SETH D. HARRIS, Acting Secretary of the United States Department of Labor, Plaintiff,
HERBERT C. BRUISTER, et al., Defendants.
DANIEL P. JORDAN, III, District Judge.
This ERISA case is before the Court on a number of pending motions: (1) the Secretary's Daubert Motion to Exclude Expert Testimony of Gregory P. Range ; (2) Plaintiff's Daubert Motion to Exclude Expert Testimony of Dr. Glenda Glover ; (3) Plaintiff Secretary of Labor's Motion for Summary Judgment ; (4) Plaintiff Secretary of Labor's Motion for Partial Summary Judgment as to Defendants' Third, Fourth, Fifth, and Seventh Defenses ;
(5) Defendants' Motion to Exclude Expert Report and Testimony of Dana Messina, One of Plaintiff's Expert Witnesses ; (6) Defendants' Motion for Summary Judgment on All Counts of the Second Amended Complaint on the Basis of the Applicable Statutes of Limitations ; and (7) Defendants' Motion for Summary Judgment .
I. Facts and Procedural History
In a three-year period, Defendant Herbert C. Bruister sold 100% of the shares of Bruister and Associates ("BA") stock to BA's employees through an Employee Stock Ownership Plan ("ESOP") governed by ERISA. The transfer was completed through five separate transactions, all of which are now disputed. Plaintiff, the Acting Secretary of the United States Department of Labor, generally alleges that Defendants Bruister, Amy O. Smith, Jonda C. Henry, and J. Michael Bruce breached their fiduciary duties under ERISA when they approved the purchases.
Each purchase of BA Stock on behalf of the ESOP was made through an Employee Stock Ownership Trust ("ESOT"). Bruister and Amy Smith-as BA's directors-appointed themselves and initially Michael Bruce as trustees for the ESOT. Jonda Henry later replaced Bruce. Though Bruister was a trustee of the ESOT that purchased the stock from himself and his LLC, the parties dispute whether Bruister acted in a fiduciary capacity when the trustees authorized the purchases.
In all five transactions, the ERISA fiduciaries relied upon valuations prepared by Matthew Donnelly to assess the stock's sale price. The Secretary asserts that Defendants did not adequately investigate Donnelly's qualifications before hiring him to value the company, supplied Donnelly with incomplete or inaccurate financial information, and were not reasonably justified in relying on Donnelly's valuations. He contends that the sales prices for the transactions were inflated.
On April 29, 2010, the Secretary filed this lawsuit. In the Second Amended Complaint, the Secretary raises claims for breach of fiduciary duty under ERISA §§ 404(a)(1)(A), (B), and (D); for failure to monitor under ERISA §§ 404(a)(1)(A) and (B); and for engaging in prohibited transactions under ERISA §§ 406(a)(1)(A) and 406(b)(1) and (2), all as to the five ESOP transactions. Additionally, he raises a prohibited transaction claim under ERISA § 406(b)(3) related to Defendant Bruce's alleged receipt of a percentage of Bruister's proceeds from the December 30, 2002 sale. Following a protracted discovery period, the parties filed the instant motions. The Court has personal and subject-matter jurisdiction and is prepared to rule.
A. Motions for Summary Judgment
Summary judgment is warranted under Rule 56(a) of the Federal Rules of Civil Procedure when evidence reveals no genuine dispute regarding any material fact and that the moving party is entitled to judgment as a matter of law. The rule "mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
The party moving for summary judgment "bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Id. at 323. The nonmoving party must then "go beyond the pleadings" and "designate specific facts showing that there is a genuine issue for trial.'" Id. at 324 (citation omitted). Conclusory allegations, speculation, unsubstantiated assertions, and legalistic arguments are not an adequate substitute for specific facts showing a genuine issue for trial. TIG Ins. Co. v. Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir. 2002); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc); SEC v. Recile, 10 F.3d 1093, 1097 (5th Cir. 1993). In reviewing the evidence, factual controversies are to be resolved in favor of the nonmovant, "but only when... both parties have submitted evidence of contradictory facts." Little, 37 F.3d at 1075. When such contradictory facts exist, the court may "not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000) (citations omitted).
