Opinion
Case No. 1:19-CV-21 (LAG)
2020-03-16
Nelson GAMACHE, et al., Plaintiffs, v. John F. HOGUE, Jr., et al., Defendants.
Colin M. Downes, R. Joseph Barton, Block & Leviton LLP, Washington, DC, Daniel Mark Feinberg, Nina R. Wasow, Feinberg Jackson Worthman & Wasow LLP, Berkeley, CA, William S. Stone, Blakely, GA, for Plaintiffs. Joelle C. Sharman, Lewis Brisbois Bisgaard & Smith LLP, Atlanta, GA, Robert E. Lesser, Covington, GA, for Defendants.
Colin M. Downes, R. Joseph Barton, Block & Leviton LLP, Washington, DC, Daniel Mark Feinberg, Nina R. Wasow, Feinberg Jackson Worthman & Wasow LLP, Berkeley, CA, William S. Stone, Blakely, GA, for Plaintiffs.
Joelle C. Sharman, Lewis Brisbois Bisgaard & Smith LLP, Atlanta, GA, Robert E. Lesser, Covington, GA, for Defendants.
ORDER
LESLIE A. GARDNER, JUDGE
Before the Court is Defendants' Motion to Dismiss Plaintiffs' Amended Complaint (Doc. 36). For the reasons set forth below, the Motion is DENIED .
PROCEDURAL BACKGROUND
On January 29, 2019, Plaintiffs Nelson Gamache and Edward Nofi filed this putative class action pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. , against Defendants John F. Hogue, Jr., Graham Thompson, James Urbach, Glenn Kirbo, Randy Hall, and the Administrative Committee of the Technical Associates of Georgia, Inc. Employee Stock Ownership Plan. (Doc. 1.) Plaintiffs amended their Complaint on April 19. (Doc. 30.) Plaintiffs, former employees of Technical Associates of Georgia, Inc. (TAG) and participants in the TAG Employee Stock Ownership Plan (ESOP), allege that Defendants engaged in prohibited transactions and breached fiduciary duties in violation of 29 U.S.C. §§ 1104(a)(1), 1105, 1106(a)(1)(D), and 1106(b). (Id. at 26–33.) Plaintiffs seek various relief, including the voiding of prohibited transactions, the disgorgement of profits from such transactions, a constructive trust over proceeds from such transactions, and Defendants' removal as ESOP fiduciaries. (Id. at 30–31.)
On May 24, 2019, Defendants filed the instant Motion, seeking to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6). (Doc. 36.) Following Plaintiffs' Response (Doc. 39) and Defendants' Reply (Doc. 42), the Motion is now ripe for review. See M.D. Ga. L.R. 7.3.1(A).
LEGAL STANDARD
To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain specific factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is plausible on its face if the complaint alleges enough facts to "allow[ ] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. A complaint must plead "enough fact[s] to raise a reasonable expectation that discovery will reveal evidence" of the defendant's liability. Twombly , 550 U.S. at 556, 127 S.Ct. 1955. The Court must "take the factual allegations in the complaint as true and construe them in the light most favorable to the plaintiffs," but the same liberal reading does not apply to legal conclusions. Edwards v. Prime, Inc. , 602 F.3d 1276, 1291 (11th Cir. 2010). "[A] plaintiff armed with nothing more than conclusions" cannot "unlock the doors of discovery." Iqbal , 556 U.S. at 678–79, 129 S.Ct. 1937. Additionally, "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. at 678, 129 S.Ct. 1937.
FACTUAL ALLEGATIONS
TAG is a Georgia corporation, founded in 1980 by Randall E. Wages and Stephen H. Harrison, which provides contract technical and maintenance services for industry and industrial support related companies. (Doc. 30 ¶ 34.) Defendants Hogue, Thompson, and Kirbo have been members of TAG's Board of Directors (Board) since 2006. (Id. ¶ 38.) Hogue is TAG's CEO and president of operations. (Id. ¶ 10.) Thompson is the CFO and president of engineering. (Id. ¶ 11.) Defendant Hall is also a member of TAG's Board. (Id. ¶ 13.)
On a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6), the Court accepts all facts alleged in the complaint as true. See Bryant v. Avado Brands, Inc. , 187 F.3d 1271, 1273 n.1 (11th Cir. 1999). A court ordinarily does not consider anything beyond the face of the complaint and documents attached thereto when ruling on a motion to dismiss. There is an exception, however, for a document (1) that the plaintiff refers to in the complaint, (2) that is central to the plaintiff's claim, (3) whose contents are not in dispute, and (4) that the defendant attaches the document to its motion to dismiss. Hi-Tech Pharm., Inc. v. HBS Int'l Corp. , 910 F.3d 1186, 1189 (11th Cir. 2018). The requirement that the document's contents not be in dispute goes to authenticity. See Fin. Sec. Assurance, Inc. v. Stephens, Inc. , 500 F.3d 1276, 1285 (11th Cir. 2007). Defendants attached several exhibits to its Motion. These documents are referred to in the Amended Complaint and are central to Plaintiffs' claims. The documents' authenticity is not in dispute and Defendants attached the documents to their Motion to Dismiss. Therefore, the Court considers these documents.
