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Beta Group, Inc. v. Steiker, Greenapple, & Croscut, P.C.

United States District Court, D. Rhode Island

January 18, 2018



          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) (quoting Bagheri 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 than that.[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 mechanically effecting 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.


          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 R. Kossow. (ECF Doc. No. 39). Defendants seek dismissal of Plaintiff's Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) on the grounds that Plaintiff has failed to state any claims upon which relief could be granted. Plaintiffs Object to the Motion to Dismiss. (ECF Doc. No. 46). Defendants filed separate Reply Memoranda in support of their Motion. (ECF Doc. Nos. 48, 49).

         This Motion has been referred to me for preliminary review, findings and recommended disposition. See 28 U.S.C. § 636(b)(1)(B); LR Cv 72. After reviewing the pleadings and arguments of the parties, in addition to performing independent research, I recommend that Defendants' Motion (ECF Doc. No. 39) be DENIED in part and GRANTED in part as set forth herein.


         This matter arises out of Defendants' alleged failure to eliminate from the Beta Group, Inc. Employee Stock Ownership Plan (the “Plan”) a mandatory 4% Money Purchase Pension Plan (“4% MPPP”) contribution by Beta for its employees. Plaintiffs allege that they instructed Defendants to amend the Plan in 2001 to remove the 4% MPPP contribution due to a change in law but that despite Defendants' representation that the 4% MPPP was eliminated, the Plan was not actually amended until 2013. Plaintiffs contend that they have suffered significant damages as a result, including the entry of a Voluntary Correction Program (“VCP”) between Beta and the IRS by which Beta was required to make corrective contributions, with interest, to the Plan.

         II. Facts

         The following factual allegations are gleaned from Plaintiffs' Amended Complaint and, pursuant to Rule 12(b)(6), Fed. R. Civ. P., are accepted as true for purposes of considering the instant Motion to Dismiss. Plaintiff Beta Group, Inc. (“Beta”) is a Delaware business corporation with its principal office located in Lincoln, Rhode Island. Beta is the Plan Sponsor, Plan Administrator and a Named Fiduciary of the Plan. (ECF Doc. No. 35 at ¶ 11). The Plan is a defined contribution retirement plan, governed by ERISA. Id. at ¶ 12. Plaintiff Frank J. Romeo is the Trustee and a Named Fiduciary of the Plan. Id. at ¶ 13. SGC Law Firm is a Pennsylvania professional corporation with multiple offices, including in Massachusetts. SGC Law Firm was previously known as Steiker, Fischer & Olson, P.C. and Steiker, Fischer, Edwards & Greenapple, P.C. Id. at ¶ 14. SES is a Pennsylvania corporation with multiple offices, including in Massachusetts. Id. at ¶ 15. Defendant SES is headquartered in Pennsylvania with multiple offices throughout the country. Id. at ¶ 16. Defendant James G. Steiker (“Steiker”) is a principal of both SGC Law Firm and SES. Id. at ¶ 17. Defendant Robert W. Edwards (“Edwards”) is or was at relevant times a principal of SGC Law Firm and SES. Id. at ¶ 18. Defendant Steven B. Greenapple (“Greenapple”) is a principal of SGC Law Firm and SES. Id. at ¶ 19. Defendant Tabitha Croscut (“Croscut”) is a principal of SGC Law Firm and SES. Id. at ¶ 20. Defendant Robert E. Massengill (“Massengill”) is a former principal of SES. Massengill was President and a Director of SES when some or all of the events alleged in this Amended Complaint occurred. Id. at ¶ 21. Defendant Brian Wurpts (“Wurpts”) is a former principal and Vice President of Plan Administration Services of SES. Id. at ¶ 22. Defendant Doug Cannon (“Cannon”) is a principal of SES. Cannon was President of Plan Services for SES when some or all of the events alleged in this Amended Complaint occurred. Id. at ¶ 23. Defendant Mark R. Kossow (“Kossow”) is a former attorney employee of SGC Law Firm and a principal of SES. Id. at ¶ 24.

