Ehlen Floor Covering, Inc. v. Lamb
| Decision Date | 14 November 2012 |
| Docket Number | Case No. 2:07–cv–666–FtM–29DNF. |
| Parties | EHLEN FLOOR COVERING, INC., a Florida corporation, Edward Ehlen, an individual, Thomas Ehlen, an individual, Francis Ehlen, Ehlen Floor Coverings Retirement Plan, Plaintiffs, v. Jeffrey LAMB, individually, Brian Youngs, individually, Thomas Wanderon, individually, LWY Associates, Inc., formerly known as Tax Accounting and Financial Associates, Inc., Independent Advisors of Florida, Inc., formerly known as Foundation Asset Management, Inc., The Graduate Group, Inc., a Florida corporation, Pacific Life Insurance Company, a Nebraska corporation, Innovative Pension Strategies, Inc., a California corporation, Eugene Gordon, individually, and Joseph Penchansky, Defendants. |
| Court | U.S. District Court — Middle District of Florida |
OPINION TEXT STARTS HERE
Dean Adrian Kent, Jason H. Baruch, Richard M. Hanchett, Roberta Casper Watson, Trenam Kemker, Tampa, FL, for Plaintiffs.
Michael Joseph Corso, Traci McKee, Henderson, Franklin, Starnes & Holt, PA, Ft. Myers, FL, Peter B. King, Dominique E. Heller, Wiand Guerra King, PL, Brett J. Preston, Hill Ward Henderson, PA, Janelle Alicia Weber, John Eamon Johnson, Michael P. Silver, Shutts & Bowen, LLP, Tampa, FL, Joshua P. Henry, Walter D. Willson, Wells Marble & Hurst, PLLC, Jackson, MS, Kenna L. Mansfield, Jr., Wells Marble & Hurst, PLLC, Ridgeland, MS, for Defendants.
This matter comes before the Court on Defendant Innovative Pension Strategies, Inc.'s (IPS) Partial Motion for Summary Judgment on Damages (Doc. # 338) filed on July 20, 2012. Defendants Independent Advisors of Florida, Inc., LWY Associates, Inc., Jeffrey Lambs, Eugene Gordon, Joseph Penchansky, and the Graduate Group join in the motion. (Docs. 339, 342). On August 16, 2012, plaintiffs Edward Ehlen, Francis Ehlen, Thomas Ehlen, Ehlen Floor Covering, Inc. (Ehlen Floor), and the Ehlen Floor Coverings Retirement Plan (the Plan) (collectively plaintiffs) filed a Memorandum in Response. (Doc. # 349.) In this Memorandum, plaintiffs renewed their previous motions for remand and abstention (Doc. # 27), reconsideration (Doc. # 59), and application for a certificate of appealability (Doc. # 73), and alternatively seek leave to file an amended complaint. On August 20, 2012, the Court issued an Order (Doc. # 350) directing plaintiffs to file a response to the merits of defendants' partial motion for summary judgment and directing defendants to respond to the merits of plaintiffs' renewed motions. (Doc. # 350). Responses were filed by all parties. (Docs. 354–357, 362–363.) The Court heard oral argument on November 7, 2012.
Defendants essentially argue that the Employee Retirement Income Security Act of 1974 (“ERISA”) preempts all of plaintiffs' claims in this case, but that the remedies sought by plaintiffs are not available under ERISA. Plaintiffs respond, as they have repeatedly, that this is not and never has been an ERISA case and has no business being in federal court. Some brief factual background and the procedural history is necessary to place the current issues in context.
In or around 2000, Ehlen Floor began looking at alternatives to its Welfare Benefit Plan because its contributions were no longer tax deductible. Ehlen Floor ultimately decided to implement a 412(I) 1 plan (the Plan) which became effective on January 1, 2002. In or around 2003, when IPS began providing administrative services to the Plan, it discovered what it perceived as flaws in the initial plan design which could result in adverse tax consequences. IPS prepared amendments to the Plan to cure these defects, but the amendments were not adopted. The parties dispute who bears responsibility and ultimate fault for this failure.
In or about February 2004, the IRS promulgated new guidelines indicating that a 412(I) plan with a beneficiary payout limitation would be classified as a listed transaction subjected to reporting requirements and substantial penalties and sanctions. The Rule required that any plans that could be considered a listed transaction file a Form 8886 to avoid potential penalties. These new guidelines were applicable to the Plan. IPS drafted amendments to the Plan so it would conform with the new IRS guidelines, but these amendments were not adopted by the Plan. Ehlen Floor asserts it was never informed about the initial Plan flaws, the existence of the new rule, the requirement of filing a Form 8886, or the drafting of the proposed amendments to the Plan.
