Trustees of the Local 138 Pension Trust Fund v. Logan Circle Partners, L.P. et al, No. 1:2010cv05758 - Document 39 (E.D.N.Y. 2012)
Court Description: ORDER denying 28 Motion to Dismiss. Ordered by Senior Judge I. Leo Glasser on 5/25/2012. (Green, Dana)
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Trustees of the Local 138 Pension Trust Fund v. Logan Circle Partners, L.P. et al Doc. 39 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK ------------------------------------------------------x TRUSTEES OF THE LOCAL 138 PENSION TRUST FUND, Plaintiff, Mem orandum an d Order 10 Civ. 5758 - against - LOGAN CIRCLE PARTNERS, L.P. and SEGAL ADVISORS, INC. Defendants. ------------------------------------------------------x GLASSER, United States District J udge: Plaintiff, Trustees of the Local 138 Pension Trust Fund (“the Fund” or “plaintiff”), com m enced this action against Logan Circle Partners, L.P. (“Logan Circle” or “defendant”), an asset m anagem ent firm with responsibility for the investm ent of a portion of the Fund’s pension assets, and Segal Advisors, Inc. (“Segal”), an investm ent consultant to the Fund, alleging violations of fiduciary duties pursuant to the Em ployee Retirem ent Incom e Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 40 4-0 5, for which defendants are liable pursuant to ERISA Section 40 9, 29 U.S.C. § 110 9. Essentially, the Fund alleges Logan Circle purchased and retained securities in violation of certain investm ent guidelines and that Segal failed to m onitor and report on Logan Circle’s activities. Defendant Logan Circle m oves to dism iss the Second Am ended Com plaint (the “Com plaint”) with prejudice pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, defendant’s m otion is denied. 1 Dockets.Justia.com BACKGROU N D The following facts are presum ed to be true for the purposes of deciding this m otion and are drawn from the Com plaint and docum ents of which the Court m ay take judicial notice. Plaintiff is trustee of a m ulti-em ployer benefit plan. Second Am ended Com plaint dated J une 17, 20 11 (“Am . Com pl.”) ¶ 2. Logan Circle is an asset m anagem ent firm responsible for m anaging a portfolio of fixed in com e securities purchased with plaintiff’s assets. Id. ¶ 8 . From 20 0 3 until Decem ber 20 0 9, plaintiff hired Segal as an investm ent consultant to monitor and oversee the perform ance of its investm ent m anagers, including Logan Circle. Id. ¶ 11. Plaintiff initially contracted with Delaware Investm ent Advisors to m anage its assets. See Declaration of Brett D. J affe dated J une 30 , 20 11 (“J affe Decl.”), Ex. B (the “Investm ent Advisory Contract”). On Septem ber 26, 20 0 7, the Investm ent Advisory Contract was assigned to Logan Circle. See J affe Decl. Ex. C. The Investm ent Advisory Contract specifies that, “[Logan Circle] shall have sole discretion with respect to investm ents of funds in the Account as to purchases and sales without prior consultation. [Logan Circle] shall, however, be bound by such written guidelines for the m anagem ent of the Account as shall from tim e to tim e be provided.” Id. Ex. B, ¶ 4. With the advice of Segal, plaintiff prom ulgated the “Local 138 Pension Trust Fund Statem ent of Overall Investm ent Objectives and Policy” (the “Guidelines”). Am . Com pl. ¶ 13; Declaration of Brett D. J affe dated J une 30 , 20 11 (“J affe Decl.”), Ex. A. The Guidelines established the criteria for the selection and retention of securities held by Logan Circle on behalf of the Fund. Am . Com pl. ¶ 8. 