Taunt v. Coenen (In re Trans-Industries, Inc.), Case No. 06-43993

• Docket Number: Adv. Pro. No. 07-6790,Case No. 06-43993
• Decision Date: 25 September 2015
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Eastern District of Michigan
• Parties: In re: TRANS-INDUSTRIES, INC., et al., Debtors. CHARLES J. TAUNT, TRUSTEE, Plaintiff, v. JOAN PARKER COENEN, in her capacity as representative of the estate of Dale S. Coenen, deceased, et al., Defendants.

In re: TRANS-INDUSTRIES, INC., et al., Debtors.

CHARLES J. TAUNT, TRUSTEE, Plaintiff,
v.
JOAN PARKER COENEN,
in her capacity as representative of the estate of
Dale S. Coenen, deceased, et al., Defendants.

Case No. 06-43993
Adv. Pro. No. 07-6790

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MICHIGAN SOUTHERN DIVISION

September 25, 2015

Chapter 7
(Jointly Administered)¹
Judge Thomas J. Tucker

OPINION REGARDING CROSS-MOTIONS FOR SUMMARY JUDGMENT

I. Introduction

Among other things, this adversary proceeding raises a number of statute of limitation issues, which arose after a Chapter 7 bankruptcy trustee sued former pension plan fiduciaries for breach of fiduciary duty under Employee Retirement Income Security Act of 1974 ("ERISA"). This opinion discusses such issues, and the interplay and interpretation of Bankruptcy Code § 108(a) (11 U.S.C. § 108(a)), and ERISA's statute of limitations, 29 U.S.C. § 1113.

In this adversary proceeding, the Chapter 7 Trustee has asserted multi-million dollar

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breach of fiduciary duty claims against Dale S. Coenen ("Coenen") and Kai R. Kosanke ("Kosanke"), two alleged fiduciaries of the Debtor Trans-Industries, Inc.'s pension plan - the "Trans-Industries, Inc. Employees' 401[(k)] Profit Sharing Plan & Trust" (the "Plan").² The Trustee brings these claims under ERISA, in his capacity as successor to the Debtor, in its capacity as plan administrator of the ERISA Plan, based on 11 U.S.C. § 704(a)(11). The breach of fiduciary duty claims are based on (1) the Plan's purchase of 19,000 shares of Series A Preferred Stock of Trans-Industries, Inc. on June 5, 2001 (the "June 5, 2001 Transaction") (the "Acquisition Claim"); (2) the Plan's retention of that preferred stock for a period of several years thereafter, and the Plan's retention of the Debtor's common stock allegedly in amounts too great and for too long (the "Retention Claims"); and (3) a series of transactions between the Plan, Debtor, Coenen, and Fields in 2005, which resulted in Coenen and Fields receiving lump sum cash distributions of the entire amount of their vested interests in the Plan, and which left the Plan unable to satisfy its obligations to all of the other Plan participants (the "Distribution Claim").

This adversary proceeding is before the Court on (1) the Trustee's motion for summary judgment against both Defendants, Coenen and Kosanke (Docket # 286), and (2) Defendant Coenen's motion for summary judgment (Docket # 278). The summary judgment motions raise statute of limitations issues, and other issues. And by previous order, the Court allowed Defendant Kosanke to "join" Coenen's summary judgment motion, but only with respect to

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Coenen's arguments about the statute of limitations.³ So the Court deems Kosanke to have moved for summary judgment on that basis. In referring to Coenen's motion, this opinion should be deemed also to refer to Kosanke's joinder of that motion, with respect to the statute of limitations issues.

After the Court held a hearing on the summary judgment motions, the original Chapter 7 Trustee and Plaintiff, David S. Allard, died. After Charles J. Taunt was appointed the successor Chapter 7 Trustee, the Court ordered that he be substituted as Plaintiff in this adversary proceeding.⁴

Also after the hearing on the motions, Defendant Dale S. Coenen died. On motion of the Trustee, the Court ordered that Coenen's widow, Joan Parker Coenen, be substituted as Defendant in place of Dale S. Coenen, but "only in her capacity as representative of the estate of Dale S. Coenen, and not in her personal capacity."⁵ References in this opinion to "Coenen" are to the late Dale S. Coenen, unless otherwise noted.

For the reasons stated in this opinion, the Court will grant Coenen's motion for summary judgment on the Acquisition Claim, and on any Retention Claims that are based on actions or inactions that occurred before December 14, 2001, based on the statute of limitations. This

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ruling also will apply to the Trustee's claims against Kosanke. The Court also will grant summary judgment for Coenen, on any claims based on actions or inactions that occurred on or after November 16, 2005, when Coenen ceased being a Plan fiduciary. (This part of the Court's ruling does not apply to Kosanke). In all other respects, the Court will deny Coenen's motion.

The Court will deny the Trustee's motion for summary judgment in its entirety. A trial will be required on the Trustee's Retention Claims, to the extent they are not barred by the statute of limitations, and on the Trustee's Distribution Claim.

