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Jeffrey E. Perelman v. Raymond G. Perelman

August 27, 2012

JEFFREY E. PERELMAN
v.
RAYMOND G. PERELMAN, ET AL.



The opinion of the court was delivered by: Padova, J.

MEMORANDUM

Presently before the Court in this ERISA action filed by Plaintiff Jeffrey E. Perelman ("Jeffrey") are Motions by Defendants Raymond G. Perelman ("Raymond"), Ronald O. Perelman ("Ronald"), Jason Guzek ("Guzek") and General Refractories Company ("GRC") to dismiss Plaintiff's Second Amended Complaint (the "SAC") for failure to state claims upon which relief may be granted under Fed. R. Civ. P. 12(b)(6), and for lack of standing.*fn1 For the reasons that follow, we grant the motion to dismiss in part.

I. BACKGROUND

The SAC alleges the following facts which, for purposes of our Rule 12(b)(6) review, are taken to be true. See Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008). Jeffrey is, and has been since approximately 1985, a participant in the General Refractories Company Pension Plan ("the Plan"), an employee pension benefit plan within the meaning of ERISA. (SAC ¶¶ 8-9.) At various times, Raymond, Guzek, and GRC were administrators of the Plan. (Id. ¶¶ 10, 14, 22.) Raymond was also the trustee of the Plan. (Id. ¶¶ 12, 13.) Raymond is the father of Jeffrey and Ronald. (Id. ¶ 16.) Ronald was, at all relevant times, the controlling shareholder of Revlon, Inc. (together with Revlon Consumer Products Corporation, "Revlon"). (Id. ¶ 1.)

From 2002 through 2009, Revlon was substantially over-leveraged and had poor credit ratings assigned to its corporate bonds (the "Revlon bonds"). (Id. ¶¶ 37, 49, 74, 88.) During that period, Raymond directed the investment of a substantial percentage of Plan assets in Revlon bonds to assist his son Ronald in raising capital for Revlon. The Plan did not utilize the services of a financial advisor or consultant to analyze or monitor the investments in Revlon bonds, the trustees did not conduct any investigation into the merits of the investments, and the trustees did not monitor the investments. (Id. ¶¶ 35, 36.) The Plan also converted some of its Revlon bonds into stock and gave Ronald the power to vote that stock, in order to help Ronald protect Revlon against a hostile takeover. Specifically, on or about March 15, 2004, Ronald, on behalf of Mafco Holdings, Inc., a company that he owned and/or controlled, executed a letter agreement (the "March 15 letter agreement") with Raymond and Ruth Perelman (Raymond's wife and Jeffrey's and Ronald's mother), pursuant to which Ronald became the beneficial owner of the shares of Revlon stock held by the Plan and undertook full power to vote all Revlon stock owned by the Plan. (Id. ¶ 18.)

Forms required to be filed by the Plan with the United States Department of Labor, known as Forms 5500, for plan years 2003, 2004, and 2005 listed Raymond as the Plan Administrator. (Id. ¶¶ 27, 38, 50.) The Forms 5500 did not disclose that the Plan held investments in Revlon bonds. (Id. ¶¶ 32-33, 40-41, 54-55.) Rather, the 2003 and 2004 Forms 5500 stated that 100% of Plan assets were invested in master trust accounts (Id. ¶¶ 32, 41); and the Forms 5500 from 2005 through 2009 stated that 100% of Plan assets were invested in mutual funds. (Id. ¶¶ 53, 62, 79, 92, 108.) Independent auditors' reports appended to the Forms 5500 for 2003 through 2008 did disclose investments in Revlon bonds, but did not identify those investments as party-in-interest transactions by the Plan.*fn2 (Id. ¶¶ 31, 40, 52, 61, 78, 91.) Specifically, the reports did not state that a controlling shareholder of Revlon (Ronald) was a lineal descendant of a fiduciary of the Plan (Raymond), or that Ronald was himself a fiduciary of the Plan by virtue of the March 15 letter agreement.*fn3 (Id. ¶¶ 32, 43, 54.)

The 2006 Form 5500, which listed Guzek rather than Raymond as the Plan Administrator (id. ¶ 59), appended an Independent Auditor's Report containing a footnote that stated, for the first time, that a controlling shareholder of Revlon was a lineal descendant of the trustee of the Plan, and that transactions involving Revlon bonds qualified as party-in-interest transactions. (Id. ¶¶ 63, 68.) The 2006 Independent Auditor's Report did not state, however, that some of the Revlon bonds had been converted into stock, and that Ronald had himself become a fiduciary of the Plan by virtue of the March 15 letter agreement. (Id. ¶ 64.) The Independent Auditor's Reports appended to the 2007 and 2008 Forms 5500 contained similar notes with respect to the Plan's investments in Revlon bonds. (Id. ¶¶ 80, 93.) However, the Independent Auditor's Report appended to the 2008 Form 5500 did not accurately describe a February 1, 2008 investment of $2.7 million in unsecured Revlon debt. (Id. ¶¶ 81, 94.)

On February 1, 2008, Raymond, as trustee of the Plan, entered into a Participation Agreement with MacAndrews & Forbes Holdings, Inc. ("MacAndrews"), an entity principally owned by Ronald.

