Leber v. CitiGroup, Inc. et al
Filing
133
OPINION & ORDER re: 93 MOTION for Summary Judgment. filed by Glenn Regan, James Costabile, The Citigroup 401(k) Plan Investment Committee, Donald Young, Marcia Young, Leo Viola, Christine Simpson, Robert Grogan, Robin Leopold, Timothy Tucker, Richard Tazik. Because defendants have failed to demonstrate pursuant to 29 U.S.C. § 1113 that plaintiffs had "actual knowledge" of the alleged breaches three years before commencing the action, defendants' motion for s ummary judgment on the issue of timeliness (Dkt. No. 93) is denied. The parties shall submit an agreed upon schedule for the remaining discovery in this action on or before October 17, 2014. SO ORDERED. ( Discovery due by 10/17/2014.) (Signed by Judge Sidney H. Stein on 9/30/2014) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MARYA J. LEBER, SARA L. KENNEDY,
and all others similarly situated,
Plaintiffs,
-against-
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 9/30/2014
07-Cv-9329 (SHS)
OPINION & ORDER
THE CITIGROUP 401(k) PLAN
INVESTMENT COMMITTEE, JAMES
COSTABILE, ROBERT GROGAN, ROBIN
LEOPOLD, GLENN REGAN,
CHRISTINE SIMPSON, RICHARD
TAZIK, TIMOTHY TUCKER, LEO
VIOLA, DONALD YOUNG, MARCIA
YOUNG, and DOE DEFENDANTS 1-20,
Defendants.
SIDNEY H. STEIN, U.S. District Judge.
Defendants have moved for summary judgment, asking the Court to
dismiss as untimely plaintiffs’ putative class action alleging violations of
the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1001
et seq. The Court previously granted in part and denied in part defendants’
motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6),
and granted in part and denied in part plaintiffs’ subsequent motion for
leave to amend their complaint pursuant to Rule 15(a). See Leber v.
Citigroup, Inc. (“Leber I”), No. 07 Civ. 9329 (SHS), 2010 WL 935442 (S.D.N.Y.
Mar. 16, 2010); Leber v. Citigroup, Inc. (“Leber II”), No. 07 Civ. 9329 (SHS),
2011 WL 5428784 (S.D.N.Y. Nov. 8, 2011). For reasons explained in those
opinions, the surviving claims all concern defendants’ alleged breaches of
their fiduciary duty of prudence pursuant to ERISA section 404, which
requires that fiduciaries act “solely in the interest of the participants and
beneficiaries.” See 29 U.S.C. § 1104(a)(1). The gravamen of the Second
Amended Complaint (the “Complaint”) is that defendants included in
Citigroup’s 401(k) retirement plan (the “Plan”) mutual funds offered and
managed by subsidiaries of Citigroup (the “Affiliated Funds” or “Funds”)
despite the fact that those Funds had “higher investment advisory fees
than those of competing funds” with equal performance. See Leber II at *1
(quoting Leber I at *1).
After discovery limited to plaintiffs’ compliance with the statute of
limitations, defendants have moved for summary judgment on that issue
pursuant to Rule 56(a). Defendants contend that the action is untimely
because plaintiffs possessed “actual knowledge” of the alleged breach
more than three years before they filed suit. See 29 U.S.C. § 1113.
Specifically, defendants point to documents distributed to participants
listing the fees and effectively disclosing the affiliated status of the Funds.
Defendants, however, have presented no evidence—let alone undisputed
evidence 1—that plaintiffs knew that the Affiliated Funds’ fees were higher
than alternatives with comparable performance. Thus, defendants have
not shown that plaintiffs acquired “actual knowledge” of the breach
within the meaning of section 1113, and the motion is accordingly denied.
I.
BACKGROUND
Unless otherwise noted, the following facts are undisputed and drawn
from defendants’ and plaintiffs’ Local Civil Rule 56.1 Statements of
Undisputed Facts (“Defs.’ 56.1” and “Pls.’ 56.1”). However, because the
parties have taken discovery only on timeliness issues, the Court continues
to assume the truth of the substantive allegations in the Complaint for
purposes of this motion, and so relies only on the Complaint for such facts.
