Beta Grp., Inc. v. Steiker, Greenaple, & Croscut, P.C.

BETA GROUP, INC.; BETA GROUP INC.EMPLOYEE STOCK OWNERSHIP PLAN; FRANK J. ROMEO, Plaintiffs, v. STEIKER, GREENAPLE, & CROSCUT, P.C.; SHARED EQUITY STRATEGIES,INC.; SES ADVISORS; JAMES G. STEIKER; ROBERT W. EDWARDS;STEVEN B. GREENAPPLE; TABITHA M. CROSCUT; ROBERT E. MASSENGILL; BRIAN WURPTS;DOUG CANNON; MARK R. KOSSOW; JOHN DOES 1-10, Defendants.

C.A. No. 15-213 WES

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF RHODE ISLAND

January 18, 2018

MEMORANDUM AND ORDER

WILLIAM E. SMITH, Chief Judge.

Magistrate Judge Lincoln D. Almond filed a Report and Recommendation ("R&R") (ECF No. 54) with respect to Defendants' Motion To Dismiss ("Motion") (ECF No. 39). He recommends that the Court: (1) grant Defendants' Motion To Dismiss Individual Defendants James G. Steiker, Robert W. Edwards, Steven B. Greenapple, Tabitha M. Croscut, Robert E. Massengill, and Doug Cannon (collectively "Individual Defendants"); and (2) deny Defendants' Motion in all other respects. In response to the R&R, three separate objections were timely filed.¹

Plaintiffs object (ECF No. 55) to Magistrate Judge Almond's recommendation that the Court dismiss without prejudice Defendants James Steiker, Robert Edwards, Steven Greenapple, Tabitha Croscut, Robert Massengill, and Doug Cannon. (Mem. in Supp. of Pls.' Obj. to R. & R. 1-2, ECF No. 55-1.) To this end, Plaintiffs posit that Magistrate Judge Almond: (1) "failed to adequately consider the Amended Complaint's allegations that the Defendants deliberately created a structure . . . intended to obscure what errors were committed by which of the Individual Defendants . . . ."; and (2) neglected to appreciate that ERISA encompasses liability for both active involvement in fiduciary breaches or passive supervision by failing to correct subordinate-made errors. (Id. at 2-4.)

The Court endorses Magistrate Judge Almond's recommendation that Plaintiffs failed to lodge plausible claims against Individual Defendants. To fulfill the demands of notice pleading, "a plaintiff cannot 'lump' multiple defendants together and must 'state clearly which defendant or defendants committed each of the alleged wrongful acts.'" Canales v. Gatzunis, 979 F. Supp. 2d 164, 170 (D. Mass. 2013) (quotingBagheri v. Galligan, 160 F. App'x 4, 5 (1st Cir. 2005)); see also Atuahene v. City of Hartford, 10 F. App'x 33, 34 (2d Cir. 2001) ("By lumping all the defendants together in each claim and providing no factual basis to distinguish their conduct, [the plaintiff's] complaint failed to satisfy [Rule 8's] minimum standard . . . ."). Plaintiffs have not cleared this hurdle. Moreover, Plaintiffs' argument that it is impossible to uncover what role each Individual Defendant played in the alleged misconduct is belied by Plaintiffs' ability to specifically pinpoint the role played by Defendants Wurpts and Kossow.² (See Am. Comp. ¶¶ 65-71.)

Defendant SES Advisors objects (SES Obj., ECF No. 56) to Magistrate Judge Almond's recommendations that the Court deny the Motion as it pertains to Count I of Plaintiffs' Amended Complaint and to the dismissal of Plaintiffs Beta Group, Inc. Employee Stock Ownership Plan ("Plan"), and Frank J. Romeo. Similarly, Defendant Steiker, Greenapple, and Croscut, P.C.("SGC") separately object (SGC Obj., ECF No. 57), largely contesting the same aspects of the R&R as Defendant SES Advisors. Because SES Advisors' and SGC's Objections are duplicative, the Court addresses them together.³

Defendants' Objections press two arguments. First, Defendants suggest that they are not functional fiduciaries with respect to the proposed Plan amendment for lack of discretionary authority or control over that particular decision. (SES Obj. 1-2; SGC Obj. 1-4.) Additionally, Defendants aver that Magistrate Judge Almond incorrectly recommends that the Court deny the dismissal of the Plan and Frank J. Romeo as plaintiffs based on the supposedly incorrect application of the collateral source rule because neither plaintiff sustained damages. (SES Obj. 2, 6-7; SGC Obj. 1-2, 9-10.)

As to the first argument, Defendants' attempt to undercut their fiduciary status comes up short. Defendants zero in on their failure to amend the Plan and couch Plaintiffs' allegations as charging them with the mere failure to effectuate the removal of the 4% MPPP contribution at the direction of Plaintiffs. Even accepting Defendants' averment at face value, however, Plaintiffs' Amended Complaint alleges much more thanthat.⁴ Indeed, it sets forth, inter alia, that Defendants: (1) designed, implemented, and administered the Plan, including drafting its governing documents; (2) "provide[d] both the advice on how to remove that provision from the Plan and for executing the steps necessary to remove the provision from the Plan"; (3) in failing to remove the provision, failed to file the necessary documents or provide the expected notice to Plan participants; and (4) in the years following Defendants' error, continued to misinform the government, Plaintiffs, and Plan participants about the status of the 4% MPPP contribution. (Am. Compl. ¶¶ 46, 54-56, 58-61, 64-75.) At this stage of the case, these allegations suffice to demonstrate that Defendants SES Advisors and SGC "exercise[d] . . . discretionary authority or discretionary control respecting management of [the] plan" or "discretionary authority or discretionary responsibility in the administration of such plan."⁵ See 29 U.S.C. § 1002(21)(A).

