The opinion of the court was delivered by: 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.
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 (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.*fn1 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. ¶ 51. "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 and LaBow accomplished exactly what WHX wanted to the detriment of the Severstal Trust." Id. ¶ 65. Defendants favored and gave preferential treatment to the WHX Pension Trust, by "divesting the WHX Pension Trust of the 'toxic assets' in the [NB Account]" and investing those in the Severstal Trust, and by failing to diversify the Severstal Trust while diversifying the WHX Pension Trust. Id. ¶ 66. Evidence of this secret agreement includes an indemnification agreement that was entered into by LaBow and WHX on November 25, 2008. "[T]he agreement, which was drafted by representatives of WHX . . . , asked LaBow and WPN to indemnify WHX 'in connection to' 'the determination . . . as to which assets of the WHX Pension Trust were transferred, or should have been transferred, to the [Severstal] Trust.'" Id.
¶ 58 (alteration in original).
"Once the assets in the [NB Account] were transferred to the Severstal Trust, they were . . . no longer managed by [NB] and [p]laintiffs did not have any inherent obligation to have them managed by [NB]." Id. at 10 n.1. NB was not actively managing the assets in the NB Account, because WPN and LaBow "failed to enter into an agreement with [NB] for the management of the assets in the [NB Account]." Id. ¶ 54.
At the time the SRC requested the transfer of the NB Account to the Severstal Trust, the SRC "expected that either the Severstal Trust would receive only a portion of the [NB Account] along with a portion of all of the other investments comprising the WHX Pension Trust, or that, if the Severstal Trust would receive the entire [NB Account], the [NB Account] would be liquidated and the Severstal Trust Assets diversified." Id. ¶ 55. However, WPN and LaBow left the Severstal Trust invested entirely in the NB Account, which "was not under active investment management at the time." Id. ¶ 56. The NB Account was "composed of thirteen stocks, the overwhelming majority of which were energy stocks." Id. ¶ 57. LaBow, who was a former investment banker with NB, left the Severstal Trust assets invested solely in the NB account "because of his previous relationship with [NB] and/or because of pecuniary or other benefits that were being conferred upon him by [NB]." Id. ¶ 60.
On December 29, 2008, the SRC became aware that the assets in the Severstal Trust were entirely invested in the NB Account. Id. ¶ 67. On December 30, 2008, DiClemente e-mailed LaBow and informed him that the SRC had learned of the transfer of the NB Account to the Severstal Trust, that only the NB Account had been transferred to the Severstal Trust, and that NB had not been managing the assets in the Severstal Trust. Id. ¶ 68. However, at the time DiClemente sent the e-mail, he was not aware that the NB Account was "an undiversified account" composed almost entirely of energy stocks. Id. ¶ 69. After learning this "troubling fact," DiClemente and the SRC asked defendants, verbally and in writing numerous times in December 2008 and January 2009, to "prepare a written plan to retroactively re-allocate the assets in both the WHX Pension Trust and the Severstal Trust so that the percentage allotment of the various investments was the same in both trusts." Id. ¶¶ 69, 70. On February 4, 2009, LaBow, on behalf of WPN, sent a letter acknowledging that it was the "Defendants' decision, based on . . . 'market conditions,' to 'transfer the entire [NB Account]' to the Severstal Trust." Id. ¶ 71. In addition, LaBow stated "that he could not have allocated a pro rata share of each investment in the WHX Pension Trust to the Severstal Trust in the first place because he 'ran across major roadblocks,' with the implication that no such re-allocation was even possible." Id. ¶ 72.
Initially, the plaintiffs were told that a "retroactive reallocation would be accomplished which would restore to the Severstal Trust a balanced Portfolio." Id. ¶ 73. Eventually, however, the plaintiffs learned that the defendants could not perform a "retroactive reallocation." Id. Defendants refused to retroactively reallocate because a reallocation of the assets "would have resulted in the WHX Pension Trust re-assuming its proportionate share of the 'toxic assets' in the [NB Account]." Id. ¶ 74. On March 31, 2009, WHX transferred the last of True-Up Amount to the Severstal Trust. Id. ¶ 76. "WPN and Labow continued their failure or refusal to properly diversify the Severstal Trust." Id. ¶ 77.
"As of March 31, 2009, the Severstal Trust's investments in the [NB Account] were valued at $24,276,162.00." Id. ¶ 78. When compared to their value of $31,446,845.00 as of October 31, 2008, "the Severstal Trust's holdings in the [NB Account] were devalued by approximately 19%." Id. Had the Severstal Trust been diversified, it would not have suffered ...