LJ Consulting Servs. v. Suntrust Inv. Servs.

LJ CONSULTING SERVICES, LLC AS ADMINISTRATOR OF THE SHIRLEY T. SHERROD,M.D. P.C. TARGET PENSION PLAN AND TRUST and SHIRLEY T. SHERROD,M.D., P.C. TARGET PENSION PLAN AND TRUST, Plaintiffs, v. SUNTRUST INVESTMENT SERVICES, INC., Defendant.

Case No. 19-cv-06763

UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

January 29, 2020

Judge Mary M. Rowland

MEMORANDUM OPINION AND ORDER

Defendant SunTrust Investment Services, Inc. ("SunTrust") moves for dismissal of this lawsuit with prejudice under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). For the reasons stated herein, SunTrust's Rule 12(b)(1) motion [35] is granted based on Plaintiffs' lack of Article III standing.

I. Background

Plaintiffs' complaint against SunTrust seeks relief under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq. The operative complaint is the Third Amended Complaint ("TAC"). (Dkt. 27).¹ Plaintiffs are the Shirley T. Sherrod MD PC Target Benefit Pension Plan and Trust (hereafter,the "Plan") and LJ Consulting Services, LLC, the Administrator of the Plan. (TAC ¶5).² SunTrust is now the only defendant.³ SunTrust holds the Plan assets in an investment account in the name of the Plan. (Id. ¶6). Plaintiffs argue that SunTrust is violating ERISA's anti-alienation provision, 29 U.S.C. § 1056(d), and therefore they seek to "enjoin [SunTrust's] wrongful attachment and alienation of the assets of the [Plan]." (Id. ¶1).

The present case follows on the heels of lengthy litigation in Michigan state court that began in 2008, in which Dr. Sherman sued Dr. Sherrod and her ophthalmology practice for breach of contract related to the sale of Dr. Sherrod's practice to Dr. Sherman. (See id. ¶7; and Wayne County Circuit Court of Michigan, case no. 08-014212-CK, the "Michigan Action"). The defendants in the Michigan Action are Dr. Sherrod individually and her former medical practice. (hereafter, "Michigan Defendants"). In 2013, the Wayne County Circuit Court entered summary judgment in favor of Dr. Sherman and conducted a jury trial on damages. On July 31, 2014, the trial court entered an order, which among other things, prohibited Michigan Defendants or anyone acting on their behalf from "sell[ing], transfer[ing], assign[ing],....or otherwise dispos[ing] of any Trust Assets in any manner, pending further order of this court." (Dkt. 35-2, Exh. B, hereafter "2014 freeze order"). The order defined the "Trust" as the Shirley T. Sherrod MD PC Target Benefit PensionPlan and Trust. After a 2014 trial, the Michigan Defendants appealed several of the trial court's orders, including the 2014 freeze order and the order holding Dr. Sherrod in contempt for violating the 2014 freeze order. See Sherman v. Sherrod, 2015 Mich. App. LEXIS 2416 (Ct. App. Dec. 17, 2015). The appellate court affirmed the freeze order and contempt order, as well as an award of attorney's fees to Michigan plaintiffs. Id. Although the appellate court stated there was "no uncertainty as to the fact of damages concerning defendants' breach of contract", it remanded for a new trial on damages because the trial court should have allowed evidence about the amount of damages attributable to the breach. Id. at *14-15.⁴

More recently, in September 2019, a jury again entered a verdict in favor of Dr. Sherman, and on November 25, 2019, Dr. Sherrod appealed the Michigan court's denial of Dr. Sherrod's motion for judgment notwithstanding the verdict. (See Dkt. 38 at 3-5). SunTrust is refusing to disburse money from the Plan pursuant to the Michigan state court's July 31, 2014 freeze order and a 2019 garnishment. Plaintiffs argue in this court that SunTrust is violating ERISA.

II. Standard

A. Rule 12(b)(1)

"A motion to dismiss under Rule 12(b)(1) tests the jurisdictional sufficiency of the complaint, accepting as true all well-pleaded factual allegations and drawing reasonable inferences in favor of the plaintiffs." Bultasa Buddhist Temple of Chi. v.Nielsen, 878 F.3d 570, 573 (7th Cir. 2017). "[T]he party invoking federal jurisdiction bears the burden of demonstrating its existence." Boutte v. Nw. Med. Faculty Found., 276 F. App'x 490, 491 (7th Cir. 2008) (citation and quotations omitted). Where there is a factual challenge to jurisdiction, a court may look beyond the jurisdictional allegations of the complaint and "view whatever evidence has been submitted on the issue to determine whether in fact subject matter jurisdiction exists." Ezekiel v. Michel, 66 F.3d 894, 897 (7th Cir. 1995) (citations and internal quotations omitted). Where the challenge is facial, defendant argues that taking plaintiff's allegations as true, those allegations are insufficient to establish jurisdiction. Apex Dig., Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 444 (7th Cir. 2009). Here, the Court permitted Plaintiffs to take discovery in order to respond to SunTrust's motion to dismiss (see Dkt. 37), the parties submitted evidence outside of the pleadings and Plaintiffs construe SunTrust's motion as a factual challenge, so the Court construes it as such.

