Harris v. Koenig ( 2011 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
WILLIAM S. HARRIS, et al., )
)
)
Plaintiffs, )
)
v. ) Civil Action No. 02-618 (GK)
)
JAMES E. KOENIG, et al., )
)
Defendants. )
______________________________)
MEMORANDUM OPINION
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,1
1
Defendants include the “Old Waste Fiduciaries,” which are
Old Waste (the Plan’s sponsor), the Waste Management, Inc. Profit
Sharing and Savings Plan Investment Committee (“Old Waste
Investment Committee”), the Waste Management, Inc. Profit Sharing
and Savings Plan Administrative Committee (“Old Waste
Administrative Committee”), the individual Trustee Members of the
Committees, the Old Waste Board of Directors and its individual
members, and fifteen unidentified fiduciaries; and the “New Waste
Fiduciaries,” which are the Waste Management Retirement Savings
Plan (“New Waste Plan”), the Investment Committee of the Waste
Management Retirement Savings Plan (“New Waste Investment
Committee”) and its individual Trustee Members, the State Street
Bank and Trust Company (“State Street”), and fifteen unidentified
fiduciaries.
all of whom were fiduciaries of the Old Waste Plan2 or of its
successor plan, the Waste Management Retirement Savings Plan (“New
Waste Plan”).3
This matter is presently before the Court on the Waste
Management Defendants’4 Motion for Summary Judgment Based on the
Statute of Limitations (“WM Mot.”) [Dkt. No. 446], Defendants
Koenig and Tobecksen’s Motion for Summary Judgment (“Koenig Mot.”)
[Dkt. No. 439], and Plaintiffs’ Cross Motion on Statute of
Limitations and Release and in Opposition to Defendants’ Motions
for Summary Judgment on These Defenses (“Pls.’ Mot.”) [Dkt. No.
471-1]. Upon consideration of the Motions, Oppositions, Replies,
and the entire record herein, the Court concludes that Defendants’
Motions for summary judgment are granted in part and denied in
part. Plaintiffs’ summary judgment Motion is denied.
2
From at least January 1, 1989, Old Waste also sponsored an
employee stock ownership plan (the “ESOP”). In May 1998, the ESOP
was merged into the Old Waste Plan, and its assets were held by the
Old Waste Plan in a fund called the “ESOP Fund.”
3
On January 16, 1998, Old Waste and Waste Services, Inc.,
merged to become New Waste. On January 1, 1999, the Old Waste Plan
merged with the USA Waste Services, Inc. Employee’s Savings Plan to
become the New Waste Plan.
4
The term “Waste Management Defendants” refers to Defendants
Old Waste, Old Waste Investment Committee, Old Waste Administrative
Committee, New Waste Plan, and New Waste Investment Committee.
-2-
I. Background5
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”).6 Under the terms of the settlement
(“Illinois Settlement”), Old Waste and its agents were released
from liability for any claims--including unknown claims--brought by
members of the Illinois Settlement Class in exchange for $220
million, of which the New Waste Plan recovered $86,609.76. In 1999,
5
Unless otherwise noted, the facts set forth herein are drawn
from the several Statements of Material Facts Not in Dispute
submitted pursuant to Local Rule 7(h).
6
On July 15, 1999, the Illinois district court entered a
Preliminary Approval Order approving a proposed settlement and
provisionally certifying a class, for settlement purposes only, of
all persons (other than Defendants and their affiliates) who had
acquired Old Waste common stock (“Company Stock”) between November
3, 1994, and February 24, 1998. See Fifth Amended Complaint (“FAC”)
¶ 138 [Dkt. No. 408]. Pursuant to the Preliminary Approval Order,
“a Notice of Pendency and Proposed Settlement of Class Action,
dated July 20, 1999 (the ‘Illinois Notice’), was sent to [all]
members of the [Illinois settlement class], including the Plan and
its fiduciaries.” Id. The Illinois Notice described the scope of
the release that would be given by members of the Illinois
settlement class in exchange for the settlement consideration, and
advised class members of their right to object to or opt out of the
proposed settlement by September 2, 1999. See id.-3-
New Waste announced further after-tax charges and adjustments of
$1.23 billion. That announcement led to the filing of additional
securities class action complaints against New Waste and certain of
its officers and directors in the Southern District of Texas, which
settled on April 29, 2002 (“Texas Litigation”). Both settlements
included the Plan and its fiduciaries within the scope of the
class.
