Burstein v. Retirment Account Plan for Employees

• Decision Date: 30 May 2002
• Docket Number: No. 98-6768.,98-6768.
• Parties: William H. BURSTEIN, M.D., et al. v. RETIREMENT ACCOUNT PLAN FOR EMPLOYEES OF ALLEGHENY HEALTH EDUCATION AND RESEARCH FOUNDATION, et al.
• Court: U.S. District Court — Eastern District of Pennsylvania

263 F.Supp.2d 949

William H. BURSTEIN, M.D., et al. v. RETIREMENT ACCOUNT PLAN FOR EMPLOYEES OF ALLEGHENY HEALTH EDUCATION AND RESEARCH FOUNDATION, et al.

No. 98-6768.

United States District Court, E.D. Pennsylvania.

May 30, 2002.

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Scott L. Adkins, Meager & Flom LLP, Wilmington, DE, Eric M. Davis, Skadden Arps Slate Meagher, Wilmington, DE, Jonathan Frank, Skadden Arps Slate

Meagher, New York City, for W.P. Snyder, III.

Kristin L. Anders, Robert L. Byer, William T. Cullen, David L. Me Clenahan, Wendy E. Smith, Kirkpatrick & Lockhart, LLP, Pittsburgh, PA, for David W. Sculley.

Jay H. Calvert, Jr., Joseph B.G. Fay, Morgan, Lewis & Bockius LLP, Philadelphia, PA, for Mellon Bank, N.A.

Sara B. Eagle, Stanley M. Hecht, Pension Ben., Guaranty Corp., Washington, DC, for Pension Benefit Guaranty Corp.

Kevin K. Douglass, K, Mark Hall, David J. Laurent, Amy L. Wetterau, Babst, Calland, Clements and Zomnir, Pittsburgh, PA, Laurence Leland Smith, Neil A. Morris Associates PC, Philadelphia, PA, for David C. McConnel.

Jay W. Eisenhofer, Sidney S. Liebesman, C. Curtis Staropoli, Grant & Eisenhofer, PA, Wilmington, DE, for Efrain J. Crespo.

Thomas J. Farrell, Stephen R. Kaufman, Frederick W. Thieman, Thieman & Kaufman, Pittsburgh, for J. David Barnes.

Mark A. Fink, Skadden Arps Slate, Wilmington, DE, for Mark A. Fink.

Kristofor T. Henning, John F. Schultz, Drinker Biddle and Reath LLP, Philadelphia, PA, for Dwight Kasperbauer.

Courtney C.T. Horrigan, Perry A. Napolitano, James J. Restivo, Jr., Reed, Smith, Shaw & Mc Clay, Pittsburgh, PA, for Frank V. Cahouet.

Michele Langer, Marvin Larsson Henkin & Scheuritzel, Philadelphia, PA, for Ralph W. Brenner.

MEMORANDUM OPINION AND ORDER

WEINER, District Judge.

Dr. William H. Burstein and four other individuals brought this action on behalf of a putative class of plaintiffs, all of whom were employed for less than five years by Allegheny Health Education and Research Foundation (AHERF). Presently before the court are: plaintiffs' motion to file a second amended complaint; motions to dismiss the first amended complaint filed by defendants Mellon Bank, N.A., Dwight Kasperbauer, certain trustees of AHERF, Pension Benefit Guaranty Corporation (PBGC), Frank V. Cahouet, David C. McConnell, Ralph W. Brenner, David J. Barnes and W. P. Snyder III; plaintiffs' motion for class certification; and the various replies, responses and oppositions. For the reasons set forth below, the motion to amend will be denied as futile, the motions to dismiss will be granted, and the motion for class certification will be denied as moot.

>I. BACKGROUND

AHERF is a non-profit corporation that, along with its non-profit and for-profit affiliates, operated hospitals, physician practices and a medical school in Pennsylvania. AHERF was the sole member of the nonprofit entities and the sole shareholder of the for-profit entities within its system. Through its Retirement Account Plan (the "Plan"), AHERF made certain retirement [*6] benefits available to qualified employees within its system. The Plan was partially terminated by operation of law when AHERF filed for bankruptcy in July 1998.

Plaintiffs are five current and former AHERF employees who participated in the Plan from August 1993 through July 1998. They claim to have been misled by some of these defendants' (1) alleged misrepresentations concerning the accrual of benefits under the Plan and the effects of a plan termination on their benefits, and (2) the alleged failure to warn of AHERF's financial condition and the likelihood of a partial Plan termination. Plaintiffs also assert that some of these defendants mismanaged Plan assets.

AHERF was the plan's sponsor. Defendants include, inter alia: Dwight D.Kasperbauer, Executive Vice President and Chief of Human Resources of AHERF; David C. McConnell, Executive Vice President, Chief Financial Officer and Treasurer of AHERF; Frank V. Cahouet, a member of AHERF's Board of Trustees as well as President and Chief Executive Officer of Mellon; David J. Barnes, a member of AHERF's Board of Trustees as well as a director and former Chairman of Mellon; Ira J. Gumberg, a member of AHERF's Board of Trustees and Mellon's Board of Directors; William F.Adam, a member of AHERF's Board of Trustees and Executive Vice President of Mellon Bond Associates, the investment manager of the AERF Non-Pension Master Trust; Robert L.Fletcher, a member of AHERF's Board of Trustees and a retired executive of Mellon; Ralph W. Brenner, a member of AERF's Board of Trustees; W.P. Snyder III, Chairman of AHERF's Board of Trustees; certain other members of AERF's Board of Trustees¹; Melloporation established pursuant to Title IV of the Employment Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq. ("ERISA").

