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Spear v. Fenkell

United States District Court, E.D. Pennsylvania

December 29, 2016

SPEAR, et al.
FENKELL, et al.


          HON. RICHARD A. LLORET U.S. Magistrate Judge

         The parties seek reconsideration of this Court's ruling on their respective motions for summary judgment. This memorandum rules on them all. In Part II of this Memorandum, I will address the Stonehenge parties' motion for reconsideration. In Part III, I will address the Sefcovic parties' motion for reconsideration. In Part IV, I will address the Fenkell parties' motion for reconsideration. In Part V, I will address the Alliance parties' motion for clarification of the Order dated September 30, 2016.


         “The United States Court of Appeals for the Third Circuit has held that the purpose of a motion for reconsideration is to correct manifest errors of law or fact or to present newly discovered evidence.” Cohen v. Austin, 869 F.Supp. 320, 321 (E.D.Pa.1994). Accordingly, a district court will grant a party's motion for reconsideration in any of three situations: (1) the availability of new evidence not previously available, (2) an intervening change in controlling law, or (3) the need to correct a clear error of law or to prevent manifest injustice. Id.

         Federal courts have a strong interest in the finality of judgments. Cont'l Cas. Co. v. Diversified Indus., Inc., 884 F.Supp. 937, 943 (E.D.Pa.1995). Because of the interest in finality, at least at the district court level, motions for reconsideration should be granted sparingly; the parties are not free to relitigate issues the court has already decided. Rottmund v. Continental Assurance Co., 813 F.Supp. 1104, 1107 (E.D.Pa.1992). Stated another way, dissatisfaction with the Court's ruling is not a proper basis for reconsideration. Glendon Energy Co. v. Borough of Glendon, 836 F.Supp. 1109, 1122 (E.D.Pa.1993); Bhatnagar v. Surrendra Overseas Ltd., 52 F.3d 1220, 1231 (3d Cir. 1995) (a motion for consideration may not be used to give a litigant a “second bite at the apple”). A motion for reconsideration may only address “‘factual and legal matters that the Court may have overlooked' and may not ‘ask the Court to rethink what it had already thought through - rightly or wrongly.'” Jarzyna v. Home Properties, L.P. F.Supp.3d 2016 WL 26236888 (E.D.Pa. May 6, 2016) (citing Glendon Energy Co., 836 F.Supp. at 1122).


         The Stonehenge parties allege three grounds for reconsideration: (1) the opinion erroneously fails to recognize that ERISA greatly restricts liability and available relief against non-fiduciaries; (2) the opinion errs by failing to separately consider the Stonehenge defendants' statute of limitations arguments; and (3) the opinion errs by suggesting that ERISA preemption depends on whether plaintiffs can successfully prove their claims and on availability of relief under ERISA. I will address each argument separately.


         The Stonehenge parties allege that the opinion erred in denying summary judgment as to Counts IV and V on the grounds that the Stonehenge defendants “participated” in Fenkell's Fiduciary breaches as a matter of law. The Stonehenge parties also allege that the court erred in finding that the remedies of accounting and disgorgement are “appropriate equitable relief” under ERISA. The Fenkell and Sefcovic parties join in these arguments. I will address these arguments together.

         i. Under ERISA, non-fiduciaries can only be liable for knowingly participating in prohibited transactions (not fiduciary breaches).

         The parties argue that, under ERISA §406(b), non-fiduciaries can only be liable for knowingly participating in prohibited transactions, not merely fiduciary breaches. The parties argue that “the Opinion's repeated references to the Stonehenge Defendants' non-fiduciary ERISA liability for knowing participation in ‘fiduciary violations' see e.g., Op. at 57, 59, 60, 64, 6568, rather than ‘prohibited transactions, ' is manifest error.” Stonehenge Mem. in Support of Motion for Reconsideration (“Stonehenge Mem.”) at 2.

         The parties correctly cite the standard of liability for non-fiduciaries, which requires knowing participation in a prohibited transaction. The opinion also correctly cites this standard numerous times. See Op. at 58, 60, 61.

         Although there is reference in the decision to “knowing participation in a fiduciary breach, ” the opinion is clearly referring to Stonehenge's participation in a prohibited transaction, namely the spread transaction where the payments to DBF amounted to a kickback. See e.g. Op. at 60-62 (explaining that Stonehenge's fee of $30 million for facilitating the spread deal was “contingent on the profitability of the Spread Deal, and was paid through AH III via the same ‘waterfall' that generated fees for the ESOP and Alliance.”) Any portion of the Opinion that references participation in a fiduciary breach is hereby modified to reflect the standard that I relied on in my analysis, but that was sometimes referred to as a breach of fiduciary duty: that a non- fiduciary is liable only for knowing participation in a prohibited transaction under ERISA.

         ii. Under ERISA, receipt of plan assets is one way, but not the only way, non-fiduciaries can “participate” in a prohibited transaction.

