Oliver v. Black Knight Asset Management, LLC

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
________________________________
)
CARLOTTA OLIVER, et al., )
)
Plaintiffs, )
) Civil Action No. 10-1443 (EGS)
v. )
)
BLACK KNIGHT ASSET MANAGEMENT, )
LLC, et al., )
)
Defendants. )
)
MEMORANDUM OPINION
Plaintiffs Carlotta Oliver and Joe Seymour1 brought an
eight-count Amended Complaint alleging breaches of contract,
unjust enrichment, retaliation, breach of settlement agreement,
and violations of federal securities and employment benefit
statutes against their former employer, Black Knight Asset
Management, LLC (“Black Knight” or “the Company”), and its
controlling officers, Daryl Dennis and Stanley Snow.2 In the
Amended Complaint, plaintiff Oliver alleges that defendants
failed to compensate her in accordance with the terms of her
1
Mr. Seymour has only brought suit for one count of
breach of contract, and thus, the bulk of defendants’ motion to
dismiss addresses claims specific to Ms. Oliver.
2
Defendant Daryl Dennis is Black Knight’s President and
Chief Executive Officer. Am. Compl. ¶ 5. Defendant Stanley
Snow is described as an organizer of Black Knight, but there is
no further description of his current role in the Company. See
id.
employment agreement, terminated her in retaliation for filing a
wage and hour claim, and deprived her of benefits under the
Company’s welfare and benefit plans.
Pending before the Court is defendants’ motion to dismiss
under Rule 12(b)(1) for lack of jurisdiction or, in the
alternative, under Rule 12(b)(6) for failure to state a claim
upon which relief can be granted on any of the federal claims.
In addition, pending before the Court is plaintiffs’ motion for
partial summary judgment. Upon consideration of the motions,
the responses and the replies thereto, the applicable law, and
for the reasons set forth below, the motion to dismiss for lack
of jurisdiction is DENIED,3 the motion to dismiss for failure to
state a claim is GRANTED IN PART AND DENIED IN PART, and the
motion for partial summary judgment is DENIED.
I. BACKGROUND
Plaintiff Oliver was hired by Black Knight as Managing
Director, Business Development, in March 2007. Am. Compl. ¶ 2.
Under the terms of Ms. Oliver’s employment agreement, Black
Knight was required to pay her salary and related entitlements
and benefits. Id. ¶ 11. According to plaintiff, in June 2008,
without justification and in violation of her employment
3
Because the Court finds below that plaintiffs have
alleged sufficient facts to state a claim under ERISA on one of
their alleged counts, the Court concludes that it has subject-
matter jurisdiction over this action under Rule 12(b)(1).
2
agreement, Black Knight unilaterally and unlawfully attempted to
modify her pay structure. Id. Black Knight ceased paying Ms.
Oliver altogether in January 2010. Id. ¶ 12. Shortly
thereafter, she filed a complaint with the District of Columbia
Wage and Hour Office. Id. ¶ 13. In response, Black Knight’s
CEO, Daryl Dennis, represented to the Wage and Hour Office that
Black Knight would pay all compensation owed to Ms. Oliver--
approximately $24,000--the following day. Id. Instead, and as
plaintiff alleges, in retaliation for her wage and hour claim,
Black Knight terminated Ms. Oliver on February 26, 2010, a few
days short of the date on which, under Black Knight’s equity
participation plan, her five percent equity interest in the
Company was to vest. Id. ¶ 14. On May 26, 2010, upon learning
that Ms. Oliver intended to file the instant action, Black
Knight paid Ms. Oliver $18,000. Id. ¶ 15. To date, defendant
has not paid Ms. Oliver the remainder of what it had promised to
pay her, nor has it paid her the equity interest to which she
alleges she is entitled under the Company’s equity participation
plan. Id. Plaintiff also alleges that Black Knight was
obligated to pay her six months’ severance plus health benefits
if she was terminated without cause; it has failed to honor this
obligation. Id.
Plaintiff Seymour was hired by Black Knight in April 2008
to direct the Company’s 401(k) business development division.
3
Id. ¶ 4. Under the terms of his employment agreement with Black
Knight, he was entitled to be paid a base salary plus a
percentage of the assets he developed for Black Knight, as well
as his expenses. Id. ¶ 54. Although Mr. Seymour developed
business and incurred expenses in compliance with his agreement,
Black Knight has failed to pay him his base salary or his
percentage of assets, or to reimburse his expenses, since
October 2009. Id. ¶ 55. On May 26, 2010, upon learning that
Mr. Seymour intended to file suit for bad faith refusal to
compensate, Black Knight paid Mr. Seymour $7,700, a portion of
what he is owed. Id. Black Knight has failed to pay Mr.
