Fraser v. Fiduciary Trust Co. Intern.

• Decision Date: 15 February 2006
• Docket Number: No. 04 Civ. 6958(PAC).,04 Civ. 6958(PAC).
• Citation: 417 F.Supp.2d 310
• Parties: Gregory A. FRASER, Plaintiff, v. FIDUCIARY TRUST COMPANY ITERNATIONAL, Franklin Resources Inc., Michael Materasso, Jeremy H. Biggs, William Y. Yun, Charles B. Johnson, Anne M. Tatlock, Gregory E. Johnson and Martin L. Flanagan, Defendants.
• Court: U.S. District Court — Southern District of New York

417 F.Supp.2d 310

Gregory A. FRASER, Plaintiff, v. FIDUCIARY TRUST COMPANY ITERNATIONAL, Franklin Resources Inc., Michael Materasso, Jeremy H. Biggs, William Y. Yun, Charles B. Johnson, Anne M. Tatlock, Gregory E. Johnson and Martin L. Flanagan, Defendants.

No. 04 Civ. 6958(PAC).

United States District Court, S.D. New York.

February 15, 2006.

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Bruce A. Hubbard, Bruce A. Hubbard, P.C., New York City, for Plaintiff.

Christina L. Feege, Littler Mendelson, P.C., Littler Mendelson, P.C., New York City, for Defendants.

DECISION AND ORDER

CROTTY, District Judge.

Plaintiff Gregory A. Fraser ("Fraser") filed a Second Amended Complaint ("Compl.") on August 12, 2005 against Fiduciary Trust Company International ("Fiduciary"), Franklin Resources Inc. ("Franklin"), Michael Materasso ("Materasso"), Jeremy H. Biggs ("Biggs"), William Y. Yun ("Yun"), Charles B. Johnson, Anne M. Tatlock, Gregory E. Johnson, and Michael L. Flanagan (collectively, "Defendants").¹ Before the Court is Defendants' motion to dismiss numerous claims in the Second Amended Complaint ("Compl."). Fraser amended the Amended Complaint following Judge Berman's June 23, 2005 decision, which granted in part and denied in part Defendants' first motion to dismiss.²

In the June 23, 2005 Decision, Judge Berman denied Defendants' motion to dismiss with regard to the following claims: a whistleblower claim under § 806 of the Sarbanes-Oxley Act of 2002 ("SOX"), 18 U.S.C. § 1514A (based on the Third Instance (out of four) alleged by Fraser); a discriminatory discharge claim under § 510 of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1140; and, race discrimination claims asserted pursuant to Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e et seq., 42 U.S.C. § 1981, the New York State Human Rights Law, N.Y. Exec. Law §§ 290 et seq., and the New York City Human Rights Law, N.Y.C. Admin. Code §§ 8-101 et seq., arising out of Defendants' alleged discriminatory treatment of Fraser on the basis of his race.

Judge Berman dismissed without prejudice the following claims: securities law claims pursuant to §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. §§ 78j(b), 78t, Rule 10b-5, 17 C.F.R. § 240-10b-5, and California Corporations Code § 25402; SOX § 806 whistleblower claims based on Fraser's alleged First, Second, and Fourth Instances and all SOX § 806 claims against Individual Defendants; an ERISA § 510 whistleblower claim; an ERISA § 404 breach of fiduciary duty claim; and a common law breach of contract claim. Judge Berman dismissed with prejudice claims brought under § 15 of the Exchange Act and §§ 1102 and 1107 of SOX.

Fraser's Second Amended Complaint deleted the claims Judge Berman dismissed with prejudice and repleaded the securities law, ERISA, SOX, and breach of contract claims. Despite Judge Berman's direction that the Second Amended Complaint be more "streamline[d] and better organize[d]" than the 110-page Amended Complaint (June 23, 2005 Decision, at 26) (and the command of Rule 8, calling for a "short and plain statement of the claim," Fed.R.Civ.P. 8,) the Second Amended Complaint is 91 pages long and suffers many of the infirmities of the prior complaint.

The prolix, wandering style of the allegations of the Second Amended Complaint do not cure the deficiencies that Judge Berman found with the securities claims, §§ 10(b) and 20(a), Rule 10b-5, and California Corporate Codes §§ 25402 and 25502; with the §§ 510 and 404 ERISA claims; and with § 806 SOX claims based on the First and Fourth Instances. The Court dismisses those claims with prejudice. The Second Amended Complaint cures the deficiencies with regard to the SOX § 806 whistleblower claim based on the Second Instance as well as the common law breach of contract claim.

INTRODUCTION

Judge Berman's June 23, 2005 Decision and Order provided a detailed accounting of the factual background to this case (June 23, 2005 Decision and Order, at 2-6). The Court, thus, will not recount detailed facts, which specifically relate to the claims that Judge Berman sustained in Defendants' first motion to dismiss (i.e., race discrimination claims, the § 510 ERISA discriminatory discharge claim, and the § 806 SOX whistleblower claim (Third Instance)).

I. Facts

A. The Parties

Plaintiff was a Vice President at Fiduciary Trust Company International ("Fiduciary"). Compl. ¶ 94. Fraser began employment with Fiduciary on October 2, 2000, id., and was terminated on March 7, 2003. Id. ¶ 70.

