HOOVER v. BESLER et al

Filing 51

MEMORANDUM OPINION and ORDER that Plaintiff's motion [ECF No. 40 ] for leave to file an amended complaint is granted in part and denied in part; that Plaintiff shall file an amended complaint in conformance with this Opinion no later than 14 da ys from the date of this Order; that Plaintiff's informal application to compel discovery is granted in part and denied in part; that Plaintiff may seek discovery with respect to the 2003/2004 agreements but not as to Mullaugh's review of those agreements. Signed by Magistrate Judge Douglas E. Arpert on 10/5/2015. (mmh)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
____________________________________
:
:
WEMA HOOVER,
:
:
Plaintiff ,
:
Civil Action No. 14-5786 (MAS) (DEA)
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v.
:
:
MEMORANDUM OPINION &
PHILIP A. BESLER, et al.,
:
ORDER
:
:
Defendants.
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____________________________________:
ARPERT, Magistrate Judge.
This matter comes before the Court on a motion by Plaintiff to amend the complaint
and on Plaintiff’s informal application to compel discovery. With regard to the motion to
amend, Plaintiff seeks leave to add to this action three new defendants, CarolBri, LLC, Besler
& Co., and Michael Mullaugh, and to include additional allegations based upon facts learned
since the filing of the Complaint. Defendants, Philip Besler (“Besler”), Brijon Management
& Employee Leasing Services, Inc. (“Brijon”), and the Administrative Committee for the
Brijon Management & Employee Leasing Services, Inc. Employee Stock Ownership Plan (the
“Committee”) (collectively, “Defendants”) have partially opposed the motion. For the
reasons below, Plaintiff’s motion is granted in part and denied in part.

I. BACKGROUND 1
This is an action under the Employee Retirement Income Security Act of 1974
(“ERISA”), 29 U.S.C. § 1001, et seq., against Besler, Brijon, and the Committee. One
defendant, the Brijon Management & Employee Leasing Services, Inc. Employee Stock
Ownership Plan (the “ESOP”), was dismissed from this case on June 30, 2015. ECF No. 48.
Plaintiff is a former employee of Brijon and proposed defendant Besler & Co., and
was a participant in the ESOP. She alleges that in or about 2011, Besler, Brijon and the
Committee breached their fiduciary duties under ERISA, specifically 29 U.S.C. § 1104(a)(1),
by causing the ESOP to sell all of its holdings in Brijon stock for an amount that was
substantially less than the stock’s fair market value (referred to herein as the “2011
Transaction”). ECF No. 1, Count I. As a result, she alleges, participants in the ESOP
received less than they were entitled to upon termination of the ESOP. The Complaint further
alleges that the sale of the stock for less than adequate consideration was a prohibited
transaction under ERISA, 29 U.S.C. §§ 1106(a), (b). Id., Count II.
According to the proposed Amended Complaint, Brijon and its affiliate companies
adopted the ESOP in 2002 and appointed Philip Besler as Trustee and member of the
Committee. About that same time, the ESOP purchased 100% of Brijon’s stock from Philip
Besler. The stock was purchased in exchange for a promissory note with a ten-year term. As
part of this transaction, Brijon entered into an agreement with Philip Besler under which
Brijon would pay premiums of $2 million per year over five years for a life insurance policy
for Besler. Besler was to repay the premiums or grant an irrevocable assignment of policy
funds to Brijon, but it is alleged that no repayment was ever made.
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The facts herein are derived from Plaintiff’s proposed Amended Complaint unless otherwise specified and do
not represent any factual findings of the Court.