B. Standing

"Article III of the Constitution limits our review to actual 'Cases' and 'Controversies' brought by litigants who demonstrate standing. The 'irreducible constitutional minimum of standing' consists of three elements: injury in fact, causation, and redressability. The plaintiff bears the burden of establishing each element." Groshek v. Time Warner Cable, Inc., 865 F.3d 884, 886 (7th Cir. 2017) (quoting Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992)). "[T]he injury has to be fairly . . . trace[able] to the challenged action of the defendant." Lujan, 504 U.S. at 560 (quotations and citation omitted). Aplaintiff does not have Article III standing if the injury "results from the independent action of some third party not before the court." Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 41-42, 96 S. Ct. 1917, 1926 (1976). "Standing requires that the plaintiff establish an 'injury in fact' caused by the defendant and redressable by the court." J.P. Morgan Chase Bank, N.A. v. McDonald, 760 F.3d 646, 650 (7th Cir. 2014) (citation omitted).

III. Discussion

SunTrust argues for dismissal under Rule 12(b)(1) because the Court lacks subject-matter jurisdiction under the Rooker-Feldman doctrine, Plaintiffs lack Article III standing, and because of the doctrine of forum non conveniens. Alternatively, SunTrust seeks dismissal under Rule 12(b)(6) for failure to state a claim based on the brokerage account agreement. The Court finds that Plaintiffs lack Article III standing and therefore this Court does not have subject matter jurisdiction over this case.

A. The Pension Plan

Plaintiffs allege that SunTrust's "actions completely prevent the Plan from administering the Pension Plan, from distributing benefits to participants and from paying Plan expenses according to the Plan's terms. Plaintiffs cannot fulfill their fiduciary duties as a result of Defendant's actions." (TAC ¶32). However, Plaintiffs have not shown that they have met the requirements of Article III standing because their alleged injury was caused by the Michigan court's 2014 freeze order, not by SunTrust. See Johnson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 719 F.3d 601, 602 (7th Cir. 2013) (injury fairly traceable to Michigan state court order, not todefendant Merrill Lynch); see also Intercounty Judicial Sales Corp. v. Cty. of Lake, 2014 U.S. Dist. LEXIS 110720, at *8 (N.D. Ill. Aug. 7, 2014) (finding no Article III standing because Illinois state court, not defendants, was responsible for appointment of judicial sales officers, and defendants were "simply following court orders, something they of course are required to do").

As to the 2014 freeze order, Plaintiffs assert that the order "became a nullity once the MI COA reversed, in part, the March 5, 2014 final judgment." (Dkt. 43 at 5). To the contrary, the Michigan Court of Appeals rejected the Michigan Defendants' challenge to the 2014 freeze order. Sherman, 2015 Mich. App. LEXIS 2416, at *32-33.⁵ The court also rejected the Michigan Defendants' challenge to the trial court's order holding Dr. Sherrod in contempt for violating the 2014 freeze order. Id. at 33-36. And the Michigan Supreme Court denied Michigan Defendants' petition for leave to appeal the Court of Appeals' ruling. On one hand, Plaintiffs assert that the 2014 freeze order was voided by the Michigan court based on a mischaracterization of the Michigan Court of Appeals' ruling. On the other hand, Plaintiffs ask this Court to declare the order void based on ERISA. (TAC ¶33).

To argue that they have standing, Plaintiffs contend that their dispute with SunTrust is about whether the Plan is "subject to satisfaction of the judgments in the Michigan Action." (Dkt. 43 at 11). But Plaintiffs have not alleged or provided evidence that SunTrust has taken any position or action related to using the Plan to satisfy the Michigan judgments. SunTrust does not oppose unfreezing the account, but it will not do so because of the 2014 freeze order. (Dkt. 35 at 6). The Seventh Circuit already determined that the custodian of this trust account was not free to ignore the Michigan freeze order. In Johnson v. Merrill Lynch, Pierce, Fenner & Smith, Inc., addressing the same argument that the bank should have ignored the Michigan court order, the Court held:

the Plan administrator seems to think that Merrill Lynch should have ignored the Wayne County Circuit Court order if it truly believed that the order was in violation of federal ERISA law. But in such instances, the directive of Michigan law is clear: 'A party must obey an order entered by a court with proper jurisdiction, even if the order is clearly incorrect, or the party must face the risk of being held in contempt and possibly being ordered to comply with the order at a later date.'

719 F.3d 601, 606-07 (7th Cir. 2013) (citation omitted).

Plain...