Citations
- 669 F. Supp. 2d 1301
Full opinion text
ORDER GRANTING IN PART AND DENYING IN PART THE MOTIONS TO DISMISS [DE 143, 145, 146, 147, and 148]
DONALD M. MIDDLEBROOKS, District Judge.
THIS CAUSE comes before the Court on Defendants’ motions to dismiss [DE 143, 145, 146, 147, and 148]. I have reviewed the record and am advised in the premises. As Plaintiffs have filed a consolidated response, and various Defendants share common defenses, this Order will decide all five of the Defendants’ motions to dismiss.
1. Background
This case is a class action filed against the United States Sugar Corporation (“U.S. Sugar” or the “Company”) and related defendants for alleged breaches of fiduciary duties to former and current employees, and violations of ERISA statutes. Plaintiffs’ complaint alleges that they are the beneficiaries of an employee benefits plan offered through U.S. Sugar, which funds the plan by placing shares of the Company in trust for the benefit of the former and current employees. The plan is administered under ERISA statutes.
According to the Complaint, U.S. Sugar and related defendants purposefully and unlawfully undervalued the price at which the class members could redeem the shares by failing to disclose or take into account a third-party offer to buy the shares. Plaintiffs allege that this, along with other related acts and omissions, gives rise to their claims of breach of fiduciary duties and violations of ERISA statutes.
A. The Plaintiffs
Five of the six named Plaintiffs allege that they are current or former participants in United States Sugar Corporation’s (the “Company”) Employee Stock Ownership Plan (the “ESOP”). On October 6, 2008, Plaintiffs filed their amended Consolidated Class Action Complaint (“Complaint”) [DE 142],
Plaintiff Diallo Johnson, employed as a commodities analyst, was at all relevant times, a participant in the U.S. Sugar ESOP, which held his vested and unvested U.S. Sugar shares of common stock or an interest in the ESOP during the Class Period. Plaintiff Linda Stanley, employed as a secretary and a cost analyst, also owned shares as a participant in U.S. Sugar’s ESOP, and U.S. Sugar purchased those shares from her at a price of $194.10 per share sometime after June 29, 2007. Similarly, Plaintiffs Miguel Matura, and Michael Texton, at all relevant times, were participants in the U.S. Sugar ESOP. Plaintiff Mary Rafter, a former secretary and administrative assistant for U.S. Sugar, is a direct minority shareholder in U.S. Sugar.
B. The Defendants
The thirteen-count Amended Consolidated Complaint (the “Complaint”) [DE 142] was brought against: (1) U.S. Sugar; (2) its Board of Directors: William S. White, John Butler, Frederick Kirkpatrick, Roy E. Peterson, W. Archibald Piper, William H. Piper, Lloyd E. Reuss, Horace Wilkins, Ridgway White (as of October 2006), and Robert H. Bunker, Jr. (collectively the “Directors”); (3) its CFO, Gerard Benard; (4) one of its controlling shareholders, the Charles Stewart Mott Foundation (the “Foundation”); and the United States Trust Company, N.A. (“U.S. Trust”). I will describe who the defendants are with some detail, including their familial relationship with each other due to the fact that Plaintiffs have alleged that they have tortuously acted together for the purpose of preserving and increasing their family’s interest in U.S. Sugar.
Defendant United States Sugar Corporation (“U.S. Sugar” or the “Company”), is a privately-held Delaware corporation with its principal place of business in Clewiston, Florida. Plaintiffs allege that it does business in the State of Florida and is subject to personal jurisdiction in this Court pursuant to Fla. Stat. § 48.193(l)(a), (l)(b) and (2).
Defendant Charles Stewart Mott Foundation (the “Mott Foundation”) is a private foundation and Michigan nonprofit corporation. The Mott Foundation directly owns approximately 19% of the shares of the Company, however; Plaintiffs allege that the Mott Foundation, together with William S. White and his family, is a controlling shareholder of U.S. Sugar and a means through which the Mott/White family exercises actual control over the operations of U.S. Sugar. Plaintiffs allege that the Mott Foundation is controlled by seven members of its “Corporation” which is controlled by William S. White, Claire Mott White, their daughter Tiffany White Lovett, and William H. Piper. Defendant William S. White is the President and CEO of the Mott Foundation and the Chair of its Board of Trustees. Defendant William H. Piper serves as Vice Chair of the Mott Foundation’s Board of Trustees.
Defendant William S. White is married to Claire Mott White, a granddaughter of C S. Mott. He has been on the Board of Directors of U.S. Sugar for 37 years, and has been the Chair for 20 years.
Defendant Robert H. Bunker, Jr. was allegedly “installed” by William S. White as President and CEO of U.S. Sugar in or around August 2005, thereafter becoming a member of the Board of Directors and Executive Committee of U.S. Sugar.
Plaintiffs allege that at all times relevant to this action, the Board of Directors of U.S. Sugar included William S. White, John Butler, Frederick Kirkpatrick, Roy E. Peterson, W. Archibald Piper, William H. Piper, Lloyd E. Reuss, Horace Wilkins, Ridgway White (as of October 2006) and Robert H. Bunker, Jr. (collectively, the “Directors”).
Defendant John Butler is the great grandson of C.S. Mott and grandson of Aimee Butler, who allegedly inherited a large block of U.S. Sugar stock from her father. He has been on the Board of Directors for 9 years.
Defendant Frederick S. Kirkpatrick is the Chief Operating Officer and a Director of the Mott Family Office, a corporation that manages a large portion of the Mott Family’s assets. He is currently Vice Chair of the Board. He has been on the Board of Directors for 14 years.
Defendant Roy E. Peterson is the former President of the Mott Children’s Health Center (“Children’s Health Center”), a Michigan public charity founded by C.S. Mott and owns approximately 22% of the outstanding shares of U.S. Sugar. He has been on the Board of Directors for 16 years.
Defendant William H. Piper is a member of the Executive Committee of the Mott Foundation, as well as being a member and Vice Chair of the Board of Trustees of the Mott Foundation. He has been a member of the Board of Directors for 18 years.
Defendant W. Archibald Piper is member of the Board of Directors of the Children’s Health Center, and he has been a member of the U.S. Sugar Board of Directors for 12 years.
Defendant Lloyd E. Reuss is alleged to be a longtime Mend of William S. White, and he has been a member of the Board of Directors for 12 years.
Defendant Horace Wilkins formerly served as a Director of a privately-held company owned by the Mott family and controlled by William S. White. He has been a member of the Board of Directors for 6 years.
