13 Civ. 9061 (KPF)
OPINION AND ORDER
From 2005 to 2012, Plaintiff Mario Forgione sought tax-planning advice on behalf of himself and his company. According to Forgione, the advice he received was not only incorrect — and expensive to remedy — but it was also predicated on fraudulent statements and undisclosed conflicts of interest. In December 2013, Forgione and his company commenced this action, mounting federal and state claims against those ostensibly involved in providing and implementing the advice, Defendants Matthew Gaglio, Johanna Gaglio-Bogen, Jeffrey Richgat, JR Pension Services, Inc. ("JR Pension"), Integrity Advisors Pension Consultants, Inc. ("Integrity"), NY Rosbruch/Harnik, Inc. d/b/a Strategies For Wealth ("SFW"), and Park Avenue Securities LLC ("PAS"). Defendants have moved to dismiss the Complaint for failure to state a claim, arguing both legal and evidentiary deficiencies. For the reasons stated in this Opinion, these motions are granted in part and denied in part.
The facts contained in this Opinion are drawn from the Complaint ("Compl.") (Dkt. #1), and are taken as true for purposes of the pending motions. Motions to dismiss have been filed by three groups of Defendants: Gaglio, Gaglio-Bogen and Integrity (Dkt. #41); PAS and SFW (Dkt. #45); and Richgat and JR Pension (Dkt. #47). For convenience, the memoranda of law in support of the respective motions to dismiss will be referred to as "Gaglio Br." (Dkt. #42), "PAS/SFW Br." (Dkt. #46), and "Richgat Br." (Dkt. #48); Plaintiffs' omnibus opposition brief will be referred to as "Pl. Opp." (Dkt. #54); and the reply briefs filed by two of the three groups of Defendants will be referred to as "Gaglio Reply" (Dkt. #60) and "PAS/SFW Reply" (Dkt. #62).
A. Factual Background
1. The Decision to Obtain Tax-Planning Advice
Mario Forgione Ltd. (the "Company") is a commercial and residential landscaping business owned and operated by Forgione and his wife, Elisa Forgione (collectively, the "Forgiones"), since 1996. (Compl. ¶¶ 10-12). From 2005 to 2012, the gross revenues of the Company varied between $1,500,000 and $2,500,000 per year. (Id. at ¶ 13).
In 2005, as the Company's revenues increased, the Forgiones began to explore financial planning options. (Compl. ¶ 66). On several occasions during the spring of 2005, the Forgiones met with Gaglio and Gaglio-Bogen at the Company's offices to discuss financial planning. (Id. at ¶ 68). During those meetings in 2005, and continuing through May 2012, Gaglio told the Forgiones that he was a registered financial advisor with an expertise in retirement programs and employee benefit plans. (Id. at ¶¶ 69, 73). Gaglio gave the Forgiones a business card, which indicated that he worked for Integrity, a financial services organization. (See id. at ¶¶ 44, 71). The business card also noted Gaglio's position as a "Registered Representative and Financial Advisor" of PAS, a retail broker/dealer that, unbeknownst to the Forgiones, was an indirect wholly-owned subsidiary of Guardian Life Insurance Company ("Guardian"). (See id. at ¶¶ 22, 71). The business card did not disclose that Gaglio's primary employment was as a Guardian life insurance agent working for SFW, a franchise office of Guardian. (Id. at ¶ 72). In the spring of 2005, Defendant Gaglio-Bogen provided Forgione and the Company with a business card stating that she was a pension consultant and a "registered representative" of PAS. (Id. at ¶¶ 53, 83).
2. The Tax-Planning Advice
During the 2005 meetings with Gaglio and Gaglio-Bogen, the Forgiones "clearly stated that they wanted to legally maximize tax savings for themselves." (Compl. ¶ 75). The Forgiones did not propose the creation of a retirement plan or a pension plan. (Id.). Rather, they simply told Gaglio that they wished to shelter some of their income from taxes. (Id.). Gaglio advised that they should begin to save for their retirement and suggested they do so by having the Company establish a defined benefit pension plan (the "Plan"). (Id.). He then recommended that the Plan be funded with whole life insurance policies taken out on the Forgiones, which Gaglio said would help the Forgiones and the Company meet their respective financial goals. (Id. at ¶ 76). Gaglio did not advise the Forgiones that the sole source of his compensation for this financial planning would derive from his sale of whole life insurance. (Id.).
According to Plaintiffs, invoices they received from Gaglio caused them to believe that they were paying a fee to Gaglio. (Compl. ¶ 18). They claim not to have understood until much later that Gaglio received a commission on the sale of all Guardian whole life insurance policies for participants in the Plan for the period from 2005 to 2012. (Id. at ¶¶ 145, 176).
