Resnick v. Schwartz
Filing
110
MEMORANDUM Opinion and Order signed by the Honorable Edmond E. Chang on 12/27/2019. For the reasons stated in the Opinion, the Defendants' motion 85 for summary judgment is granted on the ERISA claims against Schwartz. The Plaintiffs' cross-motion 89 is denied. The Court relinquishes jurisdiction over the remaining state-law claims. The status hearing of 01/10/2020 is vacated. A final AO-450 judgment will be entered. Civil case terminated. Mailed notice(sxw, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DR. ALAN RESNICK AND DR. JAMES
THOMPSON, derivatively, on behalf of the
ASSOCIATED ALLERGISTS & ASTHMA, LTD.
DEFINED BENEFIT PENSION PLAN & TRUST;
and ASSOCIATED ALLERGISTS &
ASTHMA, LTD.,
Plaintiffs,
v.
DR. DONALD SCHWARTZ; RONALD SPITZ;
and RONALD SPITZ AND ASSOCIATES, INC.,
Defendants.
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No. 17 C 04944
Judge Edmond E. Chang
MEMORANDUM OPINION AND ORDER
Over 17 years ago, Dr. Donald Schwartz withdrew, in a lump sum, over
$800,000 in benefits from his pension-plan account with Associated Allergists. R. 29,
Corr. Am. Compl. at 3 ¶ 2.1 But he should not have taken a lump sum: under federal
pension-benefits law (known by its acronym, ERISA), Dr. Schwartz was considered a
“highly compensated” employee, so he was required to take annuity payments over
time instead of a lump-sum payment. Id. at 3 ¶ 3. Eventually, the Plan’s current
fiduciaries, Drs. Alan Resnick and James Thompson, brought suit against both Dr.
Schwartz and the Plan’s then-actuaries, Ronald Spitz and Ronald Spitz and
1Citations
to the record are noted as “R.” followed by the docket number and the page
or paragraph number. The Corrected Amended Complaint does not use consecutively
numbered paragraphs, so citations refer first to the page of the pleading followed by the
relevant paragraph number.
Associates2 (collectively the Defendants), alleging ERISA violations as well as Illinois
state claims. See Corr. Am. Compl. at 12-22.3
Earlier in the case, both Dr. Schwartz and the Spitz Defendants independently
moved to dismiss the claims against them. R. 32, Spitz’s Mot. Dismiss Br.; R. 36-1
Schwartz’s Mot. Dismiss Br. As relevant here, Schwartz argued that the Plaintiffs’
claims were barred by ERISA’s three-year statute of limitations. The Court agreed
with Schwartz in general, but nevertheless denied Schwartz’s motion to dismiss
because the fraudulent-concealment exception to ERISA’s statute of limitations
might apply. Whether the exception applied, though, could not be resolved at the
pleading stage, so the Court allowed the parties to take discovery on that limited
issue. After the parties finished the limited discovery, the Defendants moved for
summary judgment, R. 87, Defs.’ Mot. Summ. J., and t1he Plaintiffs cross-moved
against the limitations defense, R. 89, Pls.’ Mot. Summ. J. For the reasons discussed
below, the Defendants’ motion is granted.
I. Background
A. Factual Background
This Opinion assumes familiarity with the facts described in the prior opinion
that decided the Defendants’ motions to dismiss. R. 61, 9/3/18 Opinion at 2-6; Resnick
v. Schwartz, 2018 WL 4191525, at *1-2 (N.D. Ill. Sept. 3, 2018). In deciding the motion
for summary judgment, the Court must view the evidence in the light most favorable
2Ronald
Spitz and Ronald Spitz & Associates, Inc. will be referred to as “Spitz” for
ease of reference.
3This Court has subject matter jurisdiction over the case under 28 U.S.C. § 1331 and
supplemental jurisdiction over the accompanying state law claims under 28 U.S.C. § 1367.
