Perez v. WPN Corp.
| Decision Date | 07 June 2017 |
| Docket Number | Civil Action No. 14-1494 |
| Parties | THOMAS E. PEREZ, SECRETARY OF LABOR, UNITED STATES DEPARTMENT OF LABOR, Plaintiff, v. WPN CORPORATION, RONALD LABOW; SEVERSTAL WHEELING, INC. RETIREMENT COMMITTEE; MICHAEL DICLEMENTE; DENNIS HALPIN; WHEELING CORRUGATING COMPANY RETIREMENT SECURITY PLAN; AND) SALARIED EMPLOYEES' PENSION PLAN OF SEVERSTAL WHEELING, INC., Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
The Secretary of Labor of the United States Department of Labor ("DOL") brings this action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et seq. ("ERISA") alleging that the fiduciaries and investment managers of two related pension plans violated ERISA causing a loss of the pension plans' value of approximately $7,000,000.00. Defendant fiduciary body, the Severstal Wheeling, Inc. Retirement Committee (the "Retirement Committee") and its two individual members, Michael DiClemente ("DiClemente") and Dennis Halpin ("Halpin") appointed Ronald Labow ("Labow") and WPN Corporation ("WPN") to manage the assets of the two pension plans, the Wheeling Corrugating Company Retirement Security Plan and the Salaried Employees' Pension Plan of Severstal Wheeling, Inc. ("the Plans").1 In its Amended Complaint the DOL alleges that Labow, the sole officer and principal owner of WPN, and WPN are directly responsible under ERISA for the loss in value of the Plans' assets from approximately December 5, 2008 through May 19, 2009. The DOL alleges that Retirement Committee, DiClemente, and Halpin (collectively, "Defendants") are liable under ERISA for failing to invest the Plans' assets from November 3, 2008 to December, 5, 2008; for failing to monitor Labow and WPN's conduct from December 5, 2008 to May 19, 2009; and for co-fiduciary liability for Labow and WPN's violations.
Presently before the Court is Defendants' Motion to Dismiss and, in the alternative, Motion for Summary Judgment. (Docket No. 124). The DOL has filed a Response to the Motion (Docket No. 130) and Defendants have filed a Reply (Docket No. 134). The Court heard oral argument on the Motion on February 7, 2017 (Docket No. 135), after which both parties filed Supplement Briefs (Docket Nos. 139 and 140). After careful consideration of the parties' positions, and for the following reasons, Defendants' Motion to Dismiss is granted, in part and denied in part. Defendants' alternative Motion for Summary Judgment is denied.
The DOL filed a Complaint in this Court on October 14, 2014. (Docket No. 1). An Amended Complaint was filed on March 27, 2015. (Docket No. 28). On April 10, 2015, the Court issued a Consent Order on Stay granting the Retirement Committee, DiClemente, and Halpin's unopposed Motion for Stay of Proceedings. (Docket No. 37). The Stay was requestedto await the issuance of a decision on the merits in a lawsuit filed by the Retirement Committee and its members (and the Plans) against Labow and WPN in the United States District Court for the Southern District of New York. (Docket No. 37, at ¶ 1; Severstal Wheeling, Inc. v. WPN Corp., No. 1:10-cv-954). Following a bench trial, District Judge Laura Taylor Swain issued a decision dated August 10, 2015, finding that WPN and Labow breached their fiduciary duties under ERISA and entered judgment for approximately $15,000,000.00. Severstal Wheeling, Inc. Ret. Comm. v. WPN Corp., 119 F. Supp. 3d 240, 242 (S.D.N.Y. 2015). The decision was affirmed by the United States Court of Appeals for the Second Circuit on August 30, 2016. Severstal Wheeling, Inc. v. WPN Corp., 659 F. App'x 24 (2d Cir. 2016). The Stay in this Court was lifted on the same day. (Docket No. 97). Defendants' Motion to Dismiss and, in the alternative, Motion for Summary Judgment was filed on October 31, 2016. (Docket No. 124).
From approximately June 2008 to approximately May 2009, the Plans' sponsor was Severstal Wheeling, Inc., which is no longer in business. (. The Plans were established to provide retirement benefits to employees. Pursuant to the Plans' documents, Severstal Wheeling, Inc. Retirement Committee is the Plan Administrator and a Named Fiduciary for each of the Plans. (Am. Compl. ¶ 8). DiClemente was a member of the Retirement Committee from June, 2008, through February 2009, and is a Named Fiduciary pursuant to the Plans' documents. (Am. Compl. ¶ 9). Halpin was a member of the Retirement Committee from June, 2008, through April, 2009, and is a Named Fiduciary pursuant to the Plans' documents. (Am. Compl. ¶ 10).
