Harris v. Bruister
| Decision Date | 20 December 2013 |
| Docket Number | CIVIL ACTION NO. 4:10cv77-DPJ-FKB |
| Parties | SETH D. HARRIS, Acting Secretary of the United States Department of Labor PLAINTIFF v. HERBERT C. BRUISTER, et al. DEFENDANTS |
| Court | U.S. District Court — Southern District of Mississippi |
This ERISA case is before the Court on a number of pending motions: (1) the Secretary's Daubert Motion to Exclude Expert Testimony of Gregory P. Range [515]; (2) Plaintiff's Daubert Motion to Exclude Expert Testimony of Dr. Glenda Glover [517]; (3) Plaintiff Secretary of Labor's Motion for Summary Judgment [519]; (4) Plaintiff Secretary of Labor's Motion for Partial Summary Judgment as to Defendants' Third, Fourth, Fifth, and Seventh Defenses [521]; (5) Defendants' Motion to Exclude Expert Report and Testimony of Dana Messina, One of Plaintiff's Expert Witnesses [524]; (6) Defendants' Motion for Summary Judgment on All Counts of the Second Amended Complaint on the Basis of the Applicable Statutes of Limitations [527]; and (7) Defendants' Motion for Summary Judgment [530].
In a three-year period, Defendant Herbert C. Bruister sold 100% of the shares of Bruister and Associates ("BA") stock to BA's employees through an Employee Stock Ownership Plan ("ESOP") governed by ERISA.1 The transfer was completed through five separate transactions,all of which are now disputed. Plaintiff, the Acting Secretary of the United States Department of Labor, generally alleges that Defendants Bruister, Amy O. Smith, Jonda C. Henry, and J. Michael Bruce breached their fiduciary duties under ERISA when they approved the purchases.
Each purchase of BA Stock on behalf of the ESOP was made through an Employee Stock Ownership Trust ("ESOT"). Bruister and Amy Smith—as BA's directors—appointed themselves and initially Michael Bruce as trustees for the ESOT. Jonda Henry later replaced Bruce. Though Bruister was a trustee of the ESOT that purchased the stock from himself and his LLC, the parties dispute whether Bruister acted in a fiduciary capacity when the trustees authorized the purchases.
In all five transactions, the ERISA fiduciaries relied upon valuations prepared by Matthew Donnelly to assess the stock's sale price. The Secretary asserts that Defendants did not adequately investigate Donnelly's qualifications before hiring him to value the company, supplied Donnelly with incomplete or inaccurate financial information, and were not reasonably justified in relying on Donnelly's valuations. He contends that the sales prices for the transactions were inflated.
On April 29, 2010, the Secretary filed this lawsuit. In the Second Amended Complaint, the Secretary raises claims for breach of fiduciary duty under ERISA §§ 404(a)(1)(A), (B), and (D); for failure to monitor under ERISA §§ 404(a)(1)(A) and (B); and for engaging in prohibited transactions under ERISA §§ 406(a)(1)(A) and 406(b)(1) and (2), all as to the five ESOP transactions. Additionally, he raises a prohibited transaction claim under ERISA § 406(b)(3) related to Defendant Bruce's alleged receipt of a percentage of Bruister's proceeds from theDecember 30, 2002 sale. Following a protracted discovery period, the parties filed the instant motions. The Court has personal and subject-matter jurisdiction and is prepared to rule.
Summary judgment is warranted under Rule 56(a) of the Federal Rules of Civil Procedure when evidence reveals no genuine dispute regarding any material fact and that the moving party is entitled to judgment as a matter of law. The rule "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The party moving for summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323. The nonmoving party must then "go beyond the pleadings" and "designate 'specific facts showing that there is a genuine issue for trial.'" Id. at 324 (citation omitted). Conclusory allegations, speculation, unsubstantiated assertions, and legalistic arguments are not an adequate substitute for specific facts showing a genuine issue for trial. TIG Ins. Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993). In reviewing the evidence, factual controversies are to be resolved in favor of the nonmovant, "but only when . . . both parties have submitted evidence of contradictory facts." Little, 37 F.3d at 1075. When such contradictoryfacts exist, the court may "not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000) (citations omitted).