Defendant Fiduciary is an investment management company and chartered bank under New York laws with its principal offices located in New York. Id. ¶ 15. Fiduciary was acquired by defendant Franklin Resources Inc. ("Franklin") on April 10, 2001 and is now a wholly-owned subsidiary of Franklin. Id. Franklin is a Delaware corporation with principal offices located in California. Id. ¶ 16. Franklin is a global investment management and advisory services company. Id.

Defendant Michael Materasso was Head of Domestic Fixed Income Asset Management at Fiduciary. Id. ¶ 17. Materasso was Fraser's direct supervisor starting in October, 2000. Id. On November, 2001, Materasso became Head of Domestic and Global Fixed Income. Id. Materasso received the claimed whistleblowing notices and complaints. Id. Materasso also engaged in claimed racially discriminatory conduct and fabricated retaliatory allegations to terminate Fraser. Id.

Defendant Jeremy H. Biggs is the current Vice Chairman of Fiduciary and former Chief Investment Officer. Id. ¶ 18. Defendant William Y. Yun ("Yun") is the current President of Fiduciary and of Franklin Templeton Institutional. Id. ¶ 19. Defendant Charles B. Johnson is the former Chief Executive Officer of Franklin and served in that capacity from 1957 until 2004. Id. ¶ 20. Johnson also serves as the Chairman of the Board of Directors of Franklin. Id. Defendant Anne M. Tatlock is the Chief Executive Officer and Chair of the Board of Directors of Fiduciary. Id. ¶ 21. Defendant Gregory E. Johnson is a Co-Chief Executive Officer and Co-President of Franklin and member of the Board of Fiduciary. Id. ¶ 22. Finally, Defendant Martin L. Flanagan was also Co-Chief Executive Officer and Co-President of Franklin. Id. ¶ 23. Flanagan left the company on July 31, 2005. Id.

B. Claimed Corporate Wrongdoing

Fraser claims illegal conduct related to Franklin's acquisition of Fiduciary. Id. ¶ 33. Fraser claims that filings in connection with the acquisition contained "insufficient, not meaningful, materially false and misleading" statements. Id. Chief among these allegations is the improper inclusion of U.N. Pension Fund Account assets in Fiduciary's and Franklin's assets under management ("AUM") and improper low fees. Id. (cataloguing alleged wrongdoing). According to Fraser, this spawns a raft of further allegations of violations of GAAP standards, breach of Securities and Exchange Commission ("SEC") accounting and reporting requirements, and overvaluation of Fiduciary at the time of Franklin's acquisition. Id. ¶¶ 34-61.

C. Claimed Whistleblowing Activities

Fraser alleges that he sent Materasso an e-mail on March 19, 2001, which put Materasso on notice that Fraser "suspect[ed] ... accounting misconduct at Fiduciary and stressed that he was obligated to comply with the [Chartered Financial Analyst ("CFA")] Institute's Code and Standards." Id. lines 1990-91.³ After this e-mail, Fraser contends that Materasso "embarked on a campaign of retaliation, denial of promotion and advancement opportunities and adverse employment actions toward [him] culminating in [his] March 7, 2003 unlawful and retaliatory discharge at Materasso's direction." Id. lines 1992-95.

1. First Claimed Instance

Fraser sent e-mails to Fiduciary's Chief Investment Officer, Biggs, in December, 2001, which claimed that a portfolio manager named Michael Rohwetter ("Rohwetter") was responsible for poor performance across ERISA and trust accounts (managed by Fraser's Department, Institutional Fixed Income) because Rohwetter had not followed Fraser's investment strategy advice. Id. ¶ 67. Fraser also alleged that Rohwetter wanted Fraser to conceal and falsify 2001 year-end performance results. Id. After these e-mails, Fraser alleges that "Rohwetter commenced retaliatory actions against him with a pattern of negative behavior (i.e., reduced his responsibilities, less opportunities for career advancement, unnecessary criticism of Plaintiff's work, less recognition and exposure to senior management, less sociable and less friendly)." Id. According to Fraser, Rohwetter engaged in conduct that violated a whole host of provisions under ERISA, the Investment Advisors Act of 1940 ("IAA"), the Uniform Prudent Investor Act of 1994, and the New York State Estates, Powers & Trusts Laws. Id.

2. Second Claimed Instance

In May, 2002, Plaintiff sent a notice to Fiduciary President Yun that the New York office's decision to sell WorldCom bonds from New York-based ERISA and trust management accounts was not equally disseminated to all accounts firm-wide. Id. ¶ 68. In February, 2002, Fraser wanted to communicate firm-wide that the Head Office had decided to sell its World-Com holdings. Rohwetter instructed him not to do so. Id. As a result, Fraser claims that the Los Angeles office continued to hold WorldCom bonds "because they were unaware that [the New York office] was exiting its WorldCom positions." Id. This decision, Fraser states, resulted eventually in "substantial losses in [Los Angeles]-ERISA and trust accounts holding WorldCom bonds." Id. Fraser characterized this conduct as a breach of fiduciary conduct and evidence of a conflict of interest. Id. Fraser states that after his report to Yun, Materasso and Rohwetter "commenced retaliatory actions against him"—again with a pattern of negative behavior culminating in "less sociable" and "less friendly". Id....