Neyland v. Paychex, Inc.

Filing 30

ORDER Adopting and Affirming June 22, 2017 Recommendation of United States magistrate Judge by Judge Christine M. Arguello on 11/30/2017. (swest)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Christine M. Arguello
Civil Action No. 17-cv-00783-CMA-MJW
FRANK NEYLAND,
Plaintiff,
v.
PAYCHEX, INC.,
Defendant.

ORDER ADOPTING AND AFFIRMING JUNE 22, 2017 RECOMMENDATION OF
UNITED STATES MAGISTRATE JUDGE
This matter is before the Court upon the Recommendation of United States
Magistrate Judge Michael J. Watanabe that Defendant’s Motion to Dismiss Plaintiff’s
Complaint under Fed. R. Civ. P. 12(b)(6) (Doc. # 14) be granted. (Doc. # 24.)
The Court referred the underlying motion pursuant to 28 U.S.C. § 636 and
Fed. R. Civ. P. 72. (Doc. # 15.) On June 22, 2017, Magistrate Judge Watanabe issued
his Report and Recommendation (the “Recommendation”) that this Court grant
Defendant’s motion and dismiss Plaintiff’s claims. (Doc. # 24.) Plaintiff timely objected
to the Recommendation. (Doc. # 25.) Defendant thereafter filed a response to the
objection. (Doc. # 26.)
For the reasons described herein, the Recommendation is adopted as an order
of this Court, and Defendant’s Motion to Dismiss is granted.

I.

BACKGROUND AND PROCEDURAL HISTORY 1

The Magistrate Judge’s Recommendation provides a recitation of the factual and
procedural background of this case. See (Doc. # 24.) The Recommendation is
incorporated herein by reference. See 28 U.S.C. § 636(b)(1)(B); Fed. R. Civ. P. 72(b).
Accordingly, the factual background of this dispute will be reiterated only to the extent
necessary to address Plaintiff’s objections.
On June 8, 2004, Plaintiff’s employer, Colorado Construction Supply (“CCS”),
entered into an agreement with ePlan Services (“ePlan”) and Citywide Retirement
Services, LLC (“Citywide”) for 401(k) plan services for CCS employees. (Doc. # 4 at
¶ 4.) Thereafter, Plaintiff opened a 401(k) plan (the “Plan”) with ePlan and Citywide and
deposited $243,568.19 in his account. (Id. at ¶ 5.) Plaintiff was the designated trustee
and administrator of his Plan. (Id. at ¶ 6.)
Two months later, without Plaintiff’s knowledge, $50,000 was taken out of his
Plan as a loan. (Id. at ¶ 7.) The loan documents produced by Citywide did not contain
Plaintiff’s signature. (Id. at ¶ 8.) In addition, Citywide and ePlan failed to issue to the
Internal Revenue Service (“IRS”) a CP2000 and a 1099 form—each a type of tax form—
for the distribution of the loan. Eventually, the loan was not repaid and went into
default. (Id. at ¶¶ 17–19.) The IRS also did not receive the requisite tax forms for the
defaulted loan. (Id.)

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The facts are drawn from the allegations in Plaintiff’s Complaint, which must be taken as true
when considering a motion to dismiss. Wilson v. Montano, 715 F.3d 847, 850 n.1 (10th Cir.
2013) (citing Brown v. Montoya, 662 F.3d 1152, 1162 (10th Cir. 2011)).
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A few months later, CCS was sold, and Plaintiff’s Plan was consequently
canceled. (Id. at ¶ 12.) Plaintiff contacted ePlan and requested via e-mail the balance
on his Plan and any tax information. 2 (Id. at ¶ 13.) Thereafter, Plaintiff rolled over the
remaining balance of $192,886.97—approximately $50,000 less than he initially
deposited—from his Plan into a Wells Fargo bank account. (Id. at ¶ 15.)
Seven years later, Defendant Paychex, Inc. purchased ePlan. (Id. at ¶ 16.) In
2012, the Colorado Secretary of State registered Citywide as a delinquent business.
(Id. at ¶ 10.)
Plaintiff contends he first learned of the $50,000 loan from his Plan in April 2015,
when the IRS contacted him and requested back taxes on the defaulted loan. (Id. at
¶¶ 22–23.) Subsequently, Plaintiff received all of the necessary tax forms. 3 Plaintiff
discovered he did not receive the forms due to a “nine year computer glitch experienced
by ePlan and Defendant.” (Id. at ¶¶ 18–19, 27.) After an audit, the IRS concluded that
Plaintiff was the victim of identity theft. (Id. at ¶ 25.)
Plaintiff brought this action against Defendant in Douglas County District Court in
March 2017. (Doc. # 1.) Plaintiff asserted five claims for relief: breach of contract,
negligence, breach of agreement, breach of fiduciary duty, and outrageous conduct.
(Doc. # 4.) Defendant timely removed the case pursuant to 28 U.S.C. § 1332. (Doc.
# 1.)

