United States District Court, D. Rhode Island
BETA GROUP, INC.; BETA GROUP INC. EMPLOYEE STOCK OWNERSHIP PLAN; FRANK J. ROMEO, Plaintiffs,
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.
MEMORANDUM AND ORDER
WILLIAM E. SMITH, Chief Judge.
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
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.)
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. (See Am. Comp. ¶¶
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
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.)
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. 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.” See 29 U.S.C. § 1002(21)(A).
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.”).
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).
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
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).
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.
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.
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.
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.
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.
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.
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
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 ¶ 45. SGC Law Firm and SES
were retained ...