GLADYS KESSLER, District Judge.
Plaintiffs William S. Harris, Reginald E. Howard, and Peter M. Thornton, Sr. are former employees of Waste Management Holdings, Inc. ("Old Waste") and participants in the Waste Management Profit Sharing and Savings Plan ("Old Waste Plan" or "Plan"). They bring this action on behalf of the Plan's approximately 30,000 participants under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001, et seq., against Defendants,
This matter is presently before the Court on the Waste Management Defendants'
This action arises from Old Waste's announcement on February 24, 1998, that it had materially overstated its reported income by approximately $1.3 billion prior to 1992 and continuing through the first three quarters of 1997, and that it was therefore restating several of its financial statements for periods between 1991 and 1997. That announcement led to the filing of a securities class action in the United States District Court for the Northern District of Illinois, which settled on September 17, 1999 ("Illinois Litigation").
On April 1, 2002, Plaintiffs filed suit in this Court, alleging ten counts of ERISA
On March 12, 2009, this Court dismissed Counts I-V as time-barred under ERISA § 413 because Plaintiffs had "actual knowledge of the breach or violation" more than three years before filing the original Complaint. Harris v. Koenig, 602 F.Supp.2d 39, 52 (D.D.C.2009) ("Harris I"). At that time and based on the allegations contained in the Third Amended Complaint, the Court also rejected Plaintiffs' argument that the three-year limitation period should be tolled under the statute's fraudulent concealment provision, finding that Defendants' failure to disclose material information did not constitute an act of concealment under ERISA. Id. at 52-53.
On December 14, 2009, Plaintiffs were granted leave to file a Substitute Fourth Amended Complaint ("4th Am. Compl.") [Dkt. No. 280]. Harris v. Koenig, 673 F.Supp.2d 8, 14-15 (D.D.C.2009) ("Harris II"). In their Fourth Amended Complaint, Plaintiffs amended Counts I-V to include new allegations which would establish fraudulent concealment—namely, that certain Old Waste Plan fiduciaries "fraudulently misstated, or caused to be fraudulently misstated, material financial information contained in disclosures required by ERISA and the 1934 Act." 4th Am. Compl. ¶ 79. Plaintiffs also added Counts XIII and XIV, which alleged Defendant State Street's violation of ERISA § 406(b)(2) in the Illinois and Texas Litigations.
On November 12, 2010, 271 F.R.D. 383 (D.D.C.2010), Plaintiffs filed a Fifth Amended Complaint ("FAC"). In this Complaint, Plaintiffs withdrew Count X on the basis that the evidence obtained in discovery was insufficient to prove the claim. The Fifth—and final—Amended Complaint now includes the following claims.
In the first claim period, January 1, 1990, to February 24, 1998, Count I alleges that the Old Waste Investment Committee and any remaining Individual Defendants who are or were members of that Committee breached their fiduciary duties under ERISA § 404 by failing to prudently manage the assets of the Plan; Count II alleges that the Old Waste Administrative Committee and any remaining Individual Defendants who are or were members of that Committee breached their fiduciary duties under ERISA § 404 by failing to provide complete and accurate information to Plan participants and beneficiaries; Count III alleges that Old Waste, the Old Waste Administrative Committee, the Old Waste Investment Committee, and any remaining Individual Defendants who are or were members of those Committees engaged in prohibited exchanges of stock between the Plan and Old Waste in violation of ERISA § 406(a)(1)(A); Count IV alleges that Old Waste, its Board of Directors, and any remaining Individual Defendants on the Old Waste Board breached their fiduciary duties under ERISA § 404 by failing to monitor the fiduciaries of the Plan; and Count V alleges that all Old Waste Fiduciaries breached their fiduciary duties under ERISA § 405(a)(2) and (3) by enabling their co-fiduciaries to commit the ERISA violations in Counts I-IV, and by failing to remedy them.
In the second claim period, July 15, 1999, to December 1, 1999, Count VI alleges that Defendant State Street breached its fiduciary duty under ERISA § 404 by failing to adequately investigate and preserve the claims in Counts I-V in the Illinois Litigation and by causing the claims to be released; Count VII alleges that Old Waste and State Street engaged
On March 30, 2011, the Waste Management Defendants filed their pending Motion for Summary Judgment Based on the Statute of Limitations, and Defendants Koenig and Tobecksen filed their pending Motion for Summary Judgment.
