PERELMAN v. PERELMAN et al

Filing 124

MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE JOHN R. PADOVA ON 1/24/2013. 1/24/2013 ENTERED AND COPIES MAILED, E-MAILED.(kk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
JEFFREY E. PERELMAN
v.
RAYMOND G. PERELMAN,
JASON GUZEK, and GENERAL
REFRACTORIES COMPANY

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CIVIL ACTION

NO. 10-5622

MEMORANDUM
PADOVA, J.

January 24, 2013

Presently before the Court is a Motion by Defendant General Refractories Company
(“GRC”) for Judgment on the Pleadings on Plaintiff Jeffrey Perelman’s (“Jeffrey”) Second
Amended Complaint. (Docket No. 106). Also before the Court is a similar Motion filed by
Defendants Raymond Perelman (“Raymond”) and Jason Guzek (“Guzek”). (Docket No. 107).
After those Motions were filed, Jeffrey filed a Motion for Leave to File a Third Amended
Complaint. (Docket No. 109). For the following reasons, we deny Jeffrey’s Motion and grant
Defendants’ Motions in part.
I.

FACTUAL AND PROCEDURAL BACKGROUND
The allegations contained in the Second Amended Complaint (“SAC”) were fully set out

in our Opinion of August 27, 2012 (“the August Opinion”), and we repeat them here only
briefly. In the SAC, Jeffrey only asserted claims for injunctive relief under ERISA § 502(a)(3),
29 U.S.C. § 1132(a)(3), the provision permitting equitable claims by plan participants for breach
of fiduciary duties. He alleged that his father Raymond, as trustee of the General Refractories
Company Pension Plan (“the Plan”), improperly invested Plan assets in the corporate bonds of
Revlon, Inc. (together with Revlon Consumer Products Corporation, collectively “Revlon”), a
company controlled by his brother Ronald Perelman (“Ronald”), during a time period in which

Revlon was substantially over-leveraged and had poor credit ratings assigned to its corporate
bonds. (SAC && 37, 49 74, 88.) He also alleged that Raymond entered into a Participation
Agreement with MacAndrews & Forbes Holdings, Inc. (“MacAndrews”), an entity principally
owned by Ronald. (Id. & 116.) The Participation Agreement provided the Plan with a $2.7
million undivided interest in a Senior Subordinated Loan Agreement between MacAndrews and
Revlon, under which MacAndrews loaned Revlon $170 million, and permitted MacAndrews (i.e.
Ronald) to retain approximately $2 million as a non-refundable fee. (Id. && 117, 120-23.) The
Plan also converted some of its Revlon bonds into stock and gave Ronald the power to vote that
stock, in order to help Ronald protect Revlon against a hostile takeover; Ronald thus became the
beneficial owner of the shares of Revlon stock held by the Plan, and undertook full power to vote
all Revlon stock owned by the Plan. (Id. & 18.)
Jeffrey also alleged that Forms 5500 for plan years 2003-2005, listing Raymond as the
Plan Administrator, did not disclose that the Plan held investments in Revlon bonds, but rather
asserted that all Plan assets were invested in master trust accounts. (Id. && 27, 32-33, 38, 40-41,
50, 54-55.)

The Forms 5500 from 2005 through 2009 stated that 100% of Plan assets were

invested in mutual funds. (Id. && 53, 62, 79, 92, 108.) Independent auditors’ reports appended
to the Forms 5500 for 2003 through 2008, while disclosing investments in Revlon bonds, did not,
inter alia, identify those investments as party-in-interest transactions by the Plan, did not
disclose the relationship between Ronald and Raymond, and did not disclose that Ronald was
himself a fiduciary of the Plan by virtue of his power to vote stock held by the Plan. (Id. && 3132, 40, 43, 52, 54, 61, 78, 91.)
In our August Opinion deciding the Defendants’ Motions to Dismiss the SAC, we held
that the SAC adequately alleged that Jeffrey had standing to seek certain injunctive relief, as well

2

as standing to enforce his ERISA-created right to accurate plan documents. However, we
rejected Jeffrey’s argument that he established standing to seek monetary forms of equitable
relief in the forms of disgorgement and restitution. Accordingly, we granted the Motions to
Dismiss in part, dismissing in their entirety the claims against Ronald, which sought only money
damages, and striking those clauses of the SAC’s Prayer for Relief clause that requested
monetary relief against the other defendants.
GRC then filed the pending Motion for Judgment on the Pleadings (Docket No. 106).
Raymond and Guzek jointly filed a similar Motion (Docket No. 107). Thereafter, Jeffrey filed
the pending Motion for Leave to File a Third Amended Complaint (Docket No. 109), in which
he seeks to rejoin Ronald and, for the first time, add additional claims seeking monetary relief
against all parties pursuant to ERISA § 502(a)(2), 29 U.S.C. § 1132(a)(2).
In the proposed Third Amended Complaint (“TAC”), Jeffrey makes additional
allegations based upon an Amended Form 5500 filed by the Plan for 2010, as well as an
application submitted by Raymond to the United States Department of Labor’s Voluntary
Fiduciary Correction Program (“VFCP”). He alleges that, by virtue of the improper dealings in
Revlon, the Plan is currently underfunded. Specifically, he alleges that the Amended Form 5500
shows that Plan’s funding ratio has diminished on an actuarial basis from 105.41% in 2009 to
95.72% in 2011, and on a market value analysis, the Plan was only 83% funded as of December
31, 2011. (TAC && 248-49.) He also alleges that the 2010 filing demonstrates a significant
deficiency in all previous Forms 5500 filed for the Plan: while each prior Form from 2003 to
2009 stated that 100% of assets were invested in registered investment companies, the 2010
Amended Form reflects that only approximately $5 million of the Plan’s total assets of
approximately $12.9 million were invested in registered investment companies. (Id. at && 253-

