PEREZ v. WPN CORPORATION ET AL
Filing
214
MEMORANDUM OPINION indicating that, for reasons more fully stated within, DiClemente, Halpin, and the Retirement Committee's Motion for Summary Judgment 179 is granted and the Plaintiff's cross motion 182 is denied, as moot. An appropriate Order follows. Signed by Judge Nora Barry Fischer on 9/30/19. (jg)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
EUGENE SCALIA, SECRETARY OF
LABOR, UNITED STATES DEPARTMENT
OF LABOR,
Plaintiff,
v.
WPN CORPORATION; RONALD LABOW;
SEVERSTAL WHEELING, INC.
RETIREMENT COMMITTEE; MICHAEL
DICLEMENTE; DENNIS HALPIN;
WHEELING CORRUGATING COMPANY
RETIREMENT SECURITY PLAN; and
SALARIED EMPLOYEES’ PENSION PLAN
OF SEVERSTAL WHEELING, INC.,
Defendants.
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Civil Action No. 14-1494
Judge Nora Barry Fischer
MEMORANDUM OPINION
I.
INTRODUCTION
The Secretary of Labor of the United States Department of Labor (“DOL”) brings this
action under the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001, et seq.
(“ERISA”) alleging that while acting as fiduciaries and investment managers of the Wheeling
Corrugating Company Retirement Security Plan and Salaried Employees’ Pension Plan of
Severstal Wheeling, Inc. (the “Plans”), Defendants Severstal Wheeling, Inc. Retirement
Committee (“Retirement Committee”), Michael DiClemente (“DiClemente”), and Dennis Halpin
(“Halpin”) (collectively “Defendants”) violated ERISA causing a loss of approximately $7 million
to the Plans. Presently before the Court are cross-motions for summary judgment, (Docket Nos.
179, 182), which are ripe for disposition. The Court having considered the parties’ positions and
evaluated the evidence in light of the standard governing motions for summary judgment and for
the following reasons, grants Defendants’ motion for summary judgment (Docket No. 179), and
denies the DOL’s cross-motion as moot (Docket No. 182).
II.
RELEVANT FACTUAL BACKGROUND
This Court must first address Defendants’ objections to the DOL’s response to their concise
statement of material facts (Docket No. 195), the DOL’s response to those objections (Docket No.
201), and Defendants’ reply (Docket No. 204). Defendants specifically object to the DOL’s
responses to Paragraphs 31, 33, 42-43, 47, 50, 86, 89-94, 96-100, and 102-03 and argue that each
of the facts in those paragraphs should be deemed admitted. (Docket No. 195 at 3).
Federal Rule of Civil Procedure 56(e), provides that where a party “fails to properly address
another party’s assertion of fact” the court may “consider the fact undisputed for purposes of the
motion” or “grant summary judgment if the motion and supporting materials--including the facts
considered undisputed--show that the movant is entitled to it.” FED. R. CIV. P. 56(e)(1), (3). To
this end, our Local Civil Rules require a responding party to admit or deny each fact in the moving
party’s concise statement of material facts using support from the record, LCvR 56(C), and
uncontroverted material facts may “be deemed admitted unless specifically denied or otherwise
controverted by a separate concise statement of the opposing party,” LCvR 56.E (emphasis
added).1 This Chamber’s Practices and Procedures provide likewise. See Practices & Procedures
of Judge Fischer, § II.E. While this Court agrees with Defendants that some of the DOL’s
responses are deficient under our Local Rules and this Chamber’s Practices and Procedures,
whether or not this Court deems those facts admitted does not change the outcome of this case.
Accordingly, the Court will decline to do so and instead, rely on the record as a whole to determine
the applicable material facts in Paragraphs 31, 33, 42-43, 47, 50, 86, 89-94, 96-100, and 102-03.
The Court having granted Defendants’ motion for summary judgment, denies Defendants’ request for further
supplemental briefing. (Docket No. 195 at 6-7).
1
2
The Court now summarizes the facts instrumental to its decision.
Prior to November 2008, the Retirement Committee operated as the Wheeling-Pittsburgh
Steel Corporation Retirement Committee and was managed as part of the WHX Investment Trust
(“WHX Trust”). (Docket Nos. 190 ¶ 16; 192 ¶¶ 3, 5).2 The WHX Trust was a combined trust that
held pension assets for two entities, Wheeling-Pittsburgh Steel Corporation and WHX
Corporation. (Docket No. 192 ¶¶ 6, 8). Beginning in 2004, the WHX Trust was managed by
Ronald LaBow (“LaBow”) and his company, WPN Corporation (“WPN”), who were given
“complete, unlimited and unrestricted management authority with respect to the investment of the
[WHX Trust].”3 (Docket Nos. 190 ¶ 20; 192 ¶¶ 6, 8, 10, 11).
In June 2008, Citibank, N.A., which had been operating as the custodial trustee for the
WHX Trust, announced that it would be exiting the trust business at the end of the year. (Docket
Nos. 190 ¶ 17-18; 192 ¶ 7). As a result of Citibank’s decision, the Plans’ assets were to be
separated from the WHX Trust and deposited into a new independent Severstal Trust. (Docket
No. 190 ¶ 18). At that time, the Retirement Committee numbered two members, DiClemente and
Halpin, both of whom were named fiduciaries for the Plans. (Docket Nos. 190 ¶¶ 8-13; 192 ¶¶ 1,
4). The Plans consisted of two pension plans, the Wheeling Corrugating Company Retirement
Security Plan and the Salaried Employees Pension Plan of Severstal-Wheeling, Inc., both of which
were overseen by the Retirement Committee. (Docket Nos. 190 ¶¶ 1, 7; 192 ¶¶ 1-2). DiClemente
and Halpin were both members of the Wheeling-Pittsburgh Steel Corporation Retirement
Committee prior to becoming members of Severstal’s Retirement Committee. (Docket No. 192 ¶
2).
