Johns v. Ng et al, No. 3:2012cv02456 - Document 37 (N.D. Cal. 2012)
Court Description: ORDER DENYING DEFENDANTS' MOTION TO DISMISS AND VACATING HEARING by Judge William Alsup [denying 19 Motion to Dismiss]. (whasec, COURT STAFF) (Filed on 9/28/2012)
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Johns v. Ng et al Doc. 37 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 CARRIE JOHNS, 11 For the Northern District of California United States District Court 10 12 13 14 15 16 Plaintiff, v. WALTER NG, individually and as Plan fiduciary; BARNEY NG, individually and as Plan fiduciary; KELLY NG, individually and as Plan fiduciary; BRUCE HORWITZ, M.D., individually and as Plan fiduciary; BAR-K, INC., a California corporation; LEND, INC., a California corporation; BAR-K 401K PLAN, 17 ORDER DENYING DEFENDANTS’ MOTION TO DISMISS AND VACATING HEARING Defendants. / 18 19 20 No. C 12-02456 WHA INTRODUCTION In this ERISA action, defendants move to dismiss pursuant to Rule 12(b)(6). For the 21 reasons stated below, the motion is DENIED. The hearing scheduled for October 4, 2012, is 22 VACATED. 23 STATEMENT 24 Plaintiff Carrie Johns was employed by Bar-K, Inc. as a human resources manager. 25 In 2000, plaintiff became the trustee of the Bar-K 401K plan. Plaintiff alleges that on 26 August 2009, she learned through a federal Department of Labor investigation that defendants 27 Walter Ng, Barney Ng, Kelly Ng and Bruce Horwitz, the alleged owners, officers and 28 shareholders of Bar-K, had “invested or loaned improperly during the period 2002–2008 into Dockets.Justia.com 1 two mortgage pools, denominated RELoans LLC, and Mortgage Fund 08” without plaintiff’s 2 knowledge or consent. The mortgage funds failed and substantially depleted plan assets. 3 Plaintiff alleges that defendants breached their fiduciary duties by executing and maintaining 4 these mortgage pool investments or loans (Compl. ¶¶ 10–13). 5 Moreover, plaintiff alleges she was retaliated against for cooperating with the DOL capacity as the directed trustee of the plan, and withheld salary payments and payments on 8 investments made by plaintiff personally in entities controlled by defendants. Plaintiff further 9 alleges that when she requested these payments the Ngs insisted that these payments “would 10 only be paid if she executed a Release that exonerated Defendants from any claims she may 11 For the Northern District of California investigation. She asserts that defendants “attempted to assault” her, denied her counsel in her 7 United States District Court 6 have, including claims for her Plan benefits.” Plaintiff refused to sign a release and was 12 terminated from her employment (Compl. ¶¶ 14–16). She states three claims for relief to redress 13 the alleged retaliation: (1) interference with ERISA rights; (2) breach of the covenant of good 14 faith and fair dealing; and (3) wrongful termination in violation of public policy. 15 16 ANALYSIS A motion to dismiss under Rule 12(b)(6) tests the legal sufficiency of the claims alleged 17 in the complaint. Parks Sch. Of Business v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). 18 All material allegations of the complaint are taken as true and construed in the light most 19 favorable to the nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 340 (9th Cir. 20 1996). A complaint needs to be plausible, meaning that “the plaintiff [must] plead[] factual 21 content that allows the court to draw the reasonable inference that the defendant is liable for 22 the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This “requires more 23 than labels and conclusions, and a formulaic recitation of the elements of a cause of action will 24 not do. Factual allegations must be enough to raise a right to relief above the speculative level.” 25 Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted). 26 27 28 2 1 1. CLAIM ONE: BREACH OF FIDUCIARY DUTY 2 ERISA Section 502(a)(2) provides that a civil action may be brought by a participant, 3 beneficiary or fiduciary for appropriate relief for a breach of fiduciary duty. Section 409 4 provides: 5 6 7 8 9 [a]ny person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary . . . . Fiduciaries can either be named in the ERISA plan or unnamed and defined by the Act. “ERISA defines fiduciary not in terms of formal trusteeship, but in functional terms of control 11 For the Northern District of California United States District Court 10 and authority over the plan, thus expanding the universe of persons subject to fiduciary duties — 12 and to damages — under Section 409.” Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993). 13 Additionally, Section 1002(21)(A) provides that a person is a fiduciary with respect to a plan 14 to the extent he exercises any discretionary authority or discretionary control respecting 15 management or disposition of its asserts or he has any discretionary authority or discretionary 16 responsibility in the administration of such plan. 17 If defendants were a fiduciary, as defined in Section 1002(21)(A), and if defendants 18 breached their fiduciary duty, then they would be required to make good any loss resulting from 19 their breach. IT Corp. v. General American Life Ins. Co., 107 F.3d 1415, 1420 (9th Cir. 1997). 