In 2006, TAG established the Employee Stock Ownership Plan (ESOP). (Id. ¶ 35.) The ESOP is run by the Administration Committee, which is appointed by TAG's Board. (Id. ¶ 36.) The ESOP's assets are held in the Employee Stock Ownership Trust (Trust). (Id. ¶ 37.) Hogue, Thompson, and Kirbo have been the Administration Committee members since the ESOP's founding. (Id. ) The Administration Committee is responsible for holding and investing the funds contributed to the ESOP. (Id. ¶¶ 37–38.) The Trust is governed by various trust agreements and is managed by trustees, whom the TAG Board appoints. (Id. ) Kirbo served as an ESOP trustee until June 22, 2011, when Defendant Urbach succeeded him. (Id. ¶ 37.) At some point (no later than January 1, 2013), Hogue and Thompson became trustees of the ESOP. (Id. )
At its formation in 2006, the ESOP bought all outstanding TAG stock from Wages and Harrison, the company's founders, using a $1.5 million cash contribution from TAG and $16 million in term loans from Wages and Harrison. (Id. ¶¶ 35, 40.) The $16 million loans were guaranteed by the ESOP's stock. (Doc. 36-3 at 12.) Thus, at its formation, the ESOP "pledge[d] its interest in the shares of capital stock of the Company to [Wages and Harrison]." (Id. ) Hogue and Thompson, who assumed the day-to-day responsibilities of running the company, also received grants of TAG stock and stock options as part of the transaction. (Doc. 30 ¶¶ 35, 41.) The grants vested over time such that by the end of 2010, Hogue and Thompson each owned about 1.4% of TAG's outstanding stock. (Id. ¶ 41.) At that time, the ESOP owned the remaining approximately 97.2% of TAG's stock. (Id. ) All of the stock owned by the ESOP, however, remained pledged as collateral for the loan from Wages and Harrison. (Doc. 36-3 at 189–90.) As a result of the 2006 loan, TAG was required to use its excess profits up to $2.6 million to pay Wages and Harrison. (Id. at 126.)
In 2011, TAG refinanced the ESOP's outstanding debt to Wages and Harrison through a series of interrelated agreements known as the 2011 Refinancing. (Doc. 30 ¶ 43.) As part of the 2011 Refinancing:
• TAG borrowed $8 million from Atlantic Capital Bank (Atlantic). (Id. ¶ 44.)
• As a condition of the Atlantic loan, Wages and Harrison assigned their ESOP loans to TAG via an assignment agreement among TAG, the ESOP, Wages, and Harrison. (Id. )
• TAG used the proceeds of the Atlantic loan to repay Wages and Harrison for their assignment of the ESOP loans. (Id. )
• The ESOP wrote a $7,528,380 note to TAG. (Id. ¶ 45.)
• Atlantic required the ESOP and TAG to enter into an agreement, in which the ESOP pledged to TAG all the ESOP's shares of TAG stock not yet allocated to ESOP participants (unallocated shares). (Id. ¶ 46.)
• TAG pledged all those unallocated shares to Atlantic to secure the loan. (Id. )
• Hogue and Thompson personally guaranteed the Atlantic loan. (Id. ¶ 47.)
• TAG gave Hogue and Thompson warrants for issuance of stock, which Hogue and Thompson pledged to TAG as collateral for the loan. (Id. ) If TAG defaulted on the loan, the warrants would give Atlantic a 50.1% interest in TAG's outstanding common stock. (Id. )
• TAG gave Hogue and Thompson additional grants of TAG stock, stock options, and cash payments. (Id. ¶ 48.)
