Harris v. Koenig

722 F.Supp.2d 44

William S. HARRIS, et al., Plaintiffs,

v.James E. KOENIG, et. al., Defendants.

United States District Court,District of Columbia. William S. HARRIS, et al., Plaintiffs,

v.

James E. KOENIG, et. al., Defendants. Civil Action No. 02-618 (GK). June 10, 2010.

OPINION TEXT STARTS HERE

Bryan Taylor Veis, James Brian McTigue, James A. Moore, McTigue & Porter, Gregory Yann Porter, Bailey & Glasser, LLP, Washington, DC, Brian A. Glasser, Bailey & Glasser LLP, Charleston, WV, Ellen M. Doyle, Joel R. Hurt, John Stember, Pamina G. Ewing, Stember Feinstein Doyle Payne & Cordes, LLC, Pittsburgh, PA, for Plaintiffs.

Jonathan S. Quinn, Lisa A. Kellmeyer, Sarah R. Wolff, Sachnoff & Weaver, Ltd., Matthew R. Kipp, Richard L. Brusca, Skadden, Arps, Slate, Meagher & Flom

LLP, Wilber H. Boies, Kristen C. Klanow, McDermott, Will & Emery, Kristi Nelson, Freeman, Freeman & Salzman, P.C., Phillip L. Stern, Neal, Gerber & Eisenberg LLP, Francis J. Higgins, Peter G. Rush, Lawrence M. Gavin, Nicholas J. Etten, Bell, Boyd, Lloyd, LLC, Chicago, IL, Gary Steven Tell, Robert N. Eccles, Shannon M. Barrett, O'Melveny & Myers, L.L.P., Amanda M. Raines, Skadden, Arps, Slate, Meagher & Flom, LLP, Michael J. Schrier, K & L Gates LLP, Charles R. Work, Karla Lynn Palmer, McDermott, Will & Emery LLP, Washington, DC, Abby C. Johnston, Paul B. Salvaty, O'Melveny & Myers LLP, Los Angeles, CA, Michael C. Miller, Stuart L. Shapiro, Shapiro Forman Allen & Miller, New York, NY, Daniel A. Curto, Steven W. Kasten, McDermott Will & Emery, Boston, MA, for Defendants.

MEMORANDUM OPINION

GLADYS KESSLER, District Judge.

Plaintiffs William S. Harris, Reginald E. Howard, and Peter M. Thornton, Sr. are former employees of Waste Management Holdings, Inc. (“Old Waste” or “the Company”) and participants in the Waste Management Profit Sharing and Savings Plan (“Old Waste Plan” or “Plan”). They bring this action on behalf of the Plan's approximately 30,000 participants under the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001, et seq., against Defendants, ¹ all of whom were fiduciaries of the Old Waste Plan or are fiduciaries of its successor plan, the Waste Management Retirement Savings Plan (“New Waste Plan”). ²

This matter is presently before the Court on Defendants' Motions to Dismiss Counts I-V, VII-IX, XIII, and XIV of the Substitute Fourth Amended Complaint [Dkt. Nos. 290, 291, and 294]. Upon consideration of the Motions, Opposition, Replies, and the entire record herein, and for the reasons set forth below, the Waste Defendants' Motion to Dismiss [Dkt. No. 294] is denied, the Individual Waste Defendants' Motion to Dismiss [Dkt. No. 291] is denied in part and granted in part, and Defendant State Street Bank & Trust Company's Motion to Dismiss [Dkt. No. 290] is granted.

I. Background

This action arises from Old Waste's announcement on February 24, 1998 that it was restating several of its financial statements for periods between 1991 and 1997 and that, prior to 1992 and continuing through the first three quarters of 1997, it had materially overstated its reported income by $1.43 billion. That announcement led to the filing of a securities class action in the Northern District of Illinois, which settled on September 17, 1999 (“Illinois Litigation”). Under the terms of the settlement, Old Waste and its agents were released from liability for any claims-including unknown claims-brought by members of the Illinois Settlement Class. In 1999, after Old Waste merged with Waste Services, Inc. to become New Waste, New Waste announced further after-tax charges and adjustments of $1.23 billion. The announcement led to the filing of other securities class action complaints against New Waste and certain of its officers and directors in the Southern District of Texas, which settled on April 29, 2002 (“Texas Litigation”). Both settlements included the Plan and its fiduciaries within the scope of the class.

On April 1, 2002, Plaintiffs filed the instant action in this Court, alleging ten counts of ERISA violations. The claims were divided into three periods. First, Plaintiffs alleged five ERISA violations related to the Plan's purchase of inflated shares of company stock in the first claim period between January 1, 1990 and February 24, 1998 (Counts I-V). Second, Plaintiffs alleged four ERISA violations related to the release of claims by the Plan's fiduciaries in the Illinois securities litigation in the second claim period between July 15, 1999 and December 1, 1999 (Counts VI-IX). Third, Plaintiffs alleged one ERISA violation in the third claim period between February 7, 2002 and July 15, 2002 related to the release of claims by the New Waste Plan's trustee-Defendant State Street Bank and Trust Company-in the Texas securities litigation (Count X).