1
Summary judgment is warranted only upon a showing “that there is no
genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” In determining whether there are genuine
issues of material fact, “we are required to resolve all ambiguities and draw
all permissible factual inferences in favor of the party against whom
summary judgment is sought.” . . . Summary judgment is appropriate “where
the record taken as a whole could not lead a rational trier of fact to find for
the non-moving party.”
Johnson v. Killian, 680 F.3d 234, 236 (2d Cir. 2012) (citations and alterations omitted).
2
A. The Parties and the Plan
After the merger between Travelers Group and Citicorp that formed
Citigroup, Citigroup in July 2001 merged the Travelers and Citicorp 401(k)
plans into the Plan at issue. (Defs.’ 56.1 ¶¶ 1-2; Pls.’ 56.1 ¶¶ 1-2.) Plaintiffs
allege that defendants are members of the Plan’s Investment Committee
and thus are Plan fiduciaries “responsible for selecting, monitoring, and
evaluating the [] Plan’s investment options.” (Compl. ¶ 20.) Plaintiffs
Marya J. Leber and Sarah L. Kennedy were Citigroup employees who
participated in the Plan, which Citigroup offered employees as a
retirement-savings option. (Compl. ¶¶ 14, 16; Ans. ¶¶ 14, 16.) Leber and
Kennedy each invested in one of the Affiliated Funds, which they allege all
charged excessive fees. (Compl. ¶¶ 14, 16.)
The Plan offered a range of funds in which participants could invest
their Plan assets. At all relevant times, the available funds selected by the
Investment Committee for inclusion in the Plan included some or all of the
nine Affiliated Funds at issue, 2 as well as funds managed by entities
unaffiliated with Citigroup (“unaffiliated funds”). Each of the Affiliated
Funds became Plan options at one of two times: (1) July 2001, when the
Plan began (Pls.’ 56.1 ¶ 4); and (2) April 2003, when the Plan eliminated
ten unaffiliated funds and added new funds, including three of the
Affiliated Funds (Pls.’ 56.1 ¶ 27). In April 2003, the Plan automatically
transferred the balance of participants’ investments in eliminated funds to
new or remaining Plan funds; four of the funds to which investments were
transferred were Affiliated Funds. (Pls.’ 56.1 ¶ 28.)
The nine Affiliated Funds are the following: (1) Citi Institutional Liquid Reserve
Fund; (2) Smith Barney Government Securities Fund; (3) Smith Barney Diversified
Strategic Income Fund; (4) Smith Barney Large Cap Growth Fund; (5) Smith Barney
Large Cap Value Fund; (6) Smith Barney Small Cap Value Fund; (7) Smith Barney
International All Cap Growth Fund; (8) Smith Barney Fundamental Value Fund; and
(9) Salomon Brothers High Yield Bond Fund. (Compl. ¶ 4.) Plaintiffs claim that
Kennedy invested in another fund managed by a Citigroup affiliate: the Smith Barney
Appreciation Fund. (Id. ¶ 16.) Although Smith Barney was “affiliated” with Citigroup,
that fund is not the subject of plaintiffs’ allegations, and so is not one of the Affiliated
Funds as the Court has defined that term.
2
3
B. The Alleged ERISA Violations
Plaintiffs’ claims regarding defendants’ decisions to offer the
Affiliated Funds as part of the Plan, and not to remove them from the Plan,
take three forms. First, defendants committed an ongoing breach-byomission by failing to remove the Affiliated Funds from the Plan, starting
in October 2001. Second, defendants breached their duty of prudence by
selecting three Affiliated Funds when adding new funds in April 2003.
Third, defendants imprudently transferred investments in four of the
eliminated unaffiliated funds to four of the Affiliated Funds. (See Compl.
¶¶ 76-90.) Each of these claims is premised on two common allegations:
that the funds at issue were affiliated with Citigroup, and that they
charged fees that were excessive when compared to fees of funds that
performed comparably. See Leber II at *4-5.
