United States District Court, D. South Carolina, Charleston Division
ORDER AND OPINION
RICHARD MARK GERGEL, UNITED STATES DISTRICT COURT JUDGE
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.
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.)
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.)
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.
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.)
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
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, 134 S.Ct. 2459
(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.
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.
survive a motion to dismiss, the complaint must state
"enough facts to state a claim to relief that is
plausible on its face." Bell Ail. Corp. v.
Twombly, 550 U.S. 544, 570 (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 (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.
Statute of Limitations
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.
ERISA's statute of limitations provides,
No action may be commenced under this subchapter with respect
to a fiduciary's breach of any responsibility, duty, or
obligation under this part, or with respect to a violation of
this part, after the earlier of-
(1) six years after (A) the date of the last action which
constituted a part of the breach or violation, or (B) in the
case of an omission the latest date on which the fiduciary
could have cured the breach or violation, or
(2) three years after the earliest date on which the
plaintiff had actual knowledge of the breach or violation;
except that in the case of fraud or concealment, such action
may be commenced not later than six years after the date of
discovery of such breach or violation.
29 U.S.C. § 1113.
Piggy Wiggly Defendants argue any action for breach of
fiduciary duties accrued in 2007 because that is when,
according to the complaint, Greenbax stock began its decline
in price, which was reported on publicly available Form
5500s. (Dkt. No. 59-1 at 9-11.) Thus, according to the Piggy
Wiggly Defendants, Plaintiffs access to the "exact same
information" that, according to Plaintiffs, should have
forced the Piggly Wiggly Defendants to take action to replace
Company management. (Id.) Because Plaintiffs knew
the Piggly Wiggly Defendants did not replace Company
management, Plaintiffs had actual knowledge of their
purported breach of fiduciary duty more than three years
before the present action was commenced.
Piggly Wiggly Defendants' argument is unpersuasive.
"Actual knowledge" means "knowledge of all
material facts necessary to understand that an ERISA
fiduciary has breached his or her duty." In re
Citigroup ERISA Litig., 104 F.Supp.3d 599, 610 (S.D.N.Y.
2015). Plaintiffs have not alleged that in 2007
they had actual knowledge of facts necessary to understand
that the Plan Committee members had breached their fiduciary
duties. Plaintiffs doubtless were aware of the beginning of
the drop in Greenbax stock price and the failure to replace
management as soon as it began, but these are not the
fiduciary breaches Plaintiffs allege. Plaintiffs allege the
Plan Committee members failed to take action in response to
improper insider transactions and other specific acts of
management malfeasance, of which the Plan Committee had
actual knowledge. (E.g., Dkt. No. 50 ¶¶
129-68.) Plaintiffs also allege those transactions were
undisclosed or concealed from Plan participants.
(E.g., id. ¶¶
74-79.) Plaintiffs do not allege that they had
actual knowledge of those transactions more than six years
before the commencement of this action. The truth of
Plaintiffs' allegations, and, if they are true, the dates
on which they occurred and the dates on which Plaintiffs
learned of them, are factual questions the Court cannot
decide on a motion to dismiss.
Piggly Wiggly Defendants also raise a cursory argument that
the alleged fiduciary breaches were complete more than six
years before this action was filed. (See Dkt. No.
59-1 at 11-12). That argument likewise is unpersuasive. The
alleged breach of fiduciary duties in count one is an
omission-the failure to take action to remedy managerial
malfeasance. (Dkt. No. 50 ¶ 254.). The statutory
six-year period for a breach by omission accrues from
"the latest date on which the fiduciary could have cured
the breach or violation." 29 U.S.C. § 1113.
Plaintiffs have not alleged that the latest date on which the
Plan Committee could have saved Plan asset value by replacing
Company management was before February 2010. Further, they
allege deliberate concealment, which extends the limitations
period to six years "after the date of discovery of such
breach or violation." Id.
when the "last action which constituted a part of the
breach" occurred, when "the fiduciary could have
cured the breach, " whether Defendants engaged in
"fraud or concealment, " and when "the
plaintiff had actual knowledge of the breach" are
disputed questions of fact. The Court therefore denies the
Piggly Wiggly Defendant's motion to dismiss as to the
statute of limitations argument, without prejudice to their
ability to argue a statute of limitations defense after
Fiduciary Duties Versus Corporate Acts
imposes a stringent fiduciary standard on plan fiduciaries:
[A] fiduciary shall discharge his duties with respect to a
plan solely in the interest of the participants and
(A) for the exclusive purpose of:
(i) providing benefits to participants and their
(ii) defraying reasonable expenses of administering the plan;
(B) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the
conduct of an ...