Healey v. Abadie

143 F. Supp. 3d 397, 2015 U.S. Dist. LEXIS 147714, 2015 WL 6674139
CourtDistrict Court, E.D. Virginia
DecidedOctober 29, 2015
DocketCivil Action No. 2:15cv267
StatusPublished
Cited by3 cases

This text of 143 F. Supp. 3d 397 (Healey v. Abadie) is published on Counsel Stack Legal Research, covering District Court, E.D. Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Healey v. Abadie, 143 F. Supp. 3d 397, 2015 U.S. Dist. LEXIS 147714, 2015 WL 6674139 (E.D. Va. 2015).

Opinion

OPINION & ORDER

HENRY COKE MORGAN, JR., Senior District Judge.

This matter is before the Court pursuant to Defendant Pamela Abadie’s (“Defendant” or “Abadie”) Rule 12(b)(6) Motion to Dismiss the Complaint (“Motion”). Doc. 10. A hearing was held on Tuesday, October 27, 2015 at 11:00 a.m., and ruling from the bench, the Court DENIED Defendant’s Motion and GRANTED Plaintiff the opportunity to amend the Complaint.

I. BACKGROUND

A. Factual Allegations1

i. The Stock Purchase Transaction

Defendant Abadie is the founder and former Chief Executive Officer (“CEO”) of CCG Systems, Inc. (“CCG” or “Company”), a position in which she served until her resignation in 2008. Compl. ¶¶ 9, 14. Prior to 2004, employees of CCG were periodically provided Company stock as a reward for their service, with Abadie holding 64.2% of the Company’s outstanding shares. Doc. 11 at 2; Compl. ¶ 12. On April 26.2004, the Company established the Employee Stock Ownership Plan (“Plan” or “ESOP”) at issue in this litigation, and on May 31, 2004, Abadie and the remaining CCG shareholders entered into a series of transactions through which the Plan acquired 100% of the Company’s outstanding shares (“Stock Purchase Transaction”). Compl. ¶¶ 15-16. The share price for the Stock Purchase Transaction was calculated based on an independent valuation report prepared by Wall, Einhorn & Chernitzer, P.C. (“WEC Report”), and as a Plan trustee, Abadie approved the sale on behalf of both the Plan and shareholders (herself included). Compl. ¶¶ 30-31. The WEC Report was based in large part upon information provided to the preparers by Abadie, and the stock offered for purchase was ultimately valued at $4,537,000. Compl. 33-34.

ii. The Loan Transaction

As a means of financing the Stock Purchase Transaction, Abadie and the shareholders entered into a series of promissory notes on behalf of the Plan totaling $3,598,222 (“Loan Transaction”). Compl. ¶ 18. The Plan also paid the shareholders an additional $400,000 in cash to purchase their outstanding stock, bringing the total Stock Purchase Transaction price to approximately $4,000,000. Compl. ¶ 18. The promissory note entered into between Abadie and the Plan, by and through Aba-die as Plan Trustee, totaled $2,399,358 (“Note”). The terms of the Note required that annual payments be made to Abadie on May 31 of each subsequent year in an amount equal to 53.3456% of CCG’s net, pre-tax profit together with compounded 5% annual interest. Compl. Ex. A at 2. The Note did not specify a term, see Compl. ¶ 20, Ex. A, but the WEC Report assumed a twelve (12) year payoff period at inception, which was adjusted to a twenty-four (24) year pay off period in 2006. Compl. ¶ 59-60.

Hi. Post-Transaction Investigations

Plaintiff Joseph Healey (“Plaintiff’ or “Healey”) had been hired as the new Com[400]*400pany President and Plan trustee in the years following the Plan’s establishment. Doc. 11 at 3. Subsequent to Abadie’s resignation as CEO in 2008, Plaintiff alleges Abadie remained a Plan trustee until August 2009. Compl. ¶ 13. From 2005 through 2012, the Plan made payments to Abadie on the Note as scheduled. Doc. 11 at 3. However, Plaintiff claims that the Department of Labor (“DOL”) had initiated an investigation into the formation of the Plan near the end of Abadie’s tenure with CCG. Compl. ¶ 69. Plaintiff references a letter received from the DOL dated July 13, 2012, which allegedly identified a series of Employee Retirement Income ■ Security Act (“ERISA”) violations stemming from the Stock Purchase and Loan Transactions of May 31, 2004. Compl. ¶ 69.

