Perez v. PBI Bank, Inc.

Decision Date20 November 2014
Docket NumberNo. 3:13CV1400 PPS.,3:13CV1400 PPS.
Citation69 F.Supp.3d 906
PartiesThomas E. PEREZ, Secretary of the United States Department of Labor, Plaintiff, v. PBI BANK, INC., and the Miller's Health Systems, Inc. Employee Stock Ownership Plan, Defendant. PBI Bank, Inc., Third–Party Plaintiff, v. The Miller's Health Systems, Inc., V. Richard Miller, R. James Miller, Beverly Miller, Barbara Miller, Lori Haug and Patrick Boyle, Third–Party Defendant.
CourtU.S. District Court — Northern District of Indiana

Bruce C. Canetti, U.S. Department of Labor, Chicago, IL, Glenn M. Loos, Michael Schloss, U.S. Department of Labor, Michael Ross Hartman, Office of the Solicitor, Washington, DC, for Plaintiff.

David F. Bacon, IV, Nelson D. Alexander, Frost Brown Todd LLC, Indianapolis, IN, Douglas Andrew Rubel PHV, Jackson Lewis PC, Cary, NC, David R. Johanson, Jackson Lewis PC, Los Angeles, CA, for Defendant/Third-Party Plaintiff/Third-Party Defendant.

OPINION AND ORDER

PHILIP P. SIMON, Chief Judge.

The U.S. Department of Labor brings this action against PBI Bank, alleging that the Bank violated the Employee Retirement Income Security Act by its actions as the Trustee of the Employee Stock Ownership Plan of The Miller's Health Systems, Inc. The Plan is also named as a defendant in the complaint, but in essence is the victim of the Bank's alleged wrongdoing and the intended beneficiary of this lawsuit. The complaint alleges that on behalf of the Plan, the Bank overpaid for company stock at a price of $40 million based on an inflated valuation far above the stock's fair market value, and approved financing for the purchase at an excessive interest rate. These and other actions by the Bank as the Plan's Trustee are alleged to have violated the Bank's duties of loyalty and prudence, and its duty not to cause the Plan to engage in transactions prohibited by ERISA.

The Bank has in turn filed a third-party complaint for indemnification and contribution against the company and six individuals “each of whom was either a seller of stock to the ESOP or a recipient of other compensation or consideration in the transactions complained of in the Department of Labor's complaint, while at the same time serving as members of the Board of Directors of Miller's Health.” [DE 14 at ¶ 10.] Now before me are motions to dismiss both complaints.

Timeliness of the Complaint

The Bank moves to dismiss the Department of Labor's complaint on the ground that it wasn't filed within ERISA's six year statute of repose, found in 29 U.S.C. § 1113 (§ 413 of ERISA). The statute provides that no action can be commenced with respect to an ERISA fiduciary's breach of any duty more than six years after the last action constituting a part of the breach (subsection (1)), or more three years after “the earliest date on which the plaintiff had actual knowledge of the breach or violation” (subsection (2)), whichever is earlier.

At the outset, I note that the Bank characterizes its motion as one under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. Whether this is the correct designation is at the fulcrum of my decision. Subject matter jurisdiction speaks to the power of the court to act. The Supreme Court has noted that “time prescriptions, however emphatic, are not properly typed jurisdictional.” Arbaugh v. Y & H Corp., 546 U.S. 500, 510, 126 S.Ct. 1235, 163 L.Ed.2d 1097 (2006) (internal quotations omitted). Arbaugh acknowledges that even the Supreme Court itself has sometimes used the term “jurisdiction” in a sloppy and careless way. Justice Ginsburg describes the Court as “profligate in its use of the term.” Id. See also Scarborough v. Principi, 541 U.S. 401, 413–14, 124 S.Ct. 1856, 158 L.Ed.2d 674 (2004) (discussing confusion caused by calling time limits “jurisdictional”).

The Seventh Circuit has clearly held that “limitations statutes setting deadlines for bringing suit in federal court are not jurisdictional.” Miller v. Federal Deposit Ins. Corp., 738 F.3d 836, 843 (7th Cir.2013) ; Lawyers Title Ins. Corp. v. Dearborn Title Corp., 118 F.3d 1157, 1166 (7th Cir.1997). So when a case is dismissed based on a statute of limitations, that is a dismissal on the merits under Rule 12(b)(6). Small v. Chao, 398 F.3d 894, 898 (7th Cir.2005). But what about dismissals based on a statute of repose? Are they any different than statutes of limitations? From a jurisdictional point of view, the answer is no. Doss v. Clearwater Title Co., 551 F.3d 634, 638 (7th Cir.2008), holds that a dismissal of a case based on a statute of repose is a not dismissal for want of jurisdiction; instead, it is a dismissal on the merits. Although Doss was a case under the Truth in Lending Act, it is a difficult to see why the analysis under the ERISA repose provision would be any different especially given the similarity between the limitations language in the ERISA and TILA statutes.1 In holding that TILA's statute of repose does not divest the court of subject matter jurisdiction the Seventh Circuit, quoting Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946), reminded us of some rather basic principles:

[It] is well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether the complaint states a cause of action which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy.
Doss, 551 F.3d at 638, quoting Bell, 327 U.S. at 682, 66 S.Ct. 773. See also Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 89, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998).