3

56.) Jeffrey alleges that it is inconceivable that the nature of the investments changed so
significantly, calling into question the veracity of the prior filings. (Id. at ¶ 257.)
The TAC alleges that the admissions contained in the VFCP application reveal numerous
inadequacies in Raymond’s administration of the Plan, which required Raymond to pay money
to the Plan to correct the breaches of his fiduciary duties. Jeffrey alleges that Raymond’s action
to cure the prohibited party-in-interest transactions was itself another prohibited party-in-interest
transaction since, rather than selling the Revlon bonds, he converted them into Revlon stock via
a “call” on the bonds. (Id. at && 274-81.) He also asserts that the “corrective amount” that
Raymond remitted with the application in regard to that transaction, $270,446.42, did not fully
reimburse the Plan for the $3,170,612.98 loss in principal that Raymond himself declared in the
application, and there was no restoration of lost profits or restoration of the party-in-interests’
investment return. (Id. at && 282-85.) Concerning the MacAndrews Participation Agreement,
Jeffrey alleges that the VFCP application reported lost earnings of $621,351.44, which exceeded
the profit that the Plan earned on the investment, but the corrective amount remitted was $0. (Id.
at && 289-98.) Jeffrey also asserts that no corrective amounts were remitted to account for
losses incurred in connection with three other prohibited transactions identified in the VFCP
application. (Id. at ¶ 303.) He alleges that “[u]pon information and belief, this significant
diminution in the value of the assets of the Pension Plan jeopardizes the ability of the Pension
Plan to provide continued pension benefits to its participants and beneficiaries.” (TAC && 426,
434, 447, 460, 473, 485 (emphasis added).)
II.

PLAINTIFF’S MOTION FOR LEAVE TO AMEND
A.

Standard of Review

4

Granting leave to amend is within the discretion of the district court. Zenith Radio Corp.
v. Hazeltine Research, Inc., 401 U.S. 321, 330 (1971). Courts should “freely give leave” for a
party to file an amended pleading “when justice so requires.” Fed. R. Civ. P. 15(a)(2). The
United States Court of Appeals for the Third Circuit has stated that leave “must generally be
granted unless equitable considerations render it otherwise unjust.” Arthur v. Maersk, Inc., 434
F.3d 196, 204 (3d Cir. 2006) (citing Foman v. Davis, 371 U.S. 178, 182 (1962). A court may
deny leave to amend when “(1) the moving party has demonstrated undue delay, bad faith or
dilatory motives, (2) the amendment would be futile, or (3) the amendment would prejudice the
other part[ies].” Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000); see also Lorenz v. CSX
Corp., 1 F.3d 1406, 1414 (3d Cir. 1993) (“In the absence of substantial or undue prejudice,
denial instead must be based on bad faith or dilatory motives, truly undue or unexplained delay,
repeated failures to cure the deficiency by amendments previously allowed, or futility of
amendment.” (citation omitted)). To determine futility, we apply the same analysis that would
govern a motion to dismiss under Fed. R. Civ. P. 12(b)(6). See In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997).

“‘Futility’ means that the complaint, as

amended, would fail to state a claim upon which relief may be granted.” Id. “If a proposed
amendment is not clearly futile, then denial of leave to amend is improper.” 6 Charles Alan
Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure, § 1487 (4th ed.
2010).
B.

Standing to Bring a § 502(a)(2) Claim

The “irreducible constitutional minimum” of Article III standing consists of an injury-infact, a causal connection between the injury and the conduct complained of, and the likelihood,
as opposed to the mere speculation, that the injury will be redressed by a favorable decision.

5

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992). The injury-in-fact requirement
exists to ensure that litigants have a personal stake in the litigation. The Pitt News v. Fisher, 215
F.3d 354, 360 (3d Cir. 2000). The requirement is very generous, requiring only that the claimant
allege some specific, identifiable trifle of injury. Danvers Motor Co., Inc. v. Ford Motor Co.,
432 F.3d 286, 291 (3d Cir. 2005) (noting that “[w]hile it is difficult to reduce injury-in-fact to a
simple formula, economic injury is one of its paradigmatic forms”); see also Bowman v. Wilson,
672 F.2d 1145, 1151 (3d Cir. 1982); United States v. Students Challenging Regulatory Agency
Procedures, 412 U.S. 669, 689 n.14 (1973) (recognizing that “an identifiable trifle is enough”);
Gen. Instrument Corp. v. Nu–Tek Elects. & Mfg., Inc., 197 F.3d 83, 87 (3d Cir. 1999) (same);
Pub. Interest Research Grp. of N.J., Inc. v. Powell Duffryn Terminals Inc., 913 F.2d 64, 71 (3d
Cir. 1990) (same). The Supreme Court has made clear that, while Congress can identify those
persons whom it intends to be protected by a statute, “the requirement of injury in fact is a hard
floor of Article III jurisdiction that cannot be removed by statute.” Summers v. Earth Island
Inst., 555 U.S. 488, 496 (2009).
To bring an ERISA lawsuit a plan participant must not only satisfy standing under the
statute, but must also meet the standing requirements of Article III. See Horvath v. Keystone
Health Plan E., Inc., 333 F.3d 450, 455 (3d Cir. 2003) (citing Warth v. Seldin, 422 U.S. 490, 501
(1975)); accord, Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco
Managed Care, L.L.C., 433 F.3d 181, 199 (2d Cir. 2005); Kendall v. Employees Retirement Plan
of Avon Prods., 561 F.3d 112, 118 (2d Cir. 2009) (citing Cent. States, 433 F.3d at 199). In
deciding the earlier dispositive motions, we noted that “[t]he rules regarding constitutional
standing differ depending upon whether the plaintiff is seeking money damages or equitable
relief. Where an ERISA plaintiff seeks money damages for breach of fiduciary duty, he must

