Perelman v. Perelman

• Decision Date: 13 July 2015
• Docket Number: 14–2742.,Nos. 14–1663,s. 14–1663
• Citation: 793 F.3d 368
• Parties: Jeffrey E. PERELMAN, as a Participant in the General Refractories Company Pension Plan for Salaried Employees v. Raymond G. PERELMAN; Ronald O. Perelman; Jason Guzek; General Refractories Company; Reliance Trust Company Jeffrey E. Perelman, as a participant in the General Refractories Company Pension Plan for Salaried Employees, a/k/a the Grefco Minerals, Inc. Pension Plan for Salaried Employees (the Pension Plan), Appellant.
• Court: U.S. Court of Appeals — Third Circuit

793 F.3d 368

Jeffrey E. PERELMAN, as a Participant in the General Refractories Company Pension Plan for Salaried Employees

v.Raymond G. PERELMAN; Ronald O. Perelman; Jason Guzek; General Refractories Company; Reliance Trust Company Jeffrey E. Perelman, as a participant in the General Refractories Company Pension Plan for Salaried Employees, a/k/a the Grefco Minerals, Inc. Pension Plan for Salaried Employees (the Pension Plan), Appellant.

Nos. 14–1663

14–2742.

United States Court of Appeals, Third Circuit.

L.A.R. 34.1(a) on April 17, 2015.

Filed: July 13, 2015.

Paul A. Friedman, Esq., Epstein, Becker & Green, New York, N.Y., Jonathan S. Goldman, Esq., James T. Smith, Esq., Rebecca D. Ward, Esq., Philadelphia, PA, for Appellant.

Ethan M. Dennis, Esq., Clark Hill, Clifford E. Haines, Esq., Haines & Associates, Marjorie M. Obod, Esq. Dilworth Paxson, Philadelphia, PA, for Appellee Raymond G. Perelman.

Michael S. Doluisio, Esq., William T. McEnroe, Esq., Ryan M. Moore, Esq., Philadelphia, PA, Andrew J. Levander, Esq., New York, N.Y., for Appellee Ronald O. Perelman.

Derek J. Cusack, Esq., Dicalite Management Group, Inc., Bala Cynwyd, PA, for Appellee General Refractories Company.

Before: AMBRO, VANASKIE, and SHWARTZ, Circuit Judges.

OPINION

VANASKIE, Circuit Judge.

This matter arises under § 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(3), which authorizes suits by, inter alia, a pension plan beneficiary to enjoin any act or practice that violates ERISA, “to obtain other appropriate equitable relief ... to redress such violations,” or to enforce any provision of ERISA or the terms of a pension plan. Id. Appellant Jeffrey Perelman is a participant in the defined employee pension benefit plan (the Plan) of Appellee General Refractories Company (GRC). Jeffrey alleges that his father, Raymond Perelman, as trustee of the Plan, breached his fiduciary duties by covertly investing Plan assets in the corporate bonds of struggling companies owned and controlled by Jeffrey's brother, Appellee Ronald Perelman. Jeffrey contends that these transactions were not properly reported; depleted Plan assets; and increased the risk of default, such that his own defined benefits are in jeopardy. The District Court dismissed several of Jeffrey's claims for lack of constitutional standing, later granted summary judgment against him on all remaining claims, and denied his application for attorneys' fees and costs under ERISA § 502(g)(1), 29 U.S.C. § 1132(g)(1). We will affirm.

I.

In 1982, Raymond became the Chairman of GRC, a large manufacturer of industrial materials.¹ Between 2003 and 2009, Raymond was a trustee of the GRC Plan, and he served as Plan Administrator between 2003 and 2005. In that position he exercised discretionary control over management of Plan assets and thus qualified as both a plan fiduciary and a “party in interest” under ERISA. See 29 U.S.C. § 1002(21)(A), (14)(A). Jason Guzek, a defendant in this action but not an appellee, assumed the role of Plan Administrator from 2006 to 2008 and was succeeded by GRC itself as Plan Administrator in 2009.

Raymond's son Ronald has been the controlling shareholder of Revlon, Inc., and its wholly owned subsidiary, Revlon Consumer Products Corporation (together, Revlon). Beginning in 2002, Raymond directed the Plan's purchase of roughly $2 million of high-risk Revlon corporate bonds. In 2004, Raymond converted those bonds into Revlon stock. He and his wife Ruth then assigned beneficial ownership of the Revlon shares to Mafco Holdings, Inc., another company owned and controlled by Ronald. As Plan trustee, Raymond also invested Plan assets in a lending agreement between Revlon and MacAndrews & Forbes Holdings, Inc. (MacAndrews), an entity that, like Revlon, was principally owned by Ronald. One consequence of these transactions was that Ronald, by virtue of his control over the voting rights of stock held by the Plan, became a Plan fiduciary under § 1002(21)(A). Ronald also qualified as a “party in interest,” both because of that fiduciary status and as a relative of Raymond. Id. § 1002(14)(A), (F).

