Chea v. Lite Star ESOP Committee ( 2024 )

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 11 LINNA CHEA, Case No. 1:23-cv-00647-JLT-SAB 12 Plaintiff, ORDER ADOPTING IN PART FINDINGS AND RECOMMENDATIONS 13 v. (Doc. 44) 14 LITE STAR ESOP COMMITTEE, et al., 15 Defendants. 16 17 18 On April 27, 2023, Linna Chea, on behalf of the Lite Star Employee Stock Ownership Plan 19 established on August 29, 2017 and effective as of September 1, 2016 (the “ESOP”) filed this civil 20 enforcement action pursuant to Sections 502(a)(2)(3) of the Employee Retirement Income Security 21 Act of 1974, as amended, 29 U.S.C. § 1132(a)(2)(3). The plaintiff sues for various violations of 22 the Employee Retirement Income Security Act of 1974.1 23 Before the Court is the motion to dismiss filed by the PFS Defendants, (Docs. 23, 23-2), a 24 motion to dismiss filed by the ESOP Committee, Sloan, Kathleen Hagen, Kathleen Hagen as Legal 25 Successor, and the Hagen Estate (together the “Hagen Defendants”) (ECF No. 24), and a motion to 26 1 The complaint names as defendants the Lite Star ESOP Committee (“ESOP Committee”), B-K Lighting, 27 Inc., (“Company”), Nathan Sloan, Kathleen A. Hagen (“Ms. Hagen”), Kathleen A. Hagen, as legal successor to Douglas W. Hagen (“Kathleen Hagen Successor”), Estate of Douglas W. Hagen (“Hagen 28 Estate”), Miguel Paredes, and Prudent Fiduciary Services, LLC, a California Limited Liability Company. 1 dismiss pursuant filed by the Company (Doc. 25). The Magistrate Judge held a hearing on the 2 matters and issued findings and recommendations that the motions to dismiss (Docs. 23, 24, 25) be 3 denied except that the Hagen Defendants’ motion to dismiss Count VII be granted with leave to 4 amend. (Doc. 44 at 7-104.2) The moving parties filed objections. (Docs. 47, 48, 49.) 5 In accordance with the provisions of 28 U.S.C. § 636(b)(1)(C), this Court has conducted a 6 de novo review of this case. Having carefully reviewed the entire file, including defendants’ 7 objections and plaintiff's omnibus reply, the Court concludes the findings and recommendations 8 are supported by the record and proper analysis except that the Court declines to adopt the 9 Magistrate Judge’s recommendation that the PFS Defendants’ request for judicial notice in 10 connection with its motion be denied, as discussed below. 11 DISCUSSION 12 A. Extrinsic Documents Proffered by the Parties 13 1. Extrinsic Documents Proffered by the PFS Defendants 14 The PFS Defendants’ motion to dismiss includes a request that the Court take judicial 15 notice pursuant to Federal Rule of Evidence 201 or the doctrine of incorporation by reference, of 16 the following documents (true and correct copies of which are appended to the request): (1) the 17 Trustee Engagement Agreement, (2) the ESOP Loan Agreement, and (3) the Company ESOP 18 Note. (Doc. 23-2.) In support, the PFS Defendants argue that “[p]laintiff’s claims are based upon 19 these documents, the documents’ contents are referenced in the [c]omplaint, and their authenticity 20 is not disputed.” (Doc. 23-2 at 3.) 21 Plaintiff opposes judicial notice, arguing that the proffered documents are outside of Rule 22 201. Plaintiff also argues these extrinsic documents are not incorporated into the complaint 23 because the complaint does not refer to the documents or “hinge on” the excerpts from the 24 documents upon which the PFS Defendants rely, and the documents are unauthenticated pending 25 discovery. (Doc. 34 at 11, 20-24.) 26 The Magistrate Judge found that “greater weight supports Plaintiff’s position that the 27 Trustee Engagement Agreement is an improper subject of judicial notice at this stage.” (Doc. 44 28 2 Reference to pagination is to CM/ECF system pagination. 1 at 28.) The Magistrate Judge provided a reasoned analysis of the cases cited by the parties, 2 considered the parties’ arguments, and recommended “denying taking judicial notice of the 3 Trustee Engagement Agreement at this point.” (Doc. 44 at 31; see also id. at 27-28.) The 4 Magistrate found “more persuasive” Defendants’ request for judicial notice of the ESOP Loan 5 Agreement and the Company ESOP Note. (Doc. 44 at 52.) The Magistrate Judge found the 6 complaint expressly referred to these documents. (Id. citing Doc. 1 at 9.) In any event, the 7 Magistrate Judge considered all three of the above noted extrinsic documents in his reasoned 8 analysis. (See e.g., Doc. 44 at 27-28, 31, 52-53.) 9 The Court agrees with the Magistrate Judge to the extent he found that Federal Rule of 10 Evidence 201 is not a basis to take judicial notice of these proffered extrinsic documents. Even 11 so, the Court the proffered extrinsic documents are incorporated by reference into the complaint. 12 The Court declines to adopt the Magistrate’s findings and recommendation otherwise. 13 When ruling on a Rule 12(b)(6) motion, a court may consider documents incorporated by 14 reference in the complaint. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 1002 (9th Cir. 15 2018). “Even if a document is not attached to a complaint, it may be incorporated by reference 16 into a complaint if the plaintiff refers extensively to the document or the document forms the 17 basis of the plaintiff's claim.” United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Unlike 18 judicial notice, a court may take the contents of an incorporated document as true for purposes of 19 a Rule 12(b)(6) motion to dismiss unless doing so would “only serve to dispute facts stated in a 20 well-pleaded complaint.” Khoja, 899 F.3d at 1003. 21 These three documents underpin the complaint and are directly relevant to plaintiff’s 22 claim therein. (See Doc. 1 at 2-22); see also Zella v. E.W. Scripps Co., 529 F. Supp. 2d 1124, 23 1128 (C.D. Cal. 2007) (a court may consider documents which are not physically attached to the 24 complaint but “whose contents are alleged in [the] complaint and whose authenticity no party 25 questions.”); Coto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th Cir. 2010) (“We have 26 extended the doctrine . . . to consider documents in situations where the complaint necessarily 27 relies upon a document or the contents of the document are alleged in the complaint, the 28 document's authenticity is not in question and there are no disputed issues as to the document's 1 relevance.”); Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (same). 