Placht v. Argent Tr. Co.

1

CAROLYN PLACHT, on behalf of the Symbria Inc. Employee Stock Ownership Plan and on behalf of a class of all other persons similarly situated, Plaintiff, v. ARGENT TRUST COMPANY, JILL KRUEGER, THOMAS NOESEN, JR., JOHN R. CALLEN, CENTRAL BAPTIST VILLAGE, COVENANT RETIREMENT COMMUNITIES, INC., FRANCISCAN SISTERS OF CHICAGO SERVICE CORPORATION, LIFELINK CORPORATION, LUTHERAN HOME AND SERVICES FOR THE AGED, INC., MATHER LIFEWAYS, NORWEGIAN LUTHERAN BETHESDA HOME ASSOCIATION, NORWOOD LIFE CARE FOUNDATION, FRIENDSHIP SENIOR OPTIONS, NFP, REST HAVEN ILLIANA CHRISTIAN CONVALESCENT HOME, ST. PAUL'S HOUSE &HEALTHCARE CENTER, and UNITED METHODIST HOMES &SERVICES, Defendants.

No. 21 C 5783

United States District Court, N.D. Illinois, Eastern Division

August 10, 2022

MEMORANDUM OPINION AND ORDER

HON RONALD A. GUZMÁN UNITED STATES DISTRICT JUDGE

For the reasons explained below, the motion of Defendant Argent Trust Company to dismiss under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6), joined by all Defendants as to the arguments under Rule 12(b)(1), is denied; the motion of Defendants Jill Krueger and Thomas Noesen, Jr. to dismiss under Federal Rule of Civil Procedure 12(b)(6), joined by Defendant John R. Callen, is denied; and the motion of Defendants Mather Lifeways, Covenant Retirement Communities Inc., United Methodist Homes & Services, St. Paul's House & Healthcare Center, Norwood Life Care Foundation Central Baptist Village, Lifelink Corporation, Norwegian Lutheran Bethesda Home Association, Friendship Senior Options, NFP, Rest Haven Illiana Christian Convalescent Home Franciscan Sisters of Chicago Service Corporation, and Lutheran Home and Services for the Aged, Inc. to dismiss the complaint under Rule 12(b)(6) is granted.

RELEVANT BACKGROUND

This is an ERISA^[1] action brought individually and on behalf of a putative class by Carolyn Placht, a participant in the retirement plan (the “Plan”) of Symbria Inc. (“Symbria”), regarding the October 31, 2015 purchase of all issued and outstanding shares of Symbria by the Plan and its Trust, the Symbria Inc. Employee Stock Ownership Trust; the stock purchase is referred to as the “ESOP Transaction.” Defendants are Argent Trust Company (“Argent”), the Plan's Trustee leading up to and through the ESOP Transaction, and the sellers of the Symbria shares (collectively, the “Selling Shareholders”), which the parties sort into two groups: (1) the “Management Shareholders,” made up of Jill Krueger, then President and CEO of Symbria; Thomas Noesen, Jr., then CFO of Symbria; and John R. Callen, then President of a Symbria Subsidiary, Alliance Rehab/Symbria Rehab; and (2) the “Organizational Shareholders” (or “Community Defendants”), made up of Mather Lifeways; Covenant Retirement Communities, Inc.; United Methodist Homes & Services; St. Paul's House & Healthcare Center; Norwood Life Care Foundation; Central Baptist Village; Lifelink Corporation; Norwegian Lutheran Bethesda Home Association; Friendship Senior Options, NFP; Rest Haven Illiana Christian Convalescent Home; Franciscan Sisters of Chicago Service Corporation; and Lutheran Home and Services for the Aged, Inc.

Prior to the ESOP Transaction, Symbria's Board of Directors had fourteen directors appointed by the then-owners of its shares. The twelve Organizational Shareholders held thirteen of the fourteen “ownership interests” in Symbria. Each Organizational Shareholder owned one such share, entitling each to appoint one director to Symbria's Board of Directors. Plaintiff presumes that one of the organizations held a second ownership interest. The Management Shareholders collectively held the final ownership interest in Symbria.

In the ESOP Transaction, the Plan and Trust paid $66,500,000.00 to purchase the outstanding Symbria shares, using the proceeds of a loan guaranteed by Symbria and a loan, at ¶ 2.64% interest rate, from the Management Shareholders and Organizational Shareholders. Without vouching for the accuracy of the valuations, Plaintiff asserts that the stock was revalued at $9,300,000.00 on March 31, 2016; $7,800,000.00 in 2017; $11,000,000.00 in 2018; $10,900,000.00 in 2019; and $8,650,000.00 in 2020, while Symbria contributed millions of dollars to the Plan.