The Forgiones relied on Gaglio for advice on how to design and administer a retirement program that was suitable for the Company. (Compl. ¶ 78). They also relied on Gaglio to draft the documents necessary to establish the Plan. (Id.). Gaglio assured Forgione and the Company that he would create a pension plan that would provide the Company with the appropriate tax deductions and tax-deferred benefits, and he reiterated these assurances to the Forgiones periodically from 2005 through 2012. (Id. at ¶ 79). In particular, Gaglio advised the Forgiones that they could establish a plan that would provide benefits only to themselves and that would be funded primarily by whole life insurance policies taken out on themselves. (Id. at ¶ 80).
Unbeknownst to the Forgiones, Gaglio and Gaglio-Bogen retained Richgat and his company, JR Pension, to administer the Plan and draft Plan documents. (Compl. ¶¶ 109, 111, 113, 131, 137, 157). The Forgiones first learned of Richgat's involvement in 2007, when Elisa Forgione noticed an invoice from Richgat and was advised by Gaglio-Bogen that she and Gaglio had retained Richgat as an actuary for the Plan. (Id. at ¶ 132). Plaintiffs allege that the drafting of Plan documents by Richgat was inappropriate because he was an actuary, and not an attorney. (See id. at ¶¶ 112, 114).
3. The Plan
The Plan was a customized version of a "prototype plan," i.e., a generic plan for which all terms have been approved by the Internal Revenue Service (the "IRS"). (See Compl. ¶¶ 101, 119-20, 127). The "plan document" for a prototype plan is normally comprised of the prototype plan and an adoption agreement. (Id. at ¶ 104). The plan documents for the Plan consisted of a Guardian prototype and a Guardian adoption agreement. (Id. at ¶ 106).
Plaintiffs allege that Gaglio used Guardian products because he was required to do so as an employee of SFW. (Compl. ¶ 107). More importantly, Plaintiffs allege that the Plan was defective from its inception. (See id. at ¶¶ 96, 142, 342-43). For example, Gaglio and Gaglio-Bogen permitted the Plan to be established for only two participants, the Forgiones, until 2008. (Id. at ¶ 86). Indeed, they specifically advised the Forgiones that they did not need to include their crew of landscapers as participants in the Plan because these employees were seasonal workers, even though some of these employees worked in excess of 1,000 hours each year. (See id. at ¶¶ 92-93, 366, 379).
Richgat, for his part, drafted the adoption agreement to permit benefit payments in the amount of 154% of a participant's monthly compensation. (Compl. ¶ 119). This provision, it is claimed, violates Section 415 of the Internal Revenue Code ("IRC"), which caps payments at 100% of monthly compensation. (Id.). Richgat never corrected that provision, nor did he advise the Forgiones that the Plan violated the IRC. (Id. at ¶ 120). Plaintiffs allege that Richgat's decision to include this provision in the adoption agreement constituted negligence in drafting the Plan or, worse yet, a conscious effort to increase the amount of whole life insurance that was sold to the Company. (Id. at ¶ 122). Either way, the provision resulted in the Company buying more life insurance from Gaglio to fund the Plan from 2005 through 2012. (Id. at ¶ 125). Plaintiffs further allege that Richgat failed to advise the Forgiones of his employment with Guardian and its attendant conflict of interest. (See id. at ¶ 134). Richgat also failed to advise the Forgiones — despite completing annual valuation reports for the Plan — that the Plan was "top heavy," i.e., that Plan account values were unduly weighted in favor of key employees. (Id. at ¶ 143; see also id. at ¶ 94 ("A pension plan which permits more than 60% of the assets to belong to highly compensated employees is a top-heavy plan[.]"); see generally 26 U.S.C. § 416 (outlining special rules for top-heavy plans)).
Contrary to what they had stated in 2005, Gaglio and Gaglio-Bogen informed the Forgiones in 2008 that they were in fact required to provide benefits to other Company employees. (Compl. ¶ 143). Even then, however, the Forgiones were only advised to provide benefits to two additional employees, and not to their entire landscaping crew, and were further advised to provide benefits in the form of whole life insurance policies that would be taken out on the two individuals. (See id. at ¶¶ 143-44). Plaintiffs allege that if Gaglio and Gaglio-Bogen had advised the Forgiones that they were required to provide benefits to the Company's entire crew of landscapers, they would not have established the Plan. (Id. at ¶ 99).
