Severstal Wheeling, Inc. Retirement Committee et al v. WPN Corporation et al
Filing
161
MEMORANDUM ORDER denying #80 Motion for Summary Judgment.For the foregoing reasons, Defendants motion for summary judgment is denied. A Final Pre-Trial Conference in this matter will be held on January 25, 2013 at 2:00p.m. The parties must confer and make submissions in advance of the Final Pre-Trial Conference as required by the previously entered Pre-Trial Scheduling Order (docket entry no. 32). This Memorandum Order resolves docket entry no. 80. SO ORDERED.(Signed by Judge Laura Taylor Swain on 8/17/2012) (ama)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------X
SEVERSTAL WHEELING, INC. et al.,
Plaintiffs,
No. 10 Civ. 954 (LTS)(GWG)
-v-
WPN CORPORATION et aL,
Defendants
-------------------------------------------------------X
MEMORANDUM ORDER
Plaintiffs Severstal Wheeling, Inc. Retirement Committee, ("SRC"), Timothy S.
Rogers, Melvin Baggett, William Drew Landon, and Severstal Wheeling, Inc. ("Severstal")
(collectively "Plaintiffs") bring this action pursuant to the Employee Retirement Income Security
Act ("ERISA"), 29 U.S.C. § 1001 et. seq., against Defendants WPN Corporation ("WPN") and
its principle and sole executive officer, Ronald LaBow ("LaBow"), (collectively, "Defendants"),
for breach of fiduciary duty, breach of contract, and professional negligence arising from
Defendants' alleged failure to diversify trust assets. Plaintiffs also asserted claims against WHX
Corporation, which were dismissed in September 2011. (Docket entry no. 72.)
Defendants now move for summary judgment. The Court has jurisdiction of
Plaintiffs' claims pursuant to 28 U.S.C. §§ 1331 and 1367. The Court has considered carefully
all of the parties' extensive submissions in connection with the motion. For the following
reasons, Defendants' motion is denied.
BACKGROl;'ND
The following facts are undisputed unless otherwise noted. Plaintiffs are
fiduciaries of the Severstal Wheeling, Inc. Pension Trust (the "Trust") and the two ERISA
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employee benefit plans (collectively, the "Plans") funded by the Trust. (Defs' 56.1
St.~
1.) The
Plans were originally funded through and made up approximately 10% of the WHX Pension
Plan Trust. (Id.
~
3.) In February 2004, WPN entered into an Investment Consulting Agreement
(the "WHX Investment Agreement") with WHX Corporation on behalf of the WHX Pension
Trust, which vested WPN with "complete, unlimited and unrestricted management authority
with respect to" assets in the WHX Pension Trust. (WHX Investment Agreement, First
Amendment, attached to Second Amended Complaint ("SAC") as Exhibit D.) In 2008, WHX,
WPN, and LaBow executed the Second Amendment to the WHX Investment Agreement, which
required, among other things, that LaBow and WPN obtain and maintain "a fiduciary liability
insurance policy or policies for the benefit of the client." (Labow Dep. Ex 4 ~· 19.)
In June of 2008, Citibank N.A. ("Citibank"), which had been the trustee and
custodian for the WHX Pension Trust, announced its intention to exit the ERISA trust business.
Because no other trustee would hold the Severstal Plan assets in an intermingled trust with
WHX's Plan assets, the decision was made to remove the Severstal Plans' assets from the WHX
Pension Trust and to transfer the assets to a new and separate trust. (Defs' 56.1
St.~,[
9-1 0;
Halpin Dep. Ex. 38.) Prior to November 3, 2008, the WHX Pension Trust had approximately
$395 million invested with several investment advisors, including approximately $31 million in
stock in an account managed by Neuberger Berman, L.L.C. ("N&B"). (Defs' 56.1 St.~ 13). On
November 3, 2008, all assets in the N&B account (which was comprised almost exclusively of
large-cap energy stocks) were transferred from the WHX Pension Trust to the newly established
Severstal Wheeling, Inc. Pension Plan Trust. (Id. 'I! 11; Pls' 56.1 St. 'I!~ 11, 14.)
