# Antioch Co. Litigation Trust v. Morgan (In Re Antioch Co.)

> United States Bankruptcy Court, S.D. Ohio · April 28, 2011 · 456 B.R. 791

URL: https://www.frixlaw.com/law-library/cases/2187292

## Case

- **Full name:** In Re the ANTIOCH COMPANY, Et Al., Debtor. the Antioch Company Litigation Trust, W. Timothy Miller, Trustee, Plaintiff v. Lee Morgan Et Al., Defendants
- **Court:** United States Bankruptcy Court, S.D. Ohio
- **Decided:** April 28, 2011
- **Citations:** 456 B.R. 791; 2011 Bankr. LEXIS 1577; 2011 WL 3664888
- **Precedential status:** Published
- **Opinion:** Opinion by Humphrey
- **Judges:** Humphrey
- **Cited by:** 2 later opinions in the Frix Law Library

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## Opinion text

Recommendations for the United States District Court for the Southern District of Ohio to Deny in Part and Grant in Part Various Defendants’ Motions to Dismiss Certain Non-Core Causes of Action
GUY R. HUMPHREY, Bankruptcy Judge.
*808
TABLE OF CONTENTS
I. Introduction.809
II. Procedural Background.810
III. Factual Background. ]-L
A. The Defendants. ]-L
B. The 2003 Transaction.
C. Events Following the 2003 Transaction
D. The Levimo Transaction. J-l
E. Sale Considerations . J-I.
F. The First Sale Proposal and the Replacement of Antioch’s Board 1-L
G. Defaults under the ESOP Notes . ]-L
H. The Second Sale Proposal. i--
I. The Banki’uptcy Filing. 1-^
IV. The Litigation Trustee’s Claims and the Defendants Responses.819
Y. Legal Standard and Analysis . oo CO O
A. Legal Standard for Determining Motions to Dismiss. co Cv3 O
B. Choice of Law. oo CO CO
C. Subject Matter Jurisdiction. oo DO DO
D. The Reservation of Rights in the Confirmed Plan Meets the
Requirements of
Browning v. Levy
with respect to Ml of the
E. ERISA Preemption (Claims 1-12). H co oo
Defendants. W oa oo
1. Law of ERISA Preemption. H co oo
2. The Claim for Aiding and Abetting Breach of Fiduciary Duty against
3. The Claim for Professional Negligence against Reliance is Preempted
GreatBanc Trust Company is Preempted by ERISA. CD CO CO
by ERISA. oo CO -o
4. The Claims against Evolve Bank & Trust are Preempted by ERISA oo CO 00
5. Possible ERISA Claims against the ESOP Trustees. oo CO CO
6. The Non-Core Causes of Action against Lee Morgan, Asha Morgan
8. The Professional Negligence Counts Fail to State a Claim upon which
7. Causes of Action against Marty Moran are not Preempted. 00 0^-
Moran, and Chandra Attiken are not Preempted by ERISA. oo CO CO
Relief can be Granted. "nT oo
F. Statute of Limitations (Claims 1-3). IQ ^ oo
1. Positions of the Parties. LO oo
2. The Litigation Trustee is an Assignee and Succeeds to All Rights of
Antioch, Subject to Any Defenses and Limitations .
3. Applicable Law Concerning the Statute of Limitation.
4. ORC § 2305.09 and the “Discovery Rule”.
5. Equitable Tolling Principles under Ohio Law.
6. The Doctrine of Adverse Domination.
a. General Principles under the Adverse Domination Doctrine.
b. Relationship to Agency Law.
c. Relationship to Close Corporation Law.
d. Ohio has Long Recognized the Corporate Agency Principles
f. There is not a Sufficient Basis to Conclude that the Supreme
Court of Ohio would Recognize Adverse Domination as a
e. Ohio Close Corporation Law Supports Application of the Adverse
Underlying the Adverse Domination Doctrine . 00 cn <1
Domination Doctrine. 00 cn CD
Separate Doctrine to Toll a Statute of Limitation. 00 CR CD
*809
7. Conclusion as to the Statute of Limitation Pertaining to Counts 1, 2,
and 3. o CO
G. Breaches of Fiduciary Duties (Counts 1, 3, 6, 8 and 10). o to
1. Fiduciary Duties of Directors and Officers Generally. o CD
2. Count 1: Breach of Fiduciary Duty in Connection with the 2003
Transaction. CO 05
3. Count 3: Breach of Fiduciary Duty Related to the Condor
Transaction. 00 05
a. It is Premature to Dismiss Counts 3, 8, and 9 against CRG Based
on CRG’s Contractual Agreement with Antioch. CM CO OO
b. The Litigation Trustee has Plead Sufficient Facts to State a
Claim for Breach of Fiduciary Duty as to the Condor
Transaction against All of the Count 3 Defendants . CO 00
c. Count 3 and Other Counts Against CRG, Epstein, and Ravaris
should not be Dismissed at this Stage of the Litigation Based
on the Doctrine of In Pari Delicto. oo 05 05
d. Count 3 is not Barred by the 4 Year Statute of Limitation. oo 05 05
4. Count 6: Breach of Fiduciary Duty with respect to the Levimo
Transaction. 00 05 ~q
5. Count 8: Breach of Fiduciary Duty with respect to the Sale Process
(The Recapitalization or Refinancing Alternative Strategy). 05 CO 00
6. Count 10: Breach of Fiduciary Duty with respect To the Sale Process
(The J.H.Whitney Offer). 00 ~q H
7. Summary as to the Breach of Fiduciary Duty Counts. 00 -q tO
H. Aiding and Abetting Breaches of Fiduciary Duty (Counts 2, 7, 9, & 11) 00 ~q DO
1. Count 2: Aiding and Abetting Breach of Fiduciary Duty in
Connection with the 2003 Transaction. 00 **q Cn
2. Count 7: Aiding and Abetting Breach of Fiduciary Duty with respect
to the Levimo Transaction. co c— CO
3. Count 9: Aiding and Abetting Breach of Fiduciary Duty with respect
to Sale Process (The Recapitalization and Refinancing Alternatives) 00 “01 **q
4. Count 11: Aiding and Abetting Breach of Fiduciary Duty with
respect to Sale Process (Interference With the J.H. Whitney Sale
Offer). 05 c— oo
I. Count 12: Tortious Interference With Business Contracts with respect to
Sale Process. 00 00 O
1. Candlewood. 00 00 to
2. Lee Morgan . 00 00 CO
3. Marty Moran . 00 CO 05
J. Count 15: Attorney Fees 00 00
VI. Conclusion . .885
I. INTRODUCTION
W. Timothy Miller, as Trustee of The Antioch Company Litigation Trust (the “Litigation Trustee”), initiated this adversary proceeding on December 23, 2009 against thirty defendants, most of whom were identified in the complaint either as former trustees of the Antioch Company’s employee stock ownership plan, or current or former officers and directors who served on the Antioch board of directors at various times from 2003 to the Chapter 11 filing. In addition to tort claims, including breach of fiduciary duty, aiding and abetting breach of fiduciary duty, professional negligence and tortious interference with contracts, the Litigation Trustee is asserting bankruptcy claims for equitable subordination and preferential transfers. The tort claims concern the role that the defendants played in connection with a transaction designed to transfer all of Antioch’s equity to Antioch’s employee stock ownership plan, decisions subsequent to that
*810
transaction, and the financial debacle that ensued. In a nutshell, the Litigation Trustee alleges that some of the defendants either placed their own interest ahead of that of the company, its employees, and creditors or assisted other defendants in furthering that aim. All of the defendants filed motions to dismiss the complaint. For the reasons discussed below, the court recommends that the motions to dismiss the tort claims be denied in part and granted in part.
II. PROCEDURAL BACKGROUND
This adversary proceeding arises out of the Chapter 11 bankruptcy cases filed by The Antioch Company and certain of its subsidiaries on November 13, 2008 (“Antioch” or the “Company”).
1
Cplt. ¶ 6. On January 27, 2009 the court entered an order confirming the Second Amended Joint Prepackaged Plan of Reorganization (the “Plan” and “Confirmation Order”).
Id.
The litigation trust (the “Litigation Trust”) was established through the Plan and the Confirmation Order. Cplt. ¶ 7. Pursuant to the Plan and the Confirmation Order, Antioch transferred certain assets to the Litigation Trust as of February 6, 2009, among which are certain causes of action.
Id.
The Litigation Trustee has authority to prosecute, settle and compromise all of the claims transferred as a representative of the Debtors’ estate pursuant to Section 1123(b) of Title 11 of the United States Code.
2
Cplt. ¶ 8.
On December 23, 2009 pursuant to its authority under the Litigation Trust, the Litigation Trustee filed a complaint with jury demand (the “Complaint”) (Adv. Doc. 1). All of the defendants filed motions to dismiss the Complaint (Adv. Docs. 80, 92, 98, 99, 104, 107, 109, 147, 150, 153, 156 & 159) (the “Motions to Dismiss”).
3
On March 22, 2010 the Litigation Trustee filed
Plaintiff’s Consolidated Memorandum in Opposition to Motions to Dismiss Filed by Defendants Candlewood Partners, LLC, CRG Partners Group, LLC, Michael Epstein, Evolve Bank and Trust; Houlihan Lokey, Howard & Zu-kin, Inc.; James Northrop; Paul Ravaris; And Reliance Trust Company
(Adv. Doc. 148) and on April 12, 2010 the Litigation Trustee filed
Plaintiffs Consolidated Memorandum in Opposition to Motions to Dismiss Filed by Defendants Lee Morgan, Asha Morgan Moran, Chandra Attiken, Martin Moran, Lee Morgan GDOT Trust
#
1, Lee Morgan GDOT Trust # 2; Lee Morgan Pourover Trust
#
1, Lee Morgan Pourover Trust
#
2, Nancy Blair, Wayne Allen Luce, Frederick Walker; Ben Carlson, Jeanine McLaughlin; Denis Sanan, Malte vonMatthiessen. Great-
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Banc Trust Co, Steve Bevelhymer, Karen Felix, Barry Hoskins, and G. Robert Morris
(Adv. Doc. 186).
The court heard oral arguments on the Motions to Dismiss on September 1, 2010.
III. FACTUAL BACKGROUND
The facts asserted in the Complaint, which is 53 pages long and contains 263 paragraphs, are assumed as true for purposes of the defendants’ Motions to Dismiss, but do not constitute the findings of the court. All factual references related to the Complaint discussed in these recommendations, whether stated or not, are as alleged only.
A. The Defendants
Lee Morgan (“Morgan”), the father of Asha Morgan Moran, was the chief executive, ESOP trustee and chairperson of the board of directors of Antioch, a member of the Antioch Committee ESOP Advisory Committee, and an insider of Antioch. Cplt. ¶ 9. Asha Morgan Moran (“Moran”) served as chief operating officer of Antioch from September 2000 through July 2008 when, upon her father’s retirement, she was appointed president and chief executive of Antioch and was a director of Antioch, a member of the Antioch Committee ESOP Advisory Committee, and an insider of Antioch. Cplt. ¶ 10. She is the spouse of Marty Moran, himself an insider of Antioch. Cplt. ¶ 25.
Chandra Attiken (“Attiken”) was the Vice President-Human Resources of Antioch, a member of the Antioch Committee ESOP Advisory Committee, and an Antioch insider. Cplt. ¶ 11.
Steve Bevelhymer (“Bevelhymer”) was Antioch’s treasurer and an officer of Antioch. Nancy Blair (“Blair”) was an officer, director and insider of Antioch and the chair of Antioch’s special committee. Ben Carlson (“Carson”) was a director and insider of Antioch. Cplt. ¶¶ 12-14.
Karen Felix (“Felix”) was the chief financial officer and an insider of Antioch. Barry Hoskins (“Hoskins”) was also a chief financial officer and was the ESOP trustee and an officer and insider of Antioch. Cplt. ¶¶ 18,19.
Kimberly Lipson-Wilson (“Lipson-Wil-son”) was the former director of compliance, Sub-Trust trustee, ESOP trustee, and an officer and insider of Antioch. Cplt. ¶ 22.
Wayne Allen Luce (“Luce”), Jeanine McLaughlin (“McLaughlin”), G. Robert Morris (“Morris”), James Northrop (“Northrop”), Denis Sanan (“Sanan”) and Malte vonMatthiessen (“vonMatthiessen”) were directors and insiders of Antioch. Cplt. ¶¶23, 24, 27,28, 30 & 31.
Frederick Walker (“Walker”) was the President of Creative Memories, North America, a subsidiary of Antioch and an officer and insider of Antioch. Cplt. ¶ 32.
In addition to those individuals, Lee Morgan GDOT Trust # 1, Lee Morgan GDOT Trust #2, Lee Morgan GDOT Trust # 3, Lee Morgan Pourover Trust # 1 and Lee Morgan Pourover Trust # 2 were established to hold legal title to certain interests for the benefit of Morgan and members of his family (the “Morgan Trusts”). The Morgan Trusts were insiders of Antioch. Cplt. ¶ 26.
Also named as defendants, whose roles will be further detailed during the course of these recommendations, are Candle-wood Partners, LLC (“Candlewood”), the Morgan Family’s
4
private financial advisor
*812
[Cplt. ¶ 115]; CRG Partners, LLC (“CRG”), a turnaround firm and two of its employees, Michael Epstein (“Epstein”) and Paul Ravaris (“Ravaris”) [Cplt. ¶ 16]; Houlihan, Lokey, Howard & Zukin, Inc. (“Houlihan Lokey”) [Cplt. ¶ 21]; and the entities that served as ESOP trustees— Evolve Bank & Trust (“Evolve”) [Cplt. ¶ 17], GreatBanc Trust Co. (“GreatBanc”) [Cplt. ¶ 19], and Reliance Trust Company (“Reliance”) [Cplt. ¶ 29].
B. The 2003 Transaction
In 1979 Antioch established an employee stock ownership plan (“ESOP”) to provide retirement benefits to Antioch employees. Cplt. ¶ 42. When an employee retired, she could redeem her stock in cash or installment payments.
Id.
Antioch’s average historic repurchase liability between 1998 and 2003 was approximately $12 to $14 million each year.
