Scalia v. WPN Corp., Civil Action No. 14-1494

• Decision Date: 30 September 2019
• Docket Number: Civil Action No. 14-1494
• Parties: Eugene SCALIA, 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

417 F.Supp.3d 658

Eugene SCALIA, 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.

Civil Action No. 14-1494

United States District Court, W.D. Pennsylvania.

Signed September 30, 2019

Paul E. Skirtich United States Attorney's Office Pittsburgh, PA, for Plaintiff.

Daniel Cobrinik, Daniel Cobrinik, P.C., New York, NY, Charles Kelly, Michael J. Joyce, Saul Ewing, LLP, Pittsburgh, PA, for Defendants.

MEMORANDUM OPINION

Nora Barry Fischer, Senior United States District Judge

I. INTRODUCTION

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 while acting as fiduciaries and investment managers of the Wheeling Corrugating Company Retirement Security Plan and Salaried Employees' Pension Plan of Severstal Wheeling, Inc. (the "Plans"), Defendants Severstal Wheeling, Inc. Retirement Committee ("Retirement Committee"), Michael DiClemente ("DiClemente"), and Dennis Halpin ("Halpin") (collectively "Defendants") violated ERISA causing a loss of approximately $7 million to the Plans. Presently before the Court are cross-motions for summary judgment, (Docket Nos. 179, 182), which are ripe for disposition. The Court having considered the parties' positions and evaluated the evidence in light of the standard governing motions for summary judgment and for the following reasons, grants Defendants' motion for summary judgment (Docket No. 179), and denies the DOL's cross-motion as moot (Docket No. 182).

II. RELEVANT FACTUAL BACKGROUND

This Court must first address Defendants' objections to the DOL's response to their concise statement of material facts (Docket No. 195), the DOL's response to those objections (Docket No. 201), and Defendants' reply (Docket No. 204). Defendants specifically object to the DOL's responses to Paragraphs 31, 33, 42-43, 47, 50, 86, 89-94, 96-100, and 102-03 and argue that each of the facts in those paragraphs should be deemed admitted. (Docket No. 195 at 3).

Federal Rule of Civil Procedure 56(e), provides that where a party "fails to properly address another party's assertion of fact" the court may "consider the fact undisputed for purposes of the motion" or "grant summary judgment if the motion and supporting materials--including the facts considered undisputed--show that the movant is entitled to it." FED. R. CIV. P. 56(e)(1), (3). To this end, our Local Civil Rules require a responding party to admit or deny each fact in the moving party's concise statement of material facts using support from the record, LCvR 56(C), and uncontroverted material facts may "be deemed admitted unless specifically denied or otherwise controverted by a separate concise statement of the opposing party," LCvR 56.E (emphasis added).¹ This Chamber's Practices and Procedures provide likewise. See Practices & Procedures of Judge Fischer , § II.E. While this Court agrees with Defendants that some of the DOL's responses are deficient under our Local Rules and this Chamber's Practices and Procedures, whether or not this Court deems those facts admitted does not change the outcome of this case. Accordingly, the Court will decline to do so and instead, rely on the record as a whole to determine the applicable material facts in Paragraphs 31, 33, 42-43, 47, 50, 86, 89-94, 96-100, and 102-03. The Court now summarizes the facts instrumental to its decision.

Prior to November 2008, the Retirement Committee operated as the Wheeling-Pittsburgh Steel Corporation Retirement Committee and was managed as part of the WHX Investment Trust ("WHX Trust"). (Docket Nos. 190 ¶ 16; 192 ¶¶ 3, 5).² The WHX Trust was a combined trust that held pension assets for two entities, Wheeling-Pittsburgh Steel Corporation and WHX Corporation. (Docket No. 192 ¶¶ 6, 8). Beginning in 2004, the WHX Trust was managed by Ronald LaBow ("LaBow") and his company, WPN Corporation ("WPN"), who were given "complete, unlimited and unrestricted management authority with respect to the investment of the [WHX Trust]."³ (Docket Nos. 190 ¶ 20; 192 ¶¶ 6, 8, 10, 11).

In June 2008, Citibank, N.A., which had been operating as the custodial trustee for the WHX Trust, announced that it would be exiting the trust business at the end of the year. (Docket Nos. 190 ¶ 17-18; 192 ¶ 7). As a result of Citibank's decision, the Plans' assets were to be separated from the WHX Trust and deposited into a new independent Severstal Trust. (Docket No. 190 ¶ 18). At that time, the Retirement Committee numbered two members, DiClemente and Halpin, both of whom were named fiduciaries for the Plans. (Docket Nos. 190 ¶¶ 8-13; 192 ¶¶ 1, 4). The Plans consisted of two pension plans, the Wheeling Corrugating Company Retirement Security Plan and the Salaried Employees Pension Plan of Severstal-Wheeling, Inc., both of which were overseen by the Retirement Committee. (Docket Nos. 190 ¶¶ 1, 7; 192 ¶¶ 1-2). DiClemente and Halpin were both members of the Wheeling-Pittsburgh Steel Corporation Retirement Committee prior to becoming members of Severstal's Retirement Committee. (Docket No. 192 ¶ 2).