In a letter dated March 6, 2006, the IRS notified Ehlen Floor that the Plan had been selected for audit for the year 2003. The IRS audited Ehlen Floor and eventuallyassessed substantial taxes, penalties, and interest against Ehlen Floor, Edward Ehlen, and Thomas Ehlen, as well as non-parties Stephanie Ehlen and Nancy Ehlen. The Plan was not assessed taxes, penalties, or interest, and there is no evidence of any damages by Francis Ehlen. After lengthy negotiations, in April, 2012, Ehlen Floor, Edward, Thomas, Stephanie, and Nancy Ehlen entered into a Closing Agreement with the IRS agreeing to pay specified amounts. (Doc. # 324–1.)
Five years ago, this case started as a Complaint filed in state court asserting twelve state law claims “arising out of and in connection with Defendants' professional negligence, fraudulent misrepresentations, negligent misrepresentations, negligent supervision, breaches of fiduciary duties and deceptive and unfair trade practices in creating, administering, amending and providing services related to a 412(I) defined benefit pension plan for Ehlen Floor.” (Doc. # 2, ¶ 1.) Among other things, plaintiffs Edward Ehlen and Thomas Ehlen alleged they were officers, directors and employees of Ehlen Floor. (Doc. # 2, ¶¶ 3, 4.)
The case was removed to federal court by defendant Pacific Life Insurance Company (Pacific Life) on the basis that the Complaint “asserts claims falling within the scope of the exclusive civil enforcement provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”)” and asserted questions arising under federal law. (Doc. # 1, ¶ 13.) The Notice of Removal asserted that employees of the Plan, including Edward and Thomas Ehlen, were ERISA plan participants. (Doc. # 1, ¶ 4(d).)
Plaintiffs filed a motion to remand the case to state court, asserting that the Court lacked subject matter jurisdiction because (1) the state law claims were not encompassed within ERISA's exclusive civil enforcement provisions and therefore were not completely preempted by ERISA (Doc. # 27, ¶ 5), and (2) there was no substantial question of federal law stated on the face of the Complaint. ( Id. at ¶ 6.) Plaintiffs asserted they were “not seeking to recover any plan benefits due under an ERISA plan, to enforce any rights under an ERISA plan or to otherwise clarify any rights to future benefits under an ERISA plan.” ( Id. at ¶ 6.) Plaintiffs further asserted they were not seeking equitable relief under ERISA, but rather were seeking monetary damages. ( Id. at p. 15.)
The District Court concluded that all counts of the Complaint were completely preempted by ERISA (Doc. # 58.) The District Court found, among other things, that there was an ERISA plan; that Edward and Thomas Ehlen were entitled to benefits under the plan and therefore had standing to sue; that all parties were ERISA entities; and that plaintiffs sought relief akin to that available under 29 U.S.C. § 1132(a). The Court dismissed the Complaint, but allowed an amended complaint to be filed so long as the claims were re-characterized as claims under ERISA. ( Id.)
Plaintiffs filed a Motion for Reconsideration, asserting in part that the relief they sought “solely relates to the recovery of monetary damages for the loss of IRS tax deductions and IRS imposed sanctions and penalties,” which are “damages that are expressly precluded by ERISA.” (Doc. # 59, ¶ 3.) The district court denied this portion of the motion for reconsideration. (Doc. # 72.)
Plaintiffs filed an Amended Complaint (Doc. # 88) setting forth a single count which re-characterized their claim as one for breach of fiduciary duty under ERISA. In due course, plaintiffs filed a Second Amended Complaint (Doc. # 117) which added IPS as a defendant, included the re-characterized ERISA claim, and added state law claims against IPS. The Second Amended Complaint is the operative pleading.
The District Court thereafter denied IPS's motion to compel arbitration, and an appeal was taken to the Eleventh Circuit. Plaintiffs filed a cross-appeal disputing federal jurisdiction based on ERISA preemption. In Ehlen Floor Covering, Inc. v. Lamb, 660 F.3d 1283 (11th Cir.2011), the Court addressed plaintiffs' jurisdictional argument as follows:
Plaintiffs argue that their claims against IPS concern the design and repair of the Plan, not IPS's ERISA-regulated duties such as management and administration of the Plan. It is true that some of plaintiffs' assertions do not fall under the umbrella of ERISA, but their allegations of breach of fiduciary duties and failure to make required disclosures are clearly potential claims under 29 U.S.C. § 1109(a), thus fulfilling prong one. The second inquiry is satisfied because Ehlen Floor and the Ehlens have standing under ERISA § 502(a)(2) as fiduciary and Plan participants, respectively.
Step two of Davila [, 542 U.S. 200, 124 S.Ct. 2488, 159 L.Ed.2d 312 (2004) ] looks to whether the plaintiffs' claims implicate a duty independent of ERISA. In Davila, the Supreme Court found that although respondents' claim asserted a breach of duty under the Texas Health Care Liability Act (THCLA), the “interpretation of the terms” of the benefit plan “form[ed] an essential part of their THCLA claim,” such that there was no independent claim to defeat preemption. 542 U.S. at 213, 124 S.Ct. at 2498. Similarly, in Borrero v. United Healthcare of N.Y., Inc., appellants argued that their contractual duties were...
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