MacDonald v. SUMMIT ORTHOPEDICS, LTD.

• Decision Date: 19 January 2010
• Docket Number: Civil No. 09-1246 ADM/JJG.
• Citation: 681 F. Supp.2d 1019
• Parties: Charles MacDONALD, M.D., Plaintiff, v. SUMMIT ORTHOPEDICS, LTD., Robert Anderson, M.D., David Falconer, M.D., Paul Donahue, M.D., Michael Forseth, M.D., Defendants.
• Court: U.S. District Court — District of Minnesota

681 F. Supp.2d 1019

Charles MacDONALD, M.D., Plaintiff, v. SUMMIT ORTHOPEDICS, LTD., Robert Anderson, M.D., David Falconer, M.D., Paul Donahue, M.D., Michael Forseth, M.D., Defendants.

Civil No. 09-1246 ADM/JJG.

United States District Court, D. Minnesota.

January 19, 2010.

H. Le Phan, Esq., Paul J. Zech, Esq., and Ruth S. Marcott, Esq., Felhaber, Larson, Fenlon & Vogt, PA, Minneapolis, MN, on behalf of Plaintiff.

Daniel N. Rosen, Esq., and Anthony G. Edwards, Esq., Parker Rosen, LLC, Minneapolis, MN, on behalf of Defendant Summit Orthopedies, Ltd.

Natalie Wyatt-Brown, Esq., and Jeffrey B. Oberman, Esq., Oberman, Thompson & Segal, LLC, Minneapolis, MN, on behalf of Defendants Robert M. Anderson, M.D., David Falconer, M.D., Paul Donahue, M.D., and Michael Forseth, M.D.

MEMORANDUM OPINION AND ORDER

ANN D. MONTGOMERY, District Judge.

I. INTRODUCTION

On October 21, 2009, the undersigned United States District Judge heard oral argument on the Motion to Dismiss Docket No. 9 brought by Defendants Robert Anderson, M.D., David Falconer, M.D., Paul Donahue, M.D., and Michael Forseth, M.D. (collectively "the Individual Defendants"). Plaintiff Charles MacDonald's ("MacDonald") Amended Complaint Docket No. 2 asserts eleven claims, including several under the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C §§ 1001-1461. For the reasons set forth below, the Individual Defendants' Motion is granted in part and denied in part.

II. BACKGROUND¹

MacDonald is a co-founding member of Metropolitan Hand Surgery Associates ("MHSA") and was employed by MHSA as a full-time physician from 1976 until he retired in January 2001. Am. Compl. ¶ 10. The Individual Defendants also are former employees and officers of MHSA. Id. ¶¶ 4-7.

In 1997, MacDonald entered into a deferred compensation plan ("the Plan") with MHSA that provided him with income upon the termination of his employment with MHSA. Id. ¶¶ 11-12; Oberman Decl. Docket No. 12, Ex. A (Deferred Compensation Agreement). Four other physicians who worked at MHSA also participated in the Plan. See Am. Compl. ¶ 19; Oberman Decl. Ex. B (Dec. 20, 2007 Letter).² When MacDonald retired, the amount of his deferred compensation was $308,915. Am. Compl. ¶ 13. The terms of the Plan provided for MacDonald to receive his deferred compensation in 120 equal monthly installments. Id. ¶ 15.

MHSA began paying MacDonald his deferred compensation in 2001 in accordance with the Deferred Compensation Agreement. Id. ¶ 17. On January 1, 2007, MHSA merged³ with Defendant Summit Orthopedics, Ltd. ("Summit") and began the process of winding up its business. Id. ¶¶ 20, 24. MacDonald alleges that at the time of the merger, MHSA paid $183,513 to the Individual Defendants, "thereby depleting the assets available to pay the obligation owed to him while preferring such Individual Defendants' own personal interests." Id. ¶ 21.

On June 1, 2007, MHSA ceased paying MacDonald his deferred compensation. Id. ¶ 18. MHSA notified MacDonald by a letter dated December 20, 2007, that it would no longer make payments under the Plan because (1) MHSA had ceased active operations as of December 31, 2006; (2) MHSA had substantially wound up its business; and (3) MHSA was unable to fully pay all of its debts. Id. ¶ 19. MHSA issued a check in the amount of $16,525, representing MacDonald's final deferred compensation payment under the Plan. Dec. 20, 2007 Letter. Additionally, the letter explained the method MHSA used to calculate the final payments for each participant in the Plan and claimed that the method was "an effort to be as fair as possible." Id. On January 1, 2008, MHSA was statutorily dissolved as a professional association. Am. Compl. ¶ 27.

MacDonald filed this action alleging ERISA and state law claims on May 28, 2009. He alleges the Individual Defendants overpaid themselves in the form of officer compensation, deferred compensation, and profit sharing and through the transfer of MHSA's "ancillary services" to Summit in exchange for personal equity interests in Summit. Pl.'s Mem. Opp'g Mot. Docket No. 16 at 4. In addition, he claims that MHSA should have paid a greater amount in deferred compensation to participants in the Plan in 2007 because the greater amount would have been offset by tax benefits and, thus, would not have further diminished MHSA's ability to pay other obligations. Id. Ultimately, he alleges that the actions of the Individual Defendants resulted in the depletion of available funds to pay the deferred compensation obligation owed to him under the Plan.

