Goldenberg v. Indel Inc.

• Decision Date: 17 September 2010
• Docket Number: Civil No. 09–5202 (JBS/AMD).
• Citation: 741 F.Supp.2d 618
• Parties: Boris GOLDENBERG et al., Plaintiffs,v.INDEL, INC. et al., Defendants.
• Court: U.S. District Court — District of New Jersey

741 F.Supp.2d 618

Boris GOLDENBERG et al., Plaintiffs,

v.INDEL, INC. et al., Defendants.

Civil No. 09–5202 (JBS/AMD).

United States District Court, D. New Jersey.

Sept. 17, 2010.

Arnold Carl Lakind, Esq., Robert Lawrence Lakind, Esq., Robert E. Lytle, Esq., Szaferman, Lakind, Blumstein, Blader & Lehmann, P.C., Moshe Maimon, Esq., Levy, Philips & Konigsberg, LLP, Lawrenceville, NJ, for Plaintiffs.Matthew Steven Barndt, Esq., Vincent E. Gentile, Esq., Drinker, Biddle & Reath, LLP, Princeton, NJ, for Inductotherm Defendants.Craig Carpenito, Esq., Alston & Bird LLP, New York, NY, for FSC Defendants and SunAmerica Defendants.

OPINION

SIMANDLE, District Judge:I. INTRODUCTION

This putative class action involving an allegedly mismanaged employee retirement plan is before the Court on three separate motions to dismiss [Docket Items 15, 17, & 19]. The motions, filed pursuant to Rule 12(b)(6), Fed. R. Civ. P., challenge each of the twenty-two counts contained in the 136–page Complaint.¹ As discussed in this Opinion, some but not all of the claims will be dismissed.

II. BACKGROUND

This case involves the alleged financial mismanagement of the Inductotherm Companies Master Profit Sharing Plan (“Plan”), a pension plan designed to provide retirement benefits to Inductotherm employees. (Compl. ¶ 54.) Plaintiffs and the putative class are or were participants in the defined contribution plan which is sponsored by Inductotherm Industries, Inc., also known as Indel Inc., “a privately owned company that acts as the management service company for a group of engineering and technology-based companies.” (Compl. ¶ 12.) Contributions to the Plan are deposited into an investment fund that is invested under the supervision of the Plan's Trustees. The Complaint contains twenty-two claims, including sixteen claims under the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001—§ 1461 for breach of fiduciary duties and self-dealing, two common law claims of fraudulent concealment, three claims involving violations of federal and state laws regulating securities, and a federal claim under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1963.

There are three sets of named Defendants in this case. First, there are the Inductotherm Defendants, who constitute the company itself and the trustees to the Plan.² The second group is the FSC Defendants, entities who were allegedly involved in advising the Plan's trustees as to how to invest the Plan's assets: Financial Services Corporation, FSC Securities Corporation, and the Wharton Business Group. The third set of Defendants are the SunAmerica Defendants, who are related to the SunAmerica Money Market Fund in which Plan assets were invested. They are the American International Group (AIG), SunAmerica Asset Management Corp., SunAmerica Capital Services, Inc., and SunAmerica Fund Services, Inc.

According to Plaintiffs, the Inductotherm Defendants retained the assistance of the FSC Defendants around 2005 to invest the Plan assets, including the purchase of shares of the SunAmerica Money Market Fund. Plaintiffs allege that the investments performed poorly, partly because the fiduciaries failed to perform their duties, misled Plaintiffs about various aspects of the investments, failed to act in the interests of the Plan, and violated various securities laws and regulations. Each set of Defendants has filed a separate motion to dismiss. The factual allegations underlying each individual claim are discussed, as relevant, in the sections that follow.

III. DISCUSSIONA. Standard of Review

The sufficiency of the pleadings for the non-fraud claims contained in this Complaint is governed by Rule 8, Fed. R. Civ. P., a rule that is designed to “give the defendant fair notice of what the ... claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).³ The rule provides that “[a] pleading that states a claim for relief must contain ... a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).

The “complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, ––– U.S. ––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009); Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009). The requirement to provide the grounds for relief “requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (quoting Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986)).

In reviewing whether each count in the Complaint states a claim showing that the pleader is entitled to relief, the Court must “accept all factual allegations as true and construe the complaint in the light most favorable to the plaintiff.” Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir.2008) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n. 7 (3d Cir.2002)).

