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Scalia v. WPN Corp.

United States District Court, W.D. Pennsylvania

September 30, 2019



          Nora Barry Fischer, Senior United States District Judge.


         The 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 (“Halpin”) (collectively “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 No. 182).


         This 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).

         Federal 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).[1] 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.

         Prior 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).[2] 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].”[3] (Docket Nos. 190 ¶ 20; 192 ¶¶ 6, 8, 10, 11).

         In June 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).

         Upon 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).

         Thereafter, 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.[4] (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 authority

(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).

         Despite 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.[5] (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).

         It was 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”).[6] (Docket Nos. 181-9 at 3; 190 ¶ 56; 192 ¶ 25).

         The 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.[7] (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).

         A week 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. (Id.)

         Just 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.)

         In a 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).

         Six 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).

         On 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).

         Halpin 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.[8] (Id. ¶ 70).

         In 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).[9] 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 ...

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