United States District Court, E.D. Pennsylvania
Jeffrey E. PERELMAN
Raymond G. PERELMAN, Jason Guzek, and General Refractories Company.
[Copyrighted Material Omitted]
James T. Smith, Rebecca D. Ward, Blank Rome LLP, Philadelphia, PA, Paul A. Friedman, Blank Rome LLP, New York, NY, for Jeffrey E. Perelman.
Marjorie M. Obod, Ethan Dennis, Dilworth Paxson LLP, Clifford E. Haines, Haines & Associates, Philadelphia, PA, Patrick M. Northen, Wynnewood, PA, Sandra Schultz Newman, Gladwyne, PA, Derek J. Cusack, Dicalite Management Group Inc., Bala Cynwyd, PA, for Raymond G. Perelman, Jason Guzek, and General Refractories Company.
PADOVA, District Judge.
Presently before the Court is a Motion by Defendant General Refractories Company (" GRC" ) for Judgment on the Pleadings on Plaintiff Jeffrey Perelman's (" Jeffrey" ) Second Amended Complaint. (Docket No. 106). Also before the Court is a similar Motion filed by Defendants Raymond Perelman (" Raymond" ) and Jason Guzek (" Guzek" ). (Docket No. 107). After those Motions were filed, Jeffrey filed a Motion for Leave to File a Third Amended Complaint. (Docket No. 109). For the following reasons, we deny Jeffrey's Motion and grant Defendants' Motions in part.
I. FACTUAL AND PROCEDURAL BACKGROUND
The allegations contained in the Second Amended Complaint (" SAC" ) were fully set out in our Opinion of August 27, 2012, 2012 WL 3704783 (" the August Opinion" ), and we repeat them here only briefly. In the SAC, Jeffrey only asserted claims for injunctive relief under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), the provision permitting equitable claims by plan participants for breach of fiduciary duties. He alleged that his father Raymond, as trustee of the General Refractories Company Pension Plan (" the Plan" ), improperly invested Plan assets in the corporate bonds of Revlon, Inc. (together with Revlon Consumer Products Corporation, collectively " Revlon" ), a company controlled by his brother Ronald Perelman (" Ronald" ), during a time period in which Revlon was substantially over-leveraged and had poor credit ratings assigned to its corporate bonds. (SAC ¶¶ 37, 49 74, 88.) He also alleged that Raymond 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 a $2.7 million undivided interest in a Senior Subordinated Loan Agreement between MacAndrews and Revlon, under which MacAndrews loaned Revlon $170 million, and permitted MacAndrews (i.e. Ronald) to retain approximately $2 million as a non-refundable fee. ( Id. ¶¶ 117, 120-23.) 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; Ronald thus 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.)
Jeffrey also alleged that Forms 5500 for plan years 2003-2005, listing Raymond as the Plan Administrator, did not disclose that the Plan held investments in Revlon bonds, but rather asserted that all Plan assets were invested in master trust accounts. ( Id. ¶¶ 27, 32-33, 38, 40-41, 50, 54-55.) 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, while disclosing investments in Revlon bonds, did not, inter alia, identify those investments as party-in-interest transactions by the Plan, did not disclose the relationship between Ronald and Raymond, and did not disclose that Ronald was himself a fiduciary of the Plan by virtue of his power to vote stock held by the Plan. ( Id. ¶¶ 31-32, 40, 43, 52, 54, 61, 78, 91.)
In our August Opinion deciding the Defendants' Motions to Dismiss the SAC, we held that the SAC adequately alleged that Jeffrey had standing to seek certain injunctive relief, as well as standing to enforce his ERISA-created right to accurate plan documents. However, we rejected Jeffrey's argument that he established standing to seek monetary forms of equitable relief in the forms of disgorgement and restitution. Accordingly, we granted the Motions to Dismiss in part, dismissing in their entirety the claims against Ronald, which sought only money damages, and striking those clauses of the SAC's Prayer for Relief clause that requested monetary relief against the other defendants.
