Eggert v. Merrimac Paper Co., Inc., CIV.A. 03-10048-RBC.<SMALL><SUP>1</SUP></SMALL>

Page 245

311 F.Supp.2d 245

Alan R. EGGERT and Ralph Harrison, Plaintiffs, v. THE MERRIMAC PAPER COMPANY, INC. LEVERAGED EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST ("the ESOP"), Merrimac Paper Co., Inc., in its corporate capacity and as sponsor of the ESOP, Gerard J. Griffin, Jr., Brewster Stetson, James Moriarty, and John T. Leahy, as they are or were Administrators and/or Trustees of the ESOP, Defendants.

No. CIV.A. 03-10048-RBC.¹

United States District Court, D. Massachusetts.

March 31, 2004.

Joan I. Ackerstein, Richard W. Paterniti, Jackson Lewis LLP, Boston, MA, for James Moriarty, Defendant.

Bernard J. Bonn, III, Matthew A. Porter, Dechert LLP, Boston, MA, Robert P. Morris, Robert P. Joy, Morgan, Brown & Joy, Boston, MA, for Gerard J. Griffin, Jr., Defendant.

Michael T. Gass, Christine M. O'Connor, Palmer & Dodge, LLP, Boston, MA, for Brewster Stetson, Defendant.

William R. Grimm, Hinckley, Allen and Snyder, LLP, Boston, MA, for Merrimac Paper Co., Inc., The Merrimac Paper Company, Inc. Leveraged Employee Stock Ownership Plan and Trust (the" Esop"), Defendants.

Jeffrey B. Renton, Gilbert & Renton, Andover, for Alan R. Eggert, Ralph Harrison, Plaintiffs.

Thomas P. Smith, Caffrey & Smith, P.C., Lawrence, for Ralph Harrison, Plaintiff.

MEMORANDUM AND ORDER ON MOTION OF DEFENDANTS BREWSTER STETSON AND JOHN T. LEAHY TO DISMISS PLAINTIFFS' SECOND AMENDED COMPLAINT (# 35), MOTION OF DEFENDANT GERARD J. GRIFFIN, JR. TO DISMISS PLAINTIFFS' SECOND AMENDED COMPLAINT (# 38) AND DEFENDANT JAMES MORIARTY'S MOTION TO DISMISS PLAINTIFFS' SECOND AMENDED COMPLAINT (# 39)

COLLINGS, United States Magistrate Judge.

I. Introduction

In their Second Amended Complaint, plaintiffs Alan R. Eggert ("Eggert") and Ralph Harrison ("Harrison") assert four claims against defendants The Merrimac Paper Company, Inc. Leveraged Employee Stock Ownership Plan and Trust (the "ESOP" or the "Plan"), Merrimac Paper Co., Inc. ("MPC" or the "Company"), in its corporate capacity and as sponsor of the ESOP, and Gerard J. Griffin, Jr. ("Griffin"), Brewster Stetson ("Stetson"), James Moriarty ("Moriarty") and John T. Leahy ("Leahy"), as they are or were administrators and/or trustees of the ESOP. In three of the counts the plaintiffs allege sundry violations of the Employee Retirement Income Security Act of 1974 ("ERISA"), while Count IV is a claim for breach of contract against only defendant MPC.

On March 21, 2003, a suggestion of bankruptcy and automatic stay was filed with respect to defendant MPC. (# 29) In lieu of answering the second amended complaint, on April 17, 2003, the individual defendants Stetson, Leahy, Griffin and Moriarty (collectively the "individual defendants") filed motions to dismiss (35, 38, 39) together with a single, consolidated memorandum of law in support thereof. (# 37) Following an extension of time, Eggert and Harrison submitted a joint memorandum in opposition (# 45) together with an affidavit of Eggert (# 46) on May 30 and June 3 respectively. On June 30 the individual defendants filed a reply memorandum (# 50), followed sixteen days later by a sur-reply brief in opposition from the plaintiffs. (# 51) Finally, on September 30, 2003, the plaintiffs filed a Notice of Supplemental Authority in Further Support of Plaintiffs' Opposition to Fiduciary Defendants' Motions to Dismiss (# 58) and in response, the individual defendants filed a Response to Plaintiffs' Notice of Supplemental Authority in Further Support of Plaintiffs' Opposition to Fiduciary Defendants' Motions to Dismiss (# 61). At this juncture, the record on the motions to dismiss is complete and the dispositive motions stand ready for resolution.

II. The Applicable Standards With Respect to Motions to Dismiss

The individual defendants seek dismissal of the plaintiffs' claims pursuant to Rule 12(b)(1), Fed.R.Civ.P., for lack of subject matter jurisdiction and Rule 12(b)(6), Fed.R.Civ.P., for failure to state a claim. The Supreme Court's decision in Conley v. Gibson provides that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the [non-moving party] can prove no set of facts in support of [their] claims that would entitle [them] to relief." Conley, 355 U.S. 41, 45-6, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957) (footnote omitted). See also Gorski v. N.H. Dept. of Corr., 290 F.3d 466, 473 (1 Cir., 2002). It is incumbent upon the court to "accept the complaint's allegations as true, including all reasonable inferences in favor of [the non-moving party]." Kiely v. Raytheon Co., 105 F.3d 734, 735 (1 Cir., 1997); Hogan v. Eastern Enterprises/Boston Gas, 165 F.Supp.2d 55, 57 (D.Mass., 2001). That general proposition notwithstanding, "bald assertions, ... subjective characterizations, optimistic predications, or problematic suppositions" need not be credited. United States v. AVX Corp., 962 F.2d 108, 115 (1 Cir., 1992) (internal quotations omitted).

