United States District Court, D. Hawaii
R. ALEXANDER ACOSTA, Secretary of Labor, United States Department of Labor Plaintiff,
NICHOLAS L. SAAKVITNE, an individual; NICHOLAS L. SAAKVITNE, A LAW CORPORATION, a California corporation; BRIAN J. BOWERS, an individual; DEXTER C. KUBOTA, an individual; BOWERS KUBOTA CONSULTING, INC., a corporation; BOWERS KUBOTA CONSULTING, INC. EMPLOYEE STOCK OWNERSHIP PLAN, Defendants.
ORDER DENYING (1) DEFENDANT BOWERS KUBOTA
CONSULTING, INC.'S MOTION TO DISMISS AND (2) DEFENDANTS
BRIAN J. BOWERS AND DEXTER C. KUBOTA'S MOTION TO
OKI MOLLWAY UNITED STATES DISTRICT JUDGE
this court are two motions seeking dismissal of the Complaint
filed by Plaintiff R. Alexander Acosta, the Secretary of the
United States Department of Labor (the
“Secretary”), asserting claims against Defendants
under the Employee Retirement Income Security Act of 1974
(“ERISA”). Both motions are denied.
Bowers Kubota Consulting, Inc. (the “Company”)
moves for dismissal under Rule 12(b)(6) of the Federal Rules
of Civil Procedure, arguing that the Company was improperly
joined under Rule 19. ECF No. 26. This court denies the
Company's Motion, concluding that the Company's
joinder under Rule 19 is necessary and feasible.
Brian J. Bowers and Dexter C. Kubota move for dismissal under
Rule 12(b)(6), arguing that the Complaint fails to
sufficiently allege facts demonstrating that they had ERISA
fiduciary liability or acted in violation of ERISA. Their
motion is denied because the Complaint alleges sufficient
facts to support the ERISA claims against Bowers and Kubota.
April 27, 2018, the Secretary filed a Complaint alleging
that, on December 14, 2012, Nicholas L. Saakvitne, Bowers,
and Kubota caused the Bowers Kubota Consulting, Inc.
Employee Stock Ownership Plan (the “ESOP”) to
purchase the Company's shares for more than they were
worth. See ECF No. 1. The Complaint names six
Defendants: (1) Saakvitne; (2) Saakvitne's law firm
(“Saakvitne Law Corporation”); (3) Bowers; (4)
Kubota; (5) the Company; and (6) the ESOP. See Id.
The Complaint states that the Company and the ESOP are named
as defendants “pursuant to Rule 19(a) of the Federal
Rules of Civil Procedure solely to assure that complete
relief can be granted.” Id., PageID #s 6-7.
Secretary alleges the following facts in his Complaint.
Bowers, the Company's President, and Kubota, its Vice
President, owned the Company through their respective trusts.
See Id. at 4, 7. They met with an attorney in the
summer of 2012 to discuss the creation of an ESOP to divest
themselves of their ownership interests in the Company.
See Id. at 9. In the fall of 2012, Bowers and Kubota
provided information about the Company to the valuation firm
Libra Valuation Associates (“LVA”). See Id.
LVA produced a preliminary appraisal report that put the
Company's value between $37, 090, 000 and $41, 620, 000.
See Id. at 10. LVA later produced an updated
valuation report and a fairness opinion, both valuing the
Company at $40, 150, 000. See id. The Complaint
alleges that these LVA valuation reports were flawed in
several respects. For example, the reports applied a 30%
control premium even though there would be no change in
control of the Company, and they used unreasonable revenue
projections that went far beyond the Company's historical
average. See Id. at 10-11.
meantime, Bowers, Kubota, and their attorney communicated
with Saakvitne about appointing Saakvitne the trustee of the
ESOP and about the pending sale of the Company. See
Id. at 12. The Complaint alleges that, “at the
outset of Saakvitne's involvement with the transaction,
[the attorney] emailed Saakvitne listing the price for a 100%
sale of the Company as ‘40 million.'”
Id. at 12. It also alleges that “Saakvitne met
with Bowers and Kubota in Hawaii” with a document that
“listed ‘Valuation: Approx. 40 million' under
the heading ‘Basis of Deal - General.'”
to the Complaint, on December 10, 2012, Bowers made an
initial offer to Saakvitne to sell the Company's shares
to the ESOP for $41 million, payable over 20 years at 10%
interest. See id. After negotiating for a day,
Saakvitne, Bowers, and Kubota allegedly agreed that the ESOP
would purchase the Company's shares for $40 million
payable, over 25 years at 7% interest. See Id. at
13. On December 11, 2012, the ESOP was formed with a
retroactive date of January 1, 2012, and Saakvitne was named
as its trustee. See Id. at 9. On December 14, 2012,
Saakvitne, Bowers, and Kubota allegedly caused the ESOP to
purchase the Company's shares for $40 million dollars.
See Id. at 13.
