Severstal Wheeling, Inc. v. WPN Corp.

• Decision Date: 01 September 2011
• Docket Number: No. 10 Civ. 954 (GWG).,10 Civ. 954 (GWG).
• Citation: 51 Employee Benefits Cas. 2153,809 F.Supp.2d 245
• Parties: SEVERSTAL WHEELING INC., et al., Plaintiffs, v. WPN CORPORATION, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

51 Employee Benefits Cas. 2153

809 F.Supp.2d 245

SEVERSTAL WHEELING INC., et al., Plaintiffs,

v.WPN CORPORATION, et al., Defendants.

No. 10 Civ. 954 (GWG).

United States District Court, S.D. New York.

Sept. 1, 2011.

Steven Robert Kramer, Riyaz Gulam Bhimani, Eckert, Seamans, Cherin & Mellott, LLC, White Plains, NY, Andrew Thomas Quesnelle, Clare Marie Gallagher, Mark A. Willard, Sandra R. Mihok, Eckert, Seamans, Cherin & Mellott, Pittsburgh, PA, for Plaintiffs.

Daniel Cobrinik, Daniel Cobrinik, P.C., Howard Jay Kaplan, Arkin Kaplan Rice, LLP, New York, NY, for Defendants.

OPINION AND ORDER

GABRIEL W. GORENSTEIN, United States Magistrate Judge.

Plaintiffs Severstal Wheeling, Inc. Retirement Committee (the “SRC”), Timothy S. Rogers, Melvin Baggett, William Drew Landon, and Severstal Wheeling, Inc. (“SWI”), bring this suit pursuant to the Employment Retirement and Income Security Act (“ERISA”), 29 U.S.C. §§ 1001–1169, and state law against WPN Corporation (“WPN”), Ronald LaBow, and WHX Corporation (“WHX”) (collectively “the defendants”). LaBow, who is the principal of WPN, has been sued both in his individual capacity and as a named fiduciary of the Wheeling Corrugating Company Retirement Security Plan of Severstal Wheeling, Inc. (the “Wheeling Corrugating Plan”). The three defendants have filed motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The parties have consented to the adjudication of these motions by a United States Magistrate Judge pursuant to 28 U.S.C. § 636(c). For the following reasons, WHX's motion to dismiss is granted, and WPN's and LaBow's motion to dismiss are granted in part and denied in part.

I. BACKGROUNDA. Facts

The facts alleged in the plaintiffs' complaint are assumed to be true for the purpose of these motions. See Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n. 1, 122 S.Ct. 992, 152 L.Ed.2d 1 (2002). In addition, the Court may consider documents that are attached to the complaint, are incorporated in it by reference, or are integral to the complaint. See DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir.2010).

SWI is a Delaware corporation, with its principal place of business in West Virginia. See Second Amended Complaint, filed Nov. 15, 2010 (Docket # 48) (“2d Am. Compl.”) ¶ 3. “The corporate predecessor of [SWI] was Wheeling–Pittsburgh Steel Corporation. Prior to August 1, 2003, Wheeling–Pittsburgh Steel Corporation was a wholly-owned subsidiary of Wheeling–Pittsburgh Corporation, which, in turn, was a wholly owned subsidiary of WHX....” Id. ¶ 28. SWI operates and is the sponsor of three retirement plans: the Wheeling Corrugating Plan, a defined contribution plan regulated by ERISA; the Salaried Employees' Pension Plan of Severstal Wheeling, Inc. (the “Salaried Employees Plan”), also a defined contribution plan regulated by ERISA; and the Severstal Wheeling, Inc. Pension Plan (the “DB Plan”), a defined benefit plan regulated by ERISA. Id. ¶¶ 10–13. “All three plans are ‘employee benefit pension plans' within the meaning of ERISA Section 3(2)(A), 29 U.S.C. § 1002(2)(A).” Id. ¶ 10. “The Wheeling Corrugating Plan and Salaried Employees Plan specifically provide that any ‘Investment Manager’ ... ‘shall be solely liable for all investment actions taken concerning the assets of this Plan.’ ” Id. ¶ 47; Wheeling Corrugating Company Retirement Security Plan (annexed as Ex. A to 2d Am. Compl.) (“Wheeling Corrugating Plan Document”) at 31 ¶ 8.110; Salaried Employees' Pension Plan of Wheeling–Pittsburgh Steel Corporation (annexed as Ex. B to 2d Am. Compl.) (“Salaried Employees Plan Document”) at 29 ¶ 9.11.

Before August 1, 2003, the Wheeling Corrugating Plan and the Salaried Employees Plan “were funded and maintained through the WHX Pension Plan Trust (the ‘WHX Pension Trust’).” 2d Am. Compl. ¶ 29. “On August 1, 2003, after a period in bankruptcy, Wheeling–Pittsburgh Corporation became an independently traded public company and was no longer owned by [WHX].” Id. ¶ 30. On November 27, 2007, Wheeling–Pittsburgh Corporation combined with Esmark Steel Service Group to form Esmark Incorporated. Id. ¶ 31. “As a result of this business combination, Esmark Incorporated was renamed Severstal Wheeling Holding Company, Wheeling–Pittsburgh Corporation was renamed Severstal Wheeling Steel Group, Inc.” and Wheeling–Pittsburgh Steel Corporation became SWI. Id. ¶ 32. “Despite the corporate changes ..., the Wheeling Corrugating Plan and the Salaried Employees Plan continued to remain invested in the WHX Pension Trust.” Id. ¶ 33.

