The opinion of the court was delivered by: Judge Curtis L. Collier
Before the Court is Defendant David Johnston's ("Johnston") motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) (1:06-CV-226, Court File No. 5) (1:06-CV-227, Court File No. 7) as well as his briefs in support (1:06-CV-226, Court File No. 6) (1:06-CV-227, Court File Nos. 8 & 13). Plaintiffs Elaine L. Chao, Secretary of Labor, United States Department of Labor (the "Department of Labor") and Pension Benefit Guaranty Corporation ("PBGC") (collectively "Plaintiffs") filed very similar response briefs in opposition to Johnston's motions in both cases (1:06-CV-226, Court File No. 9) (1:06-CV-227, Court File No. 11). Subsequently, Johnston filed reply briefs in both cases (1:06-CV-226, Court File No. 11) (1:06-CV-227, Court File Nos. 17 & 18). Since these cases were consolidated subsequent to the filing of the instant motions, the Court will consider both of Johnston's motions to dismiss simultaneously.
For the following reasons, the Court will DENY Johnston's motions to dismiss (1:06-CV-226, Court File No. 5) (1:06-CV-227, Court File No. 7).
On October 19, 2006 PBGC, a wholly owned government corporation which serves as statutory trustee of several pension plans, filed a complaint against Johnston seeking to redress several alleged violations of the Employee Retirement Income Security Act of 1974 ("ERISA") (29 U.S.C. § 1001 et. seq.) in case number 1:06-CV-227. On the same day, the Department of Labor, which is charged with enforcing the provisions of ERISA, filed a complaint against Johnston in case number 1:06-CV-226. Johnston filed a motion to dismiss as well as a supporting brief in case number 1:06-CV-227 on February 26, 2007 (1:06-CV-227, Court File Nos. 7 & 8). On March 8, 2007 Johnston filed a motion to dismiss as well as a supporting brief in case number 1:06-CV-226 (Court File Nos. 5 & 6). On March 9, 2007, Johnston's lawyer filed a motion to file an amended brief in support of Johnston's motion to dismiss, alleging he was unaware of the other case filed by the Department of Labor when he first filed his motion to dismiss (1:06-CV-227, Court File No. 9). Specifically, due to the confusion regarding the filing of separate complaints, Johnston asserted his brief in support of his motion to dismiss contained errors and other inaccuracies which he wished to correct in his amended brief (id.). The Court granted Johnston leave to file his amended brief (1:06-CV-227, Court File No. 12), which Johnston filed on March 29, 2007 (1:06-CV-227, Court File No. 13). Johnston subsequently requested leave to file a reply brief, which the Court granted (1:06-CV-227, Court File No. 15). On April 3, 2007, upon the motion of the Plaintiffs in both cases, case numbers 1:06-CV-226 and 1:06-CV-227 were consolidated since they involve virtually identical underlying facts and issues of law (1:06-CV-226, Court File No. 10).*fn1 Case number 1:06-CV-226 was designated the lead case (id.).
These cases are premised upon the attempted enforcement of the provisions of ERISA in connection with two pension plans of SCT Yarns, Inc. ("SCT") (1:06-CV-226, Court File No.2, 1:06-CV-227, Court File No. 2).*fn2 SCT was a Delaware corporation with operations located in Chattanooga, Tennessee and Washington, Georgia. SCT had two defined benefit pension plans for the benefit of its employees, SCT Yarns, Inc. Retirement Plan for Hourly Employees and the SCT Yarns, Inc. Retirement Plan for Salaried Employees ("the Plans"). These Plans were originally established in 1946, and as of 1998 the two Plans had 771 participates.
Beginning in 1996, SCT assumed responsibility for sponsorship and administration of the Plans. In 1998, Kenneth H. Combs, Jr. ("Combs") assumed responsibility for the Plans as trustee and the Chief Executive Officer, Director and majority owner of SCT.*fn3 Belinda Combs ("B. Combs"), his wife, was the Secretary, Controller, and Director of SCT and signed documents as the Plan Administrator. Combs appointed Manning & Napier Advisory Advantage Corporation ("MNAAC") as the investment manager to the Plans. Exeter Trust Company ("Exeter") and Custody First ("Custody") provided custodial and administrative services to the Plans.
Sometime after Combs assumed responsibility for the Plans, Combs, along with two other men, Roderick Askew and Daniel Geiger ("Geiger") and their respective companies, misused and misappropriated the monies contained in the SCT pension plans for their own personal gain.*fn4 In 2000, Combs was advised the Plans contained a shortfall of funds necessary to meet the monthly pension payments.
Geiger conducted business through various entities, including USA Mining Inc. ("USAM"), its parent company USA Bullion, Inc. ("USAB"),*fn5 and an entity named Bugsy Malone's Speakeasy, LLC ("Bugsy"), which was charged with building a casino/gentlemen's club in Nevada.*fn6 During this time, David Johnston was an attorney with an office located in the District of Columbia. Even though Johnston claims he was retained by only one entity, USAM, Plaintiffs allege he provided escrow and legal services to several entities and individuals associated with the Plans including, but not limited to, Combs, Geiger, USAM, and USAB.*fn7
A. Transfers of the Plans' Assets to USAM and USAB
On September 24, 1999 Combs caused the Plans to lend $3,500,000.00 to USAM. Plaintiffs allege Combs failed to conduct adequate due diligence regarding the ability of USAM to repay this loan before lending the Plans' assets to USAM. On October 4, 1999, pursuant to instructions from Combs, $3,500,000.00 was wired to Johnston's escrow account for the benefit of the Plans. Johnston distributed the Plans' assets to himself ($99,800.00), Kutak Rock Law Firm ($5,000.00), SCT ($315,000.00), and USAM ($3,080,000.00).*fn8
On December 3, 1999 Combs converted the Plans' loan to USAM to a 25% equity stock holding in USAM. Combs also committed the Plans to contribute an additional $2.7 million in order to fund the future capital needs of USAM. On December 10, 1999, Combs directed Custody to liquidate $730,000.00 from the Plans' accounts. These funds were wired to Johnston's escrow account on December 13, 1999, and he, in turn, wired these funds to two different USAM accounts the next day.
On January 3, 2000, USAM became a wholly owned subsidiary of USAB.*fn9 The Plans' USAM holdings were exchanged for USAB stock. On January 14, 2000 pursuant to instructions from Combs, Custody wired $1,970,000.00 from the Plans' accounts to Johnston's escrow account. A few days later, Johnston ...