ELBECO INCORPORATED v. NATIONAL RETIREMENT FUND
Filing
33
MEMORANDUM/OPINION THAT DEFENDANT'S MOTION TO DISMISS PLAINTIFF'S FIRST AMENDED COMPLAINT, ECF NO. 26, IS GRANTED.SIGNED BY HONORABLE JOSEPH F. LEESON, JR ON 7/19/16. 7/19/16 ENTERED AND COPIES E-MAILED. (ky, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF PENNSYLVANIA
__________________________________________
ELBECO INCORPORATED,
Plaintiff,
v.
NATIONAL RETIREMENT FUND,
Defendant.
__________________________________________
:
:
:
:
:
:
:
:
No. 5:15-cv-00318
MEMORANDUM OPINION
Defendant’s Motion to Dismiss, ECF No. 26 – Granted
Joseph F. Leeson, Jr.
United States District Judge
I.
July 19, 2016
Introduction
Defendant National Retirement Fund has filed a Motion to Dismiss Plaintiff Elbeco
Incorporated’s First Amended Complaint. For the reasons that follow, the Court grants the
Motion and dismisses the Amended Complaint with prejudice.
II.
Background
A.
Statutory Background
Under the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by
the Multiemployer Pension Plan Amendments Act of 1980 (“MPPAA” or “the Act”), 29 U.S.C.
§§ 1381-1461, employers may make contributions to one or more pension plans on behalf of
their employees who belong to a participating union. Flying Tiger Line v. Teamsters Pension
Trust Fund of Phila., 830 F.2d 1241, 1243 (3d Cir. 1987). “Congress enacted [the] MPPAA in
particular because it found that existing legislation ‘did not adequately protect plans from the
1
adverse consequences that resulted when individual employers terminate[d] their participation in,
or withdr[e]w from, multiemployer plans.’” Id. (quoting Pension Benefit Guar. Corp. v. R.A.
Gray & Co., 467 U.S. 717, 722 (1984)). The MPPAA “addressed this problem by assessing such
employers with withdrawal liability, defined in the statute as the employer’s adjusted ‘allocable
amount of unfunded vested benefits.’” Id. (quoting 29 U.S.C. § 1381(b)(1)). The MPPAA also
includes provisions for the assessment and calculation of withdrawal liability and for the “quick
and informal resolution of withdrawal liability disputes”:
The Act requires a plan’s trustees to determine initially whether a withdrawal has
occurred. 29 U.S.C. §§ 1382(1), 1399(b)(1)(A)(i) (1982). When the trustees
conclude that a withdrawal has taken place, they must then notify the employer of
the amount of liability and demand payment in accordance with an amortization
schedule. 29 U.S.C. §§ 1382(2), 1382(3), 1399(b)(1)(B) (1982). Thereafter, the
employer may within 90 days ask the trustees to conduct a reasonable “review” of
the computed liability. 29 U.S.C. § 1399(b)(2)(A)(i) (1982). If a dispute remains,
either party may initiate arbitration proceedings. . . . Finally, “[u]pon completion
of the arbitration proceedings in favor of one of the parties,” MPPAA permits
“any party thereto” to bring an action “to enforce, vacate or modify the
arbitrator’s award” in the appropriate federal district court. 29 U.S.C. §
1401(b)(2) (1982).
Id. at 1244.
ERISA also includes provisions for employers to receive notices of their potential
withdrawal liability, prior to withdrawing from a fund. Section 101 of ERISA, 29 U.S.C. § 1021,
sets forth a pension plan’s “duty of disclosure and reporting” with respect to plan participants,
beneficiaries, the Secretary of Labor, employers, and other entities. With respect to employers in
particular, § 1021(l) provides that “[t]he plan sponsor or administrator of a multiemployer plan
shall, upon written request, furnish to any employer who has an obligation to contribute to the
plan” a “notice of potential withdrawal liability.” Specifically, the plan administrator is required
to provide the following information:
2
(A) the estimated amount which would be the amount of such employer’s
withdrawal liability under part 1 of subtitle E of subchapter III of this chapter if
such employer withdrew on the last day of the plan year preceding the date of the
request, and
(B) an explanation of how such estimated liability amount was determined,
including the actuarial assumptions and methods used to determine the value of
the plan liabilities and assets, the data regarding employer contributions, unfunded
vested benefits, annual changes in the plan’s unfunded vested benefits, and the
application of any relevant limitations on the estimated withdrawal liability.
29 U.S.C. § 1021(l). Any required notice of potential withdrawal liability must be provided to
the requesting employer within 180 days after the request is made. Id.1
B.
Factual Background and Procedural History
Plaintiff Elbeco Incorporated (“Elbeco”), a Pennsylvania corporation engaged in the
uniform manufacturing business, filed its initial Complaint in this matter in January 2015,
alleging claims of federal common law fraud, federal common law negligent misrepresentation,
and federal common law equitable estoppel against Defendant National Retirement Fund (“the
Fund”), a multiemployer pension fund that manages and administers a plan offering pension
benefits to union members employed by Elbeco and other employers. ECF No. 1. Elbeco’s
1
Section 1021(l) was enacted as part of the Pension Protection Act of 2006. 109 P.L. 280,
120 Stat. 780. Employers were formerly entitled to information concerning their potential
withdrawal liability under 29 U.S.C. § 1401(e), which read as follows:
If any employer requests in writing that the plan sponsor make available to the
employer general information necessary for the employer to compute its
withdrawal liability with respect to the plan (other than information which is
unique to that employer), the plan sponsor shall furnish the information to the
employer without charge. If any employer requests in writing that the plan
sponsor make an estimate of such employer’s potential withdrawal liability with
respect to the plan or to provide information unique to that employer, the plan
sponsor may require the employer to pay the reasonable cost of making such
estimate or providing such information.