2 Plaintiff alleges that Logan Circle violated the Guidelines in several ways. First, plaintiff alleges that the Guidelines required Logan Circle “to adhere to an overall selection of securities consistent with a Lehm an Bond Index” an d that Logan Circle failed to do so. Am . Com pl. ¶¶ 9, 23. Second, plaintiff alleges that Logan Circle violated the Guidelines by purchasing, without advance written consent, securities below the Guideline’s m inim um class, quality, and grade. Id. ¶¶ 11, 24. Third, plaintiff alleges that the Guidelines required Logan Circle to provide written notice to the Fund and Segal if purchased securities were subsequently downgraded below the Guidelines’ m inim um . Id. ¶ 17; see J affe Decl. Ex. A, at 8. Fourth, plaintiff alleges that if a security fell below investm ent grade, Logan Circle was also required to take action to return the portfolio to com pliance within 90 days. Am . Com pl. ¶ 14. Plaintiff alleges that beginning in 20 0 7, num erous securities held under Logan Circle’s m anagem ent were downgraded to ratings below those perm itted by the Guidelines and that Logan Circle failed to provide written notice or bring the portfolio into com pliance within 90 days. Id. ¶¶ 13-14, 25-26. Plaintiff alleges that as a result of these violations, the Fund was dam aged by no less than $ 2 m illion. Id. ¶ 27. D ISCU SSION I. Le gal Stan d ard A. Motion to Dism iss Rule 8(a)(2) of the Federal Rules of Civil Procedure requires a com plaint to include “a short and plain statem ent of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To survive a m otion to dism iss pursuant to Rule 12(b)(6), the Fund’s pleadings m ust contain “sufficient factual m atter, accepted as true, 3 to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937, 1940 , 173 L. Ed. 2d 8 68 (20 0 9) (quoting Bell Atl. Corp. v. Twom bly, 550 U.S. 544, 570 , 127 S. Ct. 1955, 167 L. Ed. 2d 929 (20 0 7)). A claim has facial plausibility “when the plaintiff pleads factual content that allows the Court to draw the reasonable inference that the defendant is liable for the m isconduct alleged.” Iqbal, 129 S. Ct. at 1949. On a m otion to dism iss for failure to state a claim , “‘[t]he issue is not whether a plaintiff will ultim ately prevail but whether the claim ant is entitled to offer evidence to support the claim s.’” York v. Ass’n of the Bar of City of N.Y., 286 F.3d 122, 125 (2d Cir. 20 0 2) (citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974)). Although detailed factual allegations are not necessary, the pleading m ust include m ore than an “unadorned, the-defendant-unlawfully-harm ed-m e accusation;” m ere legal conclusions, “a form ulaic recitation of the elem ents of a cause of action,” or “naked assertions” by the plaintiff will not suffice. Id. (alteration in origin al) (internal quotations, citations, and alterations om itted). This plausibility standard “is not akin to a ‘probability requirem ent,’ but it asks for m ore than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twom bly, 550 U.S. at 556). Determ ining whether a com plaint states a plausible claim for relief is “a context-specific task that requires the reviewing court to draw on its judicial experience and com m on sense. But where the well-pleaded facts do n ot perm it the court to infer m ore than the m ere possibility of m isconduct, the com plaint has alleged—but it has not ‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 1950 (quoting Fed. R. Civ. P. 8 (a)(2)). 4 Although the Court is lim ited to facts as stated in the Am ended Com plaint, it m ay consider “any written instrum ent attached to the com plaint, statem ents or docum ents incorporated into the com plaint by referen ce, legally required public disclosure docum ents filed with the SEC, and docum ents possessed by or known to the plaintiff and upon which it relied in bringing the suit.” ATSI Com m c’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 8 7, 98 (2d Cir.20 0 7). Here, the Am ended Com plaint incorporates the Guidelines, the Investm ent Advisory Contract, and the Consent to Assignm ent by reference, see Am . Com pl. ¶¶ 6, 8 , 13, and they are appropriately considered in deciding this m otion. B. ERISA ERISA § 1132(a)(2) provides that an “action m ay be brought . . . by a participant, beneficiary or fiduciary for appropriate relief under [29 U.S.C. § 110 9],” which in turn m akes ERISA fiduciaries who breach their duties “personally liable to m ake good to [the] plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been m ade through use of assets of the plan by the fiduciary.” 