GRC then filed the pending Motion for Judgment on the Pleadings (Docket No. 106). Raymond and Guzek jointly filed a similar Motion (Docket No. 107). Thereafter, Jeffrey filed the pending Motion for Leave to File a Third Amended Complaint (Docket No. 109), in which he seeks to
rejoin Ronald and, for the first time, add additional claims seeking monetary relief against all parties pursuant to ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2).
In the proposed Third Amended Complaint (" TAC" ), Jeffrey makes additional allegations based upon an Amended Form 5500 filed by the Plan for 2010, as well as an application submitted by Raymond to the United States Department of Labor's Voluntary Fiduciary Correction Program (" VFCP" ). He alleges that, by virtue of the improper dealings in Revlon, the Plan is currently underfunded. Specifically, he alleges that the Amended Form 5500 shows that Plan's funding ratio has diminished on an actuarial basis from 105.41% in 2009 to 95.72% in 2011, and on a market value analysis, the Plan was only 83% funded as of December 31, 2011. (TAC ¶¶ 248-49.) He also alleges that the 2010 filing demonstrates a significant deficiency in all previous Forms 5500 filed for the Plan: while each prior Form from 2003 to 2009 stated that 100% of assets were invested in registered investment companies, the 2010 Amended Form reflects that only approximately $5 million of the Plan's total assets of approximately $12.9 million were invested in registered investment companies. ( Id. at ¶¶ 253-56.) Jeffrey alleges that it is inconceivable that the nature of the investments changed so significantly, calling into question the veracity of the prior filings. ( Id. at ¶ 257.)
The TAC alleges that the admissions contained in the VFCP application reveal numerous inadequacies in Raymond's administration of the Plan, which required Raymond to pay money to the Plan to correct the breaches of his fiduciary duties. Jeffrey alleges that Raymond's action to cure the prohibited party-in-interest transactions was itself another prohibited party-in-interest transaction since, rather than selling the Revlon bonds, he converted them into Revlon stock via a " call" on the bonds. ( Id. at ¶¶ 274-81.) He also asserts that the " corrective amount" that Raymond remitted with the application in regard to that transaction, $270,446.42, did not fully reimburse the Plan for the $3,170,612.98 loss in principal that Raymond himself declared in the application, and there was no restoration of lost profits or restoration of the party-in-interests' investment return. ( Id. at ¶¶ 282-85.) Concerning the MacAndrews Participation Agreement, Jeffrey alleges that the VFCP application reported lost earnings of $621,351.44, which exceeded the profit that the Plan earned on the investment, but the corrective amount remitted was $0. ( Id. at ¶¶ 289-98.) Jeffrey also asserts that no corrective amounts were remitted to account for losses incurred in connection with three other prohibited transactions identified in the VFCP application. ( Id. at ¶ 303.) He alleges that " [u]pon information and belief, this significant diminution in the value of the assets of the Pension Plan jeopardizes the ability of the Pension Plan to provide continued pension benefits to its participants and beneficiaries." (TAC ¶¶ 426, 434, 447, 460, 473, 485 (emphasis added).)
II. PLAINTIFF'S MOTION FOR LEAVE TO AMEND
A. Standard of Review
Granting leave to amend is within the discretion of the district court. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 330, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). Courts should " freely give leave" for a party to file an amended pleading " when justice so requires." Fed.R.Civ.P. 15(a)(2). The United States Court of Appeals for the Third Circuit has stated that leave " must generally be granted unless equitable considerations render it otherwise unjust."