According to Defendants, WPN and LaBow played no role in the decisions to
separate the Severstal assets from the WHX Pension Trust. (Defs' 56.1 St.~ 13.) Plaintiffs
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contend, however, that LaBow and WPN decided what assets to transfer from the WHX Pension
Trust and instructed Citibank to complete the transfer. (Pls' 56.1 St.~ 13.) The record reveals
that, on September 15, 2008, WHX Corporation Treasurer David Riposo ("Riposo") told LaBow
that Michael DiClemente ("DiClemente"), a member of the Severstal Retirement Committee,
had advised Riposo that Severstal wanted its plan assets to be transferred "in cash." (LaBow
Dep. Ex. 22.) When Riposo passed this instruction to LaBow, LaBow replied "(Severstal] may
not get cash. We shall see." (LaBow Dep. Ex. 23.) On September 30, 2008, DiClemente made a
request to Glen Kassan, the chairman of WHX Corporation's Pension Investment Committee,
that the plan assets be transferred to the Severstal Trust "in the same percentage investment
allocations as existed in the WHX Pension Trust." (DiClemente Dep. Ex. 3.) On October 3,
2008, Riposo sent LaBow an e-mail in which he asked: "have you identified the assets to move
to [Severstal]? Anything WHX needs to sign?" (LaBow Dep. Ex. 3 1.) LaBow replied that he
was "working on it." (LaBow Dep. Ex. 32.) In a letter to DiClement, dated October 22, 2008,
LaBow acknowledged DiClemente's September 30 transfer request, and stated "I intend to direct
the transfer of most of the assets." (LaBow Dep. Ex. 14.) On October 31, 2008, LaBow sent an
email to Riposo: "pls transfer the entire (N&B account] to Severstal Wheeling prior to market
opening on Nov 3, 2008." (LaBow Dep. Ex. 37.)
The transfer was accomplished by Citibank on the evening ofNovember 3, 2008.
There is no evidence that any individual from Severstal gave authorization to Citibank prior to
the transfer. The following day, DiClemente sent a letter to Citibank directing that the N&B
account be transferred "as part of transferring the assets of (the Severstal Plans]." (DiClemente
Dep. Ex. 4.) DiClemente testified that, at the time the letter was sent, it was DiClemente's
understanding that the Severstal Trust would also receive a percentage of the other assets in the
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WHX Master Trust. (DiClemente Dep. at 99, 106, 722.) In fact, the transferred Severstal Plan
assets consisted solely of the assets held in the N&B account. (Declaration of Andrew T.
Quesnelle ("Quesnelle Decl.") Ex. A.)
The parties also dispute when LaBow and WPN acquired legal authority to
manage the assets in the newly formed Severstal Trust. Defendants assert that Severstal did not
contract to retain Labow and WPN's investment management services until Severstal and
Defendants signed the Third Amendment to the WHX Investment Consulting Agreement on
December 5, 2008. The Third Amendment, which incorporated the First and Second
Amendments to that WHX Agreement, provided LaBow and WPN with "complete, unrestricted,
and unlimited management authority" with respect to the Severstal Trust assets. (Defs' 56.1 St.
~
27; Pis' 56.1
St.~
27 (quoting Third Amendment, attached as Exs. D, E to SAC).) It further
provided that Severstal would "advise the ... custodian of the [Severstal Trust] Investment
Fund of [Severstal' s] retention of [WPN] as provided herein and shall instruct and direct the
trustee or custodian to comply with and honor requests and instructions of [WPN]." (Defs' 56.1
It is undisputed that the Third Amendment was signed on December 5, 2008;
however, Plaintiffs argue that it went into effect on November 1, 2008. LaBow admits in his
deposition that he handwrote "November 1, 2008" as the effective date on the Third Amendment
document, and Plaintiffs produce a letter LaBow sent on January 12, 2009, to Severstal claiming
to be entitled to fees for his services in November and December 2008. (Pls' 56.1 St.~ 27.)
