United States District Court, W.D. Pennsylvania
EUGENE SCALIA, 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, Senior 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 while acting as fiduciaries and investment
managers of the Wheeling Corrugating Company Retirement
Security Plan and Salaried Employees’ Pension Plan of
Severstal Wheeling, Inc. (the “Plans”),
Defendants Severstal Wheeling, Inc. Retirement Committee
(“Retirement Committee”), Michael DiClemente
(“DiClemente”), and Dennis Halpin
“Defendants”) violated ERISA causing a loss of
approximately $7 million to the Plans. Presently before the
Court are cross-motions for summary judgment, (Docket Nos.
179, 182), which are ripe for disposition. The Court having
considered the parties’ positions and evaluated the
evidence in light of the standard governing motions for
summary judgment and for the following reasons, grants
Defendants’ motion for summary judgment (Docket No.
179), and denies the DOL’s cross-motion as moot (Docket
RELEVANT FACTUAL BACKGROUND
Court must first address Defendants’ objections to the
DOL’s response to their concise statement of material
facts (Docket No. 195), the DOL’s response to those
objections (Docket No. 201), and Defendants’ reply
(Docket No. 204). Defendants specifically object to the
DOL’s responses to Paragraphs 31, 33, 42-43, 47, 50,
86, 89-94, 96-100, and 102-03 and argue that each of the
facts in those paragraphs should be deemed admitted. (Docket
No. 195 at 3).
Rule of Civil Procedure 56(e), provides that where a party
“fails to properly address another party’s
assertion of fact” the court may “consider the
fact undisputed for purposes of the motion” or
“grant summary judgment if the motion and supporting
materials--including the facts considered undisputed--show
that the movant is entitled to it.” Fed.R.Civ.P.
56(e)(1), (3). To this end, our Local Civil Rules require a
responding party to admit or deny each fact in the moving
party’s concise statement of material facts using
support from the record, LCvR 56(C), and uncontroverted
material facts may “be deemed admitted unless
specifically denied or otherwise controverted by a separate
concise statement of the opposing party, ” LCvR 56.E
(emphasis added). This Chamber’s Practices and
Procedures provide likewise. See Practices &
Procedures of Judge Fischer, § II.E. While this
Court agrees with Defendants that some of the DOL’s
responses are deficient under our Local Rules and this
Chamber’s Practices and Procedures, whether or not this
Court deems those facts admitted does not change the outcome
of this case. Accordingly, the Court will decline to do so
and instead, rely on the record as a whole to determine the
applicable material facts in Paragraphs 31, 33, 42-43, 47,
50, 86, 89-94, 96-100, and 102-03. The Court now summarizes
the facts instrumental to its decision.
to November 2008, the Retirement Committee operated as the
Wheeling-Pittsburgh Steel Corporation Retirement Committee
and was managed as part of the WHX Investment Trust
(“WHX Trust”). (Docket Nos. 190 ¶ 16; 192
¶¶ 3, 5). The WHX Trust was a combined trust that
held pension assets for two entities, Wheeling-Pittsburgh
Steel Corporation and WHX Corporation. (Docket No. 192
¶¶ 6, 8). Beginning in 2004, the WHX Trust was
managed by Ronald LaBow (“LaBow”) and his
company, WPN Corporation (“WPN”), who were given
“complete, unlimited and unrestricted management
authority with respect to the investment of the [WHX
Trust].” (Docket Nos. 190 ¶ 20; 192
¶¶ 6, 8, 10, 11).
2008, Citibank, N.A., which had been operating as the
custodial trustee for the WHX Trust, announced that it would
be exiting the trust business at the end of the year. (Docket
Nos. 190 ¶ 17-18; 192 ¶ 7). As a result of
Citibank’s decision, the Plans’ assets were to be
separated from the WHX Trust and deposited into a new
independent Severstal Trust. (Docket No. 190 ¶ 18). At
that time, the Retirement Committee numbered two members,
DiClemente and Halpin, both of whom were named fiduciaries
for the Plans. (Docket Nos. 190 ¶¶ 8-13; 192
¶¶ 1, 4). The Plans consisted of two pension plans,
the Wheeling Corrugating Company Retirement Security Plan and
the Salaried Employees Pension Plan of Severstal-Wheeling,
Inc., both of which were overseen by the Retirement
Committee. (Docket Nos. 190 ¶¶ 1, 7; 192
¶¶ 1-2). DiClemente and Halpin were both members of
the Wheeling-Pittsburgh Steel Corporation Retirement
Committee prior to becoming members of Severstal’s
Retirement Committee. (Docket No. 192 ¶ 2).
learning that Citibank would be resigning, DiClemente
approached LaBow about possibly continuing on as the
investment manager for the Plans, and LaBow responded with
interest. (Docket No. 192 ¶¶ 34-35). They discussed
the Retirement Committee’s investment goals including
its desire to receive the same percentage interest of
each of the assets held within the WHX Trust.
