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Godfrey v. Greatbanc Trust Co.

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

September 26, 2019

GREGORY GODFREY, JEFFREY SHELDON, and DEBRA A. KOPINSKI, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
GREATBANC TRUST COMPANY, MCBRIDE & SON MANAGEMENT COMPANY, LLC, MCBRIDE & SON CAPITAL, INC., MCBRIDE & SON EMPLOYEE STOCK OWNERSHIP PLAN ADMINISTRATIVE COMMITTEE, MCBRIDE & SON COMPANIES, LLC, JOHN F. EILERMANN, JR., MICHAEL D. ARRI, ANDREA TEMPLETON, JEFFREY SCHINDLER, JEFFREY TODT, and JOHN DOES 1–10, Defendants.

          MEMORANDUM OPINION AND ORDER

          MATTHEW F. KENNELLY UNITED STATES DISTRICT JUDGE.

         Several participants in the McBride & Son Employee Stock Ownership Plan have sued several entities and officers associated with their employer and Plan sponsor, McBride & Son Capital, Inc. (MS Capital), along with the Plan trustee, Greatbanc Trust Company, alleging that the defendants violated the Employee Retirement Income Security Act (ERISA). Specifically, the plaintiffs allege that the defendants breached the fiduciary duties set forth in section 404 of ERISA, 29 U.S.C. § 1104, and executed transactions prohibited in section 406, id. § 1106. Greatbanc has answered the claims that the plaintiffs assert against it. The defendants associated with MS Capital have moved under Federal Rule of Civil Procedure 12(b)(6) to dismiss all of the plaintiffs' claims against them for failure to state a claim.

         Background

         The Plan participants' claims in this suit are based primarily on two business transactions allegedly facilitated or authorized by the defendants. The Court's descriptions of these transactions are based on allegations in the complaint and are presented in the light most favorable to the plaintiffs. See Allen v. Greatbanc Trust Co., 835 F.3d 670, 673 (7th Cir. 2016).

         The first transaction underlying several of the plaintiffs' claims is a 2014 reorganization of the employer and Plan sponsor. Prior to 2014, defendant McBride & Son Management Company (MS Management) was the Plan sponsor and named fiduciary in the Plan agreement. As of January 1, 2014, the Plan sponsor became MS Management's successor entity, defendant MS Capital. The Plan agreement executed after the reorganization named MS Capital as a fiduciary. The plaintiffs allege that prior to this reorganization, the Plan had been the sole shareholder of the entity that became MS Capital, but after the reorganization, it owned a smaller proportion of MS Capital shares. Another alleged effect of the reorganization was the payment of excessive compensation, to the detriment of the Plan, to MS Capital officers.

         The second transaction underlying the plaintiffs' claims is a sale in November 2017 of the Plan's MS Capital stock back to MS Capital. In anticipation of this sale, MS Capital loaned the Plan approximately $1.5 million to permit it to buy inactive Plan participants out of their 8, 107 shares of MS Capital. This loan valued MS Capital shares at $187 each. One month later, the Plan transferred 8, 107 shares of MS Capital to MS Capital, thereby satisfying the Plan's loan obligation. At that time, MS Capital also purchased all of the Plan's remaining MS Capital shares for $187 per share.

         The plaintiffs allege that this sale harmed the Plan because the share price was below fair market value. According to the plaintiffs, the 2017 sale price was too low because the starting point for negotiating that price was a 2016 report valuing the stock at $153 per share. The plaintiffs allege that it was improper to use that $153 value as the basis for determining the ultimate sale price-even though the sale price was $187, which of course is more than $153-because the 2016 report was not prepared for the purpose of facilitating a sale of the stock. In addition, plaintiffs allege that the 2016 report discounted the stock value by fifteen percent, a discount that they contend was inapplicable to the actual sale in 2017, given the circumstances of the sale. Finally, plaintiffs allege that the 2016 report value was too low a starting point for negotiating the 2017 sale price because there were projections that MS Capital's revenue would increase in 2017.

         Based on the 2014 reorganization and the 2017 stock sale, the plaintiffs have asserted six ERISA claims against the Plan trustee, Greatbanc, and the moving parties-MS Capital, MS Management, McBride & Son Companies (MS Companies), officers of these entities, and the McBride & Son Employee Stock Ownership Plan Administrative Committee (Plan Committee). In counts 1 and 2, the plaintiffs allege that the defendants' roles in the 2017 stock sale violated their fiduciary duties set forth in ERISA. In count 4, the plaintiffs allege that the defendants' conduct associated with the 2014 business reorganization were also breaches of ERISA fiduciary duties. In counts 3 and 5, the plaintiffs allege that several defendants are liable as nonfiduciaries for their knowing participation in the 2017 stock sale and 2014 reorganization, respectively. Finally, in count 6 the plaintiffs allege that the defendants violated their fiduciary duties by failing to monitor and terminate Greatbanc as the trustee; according to the plaintiffs, Greatbanc should have been removed in response to its facilitation of the 2014 reorganization and 2017 stock sale-transactions that, according to the plaintiffs, harmed the Plan.

