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Michigan Regional Council of Carpenters Employee Benefits Fund v. H.B. Stubbs Co.

United States District Court, Eastern District of Michigan, Southern Division

April 29, 2015

TRUSTEES OF MICHIGAN REGIONAL COUNCIL OF CARPENTERS’ EMPLOYEE BENEFITS FUND; TRUSTEES OF MICHIGAN REGIONAL COUNCIL OF CARPENTERS’ ANNUITY FUND; TRUSTEES OF CARPENTERS’ PENSION TRUST FUND – DETROIT AND VICINITY; TRUSTEES OF THE DETROIT CARPENTRY JOINT APPRENTICESHIP AND TRAINING FUND; TRUSTEES OF THE U.B.C. ADVANCEMENT FUND; TRUSTEES OF THE CARPENTERS’ WORKING DUES FUND; TRUSTEES OF THE CARPENTERS’ SPECIAL ASSESSMENT FUND; THE MICHIGAN REGIONAL COUNCIL OF CARPENTERS, UNITED BROTHERHOOD OF CARPENTERS AND JOINERS OF AMERICA; Plaintiffs;
v.
H.B. STUBBS COMPANY, n/k/a H.B. STUBBS COMPANY, L.L.C.; H.B. STUBBS HOLDINGS, INC.; H.B. STUBBS COMPANY, L.L.C. – EAST; H.B. STUBBS COMPANY, L.L.C. – WEST; H.B. STUBBS PROPERTIES, L.L.C; SCOTT STUBBS; STEPHEN H. STUBBS; and KENNETH W. JACOBSON; Defendants. and COMERICA BANK, Intervening Plaintiff;

OPINION AND ORDER DENYING PLAINTIFF’S MOTION TO AMEND FIRST AMENDED COMPLAINT [72]

LAURIE J. MICHELSON, UNITED STATES DISTRICT JUDGE.

This case involves the failure of several entities operating under the “H.B. Stubbs” name to make fringe benefit contributions to certain ERISA-governed funds. Plaintiffs, the Trustees of the funds, previously sought leave to amend their complaint to add a breach of fiduciary duty claim against the individual corporate officer Defendants: Scott Stubbs, Stephen H. Stubbs, and Kenneth W. Jacobson. The Court denied this request. The Trustees now propose another amendment that would add a pierce-the-corporate-veil claim in an attempt to impose personal liability on the individual defendants. Defendants contend that the proposed amendment is futile because the Trustees have not adequately pled a pierce-the-corporate-veil claim.

The Court has studied the parties’ briefs and will proceed without oral argument. See E.D. Mich. LR 7.1(f). So advised, this Court will deny Plaintiffs’ motion for leave to amend the first amended complaint.

I.

The H.B. Stubbs companies were in the business of “exhibit and event marketing.” (Dkt. 36, Defs.’ Mot. to Dismiss at 5.) These companies designed and set up exhibits at shows around the country. (Id.) But by March 2014, the companies had lost several valuable customers, downsized, and ended up with nearly $3, 000, 000 in debt to Comerica Bank. (Id.; Dkt. 31, Comerica’s Mot. to Intervene Ex. A, Forbearance Agreement). The H.B. Stubbs companies have argued that Comerica has “a first priority security interest on all of the assets of each of the H.B. Stubbs entities to secure its loan-which, by any calculation, is in excess of the value of the assets of H.B. Stubbs.” (Defs.’ Mot. to Dismiss at 5.) Comerica intervened to protect its security interest in the remaining assets of the H.B. Stubbs companies. (Comerica’s Mot. to Intervene at ¶¶ 16, 17, 21; Dkt. 48, Comerica’s Concurrence in Defs.’ Mot. to Dismiss at 5.)

