Opinion
98 Civ. 5519 (RPP)
March 23, 2001
Barrett Gravante Carpinello Stern LLP New York, NY, By: David A. Barrett, Evan Glassman, Malakoff Doyle Finberg PC, Pittsburgh, PA, Counsel for Plaintiff.
Counsel for Defendants EMCOR, Murphy, Bander, McGinn: O'Melveny Myers LLP, Andrew Dwyer Coblence Warner New York, NY, By: Howard S. Schrader.
Counsel for Defendant Ernest Grendi: Solomon, Zauderer, Ellenhorn, Frischer Sharp New York, NY, By: Michael S. Lazaroff.
Counsel for Defendant American Express Trust Company: Faegre Benson-LLP, Minneapolis, MN, By: Steven L. Severson.
OPINION AND ORDER
Plaintiff Thomas F. Koch ("Plaintiff") moves pursuant to Federal Rules of Civil Procedure ("Fed.R.Civ.P.") 23(b)(1) and 23(b)(2) for class certification. Plaintiff also moves pursuant to Fed.R.Civ.P. 15 and 20 for leave to amend his First Amended Complaint and to substitute the proposed Third Amended Complaint nunc pro tunc as subject of Plaintiff's motion for leave to amend. For the following reasons, Plaintiff's motions are granted.
BACKGROUND
On July 31, 1998, Plaintiff commenced this proposed class action on behalf of current and former participants in the EMCOR Group, Inc. 401 (k) Retirement Savings Plan ("401(k) Plan") and current and former participants in the EMCOR Group, Inc. Employee Stock Ownership Plan ("ESOP") (together, "the Plans") and their beneficiaries to recover retirement account losses resulting from multiple breaches of duty including omissions by the fiduciaries of the Plans.
I. Plaintiff's Motion for Class Certification
On June 29, 2000, Plaintiff moved pursuant to Fed.R.Civ.P. 23(b)(1) and 23(b)(2) for class certification with a supporting memorandum of law and affidavits. On July 31, 2000, Defendant American Express Trust Company ("AMEX") submitted a memorandum in opposition with a supporting affidavit. On July 31, 2000, Defendants EMCOR Group, Inc., ("EMCOR"), JWP INC. 401(k) Retirement Savings Plan Committee, James S. Murphy, Wendy Bander (now McKinley), Philip McGinn, and Retirement Plan Investment Committee (the "EMCOR Defendants") submitted a memorandum in opposition. On August 14, 2000, Plaintiff submitted a reply memorandum of law.
II. Plaintiff's Motion to Amend
On September 15, 2000, Plaintiff moved on behalf of himself and all others similarly situated pursuant to Fed.R.Civ.P. 15 and 20 for leave to amend his First Amended Class Action Complaint ("First Amended Complaint") so that he can: (1) join as a new defendant John J. Mulligan; (2) add allegations pertaining to the new defendant's conduct; and (3) clarify that current defendant Retirement Plan Investment Committee is actually two entities, and hence two defendants. (See Notice of Plaintiffs' Motion to Amend Complaint, dated Sept. 15, 2000, at 1.) On September 15, 2000, Plaintiff also submitted a Memorandum of Law in support of his motion to amend his First Amended Complaint.
While Plaintiff's motion was pending, the Court issued an Opinion and Order, which was dated September 27, 2000, and filed on September 29, 2000. (See Koch v. Dwyer. No. 98 Civ. 5519 (RPP), 2000 WL 1458803 (S.D.N.Y. Sept. 29, 2000).) In that Opinion, the Court held that the First Amended Complaint failed to allege adequately acts of fraud or concealment to trigger ERISA's equitable tolling provision as to Defendants Bander (now McKinley), Murphy, and AMEX and that therefore the exception for fraud or concealment in 29 U.S.C. § 1113 did not apply to those defendants. Id. at *6. The Opinion permitted Plaintiff to cure the defect by filing a Second Amended Complaint by October 20, 2000. Id.
