Opinion
00 Civ. 9649 (JGK) 01 Civ. 7258 (JGK)
June 25, 2002
OPINION ORDER
Joseph Suozzo is a plaintiff in two cases presently pending before the Court: Suozzo v. Bergreen, No. 00 Civ. 9649 ("Bergreen I"), and Suozzo v. Bergreen, 01 Civ. 7258 ("Bergreen II"). Both cases arise out of an employment relationship between the plaintiff and the defendant Bernard D. Bergreen ("Bergreen"), which had lasted for approximately thirty years when Bergreen terminated the plaintiff on or about January 4, 2000. Both cases also involve a retirement pension plan named the Bernard D. Bergreen and Bernard D. Bergreen, P.C. Pension Plan (the "Plan") that the plaintiff participated in for a substantial portion of his term of employment. The two cases share much of the same factual background, were brought by the same plaintiff and involve many of the same defendants. This Opinion and Order disposes of the motions pending in both actions.
The plaintiff filed his Complaint in Bergreen I ("Compl. I") on December 20, 2000. This Complaint alleges that Bergreen violated § 510 of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1140 ("§ 510"), by terminating the plaintiff because of a dispute over the benefits that were allegedly due to the plaintiff under the Plan. According to the Complaint, the Plan's Administrative Committee subsequently denied the plaintiff certain benefits due to the application of a number of amendments to the Plan that were allegedly void under § 204(h) of ERISA, 29 U.S.C. § 1054(h) ("§ 204(h)"). The plaintiff also raises a number of additional claims for breach of fiduciary duty, or participation in such breaches, against Bergreen, Bernard D. Bergreen, P.C. (the "Company"), the Plan and Barbara Bergreen. These claims all relate to various ways that the Plan was allegedly administered or amended, or the method by which the plaintiff's benefits were determined.
On or around June 20, 2001, the plaintiff brought a separate action,Bergreen II, in the Supreme Court of the State of New York, New York County. The Complaint in Bergreen II ("Compl. II") alleges that during the claims resolution process leading to the denial of benefits discussed above, Bergreen's attorney in the proceedings, Michael Maryn, committed defamation and libel per se by publicizing a number of false and damaging written statements about the plaintiff. The Complaint in Bergreen II names not only Maryn but also Bergreen, the Company and Maryn's law firm, Sonnenschein Nath Rosenthal, as defendants. On August 3, 2001, the defendants in Bergreen II removed the action to this Court.
There are currently several motions pending before the Court in these two actions. The defendants in Bergreen I move to dismiss the action in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The defendants in Bergreen II move to dismiss that action in its entirety, also pursuant to Rule 12(b)(6). The plaintiff in Bergreen II moves pursuant to 28 U.S.C. § 1447(c) to remand Bergreen II to the Supreme Court of the State of New York, New York County, and for the costs and attorney's fees associated with the removal and remand proceedings.
I.
The first motion at issue is the motion to dismiss in Bergreen I. On a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the allegations in the relevant Complaint are accepted as true. Grandon v. Merrill Lynch Co., 147 F.3d 184, 188 (2d Cir. 1998). In deciding a motion to dismiss, all reasonable inferences must be drawn in the plaintiff's favor. Gant v. Wallingford Bd. of Educ., 69 F.3d 669, 673 (2d Cir. 1995); Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). Therefore, the defendants' present motion should only be granted if it appears that the plaintiff can prove no set of facts in support of his claims in Bergreen I that would entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Grandon, 147 F.3d at 188; see also Goldman, 754 F.2d at 1065.
In deciding the defendants' motion in Bergreen I, the Court may consider documents attached to the Complaint or incorporated in it by reference, matters of which judicial notice may be taken, or documents that the plaintiff relied upon in bringing suit and either are in his possession or of which he had knowledge. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2000).
The parties have submitted the Administrative Committee's decisions denying the plaintiff benefits, and, in their motions in Bergreen II, a number of other letters and documents that were not incorporated by reference into the Complaint in Bergreen I or relied upon in bringing this first suit. However, the parties have not yet supplied the Court with the complete record of the Administrative Committee's proceedings and have not yet completed discovery in Bergreen I. The plaintiff also objects to the examination of materials allegedly outside the limited scope of review on a Rule 12(b)(6) motion. (Pl.'s Opp. I at 2-3.) It would be inappropriate, in these circumstances, to treat the defendant's motion as a motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, and the Court will therefore consider only those materials that are properly considered on a Rule 12(b)(6) motion as described above. See generally Fed.R.Civ.P. 12(b) (allowing for treatment of a Rule 12(b)(6) motion as a Rule 56 motion if "matters outside the pleadings are presented to and not excluded by the court," in which case "all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56."). The Administrative Committee's decisions and the Plans and Plan Amendments are matters of which the plaintiff had knowledge and relied upon in bringing this suit and therefore may be considered on this motion.
II.
The Complaint in Bergreen I sets forth the following facts, which the Court accepts as true for the purposes of the defendants' motion to dismiss in this case.A.
From in or about 1970 until 2000, the plaintiff worked as a legal secretary and administrative assistant to Bergreen, first at the Company's predecessor firm, Bergreen Bergreen, and then, beginning in 1980 or 1981, at the Company. (Compl. I ¶ 8.) Bergreen wholly owns the Company. (Id. ¶ 11.) During part of the plaintiff's employment at the Company, the plaintiff was a participant in the Plan, which was a defined benefit plan and an "employment pension benefit plan" within the meaning of ERISA, see 29 U.S.C. § 1002(2)(A) (7), and which went into effect on January 1, 1985. (Compl. I ¶¶ 8, 27.) Bergreen and the Company acted as sponsors, trustees and plan administrators for the Plan, and were the sole plan fiduciaries of the Plan within the meaning of ERISA, specifically 29 U.S.C. § 1002(21)(A), since the adoption of the Plan. (Compl. I ¶¶ 28-31.)
Under the Original Plan, a participant's "Normal Retirement Benefit" was the monthly pension to which he or she was entitled "beginning on the first day of the month coincident with or next following his Normal Retirement Age," which was 62 for long-term employees like the plaintiff. Plan Effective January 1, 1985 ("Original Plan"), at §§ 1.23, 3.01, attached as Ex. B to Affidavit of Edward J. Reich sworn to March 16, 2001 ("Reich Aff. I"). With some exceptions not relevant to this case, this figure was to be calculated by taking 28.5% of the participant's "Final Average Compensation" — a figure determined by calculating the employee's average monthly "Compensation" for the five consecutive fiscal-year period for which this average was the highest — and then adding 18% of the difference between this figure and the Social Security Wage Base, as determined by law. Original Plan §§ 1.01, 1.19, 1.23, 3.01. The term "Compensation" was defined as the total earnings of an employee, including discretionary bonuses and commissions. Id. § 1.09. This entire amount was then to be "reduced by one-twentieth (1/20) for each year of Service less than twenty (20)."Id. § 3.01.
Between January 1986 and December 1994, Bergreen executed a number of amendments to the Plan, two of which are central to the plaintiff's claim for benefits. First, on or about January 15, 1988, Bergreen executed an amendment (the "Discretionary Bonus Amendment"), which excluded discretionary bonuses from the "Compensation" figure to be used in calculating any benefits accrued after the Amendment's date of effectiveness, which was January 1, 1988. (Compl. I ¶¶ 47, 61.); see also Amendment No. 2 to the Original Plan, attached as Ex. B(2) to Reich Aff. I ("First Change").