Citibank was the Trust custodian from November 3, 2008; it was replaced by National
CityBank("NatCity")onJanuary6,2009. (Defs' 56.1 St.~37.)
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Defendants assert that, even after the Third Amendment was signed, Plaintiffs
failed to notify the Trust's custodians ofWPN and LaBow's appointment, thereby depriving
Defendants of their authority to manage the Trust assets. (Defs' 56.1 St.~~ 31-35.) During this
period, Defendants contend, DiClemente and SWI Retirement Committee member Dennis
Halpin ("Halpin") were the only persons authorized to issue investment instructions (id. ~~ 34,
38), and Severstal did not empower Defendants to manage the Trust account until March 20,
2009. (Id. ~~ 66-67.) In support of this claim, Defendants cite testimony by DiClemente and
Halpin that they could "not recall" or "had no idea" whether anyone at Severstal notified
Citibank or NatCity of Defendants' retention. (Id. ~~ 33, 35, 40.) 2
According to Plaintiffs, DiClemente first discovered that the Severstal assets were
invested entirely in the N&B account on December 29, 2008. (DiClemente Dep. Ex. 21.) When
DiClemente addressed his concern to LaBow, LaBow responded that he could retroactively
reallocate the assets in such a way that the Severstal Trust would receive a portion of all assets in
the WHX Master Trust retroactive to November 3, 2008. (Halpin Dep. Ex. 16.) On January 7,
2009, however, LaBow informed DiClemente, Halpin and Severstal's outside counsel, Sally
King, that such a reallocation was not possible because some funds in the WHX Master Trust
had minimum investment requirements that the Severstal Trust could not meet. (Halpin Dep.
2
Amanda Pierce, a representative ofNatCity, also testified that she did not remember
whether any NatCity employee told her that LaBow had authority to direct investment of
the Severstal Trust assets. (Deposition of Amanda Pierce ("Pierce Dep.") at 66.)
However, when asked, "Did you have an understanding when you were involved in
opening up the Severstal Wheeling pension trust as to who had authority to direct
investment of that trust?" Ms. Pierce replied, "Based on the documentation and what we
were told, it was Ron LaBow. (Id. At 53.) Pierce later agreed that the Third Amendment
was e-mailed to her on December 16, 2008, before the assets were transferred from
Citibank to NatCity. (Pierce Dep. 20, 25; Pierce Dep. Ex. 4.) When shown the Third
Amendment by Plaintiffs' counsel, Pierce agreed that it was the document that gave her
the understanding "that Ronald LaBow would be the investment manager to the Severstal
Wheeling trust." (Pierce Dep. at 25.)
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Ex. 16.) In their deposition testimony, Severstal personnel characterize LaBow's explanations
regarding his inability to retroactively reallocate the assets as evasive and inconsistent. (See,
~Halpin
Dep. at 61-63.) In a February 2009letter explaining his inability to reallocate,
LaBow stated: "I felt I had no other option given market conditions and the previous decline in
energy shares to transfer the entire Neuberger Berman Account." (DiClemente Dep. Ex. 39.)
Throughout February 2009, LaBow sent numerous letters to Severstal personnel
"recommending" that they diversify and/or liquidate the assets in the Trust. (Defs' 56.1 St.
~~
43-46.)
On March 24, 2009, the stocks in the N&B portfolio were liquidated, and the
Trust was entirely invested in cash. (Defs' 56.1
St.~
73.) By that date, the Seversal Trust's
holdings in the N&B account had lost approximately 19% of their pre-transfer value. (SAC
,[ 79.) In one internal memo, Halpin stated that the WHX Pension Trust, which was diversified,
"has well outperformed" the Severstal Trust (Pls' 56.1
St.~
42); in another, DiClemente noted
that the "the largest loss [in the Plan's value] was due to the concentrated energy exposure of
Neuberger Berman." (Id.