II. Facts

A. Background

Unless otherwise noted, the facts stated in this opinion are not in dispute. Trans-Industries, Inc. was "formed . . . sometime in the late [19]60s for the sole purpose of acquiring Transign[, Inc.]."⁶ From its inception, until he was forced to resign in March 2005, Coenen was Chief Executive Officer ("CEO"), a Director, and Chairman of the Board of Directors of Trans-Industries, Inc. (the "Board").⁷ Although Coenen was forced to resign as CEO and Chairman of the Board in March 2005, he remained a Director until November 2005.⁸ Kosanke was Chief Financial Officer ("CFO"), Vice President, and Treasurer of Trans-Industries, Inc. from 1989 until he left the company in April 2006.⁹ Fields worked in several positions for Transign, Inc.

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both prior to and after its acquisition by Trans-Industries, Inc. He was the President of Transign, Inc. at the time he was fired in August 2004.¹⁰

B. The Trans-Industries, Inc. Plan

In 1989, Trans-Industries, Inc. created the "Trans-Industries, Inc. Employees' 401[(k)] Profit Sharing Plan and Trust."¹¹

1. The Plan's purchase of Trans-Industries, Inc. Series A Preferred Stock (the June 5, 2001 Transaction)

On June 5, 2001, when Trans-Industries, Inc. was experiencing operating losses and the possibility of not being able to continue operations, and needed to raise capital, the Board unanimously approved a consent agreement authorizing Trans-Industries, Inc. to issue 19,000 shares of Series A Preferred Stock to the Plan at a cost of $100 per share, for a total of $1.9 million.¹² The Series A Preferred Stock was not publicly traded; had "[a] cumulative dividend rate of $8.25 per share (or 8.25% per annum) . . . payable on the last day of May and November each year;" had a higher priority than the common stock in the payment of dividends or in a liquidation; and was "redeemable at the discretion of the Board of Directors . . . [for] $100 per

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share plus all accumulated dividends."¹³

Before the Plan paid Trans-Industries, Inc. the $1.9 million to purchase the Series A Preferred Stock, no valuation study of the stock was performed. It was not until more than two years later, on October 16, 2003, that such a valuation study was completed by Amherst Capital Partners, L.L.C. ("Amherst"). Amherst valued the Series A Preferred Stock at $1,964,879 as of December 31, 2002, and at $1,906,671 as of June 30, 2003.¹⁴ The valuation relied on financial information that Trans-Industries, Inc. provided to Amherst, including "the book values [of assets] contained in the audited statements of [Trans-Industries, Inc.]," and the fact that "management ha[d] indicated a desire to complete redemption of the preferred shares over the 2004-2005 time frame."¹⁵ Amherst's valuation study noted that Trans-Industries, Inc. had not been paying dividends on the Series A Preferred Stock. Based on that fact, Amherst compared the Series A Preferred Stock to publicly-traded preferred stocks not paying dividends. Amherst's valuation study stated, in relevant part:

The quantity of comparable, publicly traded preferred stocks that are not paying dividends is quite limited. Of the 75 preferred stocks listed in Attachment F that have suspended dividend payment, the majority of the firms are in bankruptcy (e.g., Enron, Worldcom) and have minimal chance of paying significant amounts out to the preferred shareholders. These stocks trade at distressed values that are a fraction of the total book value of the liquidation preference and accrued dividends.

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Only a small number of shares have maintained value after suspension of dividends. These shares belong to companies where financial difficulties are being encountered, but the market believes substantial payment of the amount due will be made at some undetermined future date.¹⁶

2. The Plan after it was amended in 2004

On January 11, 2004, the Plan was amended, with an effective date of January 1, 2003.¹⁷ Kosanke and Coenen executed various documents that amended the Plan, including the "Adoption Agreement for The Benefit Advantage, Inc. Non-Standardized 401(k) Profit Sharing Plan and Trust" (the "Adoption Agreement").¹⁸ Kosanke had the opportunity to review the Adoption Agreement before he signed it.¹⁹ The Adoption Agreement, states that "Kai Kosanke" and "Dale S. Coenen" would "serve as discretionary Trustee(s) over assets not subject to control by a corporate Trustee."²⁰

The Summary Plan Description, which all of the participants of the Plan received, also

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listed Coenen and Kosanke as Trustees of the Plan, under the heading "Trustee Information."²¹ The Plan names the "Employer" (Trans-Industries, Inc.) as the Plan Administrator.²²

Paragraph 7.2(a) of the Plan provides, in relevant part, that

if the Employer in the Adoption Agreement . . . designates the Trustee to administer all or a portion of the trust as a discretionary Trustee . . . then the Trustee has the discretion and authority to invest, manage, and control those Plan assets except . . . those assets which are subject to the investment direction of a Participant . . . or an Investment Manager, the Administrator, or other agent appointed by the Employer."²³

Paragraph 7.9 of the Plan is entitled "Annual Report of the Trustee" and requires "the Trustee or its agent" to prepare an annual

written statement of account with respect to the Plan Year . . . setting forth:

(1) the net income, or loss, of the

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