The opinion of the court was delivered by: Michael B. Mukasey, United States District Judge
Plaintiffs in this case are current or former participants in employee benefit funds open to members of the Allied Trades Council ("ATC"), a union. Defendants are trustees of those funds, companies and persons who provide management and investment services to those funds, a related private foundation, and persons who control those entities. Plaintiffs claim that various groups of defendants have long manipulated investment services contracts with the employee benefit funds so as to reap inflated fees and otherwise enrich themselves, and have failed to manage the funds prudently. As a result, plaintiffs claim, benefits to union members have been depleted and dues wasted.
Based on these allegations, as explained more fully below, plaintiffs have brought two claims in their own behalf and as representatives of a class of persons similarly situated, for breaches of fiduciary duty and self-dealing, pursuant to the Employee Retirement Income Act of 1974, known as ERISA. In addition, they have alleged that certain defendants constitute a racketeering enterprise within the meaning of the Racketeer Influenced and Corrupt Organizations Act, known as RICO, and that their activities constitute a pattern of racketeering activity within the meaning of that statute. Finally, plaintiffs seek permission, as they must, to file a claim pursuant to the Labor Management Reporting Disclosure Act (the "LMRDA") against certain defendants for breach of fiduciary duties to the union.
The case is now before the court on defendants' motions to dismiss these claims on various grounds, including lack of standing and the bar of the statute of limitations. In addition, defendants move to strike plaintiffs' jury demand as to the ERISA claims, and for dismissal based on improper venue. For the reasons explained below, plaintiffs lack standing to bring the RICO claims and certain of the ERISA claims, and those are dismissed. Moreover, certain of the ERISA claims are time-barred to the extent they arise directly from contracts entered into or renewed six years or more before the filing of the initial complaint in this case. Other ERISA claims survive, and the motion to strike plaintiffs' jury demand is denied. The LMRDA claim may proceed. Finally, the motion to dismiss the action for improper venue is denied.*fn1
The facts alleged in the complaint, accepted as true for the purposes of the motions to dismiss, are as follows:
Plaintiffs Lisa Bona, Elaine N. Cogdell, Jose Martinez, Haywantie Singh, and Jovan Agnew Thomas ("Individual Plaintiffs") are present or former members of ATC and participants in related employee benefit funds, including the Allied Welfare Fund, the Vacation Fringe Benefit Fund ("Vacation Fund"), the Union Mutual Fund Pension Plan, and the Union Mutual Medical Fund (collectively "the Employee Benefit Funds"). (Compl. ¶¶ 1, 4) Plaintiff George Miranda is the principal officer of International Brotherhood of Teamsters, Local Union 815, a labor organization ("Local 815"). (Id. ¶ 5) From January, 2000 to the present, Miranda has been designated by Local 815 as a trustee of the Union Mutual Fund Pension Plan, the Allied Welfare Fund, and the Vacation Fund. (Id.)
George Barasch, his children Stephen Barasch and Linda Barasch Glazer, and his son-in-law Richard Glazer ("the Barasch Family" or "non-trustee defendants"), the trustees of the Employer Benefit Funds, and the officers of ATC have created an organization ("the Barasch Enterprise") in order to amass wealth through their control over ATC and the Employee Benefit Funds. (Id. ¶¶ 1, 7) The Barasch Enterprise has been operating for decades and was a principal focus of the McClellan Committee of the United States Senate's hearings in the 1960's that led to adoption of ERISA. (Id. ¶ 25) On June 30, 1966, the McClellan Committee issued a report detailing the Barasch Family's practices of utilizing labor unions, corporations, not-for-profit organizations, and employee benefit plans to enrich themselves. (Id. ¶ 26) The activities of the Barasch Family have not changed materially since the 1960's. (Id. ¶ 27).
John Morro is president, and Jack Siebel, Reginald Rosado, and James Crowley (collectively "ATC Defendants") are officers of ATC, which exists for the purpose of representing employees in collective bargaining with employers. (Id. ¶ 6).
