Sheet Metal Workers' Nat. Pen. v. Illinois Range

• Decision Date: 05 October 1999
• Docket Number: No. 98 C 8321.,98 C 8321.
• Citation: 71 F.Supp.2d 864
• Parties: BOARD OF TRUSTEES, SHEET METAL WORKERS' NATIONAL PENSION FUND, Plaintiff, v. ILLINOIS RANGE, INC., IRC Holding Corp., I Range, Inc., Edward Krakowiak, Edward Krysa and Donald Brokaw, Defendants.
• Court: U.S. District Court — Northern District of Illinois

71 F.Supp.2d 864

BOARD OF TRUSTEES, SHEET METAL WORKERS' NATIONAL PENSION FUND, Plaintiff, v. ILLINOIS RANGE, INC., IRC Holding Corp., I Range, Inc., Edward Krakowiak, Edward Krysa and Donald Brokaw, Defendants.

No. 98 C 8321.

United States District Court, N.D. Illinois, Eastern Division.

October 5, 1999.

David S. Allen, Jacobs, Burns, Orlove, Stanton & Hernandez, Chicago, IL, Terence Craig, Bruce Perlin, Glenda Gouldman, Sheet Metal Workers' National Pension Fund, Legal Department, Alexandria, VA, for plaintiff.

Robert J. Trizna, Thomas G. Draths, Jeffrey R. Rosenberg, Schuyler, Roche & Zwirner, Chicago, IL, for defendants.

MEMORANDUM OPINION AND ORDER

DENLOW, United States Magistrate Judge.

This case is before this Court on a motion to dismiss Plaintiff's first amended complaint. The Board of Trustees of the Sheet Metal Workers' National Pension Fund ("Plaintiff" or "Fund") instituted this action against Illinois Range, Inc., IRC Holding Corp., I Range, Inc., Edward Krakowiak, Edward Krysa and Donald Brokaw (collectively "Defendants"), alleging violations of ERISA and supplemental state law claims. Count I is a claim for withdrawal liability directed against Illinois Range, Inc., IRC Holding Corp., and I Range, Inc. (collectively the "Corporate Defendants"). The Corporate Defendants have all been dissolved and have not entered an appearance. The remaining four counts were directed against Edward Krakowiak, Edward Krysa and Donald Brokaw (collectively the "Individual Defendants"). The Individual Defendants previously brought a motion to dismiss count II of the original complaint for failure to state a claim and to dismiss counts III and IV for lack of federal jurisdiction. This Court held that Plaintiff did state an ERISA claim against the Individual Defendants in count II and the Court did have supplemental jurisdiction over counts III and IV. Board of Trustees, Sheet Metal Workers' National Pension Fund v. Illinois Range, Inc., 186 F.R.D. 498 (N.D.Ill.1999). Plaintiff voluntarily withdrew its original count V, a claim for constructive trust.

Thereafter, Plaintiff filed a first amended complaint adding a new count V. Count V asserts a federal common law claim for restitution based upon unjust enrichment. The Individual Defendants now bring a motion to dismiss the first amended complaint. The only new issue relates to count V. Therefore, the Court adopts its prior opinion and denies the motion to dismiss counts II, III and IV. This opinion addresses count V.

The Court grants the motion to dismiss count V on the grounds that no federal common law claim exists because a similar statutory claim is available under ERISA. Alternatively, if this Court's previous holding is reversed on appeal¹ and Plaintiff is found to have no count II statutory claim under ERISA, federal common law does not permit Plaintiff to pursue count V for restitution based upon unjust enrichment.

I. BACKGROUND FACTS

The following facts are taken from the first amended complaint and are treated as true only for purposes of this motion. Illinois Range was purchased by IRC Holding in November, 1986. The Individual Defendants owned IRC Holding. In March of 1994, IRC Holding was valued at over $1 million. In October of 1994, the Individual Defendants sold the stock of IRC Holding to a company called IRC Acquisition, which later changed its name to I Range. I Range was owned by Ken Krejaik, Robert Finnerty, Dick Antonson and Greg Germakian (collectively the "New Owners"). I Range executed a $2.5 million promissory note, secured by Illinois Range's assets and stock, in favor of the Individual Defendants. The agreement provided that Krakowiak would remain a director of the corporation until payment of the acquisition note. However, if Illinois Range was not profitable by at least $1 as of one year after the sale, the stock ownership would revert to the Individual Defendants. On April 1, 1996, the Individual Defendants and New Owners renegotiated the stock purchase agreement to provide for the Individual Defendants to receive only interest payments and not principal.

Plaintiff alleges that as of the time of the stock sale of IRC holdings in October 1994, the Individual Defendants knew or should have known that Illinois Range was not an economically viable entity. In 1993, Illinois Range alienated its major customer, McDonald's Corporation. In July 1994, Illinois Range sold its parts business to the Franks Group. In February 1994, McDonald's notified Illinois Range that it would not continue to use Illinois Range services. As of October 1994, withdrawal liability was not yet due and owing.

