Mark Dell Donne et al v. Herbert W Hardt et al

Filing 54

ORDER GRANTING IN PART and DENYING IN PART 31 Motion to Dismiss; ORDER GRANTING Plaintiff's leave to amend, Plaintiffs may file an amended complaint within Twenty-one (21) days of the service of this order, signed by Chief Judge Anthony W. Ishii on 09/05/2011. (Martin-Gill, S)

1
2
3
4
5
6

UNITED STATES DISTRICT COURT

7

EASTERN DISTRICT OF CALIFORNIA

8
9
10
11
12
13
14

MARK DELL DONNE, individually, as a
participant in THE JOURNEY
ELECTRICAL TECHNOLOGIES, INC.
401K PLAN, and as trustee of THE
JOURNEY ELECTRICAL
TECHNOLOGIES, INC. 401K PLAN;
THE JOURNEY ELECTRICAL
TECHNOLOGIES, INC. 401K PLAN;
and THE JOURNEY ELECTRICAL
TECHNOLOGIES, INC., a California
corporation,
Plaintiffs,

15
16
17
18
19

v.
HERBERT W. HARDT, an individual; L.
DAVID BRANDON, an individual; LISA
PLANK, an individual; and DOES 1-200,
Defendants.
____________________________________

)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)
)

1:10-CV-2341 AWI JLT
ORDER GRANTING IN PART AND
DENYING IN PART MOTION TO
DISMISS

20
21
I. History1

22
23

In September 2002, Timothy Hardt and Plaintiff Mark Dell Donne incorporated Hardel

24

Enterprises, Inc. (“Hardel”) and Journey Electronic Technologies, Inc. (“JET”). In November

25

2002, JET purchased Tri-State, Inc. (“Tri-State”), a company which provides electrical and

26
27
28

1

The factual history is provided for background; the assertions contained therein are not
necessarily taken as adjudged to be true. The legally relevant facts relied upon by the court are
discussed within the analysis.
1

1

network services for construction projects. Hardel is the holding company of JET which in turn

2

is the holding company of Tri-State (collectively “Enterprises”). Timothy Hardt was responsible

3

for day to day operations of the Enterprises and Dell Donne dealt with outside contacts. In that

4

year they created an employee benefit plan (“Plan”), whereby employees could direct the

5

Enterprises to withhold salary and put it into the Plan to be invested on their behalf. Timothy

6

Hardt and Dell Donne were the trustees of the Plan. Defendant L. David Brandon and third party

7

Kathy Home were the administrators of the Plan.

8
9

In March 2006, Timothy Hardt bought out Dell Donne’s interests in the Enterprises. Dell
Donne withdrew from all corporate positions and was removed as trustee for the Plan. Dell

10

Donne remained as an employee of Tri-State. Defendant Lisa Plank (who has since been

11

voluntarily dismissed from the case) became an employee of the Enterprises. Defendant Herbert

12

Hardt is Timothy Hardt’s father. After Dell Donne sold his interests to Timothy Hardt, Dell

13

Donne alleges that Timothy Hardt (with his wife, Michelle Hardt), Herbert Hardt, Brandon, and

14

Plank embezzled funds from the Enterprises which were designated for the Plan.

15

In June 2007, Timothy Hardt withdrew from the Enterprises. Third party Performance

16

Capital, Inc., which had lent the Enterprises large amounts of money exercised contractual rights

17

to remove Timothy Hardt from his corporate position and install Dell Donne as Director of

18

Corporation and Chairman of the Board of Tri-State. A receiver has been appointed for Tri-

19

State. Timothy Hardt and Michelle Hardt filed for bankruptcy on January 7, 2010. On February

20

12, 2010, the U.S. Department of Labor (“DOL”) contacted Timothy Hardt and Dell Donne

21

concerning irregularities with the Plan.

22

The present case is one of four concerning the alleged underfunding of the Plan.

