Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_04-cv-04394/USCOURTS-cand-4_04-cv-04394-2/pdf.json

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

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United States District Court

For the Northern District of California

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1

 On January 5, 2005, the Court approved a stipulation

substituting Defendant Liberty Life Assurance Company for Defendant

McKesson Corporation Employees’ Long Term Disability Benefit Plan

(McKesson Plan), and dismissing the claims against McKesson Plan.

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

MICHAEL CREMIN,

Plaintiff,

v.

McKESSON CORPORATION EMPLOYEES’ LONG

TERM DISABILITY BENEFIT PLAN and

LIBERTY LIFE ASSURANCE COMPANY OF

BOSTON,

Defendants.

 /

No. C 04-4394 CW

ORDER GRANTING

PLAINTIFF’S

MOTION FOR

PARTIAL SUMMARY

ADJUDICATION AND

DENYING

DEFENDANT’S

CROSS-MOTION

Plaintiff Michael Cremin moves for partial summary

adjudication that the Court will review Defendant Liberty Life

Assurance Company’s1 termination of his long-term disability

benefits under a de novo standard. Defendant opposes the motion

and cross-moves for summary adjudication that the Court will review

the termination under an abuse of discretion standard. The matter

was heard on August 12, 2005. Having considered the parties’

papers, the evidence cited therein and oral argument on the

motions, the Court GRANTS Plaintiff’s motion for partial summary

adjudication and DENIES Defendant’s cross-motion.

BACKGROUND

The following facts are taken from the administrative record

(AR). Plaintiff began working for McKesson Corporation in 1980. 

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At all times relevant to this action, Plaintiff was covered by the

McKesson Plan, which is a benefits plan organized under the

Employee Retirement Income Security Act (ERISA). 

Plaintiff suffered a heart attack in 1988. On January 23,

1998, Plaintiff was placed on short-term disability by his

cardiologist Dr. Gershengorn due to an unspecified cardiac

condition. Plaintiff returned to work on February 10, 1998, but

worked only part-time until September 21, 1998, when he filed a

claim for long-term disability benefits. On the long-term

disability claim form, Plaintiff listed his disabling conditions as

coronary artery disease and anxiety; the claim form identified both

Dr. Gershengorn and Plaintiff’s psychiatrist, Dr. Karalis. The

physician’s statement, which was completed by Dr. Karalis, stated

that Plaintiff suffered from severe anxiety disorder and defined

his physical impairment as Class 5: “severe limitation of

functional capacity: incapable of minimum (sedentary) activity.” 

At the time Plaintiff applied for long-term disability benefits,

the McKesson Plan was self-funded by the McKesson Corporation and

administered by Preferred Works. 

As part of its investigation of Plaintiff’s claim for longterm benefits, Preferred Works requested continuing documentation

of his disability from his treating physicians. Dr. Karalis

submitted forms on November 16, 1998, December 16, 1998, January

22, 1999, and March 17, 1999. Each form stated that Plaintiff

continued to suffer from severe anxiety disorder and was totally

disabled. Plaintiff was granted Social Security disability

benefits in January, 1999.

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Preferred Works awarded Plaintiff long-term disability

benefits on April 20, 1999. The approval letter stated that

Plaintiff would receive long-term benefits for twenty-four months,

and would thereafter continue to receive benefits if Plaintiff 

(1) could prove by “objective medical evidence” that he was unable

to perform any occupation for which he was reasonably qualified,

and (2) was receiving Social Security disability benefits. The

McKesson Plan defines “disability” as follows:

“Disability” shall mean any physical or mental condition

arising from an illness, pregnancy or injury which renders a

Participant incapable of performing work. During the first

thirty (30) months of Disability, a Participant must be unable

to perform the work of his or her regular occupation or any

reasonably related occupation, and must not, except as

provided in Section 3.4, be performing work or services of any

kind for remuneration. After thirty (30) months of

Disability, a Participant must be unable to perform the work

of any occupation for which he or she is or becomes reasonably

qualified by training, education or experience, and, in

addition, be receiving Social Security benefits on account of

his or her disability.

