Riley v. Murdock

• Decision Date: 13 June 1995
• Docket Number: No. 92-442-CV-5-BR.,92-442-CV-5-BR.
• Citation: 890 F. Supp. 444
• Parties: Johnsie RILEY, et al., Plaintiffs, v. David H. MURDOCK, et al., Defendants.
• Court: U.S. District Court — Eastern District of North Carolina

890 F. Supp. 444

Johnsie RILEY, et al., Plaintiffs, v. David H. MURDOCK, et al., Defendants.

No. 92-442-CV-5-BR.

United States District Court, E.D. North Carolina, Western Division.

June 13, 1995.

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Thomas Fleming Taft, Jr., Taft, Taft & Haigler, Greenville, NC, for plaintiffs.

Jeffrey C. Howard, Ralph M. Stockton, Jr., Petree, Stockton & Robinson, Winston-Salem, NC, Debbie Weston Harden, Womble, Carlyle, Sandridge & Rice, Charlotte, NC, Hubert Humphrey, Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, NC, Walter F. Brinkley, Stephen W. Coles, Brinkley, Walser, McGirt, Miller, Smith & Coles, Lexington, NC, David Calep Wright, III, Mark W. Merritt, Robinson, Bradshaw & Hinson, P.A., Charlotte, NC, and Martha Jones Mason, Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, Raleigh, NC, for defendants.

ORDER

BRITT, District Judge.

This matter is before the court on motions for summary judgment filed by the following defendants: (1) Fieldcrest Cannon, Inc. (Fieldcrest); (2) Otto Stolz (Stolz); (3) George A. Batte, Jr., Estate of J. Harris Cannon, Harold P. Hornaday, Andrew W. Adams, Joseph C. Ridenhour, Hubert J. Toumey and James R. Jolly (the Directors); and (4) David H. Murdock (Murdock). All motions have been extensively briefed and are now ripe for decision.

I. FACTS

The rather complicated and involved facts surrounding this matter are extensively set out in an Order of this court dated 30 July 1993 and repeating them here is not necessary. However, a brief sketch of the relevant events leading up to the motions at bar would facilitate a more complete understanding of the discussion to follow.

This action is brought under the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001, et seq.¹ Plaintiffs are employees or retirees of Cannon Mills, Inc. (Cannon) and are participants in Cannon's retirement plan (the Plan). They allege that the defendants breached their fiduciary duty by failing to prudently manage the Plan for the benefit of its participants. Specifically, plaintiffs challenge the seizure of surplus plan assets and the purchase of an annuity backed by junk bonds to increase the dollar amount of the surplus.

Cannon has had several different retirement plans over its many years in operation. Until 1979, the employees contributed to the Plan. For the purposes of this matter, this has become known as the 1976 Plan. In 1979, the 1976 Plan was amended by eliminating employee contributions and altering the termination clause to specifically provide that any surplus assets at termination would revert to the employer rather than the plan participants. This will be referred to as the 1979 Plan.

Approximately six months after this amendment, defendant Murdock began purchasing substantial amounts of Cannon stock and in 1982, bought Cannon outright. Plaintiffs allege that in December 1985 Murdock caused the 1979 Plan to be amended to provide for the reversion of the surplus assets to one of his corporations and the purchase of an annuity upon termination of the Plan. The Plan was allegedly terminated on 18 December 1985.

In June 1986 defendant Fieldcrest merged with Cannon. On 2 July 1986, an annuity was purchased to fund obligations to participants of Cannon's terminated retirement plan. The purchase was negotiated by both Murdock and Fieldcrest. Ultimately, the company issuing the annuity went into receivership, and plaintiffs contend that they have suffered as a result. In sum, plaintiffs allege that the entire series of transactions described above was an elaborate scheme orchestrated in violation of ERISA to allow Fieldcrest to buy Cannon at a reduced price and made it possible for Murdock to receive the surplus assets upon termination of the 1979 Plan.

II. DISCUSSION

Summary judgment is only appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The United States Supreme Court has written:

In our view, the plain language of rule 56(c) 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 absence of an element 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, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The Fourth Circuit has recently commented on Celotex and firmly agreed with the concept that the party moving for summary judgment does not have to produce evidence, but can prevail on summary judgment by simply arguing that there is an absence of evidence by which the nonmovant can prove its case. See Cray Communications, Inc. v. Novatel Computer Systems, Inc., 33 F.3d 390 (4th Cir.1994), cert. denied, ___ U.S. ___, 115 S.Ct. 1254, 131 L.Ed.2d 135 (1995). Each of the four motions for summary judgment will be analyzed pursuant to the above-stated and well-established rules of law.