Furthermore, even without these additional allegations,Defendants' principal objection has no leg to stand on. Defendants suggest that they lacked discretion or control over the amendment and therefore are not functional fiduciaries because they simply failed to follow Plaintiffs' directive to remove the provision. (SGC Obj. 1, SES Obj. 2.) But courts have recognized a distinction between a decision to terminate or modify a plan, non-fiduciary activities, and "activities undertaken to implement the termination decision [that] are generally fiduciary in nature." See Larson v. Northrop Corp., 21 F.3d 1164, 1169 (D.C. Cir. 1994) (citing Letter on Fiduciary Responsibility and Plan Terminations, 13 Pens. Rep. (BNA) 472 (Mar. 17, 1986)); see also Waller v. Blue Cross of California, 32 F.3d 1337, 1342 (9th Cir. 1994) ("By alleging that Blue Cross breached its fiduciary duty in the selection of annuity providers, plaintiffs attack not the decision to terminate, but rather the implementation of the decision. We believe that this distinction is dispositive and hold that Blue Cross acted in a fiduciary capacity . . . ."); Gallagher v. Park W. Bank & Tr. Co., 11 F. Supp. 2d 136, 140-41 (D. Mass. 1998) (deeming "failure . . . to circulate the necessary paperwork to memorialize the adoption of a plan it had created was an act of mismanagement, not a decision with regard to plan formation or amendment."). Under this line of cases, Defendants' representation that they were simply tasked with mechanicallyeffecting the provision's removal, rather than authorizing or controlling the amendment, does more harm than good for their argument. Accordingly, Plaintiffs' breach-of-fiduciary-duty claim clears the plausibility threshold under this theory as well. See Vartanian v. Monsanto Co., 14 F.3d 697, 700 (1st Cir. 1994) ("[I]f, under any theory, the allegations are sufficient to state a cause of action in accordance with the law, we must deny the motion to dismiss.").

Finally, the Court gleans no error in Magistrate Judge Almond's application of the collateral source rule to decline to dismiss the Plan and Romeo as Plaintiffs. The collateral source rule readily applies in the ERISA context. See, e.g., Merriam v. Demoulas, No. 11-10577-RWZ, 2013 WL 2422789, at *3 (D. Mass. June 3, 2013). To this end, courts have recognized that payments made by a fiduciary or plan sponsor to correct errors connected to the operation of an ERISA-governed plan do not rescind or set off fiduciaries' capacity to recover from actual wrongdoers. See Chao v. Merino, 452 F.3d 174, 184-85 (2d Cir. 2006); Merriam, 2013 WL 2422789, at *3; In re State St. Bank & Tr. Co. ERISA Litig., 579 F. Supp. 2d 512, 517 (S.D.N.Y. 2008). Moreover, even assuming the collateral source rule is inapplicable, the Plan and Romeo are proper plaintiffs. Defendants' errors left the Plan significantly underfunded for several years, which suffices to allege damages at this stage.See LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 256 (2008) (recognizing under ERISA "recovery for fiduciary breaches that impair the value of plan assets . . ."); see also Marks Constr. Co. v. Huntington Nat'l Bank, 614 F. Supp. 2d 700, 708 (N.D. W. Va. 2009) (finding damages where plaintiff "alleged fiduciary misconduct impaired the value of Plan assets . . ."). Moreover, Romeo, as a named fiduciary, is expressly permitted to assert claims for losses on behalf of the Plan stemming from fiduciary breaches. See 29 U.S.C. § 1132(a)(2).

Accordingly, the Court ACCEPTS the R&R (ECF No. 54) in its entirety and adopts its reasoning and recommendations. Therefore, Defendants' Motion To Dismiss (ECF No. 39) Individual Defendants James G. Steiker, Robert W. Edwards, Steven B. Greenapple, Tabitha M. Croscut, Robert E. Massengill, and Doug Cannon is GRANTED without prejudice. Otherwise, the Motion To Dismiss (ECF No. 39) is DENIED.

IT IS SO ORDERED.

/s/_________

William E. Smith

Chief Judge

Date: January 18, 2018

UNITED STATES DISTRICT COURT DISTRICT OF RHODE ISLAND

BETA GROUP, INC., et al.

v.

STEIKER, GREENAPPLE & CROSCUT, PC, et al.

C.A. No. 15-213S

REPORT AND RECOMMENDATION

Lincoln D. Almond, United States Magistrate Judge

Pending before me for a report and recommendation (28 U.S.C. § 636(b)(1)(B)) is the Motion to Dismiss filed by Defendants Steiker, Greenapple & Croscut, P.C. ("SGC Law Firm"), Shared Equity Strategies, Inc. (a/k/a SES Advisors) ("SES"), James G. Steiker, Robert W. Edwards, Steven B. Greenapple, Tabitha M. Croscut, Robert E. Massengill, Brian Wurpts, Doug Cannon and Mark...