C. Communications to Plan Members
The dispute at the heart of this motion concerns the extent of
information that plaintiffs possessed more than three years before they
filed suit on October 18, 2007. For purposes of this motion, the Court
assumes, without deciding, that the record shows that Plan documents
were sent to plaintiffs before October 2004 and contained, as defendants
contend, two basic pieces of information: first, that the Funds were
affiliated with Citigroup (see Defs.’ 56.1 ¶¶ 19-25, 32-33, 36-38); and
second, the precise management fees that the Affiliated Funds charged
investors (see Defs.’ 56.1 ¶¶ 26, 34-35, 39). 3 Plaintiffs, however, deny that
they reviewed the documents on which defendants rely and have
submitted affidavits to the effect that they were unaware of either the
affiliated status of the Funds or the fees that they charged. (See Pls.’ 56.1
Plaintiffs offer a range of evidence and a variety of arguments to counter
defendants’ evidence that the Plan sent documents to plaintiffs containing the fees
charged and affiliated status of the Funds. Plaintiffs, to take but one example, contend
that a material dispute of fact exists regarding whether these documents were sent to
plaintiffs because Kennedy testified that she saved everything she received, but she
did not have or recall certain documents on which defendants rely. (See Pls.’ 56.1
¶ 55.) The Court, however, need not address these various factual assertions because
the motion fails even assuming that the evidence defendants proffer is undisputed.
3
4
¶ 55; Aff. of Sarah L. Kennedy dated Feb. 5, 2012 ¶¶ 4(g)-(h), 4(k)-(l), Dkt.
No. 99; Aff. of Marya J. Leber dated Feb. 13, 2012 ¶¶ 4(g)-(h), 4(k)-(l), Dkt.
No. 100.) Thus, for purposes of this motion, the Court proceeds on the
basis that plaintiffs possessed documents that described the Funds’
affiliated status and fees more than three years before filing, but had not
read them. Defendants, however, offer no evidence that plaintiffs were
aware of comparable funds with smaller fees.
II. DISCUSSION
A. ERISA’s Three-Year Statute of Limitations Applies if Plaintiffs
Acquired “Actual Knowledge” of the Breach.
Except for claims of fraud or concealment, ERISA requires that an
action for breach of fiduciary duty must be commenced by the earlier of
the following two dates:
(1) six years after (A) the date of the last action which constituted a
part of the breach or violation, or (B) in the case of an omission the
latest date on which the fiduciary could have cured the breach or
violation, or
(2) three years after the earliest date on which the plaintiff had
actual knowledge of the breach or violation . . . .
29 U.S.C. § 1113 (emphasis added). In other words, all plaintiffs must file
suit no later than six years after the breach, but a plaintiff who acquires
“actual knowledge of the breach” cannot sleep on his rights; he must bring
his claim within three years of acquiring “actual knowledge.”
B. ERISA’s Three-Year Statute of Limitations Applies if Plaintiffs
Acquired “Actual Knowledge” of the Breach.
“[A] plaintiff has ‘actual knowledge of the breach or violation’ within
the meaning of [the statute] when he has knowledge of all material facts
necessary to understand that an ERISA fiduciary has breached his or her
duty or otherwise violated the Act.” Caputo v. Pfizer, Inc., 267 F.3d 181, 193
(2d Cir. 2001). Although the plaintiff need not know the law, “he must
have knowledge of all facts necessary to constitute a claim.” Id. Whether a
fact is material depends on context; such facts “could include necessary
5
opinions of experts, knowledge of a transaction’s harmful consequences,
or even actual harm.” Id. (quoting Gluck v. Unisys Corp., 960 F.2d 1168, 1177
(3d Cir. 1992)); see also Martin v. Consultants & Adm’rs, Inc., 966 F.2d 1078,
1086 (7th Cir. 1992). Even so, “[t]he disclosure of a transaction that is not
inherently a statutory breach of fiduciary duty . . . cannot communicate the
existence of an underlying breach.” Caputo, 267 F.3d at 193 (alterations in
original).
