Chesemore et al v. Alliance Holdings, Inc. et al
Filing
789
ORDER that plaintiffs are entitled to judgment on all affirmative defenses alleged in 258 answer by defendants James Mastrangelo, Jeffrey Seefeldt and Pamela Klute and 261 answer by defendants A.H.I., Inc., Alliance Holdings, Inc. and David B. Fenkell, except its standing defense which the court will resolve in the remedies opinion. Signed by District Judge William M. Conley on 5/31/13. (krj)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
CAROL CHESEMORE, DANIEL DONKLE,
THOMAS GIECK, MARTIN ROBBINS and
NANNETTE STOFLET, on behalf of themselves,
individually, and on behalf of all others similarly
situated,
Plaintiffs,
OPINION AND ORDER
v.
09-cv-413-wmc
ALLIANCE HOLDINGS, INC., A.H.I., INC.,
AH TRANSITION CORP., DAVID B. FENKELL,
PAMELA KLUTE, JAMES MASTRANGELO, and
JEFFREY A. SEEFELDT,
Defendants,
and
TRACHTE BUILDING SYSTEMS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
and ALLIANCE HOLDINGS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN,
Nominal Defendants.
In its opinion on liability, the court did not expressly address the affirmative
defenses pled by defendants. Since these defenses were at least alluded to generally at
trial, it does so here. The Alpha Defendant’s affirmative defenses are moot in light of the
court’s finding that they were not liable. Laches and standing were the only affirmative
defenses adequately raised by the Alliance Defendants or the Trachte Trustee Defendants
1
in their summary judgment materials or at trial.1 The court finds that defendants failed
to prove their laches defenses by a preponderance of the evidence, and their remaining
affirmative defenses were waived.
Laches was the only affirmative defense raised substantively by the Trachte
Trustee Defendants or the Alliance Defendants.2 As the defendants’ evidence was the
same and neither specifically argued that their laches defenses differ, the court addresses
them together.
The statute of limitations for claims of breach of fiduciary duty under ERISA is six
years after the breach or “three years after the earliest date on which the plaintiff had
actual knowledge of the breach.” 29 U.S.C. § 1113. Defendants’ fiduciary breaches
occurred in connection with the Transaction on August 29, 2007, and plaintiffs filed this
action on June 30, 2009. Even assuming plaintiffs knew the essential facts constituting
the breach on August 29, 2007, they still filed suit well within the statute of limitations.
Martin v. Consultants & Admin., Inc., 966 F.2d 1078, 1086 (7th Cir. 1992) (defining
“actual knowledge” as knowledge of “essential facts of the transaction or conduct
1
The court will resolve the Alliance Defendants’ standing defense in its remedies
opinion, as well as the Trachte Trustee Defendants’ cross claim against the Alliance
Defendants.
2
In their laches defenses, defendants simultaneously pled that plaintiff’s claims were
barred by the doctrine of estoppel or waiver (Alliance Def.’s Answer (dkt. #261) ¶ 303;
Trachte Def.’s Answer (dkt. #258) at 7), but neither has proven that plaintiffs expressly
waived any rights or engaged in any affirmative conduct that defendants could have
reasonably relied upon.
2
constituting the violation”).
Even so, the Seventh Circuit has found that the doctrine of laches can restrict legal
or equitable claims that are otherwise timely under ERISA. Teamsters & Emp’r Welfare
Trust of Ill. v. Gorman Bros. Ready Mix, 283 F.3d 877, 881 (7th Cir. 2002). Laches applies
when the “plaintiff has waited for an unreasonable length of time to assert his claim and
the defendant has been prejudiced by the delay.” Horbach v. Kaczmarek, 288 F.3d 969,
973 (7th Cir. 2002).3
Defendants have not proven prejudice or that plaintiffs’ delay was unreasonable.
First, they have not shown that plaintiffs two-year delay impaired their ability to defend
the lawsuit. For instance, they have not shown that they were unable to call witnesses or
that key documents were lost. Smith v. Caterpillar, Inc., 338 F.3d 730, 734-35 (7th Cir.
2003).
Even memory problems witnesses may have experienced fell well within the
normal bounds of what one might expect in any civil trial involving a complex
commercial transaction. Id.
Defendants’ primary theory of prejudice is that plaintiffs waited two years to file
suit in order to see whether the transaction ultimately benefitted them and, as a result,
defendants’ damages were substantially increased. Although laches “applies to protect a
3
In Gorman Bros., the Seventh Circuit also explained that laches is “the mirror image of
equitable estoppel,” 283 F.3d at 881, making it unclear whether laches, like equitable
estoppel, requires proof that the plaintiff engaged in affirmative conduct and the
defendant reasonably relied on that conduct. See Cent. States, Se. and Sw. Areas Pension
Fund v. Kroger Co., 2003 WL 1720023, 8-9 (N.D. Ill. 2003). Any uncertainty is
irrelevant here, however, because defendants have not met their burden of proof on even
the basic elements for laches (as explained in the text above).
3
defendant . . . from unfairly accentuated damages occasioned only by a plaintiff's
unreasonable delays,” Lingenfelter v. Keystone Consol. Indus., Inc., 691 F.2d 339, 342 (7th
Cir. 1982), defendants have not proven an unreasonable delay impacted the damage
award. On the contrary, that award will be based on reasonably foreseeable damages, not
those caused by unforeseeable, future events, like the 2008 recession. In any event, any
prejudice is no different from that faced by any defendant sued within the statutory
period and plaintiffs sued well within the statutory period.
The court agrees that by delaying suit by two years plaintiffs enjoyed a “tails I
win, heads you lose” period,4 but it is not prepared to say that period of time is so long
that plaintiffs are not entitled to damages, any more than would be an accident victim
who waits to see if he recovers before deciding whether to bring suit or a party who tries
to mitigate the damages of a breach of contract before suing. Similarly, Congress decided
that a plaintiff may bring a breach of fiduciary claim three years after it obtains actual
knowledge of the breach. An injured party should not be faulted for waiting a reasonable
period until the extent of its injuries becomes less uncertain before incurring the certain
expense of litigation, not only for themselves, but for opposing parties and the court.
Given the complexity of the transaction here -- as well as their reasonable reliance on new
4
More accurately, this was a “tails we win, heads you lose” period, since a rebound in
Trachte’s value would have benefitted defendants also. The Trachte Trustee Defendants
held stock in Trachte as participants in the new Trachte ESOP, Alliance’s seller’s note
from its sale of Trachte would be more likely to be repaid, and all of the defendants
would have benefited because their exposure to suit would have declined.
4
Trachte’s leadership, however misguided it proved to be -- a two-year delay in bringing
suit is not unreasonable.
ORDER
IT IS ORDERED that plaintiffs are entitled to judgment on all of the affirmative
defenses alleged in the Answer by Defendants James Mastrangelo, Jeffrey Seefeldt and
Pamela Klute (dkt. #258) and the Answer by Defendants A.H.I., Inc., Alliance Holdings,
Inc. and David Fenkell (dkt. #261), except its standing defense which the court will
resolve in the remedies opinion.
Dated this 31st day of May, 2013.
BY THE COURT:
/s/
_________________________________________
William M. Conley
District Judge
5
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