New Eng. Biolabs, Inc. v. Miller

NEW ENGLAND BIOLABS, INC., Plaintiff, v. RALPH T. MILLER, Defendant.

Civil Action No. 20-cv-11234-DJC

UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

November 23, 2020

MEMORANDUM AND ORDER

CASPER, J.

I. Introduction

Plaintiff New England Biolabs, Inc. ("NEB") has filed this lawsuit against Ralph T. Miller ("Miller") seeking equitable relief pursuant to 29 U.S.C. § 1132(a)(3)(B) in connection with Miller's receipt and retention of an overpayment from NEB's Employees' Stock Ownership Plan ("ESOP" or the "Plan") (Count I). NEB has also asserted claims against Miller for breach of fiduciary duty, pursuant to 29 U.S.C. § 1132(a)(2) (Count II), and unjust enrichment (Count III). D. 20. NEB now moves for a preliminary injunction to maintain the status quo with respect to the overpayment (i.e., that Miller be enjoined from transferring, assigning, pledging, encumbering, concealing, dissipating or diminishing the $164,580.17 overpayment received from the ESOP) while the current litigation is pending. D. 21. In response, Miller has moved to dismiss NEB's claims. D. 24. For the reasons discussed below, the Court ALLOWS the motion for preliminary injunction, D. 21, DENIES the motion to dismiss as to Counts I and II and ALLOWS the motion to dismiss as to Count III, D. 24.

II. Standard of Review

On a motion to dismiss for failure to state a claim upon which relief can be granted pursuant to Fed. R. Civ. P. 12(b)(6), the Court must determine if the facts alleged "plausibly narrate a claim for relief." Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st Cir. 2012) (citation omitted). Reading the complaint "as a whole," the Court must conduct a two-step, context-specific inquiry. García-Catalán v. United States, 734 F.3d 100, 103 (1st Cir. 2013). First, the Court must perform a close reading of the claim to distinguish the factual allegations from the conclusory legal allegations contained therein. Id. Factual allegations must be accepted as true, while conclusory legal conclusions are not entitled credit. Id. Second, the Court must determine whether the factual allegations present a "reasonable inference that the defendant is liable for the conduct alleged." Haley v. City of Boston, 657 F.3d 39, 46 (1st Cir. 2011) (citation omitted). In sum, the complaint must provide sufficient factual allegations for the Court to find the claim "plausible on its face." García-Catalán, 734 F.3d at 103 (citation omitted).

Preliminary injunctive relief "is an 'extraordinary and drastic remedy.'" Voice of the Arab World, Inc. v. MDTV Med. News Now, Inc., 645 F.3d 26, 32 (1st Cir. 2011) (quoting Munaf v. Geren, 553 U.S. 674, 689-90 (2008)). Its purpose is "to preserve the status quo so that upon full adjudication on the merits the district court can more effectively remedy any discerned wrongs." Chiara v. Dizoglio, 59 F. Supp. 2d 193, 196 (D. Mass. 1999) (noting that "a preliminary injunction that has the effect of disturbing, rather than preserving, the status quo 'normally should be granted only in those circumstances when the exigencies of the situation demand such relief'"). To obtain a preliminary injunction, the Court must consider: (1) the movant's likelihood of success on the merits; (2) the risk of the movant suffering irreparable harm in the absence of injunctive relief; (3) the balance of equities; and (4) whether granting the injunction is in thepublic interest. Corp. Techs., Inc. v. Harnett, 731 F.3d 6, 9 (1st Cir. 2013). Likelihood of success on the merits is the "main bearing wall of this framework." W Holding Co. v. AIG Ins. Co.-Puerto Rico, 748 F.3d 377, 383 (1st Cir. 2014) (quoting Ross-Simons of Warwick, Inc. v. Baccarat, Inc., 102 F.3d 12, 16 (1st Cir. 1996)) (internal quotation marks omitted). Irreparable harm, on the other hand, is measured "on a sliding scale, working in conjunction with a moving party's likelihood of success on the merits, such that the strength of the showing necessary on irreparable harm depends in part on the degree of likelihood of success shown." Gedeon v. City of Springfield, No. 16-cv-30054-MGM, 2017 WL 4212334, at *8 (D. Mass. Feb. 24, 2017) (quoting Braintree Labs., Inc. v. Citigroup Glob. Mkts., Inc., 622 F.3d 36, 42-43 (1st Cir. 2010)). The movant "bears the burden of establishing that these four factors weigh in [its] favor." Esso Standard Oil Co. (P.R.) v. Monroig-Zayas, 445 F.3d 13, 18 (1st Cir. 2006).

