Pioneer Centres Holding Company Employee Stock Ownership Plan and Trust, The v. Alerus Financial, N.A. et al

Filing 195

AMNEDED ORDER re: 193 Order on Motion to remove trustees. See attached document. by Magistrate Judge Boyd N. Boland on 1/8/2014. (trlee, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Magistrate Judge Boyd N. Boland
Civil Action No. 12-cv-02547-RM-BNB
THE PIONEER CENTRES HOLDING COMPANY EMPLOYEE STOCK OWNERSHIP
PLAN AND TRUST, AND ITS TRUSTEES,
MATTHEW BREWER,
ROBERT JENSEN, and
SUSAN DUKES,
Plaintiffs,
v.
ALERUS FINANCIAL, NA, and
BERENBAUM WEINSHIENK, PC,
Defendants,
and
ALERUS FINANCIAL, N.A.,
Third-Party Plaintiff and Counterclaim Plaintiff,
v.
MATTHEW BREWER,
ROBERT JENSEN,
SUSAN DUKES,
PIONEER CENTRES HOLDING COMPANY, and
RICHARD EASON,
Third-Party Defendants and Counterclaim Defendants.
______________________________________________________________________________
AMENDED ORDER
______________________________________________________________________________
This matter arises on Defendant Alerus’s Motion and Supporting Memorandum to
Remove Plan Trustees and Appoint Trustee Ad Litem for Purposes of This Litigation [Doc.
# 25, filed 12/7/2012] (the “Motion to Remove Trustees”), which is DENIED.

This Amended Order supersedes and replaces the Order [Doc. # 193], which is
WITHDRAWN. This Amended Order is necessitated by the fact that the previous Order [Doc. #
193] failed to recognize the pendency of Alerus Financial, N.A.’s Third-Party Complaint and
Counterclaims [Doc. # 64].
The plaintiffs are an Employee Stock Ownership Plan and Trust (the “ESOP”), acting
through its trustees, Matthew Brewer (“Brewer”), Robert Jensen (“Jensen”), and Susan Dukes
(“Dukes”).1 Defendant Alerus is a national banking association which acted as an independent
fiduciary to the ESOP concerning whether the ESOP should enter into the Acquisition
Transaction and Plan by which the ESOP would acquire sole ownership of Pioneer Centres
Holding Company (“Pioneer”). Pioneer owned and operated franchised automobile dealerships
in Colorado and California.
In 2007, Brewer, the majority shareholder of Pioneer, indicated his desire that the ESOP
acquire all of his stock in Pioneer, resulting in the ESOP owning the company. The Acquisition
Transaction and Plan was drafted and negotiations were commenced. Because of perceived
conflicts of interest involving Brewer, Jensen, and Dukes, Alerus was appointed as a
“transactional trustee” for the purpose of reviewing, analyzing, and making a determination as to
whether the ESOP should approve, consent to, and/or otherwise engage in the Acquisition
Transaction and Plan.
Ultimately, the ESOP did not enter into the Acquisition Transaction and Plan. The
plaintiffs claim that the failure of that transaction was caused by Alerus’ unjustified insistence
that Brewer, as seller, give “unconditional and detailed representations and warranties regarding