20 Defendants contend that plaintiff is the only fiduciary named in the plan because she is 21 both the trustee and investment fiduciary. Plaintiff alleges that defendants are unnamed 22 fiduciaries as defined by Section 1002(21)(A) (Compl. ¶ 18). To support this contention, the 23 complaint alleges the following: 24 25 26 27 28 Defendants, and each of them, directed Plan assets and participant contributions as loans or investments into certain mortgage pools that they controlled, and from which they and Bar-K profited, without obtaining the consent of Plan participants or of Plaintiff as Plan Trustee . . . [and] caused the Plan and its participants, including Plaintiff, to suffer sever losses during the collapse of the real estate market in the period 2006 to date, and failed to correct such investments and loans, despite being advised that such investments and loans were imprudent, not diversified, and 3 1 constituted self-dealing in violation of the prohibited transaction provisions of ERISA. 2 (Compl. ¶ 20). Plaintiff’s allegation that defendants executed and controlled the investments 3 is sufficient to plead that they are ERISA fiduciaries. Plaintiff has also sufficiently pled that 4 defendants breached their fiduciary duties through the conduct described above. 5 Defendants contend that plaintiff is an improper champion to bring this action on behalf 6 of other plan participants because of her “apparent failure to realize how the Plan was investing 7 certain of its assets” and other participants may want to hold her personally liable for their losses 8 (Br. 6). This argument fails because plaintiff alleges that it was the defendants who made the 9 improper investments. Her attempt to exercise her duties as trustee to correct the alleged breach 10 her interests with the other plan participants. Accordingly, plaintiff may bring this action on For the Northern District of California United States District Court by defendants is not, by itself, a conflict of interest. Plaintiff’s status as a plan participant aligns 11 12 behalf of the other plan participants and has pled sufficient facts to state a claim for breach of 13 fiduciary duty under ERISA. 14 If and when it develops that her own stewardship becomes a serious issue, a motion may 15 be brought to address the problem. Now, at the pleading stage, the problem is only theoretical. 16 Accordingly, defendants’ motion to dismiss claim one is DENIED. 17 2. CLAIM TWO: CLAIM FOR BENEFITS. 18 Plaintiff does not cite any section of ERISA in her second claim and instead refers to 19 it as a “Claim for Benefits.” This order assumes that she brings her second claim under 20 Section 502(a)(1)(B) for individual benefits because she pled the required exhaustion of internal 21 remedies and seeks a declaration that she is entitled to accrued vested benefits since she was 22 terminated. Section 502(a)(1)(B) “allows an ERISA plan participant or beneficiary to bring an 23 action in district court ‘to recover benefits due to him under the terms of his plan, to enforce his 24 rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the 25 plan.’” Our court of appeals has held that “before bringing suit under § 502, an ERISA plaintiff 26 claiming a denial of benefits ‘must avail himself or herself of a plan’s own internal review 27 procedures before bringing suit in federal court.’” Exhaustion is not required when it is futile or 28 4 1 the remedy is inadequate. Diaz v. United Agric. Employee Welfare Benefit Plan & Trust, 2 50 F.3d 1478, 1483 (9th Cir. 1995). 3 Plaintiff alleges that she is: 4 now entitled under the terms of the Plan to receive a vested pension benefit from the Plan in the approximate amount of $400,000.00, together with contributions, interest and earnings thereon. Defendants, and each of them, have failed and refused to pay interest or earnings on Plaintiff’s behalf to the Plan, or to acknowledge that Plaintiff is entitled to such vested benefits upon retirement or separation from employment . . . Plaintiff has exhausted all her internal remedies under the Plan, or is otherwise excused from doing so because such remedies are futile. 5 6 7 8 to her after she was terminated, she has stated a proper claim. This order finds that exhaustion 11 For the Northern District of California (Compl. ¶¶ 24–26). To the extent that plaintiff seeks the individual benefits that were denied 10 United States District Court 9 of internal remedies was futile because defendants allegedly tried to extort a waiver of her claim 12 to benefits and otherwise discriminated against her for cooperating with the DOL investigation. 13 If these allegations are taken to be true, it is clear that the internal remedies would have been 14 futile. This is subject to proof at trial or on summary judgment. Accordingly, defendants’ 15 motion to dismiss claim two is DENIED. 