This subsection was repealed in 2008. See Worker, Retiree, and Employer Recovery Act of
2008, 110 P.L. 458, 122 Stat. 5092, 5093.
3
Complaint alleged that the Fund violated its disclosure duties under federal common law when it
failed to advise Elbeco of actuarial changes that greatly affected the amount of withdrawal
liability imposed on Elbeco when it withdrew from the Fund in June 2014.2
In response to Elbeco’s Complaint, the Fund filed a Motion to Dismiss pursuant to
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6), contending that the Court lacked subject
matter jurisdiction over the case and that the Complaint failed to state a claim. See ECF No. 13.
In a Memorandum and Order filed in September 2015, the Court determined that it had
jurisdiction over this matter but granted the Fund’s Motion to Dismiss under Rule 12(b)(6),
finding that the Complaint failed to state a claim. ECF Nos. 21-22. Specifically, the Court
determined that although Elbeco had contended that it was involved in a “relation of trust and
confidence” with the Fund, giving rise to a duty of disclosure on the part of the Fund under
federal common law, Elbeco had failed to allege any facts in support of this allegation, nor had
Elbeco alleged facts sufficient to plausibly allege that a duty of disclosure existed under any
other theory found in the common law. The Court therefore dismissed Elbeco’s federal common
law fraud and negligent representation claims, but granted Elbeco leave to amend its Complaint
with respect to these claims.3 Elbeco subsequently filed its Amended Complaint, ECF No. 23,
again alleging claims of federal common law fraud and negligent misrepresentation. The
Amended Complaint alleges the following facts.4
2
Pursuant to the MPPAA, Elbeco has also initiated arbitration proceedings with the
American Arbitration Association (“AAA”) regarding the withdrawal liability assessment. See
Am. Compl. ¶ 44. After the present action was filed, the parties entered into a Stipulation for a
stay of the AAA arbitration, subject to certain conditions. See Am. Compl. ¶ 45.
3
The Court dismissed with prejudice Elbeco’s equitable estoppel claim, finding that no
such cause of action existed in this context.
4
The Amended Complaint includes many of the same factual allegations as those included
in the initial Complaint, which were summarized in the Court’s previous Memorandum, see ECF
No. 21. Nevertheless, in the interest of clarity and comprehensiveness, the Court will provide a
4
Elbeco began contributing to the Fund in 1972, pursuant to its collective bargaining
agreement (“CBA”) with two Joint Boards of the Workers United union (“the Union”), of which
Elbeco’s employees are members. Am. Compl. ¶¶ 5-8. David Lurio, Elbeco’s president,
“anticipated Elbeco’s withdrawal from the Fund during the 2013 calendar year” in connection
with negotiation of a new CBA with the Union. Am. Compl. ¶ 48. Accordingly, in November
2012, pursuant to Section 1021(l) of ERISA, Elbeco requested from the Fund an estimate of its
withdrawal liability. Am. Compl. ¶ 54. The Fund responded in January 2013 with an estimate of
$1,024,718. Am. Compl. ¶ 56. In May 2013, Elbeco requested an updated estimate of its
withdrawal liability, to which the Fund responded in July 2013 with an estimate of $1,003,203.
Am. Compl. ¶ 57.
Meanwhile, as part of Elbeco’s negotiation of the new CBA, Elbeco advised union
representatives Noel Beasley and Harold Bock, both of whom also served as trustees of the
Fund, of its intentions to withdraw from the Fund. Am. Compl. ¶¶ 51-53, 58-59. The Amended
Complaint alleges “[u]pon information and belief” that “the Fund, and specifically Beasley and
Bock, knew at least by October 2013 that the withdrawal liability assessments against Elbeco
would increase greatly for a withdrawal after 2013,” due to a pending change in the interest rate
assumption used to determine the value of the Fund. See Am. Compl. ¶¶ 67-68. However, “the
Fund did not disclose this material information, which was a fact basic to the transaction, to
Elbeco in 2013, or in fact, any time before Elbeco’s agreement to withdraw from the Fund in
mid-2014.” Am. Compl. ¶ 69. Rather, Bock and Beasley engaged in “intentional delaying
actions” that prevented Elbeco from withdrawing from the Fund before the end of 2013. Am.
Compl. ¶ 60.
summary of the Amended Complaint’s allegations, which will overlap somewhat with the
summary included in the previous Memorandum.
5
In January 2014, Elbeco requested an updated withdrawal liability estimate from the
Fund. Am. Compl. ¶ 72. In March 2014, while awaiting the estimate results, Elbeco forwarded to
Bock and Beasley a proposed Memorandum of Understanding (“MOU”) as part of the ongoing
negotiations for a new CBA. Am. Compl. ¶ 74. The MOU provided that Elbeco “will no longer
make contributions to the present National Retirement Pension Fund. The foregoing shall be
subject to Elbeco’s receipt and approval of the amount of withdrawal liability proposed to be
assessed by the Fund.” Am. Compl. ¶ 74. After receiving the proposed MOU, Beasley told Lurio
that the Union could not sign the MOU with the protective language in it and that Lurio should
take out the language. Am. Compl. ¶ 75. Beasley also told Lurio that Elbeco “should wait to
receive the updated estimate of withdrawal liability prior to entering into the MOU” and that “if
Elbeco was satisfied with the updated estimate, then the parties could enter into the MOU.” Am.
