Riley v. Murdock
| Decision Date | 30 July 1993 |
| Docket Number | No. 92-442-CIV-5-BR.,92-442-CIV-5-BR. |
| Citation | 828 F. Supp. 1215 |
| Parties | Johnsie RILEY, et al., Plaintiffs, v. David H. MURDOCK, et al., Defendants. |
| Court | U.S. District Court — Eastern District of North Carolina |
Thomas Fleming Taft, Jr., Taft, Taft & Haigler, Greenville, NC, for Johnsie Riley, John F. Riley, Virginia Harrington, Dewey Harrington.
Jeffrey C. Howard, Ralph M. Stockton, Jr., Petree, Stockton & Robinson, Winston-Salem, NC, for David H. Murdock.
Hubert Humphrey, Brooks, Pierce, McLendon, Humphrey & Leonard, Greensboro, NC, for Charles A. Cannon, Charitable Trust No. One, Charitable Trust No. Two, Charitable Trust No. Three, Cannon Foundation Inc., and Trust Under the Will of Charles A. Cannon.
This matter is before the court on motions to dismiss, or alternatively motions for summary judgment, filed by the following defendants: (1) Charles A. Cannon Charitable Trusts Nos. One, Two, and Three, Cannon Foundation, Inc., and Trust Under the Will of Charles A. Cannon ("Cannon Trust defendants"); (2) DHM Holding Corporation, Murdock Investment Corporation, Pacific Holding Corporation, and Cannon Holding Corporation ("Murdock corporate defendants"); (3) Fieldcrest Cannon, Inc.; (4) Otto G. Stolz; (5) Estate of William C. Cannon, George A. Batte, Jr., Estate of J. Harris Cannon, Harold P. Hornaday, Estate of Donald S. Holt, Joseph Ridenhour, Andrew W. Adams, Estate of Albert M. Allran, Hubert J. Tourney, and James R. Jolly ("individual defendants"); and (6) First Union National Bank. Also before the court is a motion for more definite statement filed by defendant Otto G. Stolz. The motions have been extensively briefed, and will be addressed seriatim.
This is an action brought under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and also includes pendent state law claims of common law fraud and conspiracy. Plaintiffs consist of employees or retirees of Cannon Mills, Inc. ("Cannon"), and are participants in Cannon's retirement plan and the Fieldcrest Cannon Pension Trust. The complaint, first filed on 29 June 1992 and amended on 3 August 19922, generally alleges a breach of fiduciary duty in failing to prudently manage the retirement plan for the benefit of the employee-participants. Specifically, plaintiffs challenge the acts of several defendants involving the seizure of surplus assets from the retirement plan and the use of an annuity backed by junk bonds to increase the monetary amount of the surplus seized. To facilitate a more complete understanding of the nature of these allegations, the following background is given.
Cannon was founded in 1921 by Charles A. Cannon, and was run as a family textile business with manufacturing plants located primarily in various North Carolina communities. In 1971, Charles A. Cannon died and as a result, Cannon family heirs, estates and trusts, and charitable foundations gained control of Cannon.
Since its founding in 1921, Cannon has had several retirement plans, the first of which became effective in 1947. Until 1979, the retirement plans were contributed to, in part, by employee-participants. These employee-participants would receive, if eligible, monthly pension benefits from two plans: the 1976 Retirement Plan of Cannon and associated companies ("the 1976 Plan"), and the 1979 Revised Retirement Plan of Cannon ("the 1979 Plan"). At the core of this suit is a dispute between the parties regarding the method of distribution of surplus assets under the retirement plans.
Under the 1976 Plan, surplus assets allegedly were to be distributed to plan participants upon termination of the plan. However, in 1979, the existing retirement plan was amended, inter alia, by eliminating the contribution requirement of employee-participants and by changing the termination clause to explicitly provide that any surplus assets would revert, upon termination of the plan, to the employer rather than employee-participants.
Shortly after the 1979 Plan amendments, crucial events began to unfold for Cannon. In late 1979 (some six months after the 1979 Plan amendment), Cannon came within the focus of the eyes of an apparent corporate raider, David H. Murdock.3 Murdock began his quest by purchasing substantial shares of Cannon stock. In 1982, Murdock eventually bought Cannon outright as a result of these large stock purchases.