2
to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 587 (1986). Because both parties have both moved for summary judgment, the
Court will consider the evidence in the light most favorable to each party to see if the
opposing party is entitled to summary judgment.4
Sometime in early 2000, Dr. Donald Schwartz retired and became eligible to
receive payments from his pension plan with Associates Allergists & Asthma (for
clarity’s sake, this opinion will call it the “Plan”). R. 86, DSOF ¶¶ 4, 8; R. 89-2, Pls.’
Resp. DSOF ¶¶ 4, 8.5 At the time of his retirement, the total amount due to Schwartz
from the Plan was at least $822,596. DSOF ¶ 8; Pls.’ Resp. DSOF ¶ 8. Schwartz chose
to have those pension benefits paid in a single lump sum, rather than smaller annual
payouts through an annuity. DSOF ¶ 11; Pls.’ Resp. DSOF ¶ 11. On February 16,
2000, Schwartz received a lump-sum payment of $822,596. DSOF ¶ 17; Pls.’ Resp.
DSOF ¶ 17. About a year later, Ronald Spitz, the actuary for the Plan from 1999
through 2016, mailed Associated Allergists the IRS forms related to participant
distributions for calendar year 2000, which included Schwartz’s 2000 Form 1099-R.
DSOF ¶ 19; Pls.’ Resp. DSOF ¶ 19. That form reflected the $822,596 lump-sum
distribution to Schwartz that was made back in February 2000. Id.
4The
Court notes that the Plaintiffs failed to cite to the parties’ Local Rule 56.1
Statements of Fact in support of their brief.
5Citations to the parties’ Local Rule 56.1 Statements of Fact are “DSOF” for
Defendants’ Statement of Facts [R. 86]; “PSOF” for Plaintiffs’ Statement of Facts [R. 89-1];
“Pls.’ Resp. DSOF” for Plaintiffs’ Response to Defendants’ Statement of Facts [R. 89-2]; “Defs.’
Resp. PSOF” for Defendants' Response to Plaintiffs’ Statement of Facts [R. 94].
3
At the time of the distribution, Schwartz did not personally communicate with
Dr. Alan Resnick or Dr. James Thompson, who were Trustees of the Plan (as well as
participants and beneficiaries of the Plan), about the distribution. DSOF ¶ 21; Pls.’
Resp. DSOF ¶ 21. But neither did Schwartz take any overt acts to conceal the
distribution from Resnick or Thompson. DSOF ¶ 22; Pls.’ Resp. DSOF ¶ 22. Either
way, the Plan, Resnick, and Thompson all knew about the lump-sum disbursement
the day it was made. DSOF ¶¶ 17-18; Pls.’ Resp. DSOF ¶ 17-18; R. 89-1, PSOF ¶ 1.
What Resnick and Thompson did not know at the time, however, was that Schwartz
was restricted from taking a lump-sum payment from the pension fund under ERISA
because he was a “highly compensated” employee, as defined by the Internal Revenue
Code. DSOF ¶¶ 12-13; Pls.’ Resp. DSOF ¶¶ 12-13. Since at least 1994, the Plan has
included that regulatory restriction against highly compensated employees in the
written terms of the Plan document. DSOF ¶ 14; Pls.’ Resp. DSOF ¶ 14. But it was
not until May 2016, when the Plan’s new actuary discovered the applicability of the
restriction, that Resnick and Thompson, along with the other Trustees, beneficiaries,
and participants of the Plan, actually found out that Schwartz’s lump-sum
distribution was not proper under the law. PSOF ¶ 6; Defs.’ Resp. PSOF ¶ 6.
B. Procedural History
Some seventeen years after the lump-sum distribution, Resnick and Thompson
sued Schwartz and Spitz for the illegal lump-sum withdrawal. The Plaintiffs asserted
in their Amended Complaint that Dr. Schwartz violated his fiduciary duties to the
Plan under ERISA (Count 1) and participated in a prohibited transaction (Count 2).