Second, on December 27, 1994, Bergreen executed an amendment (the "Tax Reform Act Compliance Amendment") the stated purpose of which was to "amend the Plan to comply with those provisions of the Tax Reform Act of 1986 that [had become] effective prior to the first Plan Year beginning after December 31, 1988." Amendment No. 5 to the Original Plan § 1.1, attached as Ex. B(5) to Reich Aff. I; (see also Compl. I ¶¶ 48, 71). The Tax Reform Act of 1986 had amended Section 416 of the Internal Revenue Code to place restrictions on the benefits that so-called "highly compensated employees" who participated in retirement plans could accrue relative to non-highly compensated employees if a plan was to maintain its status as a qualified pension plan under ERISA and remain subject to certain tax deferrals and exemptions. See generally Scott v. Admin. Comm. of the Allstate Agents Pension Plan, 113 F.3d 1193, 1195 (11th Cir. 1997). These requirements were originally to have been met by January 1, 1989, though this remedial period was subsequently extended on a number of occasions until December 31, 1994. Id.; see also Rev. Proc. 94-13, 1994-3 I.R.B. 18, 1994 IRB LEXIS 48, at *2-9. In order to help plan sponsors amend their plans to meet these requirements with this remedial period, the IRS ultimately provided a series of model amendments. Scott, 113 F.3d at 1195. The Tax Reform Act Compliance Amendment in this case was based on one of these model amendments, and purported to go into effect on January 1, 1987. See Amendment No. 5 to the Original Plan, at 1; (see also Compl. I ¶ 70). While executing this Amendment, Bergreen also executed a more comprehensive restatement of the Plan (the "Restated Plan"), which, among other things, reflected the new Amendment and purported to go into effect on January 1, 1989. See generally Bernard D. Bergreen and Bernard D. Bergreen, P.C. Pension Plan as Amended and Restated Effective January 1, 1989 (the "Restated Plan"), attached as Ex. B(6) to Reich Aff. I. The Restated Plan placed a limit on the amount of benefits that any participant could accrue under the Plan at $4000 per month, or $48,000 per year, expressed as the actuarial equivalent of a single life annuity. Restated Plan § 2.1; (see also Compl. I ¶¶ 48, 71).
B.
On January 4, 2000, while the plaintiff was carrying out his routime duty of reviewing all papers on Bergreen's desk, the plaintiff came across. a new amendment to the Restated Plan which Bergreen had executed on December 27, 1999, and which purported to go into effect on January 1, 1997. (Compl. I ¶ 34.) This Amendment increased the ceiling of "the monthly Accrued Benefit of any. . . Participant who is credited with at least one Hour of Service on or after the date of execution [of the Amendment] . . . [to] $7,083.33," with the exception of "any Participant who . . . is the administrative assistant and corporate secretary of [the Company] or an attorney and tax advisor of [the Company]." Amendment No. 2 to the Restated Plan, attached as Ex. B(8) to Reich Aff. I, at § I. This part of the Amendment was purportedly beneficial for only one Plan participant, namely Barbara Bergreen, Bergreen's wife. (Compl. I ¶¶ 34, 73.) Upon discovering this new Amendment, the plaintiff confronted Bergreen about it, claiming that the Amendment was discriminatory and demanding that it be restated so that this new ceiling would apply to the plaintiff as well. (Id. ¶ 34.) The plaintiff also indicated that he expected to receive an inservice lump-sum distribution of his benefits upon his normal retirement age, which was February 24, 2000, along with cost of living allowances ("COLAs") thereafter. (Id.)
The plaintiff and Bergreen then entered into a bitter argument, and the plaintiff requested a copy of the disputed Amendment, indicating that he wanted to have it reviewed by an independent attorney. (Id. ¶ 35.) Bergreen refused to give the plaintiff a copy and told the plaintiff that Bergreen had the right to amend the Plan however Bergreen chose. Bergreen also told the plaintiff that the plaintiff would not receive any retirement benefits while employed for the Company, because the plaintiff was fired. The plaintiff left the office and did not return. (Id. ¶ 36.)
C.
On February 24, 2000, the plaintiff reached his normal retirement age under the Plan. (Compl. I ¶ 39.) On or about April 13, 2000, the plaintiff requested his benefits in the form of a single lump-sum payment. On April 28, 2000, the plaintiff received a distribution of $597,982.30, which was allegedly calculated by applying all of the terms of the Restated Plan and all of the amendments that purported to be in effect as of February 2000, including the $48,000 ceiling on annual accrued benefits. (Id. ¶ 40.)
On or about May 17, 2000, the plaintiff submitted a claim to the Plan's Administrative Committee arguing that he was entitled to additional benefits under the Plan. (Id. ¶ 41.) The plaintiff argued that the Committee had applied a number of amendments to him that were void pursuant to § 204(h) of ERISA because these amendments had provided for a significant reduction in his rate of future benefit accruals and were passed without appropriate notice to Plan participants. (Id. ¶¶ 4, 49); see generally 29 U.S.C. § 1054(h)(1)-(h)(1)(A). On or about August 11, 2000, the Administrative Committee denied the plaintiff's claim for additional benefits. (Compl. I ¶ 43.) The plaintiff appealed, and, on October 23, 2000, the Administrative Committee upheld its original decision. (Id. ¶ 45.) On December 20, 2000, the plaintiff filed the present Complaint in Bergreen I.
III.
In his first cause of action, the plaintiff alleges that Bergreen and the Company terminated the plaintiff in violation of § 510 of ERISA, 29 U.S.C. § 1140 ("§ 510"). Section 510 makes it unlawful for any person to "discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary [of an ERISA benefit plan] for exercising any right to which he is entitled under the provisions of an employee benefit plan [or] this subchapter . . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan . . . ." 29 U.S.C. § 1140. As the Court of Appeals for the Second Circuit has explained, "Section 510 was designed primarily to prevent 'unscrupulous employers from discharging or harassing their employees to keep them from obtaining vested pension rights.'" Dister v. The Cont'l Group, Inc., 859 F.2d 1108, 1111 (2d Cir. 1988) (quoting West v. Butler, 621 F.2d 240, 245 (6th Cir. 1980)). However, § 510 also prohibits employers from terminating employees in retaliation for asserting their rights under a plan. Montesano v. Xerox Corp., 256 F.3d 86, 88-89 (2d Cir. 2001) (per curiam); Patterson v. McCarron, No. 99 Civ. 11078, 2001 WL 1488122, at *3 (S.D.N.Y. Nov. 21, 2001).
The defendants argue that this claim should be dismissed because the plaintiff cannot identify any rights under the Plan that would have vested if the plaintiff had continued working at the Company. The defendants argue that, hence, Bergreen could not have terminated the plaintiff with the motive of preventing any such rights from vesting. However, the Complaint in Bergreen I clearly alleges that Bergreen fired the plaintiff in response to the plaintiff's assertion of a number of purported rights under the Plan. (Compl. I ¶ 34.) These allegations clearly state a claim for retaliation under § 510. Moreover, even if, the plaintiff was wrong about these alleged entitlements, it cannot be determined as a matter of law that Bergreen knew that the plaintiff was wrong when Bergreen terminated the plaintiff. Hence, it cannot be determined as a matter of law that Bergreen's motive was not to prevent any rights from vesting under the Plan. The Complaint in Bergreen I details the events leading to the termination, provides the relevant dates, and alleges that the plaintiff was terminated because of a dispute in which the plaintiff was asserting rights as a participant under the Plan, some of which would have allegedly vested in the future. These allegations are sufficient to state a claim upon which relief can be granted under § 510 of ERISA.See generally Fed.R.Civ.P. 8(a), 8(e)(1), 8(f); cf. also Swierkiewicz v. Sorema N.A., 122 S.Ct. 992, 996-99 (2002).
IV.
In his second cause of action, the plaintiff alleges that the Administrative Committee erred by giving effect to the Discretionary Bonus Amendment and a number of new changes in the Restated Plan when denying his claim for additional benefits. The Complaint in Bergreen I does not specify the precise provision of ERISA under which the plaintiff seeks to raise this challenge. To the extent that the plaintiff seeks to recover benefits allegedly due to him under the Plan by raising a straightforward challenge to the Administrative Committee's decisions, the plaintiff is raising a claim for benefits under 29 U.S.C. § 1132(a)(1)(B). However, the plaintiff also seeks equitable relief in this action, and alleges in his second cause of action that the Committee breached a fiduciary duty to him by applying certain amendments to him. (See Compl. I ¶ 51 (citing 29 U.S.C. § 1104 ("Fiduciary Duties") as one basis for claim).) To the extent that the plaintiff is seeking appropriate equitable relief for violations of ERISA that resulted in an erroneous determination of his benefits, the plaintiff is raising a claim under 29 U.S.C. § 1132(a)(3). These claims may proceed in tandem at this stage. See Varity Corp. v. Howe, 516 U.S. 489, 513-14 (1996) (ERISA claims for breach of fiduciary duty are not necessarily duplicative of claims for benefits); Devlin v. Empire Blue Cross Blue Shield, 274 F.3d 76, 88, 89-90 (2d Cir. 2001) (allowing a claim for breach of fiduciary duty to proceed along with a claim for benefits, though limiting recovery to that equitable relief, if any, that is appropriate in light of the complete equities, including any recovery of benefits that might obviate the need for equitable relief).