2
The pension plans were funded by direct employer contributions to provide retirement benefits to employees
on a regular and long-term basis. (Docket No. 190 ¶ 2).
3
This investment agreement was modified thrice thereafter. (Docket No. 192 ¶ 13).
3
Upon learning that Citibank would be resigning, DiClemente approached LaBow about
possibly continuing on as the investment manager for the Plans, and LaBow responded with
interest. (Docket No. 192 ¶¶ 34-35). They discussed the Retirement Committee’s investment
goals including its desire to receive the same percentage interest of each of the assets held within
the WHX Trust. (Id. ¶ 36; Docket No. 190 ¶ 23). On September 30, 2008, DiClemente again
reminded LaBow of the Severstal Trust’s desire for “the same percentage allocations as existed in
the WHX [Trust].” (Docket No. 190 ¶ 25). When asked why three weeks later he still had not
separated the WHX Trust’s assets, LaBow responded that he had not done so due to the volatility
in the market but he would attempt to make the transfer on November 3, 2008. (Id. ¶ 26; Docket
No. 184-13 at 11).
Thereafter, LaBow and WPN entered into a written agreement, the Third Amendment to
the Severstal Wheeling, Inc. Investment Management Agreement, with Severstal Wheeling Inc.,
successor to Wheeling-Pittsburgh Steel Corporation. (Docket No. 181-6). While LaBow signed
the agreement on December 5, 2008, he made November 1, 2008 its effective date. (Id. ¶¶ 14, 17;
Docket No. 190 ¶ 21).
LaBow testified that in signing the agreement, he was simply
“memorializing” the already established relationship between the parties and had been fulfilling
his investment management duties for the “Plans” since November 1, 2008.4 (Docket No. 192
¶ 18). The Third Amendment to the Severstal Wheeling, Inc. Investment Management Agreement
incorporated language from LaBow and WPN’s original agreement with WHX. (Docket No. 1907). Specifically incorporated was Paragraph 7, granting WPN the authority
(a) To invest and reinvest the [WHX Trust] at such time and in such manner as
[WPN] in the complete and unlimited exercise of its discretion shall determine;
LaBow’s and WPN’s duties under the Third Amendment to the Severstal Wheeling, Inc. Investment
Management Agreement were virtually identical to those in the Second Amendment to the Severstal Wheeling, Inc.
Investment Management Agreement. (Docket Nos. 181-5, 190-7).
4
4
(b) To purchase and sell securities for the [WHX Trust] in the name of [WHX], for
the account of [WHX] and at the sole risk of [WHX];
(c) To arrange for the delivery of and payment for any such investments, including
securities, bought and sold for the account of [WHX Corporation];
(d) In effecting any such investments, reinvestments, purchases and sales, to use
and obtain the assistance and services of such brokers, dealers, investment bankers,
underwriters and other firms, enterprises and services as [WPN] in its discretion
shall designate or select[.]
(Docket Nos. 181-3; 190-7).
Despite the fact that LaBow knew that the Severstal Trust wanted a proportionate share of
the combined trust’s assets, LaBow unilaterally decided to acquire the entire Neuberger Berman
Account (“Account”) for the Severstal Trust.5 (Docket No. 184-8 at 20; 190 ¶ 27). This Account
was not diversified. (Docket No. 190 ¶ 28). Indeed, approximately 97% of its $31,446,845 value
was invested in eleven large cap energy stocks. (Docket No. 190 ¶¶ 28-29). To effectuate the
transfer, LaBow needed DiClemente to send a letter to Citibank requesting that the transfer be
made. (Docket Nos. 190-5 ¶¶ 8-9; 197-3 at 4). DiClemente complied believing LaBow had
negotiated the transfer of the Account in accordance with the Retirement Committee’s instructions.
(Docket Nos. 181-9 at 3). He relied on LaBow’s representations rather than review the assets
being transferred. (See id.) Also unbeknownst to DiClemente, per the terms of the transfer,
Neuberger Berman would not be responsible for managing the Account. (Docket Nos. 181-9 at 3;
190 ¶ 51).
It was not until December 12, 2008, that the Retirement Committee discovered that
Neuberger Berman was not managing the Severstal Trust despite it having managed those very
same assets as part of the WHX Trust. (Docket Nos. 184-11 at 53-54; 190 ¶ 54). It then learned
5
LaBow also did not tell the Retirement Committee that Neuberger Berman would not be managing the assets.
(Docket No. 184-8 at 20; 190 ¶ 27).
5
on December 29, 2008, that it had not acquired a proportionate share of the WHX Trust’s assets
after DiClemente was so notified by Mercer Investment Consulting, Inc. (“Mercer”).6 (Docket
Nos. 181-9 at 3; 190 ¶ 56; 192 ¶ 25).
The next day, DiClemente contacted LaBow concerned that the Account was not
diversified and contacted Sally King, the Retirement Committee’s ERISA lawyer, to help resolve
the issue.7 (Docket Nos. 184-10 at 64-65, 72; 192 ¶ 60). King devised a four-part strategy to
proceed: (1) LaBow would negotiate a fee agreement with Neuberger Berman, which DiClemente
would execute; (2) LaBow would request the most recent statement from Neuberger Berman;
(3) DiClemente would obtain a copy of a recent audit report; and (4) King would draft a memo
outlining the guidelines to be implemented between LaBow and DiClemente relating to the
“procedural issues” that had arisen under the Third Amendment to the Severstal Wheeling, Inc.
Investment Management Agreement. (Docket No. 184-10 at 72).
