United States District Court, W.D. Pennsylvania
THOMAS E. PEREZ, SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, Plaintiff,
WPN CORPORATION, RONALD LABOW; SEVERSTAL WHEELING, INC. RETIREMENT COMMITTEE; MICHAEL DICLEMENTE; DENNIS HALPIN; WHEELING CORRUGATING COMPANY RETIREMENT SECURITY PLAN; AND SALARIED EMPLOYEES' PENSION PLAN OF SEVERSTAL WHEELING, INC., Defendants.
Barry Fischer United States District Judge
Secretary of Labor of the United States Department of Labor
("DOL") brings this action under the Employee
Retirement Income Security Act of 1974, 29 U.S.C.
§§ 1001, et seq. ("ERISA")
alleging that the fiduciaries and investment managers of two
related pension plans violated ERISA causing a loss of the
pension plans' value of approximately $7, 000, 000.00.
Defendant fiduciary body, the Severstal Wheeling, Inc.
Retirement Committee (the "Retirement Committee")
and its two individual members, Michael DiClemente
("DiClemente") and Dennis Halpin
("Halpin") appointed Ronald Labow
("Labow") and WPN Corporation ("WPN") to
manage the assets of the two pension plans, the Wheeling
Corrugating Company Retirement Security Plan and the Salaried
Employees' Pension Plan of Severstal Wheeling, Inc.
("the Plans"). In its Amended Complaint the DOL
alleges that Labow, the sole officer and principal owner of
WPN, and WPN are directly responsible under ERISA for the
loss in value of the Plans' assets from approximately
December 5, 2008 through May 19, 2009. The DOL alleges that
Retirement Committee, DiClemente, and Halpin (collectively,
"Defendants") are liable under ERISA for failing to
invest the Plans' assets from November 3, 2008 to
December, 5, 2008; for failing to monitor Labow and WPN's
conduct from December 5, 2008 to May 19, 2009; and for
co-fiduciary liability for Labow and WPN's violations.
before the Court is Defendants' Motion to Dismiss and, in
the alternative, Motion for Summary Judgment. (Docket No.
124). The DOL has filed a Response to the Motion (Docket No.
130) and Defendants have filed a Reply (Docket No. 134). The
Court heard oral argument on the Motion on February 7, 2017
(Docket No. 135), after which both parties filed Supplement
Briefs (Docket Nos. 139 and 140). After careful consideration
of the parties' positions, and for the following reasons,
Defendants' Motion to Dismiss is granted, in part and
denied in part. Defendants' alternative Motion for
Summary Judgment is denied.
Procedural History and Factual Background
filed a Complaint in this Court on October 14, 2014. (Docket
No. 1). An Amended Complaint was filed on March 27, 2015.
(Docket No. 28). On April 10, 2015, the Court issued a
Consent Order on Stay granting the Retirement Committee,
DiClemente, and Halpin's unopposed Motion for Stay of
Proceedings. (Docket No. 37). The Stay was requested to await
the issuance of a decision on the merits in a lawsuit filed
by the Retirement Committee and its members (and the Plans)
against Labow and WPN in the United States District Court for
the Southern District of New York. (Docket No. 37, at ¶
1; Severstal Wheeling, Inc. v. WPN Corp., No.
1:10-cv-954). Following a bench trial, District Judge Laura
Taylor Swain issued a decision dated August 10, 2015, finding
that WPN and Labow breached their fiduciary duties under
ERISA and entered judgment for approximately $15, 000,
000.00. Severstal Wheeling, Inc. Ret. Comm. v. WPN
Corp., 119 F.Supp.3d 240, 242 (S.D.N.Y. 2015). The
decision was affirmed by the United States Court of Appeals
for the Second Circuit on August 30, 2016. Severstal
Wheeling, Inc. v. WPN Corp., 659 F.App'x 24 (2d Cir.
2016). The Stay in this Court was lifted on the same day.
(Docket No. 97). Defendants' Motion to Dismiss and, in
the alternative, Motion for Summary Judgment was filed on
October 31, 2016. (Docket No. 124).
approximately June 2008 to approximately May 2009, the
Plans' sponsor was Severstal Wheeling, Inc., which is no
longer in business. (Am. Compl. ¶ 12, Docket No. 28).