A.
Beginning with the plaintiff's claim for the recovery of benefits pursuant to 29 U.S.C. § 1132(a)(1)(B), the first issue is what standard of review applies to the Administrative Committee's denial of these benefits. The Supreme Court has held that "a denial of benefits challenged under § 1132(a)(1)(B) is to be reviewed under a de novo standard unless the benefit plan gives the administrator or fiduciary discretionary authority to determine eligibility for benefits or to construe the terms of the plan." Firestone v. Tire Rubber Co. v. Bruch, 489 U.S. 101, 115 (1989). By contrast, if a plan grants discretionary authority to a plan administrator to make these determinations, the administrator's decision must ordinarily be upheld unless it is "arbitrary and capricious." Pagan v. NYNEX Pension Plan, 52 F.3d 438, 441 (2d Cir. 1995) (collecting cases).
In this case, the Plan explicitly grants the Administrative Committee the complete authority to decide applications for benefits under the Plan, including the discretionary authority to determine any matters within that jurisdiction. See Restated Plan §§ 6.12, 7.1, 7.2. In his Complaint in Bergreen I, the plaintiff also alleges that the § Committee's denial of benefits to him was "arbitrary and capricious." (Compl. I ¶ 51.)
However, in his papers on this motion, the plaintiff argues that the Committee's decision should be reviewed de novo because the Committee, which consisted of Bergreen and Bergreen's attorney, Jerome A. Siegel, had a conflict of interest. When a plan gives a plan administrator the discretion to make a benefits determination but the administrator also has a conflict of interest that actually influences his or her decision in a particular case, "the deference otherwise accorded the administrator's decision drops away and the court interprets the plan de novo." Sullivan v. LTV Aerospace Defense Co., 82 F.3d 1251, 1256 (2d Cir. 1996).
It cannot be decided as a matter of law on this motion to dismiss that there was no conflict that affected some or all of the Committee's decision. The Complaint in Bergreen I alleges that the Committee denied the plaintiff the disputed benefits shortly after the plaintiff and Bergreen had engaged in a bitter dispute leading to the plaintiff's termination. The Complaint also alleges that Bergreen managed both the Plan and the Committee. Moreover, even if the Administrative Committee's decision must ultimately be reviewed under an arbitrary and capricious standard, the parties have not yet submitted the complete record of the proceedings before the Committee to the Court for review. As discussed more fully below, the Committee's decision was based not only on interpretations of the law but also on several findings of fact and interpretations of the Plan that, in this case, make it impossible to determine whether some of its decisions were "without reason, unsupported by substantial evidence or erroneous as a matter of law" — which is the relevant definition of "arbitrary and capricious" — without reviewing the complete record. See Pagan, 52 F.3d at 442 (quotation marks omitted) (defining the "arbitrary and capricious" standard) (citingAbnathaya v. Hoffman-La Roche, Inc., 2 F.3d 40, 45 (3d Cir. 1993)). To survive a motion to dismiss in these circumstances, the plaintiff need only plead facts that, when viewed in a light most favorable to the plaintiff, indicate that the Administrative Committee's decision was erroneous under a de novo standard.
B.
The plaintiff bases his claim for benefits on the contention that the Administrative Committee applied the Discretionary Bonus Amendment and several new changes in the Restated Plan to the plaintiff even though these amendments were allegedly void under § 204(h) of ERISA. Section 204(h) provides, in relevant part, that a defined benefit plan:
may not be amended so as to provide for a significant reduction in the rate of future benefit accrual, unless, after adoption of the plan amendment and not less than 15 days before the effective date of the plan amendment, the plan administrator provides a written notice, setting forth the plan amendment and its effective date to . . . each participant in the plan.29 U.S.C. § 1054(h)(1), (1)(A) (2)(A). The plaintiff argues that the changes in question were inapplicable to him because neither Bergreen nor the Company "ever provided each participant of the Plan proper notice of any amendments as set forth with statutory precision in Section 204(h), including the [Discretionary Bonus Amendment] and the [Restated Plan], both of which significantly reduced the rate of Plaintiff's future benefit accruals." (Compl. I ¶ 49.) Absent an exception to § 204(h), or a showing that the changes did not provide for a significant reduction in the rate of the plaintiff's future benefit accruals, the Administrative Committee could not have applied any of these changes to the plaintiff until fifteen (15) days after the plaintiff received appropriate written notice under § 204(h). Kagen v. Flushing Hosp. Med. Ctr., No. 96-CV-5795, 2000 WL 1678015, at *4 (E.D.N.Y. Nov. 3, 2000) ("Until a participant receives such notice, he is not subject to the provisions of the amendment."); see also Davidson v. Canteen Corp., 957 F.2d 1404, 1406 (7th Cir. 1992) (failure to meet Section 204(h)'s notice requirements will ordinarily render an amendment ineffective);Copeland v. Geddes Fed. Saving Loan Assoc. Retirement Income Plan, 62 F. Supp.2d 673, 677-78 (N.D.N.Y. 1999); Normann v. Amphenol Corp., 956 F. Supp. 158, 165 (N.D.N.Y. 1997); 26 C.F.R. § 1.411(d)-6, Q-13 A-13 (allowing application of amendments to participants who receive appropriate § 204(h) notice, if the plan administrator made a good faith effort to comply with § 204(h), even if other participants did not).
The Administrative Committee found that the plaintiff received adequate § 204(h) notice when it was required for application of each of the disputed amendments. See Letter from Administrative Committee to Daniel S. Welytok, Esq. dated August 11, 2000 ("Administrative Committee Decision I"), attached as Ex. C to Reich Aff. I, at 3, 6-10. In his papers on the present motion, the plaintiff also concedes that he received and held copies of all of the relevant documents in his capacity as Bergreen's secretary and legal assistant. However, the plaintiff also contends that he received these documents only for the purposes of filing, and the parties dispute when the plaintiff received these documents and whether he received them in the precise form needed to meet the technical requirements of § 204(h). See generally 29 U.S.C. § 1054(h) (requiring "written notice, . . . setting forth the plan amendment and its effective date"); 26 C.F.R. § 1.411(d)-6, at Q-11 A-11; Normann, 956 F. Supp. at 165 (finding plan amendment ineffective under § 204(h) because the administrator had provided the participants with plan summaries that were not stated in a manner reasonably calculated to be understood by the average plan participant).But cf. 26 C.F.R. § 1.411(d)-6, at Q-10 A-10 ("[T]he notice does not fail to comply with section 204(h) merely because the notice contains a summary of the amendment, rather than the text of the amendment, if the summary is written in a manner calculated to be understood by the average plan participant and contains the effective date.") Given these factual disputes between the parties as to the nature and circumstances of the alleged notice provided to the plaintiff, it cannot be decided as a matter of law that the plaintiff received adequate § 204(h) notice of the amendments in question.
These facts are alone sufficient to warrant denial of the defendants' motion to dismiss the second cause of action insofar as it relates to application of the Discretionary Bonus Amendment. However, the defendants argue that they were not required to provide the plaintiff with § 204(h) notice of the changes in the Restated Plan because of an explicit exception to § 204(h), which derives from the Tax Reform Act of 1986 and a series of IRS regulations promulgated thereafter to help plan sponsors amend their plans to meet the requirements of this Act. See generally Scott, 113 F.3d at 1195-98. As discussed above, when Congress passed the Tax Reform Act of 1986, Congress also required the Secretary of Treasury to issue regulations to give ERISA plan sponsors guidance in this amendment process. Id. at 1195. After a number of extensions of the remedial period in which plan sponsors could perform this task, in order to allow the Secretary of Treasury to issue this guidance, the IRS ultimately promulgated a number of model amendments, which would bring a plan into compliance with the Tax Reform Act of 1986. If these amendments were passed before the last day of the 1994 plan year, they could be adopted and made retroactively effective beginning January 1, 1989 under the relevant IRS regulations. See Rev. Proc. 94-13, 1994-3 I.R.B. 18, 1994 IRB LEXIS 48, at *2-9, *11-13, *18-22. The Complaint alleges that Bergreen enacted "Model Amendment [I] from IRS Publication 1334 to ostensibly comply with the provisions of the Tax Reform Act of 1986," (Compl. I ¶ 70), and the relevant IRS regulations are clear that "the notice requirements of section 204(h) of ERISA are not applicable to amendments to [defined benefit plans] solely to limit the compensation taken into account under the plan to the maximum permitted under [the restrictions created by the Tax Reform Act of 1986]." Rev. Proc. 94-13, 1994-3 I.R.B. 18, 1994 IRB LEXIS 48, at *12.
