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RLJCS ENTERPRISES, INC. v. PROFESSIONAL BENEFIT TRUST

United States District Court, N.D. Illinois, Eastern Division


RLJCS ENTERPRISES, INC., et al., Plaintiffs,
v.
PROFESSIONAL BENEFIT TRUST, INC., et al., Defendants.

The opinion of the court was delivered by: JOHN GRADY, Senior District Judge

MEMORANDUM OPINION

Before the court is defendants' motion for partial stay of proceedings. For the reasons set forth below, the motion is denied.

BACKGROUND

  The issues raised by the present motion relate only to case management, and in no way implicate the merits, so a detailed recital of the facts is unnecessary. A brief summary is in order, however. Plaintiffs are former employer and employee participants in a multiple-employer benefits trust ("the Trust"). The employers participated in the Trust for the sole purpose of providing death benefits for their participating employees. These death benefits were funded by life insurance policies that were purchased by the Trust with contributions made by the employers. The Trust was designed to be a qualifying trust under section 419A(f)(6) of the Internal Revenue Code, which allows employers to realize a tax deduction for contributions made to certain employee benefit plans. See I.R.C. § 419A(f)(6).

  At the heart of this dispute are life insurance policies purchased by the Trust from Canada Life and Sun Life on behalf of participating employees. When these policies were issued, Canada Life and Sun Life were both mutual insurance companies, or, "insurer[s] whose policyholders are its owners, as opposed to a stock insurance company owned by outside shareholders." BLACK'S LAW DICTIONARY 1041 (7th ed. 1999). However, Canada Life and Sun Life, in 1999 and 2000 respectively, "demutualized," which is "[t]he process of converting a mutual insurance company (which is owned by its policyholders) to a stock insurance company (which is owned by outside shareholders). . . ." Id. at 445.

  As a result of these demutualizations, the Trust received shares of Canada Life and Sun Life stock (together, "the Demutualized Stock").*fn1 Then, in or around September 2000, the trustee of the Trust liquidated the Demutualized Stock for approximately $5,000,000, which the Trust has retained. Effective December 31, 2002, plaintiffs terminated their participation in the Trust. Upon their withdrawal, the Trust distributed to the participating employees their respective Canada Life and Sun Life insurance policies and their pro rata share of other related Trust assets. The distribution, however, did not include any of the sales proceeds from the Demutualized Stock.

  This action followed. Plaintiffs have brought a 73-page, sixteen-count complaint alleging violations of civil RICO, 18 U.S.C. §§ 1961, et seq., and ERISA, 29 U.S.C. §§ 1001, et seq., as well as various common law breach of contract, fiduciary duty and fraud-based claims. The crux of the complaint is that the participating employees had an ownership interest in the Demutualized Stock and that defendants — the Trust and several related entities and individuals — unlawfully deprived the employees of that interest when their pro rata shares of the sales proceeds were not included in their distributions.

  Defendants have not answered or otherwise pled to the complaint. They have instead submitted a counterclaim seeking a declaratory judgment that the Trust is the proper owner of the Demutualized Stock and related sales proceeds.*fn2 Along with their counterclaim, defendants have filed a motion to stay all proceedings on the complaint pending resolution of the counterclaim.

  DISCUSSION

  District courts have substantial discretion in administering their dockets. See Grayson v. O'Neill, 308 F.3d 808, 817 (7th Cir. 2002). This includes the inherent power to stay a case, or a part thereof, when the interests of justice so require. See Clinton v. Jones, 520 U.S. 681, 683, 117 S.Ct. 1636, 137 L.Ed.2d 945 (1997). However, the granting of a stay is the exception, not the rule, and the party seeking the stay has the burden of demonstrating it is necessary.*fn3

  Defendants' argument in support of their motion is straightforward: because much of the complaint hinges on the narrow question of ownership of the Demutualized Stock, the court should resolve that issue before the parties wade into protracted discovery and motion practice on plaintiffs' complicated RICO and ERISA claims, which, depending on the answer to the stock ownership query, may prove to be unnecessary.

  We agree with defendants that the question of stock ownership may be a pivotal threshold inquiry. We do not agree, however, that a stay of plaintiffs' claims in favor of defendants' counterclaim is required for an expeditious resolution of that question. Defendants assume that proceeding with the case in the normal course will necessarily involve "complex, expensive and lengthy discovery" lasting "many months, if not years" before the court can reach the question of stock ownership. Not so. First of all, the complaint has already put the issue in play; plaintiffs cannot prevail on many of their claims unless they prove ownership of the stock. So if the issue is a simple question of law, as defendants maintain, then no or only minimal discovery is necessary and defendants can promptly move for an adjudication. See Fed.R.Civ.P. 12(c); Fed.R.Civ.P. 56(b) ("A party against whom a claim . . . is asserted . . . may, at any time, move with or without supporting affidavits for a summary judgment in the party's favor as to all or any part thereof.") (emphasis added). In any event, proceeding with the counterclaim will involve another layer of pleadings, at least one round of motions, and as defendants themselves acknowledge, the possibility of discovery. See Defs.' Reply, p. 8 (issue may require "limited expert testimony"). In sum, it is not at all clear that litigating defendants' counterclaim provides the more efficient avenue to resolution of this case, or parts thereof, and therefore a stay is not warranted.*fn4

  Although we deny defendants' motion for a stay, we do recognize the merit in placing the stock ownership question on the front burner. Therefore, the filing of any dispositive motion (as to any or all claims) limited to the issue of ownership of the Demutualized Stock will not foreclose the opportunity to present a second motion at the close of discovery.

  CONCLUSION

  For the foregoing reasons, defendants' motion for a partial stay of the proceedings is denied. Defendants may have until September 24, 2004 to answer or otherwise plead to the complaint. A status hearing is set for September 8, 2004 to discuss with counsel how best to expedite an early resolution of the legal questions involved in the stock ownership issue.


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