Id.
In 2003 Antioch had over 1,200 full time employees and the ESOP owned 42.8% of the Company. Cplt. ¶ 43. Approximately 47 individuals and trusts owned the remaining stock.
Id.
Among those individuals were Morgan, Moran, Carson, McLaughlin, Sanan and vonMatthiessen, who served as directors of Antioch, and Blair, Hoskins and Attiken who served as officers.
Id.
The ESOP was governed by an advisory committee which, in 2003, consisted of Morgan, Moran and Attiken, with Morgan serving as the chairperson, removable only by unanimous consent of the board of directors (excluding his vote). Cplt. ¶46. Morgan, Moran, and Attiken, by virtue of their positions on the ESOP advisory committee, were fiduciaries.
Id.
Hoskins also served as the ESOP directed trustee designated by Morgan, Moran, and Attiken. Cplt. ¶ 50.
As a result of Antioch’s subchapter S status, while the non-ESOP shareholders were required to pay taxes on corporate earnings, the ESOP was not subject to tax liability on dividends or other distributions. Cplt. ¶ 44. Antioch historically distributed approximately 45% of its taxable income to its shareholders.
Id.
The non-ESOP shareholders used their portion of the distribution to pay their income taxes while the ESOP allocated its share to each participant’s account.
Id.
During 2003 Morgan and Moran sought to diversify their assets and liquidate their personal holdings in Antioch while maintaining control of Antioch and reaping tax • savings. Cplt. ¶ 45. To that end, assisted by Deloitte & Touche LLP (“Deloitte”) and Antioch’s counsel, they proposed a transaction through which Antioch would make a tender offer to purchase the shares of the non-ESOP shareholders and then merge into a new company wholly owned by the ESOP. Cplt. ¶ 49. The transaction would save the non-ESOP shareholders approximately $290 million in federal income tax with the Morgan Family, the largest non-ESOP shareholders, reaping the majority of those savings. Cplt. ¶ 47.
In August 2003 to remedy the inherent conflict of interest that existed with Hos-kins being a non-ESOP shareholder and ESOP directed trustee, Antioch retained GreatBanc to serve as an independent ESOP trustee. Cplt. ¶ 50. It also retained Houlihan Lokey to provide an opinion “on the transaction’s fairness.”
Id.
To establish the consideration that each non-ESOP shareholder would receive, Antioch valued its shares at $850 per share despite Business Valuations, Inc. (“BVI”) having valued such shares one year earlier at $680 per share. The lower share value arrived at by BVI considered Antioch’s
*813
repurchase liability and the lack of marketability and valued Antioch’s total equity at $333.2 million on “a minority interest basis.” Cplt. ¶ 51.
The Complaint alleges that members of Antioch’s board contained conflicts of interest at the time that the ESOP transaction was considered and approved by the board, Specifically, at the time of the proposed ESOP transaction, Antioch’s board consisted of Morgan, Moran, Carson, Luce, McLaughlin, vonMatthiessen, and Sanan and two ESOP shareholders, Sandy Bor-stad and Deborah Brooks-Cain. Cplt. ¶ 53. With the exceptions of Luce, Bor-stad, and Brooks-Cain, all of the directors were non-ESOP shareholders who stood to greatly profit from the transaction and were therefore conflicted.
Id.
Members of the Morgan Family collectively owned 32.3% of the total outstanding non-ESOP shares of Antioch and stood to gain $189,767,600 from the transaction. In particular, Morgan and the Morgan Trusts owned 68,639 shares (14.2% of the total outstanding shares) and stood to gain $58,112,800; Moran owned 94,721 shares (19.7% of the total outstanding shares) and stood to gain $80,512,850; Morgan’s son and certain of the Morgan grandchildren owned 60,167 shares (12.6% of the total outstanding shares) and stood to gain $51,941,950. Cplt. ¶ 54. Carson, with 1,750 shares, stood to gain $1,487,500; McLaughlin, with 2,596 shares, stood to gain $2,206,600; Sanan, with 6,880 shares, stood to gain $5,848,000; and vonMatthies-sen, with 1,270 shares, stood to gain $1,079,500. Cplt. ¶¶ 55-58. Collectively, Antioch’s board of directors directly or indirectly owned 85.9% of the non-ESOP shares and stood to gain $200,618,700 from the transaction. Cplt. ¶ 59.
The conflicted board members failed to fully disclose their interests to the non-conflicted board members. Cplt. ¶ 60. In addition, Morgan and Hoskins considered removing GreatBanc as trustee upon Gre-atBanc expressing concerns about the disproportionate benefits that the transaction would confer upon the non-ESOP shareholders. Cplt. ¶ 61. Morgan refused to follow GreatBanc’s advice to obtain an independent appraisal and dismissed concerns about the considerable amount of debt that Antioch would incur to purchase the non-ESOP shares. Cplt. ¶¶ 61 & 62.
After Morgan assured the directors that they would be indemnified in the event the transaction triggered litigation and, relying on Houlihan Lokey’s opinion that “expressly disclaimed any advice as to whether Antioch should engage in the transaction,” Antioch’s board voted to approve the transaction on October 30, 2003. Cplt. ¶¶ 65-67.
Antioch made the tender offer to all the shareholders to purchase all of Antioch’s shares for $850 in cash or, alternatively, a package of consideration consisting of $250 cash, a $280 subordinated note due in 2010, and a warrant to purchase one share at an exercise price of $850 in 2014. Cplt. ¶ 68. Antioch did not limit the amount of cash shareholders could elect to take as a part of the transaction, but it limited the number of non-ESOP shareholders who could elect to take the package consideration.
Id.
While the tender offer contained statements that the transaction was fair to the non-ESOP shareholders, it contained little information regarding the fairness of the transaction to Antioch and claimed that the transaction would not impair Antioch’s long-term viability. Cplt. ¶ 72. The officers and directors of Antioch, and Morgan and Moran in particular, engaged in a comprehensive public relations campaign to convince stakeholders that the transaction was in Antioch’s and its employees’ best interests. Cplt. ¶ 73.
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The transaction was conditioned on Gre-atBanc’s refusal to tender the ESOP shares. Cplt. ¶ 75. Without obtaining an independent fairness opinion and relying instead on the informal valuation prepared for Antioch by Deloitte and the fairness opinion prepared by Duff & Phelps that used a flawed methodology, GreatBanc agreed to decline to sell any ESOP shares in the tender offer in exchange for a Put Price Protection Agreement.
5
Cplt. ¶ 76. The Put Price Protection Agreement established special distribution rules applicable to all ESOP participants who terminated their employment during the period commencing on January 1, 2003 and terminating on September 30, 2006. Cplt. ¶ 77. The transaction closed on December 16, 2003 (the “2003 Transaction”) and Great-Banc’s engagement as trustee ended shortly thereafter.
Id.
As a result of the 2003 Transaction, Morgan, Moran, and other members of the Morgan Family received approximately $111,424,500 in cash while other directors, including Carlson, McLaughlin, Sanan and vonMatthiessen, collectively received at least $25 million in consideration. Cplt. ¶ 78.
The 2003 Transaction was the product of a conflicted board comprised only of interested directors. Cplt. ¶ 79. By failing to obtain an independent appraisal as to the fairness and effects of the transaction to Antioch, Antioch’s officers and directors engaged in self-dealing, wasted and mismanaged corporate assets and, as a result, deliberately relinquished their fiduciary duties of good faith, loyalty and disclosure to Antioch.
Id.
Antioch’s officers and directors knew or reasonably should have known that a majority of Antioch’s board was conflicted, approval of the 2003 Transaction would violate their fiduciary duties, the transaction was a “prohibited transaction” under ERISA sections 406 and 408, which might disqualify the ESOP and trigger the loss of Antioch’s 100% S-Corp and tax exempt status, and the 2003 Transaction would be voidable unless it could be shown to be fair to Antioch, thereby resulting in substantial injury to Antioch. Cplt. ¶¶ 81-87.
C. Events Following the 2003 Transaction
The issuance of notes and warrants to some of the non-ESOP shareholders substantially diluted the ESOP’s 100% ownership of Antioch and, as a result of the 2003 Transaction, the ESOP received 25% less in annual distributions than it had in previous years. Cplt. ¶¶ 88 & 89. The financing of the 2003 Transaction forced Antioch to pay out $46 million in cash and borrow an additional $109 million, resulting in Antioch’s interest-bearing debt rising from $108 million as of December 31, 2002 to $201 million a year later. Cplt. ¶ 90.
The report that Prairie Capital Advisors issued, consistent with the Put Price Protection Agreement requirement that Antioch’s stock be appraised at the end of each year, valued Antioch stock at $894 per share as of December 31, 2003 on an ESOP minority interest basis, applying a 5% lack of marketability discount, but did not discuss Antioch’s repurchase liability. Cplt. ¶¶ 92-94.
Sales began to decline prior to October 1, 2004. In addition, the termination or resignation of numerous employees triggered the Put Price Protection Agreement and locked in the value of the departing
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employees’ ESOP accounts at $894 per share according to Prairie Capital Advis-ors’ valuation. Cplt. ¶ 95. Thus, between 2004 and 2007, as a result of the termination or resignation of 800 employees, Antioch’s repurchase liability reached $190 million compared to its pre 2003 Transaction’s repurchase liability which averaged between $12 and 14 million each year. Cplt. ¶¶ 91 & 95.
Because of its increased repurchase liability, Antioch breached its financial covenants with its lenders and was forced to restructure its debt to borrow additional funds to meet its repurchase liability. Cplt. ¶ 97. By the end of 2004, Antioch had paid out close to $75 million and issued notes for an additional $30 million to satisfy its repurchase obligations to departing employees. Cplt. ¶ 98.
This downward spiral continued through 2004 and 2005 spurred by a further decline in sales. Cplt. ¶ 99. Still, the officers and directors ignored warnings that financial projections were too optimistic and the multiple conflicts presented by the Morgan Family’s ownership of debt and warrants and Hoskins serving as both a directed trustee for the ESOP and as trustee for the Morgan Family subordinated notes. Cplt. ¶¶ 99-100. By early 2007 Antioch was in severe financial distress and in “the zone of insolvency.” Cplt. ¶ 101.
On March 20, 2007 the board hired Houlihan Lokey to help identify potential purchasers or lenders. Cplt. ¶ 102.
D. The Levimo Transaction
On April 9, 2007 Antioch’s board approved a sale and leaseback transaction pursuant to which Levimo, LLC (“Levi-mo”), an entity wholly owned and controlled by the Morgan Family, purchased two buildings in St. Cloud, Minnesota from Antioch and leased both buildings back to Antioch (the “Levimo Transaction”). Cplt. ¶¶ 103-104. Morgan and Marty Moran negotiated the sale on behalf of Levimo. Cplt. ¶ 103. The lease purported to waive the conflict that existed between certain of Levimo’s affiliates and Antioch even in the event of bankruptcy and contained a series of terms favorable to Levimo in case of default. Cplt. ¶ 104-105.
E. Sale Considerations
Despite the money that the Levimo Transaction injected into its coffers, Antioch’s financial woes continued and on April 17, 2007 it was forced to enter into a new refinancing agreement with its senior lenders. Cplt. ¶ 107. The board of directors, consisting of Morgan, Moran, Blair, McLaughlin, Luce, vonMatthiessen, Sanan, and an employee owner representative formed a special committee composed of Morgan, Moran, Blair, and vonMatthiessen (the “Special Committee”) to examine Antioch’s alternatives to restructuring. Cplt. ¶ 108. Bevelhymer indicated to Morgan and Moran that, in light of the declining sales, Antioch would not be able to meet its financial covenants and that a sale of the Company was necessary.
Id.
As late as May 30, 2007 Antioch’s officers and directors had still not informed Antioch’s senior lenders of the engagement of Houli-han Lokey to attempt a sale.
Id.
The 100% ESOP S-Corp structure resulting from the 2003 Transaction as well as the ESOP Notes, subordinated notes, and warrants that partially funded the transaction complicated the restructuring alternatives available to Antioch. Cplt. ¶ 109. In particular, the “change of control” provisions in the subordinated notes and warrants that made the notes immediately payable and the warrants exercisable in full ensured that any change in power over Antioch would benefit Morgan, Moran, and Attiken and the conflicted directors who held subordinated notes and
*816
warrants at a great cost to Antioch.
Id.
Also complicating matters for Antioch and the ESOP were the significant debt and warrants held by the Morgan Family and Morgan in particular that jeopardized compliance with the so-called “anti-abuse” provisions of the Internal Revenue Code. Cplt. ¶¶ 110-111. Antioch employees, particularly Lipson-Wilson, spent hours devising a strategy to maintain compliance with the Internal Revenue Code in light of Morgan’s interest in Antioch. In order to maintain compliance with the anti-abuse rules of Section 409P of the Internal Revenue Code and to maintain less than 48% ownership by disqualified persons as directed by the ESOP plan documents, on August 22, 2007 the Antioch board resolved to transfer Morgan’s shares to a sub-trust of the Antioch Employee Savings Plan.
Id.
After it became clear that Antioch’s interests conflicted with those of the Morgan Family, Morgan and Moran were excluded from the Special Committee and replaced by McLaughlin, Luce, and Sanan along with Blair and vonMatthiessen. Cplt. ¶ 112. In June 2007 Antioch’s board retained Reliance to serve as “independent” ESOP trustee replacing Lipson-Wilson and in August 2007 the board retained Reliance to serve as discretionary ESOP trustee to approve any transaction. Cplt. ¶ 113.
Houlihan Lokey identified three prospects who indicated that if they purchased the Company, they would not allow Morgan and Moran to continue in their current positions. Cplt. ¶ 114. Dissatisfied with these overtures, in August 2007 Morgan, with assistance and input from Moran and Marty Moran, separately hired Candle-wood to explore refinancing or recapitalization options that would allow Morgan and Moran to retain their interests and power in Antioch. Cplt. ¶ 115. The Morgan Family began exploring alternatives to the sale before Houlihan Lokey reported to the board the ultimate results of its efforts to find a buyer for Antioch.
Id.