To the extent that the changes in the Restated Plan merely codified the Tax Reform Act Compliance Amendment and this amendment reflected a model used solely to bring the Plan into compliance with the Tax Reform Act of 1986, the defendants are thus correct that the plaintiff was not entitled to any § 204(h) notice of the changes in the Restated Plan. However, as the plaintiff correctly argues, the Tax Reform Act Compliance Amendment does not contain a $48,000 ceiling on annual accrued benefits.See Amendment No. 5 to the Original Plan, attached as Ex. B(5) to Reich Aff. I. The defendants have not provided any other basis for their contention that this particular change was required to bring the Plan into compliance with the Tax Reform Act of 1986, or any other basis for an exception to § 204(h) for amendments that exceed the requirements for such compliance.
With respect to this ceiling, the defendants argue, instead, that all benefits accruals beginning on January 1, 1989 had already been frozen due to the Committee's adoption of so-called Alternative IID from the IRS regulations, which allowed plan sponsors a way to obtain relief from the provisions of the Tax Reform Act of 1986 during the plan's remedial period and pending an amendment that would bring the plan into final compliance with the Act. See generally Notice 88-131, 1988-52 I.R.B. 15, 1988 IRB LEXIS 3719, at *1-3, *16-18, *21-28 (describing operation of Alternative IID). The defendants argue that the plaintiff had accrued less than $48,000 by January 1, 1989, that his accrued benefits were effectively frozen at that lesser amount due to the Plan Administrator's adoption of Alternative IID, and that, hence, adoption of the $48,000 ceiling in the Restated Plan did not in fact reduce the rate of the plaintiff's future benefit accruals at all on December 27, 1994, when the Restated Plan was actually executed. Rather, the ceiling was executed as part of a comprehensive restatement in which benefits were to begin accruing once again. On the defendants' view, the plaintiff was therefore not entitled to § 204(h) notice of this new ceiling under the express terms of § 204(h).
However, while Alternative IID allowed plan sponsors to freeze benefit accruals beginning on January 1, 1989 as part of the process of bringing a plan into compliance with the Tax Reform Act of 1986, these freezes were to last only until a participant accrued the same amount that he or she would have been entitled to on January 1, 1989 under the terms of the Plan as ultimately amended solely to comply with the Tax Reform Act of 1986. See id. at *13, *28-29. For the reasons already discussed, the defendants have not provided any basis for the contention that the $48,000 ceiling was required for this compliance. Moreover, viewing the Complaint in Bergreen I in a light most favorable to the plaintiff, the plaintiff might have accrued more than $48,000 in annual benefits by December 27, 1994 under the terms of the Plan as amended on that same date solely to comply with the Tax Reform Act of 1986. Hence, it cannot be determined as a matter of law that the Committee correctly applied the $48,000 ceiling to the plaintiff.
In sum, the Administrative Committee's determination of the plaintiff's benefits is not so plainly correct that it can be decided as a matter of law that the plaintiff has no claim for benefits. The record of the administrative determination of the Plan must be viewed in light of the proper standard of review and the complete administrative record. That cannot be done on this motion to dismiss.
C.
The defendants also raise a statute of limitations defense to the plaintiff's second cause of action, insofar as it raises a claim for breach of fiduciary duty pursuant to 29 U.S.C. § 1132(a)(3) relating to the Committee's application of the Discretionary Bonus Amendment. Section 413 of ERISA provides that no claim for breach of fiduciary duty may be commenced 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 an 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 . . . .29 U.S.C. § 1113 ("§ 413").
The provision makes an exception "in the case of fraud or concealment," in which case "such action may be commenced not later than six years after the date of discovery of such breach or violation."Id.
However, the breach of fiduciary duty allegations in the second cause of action identify the alleged breach in the Administrative Committee's decision to apply amendments to him that were allegedly void under § 204(h), not as the initial failure to provide adequate § 204(h) notice. The plaintiff indisputedly brought this action within three years of the Committee's decision to apply these amendments to him in denying his request for additional benefits, and, under any application of § 413, these breach of fiduciary duty claims are therefore timely. In any event, the defendants do not raise a statute of limitations defense to the plaintiff's second cause of action insofar as it relates to application of the $48,000 ceiling to the plaintiff. As discussed above, the plaintiff also states a claim for the recovery of benefits pursuant to 29 U.S.C. § 1132(a)(1)(B) that is based on the simple erroneous application of amendments to him and does not necessarily depend on any allegations of a breach of fiduciary duty. Hence, the defendants' motion to dismiss the second cause of action as time-barred is denied.
V.
In his third cause of action, the plaintiff alleges that Bergreen and the Company breached a fiduciary duty to him, and to other members of the Plan, by "adopting the amendments to the Plan, and specifically, [the Discretionary Bonus Amendment] and the [Restated Plan]" in violation of § 204(g) of ERISA, 29 U.S.C. § 1054(g) ("§ 204(g)"). (Compl. I ¶¶ 53-54.) Section 204(g) places limitations on the adoption of any amendments to a plan that would decrease the amount of benefits that a participant has already accrued.
The defendants move to dismiss this claim on the ground that the Tax Reform Act of 1986 and the related IRS regulations discussed in the last section created an exception to § 204(g), which allowed for plan administrators to amend their plans retroactively to bring them into compliance with the Tax Reform Act of 1986. See Rev. Proc. 94-13, 1994-3 I.R.B. 18, 1994 IRB LEXIS 48, at *11-12 (allowing retroactive amendments to bring plans into compliance with the Tax Reform Act of 1986). However, the exception in question applies only if "the reduction is made solely to the extent necessary to enable the plan to satisfy [the Tax Reform Act of 1986, as codified]." Id. For the reasons stated above, it cannot be determined as a matter of law that the $48,000 ceiling was needed for compliance with the Tax Reform Act of 1986, it cannot be determined as a matter of law that the plaintiff had not accrued more than $48,000 in benefits as of December 27, 1994, such that application of the $48,000 ceiling to him would have reduced his contemporaneous benefits. Hence, the defendants have not provided any legal basis for dismissing the plaintiff's claims based on alleged violations of § 204(g).
Moreover, the defendants do not explicitly address any of the plaintiff's § 204(g) claims that may relate to other amendments, such as the Discretionary Bonus Amendment, in the present motion. Therefore, the defendants' motion to dismiss the third cause of action is denied.
VI.
In the plaintiff's fourth cause of action, the plaintiff alleges that "[i]n calculating Plaintiff's benefit accrual for years 1989-1993, inclusive, the Plan Administrator breached its fiduciary duty to Plaintiff by misapplying IRS Regulations implemented pursuant to the Tax Reform Act of 1986." (Compl. I ¶ 57.) The plaintiff also appears to be raising a straightforward challenge to the Administrative Committee's denial of his benefits based on these allegations. (See id. ¶ 56.)
The defendants move to dismiss this claim on the ground that ERISA does not provide a private right of action for violations of the Internal Revenue Code. This argument misconstrues the plaintiff's claim. The plaintiff does not seek to assert a direct claim for violation of the Tax Reform Act or any of the relevant IRS regulations, or to challenge in any other way whether the Plan qualifies for the tax exemptions generally associated with qualified ERISA plans. Rather, the plaintiff alleges that in calculating his benefits, the defendants incorrectly interpreted these statutory and regulatory provisions to allow for a general freeze of his accrued benefits from 1989 to 1993 and for application of a number of amendments to the Plan that otherwise would have been clearly invalid under §§ 204(h) and 204(g) of ERISA. The plaintiff alleges that these decisions were harmful to him and that they were not in fact authorized by the Tax Reform Act of 1986 or any of the relevant IRS regulations, but he asserts claims for breach of fiduciary duty and for the recovery of benefits under ERISA, rather than claims for any direct violations of the tax provisions.
Hence, the defendants' motion to dismiss the fourth cause of action must be denied.
VII.