"Even if the standards of Rule 56 are met, a court has discretion to deny a motion for summary judgment if it believes that 'the better course would be to proceed to a full trial.'" Firman v. Life Ins. Co. of N. Am., 684 F.3d 533, 538 (5th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)). In the present case, the Court has concluded that portions of the motions can be granted while others should be denied. Still other factual and legal issues present close calls under Rule 56. Because a bench trial cannot be avoided, it is more prudent to carry the close issues forward and deny summary judgment. This is especially so given the nearly 400 pages of briefing on the summary judgment issues alone and almost 5,000 pages of supporting record evidence. While the Court has endeavored to digest the issues and the record, it anticipates that some issues will become more focused after a trial on the merits.
Defendants argue that all claims are barred by the applicable statute of limitations. Before addressing that issue, the Court must determine whether the Mississippi or federal statute applies. The only real dispute is whether the Secretary's claim against Bruister in Count III should borrow Mississippi's general three-year statute of limitations found in Mississippi Code section 15-1-49. All other Counts are governed by ERISA's three-year statute of limitations found in § 413.2
Count III avers that the five ESOT transactions were all prohibited under § 406(a)(1)(A). It then asserts a claim against Bruister as an "interested party" if he is not found to be a fiduciary. This alternative claim arises pursuant to the Secretary's right to bring suit under § 502(a)(5), 29 U.S.C. § 1132(a)(5). Bruister argues that because § 413 refers to ERISA part 4, and § 502(a)(5) is found in part 5, then § 413 cannot apply. He further argues that § 413 has no application to a claim against a non-fiduciary. Accordingly, Bruister maintains that absent an express limitations period in § 502, the Court must borrow Mississippi's general three-year statute of limitation under Section 15-1-49 for any claims against him as a non-fiduciary.
Whether § 413 applies to equitable relief against a non-fiduciary party in interest under § 502 is not firmly established. In Reich v. Lancaster, the Fifth Circuit applied § 413 to claims under § 502(a)(5) against a nonfiduciary found to have engaged in a prohibited transaction under § 406. 55 F.3d 1034, 1043, 1054-55 (5th Cir. 1995). But the state-verses-federal question was not examined. The same thing happened in Landwehr v. DuPree, where the Ninth Circuit, again without discussion, applied § 413 to a § 502 claim for "other appropriate equitable relief" arising out of a fiduciary breach. 413 72 F.3d 726, 731-32 (9th Cir. 1995) (). But see Campanella v. Mason Tenders' Dist. Council Pension Plan, 132 F. App'x 855, 856 (2d Cir. 2005) (). Despite the somewhat thin authority, the Court concludes that § 413 does apply.
Section 502(a)(5) describes the remedies available to the Secretary. 29 U.S.C. § 1132(a)(5). The statute parallels § 502(a)(3) that describes which private litigants may sue and for what remedies. 29 U.S.C. § 1132(a)(3).3 Neither section identifies the parties against whom suit may be brought. With respect to a claim against a fiduciary, § 502(a)(5) would merely provide a remedy for violation of one of the substantive sections, like § 406, which preclude certain transactions with parties in interest. But no such sections exist as to non-fiduciary parties in interest. This omission was at the heart of the Supreme Court's Harris Trust decision, in which it concluded that § 502(a)(3) "itself imposes certain duties, and therefore that liabilityunder that provision does not depend on whether ERISA's substantive provisions impose a specific duty on the party being sued." 530 U.S. at 245.
The Supreme Court's holding with respect to §502(a)(3) provides a clear picture of the Secretary's rights under § 502(a)(5), and demonstrates why claims under that provision fall within § 413. The Court reached its decision by construing § 502(a)(3) in light of § 502(l).4 The Court paraphrased § 502(l) as follows: "the Secretary shall assess a civil penalty against an 'other person' who 'knowing[ly] participat[es] in' 'any violation of part 4 by a fiduciary.'" 530 U.S. at 248 (ellipses omitted) (emphasis added). The Court then concluded, "The plain implication is that the Secretary may bring a civil action under § 502(a)(5) against an 'other person' who 'knowing[ly] participat[es]' in a fiduciary's violation." Id. (emphasis added). In sum, the equitable...
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