23

Plaintiffs are Dell Donne, JET, and the Plan. Defendants were originally Herbert Hardt,

24

Brandon, and Plank. Plank has since been dismissed from this case. Plaintiffs allege several

25

causes of action, including: breach of fiduciary duty to the Plan in violation of ERISA, breach of

26

fiduciary duty to JET, and RICO. In the related cases, DOL has brought suit against Timothy

27

Hardt and Dell Done for breach of fiduciary duty under ERISA. Defendants have made a motion

28

to dismiss. The court noted that Defendants raised issues of subject matter jurisdiction and
2

1

joinder of required parties under Fed. Rule Civ. Proc. 19. As these issues required additional

2

development, the court ordered the parties to provide additional briefing and requested the DOL

3

submit an amicus brief. The parties submitted the requested materials and the matter was taken

4

under submission without oral argument.

5
II. Legal Standards

6
7

Federal Rule Civil Procedure 12(b)(1) allows for a motion to dismiss based on lack of

8

subject matter jurisdiction. It is a fundamental precept that federal courts are courts of limited

9

jurisdiction. Vacek v. UPS, 447 F.3d 1248, 1250 (9th Cir. 2006). Limits upon federal

10

jurisdiction must not be disregarded or evaded. Owen Equipment & Erection Co. v. Kroger, 437

11

U.S. 365, 374 (1978). “A federal court is presumed to lack jurisdiction in a particular case unless

12

the contrary affirmatively appears.” A-Z Int’l v. Phillips, 323 F.3d 1141, 1145 (9th Cir. 2003);

13

General Atomic Co. v. United Nuclear Corp., 655 F.2d 968 (9th Cir. 1981). The plaintiff has the

14

burden to establish that subject matter jurisdiction is proper. Kokkonen v. Guardian Life Ins. Co.,

15

511 U.S. 375, 377 (1994). A Rule 12(b)(1) motion may be either facial, where the inquiry is

16

confined to the allegations in the complaint, or factual, where the court is permitted to look

17

beyond the complaint to extrinsic evidence. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir.

18

2004).

19

When a defendant makes a factual challenge “by presenting affidavits or other evidence

20

properly brought before the court, the party opposing the motion must furnish affidavits or other

21

evidence necessary to satisfy its burden of establishing subject matter jurisdiction.” Safe Air For

22

Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004). The court need not presume the

23

truthfulness of the plaintiff’s allegations under a factual attack. White v. Lee, 227 F.3d 1214,

24

1242 (9th Cir. 2000). Where the jurisdictional issue and the merits of the case are not factually

25

completely intermeshed or intertwined, the court may consider the evidence presented with

26

respect to the jurisdictional issue and rule on that issue, including resolving factual disputes when

27

necessary. St. Clair v. Chico, 880 F.2d 199, 201-02 (9th Cir. 1989).

28

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the
3

1

plaintiff’s “failure to state a claim upon which relief can be granted.” A dismissal under Rule

2

12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient

3

facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir.

4

2001). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed

5

factual allegations, a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’

6

requires more than labels and conclusions, and a formulaic recitation of the elements of a cause

7

of action will not do. Factual allegations must be enough to raise a right to relief above the

8

speculative level, on the assumption that all the allegations in the complaint are true (even if

9

doubtful in fact)....a well-pleaded complaint may proceed even if it strikes a savvy judge that

10

actual proof of those facts is improbable” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56

11

(2007), citations omitted. “[O]nly a complaint that states a plausible claim for relief survives a

12

motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the

13

Court of Appeals observed, be a context-specific task that requires the reviewing court to draw

14

on its judicial experience and common sense. But where the well-pleaded facts do not permit the

15

court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it

16

has not shown that the pleader is entitled to relief.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950

17

(2009), citations omitted. The court is not required “to accept as true allegations that are merely

18

conclusory, unwarranted deductions of fact, or unreasonable inferences.” Sprewell v. Golden

19

State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that “general

20

allegations embrace those specific facts that are necessary to support the claim.” Lujan v. Nat’l

21

Wildlife Fed’n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957),

22

overruled on other grounds at 127 S. Ct. 1955, 1969. Thus, the determinative question is

23

whether there is any set of “facts that could be proved consistent with the allegations of the

24

complaint” that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S.

