Porter v. First Bankshares, Inc.

IN THE UNITED STATES DISTRICT COURT FOR

THE SOUTHERN DISTRICT OF WEST VIRGINIA

HUNTINGTON DIVISION

SHERRIE N. PORTER,

Plaintiff,

v. CIVIL ACTION NO. 3:21-0464

FIRST BANKSHARES, INC.,

PHILLIP VALLANDINGHAM,

P. ANDREW VALLANDINGHAM,

SAMUEL VALLANDINGHAM,

JEANNE P. VALLANDINGHAM,

STEPHANIE V. MAYBERRY,

ROBERT JACKSON DILLEY,

DANIEL T. YON,

RONALD W. WOODELL,

MICHAEL S. LUNSFORD,

as Directors of either or both First Bankshares, Inc. and

The First State Bank of Barboursville,

ANY AND ALL OTHER UNNAMED AND TO BE

DETERMINED DIRECTORS THEREOF,

GUYAN HOLDING COMPANY, and

FIRST BANKSHARES TRUST PREFERRED I,

Defendants.

MEMORANDUM OPINION AND ORDER

Pending before the Court is a Motion to Dismiss by Defendants Phillip

Vallandingham, P. Andrew Vallandingham, Samuel Vallendingham, Jeanne P. Vallendingham,

Stephanie V. Mayberry, Robert Jackson Dilley, Daniel T. Yon, Ronald W. Woodell, and Michael

S. Lunsford (ECF No. 7), a Motion to Dismiss by Defendants First Bankshares, Inc., Guyan

Holding Company, and First Bankshares Trust Preferred I (ECF No. 9), and a Motion to Remand

by Plaintiff Sherrie N. Porter. ECF No. 11. For the following reasons, the Court GRANTS, in

part, and HOLDS IN ABEYANCE, in part, Defendants’ motions and DENIES Plaintiff's

motion.

Plaintiff originally filed this action in the Circuit Court of Cabell County, West

Virginia. Thereafter, Defendants removed the action to this Court based on federal question

jurisdiction. See 28 U.S.C. §§ 1331, 1441(a), and 1446. Specifically, Defendants assert that

Plaintiff’s claims are preempted under the Employee Retirement Security Act of 1974 (ERISA),

29 U.S.C. § 1001 et seq.,1 and must be dismissed. On the other hand, Plaintiff asserts she has made

claims independent of ERISA and the case should be remanded for further proceedings in state

court.

In determining whether Plaintiff’s claims are preempted and subject to dismissal

under ERISA, the Court looks to the allegations in the Complaint. As relevant here, Plaintiff

alleges that she retired from The First State Bank in 2017 with thirty-seven years of service.

Compl. ¶8, ECF No. 1-1. During her tenure with the bank, she participated in a KSOP, which was

a retirement plan that combined an employee stock ownership plan with a 401(k). Id. ¶9. Plaintiff

asserts that she “blindly followed [the] direction and advice” of the bank management and

directors and invested her retirement in stock of First Bankshares, Inc., the parent company of the

other corporate defendants Id. ¶¶ 3, 10.

1Additionally, Defendants point to the fact that the Federal Deposit Insurance Corporation

(FDIC) was appointed as the receiver of The First State Bank on April 3, 2020, and it is regularly

substituted as a real party in interest, which would make the case removable. There is no indication

on the docket sheet that the substitution actually occurred in this case, and Plaintiff voluntarily

dismissed Defendants The First State Bank of Barboursville, The First Company, and the West

Virginia Development Loan Fund, Inc. on September 10, 2021. As the Court finds removal was

otherwise proper under ERISA, the Court will not consider whether Defendants also could remove

the action from state court based upon the FDIC’s receivership.

Prior to retirement, Plaintiff claims that she “sought on a number of occasions to

withdraw or transfer her retirement assets in light of the fact the value of First Bankshare’s stock

was known to be in significant decline.” Id. ¶11. Plaintiff asserts her requests were ignored and

denied. Id. ¶12. Plaintiff claims that as of December 31, 2012, her retirement portfolio had an

account balance of $243,055.61, but the value fell to $2,604.61 by January 16, 2018. Id. ¶14.