On September 29, 2000, Defendants responded jointly to Plaintiff's September 15, 2000, motion, stating that they took no position on whether Plaintiff should be permitted to amend the First Amended Complaint to join John J. Mulligan as a new defendant, add allegations pertaining to Mr. Mulligan's conduct, and clarify that the "Retirement Plan Investment Committee" is actually two entities. (See Defendants' Joint Response to Plaintiff's Motion to Amend First Amended Class Action Complaint, dated Sept. 29, 2000, at 1.) However, Defendants opposed Plaintiff's motion on the ground that it did not comply with the Court's September 27, 2000, Opinion and Order. (See id.) Defendants requested that Plaintiff withdraw the proposed Second Amended Class Action complaint and substitute a new amended complaint that conforms to the Court's Order. (See id.)
On October 6, 2000, Plaintiff submitted a memorandum in reply to Defendants' joint response, in which Plaintiff agreed to Defendants' proposal to substitute a new proposed amended complaint, which Plaintiff suggested denominating the "Third Amended Complaint," as the subject of Plaintiff's pending Motion to Amend. (See Plaintiffs' Memorandum in Reply to Defendants' Joint Response, dated Oct. 6, 2000, at 2.) To insure that Plaintiff's position on the statute of limitations is not prejudiced by a withdrawal, Plaintiff requested that the proposed Third Amended Complaint be deemed substituted nunc pro tunc for the proposed Second Amended Complaint filed with Plaintiff's Motion to Amend on September 18, 2000. (See id. at 2-3.)
On October 19, 2000, Plaintiff moved for the substitution, nunc pro tunc of a new proposed Third Amended Complaint as subject of Plaintiff's pending Motion to Amend Complaint, to add allegations of fraud and concealment as specified in the Court's September 27, 2000, Opinion and Order. (See Notice of Plaintiffs' Motion to Substitute New Proposed Complaint, dated Oct. 19, 2000, at 1.) Plaintiff also submitted a memorandum in support of his motion.
On November 6, 2000, Defendant AMEX submitted a memorandum in opposition to Plaintiff's motion to substitute a new proposed complaint. (See Defendant American Express Trust Company's Memorandum in Opposition, dated Nov. 6, 2000, ("AMEX Mem.").)
On November 17, 2000, Plaintiff submitted a memorandum in reply to AMEX's memorandum in opposition. (See Plaintiff's Memorandum in Reply to Defendant America Express Trust Company's Memorandum in Opposition, dated Nov. 17, 2000 ("Pl. Reply Mem.").)
DISCUSSION
I. Plaintiff's Motion for Class Certification
On June 29, 2000, Plaintiff moved pursuant to Fed.R.Civ.P. 23(b)(1) and 23(b)(2) for certification of a class defined as:
All participants (or their beneficiaries) in what was formerly known as the JWP, INC. 401(k) Retirement Savings Plan ("401(k) Plan") and/or the JWP Employee Stock Ownership Plan ("ESOP") in the period from May 1, 1991, through December 15, 1994, the effective date of the Plan of Reorganization of JWP, INC.
(Plaintiffs' Motion for Class Certification, dated June 29, 2000, at 1.)
A. Rule 23(a)
"In determining whether a class should be certified, a district court must first consider each of the factors set forth in Fed.R.Civ.P. 23 (a)." In re the Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 290 (2d Cir. 1992). Rule 23(a) requires that:
(1) the class is so numerous that joinder of all members is impracticable, (2) there are questions of law or fact common to the class, (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class, and (4) the representative parties will fairly and adequately protect the interests of the class.
I. Impracticability of Joinder
The proposed class is clearly so numerous that joinder is impracticable. Plaintiff has pled that there were approximately 3,400 participants in the two Plans during the relevant period. (See Amended Complaint ¶ 118; see also Appendix and Mfidavit of Ellen M. Doyle, dated June 29, 2000, ("Doyle Aff.") Ex. 6.) Individual adjudication of each claim would take many years, and would drastically increase the legal expenses for all the parties. See In re the Drexel Burnham Lambert Group, Inc. 960 F.2d at 290. Joinder of all the claims into one proceeding would be expensive, time consuming and logistically unfeasible. See id. Consequently, numerosity exists in this case.