Summary judgment may be granted "only if" the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c), as amended Dec. 1, 2007; Arrington v. United States, 473 F.3d 329, 333 (D.C.Cir.2006). In other words, the moving party must satisfy two requirements: first, that there is no "genuine" factual dispute and, second,
As the Supreme Court stated in Celotex Corp. v. Catrett, "the plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The Supreme Court has further explained,
Scott v. Harris, 550 U.S. 372, 380, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007) (quoting Liberty Lobby, 477 U.S. at 247-48, 106 S.Ct. 2505) (emphasis in original).
However, the Supreme Court has also consistently emphasized that "at the summary judgment stage, the judge's function is not ... to weigh the evidence and determine the truth of the matter, but to determine whether there is a genuine issue for trial." Liberty Lobby, 477 U.S. at 249, 106 S.Ct. 2505. In both Liberty Lobby and Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000), the Supreme Court cautioned that "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts, are jury functions, not those of a judge" deciding a motion for summary judgment. Liberty Lobby, 477 U.S. at 255, 106 S.Ct. 2505.
Defendants and Plaintiffs move for summary judgment on the First Period Claims based on ERISA's statute of limitations. Defendants argue that the undisputed evidence demonstrates that Plaintiffs' First Period Claims are barred by ERISA's three-year limitations period, while Plaintiffs argue that the First Period Claims are timely under ERISA's six-year statute of limitations.
These cross-motions are the latest in several rounds of lengthy briefing regarding
Subsequently, the Court denied Defendants' Motion to Dismiss the same counts as re-alleged in the Fourth Amended Complaint on the ground that Plaintiffs could receive the benefit of a six-year statute of limitations if they could prove that Defendants had fraudulently concealed the alleged ERISA violations. Harris III, 722 F.Supp.2d at 59-60. In that Opinion, the Court held that Plaintiffs had sufficiently alleged, for purposes of a Motion to Dismiss, that the six-year statute of limitations should apply because Defendants "engaged in active concealment, separate from the underlying breaches of fiduciary duty, to prevent Plan participants and beneficiaries from discovering ERISA claims" by submitting inaccurate management representation letters ("MRLs") to Arthur Andersen.
The collective result of these decisions is that the Court has already determined that ERISA's three-year statute of limitations bars Plaintiffs' claims, unless Plaintiffs can demonstrate that Defendants engaged in acts of fraudulent concealment, as now alleged in the Fifth Amended Complaint. Harris I, 602 F.Supp.2d at 51-52; Harris III, 722 F.Supp.2d at 54-55. Therefore, the only question presently before the Court relating to the statute of limitations is whether or not, now that discovery has been completed, the undisputed material facts demonstrate that Defendants engaged in active concealment.
29 U.S.C. § 1113. Section "413's fraud or concealment provision sets forth a separate six-year statute of limitations" which applies when a plaintiff demonstrates that a defendant actively concealed evidence of its wrongdoing. Harris III, 722 F.Supp.2d at 57; Larson v. Northrop Corp., Civ. No. 88-899, 1992 WL 249790, at *3 (D.D.C. March 30, 1992) ("Larson I"), aff'd on other grounds, 21 F.3d 1164 (D.C.Cir.1994) ("Larson II").
In order to successfully invoke the six-year statute of limitations, Plaintiffs bear the burden of proving "fraud or concealment" under 29 U.S.C. § 1113. Larson II, 21 F.3d at 1172-73; Foltz v. U.S. News and World Report, Inc., 663 F.Supp. 1494, 1537 (D.D.C.1987), aff'd 865 F.2d 364 (D.C.Cir.1989), cert. denied, 490 U.S. 1108, 109 S.Ct. 3162, 104 L.Ed.2d 1024 (1989); see also Abate v. District of Columbia, 659 F.Supp.2d 156, 160 (D.D.C.2009) ("On summary judgment, if the defendant has raised a statute of limitations defense, the plaintiff must show that a genuine issue of fact exists as to whether the discovery rule or equitable tolling applies.").