The Union Mutual Medical Fund, the Allied Welfare Fund, the Vacation Fund, and the Union Mutual Fund Pension Plan are multi-employer collectively bargained employee benefit plans that provide health and related benefits to plan participants and their beneficiaries. (Id. ¶¶ 8-11) The Union Mutual Medical Fund is administered by a Board of Trustees consisting of defendants Arthur Fishbein, Eustace Bowen, and Sol Laskey and is controlled by the Barasch Enterprise. (Id. ¶ 8) The Allied Welfare Fund is administered by a Board of Trustees consisting of defendants Gerald Herskowitz, Louis Kaplan, Stephen Camadeco, Rudolph Pascucci, Bruce Rogers, and Anthony Gugliano and is controlled by the Barasch Enterprise. (Id. ¶ 9) The Vacation Fund is administered by a Board of Trustees consisting of defendants Harvey Rosen, Bruce Rogers, Gerald Herskovitz, Herman Wolfson, Stephen Camadeco, and James Crowley and is controlled by the Barasch Enterprise.*fn2 (Id. ¶ 10) The Union Mutual Fund Pension Plan is administered by a Board of Trustees consisting of defendants Irving Hans, Irving Kook, Donald Merino, Harold Banner, and Bertram Gelfand and is controlled by the Barasch Enterprise.*fn3 (Id. ¶ 11).
Churchill Administrators, Inc. ("Churchill"), Financial Administrators, Inc. ("Financial Administrators"), and Barton, Babcock & Blair, Inc. ("BBB") are New Jersey corporations with their principal places of business in Englewood Cliffs, New Jersey.*fn4 (Id. ¶¶ 12-14) Churchill is administered by Stephen Barasch and is controlled by Stephen Barasch, George Barasch, Linda Barasch Glazer, and Richard Glazer. (Id. ¶ 12) Financial Administrators is administered by Linda Barasch Glazer and Richard Glazer and is controlled by them, Stephen Barasch, and George Barasch. (Id. ¶ 13) BBB is controlled by George Barasch, Linda Barasch Glazer, Richard Glazer, and Stephen Barasch. (Id. ¶ 14).
The Allied Educational Foundation holds itself out as a private foundation under the Internal Revenue Code and a trust established under New Jersey law. It is administered by a board of trustees that includes Irving Hans, Gerald Herskowitz, Herbert Pobiner, Charles Sachs, and Bertram Gelfand and is controlled by the Barasch Enterprise. (Id. ¶ 15).
B. Class Action Allegations
Individual Plaintiffs bring five claims on behalf of two classes. "Class One" is made up of all members of the ATC and consists of approximately 3000 persons (Id. ¶ 28) The individuals in Class One suffered monetary damages because the diversion of funds from the treasury of ATC to Barasch-controlled entities reduced ATC's assets and required the ATC class members to pay increased dues. (Id. ¶ 22) "Class Two" is made up of all participants and beneficiaries in the Employee Benefit Plans and consists of approximately 13,000 persons.*fn5 (Id. ¶ 28) The individuals in Class Two were the primary and intended victims of the schemes to obtain monies from the Employee Benefit Funds by failing to maintain and increase health, welfare, and pension benefits to the levels warranted based upon plan funding due to an interest in protecting the large administrative fees paid to Barasch-controlled entities. (Id. ¶ 24) The claims of the representative parties are typical of the claims of each class. (Id. ¶ 28).
C. Allegations Relevant to All Claims
On January 1, 1947, George Barasch formed ATC and has dominated its affairs since then. (Id. ¶ 29) On September 27, 1949, ATC created the Allied Trades Council Welfare Fund. (Id. ¶ 30) On September 12, 1958, Barasch formed Churchill for the purpose of entering into administrative service contracts with ATC and its related Welfare Fund. Since that date, George Barasch or other members of the Barasch Family have been party to long-term minimum-fee management contracts under which tens of millions of dollars have been diverted to the Barasch Family from ATC, the Foundation, and the Employee Benefit Funds. (Id. ¶ 31).