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Also as part of the 2002 ESOP transaction, Philip Besler entered into an employment
agreement with Brijon pursuant to which he became an officer at Brjion and received “a large
annual salary, and substantial deferred compensation.” Proposed Amended Complaint ¶ 29.
It is alleged that Besler acted on behalf of Brijon with respect to both of these agreements. It
is further alleged that Besler (acting on behalf of Brijon) amended his deferred compensation
agreement in 2003 to substantially increase his deferred compensation.
Pursuant to certain other agreements entered into in or around 2002, employees of
various affiliate companies became employees of Brjion. Brjion received fees from Besler &
Co. (“BeslerCo”) pursuant to these management services and employee leasing agreements.
BeslerCo is described in the Amended Complaint as a New Jersey corporation and sponsor of
the ESOP. It allegedly had the authority, along with Brijon, to appoint the ESOP’s Trustee as
well as the Committee members. The proposed Amended Complaint alleges that Philip
Besler “negotiated” and executed the agreement on behalf of both Brijon and BeslerCo.
Proposed Amended Complaint ¶ 23 (quotation marks in original).
Separate management services and employee leasing agreements between Brjion and
an affiliate were entered into in or about 2003. 2 The proposed Amended Complaint describes
a Business Management Agreement, effective as of August 1, 2003, between Brijon and an
affiliate pursuant to which, among other things, Brijon agreed to lend Philip Besler up to $4
million. At the same time, Brijon also entered into an Employee Leasing Services Agreement
with that affiliate, under which the affiliate paid Brijon a fee for employee leasing services.

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The proposed Amended Complaint states these agreements were effective August 1, 2003, but Plaintiff in her
papers as well as the proposed Amended Complaint itself sometimes refers to the time period of these
agreements as 2004, so the date they were actually executed is unclear. The Court refers to these agreements at
times as the “2003/2004 agreements.”

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According to the proposed Amended Complaint, the value of Brijon at this time,
whose was stock purchased and owned entirely by the ESOP, was comprised of payments due
from Philip Besler for the loan and life insurance, and payments due from the affiliate
companies under the aforementioned business management and employee leasing agreements.
Plaintiff alleges that the affiliate companies that were parties to the management services
agreements have not made all payments due to Brjion. It is further alleged that Philip Besler
is responsible for this non-payment.
The proposed Amended Complaint alleges that in 2008, Philip Besler and BeslerCo
settled a legal action alleging Medicare fraud by paying the United States $2.875 million.
Plaintiff alleges that this settlement was among the reasons that Besler made the decision to
discontinue and terminate the ESOP effective July 2009. While Besler advised participants
that the value of the ESOP had been adversely affected by the economic downturn and these
steps were being taken to prevent future erosion of its value, Plaintiff contends this was not
true. She alleges in the proposed Amended Complaint that the value of Brijon stock would
not have been affected by the recession but, rather, was largely based on the value of the loan
between Besler and Brijon.
Michael Mullaugh was appointed as “temporary independent trustee” of the ESOP for
the purposes of the 2011 Transaction. Mullaugh had acted in this capacity once before in or
about 2004. At that time, he approved a series of transactions, including Brijon’s agreement
to loan up to $4 million to Philip Besler. In 2011, Mullaugh approved the sale by the ESOP
of its Brijon stock to CarolBri, LLC (“CarolBri”) for $468,000. According to the proposed
Amended Complaint, CarolBri is a New Jersey corporation owned solely by Philip Besler. It

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alleges that Besler created CarolBri for the sole purpose of purchasing the ESOP’s stock
holdings.
Plaintiff alleges that Mullaugh failed to conduct due diligence in approving the 2011
Transaction and, further, relied upon an unreliable appraisal of Brijon’s stock that was
prepared in 2009. Among other things, Plaintiff alleges that the appraisal did not properly
account for Brijon’s liabilities under the deferred compensation agreement with Philip Besler,
any loan to Philip Besler under the 2003/2004 agreements, or Brijon’s claims for unpaid
management services fees. As a result, it is alleged that Mullaugh approved the sale of the
ESOP’s stock for significantly less than market value.
In addition to many of the facts detailed above, which Plaintiff alleges she learned
only through discovery in this action, the proposed Amended Complaint seeks to add three
defendants, CarolBri, BeslerCo, and Michael Mullaugh.
II. Analysis
A. Motion to Amend
Pursuant to Federal Rule of Civil Procedure 15(a), “a party may amend its pleading
only with the opposing party’s written consent or the court's leave” and “[t]he court should
freely give leave when justice so requires.” The decision to grant leave to amend rests within
the sound discretion of the trial court. Zenith Radio Corp. v. Hazeltine Research Inc., 401
U.S. 321, 330 (1970). In determining a motion for leave to amend, courts consider the
following factors: (1) undue delay on the part of the party seeking to amend; (2) bad faith or
dilatory motive behind the amendment; (3) repeated failure to cure deficiencies through
multiple prior amendments; (4) undue prejudice on the opposing party; and/or (5) futility of