4
The Plaintiffs further contended that Spitz too participated in the prohibited
transaction (Count 3), and that Spitz should be ordered to disgorge his fees (Count
4). The Plaintiffs also brought supplemental state law claims against Spitz (Counts
5, 6, and 7).6 Both Dr. Schwartz and the Spitz Defendants independently moved to
dismiss the claims against them, arguing that the Corrected Amended Complaint (for
convenience’s sake, the remainder of the Opinion will drop the “Corrected”) failed to
adequately state a claim, and in any event, the claims are barred by the statute of
limitations. See Spitz’s Mot. Dismiss Br.; Schwartz’s Mot. Dismiss Br.
The Court granted Spitz’s motion to dismiss the ERISA claims, and denied
Schwartz’s motion. Resnick, 2018 WL 4191525, at *10. As relevant here, the Court
held that, on the face of the Amended Complaint, the claims against Schwartz were
barred by ERISA’s three-year statute of limitations because the lump-sum
distribution happened in 2000 and the Plaintiffs knew about the distribution at that
time. Id. at *6. But the Plaintiffs’ had invoked ERISA’s longer fraud-or-concealment
statute of limitations, which gives a plaintiff “six years after the date of discovery of
such breach or violation” to commence an action, 29 U.S.C. § 1113. Id. at *6-7. And at
that stage of the case, the Plaintiffs were not required to plead the facts underlying
the exception. See id.; Xechem, Inc. v. Bristol-Myers Squibb Co., 372 F.3d 899, 901
(7th Cir. 2004). So the Court denied Schwartz’s motion to dismiss to allow for limited
discovery on whether the fraudulent-concealment exception applies. Resnick, 2018
6The
payment-penalty allegation is labeled as Count 8 in the Corrected Amended
Complaint, but the Plaintiffs skipped over the number 7. See Am. Corr. Compl. at 21 ¶ 4.
5
WL 4191525, at *7. The Court also stayed the state law claims against Spitz until the
limitations defense as to Schwartz was resolved.
After finishing the limited discovery, both sides have now moved for summary
judgment on the statute of limitations defense. Schwartz and Spitz filed a combined
motion arguing that the undisputed facts revealed in discovery now demonstrate that
ERISA’s fraudulent-concealment exception does not apply. In response, the Plaintiffs
argue that the undisputed facts show that the exception applies.
II. Standard of Review
Summary judgment must be granted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(a). A genuine issue of material fact exists if “the
evidence is such that a reasonable jury could return a verdict for the nonmoving
party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In evaluating
summary judgment motions, courts must “view the facts and draw reasonable
inferences in the light most favorable to the” non-moving party. Scott v. Harris, 550
U.S. 372, 378 (2007) (cleaned up).7 The Court “may not weigh conflicting evidence or
make credibility determinations,” Omnicare, Inc. v. UnitedHealth Grp., Inc., 629 F.3d
697, 704 (7th Cir. 2011) (cleaned up), and must consider only evidence that can “be
presented in a form that would be admissible in evidence.” Fed. R. Civ. P. 56(c)(2).
The party seeking summary judgment has the initial burden of showing that there is
7This
opinion uses (cleaned up) to indicate that internal quotation marks, alterations,
and citations have been omitted from quotations. See Jack Metzler, Cleaning Up Quotations,
18 Journal of Appellate Practice and Process 143 (2017).
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no genuine dispute and that they are entitled to judgment as a matter of law.
Carmichael v. Village of Palatine, 605 F.3d 451, 460 (7th Cir. 2010); see also Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986); Wheeler v. Lawson, 539 F.3d 629, 634 (7th
Cir. 2008). If this burden is met, the adverse party must then “set forth specific facts
showing that there is a genuine issue for trial.” Anderson, 477 U.S. at 256.
III. Analysis
A. Statute of Limitations and Fraudulent Concealment
As explained in the previous opinion, ERISA provides that any plan fiduciary
who breaches fiduciary duties is “personally liable to make good to such plan any
losses to the plan resulting from each such breach.” 29 U.S.C. § 1109. The statute,
however, limits the time in which an action for breach of fiduciary duties may be
brought. Specifically, ERISA dictates that an action is too late after the earlier of: (1)
three years after the earliest date on which the plaintiff had actual knowledge of the
breach; or (2) six years after the date of the last action which constituted a part of the
breach (or in the case of an omission, the latest date on which the fiduciary could have
cured the breach). See 29 U.S.C. §§ 1113(1)-(2).