A. Rule 12(b)(6)

A motion to dismiss pursuant to Rule 12(b)(6) is a threshold challenge by one party to the adequacy of one or more claims set forth in another party's complaint. See Burchill v. Unumprovident Corp., 2003 WL 21524730, *1 (D.Me., June 27, 2003). The party filing the 12(b)(6) motion asserts that one or more of the plaintiff's claims must fail because the underlying allegations, even if true, fail "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). Accordingly, "[t]he appropriate inquiry on a motion to dismiss is whether, based on the allegations of the complaint, the plaintiffs are entitled to offer evidence in support of their claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). Furthermore, in "reviewing a ... motion [to dismiss], a court is generally required to (1) treat all of the non-movant's factual allegations as true and (2) draw all reasonable factual inferences that arise from the allegations and are favorable to the non-movant." Burchill, 2002 WL 21524730 at * 1 (citing Carroll v. Xerox Corp., 294 F.3d 231, 241 (1 Cir., 2002)). "If under any theory the complaint is `sufficient to state a cause of action in accordance with the law, a motion to dismiss the complaint must be denied.'" Duncan v. Santaniello, 900 F.Supp. 547, 549 (D.Mass., 1995) (citing Knight v. Mills, 836 F.2d 659, 664 (1 Cir., 1987)).

B. Rule 12(b)(1)

In contrast, when considering a motion to dismiss under Rule 12(b)(1) the Court must be "mindful that the party invoking the jurisdiction of a federal court carries the burden of proving its existence." Murphy v. U.S., 45 F.3d 520, 522 (1 Cir., 1995). When the moving party facially attacks the sufficiency of the pleading, however, the trial court accepts the allegations in the complaint as true. See Valentin v. Hospital Bella Vista, 254 F.3d 358, 362-365 (1 Cir., 2001). As such, the non-moving party essentially enjoys the safeguards similar to those provided in opposing a 12(b)(6) motion. See id. However, when the moving party factually attacks the complaint, the allegations have no presumptive truthfulness and the Court must weigh the evidence and may consider extrinsic evidence from affidavits and other documents. See id. As will be discussed in detail below, for the plaintiffs here to survive a motion to dismiss pursuant to Rule 12(b)(1), they must have standing as either participants, beneficiaries, or fiduciaries under ERISA. See 29 U.S.C. §§ 1132(a)(1)(B), 1132(a)(2), and 1132(a)(3).

III. Facts

Plaintiffs Eggert and Harrison worked for MPC for twenty-five and thirty-six years respectively, before agreeing to separate from service on different dates in 2000. (# 27 ¶¶ 25, 32). MPC is a duly organized Delaware corporation that has operated paper product-related manufacturing facilities in Lawrence, Holyoke, and Pepperell, Massachusetts. The Company stock is not tradable on any established market; instead, the employees own most of the Company's outstanding shares. (# 27 ¶ 6).

When the plaintiffs separated from MPC, both participated in the ERISA protected ESOP and had attained fully vested interests in their ESOP accounts. (# 27 ¶¶ 25, 32). Both accounts consisted of a substantial quantity of MPC's common stock. (# 27, Exhibit A, § 5.01).

A. The ESOP

The ESOP became effective on January 1, 1985. (# 27, Exhibit A, ¶ 3). According to the Introduction section of the Plan (# 27, Exhibit A, p. 1):

The primary purpose of the Plan is to enable Participants to acquire stock ownership interest in the Company, therefore, the Trust under the Plan is designed to invest primarily in the Common Stock of the Employer.

The ESOP Plan is designed to be available as a technique of corporate finance for the Company. As such it may be used to meet the general financing requirements of the Company, including capital growth and transfers in the ownership of Company Stock and to receive loans (or other extensions of credit) to finance the acquisition of Company Stock (an "Acquisition Loan").

Allocation of responsibility is not in one person, however. Rather, the Committee, the Company, and the Trustees share responsibility of the Plan as fiduciaries of the ESOP. (# 27, Exhibit A, § 11.01). The Company, however, has sole authority to appoint and remove the Trustees and members of the Committee. See id. Accordingly, the Company designates the Committee, and the Committee then becomes the named Fiduciary having the sole responsibility for the administration of the Plan. See id. Finally, the Trustees are "the named Fiduciaries having the sole responsibility for the administration of the Trust as specifically provided for in the Plan and Trust." Id. According to the ESOP Plan document, "[i]t is intended...that each of the...Fiduciaries shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations under the Plan...." (Id. at § 11.01(b)).

The Company's Board of Directors "determine[s] the amount of Company Stock and/or cash to be contributed to the...