Gamache v. Hogue

696 F.Supp.3d 1360

Nelson GAMACHE, et al., Plaintiffs, v. John F. HOGUE, Jr., et al., Defendants.

Case No. 1:19-CV-21 (LAG)

United States District Court, M.D. Georgia, Albany Division

Signed September 29, 2023

Colin M. Downes, R. Joseph Barton, Washington, DC, Daniel Mark Feinberg, Nina R. Wasow, Feinberg Jackson Worthman & Wasow LLP, Berkeley, CA, William S. Stone, Atlanta, GA, for Plaintiffs.

Joelle C. Sharman, Atlanta, GA, Robert E. Lesser, Covington, GA, for Defendants John F. Hogue, Jr., Graham Thompson, Technical Associates of Georgia Inc. Employee Stock Ownership Plan, John Does 1-20, Administrative Committee of the Technical Associates of Georgia, Inc. Employee Stock Ownership Plan, James Urbach, Glenn Kirbo, Jeanne C. Hall.

ORDER

LESLIE A. GARDNER, JUDGE

Before the Court is Defendants' Motion for Summary Judgment (Doc. 195) and Plaintiffs' Motion for Partial Summary Judgment (Doc. 196). For the reasons set forth below, Defendants' Motion is DENIED and Plaintiffs' Motion is GRANTED in part and DENIED in part.

PROCEDURAL BACKGROUND

On January 29, 2019, Plaintiffs Nelson Gamache and Edward Nofi filed this putative class action pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq., against Defendants John F. Hogue, Jr., Graham Thompson, James Urbach, Glenn Kirbo, Randy Hall, John Does 1-20, and the Administrative Committee of the Technical Associates of Georgia, Inc. Employee Stock Ownership Plan. (Doc. 1). Plaintiffs amended their Complaint on April 19, 2019. (Doc. 30). Plaintiffs, former employees of Technical Associates of Georgia, Inc. (TAG) and participants in the TAG Employee Stock Ownership Plan (ESOP), allege that Defendants engaged in prohibited transactions and breached fiduciary duties in violation of 29 U.S.C. §§ 1104(a)(1), 1105, 1106(a)(1)(D), and 1106(b). (Id. at 26-33). Plaintiffs seek various relief, including the voiding of prohibited transactions, the disgorgement of profits from such transactions, a constructive trust over proceeds from such transactions, and Defendants' removal as ESOP fiduciaries. (Id. at 34-35).

On May 24, 2019, Defendants filed a Motion to Dismiss (Doc. 36), which the Court denied on March 16, 2020 (Doc. 43). The Parties filed cross Motions for Summary Judgment on February 10 and 17, 2022, respectively. (Docs. 142, 155). The Court denied both Motions on August 17, 2022, and reset the relevant discovery deadlines. (Doc. 187). The Parties refiled their respective Motions on September 30, 2022. (Docs. 195, 196). The Parties filed their respective Responses (Docs. 198, 201) and Replies (Docs. 200, 205), and the Motions are now ripe for review. See M.D. Ga. L.R. 7.3.1(A).

LEGAL STANDARD

Under Federal Rule of Civil Procedure 56(a), summary judgment is appropriate where "the evidence shows 'that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.' " Gogel v. Kia Motors Mfg. of Ga., Inc., 967 F.3d 1121, 1134 (11th Cir. 2020) (en banc) (quoting Fed. R. Civ. P. 56(a)). "A genuine issue of material fact does not exist unless there is sufficient evidence favoring the nonmoving party for a reasonable jury to return a verdict in its favor." Chapman v. AI Transp., 229 F.3d 1012, 1023 (11th Cir. 2000) (en banc) (quoting Haves v. City of Miami, 52 F.3d 918, 921 (11th Cir. 1995)). "An issue of fact is 'material' if it is a legal element of the claim under the applicable substantive law which might affect the outcome of the case." Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir. 1997) (citations omitted). "An issue of fact is 'genuine' if the record taken as a whole could lead a rational trier of fact to find for the nonmoving party." Felts v. Wells Fargo Bank, N.A., 893 F.3d 1305, 1311 (11th Cir. 2018) (quoting Hickson Corp. v. N. Crossarm Co., 357 F.3d 1256, 1259-60 (11th Cir. 2004)). At summary judgment, the Court views the evidence "in the light most favorable to the non-moving party" and resolves factual disputes for the non-moving party when doing so is supported by sufficient evidence. Gogel, 967 F.3d at 1134 (quoting Thomas v. Cooper Lighting, Inc., 506 F.3d 1361, 1363 (11th Cir. 2007)); Whitehead v. BBVA Compass Bank, 979 F.3d 1327, 1328 (11th Cir. 2020).