• TAG issued 12,941 shares of common stock each to Hogue and Thompson. In exchange, Hogue and Thompson each gave TAG $882,706 promissory notes. (Id. ¶ 49.) The notes provided that their interest and principal would be forgiven every year as long as Hogue and Thompson remained TAG employees. (Id. )
Because TAG's authorized shares were insufficient to cover all the stock issuances that were part of the 2011 Refinancing, Hogue amended TAG's Articles of Incorporation to allow the issuance of up to 300,000 shares. (Id. ¶ 50.) Following TAG's grants of stock and stock options to Hogue and Thompson, their ownership stake in TAG grew to about 40% in 2016. (Id. ¶¶ 51–52.) The ESOP's stake declined from about 97.2% in 2011 to about 60% in 2016. (Id. )
As an ESOP trustee, Urbach voted the ESOP's allocated and unallocated shares in favor of the 2011 Refinancing. (Id. ¶ 54.) In the Consent Action of Shareholder of TAG, Urbach stated that he "believe[d] it to be in the best interest of the Corporation that the Corporation enter into the [Atlantic] Loans." (Id. ) Willamette Management Associates provided Urbach with a letter (the Fairness Opinion) advising that the 2011 Refinancing was fair to the ESOP "from a financial point of view," but did not include any financial analysis or consideration of the potential dilutive effect of the refinancing on the value of the ESOP's shares. (Id. ¶ 55.)
In 2012, TAG refinanced its Atlantic debt with SunTrust Bank. (Id. ¶ 58.) Starting in 2013 and continuing through 2017, TAG issued dividends on its common stock for the first time since 2006. (Id. ¶¶ 59–60.) As shareholders, Hogue and Thompson received dividends, but those payments were not disclosed to ESOP participants. (Id. ) In an August 2016 meeting, Thompson directed Gamache to learn more about the ESOP by reviewing the ESOP's Form 5500 filings on the U.S. Department of Labor website. (Id. ¶ 62.) Those Form 5500s did not indicate the ownership shares of TAG. (Id. ¶ 64.) In fact, the 2011–14 Form 5500s, which were all signed by Thompson, stated only that the ESOP had "purchased all of the outstanding stock of the Company from its two former shareholders." (Id. ¶ 65; Doc. 36-14 at 26; Doc. 42-1 at 28, 60, 98.) The 2011 Form 5500 stated that there were no non-exempt transactions with any party-in-interest and did not disclose any stock acquisitions by TAG executives. (Doc. 30 ¶ 66; Doc. 36-14 at 7.) Multiple times after the ESOP's formation, Thompson, Hogue, and other TAG management told Plaintiffs and other ESOP participants that TAG was "ESOP-owned" or "employee-owned." (Doc. 30 ¶ 67.) Thompson repeatedly told employees "this is your company" and "you're the owners." (Id. ) In a 2014 staff meeting, Thompson was asked about the ESOP's depreciation in value over the prior two years. (Id. ¶ 68.) He explained the depreciation as the result of "bank juggling." (Id. )
In April 2018, Gamache sent the Board a letter, raising his concerns about the 2011 Refinancing and requesting remedial action, including the removal of the ESOP trustees. (Id. ¶ 74.) On May 23, 2018, counsel for the Board sent Gamache a letter in response. (Id. ¶¶ 35, 69.) In the letter, counsel stated, without giving an exact percentage, that the ESOP had ceased to own 100% of the shares of TAG. (Id. ¶ 69.) The letter went on to state that the "ESOP continues to own a majority of the outstanding stock in the Company." (Id. ) The letter further stated that the total number of authorized shares was increased in connection with the 2011 Refinancing because the previous amount was "insufficient to allow stock to be issued as necessary in connection with the 2011 financing." (Id. ¶ 50.) The letter also stated that in 2011, TAG "determined to refinance the debt related to the initial transaction, among other reasons, to obtain a more favorable interest rate" and that "additional stock was made available to key executives." (Id. ¶ 70.) The letter admitted that ESOP fiduciaries, including trustees Hogue and Graham, had not "inform[ed]" "the ‘ESOP participants’ " that the trustees had acquired and owned TAG stock other than as ESOP participants. (Id. ¶ 71.) After receiving the May 23, 2018 letter, Gamache requested clarification, and the Board replied that it "will not be providing [him] with additional information and will not respond further to [his] inquires." (Id. ¶ 77.)