Upon learning that Citibank would be resigning, DiClemente approached LaBow about possibly continuing on as the investment manager for the Plans, and LaBow responded with interest. (Docket No. 192 ¶¶ 34-35). They discussed the Retirement Committee's investment goals including its desire to receive the same percentage interest of each of the assets held within the WHX Trust. (Id. ¶ 36; Docket No. 190 ¶ 23). On September 30, 2008, DiClemente again reminded LaBow of the Severstal Trust's desire for "the same percentage allocations as existed in the WHX [Trust]." (Docket No. 190 ¶ 25). When asked why three weeks later he still had not separated the WHX Trust's assets, LaBow responded that he had not done so due to the volatility in the market but he would attempt to make the transfer on November 3, 2008. (Id. ¶ 26; Docket No. 184-13 at 11).

Thereafter, LaBow and WPN entered into a written agreement, the Third Amendment to the Severstal Wheeling, Inc. Investment Management Agreement, with Severstal Wheeling Inc., successor to Wheeling-Pittsburgh Steel Corporation. (Docket No. 181-6). While LaBow signed the agreement on December 5, 2008, he made November 1, 2008 its effective date. (Id. ¶¶ 14, 17; Docket No. 190 ¶ 21). LaBow testified that in signing the agreement, he was simply "memorializing" the already established relationship between the parties and had been fulfilling his investment management duties for the "Plans" since November 1, 2008.⁴ (Docket No. 192 ¶ 18). The Third Amendment to the Severstal Wheeling, Inc. Investment Management Agreement incorporated language from LaBow and WPN's original agreement with WHX. (Docket No. 190-7). Specifically incorporated was Paragraph 7, granting WPN the authority

(a) To invest and reinvest the [WHX Trust] at such time and in such manner as [WPN] in the complete and unlimited exercise of its discretion shall determine;

(b) To purchase and sell securities for the [WHX Trust] in the name of [WHX], for the account of [WHX] and at the sole risk of [WHX];

(c) To arrange for the delivery of and payment for any such investments, including securities, bought and sold for the account of [WHX Corporation]; (d) In effecting any such investments, reinvestments, purchases and sales, to use and obtain the assistance and services of such brokers, dealers, investment bankers, underwriters and other firms, enterprises and services as [WPN] in its discretion shall designate or select[.]

(Docket Nos. 181-3; 190-7).

Despite the fact that LaBow knew that the Severstal Trust wanted a proportionate share of the combined trust's assets, LaBow unilaterally decided to acquire the entire Neuberger Berman Account ("Account") for the Severstal Trust.⁵ (Docket No. 184-8 at 20; 190 ¶ 27). This Account was not diversified. (Docket No. 190 ¶ 28). Indeed, approximately 97% of its $31,446,845 value was invested in eleven large cap energy stocks. (Docket No. 190 ¶¶ 28-29). To effectuate the transfer, LaBow needed DiClemente to send a letter to Citibank requesting that the transfer be made. (Docket Nos. 190-5 ¶¶ 8-9; 197-3 at 4). DiClemente complied believing LaBow had negotiated the transfer of the Account in accordance with the Retirement Committee's instructions. (Docket Nos. 181-9 at 3). He relied on LaBow's representations rather than review the assets being transferred. (See id. ) Also unbeknownst to DiClemente, per the terms of the transfer, Neuberger Berman would not be responsible for managing the Account. (Docket Nos. 181-9 at 3; 190 ¶ 51).

It was not until December 12, 2008, that the Retirement Committee discovered that Neuberger Berman was not managing the Severstal Trust despite it having managed those very same assets as part of the WHX Trust. (Docket Nos. 184-11 at 53-54; 190 ¶ 54). It then learned on December 29, 2008, that it had not acquired a proportionate share of the WHX Trust's assets after DiClemente was so notified by Mercer Investment Consulting, Inc. ("Mercer").⁶ (Docket Nos. 181-9 at 3; 190 ¶ 56; 192 ¶ 25).

The next day, DiClemente contacted LaBow concerned that the Account was not diversified and contacted Sally King, the Retirement Committee's ERISA lawyer, to help resolve the issue.⁷ (Docket Nos. 184-10 at 64-65, 72; 192 ¶ 60). King devised a four-part strategy to proceed: (1) LaBow would negotiate a fee agreement with Neuberger Berman, which DiClemente would execute; (2) LaBow would request the most recent statement from Neuberger Berman; (3) DiClemente would obtain a copy of a recent audit report; and (4) King would draft a memo outlining the guidelines to be implemented between LaBow and...