Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Acosta v. Saakvitne

United States District Court, D. Hawaii

January 18, 2019

R. ALEXANDER ACOSTA, Secretary of Labor, United States Department of Labor Plaintiff,




         Before 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.

         Defendant 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.

         Defendants 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.

         II. BACKGROUND.

         On 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.

         The 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”).[1] 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.

         In the 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.'” Id.

         According 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.

         The 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.

         Relying on these allegations, the Complaint asserts the following ERISA claims:

(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. § 1106(a)(1)(A);
(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.

         Bowers 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.[2] 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 7, 2019.


         Both 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. 1988).

         On a 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)).

         To 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, the-defendant-unlawfully-harmed-me accusation.” (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.

         IV. ANALYSIS.

         A. The Company's Motion To Dismiss Is Denied Because The Company Was Properly Joined Under Rule 19.

         The 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.

         The 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 id.

         Rule 19(a) provides:

(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 ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.