What all this means is that when a party seeks dismissal of a lawsuit based on a statute of repose, it is seeking a judgment on the merits which necessarily involves the power of the court to decide the matter in the first place.See e.g. In re Hunter, 400 B.R. 651, 661 (Bankr.N.D.Ill.2009) (observing that Doss held that repose does not present a question of subject matter jurisdiction).

The entire structure of ERISA supports the conclusion that the repose provision at issue here is not a jurisdictional bar, but rather operates as a defense to an action. The place to start of course is the statute itself. The Supreme Court has made it plain that courts must “look to see if there is any ‘clear’ indication that Congress wanted the rule to be ‘jurisdictional.’ Henderson v. Shinseki, 562 U.S. 428, 131 S.Ct. 1197, 1203, 179 L.Ed.2d 159 (2011) (citations omitted). What this means is that Congress must clearly make it known that the particular provision “rank(s) as jurisdictional.” Sebelius v. Auburn Regional Medical Center, ––– U.S. ––––, 133 S.Ct. 817, 824, 184 L.Ed.2d 627 (2013). If Congress has not spoken clearly on the issue, then courts should treat the restriction as nonjurisdictional in character.” Id. (internal citations and quotations omitted).

In reviewing the overall structure of ERISA, I am persuaded that Congress has not spoken so clearly that the limitations provision in 29 U.S.C. § 1113 must be deemed jurisdictional. Indeed, the scope of the statute suggests otherwise. As the DOL persuasively points out, ERISA is broken down into several parts. The jurisdictional provisions of ERISA are contained in part 5 of ERISA, in particular in § 502(e)(1). The limitation provision at issue here is in part 4 of ERISA§ 413(1) to be precise, which is titled “Fiduciary Responsibility.” Under these circumstances, it's far from clear to me that Congress intended the provision at issue here to be jurisdictional. See, e.g., Zipes v. Trans World Airlines, 455 U.S. 385, 394, 102 S.Ct. 1127, 71 L.Ed.2d 234 (1982). And unless the matter is “clear” I am—as I just noted—to “treat the restriction as nonjurisdictional in character.” Auburn Regional, 133 S.Ct. at 824.

The Bank relies on a district court decision from Mississippi, holding that a tolling agreement with the Department of Labor could not stave off the drop-dead six year limit of § 1113(1) as a statute of repose. Harris v. Bruister, 2013 WL 6805155 (S.D.Miss.2013). First, it's worth pointing out the procedural posture of Bruister. The matter was before the court on summary judgment. But more to the point, Bruister is based on the premise that ERISA's statute of repose operates as a jurisdictional bar and, as a result, held that estoppel can't apply because the parties' consent [cannot] remedy a constitutional deficiency in the Court's jurisdiction.” Id. at *6.

But as I have already indicated, the structure of the ERISA statute makes it clear that § 1113(1) is not a jurisdictional provision. And caselaw from the Seventh Circuit suggests more broadly that statutes of repose do not divest me of jurisdiction; they are instead a merits-based defense to an action. Because I conclude that ERISA's repose provision does not divest me of jurisdiction but is rather a decision to be made on the merits, the case cannot be dismissed under Rule 12(b)(1).

So my jurisdiction to decide the matter is secure, but that is not the end of the inquiry. The question remains whether the six year limitation period in ERISA bars this case. The DOL and the Bank agreed in writing to three extensions of the limitations period applicable to any suit brought by the DOL against the Bank. Each document is titled “Agreement to Toll the Running of the Statute of Limitations.” The DOL relies on these multiple agreements to defeat the Bank's motion to dismiss. The Bank contends that those agreements don't mean a thing because what is at issue here is a statute of repose, not a statute of limitations, and [s]tatutes of limitations, but not statutes of repose, are subject to equitable tolling.” CTS Corporation v. Waldburger, ––– U.S. ––––, 134 S.Ct. 2175, 2183, 189 L.Ed.2d 62 (2014). A statute of repose provides a distinct cut-off, “in essence an ‘absolute ... bar’ on a defendant's temporal liability.” Id., quoting C.J.S. § 7,...

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