2 The complaint specifically refers to these proffered ESOP documents or their content. See 3 Aledlah v. S-L Distribution Co., LLC, 2020 WL 2927980, at *3 (N.D. Cal. June 3, 2020) (quoting 4 Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006)) (“[A] court may consider evidence on which 5 the complaint necessarily relies if (1) the complaint refers to the document; (2) the document is 6 central to the plaintiff's claim; and (3) no party questions the authenticity of the copy attached to 7 the 12(b)(6) motion.”); Khoja, 899 F.3d at 1002 (courts also may consider documents under the 8 doctrine of incorporation by reference at the pleadings stage in “rare instances” where the 9 complaint does not refer to the documents, but “the claim[s] necessarily depend[ ] on them.”). 10 Particularly, the complaint refers to the ESOP Plan (Doc. 1 at 9, 11, 12, 17); the ESOP’s 11 governing instruments (id. at 4-5); the ESOP Summary Plan Description (id.); the ESOP 12 Transaction (id. at 14); the promissory note from the ESOP (id. at 9); the ESOP administrator(s) 13 (id. at 17); the ESOP Committee (id. at 18); and the PFS Defendants as ESOP trustee, appointed 14 by the Hagen Defendants (id. at 2, 6-7, 11). Moreover, plaintiff’s claims depend upon the 15 undisputed contents of these documents. (Id. at 12-22.) 16 Also, Plaintiff’s claims are predicated upon her participation in the ESOP. The ESOP 17 Transaction established the ESOP. The ESOP Transaction was financed by the ESOP Loan and 18 Note. The proffered ESOP documents including terms and conditions therein are essential to her 19 complaint. See Parrino v. FHP, Inc., 146 F.3d 699, 706 (9th Cir. 1998), as amended (July 28, 20 1998) superseded by statute on other grounds as stated in Rueda Vidal v. Bolton, 822 Fed. Appx. 21 643, 644-45 (9th Cir. 2020) (citing Abrego v. Dow Chemical Co., 443 F. 3d 56756, 681 (9th Cir. 22 2006)) (a district court ruling on a motion to dismiss may consider a document the authenticity of 23 which is not contested, and upon which the plaintiff's complaint necessarily relies). 24 To the extent Plaintiff suggests these documents are unauthenticated (see Doc. 34 at 11, 25 20-21), she does not make any showing they are other than what the PFS Defendants claim. (See 26 Doc. 36 at 9 citing Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152, 1161 (9th Cir. 2012) 27 (holding where “party opposing incorporation by reference argues only that he did not review or 28 have access to the proffered copies, this does not amount to a challenge to those documents’ 1 authenticity”);see also id. at 11 citing Korman v. ILWU-PMA Claims Office, 2019 WL 1324021, 2 at *7 (C.D. Cal. Mar. 19, 2019).(incorporation by reference appropriate where the plaintiff raised 3 no “legally cognizable grounds” to dispute authenticity). 4 2. Extrinsic Documents proffered by Plaintiff 5 Plaintiff’s counsel attaches to his declaration in opposition to the Company’s motion to 6 dismiss, true and correct copies of the Lite Star ESOP (Effective September 1, 2016) and the Lite 7 Star ESOP Summary Plan Description (Effective September 1, 2016). (Docs. 33-1, 33-2, 33-3.) 8 The Company argues these documents are not properly the subject of judicial notice and should 9 be ignored. (Doc. 37 at 8.) The Magistrate Judge treated these documents as incorporated by 10 reference in the complaint and considered them. (See e.g., Doc. 35 at 9 n.3; Doc. 44 at 34, 43 11 n.12, 45, 47, 64, 82.) 12 The Court agrees and finds that the Lite Star ESOP and the Lite Star Summary Plan 13 Description, are incorporated into the complaint by reference. These documents form a basis for 14 the complaint and are directly relevant to plaintiff’s claims therein, for the same reasons discussed 15 above. (See Doc. 1 at 2-22); see also Zella, 529 F. Supp. 2d at 1128. Moreover, the complaint 16 specifically refers to these proffered ESOP documents or their content. (See e.g., Doc. 1 at 4-5, 9, 17 11-12, 17-18.) Plaintiff’s claims depend upon the undisputed contents of these documents. (Id. 18 at 12-22); see also Aledlah, 2020 WL 2927980, at *3 (under the incorporation-by-reference 19 doctrine, “[a] court may consider evidence on which the complaint necessarily relies if (1) the 20 complaint refers to the document, (2) the document is central to the plaintiff's claim, and (3) no 21 party questions the authenticity of the copy attached to the 12(b)(6) motion.”); cf. Gerritsen v. 22 Warner Bros. Entm't Inc., 112 F.Supp.3d 1011, 1021 (C.D. Cal. 2015) (“Courts regularly decline 23 to consider declarations and exhibits submitted in support of or opposition to a motion to dismiss 24 . . . if they constitute evidence not referenced in the complaint or not a proper subject of judicial 25 notice.”). 26 /// 27 /// 28 /// 1 B. PFS Defendants’ Objections to Magistrate Judge’s Findings and Recommendations 2 (Counts I, III) 3 1. Article III Standing 4 The Magistrate Judge found that “[plaintiff’s] allegations sufficiently state a concrete 5 injury traceable to the Defendants that is redressable by a favorable decision . . . [and that] 6 plaintiff adequately pleads that her (and the ESOP’s) economic injury is the direct result of the 7 Defendants’ failure to properly evaluate and take into account problems with the Company’s 8 operations, management, and financial reporting.” (Doc. 44 at 22.) The PFS Defendants object 9 on grounds plaintiff was not individually injured by their alleged act/omissions; her standing 10 allegations are merely conclusory; and the Magistrate Judge did not correctly weigh the 11 persuasive value of the authorities before him. (Doc. 48 at 11-17.) However, the objections 12 provide no basis for the Court to reject the Magistrate Judge’s findings. The Magistrate correctly 13 applied the controlling legal authority, and his analysis of the PFS Defendants’ motion was fair 14 and reasonable. 