Federal District Court Opinions

AGUILAR v. MELKONIAN ENTERPRISES, INC., (E.D.Cal. 11-3-2006) ARTURO AGUILAR, individually and on behalf of all other similarly situated, Plaintiffs, v. MELKONIAN ENTERPRISES, INC., and MARK MELKONIAN, Defendants. No. 1:05-CV-00032 OWW LJO. United States District Court, E.D. California. November 3, 2006


OLIVER WANGER, District Judge


Plaintiff Arturo Aguilar brought this ERISA case as a
putative class action to represent participants and
beneficiaries of the Melkonian Enterprises Inc. Employees’
Pension Plan (“Money Purchase Plan”) and the Melkonian
Enterprises Inc. Employees’ Profit Sharing Plans (“Profit
Sharing Plan”) (collectively “the Plans”) against Melkonian
Enterprises and Mark Melkonian. The complaint alleges that
the Plans suffered substantial losses due to Defendants’
breach of fiduciary duty.

The parties have entered into a Joint Stipulation of
Settlement. Under the terms of the Settlement, the parties
seek preliminary approval of the settlement under Rule
23(e) and move for conditional certification of a mandatory
class for settlement Page 2 purposes under Rule 23(b)(1)
and/or 23(b)(2). Specifically, Plaintiffs request that the
court: (1) set a final approval hearing; (2) approve the
form of the Notice of Class Action Settlement; (3)
authorize mailing of the Notice; (4) set dates for
submission of any objections; (5) certify the proposed
class; (6) certify the named Plaintiff as the Class
representative and his counsel as Class Counsel; and (7)
preliminarily approve the settlement for submission to the


Melkonian is a family owned company in Sanger that grows,
processes, dehydrates, and sells dried fruits. Mark
Melkonian became president in 1997. Mark Melkonian and
Melkonian Enterprises were the designated fiduciaries of
the plan for all relevant time periods. The named
Plaintiff, a former Melkonian employee for over 38 years,
was a participant in the Plans.

It is alleged that Defendants’ failure to prudently invest
the assets of the Plans caused the Money Purchase Plan to
lose over $1.4 million in assets (40%) of its value, and
the Profit Sharing Plan to lose over $1 million in assets
(48%) of its value. As an example, this caused Mr.
Aguilar’s Money Purchase Plan account to lose almost
$60,000 and his Profit Sharing Plan to lose almost $57,000.
Specifically, it is alleged that the losses were due to (1)
Defendants’ failure to monitor the activities of the Plans’
investment advisor, (2) investment of the assets in risky
high-technology and internet mutual funds, and (3) engaging
in risky margin trading.

In addition, Defendants terminated the Money Purchase Plan
Page 3 on July 1, 2001. It is alleged that Defendants
failed to give participants adequate written notice of the

Defendants deny the allegations.

It is undisputed that approximately 90% of the assets
invested in the Plans belonged to members of the Melkonian
family. As explained below, those individuals are to be
excluded from the Class. The remaining approximately 10% of
the assets belonged to the approximately 50 other
participants/beneficiaries in the Plans, those who make up
the proposed Class.

The lawsuit was filed January 6, 2005, alleging (1) breach
of fiduciary duty with respect to both Plans and (2)
failure to provide adequate notice of termination of the
Money Purchase Plan.

Defendants tendered the defense of this action to its
insurer, Fireman’s Fund. In February 2005, Fireman’s Fund
denied the tender. (Doc. 37, Ex. B, Defendant’s Suppl.
Brief, at 1.) Defendants spent eight months seeking
retraction of the tender denial. In October 2005, Fireman’s
Fund partially retracted its denial and agreed to accept
the tender of defense only as to Melkonian Enterprises
Inc., under reservation of rights, and only as to the
Second Claim for Relief (failure to provide adequate notice
of termination). (Id. at 2.)

After a settlement conference before the magistrate judge,
the parties agreed that settlement would be in their mutual
best interest. In addition to the settlement between the
parties to this action described in detail below, Fireman’s
Fund agreed to contribute $95,000 toward the settlement of
this action. (Id.) Page 4

A. Summary of the Settlement.

Class definition: All participants in and beneficiaries of
both Plans from January 9, 1999 through the date of the
preliminary approval hearing order in this action,
excluding Dennis Melkonian, Douglas Melkonian, Mark
Melkonian, Susan Melkonian (also known as Marla Sloan),
Victoria Melkonian, and Violet Melkonian.

