condones the JDS stock

restrictions or the mid-80s buy-back agreement as applied to JDS

shares held by HolliShare. Instead, plaintiffs argue that the

JDS Articles and the mid-80s buy-back agreement--agreements and

arrangements created by private parties--qualify as state laws

for the purposes of ERISA preemption because they are purportedly

enforceable under Illinois law. (Docket No. 479 at 14:18-21.) 

The Ninth Circuit, however, has expressly rejected the argument

that an instrument’s enforceability under the authority of a

state confers upon that instrument the status of “State laws”

under § 1144(c). See Associated Gen. Contractors of Am., 159

F.3d at 1183 n.2 (“We see no merit in [plaintiff’s] argument that

simply because a contract is legal and enforceable it has the

effect of law of a state.”). 

Because neither the JDS stock restrictions nor the mid80s buy-back agreement qualify as “State laws” pursuant to §

1144(c), they are not preempted by ERISA. Cf. Krueger Int’l,

Inc. v. Blank, 225 F.3d 806, 813 (7th Cir. 2000) (holding that

ERISA did not preempt a shareholder agreement providing the

corporation with a repurchase option because ERISA does not

preempt state law except where “ERISA and the state law conflict

regarding the distribution of an already defined sum”). 

Alternatively, plaintiffs contend that if ERISA does

not preempt the JDS stock restrictions, HolliShare fiduciaries

breached their duty of prudence by failing to diversify the

plan’s investments rather than continuing to hold an asset with

such limited marketability. (Docket No. 537 at 15:24-17:6); see

In re Syncor ERISA Litig., 516 F.3d 1095, 1102 (9th Cir. 2008)

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26 Along similar lines, the court will not consider

plaintiffs’ argument, raised in their reply brief, that 29 U.S.C.

§ 1110(a) renders the mid-80s buy-back agreement void as against

public policy. (Docket No. 537 at 9:4-11:16.)

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(noting that, even though the employee stock ownership plan at

issue was designed to invest primarily in employer stock, plan

fiduciaries may have breached the prudent man standard of care by

investing in that stock when they knew it had an artificially

inflated price). However, because plaintiffs raised this

argument for the first time in their reply brief, defendants did

not have an opportunity to respond or submit evidence on these

points. The court will therefore not consider the merits of this

argument for the purposes of the instant motion. See Ass’n of

Irritated Residents v. C & R Vanderham Dairy, 435 F. Supp. 2d

1078, 1089 (E.D. Cal. 2006) (“It is inappropriate to consider

arguments raised for the first time in a reply brief.”) (Ishii,

J.).26

Accordingly, the court will deny plaintiffs’ motion for

partial summary judgment on the claims related to the prohibited

transactions.

4. 1999 Transaction

Both plaintiffs and defendants have moved for partial

summary judgment on the claims related to the 1999 Transaction. 

Defendants first argue that plaintiffs lack constitutional

standing to assert their claims. To satisfy “the irreducible

constitutional minimum of standing,” a plaintiff must establish

three elements: (1) the plaintiff “suffered an injury in fact--an

invasion of a legally protected interest which is (a) concrete

and particularized, and (b) actual or imminent, not conjectural

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27 Defendants also argue in passing that plaintiffs have

not suffered an injury in fact, but it is well-established that

statutory violations qualify as an injury in fact so long as the

statute in question “creates correlative procedural rights in a

given plaintiff.” Fernandez v. Brock, 840 F.2d 622, 630 (9th

Cir. 1988). Here, plaintiffs assert that defendants violated 29

U.S.C. §§ 1104 and 1106; ERISA grants participants and

beneficiaries a cause of action to prosecute violations of these

provisions even before a plan incurs losses. See Ziegler v.

Conn. Gen. Life. Ins. Co., 916 F.2d 548, 551 (9th Cir. 1990); M &

R Inv. Co. v. Fitzsimmons, 685 F.2d 283, 287 (9th Cir. 1982).

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or hypothetical”; (2) the existence of a “causal connection

between the injury and the conduct complained of”; and (3) that

it is “likely, as opposed to merely speculative, that the injury

will be redressed by a favorable decision.” Lujan v. Defenders

of Wildlife, 504 U.S. 555, 560-61 (1992) (internal quotation

marks and citations omitted). “The burden of establishing

Article III standing remains at all times with the party invoking

federal jurisdiction.” Scott v. Pasadena Unified Sch. Dist., 306

F.3d 646, 655 (9th Cir. 2002) (citing Lujan, 504 U.S. at 561).