2. Common Questions of Law and Fact
The proposed class involves several questions of law and fact that are common to each member of the proposed class. The relationships among the parties at issue here are governed by written plan documents under the standards set forth in ERISA. Plaintiff was also a participant in both the 401(k) and the ESOP Plans. There are several common questions of law and fact: (1) whether the investment of the Plans' assets in JWP stock was prudent; (2) whether AMEX was a directed trustee, and whether AMEX acted in accordance with ERISA; and (3) whether the Plan fiduciaries acted to preserve and protect the Plans' claims in the securities litigation and bankruptcy proceedings. Accordingly, the commonality requirement of Rule 23(a)(2) has been met.
The Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.
3. Typicality
"Rule 23(a)(3) is satisfied when each class member's claim arises from the same course of events, and each class member makes similar legal arguments to prove the defendant's liability." In re the Drexel Burnham Lambert Group, Inc., 960 F.2d at 291. In this case, Plaintiff was a participant of both Plans throughout the class period including through the bankruptcy. Plaintiff and the class have been subjected to identical treatment. Accordingly, the typicality requirement of Rule 23(a)(3) has been met.
4. Adequacy of Representation
"Under Rule 23(a)(4), adequacy of representation is measured by two standards. First class counsel must be qualified, experienced and generally able to conduct the litigation. Second, the class members must not have interests that are antagonistic to one another." Id. (internal quotations and citations omitted). Here, Plaintiff's counsel have experience in federal class actions, and specifically in ERISA class actions. (See Doyle Aff., Ex. 1.) Plaintiff's counsel have also agreed to advance the costs of litigation. ( See Amended Compl. ¶ 122.) Consequently, Plaintiff's counsel are qualified, experienced and will be able to conduct the litigation, and are therefore adequate.
Defendants contend that Plaintiff is not an adequate representative of the class because at his deposition he demonstrated an "alarming unfamiliarity with the facts underlying this litigation." (AMEX Memorandum in Opposition, dated July 31, 2000, at 5). However, the Supreme Court has expressly disapproved of attacks on the adequacy of a class representative based on the representative's ignorance. See Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 372-74 (1966); see also Baffa v. Donaldson Lufkin Jenrette Sec. Corp., 222 F.3d 52, 60-62 (2d Cir. 2000) (holding that the district court misapplied the adequacy rules to block intervention of a class representative on the grounds that he lacked adequate knowledge of the case). In the case at hand, Plaintiff demonstrated in his deposition that he understands the purpose the lawsuit. Plaintiff stated that he was "[s]uing [defendants] on behalf of all the people that didn't get their pension funds, especially a lot of women who had husbands [who] died and they're by themselves and they have nothing, and I'm suing for them." (See Affidavit of Steven L. Severson, dated July 27, 2000, Ex. A (Koch Depositon), at 21-22.) When asked to describe what defendants did wrong, he replied, "The company essentially did wrong, I didn't get no pension fund. They didn't — well what can I say? They didn't mind the store. I lost my pension fund. I'm retired, I haven't got no pension fund from them." (Id. at 22-23.) When asked what the managers of the Plans should have done, Plaintiff replied, "Managed it better." (Id. at 25.) While it is true that Plaintiff appears to lack sophistication, Plaintiff understands that he represents other participants in the Plans for mismanagement of their retirement funds. Plaintiff also understands what a class action is and his responsibilities as class representative. When asked whether he understood what a class action was, he explained, "I'm representing the other people that are in the same condition I am," and described his responsibilities as the lead plaintiff as follows: "To give my lawyers as much information as I can and to try to do the best we can for the people that didn't get their pension checks." (Id. at 70-71.) Defendants have not shown that Plaintiff's interests are antagonistic to the interests of other members of the class. Consequently, Plaintiff is an adequate class representative.
B. Rule 23(b)
"If each element of Rule 23(a) is satisfied, the district court must then determine whether class certification is appropriate under Fed.R.Civ.P. 23(b)." In re the Drexel Burnham Lambert Group. Inc., 960 F.2d at 290. Plaintiff seeks certification pursuant to Fed.R.Civ.P. 23 (b)(1) and 23(b)(2). Rule 23(b) provides:
An action may be maintained as a class action if the prerequisites of subdivision (a) are satisfied, and in addition: (1) the prosecution of separate actions by or against individual members of the class would create a risk of (A) inconsistent or varying adjudications with respect to individual members of the class which would establish incompatible standards of conduct for the party opposing the class, or (B) adjudications with respect to individual members of the class which would as a practical matter be dispositive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests; or (2) the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole.