Defendant Ridgway H. White is the son of William S. White and Claire Mott White and the great-grandson of C.S. Mott. He was installed on the board of directors in 2006, at the age of 27, and according to Plaintiffs, without any noteworthy business experience. He was appointed by William S. White, and he is also a Director in the Mott Family Office, and an employee of the Mott Foundation.
Defendant Gerard Bernard is the CFO and Senior Vice President of U.S. Sugar. Since June 23, 2006, he has been a member of the ESOP Committee.
Defendant U.S. Trust is a Delaware Corporation with its principal place of business in New York, NY. U.S. Trust was the Trustee of the U.S. Sugar ESOP and a named fiduciary of the U.S. Sugar ESOP.
Defendant U.S. Sugar ESOP Committee (the “ESOP Committee”) consists of various officer and/or employees of U.S. Sugar who manage the operation and administration of the U.S. Sugar ESOP. The ESOP Plan Document provides (at § 11.1) that the ESOP Committee was to consist of no less than three individuals appointed by the Board of Directors. The ESOP Committee is a named fiduciary of the Plan and is the “Administrator” of the Plan.
C. The Complaint and Motions to Dismiss
The Complaint alleges' breaches of fiduciary duty to the Company’s shareholders, particularly its employee shareholders, and violations of the Employee Retirement Income Security Act (“ERISA”).
Plaintiffs bring five state law claims:
Count I Breach of Fiduciary Duty — Duty of Loyalty and Good Faith, against the Director Defendants;
Count II Breach of Fiduciary Duty — Self-Dealing, against U.S. Sugar, the Director Defendants and the Mott Foundation;
Count III Breach of Fiduciary Duty— Majority/Controlling Shareholder Oppression of Minority Shareholders, against William S. White and the Mott Foundation;
Count IV Breach of Fiduciary Duty — Duty of Care
Count V Conversion, against William S. White and the Mott Foundation.
Plaintiffs bring eight ERISA claims:
Count VI ERISA Breach of Fiduciary Duty— Failure to Prudently and Loyally Manage the Plan, against U.S. Trust and the U.S. Sugar' ESOP Committee, pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3);
Count VII ERISA Breach of Fiduciary Duty— Failure to Provide Complete and Accurate Information to ESOP Participants, against the ERISA Fiduciary Defendants, pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3);
Count VIII ERISA Breach of Fiduciary Duty-Failure to Monitor ERISA Fiduciaries Appointed by Board of Directors, against the Director Defendants, pursuant to ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3);
Count IX ERISA Breach of Fiduciary Duty— Breach of Duty to Avoid Conflicts, against the ERISA Fiduciary Defendants, pursuant to ERISA § 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A);
Count X ERISA — Co-Fiduciary Liability, against the ERISA Fiduciary Defendants, pursuant to ERISA § 405(a), 29 U.S.C. § 1105;
Count XI ERISA § 406(b) — Engaging in Prohibited Self-Dealing Transactions, against the ERISA Fiduciary Defendants, pursuant to ERISA § 406(b), 29 U.S.C. § 1106;
Count XII Removal of the ESOP Fiduciaries and Trustee (ERISA § 409), against the U.S. Trust and the U.S. Sugar ESOP Committee, pursuant to ERISA § 406(b), 29 U.S.C. § 1109(a); and
Count XIII Unlawful Interference with the Attainment of Benefits Under ERISA § 510, against U.S. Sugar, William S. White, and Robert Bunker, pursuant to ERISA § 510, 29 U.S.C. §§ 1149 and 1132(a)(3).
All defendants filed motions to dismiss all the counts alleged against them. Defendant U.S. Trust filed its motion to dismiss [143] on October 15, 2008, and a reply [DE 172]. Defendant Charles Stewart Mott Foundation filed its motion to dismiss [DE 145] on October 27, 2008, and a reply [DE 171]. The Directors filed their motion to dismiss [DE 146] on October 27, 2008, and a reply [DE 170]. Defendants William S. White and Ridgway White filed their motion to dismiss [DE 147] on October 27, 2008, and a reply [DE 169]. Finally, Defendant U.S. Sugar filed its motion to dismiss [DE 148] on October 27, 2008, and a reply [DE 173]. On January 27, 2009, the Directors filed a notice of supplemental authority [DE 188].
On November 17, 2008, Plaintiffs filed one consolidated response [DE 161] addressing all of the motions to dismiss. As such, Defendants filed their individual replies on December 4, 2008. Pursuant to this Court’s Order [DE 182], the Parties gave notice [DE 185] to the Court on January 5, 2009, that this action will go forward despite developments outside of the lawsuit relating to the potential sale of Defendant U.S. Sugar.
II. Plaintiffs’ Allegations
U.S. Sugar is a privately held corporation founded by Charles Stewart Mott and it is largely controlled by his descendants. Defendant William S. White, the Chair of the Board of Directors, married one of Mott’s granddaughters. Plaintiffs allege that a majority of the Board of Directors is beholden to him for their jobs both at U.S. Sugar and other Mott family organizations and are therefore not independent. The Mott/White Family directly and indirectly own slightly more than 4% of the outstanding shares. [DE 142, ¶ 36], Ridgway White is the 29-year-old son of William S. White, and John Butler is the cousin of Claire Mott White, who is also Ridgway White’s mother.
The Plaintiffs’ Complaint [DE 142] brings both common laws and ERISA claims against the Defendants. They allege that in June of 2005, a third-party corporation, the Lawrence Group, entered into negotiations with the then-CEO of U.S. Sugar, Robert Dolson, to purchase the Company. [DE 142, ¶ 47], In August of 2005, Dolson and the Lawrence Group reached agreement on a purchase price of $293 per share in cash for the purchase of all of the outstanding shares. [DE 142, ¶ 48]. This price was at a 51% premium over what U.S. Sugar represented to its employees was the Fair Market Value of their shares, and approximately $100 per share more than what U.S. Sugar had been paying its employees for the same shares at that time. [DE 142, ¶ 50], According to the Plaintiffs, the offer was presented to the Board of Directors (the “Board”), whereupon William S. White installed a new CEO in Dolson’s place, Defendant Robert Bunker, who took control of dealings with the Lawrence Group. [DE 142, ¶ 51].
On March 14, 2006, the Board formally rejected the Lawrence Group’s offer. [DE 142, ¶ 58]. On January 8, 2007, the Lawrence Group made a second offer to buy all of the U.S. Sugar stock for $293 per share, a price that was 51% higher than what was currently being offered as the Pair Market Value. [DE 142, ¶ 64].