"Even if the standards of Rule 56 are met, a court has discretion to deny a motion for summary judgment if it believes that the better course would be to proceed to a full trial.'" Firman v. Life Ins. Co. of N. Am., 684 F.3d 533, 538 (5th Cir. 2012) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)). In the present case, the Court has concluded that portions of the motions can be granted while others should be denied. Still other factual and legal issues present close calls under Rule 56. Because a bench trial cannot be avoided, it is more prudent to carry the close issues forward and deny summary judgment. This is especially so given the nearly 400 pages of briefing on the summary judgment issues alone and almost 5, 000 pages of supporting record evidence. While the Court has endeavored to digest the issues and the record, it anticipates that some issues will become more focused after a trial on the merits.
1. Statute of Limitations
a. The Applicable Limitations Period Defendants argue that all claims are barred by the applicable statute of limitations.
Before addressing that issue, the Court must determine whether the Mississippi or federal statute applies. The only real dispute is whether the Secretary's claim against Bruister in Count III should borrow Mississippi's general three-year statute of limitations found in Mississippi Code section 15-1-49. All other Counts are governed by ERISA's three-year statute of limitations found in § 413.
Count III avers that the five ESOT transactions were all prohibited under § 406(a)(1)(A). It then asserts a claim against Bruister as an "interested party" if he is not found to be a fiduciary. This alternative claim arises pursuant to the Secretary's right to bring suit under § 502(a)(5), 29 U.S.C. § 1132(a)(5). Bruister argues that because § 413 refers to ERISA part 4, and § 502(a)(5) is found in part 5, then § 413 cannot apply. He further argues that § 413 has no application to a claim against a non-fiduciary. Accordingly, Bruister maintains that absent an express limitations period in § 502, the Court must borrow Mississippi's general three-year statute of limitation under Section 15-1-49 for any claims against him as a non-fiduciary.
Whether § 413 applies to equitable relief against a non-fiduciary party in interest under § 502 is not firmly established. In Reich v. Lancaster, the Fifth Circuit applied § 413 to claims under § 502(a)(5) against a nonfiduciary found to have engaged in a prohibited transaction under § 406. 55 F.3d 1034, 1043, 1054-55 (5th Cir. 1995). But the state-verses-federal question was not examined. The same thing happened in Landwehr v. DuPree, where the Ninth Circuit, again without discussion, applied § 413 to a § 502 claim for "other appropriate equitable relief" arising out of a fiduciary breach. 413 72 F.3d 726, 731-32 (9th Cir. 1995) (applying the statute of limitations in ERISA § 413). But see Campanella v. Mason Tenders' Dist. Council Pension Plan, 132 F.App'x 855, 856 (2d Cir. 2005) ("ERISA § 413 applies only to breach of fiduciary duty claims."). Despite the somewhat thin authority, the Court concludes that § 413 does apply.
Section 502(a)(5) describes the remedies available to the Secretary. 29 U.S.C. § 1132(a)(5). The statute parallels § 502(a)(3) that describes which private litigants may sue and for what remedies. 29 U.S.C. § 1132(a)(3). Neither section identifies the parties against whom suit may be brought. With respect to a claim against a fiduciary, § 502(a)(5) would merely provide a remedy for violation of one of the substantive sections, like § 406, which preclude certain transactions with parties in interest. But no such sections exist as to non-fiduciary parties in interest. This omission was at the heart of the Supreme Court's Harris Trust decision, in which it concluded that § 502(a)(3) "itself imposes certain duties, and therefore that liability under that provision does not depend on whether ERISA's substantive provisions impose a specific duty on the party being sued." 530 U.S. at 245.
The Supreme Court's holding with respect to §502(a)(3) provides a clear picture of the Secretary's rights under § 502(a)(5), and demonstrates why claims under that provision fall within § 413. The Court reached its decision by construing § 502(a)(3) in light of § 502(l). The Court paraphrased § 502(l) as follows: "the Secretary shall assess a civil penalty against an other person' who knowing[ly] participat[es] in' any violation of part 4 by a fiduciary.'" 530 U.S. at 248 (ellipses omitted) (emphasis added). The Court then concluded, "The plain implication is that the Secretary may bring a civil action under § 502(a)(5) against an other person' who knowing[ly] participat[es]' in a fiduciary's violation. " Id. (emphasis added). In sum, the equitable remedy provided in § 502(a)(5) against a non-fiduciary arises when a fiduciary violates part 4. Id.