Compl. ¶¶ 76-77. Elbeco agreed to Beasley’s suggestion to remove the language which protected
Elbeco, and it advised the Fund’s representative, David C. Sapp, “that per Beasley’s suggested
approach to resolving the withdrawal liability issue, as a condition to settling the negotiations for
a new CBA, Elbeco was now waiting to receive the updated estimate from the Fund prior to
entering into the MOU and withdrawing from the Fund.” Am. Compl. ¶¶ 81-82.
On April 8, 2014, the Fund provided Elbeco with an updated estimate of $913,970. Am.
Compl. ¶ 88. The following day, “[o]n the basis of the April 8, 2014 $913,970 estimate, as well
as prior estimates provided by the Fund,” Elbeco signed a revised MOU providing that Elbeco
would withdraw from the Fund following ratification of the MOU by the Union. Am. Compl. ¶¶
95-96. By early May 2014, the final MOU was ratified by the Union and signed by Beasley and
Bock. Am. Compl. ¶ 99. On May 20, 2014, Sapp called Lurio and advised him that the Fund had
changed its interest rate assumption from 7.5% to 3%, which would increase the withdrawal
6
liability substantially. Am. Compl. ¶ 102. “Despite the Fund’s knowledge . . . that Elbeco was
relying on the amount of the withdrawal liability estimate when Elbeco agreed to withdraw from
the Fund,” this was “the first time that Elbeco was given notice of the Fund’s decision to change
the interest rate assumption, change in actuary, or even that such a change was being considered
by the Fund.” Am. Compl. ¶ 103. On June 9, 2014, Sapp wrote to Elbeco, stating that the Fund
had determined that Elbeco incurred a complete withdrawal from the Fund effective June 1,
2014, and that the estimated withdrawal liability assessment was $3,027,697.5 Am. Compl. ¶
105. At that point, Elbeco “was not able to change concessions it had made to the Union in
connection with the Final MOU that was ratified by the Union.” Am. Compl. ¶ 107.
The Amended Complaint also includes a number of additional allegations concerning the
nature of the relationship between Elbeco and the Fund, including the following:
25. Under the circumstances, including the relationship between Elbeco and the
Fund, Elbeco would reasonably expect a disclosure by the Fund to Elbeco that the
Fund was contemplating a dramatic change or had dramatically changed its
interest rate assumption which would significantly increase Elbeco’s withdrawal
liability.
26. The interest rate assumption is a fact basic to the withdrawal liability
transaction and the interest rate assumption goes to the basis or essence of the
withdrawal liability calculation.
....
31. Because Elbeco had no ability to determine its withdrawal liability other than
the calculation provided by the Fund to Elbeco, Elbeco surrendered substantial
control of its affairs to the Fund.
32. Elbeco and the Fund did not deal on equal terms since Elbeco had no control
over: monies it contributed to the Fund; decisions regarding the Fund’s
investments; determination of interest rate assumption for the Fund; and
calculations of Elbeco’s withdrawal liability from the Fund.
5
This figure was later adjusted to $3,154,286. Am. Compl. ¶ 112.
7
33. Because the Fund is the only source for the withdrawal liability estimate, the
Fund is in a relationship of trust and confidence with Elbeco.
34. Because Elbeco had contributed to the Fund for approximately forty-two
years, and the Fund maintained control over Elbeco’s contributions to the Fund,
Elbeco developed a relation of trust and confidence with the Fund.
....
113. Because of the relation of trust and confidence between the Fund and Elbeco,
the Fund had a duty to disclose to Elbeco in 2013 that the Fund was changing
actuary firms and that the interest rate assumption would dramatically change for
2014, and the Fund had a duty to advise Elbeco that its withdrawal liability would
increase greatly for withdrawals after 2013.
114. Because of the relation of trust and confidence between the Fund and Elbeco,
the Fund had a duty to disclose to Elbeco prior to Elbeco’s entering into the Final
MOU and withdrawing from the Fund, that the Fund had changed actuary firms
and that the interest rate assumption had dramatically changed for 2014, and the
Fund had a duty to advise Elbeco that its withdrawal liability would increase
greatly as compared with the estimates which were based on the 2013 interest rate
assumption.
115. Because of the relationship between Elbeco and the Fund, including the fact
that Elbeco had no means to determine its estimated or actual withdrawal liability
except from the Fund, Elbeco reasonably expected the Fund to disclose to Elbeco
the fact that the Fund had changed actuary firms and its interest rate assumption,
and the Fund had a duty to communicate this information to Elbeco prior to when
the Final MOU was ratified in early May 2014 pursuant to which Elbeco agreed
to withdraw from the Fund.
116. Because the Fund knew that the Fund had changed actuary firms and its
interest rate assumption, the Fund’s communications to Elbeco as to Elbeco’s
estimated withdrawal liability (which were based on the old interest rate
assumption) were misleading, and the Fund had a duty to provide full information
to Elbeco prior to when the Final MOU was ratified in early May 2014 pursuant
to which Elbeco withdrew from the Fund.