The Vacation Fund, the Union Mutual Medical Fund, and the Allied Welfare Fund have paid administrative fees to Churchill from 1995 to the present.*fn6 (Id. ¶ 32) On or about November 18, 1990, Churchill entered into a ten-year contract with the Vacation Fund that was not competitively bid and that set fees bearing no relationship to the work performed by Churchill. This contract has a series of provisions that are so favorable to Churchill that the contract could result only from overwhelming control over the Fund by the Barasch Enterprise. The provisions are identical or substantially similar to the provisions of the Union Mutual Fund Pension Plan's contract with Financial Administrators set forth below. On or about May 4, 1998, Churchill and the Vacation Fund renewed their agreement for two successive five-year terms at the option of Churchill. (Id. ¶ 33).
Churchill has an exclusive five-year administrative services contract with the Allied Welfare Fund terminating on December 31, 2004, which is renewable by Churchill for two additional five-year periods. The contract for administrative services between Churchill and Allied Welfare Fund has a per capita formula with a cost of living arrangement included in which administrative fees are subject to annual increases. (Id.)
Churchill also has a long-term administrative services contract with the Union Mutual Medical Fund. The fees paid to Churchill by all three Funds were the result of dominance by the Barasch Family over these entities and were not proportional to the services rendered to these entities by Churchill. (Id.)
Financial Administrators has a long-term administrative services contract with the Union Mutual Fund Pension Plan that is similar to the Churchill contracts. (Id. ¶ 35) That contract has a series of one-sided provisions, including: (1) Financial Administrators is authorized to manage all operationas of the Plan, including the right to hire accountants, actuaries, attorneys, and other professionals; (2) Financial Administrators is authorized to provide legal advice to the Plan regarding all legal and professional matters and to represent the Plan's trustees in matters before government agencies and civil courts; (3) Financial Administrators is allowed to provide services similar to trust funds, without any adjustment of the compensation paid by the Plan to reflect economies of scale; (4) Financial Administrators is compensated on a sliding scale on all income of the Plan except interest, dividends, and capital gains that accrue to the Plan's trustees, and also receives a cost of living increase in the fees paid to it if the Consumer Price Index increases by four percent; (5) Financial Administrators is paid based on a minimum compensation scale of at least $470,000,*fn7 and a guarantee that the compensation paid to it will be deemed to be at least at the midpoint of the "sliding scale"; (6) the contract remains in force for a minimum of ten years and either party has an option to renew for years through July, 2011; (7) although either party has the right to reopen the agreement to renegotiate the fee arrangement, Financial Administrators can force the Plan to a binding arbitration on the question of "the amount of compensation to be paid Financial ". . . and the arbitrator shall be bound to have the Trust Fund pay to Financial an amount sufficient to fully compensate for the services rendered by Financial under this agreement"; (8) the Plan's inability to assign the agreement is not a reason for lower compensation to be paid under the agreement; (9) Financial Administrators may assign its rights under the agreement in whole or in part. (Id. ¶¶ 36-44).
These provisions in the contract between the Union Mutual Fund Pension Plan and Financial Administrators, along with the excessive fees paid under the contract, resulted from the Barasch Family's dominance of the Employee Benefit Funds and were not proportional to the services rendered to these entities. As a result of these excessive fees, Financial Administrators was used to pay salaries to defendants Linda Glazer Barasch and Richard Glazer. In 2000, these defendants were paid salaries of $371,536. (Id. ¶ 46).
The fees received by BBB from ATC and the Foundation also were excessive. (Id. ¶¶ 47-48) These fees, which amounted to almost $190,000 per year from 1996 through 1998, resulted from the Barasch Family's dominance of ATC and the Foundation and were not proportional to the services rendered to these entities by BBB. (Id. ¶ 48).