Following the bank’s failure, Robert Jackson Dilley, the Plan Administrator, notified Plaintiff by

letter dated June 10, 2020, that First Bankshare, Inc.’s stock was worthless. Id. ¶13.2

In reviewing the Complaint, the Court notes that Plaintiff does not set forth clearly

defined causes of action in separate paragraphs. Instead, she divides her Complaint into three

sections, which are captioned with specific Defendants. In what is entitled Cause of Action (A),

Plaintiff alleges “Corporate Liability of First Bankshares, Inc.” Id. ¶A.3 Under this heading,

Plaintiff claims that First Bankshares, Inc., “acting by and through their respective directors” owed

a fiduciary duty to employees, investors, and shareholders to follow the law. Id. ¶19. Plaintiff

alleges, however, that this duty was breached and the company, through its officers and

employees, committed simple and gross negligence and nonfeasance, misfeasance, and

malfeasance that proximately caused its stock to depreciate to the detriment of employees and

shareholders, including Plaintiff. Id. ¶¶20-23.

Under Cause of Action (B), Plaintiff asserts liability against the individually named

Defendants who served as directors of First Bankshares, Inc. and The First State Bank. Plaintiff

2For the calendar years 2018 and 2019, the value of the stock was $0.00. Id.

3The First State Bank also is named in this section but, as previously mentioned, The First

State Bank was voluntarily dismissed.

alleges these individuals also committed “acts of negligence, gross negligence, breach of fiduciary

duty, misfeasance, nonfeasance, or malfeasance” that proximately caused the devaluation of the

stock to the detriment of Plaintiff and other employees and shareholders. Id. at ¶¶28-29.

Finally, under Cause of Action (C), Plaintiff claims “Liability of Corporate

Defendants Guyan Holding, LLC [and] First Bankshares Trust Preferred I.” Id. ¶(C).4 Plaintiff

asserts that these entities are wholly-owned subsidiaries of First Bankshares, Inc. and that First

Bankshares, Inc. is their alter ego. There are no specific claims against either Guyan Holding, LLC

or First Bankshares Trust Preferred I under this Cause of Action. Rather, Plaintiff asserts that any

money judgment she is awarded can be attached to them.5

In their motions to dismiss, Defendants argue Plaintiff’s claims all arise from her

status as a KSOP beneficiary and any rights or remedies she may have is controlled by the KSOP

Plan Document. See First Bankshares, Inc. Employee Stock Ownership Plan (with 401(k)

Provisions), ECF No. 7-1. Therefore, Defendants insist Plaintiff’s claims are preempted and

cannot survive. Additionally, Defendants assert that Plaintiff is not a shareholder under the terms

of the KSOP. Rather, the KSOP Trustee is the record shareholder, who is empowered to enforce

any fiduciary duties owed to the Trust and who is responsible to manage the KSOP’s assets in

accordance with the terms of the Plan. Id., Article VIII Trustee, at 89-99. As a result, Defendants

4The First Company and the West Virginia Development Loan Fund, Inc. also were named

in this paragraph, but they have been dismissed.

5Plaintiff also asserts she is entitled to injunctive relief against them “to include the

appointment of a special commissioner or receiver to assume control and management of the

assets of said corporate defendants, pending the outcome of this civil action[.]” Id. at 6, ¶2 of

Prayer for Relief.

argues that Plaintiff lacks standing to assert any right the Trustee may have against the named

corporations and the individual officers and directors.

In considering these arguments, the Court recognizes ERISA contemplates two

types of preemption—conflict preemption and complete preemption. Conflict preemption is found

in § 514(a) and is broadly stated to “‘supersede any and all State laws insofar as they may now or

hereafter relate to any employee benefit plan.’” Griggs v. E.I. DuPont de Nemours & Co., 237 F.3d

371, 377 (4th Cir. 2001) (quoting 29 U.S.C. §1144(a)). As the phrase “relate to” has proven

difficult to demark, courts must examine whether Congress clearly intended for state law to be

preempted as part of their conflict preemption analysis. Greenbrier Hotel Corp. v. UNITE HERE

HEALTH, 719 F. App'x 168, 178 (4th Cir. 2018) (citing N.Y. State Conf. of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655–56 (1995)). Importantly, “conflict

preemption under § 514 does not provide a basis for federal jurisdiction. Rather, it provides a

defense to a state law claim that may be asserted in state court.” Sonoco Prod. Co. v. Physicians

Health Plan, Inc., 338 F.3d 366, 371 (4th Cir. 2003).