15 Plaintiff must demonstrate that she suffered an injury in fact, it is fairly traceable to the 16 challenged conduct of the Defendants, and it is likely to be redressed by a favorable judicial 17 decision. (Doc. 44 at 7 citing Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992)); see also 18 Winsor v. Sequoia Benefits & Ins. Servs., LLC, 62 F.4th 517, 523 (9th Cir. 2023) (same); Spokeo, 19 Inc. v. Robins, 578 U.S. 330, 338, 341 (2016) (“[o]ur cases have established” these three 20 elements); see also Thole v. U.S. Bank N.A., 590 U.S. 538, 540 (2020). 21 The Magistrate Judge correctly found the allegations and the reasonable inferences 22 therefrom plausibly alleged plaintiff’s stake as a vested beneficiary of the ESOP, a defined 23 contribution plan, and injury to her ESOP trust account from the ESOP Transaction’s sale and 24 exchange of overvalued ESOP stock and related non-exempt debt financing which exacerbated 25 impacts of the above market valuation. (See Doc. 44 at 22 citing In re Sutter Health ERISA Litig., 26 2023 WL 1868865, at *5 (“[i]n the context of ERISA claims regarding defined contribution 27 plans, plaintiffs can establish Article III standing by pleading injury to their own plan account.”); 28 see also Thole 590 U.S. at 540 ( (in a defined-contribution plan . . . the retirees’ benefits are 1 typically tied to the value of their accounts[.]”); Lorenz v. Safeway, Inc., 241 F. Supp. 3d 1005, 2 1014 (N.D. Cal. 2017), abrogated on other grounds by Rollins v. Dignity Health, 338 F. Supp. 3d 3 1025 (N.D. Cal. 2018) (citing Lujan, 504 U.S. at 561, 112 S. Ct. 2130 (1992) (quoting Lujan v. 4 National Wildlife Federation, 497 U.S. 871, 889 (1990)).”) (“[A]t the pleading stage, general 5 factual allegations of injury resulting from the defendant's conduct may suffice, for on a motion to 6 dismiss we ‘presum[e] that general allegations embrace those specific facts that are necessary to 7 support the claim.’ ”). 8 Plaintiff plausibly alleges that, as an ESOP participant, she was injured by the prohibited 9 ESOP Transaction caused by the PFS Defendants’ insufficient valuation analysis and process that 10 failed to account for pre-existing Company “adverse events,” and by the Hagen Defendants 11 retained control of the Company after the sale and Defendants’ continued enjoyment of the over- 12 market debt service. (Doc. 44 at 10 citing Doc. 1 at 7-12.) The PFS Defendant fail sufficiently 13 to explain why plaintiff’s alleged receipt of post-ESOP Transaction valuation information is a 14 basis to find otherwise. (See Doc. 48 at 13.) 15 Furthermore, the Magistrate Judge’s reasoned analysis as to the persuasive weight of cases 16 before him leads the Court to reject the objection. (See Doc. 44 at 11-23 citing In re Sutter 17 Health ERISA Litig., 2023 WL 1868865, at *5; Maya v. Centex Corp., 658 F.3d 1060, 1068 (9th 18 Cir. 2011) (quoting Lujan, 504 U.S. at 561) (“At the pleading stage, general factual allegations of 19 injury resulting from the defendant's conduct may suffice, for on a motion to dismiss we 20 presum[e] that general allegations embrace those specific facts that are necessary to support the 21 claim.”); see also Zavala, 398 F.Supp.3d at 745-46; Gamino v. KPC Healthcare Holdings, Inc., 22 2021 WL 162643, at *3 (C.D. Cal. Jan. 15, 2021) (“[I]t is enough to allege facts—as the 23 complaint does—which support an inference that the defendant fail[ed] to conduct an adequate 24 inquiry.”). 25 The PFS Defendants’ re-argument of the persuasive weight of cases considered by the 26 Magistrate Judge is unavailing, for the reasons stated by the Magistrate Judge. (Doc. 44 at 11-23; 27 cf. Doc. 48 at 13-14 citing Plutzer on behalf of Tharanco Grp., Inc. v. Bankers Tr. Co. of S. 28 Dakota, 2022 WL 17086483, at *2 (2d Cir. Nov. 21, 2022) (“But even if overpayment may 1 constitute a sufficient injury in fact in the general case . . . the complaint here does not adequately 2 allege that overpayment occurred . . . [and is] speculative and conclusory.”) 3 For example, the Magistrate Judge reasonably distinguished and declined to apply the 4 mortgage-finance analogy stated in Lee v. Argent Tr. Co., 2019 WL 3729721, at **3-4 (E.D.N.C. 5 Aug. 7, 2019), advocated by the PFS Defendants. (See Doc. 44 at 15-23; see also Doc. 44 at 16- 6 17 citing Laidig v. GreatBanc Tr. Co., 2023 WL 1319624, at *5 (N.D. Ill. Jan. 31, 2023) (finding 7 Article III standing where plaintiffs alleged financial harm to their ESOP shares as a result of the 8 sponsoring company's inflated sale price – rejecting the Lee mortgage-finance analogy). As the 9 Laidig court observed: 10 In the context of a privately held stock sale, there “is no objective price of the stock to serve as a baseline. Rather than the price of the 11 stock being set by the ‘wisdom of the crowd,’ the price is simply what the buyer ultimately pays.” Zavala v. Kruse-W., Inc., 398 F. 12 Supp. 3d 731, 745 (E.D. Cal. 2019). It follows that ESOP transactions like the one at issue here are more susceptible to 13 overvaluation and manipulation, resulting in harm to Plan participants. 14 15 2023 WL 1319624, at *6. 16 2. Status as ESOP Fiduciaries 17 The Magistrate Judge found that plaintiff plausibly alleged PFS’s status as ESOP 18 fiduciary. (Doc. 44 at 27-36 citing Doc. 1 at 6, see also Doc. 23-2 at 6-10, 18; Doc. 33-2 at 11); 19 Ahrendsen v. Prudent Fiduciary Servs., LLC, 2022 WL 294394, at *4 n.4 (E.D. Pa. Feb. 1, 2022) 20 (“PFS disputes that it was a fiduciary. The court at this pleading stage takes the facts in the light 21 most favorable to plaintiffs and will therefore not reach the merits of this claim on a motion to 22 dismiss.”). The PFS Defendants object to the Magistrate Judge’s findings on grounds that 23 plaintiff’s allegation PFS acted as a plan fiduciary is merely conclusory and speculative, reliant 24 upon mere recitals of the elements of the Counts, and devoid of fact showing PFS was a named or 25 functional plan fiduciary. (Doc. 48 at 27-30.) 