The price paid to the ESOP participants for their shares when they become eligible for a distribution is supposed to be the “Fair Market Value,” that is, the price at which the shares would change hands between a willing buyer and a willing seller. [DE 142, ¶ 3, 45]. The gravamen of Plaintiffs complaint arises from the fact that, throughout these negotiations with the Lawrence Group, U.S. Sugar’s Board represented to its employee shareholders that the Fair Market Value of their shares was $199.10. [DE 142, ¶ 61]. They claim that an outside offer to purchase the non-public stock is and should be a primary factor in the determination of the Fair Market Value of the shares. Therefore, U.S. Sugar and the Board’s exclusion of this offer for consideration in its pricing artificially depressed the price they paid to the shareholders who never knew any better.
Plaintiffs further allege that the Defendants purposefully withheld the information about the Lawrence Group offer in order to preserve the Mott/White family’s control over the Company, and to increase the family’s ownership interest in the Company by repurchasing and retiring the ESOP participants’ shares for unfairly cheap prices as explained further below.
The Mott Foundation defendant, Chaired by William S. White, directly owns approximately 19% of the shares of U.S. Sugar. [DE 142, ¶ 36]. Two other charitable organizations also play a role in the Plaintiffs’ claims: the Children’s Health Center and the Community Foundation of Greater Flint. Plaintiffs explain that the Mott Foundation entered into an agreement with the Children’s Health Center in 1990 that prohibits selling Company shares if the result of the sale causes the purchaser to take control of the Company, thereby securing the Mott/White’s present control of the Company. In 1992, the Mott Foundation entered into a similar agreement with the Community Foundation of Greater Flint. Plaintiffs allege that the Mott Foundation, the Children’s Health Center and the Community Foundation of Greater Flint, combined with the shares the Mott/White family own constitute 51% of the outstanding shares, and thereby give the Mott/White family de facto control of the Company.
The employee shareholders are not direct shareholders. They are ESOP participants who are beneficiaries of individual trust accounts held by the Trustee, U.S. Trust. The trust accounts hold shares in the Company. The Complaint alleges that the rejection of the Lawrence Group offer constitutes conversion and a breach of the Board’s fiduciary duties to the ESOP participants as well as Ms. Rafter. The Complaint further alleges that the wrongful conduct and undervaluation of the ESOP participants’ shares violated various provisions of ERISA.
III. Jurisdiction and Venue
Diversity jurisdiction exists pursuant to 28 U.S.C. § 1332 because this is a purported class action and members of the purported class are citizens of a state different than that of any of the Defendants, and the matter in controversy exceeds $5,000,000, exclusive of interest and cost. This Court has federal question jurisdiction pursuant to 29 U.S.C. § 1132(e), as certain of Plaintiffs’ causes of action arise under ERISA, and supplemental jurisdiction of the state law claims pursuant to 28 U.S.C. § 1367.
This Court has personal jurisdiction over all of the Defendants because ERISA provides for nationwide service of process, ERISA § 502(e)(2), 29 U.S.C. § 1132(e)(1), and all Defendants are residents of the United States. This Court also has personal jurisdiction pursuant to Fed.R.Civ.P. 4(k)(l)(A) because all Defendants would be subject to the jurisdiction of a court of general jurisdiction in the State of Florida.
Venue is proper in this District pursuant to 28 U.S.C. § 1391 and 29 U.S.C. § 1132(e)(2), because a substantial part of the events or omissions giving rise to the claims herein occurred in this District, because a large percentage of the purported class lives in this District, and because a large portion of the assets of Defendant U.S. Sugar is located in this District. Defendants’ motions to dismiss do not challenge jurisdiction and venue.
IV. Legal Standard for a Motion to Dismiss
A motion to dismiss is appropriate when it is demonstrated “beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). For the purpose of the motion to dismiss, the complaint is construed in the light most favorable to the plaintiff, and all facts alleged by the plaintiff are accepted as true. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). Regardless of the alleged facts, however, a court may dismiss a complaint on a dispositive issue of law. Marshall County Bd. of Educ. v. Marshall County Gas Dist., 992 F.2d 1171, 1174 (11th Cir.1993). Conclusory allegations in the complaint need not be taken as true and the plaintiff must allege sufficient facts to support his allegations. Marine Coatings of Alabama, Inc. v. United States, 792 F.2d 1565, 1568 (11th Cir.1986). While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1959, 167 L.Ed.2d 929 (2007) (internal citations and quotations omitted). Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint’s allegations are true. Id.
V. The Motions to Dismiss
Before analyzing the merits of the legal arguments presented in the motions to dismiss, I believe it is helpful first to set forth a summary of the Defendants’ individual arguments for dismissal. Many of the various Defendants’ arguments overlap, therefore, after the summaries, I will discuss each argument for dismissal as it relates to the various counts.
A. U.S. Trust’s Motion to Dismiss [DE 143]
Defendant U.S. Trust filed its motion to dismiss [DE 143] (Counts VI and XII) on October 15, 2008, arguing that Plaintiffs failed to exhaust their administrative remedies prior to filing suit. U.S. Trust is the Trustee of the ESOP and a named fiduciary. It claims that the ESOP Committee has adopted an administrative claims procedure that participants must follow before resorting to litigation. U.S. Trust has attached copies of the United States Sugar Corporation Employee Stock Ownership Plan (the “ESOP”) and the United States Sugar Corporate Employee Stock Ownership Plan Summary Plan Description (the “Plan Summary”) as exhibits to their motion [DE 143], urging the courts to consider those documents at the motion to dismiss stage.
The Court may consider these documents in ruling on U.S. Trust’s motion to dismiss because they are “central to the plaintiffs’] claim” and “undisputed.” Hanna v. WCI Communities, Inc., 348 F.Supp.2d 1322, 1325 (S.D.Fla.2004) (“Under established Eleventh Circuit precedent, a document attached to a motion to dismiss may be considered by the court without converting the motion into one for summary judgment if the attached document is: (1) central to the plaintiffs claim; and (2) undisputed.”) (citing Horsley v. Feldt, 304 F.3d 1125, 1134 (11th Cir.2002)).
U.S. Trust explains that the ESOP is an ERISA-governed employee benefit plan administered by the United States Sugar Corporation Employee Stock Ownership Plan Committee (the “ESOP Committee”). It consists of no less than three individuals appointed to serve by the Company’s Board of Directors. Central to U.S. Trust’s central argument rests on the language in Article 11.6 of the Plan Summary, which states as follows:
11.6 Power and Authority. The Committee shall have power and authority to interpret this Plan, and shall determine all questions of fact arising in connection herewith where the power or determination is not expressly conferred on another person, including, without limitation thereto, questions of Disability, Compensation and determination and distribution of any benefits. Any determination of fact or interpretation of this Plan made in good faith shall be final and binding on all interested persons, subject in the event of a denial of claim for benefits to such review procedures as are .established for this Plan.