On April 1, 2002, Plaintiffs filed suit in this Court,
alleging ten counts of ERISA violations pursuant to ERISA §
502(a)(2), codified as 29 U.S.C. § 1132(a)(2).7 Plaintiffs’ claims
were originally divided into three periods. First, Plaintiffs
alleged five ERISA violations related to the Plan’s purchase of
inflated shares of Company Stock in the first claim period between
January 1, 1990, and February 24, 1998 (Counts I-V, the “First
Period Claims”). Second, Plaintiffs alleged four ERISA violations
7
After the filing of this case, Defendant Old Waste filed a
motion in the Illinois district court to enforce the Illinois
Settlement in order to prevent this action from moving forward. In
that motion, Defendant Old Waste argued that Plaintiffs were barred
from prosecuting any ERISA claims relating to or arising out of Old
Waste’s February 24, 1998, Restatement because (1) the Old Waste
Plan had released all claims relating to the Restatement on behalf
of itself and Plan participants; and (2) the Old Waste Plan and its
participants were barred by the Illinois Settlement from asserting
any released claims in this or any other action. See Ex. 11 to
Defendants’ Omnibus Motion to Dismiss the Third Amended Complaint
[Dkt. No. 186-13]. On March 11, 2003, Judge Wayne R. Andersen, who
presided over the Illinois Litigation, denied Defendant Old Waste’s
motion on the ground of judicial economy. In re Waste Mgmt., Inc.
Sec. Litig., No. 97-C-7709, 2003 WL 1463585, at *2 (N.D. Ill. Mar.
19, 2003).
-4-
related to the release of claims by the Plan’s fiduciaries in the
Illinois Litigation in the second claim period between July 15,
1999, and December 1, 1999 (Counts VI-IX, the “Second Period
Claims”). Third, Plaintiffs alleged one ERISA violation related to
the release of claims by the New Waste Plan’s Trustee--Defendant
State Street8–-in the Texas Litigation in the third claim period
between February 7, 2002, and July 15, 2002 (Count X).
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.
8
On January 1, 1999, State Street was appointed Trustee of
the New Waste Plan. Effective February 1, 1999, the New Waste
Investment Committee appointed State Street to serve as the
Investment Manager for the New Waste Plan. See FAC ¶¶ 47, 50.
Pursuant to the terms of the Investment Manager Agreement between
State Street and the New Waste Investment Committee, State Street
had “full discretionary authority to manage” the New Waste Plan’s
assets and funds. Id. ¶ 50.
-5-
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.9
On January 15, 2010, the following Motions to Dismiss were
filed by Defendants pursuant to Federal Rules of Civil Procedure
12(b)(1) and 12(b)(6): (1) the Waste Management Defendants’ Motion
to Dismiss Counts I-V and Counts VII-IX [Dkt. No. 294]; (2) the
Individual Waste Management Defendants’10 Motion to Dismiss Counts
I-V [Dkt. No. 291]; and (3) Defendant State Street’s Motion to
Dismiss Counts XIII and XIV [Dkt. No. 292]. On June 10, 2010, the
9
The Court denied Plaintiffs leave to add Counts XI and XII,
which alleged additional ERISA violations in the third claim
period, because of Plaintiffs’ undue delay in bringing these
claims. Harris II, 673 F. Supp. 2d at 13-14.
10
These Defendants included the individual members of Old
Waste’s Board of Directors, the Old Waste Investment Committee, the
Old Waste Administrative Committee, the New Waste Investment
Committee, and the executives who administered the Old Waste Plan.