Because actual knowledge is “strictly construed,” L.I. Head Start Child
Dev. Servs., Inc. v. Econ. Opportunity Comm'n of Nassau Cnty., Inc., 710 F.3d
57, 67 (2d Cir. 2013), what plaintiffs “should have known” or what they
suspected must be distinguished from what they actually knew. Caputo,
267 F.3d at 194 (emphasis in original). Reading “actual knowledge” as
equivalent to “constructive knowledge” would be “repugnant to the plain
language of the statute as well as its legislative history.” Id. Even where a
plaintiff has reason to believe that defendants have violated ERISA, he
might not know all the facts material to his claim. In Caputo, for example,
the plaintiffs alleged that their employer had misled them as to whether
they planned to offer an early retirement plan that included a severance
package. Id. at 184. Even when they learned that the employer had offered
the very package it said it would not offer, they did not have “actual
knowledge” of the breach; at that time, “they thought (not knew) that [the
employer] lied.” Id. at 194 n.6 (emphasis in original). Only when they
confirmed their suspicions that the earlier statements were lies—as
opposed to true plans that later changed—did they actually know of the
breach. Id. at 194. Clearly what matters are the facts plaintiffs possess, not
the facts they suspect or could discover. 4
Plaintiffs also contend that “‘[a]ctual knowledge’ requires that the plaintiff read
and understand” the communications. Harris v. Finch, Pruyn & Co., Inc., No. 1:05-CV951, 2008 WL 2064972, at *3 (N.D.N.Y. May 13, 2008) (citing cases). The Court need not
address this argument in order to deny the motion. But the Court notes that courts
have largely rejected such a rule because it would reward participants’ willful
blindness to important information. See, e.g., Edes v. Verizon Commc’ns, Inc., 417 F.3d
133, 142 (1st Cir. 2005); Young v. Gen. Motors Inv. Mgmt. Corp., 550 F. Supp. 2d 416, 419
n.3 (S.D.N.Y. 2008), aff'd on other grounds, 325 F. App’x 31 (2d Cir. 2009); but see Fish v.
GreatBanc Trust Co., 749 F.3d 671, 685 (7th Cir. 2014) (“If willful blindness has a place
4
6
C. Plaintiffs Lacked “Actual Knowledge” Because They Did Not
Possess All Facts Necessary to Constitute the Claims.
Defining the universe of plaintiffs’ imputed knowledge only begs the
question: Did the Plan’s communications contain “all facts necessary to
constitute a claim”? See Caputo, 267 F.3d at 193. The Court’s view should
not surprise the parties because the Court delineated the central
allegations when deciding both defendants’ motion to dismiss and
plaintiffs’ motion to amend: “by causing plan assets to be invested in
affiliated mutual funds that charged higher fees and performed less well
than comparable unaffiliated funds, the committee defendants acted in the
interests of Citigroup rather than the Plan and failed to act with the skill,
prudence, and care required.” Leber I at *13. Essential to the plausibility of
plaintiffs’ claims was the allegation that the Affiliated Funds “charged
higher fees than those charged by comparable Vanguard funds—in some
instances fees that were more than 200 percent higher than those
comparable funds.” Id.; see also Leber II at *4.
Actual knowledge requires “knowledge of all material facts necessary
to understand that an ERISA fiduciary has breached his or her duty.”
Caputo, 267 F.3d at 193. A fact that is necessary to render a claimed breach
plausible must, perforce, be one of the facts “necessary to understand that”
a breach has occurred. Id. It is, by definition, one of “facts necessary to
constitute [the] claim.” Id. Thus, to demonstrate plaintiffs’ actual
knowledge of the breach, defendants must show either that plaintiffs
possessed, through Plan communications or otherwise, comparisons of the
Affiliated Funds to the alternatives or knew in some other way that the
in the analysis of the “actual knowledge” three-year statute of limitations under
§ 1113(2)—a question we do not decide here—it would almost certainly present a
genuine issue of material fact to be resolved by the finder of fact at trial.”). Nor need
the court consider defendants’ contention that plaintiffs had actual knowledge of plan
documents that were not sent to them, but to which they had access. See, e.g., Brown v.
Owens Corning Inv. Review Comm., 622 F.3d 564, 571 (6th Cir. 2010). That rule takes one
step closer to the “constructive knowledge” standard that courts have universally
rejected. Because nothing in the other documents on which defendants rely disclosed
the key fact missing from defendants’ proffered evidence—the fees of comparable
funds—the Court need not, and does not, address the significance of plaintiffs’ access
to other Plan documents.
7
fees were excessive. 5 Defendants’ motion for summary judgment must fail
because defendants have not even attempted to offer evidence that
plaintiffs possessed the fee data for comparable alternative funds.
