Plaintiffs in this case, three New Jersey carpenters' benefits funds, bring a derivative complaint on behalf of the Meridian Diversified ERISA Fund, Ltd. ("the Meridian Fund") against Meridian Diversified Fund Management, LLC ("Meridian Management")--the entity acting as manager of the Meridian Fund. Also joined as defendants are officers of Meridian Management. Plaintiffs now move to remand the case to state court. Because the derivative action for breach of fiduciary duty is completely preempted by a federal statute--the Employee Retirement Income Security Act ("ERISA")--plaintiffs' motion is denied.
The Meridian Fund is a large hedge fund catering to institutional investors. Plaintiffs in this case are three of those institutional investors. The Meridian Fund, and, in turn, plaintiffs, suffered major losses as a result of the well-known ponzi scheme perpetrated by Bernard Madoff. Plaintiffs are some of several investors suing the Meridian Fund and its management in various actions as a result of those losses. Most of these suits have been consolidated into one action pending before this court. In re Meridian Funds Group Securities & ERISA Litigation, 09-md-02082 (TPG). Plaintiffs in the present action seek to litigate in the state court to avoid consolidation and pursue litigation independently.
Plaintiffs originally filed their complaint in the present action in June of 2010 in Supreme Court, New York County. Plaintiffs, in their complaint, list the Meridian Fund as a "nominal defendant," on whose behalf the derivative action is brought. Plaintiffs allege that Meridian Management and its officers breached their common law fiduciary duty to the Meridian Fund by failing to adequately monitor the Meridian Fund's investments and turning a blind eye to the many red flags that appeared regarding Madoff's operation. Plaintiffs' allegations are strictly couched in terms of common law. There is no reference to ERISA.
On July 29, 2010, defendants removed the action to this court pursuant to 28 U.S.C. § 1441, claiming federal jurisdiction under ERISA, via 28 U.S.C. § 1331. The instant motion to remand was filed on August 27, 2010.
Plaintiffs allege that remand is required in this case because their "well-pleaded" complaint contains only state common law causes of action and because defendants have failed to establish that the derivative claims arise under ERISA. Defendants contend that plaintiffs have "artfully pleaded" their allegations to avoid mention of federal law, but that, nonetheless, plaintiffs' claims arise under federal law because they are "completely preempted" by ERISA. Plaintiffs respond that ERISA cannot be deemed to completely preempt their present action for the following reasons. The Meridian Fund should be realigned as plaintiff. According to plaintiffs, the Meridian Fund has no standing to assert a claim under ERISA. The action must therefore be returned to the state court where claims under the common law can asserted by, or on behalf of, the Meridian Fund.
Because the issue of standing to sue under ERISA is central to plaintiffs' argument in favor of remand, the court will begin its analysis there.
Standing to sue under ERISA begins with a scheme of fiduciary liability for those handling the assets of benefit plans. See, e.g., ERISA § § 409, 502. ERISA provides for a cause of action for civil enforcement of such liability and delineates who may bring such a cause of action. Such an action may be brought by the Secretary of Labor, "or by a participant, beneficiary or fiduciary" of the affected plan. Id. at § 502(a). This list of potential litigants is exclusive. No one else--not even the affected ERISA plan itself--has standing to bring a civil action for a breach of the fiduciary duties imposed by ERISA. Pressroom Unions-Printers League Income Sec. Fund v. Continental Assurance Co., 700 F.2d 889, 892-93 (2d Cir. 1983).
When the statute speaks of "fiduciary," as cited above, it is referring to the fact that, under the law, any ERISA plan is required to have a "named fiduciary." ERISA § 402(a). That fiduciary has standing to sue under ERISA asserting a claim against a party who has harmed the plan. The other lawsuits in the consolidated action noted above, which allege violations of ERISA, have been brought by such fiduciaries.
In the present action, the funds themselves, not the named fiduciaries, have sued, and this is obviously designed to comport with the assertion of common law claims rather than ERISA claims. The funds themselves would have no standing to bring the claims involved here if they were asserted as ERISA claims.
Plaintiffs argue that the Meridian Fund, listed in the complaint as the Nominal Defendant, should be realigned as plaintiff. They go on to argue that the Meridian Fund has no standing to sue under ERISA and that therefore derivative claims on behalf of the Meridian Fund should be left to be asserted under the common law in state court.
However, it is not proper to realign the Meridian Fund as a plaintiff. Plaintiffs cite to Koster v. (Am.) Lumbermens Mut. Cas. Co., 330 U.S. 518 (1947), in support of their argument to align the Meridian Fund as a plaintiff in this case, but Koster is clear that when an entity "is in antagonistic hands," as is the case here, it is not to be realigned. The Meridian Fund is in the hands of those antagonistic to the New Jersey Carpenters' Funds--defendants in this action--and therefore should not be realigned as a plaintiff. See In re Sunshine Min. Co. Securities Litigation, 496 F. Supp. 9, 12 ...