Perelman v. Perelman

Citations: 919 F. Supp. 2d 512; 55 Employee Benefits Cas. (BNA) 1820; 2013 U.S. Dist. LEXIS 9530; 2013 WL 271817Docket: Civil Action No. 10-5622

Court: District Court, E.D. Pennsylvania; January 23, 2013; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

A Motion for Judgment on the Pleadings has been filed by Defendant General Refractories Company (GRC) regarding Plaintiff Jeffrey Perelman's Second Amended Complaint. Similar motions have been filed by Defendants Raymond Perelman and Jason Guzek. Following these motions, Jeffrey sought permission to file a Third Amended Complaint. The Court denies Jeffrey's motion and grants the Defendants' motions in part.

The Second Amended Complaint (SAC) alleges that Jeffrey, under ERISA, seeks injunctive relief against Raymond, as trustee of the General Refractories Company Pension Plan, for improperly investing Plan assets in corporate bonds of Revlon, Inc., which was significantly over-leveraged at the time. Additionally, it alleges that Raymond entered a Participation Agreement with MacAndrews, an entity controlled by Ronald Perelman, which benefitted Ronald financially. The Plan also converted some Revlon bonds into stock, which granted Ronald voting power, thereby enabling him to protect Revlon from a hostile takeover.

Jeffrey asserts that Forms 5500 for the years 2003-2005, which identified Raymond as the Plan Administrator, inaccurately reported the Plan's investments, claiming they were in master trust accounts rather than Revlon bonds. Moreover, Forms 5500 from 2005 to 2009 falsely stated that all Plan assets were in mutual funds. The accompanying independent auditors’ reports did not disclose the relationship between Raymond and Ronald or identify the investments in Revlon bonds as party-in-interest transactions.

In a prior August Opinion, the Court determined that Jeffrey had standing to seek certain injunctive relief and enforce his right to accurate plan documents under ERISA, but did not establish standing for monetary relief. Consequently, claims against Ronald seeking only monetary damages were dismissed, and the requests for monetary relief against other defendants were struck from the SAC's Prayer for Relief.

GRC filed a Motion for Judgment on the Pleadings (Docket No. 106), while Raymond and Guzek submitted a similar motion (Docket No. 107). Jeffrey subsequently filed a Motion for Leave to File a Third Amended Complaint (Docket No. 109) intending to rejoin Ronald and introduce new claims for monetary relief against all parties under ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2). The proposed Third Amended Complaint (TAC) includes allegations based on an Amended Form 5500 for 2010 and Raymond's application to the Department of Labor’s Voluntary Fiduciary Correction Program (VFCP). Jeffrey claims that improper dealings related to Revlon have left the Plan underfunded, noting a decline in the funding ratio from 105.41% in 2009 to 95.72% in 2011, with only 83% funding as of December 31, 2011. He highlights discrepancies in the investment disclosures from prior Forms 5500, asserting that previous filings claimed 100% investment in registered investment companies, while the 2010 filing reported only about $5 million of $12.9 million invested in such assets. Jeffrey questions the legitimacy of earlier filings given this significant change. The TAC also points out inadequacies in Raymond's management of the Plan, suggesting that Raymond's attempt to rectify prohibited transactions was itself a further violation. He alleges that the corrective payment made by Raymond did not adequately compensate the Plan for substantial losses, including a declared loss of $3,170,612.98, without restoration of lost profits. Furthermore, Jeffrey details lost earnings associated with the MacAndrews Participation Agreement and other prohibited transactions, concluding that these events threaten the Plan's ability to provide ongoing benefits to its participants. The standard for granting leave to amend is at the district court's discretion, with a general preference for allowing amendments unless equitable considerations suggest otherwise, as established by relevant case law.

A court may deny a request to amend a complaint based on several criteria: 1) undue delay, bad faith, or dilatory motives by the moving party; 2) futility of the amendment; or 3) potential prejudice to other parties. The denial must be grounded in substantial reasons such as bad faith, unexplained delay, repeated failures to correct deficiencies from previous amendments, or clear futility. Determining futility involves an analysis akin to a motion to dismiss under Fed. R. Civ. P. 12(b)(6), meaning the amended complaint must still fail to state a viable claim. If an amendment is not evidently futile, denial of leave to amend is inappropriate.