III. DISCUSSION

A. Motion to Dismiss Standard

Rule 12 of the Federal Rules of Civil Procedure provides that a party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss, the pleadings are construed in the light most favorable to the nonmoving party, and the facts alleged in the complaint must be taken as true. Hamm, 15 F.3d at 112; Ossman v. Diana Corp., 825 F.Supp. 870, 879-80 (D.Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be resolved in favor of the nonmoving party. Ossman, 825 F.Supp. at 880. Under Rule 8(a) of the Federal Rules of Civil Procedure, pleadings "shall contain a short and plain statement of the claim showing that the pleader is entitled to relief." A pleading must contain "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw a reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). Determining whether a complaint states a plausible claim for relief is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. "But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but not `shown'—`that the pleader is entitled to relief.'" Id. (quoting Fed.R.Civ.P. 8(a)(2)).

B. ERISA

1. Breach of Fiduciary Duties

In the Amended Complaint, MacDonald asserts claims against the Individual Defendants under ERISA for breach of fiduciary duties, and he seeks recovery for losses suffered as a result of the breach (Count III) as well as equitable relief (Count II). The Individual Defendants move for dismissal of the breach of fiduciary duties claims, arguing that they did not owe any fiduciary duties to MacDonald because the Plan is a "top hat plan." Defs.' Mem. in Supp. of Mot. at 8. A "top hat plan" is an unfunded, deferred compensation plan "for a select group of management or highly compensated employees." 29 U.S.C. § 1051(2). Such plans are exempt from many provisions of ERISA, including the fiduciary responsibility requirements. See Emmenegger v. Bull Moose Tube Co., 197 F.3d 929, 932 n. 6 (8th Cir.1999).

As a threshold issue, the parties dispute whether the burden is on MacDonald to show that the Plan is not a top hat plan or on Defendants to show that it is a top hat plan. See Pl.'s Mem. Opp'g Mot. at 10; Defs.' Reply Mem. in Supp. of Mot. Docket No. 23 at 3, n. 1. The Eighth Circuit has yet to address the issue, but courts in other jurisdictions have uniformly held that "the burden of establishing the existence of a top hat plan rests on the party asserting that it is a top hat plan." See In re New Century Holdings, Inc., 387 B.R. 95, 110 (Bankr.D.Del.2008); Deal v. Kegler Brown Hill & Ritter Co. L.P.A., 551 F.Supp.2d 694, 700 (S.D.Ohio 2008) ("The burden is on Defendant to show that the . . . Plan is a top hat plan."); Carrabba v. Randalls Food Markets, Inc., 38 F.Supp.2d 468, 478 (N.D.Tex.1999) (imposing the burden on the party asserting that the plan qualified as a top hat plan); Alexander v. Brigham & Women's Physicians Org., 467 F.Supp.2d 136, 142 (D.Mass.2006) (same); Maynard v. Merrill Lynch & Co., Inc., No. 8:07-cv-1149-T-23MSS, 2008 WL 4790670, at *11 n. 130 (M.D.Fla. Oct. 28, 2008) (same); Violette v. Ajilon Finance, No. Civ.A. 03-5520, 2005 WL 2416986, at *4 (D.N.J. Sept. 30, 2005) (same). Finding no authority to the contrary, the Court concludes that Defendants bear the burden of showing that the Plan is a top hat plan.

There is no dispute that the Plan is unfunded. Pl.'s Mem. Opp'g Mot. at 10. Therefore, whether the Plan qualifies as a top hat plan turns on whether the Plan was offered to (1) a select group of (2) management or highly compensated employees." Id. at 10-11. The Individual Defendants argue that it is undisputed that the Plan was offered to only five employees—MacDonald, three of the Individual Defendants, and another physician—all of whom were physician shareholders in MHSA. As to whether the participants were management or highly compensated employees, the Individual Defendants contend that because the participants were shareholders (some were also corporate officers), they clearly had "negotiating power" to qualify as management or highly compensated employees. Defs.' Reply Mem. in Supp. of Mot. at 4-5.

MacDonald urges that determining whether the participants were a select group of management or highly compensated employees requires a fact-specific analysis of quantitative and qualitative factors. Pl.'s Mem. Opp'g Mot. at 11. "Quantitatively, `the plan must cover relatively few employees.'" New Century, 387 B.R. at 111 (quoting In re New Valley Corp., 89 F.3d 143, 148 (3d Cir.1996)). "Qualitatively, . . . plan participants must all be high level employees, either management or highly compensated." Id. (quotation omitted). In addition, MacDonald argues, determining whether the Plan is a top hat plan requires considering factors such as "(1) the percentage of the total workforce invited to join the plan (quantitative...