The January 9, 1999 cut off date represents the point
beyond which the applicable six year statute of limitations
would bar any actions on behalf of participants and
beneficiaries holding assets prior to that date.

Relief Provided by the Settlement: Defendants will pay
Plaintiffs $295,000. (The money has already been placed in
an interest bearing escrow account.) $189,000 of the
$295,000 will be allocated to the breach of fiduciary duty
claim; $21,000 will be allocated to the failure to notify
claim; $75,000 will go do Plaintiffs’ counsel; and $10,000
will go directly to the named Plaintiff in the form of a
class representative payment to compensate him for his
service to the Class.

Plaintiffs believe the settlement will provide certainty to
all parties and will avoid further delay and litigation


A. Request for Certification of a Mandatory (non-opt-out)
Class for Settlement.

Plaintiffs request certification of the Class under Rule
23(a) as defined (see above). Specifically, Plaintiffs
request certification as a mandatory class under either
Rule 23(b)(1) or Page 5 (b)(2).

1. Rule 23(a) Requirements.

Certification of a class of plaintiffs is governed by
Federal Rule of Civil Procedure 23(a), which states in
pertinent part that “[o]ne or more members of a class may
sue or be sued as representative parties on behalf of all.”
As a threshold matter, in order to certify a class, a court
must be satisfied that

(1) the class is so numerous that joinder of all members
is impracticable (the “numerosity” requirement); (2) there
are questions of law or fact common to the class (the
“commonality” requirement); (3) the claims or defenses of
representative parties are typical of the claims or
defenses of the class (the “typicality” requirement); and
(4) the representative parties will fairly and adequately
protect the interests of the class (the “adequacy of
representation” requirement).

In re Intel Secs. Litig., 89 F.R.D. 104 at 112 (N.D. Cal.
1981) (citing Fed.R.Civ.P. 23(a)).

a. Numerosity.

There are approximately 50 former and current participants
in the Plans. Courts have routinely found the numerosity
requirement satisfied when the class comprises 40 or more
members. Ansari v. New York Univ., 179 F.R.D. 112, 114
(S.D.N.Y. 1998). Numerosity is also satisfied where joining
all Class members would serve only to impose financial
burdens and clog the court’s docket. In re Intel Secs.
Litig. 89 F.R.D. at 112. Here, the joinder of approximately
50 individual participant/beneficiaries with essentially
identical claims to that of the proposed class
representative would only further clog this court’s already
overburdened docket. Page 6

b. Commmon Questions of Fact and Law.

Commonality exists when there is either a common legal
issue stemming from divergent factual predicates or a
common nucleus of facts resulting in divergent legal
theories. Hanlon v. Chrysler Corp., 150 F.3d 1011, 1019
(9th Cir. 1998). Here, the potential Class members’ claims
are essentially identical to one another and to that of Mr.
Aguilar. All allege that Defendants breached their
fiduciary duties by imprudently investing the assets of the

c. Typicality.

Typicality is satisfied if the representative’s claims
arise from the same course of conduct as the class claims
and are based on the same legal theory. See e.g., Kayes v.
Pac. Lumber Co., 51 F.3d 1449, 1463 (9th Cir. 1995). Here,
the named Plaintiff’s claims are typical of the class
claims because all focus on the alleged imprudent
investment practices and on the failure to provide adequate
notice of the Plan merger.

d. Fair & Adequate Representation.

The final Rule 23(a) requirement is that the class
representative fairly and adequately protect the interests
of the class. This requirement has two parts. First, the
representative’s attorney must be “qualified, experienced,
and able to conduct the litigation.” In re United Energy
Corp. Solar Power Modules Tax Shelter Inv. Secs. Litig.,
122 F.R.D. 251, 257 (C.D. Cal. 1998). Second, the suit must
not be “collusive” and the named Plaintiff’s interests must
not be “antagonistic to the class.” Id.

All requirements are satisfied here. Plaintiffs’ counsel,
Page 7 Daniel Feinberg, is experienced in the field of
ERISA class action litigation. He has been practicing in
the field of employee benefits law for more than 15 years.
(Feinberg Decl., Doc. 33, at ¶ 3.) He is an
accomplished writer and instructor on the subject of
employee benefits law, and has served as a mediator and a
Special Master in ERISA-related matters. (Id. at
¶¶ 3-4.)