~55).
Plaintiffs commenced this lawsuit on February 5, 2010. 3 After two complaint
amendments and a round of dispositive motion practice, the following claims survive against
Defendants: (1) breach of the duty to diversify the assets of the Severstal Trust, in violation of
ERISA sections 502(a) and 409 (Count II); (2) breach of the duty to loyally manage plan assets
in violation of ERISA sections 404(a)(1)(A) and 406(b) by "investing the entirety of the
Severstal Trust in the [N&B Account because] of ... LaBow's relationship and dealings with
A fuller procedural history is laid out in Severstal Wheeling Inc. v. WPN Corp., 809 F.
Supp. 2d 245 (S.D.N.Y. 2011).
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[NB]," and "giving preferential treatment to the WHX Pension Trust over the Severstal Trust."
(Count I); (3) breach of contract for failing to maintain a fiduciary insurance policy, as required
by the Third Amendment (Count V); and (4) professional malpractice for failing to diversify the
assets in the Trust (Count VI). Defendants move for summary judgment as to each Count.
DISCUSSION
A motion for summary judgment shall be granted in favor of a moving party
where "the movant shows that there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter oflaw." Fed. R. Civ. P. 56( a); see also Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 256 (1986) (the moving party bears the burden of establishing that
there is no genuine issue of material fact). In the summary judgment context, a fact is material
"if it 'might affect the outcome of the suit under the governing law,"' and "[a]n issue of fact is
'genuine' if 'the evidence is such that a reasonable jury could return a verdict for the nonmoving
party."' Holtz v. Rockefeller & Co., 258 F.3d 62, 69 (2d Cir. 2001) (quoting Anderson, 477 U.S.
at 248). In assessing the record to determine whether there is a genuine dispute of material fact,
the court must resolve all ambiguities and draw all factual inferences in favor of the nonmoving
party. Anderson, 477 U.S. at 255. The non-moving party "must do more than simply show that
there is some metaphysical doubt as to the material facts . . . . [T]he nonmoving party must
come forward with specific facts showing that there is a genuine issue for trial." Caldarola v.
Calabrese, 298 F.3d 156, 160 (2d Cir. 2002) (quoting Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87 (1986) (alteration in original)).
I.
Breach of Fiduciary Duty to Diversify
Plaintiffs allege that Defendants breached their fiduciary duty by permitting the
Plan assets to be invested exclusively in the N&B account on November 3, 2008, and by failing
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to diversify the Trust thereafter. Defendants contend they are entitled to summary judgment
because they were not empowered to act as fiduciaries of the Trust until March 2009.
To prevail on an ERISA claim for breach of fiduciary duty, plaintiffs must show
that "(1) defendants were fiduciaries of the plan who, (2) acting within their capacities as plan
fiduciaries, (3) engaged in conduct constituting a breach of an ERISA fiduciary duty." In re
Pfizer Inc. ERISA Litig., No. 04 Civ. 1007l{LTS), 2009 WL 749545, at *6 {S.D.N.Y. Mar. 20,
2009) {citing 29 U.S.C. § 1109). ERISA section 404(a)(l)(C) requires fiduciaries to "diversify[]
the investments of the plan so as to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so." 29 U.S.C.A. § 1104(a)(l)(C) (West 2011).
"The fiduciary standard imposed by ERISA requires the application of a reasonableness
standard. Rarely will such a determination be appropriate on a motion for summary judgment."
