Keach v. U.S. Trust Co. N.A.

• Decision Date: 18 February 2003
• Docket Number: No. 01-1168.,01-1168.
• Citation: 244 F.Supp.2d 968
• Court: U.S. District Court — Central District of Illinois
• Parties: Debra KEACH and Patricia Sage, Plaintiffs, v. U.S. TRUST COMPANY, N.A., et al., Defendants.

244 F.Supp.2d 968

Debra KEACH and Patricia Sage, Plaintiffs, v. U.S. TRUST COMPANY, N.A., et al., Defendants.

No. 01-1168.

United States District Court, CD. Illinois, Peoria Division.

February 18, 2003.

COPYRIGHT MATERIAL OMITTED

Dean B. Rhoads, Robert Rhode, Edward Sutkowski, Steven Oates, Sean Anderson, Sutkowski & Rhoads, Peoria, IL, for Plaintiffs Debra Reach and Patricia Sage.

Timothy Bertschy, Heyl, Royster, Voelker & Allen, Peoria, IL, Robert Eccles, Shannon M. Barrett, O'Melveny & Myers, LLP, Washington, DC, for Defendant U.S. Trust Company, NA, fka U.S. Trust Company of California.

Charles Roth, James Springer, Joseph Z. Sudow, Kavanagh Scully Sudow White & Frederick, Peoria, IL, Michael T. Graham, Nancy Ross, McDermott Will & Emery, Trent P. Cornell, Duane Morris, LLC, Chicago, IL, for Defendant Ellen D. Foster, Executrix of the Estate of Thomas S. Foster and as Co-Trustee of the Thomas S. Foster Trust executed on 4/14/94.

Michael T. Graham, Nancy Ross, McDermott Will & Emery, Chicago, IL, for Defendant the Northern Trust Company, an Illinois Corporation as Co-Trustee of the Thomas S. Foster Trust executed on 4/14/94.

Richard J. Pautler, Jennifer Baetje, Thompson & Coburn, St. Louis, MO, for Defendants Robert A. Ostertag, Jr., Terry P. Cole, Alan R. Dix, Jon Elletson, A. Robert Pellegrino.

James Bailey, Paul Ondrasik, Jr., Steptoe & Johnson, Washington, DC, Roy Davis, David Lubben, Davis & Campbell, LLC, Peoria, IL, for Defendants Valuemetrics, Inc.

Mark Casciari, Ian Hugh Morrison, Sari M. Alamuddin, Seyfarth Shaw, Chicago, IL, for Defendant Houlihan, Lokey, Howard & Zukin, Inc.

Charles Roth, James Springer, Kavanagh Scully Sudow White & Frederick, Peoria, IL, for Defendant Stephen P. Bartley.

Stephen Gay, Jeffrey Alan Ryva, Husch & Eppenberger, LLC, Peoria, IL, for Defendant Lyle Dickes.

Jeffrey Rock, Hasselberg Rock Bell & Kuppler, Peoria, IL, for Defendant James Freid.

Charles Roth, James Springer, Kavanagh Scully Sudow White & Frederick, Peoria, IL, for Defendant Dale Fujimoto.

John Elias, Robert Riffle, Cynthia Elias, Elias Meginnes Riffle & Seghetti, Peoria, IL, for Defendant William Gehring, Henry Gregory, II, John F. Halpin, James Kyle, John Lappegaard, George Mckittrick, Clayton Patino, Jerry Rathmann, W. Thomas Stumb, Mark Swedlund, Leo Vanderlugt, Robert Wilson, Bruce Wright.

Jeffrey Rock, Hasselberg Rock Bell & Kuppler, Peoria, IL, for Defendant Richard Hodgson.

Dean Essig, Washington, IL, for Defendant Gregory McAllister.

Charles Roth, James Springer, Joseph Sudow, Kavanagh Scully Sudow White & Frederick, Peoria, IL, for Defendants Michael Norbutas, Frederick Stuber, and for Defendant Ashley Anne Foster, as trustee or agent of the Ashley Anne Foster Irrevocable Trust, and Melvyn R. Regal, individually, as trustee or agent of the Steven Jay Regal Trust, as trustee or agent of the Judi Lynn Regal Trust, and as trustee or agent of the John E. Regal Trust.

ORDER

MIHM, District Judge.

Now before the Court is Defendant Lyle Dickes' ("Dickes") Motion for Summary Judgment. For the reasons set forth below, the Motion for Summary Judgment [# 318] is GRANTED IN PART and DENIED IN PART.

FACTUAL BACKGROUND

The basic factual background has been sufficiently set forth in the prior orders of this Court, and familiarity therewith is presumed. The present motion is brought by Dickes, the former Executive Vice President of Foster & Gallagher. The matter is now fully briefed and ready for resolution. This Order follows.