Based on the allegations in the Amended Complaint, the Court previously held
that the three-year limitations period expired before the suit’s filing. The Plaintiffs
now contend that that decision was “misplaced,”8 arguing that the Court got the legal
standard wrong. Pls.’ Mot. Summ J. at 5-6, 13. Although the Plaintiffs did not
8The
Court notes that in addition to the three-year limitations arguments, the
Plaintiffs have also raised inapt claim-preclusion arguments. See Pls.’s Resp. Br. at 11-12.
Claim preclusion is simply not pertinent to the current summary judgment motions; there is
no prior case between the parties from which claim preclusion could arise.
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formally ask the Court to reconsider the prior opinion, the Court will nevertheless
address the Plaintiffs’ contention without rehashing the entire issue.
In holding that the three-year period had expired, the Court explained that, in
this Circuit, “actual knowledge” for § 1113(2) purposes “required knowledge of all
material facts but not knowledge of every detail or knowledge of its illegality.”
Resnick, 2018 WL 4191525, at *6 (citing Rush v. Martin Petersen, 83 F.3d 894, 896
(7th Cir. 1996) (quoting Martin v. Consultants & Admrs., Inc., 966 F.2d 1078, 1086
(7th Cir. 1992))) (emphasis in original). According to the Plaintiffs, though, the clock
instead starts ticking when a plaintiff has actual knowledge of the “underlying
breach,” or illegality, as opposed to the underlying facts. Pls.’s Mot. Summ. J. at 5-6,
8-13 (emphasis added).
The Plaintiffs quote a number of cases to support their contention, but none of
those cases actually support the Plaintiffs’ argument. First, the decision in Merck &
Co. v. Reynolds, 559 U.S. 633, 648 (2010), interpreted the statute of limitations
applicable to securities fraud actions under § 10(b) of the Securities Exchange Act,
and not ERISA’s three-year limitations period nor the fraudulent-concealment in
ERISA. See id. at 648. The statutory text of the § 10(b) limitations period (“2 years
after the discovery of the facts constituting the violation,” 28 U.S.C. § 1658(b)(1)) is
not the same as the text of ERISA’s limitations periods. More importantly, Merck did
not address whether knowledge of the illegality of the acts at issue is required to start
the clock ticking (as the Plaintiffs contend) or if the clock starts once the plaintiffs
know about just the acts themselves. Instead, Merck only addressed (1) whether
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actual knowledge of facts—as distinct from imputing knowledge of facts that could
have been discovered with reasonable diligence—is required for § 10(b)’s limitations
period to start running, 559 U.S. at 648; and (2) whether the clock starts ticking even
if the securities-fraud plaintiff has yet to discover facts about the defendant’s state of
mind, 559 U.S. at 649-50. Neither holding has any bearing on the Plaintiffs’ argument
in this case.
As for the remainder of the cases that the Plaintiffs rely on, the cases actually
end up supporting the holding of the prior opinion. Block-quoting language from Fish,
the Plaintiffs contend that the three-year bar applies “only when the plaintiff knows
not only the facts underlying the alleged violation but also that those facts constitute
a violation under ERISA.” Pls.’ Mot. Summ. J. at 13 (citing to Fish v. Greatbanc Trust
Co., 749 F. 3d 671, 678-79 (7th Cir. 2014)). But the Plaintiffs fail to mention that, in
the language quoted, the Seventh Circuit was summarizing the law in other circuits—
the Third and Sixth Circuits—and not the law in this Circuit. See Pls.’ Mot. Summ.
J. at 13 (citing Fish, 749 F. 3d at 678-79). Relying on the same precedent that this
Court cited (including Martin), the Seventh Circuit in Fish went on to explain that
“this court’s precedent … requires knowledge of all material facts but not knowledge
of every detail or knowledge of illegality.” Id. (emphases added) (cleaned up). The
district court in George likewise applied the same definition. See George v. Kraft
Foods Global, Inc., 814 F. Supp. 2d 832, 850 (N.D. Ill. 2011) (citing Martin, 966 F.2d
at 1086). Based on that definition, there is no doubt that the three-year statute of
limitations expired—the Plaintiffs conceded that they knew about the lump-sum
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distribution when it happened. Corr. Am. Compl. at 5-6 ¶¶ 6, 8(b); DSOF ¶¶ 17-18;
Pls.’s Resp. DSOF ¶ 17-18; R. 89-1, PSOF ¶ 1.
