Leventhal v. MandMarblestone Grp. LLC, CIVIL ACTION No. 18-cv-2727

JESS LEVENTHAL, ET AL., Plaintiffs, v. THE MANDMARBLESTONE GROUP LLC, ET AL., Defendants.

CIVIL ACTION No. 18-cv-2727

UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA

May 1, 2019

Goldberg, J.

Memorandum Opinion

Currently pending before me are the Motions to Dismiss filed by Defendants, The MandMarblestone Group, LLC ("MMG") and Nationwide Trust Company FSB ("Nationwide"). For the following reasons, these Motions will be granted in part, and denied in part.

I. FACTUAL BACKGROUND

On June 28, 2018, Plaintiffs, Jess Leventhal, The Leventhal Sutton & Gornstein 401(k) Profit Sharing Plan (the "Plan"), and Leventhal Sutton & Gornstein, Attorneys at Law ("LS&G Firm"), filed a Complaint against Defendants MMG and Nationwide for breach of contract (Count One), breach of fiduciary duty under the Employment Retirement Income Security Act of 1974, 29 U.S.C. § 1001, et seq. ("ERISA") (Count Two), and negligence (Count Three).

Plaintiffs aver the following facts:

1. On November 10, 2011, Plaintiff LS&G Firm entered into the Retirement Plan Services Agreement with Defendant MMG (the "MMG Agreement"). (Compl. ¶ 7, ECF No. 1.)

2. Pursuant to the MMG Agreement, LS&G Firm retained MMG as a "consulting firm," whereby MMG agreed to "design[], administer[], and consult[] on" the Plan. (MMG Agreement 11/10/11 at 2, 11, Compl. Ex A, ECF No. 1-1.)

3. The Plan is a retirement savings plan that allows employees to save and invest portions of their paycheck before taxes are taken out, pursuant to Internal Revenue Code § 401(k). As required by § 401(k), LS&G Firm "sponsored" the Plan as the employer for the benefit of its employees (i.e., LS&G Firm is the "Plan Sponsor"). (Id.)

4. On December 1, 2014, LS&G Firm entered into an agreement with Defendant Nationwide (the "Nationwide Agreement"), whereby Nationwide agreed to serve as the "custodian" of the Plan. (Compl. ¶ 8.)

5. Under the Nationwide Agreement, LS&G Firm is the "Plan Sponsor." Defendant MMG is designated as the "Plan Administrator," rendering MMG the "named fiduciary for purposes of ERISA." Plaintiff Leventhal is designated as the Plan trustee and Iron Financial, LLC (which is not a party to this matter) is designated as the advisor/broker. (Nationwide Agreement 10/15/14 at 6-7, 15, 97, Compl. Ex. B, ECF No. 1-2.)

6. The Nationwide Agreement further provides Nationwide with the following "general administrative responsibilities:"

Accept instructions in the Required Format from the Plan Sponsor or Administration Firm regarding the allocation, distribution or other disposition of assets of the Account and all matters relating thereto;

Cause any portion or all of the Account to be issued, held, or registered in the individual name of Nationwide, in the name of its nominee, in an affiliated securities depository, or in such other forms as may be required or permitted under applicable law (however, the records of Nationwide shall indicate the true ownership of such property);

* * *

Commence, maintain, or defend any litigation necessary in connection with the administration of the Account, except that Nationwide shall not be obligated to do so unless it is to be indemnified to its satisfaction against all expenses and liabilities sustained or anticipated by reason thereof;

Hold part or all of the account uninvested as may be necessary or appropriate in accordance with the Cash Processing Provision;

Withhold the appropriate taxes from any distribution, remit such taxes with the relevant government authorities, and report such payments on the informational returns prescribed by such authorities, identifying itself as the payor of such distributions;

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Take all other acts necessary for the proper administration of the Account.

Id. at 16-17.

7. The Nationwide Agreement also provides that "any action to be taken by Nationwide under the Agreement shall be taken upon Written Instruction from the Plan Sponsor or Administration Firm" and that "Nationwide shall comply with such instructions and shall incur no liability for any loss which may result from any action or failure of action on its part due to its compliance with such Written Instructions." (Id. at 19.)

8. On December 31, 2015, Plaintiff Leventhal withdrew $15,000 from his Plan account by completing a withdrawal request form, which is the method prescribed by Nationwide. Plaintiff then emailed the form to MMG. Subsequently, Nationwide transferred the requested $15,000 to Plaintiff Leventhal from his account. (Compl. ¶¶ 10-12.)

9. Sometime after December 31, 2015, "unknown criminal(s)" obtained a copy of Plaintiff Leventhal's original withdrawal form by using an "unknown method of cyber-fraud possibly relating to the electronic transmission of that form." (Id. ¶ 13.)