6

allege individual loss or injury to satisfy Article III standing.” August Opinion at 8-9 (citing
Horvath, 333 F.3d at 456 (finding that the plaintiff’s requests for restitution and disgorgement
were individual in nature and therefore required the plaintiff to demonstrate individual loss to
satisfy Article III standing)). In contrast, with respect to the SAC’s claims for injunctive relief,
the Horvath court established that “‘[t]he actual or threatened injury required by Art. III may
exist solely by virtue of statutes creating legal rights, the invasion of which creates standing.’”
Horvath, 333 F.3d at 456 (alteration in original) (quoting RJG Cab, Inc. v. Hodel, 797 F.2d 111,
118 (3d Cir. 1986) (quoting Warth, 422 U.S. at 499-500)). Thus, we determined that the SAC’s
allegations of inappropriate party-in-interest transactions were sufficient to permit Jeffrey
standing to pursue claims for injunctive relief under § 502(a)(3).
However, the TAC’s claims for monetary relief under § 502(a)(2) require that Jeffrey
allege an injury-in-fact. As a beneficiary to a defined benefit pension plan, he cannot establish
standing to sue on behalf of the Plan absent a plausible allegation that the breach of fiduciary
duty created or enhanced a risk of default by the entire plan. See LaRue v. DeWolff, Boberg &
Assocs., Inc., 552 U.S. 248, 255 (2008) (stating that “Misconduct by the administrators of a
defined benefit plan will not affect an individual’s entitlement to a defined benefit unless it
creates or enhances the risk of default by the entire plan. It was that default risk that prompted
Congress to require defined benefit plans (but not defined contribution plans) to satisfy complex
minimum funding requirements, and to make premium payments to the Pension Benefit
Guaranty Corporation for plan termination insurance.”). In a defined benefit plan:
“the employee, upon retirement, is entitled to a fixed periodic payment.” . . .
[T]he employer typically bears the entire investment risk and — short of the
consequences of plan termination — must cover any underfunding as the
result of a shortfall that may occur from the plan’s investments. . . . Given
the employer’s obligation to make up any shortfall, no plan member has a
claim to any particular asset that composes a part of the plan’s general asset
7

pool. . . . Since a decline in the value of a plan’s assets does not alter accrued
benefits, members similarly have no entitlement to share in a plan’s surplus. .
. .”
Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 439-40 (1999) (citations and quotation omitted).
Where a defined benefit plan suffers losses, plan participants cannot establish standing to seek
money damages where the plan has substantial surplus assets or the plan sponsor is financially
capable of making up any losses suffered by the plan. Harley v. Minnesota Min. and Mfg. Co.,
284 F.3d 901, 906 (8th Cir. 2002) (stating that, in a defined benefit plan, “if plan assets are
depleted but the remaining pool of assets is more than adequate to pay all accrued or
accumulated benefits, then any loss is to plan surplus. . . . If the Plan’s surplus disappears, it is
[the Plan sponsor] 3M’s obligation to make up any underfunding with additional contributions. .
. . Thus, the reality is that a relatively modest loss to Plan surplus is a loss only to 3M, the Plan’s
sponsor.”). This is because:
“[t]he primary purpose of [ERISA] is the protection of individual pension
rights.” H.R. REP. NO. 93-533 (1974), reprinted in 1974 U.S.C.C.A.N.
4639, 4639. Thus, the basic remedy for a breach of fiduciary duty is “to
restor[e] plan participants to the position in which they would have occupied
but for the breach of trust.” Martin v. Feilen, 965 F.2d 660, 671 (8th Cir.
1992) (quotation omitted). Here, the ongoing Plan had a substantial surplus
before and after the alleged breach and a financially sound settlor responsible
for making up any future underfunding. The individual pension rights of
Plan participants and beneficiaries are fully protected. Indeed, those rights
would if anything be adversely affected by subjecting the Plan and its
fiduciaries to costly litigation brought by parties who have suffered no injury
from a relatively modest but allegedly imprudent investment. Thus, the
purposes underlying ERISA’s imposition of strict fiduciary duties are not
furthered by granting plaintiffs standing to pursue these claims.
Harley, 284 F.3d at 907.
While Jeffrey alleges that the Plan suffered losses causally related to Raymond’s alleged
mismanagement of the Plan resulting in a diminution in the value of its assets, and that the Plan
is currently underfunded, he does not allege in the TAC that he or any other Plan beneficiary has
8