For standing, Article III requires an injury-in-fact, a causal link between the injury and the challenged conduct, and a likelihood of redress from a favorable ruling. The injury-in-fact must reflect a personal stake in the litigation, allowing for a broad interpretation that includes specific, identifiable injuries, with economic injury being a common form. The Supreme Court has clarified that while Congress may define protected individuals under a statute, the injury-in-fact standard is a fundamental requirement of Article III jurisdiction that cannot be waived by statute.

In ERISA cases, a plan participant must meet both statutory and Article III standing requirements. When seeking monetary damages for breach of fiduciary duty, the plaintiff must demonstrate individual loss. However, for claims of injunctive relief, the necessary injury can arise solely from statutory rights, thus enabling standing without specific individual loss. The allegations related to inappropriate party-in-interest transactions were deemed sufficient to grant Jeffrey standing for injunctive relief under ERISA § 502(a)(3).

The TAC’s claims for monetary relief under 502(a)(2) necessitate Jeffrey to demonstrate an injury-in-fact. As a beneficiary of a defined benefit pension plan, he lacks standing to sue on behalf of the Plan unless he plausibly alleges that a breach of fiduciary duty has increased the risk of default for the entire Plan. The Supreme Court in LaRue v. DeWolff clarified that misconduct affecting a defined benefit plan only impacts individual entitlements if it heightens the default risk. Congress has mandated stringent funding requirements for defined benefit plans to protect against such risks. In this context, employees are entitled to fixed payments upon retirement, with the employer bearing investment risks and responsible for covering any funding shortfalls.

Under ERISA, plan participants do not possess claims to specific assets within the plan's general asset pool, and a decline in asset value does not affect accrued benefits. Therefore, if a defined benefit plan has significant surplus assets or the sponsor can cover losses, participants cannot claim monetary damages. Even if losses occur, they are deemed losses to the plan surplus, with the sponsor, here 3M, responsible for any underfunding. The fundamental aim of ERISA is to safeguard individual pension rights, and breaches of fiduciary duty are remedied by restoring participants to their rightful positions prior to the breach.

In the current case, the Plan had substantial surplus assets both before and after the alleged breach, with a financially stable sponsor to cover future underfunding. Jeffrey’s claims of losses due to mismanagement do not assert that he or other beneficiaries have been denied due payments or that the sponsor cannot fund the Plan adequately. Instead, he merely speculates that a reduction in asset value may threaten the Plan’s ability to provide benefits, without concrete allegations of harm to individual rights. Thus, allowing Jeffrey to pursue these claims would not further ERISA’s purpose of protecting pension rights.

Jeffrey lacks standing to pursue new claims for monetary relief under ERISA § 502(a)(2) because the Third Amended Complaint (TAC) does not sufficiently allege an injury-in-fact related to the defendants' conduct. The allegations regarding the Plan's diminished asset value and its potential impact on pension benefits are deemed speculative and fail to meet the threshold established in Bell Atlantic Corp. v. Twombly. Specifically, the TAC mentions a decline in the Plan’s funding ratio from 105.41% in 2009 to 95.72% in 2011, and a market funding level of 83% as of December 31, 2011. However, under the Pension Protection Act of 2006, a plan is only considered 'in at-risk status' if its funding ratio falls below 80%, which Jeffrey does not allege has occurred. Furthermore, the TAC does not indicate that the Plan sponsor, GRC, is financially compromised or unable to meet future obligations. While GRC may have standing to claim for asset diminution, Jeffrey and other participants do not. Consequently, the motion to amend the complaint for monetary damages is denied as futile. The court previously acknowledged Jeffrey's standing to seek certain equitable relief under ERISA § 502(a)(3) and his right to enforce accurate plan documentation. The defendants argue that some of the relief sought by Jeffrey is now moot or fails to state a claim for which relief can be granted.

Removal of Trustees and appointment of an independent trustee were executed through several documents attached to GRC’s motion. These include a corporate resolution from September 18, 2012, where Raymond terminated himself as Trustee and appointed Reliance Trust Company as the sole trustee of the Plan. Additionally, an Investment Advisory Agreement was established with InR Advisory Services LLC as the ERISA investment manager, along with a Plan Sponsor Agreement appointing TD Bank as custodian of the Plan’s assets. A Trust Agreement further confirmed Reliance Trust Company as the sole trustee, and a subsequent corporate resolution on September 27, 2012, amended the Plan to prohibit any trustee from being related to GRC's management.