Plaintiffs allege that the Board's failure to disclose TAG's change in ownership structure was designed to conceal the transactions through which ESOP fiduciaries acquired interests in TAG. (Id. ) They further allege that the Board concealed the details of the 2011 Refinancing until after Plaintiffs filed this lawsuit and still have not disclosed the ESOP's exact ownership share in TAG, and that Hogue, Thompson, and the Administration Committee concealed Hogue and Thompson's stock ownership in order to prevent ESOP participants from challenging the 2011 Refinancing. (Id. ¶¶ 72–73.) The Amended Complaint alleges four counts:
(I) that, as members of the TAG Board and ESOP Administration Committee, Hogue and Thompson engaged in prohibited plan-fiduciary transactions by dealing with ESOP assets in their own interest and by receiving consideration for their personal accounts in connection with a transaction involving ESOP assets, in violation of 29 U.S.C. § 1106(b)(1) and (3), (id. ¶¶ 80–86);
(II) that as ESOP trustee, Urbach caused the ESOP to engage in transactions that he knew or should have known constituted transfers of ESOP assets to parties-in-interest (Hogue and Thompson), and that Hogue and Thompson knowingly participated in those transactions, in violation of § 1106(a)(1)(D), (id. ¶¶ 87–92);
(III) that Urbach breached his fiduciary duties under § 1104(a)(1) by approving the 2011 Refinancing, and that he and the ESOP Administration Committee (Hogue, Thompson, and Kirbo) breached their duties under §§ 1104(a) and 1105(a) by failing to remedy the prohibited transactions alleged in Counts I and II, (id. ¶¶ 93–107);
(IV) that the members of the TAG Board (Hogue, Thompson, Kirbo, and Hall) breached their duties under § 1104(a)(1)(A) and (B) by failing to monitor or take appropriate action against Urbach, Hogue, and Thompson, (id. ¶¶ 108–13).
DISCUSSION
Defendants move to dismiss Plaintiffs' Amended Complaint on three grounds: (1) the 2011 Refinancing did not involve the ESOP or ESOP assets; (2) Plaintiffs fail to state claims under 29 U.S.C. §§ 1104 or 1105 ; and (3) Plaintiffs' claims are time-barred. (Doc. 36 ¶¶ 2–4.) The Court addresses each argument in turn.
I. Plan Assets
A. Subject Matter Jurisdiction
As a threshold matter, Defendants contend that the Court lacks subject matter jurisdiction over this case because the ESOP and its assets were not involved in the 2011 Refinancing, and thus Plaintiffs' claims do not implicate ERISA. (Doc. 36-1 at 8–11.) "[A] federal court may dismiss a federal question claim for lack of subject matter jurisdiction only if: (1) ‘the alleged claim under the Constitution or federal statutes clearly appears to be immaterial and made solely for the purpose of obtaining jurisdiction’; or (2) ‘such a claim is wholly insubstantial and frivolous.’ " Blue Cross & Blue Shield of Ala. v. Sanders , 138 F.3d 1347, 1352 (11th Cir. 1998) (quoting Bell v. Hood , 327 U.S. 678, 682–83, 66 S.Ct. 773, 90 L.Ed. 939 (1946) ). "[J]urisdiction is lacking only if the claim has no plausible foundation" or if "a prior Supreme Court decision clearly forecloses the claim." Id. (internal quotation marks omitted). "When a plaintiff makes a plausible argument that a federal statute creates his right to relief, the district court has subject-matter jurisdiction over that complaint." Lanfear v. Home Depot, Inc. , 536 F.3d 1217, 1221 (11th Cir. 2008). Defendants' argument that ERISA does not apply is highly fact-dependent and not obvious from the face of the Amended Complaint. As Plaintiffs have made a plausible argument, the Court has subject matter jurisdiction.
B. Failure to State Claims
Alternatively, Defendants argue that Plaintiffs fail to state claims under ERISA because the 2011 Refinancing did not involve ESOP assets and because the ESOP was not a party to the loan or refinancing agreements, or to TAG's issuances of stock or other compensation to Hogue or Thompson. (Doc. 36-1 at 17–20.) To state a claim under 29 U.S.C. § 1106(b)(1) and (3) (Count I), Plaintiffs must allege that a "fiduciary with respect to a plan ... deal[t] with the assets of the plan in his own interest or for his own account" or "receive[d] any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving assets of the plan " (emphasis added). To state a claim under 29 U.S.C. § 1106(a)(1)(D) (Count II), Plaintiffs must allege that a "fiduciary with respect to a plan ... cause[d] the plan to engage in a transaction" and that "he [knew] or should [have] know[n] that such transaction constitute[d] a direct or indirect ... transfer to, or use by or for the benefit of a party in interest, of any assets of the plan " (emphasis added).
Plaintiffs' Amended Complaint alleges that the ESOP was involved in the "set of interrelated agreements which together constituted the 2011 Refinancing," which they allege included prohibited transactions with Hogue and Thompson. (Doc. 30 ¶ 43.) Plaintiffs allege that Atlantic's $8 million loan to TAG was conditioned on Wages and Harrison's assignment of their ESOP loans to TAG, in an assignment agreement by and among the ESOP, TAG, Wages, and Harrison. (Id. ¶ 44.) Plaintiffs further allege that Atlantic required the ESOP to enter into the ESOP Loan and Pledge Agreement with TAG, in which the ESOP pledged to TAG all its unallocated TAG stock. (Id. ¶ 46.) Plaintiffs allege that the ESOP gave TAG a $7,528,380 promissory note as part of the 2011 Refinancing. (Id. ¶ 45.) Furthermore, Plaintiffs allege that Urbach, acting as ESOP trustee, voted the ESOP's TAG shares in favor of the 2011 Refinancing. (Id. ¶ 54.)