As our Court of Appeals has explained, "the fraudulent concealment doctrine of § 1113 requires that the defendant engage in active concealment—it must undertake some trick or contrivance to exclude suspicion and prevent inquiry." Larson II, 21 F.3d at 1174 (emphasis in original) (internal quotations omitted). Since the defendant must have engaged in active concealment, a plaintiff must also show that the defendant engaged in the concealment intentionally and, of course, knowingly. Id. Further, "[s]uch concealment must rise to something more than merely a failure to disclose." Id. (internal quotation omitted). Thus, plaintiffs must "`show (1) that defendants engaged in a course of conduct designed to conceal evidence of their alleged wrong-doing and that (2) [the plaintiffs] were not on actual or constructive notice of that evidence, despite (3) their exercise of due diligence.'" Larson II, 21 F.3d at 1172 (quoting Foltz, 663 F.Supp. at 1537).
Plaintiffs argue that there is evidence demonstrating that Defendants Koenig and Tobecksen purposefully misled Arthur Andersen by submitting fraudulent MRLs. Under Section 103(a) of ERISA, plan administrators are required to file annual reports with the Department of Labor ("DoL"). 29 U.S.C. § 1023(a). In connection with each annual report, plan administrators must also submit an opinion from an independent qualified public accountant ("independent accountant" or "independent auditor") as to "whether the financial statements and schedules required to be included in the annual reports... are presented fairly in conformity with generally accepted accounting principles ["GAAP"]. ..." Id. § 1023(a)(3)(A). In connection with submitting these opinions,
The following facts are undisputed. During the First Claim Period, January 1, 1990, to February 24, 1998, Arthur Andersen served as the auditor of Old Waste's financial statements as well as the independent qualified accountant for the Plan. During the preparation of its opinions on the Plan's financial statements for fiscal years 1990-1996, Arthur Andersen received MRLs from Defendants Koenig and Tobecksen.
Plaintiffs claim that Defendants, acting in their roles as Plan fiduciaries, concealed the accounting irregularities at Old Waste and their failure to fairly value the Old Waste stock by making false representations on each MRL for fiscal years 1990-1996. FAC ¶¶ 88, 92-93. As a result of receiving these inaccurate MRLs, Arthur Andersen submitted unqualified opinions on the Plan's financial statements to DoL. Id. ¶ 97. According to Plaintiffs, Koenig and Tobecksen submitted these misrepresentations to Arthur Andersen in order to prevent DoL, and ultimately the Plaintiffs, from becoming aware of the underlying ERISA violations. Id. ¶¶ 90-97.
Defendants argue that Plaintiffs have failed to adduce evidence that Defendants engaged in a course of conduct designed to conceal evidence of their alleged wrong-doing because (1) Plaintiffs have no evidence that Koenig or Tobecksen were aware of Old Waste's accounting errors before 1994, and (2) the evidence demonstrates that Arthur Andersen was generally aware of the accounting problems at Old Waste as early as 1993.
Defendants argue that "Plaintiffs effectively have abandoned any claim of active concealment during the 1990 through 1993 time period" because they have put forth no "evidence that defendants Koenig or Tobecksen even had knowledge about the Company's accounting errors before `the end of 1993.'" WM Mot. 15 (citing Waste Management's Statement of Facts ¶ 22 ("WM SOF") [Dkt. No. 446-2]). Defendants contend that without any evidence of knowledge during the 1990-1993 time period, Plaintiffs cannot show that Koenig or Tobecksen made any misrepresentation before June 24, 1994, the date Koenig submitted the first MRL after the end of 1993.
Plaintiffs offer two responses. First, Plaintiffs argue that "Koenig knew of the accounting errors at least as early as 1992." Pls.' Mot. 30. Second, Plaintiffs
As Defendants correctly point out, "the jury's findings in SEC v. Koenig are not evidence." WM Reply 10. Further, Plaintiffs have made no effort to even argue that collateral estoppel should apply. And for good reason—fraudulent concealment under ERISA was neither litigated nor adjudicated in that action. See Biton v. Palestinian Interim Self-Government Auth., 412 F.Supp.2d 1, 4-5 (D.D.C.2005) (collateral estoppel applies only when: "(i) the issue previously adjudicated is identical with that now present, (ii) that issue was actually litigated in the prior case, (iii) the previous determination of that issue was necessary to the end-decision then made, and (iv) the party precluded was fully represented in the prior action.") (citing Thomas v. General Servs. Admin., 794 F.2d 661, 664 (Fed.Cir.1986)).