25

506, 514 (2002). At the other bound, courts will not assume that plaintiffs “can prove facts

26

which [they have] not alleged, or that the defendants have violated...laws in ways that have not

27

been alleged.” Associated General Contractors of California, Inc. v. California State Council of

28

Carpenters, 459 U.S. 519, 526 (1983).
4

1

In deciding whether to dismiss a claim under Rule 12(b)(6), the Court is generally limited

2

to reviewing only the complaint. “There are, however, two exceptions....First, a court may

3

consider material which is properly submitted as part of the complaint on a motion to dismiss...If

4

the documents are not physically attached to the complaint, they may be considered if the

5

documents’ authenticity is not contested and the plaintiff’s complaint necessarily relies on them.

6

Second, under Fed. R. Evid. 201, a court may take judicial notice of matters of public record.”

7

Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth

8

Circuit later gave a separate definition of “the ‘incorporation by reference’ doctrine, which

9

permits us to take into account documents whose contents are alleged in a complaint and whose

10

authenticity no party questions, but which are not physically attached to the plaintiff’s pleading.

11

We have extended the ‘incorporation by reference’ doctrine to situations in which the plaintiff’s

12

claim depends on the contents of a document, the defendant attaches the document to its motion

13

to dismiss, and the parties do not dispute the authenticity of the document, even though the

14

plaintiff does not explicitly allege the contents of that document in the complaint.” Knievel v.

15

ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. “[A] court may not look beyond

16

the complaint to a plaintiff’s moving papers, such as a memorandum in opposition to a

17

defendant’s motion to dismiss. Facts raised for the first time in opposition papers should be

18

considered by the court in determining whether to grant leave to amend or to dismiss the

19

complaint with or without prejudice.” Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003),

20

citations omitted.

21

If a Rule 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without

22

prejudice, and with or without leave to amend. “[A] district court should grant leave to amend

23

even if no request to amend the pleading was made, unless it determines that the pleading could

24

not possibly be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127 (9th

25

Cir. 2000) (en banc), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other

26

words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX,

27

Inc., 298 F.3d 893, 898 (9th Cir. 2002).

28
5

III. Discussion

1
2

A. Standing

3

1. Dell Donne and ERISA

4
5
6
7
8
9

Persons empowered to bring a civil action. A civil action may be brought(1) by a participant or beneficiary(A) for the relief provided for in subsection (c) of this section, or
(B) to recover benefits due to him under the terms of his plan, to enforce his rights
under the terms of the plan, or to clarify his rights to future benefits under the
terms of the plan;
(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief
under section 409 [29 U.S.C. §1109];
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which
violates any provision of this title 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 title or the terms of the plan

10
11

29 U.S.C. §1132(a).

12

Dell Donne claims that “as a trustee and therefore fiduciary of the Plan, [he] has

13

independent standing to bring an action under ERISA.” Doc. 44, Plaintiffs’ Supplemental Brief,

14

at 6:25-26. The complaint states that as of March 24, 2006, Dell Donne resigned from his

15

position at JET which “remove[d] him from all corporate responsibility for JET, including

16

serving as trustee of the Plan for JET.” Doc. 1, Complaint, at 4:16-18. Thus, Dell Donne seeks

17

to bring suit as a former trustee. For ERISA, former fiduciaries do not have standing to sue

18

under 29 U.S.C. §1132(a). See Metropolitan Life Ins. Co. v. Mann, 2000 U.S. Dist. LEXIS

19

15354, *21 (C.D. Cal. Oct. 16, 2000), citing Chemung Canal Trust Co. v. Sovran

20

Bank/Maryland, 939 F.2d 12, 14 (2nd Cir. 1991) and Blackmar v. Lichtenstein, 603 F.2d 1306,

21

1310 (8th Cir. 1979); cf. Wells Fargo Bank v. Bourns, Inc., 860 F. Supp. 709, 715 (N.D. Cal.

22

1994) (former fiduciary has standing to sue based on an indemnity agreement that does not

23

conflict with ERISA).