A week later, DiClemente repeated to LaBow that the Retirement Committee wanted him
to reallocate the Severstal Trust’s assets to reflect the same proportionality utilized in the former
WHX Trust. (Docket No. 192 ¶ 62). LaBow, however, informed King, DiClemente, and Halpin
that he was unable to reset the portfolio; consequently, DiClemente, Halpin, and King told him to
devise a new plan to diversify the Severstal Trust’s portfolio. (Id. ¶ 63; Docket No. 184-10 at 7576). They emphasized that WPN needed to preserve as much of the trust’s value as possible.
(Docket Nos. 184-10 at 75-76; 192 ¶ 63). They also instructed LaBow that he should use his
discretion in determining when to liquidate the Account. (Docket No. 184-10 at 76). It is
6
Mercer is a nationally known and respected investment consultant firm that performed periodic portfolio
reviews for the Retirement Committee. (Docket Nos. 192 ¶ 29).
7
Sally King is a partner at McGuireWoods, a large multi-office law firm. She has advised over 50 ERISA
covered pension plans on ERISA compliance. Severstal Wheeling, Inc. Retirement Comm., 119 F. Supp. 3d at 250;
see Pa. Dep’t of Human Sers. v. United States, 897 F.3d 497, 514 (3d Cir. 2018) (providing “[a] court may take judicial
notice of an adjudicative fact if that fact is not subject to reasonable dispute”) (citing FED. R. EVID. 201).
6
noteworthy that at the time of this meeting, any loss in value the trust had incurred as a result of
the transfer of the Account had been almost fully recovered. (Id.)
Just over a week later, on January 16, 2009, the Retirement Committee members, in a
teleconference with LaBow, explained that they wanted LaBow to reallocate the assets using funds
for which there would be no transition issues. (Docket No. 190 ¶ 64). LaBow responded that this
request might not be possible but provided a list of funds that he could use to reallocate the assets.
(Id.) The Retirement Committee reminded LaBow that it wanted a formal plan in place before he
took any action. (Id.)
In a January 20, 2009 letter to LaBow, the Retirement Committee requested that he prepare
a written plan to reallocate the assets and share this plan with the WHX Pension Investment
Committee. (Docket Nos. 184-10 at 80; 192 ¶ 65). Specifically, LaBow was told to “(a) identify
in writing those accounts that cannot or should not be proportionally allocated” between the . . .
Plans and the WHX Plans, “(b) provide the reason(s) for such treatment, and (c) indicate how [he
was] recommending equitable allocation of those assets among the remaining (or substitute)
investments.” (Docket Nos. 184-10 at 80).
Six days later, the Retirement Committee convened a meeting at LaBow’s request and
asked him to identify in writing why it was no longer possible for the Severstal Trust to invest in
certain funds he previously stated it could. (Docket Nos. 192 ¶ 65). In response, LaBow sent a
letter dated February 4, 2009 to the Retirement Committee explaining why he failed to transfer a
proportionate share and what his plan was going forward. (Docket Nos. 181-12; 192 ¶ 67). A
week later, the Retirement Committee convened another call with LaBow and discussed what
could be done to diversify the Account. (Docket Nos. 184-10 at 92; 192 ¶ 68). At the same time,
DiClemente asked LaBow via email for details on any investment strategy, process, discipline,
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manager, biographies and tenures, and historical performance for two funds that LaBow
recommended, Mason and Capital Defense. (Docket No. 192 ¶ 69). Two days later, DiClemente
followed up with LaBow asking for the investment materials the Retirement Committee had
requested relating to certain funds in which he recommended they invest. (Id. ¶ 70). Thereafter,
on February 24, 2009, King, in a letter to LaBow, reminded him that the Retirement Committee
wanted to sign a fee agreement with Neuberger Berman and asked LaBow to provide the
Committee with regular performance reports. (Docket Nos. 184-10 at 108-09; 192 ¶ 71).
On March 12, 2009, King thanked LaBow for responding to her recent email and stated
she was looking forward to the plan on diversification. (Docket No. 192 ¶ 72). About a week
later, Halpin and LaBow exchanged emails in which LaBow described the performance of their
assets and Halpin expressed that he could assist LaBow, if needed, in liquidating the Account. (Id.
¶ 73). Halpin followed by providing LaBow with fund information and noting he could process
any necessary paperwork. (Id. ¶ 74). As such, the Retirement Committee was in almost daily
contact with LaBow. (Id. ¶ 76).
Halpin testified that he did not want to remove LaBow in January or February 2009 as the
Retirement Committee was still operating under the belief that the trust could be reset. (Docket
Nos. 184-14 at 22; 190 ¶ 65). DiClemente testified likewise. (Docket No. 184-14 at 38). Hence,
the Plan remained invested in the undiversified Account from November 3, 2008 until March 24,
2009, when LaBow sold the Account for cash. (Docket No. 190 ¶¶ 66-67). LaBow was ultimately
fired on or about May 19, 2009, after new members had replaced DiClemente and Halpin on the
Retirement Committee.8 (Id. ¶ 70).
The evidence the DOL cites in support of this fact is Judge Swain’s Opinion and Order. (Docket No. 184 ¶
70). In her Opinion and Order, Judge Swain further writes that even “[t]he new Severstal Retirement Committee did
not immediately step in to reinvest the Severstal Trust’s assets because it wanted to give LaBow another chance to
provide an investment plan.” Severstal Wheeling, Inc. Ret. Comm. v. WPN Corp., 119 F. Supp. 3d 240, 260 (S.D.N.Y.
8
8
In advancing its claim, the DOL proffered expert testimony in the person of Dr. Susan
Mangiero who received her Ph.D. in finance from the University of Connecticut and is a chartered
Financial Analyst. (Docket No. 178-9 at 1, 4).9 It is her opinion that the Retirement Committee
should have communicated a strategy for diversification that complied with ERISA to LaBow
prior to the transfer of the assets and that DiClemente or Halpin should have confirmed that the
assets received were the correct ones. (Docket No. 181-30 at 6). She believes that LaBow
backdating the investment management agreement was a “red flag”. (Docket No. 178-9 at 11).
