MARGARET M. MORROW, District Judge.
On June 29, 2010, Randy Ackerman, Jeffrey Dickerson, James Fritcher, Sara Gordon, John Greer, Daniel Haug, Jefferson Hill, Claire Janssen, Don Little, Jr., Paul Marshall, Matthew Montgomery, Jeff Roberts, Tom Roberts, Thomas Schaal, Jr., Charles Vogel, and Greg Wattson filed this action against Keith Bednarowski, Luz Campa, Mark Rauenhorst, Gerald Rauenhorst 1982 Irrevocable Trust F/B/O Children ("the Children Trust"), Gerald Rauenhorst 1982 Irrevocable Trust F/B/O Grandchildren ("the Grandchildren Trust"), and Opus Corporation.
On July 11, 2011, plaintiffs filed a first amended complaint.
Opus West Corporation ("Opus West") is a Minnesota corporation wholly owned by Opus Corporation ("Opus Corp.").
Opus West had its own accounting staff, led by CFO Janssen, who oversaw the preparation of quarterly financial reports and forecasts that were delivered to Opus West's Board of Directors.
William McFarland served as an outside director of Opus West.
Opus West consistently ranked first or second among the five regional operating companies.
Plaintiffs' complaint is based on certain benefits and deferred compensation plans specifically tailored for a select group of highly compensated employees.
Plaintiffs' ERISA allegations are not based on the SAR Plan, however, but on two other plans. The first of these is the "Opus 80/20 Plan for Officers."
The second plan on the ERISA claims are based is the "Presidents Deferred Compensation Plan" or "Presidents Plan." The parties proffer three different versions of this plan. The first was submitted with defendants' request for judicial notice, and is titled the "Opus Deferred Compensation Plan for Operating Subsidiaries."
In their reply, defendants assert that "[t]he parties agree that the current, operative plans are those attached as exhibits VV and WW" to defendants' request for judicial notice.
Although plaintiffs contend that Opus Corp. and Opus LLC are responsible for making payments under the 80/20 Plan and the Presidents Plan, those entities did not pay any compensation under either plan. In 2008 and 2009, payments under the 80/20 Plan were made by either Opus West, or Opus Core LLC ("Opus Core"), a "pass-through" entity created to maintain the confidentiality of compensation paid to participants under various compensation and deferred compensation plans.
The parties offer competing narratives regarding the reasons for Opus West's collapse. Defendants contend that the downturn in the real estate industry, as well as the implosion of financial markets in mid-2008 through 2009, had a severe adverse effect on the real estate industry.
T. Roberts stated on November 6, 2008, that "[n]o one would ever have predicted the current Sale market ...," and that "[h]opefully, the markets will open up in 2009."
On March 15, 2009, Opus West failed, for the first time, to pay T. Roberts and other employees the compensation they were due.
On January 25, 2010, Opus West filed an adversary proceeding against defendants in the Northern District of Texas.
Following entry of the bankruptcy court's order, plaintiffs filed an ex parte application for leave to file a first amended complaint, which the court granted.
A motion for summary judgment must be granted when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits,
In judging evidence at the summary judgment stage, the court does not make credibility determinations or weigh conflicting evidence. Rather, it draws all inferences in the light most favorable to the nonmoving party. See T.W. Electrical Service, Inc. v. Pacific Electric Contractors Ass'n, 809 F.2d 626, 630-31 (9th Cir. 1987). The evidence presented by the parties must be admissible. FED.R.CIV.PROC. 56(e). Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment. See Falls Riverway Realty, Inc. v. Niagara Falls, 754 F.2d 49, 56 (2d Cir.1985); Thornhill Pub. Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir.1979).
The "[c]ommencement of a bankruptcy case creates an estate comprised of `all legal and equitable interests' of the debtor." In re Moore, 110 B.R. 924, 926 (Bankr.C.D.Cal.1990) (quoting 11 U.S.C. § 541(a)(1)); see 11 U.S.C. § 541 (describing the property that belongs to the bankrupt estate in a Chapter 11 proceeding). In addition to tangible assets, the estate is comprised of intangible legal interests such as "causes of action" belonging to the debtor. United States v. Whiting Pools, Inc., 462 U.S. 198, 205 n. 9, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983); see Sierra Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707 (9th Cir. 1986) ("The scope of section 541 is broad, and includes causes of action").
When a trustee is appointed by the bankruptcy court, he or she becomes the representative of the estate, and in that capacity, can sue and be sued on the estate's behalf. 11 U.S.C. § 323. Stated differently, "`the trustee stands in the shoes of the bankrupt corporation and has standing to bring any suit that the bankrupt corporation could have instituted had it not petitioned for bankruptcy.'" Smith v. Arthur Andersen LLP, 421 F.3d 989, 1002 (9th Cir.2005) (quoting Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 118 (2d Cir.1991) (internal citations omitted)). The trustee has exclusive standing to assert the debtor's causes of action. See In re Marketing Services, LLC, 309 B.R. 783, 788 (Bankr.S.D.Cal. 2004) ("[I]f the debtor could have raised a
The trustee's standing is not limitless, however. "`It is well settled that a bankruptcy trustee has no standing generally to sue third parties on behalf of the estate's creditors, but may only assert claims held by the bankrupt corporation itself.'" Id. (quoting Shearson Lehman, 944 F.2d at 118 (internal citation omitted), and citing Steinberg v. Buczynski, 40 F.3d 890, 893 (7th Cir.1994) ("[T]he trustee is confined to enforcing entitlements of the corporation. He has no right to enforce entitlements of a creditor")). See also Williams v. Cal. 1st Bank, 859 F.2d 664, 666 (9th Cir.1988) (explaining that in Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416, 92 S.Ct. 1678, 32 L.Ed.2d 195 (1972), the Supreme Court held that a trustee has no standing to assert claims of misconduct against a third party). In drawing "the line between `claims of the debtor,' which a trustee has statutory authority to assert, and `claims of creditors,' which Caplin bars the trustee from pursuing,... the focus of the inquiry is on whether the Trustee is seeking to redress injuries to the debtor itself caused by the defendants' alleged conduct." Smith, 421 F.3d at 1002 (citing Scholes v. Lehmann, 56 F.3d 750, 753 (7th Cir.1995)).