1

Brewer, Jensen, and Dukes are referred to collectively as the “Trustees.”
2

Pioneer and its businesses. . . .” Response [Doc. # 55] at p. 10.
In December 2011, Pioneer sold substantially all of its assets to a third-party purchaser,
Kuni Enterprises, at a substantially higher price. This action followed, in which the plaintiffs
claim that Alerus breached its fiduciary duty to the ESOP by continuing to demand that Brewer
make unnecessary representations and warranties in connection with the ESOP’s purchase of his
shares. The plaintiffs claim damages in the form of a lost opportunity because the ESOP could
have purchased Brewer’s stock at a substantial discount as compared to the price paid by Kuni.
Alerus denies that it breached any duty to the ESOP. It alleges, however, that if it
breached a duty, so did the Trustees. According to Alerus:
Brewer and his two co-Trustees contend that Alerus breached its
fiduciary duties to the ESOP by not giving in to Brewer’s demands
during negotiations. Of course the Trustees, being the parties with
whom Alerus was negotiating when it refused to agree to Brewer’s
proposed qualified representations and warranties, were fully
aware of Alerus’s position at the time Alerus took it. . . .
If, as the Trustees contend, Alerus breached its fiduciary duty by
refusing to acquiesce to Brewer’s terms, then the Trustees (as cofiduciaries) were duty-bound under ERISA to take reasonable
action to remedy that breach. . . . But the Trustees took no such
action, and instead proceeded to sell the Company to another
buyer.
Motion to Remove Trustees [Doc. # 25] at p. 10.
Alerus seeks an order removing the Trustees, arguing:
In sum, if Alerus breached its fiduciary duty to the ESOP, then the
Trustees did as well by violating their co-fiduciary responsibilities.
Consequently, should this action proceed, the Trustees must be
disqualified from bringing this action on behalf fo the ESOP,
because ERISA bars a plan fiduciary from actively participat[ing]
in the decision-making process concerning whether to pursue legal
remedies against himself.

3

Id. at p. 3 (internal quotation and citation omitted).
The parties have submitted substantial briefing focusing largely on the issues of whether
Alerus breached its duty; whether the Trustees were co-fiduciaries in connection with matters
relating to the Acquisition Transaction and Plan; and whether the Trustees breached their duty
to the ESOP. Those matters, which go directly to the merits of the case, are not necessary to the
resolution of the Motion to Remove Trustees, and I will not attempt to anticipate how they may
be answered.
I agree with the plaintiffs that Alerus lacks standing to seek the removal of the Trustees
and the appointment of a trustee ad litem. The ESOP is governed by the Employee Retirement
Income Security Act (“ERISA”). Section 1109(a), 29 U.S.C., of ERISA provides:
Any person who is a fiduciary with respect to a plan who breaches
any of the responsibilities, obligations, or duties imposed upon
fiduciaries by this title shall be personally liable to make good to
such plan any losses to the plan resulting from each such breach,
and to restore to such plan any profits of such fiduciary which have
been made through use of assets of the plan by the fiduciary, and
shall be subject to such other equitable or remedial relief as
the court may deem appropriate, including removal of such
fiduciary.
(Emphasis added.) Suit under § 1109(a) may be brought only by a limited category of plaintiffs,
however: “the Secretary [of the Department of Labor], or by a participant, beneficiary or
fiduciary for appropriate relief under [29 U.S.C. § 1109].” 29 U.S.C. § 1132(a)(2). Former plan
fiduciaries, like Alerus, have no standing to seek relief under § 1109, including no standing to
seek the removal of a fiduciary. Blackmar v. Lichtenstein, 603 F.2d 1306, 1310 (8th Cir. 1979)
(holding that a former trustee, once replaced, “ceased to be a fiduciary and no longer had the
capacity to sue for violations which may have occurred under this title,” including no capacity to