Despite being aware that Candlewood’s and Houlihan Lokey’s respective work interfered with each other and jeopardized a potential successful outcome for Antioch, the board permitted them to pursue a dual sale process, paid both, allowed both to sit in board meetings, and continued to engage in discussions with both. Cplt. ¶¶ 116-118. Attiken, Lipson-Wilson, Felix, Bevelhymer, Epstein, Ravaris, and Walker, as officers, were aware of the advisors’ simultaneous engagement, but inconsistent objectives, and assisted the Morgan Family in pursuing recapitalization efforts.
Id.
In doing so, Antioch’s officers and directors jeopardized the Company’s future and wasted its sparse resources on professional fees. Cplt. ¶ 122. In the one year prior to the petition date, Antioch paid Houlihan Lokey, CRG, and their legal advisors in excess of $5 million and Candlewood in excess of $500,000. Cplt. ¶ 164.
Houlihan Lokey’s task was made more difficult by Antioch’s failure to prepare accurate financial projections. Cplt. ¶ 121. Morgan and Moran disregarded information provided to them regarding Antioch’s financial crisis and insisted upon using numbers that were more optimistic than realistic to hide from other stakeholders the dire financial straits in which Antioch found itself. Cplt. ¶ 121.
By October 2007 two potential purchasers identified by Houlihan Lokey expressed an interest in acquiring the Company. However, both declined to submit formal bids after Antioch made multiple adjustments to its financial forecasts. Cplt. ¶ 123. Subsequent to one of the potential buyers disclosing its concern regarding the accuracy of the ESOP valúa-
*817
tions to the entire board, Morgan pressured the Special Committee and Antioch’s directors to grant Candlewood an exclusive period to find an investor or financing supporting the Morgan Family’s continuing control.
Id.
Morgan also repeatedly informed the Special Committee that as Antioch’s largest creditor, the Morgan Family would not support a sale to an outside buyer, even if in the best interest of the Company, if such sale compromised the obligations owed by the Company to the Morgan Family. Cplt. ¶ 126.
Pressured by Morgan and Moran to curtail Reliance’s independence, the directors passed a resolution on October 4, 2007 instructing Reliance that Antioch’s board would not support any proposed sale of the Company that would not fully pay all outstanding debts and result in some value to the shareholders. Cplt. ¶ 124.
In November 2007 at the request of its senior lenders, Antioch engaged CRG to assist the Company with the preparation of a 13-week cash flow analysis and, during the course of CRG’s engagement, appointed Ravaris and Epstein as chief restructuring officer and chief financial officer respectively. Cplt. ¶ 125.
On November 28, 2007 Reliance gave formal notice of its resignation as ESOP trustee to be effective as of December 28, 2007, expressing concerns about the “ineffectual and conflicted management” that led to an erosion of the E SOP’s interest in Antioch. Cplt. ¶¶ 127-131. It did not file a comprehensive report regarding the ESOP upon its resignation as required by the ESOP trust agreement. Cplt. ¶ 130. Despite Lipson-Wilson sharing this information with Felix and Blair and Antioch’s counsel and other members of the board later learning of Reliance’s concerns, no action was taken. Cplt. ¶¶ 128, 131-132.
Following Reliance’s resignation, Evolve was recruited to serve as the new ESOP trustee. Reliance’s counsel shared with Evolve the reasons underlying Reliance’s resignation. Cplt. ¶ 133. Antioch’s officers and directors told Evolve that Reliance had resigned because its engagement required more time than projected when it established its fees. Cplt. ¶ 134. Evolve failed to take any action respecting the 2003 Transaction and the officers’ and directors’ conflicts of interest. Cplt. ¶ 135.
In February 2008 Morgan, Moran, and certain directors, attorneys, and financial advisors participated in a meeting in Chicago at which it was agreed that the Morgan Family could work toward a consensual transaction that would leave the Morgan Family in control in preference to a deal that would allow independent buyers to acquire a controlling interest in Antioch. Cplt. ¶ 136.
Morgan was warned by all of the professionals, including his own advisors, that Antioch’s restructuring hinged on a negotiated resolution with the ESOP noteholders and that such resolution would be extremely difficult to accomplish outside bankruptcy. However, the Morgan Family continued to pursue deal structures that would favor them over the other unsecured creditors, including the ESOP noteholders. Cplt. ¶¶ 137-138.
The preference announced by Antioch’s board for a deal designed by and for the benefit of Morgan Family had a chilling effect on prospective purchasers who realized that their attempt to acquire Antioch ultimately would be futile. Cplt. ¶ 139.
The board continued to allow Morgan, Moran, and Candlewood to pursue alternatives that failed to address Antioch’s urgent need for cash and jeopardized and ultimately doomed Houlihan Lokey’s efforts. Cplt. ¶¶ 137 & 140.
*818
F. The First Sale Proposal and the Replacement of Antioch’s Board
Despite the difficulties created by the board’s ambivalence, the Morgan Family’s interference, and repeated pressures to terminate its engagement, in early June 2008, Houlihan Lokey was working to close on the sale of Antioch’s assets to J.H. Whitney for $54 million to be achieved through a bankruptcy sale. Cplt. ¶¶ 142-143.
With knowledge of the J.H. Whitney offer, the Morgan Family created Mama-mo, LLC (“Mamamo”) for the purpose of making an offer to recapitalize Antioch using a lien facility of up to $8 million and a letter of credit in the amount of $7 million (the “Mamamo Offer”), which the Special Committee rejected on June 4, 2008. Cplt. ¶¶ 144 & 145.
The rejection of the Mamamo Offer prompted the Morgan Family to pressure Evolve and Lipson-Wilson, in her capacity as trustee of the SubTrust, to fire the board in order to thwart the Whitney deal. Cplt. ¶ 146. On June 5, 2008 Evolve and Lipson-Wilson voted to fire the directors and replace them with Morgan, Moran, and Moms, an attorney selected by Evolve. Cplt. ¶ 147. Also on June 5, 2008 during a meeting with its financial advisors and senior lenders, Antioch informed its senior lenders of the new board. Cplt. ¶ 148.
The firing of the board caused J.H. Whitney to withdraw its offer and on June 6, 2008 its senior lenders declared Antioch in default. Cplt. ¶ 149.
G. Defaults under the ESOP Notes
Antioch issued four rounds of notes to satisfy its financial obligations to its departing employees (collectively the “ESOP Notes”). Cplt. ¶¶ 98
&
152. As a result of the default call by its senior lenders, Antioch found itself unable to make certain payments due on August 1, 2008 under some ESOP Notes. Cplt. ¶¶151 & 153. This situation should not have caused a problem because Antioch was required to obtain adequate security for the ESOP Notes. Cplt. ¶ 151. Condor Insurance Limited (“Condor Insurance”) originally guaranteed the first three issues of ESOP Notes dated August 20, 2004, July 11, 2005, and August 2, 2006 through the issuance of bonds. These bonds were later transferred to Condor Guaranty, Inc. (“Condor Guaranty”). Cplt. ¶152. Despite having knowledge that Condor Insurance had filed for bankruptcy protection on or about July 26, 2007, Antioch’s officers, including Lipson-Wilson, Felix, Be-velhymer, Blair, Morgan and Moran, caused the fourth round of ESOP Notes to be issued with Condor Guaranty as surety. No later than January 2008 all of Antioch’s directors and officers knew of Condor’s bankruptcy and in August 2008, Ravaris and Epstein renewed the Condor coverage and later notified Condor of Antioch’s default on the ESOP Notes payments due August 1, 2008. Cplt. ¶¶ 152
&
154. However, Condor has never made a payment and the holders of the ESOP Notes have not received any payments since early 2008. Cplt. ¶ 154.
Despite Antioch’s dire financial situation, Moran, in various written communications with the ESOP noteholders, prepared with the assistance of Ravaris, Epstein, and CRG, informed them that Antioch’s senior lenders had refused to allow the Company to make the August 2008 payment, assured those noteholders that payment on the notes was guaranteed by Condor and, as late as November 1, 2008, assured the holders of the ESOP Notes that the Company was financially strong. Cplt. ¶¶ 155-157.
*819
H. The Second Sale Proposal
In August 2008 Antioch reapproached J.H. Whitney and two other potential purchasers. Cplt. ¶ 159. In September 2008 Antioch rejected J.H. Whitney’s second offer to purchase Antioch’s assets, this one for $22 million. Cplt. ¶ 160.
I. The Bankruptcy Filing
On November 12, 2008 the board approved resolutions to file for relief under Chapter 11. Cplt. ¶ 162. The prepackaged plan of reorganization that Antioch filed did not contemplate a sale, allowed Antioch to strip itself of its obligations to the ESOP noteholders and certain other disfavored creditors, left the Morgan Family in day-to-day operational control of the Company, and provided the Morgan Family with a controlling interest in the reorganized debtors. Cplt. ¶ 164.
IV. THE LITIGATION TRUSTEE’S CLAIMS AND THE DEFENDANTS’ RESPONSES
The Litigation Trustee’s claims include five breach of fiduciary duty claims, Counts 1, 3, 6, 8 and 10, each one being associated with a particular transaction and set of defendants. Count 1 is brought in connection with the 2003 Transaction against Morgan, Moran, Carson, McLaughlin, Sanan, vonMatthiessen, Blair, and Attiken. Count 3 is brought against Morgan, CRG, Epstein, Ravaris, Lipson-Wilson, Felix, Hoskins, and Bevelhymer in connection with the Condor Transaction. Count 6 is brought against Morgan, Moran, Blair, McLaughlin, Luce, vonMatthies-sen, Sanan, Lipson-Wilson, Felix, Bevel-hymer, and Attiken in connection with the Levimo Transaction. Count 8 is brought against Morgan, Moran, Blair, McLaughlin, Luce, vonMatthiessen, Sanan, Lipson-Wilson, Felix, Bevelhymer, Attiken, Northrup, CRG, Ravaris, Epstein, and Walker in connection with the recapitalization or refinancing alternative strategy. Finally, Count 10 is brought against Morgan, Moran and Morris in connection with the JH Whitney offer to purchase the Company.
Other than the claim relating to the Condor Transaction, the Litigation Trustee’s remaining claims are aiding and abetting claims related to the other transactions. Count 2, related to the 2003 Transaction is brought against Morgan, Moran, Carson, McLaughlin, Sanan, von-Matthiessen, Blair, Attiken, GreatBanc and Houlihan Lokey. Count 7, related to the Levimo Transaction, is brought against Morgan, Moran, Blair, McLaughlin, Luce, vonMatthiessen, Sanan, Lipson-Wilson, Felix, Bevelhymer, Attiken and Marty Moran. Count 9, related to the recapitalization or refinancing alternative strategy, is brought against Morgan, Moran, Blair, McLaughlin, Luce, vonMatthies-sen, Sanan, Lipson-Wilson, Felix, Bevel-hymer, Attiken, Northrup, CRG, Ravaris, Epstein, Walker, Candlewood, Marty Moran and Houlihan Lokey. Finally, Count 11, related to the JH Whitney offer to purchase the Company, is brought against Morgan, Moran, Morris, Evolve and Lip-son-Wilson.
Counts 4 and 5 allege claims of professional negligence against Reliance and Evolve and Count 12 alleges a claim for tortious interference with business contracts against Morgan, Marty Moran, and Candlewood.
In addition to these non-core claims, through Count 13 the Litigation Trustee seeks to equitably subordinate claims of Morgan, Moran, and the Morgan Trusts against Antioch and through Count 14 he seeks to avoid and recover preferential transfers from Morgan, Moran, Attiken, Bevelhymer, Blair, Felix, Levimo, Luce, McLaughlin, Morris, Northrop, Sanan,
*820
vonMatthiessen, Walker, and Lipson-Wil-son. These core bankruptcy claims are addressed in a separate decision of this court and are not part of the recommendations to the United States District Court for the Southern District of Ohio (the “District Court”).
Finally, Count 15 seeks attorney fees under applicable state and federal law for prosecution of all the other claims.
All of the defendants argue that the Complaint fails to plead sufficient facts to pass muster under the pleading standards established by the United States Supreme Court in the
Twombly
and
Iqbal
decisions, which are detailed below. The defendants’ other arguments, in support of their respective Motions to Dismiss, fall into one of the following categories.
6
The Morgan Family focuses on ERISA preemption arguing that the state law claims against them are disguised ERISA claims that do not belong to the Litigation Trust. The institutional ESOP trustees, GreatBane, Reliance, and Evolve, also rely on ERISA preemption, arguing that, as ESOP trustees, their duty was to the ESOP participants and not to Antioch. The other individual defendants, all former directors or officers of Antioch, against whom the Litigation Trustee has brought a claim for breach of fiduciary duty, argue that the business judgment rule protects them because they acted in good faith, in the best interest of Antioch, and with the care that a reasonably prudent person would use under the circumstances.
The defendants against whom the Litigation Trustee has brought a claim of aiding and abetting breach of fiduciary duty assert that Ohio law does not recognize such a claim, that even if it does, the Litigation Trustee has not plead enough facts to support the allegations, and that such a claim cannot be brought against a fiduciary. Finally, those defendants against whom the Litigation Trustee has brought claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty with respect to the 2003 Transaction and Moran in connection with the breach of fiduciary duty claim related to the Condor Transaction, assert that those claims are barred by the applicable 4 year statute of limitation under Ohio law.
V. LEGAL STANDARD AND ANALYSIS
The court will first discuss the legal standard for a motion to dismiss for failure to state a claim, a challenge to this court’s subject matter jurisdiction over this adversary proceeding, and a threshold argument about whether res judicata, pursuant to the confirmed Plan, bars the Litigation Trustee from pursuing certain claims. Next, these recommendations will address legal arguments concerning certain applicable statutes of limitation and the ERISA preemption statute, both of which encompass multiple counts and defendants. Finally, the court will address each of the arguments raised by various defendants as to why the non-core causes of action should be dismissed.
A. Legal Standard for Determining Motions to Dismiss
A motion to dismiss under Federal Rule of Civil Procedure (“FRCP”) 12(b)(6), applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure (“BR”) 7012, for failure to state a claim upon which relief can be granted challenges the legal sufficiency of a complaint.
