Bryant v. Cmty. Bankshares, Inc.

Decision Date12 September 2017
Docket NumberCASE NO. 2:14–CV–1074–WKW
Citation265 F.Supp.3d 1307
Parties Dave BRYANT, et al., Plaintiffs, v. COMMUNITY BANKSHARES, INC., et al., Defendants.
CourtU.S. District Court — Middle District of Alabama

Andrew Phillip Campbell, Caroline Smith Gidiere, Stephen D. Wadsworth, Campbell, Guin, Williams, Guy & Gidiere, Birmingham, AL, Christina Diane Crow, Lynn Wilson Jinks, III, Jinks Crow & Dickson, PC, Union Springs, AL, for Plaintiffs.

Stephen E. Hudson, Thomas Heflin Christopher, Kilpatrick Townsend & Stockton LLP, Atlanta, GA, for Defendants.

MEMORANDUM OPINION AND ORDER

W. Keith Watkins, CHIEF UNITED STATES DISTRICT JUDGE

I. INTRODUCTION

Defendant Community Bankshares, Inc. ("Bankshares"), maintained an Employee Stock Ownership Plan ("ESOP" or "Plan"). The ESOP, which was invested primarily in Bankshares's stock, was a retirement plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"). See 29 U.S.C. §§ 1001, et seq. Plaintiffs Dave and Vikki Bryant were participants in the ESOP. In April 2009, having met the age and participation requirements, Plaintiffs were eligible to diversify a percentage of the employer stock in their individual ESOP accounts. They contend that Bankshares, as the Plan administrator, failed to follow the Plan's directives to implement their diversification elections by June 30, 2009, and to distribute shares of stock, which would have been subject to a put option binding against Bankshares based upon the preceding year's stock valuation of $11.00 per share. Instead, Bankshares suspended implementation of the diversification elections until after (1) an interim valuation revealed that in September 2009 the stock's worth had plummeted to $2.30 per share and (2) Bankshares and the Federal Reserve Bank had entered into a written agreement that prohibited Bankshares from redeeming put options. Thereafter, against this bleak backdrop, in November 2009, Bankshares offered to issue stock in satisfaction of the diversification elections but informed participants that it would not honor the put options. Bankshares also gave participants the option to change their 2009 diversification elections in light of this new information; however, Plaintiffs contend that this offer to receive the illiquid stock of a failing bank and the resultant tax liability presented no choice at all. Thus, Bankshares deprived Plaintiffs of their rights under the Plan to receive a distribution of shares and to exercise a put option, which would have required Bankshares to buy back the shares based upon the preceding year's stock valuation of $11.00 per share. The stock is now worthless.

The Plan administrator defends its decision, contending that, given Bankshares's deteriorating financial condition, it acted in the best interests of all Plan participants by refusing to honor 2009 diversification elections, which under the Plan would have been subject to put options at the preceding year's stock valuation. It further contends that, in November 2009, the Bryants voluntarily submitted new diversification elections to keep their stock in the Plan and that these new elections voided their April 2009 diversification elections.

This is the Bryants' second ERISA action against Bankshares and the Plan's fiduciaries to enforce Plan rights and obtain benefits under 29 U.S.C. § 1132(a)(1)(B).1 Before the court are the parties' cross-motions for summary judgment. (Docs. # 57, 58.) On the § 1132(a)(1)(B) claim,2 Plaintiffs' motion for summary judgment is due to be granted, and Defendants' motion for summary judgment is due to be denied. As to Defendants' motion for summary judgment on Plaintiffs' request for attorney's fees, the motion is due to be granted, and Plaintiffs' competing motion for summary judgment is due to be denied.

II. JURISDICTION AND VENUE

The court exercises subject-matter jurisdiction pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e). The parties do not contest personal jurisdiction or venue.

III. STANDARD OF REVIEW

The parties advance the issues in this ERISA action through cross-motions for summary judgment. In the typical case, summary judgment is appropriate when the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). This is not the typical case, however. It is an ERISA action where the material undisputed facts are part of an administrative record3 and where Rule 56 provides the procedural mechanism for disposing of legal issues; hence, the court "sits more as an appellate tribunal than as a trial court."4 Curran v. Kemper Nat'l Serv., Inc. , No. 04–14097, at *7, 2005 WL 894840 (11th Cir. Mar. 16, 2005).

