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Mark Dell Donne, Individually, As A Participant In the Journey Electrical Technologies, Inc. 401k Plan, and v. Herbert W. Hardt

December 14, 2011



I. History*fn1

In September 2002, Timothy Hardt and Plaintiff Mark Dell Donne incorporated Hardel Enterprises, Inc. ("Hardel") and Journey Electronic Technologies, Inc. ("JET"). In November 2002, JET purchased Tri-State, Inc. ("Tri-State"), a company which provides electrical and network services for construction projects. Hardel is the holding company of JET which in turn is the holding company of Tri-State (collectively "Enterprises"). Timothy Hardt was responsible for day to day operations of the Enterprises and Dell Donne dealt with outside contacts. In that year they created an employee benefit plan ("Plan"), whereby employees could direct the Enterprises to withhold salary and put it into the Plan to be invested on their behalf. Timothy Hardt and Dell Donne were the trustees of the Plan. Defendant L. David Brandon ("Brandon") and third party Kathy Home were the administrators of the Plan.

In March 2006, Timothy Hardt bought out Dell Donne's interests in the Enterprises. Dell Donne withdrew from all corporate positions and was removed as trustee for the Plan. Dell Donne remained as an employee of Tri-State. Defendant Lisa Plank ("Plank") (who has since been voluntarily dismissed from the case) became an employee of the Enterprises. Defendant Herbert Hardt is Timothy Hardt's father. After Dell Donne sold his interests to Timothy Hardt, Dell Donne alleges that Timothy Hardt (with his wife, Michelle Hardt), Herbert Hardt, and Brandon embezzled funds from the Enterprises which were designated for the Plan.

In June 2007, Timothy Hardt withdrew from the Enterprises. Third party Performance Capital, Inc., which had lent the Enterprises large amounts of money, exercised contractual rights to remove Timothy Hardt from his corporate position and to install Dell Donne as Director of Corporation and Chairman of the Board of Tri-State. A receiver has been appointed for Tri-State. Timothy Hardt and Michelle Hardt filed for bankruptcy on January 7, 2010. On February 12, 2010, the U.S. Department of Labor ("DOL") contacted Timothy Hardt and Dell Donne concerning irregularities with the Plan.

The present case is one of four concerning the alleged underfunding of the Plan. Plaintiffs are Dell Donne, JET, and the Plan. Defendants were originally Herbert Hardt, Brandon, and Plank. Plank has since been dismissed from this case. The operative complaint is the First Amended Complaint ("FAC") in which Plaintiffs list seven causes of action based on breach of fiduciary duty to the Plan in violation of ERISA, breach of fiduciary duty to JET, conspiracy to fraudulently convey, and civil RICO. In the related cases, DOL has brought suit against Timothy Hardt and Dell Donne for breach of fiduciary duty under ERISA. Defendants have made a motion to dismiss. The motion is opposed and the matter was taken under submission without oral argument.

II. Legal Standards

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)....a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007), citations omitted. "[O]nly a complaint that states a plausible claim for relief survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief will, as the Court of Appeals observed, be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged -- but it has not shown that the pleader is entitled to relief." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009), citations omitted. The court is not required "to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001). The court must also assume that "general allegations embrace those specific facts that are necessary to support the claim." Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 889 (1990), citing Conley v. Gibson, 355 U.S. 41, 47 (1957), overruled on other grounds at 127 S. Ct. 1955, 1969. Thus, the determinative question is whether there is any set of "facts that could be proved consistent with the allegations of the complaint" that would entitle plaintiff to some relief. Swierkiewicz v. Sorema N.A., 534 U.S. 506, 514 (2002). At the other bound, courts will not assume that plaintiffs "can prove facts which [they have] not alleged, or that the defendants have violated...laws in ways that have not been alleged." Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 526 (1983).

In deciding whether to dismiss a claim under Rule 12(b)(6), the Court is generally limited to reviewing only the complaint. "There are, however, two exceptions....First, a court may consider material which is properly submitted as part of the complaint on a motion to dismiss...If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them. Second, under Fed. R. Evid. 201, a court may take judicial notice of matters of public record." Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th Cir. 2001), citations omitted. The Ninth Circuit later gave a separate definition of "the 'incorporation by reference' doctrine, which permits us to take into account documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the plaintiff's pleading. We have extended the 'incorporation by reference' doctrine to situations in which the plaintiff's claim depends on the contents of a document, the defendant attaches the document to its motion to dismiss, and the parties do not dispute the authenticity of the document, even though the plaintiff does not explicitly allege the contents of that document in the complaint." Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005), citations omitted. "[A] court may not look beyond the complaint to a plaintiff's moving papers, such as a memorandum in opposition to a defendant's motion to dismiss. Facts raised for the first time in opposition papers should be considered by the court in determining whether to grant leave to amend or to dismiss the complaint with or without prejudice." Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir. 2003), citations omitted.

If a Rule 12(b)(6) motion to dismiss is granted, claims may be dismissed with or without prejudice, and with or without leave to amend. "[A] district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc), quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). In other words, leave to amend need not be granted when amendment would be futile. Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir. 2002).

III. Discussion

A. Evidence

Defendants have provided their own declarations in support of their motion. Doc. 63, Parts 4 and 5. These statements are neither incorporated by reference nor attached to the complaint. In a motion to dismiss for failure to state a claim, a court may not consider evidence outside of these limited exceptions. Thus, the court will not consider these declarations in ruling on this motion.

B. Breach of Fiduciary Duty to the Plan Under ERISA

Plaintiffs' first and second causes of action allege Brandon violated ERISA by breaching his fiduciary duty to the Plan and by aiding and abetting Timothy Hardt's breach of fiduciary duty to the Plan. Doc. 55, FAC, at 8:11-9:21. Both Brandon and Timothy Hardt are alleged to have fiduciary duties to the Plan. Defendants have argued that the aiding and abetting cause of action is duplicative and should be ...

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