         The Stonehenge parties argue that non-fiduciaries can only “participate” in a prohibited transaction by receiving plan assets. Stonehenge Mem. at 2. The Fenkell and Sefcovic parties join in this argument. I will address the parties' arguments together.

Stonehenge cites to Harris Trust and Savings Bank et al. v. Salomon Smith Barney Inc., et al., 530 U.S. 238, 250-253, 120 S.Ct. 2180 (2000), arguing that the Court “repeatedly tied ERISA liability of non-fiduciaries to the receipt of plan assets.” The parties urge the court that reconsideration is necessary to correct a clear error of law of fact or to prevent manifest injustice. I disagree. The parties are attempting to relitigate an issue that has already been discussed at length and decided. The Opinion states, Stonehenge's primary argument is that it never received plan assets, because it was always paid by AH III, not Alliance Holdings or the Alliance ESOP. This, Stonehenge argues, means that it never “participated” in a fiduciary violation, in the sense required under Harris Trust. The argument rests on the premise that Harris Trust liability only attaches if a non-fiduciary receives plan assets. I disagree. Receiving plan assets through a prohibited transfer is one way, but not the only way, a non-fiduciary can “knowingly participate” in a fiduciary violation. It happens to be the type of fiduciary violation at issue in Harris Trust.

Op. at 59 (emphasis supplied) (internal citations omitted). Relying on Harris Trust, Iola[1], and the plain language of the statute, I held that receipt of plan assets is one way but not the only way a non-fiduciary can “knowingly participate” in a prohibited transaction. Id.

         With this framework in mind, the decision turned to whether Stonehenge “knowingly participated” in a prohibited transaction. I held that Stonehenge “participated” in the prohibited transaction based on Stonehenge's “active involvement in managing the deal, and its $34 million in fees” which was not materially different than [the defendant's] commissions in Iola. Op. at 62-63. I also held that there were issues of fact whether Stonehenge “knowingly” participated in a fiduciary breach. See Op. at 63-64. Knowing participation under Harris Trust requires actual or constructive knowledge of the facts that made the underlying transaction unlawful. Id. at 63. The parties set forth various facts on either side of the argument, which created a genuine issue of material fact about whether Stonehenge actually or constructively knew of Fenkell's fiduciary breaches.

         The parties argue that the Court's reliance on Iola was misplaced because Iola is distinguishable:

[p]rincipally relying upon Iola, the Opinion notes that ‘Barrett, the salesman in Iola, did not receive trust assets' yet was liable for knowing participation.” This statement fails to recognize the central distinguishing fact that Barrett's liability turned on his status as [an] agent of his employer (Tri-Core) which was a fiduciary.” Stonehenge Mem. at 3 (internal citations omitted). This argument is without merit and is improper on a motion for reconsideration. The Stonehenge parties are conflating the section of the opinion that discussed whether participation requires receipt of plan assets, see Op. at 58-60, and a subsequent section that dealt with whether Stonehenge “knowingly participated” in a prohibited transaction, see Op. at 63. Stonehenge fails to cite to a manifest error of law or fact, and is attempting to relitigate that which was already decided.

Stonehenge also argues that the opinion's reliance on Mellon Bank, N.A. ex rel. Weiss Packing Co., Inc. Profit Sharing Plan v. Levy, 71 Fed.Appx. 149 (3d Cir. 2003) was “inaccurate” because in Mellon Bank, the Court held that “the attorney did not participate because he did not receive funds from the transaction (i.e. he did not receive plan assets) - not because his conduct was limited in scope.” Stonehenge Mem. at 3-4.

         Stonehenge's argument is no different from the position I rejected in the Opinion. See Op. at 61-63. Stonehenge's assertion that the third circuit held that the defendant did not participate because he did not receive funds from the transaction is a misstatement of the law, and this argument is without merit. Mellon Bank does not stand for the proposition that receipt of trust assets is the sine qua non of participation. The Court provided a set of non-exclusive factors to be taken into account when evaluating “participation.” These factors include whether a party “participated in the actual exchange of money for property, ever saw profit from the transaction, or ever possessed title or right to the property or money involved.” Op. at 62, citing Mellon Bank, 71 Fed.

         Appx. 149. I do not read Mellon Bank to hold that receipt of plan assets is the only way a party can participate in a fiduciary breach. Receipt of plan assets is one way, but not the only way, to establish participation. I have already decided the issue in my Opinion and will not revisit it on a motion for reconsideration. See Op. at 61-63.

         iii. The remedy of accounting and disgorgement are appropriate equitable remedies under ERISA.