Defendants urge the Court to find that knowledge of the Affiliated
Funds’ fees alone constitutes actual knowledge of all the material facts of
the breach, citing Young v. General Motors Investment Management Corp., 550
F. Supp. 2d 416, 420 (S.D.N.Y. 2008). In Young, the plaintiffs advanced
claims similar to these, and the court found them untimely because their
knowledge of the fees for other funds in the plan provided knowledge that
the fees were generally high. Id. at 420 & n.5. The Young court, however,
did not consider the significance of comparisons between the fees for the
funds at issue and those of alternative funds with similar types of assets
and equivalent performance, nor explain whether that comparison was
part of the claimed breach. 6 Even assuming that plaintiffs had actual
knowledge of the fees of the unaffiliated funds offered by the Plan, 7
Defendants’ own prior argument belies the sincerity of their position here that
the comparisons between the fees and performance of the Affiliated Funds on one
hand and those of comparable funds on the other are not essential to knowledge of
defendants’ breaches. In moving previously to dismiss, defendants contended that
those very comparisons between the Affiliated Funds and comparable funds, even if
augmented with certain details, failed to raise the claims above the level of the
implausible or speculative. (See Defs.’ Mem. in Support of Motion to Dismiss at 17,
Dkt. No. 21.) A plaintiff without enough facts to do more than speculate that a breach
has occurred hardly has “actual knowledge” of that breach. The Court is also mindful
that a plaintiff must possess more facts to know of a breach than she must possess to
plausibly allege that breach on information and belief. See, e.g., Caputo, 267 F.3d at 195.
Because the motion fails for the reasons stated, the Court need not determine what if
any additional facts are essential to plaintiffs’ claims, nor consider plaintiffs’
alternative factual or legal arguments.
5
Such an analysis was likely unnecessary given that the plaintiffs in Young failed
to allege “facts concerning other factors relevant to determining whether a fee is
excessive” including comparative fee structures. See Young, 325 F. App’x 31, 33 (2d
Cir. 2009).
6
Although defendants assert that participants received fund prospectuses each
time a new fund was added to the Plan and such documents were available on
Citigroup’s website (see Ex. 49 to Declaration of Kira A. Davis, dated January 10, 2012,
7
8
defendants do not contend that the unaffiliated funds were similar to the
Affiliated Funds and had comparable performance. Moreover, it is not
clear on its face that the fees were so excessive that they were “inherently
suspect . . . [or] constitute[d] a breach of fiduciary duty.” Caputo, 267 F.3d
at 193; cf. Chao v. Emerald Capital Mgmt., Ltd., 01-CV-6356T, 2006 WL
2620055, at *6-7 (W.D.N.Y. Sept. 13, 2006).
In any event, Young is not binding authority. Plaintiffs could not have
known that the fees were excessive, and thus a basis for an ERISA claim,
without the relevant comparison point for assessing excessiveness: fees for
comparable funds. At most, a comparison of the Affiliated Funds’ fees
with those of unaffiliated funds in the Plan would have given them “notice
that something was awry.” Caputo, 267 F.3d at 193. More is required to
find that plaintiffs had “‘specific knowledge of the actual breach of duty’”
of prudence, see id., 8 and defendants offer no evidence that plaintiffs knew
any more. Accordingly, defendants have not shown that plaintiffs knew,
rather than suspected or could have known, all the material facts of their
claims three years before filing suit.
III. CONCLUSION
Because defendants have failed to demonstrate pursuant to 29 U.S.C.
§ 1113 that plaintiffs had “actual knowledge” of the alleged breaches three
years before commencing the action, defendants’ motion for summary
judgment on the issue of timeliness (Dkt. No. 93) is denied. The parties
¶¶ 6-8), defendants offer no evidence of the fees of unaffiliated funds or plaintiffs’
actual knowledge of those fees.
The Court notes here that other courts have found knowledge of additional facts
necessary to prove actual knowledge of a breach of fiduciary duty. See Zang v.
Paychex, Inc., 728 F. Supp. 2d 261, 268 (W.D.N.Y. 2010) (“It is not enough that plaintiff
could have surmised that Paychex may have been motivated by self-interest; he must
have had actual knowledge that Paychex was so motivated.”); see also Brown v. Am.
Life Holdings, Inc., 190 F.3d 856, 859 (8th Cir. 1999).
8
9
shall submit an agreed upon schedule for the remaining discovery in this
action on or before October 17, 2014.
Dated: New York, New York
September 30, 2014
SO ORDERED:
-- Sidn7 / H. St~in,U.s.D.J.
10
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?