24

Dell Donne also claims that he is “a participant of the Plan and as such has been directly

25

affected by Defendants’ embezzlement and failure to contribute the embezzled funds to the

26

Plan.” Doc. 44, Plaintiffs’ Supplemental Brief, at 7:3-4. “The term ‘participant’ means any

27

employee or former employee of an employer, or any member or former member of an employee

28

organization, who is or may become eligible to receive a benefit of any type from an employee
6

1

benefit plan which covers employees of such employer or members of such organization, or

2

whose beneficiaries may be eligible to receive any such benefit.” 29 U.S.C. §1002(7). “A

3

plaintiff’s status as participant must be decided as of the time of filing suit....Current employees

4

are ‘participants’ if at the time of suit they are either covered by the plan, or reasonably expect to

5

be so in the future....A plaintiff who is no longer in employment covered by the relevant plan at

6

the time suit is filed may nonetheless be deemed a ‘participant’ for purposes of section 1132(a) if

7

he has either ‘a reasonable expectation of returning’ to employment covered by that plan, or ‘a

8

colorable claim to vested benefits’ under that plan.” Pearson v. Prudential Health Care Plan, 942

9

F. Supp. 1284, 1287 (E.D. Cal. 1996), citations omitted. Dell Donne states he “has sustained

10

substantial financial loss of his retirement funds.” Doc. 44, Plaintiffs’ Supplemental Brief, at

11

3:19. Defendants object that “contrary to[] his claimed statement, he has not what his ‘retirement

12

funds’ amount is and/or was.” Defendants do not dispute that Dell Donne has a colorable claim

13

to Plan benefits. Dell Donne has standing as a participant to recover monies due to the Plan. See

14

Tullis v. UMB Bank, N.A., 515 F.3d 673, 680-82 (6th Cir. 2008).
As Dell Donne has standing to pursue the ERISA claims for the benefit of the Plan, the

15
16

court need not analyze JET’s and the Plan’s interests.

17
18
19

2. JET
Defendants argued that Plaintiffs lacked capacity to pursue the suit as a court-appointed

20

receiver controlled JET and that Dell Donne did not own JET. Doc. 31, Part 2, Defendants’

21

Brief, at 11:17-21. In additional briefing, Defendants admit that “ownership of the stock of the

22

JET corporations has been transferred to Dell Donne.” Doc. 51, Mullen Declaration, at 3.

23

Further, Plaintiffs have demonstrated that the receivership is for the limited purpose of

24

overseeing the payment of bills; nothing in the order of appointment suggests that the receiver is

25

the party that should properly represent JET in this case. Doc. 44, Ex. 1.

26
27
28

B. ERISA
(a) Any person who is a fiduciary with respect to a plan who breaches any of the
7

1
2
3
4
5
6
7

responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be
personally liable to make good to such plan any losses to the plan resulting from each
such breach, and to restore to such plan any profits of such fiduciary which have been
made through use of assets of the plan by the fiduciary, and shall be subject to such other
equitable or remedial relief as the court may deem appropriate, including removal of such
fiduciary. A fiduciary may also be removed for a violation of section 411 of this Act [29
U.S.C. §1111].
(b) No fiduciary shall be liable with respect to a breach of fiduciary duty under this title if
such breach was committed before he became a fiduciary or after he ceased to be a
fiduciary.
29 U.S.C. §1109.

8

“[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any

9

discretionary authority or discretionary control respecting management of such plan or exercises

10

any authority or control respecting management or disposition of its assets, (ii) he renders

11

investment advice for a fee or other compensation, direct or indirect, with respect to any moneys

12

or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any

13

discretionary authority or discretionary responsibility in the administration of such plan.” 29

14

U.S.C. §1002(21)(a). Plaintiffs allege Brandon was an administrator of the Plan. Doc. 1,

15

Complaint, at 8:18-19. The Plan specified that the administrator was a fiduciary. Doc. 44, Ex. 1,

16

at 13. Plaintiffs allege “Brandon breached his fiduciary duty to Plaintiffs under 19 U.S.C.

17

§1109(a) by diverting and embezzling JET funds belonging to the Plan for his personal benefit

18

and the benefit of Timothy Hardt, Michelle Hardt, and the Defendants.” Doc. 1, Complaint, at

19

8:23-25. Plaintiffs state a claim against Brandon.

20

Plaintiffs have not alleged that Herbert Hardt is a fiduciary. Plaintiffs allege that he

21

“aided and abetted...the breach of his fiduciary duties.” Doc. 1, Complaint, at 9:20-21. The Ninth

22

Circuit has determined that “The plain language of section 409(a) [29 U.S.C. §1109(a)] limits its

23

coverage to fiduciaries, and nothing in the statute provides any support for holding others liable

24

under that section. Several courts have nevertheless held that section 409(a) imposes liability on

25

non-fiduciaries insofar as they abetted fiduciaries in their breaches of duty....We have carefully

26

considered [the] rationale and conclude that it provides no basis for departing from the plain

27

meaning of the statute.” Nieto v. Ecker, 845 F.2d 868, 871 (9th Cir. 1988), citations omitted.