2

The Complaint does not make clear whether or not Plaintiff received the requested information
from ePlan.
3
The Complaint does not identify who sent the tax forms.
3

Defendant filed its Motion to Dismiss, arguing Plaintiff’s claims are barred by the
statute of limitations and by the economic loss rule. (Doc. # 14.) Defendant also
asserted that Plaintiff’s claims failed as a matter of law because it (Paychex) was not
involved in the events giving rise to the claims. (Id.)
On June 22, 2017, the Magistrate Judge recommended that this Court grant
Defendant’s Motion to Dismiss based on the statute of limitations. 4 (Doc. # 24.) The
Magistrate Judge concluded that, when Plaintiff rolled over a balance of $192,886.97—
$50,000 less than and a 20 percent decrease in value from Plaintiff’s deposit of
$243,568.19—on December 20, 2004, Plaintiff should have discovered the existence of
loan. (Id. at 7.) Therefore, pursuant to Colorado’s statutes of limitations, Plaintiff was
required to assert his tort claims no later than December 20, 2006, and his contract
claims no later than December 20, 2007. (Id. at 7–8.) Because the Magistrate Judge
concluded the statute of limitations barred Plaintiff’s claims, he did not address the
economic loss rule. (Id. at 8 n.3.)
Plaintiff timely objected to the Recommendation, arguing only that his claims are
not barred by the statute of limitations because he did not learn of the loan until 2015.
(Doc. # 25.) Plaintiff did not object to the other portions of the Magistrate Judge’s
Recommendation. (Id.)

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The Magistrate Judge noted that Plaintiff had failed to allege sufficient facts to maintain a claim
against Defendant as a successor corporation of ePlan, but also determined Plaintiff could
correct this pleading deficiency through an amended complaint. However, his recommendation
on the statute of limitations renders moot this issue.
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II.

STANDARD OF REVIEW

Fed. R. Civ. P. 72(b)(3) requires that this Court review all issues that were
properly objected to de novo. In so doing, the Court “may accept, reject, or modify the
recommended disposition; receive further evidence; or return the matter to the
magistrate judge with instructions.” Id.
III.
A.

ANALYSIS

STATUTE OF LIMITATIONS
Colorado law provides that any breach of contract claim is governed by a three

year statute of limitations. See C.R.S. § 13-80-101(1)(a). A cause of action for breach
of contract accrues “on the date the breach is discovered or should have been
discovered by the exercise of reasonable diligence.” C.R.S. § 13-80-108(6); see also
Grant v. Pharmacia & Upjohn Co., 314 F.3d 488, 493 (10th Cir. 2002).
The statute of limitations for tort claims of negligence and outrageous conduct
are governed by a two year statute of limitations. See C.R.S. § 13-80-102(1)(a). A
cause of action for a tort claim is “considered to accrue on the date both the injury and
its cause are known or should have been known by the exercise of reasonable
diligence.” C.R.S. § 13-80-108(1); see also Winkler v. Rocky Mountain Conf. of the
United Methodist Church, 923 P.2d 152, 158 (Colo. App. 1995).
In response to Defendant’s Motion to Dismiss, Plaintiff argued he did not become
aware of the defaulted loan until December 2015 because: (1) he never received the
requisite tax forms to have put him on notice of a defaulted loan; (2) the 20 percent
decrease in his Plan did not alert him because the market conditions were volatile; and