117. Once the Fund knew that it was going to change actuary firms, and/or change
the interest rate assumption, the Fund knew that this information made untrue or
misleading the Fund’s prior communications to Elbeco which were based on the
7.25% assumed interest rate that had been used for more than twenty years, and
the Fund had a duty to provide full information to Elbeco prior to when the Final
MOU was ratified in early May 2014 pursuant to which Elbeco withdrew from
the Fund.
8
118. Since the Fund knew that Elbeco was withdrawing from the Fund and
entering into the Final MOU based on Elbeco’s mistaken understanding that the
Fund was continuing to use the same or similar interest rate assumptions
previously used, and due to the relationship between the Fund and Elbeco,
including Elbeco’s inability to obtain information about withdrawal liability from
any source other than the Fund, Elbeco reasonably expected the Fund to disclose
to Elbeco full information including the dramatic change in interest rate
assumption.
Am. Compl. ¶¶ 25-26, 31-34, 113-118.
In response to the Amended Complaint, the Fund filed the present Motion to Dismiss,
ECF No. 26, contending that despite the additional allegations included in the Amended
Complaint, Elbeco has nevertheless again failed to state a claim for fraud or negligent
misrepresentation.
III.
Legal Standard - Motion to Dismiss under Rule 12(b)(6)
The defendant bears the burden of demonstrating that a plaintiff has failed to state a claim
upon which relief can be granted. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005)
(citing Kehr Packages, Inc. v. Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991)). This Court
must “accept all factual allegations as true, construe the complaint in the light most favorable to
the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff
may be entitled to relief.” See Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)
(quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 374 n.7 (3d Cir. 2002)) (internal quotation
marks omitted).
Except as provided in Federal Rule of Civil Procedure 9, a complaint is sufficient if it
complies with Rule 8(a)(2), which requires “a short and plain statement of the claim showing
that the pleader is entitled to relief.” In Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), the
Supreme Court recognized that “a plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’ requires more than labels and conclusions, and a formulaic recitation of
9
the elements of a cause of action will not do.” 550 U.S. at 555 (citing Papasan v. Allain, 478
U.S. 265, 286 (1986)). In Ashcroft v. Iqbal, 556 U.S. 662 (2009), the Court subsequently laid out
a two-part approach to reviewing a motion to dismiss under Rule 12(b)(6).
First, the Court observed, “the tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions.” Id. at 678. Thus, “[t]hreadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice” to survive the motion; “instead, ‘a complaint must allege facts suggestive of [the
proscribed] conduct.’” Id.; Phillips, 515 F.3d at 233 (quoting Twombly, 550 U.S. at 563 n.8).
While Rule 8, which requires only “a short and plain statement of the claim showing that the
pleader is entitled to relief,” was “a notable and generous departure from the hyper-technical,
code-pleading regime of a prior era, . . . it does not unlock the doors of discovery for a plaintiff
armed with nothing more than conclusions.” Iqbal, 556 U.S. at 678-79 (“Rule 8 . . . demands
more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” (citing Twombly,
550 U.S. at 555)); see Fed. R. Civ. P. 8(a)(2). For “without some factual allegation in the
complaint, a claimant cannot satisfy the requirement that he or she provide not only ‘fair notice’
but also the ‘grounds’ on which the claim rests.” Phillips, 515 F.3d 224, 232 (citing Twombly,
550 U.S. at 555 n.3).
Second, the Court emphasized, “only a complaint that states a plausible claim for relief
survives a motion to dismiss. Determining whether a complaint states a plausible claim for relief
. . . [is] a context-specific task that requires the reviewing court to draw on its judicial experience
and common sense.” Iqbal, 556 U.S. at 678. Only if “the ‘[f]actual allegations . . . raise a right to
relief above the speculative level’” has the plaintiff stated a plausible claim. Phillips, 515 F.3d at
234 (quoting Twombly, 550 U.S. at 555). This is because Rule 8(a)(2) “requires not merely a
10
short and plain statement, but instead mandates a statement ‘showing that the pleader is entitled
to relief.’” See id., 515 F.3d at 234 (quoting Fed. R. Civ. P. 8(a)(2)). If “the well-pleaded facts do
not permit the court to infer more than the mere possibility of misconduct, the complaint has
alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Iqbal, 556 U.S. at 679
(quoting Fed. R. Civ. P. 8(a)(2)). “Detailed factual allegations” are not required, id. at 678
(quoting Twombly, 550 U.S. at 555), but a claim must be “nudged . . . across the line from
conceivable to plausible,” id. at 680 (quoting Twombly, 550 U.S. at 570).
“The plausibility standard is not akin to a ‘probability requirement,’” but there must be
“more than a sheer possibility that a defendant has acted unlawfully.” Id. at 678 (quoting
Twombly, 550 U.S. at 556). “Where a complaint pleads facts that are ‘merely consistent with’ a
defendant’s liability, it ‘stops short of the line between possibility and plausibility of “entitlement
to relief.”’” Id. (quoting Twombly, 550 U.S. at 557)).