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the amendment. See Great Western Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d
159, 174 (3d Cir. 2010) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)).
Here, Defendants argue that certain of the amendments sought by Plaintiff are futile.
Specifically, they contend that to the extent that the proposed Amended Complaint seeks to
assert any claims relating to actions or inactions that took place prior to September 18, 2008
(i.e., six years prior to the date Plaintiff filed this action), such claims are time-barred.
Defendants do not, however, oppose the addition of the three new defendants “to the extent
that any claims against them” are not time-barred. ECF 44 at 1, n.1.
An amendment is futile if it “is frivolous or advances a claim or defense that is legally
insufficient on its face.” Harrison Beverage Co. v. Dribeck Imp., Inc., 133 F.R.D. 463, 468
(D.N.J. 1990) (internal quotation marks and citations omitted). To evaluate futility, the
District Court uses “the same standard of legal sufficiency” as applied to a motion to dismiss
under Rule 12(b)(6). Shane v. Fauver, 213 F.3d 113, 115 (3d Cir. 2000). To determine if a
pleading would survive a Rule 12(b)(6) motion, the Court must accept all facts alleged in the
pleading as true and draw all reasonable inferences in favor of the party asserting them. Lum
v. Bank of Am., 361 F.3d 217, 223 (3d Cir. 2004). “[D]ismissal is appropriate only if,
accepting all of the facts alleged in the [pleading] as true, the p[arty] has failed to plead
‘enough facts to state a claim to relief that is plausible on its face [.]’” Duran v. Equifirst
Corp., Civil Action No. 2:09-cv-03856, 2010 WL 918444, *2 (D.N.J. March 12, 2010)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929
(2007)). Put succinctly, the alleged facts must be sufficient to “allow[ ] the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). In determining futility,

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the Court considers only the pleading, exhibits attached to the pleading, matters of public
record, and undisputedly authentic documents if the party’s claims are based upon same. See
Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993).
Plaintiff’s Proposed Amended Complaint alleges various breaches of fiduciary duty
and/or co-fiduciary duty claims under ERISA. As such, these claims are governed by the
limitations periods set forth in ERISA § 413, 29 U.S.C § 1113. This section provides that
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.
As Plaintiff concedes, while the proposed Amended Complaint focuses primarily on
the 2011 Transaction, it also alleges that certain prior transactions (such as an agreement in or
about 2003 pursuant to which Brjion agreed to lend Besler $4 million) involved breaches of
fiduciary duties under ERISA. Plaintiff contends her claims relating to such transactions are
timely by application of the “fraud or concealment” exception, which permits a claim to be
commenced within six years after the date of discovery of a breach. Id. In effect, § 413’s
“fraud and concealment” exception applies the federal common law discovery rule to ERISA
breach of fiduciary duty claims. Kurz v. Philadelphia Elec. Co., 96 F.3d 1544, 1552 (3d Cir.
1996).