Defendants' exhibits do not contradict Plaintiffs' allegations. While there may be room for interpretation, Plaintiffs' allegations are not implausible when read in conjunction with the Closing Binder for the 2011 Refinancing and the related ESOP Loan and Pledge Agreement. (Docs. 36-5, 36-6, 36-7, 36-8, 36-9.) Nor does the Resolution from the Called Meeting of the TAG Board of Directors, in which the TAG Board authorized the 2011 Refinancing, make the allegations implausible. (See Doc. 36-5 at 48.)
Plaintiffs have plausibly alleged that the 2011 Refinancing involved "assets of the plan" within the meaning of ERISA. With respect to Count I, Plaintiffs plausibly allege that ESOP fiduciaries (Hogue and Thompson) dealt with ESOP assets (its unallocated TAG stock) in their own interest or for their own account, or received consideration (TAG stock, stock options, cash payments, and future dividends payments) for their own personal account from parties dealing with the ESOP in connection with transactions (the transactions of the 2011 Refinancing) involving ESOP assets (its unallocated TAG stock). With respect to Count II, Plaintiffs plausibly allege that ESOP fiduciaries (Urbach, Hogue, and Thompson) caused the ESOP to engage in transactions that they knew or should have known constituted transfers to parties in interest (Hogue and Thompson) of ESOP assets (its unallocated TAG stock). Accordingly, Plaintiffs' Counts I and II state claims under ERISA.
II. Failure to State Claims Under 29 U.S.C. §§ 1104 – 05
A. Count III
Defendants contend that Count III fails to state claims under 29 U.S.C. §§ 1104(a) and 1105(a) against the ESOP Administration Committee and its members Hogue, Thompson, and Kirbo (collectively Committee Defendants). (Doc. 36-1 at 20–23.) As discussed above, Count III alleges, in part, that the Committee Defendants breached their fiduciary duties under §§ 1104(a) and 1105(a) by failing to remedy the prohibited transactions alleged in Counts I and II. (Doc. 30 ¶¶ 93–107.) Defendants argue that (1) Plaintiffs have not adequately alleged that the Counts I and II transactions on which their Count III claims are based are prohibited transactions and (2) Plaintiffs have not met their pleading burden. Because Plaintiffs have adequately alleged that the transactions forming the basis of their Count I and II claims were prohibited transactions, as discussed above in Part I, Defendants' first argument fails.
Defendants' second argument is that Plaintiffs' allegations that the Committee Defendants breached their fiduciary duties fall short of the pleading standard. In support of this argument, Defendants contend that (1) Plaintiffs do not meet the pleading standard outlined in Amgen, Inc. v. Harris , ––– U.S. ––––, 136 S. Ct. 758, 193 L.Ed.2d 696 (2016) ; (2) Urbach's reliance on the Willamette Management Associates' Fairness Opinion belies Plaintiffs' allegations that Urbach acted imprudently; and (3) Plaintiffs improperly base their allegations on hindsight. The Court addresses each in turn.
First, Amgen is inapposite. In Amgen , the court ruled that, when evaluating a motion to dismiss a claim that a fiduciary of an employee stock ownership plan "imprudently ‘fail[ed] to act on inside information they had about the value of the employer's stock,’ " a court should "assess whether the complaint in its current form ‘has plausibly alleged’ that a prudent fiduciary in the same position ‘could not have concluded’ that the alternative action ‘would do more harm than good.’ " 136 S. Ct. at 759–60 (quoting Fifth Third Bancorp v. Dudenhoeffer , 573 U.S. 409, 410–11, 423, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014) ). See Singh v. RadioShack Corp. , 882 F.3d 137, 145, 148 (5th Cir. 2018) (finding that Amgen and Fifth Third clarify the "standards for duty-of-prudence claims based on public information and insider information" in the context of stock investing). In contrast, Plaintiffs here claim that the Committee Defendants and Urbach breached their duties of prudence by failing to consider the 2011 Refinancing's impact on the ESOP, failing to obtain an appropriate analysis of the 2011 Refinancing, approving the 2011 Refinancing, and failing to remedy the prohibited transactions outlined in Counts I and II. (Doc. 30 ¶¶ 96, 103–06.)