Complaint alleges that Saakvitne, Bowers, and Kubota
“did not carry out a meaningful review” of the
LVA valuation reports, which “were obviously defective
and significantly overvalued the shares of the Company,
” and that they knew or should have known that the
reports “should not have been relied upon to justify
the ESOP transaction.” Id. at 10, 14. Bowers
and Kubota allegedly provided unreasonable and inflated
revenue projections to LVA, knowing that such projections
were inaccurate, and allegedly failed to monitor Saakvitne to
assure that he acted in the best interests of the ESOP's
participants and beneficiaries. See Id. at 15-18.
on these allegations, the Complaint asserts the following
(1) Saakvitne, Saakvitne Law Corporation, Bowers, and Kubota
failed to discharge fiduciary duties with care, skill,
prudence, and diligence in violation of 29 U.S.C. §
1104(a)(1)(A), (B), and (D);
(2) Bowers and Kubota are liable for breaches of fiduciary
responsibilities by another fiduciary (“co-fiduciary
liability”) under 29 U.S.C. § 1105(a)(1)-(3);
(3) Saakvitne, Saakvitne Law Corporation, Bowers, and Kubota
engaged in prohibited transactions between a plan and a party
in interest in violation of 29 U.S.C. § 1106(a)(1)(A);
(4) Bowers and Kubota engaged in prohibited transactions
between a plan and a fiduciary in violation of 29 U.S.C.
(5) Bowers and Kubota knowingly participated in a transaction
prohibited by ERISA under 29 U.S.C. § 1132(a)(5);
(6) Provisions of the ESOP documents are void for improperly
indemnifying fiduciaries under 29 U.S.C. § 1110.
Id. at 15-22. The Secretary seeks restitution for
the ESOP, as well as injunctive and declaratory relief.
See Id. at 22-23.
and Kubota filed a motion to dismiss on June 12, 2018. ECF
No. 7. On September 5, 2018, the Company filed a separate
motion to dismiss and joined the motion to dismiss filed by
Bowers and Kubota. ECF No. 26. Following the recusal of the
district judge originally assigned to this case, the case was
reassigned, and a hearing was held on both motions on January
STANDARD OF REVIEW.
motions are brought under Rule 12(b)(6) of the Federal Rules
of Civil Procedure. Under Rule 12(b)(6), a complaint may be
dismissed for failure to state a claim upon which relief can
be granted. The court's review is generally limited to
the contents of a complaint. Sprewell v. Golden State
Warriors, 266 F.3d 979, 988 (9th Cir. 2001);
Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th
Cir. 1996). If matters outside the pleadings are considered,
the Rule 12(b)(6) motion is treated as one for summary
judgment. Keams v. Tempe Tech. Inst., Inc., 110 F.3d
44, 46 (9th Cir. 1997); Anderson v. Angelone, 86
F.3d 932, 934 (9th Cir. 1996). However, the court may take
judicial notice of and consider matters of public record
without converting a Rule 12(b)(6) motion to dismiss into a
motion for summary judgment. Lee v. City of Los
Angeles, 250 F.3d 668, 688 (9th Cir. 2001); Emrich
v. Touche Ross & Co., 846 F.2d 1190, 1198 (9th Cir.
Rule 12(b)(6) motion to dismiss, all allegations of material
fact are taken as true and construed in the light most
favorable to the nonmoving party. Fed'n of African
Am. Contractors v. City of Oakland, 96 F.3d 1204, 1207
(9th Cir. 1996). However, conclusory allegations of law,
unwarranted deductions of fact, and unreasonable inferences
are insufficient to defeat a motion to dismiss.
Sprewell, 266 F.3d at 988; In re Syntex Corp.
Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996). Dismissal
under Rule 12(b)(6) may be based on either “lack of a
cognizable legal theory or the absence of sufficient facts
alleged under a cognizable legal theory.”
Balistreri v. Pacifica Police Dep't, 901 F.2d
696, 699 (9th Cir. 1988) (citing Robertson v. Dean Witter
Reynolds, Inc., 749 F.2d 530, 533-34 (9th Cir. 1984)).
survive a Rule 12(b)(6) motion to dismiss, “[f]actual
allegations must be enough to raise a right to relief above
the speculative level, on the assumption that all the
allegations in the complaint are true (even if doubtful in
fact).” Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007) (citations omitted); accord Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (“[T]he pleading
standard . . . does not require detailed factual allegations,
but it demands more than an unadorned,
(internal quotation marks omitted)). “[A]
plaintiff's obligation to provide the grounds of his
entitlement to relief requires 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 (internal quotation marks omitted). A complaint
must “state a claim to relief that is plausible on its
face.” Id. at 570. “A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678.
The Company's Motion To Dismiss Is Denied Because The
Company Was Properly Joined Under Rule 19.
Company seeks dismissal of the Complaint, arguing that it
“states no allegations as against [the Company] and
seeks no relief as against [the Company.]” ECF No.
26-1, PageID # 312. The Company further argues that it cannot
be joined as a nominal defendant or as an indispensable
defendant under Rule 19 of the Federal Rules of Civil
Procedure because it holds no interest in the subject matter
of the litigation. See Id. at 309-12.
court determines that the Company was properly joined under
Rule 19, which governs compulsory joinder in federal district
courts. EEOC v. Peabody W. Coal Co., 400 F.3d 774,
778 (9th Cir. 2005) (“Peabody I”). While
the Complaint does not assert any claims against the Company,
“joinder of [a defendant] under Rule 19 is not
prevented by the fact that the [plaintiff] cannot state a
cause of action against [the defendant].” See
(1) Required Party. A person who is subject to service of
process and whose joinder will not deprive the court of
subject-matter jurisdiction must be joined as a party if:
(A) in that person's absence, the court cannot accord
complete relief among existing parties; or
(B) that person claims an interest relating to the subject of
the action and is so situated that disposing of the action in