Defendants contend that these actions render Jeffrey's claims for equitable relief moot, specifically regarding the removal of Raymond and Guzek as Trustee and Administrator, and the appointment of an independent trustee. The legal principle of mootness applies when a court can no longer grant effective relief, as established in relevant case law. Jeffrey did not contest the Defendants' argument or the accompanying documentation supporting their position. Consequently, the court finds that the replacement of Raymond and Guzek, alongside the appointments of InR, TD Bank, and Reliance Trust Company, fulfills Jeffrey’s demands for relief, leading to the dismissal of his claims for equitable relief regarding their removal and the appointment of an independent trustee as moot. Paragraph 8 of the Second Amended Complaint’s Prayer for Relief seeking these actions is therefore dismissed as moot.

GRC seeks to dismiss Jeffrey's claim for declaratory relief regarding the Plan's indemnification language for trustees, arguing that such language was removed as of January 1, 2012. Raymond and Guzek support this dismissal, contending that the Plan's indemnification clause complies with ERISA by stating that GRC, not the Plan, is responsible for indemnifying trustees for liabilities incurred from their conduct. ERISA prohibits provisions that relieve fiduciaries from responsibility, but allows for the purchase of insurance to cover fiduciaries’ liabilities, provided that the insurance allows recourse against fiduciaries for breaches. The Department of Labor interprets this to permit indemnification agreements that do not absolve fiduciaries of responsibility, which means that indemnification by an employer is acceptable. The Plan's indemnification clause is found to be compliant as it permits indemnification only from GRC, keeping the fiduciary liable while allowing GRC to cover any liabilities like insurance. Jeffrey fails to argue that the clause violates ERISA, resulting in the dismissal of his claim regarding the Plan's indemnification language. However, the Trust Agreement’s indemnification clause remains under scrutiny, as it lacks the limitation present in the Plan, leaving open the possibility of differing implications concerning indemnification.

The trustee may only be indemnified by the employer according to the Plan, but the Trust Agreement does not clarify whether Plan assets can be used for a trustee's indemnification. Thus, the SAC has established a valid claim for declaratory relief, asserting that this provision is void against public policy, leading to the denial of the Motion to Dismiss regarding this issue. Raymond and Guzek argue that Jeffrey's claim for injunctive relief to bar them from future service as ERISA trustees should be dismissed based on prudential standing principles. This doctrine limits federal court access to parties best suited to assert claims, requiring litigants to assert their own legal interests, avoid generalized grievances, and demonstrate that their interests align with those protected by the relevant statute or provision. In the ERISA context, the Third Circuit links prudential standing to statutory standing, which determines whether a party qualifies as a 'participant' or 'beneficiary' under ERISA. The SAC does not allege that Jeffrey is a participant or beneficiary in any ERISA plan or that Raymond and Guzek are fiduciaries of another ERISA plan. Typically, cases for permanent injunctions against ERISA fiduciaries are initiated by the Secretary of Labor under specific ERISA provisions. While courts have imposed permanent injunctions in rare instances brought by participants or beneficiaries, such action generally requires significant misconduct under ERISA standards.

The issue of prudential standing for Jeffrey, as a private party seeking to enjoin fiduciaries from serving other plans, remains unaddressed, particularly regarding whether his claims represent his own legal interests or those of hypothetical beneficiaries. The court finds that Jeffrey is not the most suitable litigant for such a claim, leading to the dismissal of his request to permanently enjoin Raymond Perelman and Jason Guzek from serving as ERISA fiduciaries.

Regarding the audit of the Plan, GRC argues for dismissal of Jeffrey's claim since an independent trustee has been appointed and the Plan is audited annually. GRC contends that Jeffrey should refrain from interference, especially after receiving the primary equitable relief of Raymond’s resignation. However, GRC fails to provide legal support for its position that the request for an audit is moot due to this resignation.

The court decides that Jeffrey's request for an audit will proceed but finds the scope overly broad. He seeks to audit the Pension Plan for years 2002-2010, aiming to verify the accuracy of Forms 5500. This expansive audit connects to potential liabilities related to prohibited transactions, which the court previously dismissed. The court concludes that a plan participant lacks standing to demand such a comprehensive audit unless there are plausible allegations of a risk of complete default. Therefore, Jeffrey’s equitable right to an audit is limited to determining the Plan’s current funding status, and GRC's motion to narrow the audit claim is granted.

