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Lyms, Inc.; Wendy Youngren and Cathy v. Bruce Millimaki and Michael

February 18, 2011

LYMS, INC.; WENDY YOUNGREN AND CATHY MEANS, AS SUCCESSOR TRUSTEES OF THE LYMOS 401(K) SAVINGS PLAN, PLAINTIFFS,
v.
BRUCE MILLIMAKI AND MICHAEL EGGERT, FORMER TRUSTEES OF THE LYMS 401(K) SAVINGS PLAN; GARY BERMAN, DEFENDANTS. AND RELATED CLAIMS.



The opinion of the court was delivered by: Hon. Michael M. Anello United States District Judge

ORDER (1) DENYING TRUSTEES' MOTION FOR SUMMARY JUDGMENT ON COUNTERCLAIM FOR INDEMNITY; and (2) GRANTING LIPSEY'S MOTION FOR JUDGMENT ON THE THIRD PARTY COMPLAINT FOR INDEMNITY [Doc. Nos. 81 & 135]

Now before the Court are two motions concerning an indemnity clause in a 401(k) profit sharing plan agreement, which is governed by the Employee Retirement Income Security Act of 1974 ("ERISA"). 29 U.S.C. § 1001, et seq. In the first motion, Bruce Millimaki and Michael Eggert argue they are entitled to indemnity from their Employer for any breaches of their fiduciary duty in their capacity as Trustees of the pension plan. In the second, Robert Lipsey argues that any indemnification must come from the Employer and not against him as an individual. The Court took the motions under submission and without oral argument. [# 127 & 148] Summary judgment is not appropriate on whether the Trustees acted with gross negligence or willful misconduct that would defeat their contractual right to indemnification, thus, the Court DENIES the motion for summary judgment. The Court GRANTS the motion for judgment on the pleadings because the contract for indemnification is with the corporate entity, not the individual.

Background

Bruce Millimaki formed an accounting firm (hereinafter "the Company") with Robert Lipsey in 1989. Lipsey Decl. ¶ 7; Millimaki Decl. ¶ 4.*fn1 In 1991, the Company adopted an employee retirement plan that is governed by ERISA. 29 U.S.C. § 1002(2); Millimaki ¶ 6; Second Amended Compl. ("SAC") ¶ 3. In 1994, Michael Eggert joined the Company. Eggert Decl. ¶ 4. The relevant Plan Agreement for the profit sharing plan and trust names Millimaki and Eggert as Trustees for the Company's pension plan. Meter Decl., Ex. 4 ¶ 10. The Plan Agreement named the Employer, that is the Company, as the Plan Administrator, id. ¶ 11; however, Gary Berman undertook all administrative duties as the third party administrator of the pension plan. Millimaki Decl. ¶ 21; see Hallisey Depo. at 34 ("typically . . . employers are not sophisticated in doing administration of the plan and rely on their third party administrator or other service provider to perform those services for them."). In addition to the duties imposed by law in ERISA, the Plan Agreement further defines the specific powers and responsibilities of the Administrator/Employer and the Trustees. Meter Decl. Ex. 4 §§ 2.4 & 7.1.

In the Spring of 2005, Millimaki and Eggert decided to form their own accounting firm and they recruited eight employees from the Company to join them in their new venture. Millimaki Decl. ¶¶ 12-14. In July 2005, they created Millimaki Eggert, LLP. Eggert Decl. ¶ 9.

For his part, Lipsey formed LYMS, Inc., renamed the Company's profit sharing plan, and appointed Wendy Youngren and Cathy Means as the Successor Trustees. Lipsey Decl. ¶¶ 26-27; Means Decl. ¶¶ 11-12.

In this federal action, Plaintiffs LYMS, Youngren, and Means sue Defendants Millimaki and Eggert for various breaches of contractual and fiduciary duties under ERISA relative to their alleged mismanagement of the pension plan.*fn2 SAC ¶¶ 58-80. Some of the alleged breaches arose during the break-up of the partnership between Lipsey and Millimaki. For example, Millimaki and Eggert allegedly refused to resign as Trustees, even when notified in writing of their termination, and allegedly refused to provide Plan documents to the Successor Trustees. Id. ¶ 22. Other breaches were discovered when the pension plan was audited and the Internal Revenue Service questioned certain transactions, including whether a $237,000 contribution by employee Mark Schaim constituted a qualified rollover and whether Millimaki's wife qualified as a participant. Id. ¶¶ 46(e), 52(b).

The breakup of the firm was not amicable and litigation ensued in state court. Lipsey Decl. ¶¶ 24 & 32; Millimaki Decl. ¶¶ 15-18; Millimaki Depo. at 182-83; SAC ¶ 14.

In turn, Defendants Millimaki and Eggert filed a counterclaim against Plaintiff LYMS, Inc. for breach of contract, indemnity, and contribution. Answer & Countercl. ¶¶ 11-24. Finally, in a third party complaint, Millimaki and Eggert seek indemnity from Lipsey. [# 56].

The two pending motions concern the indemnity clause in the pension plan document, which provides: "The Employer agrees to indemnify and hold harmless the Trustee against any and all claims, losses, damages, expenses and liabilities the Trustee may incur in the exercise and performance of the Trustee's powers and duties hereunder, unless the same are determined to be due to gross negligence or willful misconduct." Meter Decl. Ex. 4 § 7.13.

Discussion

I. Summary Judgment on Indemnity of Trustees by the Company

Millimaki and Eggert move for summary judgment on their counterclaim for indemnification by the Employer for any liability they incur in the main action for their actions as Trustees of the pension plan.

Summary judgment is appropriate when the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." ...


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