The Plans' assets were part of a large trust, the WHX Trust, holding the assets of several pension plans managed by Labow and WPN. (Am. Compl. ¶ 14). The Trustee of the WHX Trust was Citibank, N.A. (Am. Compl. ¶ 15). In June, 2008, Citibank announced that it was discontinuing its trust services by the end of 2008. (Am. Compl. ¶ 15.) As a result, the Plans' assets were to be separated from the unrelated pension plan assets held in the WHX Trust and deposited into a new standalone trust holding only the Plans' assets. (Am. Compl. ¶ 16.) The new standalone trust was "subsequently renamed" the Severstal Wheeling, Inc. Pension Plan Master Trust ("Severstal Trust"). (Am. Compl. ¶ 16.) National City Bank became the Trustee of the Severstal Trust on December 31, 2008.2 (Am. Compl. ¶ 15).
The allegations supporting the DOL's claims that Defendants violated ERISA fall into two definable time periods. The first period begins on November 3, 2008, with the transfer of the Plans' Assets from the WHX Trust to a standalone trust, and ends on December 5, 2008, when a written investment management agreement was entered into between the Retirement Committee and Labow and WPN.
The majority of the Plans' assets (valued at approximately $31,446,845) were held in an undiversified account with Neuberger Berman, LLC. (Am. Compl. ¶¶ 19, 21). The Neuberger Berman account had approximately 97% of its value invested in eleven large cap energy stocks, and remained in this undiversified state during the period from November 3, 2008 through December 5, 2008. (Am. Compl. ¶¶ 21, 22).
The Neuberger Berman account holding the Plans' assets was transferred from the WHX Trust to the Severstal Trust on November 3, 2008. (Am. Compl. 19). On November 4, 2008, DiClemente confirmed the transfer of the Neuberger Berman account to the Severstal Trust by letter dated November 3, 2008. (Am. Compl. ¶ 20).
There was no written investment management agreement from November 3, 2008, until December 5, 2008. (Am. Compl. ¶ 22). On December 5, 2008, DiClemente, on behalf of the Retirement Committee, signed an investment management agreement with Labow and WPN, titled the Third Amendment to the Severstal Wheeling, Inc. Investment Management Agreement. (Am. Compl. ¶ 23). Although the investment management agreement signed on December 5, 2008, was backdated to be effective November 1, 2008 ( ), the DOL alleges that Labow and WPN's investment manager fiduciary duties became effective on December 5, 2008. In the DOL's first claim it is alleged that from November 3, 2008 through December 5, 2008, Defendants failed to discharge their fiduciary duties solely in the interest of the participants and beneficiaries by failing to prudently invest the Plans' assets when no investment management agreement was in place in violation of ERISA sections 404(a)(1)(A) and 404(a)(1)(B); 29 U.S.C. §§ 1104(a)(1)(A) & 1104(a)(1)(B). (Am. Compl. ¶ 35).
The second time period begins when the Retirement Committee entered into the investment management agreement with Labow and WPN on December 5, 2008, and ends when Labow and WPN are terminated on May 19, 2009. (Am. Compl. ¶¶ 23, 28). The Plans' assets remained in the undiversified Neuberger Berman account from December 5, 2008 through December 30, 2008. (Am. Compl. ¶ 24). On December 30, 2008, the Retirement Committee, DiClemente, and Halpin first learned that the Plans' assets were in the undiversified NeubergerBerman account and DiClemente informed Labow and WPN of the discovery. (Am. Compl. ¶ 25).
The Plans' assets remained in the undiversified Neuberger Berman account while Defendants communicated with Labow and WPN, from December 30, 2008 through March 24, 2009. (Am. Compl. ¶ 26). On March 24, 2009, the Plans assets in the Neuberger Berman account were sold for cash. (Am. Compl. ¶ 27).
The Plans' assets remained in cash from March 24, 2009 through May 19, 2009, during which time the Retirement Committee and Halpin communicated with Labow and WPN. (Am. Compl. ¶ 29). On May 19, 2009, the investment management agreement was terminated and Labow and WPN were fired. (Am. Compl. ¶¶ 6, 28).
From November 3, 2008 through May 19, 2009, the Plans suffered losses and lost earnings of approximately $7,000,000.00. (Am. Compl. ¶ 32). The DOL's second claim alleges that Defendants failed to discharge their fiduciary duties solely in the interest of the participants and beneficiaries by failing to monitor Labow and WPN from December 5, 2008 through May 19, 2009, while they acted as investment manager for the Plans in violation of ERISA sections 404(a)(1)(A) and 404(a)(1)(B); 29 U.S.C. §§ 1104(a)(1)(A) & 1104(a)(1)(B). (Am. Compl. ¶ 35).
Finally, the DOL alleges in its third claim that Defendants are subject to co-fiduciary liability because they enabled Labow and WPN to commit a breach of ERISA section 404(a)(1), and knew of Labow and WPN's breach and failed to make reasonable efforts to remedy the breach, all in violation of ERISA sections 405(a)(2) and 405(a)(3); 29 U.S.C. §§ 1105(a)(2) & 1105(a)(3). (Am. Compl. ¶ 36).
Defendants seek dismissal of the DOL's claims for failure to state a claim upon which relief can be granted under Federal Rule of Civil Procedure 12(b)(6). In the alternative, Defendants request the Court convert the motion to...
To continue reading
Request your trial