29 U.S.C. § 110 9(a). To state a claim for breach of fiduciary duty, a com plaint m ust allege that: (1) the defendant was a fiduciary who (2) was acting in a fiduciary capacity, and (3) breached his fiduciary duty, (4) resulting in losses to the plan. See 29 U.S.C. § 110 9 (“Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations or duties im posed upon fiduciaries by this subchapter shall be personally liable to m ake good to such plan an y losses to the plan resulting from each such breach”); In re Bank of Am . Corp. Sec., Derivative, and ERISA Litig., 756 F. Supp. 2d 5 330 , 350 (S.D.N.Y. 20 10 ) (discussing elem ents of breach); Brandt v. Grounds, 687 F.2d 8 95, 898 (2d Cir. 1982) (“[A] causal connection is required between the breach of fiduciary duty and the losses incurred by the plan.”). It is undisputed that defendant was a fiduciary, acting in a fiduciary capacity. Plaintiff’s claim s for breach of fiduciary duty are prim arily based on ERISA’s dictate that a fiduciary m ust adhere to a pension fund’s governing docum ents. See 19 U.S.C. § 110 4(a)(1)(D); Dardaganis v. Grace Capital Inc., 8 8 9 F.2d 1237, 1241-42 (2d Cir. 1989) (holding a fiduciary has a duty to act in accordance with plan docum ents, a separate basis for liability from the general duty of prudence). For the purposes of this m otion only, Logan Circle does not dispute those claim s. Logan Circle brings this m otion to dism iss solely on the grounds that plaintiff has failed to plead the fourth elem ent: a causal connection between the breach of fiduciary duty and the losses incurred by the plan. II. Cau s atio n Logan Circle argues that plaintiff has failed to plead dam ages with the requisite specificity because the Am ended Com plaint “does not contain a single non-conclusory allegation to suggest that [Logan Circle] . . . was the actual cause of any injury to the Local 138 Fund.” Def.’s Mem . at 1. These argum ents are without m erit. In an attem pt to obtain dism issal of the Am en ded Com plain t, Logan Circle repeatedly m ischaracterizes plaintiff’s claim s and selectively quotes from the Am ended Com plaint. For exam ple, defendant states that plaintiff’s “central allegation” is that after 20 0 7, Logan Circle retain ed 74 securities, even though they had been downgraded to ratings below that perm itted by the Guidelines, and n either notified plaintiff of the downgrade nor sold the securities. Def.’s Mem . at 8 (citing Am . Com pl. ¶¶ 23, 25, 28). Logan 6 Circle argues that even if this allegation is true, plaintiff has failed to plead causation because “[n]owhere does [the Am ended Com plaint] allege that the 74 downgraded securities actually lost value subsequent to their downgrade and prior to their ultim ate sale.” Def.’s Mem . at 8 . In fact, the next sentence in the Am ended Com plaint states that “The [74] securities that were downgraded lost approxim ately $ 2 m illion in value over the period 20 0 8 to 20 0 9.” Am . Com pl. ¶ 23. It is apparent that it is not the sufficiency but the m erits of the Am en ded Com plaint that Logan Circle challenges, for Logan Circle goes on to m ake a num ber of factual allegations regarding the retention and sale price of those 74 downgraded securities, claim ing they were not actually downgraded until 20 0 9 and that Logan Circle ultim ately produced substantial returns for plaintiff in 20 0 9 an d 20 10 . Def.’s Mem . at 9 n.5. Essentially, Logan Circle argues plaintiff ultim ately benefited econom ically, despite defendant’s breach of fiduciary duty, and therefore plaintiff is not entitled to dam ages. See id. at 11. These factual argum ents are prem ature and not relevant to the sufficiency of plaintiff’s pleading. Logan Circle then argues that plaintiff “relies entirely on a ‘20 / 20 hindsight approach’” in alleging that Logan Circle’s failure to notify