With that established, the Court moves on to the fraudulent-concealment
exception. In cases of “fraud or concealment,” ERISA provides that an action may be
commenced no later than six years after the date of discovery of the breach of
fiduciary duty. 29 U.S.C. § 1113. The Seventh Circuit has interpreted this exception
to incorporate federal common law’s doctrine of fraudulent concealment. Radiology
Ctr., S.C. v. Stifel, Nicolaus & Co., 919 F.2d 1216, 1220 (7th Cir.1990) (citing Schaefer
v. Ark. Med. Soc'y, 853 F.2d 1487, 1491 (8th Cir.1988)); Martin, 966 F.2d at 1093-94.
Fraudulent concealment tolls the statute of limitations when the defendant has
prevented the plaintiff’s “timely discovery of the wrong she has suffered.” Radiology
Ctr., 919 F.2d at 1220.
In the context of fraudulent concealment for statute of limitations purposes,
fraud can take one of two forms: (1) acts that are “self-concealing”; and (2) overt acts
that misrepresent the significance of facts of which the beneficiary is aware. Laskin
v. Siegel, 728 F.3d 731, 735 (7th Cir. 2013) (citing Martin, 966 F. 2d at 1094). “In the
former, concealment is established by the nature of the act; on the latter, additional
facts of concealment are required to trigger the tolling doctrine.” Martin, 966 F.2d at
1094. To the extent that “concealment” is a separate part of the fraudulentconcealment doctrine, there must be “actual concealment—i.e., some trick or
contrivance intended to exclude suspicion and prevent inquiry.” Id. at 1095 (cleaned
up). In other words, the defendant must take “affirmative steps to hide the violation.”
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Laskin, 728 F.3d at 735 (citing Radiology Ctr., 919 F.2d at 1220). Although the
statute of limitations is, generally speaking, an affirmative defense, fraudulent
concealment is an expansion of the ordinary statute of limitations, so it is the
plaintiff’s burden to show that the exception applies. George v. Kraft Foods Global,
Inc., 814 F. Supp. 2d 832, 848 (N.D. Ill. 2011); Wasserstein v. Univ. of Chicago, 2018
WL 3474543, at *4 (N.D. Ill. July 19, 2018).
In this case, the Plaintiffs’ invocation of the fraud-or-concealment exception
fails for two reasons. First, the Plaintiffs fail to provide any evidence suggesting that
the Defendants concealed the alleged breach of fiduciary duty or the underfunding.9
The undisputed facts demonstrate that the Defendants took no affirmative acts to
conceal anything: Schwartz neither personally communicated with the Plaintiffs
about the distribution, DSOF ¶ 21; Pls.’s Resp. DSOF ¶ 21, nor took any overt acts to
conceal it, DSOF ¶ 22; Pls.’s Resp. DSOF ¶ 22. Omissions—without more—do not
demonstrate the kind of “affirmative steps” that trigger the fraud exception. See e.g.
Wasserstein, 2018 WL 3474543, at *5 (holding that failure to provide plaintiff with
sufficient details about the plan and his eligibility benefits was not an affirmative act
of concealment for purposes of the fraud exception); George, 814 F. Supp. 2d at 849
(citing Martin, 966 F.2d at 1094); see also Laskin, 728 F.3d at 735 (citing Radiology
Ctr., 919 F.2d at 1220) (“[A] finding of concealment requires evidence that a defendant
9The
Plaintiffs suggest that discovery on the issue of the fraudulent concealment
exception is incomplete. See Pls.’s Mot. Summ. J. Br. at 3. But back in February 2019, both
parties reported to the Court that fact discovery was complete. See R. 84, 2/12/2019 Minute
Entry. And at no point did Plaintiffs move to compel or further extend discovery. So they
cannot now claim that discovery is incomplete.