Seymour the remainder of what he was owed under his employment
agreement.
Plaintiffs filed their initial complaint on August 25, 2010
alleging breaches of contract, retaliation, and unjust
enrichment. On September 16, 2010, defendants filed a motion to
dismiss the case under Rule 12(b)(1) due to a lack of complete
diversity of citizenship, as several members of the LLC,
including defendant Stanley Snow, are, like plaintiff Oliver,
citizens of Maryland. Defs.’ Mem. at 1. Plaintiffs then filed
an Amended Complaint on September 30, 2010, adding two claims
under the Employee Retirement Income Security Act (“ERISA”), 29
U.S.C. §§ 1001 et seq., and one claim under the Investment
Advisers Act, 15 U.S.C. § 80b-1 et seq. In response, defendants
4
filed another motion to dismiss, in which they argue that
plaintiffs have failed to state claims for any violations of
ERISA or the Investment Advisers Act, such that the Court does
not have federal question jurisdiction over this case.
Defendants also argue that plaintiffs have failed to make any
allegations as to defendants Daryl Dennis and Stanley Snow in
their individual capacities, and that the case should be
dismissed as to them. On April 19, 2011, plaintiffs filed a
motion for partial summary judgment concerning the issue of
whether Ms. Oliver has retained her five unit equity interest in
the Company. The motion to dismiss and the motion for partial
summary judgment are now ripe for determination by the Court.
II. LEGAL STANDARD
A. Rule 12(b)(1)
On a motion to dismiss for lack of subject-matter
jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of
Civil Procedure, the plaintiff bears the burden of establishing
that the court has jurisdiction. Lujan v. Defenders of
Wildlife, 504 U.S. 555, 561 (1992). The subject-matter
jurisdiction of the federal district courts is limited and is
set forth generally at 28 U.S.C. §§ 1331 and 1332. Under those
statutes, federal jurisdiction is available only when a “federal
question” is presented, or the parties are of diverse
citizenship and the amount in controversy exceeds $75,000. See
5
Arbaugh v. Y & H Corp., 546 U.S. 500, 513 (2006). A party
seeking relief in the district court must plead facts that bring
the suit within the court’s jurisdiction. See Fed. R. Civ. P.
8(a). Failure to plead such facts warrants dismissal of the
action. See Fed. R. Civ. P. 12(h)(3); see also Bell v. Hood,
327 U.S. 678, 682-83 (1946) (stating that a suit may be
dismissed for lack of jurisdiction where “the alleged claim
under the Constitution or federal statutes clearly appears to be
immaterial and made solely for the purpose of obtaining
jurisdiction”); Tooley v. Napolitano, 586 F.3d 1006, 1009 (D.C.
Cir. 2009) (“A complaint may be dismissed on jurisdictional
grounds when it ‘is patently insubstantial, presenting no
federal question suitable for decision.’” (quoting Best v.
Kelly, 39 F.3d 328, 330 (D.C. Cir. 1994))). If the court
concludes that it lacks subject-matter jurisdiction, the court
must dismiss the complaint in its entirety. See Arbaugh, 546
U.S. at 514.
In deciding a Rule 12(b)(1) motion, moreover, the court
must give the plaintiff’s factual allegations closer scrutiny
than would be required for a Rule 12(b)(6) motion because
subject-matter jurisdiction focuses on the court’s power to hear
the claim. See Macharia v. United States, 334 F.3d 61, 64, 69
(D.C. Cir. 2003). Thus, to determine whether it has
jurisdiction over a claim, the court may consider materials
6
outside the pleadings where necessary to resolve disputed
jurisdictional facts. Herbert v. Nat’l Acad. of Scis., 974 F.2d
192, 197 (D.C. Cir. 1992); Alliance for Democracy v. Fed.
Election Comm’n, 362 F. Supp. 2d 138, 142 (D.D.C. 2005).
B. Rule 12(b)(6)
A motion to dismiss under Rule 12(b)(6) tests the legal
sufficiency of a complaint. Browning v. Clinton, 292 F.3d 235,
242 (D.C. Cir. 2002). A complaint must contain “a short and
plain statement of the claim showing that the pleader is
entitled to relief, in order to give the defendant fair notice
of what the . . . claim is and the grounds upon which it rests.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal
quotation marks and citations omitted). “‘[W]hen ruling on a
defendant’s motion to dismiss, a judge must accept as true all
of the factual allegations contained in the complaint[,]’”
Atherton v. D.C. Office of the Mayor, 567 F.3d 672, 681 (D.C.