Arthur v. Maersk, Inc., 434 F.3d 196, 204 (3d Cir.2006) (citing Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)). A court may deny leave to amend when " (1) the moving party has demonstrated undue delay, bad faith or dilatory motives, (2) the amendment would be futile, or (3) the amendment would prejudice the other part[ies]." Lake v. Arnold, 232 F.3d 360, 373 (3d Cir.2000); see also Lorenz v. CSX Corp., 1 F.3d 1406, 1414 (3d Cir.1993) (" In the absence of substantial or undue prejudice, denial instead must be based on bad faith or dilatory motives, truly undue or unexplained delay, repeated failures to cure the deficiency by amendments previously allowed, or futility of amendment." (citation omitted)). To determine futility, we apply the same analysis that would govern a motion to dismiss under Fed.R.Civ.P. 12(b)(6). See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir.1997). " ‘ Futility’ means that the complaint, as amended, would fail to state a claim upon which relief may be granted." Id. " If a proposed amendment is not clearly futile, then denial of leave to amend is improper." 6 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, § 1487 (4th ed. 2010).
B. Standing to Bring a § 502(a)(2) Claim
The " irreducible constitutional minimum" of Article III standing consists of an injury-in-fact, a causal connection between the injury and the conduct complained of, and the likelihood, as opposed to the mere speculation, that the injury will be redressed by a favorable decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The injury-in-fact requirement exists to ensure that litigants have a personal stake in the litigation. The Pitt News v. Fisher, 215 F.3d 354, 360 (3d Cir.2000). The requirement is very generous, requiring only that the claimant allege some specific, identifiable trifle of injury. Danvers Motor Co., Inc. v. Ford Motor Co., 432 F.3d 286, 291 (3d Cir.2005) (noting that " [w]hile it is difficult to reduce injury-in-fact to a simple formula, economic injury is one of its paradigmatic forms" ); see also Bowman v. Wilson, 672 F.2d 1145, 1151 (3d Cir.1982); United States v. Students Challenging Regulatory Agency Procedures, 412 U.S. 669, 689 n. 14, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973) (recognizing that " an identifiable trifle is enough" ); Gen. Instrument Corp. v. Nu-Tek Elects. & Mfg., Inc., 197 F.3d 83, 87 (3d Cir.1999) (same); Pub. Interest Research Grp. of N.J., Inc. v. Powell Duffryn Terminals Inc., 913 F.2d 64, 71 (3d Cir.1990) (same). The Supreme Court has made clear that, while Congress can identify those persons whom it intends to be protected by a statute, " the requirement of injury in fact is a hard floor of Article III jurisdiction that cannot be removed by statute." Summers v. Earth Island Inst., 555 U.S. 488, 496, 129 S.Ct. 1142, 173 L.Ed.2d 1 (2009).
To bring an ERISA lawsuit a plan participant must not only satisfy standing under the statute, but must also meet the standing requirements of Article III. See Horvath v. Keystone Health Plan E., Inc., 333 F.3d 450, 455 (3d Cir.2003) (citing Warth v. Seldin, 422 U.S. 490, 501, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975)); accord, Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 433 F.3d 181, 199 (2d Cir.2005); Kendall v. Employees Retirement Plan of Avon Prods., 561 F.3d 112, 118 (2d Cir.2009) (citing Cent. States, 433 F.3d at 199). In deciding the earlier dispositive motions, we noted that " [t]he rules regarding constitutional standing differ depending upon whether the plaintiff is seeking
money damages or equitable relief. Where an ERISA plaintiff seeks money damages for breach of fiduciary duty, he must allege individual loss or injury to satisfy Article III standing." August Opinion at 8-9 (citing Horvath, 333 F.3d at 456 (finding that the plaintiff's requests for restitution and disgorgement were individual in nature and therefore required the plaintiff to demonstrate individual loss to satisfy Article III standing)). In contrast, with respect to the SAC's claims for injunctive relief, the Horvath court established that " ‘ [t]he actual or threatened injury required by Art. III may exist solely by virtue of statutes creating legal rights, the invasion of which creates standing.’ " Horvath, 333 F.3d at 456 (alteration in original) (quoting RJG Cab, Inc. v. Hodel, 797 F.2d 111, 118 (3d Cir.1986) (quoting Warth, 422 U.S. at ...