Article 11.11 states: “The Committee shall adopt a reasonable claims procedure.” The claims procedure is stated in the Summary Plan, as discussed below. It states: “The Committee serves as the Plan Administrator and the Committee has the power to determine all questions regarding eligibility to participate in the ESOP, to maintain ESOP records, to make rules on the operation for the ESOP, and to compute the amount and kind of benefits payable to you and your Beneficiaries. Benefit requests must be filed with the Benefits Department.”
B. The Mott Foundation’s Motion to Dismiss [DE 145]
On October 27, 2998, The Mott Foundation filed its motion to dismiss and incorporated memorandum of law [DE 145]. Plaintiffs’ Complaint alleges three counts against the Foundation: (1) breach of fiduciary duty — self dealing; (2) breach of fiduciary duty — majority/eontrolling shareholder oppression of minority shareholders; and (3) conversion. The Foundation argues that the three claims are preempted by ERISA because they arise out of the ESOP Plaintiffs alleged rights as ESOP participants, namely, to sell or not to sell their U.S. sugar Shares at Fair Market Value. The Foundation also argues that the first two counts do not state a claim because there is no fiduciary duty owed to Plaintiffs. The third claim, conversion, fails because the law does not recognize a conversion claim for an intangible property right to sell or not to sell shares.
Citing 29 U.S.C. § 1144(a), the Foundation argues that the state law claims should be dismissed because they are preempted by ERISA due to the fact that they relate to Plaintiffs’ alleged rights as participants in the ESOP. The Foundation then argues that even if that are not preempted, the claims do not state a cause of action. Under Delaware law, a shareholder owes a fiduciary duty to other shareholders only if (1) it owns a majority interest, or (2) it controls the business affairs of the corporation. Ivanhoe Partners v. Newmont Mining Corp., 535 A.2d 1334, 1344 (Del.1987). The Foundation argues that because Plaintiffs admit in their complaint that it only holds 19% of the outstanding shares, and does not allege that the Foundation controls the business affairs, Plaintiffs have failed to state a claim for breach of fiduciary duty in Count II and III.
The Foundation further argues that the two shareholder agreements (attached to one prior complaint, but not attached to the Complaint) should be considered by the Court. The Foundation argues that those agreements, in which the Foundation and two other charities entered into an agreement restricting sale, do not make up the majority shareholder block required under Delaware law because even combined with the other entities, and the Mott-White Family, fall short of a majority interest in the Company.
C. The Directors’ Motion to Dismiss [DE 146]
On October 27, 2008, the Directors filed their motion to dismiss and incorporated memorandum of law [DE 146]. The Complaint [DE 142] brings four counts against the Directors: (1) breach of fiduciary duty — duty of loyalty and good faith; (2) breach of fiduciary duty — self-dealing; (3) breach of fiduciary duty — duty of care; and (4) ERISA breach of fiduciary duty— failure to monitor ERISA fiduciaries appointed by the board of directors.
As with U.S. Trust’s motion to dismiss [DE 143], this motion also claims that the ERISA counts should be dismissed for failure to exhaust administrative remedies. As with the Foundation’s motion to dismiss, the Directors also claim that the common law claims are preempted byERISA. In addition to those arguments, the Directors claims that five of the six plaintiffs lack standing to sue them, and that the one remaining plaintiff, Mary Rafter, lacks standing for injury causation.
1. The “Non-Holding Parties” don’t have standing to sue because their shares were held in trust.
First, the Directors assert that all the plaintiffs except Mary Rafter, specifically, Plaintiffs Johnson, Stanley, Matura, and Texton (the “Non-Holding Plaintiffs”) lack standing to assert common law claims. Essentially, the Directors argue that the Non-Holding Plaintiffs never directly owned the shares of the Company, but instead, they were held by the Trustee (U.S. Trust). Citing the Trust Agreement, they state that U.S. Trust has the power to “hold, invest, and administer the Trust assets as a single fund without identification of any part of the Trust assets to the Company or to any Participant----” The Directors urge the Court to consider the Trust Agreement and Summary Plan Document (“SPD”) as central to Plaintiffs claims, without converting the motion into a motion for summary judgment.
According to the Directors, the Plan provides an Account for each participant, which represents each participant’s beneficial interest in the Plan’s assets. The Directors then point to language in the Trust Agreement that states: “... neither the establishment of the Plan ... nor the creation of the Trust or any Account ... shall be construed as giving any Participant ... any legal or equitable right against the Company, any Employer, the Committee, or the Trustees, unless such right shall be specifically provided for in the Plan.” They argue that neither the ESOP Plan nor the Trust Agreement provides participants with the rights of shareholders during their participation in the Plan, but instead, only upon distribution do participants actually receive shares. They argue that the ESOP participants are not shareholders (and mention that they would not be entitled to vote the shares under Delaware law) and therefore lack standing for the common law claims.
2. Plaintiff Rafter lacks standing because she never sold any shares in order to suffer an “injury in fact.”
Plaintiff Rafter does not allege that she is or was a participant in the ESOP and, does not seek relief under ERISA. The Directors argue that she lacks standing to assert any claim because she does not allege that she sold any of her shares, and therefore has not suffered “injury in fact.” They incorporate Section 1(b) of U.S. Sugar’s motion to dismiss.
3. Breach of Fiduciary Duty
Directors then argue that Count I for breach of fiduciary duty fails to state a claim because the Directors did not have a duty to seek shareholder approval to reject the Lawrence Groups’ offer and therefore owed no duty to disclose it. Citing Stroud v. Grace, 606 A.2d 75, 84 (1992), Directors stat that “directors or Delaware corporations are under a fiduciary duty to disclose fully and fairly all material information within the board’s control when it seeks shareholder action.” Directors then cite case law that makes explicit the conclusion to be drawn from Stroud, that “Delaware law does not require a Board to divulge material developments with respect to the company’s business if the board does not seek the vote of the shareholders.” Kahn v. Roberts, No. 12324, 1995 WL 745056, at *8 (Del.Ch. Dec. 6, 1995). Directors then argue that assuming the Lawrence Group offer was material information, the board did not seek approval of shareholders, and therefore did not have to disclose it. Directors ask the Court to, at a minimum, dismiss the duty to disclose aspects of Count I.