Cir. 2009) (quoting Erickson v. Pardus, 551 U.S. 89, 94 (2007)),
and grant the plaintiff “the benefit of all inferences that can
be derived from the facts alleged.” Kowal v. MCI Commc’ns
Corp., 16 F.3d 1271, 1276 (D.C. Cir. 1994). A court need not,
however, “accept inferences drawn by plaintiffs if such
inferences are unsupported by the facts set out in the
complaint. Nor must the court accept legal conclusions cast in
the form of factual allegations.” Id. In addition,
7
“[t]hreadbare recitals of the elements of a cause of action,
supported by mere conclusory statements, do not suffice.”
Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). “[O]nly a
complaint that states a plausible claim for relief survives a
motion to dismiss.” Id. at 1950.
C. Rule 56
Summary judgment should be granted only if the moving party
has shown that there are no genuine issues of material fact and
that the moving party is entitled to judgment as a matter of
law. See Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477
U.S. 317, 325 (1986). “A fact is material if it ‘might affect
the outcome of the suit under the governing law,’ and a dispute
about a material fact is genuine ‘if the evidence is such that a
reasonable jury could return a verdict for the nonmoving
party.’” Steele v. Schafer, 535 F.3d 689, 692 (D.C. Cir. 2008)
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986)). The moving party bears the initial burden of
demonstrating the absence of genuine issues of material fact.
See Celotex, 477 U.S. at 322-23. In determining whether a
genuine issue of material facts exists, the Court must view all
facts in the light most favorable to the non-moving party. See
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
587 (1986); Keyes v. Dist. of Columbia, 372 F.3d 434, 436 (D.C.
Cir. 2004). The non-moving party’s opposition, however, must
8
consist of more than mere unsupported allegations or denials;
rather, it must be supported by affidavits or other competent
evidence setting forth specific facts showing that there is a
genuine issue for trial. See Fed. R. Civ. P. 56(c)(1); Celotex,
477 U.S. at 324. “The mere existence of a scintilla of evidence
in support of the [non-movant]’s position will be insufficient;
there must be evidence on which the jury could reasonably find
for the [non-movant].” Anderson, 477 U.S. at 252.
III. ANALYSIS
A. Motion to Dismiss
1. ERISA Claims
a. Count II, 29 U.S.C. § 1140Section 510 of ERISA provides, in relevant part, that it
“shall be unlawful for any person to discharge, fine, suspend,
expel, discipline, or discriminate against a participant or
beneficiary . . . for the purpose of interfering with the
attainment of any right to which such participant may become
entitled under the [employee benefit] plan . . . .” 29 U.S.C.
§ 1140. The enforcement of section 510 is provided for in 29
U.S.C. § 1132, which permits a beneficiary to bring an action:
“(A) to enjoin any act or practice which violates any provision
of this title or the terms of the plan, or (B) to obtain other
appropriate equitable relief (i) to redress such violations or
9
(ii) to enforce any provisions of this title or the terms of the
plan . . . .” Id. § 1132(a)(3).
In interpreting ERISA, the D.C. Circuit follows the burden
shifting approach employed in Title VII and Age Discrimination
in Employment Act (“ADEA”) cases. See May v. Shuttle, Inc., 129
F.3d 165, 169-70 (D.C. Cir. 1997); Lurie v. Mid-Atlantic
Permanente Med. Group, P.C., 729 F. Supp. 2d 304, 322 (D.D.C.
2010). Under that framework, the plaintiff is required to first
make out a prima facie case of prohibited employer conduct
before the burden shifts to the defendant to articulate a
legitimate reason for its action. May, 129 F.3d at 169. The
burden then shifts back to the plaintiff to prove that the
presented reasons are pretextual. Id. at 169-70.
In Count II, plaintiffs argue that “[d]efendants purported
to terminate Ms. Oliver’s rights under the Company’s equity
participation plan, thereby wrongfully depriving her of the
Plan’s benefits.” Am. Compl. ¶ 19. Defendants concede that the
plan at issue is an “employee pension benefit plan” under
ERISA,4 and that Black Knight is subject to ERISA as “an
4
The parties refer to three different plans in the
pleadings: (i) the equity participation plan, (ii) the 401(k)
plan, and (iii) the health care plan. Although plaintiffs refer
to all three in the complaint, plaintiffs’ ERISA claims are
focused on the equity participation plan, under which Ms. Oliver
was supposed to receive a five percent equity interest in the
Company. While defendants conceded that “the plan at issue” is
an ERISA qualified plan (see Defs.’ Mem. at 2; Defs.’ Reply Br.