26 The Magistrate correctly stated the legal standards applicable to a determination of ERISA 27 status as a named fiduciary or a functional fiduciary. (Doc. 44 at 24-27 citing Depot, Inc. v. 28 Caring for Montanans, Inc., 915 F.3d 643, 653-54 (9th Cir. 2019); 29 U.S.C. § 1102(a)(2); 29 1 U.S.C.§ 1002(21)(A)). As the Magistrate Judge observed, “[t]he central question is ‘whether that 2 person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the 3 action subject to complaint.’ ” (Doc. 44 at 25 citing Depot, 915 F.3d at 654.) 4 The PFS Defendants argue the Magistrate Judge answered that central question incorrectly 5 because “PFS is clearly nothing more than Mr. Paredes’s operating company. PFS here is tacked 6 onto Mr. Paredes’s qualifications; PFS is not listed in its own capacity as a trustee.” (Doc. 48 at 7 30.) These Defendants also fault the Magistrate Judge to the extent he failed to incorporate by 8 reference the Trustee Engagement Letter, which they argue supports dismissal of all claims 9 against PFS. (Id. citing Doc. 23-2 at 6-10.) 10 The Court finds plaintiff’s allegations support the Magistrate Judge’s finding that plaintiff 11 properly alleged PFS is an ESOP fiduciary along with Miguel Paredes, particularly so, given 12 plaintiff’s allegations that PFS acted together with Paredes as a functional ESOP fiduciary (see 13 e.g., Doc. 44 at 36 n.11 citing Doc. 1 at 6-7, 11), and that PFS authorized the ESOP’s purchase of 14 Company stock and has discretionary authority and control over ESOP management and assets. 15 (See Doc. 44 at 27-36; see also Doc. 1 at 6.) In further support of the finding, the Magistrate 16 Judge observed Paredes signed certain of the ESOP documents “in some connection with PFS.” 17 (Doc. 44 at 34.) The Court also observes the Trustee Engagement Agreement, wherein Paredes 18 acts in some association with and/or through PFS, and whereunder certain amounts due are paid 19 to PFS. (See Doc. 23-2 at 6-10.) 20 3. Prohibited Transaction 21 The Magistrate Judge found that plaintiff plausibly alleged that the PFS Defendants 22 violated ERISA by causing the ESOP to enter a prohibited transaction, i.e., the ESOP 23 Transaction, which involved the sale and exchange of ESOP stock with an “interest person,” 24 financed by a loan that was not an exempt loan under ERISA, all contrary to the best interests of 25 the ESOP plan and participants. (Doc. 44 at 48-61 citing 29 U.S.C. §§ 1106(a)(1)(B)(D), 26 1108(b)(3), (e), 1002(18)(B)); see also Laidig, 2023 WL 1319624, at *6 (plan fiduciary liable for 27 any loss resulting from ESOP’s purchase of overvalued stock). The PFS Defendants object that 28 plaintiff relies upon only speculation and surmise in alleging the PFS Defendant’s ESOP stock 1 valuation investigation and process was neither appropriate nor independent. (Doc. 48 at 24-27.) 2 For example, these Defendants argue that no specific facts before the Magistrate Judge show fault 3 in their valuation process, or that they were conflicted in that process. (Id.) 4 The Magistrate Judge correctly stated ERISA’s prohibition on transactions between a plan 5 and party in interest, for less than adequate consideration, viz.: 6 Except as provided in section 1108 of this title: 7 (1) A fiduciary with respect to a plan shall not cause the plan to engage in a transaction, if he knows or should know that such 8 transaction constitutes a direct or indirect— 9 (A) sale or exchange, or leasing, of any property between the plan and a party in interest; 10 (B) lending of money or other extension of credit between the 11 plan and a party in interest; 12 [. . .] 13 (D) transfer to, or use by or for the benefit of a party in interest, of any assets of the plan[.] 14 15 (Doc. 44 at 48 citing 29 U.S.C. § 1106(a). 16 Sections 1106 and 1107 of this title shall not apply to the acquisition or sale by a plan of qualifying employer securities 17 [. . .] 18 (1) if such acquisition, sale, or lease is for adequate consideration (or 19 in the case of a marketable obligation, at a price not less favorable to the plan than the price determined under section 1107(e)(1) of this 20 title)[.] 21 22 (Doc. 44 at 48 citing 29 U.S.C. § 1108(e); see also id. citing 29 U.S.C. § 1002(18)(B) (adequate 23 consideration is defined by “the fair market of the asset as determined in good faith by the trustee 24 or named fiduciary.”). The allegations provide support for the Magistrate Judge’s findings that the 25 PFS Defendants caused the ESOP to enter the prohibited ESOP Transaction. (See section B 2, 26 ante; see also Doc. 44 at 48-61 citing Doc. 1 at 12-13.) 27 Additionally, the Magistrate Judge correctly found plausible the plaintiff’s allegations that 28 the ESOP Transaction loan was non-exempt under and a violation of ERISA. (See Doc. 44 at 52- 1 61.) The Magistrate Judge observed ERISA’s conditional exemption for ESOP loans applies 2 where the loan is primarily for the benefit of participants and beneficiaries of the plan and is at an 3 interest rate which does not exceed a reasonable rate. (Doc. 44 at 49 citing 29 U.S.C. § 4 1108(b)(3).) 5 The Magistrate Judge found that plaintiff plausibly states a basis for relief because the 6 non-exempt ESOP Loan financing the prohibited ESOP Transaction, served to exacerbate the 7 over-market that debt service and reduce plaintiff’s ESOP trust account. The Magistrate Judge 8 found a plausible claim that the ESOP loan neither was based upon a reasonable rate of interest, 9 nor primarily for the benefit of ESOP participants. (See Doc. 44 at 53-56 citing 29 U.S.C. §§ 10 1108(b)(3)(A)(B); Zavala v. Kruse-W., Inc., 562 F. Supp. 3d 1059, 1072 (E.D. Cal. 2021) (the 11 losses in a breach of fiduciary claim arising from an ESOP's purchase of private company stock 12 are determined based “not only on the purchased shares’ price, but also on their value). 