10. Thereafter, these criminals "posed electronically" as Plaintiff Leventhal's Office Administrator and sent fraudulent withdrawal forms to MMG, which appeared to originate from Plaintiff Leventhal's office email account. These fraudulent withdrawal forms requested that Defendants send the funds to a bank account that did not belong to Plaintiff Leventhal and had not been previously used by him. (Id. ¶ 14.)

11. As a result of the fraudulent withdrawal requests, Plaintiff Leventhal's account in the Plan was depleted from containing more than $400,000 to $0. (Id. ¶ 15.)

12. Plaintiffs obtained documents from MMG, which allegedly indicate that MMG was aware of the "peculiar nature" and frequency of these fraudulent withdrawal forms, but did not communicate any of these concerns or observations to Plaintiffs. (Id. ¶¶ 17-23.)

13. Nationwide improperly distributed the funds to the bank account that was "fraudulently designated by cyber-criminals, even though that account did not actually belong to Mr. Leventhal and had never been authorized or used by him previously." Moreover, Nationwide failed to authenticate the withdrawal forms and signatures. (Id. ¶¶ 31-32, 35, 39.)

14. Neither Defendant implemented the "commonly employed procedures and safeguards" used to notify Plaintiffs of these strange requests and/or verify the authenticity of the requests. (Id. ¶¶ 38-42.)

15. To date, law enforcement officials have been unable to apprehend the criminals or recover the stolen funds. Plaintiffs' insurance claims were also denied. (Id. ¶ 42.)

II. STANDARD OF REVIEW

To survive a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), a complaint must "contain sufficient factual matter, accepted as true, to 'state a claim for relief thatis plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). The plausibility standard requires more than a "sheer possibility that a defendant has acted unlawfully." Id.

To determine the sufficiency of a complaint under Twombly and Iqbal, a court must take the following three steps: (1) the court must "take note of the elements a plaintiff must plead to state a claim;" (2) the court should identify the allegations that, "because they are no more than conclusions, are not entitled to the assumption of truth;" and (3) "where there are well-pleaded factual allegations, [the] court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief." Burtch v. Milberg Factors, Inc., 662 F.3d 212, 221 (3d Cir. 2011) (alterations and citations omitted).

III. DISCUSSION AND ANALYSIS

The Complaint alleges a federal claim pursuant to ERISA for the breach of fiduciary duty (Count Two) and two related state claims of breach of contract (Count One) and negligence (Count Three). Defendants move to dismiss all the claims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Plaintiffs respond that they have sufficiently pled a claim for all three causes of action. For the reasons stated infra, I will deny Defendants' Motions to Dismiss as to the ERISA claim (Count Two), but grant Defendants' Motions as to the state law claims (Counts One and Three).

A. ERISA Claim (Count Two)

"ERISA is a 'comprehensive' statute that is 'the product of a decade of congressional study of the Nation's private employee benefit system.'" Santomenno ex rel. John Hancock Tr. v. John Hancock Life Ins. Co. (U.S.A), 768 F.3d 284, 291-92 (3d Cir. 2014) (quoting Mertens v. Hewitt Assocs., 508 U.S. 248, 251 (1993)). A 401(k) retirement plan is one such employee benefit thatis regulated by ERISA. Id. (citing LaRue v. DeWolff, Boberg & Assoc., Inc., 552 U.S. 248, 255 (2008)). "ERISA imposes fiduciary responsibilities on certain persons. ERISA fiduciaries must act solely in the interest of the plan participants and beneficiaries." Id. (citing 29 U.S.C. § 1104(a)(1)(A)(ii)). To state a claim for breach of fiduciary duty under ERISA, the plaintiff must establish the following elements: "(1) a plan fiduciary (2) breaches an ERISA-imposed duty (3) causing a loss to the plan." Leckey v. Stefano, 501 F.3d 212, 225-26 (3d Cir. 2007).

1) Plaintiffs Have Sufficiently Pled that Defendants Are "Fiduciaries" Under ERISA

Defendant MMG moves to dismiss Plaintiffs' breach of fiduciary duty claim (Count Two), arguing that Plaintiffs have failed to allege facts demonstrating that MMG was acting as a "fiduciary" under ERISA because MMG did not have any "discretionary control or authority" over the Plan. (Def. MMG's Mot. Dismiss at 7-13, ECF No. 20.) Similarly, Defendant Nationwide moves to dismiss Plaintiffs' breach of fiduciary duty claim (Count Two), arguing that Plaintiffs have failed to allege facts demonstrating that Nationwide was acting as a "fiduciary" under ERISA because Nationwide was a mere "custodian." (Def. Nationwide's Mot. Dismiss at 7-12, ECF No. 22.) Plaintiffs respond that they have adequately pled that both Defendants were functioning as fiduciaries for purposes of ERISA by alleging that MMG was the named fiduciary of the Plan and that Nationwide exercised actual control over the Plan assets. (Pls.' Resp. at 6-13, ECF No. 25.)

Under ERISA,...