Stockwell et al v. Hamilton et al
Filing
50
OPINION and ORDER Denying Defendant John M. Hamilton's 20 Motion to Dismiss Plaintiffs' Complaint and Granting Plaintiffs' 31 Motion for Leave to File First Amended Complaint. Signed by District Judge Linda V. Parker. (RLou)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
DOUGLAS W. STOCKWELL and
INTERNATIONAL UNION OF OPERATING
ENGINEERS LOCAL 324,
Plaintiffs,
Civil Case No. 15-11609
Honorable Linda V. Parker
v.
JOHN M. HAMILTON and WILLIAM B. ROUGH,
Defendants.
________________________________/
OPINION AND ORDER DENYING DEFENDANT JOHN M. HAMILTON’S
MOTION TO DISMISS PLAINTIFFS’ COMPLAINT AND GRANTING
PLAINTIFFS’ MOTION FOR LEAVE TO FILE FIRST AMENDED
COMPLAINT
On May 5, 2015, Plaintiffs Douglas Stockwell and the International Union of
Operating Engineers Local 324 (“Union”) (collectively “Plaintiffs”) initiated this
action against Defendants John Hamilton and William Rough.1 Stockwell is a Trustee
and participant in the ERISA-regulated Union Pension Fund (“Pension Fund”). He
also is the Union’s Business Manager and Chief Financial Officer. Hamilton served
as the Union’s Business Manager and as a Trustee of the Pension Fund until Fall
The United States moved to intervene in the lawsuit in order to seek a limited stay
of certain discovery, which the United States claims may seriously comprise
pending criminal proceedings. On May 29, 2015, the Court granted the motion
and stayed certain discovery until November 29, 2015. (ECF No. 16.) The United
States recently moved to extend the stay for an additional six months. (ECF No.
42.)
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2012. Rough is a former employee of the Union’s fringe benefits funds, including the
Pension Fund. In their Complaint, Plaintiffs allege that Defendants breached their
fiduciary duties while acting as officers and employees of the Union and the Pension
Fund, in violation of Sections 404 and 406 of ERISA, 29 U.S.C. §§ 1104, 1106.
Presently before the Court are Hamilton’s Motion to Dismiss Plaintiffs’
Complaint, filed pursuant to Federal Rule of Civil Procedure 12(b)(6) on July 29,
2015 (ECF No. 20), and Plaintiffs’ Motion for Leave to File First Amended
Complaint, filed pursuant to Federal Rule of Civil Procedure 15 on September 30,
2015. (ECF No. 31.) In his motion to dismiss, Hamilton argues that Plaintiffs’ claims
are time-barred under ERISA’s statute of limitations, 29 U.S.C. § 1113. Hamilton
also argues that the Union lacks standing to sue under ERISA, 29 U.S.C. § 1132(a).
In their response to Hamilton’s motion, filed September 30, 2015, Plaintiffs argue that
their claims are timely-filed and the Union has standing. (ECF No. 30.) Plaintiffs
further sought leave to file an amended complaint in response to Hamilton’s motion in
order to allege those facts necessary to establish the timeliness of their claims. (ECF
No. 31.) In a response to Plaintiffs’ motion filed October 21, 2015, Hamilton argues
that Plaintiffs’ proposed amendment is futile and, therefore, Plaintiffs’ request for
leave to file their amended pleading should be denied. (ECF No. 35.) Because the
Court finds the facts and legal arguments sufficiently presented in the parties’
pleadings, it is dispensing with oral argument with respect to the pending motions
pursuant to Eastern District of Michigan Local Rule 7.1(f) For the reasons that
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follow, the Court denies Hamilton’s motion to dismiss and grants Plaintiffs’ motion
for leave to file their proposed First Amended Complaint.
Applicable Standards
A motion to dismiss pursuant to Rule 12(b)(6) tests the legal sufficiency of the
complaint. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th
Cir. 1996). Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a
“short and plain statement of the claim showing that the pleader is entitled to relief.”
To survive a motion to dismiss, a complaint need not contain “detailed factual
allegations,” but it must contain more than “labels and conclusions” or “a formulaic
recitation of the elements of a cause of action . . .” Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 555 (2007). A complaint does not “suffice if it tenders ‘naked
assertions’ devoid of ‘further factual enhancement.’ ” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (quoting Twombly, 550 U.S. at 557).