4

challenge the appointment of new trustees appointed for the express purpose of precluding suit
against the employer-sponsor of a benefit plan). Accord Chemung Canal Trust Co. v. Sovran
Bank/Maryland, 939 F.2d 12, 14 (2d Cir. 1991) (holding that “29 U.S.C. § 1132(a) specifies
those who may bring actions under ERISA and the types of actions each may pursue” and that
“[t]here is no indication of any legislative intent to grant a former fiduciary a continuing right to
sue on behalf of the plan”); Roncone v. Ligurotis, 1993 WL 321737 *2 (N.D. Ill. Aug. 20, 1993)
(citing Blackmar and holding that “once a trustee is removed from office, he no longer has the
responsibility or power, as a fiduciary, to challenge the actions of the Fund fiduciaries”).
Alerus relies heavily on In re Pressman-Gutman Co., Inc., 459 F.3d 383 (3d Cir. 2006),
for a contrary result. There, the district court found that the plan trustee was conflicted and, at
the request of the defendant (a former plan trustee), appointed a trustee ad litem as a
“prophylactic measure to ensure adequate representation for the real party-in-interest, the Plan.”
Id. at 400. Importantly, on review the Third Circuit Court of Appeals (i) held that it lacked
appellate jurisdiction to review the interlocutory order appointing the trustee ad litem, id. at p.
392, and (ii) declined to grant extraordinary relief in the form of a writ of mandamus to halt the
appointment. Id. at pp. 400-01. Consequently, the circuit court neither approved nor
disapproved the actions of the district court. I agree with the dissent in In re Pressman that Fed.
R. Civ. P. 17(c), upon which the district court relied in making the appointment and which
concerns appointment of representatives to act on behalf of minors and incompetent persons,
constitutes a “dubious foundation” for the “draconian action” of appointing a special fiduciary
without the request of any of the Secretary of Labor, plan participant, plan beneficiary, or plan
fiduciary, and in a manner not contemplated by 29 U.S.C. §§ 1109 and 1132 of ERISA, the

5

governing statute. Id. at 405 (Irenas, J., dissenting).
Alerus, without citation to any authority, asserts that “as the party being sued by the
Trustees [it] certainly has standing to argue that it has been sued by the wrong party; such an
argument is a classic affirmative defense.” Reply [Doc. # 62] at p. 4. Of course, there is no
doubt that suit against Alerus is properly brought by plan fiduciaries, and Alerus does not argue
otherwise. Instead, Alerus seeks to assert the rights of others--the Secretary of Labor and/or
ESOP participants, beneficiaries, or fiduciaries--to seek the removal of those fiduciaries because
Alerus disagrees with the fiduciaries’ decisions and litigation strategy. This is precisely what 29
U.S.C. § 1132(a)(2) precludes. See Blackmar,603 F.2d at 1310; Chemung Canal Trust Co., 939
F.2d 12, 14; and Roncone, 1993 WL 321737 *2.
Even if the Trustees may be said to have breached a duty, the ESOP need not rely on
Alerus to protect it from those actions.2 Instead, suit to remove the Trustees and for damages
may be brought by “the Secretary [of the Department of Labor], or by a participant, beneficiary
or fiduciary. . . .” 29 U.S.C. § 1132(a)(2). There are many reasons those parties might choose
neither to sue nor seek the removal of the Trustees. See In re Pressman, 459 F.3d at 405 n. 27
(Irenas, J., dissenting). And those with the authority to do so may conclude that suit against
Alerus is sufficient for the ESOP to recoup any losses it may have suffered. As the court noted
in Harris Trust and Savings Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 252 (2000),
under slightly different circumstances:

2

I am aware that there is authority holding that a plan fiduciary breaches its fiduciary
duties when it actively participates in the decision-making process of whether to sue himself.
Iron Works Local #272 v. Bowen, 624 F.2d 1255, 1261 (5th Cir. 1980). Those claims must be
asserted by an authorized party, however, and none have been asserted here.
6

The common law additionally leads us to reject Salomon’s
complaint that our view of § 502(a)(3) [29 U.S.C. § 1132] would
incongruously allow not only the harmed beneficiaries, but also the
culpable fiduciary, to seek restitution from the arguably less
culpable counterparty-transferee. The common law sees no
incongruity in such a rule, and for good reason: Although the
trustee bases his cause of action upon his own voluntary act, and
even though the act was knowingly done in breach of his duty to
the beneficiary, he is permitted to maintain the action, since the
purpose of the action is to recover money or other property for the
trust estate, and whatever he recovers he will hold subject to the
trust.
(Internal quotations and citations omitted.)
IT IS ORDERED:
(1)

The Motion to Remove Trustees [Doc. # 25] is DENIED; and

(2)

The previous Order [Doc. # 193] entered earlier today is WITHDRAWN.

Dated January 8, 2014.
BY THE COURT:
s/ Boyd N. Boland
United States Magistrate Judge

7