Here, the bankruptcy court in the Northern District of Texas determined that certain of the state law claims plaintiffs earlier pled belonged to the bankruptcy estate; its order did not extend to plaintiffs' current state law claims. Plaintiffs cite Celotex Corp. v. Edwards, 514 U.S. 300, 115 S.Ct. 1493, 131 L.Ed.2d 403 (1995), and Gruntz v. County of Los Angeles, 202 F.3d 1074, 1082 (9th Cir.2000) (en banc) for the proposition that defendants' argument here is an improper "collateral attack" on the bankruptcy court's prior order. Celotex and Gruntz are distinguishable, however. In Celotex, the bankruptcy court had previously issued an injunction covering certain claims that creditors later asserted against the debtor in a separate district court action. See Celotex, 514 U.S. at 303, 115 S.Ct. 1493 (observing that the plaintiff creditors sought to execute on a supersedeas bond that the debtor had posted pending appeal following affirmance of the judgment below despite a bankruptcy court order that prohibited creditors from proceeding against sureties). The Court held that plaintiffs could not challenge the validity or scope of the bankruptcy court's injunction in the district court litigation, and that, "[i]f dissatisfied with the Bankruptcy Court's ultimate decision," plaintiffs' only recourse was seek reconsideration in the bankruptcy court, and/or appeal the order in the district and circuit court. Id. at 313, 115 S.Ct. 1493. Gruntz addressed whether a judgment debtor could seek to enjoin a state criminal prosecution against him as violating an automatic stay entered by a bankruptcy court. 202 F.3d at 1078. The Ninth Circuit, sitting en banc, held that "[a]ny state court modification of the automatic stay would constitute an unauthorized infringement upon the bankruptcy court's jurisdiction to enforce the stay," and that the judgment of a state court regarding the scope of a bankruptcy stay would have no preclusive effect on any later determination by the bankruptcy court. Id. at 1082, 1084.
The court here is faced with a different situation, in which defendant asserts as a defense that plaintiffs' claims are covered by the bankruptcy court's injunction, and are thus property of the bankruptcy estate. In Lockyer v. Mirant Corp., 398 F.3d 1098 (9th Cir.2005), the Ninth Circuit
Consequently, the court concludes that it has power to decide whether plaintiffs lack standing to assert their state law claims because the claims are property of the bankruptcy estate.
Although the court concludes as a general matter that it can determine whether plaintiffs' claims are property of the bankruptcy estate and/or within the scope of the bankruptcy court's injunction, there is another issue that must be addressed. The bankruptcy court previously found that neither the Chapter 11 plan nor the injunction it had entered precluded plaintiffs from proceeding on certain state law claims alleged in the original complaint. As a consequence, the court must examine whether res judicata or collateral estoppel prevents defendants from asserting that plaintiffs lack standing to prosecute their state law claims since the claims are the exclusive property of the bankruptcy estate.
"Claim preclusion prevents parties from relitigating the same claim or cause of action, which includes `litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding.'" Fischel v. Equitable Life Assur. Soc'y of the United States, 307 F.3d 997, 1005 n. 5 (9th Cir.2002) (quoting Robi v. Five Platters, Inc., 838 F.2d 318, 321-22 (9th Cir.1988)). Under the doctrine of issue preclusion, "an issue of fact or law, actually litigated and resolved by a valid final judgment, binds the parties in a subsequent action, whether on the same or a different claim." Baker by Thomas v. General Motors Corp., 522 U.S. 222, 233 n. 5, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998); Hydranautics v. FilmTec Corp., 204 F.3d 880, 887 (9th Cir.2000) (noting that under doctrine of issue preclusion, or collateral estoppel, "an issue of fact or law, actually litigated and resolved by a valid final judgment, binds the parties in a subsequent action, whether on the same or a different claim"). The collateral estoppel that would apply here would be "offensive," in the sense that "plaintiff[s] seek[ ] to foreclose the defendant[s] from litigating an issue the defendant[s] ... previously litigated
It is appropriate to apply "[c]ollateral estoppel ... when the following elements are met: (1) there was a full and fair opportunity to litigate the issue in the previous action; (2) the issue was actually litigated in that action; (3) the issue was lost as a result of a final judgment in that action; and (4) the person against whom collateral estoppel is asserted was a party or in privity with a party in the previous action." In re Palmer, 207 F.3d 566, 568 (9th Cir.2000); Pena v. Gardner, 976 F.2d 469, 472 (9th Cir.1992) (identifying the four elements of offensive collateral estoppel).
In Travelers Indemn. Co. v. Bailey, 557 U.S. 137, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009), the Supreme Court examined the applicability of collateral estoppel in the context of a bankruptcy court order that had not been challenged on direct appeal. It reversed a Second Circuit decision that had revisited and invalidated part of a prior bankruptcy court order on the grounds that the bankruptcy court had exceeded its jurisdiction in issuing the order. Id. at 2205. The Second Circuit reached this result despite the fact that the order in question had issued more than two decades earlier and had not been appealed. Id. at 2205. The Court held that "[s]o long as respondents or those in privity with them were parties to the ... bankruptcy proceeding, and were given a fair chance to challenge the Bankruptcy Court's subject-matter jurisdiction, they cannot challenge it now by resisting enforcement of the 1986 Orders." Id. at 2206.
Of the four prerequisites to application of collateral estoppel, the fourth (identity and/or privity among the parties) is not in dispute here; the court's analysis thus focuses on the remaining three elements. The first two address concern whether the parties had a full and fair opportunity to litigate the issue now being raised in the earlier action and whether the issue was actually litigated.
It is clear that at the least as respects some of plaintiffs' claims, a similar
On July 26, 2010, Bankruptcy Judge Harlin Hale issued a brief three-page order granting the motion in part and denying it in part.