Second, the fact that Willamette Management Associates provided Urbach with a Fairness Opinion advising that the 2011 Refinancing was "fair to ESOP from a financial point of view" does not, as a matter of law, defeat Plaintiffs' claims of breach of fiduciary duty. (Doc. 30 ¶ 55; Doc. 36-13 at 2.) Plaintiffs allege that the Fairness Opinion was inadequate because it did not contain any financial analysis or consider the dilutive impact of the 2011 Refinancing on the value of the ESOP's shares. (Doc. 30 ¶ 55.) Further, Plaintiffs allege that Urbach violated his fiduciary duty by failing to consider whether the 2011 Refinancing was in the ESOP's best interest, and support this allegation by pointing to the Transaction Binder's lack of documents evincing any consideration of whether the 2011 Refinancing's benefits outweighed its costs. (Id. ¶ 56.) While ESOP fiduciaries are "entitled to rely on an appraisal, ‘independent expert advice is not a ‘whitewash’ ’ " or "a magic wand that fiduciaries may simply wave over a transaction to ensure that their responsibilities are fulfilled." Perez v. Commodity Control Corp. , 2016 WL 11638303, at *6 (S.D. Fla. May 4, 2016) (quoting Howard v. Shay , 100 F.3d 1484, 1489 (9th Cir. 1996) and Donovan v. Cunningham , 716 F.2d 1455, 1474 (5th Cir. 1983) ); see also Perez v. Bruister , 823 F.3d 250, 253 (5th Cir. 2016) ("[R]eliance on outside experts does not alone indicate that fiduciaries have satisfied their duty of care."). Accordingly, Plaintiffs state a claim for breach of fiduciary duty notwithstanding Urbach's consideration of the Fairness Opinion.
Third, Plaintiffs' allegations are not based on hindsight, but rather allege deficiencies in Urbach's and the Committee Defendants' actions at the time of the 2011 Refinancing. As already discussed, Plaintiffs allege that Defendants failed to consider the 2011 Refinancing's impact on the ESOP and that Urbach improperly relied on an inadequate Fairness Opinion. They also allege that Defendants failed to remedy prohibited transactions whose impropriety would have been apparent to Defendants at the time of the 2011 Refinancing. Plaintiffs' Count III claims, therefore, are not impermissibly based on hindsight.
B. Count IV
Defendants also contend that Count IV does not state a claim under 29 U.S.C. § 1104 against Hogue, Kirbo, Hall, and Thompson (collectively Director Defendants) because it is improperly duplicative of Plaintiffs' § 1106 claims in Counts I and II. (Doc. 36-1 at 23–25.) Count IV alleges that the Director Defendants, as members of the TAG Board, breached their duties under § 1104(a)(1)(A)–(B) by failing to monitor or take appropriate action against Urbach, Hogue, and Thompson. (Doc. 30 ¶¶ 108–13.) Defendants argue that Plaintiffs cannot "transform so-called ‘prohibited transactions’ that are specific to § [1106] into a more general claim under § [1104(a) ]," because doing so is inconsistent with the text and purpose of these statutes. (Doc. 36-1 at 24.)
Section 1104 establishes the duties of plan fiduciaries while § 1106 prohibits a fiduciary from engaging in certain specified transactions. ERISA creates a private cause of action by plan participants and beneficiaries "to enjoin any act or practice which violates any provision of [ERISA]." 29 U.S.C. § 1132 (emphasis added). The statute does not limit the number of ERISA provisions a plaintiff may sue under, nor does it prevent a plaintiff from suing for violations of multiple ERISA provisions when the conduct underlying those violations overlap. Contrary to Defendants' argument that, because Plaintiffs bring claims for the prohibited transactions in Counts I and II, they are foreclosed from bringing claims against other fiduciaries for failing to monitor those same prohibited transactions, a party may indeed sue a plan fiduciary for failing to monitor other plan fiduciaries. See, e.g. , Coyne & Delany Co. v. Selman , 98 F.3d 1457, 1465–66 (4th Cir. 1996) ; Sommers Drug Stores Co. Emp. Profit Sharing Tr. v. Corrigan Enters., Inc. , 793 F.2d 1456, 1460 (5th Cir. 1986) ; Leigh v. Engle , 727 F.2d 113, 134–35 (7th Cir. 1984) ; Martin v. Feilen , 965 F.2d 660, 669–70 (8th Cir. 1992) ; Johnson v. Couturier , 572 F.3d 1067, 1077 (9th Cir. 2009).