been denied any payment currently due, or that the Plan sponsor is unable to adequately fund the
Plan so that the Plan will be unable to meet its future obligations. Rather, he alleges only that
“[u]pon information and belief, this significant diminution in the value of the assets of the
Pension Plan jeopardizes the ability of the Pension Plan to provide continued pension benefits to
its participants and beneficiaries.” (TAC && 426, 434, 447, 460, 473, 485 (emphasis added).)
Because the TAC does not plausibly allege that the Plan is unable to meet its obligations to pay
all vested benefits, and thus that Jeffrey or the Plan has suffered an injury-in-fact that is causally
related to the charged conduct, we find that he lacks standing to bring the new claims for
monetary relief under ERISA § 502(a)(2), rendering futile his attempt to amend the Complaint to
add claims for money damages. The “information and belief” allegations that the diminution in
the value of the Plan assets “jeopardizes” the Plan’s ability to provide continued pension benefits
to its participants is too speculative to provide standing to pursue § 502(a)(2) claims for money
damages. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (stating that “[f]actual
allegations must be enough to raise a right to relief above the speculative level . . .” (citations
omitted)).

The only specific allegation that Jeffrey makes regarding the scope of the

underfunding is that the Amended Form 5500 shows that Plan’s funding ratio has diminished on
an actuarial basis from 105.41% in 2009 to 95.72% in 2011, and on a market value analysis, the
Plan was only 83% funded as of December 31, 2011. (TAC && 248-49.) As Defendants point
out, however, under the requirements established by Congress in the Pension Protection Act of
2006, a plan is only considered to be “in at-risk status for a plan year if” the statutory funding
ratio is “less than 80 percent.” 29 U.S.C. § 1083(i)(4)(A). If that occurs, it is the obligation of
the plan sponsor to make sufficient additional contributions pursuant to § 1083(i)(1)(A), to cure
the underfunding. 29 U.S.C. § 1082(a). Jeffrey makes no allegations that the scope of the losses

9

that the Plan suffered placed it “in at-risk status” under the statute. More importantly, the
proposed TAC does not allege that GRC, the Plan sponsor, is financially compromised and thus
unable to adequately fund the Plan so that it may meet its future obligations to pay all vested
benefits. To the extent that the Plan suffered a diminution in the value of its assets due to
Raymond’s alleged breach of his fiduciary duties, GRC is legally obligated to make additional
contributions to the Plan to the extent that the losses exceed the Plan’s surplus. Id. Thus, while
GRC may theoretically have standing to pursue a claim for the diminution in value, an issue
upon which we express no opinion, Jeffrey and the other Plan participants do not. Accordingly,
we find that the proposed amendment to add legal claims for money damages under § 502(a)(2)
is futile; we thus deny the Motion for Leave to Amend. 1
IV.

DEFENDANTS’ MOTIONS FOR JUDGMENT ON THE PLEADINGS
In our August Opinion, we held that Jeffrey has standing to seek certain equitable relief

under ERISA § 502(a)(3). We also held that he has standing to enforce his ERISA-created right
to accurate plan documents. In their current Motions for Judgment on the Pleadings, 2 GRC and

1

Because we determine infra that Jeffrey’s request for an audit of the Plan may proceed
in part, we find that the newly appointed ERISA trustee, Reliance Trust Company, is a required
party pursuant to Fed. R. Civ. P. 19. Accordingly, while we deny the Motion for Leave to
Amend, we order pursuant to Rule 19(a)(2) that the newly appointed ERISA trustee be made a
party defendant.
2
GRC styles its Motion alternatively as one under Fed. R. Civ. P. 12(b)(1) for lack of
subject matter jurisdiction, or under Rule 12(c) for judgment on the pleadings. Raymond and
Guzek invoke only Rule 12(c). There are two types of motions to dismiss for lack of subject
matter jurisdiction that may be made pursuant to Rule 12(b)(1), “those that attack the complaint
on its face and those that attack subject matter jurisdiction as a matter of fact.” Petruska v.
Gannon Univ., 462 F.3d 294, 302 n.3 (3d Cir. 2006). When a facial attack has been made, the
court must consider the allegations of the complaint as true in the same manner as if it were
deciding a motion under Rule 12(b)(6). Id. (citation omitted). However, a factual attack:
differs greatly for here the trial court may proceed as it never could under
12(b)(6) or Fed. R. Civ. P. 56. Because at issue in a factual 12(b)(1) motion
is the trial court’s jurisdiction . . . there is substantial authority that the trial
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Raymond and Guzek argue that some of the relief Jeffrey seeks on the remaining claims of the
SAC has been rendered moot by subsequent factual developments, or fail to state claims upon
which relief may be granted.
A.

Removal of Trustees/Appointment of an Independent Trustee

Attached to GRC’s Motion are (1) a corporate resolution dated September 18, 2012,
executed by Raymond, terminating himself as Trustee of the Plan and appointing Reliance Trust
Company as the sole trustee of the Plan (GRC’s Statement of Undisputed Facts, Ex. E); (2) an
Investment Advisory Agreement under which GRC retained the services of InR Advisory