Defendants chiefly contend that plaintiffs claims fail

to satisfy the element of redressability.27 Redressability

requires that plaintiffs show that they “would benefit in a

tangible way from the court’s intervention.” Warth v. Seldin,

422 U.S. 490, 508 (1975) (footnote omitted); see Steel Co. v.

Citizens for a Better Env’t, 523 U.S. 83, 107 (1998) (“Relief

that does not remedy the injury suffered cannot bootstrap a

plaintiff into federal court; that is the very essence of the

redressability requirement.”). Essentially, the redressability

prong requires that plaintiffs have a stake in the recovery. See

Paulsen v. CNF Inc., 559 F.3d 1061, 1073 (9th Cir. 2009). When a

plaintiff seeks prospective relief, redressability requires “that

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28 Under 29 U.S.C. § 1132(a)(2), the Secretary of Labor, a

participant, a beneficiary, or a fiduciary may bring an action

for relief under 29 U.S.C. § 1109. Section 1109 in turn 

provides that plan fiduciaries may be held personally liable “to

make good to [the] plan any losses to the plan resulting from

such breach [of the responsibilities, obligations, or duties

imposed upon fiduciaries by this subchapter].”

29 Pursuant to 29 U.S.C. § 1132(a)(3), an ERISA plaintiff

may bring an action “(A) to enjoin any act or practice which

violates the provisions of this subchapter or the terms of the

plan, or (B) to obtain other appropriate equitable relief (I) to

redress such violations or (ii) to enforce any provisions of this

subchapter or the terms of the plan.” This provision authorizes

the grant of equitable relief such as injunction, mandamus, and

restitution, but not compensatory damages. See McLeod v. Or.

Lithoprint Inc., 102 F.3d 376, 378 (9th Cir. 1996).

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prospective relief will remove the harm.” Warth, 422 U.S. at

505. 

Plaintiffs seek two forms of relief from this court

with respect to the 1999 Transaction. First, pursuant to 29

U.S.C. §§ 1109 and 1132(a)(2), which together provide that plan

fiduciaries may be held personally liable to make good the losses

to a plan resulting from the breach of their duties, plaintiffs

seek make-whole monetary relief in the form of a revaluation of

their accounts as if the 1999 Transaction had not occurred.28

(Docket No. 531 at 6:19-21; HAC 66:7-9; FAC 41:7-9.) Second,

pursuant to § 1132(a)(3), plaintiffs seek equitable relief for

their claims based upon the 1999 Transaction in the form of a

redistribution or cancellation of the JDS preferred shares.29

(Docket No. 531 at 7:21-24; HAC 65:20-22; FAC 40:20-21.) 

Turning first to plaintiffs’ request for monetary

relief, in the ordinary case, losses to an ERISA plan are

measured by the difference between what beneficiaries received

and what they would have received absent the plan fiduciary’s

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30 Pursuant to paragraph II.D, the employee beneficiaries

of the 1977 Schneider Trust would have been required to offer

their holdings of preferred shares to JDS when they retired or

their employment was otherwise terminated. (JDS Articles 20.) 

JDS, in turn, would have been required to cancel those shares

upon repurchase under article five, paragraph II.G. (Id. at 27.)

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breaches. This lost value may be ascertained “through expert

testimony or other evidence regarding investment returns during

the relevant period.” Vaughn v. Bay Envtl. Mgmt., Inc., --- F.3d

---, 2009 WL 1545124, at *5 (9th Cir. June 4, 2009).

Here, plaintiffs’ theory as to how the alleged breaches

associated with the 1999 Transaction would have affected the

monetary value of their HolliShare accounts is premised on the

assumption that, if the 1999 Transaction had not been

consummated, HolliShare would have ultimately achieved a

controlling position in JDS as the company eventually repurchased

and cancelled the preferred shares issued to the employee

beneficiaries of the 1977 Schneider Trust.30 (Docket No. 479 at

3:24-26; Docket No. 531 at 14:18-27; HAC ¶¶ 43-46; FAC ¶¶ 25-27.) 

HolliShare’s holdings of JDS common shares would thereafter

allegedly increase in value due to a control premium, which

HolliShare would realize in a sale of its holdings after it voted

to remove the stock ownership and transfer restrictions contained

in the JDS articles. (See Docket No. 531 at 6:21-23, 14:23-27;

Docket No. 479 at 4:4-8.)

The evidence indicates, however, that it is far from

certain that HolliShare would have eventually controlled a

majority of JDS voting shares and obtained the theoretical

increase in monetary value therefrom. At the time of the

creation of the 1999 Transaction and in 2001 (the year in which

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31 Plaintiffs dispute these figures, claiming that

HolliShare and another trust (for foreign-based employees) could

also have received shares from the 1977 Schneider Trust. (Pls.’