In addition, Mr. Aguilar’s interests are completely
aligned with those of the class. His interest is in
maximizing their recovery. Although Mr. Aguilar is
receiving an additional $10,000, this appears to be
reasonable to compensate him for the time and expense he
devoted to pursuing this case.

2. Certification as a Mandatory Class under Rule 23(b)(1)
or (b)(2).

Once the threshold requirements of Rule 23(a) are
satisfied, a class may be certified only if the class
action satisfies the requirements of Rule 23(b)(1), (b)(2),
and/or (b)(3). Here, the parties seek certification of a
mandatory class under either Rule 23(b)(1) and/or (b)(2).

a. Rule 23(b)(1).

Under Rule 23(b)(1) a class may be maintained if “the
prosecution of separate actions by or against individual
members of the class would create a risk of (A)
inconsistent or varying adjudications with respect to
individual members of the class which would establish
incompatible standards of conduct for the party opposing
the class, or (B) adjudications with respect to individual
members of the class which would, as a practical matter, be
dispositive of the interests of the other members not Page
8 parties to the adjudications or substantially impair or
impede their ability to protect their interests.”

Here, either prong can be satisfied. Defendants’ allegedly
unlawful conduct applied to the Plans as a whole. If
individual members pursued litigation independently, there
would be a risk of inconsistent results. In addition, a
determination in one case that Defendants breached their
fiduciary duty to the Plan beneficiaries would be
dispositive of other cases. Moreover, under ERISA, although
plan participants and beneficiaries have a statutory right
to bring actions for breach of fiduciary duty, any recovery
belongs to the plan as a whole. Mass. Mutual Life Ins. Co.
v. Russell, 472 U.S. 134, 140 (1985). Here, although each
plan participant will have a different proportional
interest in the outcome, based on each individual’s history
and account balance, the alleged unlawful activity still
affects the class as a whole. See In re Syncor Erisa
Litigation, 227 F.R.D. 338, 346 (C.D. Cal. 2005) (“A
classic example of a Rule 23(b)(1)(B) action is one which
charges a breach of trust by an indenture trustee or other
fiduciary similarly affecting the members of a large class
of beneficiaries, requiring an accounting or similar
procedure to restore the subject of the trust.”).

It is appropriate to certify ERISA actions such as this one
as mandatory (non-opt-out) classes because the risk of
inconsistent decisions is considerable. See Rankin v. Rots,
220 F.R.D. 511, 522-23 (E.D. Mich. 2004); In re IKON Office
Solutions Inc. Sec. Litig., 209 F.R.D. 94, 102 (E.D. Pa.

b. Rule 23 (b)(2).

Alternatively, Plaintiffs seek certification under Rule
Page 9 23(b)(2) which permits the maintenance of a class
action (assuming Rule 23(a) is also satisfied) if “the
party opposing the class has acted or refused to act on
grounds generally applicable to the class, thereby making
appropriate final injunctive relief or corresponding
declaratory relief with respect to the class as a whole.”

Here, Plaintiffs seek a declaration that Defendants
violated ERISA, an injunction enjoining Defendants’ acts or
practices that violate ERISA, and an injunction requiring
the removal of Mark Melkonian as plan fiduciary and
imposing an independent fiduciary. Rule 23(b)(2) is
properly used as a vehicle in similar ERISA actions. See
Becher v. Long Island Lighting Co., 164 F.R.D. 144, 153-54
(E.D.N.Y. 1996) (certifying class under 23(b)(2) where
plaintiffs sought injunctive relief “compelling the
defendants to credit the class member for years of service
prior to their withdrawals of employee contributions and to
award all such credits in the future”); see also Stoetzner
v. U.S. Steel. Corp., 897 F.2d 115, 119 (3d Cir. 1990)
(certification under 23(b)(2) appropriate where plaintiffs
sought entitlement to benefits and alleged defendants
breached their fiduciary duty by denying benefits); Bower
v. Bunker Hill Co., 114 F.R.D. 587, 596 (E.D. Wash. 1986)
(certifying under 23(b)(2) class of plaintiffs seeking
declaration that vested benefits were improperly

The class can be preliminarily certified under both Rule
23(b)(1) and/or (b)(2). Page 10

B. Proposed Class Notice & Administration.

1. The Notice is Appropriate.

The proposed notice provides the definition of the class,
describes the nature of the action and the proposed
settlement (including the attorney’s fees and class
representative fee), explains the procedure for submitting
claims, explains the timing of the final approval hearing,
and explains that they may object to the settlement.

