Spires v. Schools

• Decision Date: 19 September 2017
• Docket Number: Civil Action No. 2: 16–616–RMG
• Citation: 271 F.Supp.3d 795
• Parties: Dana SPIRES, et al., Plaintiffs, v. David R. SCHOOLS, et al., Defendants.
• Court: U.S. District Court — District of South Carolina

271 F.Supp.3d 795

Dana SPIRES, et al., Plaintiffs,

v.David R. SCHOOLS, et al., Defendants.

Civil Action No. 2: 16–616–RMG

United States District Court, D. South Carolina, Charleston Division.

Signed September 19, 2017

Alice W. Parham Casey, John C. Moylan, III, Wyche Law Office, Columbia, SC, Christopher Braden Schoen, Eric Bauman Amstutz, Henry L. Parr, Jr, Wade S. Kolb, III, Wyche Law Office, Greenville, SC, David J. Ko, Pro Hac Vice, Erin M. Riley, Pro Hac Vice, Keller Rohrback LLP, Seattle, WA, Gary A. Gotto, Pro Hac Vice, Keller Rohrback, Phoenix, AZ, for Plaintiffs.

Andrew David Salek–Raham, Pro Hac Vice, Lars C. Golumbic, Pro Hac Vice, Mark L. Bieter, Pro Hac Vice, Natasha S. Fedder, Pro Hac Vice, Sarah M. Adams, Pro Hac Vice, Sean C. Abouchedid, Pro Hac Vice, Groom Law Group, Washington, DC, Lovic A. Brooks, III, Brooks Law Firm, Monica Kay Bracey, Janik LLP, Columbia, SC, Steven G. Janik, Janik LLP, Hilton Head Island, SC, Brian C. Duffy, Duffy and Young, Thomas Ashley Limehouse, Jr., Office of the Governor, Charleston, SC, for Defendants.

ORDER AND OPINION

Richard Mark Gergel, United States District Court JudgeThis matter is before the Court on Defendants William A. Edenfield, Robert G. Masche, Joseph T. Newton, III, Burton R. Schools, David R. Schools, the Piggly Wiggly Carolina Company, Inc., and the Greenbax Enterprises, Inc., Employee Stock Ownership Plan and Trust Committee (collectively the "Piggly Wiggly Defendants") motion to dismiss (Dkt. No. 59) and Defendants Joanne Newton Ayers and Marion Newton Schools (collectively the "Noteholder Defendants") motion to dismiss (Dkt. No. 66). For the reasons set forth below, the Court grants in part and denies in part the Piggly Wiggly Defendants' motion to dismiss, and denies the Noteholder Defendants' motion to dismiss.

I. Background

Plaintiffs are former employees of Piggly Wiggly Carolina Company, Inc. ("PWCC") or Greenbax Enterprises, Inc. (collectively, the "Company"). They are participants in the PWCC and Greenbax Employee Stock Ownership Plan and Trust (the "Plan") and assert various claims under the Employee Retirement Income Security Act of 1974 ("ERISA"), Pub. L. 93–406, 88 Stat. 829, for themselves and for others similarly situated. (Dkt. No. 50 ¶¶ 19–22.) Since September 2005, the Plan has owned approximately 99.5% of the outstanding stock of Greenbax, and Greenbax owns 100% of the outstanding stock of PWCC. (Id. ¶¶41, 55.) The Plan was established in 1985 "to reward, motivate, and provide retirement benefits" for the Plan's participants, who are current or former employees of the Company. (Dkt. No. 59–1 at 4.) The value of the stock and cash held by the Plan determined what funds were available in the Plan for participants' retirement. The value of the Plan's assets was determined primarily by the value of the Company stock held by the Plan. (Dkt. No. 50 ¶ 41.) The value of the Company stock held by the plan was established annually by appraisal, based on the Company's results of operations and financial condition. (Id. ¶¶ 46, 84–93.)

Defendants Robert G. Masche, William Edenfield, Joseph T. Newton, III, Burton R. Schools, and David R. Schools (the "Fiduciary Defendants") allegedly controlled the Company's board of directors, were the Company's top executives, and controlled the "Plan Committee," which directed the voting of Company stock held by the Plan. (Id. ¶¶ 23–28, 45.) Plaintiffs allege that the Fiduciary Defendants used their positions to enrich themselves by draining assets from the Company through excessive compensation and various insider dealings and that the Fiduciary Defendants engaged in "gross mismanagement." (Id. § III.) According to Plaintiffs, the losses created by the Fiduciary Defendants caused lenders to require repayment of outstanding loans and to decline to extend additional credit, ultimately forcing the Company to sell substantially all its assets, which in turn destroyed the value of Company stock held by the Plan. (Id. ¶¶ 171–75, 202–07.) Plaintiffs further allege the Fiduciary Defendants deliberately concealed the true causes of the Company's financial losses from Plan participants. (Id. ¶¶ 74–79, 99, 101, 103.)