The complaint alleges that this sale of Cannon resulted in benefits accruing to the Cannon trusts and Murdock as follows: the Cannon trusts benefitted by the tender of Cannon stock to Murdock at a high premium price; and Murdock benefitted by securing the reversion of the 1979 retirement plan's surplus assets (an alleged sum to the tune of just over $35 million). As a factual basis for these allegations, the complaint states that on 9 December 1985 Murdock, through a series of various business transactions, caused the 1979 Plan to be amended to allow for both the purchase of an annuity and the reversion of the surplus assets to one of Murdock's corporate entities after all obligations had been satisfied. On 18 December 1985, the 1979 Plan allegedly was terminated. Fieldcrest Cannon, Inc. ("Fieldcrest") entered the scene on 30 January 1986 by announcing its intention to buy Cannon. Five months later, Fieldcrest made good on its promise, and merged with Cannon on 30 June 1986. On 2 July 1986, an annuity was then purchased which was negotiated in part by Murdock and, in part, by Fieldcrest. The investment in the annuity apparently went bad, and plaintiffs contend that they suffered as a result thereof.
Given these facts in the amended complaint, plaintiffs allege that this entire business transaction enabled Fieldcrest to purchase Cannon at a reduced price, allowed the Cannon Trust defendants to receive a premium, and permitted Murdock to wrongfully acquire huge surplus assets from the retirement plan. Plaintiffs contend that by executing this elaborate scheme, defendants violated ERISA, the securities laws, the civil provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), and committed common law fraud.
A motion to dismiss should be granted if the plaintiffs complaint has failed "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). If, on a motion to dismiss for failure to state a claim, "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment...." Fed.R.Civ.P. 12(b). Since virtually all of the parties have submitted affidavits and/or exhibits outside the pleadings in connection with the pending motions and the court has reviewed the same, the court will treat the motions to dismiss as ones for summary judgment under the requirement set out in Rule 56, except as otherwise noted.
Summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that 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). Plaintiffs, in order to withstand summary judgment, must establish the existence of a genuine issue of material fact by presenting evidence on which the jury could reasonably find in their favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986). "The mere existence of a scintilla of evidence in support of plaintiffs' position will be insufficient" to create a genuine issue of material fact. Id. Plaintiffs cannot create a genuine issue of material fact by resting on the pleadings. See Atkinson v. Bass, 579 F.2d 865, 866 (4th Cir.), cert. denied, 439 U.S. 1003, 99 S.Ct. 615, 58 L.Ed.2d 679 (1978). Furthermore, plaintiffs' failure to create a genuine issue of material fact on any essential element of their claim will result in summary judgment being entered against them. Celotex Corp. v. Catrett, 477 U.S. 317, 322-323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).
In support of their motion, the Cannon Trust defendants argue that the factual bases in the amended complaint are insufficient to state a claim as against them. Specifically, the Cannon Trust defendants contend that the complaint only contains a conclusion of law that they are "fiduciaries" within the meaning of ERISA. Absent specific allegations showing that defendants are such, the Cannon Trust defendants thus maintain that this unsupported legal conclusion is deficient as a matter of law. In the alternative, the Cannon Trust defendants argue that this action, as against them, is barred by the applicable statute of limitations provided by ERISA.
Not surprisingly, plaintiffs respond by contending that all of the Cannon Trust defendants qualify as "fiduciaries" under ERISA. Citing general principles of trust law, plaintiffs argue that no immunity exists for a trust whose res is used in an alleged fraudulent transaction. Given this, plaintiffs seem to argue that since the retirement plan itself is a "fiduciary" under ERISA for purposes of standing, the trusts involved here, which collectively owned a substantial amount of shares of Cannon, can be considered "fiduciaries" by virtue of the administrative responsibilities attendant to them. Regarding the statute of limitations issue, plaintiffs first assert, under a continuing practice theory, that the ERISA statute of limitations does not bar suit against the Cannon Trust defendants inasmuch as the applicable limitations period did not begin to accrue until sometime after 16 August 1986 when the distribution of the retirement plan's surplus assets occurred. As a corollary, plaintiffs allege that equitable tolling of the limitations period applies here because plaintiffs have pled concealed acts of the Cannon Trust defendants.
In considering the Cannon Trust defendants'...
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