In re AME Church Emp. Ret. Fund Litig.

1

IN RE AME CHURCH EMPLOYEE RETIREMENT FUND LITIGATION,

No. 1:22-md-03035-STA-jay

No. 1:22-cv-01129-STA-jay

United States District Court, W.D. Tennessee, Eastern Division

February 28, 2024

ALL CASES

ORDER GRANTING IN PART, DENYING IN PART NEWPORT GROUP, INC.'S MOTION TO DISMISS AFRICAN METHODIST EPISCOPAL CHURCH'S AMENDED CROSS-COMPLAINT (ECF NO 280)

S THOMAS ANDERSON UNITED STATES DISTRICT JUDGE

This multidistrict litigation concerns losses to a non-ERISA retirement Plan established by the African Methodist Episcopal Church (“AMEC”) for its clergy and employees. Plaintiffs are current or retired clergy of the church and allege a number of claims under Tennessee law against the denomination, church officials, third-party service providers to the Plan, and other alleged tortfeasors. AMEC and the African Methodist Episcopal Church Ministerial Retirement Annuity Plan (“the Plan”) have filed an Amended Cross-Complaint (ECF No. 256) naming Newport Group, Inc. as one of several Cross-Defendants. Before the Court is Newport Group, Inc.'s Motion to Dismiss the Amended Cross-Complaint (ECF No. 280). AMEC and the Plan have responded in opposition, and Newport has filed a reply. For the reasons set forth below, Newport's Motion to Dismiss is GRANTED in part, DENIED in part.

BACKGROUND

I. Factual Allegations of the Amended Cross-Complaint

According to the Amended Cross-Complaint, AMEC discovered in September 2021 that the Rev. Dr. Jerome V. Harris, the former Executive Director of the AMEC Department of Retirement Services and the Trustee for the Plan, had embezzled Plan funds and defrauded the Church. Am. Cross-Compl. ¶ 1, July 25, 2023 (ECF No. 256). Concerning Newport, the Amended Cross-Complaint alleges that on December 13, 2001, Dr. Harris on behalf of AMEC entered into an agreement with American Express Tax and Business Services (“AmEx”) to perform services as a third-party administrator for the Plan. Cross-Compl. ¶ 49. AmEx's role as third-party administrator required it to manage the Plan on a day-to-day basis. Id. ¶ 50. AmEx's responsibilities included, but were not limited to, tracking balances of Plan participants and preparing and sending statements to Plan participants. Id. Cross-Plaintiffs allege that AmEx like any third-party administrator had a duty to take reasonable steps to verify whether the financial positions it reported were accurate and a duty to perform reasonable diligence to confirm the accuracy of its reports. Id.

Eventually, through a series of corporate mergers, AmEx merged with Newport. Id. ¶ 51. As a result of that merger, Newport assumed AmEx's role as third-party administrator and its duties to take reasonable steps to verify the accuracy of financial information about the Plan's investments and assets and its duty of diligence to confirm the accuracy of the information. Id. AMEC and the Plan allege Newport breached its duty to take reasonable steps to verify whether the financial positions contained in reports prepared by Newport were accurate and to perform reasonable diligence to confirm the accuracy of its reporting. Id. ¶ 52. According to the Amended Cross-Complaint, Motorskill Venture Group; Motorskill Ventures 1, LP; Motorskill Asia Venture Group; and Motorskill Asia Ventures 1, L.P. (“the Motorskill Entities”) are private equity funds with whom Dr. Harris and others invested millions of dollars in Plan assets but without any authority from AMEC. Id. ¶ 10. Newport stopped receiving quarterly financial statements in 2019 from the Motorskill Entities. Id. ¶ 52. Even though Newport did not receive quarterly financial statements from the Motorskill Entities after 2019, Newport continued to include holdings in the Motorskills Entities in its reporting of Plan assets and therefore reported an erroneous and inflated value of the Plan's investments.^[1]Id. ¶ 52. AMEC and the Plan allege that had Newport investigated why the Motorskill Entities stopped providing financial reports, Newport would have learned that the Motorskill Entities were insolvent. Id. ¶ 53.

More generally, the Amended Cross-Complaint alleges Newport was on notice as early as October 26, 2011, that Dr. Harris was investing Plan funds in risky, illiquid, privately-held, venture capital securities. Id. ¶ 54. Newport, as a professional third-party administrator of retirement plan accounts, knew that such investments were entirely inappropriate for a retirement plan. Id. ¶ 55. But Newport failed to inform AMEC of Dr. Harris's inappropriate investments. Id. ¶ 56. Newport not only failed to warn the Church regarding the inappropriate investments, Newport also failed to investigate the true value of the investments and the lack of financial reporting from the Motorskill Entities. Id. ¶ 57. Newport then negligently reported grossly erroneous information to the auditor of the Plan, Cross-Defendant Rodney Brown, in a non-qualifying letter that failed to disclaim that Newport did not, in fact, confirm the value of the Plan's accounts, nor that it had failed to obtain any supporting documentation. Id. ¶ 58. As a result of Newport's negligence and negligent misrepresentations, AMEC and the Plan were gravely harmed.