Effective January 1, 2000, McKesson Corporation became wholly

insured by Defendant, and Defendant became responsible for both the

funding and administration of the McKesson Plan. Defendant was

expressly granted sole discretionary authority to interpret the

terms of the plan and to determine benefit eligibility. 

On March 10, 2000, Defendant received documents from Dr.

Karalis indicating that Plaintiff suffered from anxiety disorder

and cardiac impairment, that Dr. Karalis was providing Plaintiff

supportive psychotherapy, and that Plaintiff remained totally

disabled. On May 9, 2000, Defendant received an activities

questionnaire from Plaintiff which stated that Plaintiff could,

among other things, drive his car, occasionally go grocery

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shopping, and visit friends’ houses. On March 27, 2001, Defendant

received additional documents from Dr. Karalis which indicated that

Plaintiff’s psychiatric condition had not improved.

In November, 2001, Defendant requested updated medical

information from Dr. Gershengorn. On December 4, 2001, Dr.

Gershengorn submitted a physical capacities form which stated that

Plaintiff was physically capable of sedentary work. On February 4,

2002, Plaintiff filled out another activities questionnaire which

was similar to the first; it stated that he could drive for short

periods of time, left his house several times per week, and could

not regularly exercise. On February 13, 2002, Defendant received

another physician’s statement from Dr. Karalis which stated that he

had last seen Plaintiff February 2, 2002, that Plaintiff remained

totally disabled due to anxiety disorder, that Plaintiff’s

prognosis remained poor, and that he could not return to work.

On March 9, 2002, Defendant began a review of Plaintiff’s

claim file. On March 14, Susan Leonardos, a registered nurse,

completed an initial review and concluded the following: “There is

nothing objective from psychiatrist to support lack of functional

activity/there is no mention of medications, no therapy notes.” In

late March, Defendant ordered surveillance of Plaintiff. On

Thursday, March 28, Friday, March 29, and Saturday, March 30,

Plaintiff was twice seen leaving his house, once to go to the store

and once to drive to an acquaintance’s house, and was once seen

retrieving an object from his car.

In May, 2002, Defendant requested updated medical information

from Dr. Gershengorn. Dr. Gershengorn submitted updated medical

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information along with office notes which indicated that, among

other things, Plaintiff had been prescribed Xanax as early as May

8, 2001. On August 6, 2002, Nurse Leonardos determined that, based

upon her experience as a nurse, Plaintiff was capable of performing

sedentary functional activity.

On August 12, 2002, Defendant received an updated physician’s

statement from Dr. Gershengorn which stated that Plaintiff

continued to suffer from coronary heart disease, that he was

restricted in all functional activities other than sitting, and

that his estimated return to work date was “unknown.” On August

13, Defendant received updated office notes from Dr. Karalis, which

indicated that he had seen Plaintiff on February 5, 2002, April 11,

2002, May 22, 2002, and August 6, 2002. On each occasion, Dr.

Karalis noted that he provided supportive therapy to Plaintiff.

On August 30, 2002, Defendant sent Plaintiff a letter stating

that his long-term disability benefits had been terminated. The

letter indicated that Defendant had determined that Plaintiff was

capable of sedentary work, relying in part upon the functional

limitations form completed on August 12, 2002 by Dr. Gershengorn. 

Defendant also stated that its determination was based in part upon

Nurse Leonardos’ conclusion that “there is not enough information

to support lack of function from a psychiatric perspective. The

claimant sees the psychiatrist sporadically and is on no

psychiatric medication.” The termination letter stated that

Plaintiff could perform the following sedentary jobs: financial

analyst, budget analyst, economist, and credit analyst.

In a letter dated October 10, 2002, Plaintiff appealed the

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termination of his benefits. The October 10 letter also requested,

among other things, copies of the surveillance tapes that Defendant

had made of Plaintiff. Plaintiff also sent Defendant a letter

dated October 18, 2002 from Dr. Karalis in which the psychiatrist

expressed his disagreement with the termination of benefits. 