On the other hand, complete preemption found in § 502(a)6 applies to actions

“brought ‘by a participant or beneficiary . . . to recover benefits due to him under the terms of his

plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits

under . . . the plan.’” Port City Neurosurgery & Spine, PC v. Blue Cross & Blue Shield of

N. Carolina, No. 1:19-CV-948, 2020 WL 1904774, at *3 (M.D. N.C. Apr. 17, 2020) (quoting 29

U.S.C. § 1132(a)). In Prince v. Sears Holdings Corp., 848 F.3d 173 (4th Cir. 2017), the Fourth

629 U.S.C. § 1132(a).

Circuit adopted a three-prong test to determine when § 502 completely preempts a state claim.

This test provides:

(1) the plaintiff must have standing under § 502(a) to pursue its

claim; (2) its claim must “fall[ ] within the scope of an ERISA

provision that [it] can enforce via § 502(a)”; and (3) the claim must

not be capable of resolution “without an interpretation of the

contract governed by federal law,” i.e., an ERISA-governed

employee benefit plan.

848 F.3d at 177 (internal quotation marks and citations omitted). Only claims subject to complete

preemption are removable to federal court. Sonoco Prod. Co., 338 F.3d at 371 (4th Cir. 2003); see

also Darcangelo v. Verizon Commc'ns, Inc., 292 F.3d 181, 187 (4th Cir. 2002) (stating “the

doctrine of complete preemption converts an ordinary state common law complaint into one

stating a federal claim” (internal quotation marks and citation omitted)). Defendants argue this

action falls within the complete enforcement provision. Upon review, the Court agrees only as to

Plaintiff’s claim that she was prevented from withdrawing or transferring her retirement assets.

Applying the above criteria to this claim, it is clear that under the first prong

Plaintiff has standing under § 502 to pursue a claim under ERISA as a beneficiary. As to the

second prong, the KSOP Summary Plan Description expressly covers the diversification of an

account and provides:

May I Diversify My Account?

Ordinarily, the KSOP Trustees will use Company

contributions to purchase Company Stock. However, once you have

attained age 55 and have completed ten years of Credited Service

under the Plan, you may elect to diversity a certain percentage of

your account balances that are invested in Company Stock. See your

Plan representative for further details.

Summ. Plan Description, at 15, ECF No. 7-2; see also First Bankshares, Inc. Employee Stock

Ownership Plan (with 401(k) Provisions), Art. IV Contribution and Allocation, “Directed

Investment Account” § 4.13(e)(1), at 64, ECF No. 7-1 (defining a “Qualified Participant” as “any

Employee who has completed ten (10) whole year Periods of Service as a Participant and has

attained age 55”); id. at § 4.13(a)-(f) at 62-64 (describing the procedures for “Qualified

Participants” to direct their individual accounts). Likewise, the KSOP establishes when

withdrawals may be made prior to termination. See Summ. Plan Description, at 16-17 (authorizing

withdrawals for financial hardship, as defined by the Plan, and for loans).7 Thus, Plaintiff’s

allegation that Defendants failed to withdraw or transfer her retirement assets as she requested falls

squarely within what rights she had under the terms of the Plan. Finally, under the third prong, the

Court finds that a determination of whether Defendants wrongly denied Plaintiff’s requests to

withdraw or transfer assets inevitably requires an analysis of her rights to do so under the Plan.

Therefore, having met all three prongs, the Court easily finds that this allegation falls within the

ambit of complete preemption, making the action removable.

Determining this claim is preempted and the action is removable, however, does

not resolve whether or not the claim should be dismissed or if Plaintiff can proceed under ERISA.

Defendants argue the claim should be dismissed because Plaintiff was ineligible to diversify her

account when she made her requests and she does not allege she qualified for a pretermination

disbursement. As stated above, Plaintiff had to be at least 55 years old to be eligible to diversify her

account. Although the Complaint does not provide a specific date when Plaintiff made her

requests, she asserts it was “[d]uring the latter few years of [her] employment with [the bank.]”

7Plaintiff does not allege that she suffered a hardship or intended to withdraw funds in the

form of a loan.

Compl. ¶11. Defendants assert, however, Plaintiff only was 53 years old when she retired. Thus,

any requests she made to diversify her account prior to her retirement were properly denied

because she did not meet the Plan’s age requirement.