Fed.R.Civ.P.23(b). Here, the prerequisites to a class action as required by Rule 23(a) are present. Plaintiff argues that class certification is proper under Rule 23(b)(1) and 23(b)(2). Since Plaintiff is seeking relief on behalf of both Plans as a whole, prosecution of separate actions by individual members would create a risk of adjudications which would be dispositive of the interests of the other members not parties to such adjudications. "Because a plan participant or beneficiary may bring an action to remedy breaches of fiduciary duty only in a representative capacity, such an action affects all participants and beneficiaries, albeit indirectly." Gruby v. Brady, 838 F. Supp. 820, 828 (S.D.N.Y. 1993) (quoting Specialty Cabinets Fixtures, Inc. v. Am. Equitable Life Ins. Co., 140 F.R.D. 474, 478 (S.D.Ga. 1991)) (holding that certification of class seeking relief for violations of ERISA was proper under Fed.R.Civ.P. 23(b)(1)(B)). Additionally, the Advisory Committee notes to Rule 23(b)(1)(B) state that this section will apply "to an action which charges a breach of trust by an indenture trustee or other fiduciary similarly affecting the members of a large class of security holders or other beneficiaries, and which requires an accounting or like measures to restore the subject of the trust." Fed.R.Civ.P. 23 (b)(1)(B), Advisory Comm. Notes to 1966 Amendment. Plaintiff's action charges breach of fiduciary duty affecting the large class of participants in the Plans and Plaintiff seeks equitable relief on behalf of those participants and their beneficiaries. Accordingly, class certification is proper under Rule 23(b)(1)(B).
Since class certification is proper under Rule 23(b)(1)(B), it need not be determined whether Plaintiff has also satisfied the requirements of Rule 23(b)(1)(A) or 23(b)(2).
C. The Length of the Class Period
Defendants argue that the class period cannot begin prior to July 1992 because: (1) Plaintiff has not adequately alleged fraudulent concealment sufficient to invoke ERISA's equitable tolling exception; (2) Plaintiff cannot serve as a class representative prior to July 1992 because he cannot invoke the fraudulent concealment doctrine or show that he detrimentally relied on the misrepresentations in the alleged self-concealing frauds; and (3) there are individualized issues presented by the fraudulent concealment doctrine. (See AMEX Mem. dated July 31, 2000, at 8-18; EMCOR Defendants' Memorandum dated July 31, 2000, at 1-3.)
First, Plaintiff has adequately alleged fraud during that period as to EMCOR, Dwyer, Grendi and McGinn, who comprised a majority of the Retirement Plan Investment Committee, the 401(k) Retirement Savings Plans Committee, and the Trustees of the Employee Stock Ownership Plan. See Koch v. Dwyer 2000 WL 1458803 at *4 Plaintiff has therefore adequately pled common law fraud and thereby triggered ERISA's equitable tolling exception as to those defendants. See id. Thus Defendants' motion to shorten the class period because Plaintiff has not adequately alleged fraud or concealment is denied.
Second, Defendants' arguments that Plaintiff cannot show he relied to his detriment on the alleged misstatements, and that, in order to invoke the equitable tolling doctrine, each member of the class must establish that he was not on notice of AMEX's alleged breach of fiduciary duties prior to July 1992, are more properly addressed in opposing the filing of the Third Amended Complaint. The equitable tolling exception to the three or six-year statute of limitations contained in 29 U.S.C. § 1113 provides that in the case of fraud or concealment the action be commenced not later than six years after the date of discovery of such breach or violation. Whether Plaintiff relied on the misstatements or when the alleged breach of fiduciary duty became evident and should have been discovered are questions of fact and relate to the merits of Plaintiff's claims against each defendant. While the merits of a claim may be considered to the extent they indirectly bear upon the four requirements of Rule 23(a), it is "improper to resolve substantial questions of fact going to the merits when deciding the scope or time limits of the class."Sirota v. Solitron Devices, Inc. 673 F.2d 566, 572 (2d Cir. 1982). Whether claims falling outside some narrower time window within the class period are, in fact, groundless on the merits is a question that should not be answered when the court decides whether to certify a class. See id. at 570-72. Since Defendants' arguments require resolution of factual issues that are properly left to a later time, the class period will not be shortened upon that basis.