The Plans were established to provide retirement benefits to
employees. Pursuant to the Plans' documents, Severstal
Wheeling, Inc. Retirement Committee is the Plan Administrator
and a Named Fiduciary for each of the Plans. (Am. Compl.
¶ 8). DiClemente was a member of the Retirement
Committee from June, 2008, through February 2009, and is a
Named Fiduciary pursuant to the Plans' documents. (Am.
Compl. ¶ 9). Halpin was a member of the Retirement
Committee from June, 2008, through April, 2009, and is a
Named Fiduciary pursuant to the Plans' documents. (Am.
Compl. ¶ 10).
Plans' assets were part of a large trust, the WHX Trust,
holding the assets of several pension plans managed by Labow
and WPN. (Am. Compl. ¶ 14). The Trustee of the WHX Trust
was Citibank, N.A. (Am. Compl. ¶ 15). In June, 2008,
Citibank announced that it was discontinuing its trust
services by the end of 2008. (Am. Compl. ¶ 15.) As a
result, the Plans' assets were to be separated from the
unrelated pension plan assets held in the WHX Trust and
deposited into a new standalone trust holding only the
Plans' assets. (Am. Compl. ¶ 16.) The new standalone
trust was "subsequently renamed" the Severstal
Wheeling, Inc. Pension Plan Master Trust ("Severstal
Trust"). (Am. Compl. ¶ 16.) National City Bank
became the Trustee of the Severstal Trust on December 31,
2008. (Am. Compl. ¶ 15).
allegations supporting the DOL's claims that Defendants
violated ERISA fall into two definable time periods. The
first period begins on November 3, 2008, with the transfer of
the Plans' Assets from the WHX Trust to a standalone
trust, and ends on December 5, 2008, when a written
investment management agreement was entered into between the
Retirement Committee and Labow and WPN.
majority of the Plans' assets (valued at approximately
$31, 446, 845) were held in an undiversified account with
Neuberger Berman, LLC. (Am. Compl. ¶¶ 19, 21). The
Neuberger Berman account had approximately 97% of its value
invested in eleven large cap energy stocks, and remained in
this undiversified state during the period from November 3,
2008 through December 5, 2008. (Am. Compl. ¶¶ 21,
Neuberger Berman account holding the Plans' assets was
transferred from the WHX Trust to the Severstal Trust on
November 3, 2008. (Am. Compl. 19). On November 4, 2008,
DiClemente confirmed the transfer of the Neuberger Berman
account to the Severstal Trust by letter dated November 3,
2008. (Am. Compl. ¶ 20).
was no written investment management agreement from November
3, 2008, until December 5, 2008. (Am. Compl. ¶ 22). On
December 5, 2008, DiClemente, on behalf of the Retirement
Committee, signed an investment management agreement with
Labow and WPN, titled the Third Amendment to the Severstal
Wheeling, Inc. Investment Management Agreement. (Am. Compl.
¶ 23). Although the investment management agreement
signed on December 5, 2008, was backdated to be effective
November 1, 2008 (Am. Compl. ¶ 23), the DOL alleges that
Labow and WPN's investment manager fiduciary duties
became effective on December 5, 2008. In the DOL's first
claim it is alleged that from November 3, 2008 through
December 5, 2008, Defendants failed to discharge their
fiduciary duties solely in the interest of the participants
and beneficiaries by failing to prudently invest the
Plans' assets when no investment management agreement was
in place in violation of ERISA sections 404(a)(1)(A) and
404(a)(1)(B); 29 U.S.C. §§ 1104(a)(1)(A) &
1104(a)(1)(B). (Am. Compl. ¶ 35).
second time period begins when the Retirement Committee
entered into the investment management agreement with Labow
and WPN on December 5, 2008, and ends when Labow and WPN are
terminated on May 19, 2009. (Am. Compl. ¶¶ 23, 28).
The Plans' assets remained in the undiversified Neuberger
Berman account from December 5, 2008 through December 30,
2008. (Am. Compl. ¶ 24). On December 30, 2008, the
Retirement Committee, DiClemente, and Halpin first learned
that the Plans' assets were in the undiversified
Neuberger Berman account and DiClemente informed Labow and
WPN of the discovery. (Am. Compl. ¶ 25).