Plaintiffs' first amended complaint, which is now the operative pleading, pleads claims for (1) intentional interference with contract; (2) inducing breach of contract; (3) violation of the UCL; (4) RICO violations; (5) unjust enrichment; (6) ERISA violations; (7) and declaratory relief.
The claims that remain are plaintiffs' intentional interference with contract, inducing breach of contract, and UCL claims. Defendants' attack on those claims raises arguments similar to those raised in the bankruptcy court, i.e., defendants contend that plaintiffs' alleged injuries are not "significantly different" than those experienced by other unsecured creditors, and that their interference with contract claim is a "fraudulent conveyance claim common to all Opus West creditors."
Defendants contend that when Judge Hale considered defendants' motion, "he did not have the benefit of the record now before the Court."
The court addresses the second category of evidence first. Much of defendants'
Even if the court construed plaintiffs' testimony and other evidence of their statements as party admissions regarding their intentions in filing this suit—an issue it does not reach—this would not alter the analysis. Whatever plaintiffs' motivations for filing suit, or their intentions concerning the litigation, their causes of action and prayer for relief are alleged in the pleadings; plaintiffs can only recover on causes of action that have been pled. Cf. Gruntz, 202 F.3d at 1087 (holding that a state criminal prosecution of the debtor was exempt from the automatic stay, and could proceed even "if the prosecution is motivated by the complaining witness's desire to collect a debt"). Consequently, the court deems irrelevant the "new" evidence defendants proffer concerning plaintiffs' motives in filing suit, and their desire to recover funds transferred by Opus West to Opus Corp., the absence of which defendants argue deprived them of a full and fair opportunity to litigate whether plaintiffs' claims are property of the bankruptcy estate or within the ambit of the bankruptcy court injunction.
What remains, therefore, is whether the amendments plaintiffs have made to claims pled in the original complaint have substantially altered the nature of the claims such that the parties lacked a "full and fair opportunity" to litigate whether they are property of the bankruptcy estate and/or within the ambit of the bankruptcy court injunction in the bankruptcy court proceeding.
On the face of it, there have been very few changes in the claims as originally pled. The factual basis of the claims is largely the same—both complaints allege that Opus West's fraudulent transfers to defendants led to its financial collapse and bankruptcy. The original complaint alleged claims for intentional and negligent interference with contract. The parties addressed those claims in the bankruptcy court proceedings and had an opportunity to litigate fully whether they were property of the bankruptcy estate or subject to the bankruptcy court's injunction.
The key difference between the interference claims alleged in the original complaint and the interference and inducing breach of contract claims alleged in the amended complaint lies in the alterations plaintiffs have made to the original claims and in amendments to their prayer for relief. Plaintiffs now plead claims for intentional interference with contract and inducing breach of contract; the latter claim replaces the original negligent interference with contract claim. This legal basis for the inducing breach of contract claim is different than that on which the negligent interference claim rested. In addition, in their original complaint, plaintiffs' prayer for relief on their intentional and negligent interference claims sought general and special damages, punitive damages, and an order to show cause "why defendants should not be enjoined."
The relief the first amended complaint seeks on plaintiffs' intentional interference with contract and inducing breach of contract claims is markedly different, however. Plaintiffs request, inter alia, "[t]hat the transfer[s] from Opus West to [defendants] be set aside and declared void as to the Plaintiffs herein to the extent necessary to satisfy Plaintiffs' claims," "[t]hat the property in [defendants' hands] be attached," "[t]hat [defendants] be restrained from disposing of the property," and "[t]hat an order be made declaring that [defendants] hold the property in trust for plaintiffs."
The first amended complaint is not the pleading that the parties addressed when they were litigated the motion for injunctive relief before the bankruptcy court; it was thus not the pleading that Judge Hale considered when ruling on the motion. A comparison of the original and first amended complaints in this action reveals that once plaintiffs were barred from asserting fraudulent transfer claims in this litigation, they recharacterized those claims as claims for intentional interference with contract and inducing breach of contract, and sought the exact same relief that Judge Hale's order precluded them from seeking on claims that were "at heart" fraudulent transfer claims.
Whether claims are subject to the plan and the injunction is determined by a functional test; it is not controlled by the label a party appends to a particular cause of action. See Madoff, 443 B.R. at 314 ("To the extent that certain causes of action set forth by the Third Party Plaintiffs in their complaints differ in name from those alleged in the Trustee's Madoff Complaint, those distinctions are irrelevant. Whether sounding in bankruptcy, state law or common law, and whether purporting to recover fraudulent transfers or tort damages, the Third Party Actions seek to recover potential estate assets to redress harms common to all victims of Madoff's massive Ponzi scheme that, consistent with the purposes of the automatic stay, belong exclusively to the Trustee"). Given the significant, substantive differences between the original and amended complaints, the court concludes that the parties did not have an opportunity to "fully and fairly litigate" whether such claims are precluded by the Chapter 11 plan and the bankruptcy court injunction. Consequently, defendants are not collaterally estopped from raising such an argument now.
As noted, "[a]lthough the line between `claims of the debtor,' which a trustee has statutory authority to assert, and `claims of creditors' ... is not always clear, the focus of the inquiry is on whether the Trustee is seeking to redress injuries to the debtor itself caused by the defendants' alleged conduct." Arthur Andersen, 421 F.3d at 1002.
All of plaintiffs' state law causes of action seek payment of monies they were allegedly due under their benefits and deferred compensation plans. The claims pled are intentional interference with contract; inducing breach of contract; violation of the UCL; unjust enrichment; and declaratory relief.
Other courts have concluded that the unfunded nature of top hat plans prevents the imposition of a constructive trust, since deferred compensation to be paid pursuant to such plans cannot be "identified" as belonging to the plan participants. See In re Washington Mut., Inc., 450 B.R. 490, 502-03 (Bankr.D.Del. June 1, 2011) ("The Debtors argue, however, that a constructive trust may be imposed only where `money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession.' In this case the Debtors argue that because the Ahmanson Plans were unfunded and the funds in the Trusts were clearly identified as property of the Debtors, no such tracing is possible.... In this case, because of the essential requirement that the top hat plans be unfunded, there is no nexus or property identifiably belonging to the Plan Participants on which a constructive trust can be placed to remedy the refusal of the Debtors to pay their benefits.