After the filing of this action, Waste Management, Inc. filed a motion to enforce the Illinois settlement in the United States District Court for the Northern District of Illinois to prevent this action from moving forward. On March 11, 2003, Judge Wayne R. Andersen, who presided over the Illinois Litigation, denied the motion after finding that the earlier part of the class period in this Court's lawsuit “clearly fall[s] outside of the scope of the settlement language of the class action securities case.” In re Waste Mgmt., Inc. Sec. Litig., No. 97-C-7709, 2003 WL 1463585, at *2 (N.D.Ill.2003). Judge Andersen concluded that ruling on the merits of Defendants' motion to enjoin this action was not in the interest of judicial economy, as this Court would nevertheless be required to consider the period predating the Illinois Class Period.

On February 2, 2005, Plaintiffs filed their Third Amended Complaint in this action. On March 12, 2009, this Court dismissed Counts I-V as time-barred under ERISA § 413 because Plaintiffs had “actual knowledge of the breach or violation” more than three years before filing the original Complaint. Harris v. Koenig, 602 F.Supp.2d 39, 52 (D.D.C.2009) [Dkt. No. 218 at 26]. The Order also rejected Plaintiffs' argument that the three-year limitation should be tolled, finding that Defendants' failure to disclose material information was insufficient to establish fraud or concealment under ERISA. Id. at 52-53. In the Motion for Leave to File a Fourth Amended Complaint, Plaintiffs requested leave to amend their Complaint to include new facts which would establish acts of fraud or concealment by Defendants-namely, that certain Old Waste Plan fiduciaries “fraudulently misstated, or caused to be fraudulently misstated, material financial information contained in disclosures required by ERISA and the 1934 Act.” Fourth Amended Complaint [Dkt. No. 240-2] at ¶ 79.

Plaintiffs separately moved for leave to file a Substitute Fourth Amended Complaint to add Counts XIII and XIV, which allege Defendant State Street's violation of ERISA § 406(b)(2) in the Illinois and Texas Litigations. Counts XIII and XIV stem from Defendants' statement in their Opposition to Plaintiffs' Motion for Leave to File the Fourth Amended Complaint that Defendant State Street was released from all third period claims because it was acting as an “agent” of New Waste. Plaintiffs allege that such a principal-agent relationship conflicts with State Street's fiduciary obligations, and therefore State Street's participation in the Illinois and Texas Litigations constitutes prohibited self-dealing in violation of ERISA § 406(b), 29 U.S.C. § 1106(b).

On December 14, 2009, the Court granted Plaintiffs leave to amend the Complaint in order to re-assert Counts I-V and to add Counts XIII and XIV. ³ Harris v. Koenig, 673 F.Supp.2d 8, 12-15 (D.D.C.2009) [Dkt. No. 279]. The Court stated in its Opinion that it “defers ruling on the merits of Defendants' statute of limitations argument [made in opposing the Motions for Leave to File], which is better addressed in a motion to dismiss.” Id. at 13.

Defendants accordingly filed three Motions to Dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6): (1) the Waste Defendants' ⁴ Motion to Dismiss Counts I-V and Counts VII-IX [Dkt. No. 294]; (2) the Individual Waste Management Defendants' ⁵ Motion to Dismiss Counts I-V [Dkt. No. 291]; and (3) Defendant State Street's Motion to Dismiss Counts XIII and XIV [Dkt. No. 292]. Counts VI and X were not challenged by any of the Defendants.

II. Standard of Review

Under Rule 12(b)(1), the plaintiff bears the burden of proving by a preponderance of the evidence that the court has subject matter jurisdiction to hear the case. See Jones v. Exec. Office of the President, 167 F.Supp.2d 10, 13 (D.D.C.2001). In reviewing a motion to dismiss for lack of subject matter jurisdiction, the court must accept as true all of the factual allegations set forth in the complaint; however, such allegations “will bear closer scrutiny in resolving a 12(b)(1) motion than in resolving a 12(b)(6) motion for failure to state a claim.” Wilbur v. CIA, 273 F.Supp.2d 119, 122 (D.D.C.2003) (citations and quotations omitted). The court may consider matters outside the pleadings. See Herbert v. Nat'l Acad. of Sciences, 974 F.2d 192, 197 (D.C.Cir.1992). The court may also rest its decision on the court's own resolution of disputed facts. Id.

Under Rule 12(b)(6), a plaintiff need only plead “enough facts to state a claim to relief that is plausible on its face” and to “nudge[ ] [his or her] claims across the line from conceivable to plausible.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). “[A] complaint [does not] suffice if it tenders naked assertions devoid of further factual enhancement.” Ashcroft v. Iqbal, --- U.S. ----, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (internal quotations omitted) (citing Twombly, 550 U.S. at 557, 127 S.Ct. 1955). Instead, the complaint must plead facts that are more than “merely consistent with” a defendant's liability; “the pleaded factual content [must] allow[ ] the court to draw...