Opp’n Stmt. Undisputed Facts (Docket No. 523) No. 103.) In

support of this contention, plaintiffs cite two documents, the

“Arnold & Porter opinion” and a page of discovery numbered RZ

1908, without identifying where in the record either document is

located. After reviewing the materials submitted in connection

with the parties’ cross-motions, the court is unable to locate

either document and will therefore not consider plaintiffs’

contentions based upon them. See Hoffman v. Constr. Protective

Servs., Inc., No. 03-1006, 2006 WL 6105639, at *6 (C.D. Cal. Aug.

25, 2006) (“While there may be evidence in the record to support

such a finding, ‘[j]udges are not like pigs, hunting for truffles

buried in [the record].’” (quoting Entm’t Research Group, Inc. v.

Genesis Creative Group, Inc., 122 F.3d 1211, 1217 (9th Cir.

1997))). 

Furthermore, plaintiffs’ argument that HolliShare could

have received preferred shares is not supported by the text of

the 1977 Schneider Trust, which provides that the corpus of the

trust shall be distributed to “such persons as (1) are then

living, (2) are then employees of Hollister . . . and (4) agree

in writing to abide by [certain policies and principles].” 

(Defs.’ App’x Ex. 3 at 11 (emphasis added).)

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the 1977 Schneider Trust would have expired), the 1977 Schneider

Trust held 61,750,000 JDS preferred shares--constituting 97 to

98% of all JDS outstanding shares between 1999 and 2001--compared

to HolliShare’s holdings of between 758,027 and 1,128,027 JDS

common shares. (2d Zwirner Decl. ¶ 14; Thielitz Decl. ¶ 4.) As

of the distribution of preferred shares to the eligible employee

beneficiaries in 2001, therefore, HolliShare’s holdings would

have represented a very small percentage of all outstanding

voting shares.31 The holdings of preferred shares would of

course have decreased as employee beneficiaries of the 1977

Schneider Trust terminated their employment over time, but the

evidence shows that the complete repurchase of preferred shares

would have taken years. For example, as of December 31, 2008,

almost a decade after the 1999 Transaction, at least fifty of the

employee-beneficiaries who would have been entitled to receive

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32 Plaintiff objects to this evidence based on Federal

Rule of Evidence 602 (personal knowledge). (Pls.’ Opp’n Stmt.

Undisputed Facts (Docket No. 523) No. 104.) The court overrules

this objection. Dian Thielitz, who currently serves as the

Assistant Secretary of Hollister and the corporate Secretary of

JDS (Thielitz Decl. ¶ 2), has sufficient personal knowledge of

Hollister employee records to testify as to the number of

employees who were employed with Hollister as of December 31,

2008, and who would have met the share ownership requirements to

be employee beneficiaries of the 1977 Schneider Trust at its

expiration in 2001.

33 The holders of the preferred shares could also have

amended article five, paragraph I to change the number of

preferred shares and common shares that JDS was authorized to

issue. (JDS Articles 19; see also id. at 27 (providing that only

the ownership and transfer restrictions required a two-thirds

vote for each class of shares).) 

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preferred shares from the 1977 Schnieder Trust were still

employed with Hollister. (Thielitz Decl. ¶ 13.)32 

The date on which HolliShare could have become the

majority holder of all outstanding shares could have also been

affected by factors other than the gradual repurchase of

preferred shares. HolliShare’s voting power may not have

proportionately increased as the number of preferred shares

decreased, as the evidence indicates that the number of JDS

common shares held by HolliShare has steadily decreased since

1999. (See id. ¶ 4 (stating that HolliShare holdings have

decreased from 1,128,027 shares in 1999 to 458,027 shares in

2008).) In addition, pursuant to article five of the JDS

Articles, which authorizes the company to issue up to 71,260,000

shares of preferred stock (JDS Articles 2), JDS could also have

issued an additional 9,510,000 shares of preferred stock, thereby

diluting HolliShare’s voting power.33

Making all inferences in favor of plaintiff, this

evidence shows that although the exact date on which HolliShare

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34 The plaintiffs who were employees of Hollister

terminated their employment on the following dates: Humphries

(January 3, 1998), Seay (July 16, 1999), DiMaro (September 30,

1999), Lavick (January 7, 2000), McNair (November 17, 2001),

Stanton (March 1, 2002), Pace (May 2, 2003), Ellis (June 1,

2004), Wirth (March 31, 2006), Beetham (May 19, 2006). (Thielitz

Decl. ¶ 4.) All of these plaintiffs thereafter received a

distribution of their vested HolliShare account balance. (See

Defs.’ 2d App’x (Docket Nos. 490-491) Ex. 1 at 69; id. Ex. 4 at

46; id. Ex. 5 at 43; id. Ex. 6 at 42-44; id. Ex. 8 at 41; id. Ex.