Bd. ofTrs. of the S. Cal. IBEW-ENCA Defined Contribution Plan v. Bank of N.Y. Mellon
Corp., 2011 U.S. Dist. LEXIS 142367, at *14 (S.D.N.Y. Dec. 9, 2011) (citing Hunt v. Magnell,
758 F. Supp. 1292, 1297 n.6 (D. Minn. 1991)).
Section 3(21)(A) ofERISA provides, in relevant part, that a "person is a fiduciary
with respect to a plan," and therefore subject to ERISA fiduciary duties, "to the extent" that:
(i) he exercises any discretionary authority or discretionary control respecting
management of such plan or exercises any authority or control respecting
management or disposition of its assets, (ii) he renders investment advice for a fee
or other compensation, direct or indirect, with respect to any moneys or other
property of such plan, or has any authority or responsibility to do so, or (iii) he
has any discretionary authority or discretionary responsibility in the
administration of such plan.
29 U.S.C.A. § 1002(21)(A) (West 2011). As the Second Circuit has emphasized, "Congress
intended ERISA's definition of fiduciary 'to be broadly construed."' LoPresti v. Terwilliger,
126 F.3d 34, 40 (2d Cir. 1997) (quoting Blatt v. Marshall & Lassman, 812 F.2d 810, 812 (2d Cir.
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1987)). "The definition of 'fiduciary' under ERISA focuses on the exercise, as well as the
possession, of authority or control." Blatt v. Marshall & Lassman. 812 F.2d 810, 813 (2d Cir.
1987). Thus, an individual may be deemed a fiduciary under subsection (i) if she "exercise[ s]
discretionary authority, regardless of whether such authority was ever granted"; conversely, she
may be deemed a fiduciary under subsection (iii) if she has "actually been granted discretionary
authority, regardless of whether such authority is ever exercised." Bouboulis v. Transport
Workers Union of America, 442 F.3d 55 (2d Cir. 2006) (quotation marks omitted); see also
LoPresti, 126 F.3d at 40 ("Unlike the common law definition under which fiduciary status is
determined by virtue of the position a person holds, ERISA's definition is functional.") (quoting
Mason Tenders Dist. Council Pension Fund v. Messera, 958 F. Supp. 869, 881 (S.D.N.Y. 1997).
Defendants argue that they cannot be held liable for the November 3 transfer
because they were not legally authorized to manage the Trust until the Third Amendment was
signed in December 2008. They further argue that they cannot be held liable for failing to
diversify the Trust assets, even after they signed the Third Amendment, because Plaintiffs failed
to instruct the Trust's custodians that Defendants were authorized to direct investment decisions.
Neither assertion is availing.
Plaintiffs have presented ample evidence from which a reasonable jury could
conclude that Defendants were fiduciaries of the Trust as of the November 3 transfer. LaBow
admits in his deposition that he wrote "November 1, 2008" as the effective date for the Third
Amendment, which granted Defendants "complete, unlimited, and unrestricted management
authority" over the Severstal assets. (Pls.' Resp. 56.1 St. , 21.) Plaintiffs' assertion that LaBow
was a fiduciary at the time of the transfer is further buttressed by LaBow's January 12, 2009,
letter to Severstal in which he asserted that he was "entitled to fees" for services in November
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2008. (ld.
~
26; LaBow Dep. Ex. 39). Plaintiffs have also presented numerous pieces of
evidence in support of their claim that Defendants actually exercised their investment authority
by directing the transfer. Such evidence includes (but is by no means limited to): ( 1) the October
22, 2008, letter from LaBow informing DiClemente that he (LaBow) "intend[ ed] to direct the
transfer of most of the assets of the [Severstal] Trust" on November 3, 2008 (LaBow Dep. Ex.
14); (2) the October 31, 2008, letter from LaBow to the Treasurer ofWHX directing him to
"transfer the entire [N&B account] to Severstal Wheeling prior to market opening" on November
3, 2008 (Pis' Resp. 56.1
St.~
17; LaBow Dep. Ex 37); and (3) exhibits showing that Citibank did
not wait for written approval from Severstal before transferring the assets.