-6-
Court denied the Waste Management Defendants’ Motion to Dismiss
Counts I-V and VII-IX, and granted in part and denied in part the
Individual Waste Defendants’ Motion to Dismiss.11 Harris v. Koenig,
722 F. Supp. 2d 44, 64-65 (D.D.C. 2010) (“Harris III”). Defendant
State Street’s Motion to Dismiss was granted with respect to Counts
XIII and XIV. Id.On November 12, 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
11
Counts I-V were dismissed against Defendants H. Jesse
Arnelle, J. Steven Bergerson, Dean L. Buntrock, Jerry E. Dempsey,
Dr. James Edwards, Donald F. Flynn, Herbert A. Getz, Roderick M.
Hills, Joseph M. Holsten, Peter H. Huizenga, William P. Hulligan,
Edward C. Kalebich, John J. Machota, Robert S. Miller, Peer
Pedersen, James R. Peterson, John C. Pope, and Phillip B. Rooney.
In addition, Defendants the Honorable Howard H. Baker, Jr., Dr.
Pastora San Juan Cafferty, Thomas R. Frank, Patricia McCann, Paul
M. Montrone, D.P. Payne, and Steven G. Rothmeier were dismissed
from the action.
-7-
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 in prohibited
exchanges of choses in action between the New Waste Plan and Old
Waste in violation of ERISA § 406(a)(1)(A) by releasing claims in
the Illinois Litigation; Count VIII alleges that the New Waste
-8-
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 adequately monitor State
Street’s performance in the Illinois Litigation; and Count IX
alleges that State Street, Old Waste, the New Waste Investment
Committee, and any remaining Individual Defendants who are or were
members of that Committee breached their fiduciary duties under
ERISA § 405(a)(2) and (a)(3) by enabling their co-fiduciaries to
commit the ERISA violations described in Counts VI-VIII, and by
failing to remedy them.
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.12 On May 2, 2011, Plaintiffs
filed their Cross Motion for Summary Judgment on Statute of
Limitations and Release and in Opposition to Defendants’ Motions
for Summary Judgment on These Defenses.13 On June 8, 2011, the Waste
12
The Waste Management Defendants also join in Defendants
Koenig and Tobecksen’s Summary Judgment Motion on statute of
limitations, release, and several other defenses. Waste Management
Defendants’ Notice of Joinder in Co-Defendants’ Motions for Summary
Judgment [Dkt. No. 443].
13
On July 18, 2011, this Court granted Defendants Koenig and
Tobecksen’s Motion to exclude various expert declarations submitted
by Plaintiffs [Dkt. No. 544]. Accordingly, the following
declarations have been stricken from the record and will not be
considered by the Court: (1) the Declaration of Bente Villadsen in
Support of Plaintiffs’ Opposition to Motions for Summary Judgment
(continued...)
-9-
Management Defendants filed their Reply in Support of Their Motion
for Summary Judgment (“WM Reply”) [Dkt. No. 511] and their
Opposition to Plaintiffs’ Cross-Motion for Summary Judgment (“WM
Opp’n”) [Dkt. No. 508]. Defendants Koenig and Tobecksen also filed
their Opposition to Plaintiffs’ Cross Motion for Summary Judgment
and Reply in Support of Their Motion for Summary Judgment on June
8, 2011 (“Koenig Reply”) [Dkt. No. 509]. On June 30, 2011,
Plaintiffs filed their Reply to Defendants Koenig and Tobecksen’s
Response in Opposition to Plaintiffs’ Cross Motion for Summary
Judgment on Release [Dkt. No. 532]. On August 15, 2011, Plaintiffs
filed a Reply to Oppositions of Defendants James E. Koenig and
Bruce D. Tobecksen and of Waste Management Defendants to
Plaintiffs’ Cross Motion for Summary Judgment on Statute of
Limitations (“Pls.’ Reply on SoL”) [Dkt. No. 552].