In 1999, ATC had gross revenues of $478,353 from the dues of its members and contributed $500,000 to the Allied Educational Foundation. (Id. ¶ 49) In 1997, ATC had gross revenues of $335,430 from the dues of its members and contributed $250,000 to the Foundation. (Id. ¶ 50) In 1996, ATC had gross revenues of $318,456 from the dues of its members and donated $250,000 to the Foundation. (Id. ¶ 51) There was no legitimate union purpose for these expenditures. (Id. ¶¶ 49-51).
Until late in 1999, Churchill, Stephen Barasch, the trustees of the Allied Welfare Fund, and the trustees of the Vacation Fund did not diversify the investments of the funds so as to capitalize on the opportunities available to the Allied Welfare Fund and the Vacation Fund. Financial Administrators, George Barasch, Linda Barasch Glazer, Richard Glazer and the trustees of the Union Mutual Fund Pension Plan similarly failed to diversify the investments of the Union Mutual Fund Pension Plan. (Id. ¶ 52) As a result of the imprudent investment policies pursued by the Employee Benefits Funds, the benefits offered to participants were unduly restricted. (Id. ¶ 53).
The Barasch Enterprise has offered many things of value to the trustees of the Employee Benefit Funds, including trips to France, Italy, and Israel on "cultural studies tours," designed in whole or part to allow the Barasch Family to profit from the unions, foundations, and funds that it controls. In return, George Barasch, Stephen Barasch, Linda Barasch Glazer, Richard Glazer and the entities they control have received more than $10 million from ATC, its affiliated foundations, and the Employee Benefit Funds since 1995. (Id. ¶ 54).
George Barasch, Stephen Barasch, Linda Barasch Glazer, and Richard Glazer have exercised a substantial degree of control over the Employee Benefit Funds themselves. The Barasch Family members (1) selected the trustees of the Funds; (2) directed the Funds' drafting of plan documents; (3) advised the trustees on tax and insurance issues, plan changes and costs, and all other issues of plan management; (4) recommended particular investments, and, prior to 1999, made all of the Employee Benefit Funds' investment decisions; (5) arranged commercially unreasonable and imprudent contracts between the Funds and companies owned by the Barasch Family; (6) hired, fired, and otherwise supervised all employees who acted on behalf of the Funds; and (7) effectively determined appeals of benefit claims and otherwise interpreted the terms of the Plans. (Id. ¶ 55).
D. Allegations Relevant to the RICO Action
The Barasch Enterprise is an organization with formal and informal institutional arrangements. It consists of the following entities: BBB, Churchill, Financial Administrators, ATC, the Employee Benefit Funds, and the Foundation. (Id. ¶ 62).
The offices for ATC, all of the Employee Benefit Funds, the trustees of those Funds, BBB, Financial Administrators, and Churchill are located in the same two office buildings on Sylvan Avenue, Englewood Cliffs, New Jersey. (Id. ¶ 62(b)) The same attorney, Henry Hamburger, represented ATC and the Employee Benefit Funds for many years. (Id.) The same attorney, Jules Levine, represented the Employee Benefit Funds and the Foundation for many years. (Id.) The same accountants, Newman & Cohen, provided accounting services to ATC and all the Funds from 1997 to the present. Prior to 1997 the same accountant served all the defendant entities. (Id.) The Barasch Enterprise promulgated a manual for organizations on Sylvan Avenue providing instructions for the administration of the affiliated entities. (Id. ¶ 62(c)) Several defendants served as officers or trustees of more than one of the defendant entities. (Id. ¶ 62(d)).
Churchill Benefit Services, Inc. was an additional for-profit entity utilized by the Barasch Family to provide administrative services to entities outside the Barasch Enterprise. On April 4, 1997, the Barasch Family caused the creation of a sham contract between Local 815 and Churchill Benefit Services, Inc. to allow Churchill to receive subsidized health care coverage for its employees. On November 19, 1999 that contract was cancelled by the parties to impede an investigation into the affairs of Local 815. (Id. ¶ 62(g)) Churchill, BBB, and Financial Administrators established a single pension plan, known as the Allied Security Fund, for their employees along with the employees of Local 815. Barasch Family members are each entitled to receive substantial payment from this Fund. (Id. ¶ 62(h)).