The court recognizes that following the ruling on defendants' motion to dismiss, plaintiffs' state law claims remain viable only to the extent they concern non-ERISA deferred compensation plans. It is undisputed, however, that all of the benefits and deferred compensation allegedly owed—whether under an ERISA or non-ERISA plan—were unfunded and were to be paid from Opus West's general assets.
Plaintiffs are pursuing claims in the bankruptcy court for sums they were allegedly owed under the various compensation and incentive plans. As they have no status beyond that of general unsecured creditors, and the claims they assert in this action seek to recover money that Opus West allegedly transferred fraudulently to defendants, the bankruptcy court is the proper venue for the claims,
Defendants raise an additional argument regarding plaintiffs' UCL claim. They assert that a plaintiff cannot recover damages under the UCL, but only restitution of money or property, and thus that plaintiffs can only seek restitution of funds in which they had an ownership interest.
Under the UCL, any person or entity that has engaged, is engaging, or threatens to engage "in unfair competition may be enjoined in any court of competent jurisdiction." CAL. BUS. & PROF. CODE §§ 17201, 17203. "Unfair competition" includes "any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising." Id., § 17200. The California Supreme Court has construed the term broadly. See Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co., 20 Cal.4th 163, 180, 83 Cal.Rptr.2d 548, 973 P.2d 527 (1999) ("[Section 17200] defines `unfair competition to include any unlawful, unfair or fraudulent business act or practice.... Its coverage is sweeping, embracing anything that can properly be called a business practice and that at the same time is forbidden by law.... By proscribing any unlawful business practice, section 17200 borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.... However, the law does more than just borrow. The statutory language referring to any unlawful, unfair or fraudulent practice ... makes clear that a practice may be deemed unfair even if not specifically proscribed by some other law. Because Business and Professions Code section 17200 is written in the disjunctive, it establishes three varieties of unfair competition—acts or practices which are unlawful, or unfair, or fraudulent" (internal quotations omitted)); see also Paulus v. Bob Lynch Ford, Inc., 139 Cal.App.4th 659, 676-77, 43 Cal.Rptr.3d 148 (2006) ("The purpose of the UCL `is to protect both consumers and competitors by promoting fair competition in commercial markets for goods and services....' Thus,
The parties dispute whether plaintiffs have raised triable issues of fact as to whether defendants engaged in fraudulent conduct. Defendants assert that the dividend payments and money transfers Opus West made to them were lawful payments approved by Opus West's board of directors (which included plaintiff T. Roberts, who occupied a board seat as CEO). Plaintiffs counter that the transfers were fraudulent because they helped Opus West deceive its banks and caused them to believe that the company was maintaining the debt-to-equity ratios required by its loan covenants.
Under the UCL, plaintiffs cannot recover damages, but are limited to injunctive relief and restitution. Cel-Tech Communications, 20 Cal.4th at 179, 83 Cal.Rptr.2d 548, 973 P.2d 527 ("Prevailing plaintiffs are generally limited to injunctive relief and restitution.... Plaintiffs may not receive damages, much less treble damages, or attorney fees"); Bank of the West v. Superior Court, 2 Cal.4th 1254, 1266, 10 Cal.Rptr.2d 538, 833 P.2d 545 (1992) ("The only nonpunitive monetary relief available under the Unfair Business Practices Act is the disgorgement of money that has been wrongfully obtained or, in the language of the statute, an order "restor[ing]... money ... which may have been acquired by means of ... unfair competition," quoting CAL. BUS. & PROF. CODE § 17203); see also Cambridge Electronics Corp. v. MGA Electronics, Inc., 227 F.R.D. 313, 336 (C.D.Cal.2004) ("Additionally, it may be ordered to make restitution of money or property that may have been acquired by means of the unfair competition").
Under the statute, restitution means "compelling a UCL defendant to return money obtained through an unfair business practice ... to persons who had an ownership interest in the property." Kraus v. Trinity Management Services, 23 Cal.4th 116, 126-27, 96 Cal.Rptr.2d 485, 999 P.2d 718 (2000), superseded by statute on other grounds as recognized in Arias v. Superior Court, 46 Cal.4th 969, 95 Cal.Rptr.3d 588, 209 P.3d 923 (2009); Korea Supply Co. v. Lockheed Martin Corp., 29 Cal.4th 1134, 1149, 131 Cal.Rptr.2d 29, 63 P.3d 937 (2003) ("The object of restitution is to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.... The remedy sought by plaintiff in this case is not restitutionary because plaintiff does not have an ownership interest in the money it seeks to recover from defendants"). While restitution is broad enough to encompass funds in which a person had a "vested interest," such as unpaid wages, it is not available where plaintiff claims only an "attenuated expectancy interest" that cannot be "traced to any particular funds in [defendants'] possession ..." Id. at 1149-50, 131 Cal.Rptr.2d 29, 63 P.3d 937.
The court's analysis here is guided by its conclusion regarding plaintiffs' other state law claims. See Colonial BancGroup, Inc., 436 B.R. at 707 n. 19 (holding that a
While plaintiffs consistently characterize their bonus and benefits plans as "earned wages,"
Instead, it is undisputed that all of the compensation and incentive plans were unfunded, that no funds were ever withdrawn or withheld from plaintiffs' paychecks or other earnings for deposit into the plans, and that any benefits paid to plaintiffs were to come from Opus West's general assets. Plaintiffs have adduced no evidence that they had an ownership interest in specific property; indeed, the evidence and testimony they have proffered indicates the opposite—that their benefits were unfunded, were to be paid from the corporation's general assets, and were never designated "wages."
Because plaintiffs have adduced no evidence that they had an ownership interest in specific property that was transferred to defendants, they cannot obtain restitution under the UCL.
Defendants also seek summary judgment on plaintiffs' ERISA claims as respects two of the benefits plans. Plaintiffs allege that "[d]efendants Opus [Corp.] and Opus LLC established certain top hat plans for Plaintiffs" that were classified as ERISA plans.