Specifically, Dr. Karalis stated that it appeared that Defendant

had terminated Plaintiff’s disability benefits based solely upon

the August 12, 2002 physician’s statement from Dr. Gershengorn

which indicated that Plaintiff was not restricted from sitting for

eight hours, although he was restricted in all other physical

activities. Dr. Karalis further stated that Plaintiff could not

perform the sedentary jobs recommended by Defendant because

Plaintiff did “not possess the stabilization of moods and control

of psychiatric symptomatology required to have predictably stable

cognitive functioning to perform these jobs, which assume full

cognitive functioning.”

Defendant conducted further daily surveillance of Plaintiff

from November 6 through November 10. Over the course of those five

days, Plaintiff was observed leaving his residence only three

times: once to retrieve a newspaper on the curbside, once to drive

to the store, and once to drive to an unknown location. These

surveillance tapes were never given to Plaintiff to review. 

Plaintiff did not receive copies of the tapes from the first

surveillance until November 26, 2002.

Plaintiff called Defendant on November 21, 2002 and informed a

representative that his cardiologist, Dr. Gershengorn, also

disagreed with Defendant’s decision to terminate his benefits and

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would be submitting a letter to that effect. Also in November,

Defendant initiated a review by a psychiatrist of the information

in Plaintiff’s file. On November 30, 2002, psychiatrist Dr. Mirkin

submitted a report that, under the heading “Recommendations and

Conclusions,” criticized the treatment that Plaintiff had received

from Dr. Karalis. There are four sub-points under this heading,

which are summarized as follows: (1) Dr. Karalis should have used

treatment other than psychotherapy, including medication, (2) there

is no indication of imminent threat from Plaintiff’s cardiac

disease, so Dr. Karalis’ treatment should have been more active,

(3) Dr. Karalis’ office notes are brief, and do not support his

medical conclusion of total disability for Plaintiff, and (4) there

was no indication from the record that Plaintiff was particularly

susceptible to another heart attack. This report was not given to

Plaintiff to review.

On December 6, 2002, Defendant denied Plaintiff’s appeal. The

denial letter noted Dr. Mirkin’s conclusion that there was a

“discrepancy between level of claimed impairment and the low

intensity of care provided” by Dr. Karalis, and also stated that

Dr. Karalis’ opinion, expressed in his October 18, 2002 letter,

that Plaintiff could not perform the sedentary jobs recommended by

Defendant “appears inaccurate because it is not supported in his

office notes.”

On December 21, 2002, Defendant received a letter dated

December 4 from Dr. Gershengorn, to which Plaintiff had referred in

his November 21, 2002 phone call. That letter stated that, while

Dr. Gershengorn did report the functional limitations cited in

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Defendant’s original termination decision letter, Plaintiff also

had limitations on non-exertional activities such as “structured

schedules, deadlines, adversarial relationships, and commuting to

work.” Dr. Gershengorn further stated as follows: “He remains on

cardiac medications . . . and Xanax, and he remains in therapy for

his anxiety disorder. I am unaware of any dramatic improvement in

Mr. Cremin’s medical condition that warrants reversal of the

previous decision, which found him to be disabled.”

On October 18, 2004, Plaintiff filed a complaint for

declaratory judgment that he is entitled to long-term disability

benefits under the McKesson Plan. On February 18, 2005, the Court

held a telephonic case management conference, during which it

explained that the matter would be decided on cross-motions for

judgment under Federal Rule of Civil Procedure 52. See Kearney v.

Standard Ins. Co., 175 F.3d 1084, 1094-95 (9th Cir. 1999). 

However, the parties were allowed to file, prior to filing Rule 52

cross-motions, motions for summary adjudication of the standard of

review that the Court will apply to Defendant’s termination of

Plaintiff’s long-term disability benefits. 