Independent of the standard governing motions to dismiss under Rule 12(b)(6), Rule 9(b)
imposes a heightened pleading standard with respect to a claim of fraud. The first sentence of the
Rule states that: “In alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Thus, “Rule 9(b) requires
plaintiffs to plead with particularity the ‘circumstances’ of the alleged fraud in order to place the
defendants on notice of the precise misconduct with which they are charged, and to safeguard
defendants against spurious charges of immoral and fraudulent behavior.” Seville Indus. Mach.
Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984). However, in applying the
first sentence of Rule 9(b), “courts must be sensitive to the fact that its application, prior to
discovery, may permit sophisticated defrauders to successfully conceal the details of their fraud.”
Christidis v. First Pa. Mortg. Trust, 717 F.2d 96, 99–100 (3d Cir. 1983).
11
IV.
Plaintiff has failed to state a claim upon which relief may be granted.
The Fund contends that the Court should dismiss Elbeco’s Amended Complaint for two
primary reasons. First, the Fund contends that the Amended Complaint is deficient under Federal
Rule of Civil Procedure 9(b) because Elbeco “fails to allege that the Fund even knew, in April
2014, that its interest rate assumptions would change.” Def.’s Mem. 1, ECF No. 26-1. Second,
“[e]ven assuming, arguendo, that [Elbeco] sufficiently alleged that the Fund knew of a change in
interest rate assumptions in April 2014, its claims still fail because it has not established that the
Fund had any duty to disclose that information.” Id. at 2. The Court considers each of these
contentions in turn.
A.
Elbeco’s allegations concerning the Fund’s “knowledge” are sufficiently
particular under Federal Rule of Civil Procedure 9(b).
The Fund contends, first, that Elbeco “fails to plead, with particularity,” its allegations
that the Fund knew, when it provided the April 2014 estimate to Elbeco, that the interest rate
applied to Elbeco’s actual and final withdrawal liability would change, resulting in a material
increase to Elbeco’s withdrawal liability. Def.’s Mem. 11. The Fund contends that Elbeco’s
Amended Complaint “makes no allegations regarding who at the Fund knew of the change in
interest rate assumptions, on what date they found out, how they found out, or even when the
interest rate assumptions changed.” Id. The Fund acknowledges that Elbeco alleges “[u]pon
information and belief” that the Fund knew in October 2013 “about the change in interest rate
assumption” and that “the Fund, and specifically Beasley and Bock, knew at least by October
2013 that the withdrawal liability assessments against Elbeco would increase greatly for a
withdrawal after 2013.” See id. at 12-13 (quoting Am. Compl. ¶¶ 67-68). Likewise, the Fund
acknowledges that Elbeco alleges that the Fund “already knew” in March 2014 that the Fund’s
April 2014 estimate “would be vastly different from Elbeco’s actual withdrawal liability.” Id. at
12
13 (quoting Am. Compl. ¶ 84). However, the Fund contends that these and other allegations in
the Amended Complaint concerning the Fund’s knowledge are “conclusory and theoretical,” and
are therefore insufficient to support a claim of fraud. Id. at 13.
Elbeco alleges claims of common law fraud by omission and common law negligent
misrepresentation by omission. In order to establish a common law fraud claim, a plaintiff must
allege with particularity that: (a) the defendant made a misrepresentation to the plaintiff; (b) the
misrepresentation made by defendant was fraudulent; (c) the misrepresentation was of a material
fact; (d) the defendant intended that the plaintiff rely on the defendant’s misrepresentation; (e)
the plaintiff relied on the misrepresentation; and (f) the plaintiff’s reliance on the defendant’s
misrepresentation was a substantial factor in bringing about the harm suffered by the plaintiff.
Fernander v. Amanze, No. CIV.A. 02-603, 2007 WL 4083769, at *4 (E.D. Pa. Nov. 15, 2007).
“An omission is actionable as a fraudulent misrepresentation where there is a duty to disclose.”
Id. Common law claims of negligent misrepresentation by omission likewise require a duty to
disclose. See In re Access Cardiosystems, Inc., 404 B.R. 593, 643 n.69 (Bankr. D. Mass. 2009)
(observing that a “duty to disclose” requirement “is found in both common-law fraud and
negligent representation” claims).
Federal Rule of Civil Procedure 9(b) states that “[i]n alleging fraud or mistake, a party
must state with particularity the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person’s mind may be alleged generally.” The United
States Court of Appeals for the Third Circuit has observed that “[t]he purpose of [Rule 9(b)] is to
allow a defendant to meaningfully respond to a complaint.” In re Docteroff, 133 F.3d 210, 217
(3d Cir. 1997). More specifically, “Rule 9(b) serves to give defendants ‘notice of the claims
against them, provide[ ] an increased measure of protection for their reputations, and reduce[ ]
13
the number of frivolous suits brought solely to extract settlements.’” In re Suprema Specialties,
Inc. Sec. Litig., 438 F.3d 256, 270 (3d Cir. 2006) (quoting In re Burlington Coat Factory Sec.
Litig., 114 F.3d 1410, 1418 (3d Cir. 1997)). However, a claim of fraud by omission “necessarily
involves less particularity in pleading than would the pleading of fraud based upon false
statements: a plaintiff can plead a particular time, day, and place with regard to the latter, but not
the former.” Rolite, Inc. v. Wheelabrator Envtl. Sys., Inc., 958 F. Supp. 992, 1006 (E.D. Pa.