In her Responses, Plaintiff does not address this argument. Nevertheless, as

Plaintiff’s age is a matter outside the pleadings, this Court cannot consider the issue on a motion to

dismiss based solely on Defendants’ representation without converting the motion to one for

summary judgment and giving Plaintiff advance notice. See Fed. R. Civ. P. 12(d) (“If, on a motion

under Rule 12(b)(6) or 12(c), matters outside the pleadings are presented to and not excluded by

the court, the motion must be treated as one for summary judgment under Rule 56. All parties must

be given a reasonable opportunity to present all the material that is pertinent to the motion.”);

Miller v. Maryland Dep't of Nat. Res., 813 F. App'x 869, 873 (4th Cir. 2020) (stating “[a] proper

Rule 12(d) conversion first requires that all parties be given some indication by the court . . . that it

is treating the 12(b)(6) motion as a motion for summary judgment” (internal quotation marks and

citation omitted)).8 Therefore, as the Court cannot decide the issue in its current posture, the Court

HOLDS Defendants’ motion to dismiss this claim IN ABEYANCE and DIRECTS the parties to

further brief the issue. The Court DIRECTS Plaintiff to file a Sur-Response on or before April

27, 2022. The Sur-Response must include Plaintiff’s birthday and how old she was when she

8The Court’s consideration of the Plan documents, however, does not convert the motion

into one for summary judgment as Plaintiff does not dispute their authenticity and they are integral

to her claim. See Clark v. BASF Corp., 142 F. App'x 659, 660–61 (4th Cir. 2005) (finding “the

district court properly considered the Plan document on the motion to dismiss” as “there was no

dispute as to its authenticity, the document was referenced in the complaint, and the document was

central to [the plaintiff’s] claims”).

retired.9 Additionally, if Plaintiff believes that her requests to diversify her funds were wrongly

ignored or denied either because she was 55 years old or older when she made her requests, or for

any other reason under the terms of the Plan, she must make those arguments in her Sur-Response.

Finally, Plaintiff also must identify which Defendant(s) this claim is asserted against. 10

Defendants shall have until on or before May 4, 2022, to file a Sur-Reply.

The Court next turns to Plaintiff’s allegations that Defendants breached their

fiduciary duties and acted with negligence, nonfeasance, misfeasance, and malfeasance in their

capacities as corporate executives which depleted the value of the stock held by the Plan in its

portfolio. Plaintiff argues that these allegations do not arise under ERISA, and she denies she is

attempting to bring a stockholder derivative suit. Therefore, she insists preemption does not apply.

Under the terms of the Plan, the KSOP’s assets are held in a Trust, and the Trustee

is responsible to hold and invest the assets. With respect to any stocks held by the Trust, the

Trustee is considered the record shareholder. Participants and beneficiaries, such as Plaintiff, are

not direct stockholders. Moreover, the Plan very carefully controls how any assets are invested and

how the KSOP is administered. See also First Bankshares, Inc. Employee Stock Ownership Plan

(with 401(k) Provisions), Art. VIII Trustee, at 89-99 (setting forth the responsibilities of the

Trustee, including investments), ECF No. 7-1; id., Art. V Funding and Investment Policy, at 66-68

9Often times, the Court simply will deny the motion in favor of discovery. However, in this

instance, discovery is unnecessary for Plaintiff to identify how old she was when she retired.

10In her Complaint, Plaintiff does not specifically identify Defendants’ roles and positions

with respect to the ERISA Plan.

(establishing, inter alia, how the funds are invested); Summ. Plan Description, at 19 (explaining

that the KSOP’s stock are held in Trust and the Trustees are responsible for investments).

Under this scheme, Defendants insist that Plaintiff does not have standing to bring

an individual shareholder claim of mismanagement against Defendants. Instead, if Defendants

breached their fiduciary duties and responsibilities to the Trust, it is the Trustee, as the record

shareholder, who may bring an action. In other words, as a beneficiary and non-stockholder,

Plaintiff cannot leapfrog over the Trustee and directly sue Defendants to recover her personal

losses caused by the devaluation of stock held by the Trust that affected all the beneficiaries. Upon

review, the Court agrees that Plaintiff’s claim is preempted and cannot proceed under ERISA.

As aptly explained by the Eighth Circuit Court of Appeals in Eckelkamp v. Beste,

315 F.3d 863 (8th Cir. 2002):

The structure of the ERISA plan would be altered if beneficiaries

were to sue on [the ESOP’s] behalf because federal law grants the

plan trustees “exclusive authority and discretion to manage and

control the assets of the plan.” See 29 U.S.C. § 1103. To permit

ESOP beneficiaries to assert rights granted to the trustees would

also alter the administration of the plan. Since the requested relief

would involve payments to the ESOP, it would have an economic

impact on the plan. Preemption in these circumstances could be

consistent with other ERISA provisions, especially 29 U.S.C.