Further, once the Retirement Committee learned of this misadventure, she states that the
appropriate corrective action was to first contact LaBow to discuss the problem. (Docket No. 1818 at 27-28). Although typically it is appropriate for committees to provide an investment manager
several months or quarters to regain his or her footing after a misadventure, Dr. Mangiero opines
that LaBow should have been terminated prior to May 2009 but she could not provide a specific
date by which it should have occurred. (Docket Nos. 181-8 at 25; 181-30 at 13). Because the
markets were in flux and the Severstal Trust was about to undergo a major change, she stresses
that the duty to monitor was especially important. (Docket No. 178-9 at 9-11). She concludes that
the Retirement Committee’s breach of fiduciary duty resulted in losses between $6,775,243 and
$7,823,373. (Docket No. 178-9 at 41).
Dr. Bruce Stangle countered. He has a Ph.D. in Applied Economics from the Sloan School
of Management at M.I.T. and is an economist at an international economic consulting firm.
(Docket No. 181-7 at 3, 14). Dr. Stangle opines that the Retirement Committee acted in accordance
2015).
9
The Court previously found that Dr. Mangiero was a sufficiently qualified expert. (Docket Nos. 173, 174).
The DOL has not challenged Dr. Stangle’s qualifications and having reviewed his qualifications, this Court finds he
is a sufficiently qualified expert as well. (Docket No. 181-7); see FED. R. EVID. 702; Daubert v. Merrell Dow Pharma.,
Inc., 509 U.S. 579 (1993); Schneider ex rel. Estate of Schneider v. Fried, 320 F.3d 396, 404 (3d Cir. 2003); Baker v.
Sun Life & Health Ins. Co., 767 F. App’x 215, 216-17 (3d Cir. April 25, 2019).
9
with industry custom fulfilling its duty to monitor when it hired an experienced investment
manager and had a practice of holding meetings, making decisions, and documenting decisions.
(Id. at 6). He praises the Retirement Committee’s hiring of a nationally reputable investment firm
to provide quarterly reports as well as the hiring of McGuireWoods to provide additional
leadership, advice, and monitoring once the Retirement Committee learned of the misadventure.
(Id. at 7). Furthermore, he disagrees that LaBow should have been terminated sooner explaining
that deliberation is necessary before terminating an investor and committees typically afford
investment managers several months to regain their footing. (Id. at 8, 16). Moreover, Dr. Stangle
cautions that given the volatility in the market, research and prudence were necessary to correct
LaBow’s misstep. (Id. at 8-9). According to him, had LaBow invested in a proportional share of
the WHX Trust, the performance of the Severstal Trust’s portfolio would have outperformed the
S&P 500 by over 15%. (Docket No. 192 ¶ 106).
III.
RELEVANT PROCEDURAL HISTORY
The DOL filed its initial complaint on October 31, 2014. (Docket No. 1). On March 27,
2015, after the defendants filed separate motions to dismiss, the DOL filed an Amended
Complaint. (Docket No. 28). On April 10, 2015, this Court issued an order staying the proceedings
until the issuance of a decision on the merits in a lawsuit filed by the Retirement Committee and
its members against LaBow and WPN in the United States District Court for the Southern District
of New York. (Docket No. 37; Severstal Wheeling, Inc. v. WPN Corp., No. 1:10-cv-954).
Following a bench trial, District Judge Laura Taylor Swain issued a decision dated August 10,
2015, finding that WPN and LaBow breached their fiduciary duties under ERISA and entered
judgment for $15,016,327.74. Severstal Wheeling, Inc. Ret. Comm. v. WPN Corp., 119 F. Supp.
3d 240 (S.D.N.Y. 2015). That decision was affirmed by the United States Court of Appeals for
10
the Second Circuit on August 30, 2016. Severstal Wheeling, Inc. v. WPN Corp., 659 F. App’x 24
(2d Cir. 2016).10 The stay in the instant case was lifted that same day. (Docket No. 97). From
August 18, 2015 until August 30, 2016 this case was referred to mediation with then Chief
Magistrate Judge Maureen Kelly.11 (Docket No. 96)
By order dated September 14, 2016, the DOL’s claims against the Retirement Committee
based on any breaches, violations, actions, or inactions occurring on or after May 1, 2009 were
dismissed with prejudice pursuant to an agreement between the Retirement Committee and the
DOL. (Docket No. 104). Six days later, the Wheeling Corrugating Company Retirement Security
Plan and the Salaried Employees’ Pension Plan of Severstal Wheeling, Inc. were denominated as
nominal parties on the docket. (Docket No. 112).
On October 31, 2016, a Motion to Dismiss Amended Complaint or, in the alternative,
Motion for Summary Judgment was filed by Defendants. (Docket No. 124). This Court granted
the motion as to the DOL’s failure to invest and co-fiduciary liability claims but denied it as to the
failure to monitor claim. (Docket No. 144). The Court also granted the DOL’s request for leave
to file a second amended complaint and, specifically, permitted the DOL to reassert and restate its
failure to invest claim by pleading that the purpose of backdating the Third Amendment to the
Severstal Wheeling, Inc. Investment Management Agreement was to relieve Defendants from
liability during a time when they, in fact, retained control over the assets. (Docket Nos. 144 at 12;
145).
On June 28, 2017, the DOL filed its Second Amended Complaint against DiClemente,
10
Judge Swain provided a detailed recitation of the facts in her Opinion and Order and her findings were
affirmed by the Second Circuit. Severstal Wheeling, Inc. Ret. Comm. v. WPN Corp., 119 F. Supp. 3d 240 (S.D.N.Y.