The notice will be translated into Spanish and submitted
in both English and Spanish to all potential class members.

2. The Notice Plan is Appropriate.

The parties plan to mail the notice to the last known
address of class members as identified through Defendants’
records by November 3, 2006. Should any mail be returned,
follow-up mailing will be completed no later than November
20, 2006. Objections will be due in writing, served upon
the Court, Class Counsel, and Defendants’ Counsel on or
before December 11, 2006, and the Final Settlement Hearing
will be held January 15, 2007.

Both the Proposed Notice and the Notice Plan are reasonable
and will provide potential class members with appropriate
notice and opportunity to object.

C. Preliminary Approval of the Settlement.

In reviewing the settlement, although it is not a court’s
province to “reach any ultimate conclusions on the
contested issues of fact and law which underlie the merits
of the dispute, a court should weigh the strength of the
plaintiff’s case, the risk, expense, complexity, and likely
duration of further Page 11 litigation, the stage of the
proceedings, and the value of the settlement offer.
Chemical Bank v. City of Seattle, 955 F.2d 1268, 1291 (9th
Cir. 1992). The court should also watch for collusion
between class counsel and defendants. Id.

According to the complaint, the Plans lost approximately
$2.4 million as a result of Defendants’ allegedly wrongful
conduct. The settlement provides that $210,000 will be
distributed among Class Members. Although, at first glance,
the overall recovery is modest, it is undisputed that
approximately 90% of the assets invested in the Plans were
owned by members of the Melkonian family, who are excluded
from the Class. Accordingly, assuming the $2.4 million loss
figure is correct, only a proportional loss of
approximately $240,000 is attributable to the assets held
by the Class. In this light, the $210,000 settlement
represents a recovery of approximately 87.5 cents to the
dollar. This is a sizeable recovery.

Plaintiffs assert that the settlement is fair because “it
is not clear by any means that Plaintiff would prevail at
trial and be awarded a greater sum of money than the
Stipulation awards to the class.” (Doc. 32 at 15.) A review
of the nature of the claims and of Defendants’ potential
defenses supports such a conclusion.

1. Breach of Fiduciary Duty.

Plaintiffs’ first claim is that Defendants violated their
fiduciary duty of prudence by, among other things, (1)
failing to adequately monitor their Quick & Reilly broker’s
activities, (2) failing to adequately review the Plans’
investments or investment strategy, and (3) investing the
Plans’ assets in risky high-technology Page 12 and
internet mutual funds. Plaintiff also alleges that
Defendants violated their fiducuary duty of diversification
under ERISA § 404(a)(1)(C), causing substantial loss
to the Plans, by investing almost exclusively in equities.
Finally, Plaintiffs assert that the Plans’ investments were
disproportionately concentrated in high risk technology and
large capitalization growth mutual funds.

Defendants dispute all of these allegations, emphasizing
that the prudence of a fiduciary is measured by the
“prudent person” standard, which judges the fiduciary’s
actions objectively, based on how a person, experienced or
familiar with the matter at hand, would act. See Katsaros
v. Cody, 744 F.2d 270, 279 (2d Cir. 1984). The prudent
person standard normally focuses on the process the
fiduciary undertakes to make investment decisions, judged
at the “time of the decision” rather than in hindsight. Id.

Here, Defendants assert that Mark Melkonian “reasonably
enlisted, consulted and relied upon investment advice from
Quick & Reilly.” (Doc. 37, Ex. B at 4.) In addition,
Defendants believe that expert testimony would show that
many pension fiduciaries were investing regularly and
significantly in technology stocks during 1999 and 2000 and
that “it would have been imprudent not to so invest.” (Id.)
Specifically, Defendants assert that:

While the balances in the plans decreased from their
respective peaks, those decreases were not due to
Defendants’ imprudent investments. The stock market
plunged significantly in 2000 after many of these
purchases were made. Expert testimony will demonstrate
that the decline was not reasonably forecast or
anticipated by prudent investors. Many plans lost Page
13 money. The decline in the plans’ balances, in large
part, was due to losses that would normally be expected
due to the effects of the stock market during the relative
time frame.