The record also belies Defendants' contention that Plaintiffs' refusal to notify the
custodians deprived Defendants of their authority to manage the Trust. The only evidence
Defendants adduce in support of this claim is deposition testimony in which DiClemente and
Halpin replied that they "did not know" or "could not recall" whether someone from Severstal
notified the custodians ofDefendants' retention. (Defs' 56.1
St.~
33-40.) Plaintiffs' exhibits,
however, indicate that Citibank executed the November 3 transfer without prior approval with
Severstal, which suggests that Citibank was aware of LaB ow's authority. Testimony by NatCity
employee Amanda Pierce indicates that NatCity was aware of the terms of the Third
Amendment. In any event, there is no indication in the record that Plaintiffs' formal notification
of the custodians was a condition precedent to Defendants' receipt and exercise of"complete,
unlimited and unrestricted management authority'' under the Third Amendment. Nor is there
any evidence that Defendants raised concerns that their directives were not being heeded by the
Trust's custodians. Thus, even if Defendants established that Plaintiffs failed to fulfill their
notification commitment, a reasonable jury could still find that Defendants violated their
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fiduciary duty by failing to be sufficiently proactive in protecting their authority to manage the
undiversified Plan assets.
Accordingly, the Court finds that there is a genuine dispute as to material facts
precluding summary judgment as to whether Defendants breached their fiduciary duty by
directing the November 3 transfer, which resulted in a Severstal Trust composed solely ofN&B
energy-related assets, and by failing to diversify the Plan assets thereafter. The motion for
summary judgment as to Count II will therefore be denied.
II.
Breach of Fiduciary Duty of Loyalty
Plaintiffs allege that WPN and LaBow breached their duty under ERISA section
404(a)(1 )(A) to loyally manage the Plan's assets and ERISA section 406(b) by "investing the
entirety of the Severstal Trust in the [N&B Account because) of ... LaBow's relationship and
dealings with [N&B]," and by "giving preferential treatment to the WHX Pension Trust over the
Severstal Trust." (Id.
~
107.)
ERISA requires that fiduciaries discharge their duties "solely in the interest of the
[ERISA plan] participants and beneficiaries and ... for the exclusive purpose of: (i) providing
benefits to participants and their beneficiaries; and (ii) defraying reasonable expenses of
administering the plan." 29 U.S.C.A. § 11 04(a)(1 )(A) (West 2011 ). In addition, they must do so
"with the care, skill, prudence, and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims." 29 U.S.C.A. § 1104(a)(l)(B) (West 2011).
Section 406(b) prohibits a fiduciary from, inter alia, "deal[ing] with the assets ofthe plan in his
own interest or for his own account" 29 U.S.C.A. § 1106(b)(1) (West 2011).
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Defendants argue that they are entitled to summary judgment because Plaintiffs
have failed to adduce any evidence of improper influence. LaBow states in his affidavit that he
had no interest -- financial or otherwise- in either WHX or N&B, nor any reason to consider
WHX orN&B's interests in connection with management of the Trust. (Defs' 56.1 St.~~[ 6061.) However, Plaintiffs have presented evidence that LaBow had a 30-year, close relationship
with the manager of the N&B account, Marvin Schwartz; that WHX's Chairman viewed the
N&B account as a "toxic asset"; and that LaBow was guaranteed a fee in the amount of .9% of
the WHX Pension Plan Trust, which was significantly larger than the Severstal Trust. (Pis' 56.1
St.~
61.) Based on these facts, which Defendants do not dispute, a reasonable jury could find
that LaBow had two incentives to transfer the N&B account to the Severstal Trust: bettering the
performance of the larger WHX Pension Trust by removing a "toxic asset," and placating
LaBow's 30-year friend by not dropping the N&B Account. 4
III.