13 The Magistrate Judge reasonably could discount the PFS Defendants’ argument that the 14 Applicable Federal Rate specified in the ESOP Loan Agreement (Doc. 23-2 at 13) is, by 15 definition, a reasonable rate, for the reasons stated by the Magistrate Judge. (See Doc. 48 at 20 16 citing In re Facebook, Inc. IPO Sec. & Derivative Litig., 2015 WL 6971424, at *12, n.7 17 (S.D.N.Y. Nov. 9, 2015) [a non-ERISA case]; Doc.44 at 53-55 citing Doc. 1 at 12-13.) For the 18 same reasons, the Magistrate Judge reasonably could discount the PFS Defendants’ argument that 19 the ESOP Loan primarily benefitted the ESOP and its participants. (See Doc. 48 at 21 citing Doc. 20 23-2; 29 C.F.R. § 2550.408b-3(c), (d), (f).) Furthermore, the PFS Defendants’ argument that the 21 Magistrate Judge conflated and misapplied the applicable ERISA standards in 29 U.S.C. § 22 1106(a)(1)(A-B) and 29 U.S.C. § 1108(a)(3)(b)(3) and related caselaw (see Doc. 48 at 18-20 23 citing Doc. 23-2 at 13-14); 29 C.F.R. § 2550.408b-1(e); 29 C.F.R. § 2550.408b-3(c)(3), (g)), 24 ignores the Magistrate Judge’s reasoned discussion in its full context. (See Doc. 44 at 48-61.) 25 Finally, the PFS Defendants re-argument of the persuasive weight of cases before the 26 Magistrate Judge is unavailing, for reasons stated by the Magistrate Judge. For example, the 27 Magistrate Judge reasonably rejected Defendants’ argument that 29 U.S.C. § 1106(a)(1)(D) 28 requires a subjective intent to benefit a party in interest because the statute, on its face, does not 1 require this. (See Doc. 48 at 22-23, cases cited therein.) The Magistrate Judge’s analysis of the 2 cases in the context of the allegations and inference from well pled facts, is fair and reasonable, 3 particularly so, as to the Magistrate Judge’s decision to accord weight to Bugielski and to discount 4 the PFS Defendant’s proffered out of circuit authority. (See Doc. 44 at 56-61, citing Bugielski v. 5 AT&T Servs., Inc., 76 F.4th 894, 905-906 (9th Cir. 2023; Doc. 48 at 22.) 6 4. Breach of Fiduciary Duties 7 The Magistrate Judge found that plaintiff plausibly alleged the PFS Defendants breached 8 ERISA fiduciary duties by causing the ESOP to enter the prohibited ESOP Transaction. The 9 Magistrate Judge pointed to “sufficient circumstantial factual allegations by which the Court may 10 reasonably infer the process was flawed[.]” (Doc. 44 at 70 citing Doc. 1 at 5-10.) The PFS 11 Defendants object on grounds that plaintiff’s conclusory and speculative allegations implicate 12 merely corporate, not fiduciary process, and fail to raise an inference that their valuation analysis 13 and process regarding the ESOP Transaction was deficient so as to breach duties of prudence and 14 loyalty. (Doc. 48 at 23-27.) 15 The Magistrate Judge correctly detailed the ERISA standard of care: 16 (a) Prudent man standard of care 17 (1) Subject to sections 1103(c) and (d), 1342, and 1344 of this title, a fiduciary shall discharge his duties with respect to a plan solely in 18 the interest of the participants and beneficiaries and— 19 (A) for the exclusive purpose of: 20 (i) providing benefits to participants and their beneficiaries; and 21 (ii) defraying reasonable expenses of administering the plan; 22 (B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like 23 capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims[.] 24 25 (Doc. 44 at 65-66 citing 29 U.S.C. § 1104(a); In re Sutter Health ERISA Litig., 2023 WL 1868865 26 at *11 (quoting Pegram v. Herdrich, 530 U.S. 211, 235 (2000)) (“duty of loyalty requires 27 fiduciaries to make decisions ‘with an eye single toward beneficiaries’ interests.’ ”)); see also 28 Hurtado, 2018 WL 3372752, at *6 (. Cal. July 9, 2018) (“To satisfy § 404 when facilitating a 1 transaction involving the sale of plan assets, the fiduciary must conduct an “adequate inquiry into 2 the proper valuation of shares.”). 3 The plaintiff’s allegations claim that the conduct of the PFS Defendants fell below the 4 applicable standard of care including as to prudence and loyalty, with regard to valuation of the 5 ESOP Transaction and related potential disgorgement, and that the PFS Defendants are liable for 6 ERISA relief. (Doc. 44 at 65-75 citing 29 U.S.C. § 1104(a)(1); see also sections B 2, 3, ante); 7 Wehner v. Genentech, Inc., 2021 WL 507599, at *4 (N.D. Cal. Feb. 9, 2021) (the omission of 8 factual allegations referring directly to a plan fiduciary's “knowledge, methods, or investigations 9 at the relevant times” is “not fatal to a claim alleging a breach of fiduciary duty” because “ERISA 10 plaintiffs generally lack the inside information necessary to make out their claims in detail unless 11 and until discovery commences.”). For example, the Magistrate Judge found from the ESOP 12 Transaction allegations that “the PFS Defendants approved the ESOP Transaction without 13 adequate and appropriate investigation because of their loyalties to the Hagen Family Defendants, 14 who hand-picked the PFS Defendants and continued to control the Company, and thus failed to 15 act solely in the interest of the participants and beneficiaries[.]“ (Doc. 44 at 75 citing Doc. 1 at 16 10-17); see also Lauderdale v. NFP Ret., Inc., 2022 WL 422831, at *12 (C.D. Cal. Feb. 8, 2022) 17 (“Plaintiffs are not required to make formal distinction of their pleadings based on breach of 18 loyalty and breach of fiduciary duty.”) 19 C. Hagen Defendants’ Objections to Magistrate Judge’s Findings and 20 Recommendations (Counts I- II and IV-VI) 21 1. Status as ESOP Fiduciaries 22 The Magistrate Judge found that plaintiff properly alleged a claim based upon the Hagen 23 Defendants’ status as at least functional ERISA fiduciaries in relation to the ESOP Transaction 24 and its remediation. The Magistrate Judge pointed to supporting the fiduciary status by virtue of 25 the individual Hagen Defendants’ membership on the ESOP Committee and/or Company board 26 of directors. (Doc. 44 at 36-49.) 