Looking then to § 413, it begins, "No action may be commenced under this subchapter with respect to a fiduciary's breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of..." two specified periods. 29 U.S.C. § 1113 (emphasis added). This language amply covers equitable relief against a nonfiduciary under § 502(a)(5). First, § 413 relates to claims "under this subchapter, " i.e., Title II of ERISA, which includes both parts 4 and 5. Second, nothing in § 413 limits it to claims against fiduciaries. Had Congress wished to accomplish that goal, it could have simply stated, "no action may be commenced under this subchapter against a fiduciary. " Instead, § 413 by its plain terms relates to claims " with respect to " a fiduciary's breach " or with respect to a violation of this part." Id. (emphasis added). Equitable relief imposed against a non-fiduciary under § 502(a)(5) springs from knowing participation in "any violation of part 4 by a fiduciary." Harris Trust, 530 U.S. at 248 (quoting 29 U.S.C. § 1132(l)) (emphasis added). So a claim for equitable relief against a non-fiduciary under § 502(a)(5) is "with respect to a violation of this part ." 29 U.S.C. § 1113.
And in this case, the Secretary seeks equitable relief based on Bruister's alleged participation in a transaction that violated §406(a)(1)(A), which falls under Subchapter I, subtitle B, Part 4 of ERISA. See Solis v. Couturier, No. 2:08-cv-02732-RRB-GGH, 2009 WL 1748724, at *2 (E.D. Cal. June 19, 2009) (applying the statute of limitations in ERISA § 413 to a § 502 claim for "other appropriate equitable relief" arising out a fiduciary breach); cf., Radford v. General Dynamics Corp., 151 F.3d 396, 399 (5th Cir. 1998) (concluding that claims against a fiduciary for relief allowed under § 502(a)(3) are governed by § 413, because the claims arise under part 4).
Because § 413 applies to all claims, there are two statutory windows to consider. First, the claims must be brought within six years from the date of the last improper action. 29 U.S.C. § 1113(1). Second, suit may be brought "three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation." 29 U.S.C. § 1113(2).
Defendants offer two alternative arguments for granting summary judgment under this statute. They first contend that the three-year limitation period applies and was exhausted as to all five transactions before the Secretary filed the April 29, 2010 Complaint. Defendants alternatively argue that even under the six-year period, the first two transactions remain timebarred. The Secretary disputes both arguments invoking, among other things, two tolling agreements Defendants signed before the limitations periods expired. The Court will begin by addressing the six-year limitations period before considering the three-year period found in § 413(2). See Maher v. Strachan Shipping Co., 68 F.3d 951, 954 (5th Cir. 1995) ("The statute specifies a two-step analysis of accrual of an ERISA action: first, when did the alleged breach or violation occur; and second, when did the plaintiff have actual knowledge of the breach or violation?" (citation omitted)).
b. The Six-Year Statute of Repose
The first two disputed transactions occurred more than six years before suit was filed and therefore beyond the outer limits of § 413(1). But Defendants signed two tolling agreements, and the parties dispute whether those agreements, if valid, would excuse the late filing. The threshold issue is whether § 413(1) may be tolled.
As the Secretary notes, "[s]tatutes of limitations generally fall into two broad categories: affirmative defenses that can be waived and so-called jurisdictional' statutes that are not subject to waiver or equitable tolling." Pl.'s Mem.  at 13 (quoting John R. Sand & Gravel Co. v. United States, 552 U.S. 130, 140 (2008) (Stevens, J., concurring) (emphasis added)). When Congress intends the latter, it must be "clearly stated." Sebelius v. Auburn Reg'l Med. Ctr., 133 S.Ct. 817, 824 (2013) (citation and punctuation omitted). "This is not to say that Congress must incant magic words in order to speak clearly. We consider context, including this Court's interpretations of similar provisions in many years past, as probative of whether Congress intended a particular provision to rank as jurisdictional." Id. (citation and quotation omitted).