III. Factual Background

The following facts are drawn from the amended complaint, D. 20, and Miller's affidavit, D. 27. NEB is a named fiduciary of the ESOP and maintains the Plan for the benefit of its employees and their beneficiaries. D. 20 ¶ 7. In 2013, NEB amended the ESOP and restated it as a profit-sharing plan. Id. The ESOP established a Trust Fund, administered by the Trustees of the ESOP (the "Trustees"), that holds all assets on behalf of its employee participants. Id. ¶ 8. Employee participants in the ESOP have a Participant's Dollar Account and a Participant's Employer Stock Account. Id. ¶ 11. Once a participant terminates his employment or retires, the participant receives cash distributions from both accounts. Id. Pursuant to the ESOP, if a plan participant receives a distribution of his Employer Stock Account in cash, the amount will be based upon the valuation of the stock as of the last day of the Plan Year preceding the date of the participant's termination of employment. Id. The ESOP does not permit a plan participant todefer his distribution if the participant is over 65 years of age at the time the participant terminates his employment. Id. Principal Financial Services, Inc. ("Principal") is the third-party administrator of the ESOP. Id. ¶ 12.

Miller worked at NEB as a Receiving Clerk for seventeen years and was enrolled in the ESOP. Id. ¶¶ 13-14; D. 27 ¶¶ 5-6. He retired from NEB on September 29, 2017 when he was 67 years old. D. 20 ¶ 15; D. 27 ¶ 7. On or around October 29, 2017, Principal mailed Miller documents regarding Miller's distribution of his vested interest in the ESOP, including a Distribution Notice, Diversification Form and a Distribution/Rollover Election Form. D. 20 ¶ 16. The Distribution Notice stated that Miller was required to elect how he would like to receive his distribution from the ESOP. Id. ¶ 17. His options included: (1) moving the funds to an Individual Retirement Account ("IRA"), (2) rolling the funds to another employer's retirement plan, or (3) taking the funds in cash. Id. Miller failed to respond by the deadline of November 24, 2017. Id. ¶ 18. Principal and NEB sent Miller the Distribution Notice and additional forms again in August 2018. Id. ¶ 19. At the time, Principal mailed the forms to all former and recently terminated ESOP participants. Id. Following the August 2018 mailing, on or around August 20, 2018, Miller returned the forms to Principal and elected to defer his distribution. Id. ¶ 20. He also elected to not diversify a portion of the employer securities held in his ESOP account. Id. ¶ 21. According to Miller, earlier in February 2017, prior to his retirement, Brian Tinger ("Tinger"), a controller at NEB, told Miller that he did not need to cash-out upon retirement. D. 27 ¶¶ 9-11. Miller states that he did not seek a cash-out based upon Tinger's representations. Id. ¶ 12.

In August 2019, NEB adopted an amendment to the ESOP, stating that former employees would no longer be allowed to hold NEB stock in their ESOP accounts and the participants' option to require purchase by the employer would be limited to the time periods required by theEmployment Retirement Income Security Act of 1974 ("ERISA"). D. 20 ¶ 22; D. 27 ¶¶ 15-16. On September 9, 2019, in response to the NEB amendment, Miller elected to rollover his ESOP account to his IRA. D. 20 ¶ 23; D. 27 ¶ 17. On September 30, 2019, funds in the amount of the presumed value of Miller's ESOP account were ascribed to Miller's ESOP account. D. 20 ¶ 24. The direct rollover amount was $783,823.39, which was based on the valuation of NEB stock as of September 30, 2018—the most recent valuation of NEB stock prior to Miller's rollover election. Id. Miller was mistakenly overpaid $164,580.17 and should have received a $563,968.22 distribution. Id. A month later, in October 2019, NEB conducted an internal review of recent distributions under ESOP and discovered the error as to the payment to Miller. Id. ¶ 25. Pursuant to the ESOP's terms, Miller should have received his distribution no later than November 28, 2017, sixty days after the end of the plan year in which Miller retired, and the value of that distribution should have been based on the value of NEB stock as of September 30, 2016, the last day of the plan year preceding Miller's retirement. Id. ¶ 26.

On January 16, 2020, NEB requested that Miller repay the $164,580.17 to the ESOP by January 31, 2020. Id. ¶ 34. NEB informed Miller that it would not require the repayment amount to be further adjusted for lost investment earnings by the ESOP if Miller repaid the amount promptly. Id. Miller has not returned the overpayment. Id. ¶ 35.

IV. Procedural History

NEB filed this action against Miller on June 26, 2020. D. 1. On October 2, 2020, NEB filed an amended complaint, D. 20, and simultaneously moved for a preliminary injunction requesting that Miller be enjoined from transferring, assigning, pledging, encumbering, concealing, dissipating or diminishing the funds received from the ESOP up to the $164,580.17. D. 21. On October 19, 2020, Miller moved to dismiss the amended complaint under Fed. R. Civ.P. 12(b)(6), D. 24. The Court heard the parties on the pending motions and took the matters under advisement. D. 35.

V. Discussion

A. Motion to Dismiss

1. Equitable Relief (Count I)

NEB alleges that Miller violated the ESOP, thereby entitling NEB to equitable relief pursuant to 29 U.S.C. § 1132(a)(3)(B). This provision permits a "participant or beneficiary" to bring a civil action "to recover benefits due to him under the...