plaintiff of the retention of downgraded securities dam aged plaintiff because it effectively prevented plaintiff from taking any action to return the Fund’s portfolio to within the Guidelines. Def.’s Mem . at 9 (citing Am . Com pl. ¶ 34). Logan Circle argues that plaintiff has failed to show it could have prevented losses, suggesting that “m arket volatility during an unprecedented credit and finan cial crisis” would have prevented plaintiff from doing so. See Def.’s Reply Mem at 7; Def.’s Mem at 9 (“This allegation—devoid of any detailed allegations as to 7 how the [plaintiff] would have ‘repaired and restored the portfolio’ or ‘replaced the downgraded securities with quality securities’– is not grounded in plausible facts.” (em phasis in original)). Logan Circle also argues that plaintiff has failed to plead it “had the capacity or intention to actually control the portfolio’s investm ents to ‘invest in higher quality securities.’” Def.’s Reply. Mem . at 8-9. Again, Logan Circle’s argum ent addresses the m erits of plaintiff’s claim s, not the sufficiency of the Am ended Com plaint. Whether the portfolio’s losses were the result of “unprecedented” changes in the m arket or of Logan Circle’s breach of fiduciary duty and whether plaintiff feasibly could have taken corrective m easures are factual issues and defen ses. See In re Morgan Stanley ERISA Litig., 696 F. Supp. 2d 345, 363 (S.D.N.Y. 20 0 9) (“In ERISA cases, generally loss causation is an issue of fact and is thus not properly considered at this early stage in the proceeding.” (citations om itted). Plaintiff’s allegations are adequate to m eet the pleading requirem ents of Rule 8. See, e.g. In re First Am . Corp. ERISA Litig., No. SACV 0 7-0 1357, 20 0 8 WL 5666637, at *8 (C.D. Cal. J uly 14, 20 0 8) (denyin g m otion to dism iss where com plaint alleged an identical theory of causation). Logan Circle also argues plaintiff fails to plead any lawful m easure of dam ages: “the [Am ended Com plaint] alleges without explanation that the Fund’s losses are estim ated to be ‘between $ 2 m illion to $ 5 m illion.’ [Am . Com pl. ¶ 53].” Def.’s Mem . at 13. In fact, the Am ended Com plaint elsewhere clearly sets forth plaintiff’s grounds for alleging this loss am ount. The Am ended Com plaint alleges that Logan Circle used the Barclay’s Aggregated Bond Index as a benchm ark for the portfolio’s perform ance. 1 Am . 1 According to the Am ended Com plaint, “The Barclay’s Index is a sim ulated in vestm ent portfolio com prised of available fixed incom e securities.” Am . Com pl. ¶ 29. As defendant notes, the Guidelines state that the benchm ark for the Fund’s portfolio “would be m easured against the ‘Lehm an Aggregate Bond Index.’ Following Lehm an Brother’s collapse an d subsequent purchase by Barclay’s Capital, the 8 Com pl. ¶ 29. At the beginning of 20 0 8, the portfolio under Logan Circle’s m anagem ent was valued at $ 40 m illion. Id. ¶¶ 9, 31. Plaintiff alleges that during 20 0 8, the Barclay’s Aggregated Bond Index had a positive investm ent return of 5.25%. Id. at ¶ 30 . In contrast, during 20 0 8 the portfolio m anaged by Logan Circle had a negative return of 6.8 %, a difference of 12% from the Barclay’s Aggregated Bond Index perform ance (or $ 4.8 m illion dollars). Id. ¶¶ 30 -31. The Am ended Com plaint specifically alleges that “[t]he portfolio’s losses were the direct result of Logan’s failure to com ply with [the] Guidelines.” Id. ¶ 33. Plainly, paragraph 53 of the Am ended Com plaint refers to the fact that plaintiff’s dam ages could either be m easured as the am ount actually lost (6.8% of $ 40 m illion, or $ 2.7 m illion) or the am ount required to restore plaintiffs to the position they would have occupied but for the breach, using the Barclay’s Aggregated Bond Index perform ance as a benchm ark (12%, or $ 4.8 m illion). Defendant elsewhere concedes in their own brief that “[u]nder ERISA, dam ages are a relative m easure, com paring how the portfolio perform ed subsequent