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Brown v. Wilmington Trust, N.A.

United States District Court, S.D. Ohio, Western Division

July 23, 2018

WILMA BROWN, on behalf of the HENNY PENNY CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN, and on behalf of a class of all other persons similarly situated, Plaintiffs,
v.
WILMINGTON TRUST, N.A., as successor to Wilmington Trust Retirement and Institutional Services Company, Defendant.

          DECISION AND ENTRY OVERRULING MOTION OF HENNY PENNY CORPORATION TO COMPEL INDIVIDUAL ARBITRATION AND TO STRIKE ANY CLAIMS PURPORTEDLY BROUGHT ON A CLASS OR REPRESENTATIVE BASIS (DOC. #13); OVERRULING DEFENDANT WILMINGTON TRUST, N.A.'S MOTION TO COMPEL ARBITRATION (DOC. #14)

          WALTER H. RICE UNITED STATES DISTRICT JUDGE

         Plaintiff Wilma Brown, on behalf of the Henny Penny Corporation Employee Stock Ownership Plan (the "Plan" or "ESOP"), and on behalf of a class of all other persons similarly situated, filed suit against Wilmington Trust, N.A. ("Wilmington Trust"), as successor to Wilmington Trust Retirement and Institutional Services Company, which was the Plan's trustee in 2014 when the Plan acquired shares of the Henny Penny Corporation. Plaintiff alleges that Wilmington Trust engaged in prohibited transactions and paid more than fair market value for the stock, causing losses to the Plan and its participants. Brown seeks declaratory and injunctive relief under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), 29 U.S.C. §§ 1106, 1109, and 1132(a), as well as damages for losses suffered by the Plan.

         This matter is currently before the Court on two pending motions: (1) Motion of Henny Penny Corporation to Compel Individual Arbitration and to Strike Any Claims Purportedly Brought on a Class or Representative Basis (Doc. #13)[1]; and (2) Wilmington Trust, N.A.'s Motion to Compel Arbitration (Doc. #14).

         I. Background and Procedural History

         Henny Penny Corporation ("Henny Penny") manufactures foodservice equipment. It was owned by the Cobb family until December 30, 2014, when the corporation sold all of its stock to the Henny Penny Corporation Employee Stock Ownership Plan (the "Plan" or "ESOP") for $165, 000, 000. In order to facilitate this transaction, Henny Penny, as the Sponsoring Employer, appointed Wilmington Trust Retirement and Institutional Services Company as Trustee of the Plan. The Trustee represented the Plan and its participants in the ESOP transaction and had sole authority to authorize the stock purchase. The stock purchase was paid for by a $165, 000, 000 loan from Henny Penny to the Plan, to be repaid over 45 years.

         The Plan is a pension plan, governed by ERISA, with individual accounts established for each participant. It is administered by the ESOP Committee, which was appointed by Henny Penny. Effective January 1, 2017, the Plan was amended to add a Mandatory and Binding Arbitration provision. This provision, Section 12.21, requires arbitration of all "Covered Claims" asserted by a "Claimant," and requires that these claims be brought solely in the Claimant's individual capacity. Arbitration of "group, class, or representative" claims is prohibited. Doc. #1-1, PagelD##101-02.

         Plaintiff Wilma Brown worked at Henny Penny for approximately 30 years. On December 31, 2014, when the ESOP transaction took place, her individual stock account was allocated 83.892 shares of Henny Penny stock. The Complaint alleges that she "is a participant in the Plan and is vested in shares of Henny Penny allocated to her account in the Plan." Doc. #1, PagelD#2. Brown left Henny Penny in May of 2015, and, in November of 2016, she cashed out of the Plan. Doc. #18, PagelD##264-65.

         On July 27, 2017, Brown filed suit against Wilmington Trust, N.A., as successor to Wilmington Trust Retirement and Institutional Services Company, on behalf of the Henny Penny Corporation Employee Stock Ownership Plan, and on behalf of a class of all other persons similarly situated. She generally alleges that Wilmington Trust paid more than the fair market value for the stock, relying on a faulty valuation, and paying a "control premium" for the stock even though the Cobbs remained in control of Henny Penny following the ESOP transaction. She maintains that Wilmington Trust is liable for the difference between the price paid by the Plan and the actual value of the stock.

         The Complaint asserts three causes of action under ERISA: (1) Causing and Engaging in Prohibited Transactions Forbidden by ERISA, 29 U.S.C. § 1106 (prohibiting transactions between a plan and a party in interest); (2) Invalidation of Arbitration Procedure and Full Satisfaction/Release of Claims Provisions Pursuant to ERISA, 29 U.S.C. § 1132(a)(3); and (3) Violations of ERISA, 29 U.S.C. §§ 1110 and 1104(A)(1), stemming from Plan provisions purporting to relieve Wilmington Trust of liability. Plaintiff seeks a variety of declaratory and injunctive relief, and asks that the Court order that any recovery for losses to the Plan be allocated to the individual accounts of class members. Doc. #1.