2015), aff’d, 659 F. App’x 24 (2d Cir. 2016). The issue in the instant case is whether Defendants breached their duty
to monitor, which was not addressed by Judge Swain. The Court recites only those material facts in this Court’s
record that are necessary to resolve the narrow issue before this Court.
11
The Western District of Pennsylvania requires parties to engage in ADR. LCvR 16.2.E.
11
Halpin, LaBow, the Plans, the Retirement Committee, and WPN. (Docket No. 148). Despite
having the opportunity to properly plead a failure to invest claim, the DOL opted not to do so by
failing to plead that the backdating of the agreement was done solely for the purpose of relieving
DiClemente, Halpin, and the Retirement Committee of liability. (Id.) Defendants filed an Answer
denying liability and filed a cross-claim against LaBow and WPN.12 (Docket No. 151). Default
Judgment on Defendants’ Cross-Claim against LaBow and WPN was entered on September 29,
2017. (Docket No. 159). Discovery ensued over the next year.13
The present summary judgment motions and supporting documents were filed in
September and October 2018. (Docket Nos. 179-84). The parties filed responses in opposition
(Docket Nos. 190-93), replies (Docket Nos. 194-97), and sur-replies. (Docket No. 199-200). As
discussed in Section II, Defendants also filed objections to the DOL’s responses to their concise
statement of material facts (Docket No. 195), the DOL responded (Docket No. 201), and
Defendants filed a reply (Docket No. 204).
A hearing was held on January 8, 2019, and a transcript of that hearing was filed on
February 8, 2019. (Docket No. 206). On May 6, 2019, this Court ordered supplemental briefing
in light of the Court of Appeals for the Third Circuit’s decision in Sweda v. University of
12
Although the DOL did not request a jury trial in its Second Amended Complaint, Defendants demanded one
in their Answer. (Docket Nos. 148, 151). The majority of circuit courts have held that there is no Seventh Amendment
right to a jury trial under the ERISA statute. 9 ARTHUR R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2316 (3d
ed. Aug. 2019). The Court of Appeals for the Third Circuit has found that “ERISA’s applicability . . . determines such
entitlements as those to a jury trial,” McCann v. Unum Provident, 907 F.3d 130, 142 (3d Cir. 2018) (citing Cox v.
Keystone Carbon Co., 894 F.2d 647, 650 (3d Cir. 1990)), and that where an ERISA claim is premised on a section of
the statute that only affords equitable relief, there is no right to a jury trial, Cox, 894 F.2d at 650. The Third Circuit
has not addressed whether there is a right to a jury trial under 29 U.S.C. § 1104 (the section at issue in this case);
however, two district courts in this circuit, the United States District Court for the Eastern District of Pennsylvania
and the United States District Court of New Jersey, have held that there is not. In re Allergan ERISA Litig., Master
File No. 17-1554, 2018 WL 8415676, at *7 (D.N.J. July 2, 2018); Cureton v. Verizon Serv. Corp., 2005 WL 1785302,
Civil Act. No. 2:05 CV 00213, at *5 (E.D. Pa. July 25, 2005). This Court agrees with its sister courts’ rationale in
that the damages available under this section of the statute and that the DOL seeks are restitutionary in nature and are
premised on the law of trusts, which is equitable in nature. In re Allergan ERISA Litig., 2018 WL 8415676, at *7;
Cureton, 2005 WL 1785302, at *5.
13
There were various delays in this case due to LaBow’s ill health. (Docket No. 149).
12
Pennsylvania, 923 F.3d 320 (3d Cir. 2019). On May 29, 2019, the DOL filed its supplemental
brief (Docket No. 210), and Defendants filed their supplemental brief on June 4, 2019 (Docket No.
211). Hence, the issues have been thoroughly vetted.
IV.
LEGAL STANDARD
Summary judgment is appropriate when the moving party establishes “that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
FED. R. CIV. P. 56(a). A genuine dispute of material fact is one that could affect the outcome of
litigation. Willis v. UPMC Children’s Hosp. of Pittsburgh, 808 F.3d 638, 643 (3d Cir. 2015) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). However, “[w]here the record taken
as a whole could not lead a rational trier of fact to find for the non-moving party, there is no
genuine issue for trial.” NAACP v. N. Hudson Reg’l Fire & Rescue, 665 F.3d 464, 475 (3d Cir.
2011) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).
The initial burden is on the moving party to adduce evidence illustrating a lack of genuine,
triable issues. Hugh v. Butler Cty. Family YMCA, 418 F.3d 265, 267 (3d Cir. 2005) (citing Celotex
Corp. v. Catrett, 477 U.S. 317, 323-24 (1986)). Once the moving party satisfies its burden, the
non-moving party must present sufficient evidence of a genuine issue, in rebuttal. Santini v.
Fuentes, 795 F.3d 410, 416 (3d Cir. 2015) (citing Matsushita Elec. Indus. Co., 475 U.S. at 587).
When considering the parties’ arguments, the court is required to view all facts and draw all
inferences in the light most favorable to the non-moving party. Id. (citing United States v. Diebold,
Inc., 369 U.S. 654, 655 (1962)). The benefit of the doubt will be given to allegations of the nonmoving party when in conflict with the moving party’s claims. Bialko v. Quaker Oats Co., 434 F.
App’x 139, 141 n.4 (3d Cir. 2011) (citing Valhal Corp. v. Sullivan Assocs., 44 F.3d 195, 200 (3d
Cir. 1995)).
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Nonetheless, a well-supported motion for summary judgment will not be defeated where
the non-moving party merely reasserts factual allegations contained in the pleadings. Betts v. New
Castle Youth Dev. Ctr., 621 F.3d 249, 252 (3d Cir. 2010) (citing Williams v. Borough of West
Chester, 891 F.2d 458, 460 (3d Cir. 1989)). The non-moving party must resort to affidavits,
deposition testimony, admissions, and/or interrogatory answers to demonstrate the existence of a
genuine issue. Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764, 772 (3d Cir. 2013)
(citing FED. R. CIV. P. 56(c)(1)(A)).