         Plaintiffs assert that Defendants provide or have provided services directly to the Plan and to Beta, or were responsible for overseeing, managing, investigating and monitoring the services provided to the Plan and to Beta. In providing services to the Plan, Defendants are parties in interest within the meaning of 29 U.S.C. § 1002(14). Id. at ¶ 26. SGC Law Firm and SES are corporate entities that relied directly on the other Defendants, named herein, to carry out their fiduciary responsibilities under the Plan and ERISA and the acts of their officers and employees alleged herein are the acts of the corporate entities. Id. at ¶ 27.

         Plaintiffs allege they were never informed by Defendants as to which particular lawyers at SGC Law Firm were performing the legal work for the Plan, including the work that gives rise to the events alleged herein. Plaintiffs or their employees or representatives were informed by Defendants that all issues with the Plan or its operation were to be raised with Defendant Wurpts and that he would ensure that all issues were addressed by SES or SGC Law Firm. Defendants did not identify the specific individual lawyers who would resolve legal questions and issues related to the Plan. Plaintiffs contend Defendants created this structure to deliberately obscure who performed the legal work, whether the legal work was done at all, and whether the legal issues were ever addressed by the law firm rather than by SES itself. Plaintiffs claim SES and the SGC Law Firm effectively operated in tandem and without distinction in the administration of the Plan. Id. at ¶ 30.

         According to Plaintiffs, individual Defendants Steiker, Edwards, Greenapple, Crosscut, Kossow, as well as the Doe Defendants who were employed by or were principals of the SGC Law Firm (referred to collectively as the “Lawyer Defendants”) had an obligation under these circumstances to properly perform the legal work brought to them concerning the Plaintiffs and the Plan, to supervise the legal work of their subordinates and those in the SGC Law Firm who performed any of the legal work at issue, to ensure that the legal work assigned to the Firm in that manner was properly and timely done, and to ensure that the legal work for the Plaintiffs and the Plan was handled correctly by the SGC Law Firm. They contend that each of these Defendants failed to do so, directly causing the losses suffered by Plaintiffs. Id. at ¶ 31. They also contend that SGC Law Firm and the Lawyer Defendants, on the one hand, and SES on the other, effectively operated interchangeably and as alter egos. Id. at ¶ 32.

         The Plan is sponsored by Beta. Id. at ¶ 33. The Plan is an “employee pension benefit plan” within the meaning of 29 U.S.C. § 1002(2). Id. at ¶ 34. The Plan was adopted by the Board of Directors of Beta on December 29, 1999 with an effective date of January 1, 1999. Id. at ¶ 35. On December 29, 1999, the Plan borrowed $1, 575, 000.00 from the Company at 6.5% interest, repayable in annual installments over nearly eighteen years from 1999 to 2017 and used the proceeds to purchase all of the issued and outstanding stock of Beta from its shareholders. Id. at ¶ 36. The Plan is a qualified plan under 26 U.S.C. § 401. Id. at ¶ 37. The Plan is intended to constitute an employee stock ownership plan or ESOP within the meaning of 26 U.S.C. § 4975(e)(7). Id. at ¶ 38. The Plan received an initial determination letter from the Internal Revenue Service (“IRS”) dated September 14, 2000, regarding its satisfaction of applicable tax qualification requirements under the Internal Revenue Code. Id. at ¶ 39. The Plan covers eligible employees and retirees of Beta and its subsidiaries and affiliates. Id. at ¶ 40.

         Beta is the Plan Sponsor of the Plan. Beta is the Plan Administrator of the Plan pursuant to the terms of the Plan's current Plan document. Id. at ¶ 41, 42. Beta is a Named Fiduciary of the Plan, as defined in 29 U.S.C. § 1102, pursuant to the terms of the Plan's current Plan document. Id. at ¶ 43. Romeo is the Trustee of the Plan pursuant to the terms of the Plan's current Plan document. Id. at ¶ 44. Romeo is a Named Fiduciary of the Plan, as defined in 29 U.S.C. § 1102, pursuant to the terms of the Plan's current Plan document. Id. at ΒΆ 45. SGC Law Firm and SES were retained ...

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