10 at 35; id. Ex. 11 at 86; id. Ex. 12 at 10; id. Ex. 13 at 20;

id. Ex. 14 at 42.)

 DeFazio is the only plaintiff who was not a Hollister

employee; he was an alternate payee for the account of Ellis, his

ex-wife. In its April 23, 2008 order, the Sacramento Superior

Court presiding over the DeFazio-Ellis divorce proceedings

ordered HolliShare to distribute the balance of DeFazio’s

alternate payee account to DeFazio. (Req. Judicial Notice Ex. W

at 4.) At oral argument, the parties confirmed that HolliShare

distributed the balance of DeFazio’s account on May 15, 2009.

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would become the majority holder of all outstanding JDS shares is

uncertain, it is possible that HolliShare would indeed have

eventually become the majority holder. Nevertheless, plaintiffs

have not identified evidence from which a reasonable inference

could be drawn that HolliShare would have experienced any change

in value during the period that any plaintiff had an account with

HolliShare.34 To enjoy the increase in value associated with a

control premium, the stock ownership and transfer restrictions

contained in the JDS Articles would have had to be amended. To

do so under the JDS Articles requires a two-thirds vote of every

class of shares, including the preferred shares. (See JDS

Articles 27.) 

As of December 31, 2008, approximately five months

before HolliShare distributed the balance of the last of the

plaintiffs’ accounts, at least fifty employee beneficiaries who

would have been entitled to receive preferred shares from the

1977 Schneider Trust were still employed with Hollister. So long

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as any of these employee-beneficiaries still owned any preferred

shares, HolliShare would have been unable to change the stock

ownership and transfer restrictions contained in the JDS Articles

without their support. Therefore, even though as former

participants, plaintiffs could have statutory standing to pursue

their claims, see LaRue v. DeWolff, Boberg & Assocs., Inc., 128

S. Ct. 1020, 1026 n.6 (2008), such an attenuated theory

underlying a request for plan fiduciaries to restore losses to

the plan simply does not satisfy the redressability requirement

of constitutional standing. 

For example, in Glanton ex rel. ALCOA Prescription Drug

Plan v. Advancepcs Inc., 465 F.3d 1123, 1127 (9th Cir. 2006), the

Ninth Circuit held that medical benefits plan participants could

not satisfy the redressability requirement in a suit for monetary

relief pursuant to §§ 1109 and 1132(a) because whether the

plaintiffs would have enjoyed reduced plan costs in the absence

of the alleged fiduciary breaches depended on the conduct of a

third party who exercised independent discretion. See also

Paulsen v. CNF Inc., 559 F.3d 1061, 1073-74 (9th Cir. 2009)

(holding that pension plan participants’ make-whole claims did

not support redressability when their theory of recovery was

premised on the Pension Benefit Guaranty Corporation increasing

benefits when it was not legally compelled to do so). Similarly,

under plaintiffs’ theory of monetary relief, whether HolliShare

would have realized a control premium while plaintiffs still had

HolliShare accounts depends entirely on the assumption that

holders of two-thirds of the preferred shares would have voted to

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35 In their opposition papers, plaintiffs urge the court

to explore a new, heretofore unmentioned theory by which

HolliShare could have become the majority holder of all

outstanding JDS stock. They highlight that, at the time

paragraph II.C of the JDS Articles was amended in 1999 to allow

the 1999 Preferred Share Trust to hold JDS shares, the same set

of amendments eliminated article five, paragraph II.E, which

allowed the 1977 Schneider Trust to hold JDS shares. (Compare

JDS Articles 27, with id. at 52.) Plaintiffs argue that the 1977

Schneider Trust was therefore an unauthorized holder of JDS

shares between June 14, 1999 and its expiration on April 21,

2001, and the HolliShare trustees could have brought an action to

strip it of its shares.