A. Fieldcrest's Motion for Summary Judgment

Plaintiffs allege that Fieldcrest had fiduciary duties pursuant to 29 U.S.C. § 1002(21) by virtue of the authority and responsibility it assumed under Section 4.03 of the Stock Purchase Agreement dated 3 December 1985 and the fact that Fieldcrest assumed responsibility for the administration of the Plan. Plaintiffs assert that Fieldcrest violated these duties and conspired with other defendants to do so. Plaintiffs admit that Fieldcrest did not receive any of the surplus assets upon termination of the Plan; however, they maintain that the purchase price Fieldcrest paid to acquire Cannon is less than it would have been if Fieldcrest had not allowed Murdock to keep the Plan, amend the Plan in order to allow the surplus to revert to Murdock, and agree to the purchase of an imprudent annuity.

Fieldcrest maintains that it was never a fiduciary under ERISA. It further asserts that it never participated in the administration of the Plan, never attempted to and did not purchase the Plan, and had no involvement in the termination of the Plan or the purchase of the annuity from Executive Life.

A person or entity is a fiduciary with respect to an ERISA-governed plan:

To the extent (i) he or it exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he or it renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he or it has any discretionary authority or discretionary responsibility in the administration of such plan....

29 U.S.C.A. § 1002(21)(A). Subsection (ii) is not at issue; however, plaintiffs argue that Fieldcrest had discretionary authority over the Plan pursuant to the Stock Purchase Agreement and that it actually exercised discretionary authority over the disposition of Plan assets by its involvement in the purchase of the Executive Life annuity.

As explained above, on a motion for summary judgment a defendant does not have to prove an absence of evidence to support a plaintiff's case because the burden rests with the plaintiff to support all elements of its claim. As the discussion below will make evident, plaintiffs are unable to satisfy the burden with respect to proving Fieldcrest had a fiduciary duty under ERISA.

1. Fiduciary Duty Under § 1002(21)(A)(iii)

Plaintiffs assert that the language of the Stock Purchase Agreement entered into by Cannon and Fieldcrest gave Fieldcrest discretionary authority and responsibility with respect to the Cannon Plan, and thus, a fiduciary duty under ERISA. The relevant portion of the Stock Purchase Agreement at issue is Section 4.03 addressing employee benefit plans. By its own terms, Section 4.03 permits either the Sellers' (defined in the agreement as Pacific Holding Corporation and Cannon Holding Corporation) adoption of a new pension plan or the purchase of annuity under guidelines set forth in a separate document known as Schedule 4.03. The option of purchasing an annuity was chosen and subparagraph (e) of Schedule 4.03 addresses that. Schedule 4.03 provides, in pertinent part:

Seller may, in its sole discretion, provide for the funding of all accrued benefits, including all ancillary benefits, whether or not vested, accrued through December 28, 1985, by causing the purchase of annuity contracts satisfactory to the Pension Benefit Guaranty Corporation.

Plaintiffs contend that the last phrase quoted above automatically makes Fieldcrest a fiduciary and vested it with discretionary authority over plan administration under ERISA's definition of fiduciary.

The plain language of the Stock Purchase Agreement, however, makes it clear that Schedule 4.03 was intended to modify Section 4.03 and that Schedule 4.03 was drafted to "set forth the rights and duties of the parties" regarding any annuities. (Tennyson Dep. at 19-20). There is no language in any of the agreements requiring Fieldcrest to approve any annuity contracts.

Further, there is testimony, in affidavit form, that Peter Tennyson, the primary legal representative and negotiator for David Murdock, did not intend for any of the provisions to require Fieldcrest to approve any annuity that might be selected. Id. at 32-33. Joe Ely, Fieldcrest's Chairman and a principle negotiator for the Cannon purchase, also stated that the Stock Purchase Agreement was not intended to require Fieldcrest's approval of any annuities. (Ely Dep. at 34-35). None of Fieldcrest's personnel responsible for pension matters were involved in drafting the Stock Purchase Agreement nor were they operating under the belief that Fieldcrest had any control over annuity selection. (Midgley Dep. at 21; Mitchell Dep. at 61; Raines Dep. at 15.) As well, testimony of the...