Moreover, Defendants emphasize that Plaintiffs' own expert, Henry R. Jaenicke, testified during discovery that Koenig and Tobecksen knew about Old Waste's accounting errors "at least as early as the end of 1993" or "by at least 1994." WM SOF ¶ 22; Pls.' Counterstatement to Waste Management Defendants' State of Undisputed Facts ¶ 22 ("Pls.' WM CSOF") [Dkt. No. 540]; Expert Report of Henry R. Jaenicke 4, Nov. 23, 2010 ("Jaenicke Report"), Pls.' Mot., Ex. 1 [Dkt. No. 471-10]. In short, Plaintiffs have pointed to no evidence suggesting that Koenig or Tobecksen had the requisite knowledge to engage in the type of concealment contemplated by Section 413 of ERISA prior to the end of 1993.
The crux of Plaintiffs' concealment theory is that Koenig and Tobecksen used the MRLs to mislead Arthur Andersen and thereby dupe the firm into submitting unqualified opinions, which, in turn, kept Plaintiffs in the dark. Defendants argue that this theory is simply not plausible after 1993 because the "undisputed facts establish that [as early as 1993] Andersen had knowledge of the accounting issues that ultimately led to the February 1998 Restatement." WM Mot. 14; Koenig Reply 6. Indeed, Plaintiffs' own expert "affirmatively asserted in his report that Andersen personnel knew about the accounting errors at issue at least as early as the end of 1993" and even that "Andersen was the source of the Action Steps that Jaenicke contends informed Koenig of the accounting irregularities." WM Reply 6 (emphasis in original); WM SOF ¶ 12.
Although the precise extent to which Arthur Andersen was aware of Old Waste's accounting irregularities remains in dispute, it is immaterial. As Defendants note, Plaintiffs' theory of concealment is not that "Old Waste Plan's MRLs misrepresented the extent of Old Waste's accounting irregularities," WM Reply 7, but rather that "[i]t was critical to the Defendants' success in concealing the underlying accounting irregularities in the Company's financial statements that the Plan's financial statements also conceal the accounting irregularities and fraud." FAC ¶ 90. Indeed, there is nothing about the MRLs that suggests Defendants sought to conceal the magnitude of the accounting errors from Arthur Andersen.
Further, Plaintiffs' own expert debunked the theory that it was Arthur Andersen's ignorance of the extent of the irregularities that produced unqualified opinions:
Jaenicke Dep., 80:15-20, Jan. 31, 2011 [Dkt. No. 512-1]. At best, Plaintiffs have presented evidence that Arthur Andersen should never have issued its unqualified opinions.
Defendants alternatively argue that, even if Plaintiffs could prove that Arthur Andersen had been misled by Koenig or Tobecksen, they cannot prove that either Koenig or Tobecksen acted with intent to fraudulently conceal. WM Mot. 12-15; WM Reply 8-12. Plaintiffs respond first that "reckless disregard for the truth" satisfies the fraud or concealment exception and second that, at least in the case of Koenig, the jury findings in SEC v. Koenig, No. 02C2180 (N.D. Ill. filed Mar. 26, 2002), provide sufficient evidence of intent. Pls.' Mot. 31-33; Pls.' Reply on SoL 19-21.
Plaintiffs' first argument is easily disposed of. Once again, Larson II, as the controlling law in this Circuit, provides the answer and clearly states that in order to demonstrate fraudulent concealment, Plaintiffs must show "that [D]efendants engaged in a course of conduct designed to conceal evidence of their alleged wrong-doing" and that "[t]here must be actual concealment—i.e., some trick or contrivance intended to exclude suspicion and prevent inquiry." Larson II, 21 F.3d at 1172-73 (emphasis added) (internal quotations omitted). Plaintiffs' citations to cases discussing types of fraud other than fraudulent concealment or to cases outside of this Circuit are irrelevant in light of controlling precedent.
The only "evidence" offered by Plaintiffs regarding intent comes from the findings in SEC v. Koenig. Pls.' Mot. 31; Pls.' Reply on SoL 21. As discussed above, findings in SEC v. Koenig simply are not evidence, nor have Plaintiffs attempted to argue for collateral estoppel. See Biton,
Accordingly, the Court concludes that Plaintiffs have failed to present evidence that at any time Koenig or Tobecksen intentionally engaged in a course of conduct designed to conceal evidence of their alleged wrong-doing. Larson II, 21 F.3d at 1172; see also Maydak, et al. v. United States, et al., 630 F.3d 166, 181 (D.C.Cir. 2010) (arguments that defendants "must have known" and that "intent could be inferred" were insufficient to show intent or willfulness and fell "far short of what is required by Rule 56 to defeat a motion for summary judgment.") (emphasis in original).