4. Duty of Loyalty
Directors argue that they did not breach a duty of loyalty because their actions were protected by the business judgment rule and that the “entire fairness doctrine” does not apply. For this argument, they primarily rely on Gantler v. Stephens, No. 2392-VCP, 2008 WL 401124, at *8 (Del. Ch. Feb. 14, 2008). However, on January 27, 2009, that Gantler decision was overturned by the Delaware Supreme Court in Gantler v. Stephens, 965 A.2d 695 (Del. Supr.2009), and the Directors filed a notice of supplemental authority [DE 188] regarding the recent decision. In Gantler, plaintiff shareholders brought a breach of fiduciary duty action against the directs of the company for their rejecting a valuable opportunity to sell the Company, deciding instead to reclassify shares in order to benefit themselves, and issuing a misleading proxy statement to induce shareholder approval. The Supreme Court of Delaware held that the shareholders’ complaint pled sufficient facts to overcome the business judgment presumption, thereby reversing the Court of Chancery’s dismissal. The lower court had evaluated the complaint under the business judgment standard instead of the entire fairness standard.
The Gantler Court held that “a cognizable claim of disloyalty rebuts the business judgment presumption,” and that “the claim of disloyalty was subject to entire fairness review.” Id. at 708. As pointed out by the Directors in their notice [188], the Gantler Court noted:
[although it may be problematic to determine the fair price of a transaction that was never finalized, our decisions have applied the entire fairness standard in a non-transaction context.... That the Board did not implement any impermissible defensive measures does not, ipso facto, insulate their actions from entire fairness review. Nor does Delaware’s broad allocation of power to directors require less searching review where shareholders are able to establish a cognizable claim of self-interest director behavior.
Id. at 709, FN 33.
Here, plaintiffs have made a similar allegation to that in Gantler: the directors, in buying back the shares from the ESOP members, were able to increase their personal holdings, and do so at a discounted price for the Company. In addition, Plaintiffs have stated this claim beyond vague allegations, distinguishing this case from In re Paxson Comm’cn Corp. S’holder Litig., No. CIV. A. 17568, 2001 WL 812028, at *10 (Del. Ch. July 12, 2001, in which the Plaintiffs merely pled that the “Board members also have close personal and business ties with each other”).
5. Count II Fails to State a Claim for “Insider Trading” or “Self-Dealing”
Directors also state that they have not engaged in insider trading. Citing U.S. v. Heron, 525 F.Supp.2d 729, 737 (E.D.Pa.2007), they argue that insider trading “is committed when a corporate insider who has material, non-public information trades on that information without first properly disclosing it,” and citing In re Oracle Corp., 867 A.2d 904, 950 (Del.Ch.2004), Delaware law requires the claim be supported by an allegation of scienter. However, on the face of the Complaint, Plaintiffs have alleged that the material nonpublic information was the Lawrence Group’s offer of a 150% premium on the share price paid by the Company, because it was known to the Directors and not disclosed to the Plaintiffs. Furthermore, the Complaint does allege that the Offer was not disclosed purposely in order to continue purchasing shares at the lower price offered to the ESOP participants.
Directors then state that Plaintiffs failed to adequately plead self-dealing because the Complaint does not allege that the Directors “received any material benefit that would constitute self-dealing from rejecting the Lawrence offers.” They further allege that, as a matter of law, the mere fact that the directors will retain their board memberships, is not sufficient to create director self-interest.
D. Defendants William S. White and Ridgway White’s (the “Whites”) Motion to Dismiss [DE 147]
Defendant William White is the Chairman of the Board of U.S. Sugar, and named as a defendant in Counts I — V and VII — XIII. Defendant Ridgway White is also on the Board of U.S. Sugar and is the son of William White. Ridgway White is a named defendant in Counts I — II, IV, & VII — XI. Together, they will be referred to as the “Whites.”
The Whites reiterate that the ESOP participants do not own the shares held in trust for their benefit under both Delaware law and the Trust Document, that they cannot vote the shares, and voting power is held instead by the trustee. Therefore, the Plaintiffs could not have sold stock even if they had known of the overture, so the failure to disclose the overture was not the proximate cause of harm to any Plaintiffs. They explain: “[t]he Lawrence overture was not a tender offer made to shareholders generally, and as Plaintiffs allege, the Lawrence family was only interested in acquiring at least 51% of the stock.”
The Whites also argue that William white is a minority shareholder, therefore, Plaintiffs’ allegations regarding majority/eontrolling shareholder status are insufficient as a matter of law, and that Plaintiffs attempts to aggregate the ownership of the shareholders to satisfy the majority shareholder control test is legally deficient.
E. U.S. Sugar’s Motion to Dismiss [DE 148]
In addition to the arguments already detailed in this Order, U.S. Sugar argues that Plaintiff Mary Rafter lacks standing under Count II, breach of fiduciary duty— self-dealing (the only state law claim against U.S. Sugar). Count II claims that U.S. Sugar repurchases the shares at an unfairly low price, however; Ms. Rafter does not allege that she sold any of her shares. Therefore, she has not alleged any injury.
U.S. Sugar goes on to argue that the Complaint is self-contradictory. They explain that the Complaint alleges that an offer was made for 100% of the stock, however, it also alleges that the Mott Foundation (which owns approximately 19% of the shares) entered into shareholder agreements with two other foundations prohibiting the sale of stock if the result of such a sale would give the purchaser control of the company. Under these circumstances alleged in the Complaint, no purchaser could ever obtain more than 49% of the company. Further, the minimum the Lawrence Group would have accepted is 51%. Therefore, unable to reach 51% ownership due to the Mott Foundation shareholder agreement, the Lawrence Group’s offer would never have come to fruition.
U.S. Sugar also argues that the allegation that the ESOP would have tendered its shares is speculative: the ESOP participants have no right to tender the shares, only the Trustee can do that. The Complaint lacks the allegation that the Trustee would have tendered the shares. The Trustee, under the Trust Agreement, gives the Trustee discretion whether or not to buy shares, even at a premium. However, the participants do have the right to direct the Trustee in its action, as discussed below.
VI. Discussion
I will address the two threshold issues raised in multiple Defendants’ motions first: failure to exhaust administrative remedies, and the preemption of the state law claims by ERISA.