Similar to plaintiffs’ original theory, this new theory

is built upon multiple assumptions about the conduct of outside

parties. It presumes that such a suit against the 1977 Schneider

Trust would have been successful despite the fact that

participants in the 1999 Transaction envisioned that the 1977

Schneider Trust would continue to hold its shares until its

expiration on April 21, 2001, at which point the shares would be

transferred to the 1999 Preferred Share Trust. It also assumes

that the court hearing the suit would have ordered any

repossessed shares cancelled or not otherwise issued to other

authorized holders. Finally, plaintiffs’ new hypothetical

assumes that the 1977 Schneider Trust would not have filed a

reasonable counterclaim against the person or entity bringing

such action to have the JDS Articles corrected to allow the trust

to hold shares again. See 805 Ill. Comp. Stat. 5/12.56(a)-(b)

(providing a shareholder of a non-public corporation with a cause

of action to seek cancellation or alteration of the articles of

incorporation if the directors or those in control of the

corporation have acted “in a manner that is illegal, oppressive,

or fraudulent”).

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remove the JDS stock restrictions.35 

As plaintiffs recognize, it is of course impossible to

prove exactly what would have happened if HolliShare fiduciaries

had not approved the 1999 Transaction. (See Pls.’ Opp’n Stmt.

Undisputed Facts (Docket No. 523) Nos. 102, 104-06.) 

Nonetheless, the breach alleged here--the disloyal and imprudent

vote of the JDS common shares held by HolliShare--does not

inherently support a claim for losses to plaintiffs’ retirement

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36 In contrast, plaintiffs’ claims based upon prohibited

transactions, for example, are premised on allegedly disloyal

investment decisions and improper sales of HolliShare assets

that, by definition, would have changed the value or composition

of plaintiffs’ accounts.

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accounts.36 Instead, plaintiffs’ theory relies on conjecture

regarding what independent third parties might have done--perhaps

employee beneficiaries of the 1977 Schneider Trust would have,

for some reason, declined to receive their preferred shares, or

perhaps HolliShare trustees could have convinced enough preferred

share holders to vote for changes to the JDS articles. In light

of these ambiguities, plaintiffs, who bear the burden of showing

constitutional standing, have “not demonstrated that it is

‘likely,’ and not merely ‘speculative,’ that their injury will be

redressed by a favorable decision” from this court. Paulsen, 559

F.3d at 1074. 

With regard to plaintiffs’ request for equitable

relief, defendants contend that the termination of all of the

plaintiffs’ HolliShare accounts since the filing of this action

has rendered their requests for equitable relief moot. “While

standing is determined on the facts as they existed at the time

the complaint was filed, a case becomes moot--and, hence, nonjusticiable--if the requisite personal interest captured by the

standing doctrine ceases to exist as any point during the

litigation.” Jacobs v. Clark County Sch. Dist., 526 F.3d 419,

425 (9th Cir. 2008) (citations and internal quotation marks

omitted); see GTE Cal., Inc. v. FCC, 39 F.3d 940, 945 (9th Cir.

1994) (“To satisfy the Article III case-or-controversy

requirement, a litigant must have suffered some actual injury

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37 Nor are any of the plaintiffs employee-beneficiaries of

the 1977 Schneider Trust who would be entitled to receive

preferred shares. (2d Zwirner Decl. ¶ 41; Winn Decl. ¶ 37.)

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that can be redressed by a favorable judicial decision. . . .

Where events have occurred that prevent us from granting

effective relief, we lack jurisdiction and must dismiss the

appeal.” (internal quotation marks and citations omitted)). 

Assuming the ERISA violations at issue regarding the

1999 Transaction warrant the equitable relief requested--the

cancellation or redistribution of JDS preferred shares--such

relief would only provide benefits to HolliShare beneficiaries

prospectively. Because none of the plaintiffs still have an

account with HolliShare, they could not possibly benefit from an

order affecting HolliShare’s current or future voting power in

JDS shares.37 See Bendaoud v. Hodgson, 578 F. Supp. 2d 257, 267-

68 (D. Mass. 2008) (holding that a plaintiff who was no longer a

participant in a defined contribution plan had no standing to

seek purely prospective relief). Nor does the record indicate

that other types of equitable relief, such as disgorgement or

restitution, would redress the alleged injury in the absence of

evidence that plan fiduciaries profited from the alleged

violations at the plan’s expense. See Horvath v. Keystone Health

Plan East, Inc., 333 F.3d 450, 456 (3d Cir. 2003) (holding that a

plaintiff must demonstrate individual loss to have standing to

seek restitution and disgorgement). Equitable relief simply

would not “remove the harm” or otherwise provide plaintiffs with

a tangible benefit.

Therefore, since neither revaluation of their accounts

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38 In light of the court’s holding that plaintiffs lack

constitutional standing to seek relief for the 1999 Transaction,

the defendants’ other arguments and plaintiffs’ cross motion for

partial summary judgment on claims related to the 1999

Transaction are moot.

