Blankenship v. Chamberlain
| Decision Date | 01 February 2010 |
| Docket Number | Case No. 4:08CV01168 ERW. |
| Citation | 695 F. Supp.2d 966 |
| Parties | Susan BLANKENSHIP, et al., Plaintiffs, v. Thomas J. CHAMBERLAIN, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
Francis E. Pennington, III, Laura A. Shea, Pennington Shea, LC, Clayton, MO, for Plaintiffs.
Lawrence M. Kennedy, pro se.
Anthony J. Bozzi, pro se.
Tammy K. King, pro se.
Emily Wakefield Bakota, pro se.
Lois J. Hunter, pro se.
Christopher C. Swenson, Alice H. Dickherber, S. Jay Dobbs, Polsinelli Shughart PC, St. Louis, MO, for Defendant.
This matter comes before the Court on Defendant's Motion to Dismiss Case for Failure to State a Claim, Motion to Dismiss for Failure to Join Necessary and Indispensable Parties, or in the alternative, Motion to Strike and Motion for More Definite Statement doc. # 39.
Plaintiffs Susan Blankenship, James Rolufs, Richie Giuffrida, Daniel Bishop, John Byrom, Donna Lukasek, Janel Campbell, Lorri Christophel, Charles Fulford, Gary Geiser, Patricia Skiles, Heather Ordner, Robert Biondo, Karen Lamberti, Erica Miller, Fred Davis, Kary Wiley, Regina Cannon, Carol Vaughn, Lawrence Kennedy, Anthony Bozzi, Tammy King, Emily Wakefield Bakota, and Lois Hunter (collectively, "Plaintiffs") are individual participants in the Contemporary Carpet Contractors, Inc. Employee Stock Ownership Plan and Trust ("the ESOP"), under which they are the beneficial owners of more than 80% of the shares of Contemporary Flooring and Design, Inc. ("Contemporary"). Defendant Thomas Chamberlain ("Defendant") was Contemporary's sole shareholder until February 2001, when, in conjunction with the formation of the ESOP, Defendant sold all of his shares of Contemporary stock to the ESOP for $3 million. The ESOP has since owned all of Contemporary's outstanding shares.
The stock purchase was facilitated by a loan for the full $3 million from Contemporary to the ESOP, which was in turn financed by a $3 million loan to Contemporary by Allegiant Bank, with the Contemporary stock pledged as collateral. Under the terms of the loan, the Bank released the pledged stock as the ESOP repaid the loan, which the ESOP then allocated to the stock accounts of eligible beneficiaries. In order for the ESOP to be able to make payments on the loan, Contemporary was required to make annual cash contributions to the ESOP while the loan remained due and owing, based on percentages of its participants' earnings.
The stock purchase agreement between Defendant and the ESOP also provided for Contemporary to enter into a separate agreement with Defendant, retaining him as Contemporary's president, CEO, chairman of its board of directors, and, most significantly to this litigation, sole trustee of the ESOP. The employment agreement guaranteed Defendant a $75,000 annual salary, insurance coverage for him and his wife, reimbursement of business expenses, and the payment of membership and assessment fees at two country clubs. It also required Contemporary to keep Defendant in his positions with the company until the loan was repaid, at which point Contemporary would have the option to terminate his employment upon sixty days written notice.
From the execution of the stock purchase and employment agreements in 2001 through 2004, Defendant stopped actively managing Contemporary, and his duties fell to three vice-presidents—Plaintiffs Rolufs, Guiffrida, and Kennedy. Over that period, Contemporary grew significantly in terms of its revenues and overall profitability. This allowed Contemporary management to accelerate payments on the ESOP loan, with the expectation that it would be paid in full by 2006, five years prior to its scheduled maturity.