The movant bears the initial burden of showing, by reference to the record, that there is no genuine issue of material fact. See Shaw v. City of Selma, 884 F.3d 1093, 1098 (11th Cir. 2018); Whitehead, 979 F.3d at 1328. The movant can meet this burden by presenting evidence showing that there is no genuine dispute of material fact or by demonstrating that the non-moving party has failed to present evidence in support of some element of its case on which it bears the ultimate burden of proof. See Celotex Corp. v. Catrett, 477 U.S. 317, 322-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); McGee v. Sentinel Offender Servs., LLC, 719 F.3d 1236, 1242 (11th Cir. 2013) (per curiam). If the movant meets their initial burden, the nonmoving party must demonstrate that there is a genuine dispute for trial. Gogel, 967 F.3d at 1134 (citing Celotex Corp., 447 U.S. at 324, 100 S.Ct. 2214). The nonmovant must "go beyond the pleadings and [ ] present competent evidence in the form of affidavits, answers to interrogatories, depositions, admissions and the like, designating specific facts showing a genuine issue for trial." Lamar v. Wells Fargo Bank, 597 F. App'x 555, 557 (11th Cir. 2014) (per curiam) (citing Celotex Corp., 477 U.S. at 324, 106 S.Ct. 2548). "All material facts contained in the movant's statement which are not specifically controverted by specific citation to particular parts of materials in the record shall be deemed to have been admitted, unless otherwise inappropriate." M.D. Ga. L.R. 56; see Mason v. George, 24 F. Supp. 3d 1254, 1260 (M.D. Ga. 2014).

FACTUAL ALLEGATIONS

TAG is a Georgia corporation, founded in 1980 by Randall E. Wages and Stephen H. Harrison, which provides "staffing services, engineering services, and technical services to owners of industrial manufacturing facilities throughout the United States."¹ (Doc. 195-2 ¶ 1; Doc. 201-1 ¶ 1; Doc. 196-2 ¶ 46; Doc. 198-2 ¶ 46). Defendants Hogue, Thompson, and Kirbo have been members of TAG's Board of Directors (Board) since 2006. (Doc. 195-2 ¶ 18; Doc. 201-1 ¶ 18). Hogue is TAG's president of operations and Thompson is TAG's president of engineering. (Doc. 195-66 ¶ 2; Doc. 195-67 ¶ 1; Doc. 195-78 at 25:2-5; Doc. 195-77 at 44:25-45:8). Defendant Hall is also a member of TAG's Board. (See Doc. 195-80 at 20:24-21:4, 36:22-37:4).

