S. City Motors, Inc. v. Auto. Indus. Pension Trust Fund

SOUTH CITY MOTORS, INC., et al., Plaintiffs, v. AUTOMOTIVE INDUSTRIES PENSION TRUST FUND, et al., Defendants.

Case No. 15-cv-01068-JST

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

August 4, 2015

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS AND ORDER GRANTING DEFENDANTS' MOTION TO STAY PENDING ARBITRATION

Re: ECF No. 15

Before the Court is Defendant Automotive Industries Pension Trust Fund, et al.'s Motion to Dismiss or in the Alternative Stay Pending Arbitration. ECF No. 15. For the reasons set forth below, the motion to dismiss is GRANTED IN PART and DENIED IN PART. Defendants' motion to stay pending arbitration is GRANTED.

I. BACKGROUND¹

Plaintiffs South City Motors, Inc. ("South City") and Capitol Expressway Ford, Inc. ("Capitol") are two Ford dealerships sponsored by Plaintiff Ford Motor Company's dealer development program. ECF No. 1, ¶ 6. In 2005, both South City and Capitol entered into collective bargaining agreements that required each to make contributions to Defendant Automotive Industries Pension Trust Fund (the "Plan"), a multiemployer pension plan established under the Employee Retirement Income Security Act of 1974 ("ERISA") as amended by the Multiemployer Pension Plan Amendments Act of 1980 ("MPPAA"). Id., ¶¶ 13-16. South City signed a Pension Agreement with the Plan agreeing to be bound by the Trust Agreement beginning September 1, 2005. Id. Capitol signed a Pension Agreement with the Plan effectiveAugust 27, 2005. Id. It also signed a Pension Agreement with the Plan effective August 27, 2005. Id.

ERISA permits a multiemployer plan to adopt a walk-away provision that allows employers to participate in the plan for a limited period of time without incurring pension withdrawal liability upon withdrawal from the plan. See ERISA § 4210(a), 29 U.S.C. § 1390(a). Such a term is called a "free look" provision, and it applies if a pension plan adopts it. The Plan contained a "free look" provision, which exempted an employer from withdrawal liability if the employer had an obligation to contribute to the Plan after March 1, 2005 and contributed for no more than five consecutive plan years preceding the year of its withdrawal. ECF No. 1, ¶¶ 12-13. South City and Capitol both withdrew from the Plan after contributing for fewer than five years. Id., ¶¶ 14, 16.

When South City and Capitol withdrew, however, the Plan assessed Plaintiffs with withdrawal liability notwithstanding the "free look" provision. Id., ¶17. Defendants included Plaintiffs in a "controlled group" of contributing employers that were at least 80% owned by Ford Motor Company (the "Ford control group"). Id. Defendants argued that for withdrawal purposes, businesses under common control are treated as a single employer. Id., ¶ 20. Other dealerships in the Ford control group contributed to the Plan prior to Plaintiffs, thereby taking the entire group of dealerships outside the five year "free look" period. Id. Plaintiffs contend that Defendants misapplied the Plan, because Plaintiffs have the right to have the "free look" provision apply to Plaintiffs individually, and not only to the Ford control group as whole. Id., ¶¶ 17-18.

Plaintiffs pointed to two provisions in the Trust Agreement in support of their interpretation. First, they noted that the Trust Agreement's "free look" provision states that an employer who would otherwise have withdrawal liability under ERISA would not be liable to the Plan if the employer met certain criteria. Id., ¶ 12. Specifically, the amended Trust Agreement provides in relevant part that "an Employer who withdraws from the Plan will not be liable for pension withdrawal liability under ERISA Subtitle E" if the employer first had an obligation to contribute to the Plan after March 1, 20015 and was obligated to contribute to the Plan for no more than five consecutive plan years preceding the year of withdrawal. Id.