"ERISA does not contain a body of contract law to govern the interpretation and enforcement of employee benefit plans.... Rather, Congress intended that courts apply contract principles derived from state law but be guided by the policies expressed in ERISA and other federal labor laws." Richardson v. Pension Plan of Bethlehem Steel Corp., 112 F.3d 982, 985 (9th Cir.1997). The terms of an ERISA plan should be "interpreted `in an ordinary and popular sense as would a [person] of average intelligence and experience.'" Id. (quoting Evans v. Safeco Life Ins. Co., 916 F.2d 1437, 1441 (9th Cir.1990) (quoting in turn Allstate Ins. Co. v. Ellison, 757 F.2d 1042, 1044 (9th Cir.1985))). "When disputes arise as to the meaning of one or more terms, we first look to the explicit language of the agreement to determine the clear intent of the parties." McDaniel, 203 F.3d at 1110; see also Ingram v. Martin Marietta Long Term Disability Income Plan, 244 F.3d 1109, 1113 (9th Cir.2001) (examining first the language of an ERISA plan to determine whether its terms were unambiguous). "Each provision in an agreement should be construed consistently with the entire document such that no provision is rendered nugatory." Richardson, 112 F.3d at 985; see also Armistead v. Vernitron Corp., 944 F.2d 1287, 1293 (6th Cir. 1991) ("The intended meaning of even the most explicit language can, of course, only be understood in the light of the context that gave rise to its inclusion").
A plan term is ambiguous if it is "subject to reasonable alternative interpretations." Vizcaino v. Microsoft Corp., 97 F.3d 1187, 1194 (9th Cir.1996) (quoting Hickey v. A.E. Staley Mfg., 995 F.2d 1385, 1389 (7th Cir.1993)); see also Tzung v. State Farm Fire and Cas. Co., 873 F.2d 1338, 1340 (9th Cir.1989) (holding that an insurance contract "is ambiguous if the court finds that the language is susceptible to different interpretations"). "When a plan is ambiguous on its face, [the court] may, and typically do[es], consider extrinsic evidence to interpret it." Vizcaino, 97 F.3d at 1194; see also McDaniel, 203 F.3d at 1114 n. 10 ("Nothing in the law of this circuit prohibits a plan administrator from resorting to extrinsic evidence when construing ambiguous plan provisions").
Nor can a court manufacture ambiguity in a contract through a "strained instead of [a] reasonable interpretation" of its terms. Tzung, 873 F.2d at 1340 (quoting Highlands Ins. Co. v. Universal Underwriters Ins. Co., 92 Cal.App.3d 171, 175, 154 Cal.Rptr. 683 (1979)); Evans, 916 F.2d at 1441 ("We will not artificially create ambiguity where none exists. If a reasonable interpretation favors the insurer and any other interpretation would be strained, no compulsion exists to torture or twist the language of the policy").
Defendants contend that the language of the 80/20 Plan and the Presidents Plan (or
The 80/20 Plan is designed to "provide additional future compensation to certain highly compensated employees through deferral of certain Incentive Compensation."
Defendants argue that this provision clearly establishes that only a participant's "respective Company (or subsidiary or affiliate)," i.e., the participant's employer, is obligated to make payments under the plan. They contend that other provisions of the plan support the view that the participant's employment relationship with his or her "respective Company (or subsidiary or affiliate)" defines the payment obligation. See Babikian, 63 F.3d at 840 (interpreting an ERISA plan "as a whole"). Specifically, they cite the purpose clause, which states that the intent of the plan is to provide compensation to "employees." They also cite the fact that plan eligibility is contingent on the participant's status as an "employee."
Plaintiffs counter that many key provisions of the plan do not state that only a participant's employer is obligated, and that the "Companies" have many rights and responsibilities under the plan, evidencing an intent that they too were obligated to pay benefits. Plaintiffs observe that Opus West is not specifically mentioned anywhere in the plan, and cite a number of provisions that describe the "Companies'" obligations to plan participants without specifying that it is the Companies' "subsidiary or affiliate" that is in fact obligated. Section 2.1, for example, states that "[a]n `Account' shall be established for each eligible Participant reflecting the deferred Incentive Compensation owed to the Participant ...," and that "[t]he Companies will maintain sub-accounts for a Participant to reflect each Annual Award for each Plan Year and interest on that account."
The "Companies" may offset obligations to plan participants by any amounts the participants owe the "Company (or an affiliate or subsidiary)."
The court agrees with defendants that Section 4.4 is the key provision, since it is the provision that establishes which entity is obligated to make payments to participants under the plan. Most of the contract provisions cited by plaintiffs address a range of other obligations apparently assumed by the Companies; these provisions do not determine or control which entity is obligated to pay benefits to participants. The court cannot agree that Section 4.4 unambiguously supports defendants' construction of it, however. The first sentence states that "[a] Participant's credits in his or her Account shall be an unsecured obligation of the respective Company (or subsidiary or affiliate) to pay the Participant (or the Participant's Beneficiary, in the event of the Participant's death) the actual amount of the credits at the time designated in Article V." Defendants
The provision is susceptible of other reasonable interpretations, however. The provision states that a "Participant's credits in his or her Account shall be an unsecured obligation of the respective Company (or subsidiary or affiliate)...."
It is undisputed that neither Opus Corp. nor Opus LLC ever paid compensation to plaintiffs; any payments under the plans were made by Opus West, their employer.
Plaintiffs, however, have proffered evidence that raises triable issues of fact regarding proper interpretation of the plan, i.e., documents and correspondence from employees of Opus Corp. regarding the administration of the benefits plan,
In further support of their arguments, plaintiffs proffer Opus West's SAR Plan, which contains markedly different language than that found in the ERISA plans. The SAR Plan clearly delineates that only Opus West is obligated to make payments under the plan. It designates to Opus West as the "Company" and makes no reference to Opus Corp. or Opus LLC.
Consequently, the court concludes that plaintiffs have raised triable issues of fact as to whether Opus Corp. and Opus LLC owed payment obligations under the 80/20 Plan.