28

Plaintiffs have not stated a claim against Herbert Hardt.
8

1
2

C. RICO
Defendants deny that they took part in a RICO enterprise. Plaintiffs allege that “Timothy

3

Hardt, Michelle Hardt, and Defendants work together to divert millions of dollars from JET

4

including funds which should have been designated as contributions to the Plan.” Doc. 1,

5

Complaint, at 5:10-12.

6

To state a civil RICO claim under 18 U.S.C. §1962(c), a plaintiff must allege “(1)

7

conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L.

8

v. Imrex Co., 473 U.S. 479, 496 (1985). Title 18 U.S.C. § 1961(4) defines an enterprise as “any

9

individual, partnership, corporation, association, or other legal entity, and any union or group of

10

individuals associated in fact although not a legal entity.” The “enterprise” is not the “pattern of

11

racketeering activity”; it is an entity separate and apart from the pattern of activity in which it

12

engages. United States v. Turkette, 452 U.S. 576, 583 (1981). The enterprise element requires

13

the organization, formal or informal, to be an entity separate and apart from the pattern of

14

racketeering activity in which it engages. Chang v. Chen, 80 F.3d 1293, 1298 (9th Cir. 1996).

15

Plaintiff’s complaint only alleges that Defendants conspired to divert funds. “A RICO plaintiff

16

must allege a structure for the making of decisions separate and apart from the alleged

17

racketeering activities, because the existence of an enterprise at all times remains a separate

18

element which must be proved.” Wagh v. Metris Direct, Inc., 348 F.3d 1102, 1112 (9th Cir.

19

2003). Plaintiffs have failed to plead the existence of an enterprise.

20
21
22

D. Fraud
Plaintiffs also allege that Defendants “knowingly and willfully conspired and agreed

23

amongst themselves to fraudulently transfer millions of dollars from Plaintiffs.” Doc. 1,

24

Complaint, at 11:8-9. Plaintiffs provide the dates and amounts of several transfers of funds

25

totaling hundreds of thousands of dollars made by Timothy Hardt to Herbert Hardt, Brandon, and

26

others. Doc. 1, Complaint, at 6:1-28. Plaintiffs allege the monies were owed to the Plan by JET

27

but instead, Defendants wrongfully transferred the funds for personal use. “A transfer made or

28

obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose
9

1

before or after the transfer was made or the obligation was incurred, if the debtor made the

2

transfer or incurred the obligation as follows: (1) With actual intent to hinder, delay, or defraud

3

any creditor of the debtor.” Cal. Civ. Code §3439.04(a). Fed. Rule Civ. Proc. 9(b) requires that,

4

when averments of fraud are made, the circumstances constituting the alleged fraud must be

5

“specific enough to give defendants notice of the particular misconduct...so that they can defend

6

against the charge and not just deny that they have done anything wrong.” Though the

7

substantive elements of fraud are set by a state law, those elements must be pled in accordance

8

with the requirements of Rule 9(b). See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103

9

(9th Cir. 2003). The claims appear to fit the language of Cal. Civ. Code §3439.04(a).

10
11
12

E. Rule 19
Defendants argue that allowing this ERISA suit to go forward without the participation of

13

DOL would leave “Defendants [] exposed to a multitude of lawsuits which may be brought by

14

the real parties in interest and result in conflicting findings and/or liability.” Doc. 31, Part 2,

15

Brief, at 12:9-11. Fed. Rule Civ. Proc. 19(a) states:

16
17
18
19
20

(1) Required Party. A person who is subject to service of process and whose joinder will
not deprive the court of subject-matter jurisdiction must be joined as a party if:
(A) in that person’s absence, the court cannot accord complete relief among
existing parties; or
(B) that person claims an interest relating to the subject of the action and is so
situated that disposing of the action in the person’s absence may:
(i) as a practical matter impair or impede the person’s ability to protect the
interest; or
(ii) leave an existing party subject to a substantial risk of incurring double,
multiple, or otherwise inconsistent obligations because of the interest.