10
employer engaged in commerce.” Defs.’ Mem. at 2; see also
Defs.’ Reply Br. at 5 & n.2. Defendants argue, however, that
plaintiffs fail to allege what the defendants did to violate
ERISA, other than conclusory allegations such as: “Through the
misconduct set forth in this [C]omplaint, Defendants improperly
caused Oliver to be removed as a participant in the Plans,
improperly removed the benefits to which she [is] entitled, and
improperly terminated her in violation of ERISA.” Defs.’ Mem.
at 2 (citing Am. Compl. ¶ 28). According to defendants,
plaintiff Oliver failed to allege that her termination was for
the purpose of interfering with the attainment of any right
available under the Company’s plan; rather, the Amended
Complaint is replete with allegations that plaintiff was
terminated in retaliation for filing a wage and hour claim.
Defs.’ Mem. at 5-6.
Defendants’ arguments on this point are unpersuasive.
Plaintiffs have alleged that Black Knight fired Ms. Oliver
without cause (i) in retaliation for filing a wage and hour
at 5), defendants also refer numerous times to the fact that
plaintiff Oliver withdrew from the health and benefit plans
before her termination. See, e.g., Defs.’ Mem. at 6 (“[D]espite
Oliver’s position that she was unlawfully deprived of her rights
under the plan by way of the termination on February 26, 2010,
she had voluntarily stopped participating in the 401(k) Plan in
September of 2009 and was no longer a participant in the health
care plan as of September, 2009 as well.”). The defendants
offer nothing to suggest that Ms. Oliver withdrew from or was
not entitled to benefits from the equity participation plan.
11
claim, and (ii) specifically for the purpose of depriving her of
her five percent interest under the equity participation plan,
thus depriving her of benefits she was entitled to under ERISA.
See Am. Compl. ¶¶ 19-21, 28. Plaintiffs state that Black Knight
terminated Oliver days before her interest was to vest. See id.
¶ 14. Under the lenient pleading standards of Rule 8, these
allegations are sufficient to state a claim at the motion to
dismiss stage and shift the burden to defendants to articulate a
legitimate reason for their action. Defendants have nowhere
offered a legitimate reason for their action in order to shift
the burden back to plaintiffs. Accordingly, defendants’ motion
to dismiss Count II of the Amended Complaint is DENIED.
b. Count III, 29 U.S.C. § 1109Section 404 of ERISA requires every fiduciary of a plan to
“discharge his duties with respect to a plan solely in the
interest of the participants and beneficiaries and . . . in
accordance with the documents and instruments governing the plan
. . . .” 29 U.S.C. § 1104(a)(1). A “fiduciary” is defined as a
person who “exercises any discretionary authority or
discretionary control respecting management of [a] plan or
exercises any authority or control respecting management or
disposition of its assets . . . or has any discretionary
authority or discretionary responsibility in the administration
of such plan.” Id. § 1002(21)(A). Under section 409 of ERISA,
12
“[a]ny person who is a fiduciary with respect to a plan who
breaches any of the responsibilities, obligations, or duties
imposed upon fiduciaries . . . shall be personally liable to
make good to such plan any losses to the plan resulting from
each such breach . . . and shall be subject to such other
equitable or remedial relief as the court may deem appropriate.”
Id. § 1109(a). Section 502 specifically authorizes a
beneficiary to bring an action for a violation of section 409.
See id. § 1132(a)(2) (a civil action may be brought “by a
participant, beneficiary or fiduciary for appropriate relief
under section 409”).
In Count III, plaintiffs allege that Black Knight and Daryl
Dennis breached fiduciary duties to the plaintiffs in violation
of ERISA. Am. Compl. ¶ 34. Defendants make three arguments
refuting these allegations. First, defendants argue that
plaintiffs have failed to allege that the defendants exercised
any “authority or discretionary control” respecting the
management and/or disposition of any assets under the plan.
Defs.’ Mem. at 7. Second, defendants argue that plaintiffs fail
to state how a fiduciary duty was breached by either defendant.
Id. According to defendants, the mere fact that plaintiff
Oliver was terminated from the Company and deprived of her right
to participate in the “plan” does not lead to the conclusion
that the defendants breached any fiduciary duty to her. Id. at
13
3. Third, defendants argue that, although plaintiffs have
attempted to bring a claim on behalf of the plans, “it is clear
that [plaintiff Oliver’s] complaint is aimed at recovering on
her own behalf, not on behalf of any other purported plan
members, as she has raised no allegations that any other plan
members were injured in any manner because they were not.” Id.
at 7.
i. Fiduciary Status
Plaintiffs allege that both Black Knight and Daryl Dennis
were fiduciaries with respect to the Company’s plans.5 First,
plaintiffs allege that the administrator of a plan is a
fiduciary, but no administrator was designated in Black Knight’s
plan documents. Am. Compl. ¶ 31. Where a plan administrator is
not designated, the plan sponsor is the administrator. See 29
U.S.C. § 1002(16)(A). Plaintiffs thus assert that Black Knight,
as the sponsor of the plans, was the administrator and thus was
a fiduciary with respect to the plans. Am. Compl. ¶ 31; see
also 29 U.S.C. § 1002(16)(B) (defining “plan sponsor” as “the
employer in the case of an employee benefit plan established or
maintained by a single employer”). In addition, plaintiffs
allege that defendant Dennis had discretionary authority and
responsibility in the administration and management of Black
5
As discussed supra n.4, defendants have conceded that
the equity participation plan was an ERISA-qualified plan.