         Stonehenge argues that the Court made four errors in ruling that the remedy of accounting and disgorgement are appropriate equitable remedies: (1) “the Opinion fails to recognize the Supreme Court's requirement that Plaintiff's must identify ‘particular funds' that can be ‘traced' within defendant's possession before relief can be deemed equitable”; (2) “the Opinion errs in reasoning that the remedy of disgorgement is distinct from the equitable remedies of restitution, constructive trust and equitable lien”; (3) “the Opinion errs by holding that the accounting for profits remedy permits Plaintiffs to avoid identifying a traceable and identifiable res”; and (4) “the Opinion errs by conflating the need for an identifiable and traceable res with the wholly separate issue of whether relief is available after a res is dissipated.” Stonehenge Mem. at 4-8. The Fenkell and Sefcovic parties join in this argument. I will address the arguments together.

         This issue was discussed at length in the opinion and the parties do not cite to any errors of law or fact in their motion for reconsideration. In fact, the parties make identical arguments, citing to the same case law (Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993), Great-West Life & Annuity Ins. Co v. Knudson, 534 U.S. 204, 209 (2002), and Montanile v. Board of Trustees of the National Elevator Industry Health Benefit Plan, 136 S.Ct. 651 (2016)). The parties are merely attempting a second bite at the apple, which is impermissible.

         As discussed extensively in the Opinion, see Op. at 65-70, ERISA relief against a non-fiduciary must be equitable and appropriate under the law. Op. at 65, citing Harris Trust, 530 U.S. at 250. Equitable remedies are those “‘typically' available from a court of equity before the equitable and legal jurisdictions of the federal courts were joined in 1938.” Op. at 65, citing Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356, 362 (2006). The Opinion relied on Edmondson v. Lincoln Nat. Life Inc. Co., 725 F.3d 406 (3d Cir. 2013), in which the Court of Appeals held that the defendant's “claim for disgorgement, which is akin to an accounting for profits, is an equitable remedy available under ERISA and Great-West Life.” Op. at 66, citing Edmondson, 725 F.3d at 420. The opinion noted, [t]he Supreme Court's concerns about permitting damage-like remedies in equitable guise are well documented. These concerns may be in tension with its ‘typically available in equity test' when it comes to accounting and disgorgement. Nevertheless, the Supreme Court has endorsed accounting and disgorgement as an equitable remedy at least three times, without actually ruling on the subject.

         Op. at 67, citing Knudson, 534 U.S. at 215 (quoting Harris, 530 U.S. at 250-51); Mertens, 508 U.S. at 262; and Edmonsdon, 725 F.3d at 419 (quoting Knudson, 534 U.S. at 214 n. 2).

         Stonehenge argues, again, that under Montanile, a plaintiff “may seek equitable restitution or disgorgement of funds from a dissipated res only if the spent funds can be traced to specific assets.” Stonehenge Mem. at 8. However, I concluded in the Opinion that “Montanile overruled neither the holding nor rational of Edmondson. Absent clear language from the Supreme Court overruling the holding or rationale of Edmondson, I must follow the Court of Appeals.” Op. at 70, citing United States v. Mitlo, 714 F.2d 294, 298 (3d Cir. 1983) (quoting Allegheny Gen. Hosp. v. NLRB, 608 F.2d 965, 970 (3d Cir. 1979)); also citing Litman v. Massachusetts Mut. Life Ins. Co., 825 F.2d 1506, 1508 (11th Cir. 1987). The parties fail to cite to any change in the law which would warrant reconsideration of this decision. Since I addressed this precise issue in the Opinion, the parties' argument is improper on a motion for reconsideration.


         The Stonehenge parties allege that the Court erred in failing to separately consider the affirmative defense of statute of limitations with respect to each defendant. Stonehenge argues that the plaintiffs are required to establish fraudulent concealment against each defendant separately in order to toll the statute of limitations. Stonehenge Mem. at 9, citing Barker v. American Mobil Power Corp., 64 F.3d 1397, 1402 (9th Cir. 1995). There is language in Kurz v. Philadelphia Elec. Co., 96 F.3d 1544 (3d Cir. 1996) that supports this proposition:

when a lawsuit has been delayed because the defendant itself has taken steps to hide its breach of fiduciary duty, the limitations period will run six years after the date of the claim's discovery. The relevant question is therefore not whether the complaint ‘sounds in concealment, ' but rather whether there is evidence that the defendant took affirmative steps to hide its breach of fiduciary duty.

Id. at 1552 (emphasis supplied). I found that there were genuine issues of material fact that precluded summary judgment against the Alliance Parties on the statute of limitations question. My opinion did not explain my finding in any detail. I did note, however, that “for reasons I explained in Section II of this opinion, dealing with Fenkell's statute of limitations arguments, I conclude that there are genuine issues of material fact that ...

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