240 F.3d 83 (1st Cir. 2001), 00-1650, State Street Bank v. Denman Tire Corp
| Citation | 240 F.3d 83 |
| Party Name | STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, Plaintiff, Appellee, v. DENMAN TIRE CORPORATION, DENMAN OPERATING CORPORATION, AND THE DENMAN TIRE CORPORATION PENSION PLAN, Defendants, Appellants, v. EAGLE INDUSTRIES, INC., EAGLE INDUSTRIAL PRODUCTS CORPORATION, AND THE EAGLE INDUSTRIES, INC. PENSION PLAN, Defendants and Cross-Claim Defendants, Ap |
| Case Date | February 14, 2001 |
| Court | United States Courts of Appeals, U.S. Court of Appeals — First Circuit |
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Heard January 8, 2001
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Rya W. Zobel, U.S. District Judge]
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[Copyrighted Material Omitted]
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Anthony A. Scibelli, with whom Brian E. Whiteley and Scibelli and Whiteley were on brief for appellants.
Frederick J. Sperling, with whom Paul E. Greenwalt, III, Schiff Hardin & Wait, Natalie S. Monroe, and Sullivan & Worcester were on brief for defendants and cross-claim defendants-appellees.
Dennis J. Kelly, with whom Renee Inomata and Burns & Levinson were on brief for plaintiff-appellee.
Before Torruella, Chief Judge, Boudin and Lynch, Circuit Judges.
LYNCH, Circuit Judge.
State Street Bank and Trust Company, as the trustee for two pension plans, filed an interpleader complaint to determine which of the two plans should receive $602,462.44 held by the Bank. A predecessor trustee had mistakenly allocated that sum to the Denman Tire Corporation Plan, taking it from the Eagle Industries Plan at a time when the corporate sponsors of both plans were under common ownership. Over the objections of the purchaser of the Denman Tire Corporation and the Denman Plan, the district court directed that the sum, plus its accumulated earnings, go back to the Eagle Plan, the original owner. The district court also held that the action by the purchaser of Denman Tire against the seller, Eagle Industrial Products Corporation (EIPC), the former parent of both Denman Tire and Eagle Industries, was time-barred.
The two Denman entities appeal, saying they were innocent of any wrongdoing and, due to the error as to the assets in the pension plans, an inflated purchase price was paid for Denman Tire. Further, they say that the Denman Plan had a fiduciary duty to its beneficiaries to make an effort to keep the misallocated monies. That effort has cost State Street more than $150,000 in legal fees, which it has charged back to the Denman Plan. In light of these two harms, they say that the Denman Plan should keep the $602,462.44 in misallocated assets, or at least the earnings. Denman also says the action against the corporate seller should be reinstated. We affirm the dismissal of the action.
I.
Denman appeals from dismissal of its breach of warranty claim against EIPC, and Denman and the Denman Plan appeal from summary judgment against the Denman Plan on State Street's interpleader complaint.1 We summarize the facts in the light most favorable to the Denman entities.
At one time, both Denman and Eagle Industries were subsidiaries of EIPC, and each had its own, separate employee ERISA pension plan. In March of 1996, the then-trustee of the plans, Northern Trust, mistakenly allocated $602,462.44 in assets, comprised of mutual funds and a small amount of cash, from the Eagle Plan
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to the Denman Plan in the course of transferring assets from the plans to a new trustee, State Street Bank and Trust. When State Street took over as trustee of the plans in May, 1996, Northern Trust's error was not detected.
EIPC entered into an agreement on August 30, 1996, to sell all its shares in Denman to Pensler Capital Corporation. The terms of the Stock Purchase Agreement called for Pensler to pay an estimated $8 million at closing, subject to adjustments, and included both a warranty that the Denman Plan was in compliance with ERISA and a provision indemnifying Pensler against loss resulting from any breach of warranty by EIPC. The Agreement also stated that EIPC's warranties and indemnification obligations "shall expire on the second (2nd) anniversary of the closing." In a side letter agreement, EIPC agreed to advise Pensler of the Denman Plan's investments as of the closing date.
Between the signing of the Agreement in August, 1996, and the closing on October 1, 1996, Pensler assigned its rights under the Agreement to Denman. On November 21, 1996, in a post-closing agreement, Denman assumed Pensler's obligations and liabilities under the Stock Purchase Agreement, and EIPC delivered to Denman a statement of the stockholders' equity in Denman as of the closing date for the purpose of adjusting the purchase price, pursuant to the Stock Purchase Agreement. On February 5, 1997, as part of a settlement agreement, Denman agreed to pay EIPC an additional $1,412,800 based on the adjusted figures. None of the parties apparently were aware that during their negotiations the Denman Plan contained $602,462.44 in assets misallocated from the Eagle Plan. They each apparently had documents from which they could have learned this.