27 The Hagen Defendants object on grounds that pursuant to the ESOP (see Doc. 33-2) they 28 were at most nominal plan fiduciaries with limited duties, and did not actually function in a 1 fiduciary capacity with regard to the ESOP Transaction and its aftermath. (Doc. 49 at 6-9 citing 2 Doc. 1 at 2, 4-6; Doc. 33-2.) They point out the Company’s board appointed the PFS Defendants 3 as independent ESOP trustee, and argue that they (the Hagen Defendants) thereafter acted in only 4 a corporate capacity. (Id.) For example, these Defendants point out the ESOP Committee, to the 5 extent it is an ESOP fiduciary and administrator, played no actual role in the ESOP Transaction. 6 (Id.) They also argue that the Magistrate erred in considering the persuasive weight of the cases 7 cited by the parties. (Doc. 49 at 9-22, citing cases.) However, the Magistrate correctly applied 8 the controlling legal authority, and his analysis of the Hagen Defendants’ motion was reasonable. 9 The individual and successor Hagen Defendants are ESOP Committee and/or Company 10 board members, and as such are nominal direct and/or alternative ESOP fiduciaries and plan 11 administrators. (Doc. 44 at 43 n.12; see also Doc. 33-2 at 24, 72.) For example, the ESOP 12 Committee, through its members, exercises discretionary authority or control respecting the 13 management and administration of the ESOP, including provision of direction to the PFS 14 Defendants as requested or called for in the ESOP Plan. (See Doc. 44 at 45; Doc. 33-2 at 68-69, 15 72; Doc. 1 at 5-6.) Given the foregoing, it is plausible that the Hagen Defendants are fiduciaries 16 with respect to appointment and retention of the PFS Defendants, with duties that include 17 disclosure and loyalty regarding the ESOP Transaction and valuation of the ESOP stock. (Id.; see 18 also Doc. 44 at 45-47, cases cited; Zavala v. Kruse-W., Inc., 398 F. Supp. 3d 731, 743 (E.D. Cal. 19 2019) (denying motion to dismiss where the face of the complaint failed to establish that the 20 consideration paid in the ERISA transaction at issue was adequate). 21 The Hagen Defendants’ re-argument of the persuasive weight of cases before the 22 Magistrate Judge does not support their objection, for the reasons stated by the Magistrate Judge. 23 (See Doc. 44 at 38-49 & n.12 citing Doc. 1 at 5-6; Doc.33-2 at 69, 72); see also In re Hemmeter, 24 242 F.3d 1186, 1190 (9th Cir. 2001) (membership on sponsor’s board sufficient to allege ERISA 25 fiduciary status); Kayes v. Pac. Lumber Co., 51 F.3d 1449, 1459 (9th Cir. 1995) (rejecting 26 contention that where a corporation is the named fiduciary, the persons who act on behalf of the 27 corporation do not become individual fiduciaries by virtue of those acts, even under the functional 28 definition of fiduciary set forth in 29 U.S.C. § 1002(21)(A)); Guenther v. Lockheed Martin Corp., 1 972 F.3d 1043, 1051 (9th Cir. 2020) (ERISA requires a fiduciary to discharge its responsibilities 2 “solely in the interest of the participants and beneficiaries” and “for the exclusive purpose of . . . 3 providing benefits to participants and their beneficiaries.”); Wool v. Sitrick, 2010 WL 11597947, 4 at *6 (C.D. Cal. Nov. 30, 2010) (“An appointing fiduciary's duties with respect to the appointed 5 fiduciary also logically includes a duty to fully inform the appointed fiduciary so that it may meet 6 its responsibilities under ERISA.”); Zavala, 398 F. Supp. 3d at 743. 7 2. Breach of Fiduciary and Co-Fiduciary Duties and Equitable Remedies 8 The Magistrate Judge found that the ESOP Transaction was a prohibited transaction under 9 ERISA (see sections B 2-5, C 2 ante), the Hagen Estate and Kathleen Hagen as Legal Successor 10 are successors in interest to the late Douglas Hagen for purposes of the prohibited ESOP 11 Transaction and its aftermath, (see id.; Doc. 44 at 61-64 citing 29 U.S.C. § 1106(a)(b); Kayes, 51 12 F.3d at 1459-60 (9th Cir. 1995); Zavala, 398 F. Supp. 3d at 744 ; Doc. 33-2 at 69, 72; see also 13 Doc. 1 at 12-14), Sloan, the Hagen Estate, and Kathleen Hagen as Successor in Interest, as 14 Company insiders, ESOP fiduciaries, and successors in interest to the late Douglas Hagen, had 15 actual or constructive knowledge of the circumstances that made the ESOP Transaction unlawful 16 and prohibited under ERISA (Doc. 44 at 97-98 citing Doc. 1 at 7-11, 19-20);), and the Hagen 17 Defendants, as ESOP fiduciaries and administrators, failed to disclose to the PFS Defendants 18 information about the Company and its valuation that was material to the ESOP Transaction, and 19 failed to monitor the PFS Defendants and ESOP administrator(s) in relation to the prohibited 20 ESOP Transaction and its remediation. (Doc. 44 at 76-78 citing Doc. 1 at 17-18.) 21 The Hagen Defendants object on grounds that they did not actually function in a fiduciary 22 capacity by exercising discretionary authority or control over the ESOP Transaction or its 23 remediation, but rather acted only in corporate and ESOP administrative capacities, any incorrect 24 corporate valuation information known or knowable by them relating to the ESOP Transaction 25 also was presumably known and considered by the independent ESOP Trustee and his financial 26 advisor(s), and they had no actual knowledge the ESOP Trustee violated ERISA, and did not 27 knowingly participate in any such violation. (Doc. 49 at 9-12.) 28 The Court agrees that the Magistrate Judge correctly found that plaintiff, to the extent of 1 the information available to her, plausibly alleged the Hagen Defendants, in their fiduciary 2 capacity, had a hand in causing the ESOP’s purchase of Company stock at above market value 3 based upon information available to them as Company insiders, contrary to the best interests of 4 the ESOP and its participants, and the ESOP’s failure equitably to remedy that ERISA violation. 