On Behalf Of All Others Similarly Situated v. Jetdirect Aviation Inc.
| Decision Date | 26 July 2010 |
| Docket Number | Civil Action No. 09-10527-RGS. |
| Citation | 725 F.Supp.2d 249 |
| Parties | Collins Zachary Sean ANTHONY, 1 Carina Bertella, and Donald M. Weeks, Individually and on Behalf of All Others Similarly Situated v. JETDIRECT AVIATION, INC., 2 JetDirect Aviation, LLC, 3 JetDirect Aviation Holdings, LLC, Gregory S. Campbell, Robert P. Pinkas, and John Doe Board Members v. Wayfarer Aviation, Inc. and Sovereign Bank. |
| Court | U.S. District Court — District of Massachusetts |
OPINION TEXT STARTS HERE
Brady J. Hermann, Deborah G. Evans, Michaels, Ward & Rabinovitz, Boston, MA, Patrick O. Peters, Benesch FriedlanderCoplan & Aronoff LLP, Cleveland, OH, for Carina Bertella.
Daniel M. Rabinovitz, Michaels, Ward & Rabinovitz, Boston, MA, for Carina Bertella and Donald M. Weeks.
Stephen D. Rosenberg, The McCormack Firm, LLC, Boston, MA, for JetDirect Aviation, Inc., JetDirect Aviation, LLC, JetDirect Aviation Holdings, LLC, Gregory S. Campbell and John Doe Board Members.
Laura G. Ryan, The McCormack Firm LLC, Boston, MA, for JetDirect Aviation Holdings, LLC.
Anna K. Raske, Benesch, Friedlander, Coplan & Aronoff LLP, Cleveland, OH, for Robert P. Pinkas.
William A. Worth, Prince, Lobel, Glovsky & Tye LLP, Boston, MA, for Robert P. Pinkas and Wayfarer Aviation, Inc.
Howard M. Brown, Bartlett Hackett Feinberg P.C., Boston, MA, for Sovereign Bank.
MEMORANDUM AND ORDER ON SOVEREIGN BANK'S MOTION TO DISMISS
The named plaintiffs in this action are current and former employees of JetDirect Aviation (JDA), an aircraft management company. Plaintiffs brought this suit, individually and as proposed class representatives, pursuant to the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. Plaintiffs allege that defendants improperly withheld and diverted employee benefit plan funds from their paychecks to meet JDA's obligations to its creditors. At a hearing on September 29, 2009, the court granted in part and denied in part motions to dismiss brought by the defendants, allowing Count I (breach of ERISA fiduciary duties), Count II (breach by ERISA co-fiduciary), and Count III (ERISA prohibited transactions), to survive while dismissing the common-law state claims set out in Counts IV and V (as preempted by ERISA). Defendants 4 then brought a third-party Complaint against the successor company to JDA, Wayfarer Aviation, Inc. (Wayfarer) (f/k/a JDA Acquisition Company (JDAAC)), and one of JDA's creditors, Sovereign Bank (Sovereign), claiming breach of fiduciary duty (Count I), contribution (Count II), and indemnity (Count III). Sovereign filed a Fed.R.Civ.P. 12(b)(6) motion to dismiss the third-party claims against it on January 20, 2010. 5 A hearing on this motion was held on June 3, 2010.
The facts, presumed to be true for present purposes, are as follows. JDA offered consolidated services in the fields of jet management, jet charter, and fixed-base aircraft operations, including some maintenance work and fuel sales. In 2008, JDA's business plan began to unravel as the demand for private charter jet services collapsed. Despite selling off many of its assets, JDA was unable to meet all of its obligations to secured creditors-some $112 million.
On February 17, 2009, JDA announced in a press release that it would sell its remaining assets to JDAAC. 6 Before thesale could be completed, on February 25, 2009, Sovereign, a secured creditor with first priority, notified JDA and other secured creditors that it intended to exercise its rights in its JDA collateral on or after March 9, 2009. On March 3, 2009, Sovereign declared JDA to be in default and began seizing JDA's assets, including funds that had been deposited in JDA's general operating account at Sovereign. Unbeknownst to Sovereign, JDA had commingled employee benefit contributions, including contributions to employee 401(k) Plans in the operating account. 7 Sovereign sold JDA's remaining physical assets to JDAAC on March 19, 2009.
