Spires et al v. Schools et al
ORDER AND OPINION The Court DENIES Plaintiffs' motion to proceed under Rules 23.l(a) and 23.l(c) of the Federal Rules of Civil Procedure (Dkt. No. 99 ). AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 11/16/2017.(sshe, )
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
Dana Spires, et al. ,
David R. Schools, et al. ,
Civil Action No. 2:16-616-RMG
ORDER AND OPINION
This matter is before the Court on Plaintiffs' motion to proceed as a derivative action under
Rules 23.1 (a) and 23. l(c) of the Federal Rules of Civil Procedure. For the reasons set forth below,
the Court denies the motion.
Plaintiffs, participants m the Piggly Wiggly Carolina Company, Inc. and Greenbax
Enterprises Inc. Employee Stock Ownership Plan and Trust (the "Plan"), have brought this class
action on behalf themselves and all other participants under the Employee Retirement Income
Security Act of 1974 ("ERISA").
Plaintiffs estimate that the number of Plan participants is
approximately 5,000 persons. Plaintiffs have now moved for leave to proceed without class
certification, as a derivative action on behalf of the Plan under Rule 23.1 of the Federal Rules of
They also seek to be excused from compliance with the derivative-action
pleading requirements of Rule 23 .1 (b ). Defendants oppose Plaintiffs' motion.
In support of their motion, Plaintiffs argue that class actions are not required for claims
under ERISA § 502(a), but courts sometimes have nonetheless required procedural safeguards to
ensure the plaintiffs are bona fide representatives of other interested parties. Thus, according to
Plaintiffs, courts have allowed ERISA § 502(a) claims to proceed as derivative actions on behalf
of plans under Rule 23 .1.
Plaintiffs note that other courts have excused such actions from
compliance with the pleading requirements of Rule 23.l(b), but they provide no argument about
why that rule should not apply in this case. In opposition, Defendants argue that an ERISA plan
lacks standing to sue, that the amended complaint does not comply with Rule 23.l(b), that the
relief Plaintiffs seek would unfairly shift the burden of proof to Defendants, and that it would cause
It is questionable whether, under Fourth Circuit case law, an ERISA plan may bring ERISA
claims against plan fiduciaries. See Provident Life & Acc. Ins. Co. v. Waller, 906 F.2d 985, 98788 (4th Cir. 1990). The Court however does not need to reach that issue. Plaintiffs pleaded a class
action. The complaint has nearly one hundred references to "class," "class members," and the
"class period." It does not meet the pleading requirements for a derivative action under Rule
23.l(b) and Plaintiffs do not attempt to explain why Rule 23.l(b) should not apply. 1 Further,
Defendants' argument that that allowing a class action to proceed as a derivative action would
unfairly shift to Defendants the burden of proving or disproving the adequacy of the named
Plaintiffs as representatives of all interested parties is well taken. In a class action, the plaintiffs
must prove the adequacy of the class. In re A.H Robins Co., 880 F.2d 709, 728 (4th Cir. 1989).
In a derivative action, the defendant arguably has the burden to prove that the plaintiff cannot
Many cases Plaintiffs cite in which Rule 23.l(b) compliance was excused involved the consent
of the parties. E.g., Koerner v. Copenhaver, No. 12-1091, 2014 WL 5544051 (C.D. Ill. Nov. 3,
2014) (order on unopposed motion for preliminary approval of settlement); Stipulation, Fish v.
Greatbanc Tr. Co., No. 1:09-cv-1668 (N.D. Ill. Dec. 29, 2009), ECF No. 115; but see In re
Wilmington Tr. Corp. Erisa Litig., No. CV 10-1114-SLR, 2013 WL 4757843, at *3 (D. Del. Sept.
4, 2013) (sua sponte excusing compliance with Rule 23.l(b) (the issue was not briefed), citing
Fish without noting that in Fish the parties stipulated that Rule 23 .1 (b) would not apply; thereafter
the case settled as a class action).
adequately represent the interests of the shareholders or of the corporation. Lewis v. Curtis, 671
F.2d 779, 788 (3d Cir. 1982), abrogation on other grounds recognized by Garber v. Lego, 11 F.3d
1197 (3d Cir. 1993); Smallwood v. Pearl Brewing Co., 489 F.2d 579, 592 n.15 (5th Cir. 1974); but
see Audio-Video World of Wilmington, Inc. v. MHI Hotels Two, Inc., No. 7:09-CV-39-F, 2011
WL 1059169, at *2 (E.D.N.C. Mar. 18, 2011) (concluding that cases placing the burden on the
defendant to prove inadequacy rely on a misstatement of the holding of Bernstein v. Levenson, 437
F.2d 756, 757 (4th Cir. 1971)). Allowing this class action to proceed as a derivative action without
amendment of the complaint could make it impossible to ascertain from the complaint exactly
what Defendants must prove or rebut to defend themselves. That would deny Defendants the
benefit of notice pleading, which is "to give the defendant fair notice of what ... the claim is and
the grounds upon which it rests." Bell At!. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
quotation marks omitted).
Defendants therefore are correct when arguing that recasting this action as a derivative
action would require amendment of the complaint. Amendment of the complaint to base the entire
action on a new legal theory would require adjudication of new motions to dismiss. This action
was filed 18 months ago. The Court will not return it to the pleading stage absent extraordinary
circumstances. Plaintiffs, however, do not even attempt to show cause why, having chosen to file
a class action, they nonetheless should be excused from "jump[ing] through the procedural hoops"
of prosecuting a class action. (See Dkt. No. 99-1 at 3.) The Court therefore denies Plaintiffs'
motion to proceed as a derivative action.
For the foregoing reasons, the Court DENIES Plaintiffs' motion to proceed under Rules
23.l(a) and 23.l(c) of the Federal Rules of Civil Procedure (Dkt. No. 99).
AND IT IS SO ORDERED.
United States District Court Judge
November &, 2017
Charleston, South Carolina
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