In 2006, TAG established the Employee Stock Ownership Plan (ESOP). (Doc. 195-2 ¶¶ 4-5; Doc. 201-1 ¶¶ 4-5). The ESOP is run by the Administrative Committee, which is appointed by TAG's Board. (Doc. 195-2 ¶ 6; Doc. 201-1 ¶ 6; Doc. 196-2 ¶ 5; Doc. 198-2 ¶ 5; Doc. 195-7 at 15). The ESOP's assets are held in the Employee Stock Ownership Trust (Trust). (Doc. 195-2 ¶ 5; Doc. 201-1 ¶ 5). Hogue, Thompson, and Kirbo have been Administrative Committee members since the ESOP's founding. (Doc. 196-2 ¶¶ 1-3, 6-7; Doc. 198-2 ¶¶ 1-3, 6-7; Doc. 195-76 at 210:9-17). The Administrative Committee is responsible for holding and investing the funds contributed to the ESOP. (See Doc. 195-7 at 15-18). The Trust is governed by various trust agreements and is managed by trustees, whom the TAG Board appoints. (Doc. 195-2 ¶¶ 7-8; Doc. 201-1 ¶¶ 7-8; Doc. 196-2 ¶ 4; Doc. 198-2 ¶ 4). Kirbo served as an ESOP trustee until June 22, 2011, when Defendant Urbach succeeded him. (Doc. 195-2 ¶ 44; Doc. 201-1 ¶ 44; Doc. 196-2 ¶¶ 20-21; Doc. 198-2 ¶¶ 20-21). Defendants Thompson and Hogue became trustees in 2012 and served in that role until Defendant Kirbo resumed as trustee in 2020. (See Doc. 195-78 at 31:9-32:18; Doc. 195-77 at 65:6-21).

At its formation in 2006, the ESOP bought all outstanding TAG stock from Wages and Harrison, the company's founders, using a $1.5 million cash contribution from TAG and $16 million in term loans from Wages and Harrison. (Doc. 195-2 ¶¶ 10-11; Doc. 201-1 ¶¶ 10-11). The $16 million loans were guaranteed by the ESOP's stock. (Doc. 195-2 ¶ 11; Doc. 201-1 ¶ 11). Thus, at its formation, the ESOP was "required [ ] to pledge the stock it purchased to [Wages and Harrison] as collateral for the loan." (Doc. 195-2 ¶ 12(f); Doc. 201-1 ¶ 12). Hogue and Thompson, who assumed the day-to-day responsibilities of running the company, also received grants of TAG stock and stock options as part of the transaction. (Doc. 195-2 ¶ 13; Doc. 201-1 ¶ 13).

In 2011, TAG refinanced the ESOP's outstanding debt to Wages and Harrison through a series of interrelated agreements known as the 2011 Refinancing. (Doc. 195-2 ¶¶ 63, 66-71; Doc. 201-1 ¶¶ 63, 66-71; Doc. 196-2 ¶¶ 26-34; Doc. 198-2 ¶¶ 26-34). As part of the 2011 Refinancing:

• TAG borrowed $8 million from Atlantic Capital Bank (Atlantic). (Doc. 196-2 ¶ 50; Doc. 198-2 ¶ 50).

• TAG assumed the ESOP's obligations to Wages and Harrison under the 2006 loan documents, and Wages and Harrison released the unallocated shares that the ESOP had pledged as collateral (Doc. 195-2 ¶ 66; Doc. 201-1 ¶ 66).

• TAG used the proceeds of the Atlantic loan to repay Wages and Harrison for their assignment of the ESOP loans. (Doc. 195-2 ¶ 69; Doc. 201-1 ¶ 69).

• The ESOP simultaneously entered into a new loan agreement with TAG for a loan in an amount equal to the outstanding balance of the loan from Wages and Harrison. (Doc. 195-2 ¶ 67; Doc. 201-1 ¶ 67).

• TAG pledged certain assets to Atlantic, including the ESOP loan documents, as collateral for the 2011 Bank Refinance. (Doc. 195-2 ¶ 68; Doc. 201-1 ¶ 68; Doc. 196-2 ¶ 51; Doc. 198-2 ¶ 51).

• Hogue and Thompson personally guaranteed the Atlantic loan. (Doc. 195-2 ¶ 33; Doc. 201-1 ¶ 33; Doc. 196-2 ¶ 31; Doc. 198-2 ¶ 31).

• TAG gave Hogue and Thompson additional grants of TAG stock, stock options, and cash payments. (Doc. 195-2 ¶ 50; Doc. 201-1 ¶ 50; Doc. 196-2 ¶ 26; Doc. 198-2 ¶ 26).

• TAG issued 12,941

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