II. Standard of Review
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
13
(...continued)
and Plaintiffs’ Cross Motion for Summary Judgment, Apr. 29, 2011
[Dkt. No. 471-3]; (2) Declaration of Henry R. Jaenicke in Support
of Plaintiffs’ Supplemental Statement of Undisputed Material Facts,
Apr. 30, 2011 [Dkt. No 471-9]; (3) Affidavit of Alan D. Biller,
Apr. 27, 2011 [Dkt. No. 473]; and (4) Declaration of Saul Solomon
in Opposition to Summary Judgment, Apr. 26, 2011 [Dkt. No. 474].
-10-
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, if there is, that it is
“material” to the case. “A dispute over a material fact is
‘genuine’ if ‘the evidence is such that a reasonable jury could
return a verdict for the non-moving party.’” Arrington, 473 F.3d at
333 (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). A fact is “material” if it might affect the outcome of the
case under the substantive governing law. Liberty Lobby, 477 U.S.
at 248.
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 (1986). The Supreme Court has further explained,
[a]s we have emphasized, “[w]hen the moving
party has carried its burden under Rule 56(c),
its opponent must do more than simply show
that there is some metaphysical doubt as to
the material facts. . . . Where the record
taken as a whole could not lead a rational
trier of fact to find for the nonmoving party,
there is no ‘genuine issue for trial.’”
Matsushita Elec. Industrial Co. v. Zenith
Radio Corp., 475 U.S. 574, 586-87, 106 S. Ct.
1348, 89 L.Ed.2d 538 . . . (1986) (footnote
omitted). “‘[T]he mere existence of some
alleged factual dispute between the parties
will not defeat an otherwise properly
-11-
supported motion for summary judgment; the
requirement is that there be no genuine issue
of material fact.’”
Scott v. Harris, 550 U.S. 372, 380 (2007) (quoting Liberty Lobby,
477 U.S. at 247-48) (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. In both Liberty Lobby and
Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150
(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.
III. Analysis
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.14
14
Additionally, Defendants Koenig and Tobecksen move for
summary judgment on Counts I - III and V of the First Period Claims
(continued...)
-12-
A. Fraud or Concealment Under Section 413
These cross-motions are the latest in several rounds of
lengthy briefing regarding the timeliness of Plaintiffs’ First
Period Claims. Initially, in considering the Motions to Dismiss the
Third Amended Complaint, this Court found that Plaintiffs had
actual knowledge of potential ERISA claims as of February 24, 1998,
found that Plaintiffs filed the instant action more than three-
years after that date, on April 1, 2002, and therefore dismissed
Counts I-V. Harris I, 602 F. Supp. 2d at 51-52; Harris III, 722 F.
Supp. 2d at 54-55.
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
14
(...continued)
based on several substantive grounds, and all Defendants argue that
the First Period Claims are precluded by the Release signed in the
Illinois Litigation. Because the Court finds that all First Period
Claims are barred by the statute of limitations, neither the
substantive arguments nor the Release issue will be reached in this
Opinion.
-13-
participants and beneficiaries from discovering ERISA claims” by
submitting inaccurate management representation letters (“MRLs”) to
Arthur Andersen.15 Id.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.16
15
The only relevant allegation that survived Defendants’
Motions to Dismiss is Plaintiffs’ claim that the MRLs constituted
acts of fraudulent concealment. Harris III, 722 F. Supp. 2d at 57-
59. Neither the 1998 Restatement nor any other filing or statement
made by Defendants is at issue at this time.
16
To the extent that Plaintiffs attempt to relitigate whether
they had actual knowledge of their ERISA claims on February 24,
1998, they have provided no grounds for the Court to reconsider its
decision, nor have they even attempted to present their arguments
under a proper legal standard for reconsideration. See Pls.’ Mot.
4-5. Hence, the Court will not revisit the issue.
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
(continued...)
-14-
Under ERISA, the limitations period for breach of fiduciary
duties claims is governed by Section 413, which provides:
No action may be commenced under this
subchapter with respect to a fiduciary’s
breach of any responsibility, duty, or
obligation under this part or with respect to
a violation, 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;
except that in the case of fraud or
concealment such action may be commenced not
later than six years after the date of
discovery of such breach or violation.