A. Plaintiffs Must Exhaust Administrative Remedies
Defendants William S. White and Ridgway White’s motion [DE 147], U.S. Sugar’s motion [DE 148], the Director’s motion [DE 146], and U.S. Trust’s motion [DE 143] all argue that Plaintiffs’ claims should be dismissed for failure to exhaust administrative remedies, and that the administrative remedy process was set forth in the Plan Summary. Plaintiffs in ERISA actions must exhaust available administrative remedies before suing in federal court, but the district court has sound discretion to excuse the exhaustion requirement when resort to administrative remedies would be futile or the remedy inadequate, or where a claimant is denied meaningful access to the administrative review scheme in place. Perrino v. Southern Bell Tel. & Tel. Co., 209 F.3d 1309, 1315 (11th Cir.2000). This exhaustion requirement applies equally to claims for benefits and claims for violation of ERISA itself. Id. at 1316 n. 6. The decision of a district court to apply or not apply the exhaustion of administrative remedies requirement for ERISA claims is a highly discretionary decision which is reviewed only for clear abuse of discretion. Id. at 1315.
There are compelling policy rationales for the exhaustion requirement, well-stated by courts in other jurisdictions. “Courts require exhaustion of administrative remedies ‘to help reduce the number of frivolous lawsuits under ERISA; to promote the consistent treatment of claims for benefits; to provide a nonadversarial method of claims settlement; and to minimize the costs of claims settlement for all concerned.’ ” Harrow v. Prudential Ins. Co. of America, 279 F.3d 244, 249 (3d Cir.2002) (quoting Amato v. Bernard, 618 F.2d 559, 567 (9th Cir.1980)). See also Lane v. Sunoco Inc., 260 FedAppx. 64, 66 (10th Cir.2008) (stating that not requiring exhaustion would permit premature judicial interference and would impede those internal processes that result in a completed record of decision-making for a court to review) (internal citations omitted), cited by Jennifer E. Johnsen, Nicole J. Buntin, & Mary A. Giorgi, ERISA Litigation: Back to Basics, 56-JAN Fed. Law. 26 at *27, FN 25 (2009). Therefore, the exhaustion requirement rightly puts the burden on the ESOP Committee, and ultimately, the corporation, to fairly handle the claims of its participants, and safeguards against the expense of possibly unnecessary litigation.
In this case, Plaintiffs admit that they have not pursued any administrative remedies provided in the Plan Summary, instead; they put forth four arguments for exemption from this requirement: (1) the Plan Summary which sets forth an administrative procedure is not properly before the Court and therefore cannot be considered; (2) the administrative procedure cannot remedy Plaintiffs’ claims; (3) embarking on the administrative procedures would be futile because the ESOP Committee is appointed by the Board of Directors; and (4) Plaintiff Mary Rafter cannot be said to be required to exhaust administrative remedies, therefore, in the interest of the parties’ costs and judicial economy, the case should not be stayed as to the other Plaintiffs to exhaust remedies before returning to court with their claims.
First, Plaintiffs argue that the Defendants cannot rely on the Plan Summary because (1) it was created by U.S. Sugar and is not a Plan document; and (2) it is not properly before the Court because it is not referenced or included in the Complaint, therefore, it should be treated as a matter for evidence and not on a motion to dismiss. In further support, Plaintiffs state that there is no evidence on the record that Plaintiffs were ever provided with the Plan Summary, that the procedures were actually utilized, or that the Plaintiffs knew of any administrative remedies. However, Plaintiffs do not actually make the claim that the Plaintiffs never received the Plan Summary.
A document is properly before the Court on a motion to dismiss even if it is not referenced or included in the complaint when it is (1) central to the Plaintiffs’ claims; and (2) undisputed in terms of authenticity. See Maxcess, Inc. v. Lucent Technologies, Inc., 433 F.3d 1337, 1340 FN. 3 (11th Cir.2005), citing Horsley v. Feldt, 304 F.3d 1125, 1135 (11th Cir.2002). Plaintiffs do not dispute that the ESOP is properly before the Court, as it was, in fact, referenced in the Complaint. The Plan Summary, however, is brought before the Court by the Defendants. It purports to be a type of users’ guide that “[t]he Company publishes ... to provide [the ESOP participant] with the general information [an ESOP participant] need[s] to understand the benefits available ... under the ESOP.” [DE 135, Exhibit 2, p. 3], As such, the plan summary is central to the Plaintiffs’ claims in so far as it relates to the administration and implementation of the ESOP. There is also no dispute of its authenticity. Therefore, the Plan Summary is properly before this Court on the motion to dismiss. I note, however, that consideration Plan Summary is not essential to my determination that Plaintiffs need to exhaust administrative remedies, as such a determination can be based off of the ESOP and the Trust Agreements alone: § 11.6 of the ESOP states that the Committee has the “power and authority to interpret this Plan, and shall determine all questions of fact arising in connection herewith where the power or determination is not expressly conferred on another person.... ”
Plaintiffs also argue that even if they had made a claim to the Committee, as a practical matter, there is nothing the Committee can do to satisfy their claims. They argue that, under the ESOP, it is the responsibility of the Trustee to value the shares, and the ESOP does not give the Committee power to revalue the shares to reflect the Lawrence Groups offer. Further, Plaintiffs point out that “[w]hile U.S. Trust argues that the [ESOP] Plan gives the ESOP Committee broad discretion, it does not point to anything that would allow the ESOP Committee to supplant U.S. Trust’s role and take charge of determining the Fair Market Value of the shares for itself.” [DE 161, p. 36].
There are certain textual inconsistencies between the ESOP and the Trust Agreement. Section 5.3 of the Trust Agreement states as follows:
(a) The Trustee shall determine, and report to the Committee, the current fair market value of the assets and liabilities of the Trust Fund, and Participants’ and Beneficiaries’ interest therein, as of the regular Valuation Date and as of any interim Valuation Date that may be fixed by the Committee.
(b) The fair market value of assets of the Trust Fund shall be determined by the Trustee. In valuing the assets, the Trustee may rely on information from the Company, the Committee, appraiser, or other sources, and will not be liable for an inaccurate valuation based in good faith on such information. Notwithstanding the foregoing, the fair market value of shares of Company Stock shall be (I) if the Stock is readily tradeable on an established securities market on the Valuation Date or (ii) if the Stock is not readily tradeable on an established securities market, the fair market value determined in good faith by the Trustee based upon an appraisal by an independent appraiser meeting requirements similar o the requirements of Code section 170(a)(1).
Trust Agreement [DE 146, Ex. 3], emphasis added.
