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Trustees of the Local 138 Pension Trust Fund v. Logan Circle Partners

May 25, 2012

TRUSTEES OF THE LOCAL 138 PENSION TRUST FUND, PLAINTIFF,
v.
LOGAN CIRCLE PARTNERS, L.P. AND SEGAL ADVISORS, INC. DEFENDANTS.



The opinion of the court was delivered by: Glasser, United States District Judge:

Memorandum and Order

Plaintiff, Trustees of the Local 138 Pension Trust Fund ("the Fund" or "plaintiff"), commenced this action against Logan Circle Partners, L.P. ("Logan Circle" or "defendant"), an asset management firm with responsibility for the investment of a portion of the Fund's pension assets, and Segal Advisors, Inc. ("Segal"), an investment consultant to the Fund, alleging violations of fiduciary duties pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 404-05, for which defendants are liable pursuant to ERISA Section 409, 29 U.S.C. § 1109. Essentially, the Fund alleges Logan Circle purchased and retained securities in violation of certain investment guidelines and that Segal failed to monitor and report on Logan Circle's activities. Defendant Logan Circle moves to dismiss the Second Amended Complaint (the "Complaint") with prejudice pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, defendant's motion is denied.

BACKGROUND

The following facts are presumed to be true for the purposes of deciding this motion and are drawn from the Complaint and documents of which the Court may take judicial notice. Plaintiff is trustee of a multi-employer benefit plan. Second Amended Complaint dated June 17, 2011 ("Am. Compl.") ¶ 2. Logan Circle is an asset management firm responsible for managing a portfolio of fixed income securities purchased with plaintiff's assets. Id. ¶ 8. From 2003 until December 2009, plaintiff hired Segal as an investment consultant to monitor and oversee the performance of its investment managers, including Logan Circle. Id. ¶ 11.

Plaintiff initially contracted with Delaware Investment Advisors to manage its assets. See Declaration of Brett D. Jaffe dated June 30, 2011 ("Jaffe Decl."), Ex. B (the "Investment Advisory Contract"). On September 26, 2007, the Investment Advisory Contract was assigned to Logan Circle. See Jaffe Decl. Ex. C. The Investment Advisory Contract specifies that, "[Logan Circle] shall have sole discretion with respect to investments of funds in the Account as to purchases and sales without prior consultation. [Logan Circle] shall, however, be bound by such written guidelines for the management of the Account as shall from time to time be provided." Id. Ex. B, ¶ 4. With the advice of Segal, plaintiff promulgated the "Local 138 Pension Trust Fund Statement of Overall Investment Objectives and Policy" (the "Guidelines"). Am. Compl. ¶ 13; Declaration of Brett D. Jaffe dated June 30, 2011 ("Jaffe Decl."), Ex. A. The Guidelines established the criteria for the selection and retention of securities held by Logan Circle on behalf of the Fund. Am. Compl. ¶ 8.

Plaintiff alleges that Logan Circle violated the Guidelines in several ways. First, plaintiff alleges that the Guidelines required Logan Circle "to adhere to an overall selection of securities consistent with a Lehman Bond Index" and that Logan Circle failed to do so. Am. Compl. ¶¶ 9, 23. Second, plaintiff alleges that Logan Circle violated the Guidelines by purchasing, without advance written consent, securities below the Guideline's minimum class, quality, and grade. Id. ¶¶ 11, 24. Third, plaintiff alleges that the Guidelines required Logan Circle to provide written notice to the Fund and Segal if purchased securities were subsequently downgraded below the Guidelines' minimum. Id. ¶ 17; see Jaffe Decl. Ex. A, at 8. Fourth, plaintiff alleges that if a security fell below investment grade, Logan Circle was also required to take action to return the portfolio to compliance within 90 days. Am. Compl. ¶ 14. Plaintiff alleges that beginning in 2007, numerous securities held under Logan Circle's management were downgraded to ratings below those permitted by the Guidelines and that Logan Circle failed to provide written notice or bring the portfolio into compliance within 90 days. Id. ¶¶ 13-14, 25-26. Plaintiff alleges that as a result of these violations, the Fund was damaged by no less than $2 million. Id. ¶ 27.

I.Legal Standard

A. Motion to Dismiss

DISCUSSION

Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a complaint to include "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). To survive a motion to dismiss pursuant to Rule 12(b)(6), the Fund's pleadings must contain "sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1940, 173 L. Ed. 2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007)). A claim has facial plausibility "when the plaintiff pleads factual content that allows the Court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S. Ct. at 1949. On a motion to dismiss for failure to state a claim, "'[t]he issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.'" York v. Ass'n of the Bar of City of N.Y., 286 F.3d 122, 125 (2d Cir. 2002) (citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974)).

Although detailed factual allegations are not necessary, the pleading must include more than an "unadorned, the-defendant-unlawfully-harmed-me accusation;" mere legal conclusions, "a formulaic recitation of the elements of a cause of action," or "naked assertions" by the plaintiff will not suffice. Id. (alteration in original) (internal quotations, citations, and alterations omitted). This plausibility standard "is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (quoting Twombly, 550 U.S. at 556). Determining whether a complaint states a plausible claim for relief is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not 'show[n]'-'that the pleader is entitled to relief.'" Id. at 1950 (quoting Fed. R. Civ. P. 8(a)(2)).

Although the Court is limited to facts as stated in the Amended Complaint, it may consider "any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007). Here, the Amended Complaint incorporates the Guidelines, the Investment Advisory Contract, and the Consent to Assignment by reference, see Am. Compl. ¶¶ 6, 8, 13, and they are appropriately considered in deciding this motion.

B. ERISA

ERISA § 1132(a)(2) provides that an "action may be brought . . . by a participant, beneficiary or fiduciary for appropriate relief under [29 U.S.C. § 1109]," which in turn makes ERISA fiduciaries who breach their duties "personally liable to make good to [the] plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary ...


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