court is free to weigh the evidence and satisfy itself as to the existence of its
power to hear the case. In short, no presumptive truthfulness attaches to
plaintiff’s allegations, and the existence of disputed material facts will not
preclude the trial court from evaluating for itself the merits of jurisdictional
claims. Moreover, the plaintiff will have the burden of proof that jurisdiction
does in fact exist.
Id. (quoting Mortensen v. First Fed. Sav. & Loan Ass’n, 549 F.2d 884, 891 (3d Cir. 1977)).
GRC asserts that its mootness argument is factual attack on jurisdiction. (Def. Mem. at 5).
Under Fed. R. Civ. P. 12(c), “[a]fter the pleadings are closed — but early enough not to
delay trial — a party may move for judgment on the pleadings.” Fed. R. Civ. P. 12(c). The
standard of review for a motion for judgment on the pleadings is identical to that of the motion to
dismiss under Rule 12(b)(6). Turbe v. Gov’t of the Virgin Islands, 938 F.2d 427, 428 (3d Cir.
1991) (citations omitted); Katzenmoyer v. City of Reading, 158 F. Supp. 2d 491, 496 (E.D. Pa.
2001). The only notable difference between these two standards is that the court, on a motion for
judgment on the pleadings, reviews not only the complaint but also the answer and any written
instruments and exhibits attached to the pleadings. 2 Moore’s Fed. Practice Civil § 12.38 (3d ed.
2012); Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir.
1993) (stating that in deciding a motion for judgment on the pleadings on the basis of failure to
state a claim, the Court should consider the allegations in the complaint, exhibits attached to the
complaint, matters of public record, and “undisputedly authentic” documents the defendant has
attached to the motion when the plaintiff’s claims are based on the documents); Zucker v.
Quasha, 891 F. Supp. 1010, 1013 (D.N.J. 1995) (holding that courts may consider documents to
which plaintiff refers in the complaint); see also Goodwin v. Elkins & Co., 730 F.2d 99, 113 (3d
Cir. 1984) (Becker, J., concurring) (“A contrary holding would enable plaintiffs to survive a
12(b)(6) motion where the terms of the document on which the claim is based would render the
complaint insufficient as a matter of law, simply by refusing to attach the document to the
complaint.”).
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Services LLC (“InR”) to act as an ERISA investment manager for the Plan, to be responsible for
the investment and reinvestment of the Plan’s assets, and under which GRC delegated all of its
powers with regard to the investment of Plan assets (id., Ex. F); (3) a Plan Sponsor Agreement
under which GRC retained TD Bank to be custodian of the Plan’s assets (id., Ex. G); (4) a Trust
Agreement for the Plan under which Reliance Trust Company is appointed sole trustee of the
Plan (id., Ex. H); and (5) a corporate resolution dated September 27, 2012, executed by
Raymond, amending the Plan to provide that no trustee may be ‘“related or subordinate’ . . . [to]
any shareholder, partner, member, owner, director, trustee, board member, officer, and/or
individual involved in the management of [GRC].’” (Id., Ex. I.) Defendants argue that the
removal of Raymond and Guzek as Trustee and Administrator respectively of the Plan, and the
appointment of Reliance Trust Company as trustee of the Plan, render Jeffrey’s claims for
equitable relief seeking their removal and the appointment of an independent trustee moot. 3
A court has no subject matter jurisdiction over a claim that has become moot. See Weiss
v. Regal Collections, 385 F.3d 337, 340 (3d Cir. 2004) (“When the issues presented in a case are
no longer ‘live’ or the parties lack a legally cognizable interest in the outcome, the case becomes
moot and the court no longer has subject matter jurisdiction.” (citation omitted)). The “mootness
doctrine is centrally concerned with the court’s ability to grant effective relief.” Cty. of Morris
v. Nationalist Movement, 273 F.3d 527, 533 (3d Cir. 2001).

Stated differently, “[i]f

developments occur during the course of adjudication that eliminate a plaintiff’s personal stake
3

We note that the GRC corporate resolution does not state that Guzek has been removed
as Administrator of the Plan. However, because (1) InR has been appointed the Plan’s fiduciary
and investment advisor, (2) the documents appointing Reliance as the new Plan trustee specify
that only Jeffrey M. Hugo of InR has “the authority to instruct or direct the Trustee/Custodian . .
. on matters of the plan including, but not limited to distributions, investments, legal and tax
matters,” (see GRC’s Statement of Undisputed Facts, Ex. H) and (3) Jeffrey makes no contention
that Guzek remains a Plan fiduciary, we accept as uncontested Defendants’ assertion that Guzek
is no longer a Plan fiduciary.
12

in the outcome of a suit or prevent a court from being able to grant the requested relief, the case
must be dismissed as moot.” Id. (citation omitted). In broad terms, a defendant’s action that
“accords all the relief demanded by the plaintiff” moots the claim. See 13B Charles Alan Wright
et al., Federal Practice and Procedure § 3533.2 (4th ed. 2011). This is because “[s]o long as
nothing further would be ordered by the court, there is no point in proceeding to decide the
merits.” Id.
In his response, Jeffrey makes no specific argument challenging Defendants’ legal
contention that the claims for relief seeking the removal of Raymond and Guzek as Plan Trustee
and Administrator respectively and the appointment of an independent trustee have been
rendered moot by Raymond’s resignation and the appointment of an independent trustee,
financial advisor and custodian. Neither does he contest the documents that establish the factual
basis for GRC’s argument. Accordingly, we find that the replacement of Raymond and Guzek as
Plan Trustee and Administrator, and the appointments of InR, TD Bank, and Reliance Trust
Company, accords Jeffrey the relief he demanded and renders those claims for relief moot. We
therefore dismiss as moot Paragraph 8 of the SAC’s Prayer for Relief to the extent that it seeks as
equitable relief for the claims presented “(a) to have Raymond Perelman and Jason Guzek
removed as trustee and administrator of the Pension Plan” and “(c) to have an independent
trustee appointed for the Pension Plan.”
B.