14
Knight’s plans, as well as authority and control respecting the
management or disposition of the plans’ assets. Am. Compl.
¶ 32.
In contrast to plaintiffs’ claims, however, ERISA defines
an administrator as a fiduciary “only to the extent that he acts
in such a capacity in relation to a plan.” Pegram v. Herdrich,
530 U.S. 211, 225-26 (2000) (citation omitted). Thus, in every
case charging a breach of fiduciary duty under ERISA, the
threshold question is “whether that person was acting as a
fiduciary (that is, was performing a fiduciary function) when
taking the action subject to complaint.” Id. at 226. Not all
actions taken by an ERISA fiduciary implicate these
responsibilities because an ERISA plan administrator “may wear
different hats.” Id. at 225. For example, it has long been the
rule that an employer or plan sponsor does not act in a
fiduciary capacity when adopting, modifying or terminating an
employee benefit plan. See Beck v. PACE Int’l Union, 551 U.S.
96, 101-02 (2007); Lockheed Corp. v. Spink, 517 U.S. 882, 890-91
(1996) (applying rule to pension benefit plan); Curtiss-Wright
Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995) (applying rule to
welfare benefit plan); Hartline v. Sheet Metal Workers’ Nat’l
Pension Fund, 286 F.3d 598, 599 (D.C. Cir. 2002). Rather than
acting as fiduciaries, employers or plan sponsors amending a
plan are “analogous to the settlors of a trust.” Lockheed, 517
15
U.S. at 890. This is because such acts are business decisions
that do not fall within the ambit of fiduciary duties.
Plaintiffs have not pled sufficient facts to show that
Black Knight was acting in its fiduciary capacity as an
administrator, rather than an employer or sponsor, when it
terminated Ms. Oliver’s employment and removed her from the
plans. In addition, plaintiffs have not alleged how defendant
Dennis possessed the discretionary authority of a fiduciary with
respect to the plans, other than as President and CEO of the
Company. However, even assuming, arguendo, that plaintiffs
could show that both Black Knight and Dennis were fiduciaries,
plaintiffs have failed to allege that defendants breached their
fiduciary duties, as described below.
ii. Breach of Fiduciary Duties
Plaintiffs assert that defendants improperly caused and/or
knowingly participated in (1) Oliver’s removal as a participant
in the plans; (2) removal of the benefits to which she was
entitled; and (3) her termination. According to plaintiffs, in
doing so, defendants breached their fiduciary duties to act “for
the purpose of benefiting the plans’ participant, i.e. Oliver,
and to prudently and loyally maintain the plans’ assets.” Am.
Compl. ¶ 34. However, as the Supreme Court has held, fiduciary
activity under ERISA is limited to discretionary acts of plan
16
“management” and “administration.” See Varity Corp. v. Howe,
516 U.S. 489, 502 (1996); see also Lockheed, 517 U.S. at 890.
Under ERISA, fiduciaries have a duty to invest the assets
of a plan prudently and to provide accurate information about
the plan to participants. For example, “managing or
administering the investment and use of [] trust assets are
deemed fiduciary functions.” Hartline v. Sheet Metal Workers’
Nat’l Pension Fund, 134 F. Supp. 2d 1, 13 (D.D.C. 2000), aff’d,
286 F.3d 598 (D.C. Cir. 2002) (citation omitted). A plan
administrator breaches his or her fiduciary duties by, inter
alia, deceiving a plan’s beneficiaries into withdrawing from
their old plan, forfeiting their benefits, and enrolling in a
new plan in order to save the employer money at the
beneficiaries’ expense. See Varity, 516 U.S. at 492-94, 506.
Additionally, the D.C. Circuit has found that a failure to
disclose material information to beneficiaries is a breach of a
fiduciary’s duties. See Eddy v. Colonial Life Ins. Co. of Am.,
919 F.2d 747, 750 (D.C. Cir. 1990).
By contrast, the Supreme Court has made clear that acts
such as terminating a fund in its entirety or allowing a plan to
become insolvent do not implicate fiduciary duties because there
are no more benefits for the fiduciary to guarantee. See Beck,
551 U.S. at 101-02, 106. As stated supra, Section III.A.1.b.i.,
such actions are business decisions that do not trigger
17
fiduciary obligations. According to the Supreme Court, “plan
participants and beneficiaries must rely primarily (if not
exclusively) on state-contract remedies if they do not receive
proper payments or are otherwise denied access to their funds.”