In the meantime, in February 2004, WHX entered into an Investment Consulting Agreement (the “WHX Investment Agreement”) with WPN. Id. ¶ 34. The principal and sole executive officer of WPN is LaBow. Id. ¶ 8.¹ The WHX Investment Agreement vested WPN with “ ‘complete, unlimited and unrestricted management authority with respect to’ the assets in the WHX Pension Trust.” Id. ¶ 34. This agreement was amended on May 11, 2007 and again in September 2008. Id.

At some point after 2004, Citibank, N.A. (“Citibank”) announced that it would no longer serve as trustee of the WHX Pension Trust, and WHX advised SWI that it would have to transfer the Wheeling Corrugating Plan and the Salaried Employees Plan to a trust “separate and apart from the WHX Pension Trust.” Id. ¶ 35. In September 2008, WHX's Retirement Committee and the SRC “jointly requested that Citibank ... remove the assets of the Wheeling Corrugating Plan and the Salaried Employees Plan from the WHX Pension Trust to a new Severstal Wheeling Pension Plan (the ‘Severstal Trust’).” Id. ¶ 36. On September 30, 2008, Michael DiClemente, a member of the SRC, “informed Mr. Glen Kassan, the chairman of WHX's Pension Investment Committee, that the assets in the Wheeling Corrugated Plan and the Salaried Employees Plan should be transferred to the Severstal Trust in the same percentage investment allocations as had existed in the WHX Pension Trust.” Id. ¶¶ 37–38. However, “DiClemente's instructions were not followed and the transfer did not occur on September 30, 2008,” the date of the request. Id. ¶ 39. On October 22, 2008, LaBow sent DiClemente a letter “advising him that the transfer was not accomplished on September 30, 2008 due to market volatility, but that the transfer would occur on November 3, 2008.” Id. ¶ 40. This letter was drafted by either James McCabe, an officer of WHX, or Manes Merrit, an outside counsel to WHX, and was sent to LaBow “with instructions to print it on WPN letterhead and send it to Severstal Wheeling.” Id.

“As of October 31, 2008, the total combined value of the Wheeling Corrugated Plan and the Salaried Employees Plan was $38,147,879.00,” and because they were then still part of the WHX Pension Trust, these assets were diversified. Id. ¶ 42. On October 31, 2008, LaBow directed David Riposo, the Treasurer of WHX, “to transfer all of the assets in an account that was managed by Neuberger Berman LLC [“NB] while it was part of the WHX Pension Trust (the ‘NB Account’) to the Severstal Trust at market opening on November 3, 2008.” Id. ¶ 43. The plaintiffs were not aware of this instruction and it was made without their input. Id.

On November 1, 2008, Severstal Wheeling and WPN entered into an agreement which constituted a third amendment to the WHX Investment Agreement (the “Third Amendment”). See id. ¶ 44; Third Amendment to the Severstal Wheeling, Inc. Investment Management Agreement (annexed as Ex. E to 2d Am. Compl.) (“Third Amendment”) at 1. “Under the terms of the Third Amendment, WPN was named the investment manager of the Severstal Trust with sole discretionary management authority over the assets in the Severstal Trust.” 2d Am. Compl. ¶ 46 LaBow “ ‘ha[d] the primary responsibility for performing the services of the Manager [WPN] with respect to the Investment Fund....” Id. ¶ 46 (alteration in original); Third Amendment at 3 ¶ (I). The Third Amendment also “obligated WPN to manage the Severstal Trust assets in accordance with the Severstal Wheeling Pension Plan Investment Policy (the ‘Severstal Investment Policy’).” 2d Am. Compl. ¶ 48. The Severstal Investment Policy required WPN to “ ‘ensure that the [Severstal Trust's] assets [were] well diversified with respect to the type of assets, investment strategies employed and number of investment managers used.’ ” Id. ¶ 50; Severstal Investment Policy (annexed as Ex. F to 2d Am. Compl.) at 2.

On November 3, 2008, DiClemente directed Citibank to transfer the NB Account from the WHX Pension Trust to the Severstal Trust.2d Am. Compl. ¶ 5 1. “The language of [DiClemente's] letter was drawn from language provided by WHX.” Id. WHX similarly advised Citibank that the transfer was to take place. Id. ¶ 52. “In accordance with these ... communications, $31,446,845.00—the entirely of which was invested in the [NB account], was transferred from the WHX Pension Trust to the Severstal Trust.” Id. ¶ 53. The difference between the value of the assets transferred and the total amount of funds belonging to the Severstal Trust, $38,147,879.00, is referred to as the “True–Up Amount,” and was left in the WHX Pension Trust “without the concurrent knowledge or agreement of the [SRC].” Id. In other words, “[d]efendants, ... as fiduciaries and investment managers, failed to ensure that the entire difference was immediately transferred from the WHX Pension Trust to the Severstal Trust.” Id.

LaBow and WHX had a secret agreement “to protect the assets of the WHX Pension Trust to the detriment of the Severstal Trust.” Id. ¶ 65. WHX “desired to have no association with the [NB Account].” Id. ¶ 64. Kassan, “in a joint telephone conference call with and among WHX and Severstal Wheeling representatives, described the [NB Account] as a ‘toxic asset’ and specifically indicated that WHX wanted nothing to do with [the account].” Id. “By investing the Severstal Trust in the [NB Account] while ... divesting the WHX Pension Trust from the [NB Account], WPN...