DISCUSSION

Summary judgment should be granted where "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party has the responsibility of informing the Court of portions of the record or affidavits that demonstrate the absence of a triable issue. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party may meet its burden of showing an absence of disputed material facts by demonstrating "that there is an absence of evidence to support the nonmoving party's case." Id. at 325, 106 S.Ct. 2548. Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Cain v. Lane, 857 F.2d 1139,1142 (7th Cir.1988).

If the moving party meets its burden, the non-moving party then has the burden of presenting specific facts to show that there is a genuine issue of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Federal Rule of Civil Procedure 56(e) requires the nonmoving party to go beyond the pleadings and produce evidence of a genuine issue for trial. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. Nevertheless, this Court must "view the record and all inferences drawn from it in the light most favorable to the [non-moving party]." Holland v. Jefferson Nat. Life Ins. Co., 883 F.2d 1307, 1312 (7th Cir.1989). Summary judgment will be denied where a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Hedberg v. Indiana Bell Tel. Co., 47 F.3d 928, 931 (7th Cir. 1995).

Dickes remains a Defendant in this case only as a non-fiduciary party-in-interest pursuant to § 406(a) of ERISA, which prohibits a "sale or exchange . . . of any property between the plan and a party in interest," and also prohibits a "transfer to . . . a party in interest . . . of any assets of the plan." 29 U.S.C, § 1106(a)(1)(A) and (D). ERISA further defines a "party in interest" to include any fiduciary, person providing services to the plan, an employer, an employee/officer/director or 10% shareholder of an employer, or any relative of these individuals. 29 U.S.C. § 1002(14). This much Dickes and the Plaintiffs agree on; however, any agreement ends there.

The first material dispute concerns who bears the burden of demonstrating or refuting Dickes' liability. In line with ERISA's goal of protecting plan assets for the benefit of plan beneficiaries, § 406(a) is a prohibition against transactions between the plan and parties-in-interest, unless the transaction meets the requirements for exemption as a transaction for adequate consideration pursuant to § 408. This Court has previously determined that an exemption pursuant to § 408 is an affirmative defense that must be pled and proven by a defendant, but § 408 does not appear to be directly at issue in the present motion. See November 27, 2002, Order at pp. 23-24.

That being said, § 406 imposes a duty only on the fiduciary who causes the plan to engage in prohibited transaction. Harris Trust and Savings Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 120 S.Ct. 2180, 2186, 147 L.Ed.2d 187 (2000). Any liability of a non-fiduciary party-ininterest stems from duties imposed by § 502(a)(3):

A civil action may be brought . . . by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of [ERISA Title I] or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan. 29 U.S.C. § 1132(a)(3); Harris Trust, 120 S.Ct. at 2186-88. The Supreme Court noted: [I]t has long been settled that when a trustee in breach of his fiduciary duty to the beneficiaries transfers trust property to a third person, the third person takes the property subject to the trust, unless he has purchased the property for value and without notice of the fiduciary's breach of duty. The trustee or beneficiaries may then maintain an action for restitution of the property (if not already disposed of) or disgorgement of proceeds (if already disposed of), and disgorgement of the third person's profits derived therefrom. Id. at 2189 (internal citations omitted).

The Supreme Court also acknowledged that there are limits on restitution actions against nonfiduciary parties-in-interest.

Only a transferee of ill-gotten trust assets may be held liable, and then only when the transferee (assuming he has purchased for value) knew or should have known of the existence of the trust and the circumstances that rendered the transfer in breach of the trust. Translated to the instant context, the transferee must be demonstrated to have had actual or constructive knowledge of the circumstances that rendered the transaction unlawful. Those circumstances, in turn, involve a showing that the plan fiduciary, with actual or constructive knowledge of the facts satisfying the elements of a § 4.06(a) transaction, caused the plan to engage in the transaction.

Id. at 2190 (emphasis added). In so holding, the Supreme Court noted that the issue of which party should bear the burden of proof on this question was not before them.

The Supreme Court's reservation is unfortunate, because the issue is about as clear as mud. The question of which party should bear the burden of proof in this situation can be credibly argued either way, with legitimate policy goals in support of each position. On the one hand, placing the burden on the equitable claimant would appear to be consistent with the general maxim that the plaintiff bears the ultimate burden of proof in any case and would avoid the undesirable consequence of complicating business transactions with ERISA plans by increasing the costs of parties engaging in such transactions or placing a greater burden on a non-fiduciary than is placed on a co-fiduciary, which would be nonsensical. Similarly, placing the burden of proof on the party claiming protected status would require that party to in effect prove a negative, that is that they did not have knowledge of the...