*821
In determining a motion to dismiss, the court must “construe the complaint in the light most favorable to the plaintiff, accept its allegations as true, and draw all reasonable inferences in favor of the plaintiff.”
Jones v. City of Cincinnati,
521 F.3d 555, 559 (6th Cir.2008),
quoting, Directv, Inc. v. Treesh,
487 F.3d 471, 476 (6th Cir.2007). However, in determining such a motion, a court “need not accept as true legal conclusions or unwarranted factual inferences.”
Id.
The Supreme Court recently clarified the law concerning what a plaintiff must plead in order to survive a FRCP 12(b)(6) motion.
Ashcroft v. Iqbal,
556 U.S. 662 , 129 S.Ct. 1937 , 173 L.Ed.2d 868 (2009). Under the standard established by
Bell Atlantic Corp. v. Twombly,
the Supreme Court had instructed lower courts to dismiss claims not supported by factual allegations sufficient to “state a claim to relief that is
plausible
on its face.” 550 U.S. 544, 570 , 127 S.Ct. 1955 , 167 L.Ed.2d 929 (2007) (emphasis added). Some courts interpreted
Twombly
to only apply in antitrust cases and other courts found that
Twombly’s
pleading requirements could be overcome with a mere assertion of a defendant’s responsibility.
Iqbal
makes clear that
Twombly
is not so limited and buttresses the
Twombly
plausibility standard. In
Iqbal ,
quoting
Twombly,
the Supreme Court held that FRCP 8(a) requires “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ”
Iqbal,
129 S.Ct. at 1949 (internal citations omitted). Furthermore, “[a] claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”
Id.
According to the Court, deciding the adequacy of a complaint requires a two-step analysis. First, a court should identify and reject legal conclusions unsupported by factual allegations, because conclusions masquerading as allegations “are not entitled to the assumption of truth.”
Id.
at 1950. Insufficient are “threadbare recitals of the elements of a cause of action, supported by mere conclusory statements”, “labels and conclusions”, and “ ‘naked assertion[s]’ devoid of ‘further factual enhancement.’ ”
Id.
at 1949. In sum, a complaint that alleges that a defendant caused a plaintiffs injury, without explaining how, does not meet the requirements of FRCP 8(a) and therefore cannot survive a FRCP 12(b)(6) motion. Second, a court should assume the veracity of “well-pleaded factual allegations” and should conduct a “context-specific” analysis that “draw[s] on [the court’s] judicial experience and common sense” to determine whether the allegations “plausibly give rise to an entitlement to relief.”
Id.
at 1950. Well-pleaded facts that “do not permit the court to infer more than the mere possibility of misconduct” are insufficient to show that plaintiff is entitled to relief.
Id.
“A court that is ruling on a Rule 12(b)(6) motion may consider materials in addition to the complaint if such materials are public records or are otherwise appropriate for the taking of judicial notice.”
New England Health Care Emps. Pension Fund v. Ernst & Young, LLP,
336 F.3d 495, 501 (6th Cir.2003);
See also City of Monroe Emps. Ret. Sys. v. Bridgestone Corp.,
399 F.3d 651, 655, n. 1 (6th Cir.2005) (Fed.R.Evid. 201 states that “ ‘[a] court may take judicial notice, whether requested or not’ of a ‘judicially noticed fact’ which ‘must be one not subject to reasonable dispute,’ a requirement satisfied if the fact is ‘(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.’ ”).
*822
B. Choice of Law
All the parties agree that substantive Ohio law applies to the non-core causes of action.
C. Subject Matter Jurisdiction
As will be explained, this court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1384 (b) because it is related to a case under Chapter 11. Causes of action 1-12 are non-core proceedings. 28 U.S.C. § 157 (b). The Litigation Trustee concedes those claims do not meet any of the categories of core proceedings within 28 U.S.C. § 157 (b)(2).
See Stipulation of Plaintiff and Certain Defendants Concerning Core or Non-Core Nature of Claims and Certain Jurisdictional Issues
(Adv. Doc. 226). Because this memorandum addresses the non-core proceedings as proposed findings of fact and conclusions of law, the court is submitting these proposed findings of fact and conclusions to the District Court pursuant to 28 U.S.C. § 157 (c)(1) and BR 9033(a). The Clerk, pursuant to BR 9033(a), “shall serve forthwith on all parties by mail” these proposed findings of facts and conclusions of law and “note the date of mailing on the docket.”
Defendants McLaughlin, Sanan, vonMatthiessen, and Carlson (“Certain Director Defendants”) suggest this court lacks subject matter jurisdiction over the non-core claims in the Complaint due to the language of the Plan and Litigation Trust Agreement and, regardless of such language, the limits of this court’s jurisdiction. The court must examine its subject matter jurisdiction at any time the issue is raised and dismiss the action if it lacks subject matter jurisdiction. FRCP 12(h)(3), applicable by BR 7012(b).
7
Further, the court has an independent obligation to investigate and police the boundaries of its jurisdiction.
Ebrahimi v. City of Huntsville Bd. of Educ.,
114 F.3d 162 , 165 (11th Cir.1997). Bankruptcy jurisdiction is based on 28 U.S.C. §§ 157 and 1334.
Thickstun Bros. Equip. Co., Inc. v. Encompass Servs. Corp. (In re Thickstun Bros. Equip. Co., Inc.),
344 B.R. 515, 520 (6th Cir. BAP 2006). Pursuant to 28 U.S.C. § 1334 , the district court has jurisdiction over “all cases under title 11” and proceedings “arising under,” “arising in,” or “related to a case under title 11.” 28 U.S.C. § 1334 . Since these categories are disjunctive, the Sixth Circuit has stated that “it is necessary only to determine whether [the] matter is at least ‘related to’ the bankruptcy.”
Mich. Employment Sec. Comm’n v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co.),
930 F.2d 1132, 1141 (6th Cir.1991).
In Pacor, Inc. v. Higgins,
the Third Circuit found a matter was “related to” an underlying case if
“the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.”
743 F.2d 984, 994 (3rd Cir.1984) (italics in original). The Sixth Circuit has adopted this test.
Wolverine Radio,
930 F.2d at 1141 . A literal interpretation of this test would almost eliminate post-confirmation jurisdiction because the estate ceases at confirmation.
See
11 U.S.C. § 1141 (b);
Thickstun,
344 B.R. at 521, n. 2 . The Third Circuit found that, in
*823
determining post-confirmation jurisdiction, “the essential inquiry appears to be whether there is a close nexus to the bankruptcy plan or proceeding sufficient to uphold bankruptcy court jurisdiction over the matter.”
Binder v. Price Waterhouse Co., LLP (In re Resorts Int’l),
372 F.3d 154, 166-67 (3rd Cir.2004). “[T]he interpretation, implementation, consummation, execution, or administration of [a plan] will typically have the requisite close nexus.”
Id.
at 167 .
A Chapter 11 plan, regardless of its language, may not confer jurisdiction where it does not otherwise exist.
Thickstun Bros.,
344 B.R. at 522 ,
citing, Resorts Int’l,
372 F.3d at 161 . However, the Bankruptcy Appellate Panel of the Sixth Circuit has determined that “[w]hile the effect of [retention of jurisdiction] provisions would not be to deprive the court of jurisdiction otherwise afforded by 28 U.S.C. § 1334 , retention of jurisdiction provisions might condition or limit the court’s
exercise
of post-confirmation jurisdiction.”
Thickstun Bros.,
344 B.R. at 522 . In essence, the Litigation Trustee is limited by both the extent of this court’s statutory jurisdiction and the rights and privileges given to him in the language of the Plan and the Litigation Trust Agreement. The court will now review the extent of its jurisdiction under these two limitations — first, under its statutory jurisdiction; and, second, under any limitations imposed by the Plan and the Litigation Trust Agreement.
First, the court has jurisdiction over this proceeding because it is related to the underlying bankruptcy case. The Certain Director Defendants argue that this litigation is beyond the scope of this court’s jurisdiction because it is not related to this bankruptcy case. Specifically, they argue that bankruptcy courts cannot exercise jurisdiction over the Litigation Trust because state law issues predominate and the Litigation Trust does not have a close nexus to the confirmed Plan. Of course, the language of the Plan and related documents, as discussed, do not establish jurisdiction where none could exist.
Thickstun Bros.,
344 B.R. at 522 (jurisdiction derives from 28 U.S.C. § 1334 and not the terms of a confirmed plan).
However, this court finds the reasoning of
Morris v. Zelch (In re Regional Diagnostics, LLC)
persuasive as to this court’s jurisdiction. 372 B.R. 3, 22-25 (Bankr. N.D.Ohio 2007). The decision recognizes that, post-confirmation, the close nexus test must be applied.
Id.
at 22 . The court determined that the claims related to pre-petition conduct; were retained under the plan for the benefit of former creditors of the estate; and had the claims been pursued pre-confirmation, the court’s jurisdiction would have been uncontested.
Id.
The facts here are as least as compelling as those of
Regional Diagnostics.
The primary beneficiaries of the Litigation Trust are the remaining unpaid non-priority unsecured creditors. The defendants are individuals who were involved in the pre-petition events that led to the Company’s filing of the Chapter 11 petitions. The Official Committee of Unsecured Creditors negotiated for the creation of the Litigation Trust and its creation was not tangential, but central to the confirmation of the Plan. It provided a mechanism for the estate’s creditors to be the primary beneficiaries of the Litigation Claims, including the pre-petition non-core claims alleged in the Complaint. The “close nexus” exists.
The Certain Director Defendants insist that jurisdiction should be limited to interpretation or implementation of the Plan. This narrow view of “related to” post-confirmation jurisdiction would prevent bankruptcy courts from exercising subject matter jurisdiction over non-core claims
*824
prosecuted through a post-confirmation trust, such as a litigation trust, even if the trust was specifically created by a plan and only transferred pre-petition causes of action from the debtor to the trust for the express purpose of pursuing claims related to the debtor’s pre-bankruptcy business activities with the primary beneficiaries of the trust being the unsecured creditors of the debtor’s Chapter 11 estate. Cf.
Resorts Int’l,
372 F.3d at 157 (court lacked
post-confirmation
jurisdiction concerning litigation which concern events which occurred post-confirmation). The Certain Director Defendants do not cite a single authority within the Sixth Circuit, and the court is not aware of any, which holds that post-confirmation jurisdiction of the bankruptcy courts is this narrowly defined. Such an interpretation is inconsistent with the broad interpretation the Sixth Circuit has given to “related to” jurisdiction.
See Lindsey v. O’Brien, Tanski, Tanzer and Young Health Care Providers of Connecticut (In re Dow Corning Corp.),
86 F.3d 482, 488-95 (6th Cir.1996).
See also Mayor and, City Council of Baltimore, Mainland v. State of West Virginia (In re Eagle-Picher Indus., Inc.),
285 F.3d 522, 524 (6th Cir.2002),
cited, in, Resorts Int’l,
372 F.3d at 165, n. 8 (assuming, without discussion, post-confirmation jurisdiction by the bankruptcy court of a dispute involving a post-confirmation settlement trust).
Second, the Plan and Litigation Trust Agreement do not restrict or limit this court’s exercise of jurisdiction over this adversary proceeding; but rather, retain and underscore that jurisdiction. The Certain Director Defendants review the language of the Plan and assert “the Plan and Confirmation Order provide repeatedly that the Litigation Trustee and the Reorganized Debtors may take action under the Litigation Trust and operate their
business going forward without further authorization oversight of this Court.” (Adv. Doc. 227, p. 17). Of course, the Plan does largely remove the reorganized debtors from the jurisdiction of this court.
8
However, the reorganized debtors and the Litigation Trust are not one and the same.
The Plan specifically transfers certain causes of action, including the “Litigation Claims” at issue in this adversary proceeding to the Litigation Trust and provides that this court shall retain jurisdiction over the Litigation Trust
(See Est.
Doc. 319, Exh. A [Article XI(j); Article I, § 1.75 and 1.76; Plan Schedule 10.5] and Exh. B [The Litigation Trust Agreement]). The Litigation Claims did not vest back in the reorganized debtors, but rather, were assigned to the Litigation Trust.
The Certain Director Defendants cite Section 8.4 of the Plan as supporting their argument. Section 8.4 of the Plan is simply a reservation of rights granting the Litigation Trustee the exclusive authority to address any claims asserted by an insider or a defendant to a Litigation Claim. This language defines the rights of the Litigation Trust and has no effect upon this court’s jurisdiction. To the extent a retention of jurisdiction clause is required for this court’s
exercise
of jurisdiction, Article XI, Retention of Jurisdiction, provides that “[p]ursuant to sections 105(c) and 1142 of the Bankruptcy Code and notwithstanding entry of the Confirmation Order and the occurrence of the Effective Date, the Bankruptcy Court will retain exclusive jurisdiction over all matters arising out of, and related to, the Chapter 11 Cases and this Plan to the fullest extent permitted by law, including, among other things, jurisdiction to ... hear and determine causes of action by or on behalf of the ... Litigation Trust.” (Est. Doc. 319, Exh. A, pp.
*825
39-40). Further, Article VII, ¶ 7.1 of the Litigation Trust Agreement states that “[t]he Bankruptcy Court shall have continuing jurisdiction over the Litigation Trust, the Trustee and the Trust Assets as provided herein, including the determination of all controversies and disputes arising under or in connection with the Litigation Trust.” (Est. Doc. 319, Exh. B, p. 16). This language provides more than sufficient authority for this court to exercise its jurisdiction over this litigation.
For these reasons, the court determines that it has subject matter jurisdiction over the non-core claims in this adversary proceeding.
D. The Reservation of Rights in the Confirmed Plan Meets the Requirements of
Browning v. Levy
with respect to All of the Defendants
Citing
Browning v. Levy,
Defendants CRG, Epstein and Ravaris
9
argue that the Debtors’ confirmed Second Amended Plan of Reorganization constitutes res judicata as to all the claims brought by the Litigation Trustee because the reservations within the Plan were insufficient to preserve such claims. The Complaint includes three non-core causes of action against CRG, Epstein and Ravaris, all of which concern breach of fiduciary duty or aiding and abetting breach of fiduciary duty.