(Id. ¶ 36; Docket No. 190 ¶ 23). On
September 30, 2008, DiClemente again reminded LaBow of the
Severstal Trust’s desire for “the same percentage
allocations as existed in the WHX [Trust].” (Docket No.
190 ¶ 25). When asked why three weeks later he still had
not separated the WHX Trust’s assets, LaBow responded
that he had not done so due to the volatility in the market
but he would attempt to make the transfer on November 3,
2008. (Id. ¶ 26; Docket No. 184-13 at 11).
LaBow and WPN entered into a written agreement, the Third
Amendment to the Severstal Wheeling, Inc. Investment
Management Agreement, with Severstal Wheeling Inc., successor
to Wheeling-Pittsburgh Steel Corporation. (Docket No. 181-6).
While LaBow signed the agreement on December 5, 2008, he made
November 1, 2008 its effective date. (Id.
¶¶ 14, 17; Docket No. 190 ¶ 21). LaBow
testified that in signing the agreement, he was simply
“memorializing” the already established
relationship between the parties and had been fulfilling his
investment management duties for the “Plans”
since November 1, 2008. (Docket No. 192 ¶ 18). The Third
Amendment to the Severstal Wheeling, Inc. Investment
Management Agreement incorporated language from LaBow and
WPN’s original agreement with WHX. (Docket No. 190-7).
Specifically incorporated was Paragraph 7, granting WPN the
(a) To invest and reinvest the [WHX Trust] at such time and
in such manner as [WPN] in the complete and unlimited
exercise of its discretion shall determine;
(b) To purchase and sell securities for the [WHX Trust] in
the name of [WHX], for the account of [WHX] and at the sole
risk of [WHX];
(c) To arrange for the delivery of and payment for any such
investments, including securities, bought and sold for the
account of [WHX Corporation];
(d) In effecting any such investments, reinvestments,
purchases and sales, to use and obtain the assistance and
services of such brokers, dealers, investment bankers,
underwriters and other firms, enterprises and services as
[WPN] in its discretion shall designate or select[.]
(Docket Nos. 181-3; 190-7).
the fact that LaBow knew that the Severstal Trust wanted a
proportionate share of the combined trust’s assets,
LaBow unilaterally decided to acquire the
entire Neuberger Berman Account
(“Account”) for the Severstal
Trust. (Docket No. 184-8 at 20; 190 ¶ 27).
This Account was not diversified. (Docket No. 190 ¶ 28).
Indeed, approximately 97% of its $31, 446, 845 value was
invested in eleven large cap energy stocks. (Docket No. 190
¶¶ 28-29). To effectuate the transfer, LaBow needed
DiClemente to send a letter to Citibank requesting that the
transfer be made. (Docket Nos. 190-5 ¶¶ 8-9; 197-3
at 4). DiClemente complied believing LaBow had negotiated the
transfer of the Account in accordance with the Retirement
Committee’s instructions. (Docket Nos. 181-9 at 3). He
relied on LaBow’s representations rather than review
the assets being transferred. (See id.) Also
unbeknownst to DiClemente, per the terms of the transfer,
Neuberger Berman would not be responsible for managing the
Account. (Docket Nos. 181-9 at 3; 190 ¶ 51).
not until December 12, 2008, that the Retirement Committee
discovered that Neuberger Berman was not managing the
Severstal Trust despite it having managed those very same
assets as part of the WHX Trust. (Docket Nos. 184-11 at
53-54; 190 ¶ 54). It then learned on December 29, 2008,
that it had not acquired a proportionate share of the WHX
Trust’s assets after DiClemente was so notified by
Mercer Investment Consulting, Inc.
(“Mercer”). (Docket Nos. 181-9 at 3; 190 ¶ 56;
192 ¶ 25).
next day, DiClemente contacted LaBow concerned that the
Account was not diversified and contacted Sally King, the
Retirement Committee’s ERISA lawyer, to help resolve
the issue. (Docket Nos. 184-10 at 64-65, 72; 192
¶ 60). King devised a four-part strategy to proceed: (1)
LaBow would negotiate a fee agreement with Neuberger Berman,
which DiClemente would execute; (2) LaBow would request the
most recent statement from Neuberger Berman; (3) DiClemente
would obtain a copy of a recent audit report; and (4) King
would draft a memo outlining the guidelines to be implemented
between LaBow and DiClemente relating to the
“procedural issues” that had arisen under the
Third Amendment to the Severstal Wheeling, Inc. Investment
Management Agreement. (Docket No. 184-10 at 72).
later, DiClemente repeated to LaBow that the Retirement
Committee wanted him to reallocate the Severstal
Trust’s assets to reflect the same proportionality
utilized in the former WHX Trust. (Docket No. 192 ¶ 62).