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A statute of limitations defense is an affirmative defense that a defendant must usually
plead in his answer. A plaintiff is not required to plead in a complaint facts sufficient to
overcome an affirmative defense. Schmidt v. Skolas, 770 F.3d 241, 249-51. (3d Cir. 2014).
Only if “the time alleged in the statement of a claim shows that the cause of action has not
been brought within the statute of limitations” will a complaint fail to survive 12(b)(6)
scrutiny and, thus, be considered futile for the purposes of a motion to amend. Id. at 249;
Robinson v. Johnson, 313 F.3d 128, 134–35 (3d Cir. 2002) (“If the bar is not apparent on the
face of the complaint, then it may not afford the basis for a dismissal of the complaint under
Rule 12(b)(6).”) (quoting Bethel v. Jendoco Constr. Corp., 570 F.2d 1168, 1174 (3d Cir.
1978)).
The Third Circuit has stated, in the context of the common law discovery rule, that
when “the pleading does not reveal when the limitations period began to run ... the statute of
limitations cannot justify Rule 12 dismissal.” Barefoot Architect, Inc. v. Bunge, 632 F.3d
822, 835 (3d Cir. 2011). Importantly, a court “may not allocate the burden of invoking the
discovery rule in a way that is inconsistent with the rule that a plaintiff is not required to
plead, in a complaint, facts sufficient to overcome an affirmative defense.” Schmidt, 770 F.3d
at 251. Nevertheless, in the context of § 413, where a plaintiff is invoking the “fraud or
concealment” exception, the Third Circuit has held that facts supporting application of the
exception should be pled in the complaint. See Ranke v. Sanofi-Synthelabo Inc., 436 F.3d
197, 204 (3d Cir. 2006) (affirming 12(b)(6) dismissal and rejecting the argument that
discovery may reveal facts to support “fraud or concealment exception” and noting that “[t]o
the extent that any misleading communication did occur, or was believed to have occurred, it
should have been pled in the complaint, but it was not”).

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Applying the principles above, the Court concludes that only one claim 3 on the face of
the proposed Amended Complaint falls outside of the six year limitations period of § 413(1)
and is, therefore, futile. In ¶ 68(R) of the proposed Amended Complaint, Plaintiff contends
that Mullaugh breached his fiduciary duty by approving “a series of transactions on behalf of
the ESOP in 2004, including an agreement by Brijon to loan up to $4 million to Philip
Besler.” Proposed Amended Complaint at ¶ 69(R). While there are bald allegations
throughout the complaint that Defendants “concealed” various agreements and actions from
Plaintiff and other Plan participants, there are no factual allegations detailing any steps
undertaken by Defendants to conceal the alleged breaches of fiduciary duty. Thus, the Court
finds that the fraud or concealment exception to § 413 does not operate to save this claim.
Consequently, the Court will grant Plaintiff’s Motion to Amend the Complaint with
two exceptions. The motion is denied as to the claim in ¶ 69(R). The motion is further
denied with respect to the extent it purports to bring claims against the ESOP, as the ESOP
has been previously dismissed from this action. See ECF No. 48.
B. Discovery Dispute
A dispute has arisen between the parties regarding the scope of discovery in two areas.
First, the parties disagree as to whether Plaintiff is entitled to discovery with respect to the
series of 2003/2004 agreements. Second, the parties disagree as to whether Plaintiff may seek
discovery regarding Mullaugh’s review of these agreements. Defendants’ first objection to
the production of these documents is that they are not related to allegations in the original
complaint. That argument has been rendered moot in light of the Court’s decision on
3
It would have been helpful to the Court and perhaps advantageous to Defendants’ position for Defendants to
have identified each claim that they contend is futile and the date they believe each such claim accrued. Rather,
Defendants argue only that “all claims arising prior to September 18, 2008” are futile, and do not specifically
identify to which claims they refer.