See
Adv. Doc. 1 (Counts 3, 8, and 9).
Confirmation of a reorganization plan “constitutes a final judgment in bankruptcy proceedings.”
Sanders Confectionery Prods., Inc. v. Heller Fin., Inc.,
973 F.2d 474, 480 (6th Cir.1992). The bankruptcy court’s confirmation of a Chapter 11 plan “has the effect of a judgment by the district court and res judicata principles bar relitigation of any issues raised or that could have been raised in the confirmation proceedings.”
Still v. Rossville Bank (In re Chattanooga Wholesale Antiques, Inc.),
930 F.2d 458, 463 (6th Cir.1991).
10
A confirmation order constitutes a final judgment and binds all claims that should have been raised in the confirmed plan.
Id.
Section 1123(b)(3)(B) provides an exception to the res judicata effect of a confirmed plan of reorganization. It specifically provides that a Chapter 11 “plan may provide for ... the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any ... claim or interest [belonging to the debtor or to the estate]”. 11 U.S.C. § 1123 (b)(3)(B). Thus, a plan may reserve for the reorganized debtor, the trustee, or a representative of the bankruptcy estate claims that would otherwise be extinguished by the res judicata effect of a confirmed plan.
The issue raised by CRG, Ravaris, and Epstein — whether the Plan and Confirmation Order reserved the claims against them with sufficient specificity to avoid the res judicata effect of the Plan and Confir
*826
mation Order, is a critical issue that has been litigated with various outcomes.
11
In assessing whether a reservation of claims provided for by a plan or confirmation order is sufficient with respect to particular claims, it is important to understand the purpose of § 1123(b)(3)(B). The function of § 1123(b)(3)(B) “is not [to provide] notice to potential defendants, it is [to provide] notice to creditors generally that there are assets yet to be liquidated that are being preserved for prosecution by the reorganized debtor or its designee.”
Elk Horn Coal Co., LLC v. Conveyor Mfg. & Supply, Inc. (In re Pen Holdings, Inc.),
316 B.R. 495, 501 (Bankr.M.D.Tenn.2004). Judge Lundin reviewed the legislative history on this issue and stated that:
This review of legislative history illuminates the question at hand. Defendants would characterize § 1123(b)(3) as a “notice” provision of an altogether different sort: Notice to individuals that they are, or may be, a potential defendant in an action that the reorganized debtor will retain. Conceived in this way — contrary to its legislative history — § 1123(b)(3) would be appropriately interpreted to require language in a plan specific to the identity of the entities that are potential defendants in post confirmation actions. As the history of § 1123(b)(3) plainly shows, however, the notice at issue in § 1123(b)(3) is not notice to potential defendants, it is notice to creditors generally that there are assets yet to be liquidated that are being preserved for prosecution by the reorganized debtor or its designee.
Pen Holdings,
316 B.R. at 500-01 . Thus, the focus of an analysis of whether a reservation of claims is sufficient is not on whether the language provides sufficient notice to the target defendants that they might be sued, but rather, whether the language enables the court, creditors, and other parties to the bankruptcy to value the claims in relation to the disposition of the debtor’s bankruptcy estate.
Browning v. Levy,
283 F.3d 761, 774 (6th Cir.2002). “The words sufficient to satisfy § 1123(b)(3) must be measured in the context of each case and the particular claims at issue: Did the reservation allow creditors to identify and evaluate the assets potentially available for distribution?”
Pen Holdings,
316 B.R. at 504 .
Further, in conducting its analysis to determine if the language sufficiently apprises the court and parties to the bankruptcy as to the claims being reserved, a court is to collectively examine all of the documents relating to the reservation of claims, which usually would be the Chapter 11 plan, its accompanying disclosure statement, and the confirmation order.
IBM Southeast Employees Federal Credit Union v. Collins,
2008 WL 4279554 , at *5 (M.D.Tenn. Sept. 17, 2008);
Zelch,
372 B.R. at 12-13 (“There is ample well-reasoned authority to justify reading the disclosure statement in congruence with the plan.”). In
In re SmarTalk Teleservices, Inc. Sec. Litig.,
487 F.Supp.2d 914, 925-28 (S.D.Ohio 2007) Judge Sargus found that “although the general reservation of claims [in the plan] is insufficient to preserve claims against PwC, the specific reserva
*827
tion of claims in the Disclosure Statement is sufficient to preserve the claims.”
The Sixth Circuit has considered whether claims were adequately reserved for later litigation on several occasions. First, in an unreported decision, the court held that language in a Chapter 11 plan providing that “all causes of action which the debtor may choose to institute shall be vested with the debtor” was a generic reservation of rights which was insufficient to avoid the effect of res judicata.
In re Micro-Time Mgmt. Sys., Inc.,
983 F.2d 1067 , 1993 WL 7524 , at *5 (6th Cir. Jan. 12, 1993) (table decision). Next, in
Browning v. Levy,
relying on
Micro-Time,
the court again held that “a general reservation of rights does not suffice to avoid res judicata.”
Browning v. Levy,
283 F.3d at 774 . The reservation clause in
Browning
preserved all actions arising out of Chapter 5 of the Bankruptcy Code.
12
The clause was found to be insufficient because “it neither names [the target defendant] nor states the factual basis for the reserved claims.”
Id.
at 775 . Finally, in the context of an order approving a sale of assets pursuant to § 363, the Sixth Circuit held that the language of the sale order preserving claims of non-debtor entities against potential defendant targets was sufficiently specific, but only preserved claims of the non-debtor entities and not those of the debtor entities and, therefore, precluded the debtor entities from pursuing claims against those same defendants.
Winget v. J.P. Morgan Chase Bank, N.A.,
537 F.3d 565 (6th Cir.2008).
Bearing all of this in mind, the court will now review the pertinent documents and arguments in this case, beginning with the Disclosure Statement. The Disclosure Statement (Est. Doc. 28) was filed at the commencement of the cases before the Official Committee of Unsecured Creditors was appointed and before the concept of the reservation and assignment of claims to the Litigation Trust was developed and was never amended to incorporate any discussion concerning those matters. Nevertheless, the Disclosure Statement is illuminating. It identifies Moran, Epstein, Ravaris, Attiken, Walker, Morgan and Morris as officers of the Company prior to the filing of the cases and identifies Epstein and Ravaris as being partners of CRG. Disclosure Statement, pp. 21-22 (Est. Doc. 28). It also details the “Events Leading to Restructuring,” including the involvement of both Houlihan Lokey and Candlewood, the two rejected bids by J.H. Whitney, the retention of CRG, the failed sale and recapitalization efforts leading to the bankruptcy filings, and the involvement of Condor in issuance of the surety bonds intended to insure the Company’s obligations under the ESOP Notes. Disclosure Statement, pp. 22-24 (Est. Doc. 28).
The provisions regarding the reservation and assignment of claims to the Litigation Trust did not appear in the Plan until the Official Committee of Unsecured Creditors was appointed. The assignment and reservation of claims by the Company to the Litigation Trustee was accomplished through the amendments to the original plan contained in the Second Amended Joint Prepackaged Plan of Reorganization, the Confirmation Order, and the Trust Agreement. The Plan is attached to the Confirmation Order and the Litigation
*828
Trust Agreement is attached as Exhibit B to the Plan. Est. Doc. 319.
Section 5.13 of the Plan provides for the establishment of the Litigation Trust with the “Litigation Trust Assets” being transferred by the Debtors to the Litigation Trustee. The Litigation Trust Agreement defines the Trust Assets as including “the Litigation Claims (as defined in Section [1.75] of the Plan) and any proceeds thereof....” Section 1.75 defines Litigation Claims as being “all claims, rights of action, suits or proceedings by any Debtor or Estate, whether in law or in equity, whether known or unknown, that any Debtor or Estate may hold against any person, including all Avoidance Actions that are not Authorized Creditor Payment Avoidance Actions, but excluding (i) all claims, rights of action, suits or proceedings that are affirmatively released by the Debtors pursuant to this Plan and (ii) all Business Litigation Claims.” Without anything more, this definition of Litigation Claims would fall within the realm of being a general reservation of claims that the Sixth Circuit found to be insufficient in
Micro-Time
and
Browning .
However, the Confirmation Order further expounds upon the claims being reserved and assigned to the Litigation Trustee.
Paragraphs M, 30 and 40 of the Confirmation Order (Est. Doc. 319) provide that the Debtors and their estates shall retain, consistent with § 1123(b)(3), the Litigation Claims and Business Claims “including, but not limited to, those listed on Plan Schedule 10.5.” Those provisions then further provide for the assignment of those claims to the Litigation Trustee. The Litigation Trustee’s non-core causes of action are not Business Litigation Claims (Cf. 1.16 and 1.75 of the Plan), but instead, would fall within the parameters of the term “Litigation Claims.” Paragraph 40 of the Confirmation Order states that: “The Debtors, with the consent of the Creditors’ Committee, have used their best efforts to identify Litigation Claims and Business Litigation Claims, which are set forth on Plan Schedule 10.5. Nothing herein or in the Plan, however, shall operate as res judicata against the Reorganized Debtors in prosecuting Business Litigation Claims or against the Litigation Trustee in prosecuting Litigation Claims.” Of course, this latter statement does not preclude the court from applying res judicata if the reservation is not sufficient.
See
Est. Doc. 319, ¶ 40.
Plan Schedule 10.5 is the document which the Debtors used to describe the specific claims that might be pursued by the Reorganized Debtors (the Business Litigation Claims) and the Litigation Trustee (the Litigation Claims).
See
Est. Docs. 319
&
333. That document in relevant part states as follows:
4. The Litigation Claims include all claims, rights of action, suits or proceedings by any Debtor or Estate, whether in law or in equity, whether known or unknown, that any Debtor or Estate may hold against any person, including all Avoidance Actions that are not Authorized Creditor Payment Avoidance Actions, but excluding (i) all claims, rights of action, suits or proceedings that are affirmatively released by the Debtors pursuant to the Plan and (ii) all Business Litigation Claims. The Litigation Claims include claims against insiders and Non-insiders of the Debtors and the Non-debtor Affiliates, including, but not limited to, the following parties: Chandra Attiken; Steve Bevelhymer; Nancy Blair; Mike Boos; Greg Bra-sel; Anita Brown; Ben Carlson; Greg Carlson; Crowe Howai’th LLP (aka Crowe Chizek and Company LLC); Ole Dam; Deloitte; Tom Dosch; Duff
*829
& Phelps; Evolve Bank & Trust Company; Karen Felix; Keith Finikin; Joseph Foster; Great Banc & Trust Company; Greg Haakonson; Ken Hartley; Robert Hill; Rose Hohen-see; Barry Hoskins; Houlihan Lokey Howard & Zukin Financial Advisors, Inc.; Levimo, LLC; Cheryl Lightle; Alan Luce; Troy Lundell; MAMA-MO, LLC; Malte vonMatthiessen; McDermott, Will & Emery; Jeanine McLaughlin; Jill Melby; Asha Moran; Lee Morgan; Jim Northrop; Prairie Capital Advisors, Inc.; Reliance Trust Company; Trucker Huss, APC; Tom Rogers; Denis Sanan; Paul Slocombe; and Kim Wilson
Such claims include, but are not limited to, the following:
Actions to avoid, recharacterize or subordinate claims;
Actions to establish a constructive or resulting trust;
Actions for violations of ERISA;
Aiding and abetting any of the Litigation Claims;
Avoidance and recovery of preferential transfers;
Breach of contract;
Breach of duty of good faith and fair dealing;
Breach of fiduciary duty;
Causes of action arising under chapter 5 of the Bankruptcy Code;
Civil conspiracy;
Conversion;
Fraud and/or misrepresentation under state or federal law;
Fraudulent transfer;
Fraudulent conveyance;
Gross negligence;
Indemnification;
Intentional infliction of emotional distress;
Insurance policy recoveries
Negligence;
Oppression by controlling shareholders;
Price fixing;
Recklessness;
Rescission;
Tortious interference;
Trust fund doctrine;
Turnover of property of the Debtors’ estates;
Unlawful distribution or waste of corporate assets; and
Violations of the Racketeer Influenced and Corrupt Organizations Act
6. The potential causes of action and defendants listed on this Plan Schedule 10.5 are not exhaustive, but are reflective of current knowledge. To the extent not specifically released under the Plan, Reorganized Antioch and the Litigation Trust reserve all rights to bring any claims, rights of action, suits or proceedings against any defendant, in each case not specifically referenced above, but that may be identified following the Effective Date through formal or informal discovery or in litigation.
(Est. Doc. 333) (emphasis added). Thus, Schedule 10.5 specifically references breach of fiduciary duty and “Aiding and Abetting any of the Litigation Claims” as potential Litigation Claims. The definition of Litigation Claims as including a nonexclusive list of a variety of claims and paragraph 6 of Schedule 10.5 demonstrate the Litigation Trustee’s intention to cast a broad net in pursuing causes of action for the Litigation Trust’s beneficiaries. Further, the detail provided in Schedule 10.5 distinguishes it from the plan in
Browning
and
Micro-Time.
Schedule 10.5 of the
*830
Plan is not a general reservation clause, but is quite specific in its terms and is prominently located as a separate Schedule to the Plan.
Moreover, the creation of the Litigation Trust
(See
5.13 of the Plan) and the Litigation Trust Agreement further put all parties on notice that the Litigation Trustee may pursue any potential Litigation Claim for the benefit of the Litigation Trust’s beneficiaries. Significantly, unlike in
Browning ,
not only could parties in interest consider the potential value of these claims, but that potential value is what resolved the Committee’s objection to the original plan of reorganization. The formation of the Litigation Trust represented a significant amendment to the Debtors’ original proposed plan. Unlike the facts in
Browning ,
the court is not concerned the Plan was confirmed without “the value of [the Debtors and estatesj’s claims to be taken into account in the disposition of the debtor’s estate.”
13
Browning,
283 F.3d at 775 .
CRG, Ravaris and Epstein argue that the reservation language was not sufficient because, of all the defendants named in the Complaint, they were among the very few not specifically listed in the reservation of rights in the confirmed Plan. However, while
Browning
notes the failure to list a specific defendant as a factor for finding that the general reservation in that case was not sufficient, it does not mandate all target defendants be specifically identified. Instead,
Browning
suggests that the failure to list CRG, Epstein and Ravaris is a factor to consider.
