Lysengen ex rel. Morton Buildings, Inc. Leverage Emp. Stock Ownership Plan v. Argent Trust Co.
Decision Date | 03 November 2020 |
Docket Number | Case No. 20-1177 |
Citation | 498 F.Supp.3d 1011 |
Parties | Jackie LYSENGEN, ON BEHALF OF the MORTON BUILDINGS, INC. LEVERAGE EMPLOYEE STOCK OWNERSHIP PLAN, and on behalf of all other persons similarly situated, Plaintiff, v. ARGENT TRUST COMPANY, Jan Rouse, and Edward C. Miller, Defendants. |
Court | U.S. District Court — Central District of Illinois |
Gregory Y. Porter, Ryan T. Jenny, Bailey & Glasser LLP, Washington, DC, Patrick O. Muench, Bailey & Glasser LLP, Chicago, IL, for Plaintiff.
Jeffrey S. Russell, Barbara Anne Smith, Bryan Cave Leighton Paisner LLP, St. Louis, MO, for Defendant Argent Trust Company.
Chelsea Ashbrook McCarthy, Holland & Knight LLP, Chicago, IL, Janaki Hannah Nair, John S. Elias, Elias Meginnes & Seghetti P.C., Peoria, IL, for Defendants Jan Rouse, Edward C. Miller.
Pending before the Court is Defendants’ Motion to Dismiss. (Doc. 17). Plaintiff filed a response, Defendants filed a reply with leave of the Court, and Plaintiff filed a Motion to File a Sur-reply. The Court has considered Plaintiff's sur-reply in deciding this motion. For the reasons stated below, Defendants’ Motion to Dismiss is denied.
Plaintiff is an employee of Morton Buildings Inc. and participated in the company's Employee Stock Option Plan (ESOP) that was created in May 2017.1 Plaintiff seeks to represent a class of participants in the ESOP. Defendant Argent Trust Company is the trustee of the ESOP and negotiated the purchase of stock on the ESOP's behalf. Defendants Jan Rouse and Edward C. Miller were majority shareholders of Morton's who sold their stock to the ESOP.
Plaintiff filed a Complaint on April 30, 2020, alleging that Defendants violated ERISA through the purchase and financing of the ESOP that was problematic for several reasons. Plaintiff explains that the ESOP purchased over 2 million shares of Morton's stock for approximately $147 million. The purchase was partially financed by Morton and partially financed by the selling shareholders. Plaintiff asserts that the price of the stock plummeted after the sale, dropping from $75.25 at the time of the sale on May 8, 2017 to $33.78 as of December 31, 2017 and then again dropping to $29.48 by December 21, 2018. Plaintiff argues that the formation of the ESOP allowed selling shareholders to "unload their interests in Morton above fair market value and saddle the Plan with tens of millions of dollars of debt over a 30-year period." (Doc. 1 at 5).
Plaintiff argues that the continued price drop indicates that Argent failed to exercise appropriate due diligence and that Argent might have been incentivized to overvalue the stock because potential sellers might become more interested in using Argent's services if Argent tends to favor the shareholders in its pricing. Accordingly, Plaintiff brings a variety of claims against Argent for breaching its fiduciary duty and allowing the ESOP to engage in a prohibited transaction. Plaintiff also brings claims against Defendants Rouse and Miller as selling shareholders who were allegedly aware of the wrongdoing and benefited from it. Plaintiff brings: Count I against Argent for engaging in a prohibited transaction under ERISA by entering into a sale with a party in interest and paying above market value; Count II against Argent for failing to discharge its fiduciary duties solely in the interest of plan participants and beneficiaries; Count III against Argent seeking an order to invalidate the indemnification agreement; and Count IV against the Defendants Rouse and Miller for having actual or constructive knowledge of wrongdoing and receiving a benefit of conduct that violates ERISA.
To survive a motion to dismiss, a complaint must contain sufficient factual matter, which when accepted as true, states a claim for relief that is plausible on its face. Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Plausibility means alleging factual content that allows a court to reasonably infer that the defendant is liable for the alleged misconduct. Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A plaintiff's claim must "give enough details about the subject matter of the case to present a story that holds together" to be plausible. Swanson v. Citibank, N.A. , 614 F.3d 400, 404 (7th Cir. 2010). A court must draw all inferences in favor of the non-moving party. Bontkowski v. First Nat'l Bank of Cicero , 998 F.2d 459, 461 (7th Cir. 1993).