On this procedural posture, “courts generally consider only the allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim.” Lum v. Bank of America, 361 F.3d 217, 222 n. 3 (3d Cir.2004) (citation omitted). This Complaint relies, directly or indirectly, upon a number of public documents or documents referenced in the Complaint. The Court will consider these documents about which there is no dispute as to authenticity, and to the extent they contradict the Complaint's factual allegations, the documents will control. ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 n. 8 (3d Cir.1994) (“Where there is a disparity between a written instrument annexed to a pleading and an allegation in the pleading based thereon, the written instrument will control.”). B. ERISA Claims

1. Fiduciaries

a. Standard

Plaintiffs' claims pursuant to 29 U.S.C. § 1104 and § 1106 require a showing that each Defendant subject to the claims was acting in a fiduciary capacity. 29 U.S.C. § 1104, § 1106; In re Unisys Corp. Retiree Medical Benefits ERISA Litigation, 579 F.3d 220, 228 (3d Cir.2009). The Inductotherm Defendants do not dispute their role as fiduciaries, but the FSC Defendants argue that none of them played a fiduciary role.

ERISA provides three ways in which one can acquire fiduciary status: (i) exercising discretionary authority or control over management of the plan or disposition of its assets; (ii) rendering investment advice for a fee or other compensation, or having authority to do so; or (iii) exercising discretionary authority in the administration of the plan. 29 U.S.C. § 1002(21)(A). Under the investment advice prong, an individual may become a fiduciary by (1) providing individualized investment advice; (2) given pursuant to a mutual understanding; (3) on a regular basis; (4) that serves as a primary basis for investment decisions with respect to plan assets; (5) pertains to the value of the property or consists of recommendations as to the advisability of investing in certain property; and (6) is rendered for a fee.⁴ 29 C.F.R. § 2510.3–21(c); see Thomas, Head & Greisen Employees Trust v. Buster, 24 F.3d 1114, 1117 (9th Cir.1994), cert. denied, 513 U.S. 1127, 115 S.Ct. 935, 130 L.Ed.2d 881 (1995).

If the factual allegations in a complaint do not sufficiently support a claim that a defendant was a fiduciary, then the claim may be dismissed on a Rule 12(b)(6) motion. See Pegram v. Herdrich, 530 U.S. 211, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000). If, on the other hand, fiduciary status is based on disputed facts—which is often the case because of the functional nature of the test—then the issue cannot be decided on a motion to dismiss. See Smith v. Provident Bank, 170 F.3d 609, 613 (6th Cir.1999). As explained below, accepting all factual allegations as true and construing the Complaint and documents upon which it is based in the light most favorable to Plaintiffs, the alleged facts are sufficient to establish that the Wharton Business Group and FSC Securities are fiduciaries, but not the Financial Services Corporation.

b. Allegations Regarding FSC Defendants

The Complaint alleges that in 2006 and 2007, the FSC Defendants, through the Wharton Business Group, caused the Plan's assets to be invested in various ways. (E.g., Compl. ¶¶ 130, 138.) The Complaint alleges that a letter sent to Plaintiffs from the Trustees of the Plan stated, “These funds are invested in various funds and equities that are recommended by the Wharton Business Group, a company which monitors to a high degree of precision the various investment opportunities.” (Compl. ¶ 142.) Another letter stated that “the Plan is invested in accordance with the adopted investment policy statement between the Trustees and their professional investment advisor, the Wharton Business Group.” (Compl. ¶ 145.)

The “Investment Policy Statement,” referenced in the Complaint, is a December 2005 agreement between Wharton Business Group and Inductotherm regarding how the Plan's assets will be managed. (FSC Def. Ex. B; Compl. ¶ 79.) The five-page document sets out goals and objectives to guide decision-making with respect to investing the Plan's assets. It provides for a set overall asset allocation (i.e. income vs. growth) as well as an adjustable specific asset allocation (i.e. bonds, large value U.S. stocks, emerging markets), and provides the authority for an outside financial manager to rebalance the portfolio based on agreed-upon ranges. By providing for the selection and control of investment managers outside Inductotherm, the document strongly implies that individuals at Wharton Business Group will be actively managing the Plan's assets and making specific investment decisions which will be reviewed by Inductotherm and its representatives. (FSC Def. Ex. B at 4–5...