The caselaw Defendants rely on does not require a different conclusion. Defendants cite an Eastern District of Pennsylvania case for the proposition that a breach of duty to monitor claim under § 1104 is duplicative of a § 1106 claim. (Doc. 36-1 at 24.) In fact, the court in that case treated one of the plaintiffs' § 1104 claims (for failure to monitor fiduciaries) "as incorporated into" the plaintiffs' other § 1104 claims for breach of fiduciary duties. Sweda v. Univ. of Pa. , 2017 WL 4179752, at *1 n.1 (E.D. Pa. Sept. 21, 2017), aff'd in part, rev'd in part and remanded , 923 F.3d 320 (3d Cir. 2019) (noting the plaintiffs did not appeal this issue). The court did so "[g]iven that the plaintiffs did not press this [breach of fiduciary duty] argument in their briefings, or dispute the defense contention that this was simply duplicative of the breach of fiduciary duty claims." Id. The plaintiffs also brought claims for prohibited transactions under § 1106, but the court did not find any of the § 1104 claims were "duplicative" of the § 1106 claims. Id. at *1. The other cases Defendants cite do not address the duty to monitor. Sprague v. Gen. Motors Corp. , 133 F.3d 388, 405–06 (6th Cir. 1998) ; Cunningham , 716 F.2d at 1464–65 ; Donovan v. Bierwirth , 680 F.2d 263, 270 (2d Cir. 1982).
Alternatively, Defendants argue that Count IV should be dismissed because the Director Defendants' duty to monitor "is necessarily a limited one." (Doc. 36-1 at 24.) The Court cannot conclude, however, that the Director Defendants acted prudently as a matter of law. A plaintiff states a claim for breach of the duty to monitor by alleging that an appointing fiduciary "knew or should have known" of underlying breaches and that "such knowledge should have triggered an investigation to determine whether [other] fiduciaries were administrating the Plan in accordance with ERISA and the terms of the Plan." Perez v. Geopharma, Inc. , 2014 WL 3721369, at *4 (M.D. Fla. July 25, 2014). Here, Plaintiffs allege that the Director Defendants knew or should have known of the terms of the 2011 Refinancing, and that they did not conduct a proper review of the ESOP trustees' performance. (Doc. 30 ¶¶ 110–11.) Plaintiffs further allege that the Director Defendants took no steps to protect ESOP participants or remedy violations. (Id. ¶ 112.) Accordingly, Plaintiffs state claims for breach of the duty to monitor pursuant to § 1104 against the Director Defendants in Count IV.
III. Statute of Repose
Defendants also argue that the Court should dismiss the Amended Complaint as untimely under ERISA's statute of repose. (Doc. 36-1 at 11–17.) 29 U.S.C. § 1113 provides:
No action may be commenced under this subchapter with respect to a fiduciary's breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earliest of—
(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation;
except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.
ERISA's limitations provision is a statute of repose that "bars ‘any suit that is brought after a specified time since the defendant acted ,’ without regard to any later accrual" of a plaintiff's claim. Sec'y, U.S. Dep't of Labor v. Preston , 873 F.3d 877, 883 (11th Cir. 2017) (quoting Statute of Repose , Black's Law Dictionary (10th ed. 2014)).
A. Counts I and II
Defendants argue that the Complaint, which was filed on January 29, 2019, is untimely as the last alleged violations occurred in August 2011, and the six-year repose period for these violations alleged in Counts I and II expired in August 2017. (Doc. 36-1 at 12.) But Plaintiffs argue that ERISA's "fraud or concealment" exception, which extends the repose period to "six years after the date of discovery" of a breach or violation "in the case of fraud or concealment," applies. § 1113. To satisfy that exception, Plaintiffs' allegations must comply with Federal Rule of Civil Procedure 9(b)'s heightened pleading requirements. Gilmore v. Am. Basketball Ass'n , 2016 WL 7045617, at *3 (M.D. Fla. Mar. 4, 2016) ; see also Caputo v. Pfizer, Inc. , 267 F.3d 181, 191 (2d Cir. 2001) ; Larson v. Northrop Corp. , 21 F.3d 1164, 1173 (D.C. Cir. 1994). To satisfy Rule 9(b), Plaintiffs' Complaint must set forth:
(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.
Mizzaro v. Home Depot, Inc. , 544 F.3d 1230, 1237 (11th Cir. 2008) (quoting Tello v. Dean Witter Reynolds, Inc. , 494 F.3d 956, 972 (11th Cir. 2007) ). "The application of Rule 9(b), however, must not abrogate the concept of notice pleading." Tello , 494 F.3d at 972 (internal quotation marks and citations omitted).
