Grindstaff v. Green

• Decision Date: 09 April 1996
• Docket Number: No. 2:95-CV-114.,2:95-CV-114.
• Citation: 946 F.Supp. 540
• Parties: Karl GRINDSTAFF, et al., Plaintiffs, v. Charles GREEN, et al., Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

946 F.Supp. 540

Karl GRINDSTAFF, et al., Plaintiffs, v. Charles GREEN, et al., Defendants.

No. 2:95-CV-114.

United States District Court, E.D. Tennessee, Greeneville.

April 9, 1996.

COPYRIGHT MATERIAL OMITTED

D. Bruce Shine, General Counsel, Council of the United Textile Workers of America, UFCW, AFL-CIO, CLC, Donald F. Mason, Jr., Shine & Mason, Kingsport, TN, David M. Cook, Robert H. Mitchell, Manley, Burke, Fisher, Lipton & Cook, Cincinnati, OH, of counsel, for Plaintiffs.

David Randolph Smith, David Randolph Smith & Associates, Nashville, TN, Judge B. Wilson, II, Wyatt, Tarrant & Combs, Lexington, KY, Sean D. Hughto, Dow, Lohnes & Albertson, Washington, DC.

MEMORANDUM

COLLIER, District Judge.

Before the Court are the Motion to Dismiss filed by Defendants North American Corporation ("NAC") and North American Rayon Corporation ("NARC") (Court File No. 11), the Motion to Dismiss filed by Defendants Charles Green ("Green"), Tony Butts ("Butts"), William E. Andersen ("Andersen"), and David Henry ("Henry") (Court File No. 16), and the Motion for Judgment on the Pleadings filed by First American Trust Company, N.A. ("First American") (Court File No. 22). Plaintiffs filed a Response (Court File No. 32), Defendants filed Replies (Court File Nos. 34, 35, and 36), and Plaintiffs filed a Supplemental Response (Court File No. 42). Also before the Court is the Motion to Strike Plaintiffs' Supplemental Response filed by Defendants NAC and NARC (Court File No. 44). For the following reasons, the Court will GRANT the motions to dismiss filed by NAC and NARC and Green, Butts, Andersen, and Henry, will GRANT the motion for judgment on the pleadings filed by First American, and will GRANT the motion to strike filed by NAC and NARC.¹

I. STANDARD OF REVIEW

Defendants moved the Court to dismiss this action under Fed.R.Civ.P. 12(b)(6) and under Fed.R.Civ.P. 12(c). The standard of review applicable to a Rule 12(c) motion is the same as that for a Rule 12(b)(6) motion. Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 n. 1 (6th Cir.1988). A motion to dismiss under Fed.R.Civ.P. 12(b)(6) requires the Court to construe the complaint in the light most favorable to the plaintiff, accept all the complaint's factual allegations as true, and determine whether the plaintiff undoubtedly can prove no set of facts in support of the claims that would entitle relief. Meador v. Cabinet for Human Resources, 902 F.2d 474, 475 (6th Cir.), cert. denied, 498 U.S. 867, 111 S.Ct. 182, 112 L.Ed.2d 145 (1990); see also Cameron v. Seitz, 38 F.3d 264, 270 (6th Cir.1994). The Court may not grant such a motion to dismiss based upon a disbelief of a complaint's factual allegations. Lawler v. Marshall, 898 F.2d 1196, 1199 (6th Cir.1990); Miller v. Currie, 50 F.3d 373, 377 (6th Cir.1995) (noting that courts should not weigh evidence or evaluate the credibility of witnesses). The Court must liberally construe the complaint in favor of the party opposing the motion. Miller, 50 F.3d at 377. However, the complaint must articulate more than a bare assertion of legal conclusions. Scheid, 859 F.2d at 436. "[The] complaint must contain either direct or inferential allegations respecting all the material elements to sustain a recovery under some viable legal theory." Id. (citations omitted).

II. FACTS²

Plaintiffs articulate their claims as arising under the Employment Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, et seq. Plaintiffs are administrators, participants, and beneficiaries of an Employee Stock Ownership Plan ("ESOP"),³ first organized in 1985 with stock of NARC and then sponsored in 1990 with stock of NAC. NAC is a holding company that controls all of the stock of NARC and other entities not directly pertinent to this litigation.⁴ The ESOP currently holds in trust 85% of the stock of NAC. "[A]uthority to control and manage the operation and administration of the [ESOP]" lies with the ESOP Administrative Committee, comprised of three individuals appointed by the Board of Directors of NAC "to serve at its pleasure and without compensation" (Court File No 21, Ex. 1, NAC ESOP p. 36).⁵ The Board of Directors of NAC appoints one of the three ESOP administrators upon the recommendation of the United Textile Workers of America, AFL-CIO, CLC ("UTWA") and its Local Union Numbers 2207 and 2614 ("local unions"), who serve as the Collective Bargaining Agents for NARC employees.