The Eleventh Circuit, following guidance from the United States Supreme Court, has developed a six-step process to guide the district court's review of a plan administrator's benefits-denial decision and that review hinges on whether the plan gave the administrator discretion to deny the claim. See Blankenship v. Metro. Life Co. , 644 F.3d 1350, 1355 (11th Cir. 2011) (citing Firestone Tire & Rubber Co. v. Bruch , 489 U.S. 101, 109 S.Ct. 948, 103 L.Ed.2d 80 (1989), and Metro. Life Ins. Co. v. Glenn , 554 U.S. 105, 128 S.Ct. 2343, 171 L.Ed.2d 299 (2008) ). The court elaborates upon and employs this process in Part V.

IV. BACKGROUND
A. Parties

At all times relevant to the events in this litigation, Bankshares had its headquarters in Cornelia, Georgia, and was the holding company of several banks, including Community Bank & Trust–Alabama in Union Springs, Alabama ("Alabama Bank"), and Community Bank & Trust–Habersham in Cornelia, Georgia ("Georgia Bank").5 Mr. Bryant was the president and chief executive officer of the Alabama Bank and the vice chairperson of its Board. His spouse, Plaintiff Vikki Bryant, was an employee of the Alabama Bank.

Bankshares maintained an ESOP for its employees and for the employees of affiliated employers, and Plaintiffs were participants in the ESOP. The Plan established a trust fund to hold the assets of the Plan and delegated the operation and management of the Plan and the trust fund to fiduciaries. The individual DefendantsSteven C. Adams (now his estate); Elton S. Collins; Edwin B. Burr; Wesley A. Dodd, Jr.; William R. Stump, Jr.; and Mary Wilkerson—had fiduciary responsibilities for the administration of the Plan and Trust. Dodd, Stump, and Wilkerson served, successively, as the Plan administrator's appointees, and the Plan named Adams, Burr, and Collins as trustees.6 (See Plan, §§ 1.19, 1.29, 1.35.)

The Plan administrator, whom the Plan designated as Bankshares or as individuals or entities appointed by Bankshares, "ha[d] sole responsibility for the administration of the Plan." (Plan, §§ 1.29, 7.1.) The Plan trustee "ha[d] sole responsibility for management of the assets held under the Trust." (Plan, § 7.1.) However, "[n]o Fiduciary guarantees the Trust Fund in any manner against investment loss or depreciation in asset value." (Plan, § 7.1.)

B. The ESOP
1. Generally

An ESOP is a "defined contribution plan" that is "designed to invest primarily in qualifying employer securities." 26 U.S.C. § 4975(e)(7). It is "a type of pension plan intended to encourage employees to make their employees stockholders." Steinman v. Hicks , 352 F.3d 1101, 1102 (7th Cir. 2003).

Bankshares established and maintained the ESOP through a written instrument that defined the terms of the Plan and the rights of participants. Bankshares was the sole source of funding for the Plan and made annual contributions to the trust, which invested primarily in Bankshares's stock and secondarily in cash. Eligibility to participate in the Plan required an employee's completion of one year of service during which the employee had worked at least 1,000 hours. In 2009, there were 459 participants in the Plan.

2. The Plan Provisions

The focus of this litigation is on the Plan's terms governing an eligible participant's rights to diversify his or her individual account investments (§ 8.3) and to exercise a put option on the distribution of employer stock in satisfaction of a diversification election (§ 5.8). The interplay between these two provisions (which themselves are intertwined) and the provision governing the Plan administrator's fiduciary duties (§ 8.4) also is at issue. Because the Plan administrator and trustees had to discharge their duties in accordance with the Plan provisions, see 29 U.S.C. § 1104(a)(1)(A), §§ 8.3, 5.8, and 8.4 are set out verbatim.

Section 8.3 of the Plan titled, "Diversification of Investments," provides:

Each Eligible Participant shall, during any Qualified Election Period, be permitted to diversify the investment of a portion of his Employer Contribution Account in accordance with the provisions of this Section 8.3. Each Eligible Participant may elect, in a writing delivered to the Plan Administrator within ninety (90) days after the close of each Plan Year during the Qualified Election Period, to diversify the investment of twenty-five percent (25%) of such Participant's Employer Contribution Account in the Plan, determined as of the Annual Valuation Date for the Plan Year preceding the Plan Year in which such election is made (to the extent such portion exceeds the amount to which a prior election under this Section 8.3 applies); provided that in the case of the election year in which the Participant is permitted to make his last such election, fifty percent (50%) shall be substituted for twenty-five percent (25%) in applying this Section 8.3. For purposes of this Section 8.3 a Participant's Employer Contribution Account at the end of any Plan Year shall be deemed not to include any amount contributed to the Plan after the end of such Plan Year, even if allocated as of the end of such Plan Year.
An Eligible Participant electing to diversify his Account shall direct the Plan Administrator to distribute (or transfer to an Individual Retirement Account or another
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