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nor equitable relief will redress the ERISA violations at issue

regarding the 1999 Transaction, plaintiffs “have no stake in the

recovery and cannot satisfy the redressability requirement of

constitutional standing.” Paulsen, 559 F.3d at 1073. 

Furthermore, plaintiffs cannot satisfy the redressability

requirement by purporting to seek relief on behalf of the plan as

a whole. Though participants in an ERISA plan may, in general,

seek relief on behalf of the plan, plaintiffs may only do so if

they “otherwise meet the requirements for Article III standing.” 

Glanton, 465 F.3d at 1127. Because plaintiffs do not have

standing themselves to seek relief for the claims based on the

1999 Transaction, they cannot do so on behalf of HolliShare. 

Accordingly, the court must grant defendants’ motion for summary

judgment on the 1999 Transaction claims.38

5. DeFazio-Ellis Divorce Proceedings

DeFazio moves for partial summary judgment based on

HolliShare’s compliance with certain domestic relations orders

(“DROs”) issued by the Sacramento Superior Court presiding over

the DeFazio-Ellis divorce proceedings. He argues that these

orders did not satisfy the requirements of a “qualified domestic

relations order” (“QDRO”) as that term is defined in 29 U.S.C. §

1056(d)(3)(D), and that by complying with those orders,

HolliShare fiduciaries breached their duties under §

1104(a)(1)(D) to administer the plan in accordance with the terms

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39 A QDRO must also specify the name and mailing address

of the alternate payee and the affected plan participant, the

amount or percentage of the participant’s benefits to be paid or

the means by which that amount will be determined, the number of

payments or time period to which the order applies, and the plan

to which the order applies. 29 U.S.C. § 1056(d)(3)(c). DeFazio

does not contend that the DROs in question failed to satisfy

these requirements.

62

of the plan instrument. (Docket No. 474 at 4:10-13.) 

Though pension benefits may not, in general, be

assigned or alienated, 29 U.S.C. § 1056(d)(1), ERISA authorizes

certain state court-ordered assignments of plan benefits to

former spouses and dependents. Section 1056(d)(3) provides that

pension plans “shall provide for the payment of benefits in

accordance with the applicable requirements of any [QDRO].” 

QDROs are a type of domestic relations order, which relate “to

the provision of child support, alimony, or marital property

rights to a spouse, former spouse, child, or other dependent of a

plan participant . . . made pursuant to a State domestic

relations law.” Id. § 1056(d)(3)(B)(ii). A DRO is a QDRO if it

“creates or recognizes the existence of an alternate payee’s

right to, or assigns to an alternate payee the right to, receive

all or part of the benefits payable with respect to a participant

under a[n ERISA] plan.” Id. § 1056(d)(3)(B)(I). In addition,

the DRO may not (1) require the plan to provide any type of

benefit not otherwise provided, id. § 1056(d)(3)(D)(I); (2)

require the plan to provide increased benefits, id. §

1056(d)(3)(D)(ii); or (3) require benefits to be paid to an

alternate payee which must be paid to another alternate payee

under another QDRO, id. § 1056(d)(3)(D)(iii).39

These QDRO provisions are designed to provide simple,

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certain rules for plan administrators to follow. See Kennedy v.

Plan Adm’r for DuPont Sav. & Inv. Plan, 129 S. Ct. 865, 874

(2009) (“And the cost of less certain rules would be too plain. 

Plan administrators would be forced to examine a multitude of

external documents that might purport to affect the dispensation

of benefits . . . .” (internal quotation marks omitted)); Carmona

v. Carmona, 544 F.3d 988, 999 (9th Cir. 2008) (noting that the

QDRO requirements “allow a plan administrator to more easily

administer the plan and reduce the risk of making improper

payments”).

Here, DeFazio argues that the Superior Court’s March

2002 order violated certain requirements of a QDRO. That order

provided that HolliShare was to segregate DeFazio’s community

property share of Ellis’s HolliShare account, but further

specified that Ellis “shall have a lien and security interest in

[DeFazio’s] share for unpaid child support.” (Req. Judicial

Notice Ex. G at 3.) The court consequently retained jurisdiction

over DeFazio’s share and ordered the HolliShare administrator to

retain possession of $1,500,000 of DeFazio’s account pending

further order of the Superior Court. (Id.) DeFazio contends

that this order violated § 1056(d)(3)(D)(i) because it did not

allow the HolliShare administrator to immediately distribute the

balance of DeFazio’s alternate payee account in accordance with

the terms of the Trust Instrument. (Docket No. 474 at 3:7-16.) 