16
(...continued)
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.”).
-15-
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; Folz 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 (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
-16-
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 Folz, 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
auditor is required to obtain MRLs from plan management.
The following facts are undisputed. During the First Claim
Period, January 1, 1990, to February 24, 1998, Arthur Andersen
-17-
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.17
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
17
Defendant Koenig signed the MRLs for fiscal years 1991-1993
and 1996 and Defendant Tobecksen signed the MRLs for fiscal years
1994-1995.
-18-
accounting problems at Old Waste as early as 1993.18 In substance,
Defendants contend that Koenig and Tobecksen did not conceal
anything from Arthur Andersen because there was no time at which
they had knowledge of the accounting irregularities at Old Waste
and Arthur Andersen did not. Defendants further argue that, even if
Plaintiffs could make the necessary showing of knowledge, they have
provided no evidence that Defendants intended to use the MRLs to
conceal underlying ERISA violations. For the reasons given below,
the Court concludes that Plaintiffs have failed to set forth
material facts sufficient to find that Koenig and/or Tobecksen
engaged in specific acts of fraud or concealment.
1. Koenig and/or Tobecksen’s Knowledge
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,
18
The parties also engage in extensive argument over whether
the statements in the MRLs were themselves inaccurate. That issue,
which is definitely in dispute, need not be addressed because the
Court finds on other grounds that Plaintiffs have failed in their
burden to demonstrate fraudulent concealment.
-19-
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 argue that “the fact is that
those accounting errors were cumulative” so that “[c]oncealment of
the errors in 1993 necessarily involves concealment of the errors
from the preceding years.”19 Id. Regardless of the merit of this
“cumulative” theory, the sole piece of evidence Plaintiffs point to
for their contention that Defendants knew of accounting errors
prior to the end of 1993 is the completed jury verdict form from
SEC v. Koenig, No. 02C2180 (N.D. Ill. filed Mar. 26, 2002), which
indicates that the jury found Koenig guilty of violating Section
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 in
1992. Pls.’ Mot. 30; Pls.’ Statement of Facts ¶¶ 144-48 (“Pls.’
SOF”) [Dkt. No. 435-2]; Veis Decl., Ex. 61 [Dkt. No. 437-34].
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
19
Plaintiffs also state that “Old Waste has admitted that the
errors go back at least as far as 1990.” Pls.’ Mot 30. Of course,
what Old Waste has admitted is simply irrelevant--the only relevant
inquiry here is what Koenig and Tobecksen knew when they signed the
MRLs.
-20-
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.
2. Arthur Andersen’s Knowledge
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
-21-
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 ¶ 12.20
In response, Plaintiffs argue that “although many of the
generic ‘issues’ were identified in the Summary of Action Steps, at
least two were not, ‘Mountain Indemnity,’ and ‘Geographic
Entries.’” Pls.’ Mot. 28. Plaintiffs further parse the information
included in the Action Steps by explaining that “awareness of
‘accounting issues’ is not the same as awareness of ‘accounting
errors.’” Pls.’ Reply on SoL 15. And finally, “the magnitude of the
ultimate restatement was far greater than the amounts Andersen had
been aware of at the time it proposed the Action Steps. Pls.’ Mot.
20
The “Action Steps” reference is to a document titled
“Summary of Action Steps,” dated December 31, 1993, generated by
Arthur Andersen in the course of its 1993 audit of Waste
Management’s financial statements. WM Mot., Ex. 12 [Dkt. No. 446-
15]. The document explains that “[i]mplementing the following
action steps will ensure WMX begins to move towards its desired
change in mindset resulting in more conservative accounting
practices.” Id. It then identifies thirteen specific issues of
concern, with corresponding columns for “Must Do,” “Reasonable,”
and “Conservative.” Id.-22-
28. Put simply, Plaintiffs contend that while Arthur Andersen may
well have been aware of accounting improprieties occurring at Old
Waste as early as 1993, the firm was not aware of all of the
errors, nor of their magnitude.21
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
21
Plaintiffs also argue that “[t]he unwritten and unsupported
premise of [Defendants’] argument is that the Old Waste (company)
auditors would have informed the Old Waste Plan auditors of the
accounting problems at the company level.” Pls.’ Mot. 27. That is,
Plaintiffs argue that Defendants have not shown that the Plan
Auditors, as opposed to the Old Waste corporate Auditors, at Arthur
Andersen were aware of the Action Steps.