Defendants also dispute the amount of the alleged loss.
Specifically, Defendants maintain that the Plans’ assets
increased greatly shortly before they lost value and that a
significant reason for the increase was the nature of the
allegedly imprudent investments. (Id. at 4-5.) In fact,
Defendants assert that, overall, the assets grew by about
$600,000 after Mark Melkonian took over as fiduciary. (Id.
at 5.)

The substantial relative value of the settlement, coupled
with the strength of Defendant’s arguments against
liability, support a conclusion that the settlement is fair
with respect to the first claim for relief.

2. Failure to Provide Proper Notice of Plan Amendment.

Plaintiffs’ second claim is for failure to provide proper
notice of the Pension Plan’s termination and merger into
the Profit Sharing Plan. Plaintiffs allege that the merger
violated ERISA § 204(h), 29 U.S.C. § 1054(h).
Again, Defendants deny the allegations.

In 1998, Retirement Plan Consultants, the third-party
administrator for the Plans since 1996, recommended to
Melkonian Enterprises that it should terminate the Pension
Plan and merge it into the Profit Sharing Plan in order to
provide additional flexibility to the company regarding
contributions and to reduce Page 14 administrative costs.
(Doc. 37, Ex. B at 6.) At a Board of Directors meeting held
on May 30, 2001, the Directors of Melkonian Enterprises
agreed to terminate the Pension Plan effective July 1, 2001
and to merge the assets into the Profit Sharing Plan. Also
on May 30, 2001, Melkonian Enterprises executed a 15-day
Notice of Intent to Terminate the Pension Plan effective
July 1, 2001. (Id. at 6-7.) According to Defendants, it was
the general practice of Melkonian Enterprises to distribute
such notices to employees with their paychecks. The notice
was distributed to non-employees by mail. The next paydate
after the May 30, 2001 meeting was June 1, 2001, followed by
pay dates June 8, 2001 and June 15, 2001. All employees
signed for their paychecks on these dates. (Id. at 7.)

Defendant maintains that 15 days of notice was all that
was required under ERISA. ERISA was amended by the Economic
Growth and Tax Relief and Reconciliation Act of 2001
(“EGTRRA”). The amendments applied to plan amendments
taking effect on or after June 7, 2001, but implementing
regulations were not promulgated until 2003. Accordingly,
those plans with amendments taking effect between June 7,
2001 and the issuance of the regulations in 2003 are
considered to be in compliance with EGTRRA if the plan
administrator makes a “reasonable, good faith effort to
comply with those requirements.” 68 Fed. Reg. 17277, 17290
(Apr. 9, 2003).

Prior to EGTRRA, only 15 days notice was required prior to
the effective date of a plan amendment. Subsequent to
EGTRRA, the general period of advanced notice was changed
to 45 days. However, the 15 day period still applied to
“small plans.” Id. Page 15 at 17282. A small plan is
defined as a plan that the plan administrator reasonably
expects to have fewer than 100 participants who have
accrued benefits under the plan. Id. at 17283. According to
this definition, Defendants assert that the Melkonian Plans
would have qualified as small plans and that the 15 day
notice was reasonable.

Finally, Defendants point out that EGTRRA only provides a
remedy for notice violations where the violation is
egregious, such as where a failure is either intentional or
constitutes a failure to provide most of the individuals
with most of the information they are entitled to receive.
See id. at 17288-89; see also Doc. 37, Ex. B. at 9.
Defendants maintain that there is no evidence of an
egregious violation.

Again, although only $21,000 of the $210,000 settlement is
allocated to the second claim for relief, this figure is
fair given the arguments Defendant could raise in
opposition to liability.

3. Collusion.

Finally, there is no evidence of collusion here. The fee
awarded Plaintiffs counsel, $75,000, is modest.

The settlement is preliminarily approved as fair and


For the reasons set forth above:

(1) The Class, as proposed, is preliminarily certified
under both Federal Rule of Civil Procedure 23(b)(1) and/or

(2) Arturo Aguilar is appointed and designated as the Page
16 Representative Plaintiff and the Class

(3) Daniel Feinberg, Esq. and Vincent Cheng, Esq. are
appointed and designated Class Counsel;

(4) The Class Notice is adequate, as is the Notice Plan;

(5) The Settlement is preliminarily approved as fair and

Additional details regarding the deadlines for class
administration, objections, and the final settlement hearing
are addressed in a separate order.