Indemnity Clauses

GRC also seeks to dismiss as moot Jeffrey’s claim for declaratory relief to void Plan
language purporting to indemnify trustees from liability for any breach of any obligation or duty
owed under ERISA. GRC asserts that, as amended effective January 1, 2012, “no such language
exists in the Plan.” (GRC Mem. at 7.) Raymond and Guzek seek to dismiss the same claim for

13

failure to state a claim upon which declaratory relief may be granted. They assert that the Plan’s
indemnification clause does not violate ERISA because the terms of the Plan provide that GRC,
and not the Plan itself, is responsible for indemnifying the trustee for any liability from his own
conduct. 4
ERISA provides that “an agreement or instrument which purports to relieve a fiduciary
from responsibility or liability for any responsibility, obligation, or duty under this part shall be
void against public policy.” ERISA § 410(a), 29 U.S.C. § 1110(a). However, Congress also

4

We note that these arguments are contradictory. While Raymond and Guzek assert that
there are legally permitted indemnification provisions, GRC asserts that there is no such
provision at all. GRC has not appended to its Motion any excerpt from the Plan documenting its
contention, while Jeffrey and Raymond and Guzek have each appended identical excerpts
documenting their contentions. As permitted by Rule 12(c), we find from the appended
documents that the Plan contains the following indemnity language, as amended effective
January 26, 2012:
The Employer shall indemnify and hold harmless the members of the Board
of Directors and the Committee to whom any fiduciary responsibility with
respect to the Plan is allocated or delegated, from and against all liabilities,
costs and expenses incurred by such persons as a result of any act, or
omission to act, in connection with the performance of their duties,
responsibilities and obligations under the Plan and under ERISA, other than
such liabilities, costs and expenses as may result from the bad faith or
criminal acts of such person.
(Mem. in Support of Mot. for Judgment on the Pleading of Defendant Raymond G. Perelman and
Jason Guzek, Ex. A; Pl. Mem. in Opposition, Ex. B.) The Trust Agreement in effect during the
time period in which the Revlon transaction occurred contains its own indemnification clause:
In addition to any other limitation on liability set forth in the Agreement, the
Trustee shall not be liable for any losses which may be incurred with respect
to the Trust, except to the extent that such losses shall have been caused by
its negligence, bad faith or willful misconduct, and the Trustee shall be fully
protected for action taken or not taken pursuant to the provisions of this
Agreement.
(Mem. in Support of Mot. for Judgment on the Pleading of Defendant Raymond G. Perelman and
Jason Guzek, Ex. B; Pl. Mem. in Opposition, Ex. C.)
14

provided that nothing in that provision shall preclude “a plan from purchasing insurance for its
fiduciaries or for itself to cover liability or losses occurring by reason of the act or omission of a
fiduciary, if such insurance permits recourse by the insurer against the fiduciary in the case of a
breach of a fiduciary obligation by such fiduciary.” 29 U.S.C. § 1110(b)(1).

Similarly, an

ERISA employer may purchase insurance “to cover potential liability of one or more persons
who serve in a fiduciary capacity with regard to an employee benefit plan.” 29 U.S.C. §
1110(b)(3). The United States Depart of Labor has interpreted these sections:
to permit indemnification agreements which do not relieve a fiduciary of
responsibility or liability under part 4 of title I. Indemnification provisions
which leave the fiduciary fully responsible and liable, but merely permit
another party to satisfy any liability incurred by the fiduciary in the same
manner as insurance purchased under section 410(b)(3), are therefore not
void under section 410(a).
29 C.F.R. § 2509.75-4. “Indemnification of a plan fiduciary by (a) an employer, any of whose
employees are covered by the plan” is an example of a permitted indemnification provision. Id.
(emphasis added).

A prohibited indemnification provision would be an “arrangement for

indemnification of a fiduciary of an employee benefit plan by the plan. Such an arrangement
would have the same result as an exculpatory clause, in that it would, in effect, relieve the
fiduciary of responsibility and liability to the plan by abrogating the plan’s right to recovery from
the fiduciary for breaches of fiduciary obligations.” Id. (emphasis added).
We find that the Plan’s indemnification clause falls within the safe harbor provided by 29
C.F.R. § 2509.75-4. Because it permits the Trustee to seek indemnification only from the
employer and does not permit indemnification by the Plan, it leaves the fiduciary fully
responsible and liable, while permitting GRC to satisfy any liability incurred by a fiduciary in the
same manner as insurance. (See Mem. in Support of Mot. for Judgment on the Pleading of
Defendant Raymond G. Perelman and Jason Guzek, Ex. A; Pl. Mem. in Opposition, Ex. B.)
15

Jeffrey makes no argument that the Plan language violates ERISA § 410 or the implementing
regulations. Accordingly, we conclude that Jeffrey’s claim for a declaration that the Plan’s
indemnification clause is void fails to state a claim upon which relief may be granted. We
therefore dismiss Paragraph 9 of the SAC’s Prayer for Relief to the extent that it seeks as
equitable relief for the claims presented that “those provisions of the Pension Plan [ ] which
purport to relieve and/or to indemnify the Trustee from responsibility or liability for any
obligation or duty owed under ERISA to be declared null and void as against public policy and
violative of ERISA.”
However, we cannot reach a similar conclusion with regard to the Trust Agreement’s
indemnification clause. While Raymond and Guzek argue that the Trust Agreement, like the
Plan, indemnifies the trustee only with GRC’s assets and not Plan assets, no such limitation is
contained in the Trust Agreement. (See Mem. in Support of Mot. for Judgment on the Pleading
of Defendant Raymond G. Perelman and Jason Guzek, Ex. B; Pl. Mem. in Opposition, Ex. C.)
While the Plan specifies that the trustee may be indemnified only by the employer, the Trust
Agreement is silent as to whether Plan assets may be used to indemnify a trustee. Accordingly,
we conclude that the SAC has stated a claim upon which declaratory relief may be granted that
this provision of the Trust Agreement is void as against public policy, and we deny the Motion to
Dismiss to this extent.
C.