Id. at 106. Termination of employment and removal from a plan
are not the types of actions that implicate fiduciary duties and
are instead more akin to business decisions not subject to
ERISA’s fiduciary obligations. For these reasons, plaintiffs
have not stated sufficient facts to support a claim for relief
under 29 U.S.C. § 1109.
iii. Recovery on Behalf of Individual
Finally, defendants argue that plaintiffs cannot seek to
recover individually for an alleged breach of fiduciary duties,
but rather must seek to recover on behalf of the plan as a
whole. See Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134,
140-42 (1985). Because plaintiffs have not stated sufficient
facts to show that Ms. Oliver seeks to recover on behalf of the
plan as a whole, defendants argue that plaintiffs’ claim for
breach of fiduciary duties should be dismissed. Defs.’ Mem.
at 7. Even assuming, arguendo, that plaintiffs could make a
claim to recover individually,6 plaintiffs have not stated
6
See, e.g., Varity, 516 U.S. at 510-13, 515 (holding
that in an action for equitable relief, a companion subsection,
29 U.S.C. § 1132(a)(3), can, in fact, provide plaintiffs with a
18
sufficient facts to show that defendants breached any fiduciary
duties. Accordingly, the motion to dismiss Count III of the
Amended Complaint is GRANTED, and plaintiffs’ claim for breach
of fiduciary duties is DISMISSED.
2. Investment Advisers Act Claim
Section 206 of the Investment Advisers Act (“IAA”)
provides, in relevant part, that it is unlawful for any
investment adviser to “engage in any act, practice, or course of
business which is fraudulent, deceptive, or manipulative.” 15
U.S.C. § 80b-6(4). Section 215 of the Act provides a private
right of action to void or rescind a contract where an
investment adviser has engaged in manipulative or unlawful
conduct. 15 U.S.C. § 80b-15. As the Supreme Court has stated,
sections 206 and 215 were intended to benefit the clients of
investment advisers. See Transamerica Mortg. Advisors v. Lewis,
444 U.S. 11, 17 (1979);  SEC v. Capital Gains Research Bureau,
Inc., 375 U.S. 180, 187-88 (1963); see also Paul S. Mullin &
Assocs., Inc. v. Bassett, 632 F. Supp. 532, 537 (D. Del. 1986)
(“Courts have held uniformly that only an investment adviser and
its clients (or prospective clients) are proper parties in a
private suit under the [IAA].”); Reserve Mgmt. Corp. v. Anchor
remedy for a breach of fiduciary duty in their individual
capacity, rather than solely on behalf of the plan).
19
Daily Income Fund, Inc., 459 F. Supp. 597, 608 (S.D.N.Y. 1978)
(same).
In Count IV, plaintiffs allege that defendants’ unlawful
termination of Oliver’s participation in the equity
participation plan constituted a manipulative or deceptive
practice proscribed by the IAA. According to plaintiffs,
defendants engaged in manipulative conduct “when they terminated
Ms. Oliver’s plan participation on a pretextual basis in
retaliation for her exercise of [her] lawful right to file a
wage and hour claim.” Am. Compl. ¶ 39. However, as defendants
correctly argue, plaintiffs have not properly stated a claim
under the IAA because an employer-employee relationship is not
the type of relationship the IAA was intended to protect. In
addition, claims brought under the IAA generally must allege
elements similar to those required to prove securities fraud
violations,7 and plaintiffs have not even alleged these basic
elements.
Defendants argue that plaintiffs have failed to identify
how the “unlawful termination” of plaintiff Oliver is a
7
See, e.g., SEC v. Steadman, 967 F.2d 636, 641-42, 6447
(D.C. Cir. 1992); SEC v. Wall Street Publ’g Inst., Inc., 591 F.
Supp. 1070, 1082-84 (D.D.C. 1984); see also Vernazza v. SEC, 327
F.3d 851, 858-59 (9th Cir. 2003) (equating the materially false
statement or omission requirement in the IAA to that to that
required to prove violations of the Securities and Exchange
Acts, 15 U.S.C. §§ 77q(a) and 78j(b)).
20
“manipulative or deceptive practice.” Defs.’ Mem. at 3, 9
(citing Am. Compl. ¶ 38). Defendants here are correct.