1997). With respect to negligent misrepresentation, “the majority of district courts within the
Third Circuit have declined to apply [Rule 9(b)’s] heightened pleading standard to claims of
negligent misrepresentation.” Cogswell v. Wright Med. Tech., Inc., No. 15-295, 2015 WL
4393385, at *5 (W.D. Pa. July 16, 2015).
Here, Elbeco has alleged numerous facts concerning the Fund’s alleged fraud or
negligent misrepresentation by omission, including the type of facts omitted (the change in
interest rate assumptions), when the omitted facts should have been stated (prior to Elbeco’s
withdrawal from the Fund), and the way in which the omitted facts made the Fund’s
representations misleading (by leading Elbeco to believe that the amount of withdrawal liability
would be approximately the same as the estimates earlier provided by the Fund). These
allegations provide the Fund sufficient notice of the claims against them and provide sufficient
information for the Fund to meaningfully respond to those claims. See 2 James Wm. Moore et
al., Moore’s Federal Practice ¶ 9.03 (3d ed. 2015) (“In cases concerning fraudulent
misrepresentation and omission of facts, Rule 9(b) typically requires the claimant to plead the
type of facts omitted, where the omitted facts should have been stated, and the way in which the
omitted facts made the representations misleading.”). Further, as Elbeco points out, the second
sentence of Rule 9(b) expressly states that “knowledge . . . may be alleged generally.” For these
14
reasons, Elbeco’s failure to allege how the Fund’s representatives found out about the change in
interest rate assumptions, or the precise date on which they found out, is not fatal to Elbeco’s
claims of fraud by omission and negligent misrepresentation by omission.
B.
Elbeco fails to plausibly allege that the Fund had duty to disclose under the federal
common law of ERISA.
The Fund contends that Elbeco’s claims of fraud by omission and negligent
misrepresentation by omission fail because the Fund “had no duty to disclose to Plaintiff
information concerning a change or potential change to the interest rate assumptions that would
ultimately be applied to its final withdrawal liability assessment.” Def.’s Mem. 14. The Fund
contends that a multiemployer pension plan’s disclosure requirements are “a fundamental
component” of ERISA, which sets forth “the specific information multiemployer pension plans
are required to provide employers,” as well as instructions to multiemployer plans “as to when
they are required to provide that information, under what circumstances, and in what format.”
Def.’s Mem. 15 (citing 29 U.S.C. § 1021(l)). Further, the Fund contends that ERISA’s
instructions concerning the disclosure requirements of pension funds do not leave any “gap” into
which courts might supply further requirements under federal common law. Def.’s Mem. 16.
Accordingly, the Fund contends that ERISA “preempts claims based on any duties that could
exist under common law for multiemployer pension plans to disclose information relating to an
employer’s withdrawal liability estimates or assessments.” Def.’s Mem. 17.
The Fund further contends that even if disclosure duties beyond those set forth in ERISA
could be imposed on pension plans under common law, Elbeco has failed to allege that the Fund
had any such duty to disclose information about its interest rate assumptions in this case. Def.’s
Mem. 17. In this respect, the Fund contends that Elbeco has failed to allege any facts to show
that the Fund was in a fiduciary relationship with Elbeco or even a relationship similar to that of
15
a fiduciary relationship. Def.’s Mem. 18. Finally, the Fund contends that Elbeco has failed to
plausibly allege that it justifiably relied on an omission by the Fund when each of the estimates
that the Fund supplied to Elbeco contained warnings that Elbeco’s actual and final withdrawal
liability could be “materially different” from the estimates. Def.’s Mem. 20.6
In response, Elbeco contends that it has sufficiently alleged that the Fund had a common
law duty to disclose under subsections 2(a), 2(b), 2(c), and 2(e) of section 551 of the Restatement
of Torts (Second), which reads in its entirety as follows:
(1) One who fails to disclose to another a fact that he knows may justifiably
induce the other to act or refrain from acting in a business transaction is subject to
the same liability to the other as though he had represented the nonexistence of
the matter that he has failed to disclose, if, but only if, he is under a duty to the
other to exercise reasonable care to disclose the matter in question.
(2) One party to a business transaction is under a duty to exercise reasonable care
to disclose to the other before the transaction is consummated,
(a) matters known to him that the other is entitled to know because of a
fiduciary or other similar relation of trust and confidence between them;
and
(b) matters known to him that he knows to be necessary to prevent his
partial or ambiguous statement of the facts from being misleading; and
(c) subsequently acquired information that he knows will make untrue or
misleading a previous representation that when made was true or believed
to be so; and
6
For example, the cover letter of the April 2014 estimate stated:
The actuarial assumptions and methodology used to calculate the estimate were
the actuarial assumptions used to calculate withdrawal liability for employers
withdrawing during the plan year ending December 31, 2013. The actuarial
assumptions and methodology used to calculate [Elbeco’s] actuarial withdrawal
liability for a withdrawal during the plan year ending December 31, 2014, and
subsequent years, may be different than those used for this estimate. This may
cause [Elbeco’s] withdrawal liability to be materially different than this estimate.
Am. Compl. Ex. 3.
16
(d) the falsity of a representation not made with the expectation that it
would be acted upon, if he subsequently learns that the other is about to
act in reliance upon it in a transaction with him; and
(e) facts basic to the transaction, if he knows that the other is about to
enter into it under a mistake as to them, and that the other, because of the
relationship between them, the customs of the trade or other objective
circumstances, would reasonably expect a disclosure of those facts.