Following the stock sale and from late 1994 through early 1996, the Board of Directors of Illinois Range approved large dividends, totaling approximately $6.25 million, to its sole shareholder, IRC Holding, which approved large dividends to its sole shareholder, I Range, which in turn approved payments of $828,531 to the Individual Defendants in order to pay down the acquisition note financing the stock sale.² In April of 1996, the Individual Defendants declared the purchasers of Illinois Range in default under the stock purchase agreement. In September of 1996, Illinois Range assigned its assets for the benefit of creditors and ceased contributing to the Fund. The Fund determined that as of September 10, 1996 a complete withdrawal within the meaning of ERISA, 29 U.S.C. § 1381(b)(2), had been effected. This resulted in withdrawal liability in the amount of $2,273,699.86.

As a result of the dividend distributions from 1994 through 1996, Illinois Range was rendered insolvent and unable to pay its withdrawal liability. In December 1998, the Board of Trustees of the Sheet Metal Workers National Pension Fund filed the instant action against the Corporate Defendants and the Individual Defendants. Count I of the first amended complaint is a claim for withdrawal liability against the Corporate Defendants. Count II is a claim under ERISA against the Individual Defendants. Count III is a claim for illegal corporate distributions against the Individual Defendants. Count IV is a claim for fraudulent conveyance against the Individual Defendants. Count V is a claim for unjust enrichment under the federal common law of ERISA against the Individual Defendants.

II. STANDARD OF REVIEW

In analyzing Plaintiff's complaint under Rule 12(b)(6), the court must accept as true the allegations in the complaint and all reasonable inferences that may be reasonably drawn from them. Fed.R.Civ.P. 12(b)(6); Ogden Martin Systems of Indianapolis, Inc. v. Whiting Corp. 179 F.3d 523 (7th Cir.1999). A motion to dismiss may be granted only if the court concludes that "no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984).

III. COUNT V OF PLAINTIFF'S FIRST AMENDED COMPLAINT FAILS TO STATE A FEDERAL COMMON LAW CLAIM.

Based upon this Court's previous holding, Plaintiff has stated an ERISA claim against the Individual Defendants under count II. Plaintiff may recover the dividends received by them if Plaintiff can prove that a principal purpose of the transaction was to evade or avoid withdrawal liability. Board of Trustees, Sheet Metal Workers' National Pension Fund v. Illinois Range, Inc., 186 F.R.D. 498 (N.D.Ill. 1999). Therefore, the Court grants the Individual Defendants' motion to dismiss count V on the grounds that no federal common law claim for unjust enrichment is needed. Because Plaintiff has a claim and a remedy under ERISA to recover the moneys paid to the Individual Defendants, there is no gap in ERISA that requires the creation of a federal common law claim.³

A. Federal Common Law Claims Under ERISA

Courts are extremely reluctant to create ERISA causes of action by implication in addition to those enumerated in the statute. UIU Severance Pay Trust Fund v. Local Union No. 18-U, United Steelworkers of America, 998 F.2d 509, 512 (7th Cir.1993). This reluctance derives from the fact that ERISA embodies an interlocking, interrelated, and interdependent remedial scheme, which is in turn part of a comprehensive statute. Nachman Corp. v. Pension Benefit Guaranty Corp., 446 U.S. 359, 361, 100 S.Ct. 1723, 1726, 64 L.Ed.2d 354 (1980). Courts are reluctant to tamper with ERISA's enforcement scheme because it has been carefully crafted by Congress. Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 145, 105 S.Ct. 3085, 3092, 87 L.Ed.2d 96 (1985).

Under certain limited circumstances, it is appropriate for courts to develop a federal common law of ERISA. UIU Severance Pay Trust Fund, 998 F.2d at 512. In that ERISA preempts all state law relating to employee benefit plans, 29 U.S.C. § 1144, plaintiffs must rely upon federal common law for claims traditionally brought under state law. Id. "The legislative history demonstrates that Congress intended federal courts to develop federal common law in fashioning" additional appropriate rights under ERISA. Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 156, 105 S.Ct. 3085, 3097, 87 L.Ed.2d 96 (1985) (Brennan, J. concurring). As a result, courts develop federal common law to fill the gaps.

When creating additional ERISA rights under federal common law, the inquiry is whether the judicial creation of a right is "necessary to fill in interstitially or otherwise effectuate the statutory pattern enacted in the large by Congress." Plucinski v. I.A.M. National Pension Fund, 875 F.2d 1052, 1056 (3d Cir.1989). "[F]ederal courts should not lightly create additional ERISA rights under the rubric of federal common law." Id. After applying the first prong of the test determining whether the federal common law claim is necessary, courts then ask whether the particular cause of action furthers the purpose of ERISA. Id. at 1057.

Courts have supplemented ERISA with federal common law...