The Cross-Plaintiffs allege that Newport's conduct has caused the denomination to suffer significant reputational and financial harm. Church funds were used to finance the Plan, and those funds were lost as a result of Newport's negligence. Id. ¶ 59. AMEC continues to suffer significant financial damages in that the Church now must replenish the Plan funds that were lost due to Newport's negligence of Newport, not to mention fund the costs of litigation. Id. ¶ 60. Newport's negligence has also caused the Plan to sustain financial damages. Id. ¶ 61. From these premises, AMEC and the Plan seek to hold Newport liable for negligent misrepresentation, breach of fiduciary duty, simple negligence, and punitive damages.

II. Procedural History

In early 2022, Plaintiffs, clergy and other denominational employees who are participants in the Plan, filed six civil actions against AMEC and others across several United States District Courts: Rev. Pearce Ewing v. A frican Methodist Episcopal Church et al., No. 2:22-cv-02136-JTF-atc (W.D. Tenn. Mar. 4, 2022); Charles R. Jackson v. Newport Group, Inc. et al., No. 2:22-cv-02174-JTF-atc (W.D. Tenn. Mar. 22, 2022); Rev. Cedric V. Alexander v. Rev. Dr. Jerome Harris et al., No. 8:22-cv-00707-PJM (D. Md. Mar. 22, 2022); Phillip Russ, IV et al. v. Newport Group, Inc., No. 3:22-cv- 00375-BJD-LLL (M.D. Fla. Mar. 31, 2022); Rev. Derrell Wade et al. v. Newport Group et al., No. 3:22-cv-00179-DN (E.D. Va. Apr. 1,2022); Rev. A. Offord Carmichael, Jr. etal. v. Rev. Dr. Jerome Harris et al., No. 3:22-cv-00386-UA-JLW (M.D. N.C. May 19, 2022).^[2]

Plaintiff Rev. Pearce Ewing moved under 28 U.S.C. § 1407 to consolidate all proceedings in the Western District of Tennessee. On June 2, 2022, the Panel on Multidistrict Litigation transferred the civil actions to this Court, finding that consolidation would “serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation.” MDL Transfer Order 1, June 2, 2022 (ECF No. 1). The Panel further found that consolidation in this District was appropriate since the AMEC Department of Retirement Services has its principal place of business in this District and the Rev. Dr. Jerome V. Harris, the former trustee of the Plan, resides in this District. Id. at 2. On June 22, 2022, the Court entered a Practice and Procedure order to govern all further proceedings. See Practice & Proc. Order, June 22, 2022 (ECF No. 8). The Court has continued to hold status conferences with counsel for the parties approximately every 60 days.

The Court has also established a series of case management deadlines. The Court held its initial case management conference with counsel for the parties on August 4, 2022, and approved the case management deadlines proposed by the parties. On August 25, 2022, the Court entered a case management order (ECF No. 78), setting forth the deadlines discussed at the initial conference. Among other things, the Court gave the parties until August 30, 2023, to complete all fact discovery, and February 9, 2024, to complete expert discovery. The Court also set March 26, 2024, as Plaintiffs' deadline to file a motion for class certification and the deadline for all parties to file dispositive motions and Daubert motions. On January 25, 2024, the Court extended the deadline to complete written discovery to July 20, 2024, the deadline to complete expert discovery to December 20, 2024, and the deadline for Plaintiffs to file their motion for class certification to January 20, 2025. See Order Partially Granting Mot. to Extend, Jan. 25, 2024 (ECF No. 330).

On August 21,2022, Plaintiffs filed their Consolidated Amended Complaint - Class Action (ECF No. 74) (“Amended Complaint”). The Court has thoroughly discussed the allegations of Plaintiffs' Amended Complaint in its previous orders and need not review them in full here. Briefly, the Amended Complaint alleged a number of claims under Tennessee law against AMEC, Symetra Life Insurance Company, Newport Group, and others. AMEC, Symetra Life, and Newport filed separate motions to dismiss, challenging the sufficiency of Plaintiffs' Amended Complaint and Plaintiffs' standing to sue. In an order dated March 17, 2023, the Court held that the Amended Complaint had plausibly alleged Plaintiffs' standing and stated plausible claims for relief against AMEC, Symetra Life, and Newport. See Order on Mots. to Dismiss Consolidated Am. Compl. -Class Action, Mar. 17, 2023 (ECF No. 197).

AMEC has denied the allegations of Plaintiffs' Amended Complaint and filed a Rule 13 cross-claim...