Plaintiff deems it likely that evidence will support that the Plan and Trust paid more than fair market value for the stock and “paid a control premium for Symbria” despite not acquiring control over the Symbria Board of Directors in the ESOP Transaction. Plaintiff attributes the overpayment to Argent's failure to use due diligence during the ESOP Transaction by relying “on unrealistic growth projections, unreliable or out-of-date financials, improper discount rates, inappropriate guideline public companies for comparison, and/or [] fail[ing] to test [], . . . question or challenge underlying assumptions.” (ECF No. 1, Compl., ¶ 71.)

Plaintiff concludes that Argent violated its fiduciary duties as Trustee by: (1) causing prohibited transactions during the ESOP Transaction, in the form of: (a) a purchase of property from a party or parties in interest; (b) borrowing money from parties in interest; and (c) a direct or indirect transfer to, or use by or for the benefit of, a party in interest of any assets of the Plan; (2) failing to conduct a thorough investigation into the merits of the investment and approving the ESOP Transaction; and (3) to the extent Argent has done so, seeking indemnification from Symbria as to Argent's breaches of ERISA. (ECF No. 1, Counts I-III.)

According to Plaintiff, the ESOP Transaction provided tax advantages to the Selling Shareholders, and the Management Shareholders received other economic incentives through the ESOP Transaction. Plaintiff insists that the Selling Shareholders: (1) were Argent's cofiduciaries and should be held liable for Argent's breaches of fiduciary duty; and (2) constituted parties in interest, as ERISA defines the term, in the ESOP Transaction and had sufficient knowledge to subject them to liability for equitable remedies under ERISA as to the allegedly prohibited transactions and Argent's breaches of fiduciary duty. (id., Counts IV-V.)

Plaintiff claims that Defendants' actions caused Plan participants to suffer diminutions of Plan account values due to the ESOP Transaction overpayment and an ongoing excessive debt burden due to Argent's failure to correct the overpayment.

Argent moves to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(1) and 12(b)(6). The Organizational Shareholders and Management Shareholders join Argent's motion under Rule 12(b)(1) and separately move to dismiss the complaint under Rule 12(b)(6). The motions are fully briefed.

DISCUSSION

The Court first will address Defendants' unified motion to dismiss for lack of subject matter jurisdiction and then proceed to address their various arguments as to why the counts against them should be dismissed for failure to state a claim on which relief may be granted.

I. Motion to Dismiss for Lack of Subject-Matter Jurisdiction

Defendants argue that Plaintiff lacks standing because she has not plausibly alleged an injury-in-fact. (ECF No. 33, Mem. Supp. Def. Argent Trust Co.'s Mot. Dismiss, at 11-14; ECF No. 30, Mem. Supp. Defs. Krueger & Noesen's Mot. Dismiss, at 5; Mem. Supp. Community Defs.' Mot. Dismiss, at 9-10.)^[2] “Without injury, there can be no Article III standing, which requires a plaintiff to show an injury-in-fact that is fairly traceable to the defendant's conduct and that could likely be redressed by a favorable court decision.” Abbott v. Lockheed Martin Corp., 725 F.3d 803, 808 (7th Cir. 2013).

Defendants insist that Plaintiff's allegations demonstrate that she suffered no injury. They acknowledge Plaintiff's comparison of the $65,000,000.00 Symbria stock purchase price in the ESOP Transaction with the $9,300,000.00 stock valuation (the accuracy of which Plaintiff disavows) five months later (see ECF No. 1 ¶ 69), but they deem it a “misinformed stock-price comparison” that is debunked in Lee v. Argent Trust Co., No. 5:19-cv-156-BO, 2019 WL 3729721 (E.D. N.C. Aug. 7, 2019). (ECF No. 33 at 13-14.) The Lee court analogized an ESOP transaction to a home purchase through mortgage financing and reasoned that, if a buyer mortgages the entire purchase price of the home at its exact value, the buyer should have no change in equity from the transaction because the house value would be fully offset by the mortgage debt incurred. Id. at *3. The court then extended that reasoning to financed stock purchases-that the purchaser should experience no change in equity when financing the full purchase price of stocks that are correctly valued; thus, the court concluded that, immediately after the ESOP transaction, “the expected value of the . . . ESOP's shares-at least in the short term-would be $0.” Id. at *4. Because the Lee plaintiff had alleged only a post-sale positive valuation, the court found that she had apparently realized a benefit, rather than a concrete and particularized injury, from the transaction and therefore lacked standing to pursue an ERISA claim. Id.; see also Plutzer v. Bankers Trust Co. of S.D., No. 1:21-cv-3632 (MKV), 2022 WL 596356, at *5 (S.D.N.Y. Feb. 28, 2022) (adopting the Lee court's reasoning where the plaintiff alleged that post-ESOP-transaction valuations over the next four years showed that the stock value “had ‘decreased 92.6553% from its purchase price in 2015, and 68.1818% from the post-ESOP Transaction high . . . at the end of 2017'”).

The Court declines to follow Lee for two reasons. First the Seventh Circuit has rebuffed similar arguments at the pleading stage, because “[i]njury-in-fact for standing purposes is not the same thing as the ultimate measure of recovery.” Abbott, 725...