In early 2009, JDA employees had begun to experience delays in receiving paychecks, benefits, and expense reimbursements. Plaintiff Carina Bertella alleges in an affidavit that “[f]or months, money that was withheld by [JDA] from my bi-weekly paycheck, supposedly to be used as contributions towards my 401k [P]lan, health insurance, life insurance, and disability insurance, was not used for those purposes.” Bertella Aff. ¶ 2. Bertella further alleges that defendant Gregory S. Campbell, the President, Chairman, and CEO of JDA, was “the person who exercise[d] discretionary authority or discretionary control with respect to the management of the 401k Plan, or the person who exercise[d] authority or control with respect to the management or disposition of its assets.” Id. ¶ 5. Plaintiffs allege that “the Plans' assets were diverted for [JDA]'s own use and applied to other business expenses and/or were used to pay off creditors.” Sec. Am. Compl. ¶ 40.
On March 12, 2009, Jacqueline Tona, the Vice President for Human Resources at JDA, sent an e-mail to employees entitled “Information on 401(k).” The e-mail stated that employee contributions withheld from paychecks in December 2008 and January 2009 had been posted to the employees' 401(k) accounts, but there was “[n]o funding for February yet.” Sec. Am. Compl.-Ex. B at 6. Tona also declared that “[e]xecutive management is aware of company obligations to the plan.” Id.
A week later, 8 Tona sent a second e-mail to employees acknowledging “lateness in funding the 401(k) Plan for February [2009],” and admitting tardiness in the funding of other benefits. Id. at 7. In addition to the Plan, Tona stated that employee flexible spending accounts were being affected because of JDA's financial problems: “[D]eductions taken from employee checks have not been provided to PayFlex and currently the Company does not have a means to provide those funds to PayFlex.” Id. The e-mail also indicated that JDA was behind in payments to health, life, and disability insurance providers, and that continued employee coverage was at risk.
Following conversations with the Department of Labor concerning JDA's “financial situation,” JDA stopped withholding deductions from employee paychecks for the Plan and other benefits “until the Company [could] guarantee funding as required by the [P]lan.” Id. Tona stated thatJDA's Id. at 7-8. According to media reports, defendant “Robert Pinkas [also] acknowledged the company's responsibility to repay money owed to current and former [JDA] employees.” 9
Sovereign moves to dismiss the third-party plaintiffs' Complaint pursuant to Fed.R.Civ.P. 12(b)(6). The court must dismiss a Complaint if, after accepting all well-pleaded facts as true and drawing all reasonable inferences in favor of a plaintiff, it determines that the Complaint “fails to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In order to defeat a motion to dismiss, a Complaint must contain “enough facts to raise a reasonable expectation that discovery will reveal evidence” supporting the asserted claims. Fantini v. Salem State Coll., 557 F.3d 22, 26 (1st Cir.2009), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). A plaintiff must plead “more than labels and conclusions,” and the factual allegations must be sufficient to “raise a right [to] relief above the speculative level.” Morales-Tañon v. P.R. Elec. Power Auth., 524 F.3d 15, 18 (1st Cir.2008) (internal quotation marks omitted).
Count I: Breach of Fiduciary Duty
JDA alleges that Sovereign breached its duty as an ERISA fiduciary under 29 U.S.C. § 1109(a), which states:
[a]ny person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 1111 of this title.
The issue before the court is straightforward: May a bank be held liable as a fiduciary under ERISA when it seizes funds from an account of a defaulted debtor in which employee benefit funds have been commingled?
Under ERISA, fiduciaries may fall into one of two categories: “named fiduciaries” and “functional fiduciaries.” Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 18 (1st Cir.1998). Named fiduciaries are “defined either as those individuals listed as fiduciaries in the plan documents or those who are otherwise identified as fiduciaries pursuant to a plan-specified procedure.” Id., citing 29 U.S.C. § 1102(a)(2). The statutory language of ERISA defines a functional fiduciary as follows:
a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other propertyof such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan.
29 U.S.C. § 1002(21)(A).
“The key determinant of whether a person qualifies as a functional fiduciary is whether that person exercises discretionary authority in respect to, or meaningful control over, an E...
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