Although the Act does not define “manipulative” and “deceptive”
practices, case law provides examples of the types of behavior
that will suffice to establish claims for violations of section
206. See, e.g., Wall Street Publ’g Inst., 591 F. Supp. at 1081-
87 (involving violations arising out of false and misleading
statements published in defendant’s magazine and defendant’s
failure to disclose consideration received in connection with
the publication of feature articles). The Supreme Court has
interpreted the IAA to impose upon the investment adviser “an
affirmative duty of utmost good faith, and full and fair
disclosure of all material facts,” as well as an “affirmative
obligation to employ reasonable care to avoid misleading” its
clients. Capital Gains Research Bureau, 375 U.S. at 194(internal citations and quotation marks omitted). Plaintiffs’
primary claim here is that Ms. Oliver was wrongfully terminated.
See Am. Compl. ¶¶ 38-39. Plaintiffs have presented no
allegations that defendants committed any fraud or made any
untrue statements and/or omissions of material fact to
plaintiffs or anyone else. Without more, these allegations do
not suffice to make out a claim of a fraudulent, manipulative,
or deceptive act.8
8
Defendants further argue that plaintiffs fail to
21
Plaintiffs have failed to state any facts which could be
construed as providing the basis for a claim that defendants
engaged in any fraudulent, manipulative, or deceptive practice.
Accordingly, the motion to dismiss on this claim is GRANTED, and
plaintiffs’ claim under the IAA is DISMISSED.
3. Dismissal of Individual Defendants
Defendants argue that plaintiffs have not alleged
sufficient facts to support allegations against either Stanley
Snow or Daryl Dennis individually, as opposed to in their
official capacities as officers of the Company. Officers of a
corporation do not fall within ERISA’s definition of an
“employer,”9 and thus officers cannot be held personally liable
for a corporation’s alleged ERISA violations by virtue of their
relationship to the employer alone.10 See Connors v. P & M Coal
Co., 801 F.2d 1373, 1378 (D.C. Cir. 1986); see also Int’l Bhd.
allege any facts supporting their position that the Company’s
private placement offering (which contained the equity
participation plan) is an “Investment Advisers Contract,” as
defined in the Act. Defs.’ Mem. at 9. Plaintiffs wholly failed
to address this issue in their opposition, and therefore, the
Court finds that this point has been conceded.
9
ERISA defines an employer as one who acts “directly as
an employer, or indirectly in the interest of an employer, in
relation to an employee benefit plan; and includes a group or
association of employers acting for an employer in such
capacity.” 29 U.S.C. § 1002(5).
10
Even assuming, arguendo, that the individual
defendants could be held personally liable under the Investment
Advisers Act, as discussed supra Section III.A.2., a claim under
the IAA is wholly inappropriate in this context.
22
of Painters & Allied Trades Union v. George A. Kracher, Inc.,
856 F.2d 1546, 1548-50 (D.C. Cir. 1988) (affirming district
court’s conclusion that liability for a corporation’s delinquent
pension contributions does not extend to an individual who is
the organization’s chief officer and principal shareholder).
Once corporate liability has been established under ERISA,
“officers may be held personally liable for their corporations’
obligations under ERISA if they have acted as the ‘alter egos’
of their corporations or otherwise met the requirements that
justify ‘piercing the corporate veil’ under traditional common
law principles.” Connors, 801 F.2d at 1378 (citations omitted);
see also Bd. of Trs. v. Northern Steel Corp., 657 F. Supp. 2d
155, 160-61 (D.D.C. 2009).
In Labadie Coal v. Black, 672 F.2d 92 (D.C. Cir. 1982), the
D.C. Circuit identified a two-prong test for deciding when it is
appropriate to pierce the corporate veil: (1) whether there is
such unity of interest and ownership that the separate
personalities of the corporation and the individual no longer
exist; and (2) if the acts are treated as those of the
corporation alone, whether an inequitable result will follow.
See 672 F.2d at 96. Under the first prong, the court should
consider “the degree to which formalities have been followed to
maintain a separate corporate identity.” Id. The factors that
should weigh in the court’s determination include: (1) the
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nature of the corporate ownership and control; (2) failure to
maintain adequate corporate records; (3) failure to maintain
corporate formalities; (4) commingling of funds and corporate
assets; (5) diversion of the corporation’s funds or assets; and
(6) use of the same office or business location by the
corporation and the individual shareholders. Id. at 97-99.
As to defendant Snow, defendants assert that the Amended
Complaint has not made a single factual allegation against Mr.