Plans' assets remained in the undiversified Neuberger
Berman account while Defendants communicated with Labow and
WPN, from December 30, 2008 through March 24, 2009. (Am.
Compl. ¶ 26). On March 24, 2009, the Plans assets in the
Neuberger Berman account were sold for cash. (Am. Compl.
Plans' assets remained in cash from March 24, 2009
through May 19, 2009, during which time the Retirement
Committee and Halpin communicated with Labow and WPN. (Am.
Compl. ¶ 29). On May 19, 2009, the investment management
agreement was terminated and Labow and WPN were fired. (Am.
Compl. ¶¶ 6, 28).
November 3, 2008 through May 19, 2009, the Plans suffered
losses and lost earnings of approximately $7, 000, 000.00.
(Am. Compl. ¶ 32). The DOL's second claim alleges
that Defendants failed to discharge their fiduciary duties
solely in the interest of the participants and beneficiaries
by failing to monitor Labow and WPN from December 5, 2008
through May 19, 2009, while they acted as investment manager
for the Plans in violation of ERISA sections 404(a)(1)(A) and
404(a)(1)(B); 29 U.S.C. §§ 1104(a)(1)(A) &
1104(a)(1)(B). (Am. Compl. ¶ 35).
the DOL alleges in its third claim that Defendants are
subject to co-fiduciary liability because they enabled Labow
and WPN to commit a breach of ERISA section 404(a)(1), and
knew of Labow and WPN's breach and failed to make
reasonable efforts to remedy the breach, all in violation of
ERISA sections 405(a)(2) and 405(a)(3); 29 U.S.C.
§§ 1105(a)(2) & 1105(a)(3). (Am. Compl. ¶
seek dismissal of the DOL's claims for failure to state a
claim upon which relief can be granted under Federal Rule of
Civil Procedure 12(b)(6). In the alternative, Defendants
request the Court convert the motion to dismiss into a motion
for summary judgment relying primarily on the fact finding
developed in the related proceeding in the United States
District Court for the Southern District of New York, as well
as an Affidavit prepared by DiClemente. The DOL was not a
party in Severstal Wheeling, Inc. v. WPN Corp., No.
1:10-cv-954, nor were Defendants. Although the District Court
for the Southern District of New York found Labow liable for
fiduciary breaches, the decision in that case cannot be read
to absolve Defendants from liability. Finally, the Court
agrees with the DOL that the opportunity to obtain discovery
is required before the motion is converted to a motion for
summary judgment. Accordingly, the Court declines to convert
the motion to dismiss to a motion for summary judgment.
Standard of Review
reviewing a motion to dismiss pursuant to Federal Rule of
Civil Procedure 12(b)(6), the court must "accept all
factual allegations as true, construe the complaint in the
light most favorable to the plaintiff, and determine whether,
under any reasonable reading of the complaint, the plaintiff
may be entitled to relief." Eid v. Thompson,
740 F.3d 118, 122 (3d Cir.2014) (quoting Phillips v. Cnty
of Allegheny, 515 F.3d 224, 233 (3d Cir.2008)). A
pleading party need not establish the elements of a prima
facie case at this stage; the party must only "put
forth allegations that 'raise a reasonable expectation
that discovery will reveal evidence of the necessary
element[s]."' Fowler v. UPMC Shadyside, 578
F.3d 203, 213 (3d Cir.2009) (quoting Graff v. Subbiah
Cardiology Associates, Ltd., 2008 WL 2312671 (W.D.Pa.
June 4, 2008)); see also Connelly v. Lane Const.
Corp., 809 F.3d 780, 790 (3d Cir.2016) ("Although a
reviewing court now affirmatively disregards a pleading's
legal conclusions, it must still . . . assume all remaining
factual allegations to be true, construe those truths in the
light most favorable to the plaintiff, and then draw all
reasonable inferences from them.") (citing Foglia v.
Renal Ventures Mgmt, LLC, 754 F.3d 153, 154 n. 1 (3d
a court need not credit bald assertions, unwarranted
inferences, or legal conclusions cast in the form of factual
averments. Morse v. Lower Merion School District,
132 F.3d 902, 906, n. 8 (3d Cir.1997). The primary question
in deciding a motion to dismiss is not whether the Plaintiff
will ultimately prevail, but rather whether he or she is
entitled to offer evidence to establish the facts alleged in
the complaint. Maio v. Aetna, 221 F.3d 472, 482 (3d
Cir.2000). The purpose of a motion to dismiss is to
"streamline [ ] litigation by dispensing with needless
discovery and factfinding." Neitzke v.