21
22

Defendants point to Fed. Rule Civ. Proc. 19(a)(1)(B)(ii) in alleging DOL a required party. Dell

23

Donne, as a participant in the Plan under 29 U.S.C. §1132(a)(2), is suing on behalf of the Plan

24

for breach of fiduciary duty in violation of 29 U.S.C. §1109(a), not on his own behalf. See Mass.

25

Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140-42 (1985) (beneficiary can only sue on behalf of

26

plan and not directly for herself). DOL also has authority to sue on behalf of the Plan for breach

27

of fiduciary duty. 29 U.S.C. §1132(a)(2).

28

In this case, DOL asserts that any judgment in favor of Defendants against the Plan would
10

1

not be binding on the DOL. Doc. 29, Amicus Brief, at 13:17-18:14. DOL’s authority on this

2

issue is persuasive. “Every circuit addressing the issue has held that the Secretary is not bound

3

by prior private litigation when the Secretary files an independent action to address ERISA

4

violations. Each court recognized that the Secretary’s national public interests in bringing an

5

ERISA enforcement action are wholly distinct and separate from those of private litigants who

6

seek to redress individual grievances or recoup plan losses for their personal benefit as plan

7

beneficiaries. The courts note that under ERISA’s statutory framework, private plaintiffs do not

8

adequately represent, and are not charged with representing, the broader national public interests

9

represented by the Secretary.” Herman v. South Carolina Nat’l Bank, 140 F.3d 1413, 1424 (11th

10

Cir. 1998), citing Beck v. Levering, 947 F.2d 639, 642 (2nd Cir. 1991); Secretary of Labor v.

11

Fitzsimmons, 805 F.2d 682, 690-94 (7th Cir. 1986); and Donovan v. Cunningham, 716 F.2d

12

1455, 1462-63 (5th Cir. 1983). The Seventh Circuit in particular discussed the issue in the

13

context of a 29 U.S.C. §1132(a)(2) claim. Secretary of Labor v. Fitzsimmons, 805 F.2d 682, 691

14

n.12 (7th Cir. 1986). Thus, DOL would still be able to sue Defendants on behalf of the Plan even

15

if Defendants prevail in this suit.

16

However, that is not the key consideration for purposes of Rule 19(a)(1)(B)(ii) which

17

discusses “double, multiple, or otherwise inconsistent obligations.” Rule 19(a) seeks to avoid

18

situations where a party must pay multiple liability awards which exceed the total damage; it

19

does not concern itself with res judicata per se. “[I]nconsistent obligations are not the same as

20

inconsistent adjudications or results. Inconsistent obligations occur when a party is unable to

21

comply with one court’s order without breaching another court’s order concerning the same

22

incident. Inconsistent adjudications or results, by contrast, occur when a defendant successfully

23

defends a claim in one forum, yet loses on another claim arising from the same incident in

24

another forum.” Cachil Dehe Band of Wintun Indians v. California, 547 F.3d 962, 976 (9th Cir.

25

2008), quoting Delgado v. Plaza Las Americas, Inc., 139 F.3d 1, 3 (1st Cir. 1998). Even if both

26

Plaintiffs and DOL were to prevail against Defendants in separate suits, Defendants’ total

27

liability is limited to the Plan’s loss; a recovery in one suit will be considered by the later suit in

28

determining damages. See Beck v. Levering, 947 F.2d 639, 642 (2nd Cir. 1991). DOL is not a
11

1

required party under Rule 19.

2
IV. Order

3
4

Defendants’ motion to dismiss is GRANTED in part and DENIED in part.

5

The ERISA and breach of fiduciary duty claims against Herbert Hardt are DISMISSED

6

The RICO claims against all Defendants are DISMISSED.

7

Plaintiffs are granted leave to amend. Plaintiffs may file an amended complaint within

8

twenty-one (21) days of the service of this order. Defendants must file an answer within twenty-

9

one (21) days of the end of the amendment period.

10
11

IT IS SO ORDERED.

12
13

Dated:
0m8i78

September 5, 2011
CHIEF UNITED STATES DISTRICT JUDGE

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
12