United States District Court, S.D. New York
SEVERSTAL WHEELING, INC. et al., Plaintiffs,
WPN CORPORATION et al., Defendants
LAURA TAYLOR SWAIN, District Judge.
Plaintiffs Severstal Wheeling, Inc. Retirement Committee ("SRC"), Timothy S. Rogers, Richard Caruso and William Drew Landon, the Wheeling Corrugating Company Retirement Security Plan of Severstal Wheeling, Inc. and the Salaried Employees' Pension Plan of Severstal Wheeling, Inc. (the "Severstal Plans" and, with the SRC and individual Plaintiffs, "Plaintiffs") bring this action against Defendants WPN Corporation ("WPN") and WPN's principal and sole executive officer Ronald LaBow ("LaBow") (collectively, "Defendants"), under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001 et seq., for breach of fiduciary duty, including the duty to diversify the assets of the Severstal Plans, and under state law for breach of contract for failure to obtain fiduciary liability insurance. Plaintiffs moved for partial summary judgment requesting determinations that: (1) LaBow and WPN were fiduciaries of the Severstal Plans; (2) Labow and WPN's fiduciary status was co-extensive; and (3) WPN breached its contractual obligation to acquire fiduciary liability insurance for the Severstal Plans.
Plaintiffs' motion for partial summary judgment was referred to Magistrate Judge Gabriel W. Gorenstein for a Report and Recommendation (the "Report"). In the resulting Report, filed on December 12, 2013, Judge Gorenstein recommended that Plaintiffs' motion for summary judgment be granted in part and denied in part. (See docket entry no. 207.) Plaintiffs filed timely objections to the Report on December 26, 2013, to which Defendants filed an opposition and Plaintiffs filed a reply. The Court has jurisdiction of this action pursuant to 29 U.S.C. § 1132(a)(2) and 28 U.S.C. §§ 1331 and 1367. The Court has carefully considered the parties' submissions and arguments. For the following reasons, Plaintiffs' motion is granted in part and denied in part, and the Report is adopted in part.
Until late 2008, the Severstal Plans were funded and maintained through a trust sponsored by WHX. (Report at 3.) WPN and LaBow performed investment management services with respect to the WHX Trust pursuant to an Investment Agreement with WHX. (Id. at 3-4.) In September 2008, a decision was made to transfer the Severstal Plans' assets to a new and separate Severstal Wheeling, Inc. Pension Plan trust (the "Severstal Trust"). (Id. at 5.) Before the transfer occurred, LaBow discussed it with the SRC and recommended the transfer of a specific portion of the trust of the WHX Corporation ("WHX") - the so-called "Neuberger Berman account" - which was invested heavily in large-cap energy stocks. (Def. Local Civil Rule 56.1 St. ¶ 1.) On November 3, 2008, those Neuberger Berman account assets were transferred pursuant to the direction of the WHX employee to whom LaBow had made his recommendation. (Report at 5.) Defendants contend that WPN and LaBow had no authority themselves to transfer the Severstal Plans' assets to the Severstal Trust and that Plaintiffs and WHX were the parties who directed the transfer. (Id. at 5-6.)
On December 5, 2008, LaBow and SRC member Michael DiClemente ("DiClemente") signed a Third Amendment to the original WHX Investment Agreement, providing that "Ron LaBow has the primary responsibility for performing the services of [WPN] with respect to the Investment Fund, " and incorporating paragraph 7 of the original WHX Investment Agreement, granting WPN "complete, unlimited, and unrestricted management authority with respect to the investment of the [Severstal] Investment Fund." (Report at 6 (quoting WHX Investment Consulting Agreement, § 7; Third Amendment, § 2(l)).) Defendants contend that, prior to the Third Amendment, there was no agreement as to whether Defendants would have any responsibility to manage the Severstal Trust or whether Plaintiffs would be required to pay Defendants for doing so. (Report at 6.) The Third Amendment recites that it is effective as of "November 1, 2008, " and that LaBow is to be paid a fee for his services. (Id. at 6.) Under the Third Amendment, WPN acknowledges that it is a fiduciary of the Severstal Plans, and is required to "obtain and maintain in effect a fiduciary liability insurance policy or policies for the benefit of" the Plans. (Id. at 7.) Plaintiffs contend that, after the November 3, 2008, transfer, Defendants continued to advise the SRC about investment options, including diversifying the Severstal Trust. DiClemente instructed LaBow to prepare a written plan on how to reallocate the Severstal Plans' assets and, on March 23, 2009, LaBow left a voicemail message for SRC member Denis Halpin, in which LaBow accepted responsibility for not previously diversifying the Severstal Plans' assets and expressed his desire to do so; LaBow also left a voicemail message for Sally King, an attorney for the SRC, telling her that he planned to diversify the assets. (Report at 7.) The Severstal Plans' assets were liquidated on March 24, 2009, and Labow continued to discuss the investment of the Severstal Trust with the SRC until May 19, 2009, when the SRC terminated WPN and LaBow's position as investment manager for the Severstal Plans. (Id.)
