Severstal Wheeling Inc. v. WPN Corp.
809 F. Supp. 2d 245
S.D.N.Y.2011Background
- Plaintiffs sue WPN, Ronald LaBow, and WHX under ERISA and state law over fiduciary duties and alleged mismanagement of Severstal Trust assets.
- SWI previously operated three ERISA plans and requested transfer of certain assets from WHX Pension Trust to a new Severstal Trust in 2008.
- LaBow directed or influenced transfers and asset movements affecting the Severstal Trust, including transfer of the NB Account with undisclosed or misaligned diversifications.
- The NB Account, heavily weighted in energy stocks, was transferred in part from the WHX Pension Trust to the Severstal Trust, leaving a True-Up Amount behind in WHX.
- Plaintiffs allege a secret agreement between LaBow and WHX to protect WHX assets at Severstal’s expense and to favor the WHX Pension Trust.
- By early 2009, the Severstal Trust remained undiversified and was subsequently liquidated of the NB Account; diversification failures allegedly caused losses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| ERISA fiduciary duty breach (loyalty) | WPN/LaBow breached loyalty by prioritizing NB and WHX interests. | No breach; actions were prudent or authorized under the plan documents. | Count I viable; allegations support breach of loyalty via transfer and non-diversification. |
| ERISA fiduciary duty breach (diversification) | Severstal Trust was improperly diversified and concentrated in NB. | Diversification decisions were within fiduciary discretion under policy and market conditions. | Count II viable; allegations show failure to diversify. |
| Knowingly participating fiduciary breach by non-fiduciary (ERISA 502(a)(3)) | WHX knowingly participated in breaches by aiding transfers and lacks fiduciary status. | WHX was not a fiduciary and did not exercise control over plan assets. | Count III dismissed; WHX not a fiduciary and did not knowingly participate in a breach. |
| Breach of contract against WPN (Count IV) | Third Amendment imposed duties on WPN creating liability for losses to Severstal Trust. | No contract-based responsibility for SWI’s DB Plan funding losses. | Count IV dismissed; damages not recoverable as contemplated direct damages; lack of foreseeability. |
| Breach of contract against WPN (Count V) or third-party beneficiary status | SWI/potentially SWI as party/beneficiary to Third Amendment obligates WPN to obtain fiduciary liability insurance. | SWI may not be a party to Third Amendment and lacks rights thereunder. | Count V survived; SWI adequately alleged party status and contractual rights under the Third Amendment. |
| Professional negligence (Count VI) against LaBow | LaBow owed duty to SWI as client and breached by failing to diversify and manage prudently. | No foreseeability or client relationship supports malpractice claim; may be barred. | Count VI denied for lack of waiver of client status and foreseeability; claim not dismissed at this stage. |
Key Cases Cited
- Bell v. Pfizer, Inc., 626 F.3d 66 (2d Cir.2010) (fiduciary status depends on function, not title; loyalty duties require actual breach evidence)
- Briscoe v. Fine, 444 F.3d 478 (6th Cir.2006) (mere possession of assets does not create fiduciary status)
- Pegram v. Herdrick, 530 U.S. 211 (U.S. 2000) (defines ERISA fiduciary status by function and discretion over plan assets)
- Mertens v. Hewitt Assocs., 508 U.S. 248 (U.S. 1993) (equitable relief limitations for non-fiduciaries under ERISA § 502(a)(3))
- Great-W. Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (U.S. 2002) (money damages not recoverable under § 502(a)(3); equity relief only)