Permanent Disbarment of Raymond and Guzek as ERISA Trustees

Raymond and Guzek next argue that Jeffrey’s claim seeking injunctive relief barring
them from serving in the future as ERISA trustees must be dismissed on prudential standing
grounds. The judicially created doctrine serves in part to “‘limit access to the federal courts to
those best suited to assert a particular claim.’” Freeman v. Corzine, 629 F.3d 146, 154 (3d Cir.

16

2010) (quoting Joint Stock Soc’y v. UDV N. Am., Inc., 266 F.3d 164, 179 (3d Cir. 2001)).
Prudential standing,
“require[s] that (1) a litigant assert his [or her] own legal interests rather than
those of third parties, (2) courts refrain from adjudicating abstract questions
of wide public significance which amount to generalized grievances, and (3)
a litigant demonstrate that her interests are arguably within the zone of
interests intended to be protected by the statute, rule, or constitutional
provision on which the claim is based.”
Freeman, 629 F.3d at 154 (quoting Oxford Assocs. v. Waste Sys. Auth. of E. Montgomery Cty.,
271 F.3d 140, 146 (3d Cir. 2001) (quoting Davis v. Phila. Hous. Auth., 121 F.3d 92, 96 (3d Cir.
1997)) (emphasis omitted). In the ERISA context, United States Court of Appeals for the Third
Circuit has stated that the prudential standing analysis is “inextricably tied” to the statutory
standing question, which generally asks whether a party qualifies as a “participant” or
“beneficiary” under the provisions of ERISA. Miller v. Rite Aid Corp., 334 F.3d 335, 340–41
(3d Cir. 2003); see Baldwin v. Univ. of Pittsburgh Med. Ctr., 636 F.3d 69, 74–75 (3d Cir. 2011).
The SAC contains no allegation that Jeffrey is a participant or beneficiary in any other
ERISA plan, or that Raymond and Guzek are fiduciaries of any other ERISA plan. Cases in
which an individual has been permanently enjoined from service as an ERISA fiduciary are
ordinarily brought by the Secretary of Labor under the authority provided by ERISA § 502(a)(3)
or § 502(a)(5), 29 U.S.C. § 1132(a)(5). 5 See, e.g., Solis v. Sonora Envtl., L.L.C., No. 10-675,

5

The section provides:
(a) Persons empowered to bring a civil action. A civil action may be brought
. . . (5) . . . by the Secretary (A) to enjoin any act or practice which violates
any provision of this subchapter, or (B) to obtain other appropriate equitable
relief (i) to redress such violation or (ii) to enforce any provision of this
subchapter;

29 U.S.C. § 1132(a)(5).
17

2012 WL 5269211, at *6 (D. Ariz. Oct. 24, 2012) (permanently enjoining a trustee in a suit
brought by the Secretary from providing any services — whether as a fiduciary or otherwise —
directly or indirectly to any ERISA-covered plan); Solis v. Couturier, No. 08-2732, 2009 WL
1748724, *6-7 and n.36 (E.D. Cal. June 19, 2009) (holding that ERISA permits the Secretary to
obtain a permanent injunction to prevent a fiduciary from managing an ERISA plan in the future
and collecting cases); Reich v. Lancaster, 55 F.3d 1034, 1042, 1054 (5th Cir. 1995) (affirming
the district court’s permanent injunction in a suit brought by the Secretary enjoining ERISA plan
fiduciaries from administering ERISA plans in the future because they received unreasonable
compensation without disclosing their charged premiums to beneficiaries); Whitfield v.
Tomasso, 682 F. Supp. 1287, 1306–07 (E.D.N.Y. 1988) (granting the Secretary an injunction
preventing defendants from serving as fiduciaries or service providers to any ERISA plan, either
permanently or for a ten-year period). In only one case brought by a participant or beneficiary of
a defrauded plan has a court imposed a permanent injunction on future service as an ERISA
trustee. See Beck v. Levering, 947 F.2d 639, 641 (2d Cir. 1991) (rejecting “the argument that
ERISA fiduciaries and their associates must be allowed to loot a second pension plan before an
injunction may be issued.

ERISA imposes a high standard on fiduciaries, and serious

misconduct that violates statutory obligations is sufficient grounds for a permanent injunction.”);
cf. Liss v. Smith, 991 F. Supp. 278, 312-14 (S.D.N.Y. 1998) (stating that, in a suit brought by a
private party, “appropriate relief” may include permanent injunctive relief prohibiting defendants
from serving as fiduciaries or service providers to any ERISA plan, but not actually awarding
such relief). In Beck, there is no indication that the issue of prudential standing of the private
party to seek to enjoin the fiduciary from serving other plans was ever raised.