LEGAL STANDARD

ERISA provides Plaintiff with a federal cause of action to

recover the benefits he claims are due under the McKesson Plan. 29

U.S.C. § 1132(a)(1)(B). The standard of review of a plan

administrator's denial of ERISA benefits depends upon the terms of

the benefit plan. Absent contrary language in the plan, the denial

is reviewed under a de novo standard. Firestone Tire & Rubber Co.

v. Bruch, 489 U.S. 101, 115 (1989). However, if "the benefit plan

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expressly gives the plan administrator or fiduciary discretionary

authority to determine eligibility for benefits or to construe the

plan’s terms," an abuse of discretion standard is generally

applied. Id.; Taft v. Equitable Life Assurance Soc’y, 9 F.3d 1469,

1471 (9th Cir. 1993). The Ninth Circuit has also referred to this

as an "arbitrary and capricious" standard. McKenzie v. Gen. Tel.

Co. of Cal., 41 F.3d 1310, 1314 & n.3 (9th Cir. 1994); Taft, 9 F.3d

at 1471 n.2 (use of the term "arbitrary and capricious" versus

"abuse of discretion" is a "distinction without a difference").

However, even where a benefit plan expressly grants

discretionary authority to the plan administrator, a district court

may nevertheless apply a more stringent standard of review if the

plaintiff can show that a conflict of interest exists. Hensley v.

Northwest Permanente P.C. Retirement Plan & Trust, 258 F.3d 986,

995 (9th Cir. 2001). An apparent conflict arises where the plan

administrator is also the insurer. Tremain v. Bell Indus., Inc.,

196 F.3d 970, 976 (9th Cir. 1999). In such cases, the court must

“look further into the plan administrator’s dual role by applying

the ‘less deference’ test.” McDaniel v. Chevron Corp., 203 F.3d

1099, 1108 (9th Cir. 2000). The test is two pronged: (1) first,

the plaintiff must provide material, probative evidence tending to

show an actual conflict of interest, which (2) shifts the burden of

proof to the plan administrator to show that the apparent conflict

did not affect the decision to deny or terminate benefits. Id. If

there is probative evidence of an actual conflict and the plan

administrator cannot rebut it, the denial of benefits is reviewed

de novo. Nord v. Black & Decker Disability Plan, 356 F.3d 1008,

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1010 (9th Cir. 2004), on remand from Black & Decker Disability Plan

v. Nord, 538 U.S. 822 (2003).

DISCUSSION

The parties do not dispute that the McKesson Plan expressly

grants Defendant discretionary authority as plan administrator to

construe the plan’s terms and determine benefit eligibility. The

parties also do not dispute that there is an apparent conflict

because Defendant is both the McKesson Plan’s insurer and its

administrator. Thus, the Court’s inquiry must turn to whether

Plaintiff has submitted material, probative evidence that Defendant

had an actual conflict of interest when it terminated Plaintiff’s

long-term disability benefits.

Material, probative evidence of an actual conflict “may

consist of inconsistencies in the plan administrator’s reasons,

insufficiency of those reasons, or procedural irregularities in the

processing of the beneficiary’s claims.” Black & Decker, 356 F.3d

at 1010 (internal citations omitted).

Plaintiff has identified several factors that he argues

constitute probative evidence of an actual conflict. First,

Plaintiff notes that Defendant’s December 6, 2002 denial of his

appeal relied in large part upon Dr. Mirkin’s report criticizing

Dr. Karalis’ treatment of his psychiatric disorders, and that he

was not permitted to see the report prior to Defendant’s final

decision. Plaintiff also notes that he was never provided with

tapes from the November, 2002 surveillance, and that he was not

provided with tapes from the March, 2002 surveillance until late

November, 2002. Citing Booton v. Lockheed Med. Benefit Plan, 110

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F.3d 1461 (9th Cir. 1997), and Abram v. Cargill, Inc., 395 F.3d 882

(8th Cir. 2005), Plaintiff argues that a full and fair review

requires meaningful dialogue between plan administrators and

beneficiaries, and that Defendant’s failure to disclose Dr.