Snow to permit recovery against him individually. Defs.’ Mem.
at 10. As the D.C. Circuit has held, mere reference to an
individual’s role as an officer in a company is insufficient to
establish liability. See Int’l Bhd. of Painters & Allied Trades
Union, 856 F.2d at 1548. Indeed, the Amended Complaint contains
only one sentence related to Mr. Snow: “Defendant Stanley Snow
is an organizer of Black Knight.” Am. Compl. ¶ 5.11 Plaintiffs
11
Plaintiffs attempt to incorporate additional facts
into their opposition as to Snow. See Pls.’ Opp. at 2 (“Black
Knight, through defendants Snow and Dennis, in June 2008
unilaterally and unlawfully attempted to modify Ms. Oliver’s pay
structure.”); id. at 3 (“Black Knight, at the behest of Stan
Snow and Daryl Dennis, wrongfully terminated Ms. Oliver on
February 26, 2010.”); id. (“Stan Snow caused Black Knight to pay
Ms. Oliver $18,000.00 . . . .”); id. at 8 (“On information and
belief, the actions taken by defendants have been taken at the
express direction of defendant Snow. Defendant Snow has exerted
dominion and control over Black Knight due to its financial
struggles.”). Because plaintiffs have not sought to amend their
complaint, these facts cannot be read into the complaint when
raised for the first time in the opposition. See Ghawanmeh v.
Islamic Saudi Acad., 672 F. Supp. 2d 3, 15 (D.D.C. 2009)
(“[S]uppositions in an opposition to a motion to dismiss are no
24
have not alleged that Snow did anything either on behalf of the
Company or in his individual capacity. Without more, the
complaint does not give defendant Snow notice of the claims
against him and the grounds upon which they rest. For this
reason, the motion to dismiss as to defendant Snow is GRANTED.
Defendants similarly argue that plaintiffs have not pled
sufficient facts in Counts I-IV to recover against defendant
Dennis individually. With respect to Mr. Dennis, plaintiffs
allege that Dennis occupied the role of President and CEO of
Black Knight; that he represented to the D.C. Wage and Hour
Office that Black Knight would pay Ms. Oliver the compensation
owed to her and then wrongfully terminated her instead; that he
had the responsibilities and obligations of Black Knight as
administrator of the Company’s equity participation and health
and benefit plans; and that he offered in writing to settle Ms.
Oliver’s claim and then refused to honor the terms of the draft
settlement agreement. See Am. Compl. ¶¶ 5, 13-14, 32, 50-51.
Plaintiffs have failed, however, to allege that Dennis did
anything outside of his role as President and CEO of the Company
that would permit him to be held personally liable under the
veil piercing or alter-ego theories discussed above.
substitute for the specific factual allegations plaintiff must
make in her complaint.”).
25
Accordingly, the motion to dismiss as to defendant Dennis is
GRANTED.
B. Motion for Partial Summary Judgment
In the motion for partial summary judgment, plaintiffs seek
an order entering judgment in Ms. Oliver’s favor on the issue of
whether she retained her equity units in Black Knight.
According to plaintiffs, the equity units were provided for
under the terms of Ms. Oliver’s employment and Black Knight’s
Offering Memorandum, and, under the terms of the employment
agreement, any forfeiture of the equity units was required to be
in writing. See Pls.’ Mot. Summ. J. at 1-4. Because no writing
evidencing forfeiture of Ms. Oliver’s equity exists, plaintiffs
argue that they are entitled to summary judgment on this issue.
Defendants argue that the employment agreement contains no
requirement that the Company obtain a document from plaintiff
evidencing a forfeiture of her interests, but rather, that the
agreement operates to divest the equity ownership automatically
when an employee is terminated prior to her third anniversary of
employment with the Company. See Defs.’ Opp. at 3-5.
Defendants further argue that genuine issues of material fact
exist at this stage of the litigation, in which minimal
discovery has been taken. See id. at 1-2, 7. Because the Court
is persuaded that genuine issues of material fact exist that
26
preclude summary judgment at this time, plaintiffs’ motion for
partial summary judgment is DENIED without prejudice.
IV. CONCLUSION
For the foregoing reasons, the Court concludes that
plaintiffs have failed to state a claim for breach of fiduciary
duties under ERISA, 29 U.S.C. § 1109 (Count III), or for relief
under the IAA, 15 U.S.C. § 80b-15 (Count IV). The Court
additionally concludes that plaintiffs have failed to state
claims against either Stanley Snow or Daryl Dennis in their
individual capacities. However, the Court concludes that
plaintiffs have alleged sufficient facts at this stage to make
out a claim for relief under section 510 of ERISA, 29 U.S.C. §
1140 (Count II). Accordingly, defendants’ motion to dismiss is
GRANTED IN PART AND DENIED IN PART. In addition, because
genuine issues of material fact exist that preclude summary
judgment at this time, plaintiffs’ motion for partial summary
judgment is DENIED without prejudice. A separate Order
accompanies this Memorandum Opinion.
SO ORDERED.
Signed: EMMET G. SULLIVAN
United States District Judge
September 26, 2011
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