V.
DISCUSSION
Both sides maintain that they are entitled to summary judgment on the DOL’s remaining
claim, the failure to monitor. The DOL argues that Defendants breached their fiduciary obligations
to the Severstal Trust in two ways. (Docket Nos. 183, 193). First, they allegedly breached their
duty to ensure that the assets they received from the WHX Trust were appropriately diversified.
(Docket Nos. 183 at 1-2; 193 at 3-6). This argument is premised on the DOL’s contention that
there was no contract between WPN and LaBow at the time the Account was transferred. (Docket
No. 183). This Court expressly rejected this argument in its June 7, 2017 Memorandum Opinion.
(Docket No. 148). Moreover, despite giving the DOL the opportunity to file a Second Amended
Complaint properly stating a failure to invest claim, the DOL chose not to do so.14 (Docket Nos.
144 at 12; 148). Therefore, the DOL’s first argument is without merit. Second, the DOL argues
that Defendants breached their fiduciary duty by failing to monitor LaBow and WPN and remove
them when LaBow failed to properly invest the trust in accordance with their instructions. (Docket
The DOL has not even attempted to show “good cause” under Rule 16 to permit a third amendment. See
McWreath v. Range Resource—Appalachia, LLC, 81 F. Supp. 3d 448, 47 (W.D. Pa. 2015). Leave to amend at this
juncture would be both procedurally and substantively defective. McWreath, 81 F. Supp. 3d at 472; see Graham v.
Progressive Direct Ins. Co., 271 F.R.D. 112, 118 (W.D. Pa. 2010) (quotation omitted) (“once the pretrial scheduling
order’s deadline for filing motions to amend the pleadings has passed, a party must, under Rule 16(b) demonstrate
‘good cause’ for its failure to comply with the scheduling order before the trial court can consider, under Rule 15(a),
the party’s motion to amend its pleading”).
14
14
Nos. 183, 193). Defendants respond that they fulfilled their duty to monitor by implementing a
routine monitoring procedure, adhering to it, reviewing the reports from Mercer, identifying
LaBow’s misadventure contained therein, and taking corrective action with the assistance of
counsel. (Docket No. 180). As noted above, the Court finds for the Defendants and against the
DOL on this issue for the reasons that follow.
The duty to monitor “exists separate and apart from the trustee’s duty to exercise prudence
in selecting investments.” Tibble v. Edison Intern., 135 S.Ct. 1823, 1828 (2015) (Tibble III). A
failure to monitor claim is derivative in nature and is premised on an earlier breach of a fiduciary
duty. In re Constellation Energy Grp., Inc., 738 F. Supp. 2d 602, 614 (D. Md. 2010).15 Stated
another way, for a trustee to be liable for the failure to monitor, there must be an “underlying
breach of the duties imposed under ERISA[.]” In re Allergan ERISA Litig., Master File No. 171554, 2018 WL 8415676, at *7 (D. N.J. July 2, 2018) (quoting Rinehart v. Lehman Bros. Holdings
Inc., 817 F.3d 56, 68 (2d Cir. 2016)). By order dated July 16, 2019, this Court granted the DOL’s
motion for summary judgment finding that LaBow and WPN breached their fiduciary duty to the
Severstal Trust. (Docket No. 212). In so holding, this Court applied the doctrine of collateral
estoppel finding that (1) whether WPN and LaBow breach their fiduciary duty in violation of
§ 404(a)(1)(A) and (B) was previously decided by the Southern District of New York and the
Second Circuit; (2) that issue was actually litigated; (3) it was determined by a final and valid
judgment; and (4) the determination was essential to the prior judgment. (Id.) Given the fact that
this Court already found that LaBow and WPN breached their fiduciary duty to the trust, the DOL’s
claim against the remaining defendants can proceed to the merits.
Fiduciaries have a duty to exercise “‘the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims.’” Sweda, 923 F.3d at 328 (quoting 29 U.S.C. § 1104(a)(1)(B)).
15
15
The power to appoint and dismiss an investment fiduciary “carries with it a duty ‘to monitor
appropriately’ those subject to removal.” Coyne & Delany Co. v. Selman, 98 F.3d 1457, 1465 (4th
Cir. 1996) (quoting Ed Miniat, Inc. v. Globe Life Ins. Grp., Inc., 805 F.2d 732, 736 (7th Cir. 1986);
Leigh v. Engle, 727 F.2d 113, 135 (7th Cir. 1984)).
A fiduciary’s [monitoring] process must bear the marks of loyalty, skill, and
diligence expected of an expert in the field. It is not enough to avoid misconduct,
kickback schemes, and bad-faith dealings. The law expects more than good
intentions. ‘[A] pure heart and an empty head are not enough.’
Sweda, 923 F.3d at 329 (quoting DiFelice v. U.S. Airways, Inc., 497 F.3d 410, 418 (4th Cir. 2007))
(emphasis added). And, a “failure to ‘monitor . . . investments and remove imprudent ones’ may
constitute a breach.” Sweda, 923 F.3d at 328 (quoting Tibble III, 135 S.Ct. at 1828-29 (2015)).
Consequently, a trustee may not assume that because the investments were legal and proper when
purchased that they will remain so indefinitely. Tibble III, 135 S.Ct. at 1828 (citing A. Hess, G.
Bogert, & G. Bogert, Law of Trusts and Trustees § 684, pp. 145–146 (3d ed. 2009) (Bogert 3d)).
Rather,
[a]t reasonable intervals the performance of trustees and other fiduciaries should be
reviewed by the appointing fiduciary in such manner as may be reasonably
expected to ensure that their performance has been in compliance with the terms of
the plan and statutory standards, and satisfies the needs of the plan.