Mirkin’s report was not consistent with such a review. In Abram,

the plan administrator denied an appeal based in large part upon a

physician’s opinion letter that was submitted to the administrator

during the appeal process but that Abram did not see until after

the final decision was made. 395 F.3d at 885-86. The court ruled

that, because Abram did not have access to the letter, she could

not meaningfully participate in the appeals process: “There can

hardly be meaningful dialogue between the claimant and the Plan

administrators if evidence is revealed only after a final decision. 

A claimant is caught off guard when new information used by the

appeals committee emerges only with the final denial.” Id. at 886.

Plaintiff further argues that Defendant failed to utilize a

proper definition of the term “disabled.” Specifically, Plaintiff

notes that the plan provides for long-term disability benefits

after the initial twenty-four month period only if a claimant can

prove by objective medical evidence that he or she is unable to

perform any occupation for which he or she is reasonably qualified,

and is receiving Social Security disability benefits. Plaintiff

argues that the plan administrator, in determining whether a

claimant is disabled, conducts the same analysis and uses the same

definitions as does the Social Security Administration (SSA), and

the expressed correlation between the disability determinations by

the plan administrator and the SSA requires the administrator to

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award long-term benefits if the claimant is determined to be

disabled for purposes of collecting Social Security. In support of

this argument, Plaintiff cites Boyd v. Trustees of United Mine

Workers Health & Retirement Fund, 873 F.2d 57, 59 (4th Cir. 1989)

and Robertson v. Connors, 848 F.2d 472, 475 (4th Cir. 1988), in

which the Fourth Circuit ruled that, under a plan which required

the receipt of Social Security benefits as a condition for

receiving plan benefits, the award of Social Security benefits

created an “irrebutable presumption of disability.”

In addition, Plaintiff argues that the objective medical

evidence clearly showed that he was totally disabled, and Defendant

was required to obtain adequate information to provide a reasonable

basis to make a decision to the contrary. See Kunin v. Benefit

Trust Life Ins. Co., 910 F.2d 534, 538 (9th Cir. 1990). Plaintiff

notes that he was deemed totally disabled under the McKesson Plan

and by the SSA in 1999, that his medical records showed no change

in his condition, that Defendant’s surveillance showed nothing

inconsistent with his condition, and that his two treating

physicians both disagreed in writing with Defendant’s determination

on August 30, 2002 that he was no longer totally disabled. And,

Plaintiff argues that Dr. Mirkin’s analysis was erroneous; Dr.

Mirkin’s report was based in part upon his belief that Plaintiff

was not being treated with psychiatric drugs, when in fact

Plaintiff had been taking Xanax, an anti-anxiety drug, for several

years. Plaintiff also argues that Defendant should have waited to

make its final decision until it had received Dr. Gershengorn’s

December 4, 2002 letter, which stated that the cardiologist did not

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agree with Defendant’s decision to terminate Plaintiff’s benefits. 

Plaintiff contends that, although Defendant did not receive the

letter until after it rendered its final decision, it knew of the

existence and general content of the letter from the November 21

phone call.

Plaintiff has submitted probative evidence tending to show

that Defendant had an actual conflict of interest when it

terminated his benefits; thus, the burden of proof shifts to

Defendant to show that the apparent conflict did not affect its

decision. See McDaniel, 203 F.3d at 1108. Defendant does not meet

that burden.

First, Defendant argues that it was not necessary to disclose

Dr. Mirkin’s report because it did not contain new information and

instead merely supported its initial termination of benefits. 

However, Defendant acknowledges in its opening brief that Dr.

Mirkin’s report was necessary because, during the appeal process,

“Dr. Kiralis [sic] refuted Liberty’s conclusions and findings.” 

Def.’s Opp’n at 20. Based upon Defendant’s acknowledgment that the

findings in its initial termination letter had been refuted, Dr.

Mirkin’s report was new information of which Plaintiff should have

been made aware. See Abram, 395 F.3d at 886.