While the terms of the Presidents Plan do not differ significantly from those of the 80/20 Plan; they are marginally clearer.
The Presidents Plan contains an
This language is marginally more explicit than that of the 80/20 Plan, in that it links the "Deferred Compensation Account of each Participant" to the "respective Company or Subsidiary." This link is reinforced by the second sentence of the provision,
"Deferred Compensation Account" is defined in Section 2.4 of the plan in language that tracks the 80/20 Plan. The provision states that "[a] `Deferred Compensation Account' shall be established for each eligible Participant reflecting the Annual Award owed to the Participant ... under the terms of this Plan. The Companies will maintain sub-accounts for a Participant to reflect each Annual Award for each Plan Year and interest on that account."
As the plans are similar in language, however, the ambiguities the court found in the 80/20 Plan similarly affect the Presidents Plan. As with the 80/20 Plan, the provision detailing the purpose of the Presidents Plan states that the "Plan is designed to promote teamwork among the participating executives for the benefit of the companies. It is the further purpose of the Plan to attract and retain highly qualified persons for the successful conduct of their respective businesses."
Given the similarities between the plans, the court's analysis of the 80/20 Plan guides its conclusion regarding the Presidents Plan. While the parties' prior course of dealing, the fact that Opus West used its general assets to make payments under the Presidents Plan, and the fact that T. Roberts, the only plaintiff who asserts a claim under the plan, has filed an unsecured creditor claim in Opus West's bankruptcy proceeding, weigh in favor of defendants' proposed construction, plaintiffs have submitted some evidence contradicting that interpretation. T. Roberts asserts that an "original" version of the Presidents Plan does not state that obligations under the plan are unsecured, and contains ambiguities similar to those in the current version of the Presidents Plan related to Opus Corp. and Opus LLC's payment obligations.
Consequently, the court determines that defendants have raised triable issues of fact regarding the Presidents Plan that preclude the entry of summary judgment in defendants' favor.
For the reasons stated, the court grants defendants' motion for summary judgment on plaintiffs' remaining state law claims, but denies it as to plaintiffs' ERISA claims.
The deposition transcripts submitted largely fail this test. While they are accompanied by cover pages, none has a signed reporter's certification, and declarants' affirmations that they can attest to the authenticity of the transcript are, standing alone, insufficient under Orr.
"[I]n a summary judgment motion proceeding," however, "documents may be authenticated not only through personal knowledge... but also by any manner permitted by Fed.R.Evid. 901(b) or 902." Holmes v. Home Depot USA, Inc., No. 1:06-cv-01527-SMS, 2008 WL 4966098, *8 (E.D.Cal. Nov. 20, 2008). Documents may be authenticated by "[d]istinctive characteristics and the like," including "[a]ppearance, contents, substance, internal patterns, or other distinctive characteristics, taken in conjunction with circumstances." FED.R.EVID. 901(b)(4).
Considering the contents, nature, and appearance of the documents submitted, as well as explicit references to the deponents within the documents, the court concludes that they are adequately authenticated for purposes of this proceeding. See Renteria v. Oyarzun, CV No. 05-392-BR, 2007 WL 1229418, *2 (D.Or. Apr. 23, 2007) (in the absence of evidence showing that the excerpts were fraudulent, deposition transcripts that lacked a copy of the court reporter's certification but did include the cover page identifying the deponent, the action and the time and place of the deposition were sufficiently authenticated under Rule 901(b)(4)); Prineville Sawmill Co. v. Longview Fibre Co., CV No. 01-1073-BR, 2002 WL 31974434, *11 (D.Or. Sept. 23, 2002) (in the absence of evidence showing that they were fraudulent, deposition excerpts that included the cover page of the deposition identifying the deponent, the action and the time and place of the deposition and that were attached to an affidavit in which counsel stated that the excerpts were true copies of the transcripts provided by the court reporter who took the deposition were sufficiently authenticated under Rule 901(b)(4)); Kenney v. Paderes, No. Civ. 00-00315 EMK, 2002 WL 31863882, *2 (D.Haw. Aug. 21, 2002) ("Although the transcripts do not contain the reporter's signed certificate, the cover page of the deposition transcripts of both Dr. Allen and Dr. Lauer provide the name of the deponent, the case name and civil number, and indicates that it is a certified copy.... Furthermore, by reviewing its contents, this Court is able to make the determination that the deposition transcripts are authenticated. Fed.R.Evid. 901(b)(4)"). Compare Orr, 285 F.3d at 774 ("Nor can [the deposition excerpt of Castle's deposition] be authenticated by reviewing its contents because Castle's name is not mentioned once in the deposition extract," and citing FED.R.EVID. 901(b)(4)); see also Holmes, 2008 WL 4966098 at *9 (stating that while a document attached to deposition was not "authenticated in the straightforward, complete way that is customary for depositions," the court would consider the report since "there is evidence warranting a reasonable person in believing that the report is the report he authored"). The court cautions counsel, however, to comply with Orr's clear requirements in future submissions.
Defendants contend that because plaintiffs "deny any role in the alleged wrong doing and [assert] that Defendants were solely responsible... it is relevant that they were handsomely rewarded with sums in the millions." (Defendants' Response to Plaintiffs' Objections to Evidence Cited in Defendants' Proposed Statement of Uncontroverted Facts and Conclusions of Law, Docket No. 81 (Oct. 31, 2011).) For the first time in their reply, defendants also raise an in pari delicto defense to plaintiffs' claims for restitution under the UCL, California Business & Professions Code § 17200, et seq. (Reply at 8-9.)
The court declines to consider arguments raised for the first time in reply, since the other party has no opportunity to respond. See Ellison Framing, Inc. v. Zurich American Ins. Co., No. CIV. S-11-0122 LKK/DAD, 2011 WL 1322387, *5 (E.D.Cal. Apr. 4, 2011); Stewart v. Wachowski, No. CV 03-02873 MMM, 2004 WL 2980783, *11 (C.D.Cal. Sept. 28, 2004) (refusing to consider an argument raised for the first time in reply); Halliburton Energy Services, Inc. v. Weatherford International, Inc., No. Civ.A. 302CV1347-N, 2003 WL 22017187, *1 n. 1 (N.D.Tex. Aug. 26, 2003) ("Halliburton offers additional grounds for reconsideration in its reply[;] however, the grounds are not proper under Rule 59(e) ... and the Court will not consider an argument raised for the first time in a reply brief"); Ferguson v. City of Phoenix, 931 F.Supp. 688, 696 (D.Ariz. 1996).