§ 1103, which grants the trustee exclusive authority to control plan

assets. Although permission to bring a breach of fiduciary duty

claim against corporate officers is an exercise of traditional state

power, permission for ERISA beneficiaries to assert such a claim is

not. All these factors favor preemption, and several of them weigh

heavily in that direction.

315 F.3d at 870. Therefore, the Eighth Circuit held that ERISA preempted the Employee Stock

Ownership Plan (ESOP) beneficiaries’ breach of fiduciary duty claim under state law against

company executives where the company’s stock was owned by an ESOP. Id.;11 see also In re U.S.

Sugar Corp. Litigation, 669 F. Supp.2d 1301, 1325 (S.D. Fla. 2009) (observing that a KSOP

beneficiary obviously has an interest as a participant in the value of the KSOP’s stock, but it “is not

an interest as a direct shareholder”).

In support of her position that she can bring such an action, Plaintiff cites Halperin

v. Richards, 7 F.4th 534 (7th Cir. 2021), for the proposition that ERISA does not always prevent

parallel state-law claims against corporate directors and officers who serve as fiduciaries for both

the corporation and an ERISA plan. However, the Court finds that Halperin is inapposite to the

facts of this case. In Halperin, the plaintiffs were bankruptcy creditors who alleged the company

overinflated the value of stock to conceal a decline and to benefit insiders. Id. at 539. Although the

stock was wholly-owned by employees under an ESOP governed by ERISA, the creditor-plaintiffs

had no rights under “ERISA as a ‘participant, beneficiary, or fiduciary.’” Id. at 545 (quoting 29

U.S.C. § 1132(a)(3)). Therefore, the Halperin court found the creditor-plaintiffs were not

attempting to make an end-run around ERISA remedies as they were non-ERISA plaintiffs. Id.

Although Plaintiff characterizes her claims in this case as a parallel action falling

outside of ERISA coverage, the gravamen of the mismanagement claims is that she has suffered an

injury as a Plan beneficiary because the stock held by the Trust and administered by the Trustee

under the terms of the Plan lost value. Thus, these claims undoubtedly arise solely as a result of her

status as an individual beneficiary. As explained in Eckelkamp, allowing Plaintiff to proceed with

11Unlike this case, the plaintiffs in Eckelkamp also argued they could bring the action as a

“double-derivative” action as members of the ESOP. Id. at 869. As previously stated, Plaintiff here

expressly denies attempting to bring a derivate action.

an individual action would be inconsistent with the provisions of ERISA as enacted by Congress

that vest discretion and authority over assets with trustees. Moreover, all the beneficiaries, not just

Plaintiff, suffered damage due to the devaluation of the stock held in the Trust. Consequently, the

Court finds Plaintiff’s state law claims related to corporate mismanagement are subject to conflict

preemption and must be dismissed as she cannot bring such claims to recover any personal

damages she experienced as an individual beneficiary and non-stockholder. Therefore, the Court

GRANTS Defendant’s motion to dismiss Plaintiff’s claims that Defendants breached their

fiduciary duties and acted with negligence, nonfeasance, misfeasance, and malfeasance.

Accordingly, for the foregoing reasons, the Court FINDS Plaintiff’s claims are

preempted under ERISA, DENIES her Motion to Remand, DISMISSES her claims related to

corporate mismanagement, and HOLDS IN ABEYANCE Plaintiff’s claim that Defendants failed

to withdraw or transfer her retirement assets as she requested. As to the remaining claim, the Court

DIRECTS Plaintiff to file a Sur-Response on or before April 27, 2022, identifying her birthday,

age at retirement, any arguments in support of her position that her requests to diversify her funds

were wrongly ignored or denied, and specifying which Defendant(s) this claim is asserted against.

Defendants shall have until on or before May 4, 2022, to file a Sur-Reply. The Court withholds

dismissing any of the named Defendants until the briefing on Plaintiff’s remaining claim is

complete.

The Court DIRECTS the Clerk to send a copy of this Order to counsel of record

and any unrepresented parties.

ENTER: April 20, 2022

ROBERT C. CHAMBERS

UNITED STATES DISTRICT JUDGE

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