In his fifth cause of action, the plaintiff alleges that the defendants Bergreen and the Company breached a fiduciary duty to him by passing six amendments to the Plan between 1986 and 1999 that allegedly constituted prohibited transactions with a party in interest or a fiduciary, or were inherently discriminatory because they were designed to benefit either Bergreen or his wife at the expense of other Plan participants. See 29 U.S.C. § 1106(a) (prohibiting certain transactions involving a plan and a party in interest); 29 U.S.C. § 1106(b) (prohibiting certain transactions involving a plan and a plan fiduciary). The Amendments in question include the Discretionary Bonus Amendment, the Tax Reform Act Compliance Amendment and the Amendment that provoked the dispute leading to the plaintiff's termination. The plaintiff alleges that Bergreen, as the sole proprietor and director of the Company, executed each of the amendments to benefit Bergreen and/or his wife Barbara Bergreen.
However, as the defendants correctly note, "ERISA does not mandate that employers provide any particular benefits, and does not itself proscribe discrimination in the provision of employee benefits." Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 91 (1983). Moreover, although the plaintiff correctly argues that 29 U.S.C. § 1106 generates fiduciary duties on the part of plan fiduciaries not to cause a plan to engage in certain prohibited transactions with plan fiduciaries or parties in interest, the Supreme Court has held that "the act of amending a pension plan does not trigger ERISA's fiduciary provisions." Lockheed Corp. v. Spink, 517 U.S. 882, 891 (1996); see also id. at 888-89; Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 438, 443-46 (1999) (explaining that plan sponsors who alter the terms of a plan do not fall into the category of fiduciaries); Devlin, 274 F.3d at 82, 88. As the Supreme Court has explained:
Although the antidiscrimination provisions created by the Tax Reform Act of 1986 provide a limited exception to this rule, these provisions are not relevant to the plaintiff's fifth cause of action.
Plan sponsors who alter the terms of a plan do not fit into the category of fiduciaries. . . . When employers undertake those actions they do not act as fiduciaries, but are analogous to the settlors of a trust. . . . In general, an employer's decision to amend a pension plan concerns the composition or design of the plan itself and does not implicate the employer's fiduciary duties which consist of such actions as the administration of the plan's assets.Hughes Aircraft, 525 U.S. at 443-44 (internal quotation marks and citations omitted). Hence, ERISA does not create a fiduciary duty on the part of plan sponsors to amend plans in the nondiscriminatory manners that the plaintiff seeks. The plaintiff's fifth cause of action must be dismissed on these grounds alone.
The plaintiff also relies on 29 U.S.C. § 1108(c)(1) However, this provision creates an exception to. the duties set forth in 29 U.S.C. § 1106. In particular, this provision states that "[n]othing in section 1106 . . . shall be construed to prohibit any fiduciary from . . . . receiving any benefit to which he may be entitled as a participant or beneficiary in the plan, so long as the benefit is computed and paid on a basis which is consistent with the terms of the plan as applied to all other participants and beneficiaries." 29 U.S.C. § 1108(c)(1). Because there was no breach of fiduciary duty related to violations of § 1106, it is unnecessary to decide whether this exception would have applied to the alleged transactions in this case.
Moreover, those plan amendments that were enacted more than six years prior to December 20, 2000, the date this action was filed, would be barred by the six-year statute of limitations in 29 U.S.C. § 1113(1). While the defendants claim that the plaintiff also had actual knowledge of some subsequent amendments, and failed to bring this action within three years of such actual knowledge, as required by 29 U.S.C. § 1113(2), these issues cannot be decided on this motion to dismiss because they rely on matters that go beyond the Complaint.
VIII.
In his sixth cause of action, the plaintiff alleges that the defendants Bergreen and the Company breached a fiduciary duty to Plan participants by approving a in-service lump-sum distribution of more than $1,700,000 in benefits to Bergreen in December 1993 and approving several COLA distributions thereafter, based in part on application of the allegedly self-serving Amendments discussed above. (Compl. I ¶¶ 23, 64, 77-78.) The plaintiff alleges in part that Bergreen received a total distribution that exceeded the benefits he deserved under the Plan. (Id. ¶¶ 77-78.) The plaintiff also alleges that this lump-sum distribution to Bergreen violated IRS Treasury Regulation 1.401(a)(4)-5(b), which prohibits lump-sum distributions from a plan if the value of the plan assets that would remain after the distribution would be less than 110% of the value of the plan's contemporaneous liabilities. See 26 C.F.R. § 1.401(a)(4)-5(b)(3)(iv)(A). The plaintiff argues that these actions thereby violated a fiduciary duty, specifically, the duty to discharge one's ordinary duties with respect to a plan solely in the interests of plan participants. See 29 U.S.C. § 1103(a).The defendants move to dismiss this claim for lack of standing. With regard to former employees who do not seek to return to employment, only those former employees that have a colorable claim to vested benefits are considered "participants," with standing to bring claims for breach of fiduciary duty under 29 U.S.C. § 1132. Flanigan v. Gen. Elec. Co., 242 F.3d 78, 85-86 (2d Cir. 2001); see also Firestone, 489 U.S. at 116-18. The defendants argue that the plaintiff does not have any valid claims for benefits in this case, and that dismissal of this claim is therefore warranted. However, for the reasons discussed above, the plaintiff still has several surviving claims for benefits in this action, and it cannot be decided as a matter of law that the claims are not colorable. Moreover, while the plaintiff may not ultimately be able to establish that the distribution caused him any actual or threatened injury with respect to his own ability to recover benefits, the plaintiff also seeks equitable relief in this action, and 29 U.S.C. § 1132 "essentially empowers beneficiaries to bring a civil action to redress any violation of the statute's fiduciary requirements." Fin. Insts. Retirement Fund v. Office of Thrift Supervision, 964 F.2d 142, 148 (2d Cir. 1992) The fiduciary duty that the plaintiff cites requires plan fiduciaries to make decisions in administering a plan "with an eye single to the interests of participants and beneficiaries." Id. (quoting Donovan v. Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982)); cf. also Leigh v. Engle, 727 F.2d 113, 122 (7th Cir. 1984) (trustee who improperly risks plan assets breaches this fiduciary duty). It cannot be determined as a matter of law that Bergreen did not risk any plan assets in allowing for the challenged distributions, and these allegations are sufficient for the plaintiff to maintain standing over the present claim at this stage.See generally Fin. Insts. Retirement Fund, 964 F.2d at 147-50.
The defendants argue that the sixth cause of action should also be dismissed as untimely. To the extent that the plaintiff seeks to challenge the lump-sum distribution to Bergreen in 1993, this alleged violation clearly occurred more than six years prior to the commencement of this action. There are no allegations of fraud or concealment of the distribution from the plaintiff. The plaintiff's sixth case of action challenging this distribution is therefore time-barred. See 29 U.S.C. § 1113(1). By contrast, it cannot be determined from the Complaint when precisely the subsequent COLA distributions occurred. Hence, it cannot be determined as a matter of law that the plaintiff's challenges to these particular distributions is time-barred.
In sum, the defendants' motion to dismiss the sixth cause of action is granted insofar as it challenges the initial lump-sum distribution to Bergreen. The motion is denied insofar as the plaintiff's sixth cause of action challenges the subsequent COLA distributions.
IX.
The plaintiff's seventh cause of action asserts that Bergreen and the Company breached their fiduciary duties to the Plan participants by failing to advise a number of employees who may have been eligible to participate in the Plan about the Plan's existence and their eligibility in violation of § 102(a)(1) of ERISA, 29 U.S.C § 1022(a) ("§ 102(a)"), and by failing to provide them with Plan Amendments, Plan Restatements, Summary Plan Descriptions, Summary Annual Reports, and advice about their vested benefits upon termination in violation of §§ 104(b)(1) and (3) of ERISA, 29 U.S.C. § 1024(b)(1) (3) ("§ 104(b)(1)" and "§ 104(b)(3)", respectively).
It is not clear that these provisions require disclosure of all of the materials alleged in the Complaint in Bergreen I. The parties have not yet briefed this issue, however, and the Court will not address it here.
The plaintiff's seventh cause of action is directed in main part toward alleged failures to disclose information to a number of third-parties who were allegedly eligible to participate in the Plan. The plaintiff lacks standing to bring an action to recover benefits owed to third-party plan participants or to seek penalties for failures of disclosure to those third-parties. See 29 U.S.C. § 1132(a)(1)(A)-(B) 1132(c). The plaintiff lacks Article III standing to challenge the failure to make disclosures to other plan participants because he does not identify how those alleged failures harmed him in any way or may harm him.
