United States District Court, E.D. North Carolina, Western Division
SHARON LEE on behalf of herself individually, and on behalf of all others similarly situated, Plaintiff,
ARGENT TRUST COMPANY, CHOATE CONSTRUCTION COMPANY ESOP COMMITTEE, CHOATE CONSTRUCTION COMPANY BOARD OF DIRECTORS, WILLIAM MILLARD CHOATE, DAVE PRIESTER, COMMITTEE DEFENDANTS (John and Jane Does 1-10), BOARD DEFENDANTS (John and Jane Does 11-20), and SELLING SHAREHOLDERS (John and Jane Does 21-35), Defendants.
TERRENCE W. BOYLE, CHIEF UNITED STATES DISTRICT JUDGE
matter is before the Court on defendants39; motions to
dismiss plaintiffs complaint. [DE 30, 32]. Plaintiff has
responded to the motions to dismiss and the motions are now
ripe for disposition. For the reasons that follow,
defendants39; motions to dismiss [DE 30, 32] are GRANTED
and plaintiffs complaint is DISMISSED.
2016, Choate Construction Company ("Choate")
created the Choate Construction Company Employee Stock
Ownership Plan ("Choate ESOP"). [DE 1, ¶¶
1-3]. The Choate ESOP is an ERISA-backed plan that allows
participating Choate employees to invest their retirement
accounts in Choate stock. Id. ¶ 2. Choate hired
defendant Argent Trust Company ("Argent") to serve
as trustee of the Choate ESOP. Id. ¶¶ 6-7.
Because Choate is a privately held company, and its shares
therefore do not trade on public markets, Argent was
responsible for retaining an independent appraiser to
determine the value of Choate stock. Id. ¶ 6;
see also DE 31, p. 2. Argent, as trustee, was
responsible for overseeing the valuation process and ensuring
that the Choate ESOP did not pay more than fair-market value
for Choate stock. Argent retained independent appraisal firm
Stout Risius Ross to conduct the initial appraisal and annual
valuations thereafter. [DE 1, ¶ 39; «?e a/so DE
December 2016, the Choate ESOP purchased 8 million shares of
Choate stock for $198 million. [DE 1, ¶ 4]. The 8
million shares represented 80% of Choate. Id. At
approximately the same time, Choate redeemed 2 million shares
held by the selling shareholders (that is, Choate39;s
former owners) for non-voting stock and warrants.
Id. ¶ 5. Of course, Choate39;s employees did
not pay the company $198 million for the shares. Instead,
Choate borrowed $57 million from a bank and then turned
around and loaned that $57 million to the Choate ESOP for
part of the purchase. Id. ¶¶ 44-45. To
finance the remainder of the purchase, the Choate ESOP issued
notes to the selling shareholders for the remaining $141
million at ¶ 4% annual rate. Id. ¶¶
44-48. Argent, as trustee of the Choate ESOP, oversaw and
approved the transactions. Id. ¶ 49.
is a former Choate employee who worked for the company from
April 2007 to April 2017. [DE 1, ¶ 14]. When her Choate
employment ended, plaintiff was "fully vested in the
[Choate] ESOP." Id. She alleges, on behalf of
herself and similarly situated current and former Choate
employees, that the "creation of the Choate ESOP . . .
was not conducted in the best interests of the
employees." Id. ¶ 3. In particular,
plaintiff relies on a $64.8 million valuation of the Choate
ESOP39;s stock on December 31, 2016-less than one month
after the creation of the Choate ESOP-as evidence in support
of her contention that the $198 million that the Choate ESOP
paid for Choate stock was excessive. Id.
¶¶ 52-55. Plaintiff brings claims against Argent,
the Choate ESOP committee (collectively and individually),
Choate39;s board of directors (collectively and
individually), Choate39;s former president (and current
chairman and chief executive officer), Choate39;s current
president and chief operating officer, and the individual
selling shareholders. Id. ¶¶ 15-32.
particular, plaintiff asserts seven causes of action.
Plaintiff alleges that Argent engaged in a prohibited
transaction in violation of 29 U.S.C. § 1106(a)(1)
(Count I), breached its fiduciary duties under 29 U.S.C.
§§ 1104(a)(1)(A) and (B) (Count V), and violated 29
U.S.C. §§ 1110(a) and 1102(a) (Count VII).