Jeffrey’s Motion for Leave to File a Third Amended Complaint is denied. His allegations regarding the impact of asset value diminution on the Plan’s ability to provide pension benefits are deemed speculative, failing to establish standing for claims under section 502(a)(2). There are no credible claims that the Plan's losses pose a risk of complete default or that the Plan sponsor, GRC, is financially incapable of fulfilling future obligations. Consequently, the proposed amendment for legal claims under 502(a)(2) is deemed futile. Claims for equitable relief regarding the removal of trustees are dismissed as moot, and the claim challenging the Plan’s indemnification clause is dismissed for failure to state a claim, as it complies with regulatory safe harbor provisions. Claims seeking to prevent Raymond and Guzek from future fiduciary roles are dismissed due to lack of prudential standing. Additionally, Jeffrey's audit claim is partially dismissed, limiting it to assessing the Plan's current financial obligations. An order is issued, including the denial of the motion for the third amended complaint, the joining of Reliance Trust Company as a defendant, and the granting of General Refractories Company's motion for judgment on the pleadings, which includes various dismissals of specific claims and paragraphs from the Second Amended Complaint.

Provisions in the Pension Plan that attempt to relieve or indemnify the Trustee from responsibilities under ERISA are declared null and void as they violate public policy. The Motion by Defendants Raymond Perelman and Jason Guzek for Judgment on the Pleadings is granted in part, resulting in the dismissal of specific paragraphs from the Second Amended Complaint's Prayer for Relief: Paragraphs 8(a), 8(b), and 8(c) are dismissed entirely against these defendants, and Paragraph 8(d) is limited to a request for an audit of the Plan’s financial obligations. Additionally, Paragraph 9 is dismissed as it seeks a declaration against provisions that indemnify the Trustee. The Motion is denied in all other respects. The newly appointed ERISA trustee, Reliance Trust Company, is deemed a necessary party and must be added as a defendant. The document discusses motions under Federal Rules of Civil Procedure (Fed. R. Civ. P.) 12(b)(1) and 12(c), emphasizing that the court can evaluate evidence in a factual attack on subject matter jurisdiction, where the plaintiff bears the burden of proof regarding jurisdictional existence.

GRC's mootness argument challenges the court's jurisdiction, asserting it as a factual attack. Under Federal Rule of Civil Procedure 12(c), a party may move for judgment on the pleadings after the pleadings are closed but before trial. The review standard for this motion is the same as that for a motion to dismiss under Rule 12(b)(6), with the key difference being that the court considers not just the complaint but also the answer and any attached documents. Relevant case law supports that courts may include public records and documents that the plaintiff references when evaluating these motions.

The GRC corporate resolution does not explicitly state that Guzek has been removed as Administrator of the Plan. However, it is uncontested that InR has been appointed as the Plan's fiduciary and investment advisor, and documents indicate that only Jeffrey M. Hugo of InR has authority over the Plan's matters. Consequently, Guzek is accepted as no longer serving as a Plan fiduciary.

There is a contradiction regarding indemnification provisions: Raymond and Guzek claim there are permissible indemnification provisions, while GRC contends there are none. GRC has not provided any excerpts from the Plan to support its position, whereas Jeffrey and Raymond, along with Guzek, have submitted identical excerpts affirming their claims. The appended documents reveal that the Plan includes indemnity language, effective January 26, 2012, which states that the Employer shall indemnify Board members and the Committee against liabilities incurred in connection with their fiduciary duties, except for liabilities arising from bad faith or criminal acts. Additionally, the Trust Agreement in effect during the Revlon transaction period contains its own indemnification clause.

The Trustee's liability is limited under the Agreement, exempting them from responsibility for losses related to the Trust unless caused by their negligence, bad faith, or willful misconduct. The Trustee is protected for actions taken or not taken under the Agreement's provisions. Additionally, a civil action may be initiated by the Secretary to address violations of the subchapter or to seek equitable relief. GRC seeks dismissal of a specific provision in the SAC's Prayer for Relief, asserting it does not apply to them, and Jeffrey fails to argue that the allegations support a claim against GRC for this relief. As a result, GRC's Motion to Dismiss this provision is granted. Raymond and Guzek do not specifically challenge the audit claim but request dismissal of all remaining claims against Jeffrey, prompting a review of the audit claim's validity for all Defendants.