See also Pen Holdings,
316 B.R. at 504 (“The words sufficient to satisfy § 1123(b)(3) must be measured in the context of each case and the particular claims at issue_”). While these defendants’ names were not included in the itemized listing of names contained in Schedule 10.5, the language of Schedule 10.5 is clear that the list of potential defendants may be under-inclusive (and over-inclusive) with respect to whom would eventually become an actual defendant.
Based on these facts, the court recommends that the District Court find the reservation language to be sufficient as to all defendants, including CRG, Epstein, and Ravaris: the Disclosure Statement described Epstein and Ravaris as pre-petition officers of the Company and as partners of CRG and described the basic facts that are the subject of Counts 3, 8, and 9 as events “leading to” the Company’s restructuring; the provisions of the Plan and Confirmation Order providing for the establishment of the Litigation Trust to pursue the Litigation Claims for the beneficiaries of the Litigation Trust; Plan Schedule 10.5’s specific identification of breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and “unlawful distribution or waste of corporate assets” as claims that might be pursued by the Litigation Trustee; and Schedule 10.5’s proviso that “[t]he potential causes of action and defendants listed on this Plan Schedule 10.5 are not exhaustive.” Overall, the language in Schedule 10.5 of the Plan is significantly more specific than in
Browning
and
Micro-Time
and preserves the causes of action against CRG, Epstein, and Ravaris. Cf.
JP Morgan Trust Co., Nat'l Ass’n v. Mid-America Pipeline Co.,
413 F.Supp.2d 1244, 1277-80 (D.Kan.2006) (reservation clause more specific than
Browning
preserved post-confirmation lawsuit by liquidating trustee).
See also Kmart Corp. v.
*831
Intercraft Co. (In re Kmart Corp.),
310 B.R. 107, 124 (Bankr.N.D.Ill.2004) (“Berg-ner
[P.A. Bergner & Co. v. Bank One, Milwaukee, N.A. (In re P.A. Bergner & Co.),
140 F.3d 1111 (7th Cir.1998) ] stands for the proposition that plan provisions identifying causes of action by type or category are not mere blanket reservations. Therefore, categorical reservation can effectively avoid the
res judicata
bar. Dispensing with a requirement of cataloging claims by name comports with the Court’s view in Bergner that section 1123(b)(3) does not require ‘specific and unequivocal’ identification.”).
For all these reasons, the court recommends that the Plan not be found to have preclusive effect under res judicata as to the causes of action against CRG, Epstein, Ravaris or Walker.
E. ERISA Preemption (Claims 1-12)
The institutional ESOP trustees, Great-Banc, Reliance and Evolve, as well as Morgan, Moran, Attiken, and Marty Moran also raise the issue of whether ERISA preempts certain claims asserted against them.
1. Law of ERISA Preemption
These defendants argue that various causes of action in the Complaint are preempted by the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001-1461 (“ERISA”). The focus of this argument is that the Litigation Trustee’s non-core causes of action relate to ESOP events that are governed by and, therefore, preempted by ERISA. An ESOP is an ERISA qualified plan.
See
29 U.S.C. § 1107 (d)(6) (defining the term “employee stock ownership plan”). Specifically, the defendants argue that the events that are the subject of the Complaint are the actions and transactions of the Company that led to the ESOP’s acquisition of 100% of the shares of the Company in 2003.
ERISA preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” 29 U.S.C. § 1144 (a). “The [ERISA] pre-emption clause is conspicuous for its breadth.”
FMC Corp. v. Holliday,
498 U.S. 52, 58 , 111 S.Ct. 403 , 112 L.Ed.2d 356 (1990). This is so because ERISA’s purpose “is to provide a uniform regulatory regime over employee benefit plans.”
Aetna Health Inc. v. Davila,
542 U.S. 200, 208 , 124 S.Ct. 2488 , 159 L.Ed.2d 312 (2004). “[A] distinctive feature” of ERISA is its “integrated enforcement mechanism,” which is codified in 29 U.S.C. § 1132 (a).
Id.
Any state law cause of action that “duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.”
Id.
at 209, 124 S.Ct. 2488 .
However, ERISA preemption is not unlimited. More recent decisions have recognized that the phrase “relate to” in 29 U.S.C. § 1144 (a) can be interpreted to be so broad that “if the term ... was allowed to reach its most logical extension, ‘preemption would never run its course.’ ”
Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension Corp.,
399 F.3d 692, 697 (6th Cir.2005)
(“PONI”).
The Supreme Court has determined that such a reading is inconsistent with the purpose of 29 U.S.C. § 1144 (a) and to “read Congress’s words of limitation as mere sham, and to read the presumption against pre-emption out of the law whenever Congress speaks to the matter with generality.”
N.Y. State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.,
514 U.S. 645, 655 , 115 S.Ct. 1671 , 131 L.Ed.2d 695 (1995). In interpreting 29 U.S.C. § 1144 (a), courts “must go beyond the
*832
frustrating difficulty of defining its key term, and to look instead to the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive.”
Id.
at 656, 115 S.Ct. 1671 . This language is significant because it unambiguously informs the lower federal courts that applying a strictly denotative plain meaning analysis to the ERISA preemption phrase of “relate to” is not appropriate.
ERISA’s purpose is “to avoid conflicting federal and state regulation and to create a nationally uniform administration of employee benefit plans.”
PONI,
399 F.3d at 698. To that end, “ERISA preempts state laws that (1) ‘mandate employee benefit structures or their administration;’ (2) provide ‘alternate enforcement mechanisms;’ or (3) ‘bind employers or plan administrators to particular choices or preclude uniform administrative practice, thereby functioning as a regulation of an ERISA plan itself.’ ”
Id., quoting, Coyne & Delany Co. v. Selman,
98 F.3d 1457, 1468 (4th Cir.1996). When a state law claim’s effect on the ERISA plan “is merely tenuous, remote or peripheral,” the claim is not preempted.
Cromwell v. Equicor-Equitable HCA Corp.,
944 F.2d 1272, 1276 (6th Cir.1991).
Davila
helps explain the broad scope of ERISA preemption. Individuals sued health maintenance organizations for failure to provide ordinary care in coverage decisions.
Davila,
542 U.S. at 204 , 124 S.Ct. 2488 . The health care plans at issue were employee health care plans and therefore governed by ERISA.
Id.
The plaintiffs sued under the Texas Health Care Liability Act (“THCLA”) and the Supreme Court unanimously held that the THCLA claims were completely preempted by ERISA.
Id.
The court noted that “any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.”
Id.
at 209 . In this instance, the Court found “if an individual brings suit complaining of denial of coverage for medical care, where the individual is entitled to such coverage only because the terms of an ERISA-regulated employee benefit plan, and where no legal duty (state or federal) independent of ERISA or the plan terms is violated, then the suit [is preempted].”
Id.
at 210 .
The
PONI
decision applied the principles of
Davila .
In
PONI,
an employer maintained a pension plan, an ESOP, and a savings plan. 399 F.3d at 695. When the pension plan was terminated, all the employees but one elected to cash out the insurance portion of their accrued benefits.
Id.
One “key” employee rolled the cash value of his accrued insurance benefits into the savings plan.
Id.
However, that cash value was incorrectly valued at one dollar.
Id.
As a result, the ESOP and savings plan became “top-heavy” in violation of the Internal Revenue Code.
14
Id.
The employer eventually had to pay a fine of $5,000, make a minimal contribution of $137,087.17 to the savings plan and ESOP, and incur other charges at a total cost to the company of $177,087.17.
Id.
at 696. The employer sued the bank which acted as ERISA trustee for the savings plan and a separate record keeper for the ESOP un
*833
der state law breach of contract claims.
Id.
The court determined that the claims against the bank were preempted.
Id.
at 700. The employer argued that the bank acted as a non-ERISA fiduciary with regard to its record-keeping functions. The
PONI
decision recognized that “where the alleged conduct by the fiduciary is ‘entirely unrelated to and outside the scope of [the fiduciary’s] duties under the plan or in carrying out the terms of the plan,’ courts have found that ERISA’s core objectives are not implicated and state-law claims may proceed.”
Id.
at 699,
citing, Darcangelo v. Verizon Commc’ns, Inc.,
292 F.3d 181, 193 (4th Cir.2002). However, the court determined that the breach of contract claim against the bank was preempted because the contract at issue was the ERISA plan and therefore the state law claim interfered with the enforcement scheme of ERISA.
Id.
at 700. By contrast, the claim against the record keeper was not preempted because it was not a “traditional ERISA plan” entity and the claim was not “based on any rights under the plan; there is no allegation that any of the plan’s terms have been breached. Nor is there any effort to enforce or modify the terms of the plan.”
Id.
at 700-01,
quoting, Airparts Co., Inc. v. Custom Benefit Servs. of Austin, Inc.,
28 F.3d 1062 , 1066 (10th Cir.1994).
The need for a cause of action to be grounded in a legal obligation separate from ERISA’s comprehensive enforcement scheme is crucial. In
Briscoe v. Fine,
former employees brought a class action against the employer’s former officers and directors and the third-party administrator of the healthcare plan. 444 F.3d 478 , 482 (6th Cir.2006). The claims were brought under ERISA and state law.
Id.
The court found that the state law causes of action — based on the defendants’ failure to disclose the financial condition of the healthcare plan — were preempted because they provided an alternative enforcement mechanism to ERISA and were not based on “any violation of a legal duty independent of ERISA.”
Id.
at 498-99,
quoting, Davila,
542 U.S. at 214 , 124 S.Ct. 2488 . As the Sixth Circuit explained:
[T]he plaintiffs have not pointed to “any violation of a legal duty independent of ERISA.”
Davila,
542 U.S. at 214 , 124 S.Ct. 2488 , 159 L.Ed.2d 312 . Any duty to disclose the financial condition of the plan that the Fines might have owed to the plan beneficiaries arose not out of an independent source of law, but out of the existence and nature of the plan itself, including any duties that the plan imposed on the officers and directors.
See id.
In other words, the plaintiffs’ state-law claims against the Fines and PHP are simply a way of restating the claims for breach of fiduciary duty that they also allege under ERISA. The Supreme Court, however, has repeatedly refused to permit plaintiffs to “ ‘elevate form over substance and [to] allow parties to evade’ the preemptive scope of ERISA simply by ‘relabeling their’ ” claims.
Id.
(quoting
Allis-Chalmers Corp. v. Lueck,
471 U.S. 202, 211 , 105 S.Ct. 1904 , 85 L.Ed.2d 206 (1985);
see also Smith v. Provident Bank,
170 F.3d 609, 613 (6th Cir.1999)) (“Common law breach of fiduciary duty claims are clearly preempted by ERISA.”). That the plaintiffs have captioned what is essentially a breach-of-fiduciary-duty claim as a suit for fraud, misrepresentation, and concealment does not alter the fact their state-law cause of action mirrors their federal claim under ERISA.
Briscoe,
444 F.3d at 499. However, the Sixth Circuit reached the “opposite conclusion with respect to the claim that the Fines breached a duty by failing to disclose the overall financial condition of the Company.”
Id.
at 500. The court focused
*834
on the independent legal duty: “Unlike the other causes of actions ..., the plaintiffs could have alleged such a breach of duty even if the Company had never sponsored an ERISA-covered plan.”
Id.
Hutchison v. Fifth Third Bancorp
further examines the need for a duty independent of ERISA. 469 F.3d 583 (6th Cir.2007). Suburban Federal Savings Bank and Fifth Third Bank negotiated a “merger ‘Affiliation Agreement’” between the two banks.
Id.
at 584 . The Affiliation Agreement addressed the Suburban ESOP.
Id.
Based on representations in the Affiliation Agreement, certain members of the Suburban ESOP voted in favor of merger, which was consummated.
Id.
Post-merger, Fifth Third Bank became the successor ESOP sponsor and was also the trustee.
Id.
at 586 . The Affiliation Agreement included provisions to distribute funds to former Suburban employees, but instead, Fifth Third Bank amended the ESOP to distribute the funds to Fifth Third Bank employees. The former Suburban employees became class members who brought a breach of contract claim in state court.
Id.
The Sixth Circuit ultimately determined that the breach of contract claim was preempted by ERISA. The language of the Sixth Circuit’s decision is instructive:
Preemption in this case is also consistent with our post-Narnia case law. In
Briscoe,
former employees sued, among others, former officers and directors of a bankrupt employer, alleging violation of fiduciary duties under ERISA and various torts under Kentucky law. 444 F.3d at 498. We held that ERISA preempted the state law claims for fraud, misrepresentation, concealment, and failure to disclose the financial condition of the employee benefit plan. In doing so, we followed
Davila
and also our reasoning in
PONI,
finding that the two cases were fully consistent.
Id.
at 499-500. However, we held that ERISA did not preempt the employees’ state-law claim that defendants breached a duty that they owed to employees by failing to disclose the overall financial condition of the corporation. Our reasoning in that case simply does not extend to the instant case, because, as we noted in
Bris-coe:
with respect to the claim that the [former officers and directors of the company] breached a duty by failing to disclose the overall financial condition of the Company, ... the plaintiffs could have alleged such a breach of duty even if the Company had never sponsored an ERISA-covered plan.
Id.
at 590. In
Hutchinson,
unlike
Briscoe,
no separate legal duty existed.
Another consideration is whether the relationship to the ERISA plan is too tenuous for preemption to be applied.
Husvar v. Rapoport
is a decision that helps define the outer limits of the “relate to” ERISA preemption language. 430 F.3d 777 (6th Cir.2005). In
Husvar,
the Sixth Circuit determined that state claims concerning conduct taken which affects the stock price of shares held by an ESOP are not necessarily preempted by ERISA.
Id.
at 782-83. Former employees and shareholders brought a state court action against their former employer and members of the board of directors.
Id.
at 778. The lawsuit alleged the defendants’ mismanagement reduced the value of the company stock.
Id.
However, the company stock was held by an ESOP.
