MEMORANDUM OPINION AND ORDER
Bоnnie Fish, Christopher Mino, Monica Lee Woosley, Lynda Hardman and Evolve Bank & Trust (“Evolve”) have brought this action against GreatBanc Trust Company (“GreatBanc”), Lee Morgan (“Morgan”), Asha Morgan Moran (“Moran”) and Chandra Attiken (“Attiken”) for asserted violation of their fiduciary duties under several provisions of the Employеe Retirement Income Security Act (“ERISA”): 29 U.S.C. §§ 1104, 1106 and 1108.
Antioch Company (“Antioch”) is an Ohio corporation founded by the Morgan fаmily (D. St. ¶ 10, H. Dep. Ex. 32 at 56). In 1979 Antioch established an Employee Stock Option Plan (“Plan”), in which each of the individual defendants participated with other Antioch employees (D. St. ¶¶ 1, 11). As of 2003, when the events leading to this lawsuit occurred, the Plan owned a little less than 43% of all Antioch stock, the Morgan family owned 46.5% (H. Dep. Ex. 34) and 38 other shаreholders held the remaining 11% or so (id.).
Management of the Plan was conducted by the ESOP Advisory Committee (“Committee”), which comprised Morgan, Moran and Attiken (D. St. ¶¶ 4-6). They had complete discretionary authority over Plan administration and investments (H. Dep. 165). Until 2003 the Plan trustee was Barry Hoskins (“Hoskins”), who also served as an Antioch vicе president (D. St. ¶¶ 12-13). Hoskins’ actions as trustee were at all times directed by the Committee (H. Dep. 164-68).
In early 2003 Morgan and the Committee began to explore making Antioch a 100% Plan-owned company (see D. St. ¶ 15). Deloitte & Touche was retained by Antioch to help design a transaction that would accomplish that goal while also allowing the Morgan family to retain governance over the company (id. ¶¶ 16, 53). First a new entity was to be formed and merged into Antioch by means of a tender offer for all non-Plan shares for cash or a combination of cash, notes and warrants (see D. St. ¶ 36). In the case of the Morgan family, they сould opt for the combination so as to obtain sufficient cash to pay their tax liabilities, guarantee a future income stream and receive warrants for a future share purchase at a negotiated price of $850 per share (see id.).
Hoskins, as a Plan participant, was conflicted frоm acting as Plan trustee during the course of the transaction, so GreatBanc was proposed to serve as Trustee during the transaction (D. St. ¶¶ 22-23).
GreatBanc agreed to decline to sell in exchange for certain annual distributions (D. St. ¶ 56, P. St. ¶¶ 18-19). It also required a Put Price Protection Agreement under which all Plan participants whose employment terminated between 2003 and 2006 would be subject to rules that estаblished the amount Antioch would pay to buy back its stock from those employees based on when they terminated employment (id. ¶ 19).
Those employees who left before October 1, 2004 would be paid about $841 per share (H. Dep. Ex. 22 at 55), while those who terminated after October 1, 2004 would be paid fair market value plus an incremental amount representing tax savings due to the transaction (id.). That amount varied from $12 to $21 depending on the date of termination (see id.). By contrast, before 2004 Plan shares had never been valued at more than $640 (see First Amended Complaint [“FAC”] ¶ 54, D. St. ¶ 65).
Plaintiffs filed this lawsuit on March 17, 2009 (D. St. ¶ 14). Limited discovery was taken on the question whether or not plaintiffs’ suit is timely (D. Mem. 1).
Standard of Review
Every Rule 56 movant bears the burden of establishing the absence of any genuine issue of material fact (Celotex Corp. v. Catrett,
But to avoid summary judgment a nonmovant “must produce more than a scintilla of evidence to support his position” that a genuine issue of fact exists (Wheeler v. Lawson,
Statute of Limitations
What is at stake here may hinge on the answer to a seemingly simple—even simplistic—question: Who is the “plaintiff’ for purposes of the limitations statute that controls the viability of this ERISA-bаsed action? Here is Section § 1113 (emphasis added):
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 com*430 menced not later than six yеars after the date of discovery of such breach or violation.
There is no question that the absence of knowledge under Section 1113(2) means no actual knowledge, not just the absence of “constructive” or “imputed” knowledge (as always, the qualifying label “constructive” or “imputed” betokens attribution through a legal fiction) (Martin v. Consultants & Adm’rs, Inc.,
Though the parties—and the Secretary of Labor as amicus curiae—have approached this issue as one of imputation of knowledge from one fiduciary to another and to the individual named plaintiffs, that is really not what is going on here. After all, actual knowledge by the Plаn’s trustees is the Plan’s knowledge, in much the same way that our Court of Appeals has recently explained in Prime Eagle Group Ltd. v. Steel Dynamics, Inc.,
Corporations do not have brains, but they do have employees. One fundamental rule of agency law is that corporations “know” what their employees know—at least, what employees knоw about subjects that are within the scope of their duties.
So the question is not whether Hoskins’ knowledge was to be imputed to the named plaintiffs. Rather it is whether his knowledge—and therefore the Plan’s knowledge—started the limitations clock ticking because the Plan is the “plaintiff’ for purposes of Section 1113(2).