Restatement (Second) of Torts § 551 (Am. Law Inst. 1977).
Specifically, Elbeco contends that the Fund had a duty to disclose under subsection 2(a)
“[b]ecause of special circumstances involving multiemployer pension plans, and Elbeco’s
inability to obtain information from any source other than the Fund,” as a result of which “there
was a special relationship between the Fund and Elbeco.” Pl.’s Mem. 5, ECF No. 29. Similarly,
Elbeco contends that the Fund had a duty to disclose under subsection (2)(e) “since the amount
of the withdrawal liability was a fact basic to Elbeco’s . . . withdrawal from the Fund” and
“[t]here were special circumstances since Elbeco had no way of determining its withdrawal
liability, and the only source for this information was the Fund.” Pl.’s Mem. 5. Elbeco also
contends that the Fund had a duty to disclose under subsection 2(b), “since the Fund failed to
communicate information to Elbeco which was known to the Fund and which was necessary to
prevent the Fund’s withdrawal liability estimates from being misleading,” and under subsection
2(c) because “the Fund had a continuing duty to disclose information that it knew would make
untrue or misleading the previous estimates of withdrawal liability.” Pl.’s Mem. 6.
“In certain areas, Congress has authorized the federal courts to create common law. . . .
ERISA is such an area.” Plucinski v. I.A.M. Nat. Pension Fund, 875 F.2d 1052, 1056 (3d Cir.
1989) (citations omitted). In cases in which a court is asked to exercise this lawmaking power,
“the inquiry is whether the judicial creation of a right in this instance is ‘necessary to fill in
interstitially or otherwise effectuate the statutory pattern enacted in the large by Congress.’” See
17
Plucinski v. I.A.M. Nat. Pension Fund, 875 F.2d 1052, 1056 (3d Cir. 1989) (quoting Van Orman
v. American Insurance Co., 680 F.2d 301, 312 (3d Cir. 1982)). The Third Circuit “has observed
that Congress has established through ERISA ‘an extensive regulatory network,’ and that
‘federal courts [should] not lightly create additional [ERISA] rights under the rubric of federal
common law.’” Plucinski v. I.A.M. Nat. Pension Fund, 875 F.2d 1052, 1056 (3d Cir. 1989)
(quoting Van Orman v. American Insurance Co., 680 F.2d 301, 312 (3d Cir. 1982)).
The Third Circuit has, however, “previously recognized several federal common law
actions pursuant to ERISA.” Id. at 1056. For example, as discussed in this Court’s previous
Memorandum, in Carl Colteryahn Dairy, Inc. v. West Pennsylvania Teamsters & Employers
Pension Fund, 847 F.2d 113 (3d Cir. 1988), the Third Circuit recognized a federal common law
claim by an employer alleging that its pension fund, trustees, and others employed by the fund
misrepresented the status of the pension fund when it merged with another fund, and thus
fraudulently induced the employer to accede to and approve the merger. The employer alleged
that the fund fraudulently failed to disclose large unfunded liabilities that predated the merger.
Id. at 117. The employer then withdrew from the fund but was imposed a large withdrawal
liability assessment. Id. The employer stated that it would not have approved the merger had it
known of the unfunded liabilities and that the withdrawal liability assessment consisted of
primarily pre-merger undisclosed liabilities. Id. at 121 n.13. The court held that the employer
could sue in federal court, under the federal common law of pension plans, for the return of any
withdrawal liability sums assessed as a result of the fraudulent inducement to join the fund. Id. at
122.
The Colteryahn court held that the axiom that “as a general rule, a party should not be
allowed to profit from its own wrongs” is “particularly apposite when dealing with federally
18
regulated pension plans,” in light of the “equitable character” of these plans. Id. at 121. The court
also observed that it “would find it quite curious if Congress had given multiemployer plans the
immense power” of “assess[ing] upon a withdrawing employer a substantial penalty while
providing the employer with few defenses—yet did not intend to place some check on the
conduct and practices of such plans.” Id. Further, the court stated:
[W]e doubt that Congress intended that innocent employers, penalized by the
fraudulent exercise of such powers, would be without remedy. Finally, given the
predominant federal interest in the conduct of pension plans’ affairs, any check on
such power must be available in federal court.
Id. at 121-22.
Here, Elbeco seeks to have the Court use its lawmaking powers to recognize a claim of
fraud or negligent misrepresentation by omission against the Fund, thereby imposing on the Fund
a duty to disclose information about Elbeco’s potential withdrawal liability over and above the
Fund’s duty under ERISA to provide Elbeco with an annual “notice of potential withdrawal
liability” at Elbeco’s request. In its previous Memorandum, the Court did not foreclose the
possibility that such a cause of action might exist in circumstances where an employer was able
to show that it was in a relationship of “trust and confidence” with a fund, or in other
circumstances giving rise to a common law duty to disclose. Here, however, Elbeco has failed
allege any facts to show the Fund had any such duty.
Elbeco rests its claim that the Fund had a common law duty to disclose primarily on the
basis of its allegation that Elbeco was in a “special relationship” with the Fund because the Fund
was “[t]he only source for the amount of the withdrawal liability.” Pl.’s Mem. 5; see also id. at 7
(stating that “[t]he facts in this case are unique” because “Elbeco had no independent means to
determine its withdrawal liability as the calculation was within the Fund’s exclusive control”).