Damages
Defendants move for summary judgment on the grounds that Plaintiffs have
failed to established that the lack of diversification caused the investment losses. Section 409 of
ERISA provides, "[a]ny person who is a fiduciary with respect to a plan who breaches any of the
responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be
breach." 29 U.S.C.A. § 1109(a) (West 2011) (emphasis added). "Because both loss to the fund,
4
Defendants also argue that WHX had no interest in influencing subsequent investment
decisions in the Trust once the separation and transfer was completed. However,
Plaintiff has adduced evidence that LaB ow could have retroactively reallocated the
Severstal Trust assets, in effect returning some of the "toxic" N&B assets to the WHX
Pension Trust, and that his stated reasons for failing to do so were suspect. (Pis' 56.1 St.
~ 62.)
VERSIO~
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12
and a causal connection between that loss and defendant's breach, are necessary elements of an
ERISA claim for damages under 29 U.S.C. § 11 09(a), if [a defendant] demonstrates an absence
of a genuine issue of material fact as to either causation or loss on [a plaintiffs] ERISA claims,
[the defendant] is entitled to summary judgment on those claims." Bd. of Trustees of Aftra Ret.
Fund v. JPMorgan Chase Bank, N.A., 806
Supp. 2d 662,681-82 (S.D.N.Y. 2011) (quoting
Salovaara v. Eckert, No. 94 Civ. 3430, 1998 WL 276186, at *4 (S.D.N.Y. May 23, 1998)).
Defendants argue that the Trust's losses are attributable to a market-wide decline,
not to Defendants' alleged failure to diversity the assets. In support of this assertion, Defendants
provide documentation that the S&P index lost more than a third of its value from November 4,
2008 to March 9, 2009, while the Severstal Trust lost only 13%. (Def s' 56.1 St.
,I 41.)
Defendants conclude from these documents that "the Trust's investment portfolio enjoyed much
better investment returns than it would have had if it had been invested in a more diversified
portfolio."
@.~56.)
Defendants offer nothing to substantiate their apparent assumption that a
properly diversified fund would have performed on par with the S&P. Plaintiffs, meanwhile,
produce evidence showing that the diversified WHX Pension plan preformed substantially better
than the Severstal Trust and that the largest losses in the Plan value were attributable to the
"concentrated energy exposure ofN&B." Accordingly, the Court finds that Plaintiffs have
provided evidence from which a reasonable jury could conclude that the losses resulted from
Defendants' failure to diversify. Defendants motion for summary judgment for failure to show
damages and causality is therefore denied.
IV.
State Claims (Counts V and VI)
Plaintiff Severstal alleges in Count V that Defendants breached their contractual
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obligation under the Second Amendment to acquire a fiduciary liability insurance policy.
Defendants move for summary judgment on the grounds that the failure to obtain an insurance
policy did not cause injury to Plaintiffs. However, Plaintiffs correctly note that the purpose of a
fiduciary liability insurance policy is to ensure that a meaningful remedy is available for
breaches, and that Defendants failure to purchase such a policy means that Plaintiffs will be
unable to collect the full amount of damages should Defendants prove judgment proof.
Therefore, the motion for summary judgment as to Count V is denied.
Defendants also move for summary judgment on Plaintiff Severstal's professional
negligence claim, 5 arguing that Defendants lacked authority to diversify the Trust assets and that
the Plan's losses were the result of a market-wide collapse. These arguments fail for the reasons
stated above. Accordingly, Defendants' motion for summary judgment as to Count VI claim is
denied.
CONCLUSION
For the foregoing reasons, Defendants motion for summary judgment is denied. A
Final Pre-Trial Conference in this matter will be held on January 25, 2013 at 2:00p.m. The
parties must confer and make submissions in advance of the Final Pre-Trial Conference as
required by the previously entered Pre-Trial Scheduling Order (docket entry no. 32). This
Memorandum Order resolves docket entry no. 80.
SO ORDERED.
Dated: New York, New York
August 17, 2012
~RSWArn
United States District Judge
Severstal claims that it incurred additional funding liabilities to another of its employee
benefit plans by reason of the losses in one of the plans funded by the Severstal Trust.
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