5 (See Doc. 44 at 38-49, 63-66, 81-86, citing In re Hemmeter, 242 F.3d at 1190; Johnson v. 6 Couturier, 572 F.3d 1067, 1077 (9th Cir. 2009) (“Where, as here, an ESOP fiduciary also serves 7 as a corporate director or officer, imposing ERISA duties on business decisions from which that 8 individual could directly profit does not to us seem an unworkable rule.”); Hurtado, 2018 WL 9 3372752, at *11 (“When an ESOP fiduciary also serves as a corporate director or officer, his 10 ERISA duties extend to all business decisions from which he could directly profit.”).) 11 The allegations suggest the Hagen Defendants fell below the ERISA standard of care by 12 their direct or indirect acts/omissions relating to valuation of the ESOP Transaction and its 13 aftermath. (See sections B 2-5, C 2, ante; see also Doc. 44 at 44-46, 64-83, 89-89 citing Doc. 1 14 at 7-12, 17-19; Zavala, 2021 WL 5883125, at *11; Hurtado, 2018 WL 3372752, at *13 (at the 15 pleading stage “plaintiff is not required to plead specific facts about the fiduciary’s internal 16 processes because such information is typically in the exclusive possession of a defendant.”); 17 Guenther, 972 F.3d at 1051 (The “duty of loyalty is one of the common law trust principles that 18 apply to ERISA fiduciaries, and it encompasses a duty to disclose.”); Wool, 2010 WL 11597947, 19 at *6 (“An appointing fiduciary’s duties with respect to the appointed fiduciary also logically 20 includes a duty to fully inform the appointed fiduciary so that it may meet its responsibilities 21 under ERISA.”). 22 As the Magistrate Judge observed, Plaintiff’s allegations plausibly suggest the Hagen 23 Defendants had not only knowledge of the prohibited ESOP Transaction, but knowingly 24 participated in the allegedly ERISA prohibited ESOP Transaction. (See Doc, 44 at 88 citing ” 25 Hurtado, 2018 WL 3372752, at *13 (plaintiff need allege facts to show only ‘that the fiduciary 26 knew or should have known about the trustee’s misconduct and failed to take steps to remedy the 27 situation). Furthermore, plaintiff plausibly alleges the PFS Defendants approved the ESOP 28 Transaction without adequate and appropriate investigation because of their loyalties to the 1 Hagen Defendants, who hand-picked the PFS Defendants, and continued to control the Company. 2 (Doc. 44 at 74-75 citing Doc. 1 at 10-17.) For example, the Magistrate Judge observed that: 3 Plaintiff alleges the Hagen Family Defendants knew of obsolete products in the Company’s warehouse that were not saleable and 4 should have been written off rather than counted as valuable inventory on the Company’s financial statements, (Compl. ¶ 31); 5 alleges they knew the Company’s sales were declining due to its failure to adopt technological advances, such as LED and Bluetooth 6 controlled lighting, (Compl. ¶ 27); alleges they knew they would keep control over the Company after the ESOP Transaction and use 7 their control to have the Company enter into a consulting agreement with Mr. Hagen the day after the ESOP Transaction to pay him $2 8 million for no actual work, (Compl. ¶ 32); alleges they knew the family planned to purchase a jet airplane shortly after the ESOP 9 Transaction with money loaned from the Company and to lease the jet back to the Company, even though they used it primarily for 10 personal travel, (Compl. ¶¶ 33-34, 44); and alleges they failed to disclose any of this material information to the Trustee (e.g., Compl. 11 ¶ 43). 12 (Doc. 44 at 78; see also id. at 80 citing Doc. 1 at 5-18.) Additionally, the Court finds the 13 incorporated extrinsic documents fairly support the Magistrate Judge’s noted findings. (See e.g., 14 Doc. 33-2 at 69, 72; cf. Doc. 49 at 14-16.) 15 Finally, the Magistrate Judge’s analysis of the persuasive weight of cases before him is 16 fair and reasonable. (See Doc. 44 at 62-65.) Defendants re-argument of these matters is 17 unpersuasive, for the reasons stated by the Magistrate Judge. (Id.; Doc. 49 at 10-13.) 18 Particularly, the Hagen Defendants’ assertion the Court should rely upon the PFS Defendants’ 19 presumptive actual due diligence in the ESOP Transaction as negating any ESOP discretion and 20 authority in the Hagen Defendants (see Doc. 49 at 9-12, cases cited), is unpersuasive at the 21 pleading stage, for the reasons stated by the Magistrate Judge. (Doc. 44 at 61-83 citing Soo Park 22 v. Thompson, 851 F.3d 910, 928–29 (9th Cir. 2017) (discussing the Twombly plausibility 23 standard); Lauderdale, 2022 WL 422831, at *6 (allegations of breach of fiduciary’s duty of 24 prudence subsume breach of duty of loyalty); Carter v. San Pasqual Fiduciary Tr. Co., 2016 WL 25 6803768, at *4 (C.D. Cal. Apr. 18, 2016) (“[I]n the Ninth Circuit, an individual that has both 26 fiduciary and business functions is liable for breach of fiduciary duty under ERISA for business 27 decisions affecting the value of plan assets when the individual could directly profit from the 28 business decisions.”).) 1 D. The Company’s Objections to Magistrate Judge’s Findings and 2 Recommendations (Counts IV) 3 The Magistrate Judge found that plaintiff alleged that: (1) the Company, sponsor of the 4 ESOP and a named ESOP fiduciary and alternate ESOP administrator with ongoing duties 5 including providing information to and monitoring the PFS Defendants regarding the ESOP 6 Transaction (see Doc. 44 at 85 citing Doc. 33-2 at 24, 72; Doc. 1 at 4-5), provided the PFS 7 Defendants with financial projections that failed to disclose several “adverse corporate events,” 8 (Doc. 44 at 86 citing Doc. 1 at 8-10; see id. at 87); (2) the Company had actual knowledge the 9 projections provided to the PFS Defendants contained incomplete and inaccurate information, 10 “specifically that the projections did not account for several factors that would have negatively 11 impacted the valuation[,]” (Doc. 44 at 88, 91 citing Doc. 1 at 7-12, 18-19), causing the prohibited 12 ESOP Transaction (Doc. 44 at 91-92); and (3) the Company thereafter failed to monitor the PFS 13 Defendants regarding the ESOP Transaction aftermath and remediation (Doc. 44 at 76-78 citing 14 Doc. 1 at 17-18); see also Hurtado, 2018 WL 3372752, at *13 (at the pleading stage “plaintiff is 15 not required to plead specific facts about the fiduciary’s internal processes because such 16 information is typically in the exclusive possession of a defendant.”). 