The opinion of the court was delivered by: Ralph R. Erickson, Chief Judge United States District Court
MEMORANDUM OPINION AND ORDER ON MOTION TO DISMISS
Before the Court is a Motion to Dismiss under Rule 12(b)(6), Fed. R. Civ. P., filed by Defendants Tharaldson Motels Inc. Employee Stock Ownership Plan, The ESOP Committee of Tharaldson Motels Inc. Employee Stock Ownership Plan, Richard D. Larson, Douglas Dobmeier, Neil Larson, and Dale Beling (Doc. #30). Defendant Gary D. Tharaldson has also moved to dismiss and joins in the arguments of the other Defendants (Doc. #28, 29). Plaintiffs Richard Hoffman and Dean Manternach have filed a brief in opposition to the motion (Doc. #34). The Court has considered the arguments of the parties, as well as the allegations in Plaintiffs' First Amended Complaint (Doc. #24), and now issues this memorandum opinion and order.
The 2006 Amendments to the Tharaldson Motels Inc. Stock Ownership Plan were permitted under the terms of the Plan and ERISA and not a violation of the Defendants' fiduciary duty. Thus, Plaintiffs Richard Hoffman and Dean Manternich cannot state a claim upon which relief can be granted.
The following facts are taken as true from the Plaintiffs' First Amended Complaint (Doc.# 24) or the ESOP Plan Document (Doc. #31). Tharaldson Motels, Inc. (TMI) is a privately held corporation in the hotel development and operation business in thirty-five states. TMI has several operating subsidiaries and affiliated companies. Neither TMI nor any of its subsidiaries is named as a party to this action. Tharaldson Property Management, Inc. (TPM) is a property management company that operates TMI. It is also not named as a party to this action.
Plaintiff Richard Hoffman resides in Racine, Wisconsin. He was an employee of TPM from 1994 until August 2008, last serving as a Regional Vice President. Plaintiff Dean Manternach resides in Sacramento, California. He too was employed by TPM from 1995 until August 2008, last serving as a Regional Vice President.
Defendant Tharaldson Motels Inc. Employee Stock Ownership Plan (TMI ESOP) is an employee pension plan as defined in 29 U.S.C. § 1002(2). It was created by action of the TMI Board of Directors in 1998. TMI ESOP provides benefits to employees of the group of entities owned by TMI. It is a defined contribution plan. Defendant The ESOP Committee of the Tharaldson Motels Inc. Employee Stock Ownership Plan (The ESOP Committee) is the administrator of the Plan. The ESOP Committee is appointed by the Board of Directors of TMI.
The ESOP Committee is the administrator of the TMI ESOP charged with the duty of interpreting the Plan and determining the administration and application of the Plan. Under the terms of the Plan, TMI retains the right to amend the Plan to the extent permitted by law.
The individual defendants are present or former employees and directors of TMI. Gary D. Tharaldson served as the President of TMI until August 2006. He was the sole trustee of the Trust established under the Plan from the inception of the Plan in 1998 until his resignation on August 29, 2006. He was the largest shareholder in TMI and remains the largest single creditor of the TMI ESOP. Plaintiffs allege that Gary D. Tharaldson continues to exercise de facto control over the assets of the Plan and that he therefore is a de facto fiduciary to the Plan, despite his resignation.
Defendant Richard D. Larson is President of TMI and has served on the TMI Board of Directors and The ESOP Committee. Defendant Douglas Dobmeier is an Executive Vice President of TMI and serves on its Board of Directors and on The ESOP Committee. Defendant Neil Larson serves on the Board of Directors of TMI and also serves on The ESOP Committee. Defendant Dale Beling serves on the Board of Directors of TMI and serves on The ESOP Committee.
When the TMI ESOP was created, Gary D. Tharaldson and his family owned the vast majority of TMI. Following the creation of the TMI ESOP in 1998, the TMI ESOP acquired 99 percent of TMI's stock. The TMI ESOP is governed by a document entitled "Tharaldson Motels, Inc. Employee Stock Ownership Plan and Trust". It was restated in full in 2002, which is the version of the Plan that is relevant to this case. The 2002 trust document is silent as to whether employees terminating employment were required to liquidate their shares and cash out of the Plan or convert their shares to a stable value fund, such as a money market account. It is undisputed, however, that prior to 2005, a Plan participant whose employment with TMI ended was permitted by The ESOP Committee to elect either a cash distribution of their account or a re-investment in a stable value account. Plan participants whose employment terminated were not allowed to retain their Plan interest in TMI stock.
In 2005, the Plan was amended to allow Plan participants to retain their accounts in TMI stock after termination of their employment. A subsequent amendment in 2006 repealed the 2005 Amendment and essentially reinstated the policy that pre-existed the 2005 Amendment. Plaintiffs allege that this change was not publicized, except to departed TMI employees, and that while they learned of the 2005 change shortly after its adoption, they had not learned of the 2006 change until 2008. According to the 2006 Amendment, any person whose employment was terminated after the 2006 Amendment must sell his shares and then must liquidate his account and take the proceeds or leave the proceeds in the Plan and convert the shares to some stable low risk money market account inside the Plan. A Plan participant would thereby lose the potential appreciation in TMI in years to come should the Plan elect to sell the shares to some third-party and pay off the notes held by Gary Tharaldson and others. Plaintiffs contend that this "multiplier" may arise if the value of TMI has increased due to the purchase and payoff of the promissory notes.
Plaintiffs seek to have the 2006 Amendment to the TMI Plan invalidated. In the alternative, they seek to enjoin the application of the Amendment to them because of the alleged failure to disclose the changes, which they contend is a breach of The ESOP Committee's fiduciary duty to the Plan participants. Plaintiffs also allege that The ESOP Committee breached its fiduciary duty to participants by failing to timely disclose the 2006 Amendment and for the Committee's failure to sell TMI to third-parties due to a conflict of interest by insisting that Gary D. Tharaldson be indemnified for potential liability in another case pending in this Court. (Hans v. Tharaldson, 3:05 cv-115). Plaintiffs claim a breach of fiduciary duty arose because of the failed sale and seek ...