Certain facts appear not to be in dispute. When plaintiffs commenced their employment with AHERF, Kasperbauer, the Plan Administrator, provided them with certain documents containing information about the Plan. Plaintiffs received a brochure entitled "A Healthy Financial Future, Your Retirement Program" (the "Plan Brochure"). Some plaintiffs also received the Summary Plan Description ("SPD"). AHERF also distributed "personalized retirement statements" to its employees describing the status of employee retirement "accounts."

Beginning in mid-1997, AHERF began experiencing serious financial difficulties, forcing it to close one of its hospitals and eliminate or lay off about 1,700 employees. In April 1998, AHERF announced that it would lose $200 million in fiscal year 1998. At the same time that AHERF was experiencing these financial problems, the Board of Trustees approved an $89 million payment to Mellon on a line of credit. Finally, on July 21, 1998, numerous members of the AHERF system filed a Chapter 11 voluntary bankruptcy petition in the United States District Court for the Western District of Pennsylvania. PBGC took over the Plan in September 1998 after being appointed statutory trustee under 29 U.S.C. § 1342(c). In November 1998, Tenet Healthcare Corporation purchased AHERF's Philadelphia area hospitals, resulting in partial termination of the Plan as a matter of law. As a result of the partial termination, Kasperbauer sent letters to plaintiffs informing them that the Plan had partially terminated and that because the benefits of employees with less than five years of service were not funded, these plaintiffs—all of whom by definition had less than five years of service—were not entitled to any benefits under the Plan. (Amended Compl. Ex. D.)

According to plaintiffs, they are entitled to Plan benefits under the terms of the Plan, the Plan Brochure and the SPD. They allege that the Plan Brochure and the SPD contain numerous misrepresentations and omissions designed to lead employees such as these plaintiffs to believe that they were entitled to the value of their retirement "accounts" as reflected in their personalized account statements, upon a partial termination of the Plan. Further, plaintiffs allege that they were damaged as a result of the defendants' mismanagement of Plan assets.

Plaintiffs' First Amended Complaint, filed August 10, 2000, contains five counts: (1) breach of fiduciary duty and (2) equitable estoppel against Kasperbauer; (3) breach of fiduciary duties against Kasperbauer, McConnell, Mellon and the AHERF Trustees; (4) entitlement to Plan benefits; and (5) entitlement to attorney's fees and costs under 29 U.S.C. § 1132(g). (First Amended Compl. at 29-32.) Partly in response to arguments raised by the defendants in their various motions to dismiss, Plaintiffs filed a motion for leave to file a second amended complaint on April 27, 2001, attaching the proposed amendment. On that same day, plaintiffs filed a motion for class certification. Plaintiffs' proposed Second Amended Complaint contains essentially the same allegations and causes of action that are asserted in the First Amended Complaint, although some of those causes of action name defendants against whom those claims were not asserted in the First Amended Complaint.

The proposed Second Amended Complaint contains eleven counts: (I) breach of fiduciary duties through misrepresentation against Kasperbauer, McConnell and the AHERF Trustees; (II) breach of fiduciary duties for failure to disclose material information against Kasperbauer, McConnell, Mellon and the AHERF Trustees; (III) breach of fiduciary duties for mismanagement of Plan assets against Kasperbauer, McConnell and the AHERF Trustees; (IV) breach of fiduciary duties for mismanagement of Plan assets against Mellon; (V) breach of fiduciary duties for mismanagement of Plan assets against Cahouet, Barnes, Gumberg, Adam and Fletcher, all of whom were members of both AHERF's Board of Trustees and current or former Mellon directors or employees; (VI) equitable estoppel against Kasperbauer, McConnell and the AHERF Trustees; (VII) a claim for Plan benefits (not asserted against any particular defendant); (VIII) a claim for Plan benefits against PBGC; (IX) a claim for payment of insured benefits against PBGC; (X) a claim against PBGC for failure to pay benefits for which premiums were collected; and (XI) a claim for attorney's fees and costs under 29 U.S.C. § 1132(g). (Mot. for Leave to File Second Amended Compl. Ex. A.) In their prayer for relief, plaintiffs request, inter alia: a full accounting of the losses sustained by the plan as a result of the breaches of fiduciary duties; that the court declare that Kasperbauer, McConnell and the AHERF Trustees are estopped from interpreting or enforcing the Plan in any manner other than in accordance with the Plan Brochure and the SPD; restitution to the Plan and to plaintiffs from Kasperbauer, McConnell, Mellon and the Trustee defendants for losses sustained by the Plan as a result their conduct; that PBGC pay plaintiffs the full value of their accounts;...