As the Supreme Court provided in Iqbal and Twombly, “[t]o survive a motion
to dismiss, a complaint must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’ ” Id. (quoting Twombly, 550 U.S.
at 570). “A claim has facial plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). The plausibility standard
“does not impose a probability requirement at the pleading stage; it simply calls for
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enough facts to raise a reasonable expectation that discovery will reveal evidence of
illegal [conduct].” Twombly, 550 U.S. at 556.
Federal Rule of Civil Procedure 15(a) instructs the courts to “freely grant[]”
leave to amend “where justice so requires.” This is because, as the Supreme Court
has advised, “[i]f the underlying facts or circumstances relied upon by a plaintiff may
be a proper subject of relief, he ought to be afforded an opportunity to test his claim
on the merits.” Foman v. Davis, 371 U.S. 178, 182 (1962). However, a motion to
amend a complaint should be denied if the amendment is brought in bad faith or for
dilatory purposes, results in undue delay or prejudice to the opposing party, or would
be futile. Id. An amendment is futile when the proposed amendment fails to state a
claim upon which relief can be granted and thus is subject to dismissal pursuant to
Rule 12(b)(6). Rose v. Hartford Underwriters Ins. Co., 203 F.3d 417, 420 (6th Cir.
2000).
Statute of Limitations
ERISA bars actions for breach of fiduciary duty “after the earlier of (1) six
years after . . . the date of the last action which constituted a part of the breach or
violation, . . . or (2) three years after the earliest date on which the plaintiff had actual
knowledge of the breach or violation.” 29 U.S.C. § 1113 (emphasis added).2
2
The statute reads in full:
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In his motion to dismiss, Hamilton argues that the shorter three-year limitations
period applies to Plaintiffs’ action because the allegations in their Complaint establish
that the Pension Fund Trustees and counsel for the Board of Trustees and Pension
Fund had actual knowledge of the purportedly wrongful conduct more than three
years before this lawsuit was filed. 3 (See ECF No. 20-1 at Pg ID 112.) Because
Plaintiffs are seeking recovery for the Pension Plan, Hamilton contends that the actual
knowledge of other Pension Plan Trustees must be imputed to Plaintiffs to render their
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. The fraud or concealment exception is not at issue in the
present case. In his motion, Hamilton argues that any asserted acts of fraud or
concealment occurred after “Plaintiffs” already knew about the conduct
constituting Defendants’ alleged breaches of their fiduciary duties.” (ECF No. 201 at Pg ID 116-119.) Plaintiffs’ response, however, focuses on when they became
aware of the conduct, rather than any acts of fraud or concealment.
3
Hamilton also argues in his motion to dismiss that Plaintiffs’ Complaint raises
claims based on conduct that ceased more than six years before this lawsuit was
initiated. In response, Plaintiffs clarify that their lawsuit is not premised on that
earlier conduct.
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claims time-barred. Plaintiffs argue in response that, as their First Amended
Complaint would allege, Stockwell only became a Pension Fund Trustee and the
Union’s Business Manager in September 2012, and he and the Union lacked
knowledge of the purported wrongful conduct prior to Stockwell assuming those
positions. (See ECF No. 30 at Pg ID 204-05; see also ECF No. 31, Ex. A ¶¶ 2, 15, 95100.) In reply, Hamilton “reiterates” that where a majority of a plan’s trustees were
aware of the facts supporting the alleged fiduciary breach, that knowledge is imputed
to a trustee seeking recovery for the plan. (ECF No. 34 at Pg ID 270.) In support,
Hamilton cites New Orleans Employers International Longshoremen’s Association,
AFL-CIO Fund v. Mercer Investment Consultants, 635 F. Supp. 2d 1351, 1378 (N.D.
Ga. 2009) (“Mercer”).
“Courts have construed the ‘actual knowledge’ requirement [of § 1113(2)]
strictly; constructive knowledge is inadequate[.]” Mercer, 635 F. Supp. 2d at 1378
(citing Martin v. Consultants & Adm’rs, Inc., 966 F.2d 1078, 1086 (7th Cir. 1992));
see also Gluck v. Unisys Corp., 960 F.2d 1168, 1176 (3d Cir. 1992) (describing the
“actual knowledge” requirement as a “stringent requirement”). Quoting “[a] leading
case on the actual knowledge exception[,]” the Sixth Circuit Court of Appeals has
stated that “ ‘[t]o charge [the plaintiff] with actual knowledge of an ERISA violation,
it is not enough that he had notice that something was awry; he must have had specific
knowledge of the actual breach of duty upon which he sues.’ ” Rogers v. Millan, No.