In particular, section 9.01(3)(d) of the Trust Instrument

provides that, for an alternate payee account exceeding $5,000,

the account “shall be distributed upon the earliest to occur of

(I) the date directed in the QDRO, (ii) the date selected in

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writing by the Alternate Payee, or (iii) the ‘earliest retirement

age’ (as defined in [26 U.S.C. § 414(p)]) of the Participant from

whose Account the Alternate Payee’s Account was created.” (Trust

Instrument 33.) Section 414(p)(4)(B) in turn defines an

employee’s “earliest retirement age” as the later of age fifty or

the earliest date on which the participant could start receiving

benefits under the plan if the participant separated from

service.

It is undisputed that Ellis was over the age of fifty

at the time of the March 2002 order, and she could have received

benefits under the terms of the plan if she had terminated her

employment. (See Req. Judicial Notice Ex. G at 1 (noting Ellis’s

year of birth as 1951); Trust Instrument § 8.02 (providing that a

Hollister employee’s account fully vests after seven years of

employment).) Thus, DeFazio was entitled to an immediate

distribution of his account under section 9.01(3)(d) of the Trust

Instrument. Nevertheless, the March 2002 order did not violate §

1056(d)(3)(D)(i), which provides that a DRO meets the

requirements of a QDRO only if it “does not require a plan to

provide any type or form of benefit . . . not otherwise provided

under the plan.” 29 U.S.C. § 1056(d)(3)(D)(i) (emphasis added). 

The plain language of this provision only bars a QDRO from

requiring a plan to affirmatively afford a type or form of

benefit not established under that plan. See Patton v. Denver

Post Corp., 326 F.3d 1148, 1152 (10th Cir. 2003) (“For example,

benefits of a type or form not otherwise provided is best

understood as referring to a lump sum payout rather than regular

payments over a period of years.”); see also, e.g., Dickerson v.

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Dickerson, 803 F. Supp. 127, 134 (E.D. Tenn. 1992) (holding that

a divorce decree was not a QDRO because it ordered the payment of

retirement benefits before the time authorized under the terms of

the plan).

The effect of the March 2002 order was simply to delay

the timing of DeFazio’s distribution described in section

9.01(3)(d) of the Trust Instrument. Though the HolliShare

administrator could not have delayed the distribution under the

terms of the Trust Instrument alone, to do so in accordance with

a DRO did not require the administrator to affirmatively provide

DeFazio with a form or type of benefit to which DeFazio would not

have otherwise been entitled. The failure of the March 2002

order to provide for the immediate distribution of DeFazio’s

alternate payee account therefore did not violate §

1056(d)(3)(D)(i).

Alternatively, DeFazio argues that the March 2002 order

was inconsistent with the distribution methods of the Trust

Instrument because it “contemplated a series of distributions for

child support.” (Docket No. 474 at 3:17-18.) Section 9.01(1) of

the Trust Instrument provides participants, former participants,

and alternate payees with only limited forms of payment,

including lump sum single cash payment, direct rollover to an

eligible retirement plan, certain annuities, and combinations of

the three. While DeFazio accurately identifies that section

9.01(1) does not allow periodic payments from a HolliShare

account, the March 2002 order itself did not order such payments. 

The order only specified that the HolliShare administrator was to

retain possession of DeFazio’s account pending future order of

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the Superior Court. It may have “contemplated” multiple payments

from DeFazio’s account in the future, but it did not order that

HolliShare provide them. DeFazio’s alternative argument that the

March 2002 order violated § 1056(d)(3)(D)(I) thus also fails.

Finally, DeFazio argues that the DROs subsequently

issued pursuant to the March 2002 order violated §

1056(d)(3)(D)(iii), which provides that a DRO qualifies as a QDRO

only if it “does not require the payment of benefits to an

alternate payee which are required to be paid to another

alternate payee under another order previously determined to be a

qualified domestic relations order.” He contends that the

subsequent DROs concerning DeFazio’s child support obligations

ordered payments from DeFazio’s account to DeFazio’s children--

i.e., other alternate payees. (Docket No. 474 at 4:1-8.) 

This argument misconstrues the terms of the subsequent

DROs. Those DROs ordered HolliShare to make payments from

DeFazio’s alternate payee account directly to Ellis. (See, e.g., 

order dated August 5, 2002 at 2 (“Plan Administrator shall

distribute the amounts set forth above to Petitioner [Ellis]”).)

Though the payments satisfied DeFazio’s child support

obligations, they were not payed to the children as alternate

payees. Rather, the subsequent DROs simply adjusted the division

of Ellis’s HolliShare account between Ellis and DeFazio. 