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Plaintiff’s motion to amend the complaint. Defendants further argue that Plaintiff is not
entitled to discovery because her allegations are speculative and information regarding
payments owed to Brijon can be obtained from Brijon’s financial statements.
It is well established that the scope of discovery in federal litigation is broad. See Fed.
R. Civ. P. 26(b)(1). Parties may obtain discovery regarding any nonprivileged matter that is
relevant to any party's claim or defense. Id.; see also Pearson v. Miller, 211 F.3d 57, 65 (3d
Cir. 2000). Relevancy is defined as “any matter that bears on, or that reasonably could lead to
other matters that could bear on, any issue that is or may be in the case ...” Fed.R.Civ.P.
26(b); see also Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351, 98 S.Ct. 2380, 2389,
57 L.Ed.2d 253 (1978); Lugosch v. Congel, 218 F.R.D. 41, 44 (N.D.N.Y.2003) (“[t]o be
relevant, the request for information must be ‘germane’ to the subject matter of the claim,
defenses or counterclaims, though not necessarily limited by such pleadings, and is not
controlled by whether it will be admissible at trial”). Moreover, information sought by the
parties need not be admissible at trial if it is “reasonably calculated” to lead to discovery of
admissible evidence. Fed. R. Civ. P. 26.
While the scope of discovery is undoubtedly broad, the Federal Rules also provide that
a Court “must limit the frequency or extent of discovery otherwise allowed” if it concludes
that: (1) the discovery sought is cumulative or duplicative, or can be obtained from some
other source that is more convenient, less burdensome, or less expensive; (2) the party seeking
discovery has had ample opportunity to obtain the information by discovery in the action; or
(3) the burden or expense of the proposed discovery outweighs its likely benefit. Fed. R. Civ.
P. 26. Further, “the Court has a responsibility to protect privacy and confidentiality interests”
and “has authority to fashion a set of limitations that allow as much relevant material to be

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discovered as possible ... while preventing unnecessary intrusions into legitimate interests that
may be harmed by the discovery of material sought.” Schmulovich v. 1161 Rt. 9 LLC, 2007
U.S. Dist. LEXIS 59705, at *3-4, 2007 WL 2362598 (D.N.J.2007); see also Pearson, 211
F.3d at 65; Fed. R. Civ. P. 26(c).
Rule 37(a) allows a party to file a motion to compel discovery where the opposing
party fails to respond adequately to a document request propounded pursuant to Rule 34. Fed.
R. Civ. P. 37. Ultimately, it is within the discretion of the Court to grant a motion to compel
disclosure for good cause shown. In re Cendant Corp. Sec. Litig., 343 F.3d 658, 661 (3d Cir.
2003).
The Court, having granted Plaintiff’s motion to amend, finds that Plaintiff is entitled to
discovery regarding the 2003/2004 agreements in light of the allegations in the Amended
Complaint. As Plaintiff contends, these agreements are not discussed in the 2009 valuation
report that was relied upon in the 2011 Transaction, but income and liabilities resulting from
these agreements may have had an effect on Brijon’s value. As such, the agreements and
their terms are relevant to the allegations in this action.
However, the Court finds that Plaintiff is not entitled to discovery regarding
Mullaugh’s 2004 review of the agreements. The Court has denied Plaintiff leave to amend
her complaint to assert a claim that Mullaugh approved the 2003/2004 transactions without
adequate investigation. As such, the Court finds no basis in this case for discovery into
Mullaugh’s review of the agreements.
III. Conclusion and Order
The Court having considered the papers submitted pursuant to Federal Rule of Civil
Procedure 78, and for the reasons set forth above;

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IT IS on this 5th day of October, 2015,
ORDERED that Plaintiff’s motion [ECF No. 40] for leave to file an amended
complaint is granted in part and denied in part; and it is further
ORDERED that Plaintiff shall file an amended complaint in conformance with this
Opinion no later than 14 days from the date of this Order; and it is further
ORDERED Plaintiff’s informal application to compel discovery is granted in part and
denied in part; and it is further
ORDERED that Plaintiff may seek discovery with respect to the 2003/2004
agreements but not as to Mullaugh’s review of those agreements.

s/ Douglas E. Arpert
DOUGLAS E. ARPERT, U.S.M.J.

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