29 C.F.R. § 2509.75–8; see Whitfield v. Cohen, 682 F. Supp. 188, 196 (S.D. N.Y. 1988) (citing G.
Bogert, Trusts and Trustees, § 557 at 155 (Rev. 2d ed. 1980)) (“A fiduciary must ascertain within
a reasonable time whether an agent to whom he has delegated a trust power is properly carrying
out his responsibilities”).16
Fiduciaries are also expected to “understand and monitor plan
expenses.” Sweda, 923 F.3d at 329.
“Furthermore, there may be times when a reasonable fiduciary suspects an imprudent investment, but waits
until she engages in a regularly scheduled systematic review to confirm her suspicion and properly reinvest the funds
elsewhere.” Tribble v. Edison Int’l, CV 07-5359 SVW, 2017 WL 3523737, at *12 (C.D. Cal. Aug. 16, 2017).
16
16
But, an appointing authority is only personally liable for a loss if something puts that person
on notice of a possible misadventure. Coyne & Delany Co., 98 F.3d at 1466 n.10 (citing Newton
v. Van Otterloo, 756 F. Supp. 1121, 1132 (N.D. Ind. 1991)). To this end, “fiduciaries must give
‘appropriate consideration to those facts and circumstances that . . . the fiduciary knows or should
know are relevant to the particular investment or investment course of action involved,” id.
(quoting 29 C.F.R. § 2550.404a-1(b)(1)(i)), “[b]ecause the content of the duty of prudence turns
on ‘the circumstances . . . prevailing’ at the time the fiduciary acts”, see Fifth Third Bancorp v.
Dudenhoeffer, __ U.S. __, 134 S. Ct 2459, 2471 (2014) (quoting 29 U.S.C. § 1104(a)(1)(B)). Thus,
the standard focuses on “the ‘extent to which plan fiduciaries at a given point in time reasonably
could have predicted the outcome that followed.’” In re Lehman Brothers Sec. & ERISA Litig.,
113 F. Supp. 3d 745, 754 (S.D.N.Y. 2015). It is one of prudence not prescience. Id. (citing
DeBruyne v. Equitable Life Assurance Soc’y of the U.S., 920 F.2d 457, 465 (7th Cir.1990)); Schrey
v. Lovett, Civ. Act. No. 09-cv-292, 2011 WL 5837073, at *3 (E.D. Pa. Nov. 21, 2011).
The DOL noted in its Amicus Brief in the United States Court for the Northern District of
Oklahoma “in most cases, it will be enough [if appointing fiduciaries] adopt and adhere to routine
procedures sufficient to alert them to deficiencies in performance which could require corrective
action (e.g., the implementation of a system of regular reports on the investment fiduciaries
decisions and performance).” In re Williams Co. ERISA Lit., No. 02-153 (DOL Amicus Brief, at
5). Likewise, the DOL’s guidance to appointing authorities on the duty to monitor requires, “under
the applicable facts and circumstances,” the following:
• the appointing authority must adopt routine monitoring procedures;
• the appointing authority must adhere to the routine monitoring procedures;
• the appointing authority must review the results of the monitoring procedures;
• the monitoring procedures must alert the appointing authorities to possible
deficiencies; and
• the appointing authority must act to take required corrective action.
17
(Docket No. 144); 29 C.F.R. § 2509.75-8, FR-17; In re Williams Co. ERISA Litig., No. 02-153
(N.D. Okla. Aug. 22, 2003) (DOL Amicus Brief, at 5, 8-9). Thus, an appointing authority that has
instituted proper monitoring procedures has the corresponding duty to review and evaluate what
is reported through such procedures and take corrective action when required. See id. At least one
court has found quarterly monitoring sufficient. See Sacerdote v. New York Univ., 328 F. Supp.
3d 273, 290, 307 (S.D.N.Y. 2018).
The duty to monitor does not carry with it the duty to review an investment fiduciary’s
every decision. See Howell v. Motorola, Inc., 633 F.3d 552, 573 (7th Cir. 2011); Lingis v.
Motorola, Inc., 649 F. Supp. 2d 861, 882-83 (N.D. Ill. 2009). This is the rule even during a
financial crisis. See In re Lehman Brothers Sec. & ERISA Litig., 113 F. Supp. 3d at 757. Because
to find otherwise would defeat the purpose of hiring investment fiduciaries to run a benefit plan in
the first place.17 See Howell, 633 F.3d at 573; Lingis, 649 F. Supp. 2d 882-83.
Again, a fiduciary’s obligation to act is triggered when it has notice of the appointee’s
misconduct or has information available to it from which the misconduct would be apparent. Sec’y
of Labor v. Doyle, 657 F. App’x 117, 127-28 (3d Cir. 2016). An appointing authority is not
exposed to liability unless something “‘put [them] on notice of possible misadventure by their
appointees.’” Coyne, 98 F.3d at 1466 n.10 (quoting Newton v. Van Otterloo, 756 F. Supp. 1121,
1132 (N.D. Ind. 1991)); see in re BP P.L.C. Sec. Litig., Civ. Act. No. 4:10–cv–4214, 2015 WL
6674576, at *11 (S.D. Tex. Oct. 30, 2015) (citing In re Dynegy, Inc. ERISA Litig., 309 F. Supp.
As explained in the DOL’s amicus brief in In re Williams Co. ERISA Litigation, “appointing fiduciaries are
not charged with directly overseeing the investments [as that would be] duplicating the responsibilities of the
investment fiduciaries”; that appointing fiduciaries “are required to have procedures in place so that on an ongoing
basis they may review and evaluate whether the investment fiduciaries are doing an adequate job;” and the procedures
that are implemented allow the appointing fiduciary “under the applicable circumstances, to assure themselves that”
the investment fiduciaries “are properly discharging their responsibilities.” DOL Amicus Brief, at 8-9.