Id.
at 779. The defendants “argued that the ESOP was an ERISA-covered plan and that the complaint’s perceived allegations of improper management of that plan resulted in the complete federal preemption of all matters relating to that entity.”
Id.
The court cited
Smith v. Provident Bank,
and noted the principle that a state law breach of
*835
fiduciary claim is preempted by ERISA.
Id.
at 782,
citing, Smith,
170 F.3d at 613 . However, the court found this general principle inapplicable to the facts before it:
In this case, however, the complaint being examined does
not
challenge the actions of a plan fiduciary. Instead, the complaint merely questions the propriety of certain business decisions made by the company’s board of directors. Although those decisions, without question, affected the value of the company stock that comprised the employees’ benefit plan assets, that fact alone does not transform a state-law breach of fiduciary duty claim into a federal ERISA action. As this court concluded in
Grindstaff v. Green,
133 F.3d 416, 423-24 (6th Cir.1998), quoting from the Eighth Circuit decision in
Hickman v. Tosco,
840 F.2d 564 , 566 (8th Cir.1988):
“ERISA does not prohibit an employer from acting in accordance with his interests as an employer when not administering the plan or investing the assets.” In fact, in
Hickman,
the Eighth Circuit specifically observed that “day-to-day corporate business transactions, which may have a collateral effect on prospective, contingent employee benefits [do not have to] be performed solely in the interest of plan participants.” In
Martin v. Feilen,
[ 965 F.2d 660 (8th Cir.1992) ], the court concluded that
Hickman
applied to ESOPs, noting that “[v]irtually all of an employer’s significant business decisions affect the
value
of its stock, and therefore the benefits that ESOP plan participants will ultimately receive.” 965 F.2d at 666 (observing that section 1104 only applies to “transactions that involve investing the ESOP’s assets or administering the plan.”)
A close examination of the plaintiffs’ complaint reveals that nowhere in that document do the former employees allege that the defendants themselves mismanaged any fund designated as a pension benefit plan for company workers. Instead, the complaint is replete only with allegations that the individual defendants mismanaged the company so as to result in a dramatic decrease in the value of Mosler stock-a result that, in turn, happened to devalue the ESOP funded with such stock. A claim that company directors did not operate the business itself in conformity with sound business practices does not, however, implicate the protections afforded by ERISA. Absent any indication in the complaint that the plaintiffs intend to challenge the decisions or actions of
plan fiduciaries,
the filing contains no claims arising under federal law. We conclude, therefore, that the district judge erred in denying the plaintiffs’ motion to remand this matter to the state court system for resolution.
Husvar,
430 F.3d at 782 (bold added; italics in original).
See also Sengpiel v. The B.F. Goodrich Co.,
156 F.3d 660, 666 (6th Cir.1998) (“[T]he fact that an action taken by an employer to implement a business decision may ultimately affect the security of employees’ welfare benefits does not automatically render the action subject to ERISA’s fiduciary duties.”);
Thurman v. Pfizer, Inc.,
484 F.3d 855, 865 (6th Cir.2007) (“We simply hold that employers who misrepresent certain benefits provided by ERISA-governed plans to prospective employees cannot later use preemption as an end-run around liability for fraudulent or innocent misrepresentations.”).
Keeping the quite broad, but not unlimited, standard for ERISA preemption in mind, the court considers the preemption arguments made by certain defendants.
*836
2. The Claim for Aiding and Abetting Breach of Fiduciarg Dutg against GreatBanc Trust Compang is Preempted by ERISA
GreatBanc is being sued under Count 2—aiding and abetting the breach of fiduciary duty in regard to the 2003 Transaction. Cplt. ¶¶ 165-170. At the time of the 2003 Transaction, GreatBanc was the ESOP trustee and its role as the ESOP trustee ended with the consummation of the 2003 Transaction. Cplt. ¶ 77. GreatBanc (1) “agreed to decline to sell ESOP shares in the tender offer and to approve the transaction in exchange for a Put Price Protection Agreement” [Cplt. ¶ 77]; (2) failed to engage in a good faith process to determine the fair market value of the non-ESOP shares; (3) failed to obtain an independent appraisal for the price the Company was to pay for the non-ESOP shares, instead relying on a flawed fairness opinion and informal valuation by Deloitte. The fairness opinion failed to account for the effect of the liability for the repurchase of shares and the shares lack of marketability. Cplt. ¶ 76. According to the Complaint, “the [fairness opinion] was narrowly focused on whether the consideration and other terms and conditions of the transaction were fair to the ESOP from a financial point of view, and the opinion failed to analyze whether the transaction was in the best interest of the Company.”
Id.
Finally, in return for not selling ESOP shares in the tender offer (a condition of the closing) and approving the transaction, the ESOP trustee agreed upon a Put Price Protection Agreement to establish rules for distribution for ESOP participants which terminated their employment. Cplt. ¶¶ 75-77.
An ESOP trustee holds a single fiduciary duty which runs to the ESOP, not to the company.
N.L.R.B. v. Amax Coal Co.,
453 U.S. 322, 332 , 101 S.Ct. 2789 , 69 L.Ed.2d 672 (1981),
citing,
29 U.S.C. § 1104 (a)(1) (“Whatever may have remained implicit in Congress’ view of the employee benefit fund trustee under the act became explicit when Congress passed [ERISA],... Section 404(a)(1) of ERISA requires a trustee to ‘discharge his duties ... solely in the interest of the participants and beneficiaries.... ’ ”). The Complaint does not contain a single allegation that suggests GreatBanc made any decision, good, bad or otherwise, outside of its fiduciary role as the ESOP trustee. The Complaint does not indicate GreatBanc held any position, fiduciary or otherwise, with the Company.
15
Thus, the Complaint fails because it seeks to change the role of the ESOP trustee in a way ERISA does not contemplate. An ESOP trustee— when acting within its defined role—has no duty to a company, but has a single unwavering fiduciary duty to the ESOP’s beneficiaries.
Amax Coal,
453 U.S. at 333 , 101 S.Ct. 2789 . The Complaint’s allegations necessarily interfere with the comprehensive ERISA enforcement scheme.
The Complaint alleges that the ERISA trustees must have a duty to the Company because the ESOP wholly owned the Company following the 2003 Transaction. However, while it is logical that decisions made by the ESOP trustee affect the Company in such circumstances, it does not follow that the ESOP trustee has a duty to the Company.
16
Congress creat
*837
ed certain exceptions to ERISA when it was expanded to include an ESOP as an ERISA qualified plan, but left the traditional role of a trustee the same for an ESOP as any other ERISA qualified plan.
Kuper v. Iovenko,
66 F.3d 1447, 1458 (6th Cir.1995). The Complaint does not allege a separate hat worn by GreatBanc that could have created an independent duty to the Company.
Accordingly, the court recommends that the cause of action against GreatBanc be dismissed on account of its being preempted by ERISA.
3. The Claim for Professional Negligence against Reliance is Preempted bg ERISA
Reliance is being sued under Count 4 — professional negligence. The Complaint concerns Reliance’s failure to address the 2003 Transaction and the conflicted board. Cplt. ¶ 131.
In June 2007 Reliance was engaged to serve as an “independent” ESOP trustee, replacing Lipson-Wilson. Cplt. ¶¶ 22, 113. “In August 2007, the directors retained Reliance as a discretionary ESOP trustee to approve any transaction.” Cplt. ¶ 113. “On November 28, 2007 Reliance gave formal notice of its resignation as ESOP trustee, effective December 28, 2007, explaining that it believed the entire board should be removed and members of key management replaced.” Cplt. ¶ 127. Reliance failed to file a report upon resignation as required by the ESOP Trust agreement. Cplt. ¶ 130. “Despite its concerns, Defendant Reliance ignored its fiduciary duty to the ESOP and resigned rather than taking any action to deal with the 2003 Transaction and the conflicted board.” Cplt. ¶ 131.
The Complaint alleges that during the time that Reliance served as an ESOP trustee various insiders of the Company sought to stop a sale process being pursued by Houlihan Lokey and pursued an alternative recapitalization strategy. Cplt. ¶ 123. Upon resigning, “Reliance told Defendant Lipson-Wilson that the members of the board holding subordinated debt were completely conflicted and that the Company should have pursued a turnaround effort three years earlier.” Cplt. ¶ 127.
These allegations concern Reliance’s deficient performance as an ERISA trustee for the ESOP, including a violation of the ESOP trust agreement. The Complaint does not allege Reliance acted beyond its mandated role as an ERISA trustee. Although the Complaint asserts
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Reliance “owed a duty to the Company” [Cplt. ¶ 185], the Litigation Trustee has not cited any authority for that proposition and that assertion is not correct because as previously noted, as an ESOP trustee its duty was solely to the ESOP. At best, the Complaint shows that acts of Reliance had an effect on the downturn of the Company. As noted, this is unsurprising in that the ESOP wholly owned the Company. But one of the main purposes of ERISA is to limit trustees’ fiduciary duty to ERISA participants and to ensure, regardless of the effect of their decisions on third parties, an unwavering duty to the ESOP remains.
Amax Coal,
458 U.S. at 334, 101 S.Ct. 2789 (internal citation omitted) (“[T]he fiduciary provisions of ERISA were designed to prevent a trustee from being put into a position where he has dual loyalties, and, therefore, he cannot act exclusively for the benefit of a plan’s participants and beneficiaries.”).
Since Reliance had no duty to the Company and its exclusive purpose as ESOP trustee was limited to acting in the interests of the ESOP, the Litigation Trustee’s claims interfere with ERISA’s comprehensive enforcement scheme and are preempted by ERISA. The court recommends the cause of action against Reliance also be dismissed on account of its being preempted by ERISA.
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4. The Claims against Evolve Bank & Trust are Preempted by ERISA
Evolve became the ESOP trustee in January 2008 after Rebanee resigned. Cplt. ¶ 133. Reliance’s counsel recruited Evolve to serve as ESOP trustee and acted as counsel for Evolve.
Id.
The allegations against Evolve concern its role in the unconsummated sale process with J.H. Whitney. Specifically, the Complaint alleges that Evolve “faded to take any action regarding the 2003 Transaction and the directors’ and officers’ conflicts.” Cplt. ¶ 135. In June 2008 the Company “was in the late stages of a sale process under a letter of intent signed by J.H. Whitney.” Cplt. ¶ 143. Whitney was to purchase the Company in a sale for 54 million dollars.
Id.
Morgan and Moran did not want the J.H. Whitney sale to close. Cplt. ¶ 144. After the Morgan Family attempted to recapitalize the Company, Morgan and Moran sought to replace the board of directors. Cplt. ¶ 146. “Evolve ... followed Defendants Lee’s and Asha’s instructions.” Cplt. ¶ 147. They voted to fire the directors and to replace them with a board consisting only of Morgan, Moran and Morris, a lawyer selected by Evolve, the “New Board.”
Id.
The chaos caused J.H. Whitney to withdraw its offer, which later offered only 22 million dollars for the Company in September 2008, which offer was rejected. Cplt. ¶ 160.
Count 5 (professional negligence) and Count 11 (aiding and abetting breach of fiduciary duty related to the JH Whitney offer to purchase the Company) are being prosecuted against Evolve. While it is essentially alleged that as the ESOP trustee, Evolve failed to act in the interests of the ESOP and Evolve’s decisions certainly affected the Company, the Complaint does not allege that Evolve ever wore a second hat. Unlike an officer or director which also serves as an ERISA fiduciary, Evolve was hired solely to be an ESOP trustee. Its failure to act in regard to the 2003 Transaction or its failure to prevent the “New Board” from scuttling the J.H. Whit
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ney sale may provide a basis for a claim under ERISA, but the professional negligence claim would only supplement such a claim, and ERISA does not permit interference with its comprehensive enforcement scheme. Accordingly, for these reasons and because Evolve only owed duties to the ESOP as an ESOP trustee, the court recommends the causes of action against Evolve be dismissed on account of its being preempted by ERISA.
5. Possible ERISA Claims against the ESOP Trustees
Pursuant to 29 U.S.C. § 1132 (a)(2) only the Secretary for the Department of Labor, plan participants, beneficiaries and fiduciaries are authorized to pursue claims for ERISA breaches of fiduciary duty. At oral argument the Litigation Trustee raised the possibility of his pursuit of such an ERISA claim as a fiduciary — specifically, as the plan sponsor or administrator of the ESOP — if certain state law claims were found to be preempted. As noted recently by Judge Black in his decision denying a motion to dismiss a separate lawsuit brought by the Litigation Trustee against the law firm of McDer-mott Will & Emery LLP, “[w]hether an employer such as Antioch, who is also an ERISA plan administrator, is a fiduciary of the plan generally requires a detailed factual analysis that is not appropriate upon a motion to dismiss.”
Antioch Litig. Trust v. McDermott Will & Emery LLP,
738 F.Supp.2d 758, 771 (S.D.Ohio 2010),
citing, Hunter v. Caliber Sys., Inc.,
220 F.3d 702, 718 (6th Cir.2000). Accordingly, the dismissal of the causes of action against the ESOP trustees (GreatBanc, Reliance and Evolve), is without prejudice to the Litigation Trustee moving to amend his Complaint to assert ERISA causes of action against those defendants.
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6. The Non-Core Causes of Action against Lee Morgan, Asha Morgan Moran, and Chandra Attiken are not Preempted by ERISA
Morgan, Moran, and Attiken also assert that the claims asserted against them are preempted by ERISA because they all relate to their role as ESOP fiduciaries or otherwise relate to the ESOP (Cplt. ¶¶ 9-11). It is true that the Complaint alleges all three defendants were ESOP fiduciaries. However, the Complaint also asserts all of these defendants were corporate officers and insiders of the Company.
Id.
As will be explained, all the claims against these defendants are based on independent legal duties owed in their roles as corporate fiduciaries — not to the ESOP — but to the Company. The decisions they make in such roles are ultimately subject to the same corporate fiduciary duties of all officers and directors — whether a particular Company is owned — in part or in whole — by an ESOP. Under such circumstances, a director or officer has fiduciary obligations to multiple constituencies.