In 2004, Defendant returned to managing Contemporary and removed Rolufs, Guiffrida, and Kennedy from Contemporary's board of directors.2 Then, without seeking authorization or approval from Contemporary's vice-presidents, its board of directors, the ESOP, or the ESOP's participants, Defendant refinanced the ESOP loan—rescheduling its maturity date to sometime in 2017 and taking on significantly higher loan-interest payments—in order to make it impossible to meet the anticipated 2006 pay-off date. Defendant did so with the knowledge that if Contemporary had remained on the accelerated loan payment schedule, it would have been entitled to terminate his employment as soon as the loan obligation was satisfied. In addition, Plaintiffs claim that Defendant took a number of actions that exceeded his authority between 2004 and 2008, such as paying himself a $125,000 salary, receiving distributions from Contemporary's net profits, and using Contemporary funds for personal expenses including vehicles and vehicle insurance, carpeting for his private residence, and legal and accounting fees.
Plaintiffs also assert that Defendant entered into a series of one-sided real estate transactions with Contemporary during 2005-2007. In 2005, Defendant purchased an undeveloped piece of real estate and constructed an office/showroom/warehouse facility, with the intention that it would serve as Contemporary's new headquarters. When the facility was completed, Defendant had Contemporary enter into a long-term, above-market, triple-net lease3 with him for use of the facility. After Contemporary's relocation, Defendant sold the property where Contemporary had previously been located (which he also owned), but did not reimburse Contemporary for the cost of the improvements it had made on the property. Defendant then went on to sell the new facility to a third party, and assigned his lease with Contemporary to the purchaser.
Defendant then allegedly embarked on a plan to dissolve and liquidate Contemporary, hiring outside consultants at the company's expense to further the plan. Plaintiffs claim that because of Defendant's management—or lack thereof—Contemporary was left with a depleted workforce, an ineffectual board of directors, and overall non-functioning management. Defendant ceased actively managing Contemporary for the final time sometime in 2008, and it was involuntary dissolved later that year.
Plaintiffs bring ERISA claims against Defendant for equitable and injunctive relief and damages, alleging that Defendant, in his role as ESOP trustee, breached fiduciary duties owed to the ESOP. Specifically, Plaintiffs claim that as ESOP trustee, Defendant breached his ERISA fiduciary duties by failing to remove himself as trustee or bring a derivative action—even if against himself—based on the mismanagement and self-dealing within Contemporary.
The notice pleading standard of Federal Rule of Civil Procedure 8(a)(2) requires a plaintiff to give a short and plain statement "plausibly suggesting ... that the pleader is entitled to relief." Bell Atlantic v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Under this standard, a claim is facially plausible where "the pleaded factual content allows the court to draw a reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1940, 173 L.Ed.2d 868 (2009) (internal citations omitted). "Specific facts are not necessary; the statement need only `give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007). That said, "while a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (internal alterations and citations omitted). Thus, application of this standard suggests a two-step analysis under which the court may first (1) determine whether there are factual allegations in the complaint sufficient to entitle the plaintiff to "the assumption of truth," and if so, (2) "a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Iqbal, 129 S.Ct. 1937, 1950.
Defendant argues that Plaintiffs' claims must be dismissed because (1) they are time-barred by the applicable statute of limitations, 29 U.S.C. § 1113; (2) the relief Plaintiffs seek can only be obtained by the ESOP itself, and accordingly, Plaintiffs are not entitled to individual relief; (3) Plaintiffs have failed to join indispensable parties, as not all ESOP participants are parties to this suit; and (4) Plaintiffs have not stated viable claims against him as ESOP trustee, in that the alleged breaches of fiduciary duties arose out of actions he took in a managerial capacity. Plaintiffs respond that (1) their claims are not time-barred because the three-year period did not begin to run until they had actual knowledge that Defendant breached fiduciary duties owed to the ESOP; (2) they recognize that they are not entitled to individual relief, and they therefore only assert claims on behalf of and for the benefit of the ESOP; (3) they have not failed to join indispensable parties, as individual ERISA plan participants are permitted to bring civil claims based on the plan fiduciary's breach of fiduciary duty; and (4) the alleged breach of fiduciary duty was not in Defendant's corporate mismanagement, but rather in his failure, as ESOP trustee, to either remove himself from that position or bring a derivative action against himself.4
Defendant contends that Plaintiffs' claims are barred by the statute of limitations for ERISA breach of fiduciary duty claims, 29 U.S.C. § 1113, which provides that:
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