In September, 1997, an independent audit of the Eagle Plan uncovered the error. EIPC contacted Denman seeking return of its plan's funds. Denman claimed ownership of the assets on its behalf and on behalf of the Denman Plan. EIPC asserted both EIPC's and the Eagle Plan's rights to the funds. Denman and EIPC both notified State Street of their ownership claims. As trustee for the Denman and Eagle Plans, State Street brought an interpleader action to resolve these competing claims, placing the disputed assets in a separate account.
In response, Denman brought a third-party complaint against Northern Trust and a counterclaim against State Street, both for breach of fiduciary duty, and the Denman Plan brought a counterclaim for a declaratory judgment that it owned the assets. Denman also brought a cross-claim against EIPC for breach of the Agreement's warranty that the Denman Plan was ERISA compliant, claiming that Pensler overpaid EIPC to acquire Denman because it relied on State Street's figures, which erroneously included the misallocated assets.
The district court granted the Eagle Plan's motion for summary judgment against Denman and the Denman Plan on both State Street's interpleader complaint and the Denman entities' counterclaim that the Denman Plan owned the disputed assets. The court directed State Street to transfer those assets, which had appreciated in value to $1,091,788.40, to the Eagle Plan. The court also dismissed as time-barred Denman's claim that EIPC was in breach of its warranty in the Stock Purchase Agreement by failing to administer the Denman Plan in accordance with ERISA.2
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II.
A. Contractual Statute of Limitations
We review de novo allowance of a Rule 12(b)(6) motion to dismiss, accepting all well-pleaded facts as true and drawing all reasonable inferences in favor of Denman. See Massachusetts Sch. of Law v. American Bar Ass'n, 142 F.3d 26, 40 (1st Cir. 1998). A motion to dismiss should be granted only if it "appears to a certainty that the plaintiff would be unable to recover under any set of facts." Roma Const. Co. v. aRusso, 96 F.3d 566, 569 (1st Cir. 1996); see alsoLaChapelle v. Berkshire Life Ins. Co., 142 F.3d 507, 509 (1st Cir. 1998) ("Granting a motion to dismiss based on a limitations defense is entirely appropriate when the pleader's allegations leave no doubt that an asserted claim is time-barred."). We also review de novo the district court's interpretation of the contract, a question of law. Principal Mutual Life Ins. Co. v. Racal-Datacom, Inc., 233 F.3d 1, 3 (1st Cir. 2000).
The Stock Purchase Agreement specifies that Illinois law applies. Under Illinois law parties are "free to contract for a time period within which a suit may be brought . . . which [is] less than the general statute of limitation period applicable to written contracts." Board of Educ. v. Hartford Acc. & Indem. Co., 504 N.E.2d 1000, 1005 (Ill. App. 1987); see Koclanakis v. Merrimack Mut. Fire Ins. Co., 899 F.2d 673, 675 (7th Cir. 1990) ("Illinois law recognizes the validity of reasonable contractual limitations on the time to file suit.").
The dispute here is whether the parties intended to create a statute of limitations in their Agreement. Section 8.1(c) of the Agreement, which expressly applies to the warranty at issue, states that EIPC's representations and warranties "shall expire on the second (2nd) anniversary of the Closing . . .." Denman argues that the language of the Agreement is ambiguous and so the district court erred in dismissing and not considering relevant extrinsic evidence. The Agreement, Denman argues, should be read as imposing only a notice requirement for breach of warranty claims, and not a limitations period. Under this theory, its suit is not barred because it notified EIPC of its claim on June 11, 1998, well within two years of the closing on October 1, 1996.
EIPC argues that the plain language of the Agreement demonstrates that the parties agreed to a two-year statute of limitations for bringing claims under the Agreement, and so Denman's suit, filed in 1999, is too late. Whether contract terms are ambiguous is a question of law for the court. See Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212 (Ill. 1992). Ambiguity does not exist where there is mere disagreement about the proper interpretation of a contract, but only if the contractual language is reasonably susceptible to more than one meaning. See Johnstowne Centre Partnership v. Chin, 458 N.E.2d 480, 481 (Ill. 1983); Seven Bridges Courts Ass'n v. Seven Bridges Development, Inc., 714 N.E.2d 601, 606 (Ill. App. 1999). The district court concluded that the terms "shall expire" operated as a statute of limitations.
Courts applying Illinois law have construed similar contract language as unambiguously requiring a party to file suit within the stated period. In Latek v....
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