Williams, 490 U.S. 319, 326-327, 109 S.Ct. 1827, 104
L.Ed.2d 338 (1989).
first argue that the DOL fails to state claims upon which
relief can be granted for failure to invest or co-fiduciary
liability because once Defendants appointed investment
managers they are entitled to the protection of the safe
harbor provision of ERISA section 405(d)(1), 29 U.S.C. §
1105(d)(1). Defendants also argue that the DOL has failed to
state a claim upon which relief can be granted that
Defendants breached their duty to monitor the investment
managers. Defendants argue that they complied with their duty
to monitor and that the DOL's claim is an improper
attempt to impute the investment managers' conduct to
discussed below, the Court agrees that once Defendants
appointed investment managers they are entitled to the safe
harbor protection. The Court also finds that the DOL has
properly stated a claim for failure to monitor. In addition,
because the Court finds that the investment management
agreement is effective as of November 1, 2008, the Court will
permit the DOL to amend its Amended Complaint to conform to
Failure to Invest and Co-fiduciary Claims
argue that the DOL's failure to invest and co-fiduciary
liability claims should be dismissed because Defendants are
protected by the safe harbor provision of ERISA section
405(d)(1), 29 U.S.C. § 1105(d)(1). This sections states:
(d) Investment managers
(1) If an investment manager or managers
have been appointed under section 1102(c)(3) of this title,
then, notwithstanding subsections (a)(2) and (3) and
subsection (b) of this section, no trustee shall be liable
for the acts or omissions of such investment manager or
managers, or be under an obligation to invest or otherwise
manage any asset of the plan which is subject to the
management of such investment manager.
29 U.S.C.A. § 1105(d)(1). Defendants argue that because
they appointed an investment manager effective November 1,
2008, the safe harbor provision explicitly relieves them from
liability for the acts or omissions of Labow and WPN, and
from any obligation to invest assets. Accordingly, Defendants
assert that both the failure to invest claim and co-fiduciary
liability claim must be dismissed.
in the DOL's argument is (i) that Labow and WPN were
acting as the appointed investment managers as of the
November 1, 2008 backdated investment agreement, and (ii)
that Defendants fall within the meaning of the term
"trustee" in section 1105(d)(1). The Court
addresses these arguments in turn.
Effective Date of Appointment of Investment Manager
Defendants are correct that the appointment of the investment
managers was effective as of November 1, 2008, then
Defendants would not have had a duty to invest the Plans'
assets from November 3, 2008 to December 5, 2008. Conceivably
Defendants would be exposed to co-fiduciary liability for
this time period, however Defendants' argument is that
the safe harbor provision would relieve them from
co-fiduciary liability for this time period as well. If,
however, the effective date is December 5, 2008, then the
failure to invest claim would survive the motion to dismiss.
This is true because if the investment managers were not
properly appointed during the relevant time period Defendants
would retain control of the assets of the plan with
corresponding fiduciary duties.
argue that basic contract law allows parties the freedom to
impose whatever obligations they wish and that includes the
ability to backdate the effective date of an agreement.
Defendants rely on an opinion from the United States Court of
Appeals for the Third Circuit approving insurance agreements
that are not legally operative until the first premium is
paid, and affirming that the effective date of the agreement
is essentially backdated once the first premium is paid.
Wise v. Am. Gen. Life Ins. Co., 459 F.3d 443 (3d
Cir. 2006). In Wise, the Court of Appeals reviewed
several Pennsylvania cases before concluding that in
Pennsylvania "backdated contracts are not inherently
unfair and should be enforced according to their explicit
terms." Wise, 459 F.3d at 449 (citing Ford
v. Fidelity Mutual Life Insurance Company, 314 Pa. 54,
170 A. 270 (1934)).
also point to the course of conduct between the parties in
this case; highlighting that Labow and WPN had been
investment managers of the Plans' assets prior to the
transfer to the Severstal Trust and remained as investment
managers after the transfer. Thus, Defendants argue that the
agreement entered into on December 5, 2008, was in effect an
amendment to the ongoing investment management agreement