to the alleged breach of duty to how it would have perform ed absent that breach,” Def.’s Reply Mem . at 10 (citing Dardaganis, 8 89 F.2d at 1243-44), precisely the theory of dam ages advanced by plaintiff. Again, it is apparent that it is not the sufficiency of the Am ended Com plaint that Logan Circle challenges but the legitim acy of using the Barclay’s Aggregated Bond Index as the standard for m easuring plaintiff’s losses. See, e.g., Def.’s Reply Mem . at 7 (arguing “Logan Circle had no obligation whatsoever to perform up to the benchm ark”). Defendant also urges the Court to dism iss the Am ended Com plaint because plaintiff has not pled dam ages with sufficient specificity and plaintiff should have ‘Lehm an Aggregate Bond Index’ was renam ed the ‘Barclays Aggregate Bond Index.”’ Def.’s Reply Mem . at 6 n.1. 9 provided: “(i) a list of securities held in the Local 138 Fund’s portfolio, including their credit rating, (ii) in the case of downgraded securities, the date of those downgrades, and (iii) the date on which Logan Circle sold any downgraded security out of the Local 138 Fund portfolio.” Def.’s Reply Mem . at 11. But fiduciary duty claim s brought under ERISA are subject only to the “sim plified pleading standard” of Federal Rule of Civil Procedure 8(a). In re Worldcom , Inc., 263 F. Supp. 2d 745, 756 (S.D.N.Y. 20 0 3) (citing Swierkiewicz v. Sorem a N.A., 534 U.S. 50 6, 513, 122 S. Ct. 992, 152 L. Ed. 2d 1 (20 0 2)). The particularized pleading requirem ents of the securities laws do not apply in ERISA cases. In re Morgan Stanley ERIA Litig., 696 F. Supp. 2d at 363 (citing In re: Cardin al Health, Inc. ERISA Litig., 424 F. Supp. 2d 10 0 2, 10 43– 44 (S.D.Ohio 20 0 6)). Finally, Logan Circle relies heavily on Colliton v. Cravath, Swaine & Moore LLP, No. 0 8 Civ. 40 0 (NRB), 20 0 8 WL 4386764 (S.D.N.Y. Sept. 24, 20 0 8), a case that is plainly distinguishable. In Colliton, plaintiff, a form er em ployee, alleged that defendant, a leading law firm , breached its fiduciary duties to him in its m anagem ent of its savings plan for attorneys, in violation of ERISA. Those breaches included, for exam ple, failing to investigate whether cash was deposited prom ptly and failing to m onitor whether plan funds were invested outside of the jurisdiction of U.S. Courts. Id. at * 9. However, plaintiff failed to show that such investigations would have uncovered any irregularities. Plaintiff’s com plaint presented no logical or plausible theory as to how the alleged breaches could have harm ed him . Plaintiff then sum m arily alleged that he was injured in the am ount of $ 15,0 0 0 , but “[did] not assert how he arrived at this figure, whether the figure is an actual loss or failure to m ake an additional $ 15,0 0 0 , or even which of the sixteen different breaches actually caused the ‘loss.’” Id. 10 Here, in contrast, plain tiff presents a logical and plausible theory of liability, nam ely: defendant breached its fiduciary duties by purchasing and retaining downgraded securities; those downgraded securities then declin ed in value; an aggregated bond in dex of available fixed in com e securities is a reasonable m easure of how the portfolio would have perform ed absent the breach; and therefore defendant is liable to plaintiff for the difference between the actual perform ance of the portfolio and the benchm ark. Plaintiff’s Am ended Com plaint contains sufficient factual allegations to state a claim for relief and provides “fair notice of what the claim is and the grounds upon which it rests.” Erickson v. Pardus, 551 U.S. 8 9, 93 (20 0 7). As such, defendant’s m otion to dism iss m ust be denied. CON CLU SION For all of the reasons set forth above, defendant’s m otion to dism iss the Second Am ended Com plaint is DENIED. SO ORD ERED . Dated: Brooklyn, New York May 25, 20 12 _ _ _ _ / s/ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ I. Leo Glasser United States District J udge 11
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