In response to this letter, Healey states he conducted an internal investigation into the Stock Purchase and Loan Transactions. Compl. ¶ 71. Western Reserve Valuation Services (“WRV”), an independent valuation firm, was hired to review the original WEC Report on which the Plan’s stock purchase price was based. Compl. 72. In 2013, WRV concluded that the WEC Report overvalued' the Company’s stock by approximately $1.7 million. Compl. 72. In order to rectify this discrepancy, Healey alleges he attempted to enter into a corrected Note with Abadie in July 2013. Compl. ¶ 90. The corrected Note would have reduced the remaining balance owed to Abadie from $1,897,168 to $738,751. Due to perceived ERISA and fiduciary violations on the part of Defendant, she was informed that unless and until she entered into a corrected Note with the Plan, further payments on the Note would be held in escrow. Compl. ¶ 93. Abadie refused to enter into the proposed corrected Note, and payments to Abadie are alleged to have been in escrow since 2013. Compl. ¶ 93.

B. Procedural History

i. State Court Litigation & Case No. 2:15cvl6I

On March 13, 2015, Abadie filed a complaint against the Plan in the Circuit Court of the City of Virginia Beach seeking payments due on the Note for 2013 and 2014.2 Abadie v. CCG Sys., Inc. Emp. Stock Ownership Plan & Trust, No. CL1500837-00 (Va. filed March 13, 2015). On April 17, 2015, Defendant CCG filed a Notice of Removal with this Court. Abadie v. CCG Sys., Inc. Emp. Stock Ownership Plan & Trust, No. 2:15cvl64, ECF No. 1, 2015 WL 3819594 (E.D Va. remanded May 29, 2015). Following removal, this Court sua sponte issued a Memorandum Show Cause Order requiring Defendant CCG to show why the case should not be remanded for lack of subject matter jurisdiction. Id. at ECF No. 8. Defendant was unable to show that ERISA’s doctrine of complete preemption applied to the matter, and the case was remanded to the Circuit Court of the City of Virginia Beach, where it is still pending. Id. at ECF No. 15; Abadie v. CCG Sys., Inc. Emp. Stock Ownership Plan & Trust, No. CL1500837-01 (Va. filed June 1, 2015).

ii. Present Litigation

On June 12, 2015, Healey, in his capacity as Plan trustee, filed the present action against Abadie alleging breaches of fiduciary duty for violations arising under ERISA §§ 502(a)(2) and (a)(3), 29 U.S.C. §§ 1132(a)(2) and (a)(3) respectively. Compl. ¶ 1. Plaintiff makes six (6) claims for relief against Abadie stemming from the Stock Purchase and Loan Transactions of May 31, 2004. Claims One, Three, and Five allege violations of ERISA §§ 404, 406(a)(1)(A), and 406(b) in connection with [401]*401the Stock Purchase Transaction. Compl. ¶¶ 95-104, 113-19, 130-36. Claims Two, Four, and Six allege violations of ERISA §§ 404, 406(a)(1)(B) and 404(a)(1)(D), and 406(b) in connection with the Loan Transaction. Compl. 105-12, 120-29, 137-43. Defendant requests the Court dismiss the entire Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6).

In her Motion, Defendant argues that two affirmative defenses bar Plaintiffs action. Firstly, she contends that the applicable statute of limitations imposed by ERISA § 403 has run on all six (6) of Plaintiffs claims. Doc. 11 at 7. Secondly, she alleges that Healey is without authority to bring suit, and as such, “this suit is an ultra vires act and must be dismissed.” Id.

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Bluebook (online)
143 F. Supp. 3d 397, 2015 U.S. Dist. LEXIS 147714, 2015 WL 6674139, Counsel Stack Legal Research, https://law.counselstack.com/opinion/healey-v-abadie-vaed-2015.