Morgan, Moran, and Attiken are being sued under Count 1 (breach of fiduciary duty as to the 2003 Transaction) and Count 2 (aiding and abetting a breach of fiduciary duty as to the 2003 Transaction). Moran is a defendant under Count 3 (breach of fiduciary duty as to the Condor Transaction). Morgan, Moran, and Attiken are defendants in Count 6 (breach of fiduciary duty with respect to the Levimo
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Transaction) and Count 7 (aiding and abetting a breach of fiduciary duty as to the Levimo Transaction). Counts 8 and 10 include Morgan and Moran for breach of fiduciary duty relating to the alternative recapitalization or refinancing strategy. Counts 9 and 11 name Morgan and Moran as defendants for aiding and abetting breach of fiduciary duty with respect to the JH Whitney offer to purchase the Company. Count 12 alleges Morgan tor-tiously interfered with the Houlihan Lokey contract with the Company.
Morgan, Moran, and Attiken rely heavily on
Smith v. Provident Bank,
170 F.3d 609 (6th Cir.1999). As this decision found that common law claims for breach of fiduciary duty were preempted by ERISA, it is important to explain why
Provident
is inapplicable to the legal theories presented by the Complaint. In
Provident,
two ERISA plans and a participant sued the former plan trustee under state law. The lawsuit concerned errors with missing shares from an ERISA profit-sharing and pension plan. The decision states that “[c]ommon law breach of fiduciary duty claims are clearly preempted by ERISA.”
Id.
at 613 ,
citing, Perry v. P*I*E Nationwide, Inc.,
872 F.2d 157, 161 (6th Cir.1989).
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Later decisions clarified that this statement is not dispositive and was not unconditional. First, in
Provident,
unlike Morgan, Moran, and Attiken, the former plan trustee was being sued as an ERISA fiduciary and wore no other hat. This difference between the allegations in
Provident
and those of the Litigation Trustee in the Complaint is crucial as it suggests that the Litigation Trustee has not merely re-labeled ERISA claims under state law theories as the plaintiffs had done in
Provident. Id.
at 615. Nor is the Litigation Trustee supplementing ERISA claims to provide for an additional theory of recovery or to ensure the Company has standing to sue. Rather, the Litigation Trustee is suing Morgan, Moran, and At-tiken in their separately defined roles with the Company and in connection with actions taken while wearing the hats related to those roles.
See Husvar,
430 F.3d at 782 (distinguishing
Provident
when the complaint concerned mismanagement of a company). The difference is substantive and not merely semantic.
Morgan, Moran, and Attiken also rely on the decision of
Johnson v. Couturier
to support their arguments that the Litigation Trustee’s non-core causes of action are preempted. 572 F.3d 1067 (9th Cir.2009). In
Couturier,
ESOP participants of a closely-held corporation sued the corpo
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ration’s president and directors, claiming the president was vastly overcompensated. The lawsuit included ERISA causes of action as well as actions based on “directorial misconduct.”
Id.
at 1074 . The plaintiffs sought recovery for losses to the ESOP related to the misconduct.
Id.
At issue in
Couturier
were indemnification agreements in favor of the various directors and ESOP trustees which covered all liability in their service, excepting intentional conduct or gross negligence.
Id.
at 1074-75 . One of the defendants argued that the district court lacked jurisdiction because the plaintiffs were challenging business decisions not subject to ERISA. The
Couturier
court rejected this argument by stating:
Decisions relating to corporate salaries generally do not fall within ERISA’s purview. But where plan assets include the employer’s stock, the value of those assets depends on the employer’s equity. Employee compensation levels are, of course, one of the many business expenditures reducing the value of the overall equity of any company. On the other hand, “[vjirtually all of an employer’s significant business decisions affect the
value
of its stock, and therefore the benefits that ESOP plan participants will ultimately receive.”
Martin v. Feilen,
965 F.2d 660, 666 (8th Cir.1992). Taken to its logical conclusion, therefore, this line of thinking would, in the case of an ESOP, extend the application of ERISA to a corporation’s annual expenditures on office supplies-clearly an absurd result. The Eighth Circuit has on this basis limited an ERISA fiduciary’s duties “to transactions that involve investing the ESOP’s assets or administering the plan.”
Id.
Setting executive compensation levels does not obviously fall into either category.
See Eckelkamp v. Beste,
201 F.Supp.2d 1012, 1023 (E.D.Mo.2002) (holding that a corporate director is not acting as an ESOP fiduciary in setting compensation levels).
Nonetheless, we conclude that applying ERISA to the instant case does not risk encompassing within its confines any and all day-to-day corporate decisions shielded by the business judgment rule. Where, as here, an ESOP fiduciary also serves as a corporate director or officer, imposing ERISA duties on business decisions from which that individual could directly profit does not to us seem an unworkable rule. To the contrary, our holding merely comports with congressional intent in establishing ERISA fiduciary duties as “the highest known to the law.”
Howard v. Shay,
100 F.3d 1484, 1488 (9th Cir.1996) (quotation omitted). To hold otherwise would protect from ERISA liability obvious self-dealing, as Plaintiffs allege occurred here, to the detriment of the plan beneficiaries.
Id.
at 1077. The court affirmed the granting of a preliminary injunction to deprive the defendants of an advance of their indemnification rights because if the defendants were ultimately found to have violated ERISA, the indemnification agreement would be void.
Id.
at 1083.
Morgan, Moran, and Attiken argue that
Couturier
creates a specific three-part test for ERISA preemption in favor of corporate officers and directors, which requires the officers or directors to also be ERISA fiduciaries, have an interest in the transaction at issue, and the corporate entity involved to be wholly-owned by an ESOP. However, an application of this suggested test would do nothing more than immunize officers and directors of an entity wholly-owned by an ESOP from allegations of self-dealing by the corporate entity to which they have defined independent legal
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obligations — fiduciary duties to the Company.
20
Couturier
does not directly address when an ERISA fiduciary has corporate liability. Instead, it states that an ERISA fiduciary, who is also an officer or director, may be liable under ERISA for business decisions from which he or she directly profits. Under such circumstances, the officer or director is not protected by the business judgment rule.
Couturier
allows those generally entitled to sue under ERISA, such as ESOP participants, to pursue their claims under ERISA’s high fiduciary standard.
Couturier
does not hold that actions which may also have violated defined fiduciary duties to a Company are without remedy.
The court is not adopting such a proposed three-part test because it is inconsistent with the “multiple hats” analysis appropriate to ERISA fiduciaries who play other roles within a corporate entity. A director and ERISA fiduciary, depending on the circumstances, can take actions which cause damage to an ESOP and a company.
Pegram v. Herdrich,
530 U.S. 211, 225 , 120 S.Ct. 2143 , 147 L.Ed.2d 164 (2000) (“[T]he analogy between ERISA fiduciary and common law trustee becomes problematic. This is so because the trustee at
common
law characteristically wears only his fiduciary hat when he takes action to affect a beneficiary, whereas the trustee under ERISA may wear different hats.”);
Akers v. Palmer,
71 F.3d 226, 229 (6th Cir.1995) (“ERISA is designed to accomplish many worthwhile objectives, but the regulation of purely corporate behavior is not one of them.”);
Sengpiel,
156 F.3d at 665 (ERISA law distinguishes between general business decisions and the administration of an ERISA plan);
See In re Huntington Bancshares, Inc. Erisa Litigation,
620 F.Supp.2d 842, 850 (S.D.Ohio 2009) (similar).
See also Averhart v. U.S. WEST Mgmt. Pension Plan,
46 F.3d 1480 (10th Cir.1994) (An employer can wear “two hats”, as an ERISA fiduciary and as an employer);
Great Lakes Steel, Div. of Nat’l Steel Corp. v. Deggendorf
716 F.2d 1101 , 1105 (6th Cir.1983) (employer can occupy two roles — an employer and an ERISA fiduciary);
In re Delphi Corp. Securities, Derivative & “Erisa” Litigation,
602 F.Supp.2d 810, 821 (E.D.Mich.2009) (an ERISA trustee can wear different hats).
Couturier,
being a decision in favor of ERISA
plaintiffs
on a narrow issue concerning a preliminary injunction and an indemnification agreement, cannot be read to impose such an apparently unprecedented limitation of corporate fiduciary liability. Having rejected Morgan, Moran, and Attiken’s primary ERISA preemption arguments, the specific counts will next be addressed.
Counts 1 and 2, concerning events that led to the consummation of the 2003 Transaction, are not about whether Morgan, Moran, and Attiken, in their roles as ERISA fiduciaries, failed to act in the best interest of the ESOP. These counts are about the independent legal duty these defendants had to the Company and how they breached it. The 2003 Transaction, resulting in the ESOP owning 100% of the Company, was an effort by Lee and Asha “to liquidate their personal substantial holdings in Antioch and to diversify their assets — all while reaping tax savings and maintaining their leadership positions in the Company.” Cplt. ¶ 45.
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It is true that the Litigation Trustee asserts that “Lee, Asha, and Attiken, by virtue of their positions on the ESOP Advisory Committee, were fiduciaries under ERISA and were uniquely situated to investigate and implement changes to the ESOP that would benefit the non-ESOP shareholders.” Cplt. ¶46. However, it was also Morgan, Moran, and Attiken’s prominent role as officers and directors of the Company, not as ERISA fiduciaries to the ESOP advisory committee,
21
which ultimately allowed the 2003 Transaction to be consummated. Cplt. ¶¶ 48-50, 61-67, 73, 84-87. This transaction benefited the non-ESOP shareholders, particularly Morgan and Moran, to the detriment of the Company. Cplt. ¶ 78. The decision to purchase the non-ESOP shares was made not by the ESOP, but rather by the Company (Cplt. ¶¶ 48-^49), and the ultimate liability fell upon the Company (Cplt. ¶ 90).
The Complaint does not seek remedies which bind an employer to specific benefit structures, seek alternative remedies beyond what ERISA provides for issues related to an ERISA qualified plan, or interfere with the uniform procedures for ERISA qualified plans.
See PONI,
399 F.3d at 698. Instead, the Complaint addresses a series of individuals — in their hats as corporate fiduciaries — and the role they played in the downward spiral of the Company.
The allegations relating to the post-2003 Transaction events have no discernable relationship to the ESOP except for the fact the Company was wholly-owned by the ESOP after the transaction. The Condor cause of action (Count 3) concerns obligations of the Company to pay the ESOP Notes.
See
Cplt. ¶ 98 (“The restructure did not solve Antioch’s financial problems. By the end of 2004, Antioch had paid out almost $75 million in ESOP repurchase obligations and had undertaken an additional $30 million in note debt to departing employees-”). The allegation is that the failure to provide adequate security for these obligations damaged the Company because the Company, not the ESOP, was liable under the ESOP Notes. The Levi-mo Transaction did not involve the ESOP as a party. The other counts all concern the failed sale process and the asserted resulting damages from the actions of Morgan, Moran, and Attiken as officers of the Company. These allegations include, but are not limited to, Morgan and Moran’s failure to act in the Company’s interests when serving on the Special Committee (Cplt. ¶¶ 112, 116, 123, 126, 137 & 141), Morgan, Moran, and Attiken’s failure to cooperate with Houlihan Lokey (Cplt. ¶¶ 119-122), and the influence Morgan and Moran used in the firing of the board of directors against the Company’s interests (Cplt. ¶¶ 141-149).
Finally, Morgan, Moran, and Attiken argue that the damages sought in the Complaint are the reduction of value of the ESOP stock and, therefore, the Company
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has not alleged any separate damages. In paragraph 1, the Complaint states, in part, that “[although the Company reorganized ..., the beneficiaries of the Trust received nothing — current and former employees lost their retirement savings, and disfavored creditors received no distributions.” At first blush, such statements seem akin to those made by the plaintiff in
Thurman v. Pfizer, Inc.,
which forbids expectation damage calculations based on a loss related to the ERISA plan. 484 F.3d at 862 . While this background is included in the Complaint, the Complaint also describes specific actions, such as the tender offer for the non-ESOP shares that relate directly to damage to the Company.
See
Cplt. ¶ 98. The defendants have not cited any authority that requires the Litigation Trustee to specifically calculate damages at this stage of the litigation. Moreover, to the extent the Litigation Trustee referenced losses to the ESOP as a method “to articulate ‘specific, ascertainable damages’ ” based on claims grounded in a duty independent of ERISA, such references do not mandate preemption.
Marks v. Newcourt Credit Group, Inc.,
342 F.3d 444, 452 (6th Cir.2003),
quoting, Wright v. General Motors Corp.,
262 F.3d 610, 615 (6th Cir.2001).
Based on the foregoing, the court recommends that none of the causes of action against Morgan, Moran, or Attiken be dismissed under the theory of ERISA preemption.
7. Causes of Action against Marty Moran are not Preempted
Marty Moran is the spouse of Moran, but held no position, fiduciary or otherwise, with the Company. Marty Moran is named as a defendant in Counts 7 (aiding and abetting breach of fiduciary duty as to the Levimo Transaction), 9 (aiding and abetting as to the sale process), and 12 (interference with the Houlihan Lokey business contract). The fact that Marty Moran was not a fiduciary of the ESOP would not necessarily preclude these causes of action from being preempted by ERISA.
See Provident Bank,
170 F.3d at 615-16 (Claims which “merely attach new, state law-labels” to ERISA claims against non-fiduciaries are preempted.). However, as previously explained, the only relationship that the Levimo Transaction, the sale process, and the hiring of Candlewood have to the ESOP is that the Company was wholly-owned by the ESOP when those events occurred. Marty Moran argues that all of these events ultimately relate to the 2003 Transaction and any entity seeking recovery can only look to ERISA. Even if this premise was correct — which it is not — the acts complained of in these counts were too detached from the 2003 Transaction to sufficiently “relate to” the ESOP to fall under the ERISA preemption umbrella.
Therefore, the court recommends that the causes of action against Marty Moran not be dismissed under the theory of ERISA preemption.
8. The Professional Negligence Counts Fail to State A Claim upon which Relief can be Granted
As the analysis of Counts 4 and 5 is so closely related to the ERISA preemption analysis, it is addressed here.
The Complaint alleges professional negligence against Reliance (Count

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2187292. Public record. Not legal advice.