Sit et al v. Genentech, Inc. Tax Reduction Investment Plan et al
Filing
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ORDER DENYING MOTION TO REMAND; STAYING PROCEEDINGS IN PART; VACATING EXISTING DATES 18 (Illston, Susan) (Filed on 12/26/2012)
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IN THE UNITED STATES DISTRICT COURT
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FOR THE NORTHERN DISTRICT OF CALIFORNIA
United States District Court
For the Northern District of California
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KINFONG SIT and MEE WAI CHIU,
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Plaintiffs,
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No. C 12-04864 SI;
Related Case: No. C 12-05077 SI
ORDER DENYING MOTION TO
REMAND; STAYING PROCEEDINGS IN
PART; VACATING EXISTING DATES
v.
GENENTECH, INC. TAX REDUCTION
INVESTMENT PLAN; AYUMI NAKAMOTO;
and DOES 1 to 20,
Defendants.
/
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Now before the Court is plaintiffs Kinfong Sit and Mee Wai Chiu’s motion to remand.
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Defendants Genentech Tax Reduction Investment Plan (“TRIP”) and Ayumi Nakamoto oppose the
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motion. On December 7, 2012, the Court held a hearing on the motion. Having considered the parties’
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arguments, the Court hereby DENIES plaintiffs’ motion to remand and STAYS proceedings in this
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Court IN PART, for the reasons set forth below. Dkt. No. 18.
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BACKGROUND
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Kin Kui Sit was an employee of Genentech who died on June 19, 2011. Compl. ¶ 6. While
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employed at Genentech, Mr. Sit participated in defendant Genentech’s Tax Reduction Investment Plan
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(hereinafter sometimes “Genentech Plan”). Id. Prior to his death, Mr. Sit completed a “Beneficiary
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Election Form” naming plaintiffs Kinfong Sit and Mee Wai Chiu, his brother and cousin, respectively,
as the intended beneficiaries of his Genentech account. Id.; Ex. 1. Although Mr. Sit’s “Beneficiary
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Election Form” indicates that he was unmarried, at the time of his death he remained legally wed to
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Ayuni Nakamoto. Id. ¶ 9; Ex. 1. In fact, Mr. Sit filed an action for the dissolution of his marriage on
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November 23, 2009, in San Francisco Superior Court. Id. ¶ 9. However, Mr. Sit did not obtain a
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divorce decree prior to his death. Id. Thus, pursuant to the Genentech Plan, Mr. Sit was required to
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obtain spousal consent in order to designate someone other than his spouse as his beneficiary. See
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Compl. in Interpleader, Case No. 12-5077 SI. (“CIP”) ¶ 12. Because Mr. Sit never obtained spousal
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consent (CIP ¶ 12) the parties agree that his wife, defendant Ayumi Nakamoto, may claim the proceeds
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of Mr. Sit’s Genentech account, unless an exception applies.
The Genentech Plan provides an exception to the spousal consent requirement, where “the
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United States District Court
For the Northern District of California
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Participant establishes...that written spousal consent may not be obtained because there is no spouse or
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the spouse cannot be located, or because of other circumstances specified under Section 417(a)(2) of
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the [Internal Revenue] Code.” Section 417(a)(2) of the Internal Revenue Code, in turn, provides that
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spousal consent is not required where it “may not be obtained because there is no spouse, because the
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spouse cannot be located, or because of such other circumstances as the Secretary may by regulations
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prescribe.” 26 U.S.C. § 417(a)(2). Regulations promulgated by the Secretary of the Treasury that relate
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to qualified joint and survivor annuities provide that spousal consent is not required where “the
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participant has been abandoned (within the meaning of local law) and the participant has a court order
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to such effect unless a [qualified domestic relations order] provides otherwise.” 26 C.F.R. § 1.401(a)-
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20(A-27).