However, the plaintiff also claims in his opposition that the "failure to provide this [same] information to [the plaintiff] was harmful to him because he was unable to get the proper information with regard to the value of his accrued benefits under the plan." (Pl.'s Opp. I at 21.) It cannot be determined as a matter of law that the plaintiff was not harmed by some failures to provide him with the information required under §§ 102(a), 104(b)(1) and/or 104(b)(3) of ERISA. Moreover, it could not be determined on this motion what, if any, equitable relief the plaintiff may be entitled to for a failure to disclose information to him. See 29 U.S.C. § 1132(a)(3); see also 29 U.S.C. § 1109(a). Hence, the plaintiff's seventh cause of action survives insofar as it is limited to a claim to recover losses to the plaintiff arising out of failure to disclose this information to the plaintiff and/or seeks other appropriate equitable relief.
In sum, the plaintiff's seventh cause of action must be dismissed insofar as it asserts claims related to failures of disclosure to third parties, but survives insofar as it is limited to a claim for failures to disclose information to the plaintiff.
X.
In his eighth cause of action, the plaintiff alleges that the defendant Barbara Bergreen, Bernard D. Bergreen's wife, failed to disclose information about the Plan to Plan participants, as described in claim seven. (Compl. I ¶¶ 83-84.) The plaintiff concedes that Barbara Bergreen was not a "Plan Administrator" within the meaning of ERISA but argues that she can nevertheless be named as a defendant in a breach of fiduciary duty action under ERISA because she was an officer of another company, Portantina, Ltd., which employed a number of persons who were allegedly eligible to participate in the Plan.
To the extent that the plaintiff's eighth cause of action is based on allegations about failures to disclose information to these other third party employees, the claim must be dismissed for lack of standing or for failure to state a claim for the reasons discussed above. In addition, § 104(b)(1) and (3) of ERISA both specify that "the Plan Administrator shall furnish to each participant, and to each beneficiary receiving benefits under the plan," the relevant information or documents. 29 U.S.C. § 1024(b)(1) (3) (emphasis added). Because Barbara Bergreen was not a Plan Administrator at any of the times relevant to this claim, she cannot be held liable for violations of these provisions. Section 102(a), by contrast, is not limited by its terms to actions by Plan Administrators, see 29 U.S.C. § 1022(a). With regard to ERISA provisions like these, a participant generally may obtain injunctive relief pursuant to 29 U.S.C. § 1132(a)(3) against a broad range of defendants, including non-administrators and non-fiduciaries, so long as the relief is appropriate to cure the violations. See generally Harris Trust Savings Bank v. Salomon Smith Barney Inc., 530 U.S. 238, 245-49 (2000). In this case, however, the plaintiff has not alleged that Barbara Bergreen played any role at all with regard to alleged failures of disclosure relating to him or employees at the Company, and, for the reasons discussed above, the plaintiff has not alleged any interest in disclosure to the employees at Portantina, Ltd. The plaintiff's claim under 29 U.S.C. § 1022(a) must therefore also be dismissed for lack of standing.
In sum, the plaintiff's eighth cause of action must be dismissed in its entirety.
XI.
The plaintiff's ninth cause of action alleges that Barbara Bergreen "knowingly participated in prohibited transactions with Bergreen or other transaction where Bergreen violated his fiduciary duties with respect to the Plan." (Compl. ¶ 88.) The plaintiff does not identify the transactions he is referring to or the legal basis for this claim. To the extent that the plaintiff is basing his claim on the same allegedly improper transactions alleged in the plaintiff's fifth cause of action, this claim must be dismissed for the same reasons discussed above. To the extent that the plaintiff is relying on other transactions, he has not pleaded any facts that would place the defendants on notice of the nature or basis of his claim, and he has thus failed to plead such a claim with sufficient particularity to satisfy the pleading requirements of Rule 8(a) of the Federal Rules of Civil Procedure. However, because it cannot be determined whether the plaintiff can plead facts sufficient to meet this standard, the plaintiff's ninth cause of action is dismissed without prejudice to repleading if the plaintiff can state a valid claim against Barbara Bergreen for participating in a prohibited transaction other than the ones identified in claim five.
XII.
The plaintiff moves to remand Bergreen II to the Supreme Court of the State of New York, New York County, pursuant to 28 U.S.C. § 1447(c) on the ground that this Court lacks jurisdiction over the action. Section 1447(c) provides, in relevant part, that "[i]f at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded." On its face, the Complaint inBergreen II asserts two independent causes of action, both of which are for defamation and libel per se under New York state law. The defendant removed the action on the ground that these claims were pre-empted by ERISA.
A.
The Complaint in Bergreen II states a number of the same facts alleged in Bergreen I relating to the plaintiff's employment history, his termination and his subsequent claims for benefits. The non-jurisdictional facts in this Complaint are accepted as true for the purposes of this motion to remand. Jurisdictional facts are drawn not only from this Complaint but also from affidavits and exhibits submitted by the parties. See, e.g., Hyatt Corp. v. Stanton, 945 F. Supp. 675, 677 (S.D.N.Y. 1996); see also Kline v. Kaneko, 685 F. Supp. 386, 389, 392-93 (S.D.N.Y. 1988).
The first paragraph of the Complaint in Bergreen II states that after the plaintiff was discharged, "BERGREEN and his agents embarked on a campaign of malicious defamation, designed to intimidate [the plaintiff] and to deter him from pursuing his rights as a plan beneficiary." (Compl. II ¶ 1.) The plaintiff cites two allegedly defamatory statements in support of this contention. First, on June 21, 2000, during correspondences between the parties in the claims resolution process, Bergreen's attorney, Michael Maryn, wrote a letter to the plaintiff's attorney, Daniel S. Welytok, stating, among other things, the following:
We have recently learned that during the course of exercising the authority that made [the plaintiff] a fiduciary of the Plan and [the Company], [the plaintiff] may have knowingly and intentionally engaged in a course of action designed to conceal the value and cost of the benefits provided to [the plaintiff] and other participants under the Plan from Mr. Bergreen.
In addition, we have reason to believe that [the plaintiff] may have overstated his compensation to the Plan's actuaries on the annual employees census that was prepared by [the plaintiff] to assist the Plan's actuaries in determining his and other participants' benefits and Mr. Bergreen's funding obligations.
If [the plaintiff] engaged in such activities, he may have breached his fiduciary duties to the Plan and to [the Company], and such activities may also constitute fraudulent concealment.
(Id. ¶ 14 (quoting Letter from Michael Maryn to Daniel S. Welytok dated June 21, 2000 ("First Letter"), at 1, attached as Ex. C to Affidavit of Edward J. Reich sworn to August 13, 2001 ("Reich Aff. II").) This letter also requested certain documentation, citing the need for this documentation in order to investigate the plaintiff's conduct. First Letter at 1-2. The plaintiff alleges that the letter was sent to Welytok "and various other persons." (Compl. II ¶ 14.)
Welytok responded with a letter refusing to provide this information on the ground that the investigation in question allegedly had nothing to do with the plaintiff's claim for benefits. See Letter from Welytok to Maryn dated June 27, 2000, attached as Ex. 47 to Affidavit of Joseph Suozzo sworn to May 7, 2001 ("Suozzo Aff."). Maryn subsequently responded with another letter agreeing that:
the information we seek has nothing to do with [the plaintiff's] benefits, but rather with his conduct, perhaps tortious, in connection with his duties as employee of [the Company] and as a fiduciary of [the Plan].
(Compl. II ¶ 16 (quoting Letter from Maryn to Welytok dated July 6, 2000, at 1, attached as Ex. D to Reich Aff. II).) This statement, which was allegedly received by Welytok and "various other persons," is the second alleged instance of defamation or libel per se.
When the Administrative Committee ruled on the plaintiff's request for additional benefits on August 11, 2000, the Committee issued a letter stating its reasons for this decision. This decision stated, in relevant part, that:
[t]he records I have reviewed also indicate that [the plaintiff] incorrectly reported his compensation on the employee census.
(Id. ¶ 18 (quoting Letter Decision from Administrative Committee to Welytok dated August 11, 2000, at 3, attached as Ex. E. to Reich Aff. II).) The letter was signed by Jerome A. Siegel, Esq., "Secretary for the Administrative Committee for the Bernard D. Bergreen and Bernard D. Bergreen, P.C. Pension Plan." The Complaint alleges that Bergreen and the Company, through an agent, published these defamatory words. (Id.)