On May 10, 2013, Plaintiffs filed a Third Amended Complaint (the "TAC") in this action, alleging that Defendants WPN, LaBow and WHX are liable under section 502(a)(2) of ERISA for breaching their fiduciary duty by failing to loyally manage plan assets in violation of ERISA sections 404(a)(1)(A) and 406(b); that they are liable under section 502(a)(2) of ERISA for breaching their fiduciary duty by failing to adequately diversify plan assets in violation of ERISA section 404(a)(1)(C); that Defendant WHX knowingly participated in a fiduciary breach by a non-fiduciary and is thus liable under Section 502(a)(3) of ERISA; and that Defendant WPN breached its contract with Plaintiffs by failing to obtain and maintain a fiduciary liability insurance policy.
A district court "may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge, " with respect to dispositive motions. 28 U.S.C.S. § 636(b)(1)(C)(LexisNexis Supp. 2013). Those portions of the magistrate judge's recommendations to which neither party files a timely objection may be accepted unless they are clearly erroneous. See Tarafa v. Artus, No. 10 Civ. 3870(AJN)(HBP), 2013 WL 3789089, at *2 (S.D.N.Y. July 18, 2013). To the extent that a party makes specific objections to a magistrate judge's findings, the court must "make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C.S. § 636(b)(1)(C)(LexisNexis Supp. 2013). Plaintiff here has made three specific objections to the Report, and, therefore, the Court reviews those portions of the Report de novo. Id.
"Summary judgment is appropriate if there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law." Caldarola v. Calabrese , 298 F.3d 156, 160 (2d Cir. 2002). A genuine issue of material fact exists "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby Inc. , 477 U.S. 242, 248 (1986). In determining whether a genuine issue of material fact exists, "[t]he evidence of the non-movant is to be believed" and the court must draw "all justifiable inferences" in favor of the nonmoving party. Id. at 255. Rule 56(a) of the Federal Rules of Civil Procedure permits a party to "move... for partial summary judgment on a claim or defense, or on part of each claim or defense." Martinez v. Hilton Hotels Corp., 930 F.Supp.2d 508, 518 (S.D.N.Y. 2013) (internal quotation marks and citations omitted).
Plaintiffs moved for partial summary judgment on elements of their fiduciary duty claims, asking that the Court find that LaBow and WPN were fiduciaries of the Severstal Plans under ERISA § 3(21)(A)(i); that Defendants were investment managers pursuant to the Third Amendment and so were ERISA fiduciaries under ERISA § 3(38); that Defendants were fiduciaries with respect to the investment of the Severstal Plans from November 1, 2008, through May 19, 2009 under ERISA § 3(21)(A)(ii); that Defendants' fiduciary status was co-extensive; and that WPN breached its contractual obligation to acquire fiduciary liability insurance for the Severstal Plans.
Judge Goreinstein's Report recommends denying summary judgment as to whether Defendants were fiduciaries of the Severstal Plans under ERISA §§ 3(21)(A)(i) or (ii), or as investment manager fiduciaries under § 3(38), and as to whether WPN and LaBow's fiduciary status was co-extensive. The Report recommends, however, that the Court hold that WPN had breached its contractual obligation to secure insurance. Plaintiffs object to the Report's recommendation that summary judgment be denied on the issues of fiduciary status under ERISA sections 3(21)(A)(ii) and 3(38), and request modification of the recommended ruling regarding breach of contract.
Fiduciary Status Under ERISA § 3(38)
The Report recommends denial of Plaintiffs' motion insofar as it seeks a determination of fiduciary status under ERISA section 3(38) because, notwithstanding the Third Agreement's incorporation by reference of the WHX Investment Consulting Agreement's provision "authoriz[ing] and direct[ing] [WPN] to exercise complete, unlimited and unrestricted management authority with respect to the investment of the Investment Fund" and WPN's express "acknowledge[ment] that it is a fiduciary within the scope of Section 3(38) of ERISA, " genuine issues of fact as to whether LaBow and WPN were actually given authority to effectuate investments preclude summary judgment in Plaintiffs' favor. In their Objection, Plaintiffs contend that an investment manager appointed pursuant to ERISA § 3(38) is necessarily a fiduciary and, as there was no condition precedent that had ...