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].
-23-
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:
I simply do not understand how [Arthur]
Andersen could have written that [February 11,
1994, memo] without issuing a qualified or
adverse opinion on [Old Waste’s] financial
statements. The [memo] indicates that [Old
Waste] was not at the “minimum acceptable
level of accounting,” but that is the level
necessary to justify Arthur Andersen’s
rendering of a standard, unqualified opinion .
. . on the Company’s financial statements.
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.22 They have not offered
22
In response to Defendants’ claim that there is no evidence
suggesting that Arthur Andersen relied on the Plan MRLs, Plaintiffs
argue that “if Arthur Andersen knew of [the MRLs’] falsity and,
notwithstanding that knowledge, issued unqualified opinions on the
Plan’s financial statements, there would still be a trick or
contrivance--active concealment, but Arthur Andersen would be a
facilitator instead of a dupe.” Pls.’ Reply on SoL 17. This purely
speculative argument does not constitute evidence and cannot rebut
the undisputed facts offered by Defendants. Kalekiristos v. CTF
Hotel Mgmt. Corp., 958 F. Supp. 641, 645 (D.D.C. 1997) (“‘[E]ven in
cases where elusive concepts such as motive or intent are at issue,
summary judgment may be appropriate if the nonmoving party rests
merely upon conclusory allegations, improbable inferences, and
(continued...)
-24-
any evidence that Arthur Andersen was unaware of the auditing
irregularities and therefore was misled into issuing the
unqualified opinions. Quite to the contrary, the Action Steps sent
by Arthur Andersen demonstrate the firm’s detailed knowledge of Old
Waste’s accounting problems. In sum, Plaintiffs have not shown that
Arthur Andersen was ever misled by an MRL sent by Koenig or
Tobecksen.
3. Koenig and/or Tobecksen’s Intent
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
22
(...continued)
unsupported speculation.’” (quoting Ayala-Gerena v. Bristol Myers-
Squibb Co., 95 F.3d 86, 95 (1st Cir. 1996)).
-25-
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.23 See Pls.’ Mot. 31-33. Plaintiffs must, therefore,
provide some evidence that Defendants intended to fraudulently
conceal the alleged wrongdoing in order to escape summary judgment
for Defendants. Celotex Corp., 477 U.S. at 322.
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, 412 F. Supp. 2d at 4-5.
If anything, Plaintiffs’ argument is less convincing on the issue
of intent than knowledge, since whatever the jury or court in SEC
v. Koenig may have found regarding Koenig’s knowledge of certain
securities law violations, they certainly did not address whether
23
Plaintiffs’ citation to Caputo v. Pfizer, Inc., 267 F.3d
181, 191 (2d Cir. 2001), is particularly unconvincing since it is
unclear whether that court’s reference in that opinion to “reckless
disregard for the truth” was intended to describe an element of the
fraud or concealment exception or merely the pleading standard for
fraud under Fed. R. Civ. P. 9(b).
-26-
Koenig intended to fraudulently conceal ERISA violations using the
MRLs.
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.3 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).24
In sum, Plaintiffs have not shown that the MRLs were a fraudulent
device intended to forestall suspicion or prevent inquiry. Larson
II, 21 F.3d at 1174.
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 granted.
24
Maydak was decided under the Privacy Act, 5 U.S.C.
§ 552(a)(g)(1). 630 F.3d at 181. However, the principle it
establishes is applicable to this case.
-27-
B. Second Period Claims
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
-28-
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
denied.
/s/
October 3, 2011 Gladys Kessler
United States District Judge
Copies via ECF to all counsel of record
-29-