17 The Company objects on grounds that it did not act in a fiduciary capacity with regard to 18 the ESOP Transaction, the allegation that the ESOP Transaction was prohibited under ERISA is 19 unsubstantiated, and the allegation of derivative liability for co-defendant’s conduct is 20 unsubstantiated.3 (Doc. 47 at 5-12 citing Johnson, 572 F.3d at 1076 (appointing fiduciary is 21 liable “albeit only with respect to trustee selection and retention”); Hickman v. Tosco Corp., 840 22 F.2d 564, 566 (8th Cir. 1988) (plan fiduciaries are not liable under ERISA for decisions made in 23 corporate capacities, despite the affect such decisions might have on the value of ESOP stock); 24 Montgomery v. Aetna Plywood, Inc., 39 F. Supp. 2d 915, 936 (N.D. Ill. 1998) (trustee who relies 25 reasonably on an advisor does not violate ERISA “even if the consideration paid differs 26 somewhat from what the court determines to be adequate consideration”).) 27 3 The Company adopts the arguments made by its co-defendants in their separately filed objections. (Doc. 47 at 6 28 n.2.) 1 The Company’s core arguments, that the alleged adverse corporate events relied upon by 2 plaintiff do not implicate the Company’s limited fiduciary duties (see Doc. 47 at 5-12), and that it 3 had no ESOP stock valuation responsibility because such matters were delegated to the PFS 4 Defendants (id.), are not persuasive at the pleading stage, for the reasons stated by the Magistrate 5 Judge. (Doc. 44 at 83-94.) For example, the Magistrate Judge observed Plaintiff’s allegations 6 that the PFS Defendants relied on projections provided by the Company that failed to account for 7 multiple specifically described “adverse corporate events” known or knowable at the time of the 8 ESOP Transaction causing flawed valuation of the ESOP Transaction. (Doc. 44 at 87 citing Doc. 9 1 at 7-12; see also section B 2-5, C 2-3, ante.) 10 E. Hagen Defendants, PFS Defendants, and Company’s Objections to the Magistrate 11 Judge’s Findings and Recommendations (Count VII) 12 The Magistrate Judge issued primary and alternative findings and recommendations on 13 Count VII, which alleges that all named Defendants breached fiduciary duties by agreeing to an 14 indemnity provision that is void under ERISA. (See Doc. 44 at 99-106 citing 29 U.S.C. §§ 1110, 15 1104(a); 29 C.F.R. § 2509.75-4; Doc. 1 at 20-21.) The Magistrate Judge’s primary finding and 16 recommendation is as to the Hagen Defendants’ motion to dismiss Count VII. Therein, the 17 Magistrate Judge found Count VII to be barred by ERISA’s 6-year statute of repose, and 18 impermissibly vague and ambiguous.4 (Id.) The Magistrate Judge found that “[p]laintiff’s 19 allegation regarding the following of the [indemnity] provision by Defendants is impermissibly 20 vague and conclusory, and thus the Court finds based on the adoption date of September 1, 2016, 21 (Compl. ¶ 18), the claim is time-barred. See 29 U.S.C. § 1113(1).” (Doc. 44 at 104; see also id. 22 at 101-04 citing Doc. 1 at 5; Seven Arts Filmed Ent. Ltd. v. Content Media Corp. PLC, 733 F.3d 23 1251, 1254 (9th Cir. 2013) (a statute-of-limitations defense, if “apparent from the face of the 24 complaint,” may properly be raised in a motion to dismiss). The Magistrate Judge recommended 25 granting the Hagen Defendants’ motion to dismiss Count VII with leave to amend. (Doc. 44 at 26 104 citing Fed. R. Civ. P. 15(a)(2).) 27 4 The Magistrate Judge rejected Hagen Defendants additional challenge to Count VII on grounds (i) plaintiff failed to state an ERISA violation, and (ii) Count VII is time barred based upon plaintiff’s actual knowledge, pursuant to 29 28 U.S.C. § 1113(2). (See Doc. 44 at 102.) 1 The Hagen Family Defendants have not objected to the Magistrate Judge’s 2 || recommendation on Count VII. (Doc. 49.) The PES Defendants and the Company have not 3 | objected to the Magistrate Judge’s primary findings and recommendation on Count VII. (Docs. 4 | 48, 47, respectively.) Plaintiff has stated her non-objection to the Magistrate Judge’s primary 5 | finding and recommendation, and her intention to amend the complaint to explicitly allege that no 6 | indemnification took place until after the complaint was filed. (Doc. 52 at 48-49.) Therefore, the 7 | Court will adopt the Magistrate Judge’s recommendation that the Hagen Defendants motion to 8 | dismiss Count VII on such grounds be granted with leave to amend pursuant to Federal Rule of 9 | Civil Procedure 15(a)(2). 10 The Court need not and does not reach the Magistrate Judge’s alternative 11 | recommendations. (Doc. 44 at 104-05.) To the extent each of these Defendants objected to the 12 | Magistrate’s alternative recommendation (see Doc. 48 at 27 [PFS Defendants objection]; Doc. 47 13 | at 12-13 [Company’s objection]), those objections, and plaintiff's response thereto (see Doc. 52 at 14 | 49-50), are moot. Thus, the Findings and Recommendations issued on January 25, 2024 (Doc. 44) 15 | are ADOPTED IN PART. 16 CONCLUSION 17 Based on the foregoing, the Court ORDERS: 18 1. The findings and recommendations denying the motions to dismiss (Docs. 23, 24, 19 | 25) are ADOPTED in FULL except that the Court DECLINES to adopt the findings and 20 || recommendations to deny the PFS Defendants’ request for judicial notice (Doc. 23-2). The 21 | request for judicial notice (Doc. 23-2) is GRANTED. 22 2. Plaintiff may file an amended complaint within 30 days. Failure to do so will 23 | result in the matter moving forward without the seventh cause of action. 24 95 IT IS SO ORDERED. Dated: _ September 30, 2024 Charis [Tourn TED STATES DISTRICT JUDGE 27 28 at