Based on those two passages alone, Plaintiffs can conclude that the “power or determination” of the stock price is “expressly conferred on another person,” namely, the Trustee. However, in reading both the ESOP and the Trust Agreement as an integrated whole, as affirmed in Bickley, one can observe that the ESOP Committee, too, can determine the valuation of stock that is at issue in this litigation. Section 5.3 of the ESOP vest the Committee with power to value the accounts:
5.2 Valuation of Accounts. The Committee shall value each Participant’s Accounts as of each Valuation Date as herein provided to reflect each Participant’s interest in the Trust Fund. For this purpose, the value of Stock held in the Trust shall be its fair market value as determined by the Committee based upon the determination of one or more independent appraisers having expertise in rendering such evaluation and in accordance with applicable regulations under the Code and the Act. The Committee’s determination of the value of the Stock as of each Valuation Date shall be reported to Participants.
This provision gives the Committee authority to correct the allegedly flawed valuation of the stock. This provision, combined with the § 11.6 provision which gives the Committee the “power and authority to interpret this Plan, and [to] determine all questions of fact arising in connection herewith,” puts the plan participants on notice that (1) the Committee has the power to determine questions of fact” relating to the Fair Market Value of the stock price; and (2) the Committee has the power to determine the fair market value of the stock price. Therefore, based solely on the ESOP, the Participants are alerted to the fact that they could seek an administrative remedy for the complaint, despite the seemingly inconsistent passage in the Trust Agreement.
In addition, the Plan Summary outlines the administrative remedy procedure whereby a plan participant may prevail upon the Committee to change its course. The Plan Summary expressly provides the following:
The Plan [the ESOP] is administered by the Committee, which consists of no less that 3 individuals appointed by the Board of Directors of the Company. The Committee serves as the Plan Administrator and the Committee has the power to determine all questions regarding eligibility to participate in the ESOP, to maintain ESOP records, to make rules on the operation of the ESOP, and to compute the amount and kind of benefits payable to you and your Beneficiaries.
Benefit requests must be filed with the Benefits Department.
• How to file a claim
All claims for benefits under the ESOP which have been denied by the Benefits Department must be filed with the Committee in writing. The Committee will review your claim and, if your claim is denied, the Committee will notify you, in writing and generally within 90 days of the date your claim is denied, if your claim has been denied. Reference to the ESOP provisions upon which the denial was based will be included and you will be advised what you should do to have the claim reconsidered....
Plan Summary [DE 143, Ex. 1, p. 19].
Plaintiffs argue that they are not making a claim for particular benefits under the ESOP, and they had no claim for benefits “denied,” but instead, they claim breach of fiduciary duty and improper valuation of the Fair Market Value of the shares. [DE 161, p. 36]. However, they are making a claim that the stock price of their shares held in trust was too low based on the Lawrence Group’s offer. Redeeming the share at retirement, early retirement, or at other times allowed by the plan is the plan’s primary purpose, as it was “established for the exclusive benefit of the Participants.” See ESOP, § 12.1. From my reading of the ESOP, receiving the fair market value for one’s shares, and holding that valuation in a trust account before their redemption upon retirement, are the chief benefits of the of the plan. Therefore, if a participant is not receiving fair market value for their shares, or if their trust account is not valued to reflect the fair market value of the shares, that participant can make a claim to the Committee that she is being denied benefits under the plan. See Bickley v. Caremark RX, Inc., 461 F.3d 1325 (11th Cir.2006) (in an ERISA action, the Eleventh Circuit rejected a plaintiffs argument that because the administrative remedy under the plan only related to the denial of benefits, and the plaintiffs claims were statutory, there was no remedy available under the plan).
Plaintiffs third argument must also be addressed. Plaintiffs assert that even if a claim was made to the Committee, the Committee would not provide the relief Plaintiffs seek because the ESOP Committee is appointed by the Board of Directors, thereby making exhaustion futile. In Lanfear v. Home Depot, Inc., 536 F.3d 1217, 1224 (11th Cir.2008), the Court held that “[t]he exhaustion requirement applies to complaints for breach of fiduciary duty under ERISA regardless of whether the breach was committed by a third-party administrator of the plan or the employer.” I have reviewed an order issued in another ERISA case brought in this district, Almonor v. Bank Atlantic Bancorp, Inc., Case No. 07-61862-CIV-UNGARO, filed as Plaintiffs notice of supplemental authority [DE 196], Judge Ungaro held that the ERISA plaintiffs need not exhaust their administrative remedies because the claim was brought on behalf of the plan itself for breaches of fiduciary duty, as opposed to having been brought by persons whose claims have been denied under the plan. The Court also gave a second reason for waiver of the exhaustion requirement:
Second, the Court excuses Plaintiff from the administrative exhaustion requirement because it was clear that the procedure would be futile in this case. The claims here are made against the same fiduciaries who would decide Plaintiffs claims, the very same Defendants who have publicly disparaged Plaintiffs claims and made their positions known. Therefore, there would be no purpose in requiring Plaintiff to pursue the claims procedures articulated in the Plan.
Almonor v. Bank Atlantic Bancorp, Inc., Case No. 07-61862-CIV-UNGARO, at *29.
In this case, the Director Defendants appointed the fiduciaries to the plan, the ESOP committee. The ESOP committee, in turn, appoints the Trustee. As recounted above, the ESOP committee must consist of no less than three individuals appointed by the Board. Plaintiffs allege that Defendant Gerard Bernard has been on the ESOP Committee since June 23, 2006. And, Plaintiffs have alleged that the ESOP Committee “consists of various of officers and/or employees of U.S. Sugar who managed the operation and administration of the U.S. Sugar ESOP.” [DE 142, ¶ 34], Although Plaintiffs have made a showing that the Board does have some control over the ESOP Committee, and even some overlap in the people seated on the Board and the Committee, Plaintiffs have not shown sufficiently that seeking an administrative remedy is necessary futile.
Finally, Plaintiffs’ assert that regarding the costs to the parties and judicial economy, the case should not be stayed as to the ERISA claims because Ms. Rafter’s claims can go forward. I recognize that the costs involved in pursuing two tracts of litigation at the same time are great. I give great weight to the Plaintiffs’ argument that requiring the exhaustion of administrative remedies will necessarily cause them to incur additional expense, and possible delay of the resolution of their claims. These factors are momentous, however, for the reasons stated above, I hold that on balance, the reasons compelling exhaustion outweigh the additional expense. Although it will not remedy Plaintiffs’ entire grievance with regard to additional costs, if they so chose, Plaintiffs may move the Court to stay the claim of Ms. Rafter until it may be prosecuted along with the ESOP participants’ ERISA claims if they come before the Court, depending on the resolution of the administrative remedy process.