When evaluating a motion to dismiss, courts must accept as true all factual allegations in the complaint. Ashcroft , 556 U.S. at 678, 129 S.Ct. 1937. However, the court need not accept as true the complaint's legal conclusions; "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Id. (citing Bell Atlantic Corp. , 550 U.S. at 555, 127 S.Ct. 1955 ). Conclusory allegations are "not entitled to be assumed true." Id.
Defendants argue that a state court has already considered the fairness of this transaction, and that this Court should credit the state court's conclusion that the deal was fair. Defendants explain that in 2015, minority shareholders in Morton filed a lawsuit in Illinois state court seeking to enjoin the creation of the ESOP, arguing, among other things, that the defendants to that suit breached various fiduciary duties. (Doc. 18 at 11). There, the defendants were Morton Buildings, Inc., Edward C. Miller, and Jan Rouse. The state court dismissed defendant Argent Financial Group early in the proceedings. After discovery and a nine-day bench trial, the Illinois court entered judgment in favor of the defendants on November 14, 2016. (Doc. 18 at 11). Applying state law, the Illinois court determined that the transaction was fair, and that the stock was appropriately priced. Accordingly, the court ruled that the transaction could move forward. The stock sale eventually occurred in May 2017.
Defendants suggest that this Court should adopt the lower court's reasoning that the share price was fair and that the price was negotiated in an "arm's length" process. (Doc. 18 at 11). Defendants continue that unlike other ERISA plaintiffs, Plaintiff has the benefit of a lengthy litigation, including a nine-day evidentiary trial and a 39-page written decision regarding the transaction. (Doc. 18 at 17). Defendants argue that Plaintiff should not be permitted to ignore the publicly available information and "file a complaint that on its face demands discovery in spite of the readily available information that shows the claims are doomed from the start." (Doc. 18 at 17–18). Defendants also seek to have this Court agree that Defendant Argent has expertise in the area of ESOP transactions and "acted solely on its own and in the best interest of the proposed and/or potential ESOP participants." (Doc. 18 at 19).
"A court may take judicial notice of an adjudicative fact that is both ‘not subject to reasonable dispute’ and either (1) ‘generally known within the territorial jurisdiction of the trial court’ or (2) ‘capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.’ " Gen. Elec. Capital Corp. v. Lease Resolution Corp. , 128 F.3d 1074, 1081 (7th Cir. 1997) (citing, inter alia , Fed R. Evid. 201(b) ). The Seventh Circuit has cautioned that in order for a fact to be judicially noticed, "indisputability is a prerequisite." Hennessy v. Penril Datacomm Networks, Inc. , 69 F.3d 1344, 1354 (7th Cir. 1995). Judicial notice "substitutes the acceptance of a universal truth for the conventional method of introducing evidence," and therefore, "courts should strictly adhere to [ Rule 201 ] ... before taking judicial notice of pertinent facts." Gen. Elec. Capital Corp. , 128 F.3d at 1081 (internal citations omitted).
When courts take judicial notice of the fact of another court's decision, they recognize "the simple fact that [a] decision has been made." Opoka v. I.N.S. , 94 F.3d 392, 395 (7th Cir. 1996) ; see also United States v. Jones , 29 F.3d 1549, 1553 (11th Cir. 1994) (); Liberty Mutual Ins. Co. v. Rotches Pork Packers, Inc. , 969 F.2d 1384, 1388 (2d Cir. 1992) () (quoting Kramer v. Time Warner, Inc. , 937 F.2d 767, 774 (2d Cir. 1991) ). Courts do "not consider[ ] the reasons underlying" another court's decision. Id. While this Court may be permitted to take judicial notice of the fact that the state court proceeding occurred, the heart of this dispute is disagreement over whether the transaction was fair. It is not appropriate for this Court to take judicial notice of any of the state court's factual findings or legal conclusions. Specifically, the state court's determination that the transaction was fair is not a fact and it is disputed, making judicial notice inappropriate. Moreover, the Seventh Circuit has observed that "[i]f it were permissible for a court to take judicial notice of a fact merely because it had been found to be true in some other action, the doctrine of collateral estoppel would be superfluous." Gen. Elec. , 128 F.3d at 1083.
While Defendants assert that they are not seeking to invoke claim preclusion or collateral estoppel, their arguments reflect something more akin to collateral estoppel. The concept underlying claim preclusion and collateral estoppel is that once the merits of a legal claim are determined in a court...
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