Unfortunately the statute itself does not provide a definition of “plaintiff,” leaving us with little guidance to interpret congressional intent. And the few cases that have framed the issue as just stated here—as a question of what “plaintiff’ means, rather than one of imputation— have focused not on intent but rather on the potentially perverse outcomes on either side: the risk оf manipulation of the statute of limitations on the one hand or, on the other hand, the possible unfairness to beneficiaries bringing suit.
For instance, New Orleans Employers Int’l Longshoremen’s Ass’n, AFL-CIO Pension Fund v. Mercer Inv. Consultants,
If the statute of limitations started to run on the first day that a fiduciary knew of the violation, then the statute of limitations would begin to run on the date that Kindred breached his duties— or, in the alternative, on the date that agents hired by Kindred were told of the underlying facts by Kindred in the course of seeking their advice. That would obviously defeat the purpose of Section 1118’s requirement that the limitations period run from the date when the plaintiff acquired actual knowledge of the breach, rather than on the date of the breach.8
Landwehr, id. at 733 оpined that its holding was in tune with congressional intent “[t]o protect pension plans from looting by unscrupulous employers and their agents.” For its part, New Orleans Employers,
Interestingly, New Orleans Employers eventually held that “[t]hе three-year statute should commence when the alleged breaches occurred, because that is when the Fund had knowledge of them through the vast majority of its Trustees.” That holding seems to validate Landwehr’s concern that the proper operation of the statute of repose can be subverted when the true “plaintiff’ is the Plan rather than the named plaintiffs. Still, an analytical purist might well find fault with the manner in which Landwehr,
However, if sоmeday a case should arise in which the application of our rule would frustrate the statutory purpose, we will surely be able to apply it in a manner that does not permit such a result.
Happily, this Court need not come to an ultimate conclusion on the matter. Even if the Plan were to be regardеd as the “plaintiff’ for purposes of the statute, that would be dispositive of the defendants’ motion only if it is clear that Hos-kins could have acted effectively on any knowledge he might have had as to the breach of fiduciary duty alleged by the plaintiffs. And despite defendants’ efforts to argue otherwise, plаintiffs really have met their burden on that question. At a minimum they have raised triable issues of material fact on that score.
Thus, even though Hoskins testified to his belief that he might have acted without direction from the Committee if there had been “some extreme violation of law or a fiduciary responsibility” (H. Dep. 167-68), that is far frоm undisputed factual evi
First, Hoskins was tightly constrained by the Trustee Agreement (“Agreement”) that defined his role as directed trustee (H. Dep. Ex. 75). That Agreement gave him very little authority to act without direction from the Committee, and more specifically it prohibited him from bringing any sort of lawsuit on behalf of the Plan without direction (id. at 3-5).
In sum, then, with the evidence viewed in the light most favorable to plaintiffs, defendants’ motion must be denied. At a minimum there are issues of material fact as to Hoskins’ authority or as to his ability to act effectively even if actual knowledge of a claimed fiduciary breach were ascribed to him.
Conclusion
For the foregoing reasons, defendants’ motion is denied. This matter is set for a status hearing at 8:45 a.m. on September 7, 2010, to discuss the next steps in this litigation.
Notes
. Further references to portions of the ERISA statute will takе the form "Section—,” using the numbering in Title 29 rather than ERISA’s internal section numbering.
. This opinion identifies plaintiffs' and defen
. After the transaction was completed, Hos-kins resumed his position as directed trustee for the Plan (D. St. ¶ 55).
. This is the crux of plaintiffs' breach of fiduciary duty claim—that the breach by GreatBanc, Morgan, Moran and Attiken caused the price paid in the tender offer to be morе than adequate consideration.
. Antioch's repurchase liability—the amount it spent to buy back stock from employees leaving the company—was always an issue for the company, representing an annual expense of anywhere between $12 and $14 million (see FAC ¶ 25).
. Antioch had already taken оn a significant amount of debt to refinance the transaction (see H. Dep. 156-57). Plaintiffs contend that it was able to qualify for that financing based in part on its previous ability to meet its yearly repurchase obligation (see FAC ¶ 49).
. Similar manipulation could be effected by replacement of knowing fiduciaries with nеw fiduciaries without actual knowledge, allowing the clock to be continually restarted. Note that such a manipulative tactic has been employed by plaintiffs' counsel here, with Evolve—a stranger to the restructuring transaction and hence lacking in "actual knowledge”—-having been shoehorned in аs an added named plaintiff.
. [Footnote by this Court] Of course, it goes a bit far to say that a breaching fiduciary's knowledge necessarily triggers the commencement of the limitations period. As the Secretary of Labor correctly notes in her amicus brief, common law agency principles teach thаt breaching fiduciaries act adversely to the interests of the plan (S. Mem. 9-10 n. 9). Their actions—and their knowledge— should not therefore start the clock as to claims brought on the basis of their actions and knowledge.
. Indeed, a fair reading of the Agreement is that the only action Hoskins could have taken as to the alleged breach of fiduciary duty would have been to go to the Committee and ask for permission to sue them. It is hard to conceive a more futile act than that.