Plaintiffs also allege that the Fiduciary Defendants improperly moved assets from the Company to the Noteholder Defendants, who allegedly are Company insiders or family members of Company insiders. (Id. § IV.C.) The Noteholder Defendants had made loans to the Plan for the purchase of company stock, which were guaranteed by the Company. (Id. ) In March 2014, the Company purchased the notes from the Noteholder Defendants for approximately $8.3 million in cash (which was less than the outstanding principal amount remaining on the notes). (Id. ). Under ERISA, loans guaranteed by a party-in-interest must be without recourse to Plan assets other than unallocated Company shares pledged as security (i.e., the shares purchased with the loans). 29 C.F.R. § 2550.408b–3(e). According to Plaintiffs, in March 2014 those shares were worth approximately $4.2 million. (Dkt. No. 50 § IV.C.) Plaintiffs allege the difference between the amount paid to the Noteholder Defendants and the value of the security available to them—approximately $4 million—was an improper transfer of Company assets to insiders and a transaction prohibited under ERISA.

Plaintiffs allege Company management and directors eventually agreed to wind down the company and to sell substantially all the Company's remaining assets to C & S Wholesale Grocers, Inc. on September 4, 2014. (Id. ¶ 225.) The sale and winding down was approved on December 12, 2014. (Id. ¶ 233.)

On February 26, 2016, Plaintiffs filed the present putative class action, asserting six causes of action against Defendants. In count one, Plaintiffs allege the Fiduciary Defendants breached their fiduciary duties under ERISA. The Fiduciary Defendants necessarily were aware of their own conduct in their capacities as Company executives. Had they acted properly in their fiduciary capacities, according to Plaintiffs, the Fiduciary Defendants would have exercised the Plan's voting rights to install independent management not engaged in the malfeasance Plaintiffs ascribe to the Fiduciary Defendants. In count two, Plaintiffs allege the Fiduciary Defendants breached their fiduciary duties under ERISA by failing to bring a derivative action against the Company's management and board of directors. In count three, Plaintiffs allege co-fiduciary liability under 29 U.S.C. § 1105 against the Fiduciary Defendants. In count four, Plaintiffs allege the Fiduciary Defendants engaged in transactions prohibited by 29 U.S.C. § 1106. In count five, Plaintiffs seek equitable relief against all Defendants.

On June 20, 2016, the Piggly Wiggly Defendants (all Defendants other than the Noteholder Defendants) moved to dismiss the amended complaint. The Piggly Wiggly Defendants argue that Plaintiffs' claims are time barred under 29 U.S.C. § 1113, that the actions Plaintiffs complain of were corporate acts unrelated to the Plan, that Plaintiffs fail to meet the pleading standard for a stock-drop claim set forth in Fifth Third Bancorp v. Dudenhoeffer , ––– U.S. ––––, 134 S.Ct. 2459, 189 L.Ed.2d 457 (2014), that Plaintiffs lack standing because they suffered no injury-in-fact, and that Plaintiffs fail to allege prohibited transactions. The Noteholder Defendants moved to dismiss on June 23, 2016, arguing that the transaction Plaintiffs complain of did not involve the Plan or Plan assets, and that Defendant Joanne Newton Ayers is not a party-in-interest under ERISA.

II. Legal Standard

Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the dismissal of an action if the complaint fails "to state a claim upon which relief can be granted." Such a motion tests the legal sufficiency of the complaint and "does not resolve contests surrounding the facts, the merits of the claim, or the applicability of defenses.... Our inquiry then is limited to whether the allegations constitute ‘a short and plain statement of the claim showing that the pleader is entitled to relief.’ " Republican Party of N.C. v. Martin , 980 F.2d 943, 952 (4th Cir. 1992) (quotation marks and citation omitted). In a Rule 12(b)(6) motion, the Court is obligated to "assume the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations." E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship , 213 F.3d 175, 180 (4th Cir. 2000). However, while the Court must accept the facts in a light most favorable to the non-moving party, it "need not accept as true unwarranted inferences, unreasonable conclusions, or arguments." Id.

To survive a motion to dismiss, the complaint must state "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although the requirement of plausibility does not impose a probability requirement at this stage, the complaint must show more than a "sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). A complaint has "facial plausibility" where the pleading "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

III. Discussion

A. Statute of Limitations

The argument that a statute of limitations bars a claim is an affirmative defense. Fed. R. Civ. P. 8(c)(1). Affirmative defenses may be raised on a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure when "the face of the complaint clearly reveals the existence of a meritorious affirmative defense." Brooks v. City of Winston–Salem, N.C., 85 F.3d 178, 181 (4th Cir. 1996). When ruling on an affirmative defense raised in a Rule 12(b)(6) motion, courts "accept[ ] as true the well-pleaded facts in the complaint and view[ ] them in the light most favorable to the plaintiff." Id. E...