Since 1985, Jeffrey has been a participant in GRC's defined benefit pension plan. Jeffrey alleges that Raymond and Ronald, at the Plan's expense, structured transactions to allow Ronald to raise capital for Revlon without sacrificing his control over the company. Jeffrey contends that these investments, which diminished Plan assets, were routinely misreported by the defendants on the annual reports that a plan administrator must file with the Internal Revenue Service (IRS) and Department of Labor. See id. §§ 1023–24. Between 2003 and 2005, the reports did not disclose that the Plan held investments in Revlon bonds. Instead, the 2003 and 2004 reports stated that all Plan assets were invested in master trust accounts, while the reports from 2005 through 2009 stated that all Plan assets were invested in mutual funds. Assessments from independent auditors, which were appended to the annual reports between 2003 and 2008, did disclose the investments in Revlon bonds, but either failed to identify those investments as party-in-interest transactions or did so for the wrong reasons. The Plan's investment in the lending agreement between Revlon and MacAndrews also was described inaccurately.

In October 2010, Jeffrey brought this lawsuit both as an individual and on behalf of the Plan against Raymond, Ronald, Guzek, and GRC. The Second Amended Complaint, filed on July 21, 2011, asserts the following: breach of fiduciary duty of care under 29 U.S.C. § 1104(a)(1)(B) against Raymond and Ronald (counts One and Ten, respectively); prohibited party-in-interest transactions under § 1106 against Raymond and Ronald (counts Two and Nine); failure to diversify plan assets under § 1104(a)(1)(C) against Raymond, Guzek, and GRC (counts Three and Six); failure to update or maintain proper plan documents under §§ 1024–27 against Raymond, Guzek, and GRC (counts Four and Seven); improper delegation of control of plan assets under § 1104(a)(1) against Raymond (count Five); and failure to prosecute a co-fiduciary's breach of fiduciary duty against Guzek, GRC, and Ronald (counts Eight and Eleven). The Complaint seeks monetary relief under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), in the form of restitution for Plan losses and disgorgement of profits. It also demands injunctive relief, including removal of Raymond as trustee; appointment of an independent trustee; an outside audit for all Plan years from 2002 to 2010; an order enjoining Raymond from ever again serving in a fiduciary capacity for an ERISA plan; and an order declaring void any provision in the Plan or its Trust Agreement that would indemnify any defendant. Finally, the Complaint requests attorneys' fees and costs under ERISA § 502(g)(1), 29 U.S.C. § 1132(g)(1).

In August 2012, the District Court found that Jeffrey lacked constitutional standing to pursue restitution and disgorgement claims because he had failed to demonstrate an actual injury to himself, as opposed to the Plan. The Court nonetheless permitted Jeffrey to pursue the other requested forms of injunctive relief. Thereafter, in September 2012, Raymond executed a corporate resolution terminating himself as trustee and appointing Reliance Trust Company to that position.² GRC also retained the services of an independent investment manager for the Plan. And earlier in 2012, Raymond voluntarily contributed $270,446.42 to the Plan's trust. None of these actions, however, included an admission of culpability or wrongdoing.

In January 2013, the Court denied Jeffrey's motion to file a Third Amended Complaint, finding that the addition of a claim for monetary damages under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2), would be futile, again for failure to allege an actual injury. The Court also denied as moot Jeffrey's bid to remove Raymond as trustee. With respect to the trustee indemnification language, the Court concluded that the Plan's clause fell within a safe-harbor provision because any indemnification would be funded by GRC rather than by the Plan itself. Because the Trust Agreement, however, was ambiguous as to which entity would fund any indemnification, the Court concluded that Jeffrey had stated a claim for relief as to that document. The Court dismissed Jeffrey's claim to permanently bar Raymond from serving as an ERISA fiduciary, finding that the Secretary of Labor, rather than Jeffrey, was the appropriate party to seek such relief with respect to pension plans in which Jeffrey was not a participant or beneficiary. And finally, the Court concluded that Jeffrey's request for a historical audit would serve only to support an attendant claim for restitution and disgorgement, which the Court had already concluded was impermissible in the absence of actual injury sustained by Jeffrey. The Court thus limited the scope of Jeffrey's demand for an audit to a determination of whether the Plan was currently at risk of default.

In February 2014, the Court granted summary judgment in favor of the defendants on all remaining claims. First, the Court concluded that, under statutorily endorsed accounting principles, no genuine dispute of material fact existed as to whether the Plan was currently funded, meaning that Jeffrey was not entitled to audit relief. The Court also concluded that no live case or controversy existed with respect to the Trust Agreement's indemnification clause.

On April 14, 2014, the District Court denied Jeffrey's application for attorneys' fees and costs, finding that Jeffrey had not achieved “some degree of success on the merits,” Ruckelshaus v. Sierra Club, 463 U.S. 680, 694, 103 S.Ct. 3274, 77 L.Ed.2d 938 (1983), and that even if some degree of success had been achieved, Jeffrey had not demonstrated an entitlement to fees under the five-factor test announced in Ursic v. Bethlehem Mines, 719 F.2d 670, 673 (3d Cir.1983). He filed a timely appeal.

II.

The...