George Barasch, Linda Barasch Glazer, Richard Glazer, and Stephen Barasch directly and indirectly offered, gave, and promised to offer and give the trustees of the Employee Benefit Funds various things of value in order to influence the trustees. (Id. ¶ 68) Specifically, in September 1999, Allied Welfare Plan paid all costs of a weekend trip to Kutsher's Country Club. (Id. ¶ 69) Also, the trustees received free and heavily subsidized trips for themselves and their spouses to France, Italy, and Israel from the Foundation. The trip to France in 1998 cost the Foundation $254,307 and was for the purpose of "provid[ing] a broad picture of the economy, literary and cultural aspects of France." The trips to Italy and Israel were similarly without legitimate purpose. (Id. ¶ 70) The trustees also received monies from the Employee Benefit Funds from 1994 through 1998 to secure their cooperation. Each trustee received between $42,000 and $45,000 during this period. (Id. ¶ 71).
The officers of ATC, including Jon Morro, James Crowley, Jack Siebel, and Reginald Rosado, caused or permitted ATC to give to the Foundation $250,000 in 1996 and $500,000 in 1999. The officers knew that the money was not spent for legitimate union purposes. (Id. ¶ 73) Morro, Crowley, Siebel, and Rosado dealt with and on behalf of the Barasch Enterprise for their own financial benefit. Crowley, in addition to money he received from ATC, received $8500 each year from 1995 through 1998 and thereafter as payment for his services to the Barasch Enterprise and as a trustee of the Vacation Fund. (Id. ¶ 74).
Morro, Crowley, Siebel, and Rosado have caused ATC to enter into a long-term lease with National Management Corporation, owned by George Barasch, and a long-term administrative services contract with BBB, through which money was diverted to the Barasch Family. (Id. ¶ 75).
E. Allegations Relevant to the Proposed LMRDA Action
Between 1995 and 1999, according to the LM-2 Reports it filed with the Department of Labor, ATC paid $1 million out of its treasury to the Foundation and $232,247 to BBB. The Foundation, in turn, according to IRS Form 990, paid $506,781 to BBB. (Id. ¶ 82) There was no legitimate union purpose for these expenditures. (Id. ¶ 83).
The activities of the Foundation included a "Workshop Project Abroad." In 1998, the Project provided a trip to France for 100 persons, at a cost of $254,307. In 1999, the Project provided a trip to Italy for 72 persons, at a cost of $214,636. The ATC officers participated in these trips. Defendant Crowley, moreover, with the knowledge of the other officers, received from the Project a trip to England valued at $2250. (Id. ¶ 84).
The activities of the Foundation also included a "Health and Welfare Conference" held at locations such as Kutsher's Resort. In 1999, the conference cost $169,557. In 1998, the conference cost $166,027. In 1997, the conference cost $181,376. In 1996, the conference cost $226,771. In 1995, the conference cost $211,341. The ATC defendants participated in these conferences. Morro, Rosado, and Crowley received a trip to Kutsher's Resort for which they paid significantly less than market value. Siebel knew about the trip. (Id. ¶ 85).
Morro, Siebel, Rosado, and Crowley had a pecuniary and/or personal interest in BBB and the Foundation. (Id. ¶ 86) The payments made by ATC to BBB were the result of the Barasch Family's dominance of the ATC officers and were not proportional to the services rendered by BBB. (Id. ¶ 87) Neither the payments made by ATC to the Foundation nor the payments to BBB were made for the benefit of ATC and its members. (Id. ¶¶ 87-88).
On March 2, 2001, Individual Plaintiffs requested that Morro, Siebel, Rosado, and Crowley sue or otherwise recover damages for the breaches of fiduciary duty in making the payments to BBB and the Foundation. (Id. ¶ 89) By letter dated April 6, 2001, Morro responded that the ATC Executive Board had investigated their charges and had "not found any evidence of wrongdoing." (Id. ¶ 90).