Defendant First American is the Trustee for the current NAC ESOP. Other Defendants serve in various capacities in both NAC and NARC. Green is President and Chief Executive Officer of both NAC and NARC, as well as a Member and Chairman of the Board of NAC and NARC, and Chairman and Member of the ESOP Administrative Committee; Butts is a Vice-President of NAC and NARC, as well as a Member of the Board of NAC and NARC, and a Member of the ESOP Administrative Committee; Andersen is a Director of NAC and NARC, as well as the labor relations negotiator with the unions; and Henry is a Director of NAC. The fifth member of the NAC Board of Directors, Raymond Broyles, and the last two members of the NARC Board of Directors, Dr. Niles Schoening and Dr. Glenn Yago, are not named defendants.⁶ Along with Green and Butts, Plaintiff Karl Grindstaff ("Grindstaff") is the UTWA-recommended, third member who serves on the ESOP Administrative Committee. Grindstaff is a NARC employee, an elected officer of Local Union 2207, and a plaintiff in this case.

The ESOP at issue came into being in 1985 as a result of a series of collective bargaining agreements. The ESOP controls 85% of NARC stock, held by an ESOP Trust, and the remaining 15% of NARC stock goes to management employees. Participating employees' interests vest according to their level of compensation and length of service, with full vesting after five years of participation. Actual benefit distribution occurs at an employee's retirement, death, disability, or other approved break in service.

In 1990, NAC became the ESOP sponsor. Plaintiffs allege the NARC Board of Directors, led by Green and Butts, voted to create NAC as a holding company for NARC and other related entities. With this change, NAC stock became the ESOP stock. Green and Butts, then Members of the NARC ESOP Administrative Committee, became two of the three Members of the NAC Board of Directors. As noted above, the NAC Board of Directors appoints members to the ESOP Administrative Committee: Plaintiffs state Green and Butts then elected themselves as two of the three NAC ESOP Administrative Committee members. Plaintiffs further argue the NAC Board of Directors expanded to five members in 1990 and, because the NAC ESOP Administrative Committee "directs the Trustee of the ESOP" how to vote 85% of the NAC stock, Green and Butts "directed the Trustee [First American] to elect themselves along with their labor counsel" Andersen to serve as three of the five NAC Board members (Court File No. 1, ¶ 28). Plaintiffs claim the "net effect of the restructuring" places Green, Butts, and Andersen in "absolute control of a 100% employee-owned company ... in circumvention of the intent of the original NARC ESOP" (Id. at ¶ 29) and "denie[s NARC employees] any voice, direction, or ear in the overall operation and direction" of NAC (Id. at ¶ 30).

Believing their collective bargaining agreements violated, in February 1991 NARC employees/ESOP participants began to try to have the ESOP amended. They sought amendment of Section 9, "Voting Company Stock," to allow for "pass-through voting," whereby each participant would instruct the NAC ESOP Administrative Committee "as to the manner in which shares of company stock allocated to that ESOP participant's account [would] be voted to the maximum extent allowed by law" (Id. at ¶ 32). The employees/participants wanted either consideration given to the proposal at the NAC annual meeting or a special meeting of the shareholders called to address the issue. After a lawsuit over the issue began in 1991, the parties apparently resolved to settle "their differences by compliance with the general intent of the original ESOP Trust Agreement" (Id. at ¶¶ 33 and 34). Plaintiffs argue this did not occur. According to Plaintiffs, the settlement agreement required "the majority of corporation's (sic.) directors [to] come from `outside the corporation'" (Id. at ¶ 35). While NAC added two Board members, Plaintiffs claim both new members, Henry and Andersen, are not "impartial" (Id.).

During collective bargaining on 29 September 1994, the UTWA offered to positively represent to its membership proposed modifications of the collective bargaining agreement in return for amendments to the ESOP Trust Agreement and NAC Charter to allow for pass-through voting rights. Plaintiffs note labor negotiator Andersen presented the offer to the NAC Board, but the NAC Board unanimously rejected the proposal. Plaintiffs argue Andersen and the NAC Board believed "lending institutions wouldn't go along with the proposal" and thought "it was not in the best interest of NAC to allow its employee owners to vote their own stock" (Id. at ¶ 38). Plaintiffs contend Green, Butts, Andersen, and Henry were more concerned with their own interests and should have either agreed to pass-through voting or resigned to allow for an independent evaluation of the proposal.

The collective bargaining agreements in place between the UTWA, the local unions, and NARC expired on 4 October 1994. From midnight 4 October 1994 until 1 December 1994, the unions maintained an economic strike. Plaintiffs argue many NARC employees lost their jobs and NAC unnecessarily incurred costs in an attempt to thwart or defend against the strike. Plaintiffs contend Green's salary has greatly increased while those of hourly employees have not since 1985. Plaintiffs further contend "Green and/or other Defendant directors" have arranged contracts between NAC and NARC and corporations at least partially...