United States District Court, W.D. Virginia, Lynchburg Division
Edward C. Hugler, Plaintiff,
Adam Vinoskey, ET AL., Defendants.
K. MOON UNITED STATES DISTRICT JUDGE.
matter is before the Court upon Defendant Michael New's
Motion to Dismiss the First Amended Complaint. (Dkt. 40). The
First Amended Complaint alleges that Defendants, in their
various roles, facilitated the purchase of Sentry Equipment
Erectors, Inc. (“Sentry”) stock by the Sentry
Equipment Erectors, Inc. Employee Stock Ownership and Savings
Plan (“the ESOP”) for an inflated price-in
violation of the Employee Retirement Income Security Act
(“ERISA”). (Dkt. 29).
New asks the Court to dismiss him from the case because he
argues he was merely an employee-not a fiduciary-and thus not
individually liable under ERISA. Because the First Amended
Complaint's factual allegations are taken as true at this
stage and the Secretary pled sufficient facts about New
exercising discretionary authority or control over the
management of the ESOP, the Court concludes-for purposes of
this motion-that he was a fiduciary. Accordingly, New's
motion to dismiss will be DENIED.
motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) tests the
legal sufficiency of a complaint to determine whether the
plaintiff has properly stated a claim; “it does not
resolve contests surrounding the facts, the merits of a
claim, or the applicability of defenses.”
Republican Party of North Carolina v. Martin, 980
F.2d 943, 952 (4th Cir. 1992). Although a complaint
“does not need detailed factual allegations, a
plaintiff's obligation to provide the ‘grounds'
of his entitle[ment] to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007) (citations omitted).
need not “accept the legal conclusions drawn from the
facts” or “accept as true unwarranted inferences,
unreasonable conclusions, or arguments.” Eastern
Shore Markets, Inc. v. J.D. Assocs. Ltd. P'ship, 213
F.3d 175, 180 (4th Cir. 2000). “Factual allegations
must be enough to raise a right to relief above the
speculative level, ” Twombly, 550 U.S. at 555,
with all allegations in the complaint taken as true and all
reasonable inferences drawn in the plaintiff's favor.
Chao v. Rivendell Woods, Inc., 415 F.3d 342, 346
(4th Cir. 2005). Rule 12(b)(6) does “not require
heightened fact pleading of specifics, but only enough facts
to state a claim to relief that is plausible on its
face.” Twombly, 550 U.S. at 570. Consequently,
“only a complaint that states a plausible claim for
relief survives a motion to dismiss.” Ashcroft v.
Iqbal, 556 U.S. 662, 679 (2009).
Facts as Alleged
facts alleged in this case concern a two-step transaction by
which the ESOP purchased 100% of Sentry stock for an inflated
price. (Dkt. 29 at 4).
founded in 1980, was initially owned entirely by Adam and
Carole Vinoskey. (Id. ¶ 10). The Vinoskeys then
created the ESOP, which included both a 401(k)
defined-contribution plan and an employee stock-ownership
feature. (Id. ¶ 11). The ESOP was designed to
invest primarily in employer stock, which permitted the
Vinoskey's to liquidate their ownership interest in
Sentry without finding a third-party buyer. (Id.).
the terms of the ESOP, terminating employees, which included
retirees, were permitted to sell their shares back to the
ESOP at a price approved by the ESOP fiduciaries.
(Id. ¶ 13). In order to determine a fair price,
Sentry hired Capital Analysts, Inc. (“CA”) to
perform appraisals. (Id.). From 2007 to 2011, the
resulting stock price ranged from $241 to $285 per share.
2004, the ESOP purchased 48% of the Vinoskeys' Sentry
stock for $220 per share, for a total price of $9 million.
(Id. ¶ 12). The ESOP paid $1.5 million to the
Vinoskeys, and the remainder of the purchase price was
borrowed from Sentry. (Id.). In the following years,
Sentry made contributions to the ESOP that allowed the ESOP
to repay the loan it had received from Sentry.
(Id.). The ESOP's debt was fully repaid before
2010, and the shares of Sentry stock purchased by the ESOP
were allocated to individual participant accounts as the
debts were paid. (Id.).
December 2010, Defendant Adam Vinoskey and/or Defendant Adam
Vinoskey Trust (“the Trust”), sold the remaining
52% of Sentry stock to the ESOP at a price of $406 per share
and a total sale price of $20.7 million. (Id. ¶
14). This price greatly exceeded the price offered to
terminating participants who sold their shares back to the
ESOP before December 2010- which ranged from $241 to $285 per
share-and the price offered to participants dropped below
$285 per share after the sale at $406 per share.
$406-per-share price was based on a special appraisal
conducted by CA in November 2010 in preparation for this
transaction. (Id. ¶ 15). The CA valuation
erroneously overvalued Sentry's fair market value for
numerous reasons, such as: (1) CA used only a three-year
loopback period, which failed to capture the peaks and
valleys of Sentry's business cycle; and (2) CA used a
projected-future-earnings discount rate of only 12.2% in its
November 2010 appraisal, despite using a 16.2% rate in 2009
and an 18% discount rate in December 2010. (Id.
Bank and Trust (“Evolve”) was hired as an
independent transaction trustee for the 2010 stock purchase
and as such was a named trustee to the ESOP. (Id.
¶ 8). Evolve was a “party in interest” and a
fiduciary with respect to the plan pursuant to ERISA
§§ 3(21)(A), 3(14)(A)-(B). (Id.).
Defendant Michael New was a lawyer employed by Evolve as its
Senior Trust Officer and the head of Evolve's ESOP
division. (Id. ¶ 9). New performed the duties
of the independent transaction trustee and as such was a
fiduciary with respect to the ESOP pursuant to ERISA §
3(21)(A) and a ...