Breach of Fiduciary Duty Claim Against Asset Manager For 2008 Losses Survives Motion to Dismiss Despite Later Substantial Returns

By: Mark Casciari and Ada Dolph

A district judge of the Eastern District of New York held in Trustees of the Local 138 Pension Trust Fund v. Logan Circle Partners, L.P. et al., No. 10 Civ. 5758 (E.D.N.Y. May 25, 2012), that a multiemployer pension plan’s amended complaint against an asset manager alleging a claim for breach of fiduciary duty survived a Rule 12(b)(6) motion to dismiss because it adequately pled a causal connection between alleged violations of the plan’s investment guidelines and an estimated $2.7-4.8 million in losses incurred by the plan in 2008.

The asset manager argued that the amended complaint should be dismissed because it rested solely upon conclusory allegations that the asset manager was responsible for losses to the plan in 2008, failed to connect the alleged investment guideline violations to actual losses, and failed to take into account that the plan received substantial returns in 2009 and 2010.

In denying the motion, the court held that the asset manager mischaracterized and selectively quoted from the amended complaint to make its arguments. In addition, the court rejected as premature whether the losses could have been prevented or were the result of unprecedented market volatility.

The court also rejected the argument that the amended complaint should be dismissed because the plaintiff had not pled damages with sufficient specificity. The court found that fiduciary duty claims under ERISA are subject only to the “simplified” pleading standard of Rule 8(a), and not the particularized pleading requirements applicable to securities cases. The court found that plaintiff’s allegation that damages could be measured by comparing the plan’s performance to that of an aggregated bond index was plausible enough to withstand a motion to dismiss. This decision is an important ruling on the specificity required in fiduciary breach complaints as to causation and damage allegations.