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In their January 23, 2012, letter seeking to obtain Mr. Sit’s benefits from his Genentech Plan
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account, plaintiffs argued that this exception applied to excuse the spousal consent requirement in this
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case. CIP ¶ 13, Ex. D. Plaintiffs noted that during over 5 years of marriage, defendant Nakamoto spent
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less than 5 months with Mr. Sit and visited him briefly only once after his August 2009, cancer
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diagnosis. Compl. Ex. 2. Although plaintiffs conceded that a court had not yet issued an abandonment
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order at the time of Mr. Sit’s death, they argued that defendant Nakamoto had in fact legally abandoned
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Mr. Sit and a court would likely agree and issue such an order in the future. Id. TRIP disagreed and
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denied plaintiffs’ benefits claim because they had not actually obtained such an order prior to Mr. Sit’s
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death. Id. Moreover, TRIP’s denial letter stated that even if plaintiffs could obtain such an order, it
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would likely be unenforceable based on case law holding that “a surviving spouse benefit vests on the
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date of the participant’s death and a proposed [qualified domestic relations order] entered posthumously
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is not enforceable.” Ex. D at 3. Thus, the core legal dispute between plaintiffs and TRIP is whether,
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under California law, plaintiffs can obtain abandonment order posthumously, and subsequently, whether
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that order would be valid for ERISA purposes.
On August 30, 2012, plaintiffs filed a civil action against TRIP, Nakamoto, and Doe Defendants
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in San Mateo County Superior Court. Plaintiffs’ verified complaint asserts four causes of action: (1)
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declaratory relief against all defendants that defendant Nakamoto did abandon the late Mr. Sit prior to
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June 12, 2012; (2) a claim for benefits under Section 502(a) of ERISA [29 U.S.C. § 1132(a)] against
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United States District Court
For the Northern District of California
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TRIP; (3) imposition of a constructive trust against TRIP; and (4) breach of fiduciary duty against TRIP.
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On September 17, 2012, defendant TRIP removed the case to this Court,1 and on September 28, 2012,
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TRIP filed a complaint in interpleader seeking to obtain equitable relief under ERISA Section 502(a)(3)
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as between the competing beneficiaries Nakamoto and Sit and Chiu. Genentech v. Sit, et al., Case No.
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12-5077 SI (N.D. Cal).
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On October 4, 2012, plaintiffs filed the instant motion to remand. Plaintiffs’ motion raises three
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distinct grounds for remand: (1) remand the entire action to San Mateo County Superior Court because
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of procedural flaws in defendant TRIP’s removal; (2) remand only the first cause of action for
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declaratory judgment as to abandonment to the San Mateo County Superior Court and stay the
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remaining proceedings under the Court’s discretionary power to sever the federal claims from the state
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law claims; or (3) stay all proceedings in this Court, pursuant to the Colorado River abstention doctrine,
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until the San Francisco County Superior Court rules on the issue of abandonment and/or separation in
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a separate action between the parties currently pending there. See Colorado River Water Conservation
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Dist. v. United States, 424 U.S. 800, 817 (1976). Both defendants oppose any remand on the grounds
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that plaintiffs’ claims are preempted by ERISA or that plaintiffs have not justified application of
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Colorado River abstention.
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Defendant Nakamoto’s consent to removal was not required because plaintiffs had not yet been
served her with the complaint in this case. See 28 U.S.C. § 1446(a)(2)(A).
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DISCUSSION
Although plaintiffs’ complaint state four causes of action, the core legal dispute is whether,
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under California law, plaintiffs can obtain a valid abandonment order posthumously, and whether such
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an order would be valid under ERISA. While TRIP argues that it would not honor such an order
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because it would be unobtainable or unenforceable, that question is for a Court to decide, not TRIP.
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Plaintiffs’ first cause of action, which specifically asks this Court to declare that defendant Nakamoto
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abandoned Mr. Sit, impliedly presumes that a court may issue such a posthumous order. As the parties
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note, while other courts have addressed similar situations, this case presents a novel question under
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California law, where the only analogous case the Court is aware of suggests that in some
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United States District Court
For the Northern District of California
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circumstances, a qualified domestic relations order may be obtained after the death of the plan
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participant. See Trustees of the Directors Guild of America-Producer Pension Benefits Plan v. Tise, 234
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F.3d 415, 421 (9th Cir. 2000).