Second, Defendant argues that Boyd and Robertson are not

binding and are distinguishable, because in those cases it was not

disputed that a disability finding for purposes of Social Security

benefits created an irrebutable presumption of entitlement to ERISA

benefits under the plan at issue. While acknowledging that “the

definitions of disability [under the SSA and the McKesson Plan] are

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similar, they are not identical,” Defendant cites Black & Decker,

538 U.S. at 832-33, in which the Supreme Court noted “critical

differences” between the Social Security disability plan and the

ERISA benefits plan at issue in that case. The Court ruled that,

while the SSA has a “treating physician rule” that mandates

deference to the findings of the claimant’s doctors, there is no

such requirement in ERISA cases. Black & Decker, 538 U.S. at 832. 

Therefore, although the SSA’s definition of disability is nearly

identical to that of the McKesson Plan and Plaintiff’s Social

Security award thus constitutes evidence of his disability, it does

not create an irrebutable presumption of disability under the plan.

Regarding Plaintiff’s contention that he submitted sufficient

objective medical evidence of his disability, Defendant argues that

he did not, and cites the findings (1) in its initial termination

letter that Plaintiff was not under continuous and regular care of

a physician, and (2) in its final decision that Dr. Mirkin

concluded that Dr. Karalis’ treatment of Plaintiff was not

consistent with total disability. In its initial termination

letter, Defendant relied primarily upon Nurse Leonardos’ conclusion

that Plaintiff “sees the psychiatrist sporadically and is on no

psychiatric medication” and Dr. Gershengorn’s August 12, 2002

report indicating that Plaintiff did not have any physical

restrictions on sitting. However, the treatment notes that

Defendant had from Dr. Karalis, which it received on August 13,

2002, indicated that Plaintiff had seen Dr. Karalis four times in

the previous six months in order to receive supportive therapy for

his anxiety. And, the record indicated that Plaintiff was taking

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the anti-anxiety drug Xanax. As discussed above, Defendant has

acknowledged that the findings in its initial termination letter

have been refuted.

With respect to its final decision denying Plaintiff’s appeal,

Defendant’s argument that Dr. Mirkin found fault with Dr. Karalis’

conclusions is not persuasive because, as noted above, Plaintiff

never had the opportunity to view and address Dr. Mirkin’s report,

which contained little more than an incomplete critique of Dr.

Karalis’ treatment plan. In addition, although Defendant did not

receive the letter dated December 4, 2002 from Dr. Gershengorn

until after it rendered its final decision, and therefore could not

consider it, it was at least on notice from Plaintiff’s phone call

that it could no longer rely upon Dr. Gershengorn’s August 12, 2002

report to justify a denial of benefits. Indeed, Dr. Gershengorn’s

December 4 letter stated his belief that Plaintiff remained

completely disabled.

For the foregoing reasons, Defendant has failed to rebut

Plaintiff’s material, probative evidence that an actual conflict

existed when Defendant, as the McKesson Plan’s insurer and

administrator, terminated Plaintiff’s long-term disability

benefits. Thus, the Court will review the termination under a de

novo standard.

CONCLUSION

Accordingly, the Court GRANTS Plaintiff’s motion for partial

summary adjudication (Docket No. 22) and DENIES Defendant’s crossmotion (Docket No. 26). The Court will review the parties’ Rule 52

motions under the de novo standard.

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This matter will be decided on Rule 52 cross-motions for

judgment. See Kearney, 175 F.3d at 1095. Plaintiff shall file his

opening brief no later than October 21, 2005. Defendant shall file

its opposition and cross-motion, in a single brief, no later than

November 4, 2005. Plaintiff shall file a reply and opposition to

the cross-motion, also in a single brief, no later than November

11, 2005, and Defendant shall file its reply no later than November

18, 2005. The matter will be heard on December 2, 2005, at 10:00

a.m.

IT IS SO ORDERED.

Dated: 10/3/05

 

CLAUDIA WILKEN

United States District Judge

Case 4:04-cv-04394-CW Document 58 Filed 10/03/05 Page 16 of 16