         On September 28, Henny Penny filed a Motion to Intervene as a Limited-in-Scope Third Party Plaintiff. Doc. #11. By separate Order, the Court has sustained that motion. This matter is currently before the Court on Henny Penny's Motion to Compel Individual Arbitration and to Strike Any Claims Purportedly Brought on a Class or Representative Basis, Doc. #13, and on Wilmington Trust's Motion to Compel Arbitration, Doc. #14. Wilmington Trust has also joined in Henny Penny's motion. After both motions were fully briefed, the parties each submitted Notices of Supplemental Authority, Docs. ##21, 24, 27 and 30, and response briefs, Docs. ##22, 25, 29.

         II. Motions to Compel Individual Arbitration and to Strike Claims Purportedly Brought on a Class or Representative Basis (Docs. ##13 and 14)

         Pursuant to 9 U.S.C. § 4, Henny Penny and Wilmington Trust have filed motions to compel Plaintiff to arbitrate her claims, and to do so on an individual basis, not on behalf of the entire Plan and its participants.[2] They note that the Plan was amended in January of 2017, to include the following Arbitration Procedure:

12.21 Mandatory and Binding Arbitration Procedure ("Arbitration Procedure"). As a condition to any (i) Employee becoming eligible to participate in the Plan, (ii) any Employee, Participant, or Beneficiary receiving any contributions to his or her Plan account, and/or (iii) any Employee, Participant, or Beneficiary receiving any benefit under this Plan, such Employee, Participant, or Beneficiary shall be bound, and hereby is bound, to follow and comply with the provisions of this Arbitration Procedure to resolve all Covered Claims.
(a) Covered Claims. Any claim by a Claimant which arises out of, relates to, or concerns this Plan, the Trust, or the Trust Fund, including without limitation, any claim for benefits under the Plan, Trust, or Trust Fund; any claim asserting a breach of, or failure to follow, the Plan or Trust; and any claim asserting a breach of, or failure to follow, any provision of ERISA or the Code, including without limitation claims for breach of fiduciary duty, ERISA § 510 claims, and claims for failure to timely provide notices or information required by ERISA or the Code (collectively, "Covered Claims"), shall be settled by binding arbitration administered in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association ("AAA") then in effect. . . .
(b) No. Group, Class, or Representative Arbitrations. All Covered Claims must be brought solely in the Claimant's individual capacity and not in a representative capacity or on a class, collective, or group basis. Each arbitration shall be limited solely to one Claimant's Covered Claims and that Claimant may not seek or receive any remedy which has the purpose or effect of providing additional benefits or monetary or other relief to any employee, participant or beneficiary other than the Claimant. . . .
(k) Covered Claims Includes Claims Against Fiduciaries and/or Non-Fiduciaries. This Arbitration Procedure shall apply to all Covered Claims asserted by a Claimant, whether such Covered Claims (i) are asserted against one or more of the Plan's fiduciaries or alleged fiduciaries, including but not limited to the Committee and/or Trustee; and/or (ii) are asserted against the Employer or any other non-fiduciary (e.g., a Plan service provider}.

Doc. #1-1, PagelD##101-04.

         Plaintiff maintains that, for a variety of reasons, she is not bound by this Arbitration Procedure: (1) she did not agree to arbitrate, given that the provision was added to the Plan after she left Henny Penny; (2) she received no consideration in exchange for the arbitration amendment; and (3) because she falls outside the Plan's definition of a "Claimant," her claims are not "Covered Claims," so the Arbitration Procedure does not apply to her, Plaintiff further argues that the Arbitration Procedure is generally unenforceable because: (1) there is no mutual obligation to arbitrate; (2) it impairs substantive statutory rights; and (3) it violates ERISA's anti-cutback provision, 29 U.S.C. § 1054(g).

         The Court need not reach all of these arguments. For two reasons, the Court finds that the Arbitration Procedure does not apply to Plaintiff's claims. She did not agree to arbitrate and, even if she did, her specific claims fall outside the scope of the Arbitration Procedure, Accordingly, the Court overrules the motions to compel arbitration and to strike any claims purportedly brought on a class or representative basis.

         A. Relevant Law

         The Federal Arbitration Act ("FAA") states that a written provision to arbitrate a controversy "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2.[3] Plaintiff, as the party resisting arbitration, bears the burden of proving that the claims at issue are ...


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