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Jeffrey does not directly address Defendants’ prudential standing argument. He does not
discuss how, in seeking to bar Defendants from serving as fiduciaries for other plans, he is
asserting his own legal interests, rather than those of a hypothetical beneficiary of some other
ERISA plan. Given that the overwhelming majority of cases in which this type of injunctive
relief was awarded were brought by the Secretary, we find that Jeffrey is not “the litigant best
suited” to assert the claim that Raymond and Guzek should never again serve as an ERISA
fiduciary. Freeman, 629 F.3d at 154. We therefore dismiss Paragraph 8 of the SAC’s Prayer for
Relief to the extent that it seeks as equitable relief for the claims presented “(b) to have Raymond
Perelman and Jason Guzek permanently enjoined from ever serving as a fiduciary with regard to
any employee benefit plan subject to ERISA.” 6
D.

Audit of the Plan

GRC argues that Jeffrey’s claim seeking an audit of the Plan should be dismissed because
an independent trustee has now been appointed. 7 It contends that the Plan is audited every year
by its own accounting firm and that “Plaintiff, as well as Defendants, should step back and allow
this independent Trustee to fulfill its obligations without outside interference.” (GRC Mem. at
7.) It also suggests that, since Jeffrey has received the “main equitable relief requested,” i.e.,
Raymond’s resignation, that GRC is entitled to dismissal of all claims against it. (Id.)

6

GRC also seeks dismissal of this provision of the SAC’s Prayer for Relief, arguing that it
does not implicate GRC. Jeffrey makes no argument that the allegations of the SAC state a
claim for this form of relief against GRC. Accordingly, we also grant GRC’s Motion to Dismiss
this provision.
7
Raymond and Guzek do not make a specific argument in their Motion attacking the audit
claim. They do, however, ask that all of Jeffrey’s remaining claims be dismissed “[f]or the
reasons set forth in the Motion for Judgment on the Pleadings of General Refractories Company.
. . .” (Def. Mem. at 1.) Accordingly, we consider the validity of the audit claim for all
Defendants.
19

GRC cites no authority to support its contention that Jeffrey’s entitlement to the equitable
relief of an audit has been mooted or otherwise fails to state a claim upon which relief may be
granted because another form of injunctive relief he seeks, Raymond’s resignation, has been
satisfied. While we find that Jeffrey’s request for the equitable remedy of an audit of the Plan
must go forward, we also find that the scope of the relief requested is overbroad. Jeffrey seeks
an “audit of the Pension Plan for Plan Years 2002 through 2010 to ascertain the veracity of
information contained in Forms 5500 for Plan Years 2002-2010.” (SAC Prayer for Relief Clause
¶ 8.) Because Forms 5500 provide yearly financial information about an ERISA plan to the
Department of Labor, an audit to test the veracity of the information supplied ostensibly seeks to
determine the amount for which Raymond, Ronald or Guzek might be liable for restitution or
disgorgement traceable to the prohibited party-in-interest transactions. Thus, an audit of this
scope relates only to the monetary forms of injunctive relief we dismissed from the SAC in our
August Opinion, as well as the futile legal claims for money damages we find cannot be
permitted to go forward in the TAC. For the same reason that a defined benefit plan participant
lacks standing to assert claims for money damages due to the misconduct of plan administrators
where the misconduct will not affect his entitlement to benefits, we must also conclude that such
a participant has no standing to seek such an extensive audit of the plan’s past financial
condition. Absent plausible allegations of a risk of complete default, a participant’s legal interest
is limited to ascertaining that the Plan is currently funded to adequately meet is financial
obligations. Accordingly, we find that the scope of Jeffrey’s equitable right to an audit must be
limited to a determination of whether the Plan is currently underfunded and we grant GRC’s
Motion to the extent that it seeks to limit the audit claim to a determination of the Plan’s current
ability to meet is financial obligations.

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V.

CONCLUSION
We deny Jeffrey’s Motion for Leave to File a Third Amended Complaint. Jeffrey’s

“information and belief” allegations that the diminution in the value of the Plan assets
jeopardizes its ability to provide continued pension benefits to its participants and beneficiaries
are too speculative to provide him standing to pursue § 502(a)(2) claims. Jeffrey makes no
plausible allegation that the scope of the losses that the Plan suffered places it at risk of complete
default, and he makes no plausible allegation that GRC, the Plan sponsor, is financially unable to
adequately fund the Plan so that it will be unable to meet its future obligations to pay all vested
benefits to all vested beneficiaries. Accordingly, we conclude that the proposed amendment to
add legal claims for money damages under § 502(a)(2) is futile.
On the remaining claims of the SAC, we dismiss Jeffrey’s claims for equitable relief
seeking the removal of Raymond and Guzek as Plan Trustee and Administrator respectively and
the appointment of an independent trustee on grounds that they are moot. We dismiss for failure
to state a claim upon which relief may be granted Jeffrey’s claim seeking a declaration that the
Plan’s indemnification clause is void, since that clause falls within the safe harbor provided by
29 C.F.R. § 2509.75-4. However, we decline to reach a similar conclusion with regard to the
Trust Agreement’s indemnification clause. We also dismiss on prudential standing grounds
Jeffrey’s claim for injunctive relief seeking to bar Raymond and Guzek from serving in the
future as ERISA fiduciaries because Jeffrey has not shown that he is asserting his own legal
interests. Finally, we dismiss Jeffrey’s audit claim in part to the extent that it seeks any audit

21

beyond a determination of the Plan’s current ability to meet is financial obligations.
An appropriate order follows.
BY THE COURT:
/s/ John R. Padova

JOHN R. PADOVA, J.

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