Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Hite v. Leeds Weld Equity Partners

April 19, 2006

WILLIAM P. HITE, ET AL., PLAINTIFFS,
v.
LEEDS WELD EQUITY PARTNERS, IV, LP, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Paul L. Friedman United States District Judge

OPINION

This matter is before the Court on defendants' motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted, and for failure to join indispensable parties under Rule 12(b)(7) and Rule 19. After considering all the papers filed by the parties and the relevant case law, the Court grants defendants' motion to dismiss plaintiffs' claim under D.C. Code § 31-5606.05(a)(1)(B) and denies defendants' motion in all other respects.

I. BACKGROUND

Plaintiffs are three pension funds -- United Association General Officers Retirement and Pension Fund, United Association Office Employees' Retirement and Pension Fund, and United Association Local Union Officers and Employees Pension Fund (collectively, the "plaintiff funds") -- which have contracted to invest $25,000,000 in defendants' partnership. Additional plaintiffs William P. Hite and Stephen F. Kelly are current trustees and fiduciaries of all three plaintiff funds. Plaintiff Patrick R. Perno is a current trustee and fiduciary of plaintiff United Association General Officers Retirement and Pension Fund and United Association Office Employees' Retirement and Pension Fund. Plaintiff Bradley M. Karbowsky is a current trustee and fiduciary of United Association Local Union Officers and Employees Pension Fund.

Defendant Leeds Weld Equity Partners IV, LP (the "partnership") -- a private equity firm focused on the education, training and information services industries -- is a Delaware limited partnership located in New York. Leeds Weld Equity Associates IV, LLC (the partnership's general partner), Leeds Equity Advisors, Inc. (the partnership's managing member), and Leeds Weld IV Advisors, LLC (a company hired by the partnership to give investment advice) are also named as defendants.

The actions of non-parties Pension Fund Evaluations, Inc. ("PFE"), George Phillips and Gregory Phillips are also at issue. PFE served as plaintiff funds' investment consultant from 1999 until the investment contract at issue in this case was entered into. Plaintiffs allege that PFE and the Phillipses had a fiduciary duty to the funds as defined by ERISA, 29 U.S.C. § 1002(21), at the time of the contract in question. See Complaint ¶¶ 20, 28, 31. Plaintiffs allege that George Phillips "exercised influence and control" over PFE and thus owed a fiduciary duty to plaintiff funds, see Complaint ¶ 29, and that Gregory Phillips, George Phillips' son, was the principal of PFE and thus also a fiduciary to the plaintiff funds at the relevant time. See Complaint ¶¶ 22, 30.

The complaint alleges that the partnership knowingly participated in PFE and in the Phillipses' breach of their fiduciary duties to the plaintiff funds in violation of Sections 404 and 406(b) of ERISA, codified at 29 U.S.C. §§ 1104, 1106(b), and that it committed fraud and misrepresentation in a securities offering in violation of D.C. Code § 31-5606.05(a)(1)(B). Plaintiffs allege that non-party PFE breached its fiduciary duty when it failed to disclose an agreement between defendants and non-party George Phillips, pursuant to which defendants paid George Phillips $150,000 to influence plaintiff funds' decision to invest in defendants' partnership. See Complaint ¶¶ 24, 31. Subsequently, the funds contracted to invest a total of $25,000,000 in the partnership. See id. ¶¶ 16-18, 37. Defendant partnership is alleged to have knowingly participated in the alleged breach of fiduciary duty by PFE and the Phillipses. Plaintiffs seek rescission of the contract committing plaintiffs' funds to defendants' partnership. See id. ¶¶ 36-37.

On November 7, 2005, defendants filed a motion to dismiss both the ERISA and the D.C. Code claims under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted. Defendants' Rule 12(b)(6) motion raises two arguments: first, that the plaintiffs have failed to allege a fiduciary duty with sufficient detail; and second, that the plaintiffs have failed to allege knowing participation in the breach of fiduciary duty by each individual defendant. Defendants also move to dismiss both the ERISA and the D.C. Code claims under Rule 12(b)(7) for failure to join PFE and the Phillipses as necessary parties. The motion to dismiss under Rule 12(b)(6) is granted in part and denied in part, and the motion to dismiss under Rule 12(b)(7) is denied.

II. DISCUSSION

A. Rule 12(b)(6) Motion to Dismiss for Failure to State a Claim

A motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure may be granted when a defendant shows "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Bell v. Executive Comm. of the United Food and Commercial Workers Pension Plan for Employees, 191 F. Supp. 2d 10, 15 (D.D.C. 2002) (hereinafter Bell v. UFCW) (quoting In re Swine Flu Immunization Prods. Liab. Litig., 880 F.2d 1439, 1442 (D.C. Cir. 1989) and Conley v. Gibson, 255 U.S. 41, 45-46 (1955)). Defendants do not meet this burden with either the argument that plaintiffs fail to allege facts sufficient to show a fiduciary duty, or that the plaintiffs fail to allege knowing participation by each defendant. They are entitled, however, to a dismissal of plaintiff's D.C. Code claim for failure to allege fraud with particularity under Rule 9(b) of the Federal Rules of Civil Procedure.

1. ERISA Claim

a. Fiduciary Duty

The complaint alleges that "PFE, as an investment consultant and monitoring firm, was a fiduciary to the plaintiff funds as that term is defined by Section 3(21) of ERISA, 29 U.S.C. § 1002(21)." Complaint ¶ 28. The complaint also alleges that "during the relevant time period" both George and Gregory Phillips "exercised influence and control over the activities of PFE, and [were] therefore [fiduciaries] to the Funds as that term is defined in Section 3(21) of ERISA, 29 U.S.C. § 1002(21)." Complaint ¶¶ 29, 30. Defendants claim that these allegations merely track the statutory language of ERISA, 29 U.S.C. § 1002(21)(A) (defining "fiduciary" under ERISA), and therefore are insufficient to state a claim under Rule 12(b)(6). See Motion to Dismiss at 10. This Court however, has held a similar allegation of fiduciary duty sufficient to survive a Rule 12(b)(6) motion even though the language only closely tracked the statute. See Bell v. UFCW, 191 F. Supp. 2d at 16 & n.10 (holding allegation that "individual defendants 'render[ed] investment advice for a fee" to constitute a specific allegation of fiduciary duty sufficient to avoid Rule 12(b)(6) dismissal). Other courts similarly have held that an allegation of fiduciary duty that tracks the statutory language is sufficient to defeat a Rule 12(b)(6) motion. See, e.g., In re Polaroid, 362 F. Supp. 2d 941, 945 (S.D.N.Y. 2005); In re World Com, 263 F. Supp. 2d 745, 759-60 (S.D.N.Y. ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.