Sealey v. Johanson et al
ORDER granting 120 Motion to Dismiss for the reasons set out in the Order. The fraud claim, as well as the requests for disgorgement and a constructive trust, are dismissed. Signed by District Judge Daniel P. Jordan III on January 4, 2017. (SP)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
CIVIL ACTION NO. 3:15cv137-DPJ-FKB
DAVID R. JOHANSON, et al.
This ERISA case is before the Court on Defendant Herbert C. Bruister’s Motion to
Dismiss Count Nine of the Amended Complaint and Certain of the Relief Requested against him
in the Amended Complaint . For the reasons that follow, the motion is granted.
Facts and Procedural History
The factual underpinning of this case began in 2002, when Bruister & Associates, Inc.
(“BAI”), following the legal advice of attorney David R. Johanson, established an Employee
Stock Ownership Plan (“ESOP”). Between 2002 and 2005, BAI’s owner, Defendant Bruister,
sold 100% of BAI’s shares to its employees through a series of transactions with the ESOP.
Those transactions ultimately led to the Secretary of Labor and two plan participants filing
separate lawsuits alleging that the transactions violated various ERISA provisions (the “ERISA
Actions”). Following a 19-day bench trial on the consolidated cases, the Court entered judgment
in favor of Plaintiffs and against Bruister and other Defendants for in excess of $6 million; the
Court later awarded the prevailing private Plaintiff, Vincent Sealey, an additional $3.1 million in
attorneys’ fees and expenses.
At the time the ERISA Actions were filed, Bruister, the other plan fiduciaries, and some
related entities were insured under a fiduciary-liability policy issued by Beazley Insurance
Company. Beazley disputed coverage, and Bruister and others ultimately filed a civil action
against Beazley in this Court in August 2010 (the “Coverage Action”). The parties to the
Coverage Action settled that matter effective December 1, 2011, pursuant to a Confidential
Settlement Agreement and Release (the “Agreement”). Under the Agreement, which Bruister
signed both in his individual capacity and as a Trustee to the ESOP, Beazley withdrew its
reservation or rights and agreed to pay defense costs and any settlement or judgment in the
ERISA Actions subject to reduced limits of liability under its policy. By the time the Court
entered its judgment in the ERISA Actions, the reduced insurance coverage had been fully
exhausted by defense costs.
On February 27, 2015, Sealey filed this suit against Bruister, Johanson, Beazley, and
others, complaining of Defendants’ actions with respect to the Coverage Action and the
Agreement. Sealey filed an Amended Complaint  on February 24, 2016; Bruister both
answered  the Amended Complaint and filed the instant motion  on June 10, 2016.
Plaintiff responded  to Bruister’s motion, and Bruister failed to file a reply within the time
provided by local rules. The Court has personal and subject-matter jurisdiction and is prepared
Bruister suggests that his motion is governed by Federal Rule of Civil Procedure
12(b)(6). Def.’s Mot.  at 6–7. But the motion was filed after Bruister had answered, so it is
properly considered as a motion for judgment on the pleadings under Rule 12(c). See Jones v.
Greninger, 188 F.3d 322, 324 (5th Cir. 1999). Regardless, “the standards for deciding motions
under both rules are the same.” Great Plains Tr. Co. v. Morgan Stanley Dean Witter & Co., 313
F.3d 305, 313 n.8 (5th Cir. 2002).
In considering a motion under Rule 12(c), the “court accepts ‘all well-pleaded facts as
true, viewing them in the light most favorable to the plaintiff.’” Martin K. Eby Constr. Co. v.
Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004) (quoting Jones, 188 F.3d at 324).
But “the tenet that a court must accept as true all of the allegations contained in a complaint is
inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). To overcome a Rule 12(c)
motion, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.”
Twombly, 550 U.S. at 570. “Factual allegations must be enough to raise a right to relief above
the speculative level, on the assumption that all the allegations in the complaint are true (even if
doubtful in fact).” Id. at 555 (citations and footnote omitted).
“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.”
Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). It follows that “where the wellpleaded facts do not permit the court to infer more than the mere possibility of misconduct, the
complaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at
679 (quoting Fed. R. Civ. P. 8(a)(2)). “This standard ‘simply calls for enough fact to raise a
reasonable expectation that discovery will reveal evidence of’ the necessary claims or elements.”
In re S. Scrap Material Co., LLC, 541 F.3d 584, 587 (5th Cir. 2008) (citing Twombly, 550 U.S. at
Bruister seeks dismissal of the fraud claim asserted against him; he argues that “[t]here is
no allegation that Bruister made any representation to the Plans or to Plaintiff Sealey.” Def.’s
Mot.  at 9–10. It is well-settled that a plaintiff asserting a fraud claim under Mississippi
law must prove that the defendant made a material false representation upon which the plaintiff
justifiably relied. See Howard v. CitiFinancial, Inc., 195 F. Supp. 2d 811, 824 (S.D. Miss.
2002). And the circumstances of the alleged fraud—including “the time, place and contents of
any false representations”—must be stated with particularity. Nat’l Corp. Tax Credit Fund VII v.