Second, Plaintiffs noted that the Trust Agreement provided for a general definition of "Employer" - defined as "any association, individual, partnership, joint venture, trust, corporation or other entity, which at the time of reference, has a Pension Agreement in effect and is a party to this Trust Agreement." Id. Defendants, however, applied the statutory definition of "employer" applied under ERISA section 4001(b)(1), whereby businesses with 80% common ownership are treated as a group under "common control" and treated as a single employer.² Id., ¶ 20.

Plaintiffs and others in the Ford control group initiated arbitration proceedings on December 12, 2012 to challenge the Plan's withdrawal liability, arguing that the "free look" provision exempted them from liability. Id., ¶ 18. Plaintiffs raised multiple defenses contending that: the Plan's "free look" provision applied on a non-controlled group basis; Plaintiffs did not trigger withdrawal liability because their withdrawals were exempt under the "free look" provision; equitable principles prevented the application of the "free look" provision on a controlled group basis; Plaintiffs only agreed to contribute to the Plan because it had a non-controlled group "free look" provision; and if the "free look" rule were to apply on a controlled group basis, then the contribution was void due to mutual mistake of fact. Id.

On July 18, 2014, the arbitrator ruled that certain issues were not arbitrable, specifically estoppel, mistake, and other equitable defenses to withdrawal liability, and denied Plaintiffs' discovery requests. Id., ¶ 19. Arbitration has been suspended pending the outcome of proceedings in this action. Id.

Plaintiffs filed this case on March 6, 2015, making claims for fraudulent concealment, negligent concealment, and equitable estoppel, and seeking both restitution and declaratory relief. They allege that the Defendants fraudulently and negligently misrepresented that the "free look" provision would apply to Plaintiffs on a non-controlled group basis. They seek to estop Defendants from collecting withdrawal liability payments with respect to Plaintiffs, to receive restitution for mistaken contributions, and to obtain declaratory relief that the Plan's "free look"provision applies to Plaintiffs on a non-controlled group basis consistent with the Trust Agreement's definition of "Employer." See ECF No. 1.

Defendants now move the Court to dismiss Plaintiffs' Complaint or, in the alternative, stay this action until the arbitrator decides the central issue in the case. ECF No. 15.

II. JURISDICTION

The Court has jurisdiction pursuant to 29 U.S.C. § 1132(e) and 28 U.S.C. § 1331.

III. MOTION TO DISMISS

A. Legal Standard

When addressing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, courts must determine whether a plaintiff has pled "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). The Court must "accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party." Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 2005). Even though the Court must accept all factual allegations in the complaint as true, "threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "Dismissal under Rule 12(b)(6) is appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a cognizable legal theory." Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008). Allegations in a complaint must "contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively" and "the factual allegations that are taken as true must plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

In addition, fraud-based claims are subject to a heightened pleading standard under Federal Rule of Evidence 9(b). This heightened standard applies when evaluating a Rule 12(b)(6) motion to dismiss. Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Fraud allegations must be specific enough to give the defendant notice of the particular misconduct alleged to constitute the fraud so that the defendant may defend against the charge. Id. In general, allegations sounding infraud must contain "an account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations." Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007). On the other hand, "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed. R. Civ. Pro. 9(b). State law causes of action must comport with the heightened pleading requirements of Rule 9(b) where applicable. See Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1103 (9th Cir. 2003).

If a court dismisses the complaint or a claim alleged therein, it must grant leave to amend unless amendment would be futile. Lucas v. Dep't of Corrections, 66 F.3d 245, 248 (9th Cir. 1995).

B. Analysis

1. Fraudulent inducement/concealment

The elements of a cause of action for fraud based on concealment are:

(1) [T]he defendant must have concealed or suppressed a material fact, (2) the defendant must have been under a duty to disclose the fact to the plaintiff, (3) the defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact, and (5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained damage.

Bank of Am. Corp. v. Superior Court, 198 Cal. App. 4th 862 (2011).

The elements of...