29 U.S.C. § 1113 provides:
No action may be commenced under this subchapter with respect to a fiduciary's breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of —
(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of any omission, the latest date on which the fiduciary could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation;
except that in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.29 U.S.C. § 1113.
Since the requirements of Rule 23(a) and Rule 23(b)(1)(B) are satisfied, Plaintiff's motion for class certification is granted.
II. Plaintiff's Motion to Amend
Fed.R.Civ.P. 15(a) provides that leave to amend "shall be freely given when justice so requires." "If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits." Foman v. Davis, 371 U.S. 178, 182 (1962). This liberality in granting leave to amend also applies to amending a complaint to add new parties. Staggers v. Otto Gerdau Co., 359 F.2d 292, 296-97 (2d Cir. 1966). "The rule in this Circuit has been to allow a party to amend its pleadings in the absence of a showing by the nonmovant of prejudice or bad faith." Block v. First Blood Associates, 988 F.2d 344, 350 (2d Cir. 1993).
Here, Plaintiff seeks to amend his complaint to achieve permissive joinder of an additional defendant, John J. Mulligan, pursuant to Fed.R.Civ.P. 20(a), which provides in pertinent part:
All persons may join in one action as plaintiffs if they assert any right to relief jointly, severally, or in the alternative in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action.
Plaintiff has met the requirements of Fed.R.Civ.P. 20(a). Plaintiff has alleged that Mulligan was a member of the Retirement Savings Plan Investment Committee and the ESOP Investment Committee. These committees were named fiduciaries of the Plans. Mulligan's membership on these committees makes him an ERISA fiduciary of the Plans. Plaintiff's claims against Mulligan pertain to his breach of fiduciary duty in failing to protect, in the JWP bankruptcy and elsewhere, the Plans' claims against previous fiduciaries. This is the same claim that Plaintiff asserts against the other defendants in his First Amended Complaint. Thus Plaintiff has alleged a right to relief arising out of the same transaction, occurrence, or series of transactions involving common questions of law and fact.
Defendants do not oppose Plaintiff's motion to amend based on the joinder of Mulligan or Plaintiff's attempt to clarify that the entity referred to in the First Amended Complaint as "Retirement Plan Investment Committee" was actually two committees composed of the same persons. Rather, AMEX argues in opposition to Plaintiff's motion to amend that: (1) Plaintiff's motion should be denied because the proposed Third Amended Complaint violates the September 27, 2000, Order in that it: (a) fails to eliminate the allegations of fraud and concealment against AMEX; (b)does not allege fraudulent concealment with particularity as to each defendant; and (c) does not allege when Plaintiff discovered each defendant's alleged breaches of fiduciary duty; and (2) due to Plaintiff's failure to comply with the Court's order, Plaintiff should be ordered to file a new complaint that removes any allegations of fraud or concealment against AMEX. (See AMEX Mem. at 5-11.) However, Defendant AMEX's argument that the Court's September 2000 Opinion and Order required Plaintiff to eliminate allegations concerning AMEX, Murphy and McKinley is rejected. That Order allowed Plaintiff to cure the failure to properly plead fraud or concealment by those defendants by filing an amended complaint. See Koch v. Dwyer 2000 WL 1458803 at *6. The Court has reviewed the Third Amended Complaint. Although it still has doubts that Plaintiff has properly pleaded fraud or concealment by those defendants, it concludes that all parties would be best served by allowing the Third Amended Complaint to be filed without prejudice to AMEX, Murphy and McKinley's raising the statute of limitations defense in limine motions. Furthermore, pursuant to the Court's September 2000, Opinion and Order, Plaintiff has now pled that he lacked actual knowledge of the fiduciary breaches of any defendant prior to the filing of the original Complaint.See Third Amended Complaint ¶ 169.) Accordingly, Plaintiff's motion for leave to amend his complaint, and to substitute the Third Amended Complaint nunc pro tunc as subject of Plaintif's motion for leave to amend, are granted.
CONCLUSION
For the foregoing reasons, Plaintiff's motion for class certification is granted. Plaintiff's motion for leave to amend his complaint, and to substitute the Third Amended Complaint nunc pro tunc as subject of Plaintiff's motion for leave to amend, are also granted.
IT IS SO ORDERED.