The defendants removed this action on the ground that it was preempted by § 514 of ERISA, 29 U.S.C. § 1144 ("§ 514") The plaintiff now challenges that removal and moves to remand the action to the New York State Supreme Court.
B.
Section 514 of ERISA pre-empts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan" covered by ERISA and non-exempt under ERISA, with a number of exceptions that are not relevant to the present motion. 29 U.S.C. § 1144(a); see also Shaw v. Delta Airlines, Inc., 463 U.S. 85, 91 (1983). The plaintiff argues that his claims for defamation and libel per se do not "relate to" ERISA employee benefit plans within the meaning of § 514, and that removal was therefore improper. See generally Cal. Div. of Labor Standards Enforcement v. Dillingham Constr. Co)., 519 U.S. 316, 323-25 (1997) (explaining how the "related to" language in § 514 should be construed in an ERISA preemption analysis) [hereinafter Dillingham]. A state law "relates to" a covered ERISA plan if it has a "connection with or relation to" such a plan. Id. at 324.
In performing a preemption analysis, the Court must begin with the "assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress." Dillingham, 519 U.S. at 325; see also De Buono v. NYSA-ILA Med. Clinical Servs. Fund, 520 U.S. 806, 814 (1997). The defendants do not contend that New York's laws of defamation or libel per se make explicit reference to ERISA plans or that the existence of ERISA plans are in any way essential to the operation of these state laws. See,e.g., Dillingham, 519 U.S. at 324-25 (holding that state laws that met these criteria would "reference" ERISA plans, which is one of the two ways to trigger ERISA preemption). Nevertheless, if, after looking at "the objectives of the ERISA statute as a guide to the scope of the state law that Congress understood would survive" and the "nature of the effect of the state law on ERISA plans," the Court finds that a state law cause of action conflicts with one of ERISA's objectives, ERISA will preempt the state law cause of action. Id. at 325 (quotation marks and citations omitted) (in these circumstances, a state law cause of action has a prohibited "connection with" ERISA plans, which is the second way to trigger ERISA preemption).
The defendants argue that the plaintiff's defamation claims conflict with one of Congress's central purposes in passing 29 U.S.C. § 1132, which was to provide for an exclusive civil enforcement scheme to handle claims for ERISA benefits. See, e.g., Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 52 (1987). The defendants base this argument on the fact that the plaintiff's claims in Bergreen II arose in the claims-resolution process. See generally Danca v. Private Health Care Sys., Inc., 185 F.3d 1, 5-7 (1st Cir. 1999) (finding that claims for negligent supervision and negligent infliction of emotional distress, based on conduct allegedly committed while processing a claim for benefits, were preempted by ERISA when these claims were shown to have provided for an alternative enforcement mechanism to 29 U.S.C. § 1132(a)); Cannon v. Group Health Serv., Inc., 77 F.3d 1270, 1273-75 (10th Cir. 1996) (finding that common law claims for breach of contract and breach of fiduciary duty, which were based on alleged negligence in the processing of benefits, were preempted by ERISA); Pryzbowkski v. U.S. Healthcare, Inc., 64 F. Supp.2d 361, 367-70 (D.N.J. 1999) (finding that state law negligence claim, which arose during a claims resolution process, were preempted by ERISA because the claims were, at their core, challenges to the administration of the plan); Thomas v. Telemecanique, Inc., 768 F. Supp. 503, 505-06 (D. Md. 1991) (finding that claim for defamation, which arose during a claims resolution process, was preempted by ERISA because the "entire issue" was whether the plaintiff "had a right to receive benefits, and whether her benefits were improperly denied").
However, § 514 of ERISA does not automatically preempt a state law cause of action simply because a claim arises during an ERISA claims-resolution process. As the Seventh Circuit Court of Appeals has explained:
ERISA's preemption provision is very broad, but the word "related" must not be taken literally. Had [the plaintiff] gone to the [defendant's] office to inquire about coverage and while there had slipped on a banana peel and been injured and brought a negligence suit, we would not expect [the defendant] to remove the case to federal court and argue preemption; and if it did it would lose, as its lawyer sensibly admitted at argument.Pohl v. Nat'l Benefits Consultants, Inc., 956 F.2d 126, 128 (1992) (citations omitted). The Supreme Court has also held that ERISA does not preempt "run-of-the-mill state-law claims such as unpaid rent, failure to pay creditors, or even torts committed by an ERISA plan," even if the claims "obviously affect and involv[e] ERISA plans and their trustees" and name an ERISA plan as a defendant. Mackey v. Lanier Collection Agency Serv., Inc., 486 U.S. 825, 833 (1988). It should also be noted that, while the Supreme Court has continued to recite the broad scope of ERISA pre-emption, its recent decisions have applied a critical analysis of whether the state law actually referred to an ERISA plan or had a "forbidden connection" to such a plan. Dillingham, 519 U.S. at 325; see also id. at 336 (Scalia, J., concurring) ("I think it accurately describes our current ERISA jurisprudence to say that we apply ordinary field pre-emption, and, of course, ordinary conflict pre-emption."). The critical question is whether the plaintiff's pursuit in state court of the specific claims that he raises for defamation and libel per se would conflict with the ERISA objective of providing an exclusive mechanism for handling claims for plan benefits in this case.
A number of factors establish that allowing the plaintiff to pursue these claims in state court would not conflict with this objective. As an initial matter, the plaintiff does not raise any challenges in Bergreen II that would affect his accrued benefits. Whether Bergreen's lawyer made the accusations about the plaintiff will affect neither the plaintiff's entitlement to benefits under the Plan nor the amount of those benefits. Indeed, in the second allegedly defamatory statement made by Bergreen's lawyer, Bergreen's lawyer asserted that he was seeking documentation to support factual allegations that had "nothing to do with [the plaintiff's] benefits, but rather with his conduct, perhaps tortious, in connection with his duties as employee of [the Company] and as a fiduciary of [the Plan]." (Compl. II ¶ 16.)
Moreover, unlike in Danca, Cannon, Pryzbowski and even Bergreen I, the plaintiff does not name the Plan as a defendant in Bergreen II. The plaintiff does not challenge the way the Plan was administered and does not cite any ERISA provisions as the basis for his claims or make any claims to entitlement under the Plan. Finally, the plaintiff seeks to remedy conduct that has nothing to do with a determination of his benefits and that is prohibited, if at all, by the relevant state laws of defamation rather than by ERISA. In these circumstances, the plaintiff's claims for defamation and libel per se do not duplicate his claim for benefits in Bergreen I, are not at core claims for benefits, and will not frustrate the exclusive mechanisms for raising such claims in federal court, as the plaintiff is presently doing in Bergreen I. See, e.g.,Mackey, 486 U.S. at 833 n. 8 (citing a defamation claim raised inAbofreka v. Alston Tobacco Co., 341 S.E.2d 622 (S.C. 1986), as an example of a state law claim that would not be preempted); Strehl v. Case Corp., No. 97 C 1816, 1997 WL 695729, at *3-5 (N.D. Ill. Nov. 4, 1997) (defamation claim by a doctor against an insurance company that arose in connection with a denial of benefits by a plan to the doctor's patient was not pre-empted).
The defendants argue that the statement made by the Administrative Committee falls into a different category because it represents factual findings made in the course of a decision on the plaintiff's claim for additional benefits. However, while the Complaint in Bergreen II alleges that a statement by the Administrative Committee was false, both of the plaintiff's substantive causes of action indicate that they are directed not at this statement but at the allegedly defamatory statements made by Maryn. (See Compl. II ¶¶ 21-22, 25-27.) The background section of the Complaint in Bergreen II alleges that a factual statement in the Administrative Committee's decision was false, but the plaintiff does not rely on that statement in either of his two substantive causes of action. The plaintiff does not name Jerome A. Siegel, the author of the letter, or the Administrative Committee, on whose behalf the letter was written, as defendants in Bergreen II. The first cause of action is directed solely at Maryn and his firm. In the second cause of action, the plaintiff alleges that Bergreen and the Company are liable for Maryn's statements only under a theory of vicarious liability or under a theory that Bergreen and the Company expressly approved and authorized publication of defamatory statements ultimately attributable to Maryn. (See Compl. II ¶¶ 26-27.)