B. The State Law Claims Are Not Preempted by ERISA
At the outset of their response [DE 161], Plaintiffs seek to clarify why they have brought both state law claims and ERISA claims. William S. White, the Directors, and the Mott Foundation argue that the common law claims against them are preempted by ERISA because they relate to their rights under the ESOP. Plaintiffs respond that the common law claims are distinct, that they arose out of the Defendants conduct in (1) “failing to extend the Lawrence Group’s offers to the shareholders and (2) their rejection of the offer. In contrast, the ERISA violations occurred after that, at the time when certain defendants allegedly “misrepresented] to the ESOP participants that the Fair Market Value of their shares was far below what the Lawrence Group offered.” [DE 161, p. 28]. Plaintiffs say that the basis of their common law claims is the same as that of Mary Rafter, that of a minority shareholder, and in support thereof, cite Ervast v. Flexible Products Co., 346 F.3d 1007 (11th Cir.2003). In short, the common law claims arise from the failure to disclose the offer and the failure to sell the shares in response to the offer. The ERISA claims arise out of the alleged purposeful undervaluing of the ESOP shares after the Lawrence Group’s offers. This distinction is central to Plaintiffs’ argument that the ERISA claims do not preempt the state law claims.
In Ervast, the plaintiff, a participant in an ERISA-governed employee benefits plan, brought only state law claims for breach of fiduciary duty in state court. Defendants removed to federal court on preemption grounds, and the district court denied summary judgment for plaintiff and granted it for defendant. Plaintiff appealed, and the Eleventh Circuit reviewed the preemption issue. (A district court’s preemption analysis is reviewed de novo. Hall v. Blue Cross/Blue Shield of Ala., 134 F.3d 1063, 1064-65 (11th Cir.1998)). The appeals court held that the district court erred in evaluating the preemption issue under a “defensive preemption” standard instead of a “super preemption” standard, as set forth in Butero v. Royal Maccabees Life Ins., 174 F.3d 1207, 1212 (11th Cir.1999). Ervast, 346 F.3d at 1013. The appeals court held that when the “super preemption” standard is properly applied to the facts in the case, there is no preemption of Plaintiffs state law claims, thereby denying the parties federal jurisdiction and making remand to state court appropriate. Ervast, 346 F.3d at 1017.
As the Ervast Court explains, super-preemption is a jurisdictional inquiry, and defensive preemption is a substantive issue, and they are evaluated under different standards. Ervast, 346 F.3d at 1012, 1014. In this case, the preemption issue raised by Defendants is “defensive preemption” because jurisdiction already properly lies in federal court, due to the ERISA claims. Therefore, the “super preemption” evaluation done by the Ervast Court does not apply in this case.
However, as noted by the Ervast Court, “there might be some overlap between the two issues” and many of the facts in the Ervast case are similar, so it is worth a more careful examination. Id. at 1012. As in this case, in Ervast, the plaintiff employee participated in an ESOP plan, through which the employer company made contributions to a trust that invested primarily in the corporate stock, and held the assets for the benefit of the participants. Id. at 1009. As is the case here, the ESOP trustee maintained a separate account for each participant, however, the participants did not directly hold stock as shareholders. Id. Additionally, as is the case here, the participants had a “put” option, which obligated the company or trustee to purchase the participant’s shares at a price valued based on an annual independent valuation of the company’s stock. Id.
In September of 1999, the employer company entered into a confidentiality agreement with another company regarding a potential sale, and the following January the merger was consummated. Id. at 1010. At that time, October 26, 1999 was the date selected “as the point after which the shareholders who sold their [employer company] shares were to receive the higher merger price because it was the date [the employer company] deemed the merger negotiations became ‘material.’ ” Id. Meanwhile, the plaintiff had exercised his “put” option on October 12, 1999, in ignorance of the contemplated merger. Id. He subsequently brought suit in state court for breach of fiduciary duty and negligence for the employer company’s failure to disclose the merger information that would have affected his decision postpone the exercise of his put option. Id. He claimed he was entitled to the difference in the price he received for his put, and the at which the shares were valued. Id. at 1015.
After removal, the district court determined that the claims were “super” preempted by ERISA. On appeal the appellate court disagreed with the district court’s determination that the claims were “super” preempted because the court evaluated them using a “defensive” preemption analysis:
This conclusion [that the state law claims were preempted] exposes the preexisting error by the district court— Ervast’s claim does not contest his distribution under the terms of the ESOP. Instead, he claims a right to information that, if he possessed, would have changed his decision making process with regard to the time he sought to collect his benefits. Ervast also does not claim entitlement to this information under the terms of the ESOP; rather, his claim is based on his status as minority shareholder and the duty owed him by the majority shareholders.”
The Court of Appeals held that the plaintiffs claims “did not seek ‘compensatory relief akin to that under § 1132’ under the fourth prong [of the Butero test], and thus we need not reach the arguments concerning the remaining three prongs of the Butero analysis.” Id. at 1014-15. Importantly, the Ervast plaintiff did “not contend that the valuation for the shares he received under the ESOP was improper under the terms of the ERISA plan,” but instead he “he hinges defendants’ liability on a failure to communicate material information to which he allegedly was entitled as a shareholder and affected his individual decision to ... cash out.” Id. at 1015. Therefore, the Court held that
[t]he relief [plaintiff] seeks, and the basis upon which that relief is sought, is not akin to that available under § 1312(a). [Plaintiffs] allegations do not in any way involve a clarification of his rights, nor is he seeking to enforce his rights under the terms of the ESOP. [Plaintiff] does not dispute the distribution he received as being contrary to the terms of the plan, or that under its terms he should have received more than he did. Thus, neither the second nor third types of claims for recovery under § 1132(a) are applicable here.
Id.
The Court of Appeals emphasized that the plaintiffs claim
does not contest his distribution under the terms of the ESOP. Instead, [plaintiff] claims a right to information that, if he possessed, would have changed his decision making process with regard to the time he sought to collect his benefits. [Plaintiff] also does not claim entitlement to this information under the terms of the ESOP; rather, [plaintiffs] claim is based on his status as a minority shareholder and the duty owed him by the majority shareholders.
Id.
Finally, the court stated: “we are not considering a claim casting the parties in [ERISA] roles ... [t]he state law action does not ... call into question the administration of the ESOP.” Id. at 1016. The Court held that plaintiffs state law claim for breach of corporate fiduciary duty “is not completely pre-empted because it does not seek compensatory relief “akin to” that available under § 1132.” Id.
Defendants correctly point out that the review the Ervast court took was under the super-preemption standard and not the defensive-preemption standard that is appropriate in this case. Based on this difference, Defendants argue tha