         Discussion

         The moving parties have asked the Court to dismiss all of the claims against them for failure state a claim under Federal Rule of Civil Procedure 12(b)(6). The defendants challenge the adequacy of the plaintiffs' pleading of specific claims as well as their pleading of the fiduciary status of several specific defendants. The Court will first address the fiduciary status arguments and then turn to the defendants' arguments about specific claims.

         A. Pleading standard

         To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain sufficient factual allegations to state claims for relief that are facially plausible. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). Although detailed allegations are not necessary, plausibility requires a plaintiff allege factual content sufficient for a court to draw a reasonable inference that the defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 678; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). In addressing a motion to dismiss for failure to state a claim, the Court must accept as true all well-pleaded factual allegations and draw all reasonable inferences in the plaintiffs' favor. NewSpin Sports, LLC v. Arrow Elecs., Inc., 910 F.3d 293, 299 (7th Cir. 2019). No. heightened pleading standard applies here, and the plaintiffs need only plead sufficient facts to show a plausible claim for relief. Allen, 835 F.3d at 674.[1]

         B. Failure to plead fiduciary status

         The defendants challenge many of the plaintiffs' claims on the basis that they failed to adequately allege fiduciary status for specific defendants. "ERISA defines fiduciary status in functional terms." Brooks v. Pactiv Corp., 729 F.3d 758, 765 (7th Cir. 2013). A person is an ERISA fiduciary only "to the extent [] he exercises any discretionary authority or discretionary control respecting management of [a] plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002(21)(A); Baker v. Kingsley, 387 F.3d 649, 660 (7th Cir. 2004). This means that "a person may be an ERISA fiduciary for some purposes, but not for others." Id. For example, when the employer itself is also the administrator of its employee-benefits plan, "it wears two hats, " and its business decisions are not necessarily all acts of an ERISA fiduciary. Brooks, 729 F.3d at 766. The test for ERISA fiduciary status is whether the defendant was acting in that capacity at the time it took the actions that are the basis for the plaintiff's claims. Chi. Dist. Council of Carpenters Welfare Fund v. Caremark, Inc., 474 F.3d 463, 471–72 (7th Cir. 2007).

         1. Corporate officers

         The defendants argue that the plaintiffs' allegations do not support a reasonable inference of fiduciary status of three corporate officers of MS Capital, MS Management, and MS Companies: John F. Eilermann, Chief Executive Officer, Michael D. Arri, Chief Financial Officer, and Andrea Templeton, Assistant Treasurer and Controller. Accordingly, defendants argue, the court should dismiss the claims against these officers in counts 1, 2, 4, and 6, which are all based on breaches of fiduciary duties. In response, the plaintiffs assert that they adequately alleged the fiduciary status of these officers and cite to the following allegations: (1) Eilermann and Templeton prepared and submitted regulatory forms designating themselves as Plan administrators; (2) Eilermann and Arri negotiated and executed the 2017 stock sale and the 2014 business reorganization; and (3) the Plan agreement authorized Eilermann and Arri to appoint, monitor, and terminate Greatbanc as the Plan trustee.

         First, the Court examines whether the plaintiffs have successfully alleged the fiduciary status of Eilermann and Templeton because each signed and submitted, as the Plan's "administrator, " a Form 5500 (Annual Return/Report of the Employee Benefit Plan) to the U.S. Department of Labor. This is the only allegation on which the plaintiffs rely to assert Templeton's fiduciary status. But ministerial functions like preparing and submitting regulatory filings are not discretionary acts and therefore do not support an inference of fiduciary status. See Pohl v. Nat'l Benefits Consultants, Inc., 956 F.2d 126, 129 (7th Cir. 1992); 29 C.F.R. § 2590.75–8, Q&A D–2 (advising that "[p]reparation of reports required by government agencies" is a ministerial function that does not establish ERISA fiduciary status). The test for ERISA fiduciary status is functional and requires discretionary authority or control over the Plan or its assets with respect to the activities that are the basis for an ERISA claim. See Brooks, 729 F.3d at 765; Caremark, 474 F.3d at 471–72. The Form 5500 submissions by Eilermann and Templeton do not support an inference that either exercised any discretionary control or authority over the Plan with respect to the 2014 reorganization or 2017 stock sale. Because this is the only basis for the plaintiffs' claim that Templeton was a fiduciary, the Court dismisses Templeton from counts 1, 2, 4, and 6, which all involves fiduciary breaches.

         The Court turns next to Eilermann and Arri. The plaintiffs allege (1) that Eilermann and Arri were fiduciaries with respect to the 2017 stock sale because they were corporate officers who negotiated and executed the sale, and (2) they were acting as fiduciaries with respect to the 2014 reorganization because they executed it. These allegations alone do not support a reasonable inference that Eilermann and Arri were acting as ERISA fiduciaries. They may well have worn two hats at different points, acting as corporate officers and as fiduciaries to the Plan. But nothing in the complaint supports a reasonable inference that they were wearing their Plan fiduciary hats, as opposed to their corporate officer hats, when planning and executing the 2014 reorganization and the 2017 stock sale.[2]See ...


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