(Id. ¶ 116.) The Participation Agreement provided the Plan with an undivided interest of approximately $2.7 million in a January 30, 2008 Senior Subordinated Loan Agreement between MacAndrews and Revlon. (Id. ¶ 117.) Under the Senior Subordinated Loan Agreement, MacAndrews lent Revlon $170 million on the condition that Revlon use approximately $168 million to repay holders of Revlon Notes with a maturity date of February 1, 2008. (Id. ¶¶ 120-122.) The Senior Subordinated Loan Agreement provided that MacAndrews (i.e., Ronald) would retain a little over $2 million as a non-refundable fee for the financing it had provided. (Id. ¶ 123.) Without the loan from MacAndrews, Revlon could not have repaid the Note holders. (Id. ¶¶ 125-127.) The Senior Subordinated Loan Agreement was a subordinated, unsecured obligation of Revlon, and the Participation Agreement specified that it was a non-recourse agreement, which provided the Plan with no protection for its $2.7 million investment. (Id. ¶ 128.)

The Independent Auditor's Report appended to the 2008 Form 5500 reflected only investments in Revlon corporate bonds, and stated that those investments were valued on Level 1 of the Fair Value Measurement Standard, the most reliable of three levels. (Id. ¶¶ 99-100.) The Independent Auditor's Report appended to the 2009 Form 5500 did not identify or value the Plan's assets.*fn4 (Id. ¶ 105.) However, a Second Independent Auditor's Report, with the same date as the Independent Auditor's Report that was actually appended to the 2009 Form 5500, inaccurately characterized the Plan's interest in the Senior Subordinated Loan Agreement as an investment in Revlon corporate note receivables. (Id. ¶ 107.) The Second 2009 Independent Auditor's Report retroactively changed the valuation of the Plan's interest in the Senior Subordinated Loan Agreement from Level 1 to Level 3, without explanation or comment. (Id. ¶ 112.) This Second Independent Auditor's Report was not filed with the Department of Labor. (Id. ¶ 109.)

The SAC also makes allegations that the Plan did not maintain updated and accurate plan documents. The Plan represented to Jeffrey that the latest Summary Plan Description was dated November 9, 1994, while Independent Auditors' Reports for 2003 to 2008 indicate the Plan was amended on February 29, 1996, and the Report for 2009 indicates an amendment on January 1, 2002. (Id. ¶¶ 162-65.) When Jeffrey asked for Plan documents in April 2010, he was told by the Plan's counsel that it was last amended and restated on January 1, 1997, but was later given amendments dated January 1, 2002, July 1, 2007, and January 1, 2008. (Id. ¶¶ 166-69.) A Trust Agreement provided by counsel, dated November 1, 2003, stated that a plan document was adopted concurrently therewith, but the Plan failed to provide to Jeffrey a plan document dated November 1, 2003. (Id. ¶¶ 172-75.) Finally, the SAC makes subordinate allegations concerning Ronald's control of Revlon (id. ¶¶ 181-85), the poor financial condition of Revlon during the operative period (id. ¶¶ 186-213), and also includes allegations regarding an SEC filing and the March 15 Letter Agreement appointing MacAndrews a proxy to vote all of the Revlon stock owned by Raymond's and Ruth's family charitable trusts (Id. ¶¶ 214-24).

Jeffrey asserts jurisdiction only under 29 U.S.C. § 1132(a)(3), the section providing for equitable remedies. (SAC ¶ 6.) The SAC asserts claims for breach of fiduciary duty, in violation of 29 U.S.C. § 1104 (Count 1 against Raymond, Count 10 against Ronald); knowing participation in prohibited party-in-interest transactions, in violation of 29 U.S.C. § 1106 (Count 2 against Raymond, Count 9 against Ronald); failure to diversify plan assets, in violation of 29 U.S.C. § 1104(a)(1) (Count 3 against Raymond, Count 6 against Jason Guzek and GRC); failure to update or maintain proper plan documents, in violation of 29 U.S.C. §§ 1024-1027 (Count 4 against Raymond, Count 7 against Guzek and GRC); improper delegation of control of plan assets, in violation of 29 U.S.C. § 1104(a)(1) (Count 5 against Raymond); failure to prosecute breach of fiduciary duty, in violation of 29 U.S.C. §§ 1104, 1105 (Count 8 against Guzek and GRC); and co-fiduciary liability (Count 11 against Ronald).

In the Prayer for Relief Clause ("PRC"), Jeffrey specifies that he seeks an order directing all Defendants to restore to the Plan any losses suffered by the Plan and any profits realized by Defendants. (PRC ¶¶ 1-7, 10-12.) Jeffrey also seeks injunctive relief that would remove Raymond and Guzek as fiduciaries of the Plan, appoint an independent trustee, order the independent trustee to hire an independent auditor to conduct an audit of the Plan for the Plan Years 2002 - 2010, and enjoin Raymond and Guzek from serving in a fiduciary capacity with regard to any employee benefit plan subject to ERISA for the rest of their lives. (Id. ¶ 8.) Jeffrey also seeks to void any ...


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