Moreover, the statement attributed to the Administrative Commitee, which does not appear in the substantive causes of action, is similar to the allegedly defamatory statement made by Maryn that Maryn stated had nothing to do with the plaintiff's claims for benefits.
The defendants argue that removal was nevertheless proper because the plaintiff's defamation claims conflict with a different ERISA objective, namely that of providing for an exclusive mechanism for handling ERISA claims for retaliation. See,e.g., Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 135, 142-44 (1990) (wrongful discharge claim pre-empted by ERISA). As the defendants correctly point out, the Complaint in Bergreen II states that the defendants engaged in the allegedly defamatory conduct in question in response to a challenge concerning the plaintiff's rights as a Plan participant and in order "to intimidate [the plaintiff] and to deter him from pursuing his rights as a plan beneficiary." (Compl. II ¶ 1.) The defendants argue that he plaintiff's defamation and libel per se claims are thus nothing more than disguised claims for retaliation. The defendants argue, in addition, that the plaintiff seeks relief in Bergreen II that is ultimately duplicative of the relief he seeks in his retaliation claims in Bergreen I because the plaintiff seeks compensation for lost income in both actions.
The defendants' arguments misconstrue the scope of the relevant causes of action asserted in Bergreen I and Bergreen II. The Complaint inBergreen I alleges that the plaintiff was terminated in retaliation for exercising his rights under ERISA by asserting a right to certain benefits. He seeks the benefits he claims he was entitled to receive and would have received but for his allegedly unlawful discharge. In Bergreen II, the causes of action are directed against the lawyer, Maryn, for statements made after Bergreen was discharged. Bergreen and the Plan are alleged only to be vicariously liable for the statements of Maryn. Any claims for lost income arise not from the plaintiff's termination but rather from the alleged loss of reputation caused by the alleged defamatory comments made after the plaintiff was terminated. Although the Complaint in Bergreen II states that the allegedly defamatory conduct was motivated by a desire to intimidate the plaintiff and prevent him from pursuing his rights as a plan beneficiary, the plaintiff has only pleaded claims for defamation per se and libel per se under New York state law, and retaliatory motive is not a necessary element of such claims. The plaintiff describes his allegations of motive as only background. The elements of a defamation claim are "[1] a false statement, [2] published without privilege or authorization to a third party, [3] constituting fault as judged by, at minimum, a negligence standard [and]. . . [4] either caus[ing] special harm or constitut[ing] defamation per se."Dillon v. City of New York, 704 N.Y.S.2d 1, 5 (App.Div. 1999). A claim for libel has an added element, namely an added element, namely that [5] the defamatory statement be in writing. See Meloff v. New York Life Ins. Co., 240 F.3d 138, 145 (2d Cir. 2001). The plaintiff's claims do not require proof of retaliatory motive, and the plaintiff asserts that the statements about motive merely provide a background for the case, without stating any essential elements of his claims.
While neither party raises the issue, it is possible that the plaintiff will attempt to use some evidence of retaliation to establish common law malice on the part Maryn, as a predicate to the obtainment of punitive damages in Bergreen II. See Prozeralik v. Capital Cities Comm'ns, 626 N.E.2d 34, 41-42 (1993) (punitive damage awards for defamation claims under New York law require a showing of common law malice). Common law malice, however, is defined as hate, ill will, spite or criminal mental state, see id. at 42; see also Celle v. Filipino Reporter Enterprises Inc., 209 F.3d 163, 184 (2d Cir. 2000), and is therefore not congruent with a retaliatory motive. An award of punitive damages for defamation or libel or the lack of such an award is not dispositive of the issue of whether the plaintiff can recover in Bergreen I for retaliation. Hence, there is nothing inconsistent with a congressional requirement that § 510 provide for an exclusive vehicle to raise ERISA retaliation claims along with continued congressional authorization of post-termination defamation claims seeking punitive damages. Pursuing the defamation and libel claims would not conflict with an objective of ERISA.
Conversely, while § 510 makes it unlawful for any person to "discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions [of an ERISA employment benefit plan], . . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan," 29 U.S.C. § 1140, § 510 does not provide a cause of action to recover damages arising from losses of reputation due to the post-termination publication of defamatory or libelous statements. In sum, these claims are not duplicative of his claims for wrongful termination in Bergreen I and the plaintiff's pursuit of these claims in New York state court will not frustrate the ERISA objective of providing for an exclusive mechanism for raising claims for ERISA retaliation under § 510 of ERISA.
For all of the above reasons, ERISA does not preempt this action, and the removal based on this ground was not improper.
C.
The defendants argue that this case should nevertheless not be remanded because the plaintiff raises claims in Bergreen II that are part of the same case or controversy as in Bergreen I. However, Bergreen I andBergreen II are separate cases, and the plaintiff brought his action inBergreen II in the Supreme Court of the State of New York rather than federal court. The plaintiff has never sought to raise his state law claims in Bergreen I as part of the same case or controversy as inBergreen I, and the plaintiff continues to oppose removal.
Apart from the defendants' argument that Bergreen II was preempted by ERISA, the defendants have not cited any basis for federal jurisdiction over the action as alleged in the Complaint in Bergreen II, which raises only state law causes of action. The defendants also have not cited any authority for removal based merely on the factual relatedness of a case that was raised in state court and for which there is no federal claim or diversity jursisdiction. Hence, there was no basis for jurisdiction or removal of this case in the first instance. In these circumstances, the Court lacks the jurisdiction to hear the claims in Bergreen II and that case must be remanded to New York state court. See 28 U.S.C. § 1447(c);cf. also Fed.R.Civ.P. 12(h)(3).
XIII.
The plaintiff moves for an award of costs and attorney's fees arising out of the present removal and remand proceedings. Upon finding that a case was improperly removed, a district court may award "payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal." 28 U.S.C. § 1447(c).
In this case, although the defendants' arguments in favor of removal were ultimately unpersuasive, the question of whether removal was proper based on ERISA preemption presented a close question. In addition, while bad faith is not required for a grant of costs or attorney's fees, the facts and claims alleged in Bergreen I and Bergreen II are highly interrelated, and there were obvious good faith reasons for the defendants to have sought a more efficient resolution of the actions in one forum. In these circumstances, it would be inappropriate to grant the plaintiff's motion for costs and attorney's. See, e.g., Natoli v. First Reliance Standard Life Ins. Co., No. 00 Civ. 5914, 2001 WL 15673, at *5 (S.D.N.Y. Jan. 5, 2001) ("In exercising their discretion, district courts look to whether the grounds for removal were 'substantial or presented a close question,' or 'colorable,' even if ultimately unpersuasive.") (quoting Eastern States Health Welfare Fund v. Philip Morris, Inc., 11 F. Supp.2d 384, 407 (S.D.N.Y. 1998) and Bellido-Sullivan v. Am. Int'l Group, Inc., No. 00 Civ. 6403, 2000 WL 1738413, at *5 (S.D.N.Y. Nov. 21, 2000), respectively); Agapov v. Negodaeva, 93 F. Supp.2d 481, 484 (S.D.N.Y. 2000). The plaintiff's motion for costs and attorney's fees is therefore denied.
CONCLUSION
For the foregoing reasons:
1. The defendant's motion to dismiss claims one through four in Bergreen I is denied.
2. The defendants' motion to dismiss claim six in Bergreen I is granted insofar as the claim challenges the lump-sum distribution of benefits to Bergreen in December 1993. The motion is denied insofar as the claim challenges the subsequent COLA distributions.
3. The defendants' motion to dismiss claim seven in Bergreen I is granted insofar as the claim alleges failure of disclosure to third parties and is denied insofar as the claim alleges failures of disclosure to the plaintiff.
4. The defendants' motion to dismiss claims five, eight and nine in Bergreen I is granted, except that claim nine is dismissed without prejudice.
5. The plaintiff's motion to remand Bergreen II to the Supreme Court of the State of New York, New York County, pursuant to 28 U.S.C. § 1447(c) is granted.
6. The defendants' pending motion to dismiss Bergreen II is denied without prejudice as moot in light of the remand of this case. The motion may of course be pursued in state court.
7. The plaintiff's motion for attorneys' fees pursuant to 28 U.S.C. § 1147(c) in connection with the removal and remand of Bergreen II is denied.
The Clerk of the Court is directed to close the case in Bergreen II and remand it to the Supreme Court of the State of New York, New York County. Any amended pleadings in Bergreen I are due within twenty days of the issuance of his Opinion and Order.