Even were the court to consider the argument, it is not apparent that plaintiffs' salaries and the amount of deferred compensation they earned prior to filing this action is necessarily probative of "wrongdoing" on their part. All it demonstrates is that they were paid well for their work with the company. Defendants neither assert nor proffer evidence that the money plaintiffs were paid compensated them for fraudulent activity, or that the payments were somehow improper. Consequently, the court excludes evidence of plaintiffs' compensation.
Confirming that payments were to come from the general assets of the corporation, plaintiffs have filed unsecured creditor claims in Opus West's bankruptcy proceeding. (Defs.' RJN, Exhs. GG-SS) Additionally, at the hearing on defendants' motion to dismiss the first amended complaint, plaintiffs' counsel conceded that all of his clients' claims were based on unfunded plans.
The deferrals in Section 4.1 refer to the formula used to determine whether a plan participant receives incentive compensation that year, or has their compensation placed into a deferred account. (Id., Art. VI, § 4.1).
While defendants object that the testimony is hearsay, it could be a party admission, which is non-hearsay. See FED.R.EVID. 801(d)(2)(D) ("A statement is not hearsay if... [t]he statement is offered against a party and is ... a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship"). To show that the statement is admissible under Rule 801(d)(2)(D), however, plaintiffs must establish, by substantial evidence, (1) that there was an agency relationship between Becker and Opus Corp.; (2) that Becker's statements were made during the course of that relationship; and (3) that the statements concerned matters within the scope of Becker's agency. See, e.g., Hilao v. Estate of Marcos, 103 F.3d 767, 775 (9th Cir.1996) ("The existence of an agency relationship is a question for the judge under Rule 104(a) and must be proved by substantial evidence but not by a preponderance of the evidence"); see also Gomez v. Rivera Rodriguez, 344 F.3d 103, 116 (1st Cir. 2003); Pappas v. Middle Earth Condominium Ass'n., 963 F.2d 534, 537 (2d Cir.1992). Plaintiffs proffer no evidence regarding any of these points. Their failure to lay a proper foundation regarding Becker's agency relationship with Opus Corp. makes Greer's testimony inadmissible. See Breneman v. Kennecott Corp., 799 F.2d 470, 473 (9th Cir.1986) ("Rule 801(d)(2)(D) requires the proffering party to lay a foundation to show that an otherwise excludable statement relates to a matter within the scope of the agent's employment"). Defendants also object that the statement was made during the course of settlement discussions, rendering it inadmissible under Rule 408. See FED.R.EVID. 408(a) ("furnishing or offering or promising to furnish... valuable consideration in compromising or attempting to compromise the claim" and "conduct or statements made in compromise negotiations regarding the claim" are not admissible to prove liability for the claim). Given that Greer's testimony must be excluded as hearsay, the court need not address this issue.
Plaintiffs also seek proffer the testimony of T. Roberts that Keith Bednarowski, president, CEO, and then-Board member of Opus Corp., told him on "numerous occasions" that Opus Corp. was obligated to pay his deferred compensation under "what is sometimes called the Presidents Deferred Compensation Plan... otherwise titled "Opus Annual Incentive Plan for Operating Subsidiaries." (Pls.' SGI, ¶ 28; T. Roberts Decl., ¶ 3.) Although Bednarowski is a party to this litigation in his individual capacity, his statement is offered not to establish his personal liability, but that of Opus Corp. Consequently, plaintiffs must demonstrate by substantial evidence (1) that there was an agency relationship between Bednarowski and Opus Corp. on these "numerous occasions"; (2) that Becker's statements were made during the course of that relationship; and (3) that the statements concerned matters within the scope of Becker's agency. See Hilao, 103 F.3d at 775. Plaintiffs have failed to carry their burden on all counts, as T. Roberts's declaration contains nothing more than a bare assertion that Bednarowski made the admissions at unspecified times "throughout [T. Roberts's] employment." (T. Roberts Decl., ¶ 3.) As plaintiffs have failed to lay the proper foundation for admission of Roberts' hearsay statements, the court must exclude them.
As evidence, plaintiffs cite Exhibit 7 to Hafif's declaration, which is a copy of their responses to defendants' special interrogatories. The document is nearly 60 pages long, and plaintiffs' proposed statement of genuine issues provides no pin cites or page references for the document. The transactions in question are discussed in Response No. 12, however, found on pages 36-37. The response appears to have been lifted wholesale from the complaint, in answer to an interrogatory asking plaintiffs to describe, in detail, the transactions they allege to be fraudulent. No other evidence is offered to support plaintiffs' contention that these transactions occurred. The cited "evidence" is merely a recitation of plaintiffs' allegations in the case.
Defendants offer this evidence to demonstrate that plaintiffs sought by filing this action to recover funds that Opus West allegedly transferred fraudulently to defendants; they assert this shows that the bankruptcy court should exercise jurisdiction over the claims. Plaintiffs object to the evidence on relevance grounds. For reasons the court explains infra, plaintiffs' subjective motivation for filing suit is not relevant in assessing whether their claims are barred by the Chapter 11 plan and bankruptcy court injunction, and thus are properly asserted by the bankruptcy estate. "Relevant evidence" is "evidence having any tendency to make the existence of a fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." FED.R.EVID. 401. As none of the evidence defendants proffer is relevant to an issue raised by the motion, the court sustains plaintiffs' objection.
Even if some of the evidence had marginal probative value, that value would be substantially outweighed by its prejudicial effect, given the many inflammatory statements made by plaintiffs in the communications. See FED. R.EVID. 403 (evidence whose probative value "is substantially outweighed by the danger of unfair prejudice, confusion of the issues, or misleading the jury, or by considerations of undue delay, waste of time, or needless presentation of cumulative evidence" is properly excluded).