LaBow, however, informed King, DiClemente, and Halpin that he
was unable to reset the portfolio; consequently, DiClemente,
Halpin, and King told him to devise a new plan to diversify
the Severstal Trust’s portfolio. (Id. ¶
63; Docket No. 184-10 at 75-76). They emphasized that WPN
needed to preserve as much of the trust’s value as
possible. (Docket Nos. 184-10 at 75-76; 192 ¶ 63). They
also instructed LaBow that he should use his discretion in
determining when to liquidate the Account. (Docket No. 184-10
at 76). It is noteworthy that at the time of this meeting,
any loss in value the trust had incurred as a result of the
transfer of the Account had been almost fully recovered.
over a week later, on January 16, 2009, the Retirement
Committee members, in a teleconference with LaBow, explained
that they wanted LaBow to reallocate the assets using funds
for which there would be no transition issues. (Docket No.
190 ¶ 64). LaBow responded that this request might not
be possible but provided a list of funds that he could use to
reallocate the assets. (Id.) The Retirement
Committee reminded LaBow that it wanted a formal plan in
place before he took any action. (Id.)
January 20, 2009 letter to LaBow, the Retirement Committee
requested that he prepare a written plan to reallocate the
assets and share this plan with the WHX Pension Investment
Committee. (Docket Nos. 184-10 at 80; 192 ¶ 65).
Specifically, LaBow was told to “(a) identify in
writing those accounts that cannot or should not be
proportionally allocated” between the . . . Plans and
the WHX Plans, “(b) provide the reason(s) for such
treatment, and (c) indicate how [he was] recommending
equitable allocation of those assets among the remaining (or
substitute) investments.” (Docket Nos. 184-10 at 80).
days later, the Retirement Committee convened a meeting at
LaBow’s request and asked him to identify in writing
why it was no longer possible for the Severstal Trust to
invest in certain funds he previously stated it could.
(Docket Nos. 192 ¶ 65). In response, LaBow sent a letter
dated February 4, 2009 to the Retirement Committee explaining
why he failed to transfer a proportionate share and what his
plan was going forward. (Docket Nos. 181-12; 192 ¶ 67).
A week later, the Retirement Committee convened another call
with LaBow and discussed what could be done to diversify the
Account. (Docket Nos. 184-10 at 92; 192 ¶ 68). At the
same time, DiClemente asked LaBow via email for details on
any investment strategy, process, discipline, manager,
biographies and tenures, and historical performance for two
funds that LaBow recommended, Mason and Capital Defense.
(Docket No. 192 ¶ 69). Two days later, DiClemente
followed up with LaBow asking for the investment materials
the Retirement Committee had requested relating to certain
funds in which he recommended they invest. (Id.
¶ 70). Thereafter, on February 24, 2009, King, in a
letter to LaBow, reminded him that the Retirement Committee
wanted to sign a fee agreement with Neuberger Berman and
asked LaBow to provide the Committee with regular performance
reports. (Docket Nos. 184-10 at 108-09; 192 ¶ 71).
March 12, 2009, King thanked LaBow for responding to her
recent email and stated she was looking forward to the plan
on diversification. (Docket No. 192 ¶ 72). About a week
later, Halpin and LaBow exchanged emails in which LaBow
described the performance of their assets and Halpin
expressed that he could assist LaBow, if needed, in
liquidating the Account. (Id. ¶ 73). Halpin
followed by providing LaBow with fund information and noting
he could process any necessary paperwork. (Id.
¶ 74). As such, the Retirement Committee was in almost
daily contact with LaBow. (Id. ¶ 76).
testified that he did not want to remove LaBow in January or
February 2009 as the Retirement Committee was still operating
under the belief that the trust could be reset. (Docket Nos.
184-14 at 22; 190 ¶ 65). DiClemente testified likewise.
(Docket No. 184-14 at 38). Hence, the Plan remained invested
in the undiversified Account from November 3, 2008 until
March 24, 2009, when LaBow sold the Account for cash. (Docket
No. 190 ¶¶ 66-67). LaBow was ultimately fired on or
about May 19, 2009, after new members had replaced DiClemente
and Halpin on the Retirement Committee. (Id.
advancing its claim, the DOL proffered expert testimony in
the person of Dr. Susan Mangiero who received her Ph.D. in
finance from the University of Connecticut and is a chartered
Financial Analyst. (Docket No. 178-9 at 1, 4). It is her opinion
that the Retirement Committee should have communicated a
strategy for diversification that complied with ERISA to
LaBow prior to the transfer of the assets and that DiClemente
or Halpin should have confirmed that the assets received were
the correct ones. (Docket No. 181-30 at 6). She believes that
LaBow backdating the investment management agreement was a
“red flag”. (Docket No. 178-9 at 11). Further,
once the Retirement Committee learned of this misadventure,
she states that the appropriate corrective action was to
first contact LaBow to discuss the problem. (Docket No. 181-8
at 27-28). Although typically it is appropriate for
committees to provide an investment manager several months or
quarters to regain his or her footing after a misadventure,
Dr. Mangiero opines that LaBow should have been terminated
prior to May 2009 but she could not provide a specific date
by which it should have occurred. (Docket Nos. 181-8 at 25;
181-30 at 13). Because the markets were in ...