Torchetti v. International Business Machines Corp., CIV.A.96-10243-PBS.

• Decision Date: 12 November 1997
• Docket Number: No. CIV.A.96-10243-PBS.,CIV.A.96-10243-PBS.
• Citation: 986 F.Supp. 49
• Parties: Albert P. TORCHETTI,<SMALL><SUP>1</SUP></SMALL> v. INTERNATIONAL BUSINESS MACHINES CORP., et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

986 F.Supp. 49

Albert P. TORCHETTI,¹ v. INTERNATIONAL BUSINESS MACHINES CORP., et al., Defendants.

No. CIV.A.96-10243-PBS.

United States District Court, D. Massachusetts.

November 12, 1997.

Eric S. Kupperstein, Kupperstein & Kupperstein, Boston, MA, for Plaintiffs.

Thomas E. Shirley, Choate, Hall & Stewart, Boston, MA, Howard S. Weber, Jay E Gerber, Davis, Scott, Weber & Edwards, New York, NY, for Defendants.

ORDER RE: OBJECTIONS

SARIS, District Judge.

On May 15, 1997, the magistrate judge issued "Findings and Recommendations on Defendant's motion to dismiss and strike." (See Attachment A.) I assume familiarity with that decision and rule as follows:

I. Plaintiffs, Objections (Docket 34)

First, plaintiffs object to the order of the magistrate judge dismissing the claims under ERISA based on their contention that the fiduciary knew "it was a corrupt, unscrupulous, and unfair process that was employed by their IBM management when selecting which employees were `surplus' and which were `essential.'" The magistrate judge allowed the motion to dismiss the ERISA claims, denied the defendants' motion to dismiss plaintiffs' "9(b) claim" of fraud and gave plaintiffs leave to amend. This dismissal appears to be based on a misunderstanding that there was a common law fraud claim in the consolidated complaint. The complaint does not contain such a claim, and, in any event, it would be preempted by ERISA, as both parties seem to agree. 29 U.S.C. § 1144(a). Accordingly, the Court sustains the objection to the dismissal of the ERISA claims (Counts 1 through 4 of the consolidated complaint) against IBM and James Daly.

However, this Court agrees with the magistrate judge that any ERISA claims of fraud or of a breach of fiduciary duty stemming from fraud against IBM and Daly have not met the requirements of Rule 9(b). Plaintiffs did not object to the applicability of Rule 9(b) to an ERISA claim of breach of fiduciary duty by engaging in a fraud, and the Court determines that the vague allegations of fraud against IBM and Daly require that "the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b); see Rodowicz v. Massachusetts Mut. Life Ins. Co., 857 F.Supp. 992, 998-99 (D.Mass.1994) (applying Rule 9(b) to ERISA breach of fiduciary duty claim "predicated on allegations of fraudulent misrepresentation"), vacated on other grounds, 915 F.Supp. 486 (D.Mass.1996); Thornton v. Evans, 692 F.2d 1064, 1082-83, 1083 n. 43 (7th Cir.1983) (requiring portions of ERISA fiduciary duty claim alleging fraud to be pleaded with particularity); cf. Concha v. London, 62 F.3d 1493, 1502-03 (9th Cir.1995) (not requiring compliance with Rule 9(b) where ERISA breach of fiduciary duty claim did not allege the commission of a fraud), cert. dismissed, 517 U.S. 1183, 116 S.Ct. 1710, 134 L.Ed.2d 772 (1996). Therefore, Plaintiffs must amend their consolidated complaint as against IBM and Daly to comply with Rule 9(b) within 20 days of their receipt of this Order.

Second, Plaintiffs object to the magistrate judge's decision to dismiss all claims against Louis V. Gerstner, Jr., a director and Chief Executive Officer of IBM. I agree with the magistrate judge here. The consolidated complaint has alleged that Gerstner had "discretionary responsibility or authority over the MSTP plan." The consolidated complaint also alleges that the plan administrator (and named fiduciary) is Daly, who maintains offices at Workforce Solutions, Old Orchard Road, Armonk, N.Y. 10504.² The MSTP plan, attached to the complaint, gives the plan administrator "full and exclusive discretionary authority to construe the provisions and interpret the terms of this program in a manner which is consistent with the intent of the MSTP". The only facts alleged in the complaint regarding Gerstner is that the MSTP gives management the sole discretion to designate which employees are surplus and essential. However, there is no allegation of an express delegation to Gerstner personally.