Daniel Haug testified that the "stolen" money was "[t]he profits that were earned by the development activities and were upstreamed by—you know, upstreamed to the—to the trusts." (W.T. Decl., Exh. Y ("Haug Depo.") at 168:3-7.)
As noted, plaintiffs' subjective reasons for filing this action are not relevant in assessing whether the claims are property of the bankruptcy estate. Nor is their motivation in suing relevant to any other legal question raised by this motion. Consequently, the court declines to consider this evidence to the extent defendants proffer it to show plaintiffs' motivation in filing suit.
The Bailey Court did not explicitly adopt any of these exceptions, but implied that it might under appropriate circumstances. Id.
The declaratory relief claim seeks a "declaration that Defendants Opus and Opus LLC are the responsible party for payment of the deferred compensation and pension plan money from the contracts for only certain plans." (FAC at 38.) This mirrors the relief plaintiffs seek on their ERISA claim; the plans referenced in the declaratory relief claim are described as "valid and enforceable contracts with Defendants for deferred compensation plans and pension funds." (Id., ¶ 124.) To the extent that the declaratory relief claim addresses ERISA plans, the court has found that it is preempted and must be dismissed. To the extent it is based on non-ERISA plans, the declaratory relief claim is somewhat different than the other state law claims, in that plaintiffs contend certain defendants were directly obligated to make payments to them under the non-ERISA plans. Thus, the claim does not necessarily require that plaintiffs show they had an ownership interest in particular assets of Opus West. Plaintiffs, however, have adduced no evidence raising triable issues of fact regarding the existence or terms of the non-ERISA plans under which they claim benefits. The only evidence that has been adduced is a copy of an alleged "deferred compensation" plan titled the "Opus Annual Incentive Plan for Operating Subsidiaries." (T. Roberts Decl., Exh. 1.) Plaintiffs do not argue that their declaratory relief claim is based on this plan, and a facial reading of the contract indicates that it could not be since termination of an individual's employment with an Opus subsidiary extinguishes any right to payment under the plan. (Id., Art VII, § 7.1). In any event, by failing to adduce evidence or argue the issue in their opposition, plaintiffs have abandoned any contention that their declaratory relief claim survives defendants' motion for summary judgment. See, e.g., Jenkins v. County of Riverside, 398 F.3d 1093, 1095 n. 4 (9th Cir.2005) ("Jenkins abandoned her other two claims by not raising them in opposition to the County's motion for summary judgment"); Bookman v. Merrill Lynch, No. 02 Civ. 1108(RJS), 2009 WL 1360673, *10 (S.D.N.Y. May 14, 2009) ("Plaintiff's failure to oppose Defendant's motion on these grounds constitutes an abandonment of the claims for which he chose to offer neither legal argument nor evidentiary support"); Foster v. City of Fresno, 392 F.Supp.2d 1140, 1147 n. 7 (E.D.Cal.2005) ("[F]ailure of a party to address a claim in an opposition to a motion for summary judgment may constitute a waiver of that claim") Cambridge Electronics Corp. v. MGA Electronics, Inc., 227 F.R.D. 313, 336 n. 67 (C.D.Cal.2004) (citing Resolution Trust Corp. v. Dunmar Corp., 43 F.3d 587, 599 (11th Cir.1995) for the proposition that "[t]here is no burden upon the district court to distill every potential argument that could be made based upon the materials before it on summary judgment. Rather, the onus is upon the Parties to formulate arguments; grounds alleged in the complaint but not relied upon in summary judgment are deemed abandoned").
Although plaintiffs consistently characterize the benefits as "wages," they proffer no evidence that the benefits were funded or that they were paid from an account that plaintiffs controlled or in which they had an ownership interest. Consequently, plaintiffs have failed to raise triable issues of fact regarding the unfunded nature of the benefits programs.
The policy justification for applying this rule in the insurance context, where plan participants are "common laypeople" who are unlikely to understand the intricacies of insuring agreements, are clearer than they are in this case. Top hat plans are exempt from many of ERISA's requirements precisely because participants in top hat plans stand in a significantly stronger bargaining position than most regular employees, due to their experience, level of power within the company, and supposed sophistication. See Alexander v. Brigham and Women's Physicians Organization, Inc., 513 F.3d 37, 46 (1st Cir. 2008) ("The origins of the top-hat provision lie in Congress's insight that high-echelon employees, unlike their rank-and-file counterparts, are capable of protecting their own pension interests"); Demery v. Extebank Deferred Compensation Plan (B), 216 F.3d 283, 289 (2d Cir.2000) ("Ability to negotiate is an important component of top hat plans; we have noted that top hat plans have been exempted from ERISA's substantive requirements `because Congress deemed top-level management, unlike most employees, to be capable of protecting their own pension expectations.' Congress approved of a lesser level of regulation for top hat plans `on the premise that the employer's top-level executives have sufficient influence within the institution to negotiate arrangements that protect against the diminution of their expected pensions,'" quoting Gallione v. Flaherty, 70 F.3d 724, 727 (2d Cir.1995)); In re New Valley Corp., 89 F.3d 143, 148 (3d Cir.1996) ("The dominant characteristic of the special top hat regime is the near-complete exemption of top hat plans from ERISA's substantive requirements").
Consequently, applying the rule of contra proferentem, developed in a substantially different factual context where it serves important policy rationales, would be inappropriate here. Cf. Spacek v. Maritime Ass'n, 134 F.3d 283, 299 n. 14 (5th Cir.1998) (noting that although the "court ha[d] on several occasions held that the doctrine of contra proferentem applies in construing ERISA plans," it had "done so only in construing insurance policies governed by ERISA," and declining to "resolve the issue of whether contra proferentem applies outside the insurance context"), abrogated on other grounds in Central Laborers' Pension Fund v. Heinz, 541 U.S. 739, 124 S.Ct. 2230, 159 L.Ed.2d 46 (2004).
