Spear v. Fenkell, CIVIL ACTION NO. 13-02391
Decision Date | 12 June 2015 |
Docket Number | CIVIL ACTION NO. 13-02391 |
Court | U.S. District Court — Eastern District of Pennsylvania |
Parties | SPEAR, et al. v. FENKELL, et al. |
MEMORANDUM
Plaintiffs1 and Third-Party Defendants2 (the "Alliance Parties") have filed a motion to dismiss a number of counterclaims and third-party claims asserted by the defendants and third-party plaintiffs (the Fenkell Parties).3 Doc. No. 231. The Fenkell Parties have responded (Doc. No. 238), and I held oral argument on the motion on April 22, 2015. The motion covers a variety of counterclaims and third-party claims, and it is helpful to mention and briefly describe those claims at the outset before going through them one by one.
The first counterclaim is for contractual indemnification against Alliance Holdings, Inc. (Alliance), AH Transition Corp. (AH Transition) and AHI Inc. (AHI). The first third-party claim is for contractual indemnification claims against Alliance only. Footnote 1 of the third-party complaint explains that there was doubt about the status of Alliance Holdings, Inc., because the amended complaint purported to pursue claims of Alliance Holdings, Inc. as a fiduciary of the Alliance ESOP, but in fact seemed to assert claims on the part of Alliance in its own capacity. Doc. No. 214, at 2 n.1. For this reason the Fenkell Parties also filed a third-party claim against Alliance, on its own behalf and not as a fiduciary.
These are contribution claims against plaintiffs Alliance, AHI, AH Transition and Barbie Spear, by counterclaim, and third-party defendants Alliance (see Doc. No. 214, at 2, n.1), Barbie Spear (in her individual capacity), Kenneth Wanko and Eric Lynn, by third-party complaint.
These claims assert that, assuming Alliance assets were ESOP assets, there were three different prohibited transactions involving Barbie Spear, in violation of 29 U.S.C. § 1106(a), ERISA § 406(a)(1)(D).
The fourth (and last) counterclaim, against Spear and Alliance, asserts that the current lawsuit is a prohibited transaction under 29 U.S.C. § 1106(b), ERISA § 406(b).
The claim asserts that third-party defendants Kenneth Wanko, Eric Lynn and several Doe Defendants engaged in a variety of violations of 29 U.S.C. §§ 1106(a) ( ) and 1106(b) (fiduciary transactions).
This claim alleges that Spear, Wanko, Lynn and Doe Defendants knowingly participated in prohibited transactions in violation of 29 U.S.C. § 1132(A)(3).
The Fenkell Parties assert that Alliance directors, including Wanko, Spear and several others, failed to monitor Ms. Spear in her capacity as named Trustee. See, e.g. Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1464-66 (4th Cir. 1996) ( ).
The claim seeks declaratory judgment against Spear, Wanko and outside directors to the effect that they are not entitled to indemnification.
David Fenkell, as an ESOP plan participant, asserts a shareholder derivative claim on behalf of the Alliance ESOP against current Alliance directors for an alleged breach of their fiduciary duty under Pennsylvania law for bringing this lawsuit.
David Fenkell, as an ESOP participant, claims that Spear had a duty as an ERISA fiduciary to bring the shareholder derivative suit elaborated upon in the tenth third-party claim (Doc. No. 214, ¶¶ 165-174). Fenkell also claims that other directors breached their fiduciary duty to monitor Spear to ensure that she brought the derivative action. Id. Finally, Fenkell claims that directors and officers knowingly participated in Spear's breaches. Id.
The Alliance Parties ask that all claims for equitable relief by David Fenkell be dismissed because of unclean hands. Doc. No. 231-2, at 51-52 (ECF page references).
Federal Rule of Civil Procedure 12(b)(6) permits a court to dismiss all or part of an action for "failure to state a claim upon which relief can be granted." Because this motion deals with a wide variety of substantive claims, I will discuss the legal standards that pertain to the individual claims when I discuss each claim in detail.
Plaintiffs claim that the counterclaims and third-party claims have not adequately stated a claim for relief, under Ashcroft v. Iqbal, 556 U.S. 662 (2009), Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Fowler v. UPMC Shadyside, 578 F.3d 203 (3d Cir. 2009). Doc. No. 231-2, at 16. Typically, "a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations," though plaintiff's obligation to state the grounds of entitlement to relief "requires more thanlabels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. "Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all of the allegations in the complaint are true (even if doubtful in fact)." Id. (citations omitted). This "simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of" the necessary element. Id. at 556.
The Third Circuit Court of Appeals has made clear that after Iqbal Fowler, 578 F.3d at 210, quoting Iqbal, 556 U.S. at 678. The Court also set forth a two part-analysis for reviewing motions to dismiss in light of Twombly and Iqbal:
[f]irst, the factual and legal elements of a claim should be separated. The District Court must accept all of the complaint's well-pleaded facts as true, but may disregard any legal conclusions. Second, a District Court must then determine whether the facts alleged in the complaint are sufficient to show that the plaintiff has a "plausible claim for relief."
Id. at 210-11, quoting Iqbal, 556 U.S. at 679. The Court explained that Id. (citing Phillips v. Cnty. of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008) ("[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it hasnot 'show[n]'-'that the pleader is entitled to relief.'" Iqbal, 556 U.S. at 679, quoting Fed. R. Civ. P. 8(a)(2).
Assuming the well-pleaded facts in the counterclaim and third-party claim to be true, as I must under Iqbal, Twombly, and Fowler, I will grant a portion of the relief sought by plaintiff, deny the motion as to the balance of the indemnification claims, and stay the remaining indemnification claims until they mature.
As alleged in paragraph 22 of the Second Amended Third-Party Claim, Fenkell had an employment agreement with Alliance (not the Alliance ESOP) under paragraph 21 of which he is entitled to indemnification for expenses incurred as a PlanAdministrator, and specifically for expenses incurred as a result of the Chesemore litigation. Doc. No. 214, at 9, ¶ 22. The plaintiff's argument is focused on whether the Alliance By-Laws and the Alliance ESOP plan documents permit indemnification (see Doc. No. 231-2, at 17-22), and mentions the employment agreement only once, in passing. Doc. No. 231-2, at 17.5 The motion asks me to dismiss all indemnification claims in their entirety. Id.
Plaintiff's motion asserts that Pennsylvania law prohibits indemnification "in any case where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness." Doc. 231-2, at 20 (citing to Pa. C.S.A. § 1746(b) and Brown v. Creative Collections, Inc. No. 01-2809, 2002 WL 32345937, at *3 (E.D. Pa. June 10, 2002) ( ). This ground for dismissal would apply to Fenkell's indemnification claims under his employment contract, although the employment contract is not mentioned at the point in plaintiffs' brief where the Pennsylvania policy is discussed. See Doc. No. 231-2, at 20.
Fenkell has been judged to have breached his fiduciary duties only with respect to the 2007 Trachte deal, which was the subject of the Chesemore litigation. His claims forindemnification in this case go well beyond the Chesemore litigation. See Doc. 214, ¶ 25 ( ).
Fenkell simply does not engage on the issue of...
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