Plaintiffs have satisfied the heightened pleading standard and set forth facts with sufficient particularity to allege fraud and concealment. In their Amended Complaint, Plaintiffs identify several statements and omissions which they contend constitute fraud or concealment: (1) misleading statements on the ESOP's 2011–14 Form 5500s, all signed by Thompson, that declared the ESOP had "purchased all of the outstanding stock of [TAG];" (2) the 2011 Form 5500's statement that there were no non-exempt transactions with parties-in-interest; (3) the 2011 Form 5500's omission of any "Related Party Transactions;" (4) Thompson's 2014 statement to TAG employees at the Albany office that the ESOP's depreciation in value over the prior two years was due to "bank juggling;" and (5) Thompson's directing Gamache to the Form 5500s in response to questions about the ESOP in an August 2016 meeting at the Albany office. (Doc. 30 ¶¶ 62, 65–66, 68.) These allegations sufficiently plead the "who, what, when, where, and how of the allegedly false statements." Mizzaro , 544 F.3d at 1237. Plaintiffs allege who made the statements (Hogue and Thompson), what those statements were (e.g. the Form 5500s, "bank juggling"), when they were made (e.g. the dates of the 2011–14 Form 5500s, the 2014 and 2016 meetings), where they were made (e.g. at TAG's Albany office), and how they were misleading. (Id. ¶¶ 62–68.) Mindful of the Eleventh Circuit's admonition that " Rule 9(b) must be read in conjunction with Rule 8(a)," the Court cannot conclude that Plaintiffs failed to plead fraud with insufficient particularity with respect to the allegations listed above.
As discussed in Part I, Plaintiffs sufficiently allege ERISA violations by Defendants in Counts I and II. Plaintiffs sufficiently allege that Defendants took affirmative steps to conceal those alleged ERISA violations. Plaintiffs further allege that, as a result of Defendants' concealment, Plaintiffs discovered the violations no earlier than May 23, 2018—less than two years before they filed this lawsuit. (Doc. 30 ¶¶ 70–71.) Plaintiffs' claims, therefore, invoke § 1113's fraud or concealment exception, this action is well within that exception's six-year limitations period, and this suit was timely filed.
B. Counts III and IV
Defendants also argue that Counts III and IV are outside of the period of repose and are, therefore, untimely. (Doc. 36-1 at 12.) Count III alleges that Urbach breached his fiduciary duties under § 1104(a)(1) by approving the 2011 Refinancing, and that he and the ESOP Administration Committee breached their duties under §§ 1104(a) and 1105(a) by failing to remedy the prohibited transactions alleged in Counts I and II. (Doc. 30 ¶¶ 93–107.) Count IV alleges that the Director Defendants breached their duties under § 1104(a)(1)(A)–(B) by failing to monitor or take appropriate action against Urbach, Hogue, and Thompson. (Id. ¶¶ 108–13.)
These are allegations of fiduciary breaches based on omissions—failing to remedy prohibited transactions, monitor, and take appropriate action. 29 U.S.C. § 1113 provides that the limitations period "in the case of an omission" is the earlier of "(1) six years after ... the latest date on which the fiduciary could have cured the violation, or (2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation." Defendants could have cured the alleged violations in Counts I and II by bringing an ERISA action themselves, by August 22, 2014 (pursuant to § 1113(2)'s three-year limitations period for violations about which the plaintiff has actual knowledge). "[I]t is not until the [fiduciaries'] delay in bringing suit has precluded (or at least prejudiced) their ability to recover that the [plaintiff] has a claim ...." Martin v. Consultants & Adm'rs, Inc. , 966 F.2d 1078, 1089 (7th Cir. 1992). Because "the end-point of the statute of limitations on the primary claim will mark the start of the limitations period on the derivative claim," the limitations period for Count III expires on the earlier of (1) six years after August 22, 2014 (i.e. August 22, 2020), and (2) three years after May 23, 2018, when Plaintiffs discovered the breaches (i.e. May 23, 2021). Id. (holding that a failure-to-sue claim accrues once the opportunity for defendant to bring suit expires). Since Plaintiffs filed suit before August 22, 2020, Plaintiffs' Counts III claims are timely.
Regarding Count IV, the Amended Complaint indicates Hogue and Thompson are still ESOP trustees, so the TAG Board could still "take appropriate action" with respect to them, and the statute of limitations has not yet run. (Doc. 30 ¶¶ 10–11.) With respect to Urbach, who was removed as ESOP fiduciary around the time of the 2011 Refinancing, the timelines outlined above for Count III apply. (Id. ¶ 14.) Therefore, Plaintiffs' Count IV claims are also timely.
CONCLUSION
For the reasons set forth above, Defendants' Motion to Dismiss (Doc. 36) is DENIED. The Court previously stayed discovery in this action pending a ruling on the Motion to Dismiss. (Docs. 29, 37.) As the Court has now ruled, the stay is LIFTED . The Parties shall follow all deadlines outlined in the Discovery and Scheduling Order issued on May 30, 2019 (Doc. 38).
SO ORDERED , this 16th day of March, 2020.