89-3707, 1990 WL 61120, at *4 (6th Cir. 1990) (quoting Brock v. Nellis, 809 F.2d
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753, 755 (11th Cir. 1987)). As some courts have observed, “ ‘Section 1113 sets a
high standard for barring claims against fiduciaries prior to the expiration of the
section’s six-year limitations period.’ ” Reich v. Lancaster, 55 F.3d 1034, 1057 (5th
Cir. 1995) (quoting Gluck, 960 F.2d at 1176); Montrose Med. Grp. Participating
Savings Plan v. Bulger, 243 F.3d 773, 787 (3d Cir. 2001). Courts have found that
“ ‘Congress evidently did not desire that those who violate [ERISA fiduciary] trust
could easily find refuge in a time bar.’ ” Rogers, 1990 WL 61120, at *4 (quoting
Brock, 809 F.2d at 754) (bracketed language added here).
In Mercer, the District Court for the Northern District of Georgia addressed the
issue of whether the actual knowledge of trustees other than the trustee named as the
plaintiff should be imputed to the plaintiff, resulting in his action being barred under
ERISA’s three-year limitations period. 635 F. Supp. 2d at 1379. The plaintiff in
Mercer, like Hamilton, became a trustee and learned of the defendants’ alleged
breaches of fiduciary duties less than three years before filing suit. Id. Although
finding that no circuit court had addressed whether the three-year statute of limitations
bars an action in such a case and that the few district courts confronting similar
situations, with one exception, declined to find the three-year limitations period
applicable, the court held that the actual knowledge of the other trustees should be
imputed to the plaintiff and concluded that the three-year limitations period therefore
barred the lawsuit. Id. at 1379-80. The court reasoned that a contrary result would
enable plaintiffs “to avoid the three-year actual knowledge statute of limitations
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through careful selection of the named plaintiffs.” Id. at 1380. According to the
court, “this is an impermissible manipulation of the statute of limitations.” Id.
As the Mercer court recognized, however, the majority of courts considering
the issue reached a contrary decision and held that only the actual knowledge of the
named plaintiffs determines when ERISA’s three-year limitations period begins to
run. Id. at 1380 (citing Landwehr v. DuPress, 72 F.3d 726, 732-33 (9th Cir. 1995);
Mason Tenders Dist. Council Pension Fund v. Messera, 958 F. Supp. 869, 882-83
(S.D.N.Y. 1997); and Useden v. Acker, 734 F. Supp. 978, 980 (S.D. Fla. 1989)). In
other words, the decision in Mercer is an outlier‒a point that Hamilton fails to share
with this Court. For example, in Useden, the District Court for the Southern District
of Florida refused to attribute the knowledge of one trustee to the successor trustee
who was the named plaintiff. 734 F. Supp. at 980. Similarly in Messera, the District
Court for the Southern District of New York held that “[a]ctual knowledge is
measured from the standpoint of the trustees who commenced the lawsuit and cannot
be attributed to them by the knowledge of prior trustees or other current trustees.”
958 F. Supp. at 882.
The Messera court relied on two decisions reaching the same result (notably
cases not identified by the District Court for the Northern District of Georgia in
Mercer): Crimi v. PAS Industries, Inc., No. 93 Civ. 6394, 1995 WL 272580 (S.D.N.Y.
May 9, 1995) and New York State Teamsters Council Health & Hospital Fund v.
Estate of DePerno, 816 F. Supp. 138 (N.D.N.Y. 1993). In Crimi, the court concluded
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that ERISA’s shorter limitations period did not bar the action filed by trustees of a
pension fund even though another trustee (not named as a plaintiff) was aware of the
alleged ERISA violations more than three years before the lawsuit was initiated. 1995
WL 272580, at *3. The court reasoned:
Most consonant with the language of the statute and the purposes
of ERISA is the interpretation that any trustee who sues as plaintiff and
does not have actual knowledge of the relevant facts sufficient to make
an ERISA claim may avail himself of the six year limitations period. In
the context of what constitutes actual knowledge, courts have construed
the “actual knowledge” provision narrowly. See Gluck v. Unisys Corp.,
960 F.2d 1168, 1176 (3d Cir. 1992). In light of Congress’s clear purpose
to protect plan assets, a narrow construction of limitations of actions
brought by plan trustees is preferable. . . . where one or more trustees
have failed to pursue an ERISA claim (whether or not such failure
amounts to a fiduciary violation), another trustee who has no actual
knowledge of the underlying facts‒ even a successor‒ should not be
unduly restricted from pursuing claims to protect the integrity of plan
assets. Indeed, section 413(b) [29 U.S.C. § 1113(2)] itself addresses a
“plaintiff” with actual knowledge. Since each trustee has an obligation to
protect the plan assets, each has an obligation to seek enforcement and to
be such a plaintiff where necessary. Because the enforcement statute
allows any fiduciary to sue, it would be inconsistent to provide a shorter
limitations period for a plaintiff trustee due to the actual knowledge of
another trustee, whether or not a co-plaintiff.