17
18
2d 861, 902 (S.D. Tex. 2004)). Consequently, the decisive issue in this case is when Defendants
had notice of WPN and LaBow’s underlying breach.
It bears mentioning that this is not the typical failure to monitor case. Rather than argue
that at some point in time the Plans’ investments became imprudent and should have been
removed, the DOL, instead, argues that the Account should never have been accepted in the first
place. (Docket No. 183 at 2). Indeed, the DOL admits that a breach occurred before any
monitoring could begin. (Docket No. 196 at 2). Although creatively argued, the DOL appears to
be making a failure to invest claim. As this Court explained in its June 17, 2017 decision, the
Retirement Committee delegated to LaBow and WPN the power to invest the Plans’ assets and
under the safe harbor provision of § 405(d)(1), cannot be held liable for their actions. (Docket No.
144). After all, LaBow testified that in signing the investment management agreement, he was
simply “memorializing” the already established relationship between the parties and had been
fulfilling his investment management duties for the “Plans” since November 1, 2008. (Docket No.
192 ¶ 18).
This Court now turns its attention to the salient issue of when the Defendants knew or
should have known that LaBow and WPN defied their explicit instructions to diversify the trust.
The DOL has conceded that Defendants did not have actual notice of WPN and LaBow’s breach
until after the Retirement Committee reviewed a routine quarterly report from Mercer. (Docket
Nos. 181-9 at 3; 190 ¶ 56; 192 ¶¶ 25). Specifically, DiClemente learned from Mercer on December
29, 2008, that the funds were not diversified and that LaBow had ignored the Retirement
Committee’s clear instructions. (Docket Nos. 181-9 at 3; 190 ¶ 56; 192 ¶¶ 25, 29). DiClemente,
Halpin, and the Retirement Committee had a right to rely on the Mercer reports. To that end,
nothing in the Mercer reports prior to December 29, 2008 would have put the Retirement
19
Committee on notice that the Severstal Trust was not properly diversified.18 Immediately after
learning that the funds were not diversified, DiClemente contacted LaBow and the Retirement
Committee’s ERISA attorney, and together with Halpin proceeded to strategize how to best resolve
this situation retaining as much of the value of the trust as possible.19 (Docket Nos. 184-10 at 6465, 72; 192 ¶ 60). This dialogue continued with King’s oversight on almost a daily basis until the
Account dissolved. (Docket No. 192 ¶ 72). The Account was ultimately sold for cash in March
2009, and as noted, LaBow and WPN were terminated as investment managers on May 19, 2009.
(Docket No. 190 ¶¶ 66-67, 70). Both experts agree that during this time the market was extremely
volatile, it was industry standard to give an investor time to correct a mistake, and there was an
inherent danger in leaving the funds unmanaged.20 (Docket Nos. 178-9 at 9-11; 181-7 at 8-9, 16;
181-8 at 27-28). It is pure speculation that had the Retirement Committee acted sooner somehow
the outcome would have been different. Although Dr. Mangiero opines that there were earlier “red
flags”, these purported red flags occurred prior to the time that Defendants’ duty to monitor arose.21
(Docket No. 148). Further, neither the DOL nor its expert, Dr. Mangiero, could provide the Court
The DOL has pointed to other evidence that it believes provided Defendants notice of LaBow and WPN’s
misadventure. The Court rejects each of these arguments. As to LaBow’s alleged delay in transferring the assets,
LaBow’s October 22, 2008 email makes clear that he delayed the transfer due to the volatility in the market and was
waiting for a more apt time. (Docket Nos. 184-13 at 11; 190 ¶ 26). The DOL likewise argues that the Retirement
Committee should have acted sooner because it knew in November 2008 that Neuberger Berman was not managing
the Account; yet, at the time it learned of this information, LaBow was still functioning as its investment manager and
theoretically managing the Account. (Docket Nos. 183 at 15; 193 at 10). Also, of note is the fact that LaBow and
WPN were the longtime investment managers of the WHX Trust and had exemplary results prior to managing the
Severstal Trust albeit the market conditions in 2008-2009, were unlike those seen in a long time. (Docket No. 184 ¶
20; 184-8 at 53).
19
Once Defendants learned that the funds were not diversified, they acted immediately to rectify the problem.
(Docket Nos. 184-10 at 64-65, 72; 192 ¶¶ 60, 72). They did not conceal the misadventure but rather fulfilled their
fiduciary obligation to take corrective action.
20
Contrary to Dr. Mangiero’s suggestion, the duty to monitor does not become heightened during a financial
crisis. See In re Lehman Brothers Sec. & ERISA Litig., 113 F. Supp. 3d at 745.
21
It appears that Dr. Mangiero’s opinions go more to a breach of the duty to invest. It is also worth noting that
had this case gone to trial, this Court would likely give greater weight to Dr. Stangle’s opinion. See In re Unisys
Savings Plan Litig., 173 F.3d 145, 157-58 (3d. Cir. 1999) (explaining that “[w]e would be hard pressed to require a
District Court judge sitting in a non-jury case who credibly and with reason found that [s]he could not believe a witness
to nevertheless hear the witness’s direct examination, cross-examination, and rebuttal examination in an extended trial
when [s]he knew that [s]he would only reject it as unbelievable”).
18
20
with a date on which LaBow should have been terminated. (Docket Nos. 181-8 at 25; 181-30 at
13). Hence, the Court cannot find that Defendants breached the duty to monitor and summary
judgment is warranted.
VI.
CONCLUSION
DiClemente, Halpin, and the Retirement Committee’s Motion for Summary Judgment is
GRANTED and the DOL’s cross motion is DENIED, as moot.
An appropriate order follows.
/s Nora Barry Fischer
Nora Barry Fischer
Senior United States District Judge
Dated: September 30, 2019
cc/ecf: All counsel of record.
21
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