16 3. 17 Section 510 of ERISA provides: 18 19 20 21 22 CLAIM THREE: INTERFERENCE WITH ERISA RIGHTS. It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan . . . It shall be unlawful for any person to discharge, fine, expel, or discriminate against any person because he has given information or has testified or is about to testify in any inquiry or proceeding relating to this chapter . . . The provisions of Section 1132 of this title shall be applicable in the enforcement of this section. 23 Plaintiff alleges defendants discharged, disciplined and discriminated “against [] [her] for 24 exercising her rights to receive salary, contributions and pension benefits under the above Plan, 25 and for the purpose of interfering with Plaintiff's enjoyment of her rights to such benefits.” 26 Plaintiff further alleges that defendants “took steps to retaliate against Plaintiff for cooperating 27 with the DOL investigation by withholding salary payments, payments owed to Plaintiff from 28 other entities Defendants controlled, and payments on investments made by Plaintiff personally 5 1 in entities controlled by Defendants” (Compl. ¶¶ 15, 37). Accepting the allegations as true, there 2 are sufficient facts pled to state a claim for interference with ERISA rights. 3 Defendants contend that plaintiff does not plead specific facts regarding each 4 individual defendants role in interfering with her rights and instead lumps them all together. 5 Plaintiff, however, alleges that defendants are all “an owner, officer and shareholder of 6 Defendant Bar-K, and a fiduciary of the Defendant Plan.” Plaintiff also alleges that Bar-K is 7 an employer, plan sponsor and administrator and Lend continues to maintain the plan and its 8 participants (Compl. ¶¶ 4–8). At this stage, plaintiff has pled sufficient facts that plausibly links 9 defendants to this claim through their roles alleged above. Defendants also contend that plaintiff improperly seeks monetary relief for this claim, 11 For the Northern District of California United States District Court 10 which is precluded under Section 502(a)(3) because relief must be equitable in nature. 12 Plaintiff alleges she is “entitled to recover all pension benefits to which she would have been 13 entitled under said Plan, as well as earnings and other benefits of employment” (Compl. ¶ 38). 14 It is undisputable, however, that plaintiff has alleged certain damages that are equitable. 15 For example, plaintiff seeks an order enjoining defendants from interfering with plaintiff’s rights 16 to pension benefits and reinstatement for being improperly terminated, which are both equitable 17 remedies (Compl. 9). As a result, this order need not determine whether all requested damages 18 are equitable and declines to do so at this time. Plaintiff’s claim under Section 510 is sufficiently 19 pled. Accordingly, defendants’ motion to dismiss claim three is DENIED. CLAIMS FOUR AND FIVE: STATE-LAW EMPLOYMENT CLAIMS. 20 4. 21 Plaintiff alleges that defendants breached the covenant of good faith and fair dealing and 22 wrongfully terminated plaintiff in violation of public policy. Defendants contend that plaintiff 23 cannot assert her state-law employment claims against Kelly Ng, Lend and the plan because they 24 are not her employers and had no contractual relationship with her. Plaintiff, however, alleges 25 that “Plaintiff JOHNS and Defendants entered into an employment contract during the term of 26 Plaintiff’s employment” (Compl. ¶ 40)(emphasis added). The facts are not clear enough to 27 conclude that defendants Kelly Ng and Lend are not employers. This is especially true given 28 Kelly Ng’s alleged role as owner, officer and shareholder of Bar-K and Lend’s alleged status of 6 1 the successor and/or alter ego of Bar-K. The allegations must be accepted as true. This order, 2 however, finds that plaintiff did not include the plan as a defendant with regard to the state-law 3 employment claims. 4 Defendants also contend that plaintiff’s state-law claims for breach of the covenant of 5 good faith and fair dealing and wrongful termination in violation of public policy are preempted 6 by Section 514(a) of ERISA. This order finds that the facts are too unclear to support a 7 preemption challenge at this stage in the litigation. It is better to assess the preemption challenge 8 when the facts are more clearly known. Defendants may reassert this argument at summary 9 judgment. Accordingly, the preemption challenge is DENIED WITHOUT PREJUDICE. 11 For the Northern District of California United States District Court 10 12 CONCLUSION For the reasons mentioned above, the motion to dismiss is DENIED. The hearing set for October 4, 2012, is VACATED. The answer is due by OCTOBER 18, 2012. 13 14 IT IS SO ORDERED. 15 Dated: September 28, 2012. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 16 17 18 19 20 21 22 23 24 25 26 27 28 7
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