Crimi, 1995 WL 272580, at *3. The District Court for the Southern District of New
York relied on this reasoning in Messera, as did the Bankruptcy Court for the Eastern
District of Michigan in In re Trans-Industries, Inc., 538 B.R. 323, 351 (2015) This
Court likewise finds this reasoning persuasive. Moreover, § 1113 expressly states
that the three year limitations period begins to run “after the earliest date on which the
plaintiff had actual knowledge.” 29 U.S.C. § 1113(2) (emphasis added). The plain
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language of the statute clearly reflects that Congress did not intend the limitations
period to run from the actual knowledge of anyone other than the person bringing suit.
In short, Plaintiffs allege in their proposed First Amended Complaint that they
had actual knowledge of the claimed breaches or violations of Defendants’ fiduciary
duties less than three years before filing this lawsuit. The Court holds that only the
actual knowledge of Plaintiffs is relevant to determine when ERISA’s statute of
limitations begins to run. As such, Plaintiffs’ lawsuit is not time-barred. Moreover,
for the same reasons, the Court concludes that it would not be futile for Plaintiffs to
amend their complaint.
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Union’s Standing
In his motion to dismiss, Hamilton also argues that the Union lacks standing to
bring this ERISA action. Hamilton contends that Plaintiffs’ proposed First Amended
Complaint does not cure this defect.
ERISA’s civil enforcement provision empowers a limited category of plaintiffs
to prosecute claims under the statute. 29 U.S.C. § 1132. Specifically, as it relates to
Plaintiffs’ claims, the statute provides:
A civil action may be brought‒
...
(2) by the Secretary, or by a participant, beneficiary or fiduciary for
appropriate relief under section 1109 of this title;[4]
(3) by a participant, beneficiary, or fiduciary (A) to enjoin any act or
practice which violates any provision of this subchapter or the terms of
4
Section 1109 reads:
a) 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 subchapter 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. A fiduciary
may also be removed for a violation of section 1111 of this title.
(b) No fiduciary shall be liable with respect to a breach of fiduciary
duty under this subchapter if such breach was committed before he
became a fiduciary or after he ceased to be a fiduciary.
29 U.S.C. § 1109.
the plan, or (B) to obtain other appropriate equitable relief (i) to redress
such violations or (ii) to enforce any provisions of this subchapter or the
terms of the plan[.]
29 U.S.C. § 1132. The list of entities empowered by § 1132 is exclusive. Local 60682 Int’l Union of Paper v. Nat’l Indus. Grp. Pension Plan, 342 F.3d 606, 609 n.1
(6th Cir. 2003) (citing Whitworth Bros. Storage Co. v. Cent. States, Southeast &
Southwest Areas Pension Fund, 794 F.2d 221, 228 (6th Cir. 1986)). Unions are
neither participants nor beneficiaries. New Jersey State AFL-CIO v. New Jersey, 747
F.2d 891, 893 (3d Cir. 1984). The question here is whether the Union is a fiduciary to
the extent it brings this lawsuit.
Under ERISA, a person “is a fiduciary with respect to [an ERISA] plan to the
extent . . . he exercises any discretionary authority or discretionary control respecting
management of such plan or . . . has any discretionary authority or discretionary
responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A).
“Importantly, ‘the same entity may function as an ERISA fiduciary in some contexts
but not in others.’ ” Sonoco Prods. Co. v. Physicians Health Plan, Inc., 338 F.3d 366,
373 (4th Cir. 2003) (quoting Darcangelo v. Verizon Commc’ns, Inc., 292 F.3d 181,
192 (4th Cir. 2002)). A fiduciary only has standing under ERISA’s civil enforcement
provision to the extent he is pursuing an action “ ‘related to the fiduciary
responsibilities [he] possesses.’ ” Id. at 372 (quoting Coyne & Delany Co. v. Selman,
98 F.3d 1457, 1465 (4th Cir. 1996)). In other words, “[a] fiduciary’s standing is not
for any and all purposes; rather a fiduciary has standing to bring actions related to the
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fiduciary responsibilities it possesses.” Id. The fiduciary’s claims must relate to an
injury to the plan or the plan’s participants or beneficiaries, rather than to its own
injuries. Id. at 373.