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To complicate matters, plaintiffs and defendant Nakamoto are currently parties to another action
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in San Francisco County Superior Court involving similar issues. In that case, Nakamoto v. Sit, San
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Francisco Sup. Ct. Case No. CGC-12-520301, filed on April 26, 2012, Nakamoto challenges the validity
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of Mr. Sit’s will, which created a revocable trust for the benefit of Kinfong Sit and Mee Wai Chiu,
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among others, and the division of other community property after Mr. Sit’s death. See “Verified
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Complaint,” Nakamoto v. Sit, San Francisco Sup. Ct. Case No. CGC-12-520301. As affirmative
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defenses in that case, Kinfong Sit and Mee Wai Chiu asserted that Nakamoto was legally “separated”
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or had “abandoned” Mr. Sit. Goddard Decl. II, Ex. 1 at 5 (Dkt. 55). Thus, the San Francisco County
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Superior Court is confronted with nearly the same legal issue as presented by plaintiffs’ first cause of
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action in this case: whether Nakamoto abandoned Mr. Sit and impliedly, whether a court applying
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California law can make such an abandonment finding posthumously.
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Plaintiffs’ motion to remand, thus, presents a vexing problem. If this Court denies the motion
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and addresses the abandonment dispute, there is a risk that the San Francisco County Superior Court and
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this Court reach inconsistent decisions on the abandonment question. Even if this Court grants
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plaintiffs’ motion for any of the three reasons discussed in the parties’ papers, there remains a risk that
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multiple courts will adjudicate the same core legal dispute – whether Mr. Sit was abandoned and
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whether plaintiffs’ can obtain an enforceable order to that effect after Mr. Sit’s death. The San
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Francisco County Superior Court proceeding is currently scheduled for trial on April 8, 2013. Dkt. 53
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at 2. Although the Court is highly skeptical of TRIP’s argument that the abandonment cause of action
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is preempted by ERISA, the Court agrees with TRIP’s position that a remand or stay pursuant to
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Colorado River abstention doctrine is inappropriate here where the state court action will not resolve
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all the issues between the parties. See Attwood v. Mendocino Coast Dist. Hosp., 886 F.2d 241, 243 (9th
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Cir. 1989) (“the decision to invoke Colorado River necessarily contemplates that the federal court will
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have nothing further to do in resolving any substantive part of the case, whether it stays or dismisses”).
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If the Court cedes jurisdiction over the claim for declaratory judgment of abandonment to the San Mateo
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United States District Court
For the Northern District of California
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County Superior Court, that would not resolve plaintiffs’ additional causes of action, including the
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ERISA claim.
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Therefore, because plaintiffs’ proposed remand would not address the underlying problem of
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duplicative, potentially inconsistent rulings, the Court DENIES plaintiffs’ motion to remand. However,
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a district court “may, with propriety, find it is efficient for its own docket and the fairest course for the
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parties to enter a stay of an action before it, pending resolution of independent proceedings which bear
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upon the case.” Mediterranean Enters., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1465 (9th Cir. 1983)
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(quoting Leyva v. Certified Grocers of Cal., Ltd., 593 F.2d 857, 863-64 (9th Cir. 1979). “This rule
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applies whether the separate proceedings are judicial, administrative, or arbitral in character, and does
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not require that the issues in such proceedings are necessarily controlling of the action before the court.”
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Id. (quoting Leyva, 708 F.2d at 863-64).
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While it is possible that the San Francisco County Superior Court proceeding will not address
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the abandonment issue, as a matter of judicial economy and fairness, it is appropriate to first allow that
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court to review the issue. Should that case conclude without the court ever ruling on the issue, then
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plaintiffs’ may wish to revisit their motion to remand only the declaratory judgment of abandonment
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cause of action to the San Mateo County Superior Court. At present, the Court finds that the fairest and
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most efficient outcome is to stay all proceedings in this case, except as to any matters that are purely
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issues of law, pending resolution of the San Francisco County Superior Court case.
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CONCLUSION
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For the foregoing reasons, the Court DENIES plaintiffs’ motion to remand and STAYS IN
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PART the proceedings in this case. As to any matters that are purely issues of law, the parties may
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request leave of the Court to file any additional motion. All existing dates in this case are hereby
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VACATED. The parties shall promptly notify the Court when the San Francisco County Court action
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resolves the abandonment issue or that case otherwise concludes.
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IT IS SO ORDERED.
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United States District Court
For the Northern District of California
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Dated: December 26, 2012
SUSAN ILLSTON
United States District Judge
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