Id. ¶¶ 74-84; 116-25; 132-39. Plaintiff
further alleges that the Choate ESOP committee defendants and
selling shareholders violated § 1106(a) (Counts II and
III), that the board defendants and committee defendants who
also sold shares to the Choate ESOP violated § 1106(b)
(Count IV), that the board defendants failed to monitor
Argent under § 1104(a) (Count VI), and that the board
defendants violated §§ 1110(a) and 1102(a) (Count
VII). Id. ¶¶ 85-107; 108-15; 126-31;
have moved to dismiss all of plaintiff39;s causes of action
under both Rule 12(b)(1) and Rule 12(b)(6) of the Federal
Rules of Civil Procedure. [DE 30, 32]. Defendants argue that
plaintiff lacks standing under Article III to bring this
action because she has not alleged any concrete and
particularized injury. Defendants also argue that, even if
plaintiff does have standing to pursue her claims, she has
failed to plausibly allege any ERISA claim under the
statutory provisions that she cites.
did not timely respond to defendants39; motions to dismiss;
instead, plaintiff filed a response 42 days after defendants
filed their motions, providing no explanation for her
tardiness. The Court has nonetheless considered plaintiffs
arguments in response to defendants39; motions.
have moved to dismiss plaintiffs complaint for lack of
subject-matter jurisdiction under Rule 12(b)(1). The
existence of subject-matter jurisdiction is a threshold
question that a court must address before considering a
case39;s merits. Steel Co. v. Citizens for a Better Env
39;t, 3 U.S. 83');">523 U.S. 83, 88-89 (1998). "Subject-matter
jurisdiction cannot be forfeited or waived and should be
considered when fairly in doubt." Ashcroft v.
Iqbal, 556 U.S. 662, 671 (2009) (citation omitted). When
subject-matter jurisdiction is challenged, the plaintiff has
the burden of proving jurisdiction to survive the motion.
Evans v. B.F. Perkins Co., 3d 642');">166 F.3d 642, 647-50 (4th
Cir. 1999). When a facial challenge to subject-matter
jurisdiction is raised, the facts alleged by the plaintiff in
the complaint are taken as true, "and the motion must be
denied if the complaint alleges sufficient facts to invoke
subject-matter jurisdiction." Kerns v. United
States, 3d 187');">585 F.3d 187, 192 (4th Cir. 2009). The Court can
consider evidence outside the pleadings without converting
the motion into one for summary judgment. See, e.g.,
Evans, 166 F.3d at 647.
have also moved to dismiss plaintiffs complaint for failure
to state a claim upon which relief can be granted under Rule
12(b)(6). When considering a motion to dismiss under Rule
12(b)(6), "the court should accept as true all
well-pleaded allegations and should view the complaint in a
light most favorable to the plaintiff." Mylan Labs.,
Inc. v. Matkari, 3d 1130');">7 F.3d 1130, 1134 (4th Cir. 1993). A
complaint must state a claim for relief that is facially
plausible. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 570 (2007). Facial plausibility means that the court can
"draw the reasonable inference that the defendant is
liable for the misconduct alleged," as merely reciting
the elements of a cause of action with the support of
conclusory statements does not suffice. Iqbal, 556
U.S. at 678. The Court need not accept the plaintiffs legal
conclusions drawn from the facts, nor need it accept
unwarranted inferences, unreasonable conclusions, or
arguments. Philips v. Pitt County Mem. Hosp., 572
F.3d 176, 180 (4th Cir. 2009).
amended complaint must be dismissed because this Court lacks
subject-matter jurisdiction over plaintiffs claims. Under
Article III of the U.S. Constitution, federal courts may
consider only cases or controversies, and "the doctrine
of standing has always been an essential component" of
the case or controversy requirement. Marshall v.
Meadows, 3d 904');">105 F.3d 904, 906 (4th Cir. 1997) (citing
Lujan v. Defs. of Wildlife, 504 U.S. 555, 560
(1992)). All federal plaintiffs, including plaintiffs
bringing ERISA claims on behalf of themselves and others, are
required to establish that they have standing to sue in
federal court. See In re Mut. Funds Inv. Litig., 529
F.3d 207, 216 (4th Cir. 2008) (plaintiffs must have both
statutory and constitutional standing). Otherwise, the court
lacks subject-matter jurisdiction. To have standing to sue, a
plaintiff must demonstrate that she "(1) suffered an
injury in fact, (2) that is fairly traceable to the
challenged conduct of the defendant, and (3) that is likely
to be redressed by a favorable judicial decision."
Spokeo, Inc. v. Robins, 36 S.Ct. 1540');">136 S.Ct. 1540, 1547 (2016)
(citingLujan, 504 U.S. at 560-61 mdFriends of
the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc.,
528 U.S. 167, 180-81 (2000)). An "injury in fact"
is "an invasion of a legally protected interest which is
. . . concrete and particularized." Lujan, 504
U.S. at 560. To be "particularized," the injury
"must affect the plaintiff in a personal and individual
way." Spokeo, 136 S.Ct. at 1548 (quoting
Lujan, 504 U.S. at 560 n.1).
has not demonstrated that she has suffered a concrete and
particularized injury. Plaintiffs allegations are premised on
the purchase of 8 million Choate shares by the Choate ESOP at
a valuation that plaintiff claims, in light of the
shares' subsequent valuation at $64.8 million and the
warrants possessed by the selling shareholders, was
excessive. Plaintiff does not allege that she suffered any
additional or unique harm separate from the harm that she
alleges all members of the Choate ESOP suffered. Plaintiff,
however, fundamentally misunderstands the nature of the