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took affirmative steps to hide the violation itself.”); Martin, 966 F.2d at 1094 (quoting
Wood v. Carpenter, 101 U.S. 135, 143 (1879) (“Concealment by mere silence is not
enough. There must be some trick or contrivance intended to exclude suspicion and
prevent inquiry.”)) (cleaned up).
Despite these undisputed facts, the Plaintiffs nevertheless contend that the
exception applies because Defendants allegedly engaged in self-concealing acts. Pls.’s
Mot. Summ. J. at 4, 6-7. According to the Plaintiffs, the Defendants’ acts were selfconcealing because they failed to disclose the legal basis and calculations for the
distribution. Id.; R. 104, Pls.’s Reply Br. at 2. But “fraud claims do not receive the
benefit of ERISA’s six-year statute of limitations simply because they are fraud
claims. “There must still be actual concealment.” Martin, 966 F.2d at 1095 (emphasis
added). “[T]he defendant must engage in some misleading, deceptive or otherwise
contrived action or scheme, in the course of committing the wrong, that is designed
to mask the existence of a cause of action.” Id. at 1094. In Martin, for example, the
defendants actively concealed an alleged kickback scheme by channeling the
kickbacks through a dummy corporation, where the kickbacks were falsely labeled as
payments for services supposedly rendered. See id. at 1095-96. But here, the
Plaintiffs have failed to point to any evidence suggesting that the Defendants took
any steps to cover their tracks, or to hide the distribution. When it comes down to it,
the Plaintiffs really are repeating the argument that, yes they knew about the lump
sum, but they did not know that it was illegal. That does not amount to the
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fraudulent-concealment exception to ERISA’s statute of limitations, even when the
evidence is viewed in the Plaintiffs’ favor.
Lastly, the Plaintiffs failed to present any evidence demonstrating that they
exercised due diligence in uncovering the alleged breach and underfunding. As the
Defendants point out, the Plan has contained, since 1994, a section outlining the
restrictions on lump-sum distributions to highly compensated employees. DSOF ¶ 14;
Pls.’s Resp. DSOF ¶ 14. So had they exercised due diligence, the Plaintiffs could have
discovered the alleged restriction. The Plaintiffs contend, though, that even if they
had exercised due diligence, they had insufficient data or facts that would have
resulted in discovery of the violation because they did not know the plan was
underfunded. See Pls.’s Mot. Summ. J. at 12. But Plaintiffs offer no evidence from
which a factfinder could conclude that due diligence would not have led to the
discovery of the breach or underfunding. The remaining ERISA claims are thus time
barred.
B. State Law Claims Against Spitz
With the ERISA claims dismissed, the remaining claims are the state-law
claims against Spitz, so the usual presumption kicks in: “when the federal claims are
dismissed before trial, there is a presumption that the court will relinquish
jurisdiction over any remaining state law claims.” Dietchweiler by Dietchweiler v.
Lucas, 827 F.3d 622, 631 (7th Cir. 2016) (per curiam) (citing cases). This presumption
is expressed in 28 U.S.C. § 1367(c)(3), which provides for the discretionary
relinquishment of jurisdiction over state claims when the claims providing original
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jurisdiction have been dismissed. Here, the ERISA claims created federal-question
jurisdiction, and neither party has asserted diversity jurisdiction. Given that there is
no basis for jurisdiction without the ERISA claims, there is no good reason to hang
onto the state law claims. This Court thus relinquishes supplemental jurisdiction
over the state law claims.
IV. Conclusion
For the reasons discussed, the Defendants’ motion for summary judgment is
granted on the ERISA claims against Schwartz. The Plaintiffs’ cross-motion is denied.
The Court relinquishes jurisdiction over the remaining state-law claims. The status
hearing of January 10, 2020 is vacated. A final judgment will be entered.
ENTERED:
s/Edmond E. Chang
Honorable Edmond E. Chang
United States District Judge
DATE: December 27, 2019
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