Although acknowledging that a union may be considered a fiduciary capable of
filing suit under § 1132, Hamilton contends that “the circumstances pled in the
Complaint do not affect or impede Local 324’s very limited function as a [sic] an
appointing fiduciary . . ..” (ECF No. 20-1 at Pg ID 124.) Plaintiffs argue in response
that the Union is suing in its fiduciary capacity consistent with its duties to appoint
and remove trustees, as well as its duty to monitor the conduct of its appointed
trustees. (ECF No. 30 at Pg ID 207.) To this end, Plaintiffs allege in their initial
Complaint and Proposed First Amended Complaint that the Union “has the authority
to appoint and remove trustees.” (ECF No. 1 ¶ 3; ECF No. 31, Ex. A ¶ 3.)
“It is . . . well-established that the power to appoint plan trustees confers
fiduciary status.” Liss v. Smith, 991 F. Supp. 278, 310 (S.D.N.Y. 1998) (citing cases);
see also Licensed Div. Dist. No. 1 MEBA/NMU, AFL-CIO v. Defries, 943 F.2d 474,
477-78 (4th Cir. 1991). Thus in Defries, the Fourth Circuit concluded that the union
had standing in its ERISA claim seeking a declaration that it, not the parent union, had
the authority to appoint union trustees of a benefits plan. Id. Here, however,
Plaintiffs’ claims do not relate to any act or practice which pertains to the appointing
and replacing of trustees.
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Nevertheless, “[t]he power to appoint and remove trustees carries with it the
concomitant duty to monitor those trustees’ performance.” Liss, 991 F. Supp. at 311;
see also Coyne, 98 F.3d at 1465 (citing cases and finding that the duty of appointment
“carries with it a duty ‘to monitor appropriately’ those subject to removal.”) Further,
“[t]he duty to monitor carries with it . . . the duty to take action upon discovery that
the appointed fiduciaries are not performing properly.” Liss, 991 F. Supp at 311;
accord Leigh v. Engle, 727 F.2d 113, 134-35 (7th Cir. 1984); Utility Audit Grp. v.
Capital One, N.A., No. 2015 WL 1439622, at *9 (E.D.N.Y. Mar. 26, 2015); Int’l Bhd.
of Elec. Workers, Local 90 v. Nat’l Elec. Contractors Ass’n, No. 3:06cv2, 2008 WL
918481, at *7 (D. Conn. Mar. 31, 2008); In re Bausch & Lomb Inc. ERISA Litig., No.
06-cv-6297, 2008 WL 5234281, at *10 (W.D.N.Y. Dec. 12, 2008). The Court
acknowledges that in the cases cited, the courts were tasked with deciding whether a
defendant with appointment and removal responsibilities could be held liable as an
ERISA fiduciary for failing to monitor the trustees they appointed. Yet this Court
believes that the principles stated in those cases apply equally to deciding whether an
entity with appointing authority has standing as a fiduciary to bring an ERISA claim
as one method of fulfilling the duty to take action upon discovery that an appointed
fiduciary failed to perform properly.5 In other words, if an entity is a fiduciary when
In none of the cases Hamilton cites in his pleadings or which this Court otherwise
reviewed was the court tasked with deciding whether a union, possessing the duty
to appoint and remove trustees, has standing to sue a trustee who breaches his or
her fiduciary duties in violation of ERISA.
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named as a defendant for failing to fulfill its duties to monitor appointed trustees and
to take action upon discovery that an appointed trustee is not performing properly, the
same entity is a fiduciary to the extent it is bringing an ERISA claim alleging
improper performance by an appointed trustee.
For these reasons, the Court concludes that the Union has ERISA standing.
Accordingly,
IT IS ORDERED that Defendant John M. Hamilton’s Motion to Dismiss
Plaintiffs’ Complaint is DENIED;
IT IS FURTHER ORDERED that Plaintiffs’ Motion for Leave to File First
Amended Complaint is GRANTED and Plaintiffs shall file their proposed First
Amended Complaint within seven (7) days of this Opinion and Order.
s/ Linda V. Parker
LINDA V. PARKER
U.S. DISTRICT JUDGE
Dated: February 16, 2016
I hereby certify that a copy of the foregoing document was mailed to counsel of
record and/or pro se parties on this date, February 16, 2016, by electronic and/or U.S.
First Class mail.
s/ Richard Loury
Case Manager
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