Individual Plaintiffs bring five claims for relief. Miranda joins in the first and second claims. In their first claim, plaintiffs allege that the Benefit Fund Trustees and the UMF Trustees, along with the non-trustee defendants, breached their fiduciary duties to the Employee Benefit Funds under ERISA §§ 404 and 405 by, inter alia, directing the Employee Benefit Funds to enter imprudent contracts with administrators, failing to diversify the investments of the plans, and participating knowingly in the trustees' breaches of fiduciary duty. In their second claim, plaintiffs allege that the trustees, in violation of ERISA § 406, caused the Employee Benefit Funds to conduct business with parties in interest and that the non-trustee defendants, in violation of ERISA § 406, dealt with the assets of the Employee Benefit Funds to further their own interests rather than the interest of the Funds' participants.
In their third cause of action, Individual Plaintiffs allege that the individuals and entities comprising the Barasch Enterprise committed multiple acts of racketeering activity, including violations of 29 U.S.C. § 501, which imposes fiduciary duties on union officers, 18 U.S.C. § 664, which prohibits the willful conversion of an employee benefit fund's property for personal use, and 18 U.S.C. § 1954, which prohibits the acceptance of payments intended to influence the operations of employee benefit plans. According to the complaint, these acts constituted a "pattern of racketeering activity" as defined in 18 U.S.C. § 1961 (5). In their fourth claim, Individual Plaintiffs allege that the individuals and entities comprising the Barasch Enterprise, through the aforesaid activities, violated 18 U.S.C. § 1962(b), (c), and (d).
In their fifth claim, Individual Plaintiffs allege that the officers of ATC breached their fiduciary duties to the union under section 501(a) of the LMRDA by failing to hold the money and property of ATC solely for the benefit of ATC and its members and to refrain from dealing with ATC as an adverse party or on behalf of an adverse party.
Individual Plaintiffs bring the third, fourth, and fifth claims on behalf of a class made up of all members of the Allied Trades Council. Individual Plaintiffs bring the first and second claims on behalf of a class made up of all participants in and beneficiaries of the Employee Benefit Funds. Plaintiffs seek an array of remedies, including injunctive relief, monetary damages and, as to their RICO claims, treble damages. Notably, to remedy the abuses underlying the first and second claims, plaintiffs request relief from defendant trustees and fiduciaries, but not from non-fiduciaries.
Defendants now move to dismiss the complaint in whole or in part on numerous grounds. A motion to dismiss under Rule 12(b)(6) may be granted when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The court must take the facts alleged in the complaint as true and draw all reasonable inferences in favor of the nonmoving party. Jackson Nat'l Life Ins. Co. v. Merrill Lynch & Co., 32 F.3d 697, 699-700 (2d Cir. 1994).
Plaintiffs have attached several documents to their complaint. Also, along with their motion papers, some defendants have submitted affidavits, declarations, and exhibits. In deciding the motions to dismiss, besides the documents attached to the complaint, the court will consider those documents in plaintiffs' possession and those documents relied on by plaintiffs in bringing suit. See Brass v. American Film Technologies, 987 F.2d 142, 150 (2d Cir. 1987) (on a motion to dismiss the court may consider "documents attached to the complaint" and `documents either in plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit").
A. Plaintiffs' Standing to Seek Monetary Relief
The trustees move to dismiss the ERISA claims against them on the ground that Individual Plaintiffs lack standing to sue the trustees for monetary relief. Insofar as defendants challenge plaintiffs' standing to sue for damages, their motion arises under Rule 12(b)(1) of the Federal Rules of Civil Procedure, because the question of standing implicates the court's subject-matter jurisdiction. Moore v. PaineWebber, Inc., 189 F.3d 165, 169 n. 3 (2d Cir. 1999). If a complaint is dismissed for lack of subject matter jurisdiction, other defenses become moot. Therefore, before addressing the other potential grounds for dismissal, I must determine ...