In Re Beacon Associates Litigation
818 F. Supp. 2d 697
| S.D.N.Y. | 2011Background
- This is a multidistrict ERISA litigation involving Ivy Asset Management and JPJA related to Bernard Madoff's Ponzi scheme, with Hartman v. Ivy and Buffalo Laborers v. J.P. Jeanneret consolidated for pretrial proceedings.
- Judge McMahon of SDNY granted in part and denied in part Ivy's motion to dismiss, and transferred Buffalo Laborers to Judge Sand; Hartman was bound by stipulation to apply McMahon's Order where overlapping.
- Ivy moves for partial reconsideration on four holdings: Direct Investors, Prohibited Transaction, Ivy Committee Defendants, and disgorgement, and also seeks dismissal of two Hartman claims not raised in Buffalo Laborers.
- Direct Investors: Ivy argues Beacon’s reasoning should control and that Direct Investor claims are not plausibly pled as fiduciary duties arise from individualized, contracted fiduciary relationships.
- Prohibited transaction: Ivy contends Beacon forecloses these claims; Hartman argues distinctions exist, but the court finds the claim indistinguishable from Beacon’s rationale and dismisses it.
- Committee Defendants: Ivy asserts committees lack fiduciary personality per some authorities; Buffalo Laborers relies on Veera/Enron dissent, but the court distinguishes and denies reconsideration on this point.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Plausibility of Direct Investor claims | Hartman argues Ivy acted as fiduciary under ERISA 3(21)(A) by providing individualized advice for a fee. | Ivy asserts Beacon controls and Direct Investor claims are not plausible as Ivy lacked authority over diversification and direct contracts with Direct Investors. | Reconsideration denied; Direct Investor claims remain plausibly pled. |
| Prohibited transaction claim under ERISA § 406(a)(1)(D) | Hartman and Buffalo Laborers contend Ivy received fees in connection with plan assets via Madoff investments, constituting a prohibited transaction. | Ivy argues Beacon forecloses such claims; Hartman argues distinctions exist but the court adopts Beacon's reasoning. | Prohibited transaction claims dismissed. |
| Liability of Ivy Committee Defendants | Hartman/Buffalo Laborers contend Ivy Committee Defendants are fiduciaries under ERISA and can be sued; Ivy argues committees lack separate legal personality or fiduciary status. | Ivy points to decisions limiting committee liability; Buffalo Laborers cites Veera/Enron to argue committees can be liable. | Reconsideration denied; Committee Defendants' claims are allowed to proceed. |
| Disgorgement claim viability (non-fiduciary liability) | Plaintiffs seek disgorgement under ERISA § 502(a)(3) for profits from improper transactions, even if Ivy is not a fiduciary. | Ivy argues non-fiduciaries cannot be liable for restitution/disgorgement, except under limited equitable theories. | Disgorgement claim denied or limited as appropriate? (Court denies reconsideration; permits as equitable relief under Knudson exception.) |
| Dismissal standards applicable to Hartman claims outside McMahon Order | Hartman claims outside McMahon’s scope must be evaluated de novo under Rule 12(b)(6). | Ivy argues for consistent application of Beacon and existing Order. | Motions to dismiss some Hartman claims denied; others granted consistent with Beacon and ERISA standards. |
Key Cases Cited
- Beacon Assoc. Litig. (Beacon), 745 F. Supp. 2d 386 (S.D.N.Y. 2010) (fiduciary duties and investment advisor context; informs Direct Investor and related claims)
- Shrader v. CSX Transp., Inc., 70 F.3d 255 (2d Cir. 1995) (standard for reconsideration: reasons to alter a prior decision must exist)
- Doe v. NYC Department of Social Services, 709 F.2d 782 (2d Cir. 1983) (reconsideration standards and finality concerns)
- Fogel v. Chestnutt, 668 F.2d 100 (2d Cir. 1981) (noting burden shift in reconsideration contexts)
- Mertens v. Hewitt Assocs., 508 U.S. 248 (Supreme Court 1993) (non-fiduciaries may be liable for equitable relief in ERISA context)
- Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302 F.3d 18 (2d Cir. 2002) (ERISA fiduciary liability limits; authority-based liability)
- Reich v. Compton, 57 F.3d 270 (3d Cir. 1995) (prohibited transactions and fiduciary knowledge concepts)
- Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (Supreme Court 2002) (equitable relief and disgorgement concepts under ERISA)
- Haddock v. Nationwide Fin. Servs. Inc., 419 F. Supp. 2d 156 (D. Conn. 2006) (evidence supporting 406(b)(3) claim dynamics)
- Veera v. Ambac Plan Admin. Comm., 769 F. Supp. 2d 223 (S.D.N.Y. 2011) (committee liability under ERISA debated in district court)
- In re Enron Corp. Secs., Derivative & ERISA Litig., 284 F. Supp. 2d 511 (S.D. Tex. 2003) (ERISA fiduciary status and committee concepts)
- Lowen v. Tower Asset Mgmt., 829 F.2d 1209 (2d Cir. 1987) (broad construction of § 406(b) to prevent fiduciary disloyalty)
- Gera? v. Berosa? (Gerosa) v. Savasta & Co., 329 F.3d 317 (2d Cir. 2003) (non-fiduciaries may be liable for equitable relief when aiding a breach)