Busching, No. 3:04cv559-BN, 2006 WL 13236, at *2 (S.D. Miss. Jan. 3, 2006) (citations
Turning to the fraud claim, Sealey alleges:
In approving the Coverage Settlement on behalf of the [ESOP], Bruister . . .
acting in [his] capacit[y] as [a] fiduciar[y] for the [ESOP] . . . falsely presented
and represented that Bruister had authority to bind the [ESOP]. In doing so,
[Bruister] falsely represented that Bruister [was] not conflicted from acting as [an
ESOP] trustee[ and] plan fiduciar[y] . . . , that [he] had performed [his] fiduciary
duty and that the Coverage Settlement was in the best interest of the [ESOP].
Each of the representations were false when made in connection with the
Coverage Settlement and [Bruister] knew or should have known of their falsity
The false representations . . . were purposefully concealed from the [ESOP’s]
participants [including Sealey] so that the insurance proceeds could be depleted in
the payment of legal fees and expenses . . . before the Coverage Settlement terms
would be discovered.
[Bruister] also concealed from the [ESOP’s] participants, [including Sealey, the
existence of a] Secret Fee Agreement by which [the] Jackson Lewis [law firm]
would invoice Beazley . . . for inflated or unnecessary attorney time . . . .
The Coverage Settlement and Secret Fee Agreement [were] an artifice to defraud
the [ESOP] and resulted in the depletion of insurance coverage so as to frustrate
the [ESOP] and prevent [its] recovery of any eventual judgment in the [ERISA]
Am. Compl.  ¶¶ 206–10. Bruister is correct that no particular representation is attributed to
him.1 The factual allegations fall short of pleading a plausible fraud claim against Bruister.
Plaintiff does not substantively respond to Bruister’s arguments, instead asserting only
that Bruister’s motion “was not timely filed” and is premature in that, after Bruister filed his
motion, Sealey filed a motion for leave to file a second amended complaint. Looking at the latter
argument, Sealey urged the Court to delay consideration of Bruister’s motion until after a ruling
on his motion to amend: “If the Court grants Plaintiff’s motion for leave to amend, the Second
Amended Complaint would be the operative complaint, superseding the Amended Complaint,
and rendering Bruister’s instant Motion moot.” Pl.’s Resp.  at 4. Judge Ball denied,
without prejudice, Sealey’s motion to amend on November 21, 2016. Order . Sealey has
not filed a new motion to amend. The Amended Complaint is therefore the operative pleading,
and it fails to state a facially plausible fraud claim against Bruister.
Regarding the timeliness of the motion, Sealey relates the following procedural history:
At the outset of the action, despite being served with the Complaint, Bruister did
not answer or independently file a preanswer motion—instead, he simply “joined”
the petition to compel arbitration filed by the Johanson Defendants. Bruister’s
joinder was itself untimely. After Plaintiff’s claims against the Johanson
Defendants were resolved, the Johnason Defendants’ petition was not pressed and
the Court has not ruled on it.
By the time Bruister filed the instant Motion, the Court had already issued a
substantive ruling dismissing the Amended Complaint in part. That ruling noted
that Plaintiff could seek leave to amend with respect to certain of his claims . . . .
Moreover, the sole affirmative representation alleged—that Bruister had authority to
bind the ESOP—was apparently made to Beazley, not Sealey.
When the Johanson Defendants were dismissed, the Court terminated the motions that
had been filed by them, including the motion to compel arbitration. See Feb. 25, 2016 Text Only
Plaintiff’s motion for leave to file the Second Amended Complaint was filed
Pl.’s Resp.  at 4 n.1 (citations omitted). While Sealey is correct that Bruister did not file
timely answers to either the initial or Amended Complaints, Sealey never sought a clerk’s entry
of default, and Bruister has now answered. Moreover, Bruister filed his motion to dismiss well
in advance of the April 5, 2017 motions deadline set by the May 23, 2016 Case Management
Order . Bruister’s motion is not untimely. The fraud claim against him is due to be
Bruister moves to dismiss three claims for relief against him contained in the Amended
That the Court order each of the Defendants to disgorge and restore to the [ESOP]
any profits which have been generated as a result of their wrongful conduct;
That the Court impose a constructive trust upon all assets and profits received by
Defendants from their breaches of fiduciary duty or prohibited transactions in
violation of ERISA, or from their knowing participation in such breaches of
fiduciary duty or prohibited transactions;
That judgment be granted against Defendant Bruister . . . to restore to the
[ESOP] all compensatory damages caused by Defendants’ fraud, as well as for
punitive and exemplary damages.
Am. Compl.  at 61. The third request is related to the fraud claim, which the Court has
already dismissed, so that claim for relief is likewise dismissed. As to the requests for
disgorgement and a constructive trust, Bruister argues that, as alleged in the Amended
Complaint, he “did not receive any of the proceeds of the Coverage Action Settlement, all of
In view of its conclusion that the Amended Complaint does not state a facially plausible
fraud claim, the Court need not consider Bruister’s preemption argument.
which were used to pay . . . legal fees and expenses.” Def.’s Mot.  at 14 (citing Am.
Compl.  ¶ 132). Plaintiff does not respond to this argument, which appears correct. The
requests for disgorgement and a constructive trust are therefore dismissed.
The Court has considered all arguments. Those not specifically addressed would not
have changed the outcome. For the foregoing reasons, Bruister’s Motion to Dismiss Count Nine
of the Amended Complaint and Certain of the Relief Requested against him in the Amended
Complaint  is granted. The fraud claim, as well as the requests for disgorgement and a
constructive trust, are dismissed.
SO ORDERED AND ADJUDGED this the 4th day of January, 2017.
s/ Daniel P. Jordan III
UNITED STATES DISTRICT JUDGE
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?