Given the HB Stubbs companies’ precarious financial situation, they cannot pay the Trustees all of the fringe benefit contributions that their funds are allegedly owed. Thus, the Trustees are seeking to hold Scott, Stephen, and Jacobson personally liable. They previously attempted to plead that these officers were personally liable under ERISA for breaches of fiduciary duties. The Court found, however, “that unpaid employer contributions are not assets of a fund unless the agreement between the fund and the employer specifically and clearly declares otherwise.” Trustees of Michigan Reg’l Council of Carpenters' Employee Benefits Fund v. H.B. Stubbs Co., 33 F.Supp.3d 884, 890–91 (E.D. Mich. July 17, 2014). “Because the Trustees had not ‘pled contract language indicating that H.B. Stubbs’ contributions became vested plan assets once due . . . this Court held that it was ‘implausible that Scott, Stephen, or Jacobson acted with authority or control over plan assets when they paid H.B. Stubbs’ other creditors before the funds.’ ‘It follow[ed] that [Plaintiffs did] not adequately plead that Scott, Stephen, or Jacobson breached any fiduciary duties imposed by ERISA and owed to the funds.’” Trustees of Michigan Reg’l Council of Carpenters’ Employee Benefits Fund v. H.B. Stubbs Co., - F.3d -, No. 2:14-CV-11393, 2014 WL 8046125 (E.D. Mich. Oct. 27, 2014) (citations omitted). The Court thus dismissed the ERISA breach-of-fiduciary duty claim without prejudice.

Plaintiffs then filed a motion to amend, seeking to replead the claim. In their proposed First Amended Complaint, Plaintiffs attached Addenda to the relevant trust agreements providing that, as of January 14, 2014, the employer contributions that H.B. Stubbs agreed to pay to the funds became plan assets once due and owing. But the proposed First Amended Complaint still failed to adequately plead a breach of fiduciary duty claim because it lacked allegations that the individual Defendants knew or should have known of these Addenda. H.B. Stubbs Co., 2014 WL 8046125, at *12–15. The Court thus denied Plaintiffs’ motion to add a claim that Scott, Stephen, and Jacobson breached fiduciary duties by electing to pay other expenses instead of making contributions to the funds. Id. at *16.

Plaintiffs now move to amend their Amended Complaint to add a pierce-the-corporate-veil claim in an attempt to impose the Stubbs companies’ liability on Scott, Stephen, and Jacobson. (Dkt. 72, Pls.’ Mot. to Amend; Dkt. 71, Pls.’ First Amended Complaint.)

II.

The Trustees emphasize that leave to amend “shall be freely given when justice so requires” and that, in general, plaintiffs “ought to be afforded an opportunity” to test the merits of their claims. Foman v. Davis, 371 U.S. 178, 182 (1962). The defendants assert, however, that leave to amend should not be granted because the Trustees’ piercing claim is futile. (Dkt. 74, Defs.’ Resp. to Pls.’ Mot. for Leave to Amend at 2–3.)

A court may deny a motion to amend as futile when the proposed amendment would not survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). See Kottmyer v. Maas, 436 F.3d 684, 692 (6th Cir. 2006). A court may begin the 12(b)(6) analysis with the removal of legal conclusions from the complaint, leaving only factual allegations to be accepted as true. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). The court then asks whether the remaining complained-of facts “allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678. A complaint will survive a motion to dismiss only when it contains a plausible claim. Id. at 679 (citing Bell Atl. Corp. v. Twombly, 550 U.S. 554, 556 (2007)). The court uses its “judicial experience and common sense” to answer the “context-specific” question of whether the well-pled facts establish a claim that is plausible rather than merely possible. Id. A plausible claim must have “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555.

III.

A.

The parties agree that federal common law provides the veil-piercing standard in ERISA cases. See Yolton v. El Paso Tennessee Pipeline Co., 435 F.3d 571, 586 (6th Cir. 2006). The Sixth Circuit applies a three-factor test: a court determines whether there are “substantial reasons” to pierce a corporate veil “after weighing . . . (1) the amount of respect given to the separate identity of the corporation by its shareholders; (2) the degree of injustice visited on the litigants by recognition of the corporate entity; and (3) the fraudulent intent of the incorporators.” Michigan Carpenters Health & Welfare Fund v. C.J. Rogers, Inc., 933 F.2d 376, 384 (6th Cir. 1991). Specific factors that shed light on these broader inquiries include the “undercapitalization of the corporation, the maintenance of separate books, the separation of corporate and individual finances, the use of the corporation to support fraud or illegality, the honoring of corporate formalities, and whether the corporation is merely a sham.” Int’l Union, United Auto., Aerospace and Agr. Implement Workers of Am. v. Aguirre, 410 F.3d 297, 302–03 (6th Cir. 2005). And the Sixth Circuit has indicated that, perhaps, courts should be more willing to pierce corporate veils in ERISA cases, particularly if fraud occurs. See C.J. Rogers, 933 F.2d at 384–85 (6th Cir. ...


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