The Secretary argues that this test is particularly onerous with a remedial statute like ERISA. He also offers a list of other federal statutes the Supreme Court found to be nonjurisdictional with language that, according to the Secretary, "parallels" the language of § 413(1). See Pl.'s Mem.  at 16-17. But the cited statutes are in no way "parallel." Aside from the less direct prohibitions in many of the examples, § 413(1) differs because it includes a three-year tolling provision and then an ultimate six-year bar, beyond which "[n]o action may be commenced." In other words, § 413 creates "an absolute outside limit within which suits must be filed...." Davis v. Johnson, 158 F.3d 806, 811 (5th Cir. 1998).
This same statutory scheme appeared in the Securities Exchange Act, which required suit within three years of the act or one year of discovery. Like ERISA, the Securities Exchange Act has a "broad remedial purpose." TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 444 (1976). Yet the Court held in Lampf, Plera, Lipland, Prupis & Petigrow v. Gilbertson, that "[b]ecause the purpose of the 3-year limitation is clearly to serve as a cutoff, we hold that tolling principles do not apply to that period." 501 U.S. 350, 363 (1991).
The Fifth Circuit relied on Lampf in Radford v. General Dynamics Corp ., holding that § 413(1)'s six-year limitations period "is a statute of repose, establishing an outside limit of six years in which to file suit" and to which "tolling does not apply." 151 F.3d at 400. The Radford Court explained that "[a]s a statute of repose, § 413 serves as an absolute barrier to an untimely suit." Id. (emphasis added).
Radford did not use the word "jurisdictional" and considered only equitable tolling. But the Fifth Circuit was more expansive when explaining Radford in Archer v. Nissan Motor Acceptance Corp., 550 F.3d 506, 508 (5th Cir. 2008). There, the court construed the limitations period found in the Equal Credit Opportunity Act (ECOA), 15 U.S.C. § 1691. Citing Radford, the court clarified that the ECOA and ERISA are statutes of repose that "leave federal courts no power to extend the limitations period...." Id. Archer specifically stated, "This is a statute of repose establishing with clear text a jurisdictional bar' under which federal courts lack the power to extend the period to allow for late adjudication of claims.'" Id. (contrasting Davis, 158 F.3d at 810 (holding that unlike ERISA § 413(1), 28 U.S.C. § 2244(d)(1) did not "divest federal jurisdiction")); see also Keiran v. Home Capital, Inc., 720 F.3d 721, 732 (8th Cir. 2013) (identifying § 413(1) as an example of Congress "explicitly" "choos[ing] to use a statute of repose to make the filing of a lawsuit necessary in order to exercise a statutory right...").
In light of Radford and Archer, the Court concludes that the six-year limitations period set forth in § 413(1) is a jurisdictional prerequisite to suit that cannot be waived or tolled. See 4 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1056 (3d ed.) ("Moreover, a critical distinction is that a repose period is fixed and its expiration will not be delayed by estoppel or tolling."); Burlington N. & Santa Fe Ry. Co. v. Poole Chem. Co., 419 F.3d 355, 363 (5th Cir. 2005) ("Thus, with the expiration of the period of repose, the putative cause of action evanesces; life cannot thereafter be breathed back into it.").
The Court agrees with the Secretary that this result might seem "inequitable" if a valid tolling agreement exists. Pl.'s Mem.  at 22. But equity will not toll a statute of repose. Radford, 151 F.3d at 400. Nor will consent remedy a constitutional deficiency in the Court's jurisdiction. See Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 850-51 (1986) (observing that "parties by consent cannot confer on federal courts subject-matter jurisdiction beyond the limitations imposed by Article III").
Defendants' motion for summary judgment is therefore granted in part as to the claims arising out of the December 30, 2002 and December 19, 2003 transactions, which are dismissed with prejudice. Conversely, Plaintiff's motion for partial summary judgment is denied in part as to these claims. Because Bruce's potential liability arose solely out ...