Because Plaintiffs have failed to point to any evidence that Arthur Andersen was ever misled by an MRL sent by Koenig or Tobecksen or that Koenig or Tobecksen intended to conceal alleged ERISA violations, Defendants' Motions for Summary Judgment as to Counts I-V are
Defendants also argue that "[b]ecause the First Period Claims are time-barred, Plaintiffs have no basis for claiming that the Plan's release of those claims caused them to suffer any harm." WM Mot. 4. Defendants point out that all of the Second Period Claims stem from the allegedly improper signing of the Release. Id. at 20. Defendants reason that if this Court denies Plaintiffs' First Period Claims for any reason other than the Release, such as on the basis of the statute of limitations, then the Release will have done the Plaintiffs no harm, and all Second Period Claims can be dismissed. Id. at 20.
Defendants' logic is unconvincing. First, Plaintiffs' Second Period claims do not merely allege that by signing the Release State Street prevented Plaintiffs from bringing this lawsuit. Rather, Plaintiffs allege that State Street breached its fiduciary duty under ERISA § 404 by failing to adequately investigate and preserve ERISA claims against the Illinois defendants. Plaintiffs further allege that, by signing the Release, Old Waste and State Street engaged in prohibited exchanges of choses in action between the New Waste Plan and Old Waste, and that Defendants should have monitored State Street's performance during the Illinois Litigation. Plaintiffs allege that Defendants had a duty to investigate and protect their ERISA claims. Defendants provide no authority for the theory that Plaintiffs' failure to bring those ERISA claims in a timely fashion prevents them from suing Defendants for their own failure to properly investigate and preserve them. Therefore, Defendants' Motion for Summary Judgment as to the Second Period Claims on the statute of limitations is
For the same reasons, the Court will not consider a new argument Plaintiffs now raise that, even if Koenig and Tobecksen did not engage in fraud or concealment, Count V is still timely as to Old Waste. Pls.' Mot. 37-38. Plaintiffs contend that "[w]hen the Court ruled that Plaintiffs had actual knowledge of the fiduciary breach claims alleged in Counts One through Five, it did not address whether Plaintiffs' claims in Count Five that were brought under ERISA § 405(a)(3) were subject to a different accrual date than Counts One through Four." Id. at 37. Plaintiffs argue that Count V is timely because Old Waste is liable as a co-fiduciary for failing to take reasonable steps to remedy Koenig and Tobecksen's fiduciary breaches. Plaintiffs further contend that their claim against Old Waste did not accrue until the three years during which Old Waste could have sued Koenig and Tobecksen elapsed, on February 23, 2011. Id. at 37-38.
Since this argument was not made earlier, and Plaintiffs have not addressed the issue of Count V's timeliness under Federal Rule of Civil Procedure 59 or raised any other legal justification for reconsideration, the Court will not reopen the issue of ERISA's three-year statute of limitations. See, e.g., Fox v. Am. Airlines, Inc., 389 F.3d 1291, 1296 (D.C.Cir.2004) (affirming denial of motion for reconsideration where moving party's argument could have been raised earlier); Estate of Gaither ex rel. Gaither v. District of Columbia, 771 F.Supp.2d 5, 10 (D.D.C.2011) (a motion for reconsideration raising arguments "that should have been raised earlier" was not "a bona fide motion for reconsideration.").
But, Plaintiffs, who bear the burden of proving their fraudulent concealment theory, have offered no direct evidence to support their theory that the Old Waste corporate audit team withheld information relevant to the Plan's audit from the Plan's auditors. By contrast, the record contains undisputed evidence supporting Defendants' "premise" that Plan Auditors would have been aware of Old Waste's accounting errors. See Export Report of Marilee Lau, Dec. 22, 2010, WM Mot., Ex. 10 [Dkt. No. 446-13] (where an audit company has different teams auditing the financial statements of a company and its employee retirement plan "there is communication between the teams as to any factors encountered during the corporate audit that would impact the opinion to be rendered on the benefit plan's financial statements or on the disclosures included in the benefit plan's financial statements."). Again, Plaintiffs' own expert testified, "if the auditor of a plan is also the auditor of the entity sponsoring the plan, many of the auditing procedures required for the audit of a plan will be performed as part of the audit of the sponsor's financial statements." Jaenicke Dep., 80:9-19, Jan. 31, 2011 [Dkt. No. 512-1].