However, as set forth above, ERISA contemplates that multiemployer pension funds may
19
possess information about contributing employers’ “potential withdrawal liability” that
employers lack, and the statute provides for a procedure by which employers can submit a
written request to pension funds in order to obtain limited information about their potential
withdrawal liability—namely, “the estimated amount which would be the amount of such
employer’s withdrawal liability . . . if such employer withdrew on the last day of the plan year
preceding the date of the request,” along with an explanation of how this estimated liability
amount was determined. See 29 U.S.C. § 1021(l).7 Accordingly, the set of circumstances alleged
by Elbeco—in which it lacked information about its potential withdrawal liability and requested
and received from the Fund the information to which it was entitled under ERISA—was by no
means special or unique, but rather is the situation contemplated by and provided for in ERISA.
For this reason, Elbeco’s allegation that the Fund was the only source of information concerning
the amount of its withdrawal liability does not plausibly allege that there was a “fiduciary or
other similar relation of trust and confidence between” Elbeco and the Fund, see Restatement
(Second) of Torts § 551(2)(a), or that because of “the relationship between them, the customs of
the trade or other objective circumstances,” see id. § 551(2)(e), Elbeco would reasonably expect
the Fund to disclose the change in interest rate assumptions. Nor has Elbeco alleged any other
facts about the relationship between it and the Fund, “the customs of the trade[,] or other
objective circumstances” to support its claim that the Fund had a duty to disclose the change in
interest rate assumptions. Accordingly, Elbeco fails to state a clam under subsections 551(2)(a)
and (e).
7
As discussed above, this particular mechanism was enacted in 2008. Prior to that, funds
were required to, at the employer’s request, make available to the employer “general
information” necessary for the employer to compute its withdrawal liability with respect to the
plan without charge and to, at the employer’s expense, “make an estimate of such employer’s
potential withdrawal liability with respect to the plan or to provide information unique to that
employer.”
20
Elbeco also contends that the Fund had a duty to disclose the change in interest rate
assumptions because this information constituted, under subsection 551(2)(b) of the Restatement
(Second) of Torts, “matters known to [the Fund] that [it] knows to be necessary to prevent [its]
partial or ambiguous statement of the facts from being misleading” and, under subsection
551(2)(c), “subsequently acquired information that [the Fund knew would] make untrue or
misleading a previous representation that when made was true or believed to be so.” The
previous statements or representations in question are the previous estimates of withdrawal
liability provided by the Fund pursuant to its responsibilities under ERISA. See Pl.’s Mem. 34.
Pursuant to the statute, these estimates were not statements about present or future conditions but
rather were statements about the past, that is, statements about what Elbeco’s withdrawal liability
would have been if Elbeco had withdrawn from the Fund “on the last day of the plan year
preceding the date of the request.”8 Assuming these statements accurately represented what
Elbeco’s withdrawal liability would have been if Elbeco had withdrawn from the Fund “on the
last day of the plan year preceding the date of the request” (Elbeco has not alleged otherwise),
the statements were still accurate at time Elbeco withdrew from the Fund and, indeed, are still
accurate today—precisely because they are statements about the past. There is therefore no basis
8
By contrast, the Second Restatement presents the following example illustrating the
principle contained in section 551(2)(c):
A, a stock breeder, tells B, a prospective buyer, that a thoroughbred mare is in
foal to a well-known stallion. The mare miscarries. Immediately afterwards B
offers $500 for the mare relying, as A knows, upon his statement. A does not
inform B of the mare’s miscarriage. A is subject to liability to B for the loss that
he suffers because the mare is not in foal as originally represented.
Restatement (Second) of Torts § 551 cmt. h, illus. 1. In this example, unlike in the present case,
the speaker made a statement about a present state of affairs; when later events altered that state
of affairs, the statement became “untrue or misleading.”
21
to conclude that these estimates were “partial,” “ambiguous,” or “untrue or misleading,” and
Elbeco has accordingly failed to state a claim under subsections 551(2)(b) and (c).
V.
Conclusion
Elbeco has failed to allege facts to support its claim that the Fund had a duty under the
federal common law of pension plans to disclose to Elbeco the change in interest rate
assumptions. Elbeco therefore fails to state a claim for fraud by omission or negligent
misrepresentation by omission, and the Court grants the Fund’s Motion to Dismiss.
District courts must permit a curative amendment to dismissed complaints under Rule
12(b)(6), unless such amendment would be inequitable or futile. See Alston v. Parker, 363 F.3d
229, 235 (3d Cir. 2004). “Futility” means that the amended complaint would fail to state a claim
upon which relief could be granted. Shane v. Fauver, 213 F.3d 113, 115 (3d Cir. 2000) (citing In
re Burlington Coat Factory Sec. Litig, 114 F.3d 1410, 1434 (3d Cir. 1997)). Elbeco has already
amended its complaint against the Fund once. Because, in light of the deficiencies in the
Amended Complaint, further amendment would be futile, the Court dismisses Elbeco’s
Amended Complaint with prejudice. A separate order follows.
BY THE COURT:
/s/ Joseph F. Leeson, Jr.________
JOSEPH F. LEESON, JR.
United States District Judge
22
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?