These allegations are insufficient to render Gerstner a fiduciary under the functional definition set forth in 29 U.S.C. § 1002(21)(A) or § 1105(c)(1)(B). See Rodriguez-Abreu v. Chase Manhattan Bank, N.A., 986 F.2d 580, 584 (1st Cir.1993) (requiring proper designation in order for someone to be considered a fiduciary). Similarly, there are no allegations sufficient to pass the heightened pleading requirements of Rule 9(b) that he knowingly participated in fraudulent activity by the fiduciary or managers. The MSTP also expressly delegates the duty to apply the plan's standards to the IBM Area Manager or "the highest level headquarters manager and to his or her designee," or the MSTP Project Office. Plaintiffs' argument, if successful, would result in the imposition of ERISA fiduciary liability on a CEO simply because the ERISA plan gives certain managers the sole discretion to make business decisions concerning the continuing need for an employee. I agree with the magistrate judge that the Department of Labor regulations do not go that far. See 29 C.F.R. § 2509.75-8 (1997). Since Plaintiffs must submit an amended complaint in accordance with this Order, the Court reserves the question of whether other members of "IBM management" may be exposed to ERISA liability and instead limits its ruling to the determination that Gerstner himself is not subject to ERISA liability.

II. Defendants' Objections (Docket 33)

IBM objects, in turn, to the grant of permission to plaintiffs to file an amended complaint which would seek to comply with Rule 9(b) with respect to ERISA claims on the ground that an amendment would be futile. Since the Court disagrees with the magistrate judge's decision to dismiss the ERISA claims against IBM and Daly, the Court overrules that objection and allows amendment under Rule 15. See New England Data Serv., Inc. v. Becher, 829 F.2d 286, 290 (1st Cir.1987).

Plaintiffs allege that the defendants breached their fiduciary duties under 29 U.S.C. § 1104(a)(1)(A), (B) and (D) and 1105(a) when they knowingly permitted IBM management to make fraudulent designations of "surplus" and "essential" by fabricating bad performance reviews. They further allege that, but for this "fraudulent scheme" they would have received the benefit of the MSTP plan as surplus employees. (See Complaint par. 37 through 41). On these grounds, plaintiffs have standing to assert an ERISA claim because they are within the zone of interests that ERISA was designed to protect and effectively are "beneficiaries." See Vartanian v. Monsanto Co., 14 F.3d 697, 701-02 (1st Cir.1994) (construing standing under ERISA broadly in order to facilitate enforcement of its remedial provisions) "Beneficiaries may sue a plan for breach of fiduciary duty causing individual harm, but such suits are allowed only for equitable relief and, even then, only where Congress has failed to provide more specific relief." Turner v. Fallon Community Health Plan, Inc., 127 F.3d 196, 200 (1st Cir. 1997) (citing Varity Corp. v. Howe, 516 U.S. 489, 514, 116 S.Ct. 1065, 1079, 134 L.Ed.2d 130 (1996)).

Generally speaking, an employer's decision in an early retirement plan concerning whether a specific employee's retirement is in the best interests of the company is business in nature and is not reviewable under ERISA. See, e.g., Berger v. Edgewater Steel Co., 911 F.2d 911, 918-19 (3d Cir.1990), cert. denied, 499 U.S. 920, 111 S.Ct. 1310, 113 L.Ed.2d 244 (1991). However, even the "almost unbounded discretion" of the employer to determine what is in the parties' mutual interest is subject to the "minimal obligation of good faith." Id. at 919.

A complaint making sufficiently specific allegations that a plan fiduciary participated in a "fraudulent scheme" involving the bad faith determination by the employer of eligibility for benefits of specific beneficiaries, contrary to the standards in an ERISA plan, will survive a motion to dismiss on these grounds. Cf. Varity Corp, 516 U.S. at 504, 116 S.Ct. at 1074 (1996) (holding that a fiduciary who participates knowingly and significantly in deceiving a plan's beneficiaries in order to save the employer money at the beneficiary's expense violates his fiduciary duty); Vartanian v. Monsanto Co., 880 F.Supp. 63, 70 (D.Mass.1995) (suggesting, in dicta, that a company's misstatements explicitly referring to pension plans, if pleaded with the specificity required by Fed.R.Civ.P. 9(b), would survive a motion to dismiss).

Because the MSTP delegates discretionary authority to the plan administrator the named fiduciary, this Court must review the exercise of that discretion under an arbitrary and capricious standard. See Rodriguez-Abreu, 986 F.2d at 583 (holding that if a benefits plan clearly grants discretionary authority to the administrator to make coverage decisions, the decisions will be accorded the deferential arbitrary and capricious standard of review). The fact that the plan also vests exclusive discretion in management to apply the essential-surplus standards does not shield a fiduciary from judicial review (albeit under this deferential standard of review) of charges that he violated his duty of prudence by participating actively in fraudulent conduct by management, or by taking a see-no-evil, hear-no-evil approach to a clearcut abrogation of plan requirements. See id.

Second, defendants' objection to the failure to address the state law claim for intentional infliction of emotional distress is denied as moot, as Harris' claims have settled.

ORDER

I order as follows:

(1) I ALLOW the motion to dismiss the consolidated complaint with respect to defendant Leo Gerstner, Jr. Otherwise, the motion to dismiss and strike (Docket No. 22) is ALLOWED only if plaintiffs fail to amend the consolidated complaint within twenty (20) days of receipt of this opinion pursuant to Fed.R.Civ.P. 9(b) and 15.

(2) I ALLOW Plaintiffs' motion to strike the affidavit of Jay E. Gerber (Docke...