DeFazio’s argument that the subsequent DROs violated §

1056(d)(3)(D)(iii) is thus not supported by the terms of those

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40 Because the issue has not been presented by the instant

motion, the court does not hold that the March 2002 order or the

subsequent DROs were in fact QDROs under ERISA.

41 In light of the court’s holding that DeFazio has failed

to show that he is entitled to judgment as a matter of law, the

court does not reach defendants’ arguments concerning the

applicability of collateral estoppel, judicial estoppel, the

Rooker-Feldman doctrine, or the Colorado River doctrine.

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orders.40

Though there is an absence of a genuine issue of

material fact, DeFazio has failed to show that he is entitled to

judgment as a matter of law on his claims based upon HolliShare’s

compliance with the Superior Court orders. Accordingly, the

court must deny his motion for partial summary judgment.41

6. Liability Amendments to JDS and Hollister Articles

Plaintiffs also move for partial summary judgment on a

factual basis unconnected to the 1999 Transaction, prohibited

transactions, or the DeFazio-Ellis divorce proceeding. (Docket

No. 479 at 13:7-16). Plaintiffs contend that certain amendments

to the JDS Articles and the Hollister Articles of Incorporation

violate ERISA, which provides that “any provision in an agreement

or instrument which purports to relieve a fiduciary from

responsibility or liability for any responsibility, obligation,

or duty under this part shall be void as against public policy.” 

29 U.S.C. § 1110(a).

The amendments to the corporate articles at issue state

that “[n]o director of the Corporation shall be personally liable

to the Corporation or its shareholders for monetary damages for

breach of fiduciary duty as a director.” (JDS Articles 45; Pls.’

Stmt. Disputed Facts Ex. Z at 11.) By their terms, these

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provisions are expressly limited in scope to a director’s

liability “as a director” to the corporation or shareholders. 

They do not purport to limit the liability of the directors as

ERISA fiduciaries to an ERISA plan, beneficiaries, or

participants. While these provisions might limit a suit by

HolliShare as a shareholder against Hollister or JDS directors,

they do not limit such suits to the extent they are based on

breaches of ERISA duties. Accordingly, 29 U.S.C. § 1110(a) does

not render these provisions void as against public policy.

C. Plaintiffs’ Motion to Remove the Plan Trustees

In addition to their motion for partial summary

judgment, plaintiffs also request that the court order the

removal of the HolliShare trustees and appoint a neutral trustee

to manage HolliShare’s assets. (Docket No. 475 at 2:28-3:2.) 

Such removal constitutes a form of prospective equitable relief. 

As described earlier, see supra Section II.B.4, plaintiffs have

no standing to seek prospective relief on behalf of themselves or

HolliShare. Accordingly, the court must deny plaintiffs’ motion

to remove the plan trustees.

IT IS THEREFORE ORDERED THAT:

1) Defendants motion to strike plaintiffs’ class action

allegations (Docket No. 495) be, and the same hereby is, GRANTED; 

2) Defendants’ motion for partial summary on claims

barred by the statute of limitations (Docket No. 483) be, and the

same hereby is, 

A) GRANTED in part with respect to claims related

to the 1978, 1980, and 1984 amendments to the JDS Articles; non-§

1105(a)(3) claims related to the 1999 amendments; DiMaro’s,

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Humphries’, and Seay’s non-§ 1105(a)(3) claims related to the

valuations of individual accounts using the book value method;

Ellis’s claims related to the valuations of her account using the

book value method; and the dismissal of Gunderson as a defendant;

and

B) DENIED in all other respects; 

3) Defendants’ motion for partial summary judgment on

the fiduciary status of the Hollister Board and JDS (Docket No.

484) be, and the same hereby is, DENIED; 

4) Plaintiffs’ motion for partial summary judgment on

claims related to the prohibited transactions and 1999

Transaction (Docket No. 477) be, and the same hereby is, DENIED; 

5) Defendants’ motion for partial summary judgment on

the claims related to the 1999 Transaction (Docket No. 489) be,

and the same hereby is, GRANTED; 

6) DeFazio’s motion for partial summary judgment on

claims related to the divorce proceedings (Docket No. 474) be,

and the same hereby is, DENIED; and

7) Plaintiffs’ motion to remove the plan trustees

(Docket No. 475) be, and the same hereby is, DENIED.

As discussed at the June 22, 2009 hearing, within ten

days of the date of this Order, the parties shall agree upon and

submit to the court a proposed trial date. 

IT IS SO ORDERED.

DATED: June 26, 2009

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