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(3) he did not have a fiduciary duty to manage his Plan. (Doc. # 17.) Plaintiff’s
Objection to the Recommendation reiterates these arguments. See (Doc. # 25.)
Having reviewed the Complaint, Defendant’s Motion to Dismiss, all briefs, the
Recommendation, Plaintiff’s Objections, and Defendant’s Response, the Court agrees
with the Magistrate Judge that Plaintiff, as the Plan’s trustee and administrator, had a
fiduciary duty with respect to the management of the account, regardless of the market
conditions or the failure to receive any tax forms. See 29 U.S.C.A. § 1103(a). A
reasonable person would have looked into the unexplained disappearance of $50,000
from his retirement account as soon as he was made aware that the value of his
account had decreased by 20 percent. In other words, Plaintiff was put on notice on
December 20, 2004—the date his Plan was cancelled and Plaintiff rolled over $50,000
less than what he deposited. This is the date on which Plaintiff had knowledge of facts
which would put a trustee and administrator on notice of the processing of the loan.
Accordingly, Plaintiff’s failure to assert his tort claims by December 20, 2006, and
his breach of contract claims by December 20, 2007, renders Plaintiff’s claims barred as
a matter of law.
B.

EQUITABLE TOLLING
In light of this analysis of the statute of limitations, the Court sua sponte

considers the doctrine of equitable tolling, which permits courts to extend a statute of
limitation in order to prevent injury. See Stransky v. HealthONE of Denver, Inc., 868 F.
Supp. 2d 1178, 1181 (D. Colo. 2012). Colorado law recognizes that “equity may require
tolling of the statutory period . . . [to] accomplish the goals of justice.” Dean Witter

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Reynolds, Inc. v. Hartman, 911 P.2d 1094, 1096 (Colo. 1996). However, “an equitable
tolling of a statute of limitations is limited to situations in which either the defendant has
wrongfully impeded the plaintiff’s ability to bring the claim or truly extraordinary
circumstances prevented the plaintiff from filing his or her claim despite diligent
efforts.” Id. at 1099 (emphasis added); see also Malm v. Villegas, 342 P.3d 422, 426
(Colo. 2015).
Because “[t]he purpose of a court sitting in equity is to promote and achieve
justice with some degree of flexibility,” a court’s “exercise of equitable jurisdiction
requires an inquiry into the particular circumstances of the case.” Garrett v. Arrowhead
Imp. Assoc., 826 P.2d 850, 855 (Colo. 1992). The burden is on a plaintiff to show that a
statute has been tolled once the statute of limitations has been raised as an affirmative
defense. Id.
The facts of this case do not support the application of equitable tolling. First,
Plaintiff has not alleged that Defendant “wrongfully impeded” his ability to bring these
claims. See Dean Witter Reynolds, 911 P.2d at 1099. For example, Plaintiff does not
allege that Defendant fraudulently concealed the loan taken out of his Plan. See id.
(holding that the facts did not show fraudulent concealment by the defendant banks,
and thus, equitable tolling did not apply). Nor does Plaintiff allege that Defendant failed
to meet any specific statutory duty to inform Plaintiff about the loan. See Strader v.
Beneficial Finance Co. of Aurora, 551 P.2d 720, 724 (Colo. 1976) (holding that a
defendant’s failure to provide information that he was under a statutory duty to disclose
provided an equitable basis for tolling the statute of limitations). Second, Plaintiff has

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not alleged any “truly extraordinary circumstances” that prevented him from filing his
claims “despite diligent efforts.” See Dean Witter Reynolds, 911 P.2d at 1099. In Dean
Witter Reynolds, 911 P.2d at 1097, the Colorado Supreme Court noted three cases
from other jurisdictions where extraordinary circumstances tolled the statute of
limitations. “All of those cases involved facts where the plaintiff was truly precluded
from bring a claim by circumstances outside of his or her control.” Brodeur v. American
Home Assurance Co., 169 P.3d 139, 149 (Colo. 2007). For reasons the Court has
already explained, Plaintiff in the instant case faced no circumstances outside of his
control, and he did not use “diligent efforts” in managing his Plan. The Court therefore
declines to equitably toll the statutes of limitations for Plaintiff’s claims.
Accordingly, the Court adopts the Magistrate Judge’s Recommendation and
grants Defendant’s Motion to Dismiss.
CONCLUSION
For the foregoing reasons, the Court AFFIRMS and ADOPTS the
Recommendation of Magistrate Judge Michael J. Watanabe (Doc. # 24) as the findings
and conclusions of this Court. Accordingly, it is
FURTHER ORDERED that Defendant’s Motion to Dismiss (Doc. # 14) is
GRANTED.
DATED: November 30, 2017

BY THE COURT:

_______________________________
CHRISTINE M. ARGUELLO
United States District Judge
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