4. The Conduct of the Individual Defendants
From 2005 through 2012, Gaglio and Gaglio-Bogen provided investment advice to the Forgiones regarding suitable investments for all components of the Plan. (Compl. ¶ 150). Indeed, according to the Complaint, (i) "Plan assets were remitted to [Defendant Gaglio] for investment, and . . . he provided investment advice with respect to the Plan, for an indirect fee that he received through commissions on Guardian life insurance he sold" (Compl. ¶ 201); and (ii) "[a]t all relevant times between 2005 and mid-2012, Defendant Gaglio-Bogen directed and made all decisions regarding the investment of the non-life insurance portion of the Plan" (id. at ¶ 82). Gaglio-Bogen also provided "administrative" services to the Plan during this period, such as processing loans to participants. (Id. at ¶¶ 100, 154).
Between 2005 and 2012, Defendant Richgat, through his company JR Pension, regularly prepared invoices for actuarial services provided to the Company, detailing the services rendered and demanding fees. (Compl. ¶ 155). In addition to his actuarial duties, during the period from 2005 through 2012, Richgat is also alleged to have performed "administrative" tasks for the Plan. (Id. at ¶ 157).
5. Problems with the Plan
In 2012, the Forgiones realized that they could not sustain contributions to the Plan for four participants, and came to believe they were not being properly advised by Gaglio, Gaglio-Bogen, and Richgat. (Compl. ¶ 164). Upon consulting with other investment professionals, the Forgiones discovered that the Plan violated the IRC and was subject to disqualification, the latter of which would cause a forfeiture of the Plan's tax-exempt status. (See id. at ¶¶ 95, 164-65). Specifically, the Forgiones learned that the Plan's provision for benefits equaling 154% of a participant's monthly income would violate the IRC. (Id. at ¶¶ 168-69). Additionally, the Forgiones discovered that, because the Company's landscapers worked in excess of 1,000 hours each year, they were entitled to pension benefit contributions for the years 2005 through 2012. (Id. at ¶ 166). Finally, the Forgiones came to believe that whole life insurance was not a proper retirement investment vehicle for their business. (Id. at ¶ 171).
According to the Complaint, from 2005 to 2012, the Forgiones and the Company lost money as a result of the way the Plan was drafted and administered. (Compl. ¶ 173). As of April 6, 2011, the Company had paid $806,487.63 into the Plan. Of that amount, $379,450.30 was invested in whole life insurance policies for the Forgiones, yet the surrender value of these policies was a mere $255,496.10. (Id. at ¶ 175). Perhaps more significantly, the Company allegedly incurred significant expenses in correcting the Plan and in filing an application with the IRS pursuant to its Voluntary Correction Program. (Id. at ¶ 142).
Generally, if the retirement plan that you sponsor is not currently being audited by the IRS, you can apply under the Voluntary Correction Program (VCP) for IRS approval of the correction methods you propose to use to correct errors in the plan document or its operations that, if not corrected, could result in the plan losing its tax-favored status. You must mail the IRS a written submission and pay a compliance fee to use the VCP.
Voluntary Correction Program (VCP) - General Description, Internal Revenue Service, http://www.irs.gov/Retirement-Plans/Correcting-Plan-Errors-%E2%80%93-Voluntary-Correction-Program-(VCP)-%E2%80%93-General-Description (last visited Feb. 10, 2015).
In the summer of 2012, the Forgiones discovered that Gaglio's compensation had been limited to commissions earned on whole life insurance products that he sold as a life insurance agent for Guardian. (Compl. ¶ 176). The Forgiones also learned that annual "Cost of Insurance Statements" — which had been sent by Gaglio and Gaglio-Bogen to the Forgiones and the Company for several years during the period from 2005 to 2012, and which outlined the costs for "pension trust policies in your qualified retirement program" — were false, because the Plan as designed and sold to the Forgiones and the Company had never been qualified. (Id. at ¶ 177 (emphasis in original)).
B. Procedural Background
Plaintiffs filed the instant action against Defendants, each of whom is alleged to have been involved in the sale or implementation of the Plan, on December 23, 2013. (Dkt. #1). Plaintiffs allege that Defendants violated the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1191c, 1202-1242, 1301-1461, and committed several violations of New York state law.
The Complaint strives to connect the individual defendants Gaglio, Gaglio-Bogen, and Richgat (collectively, the "Individual Defendants"), to the entity defendants Integrity, SFW, PAS, and JR Pension (the "Entity Defendants"). Specifically, Plaintiffs allege that Gaglio and Gaglio-Bogen acted as agents of Integrity, PAS, and SFW, and that Richgat acted as agent (if not alter ego) of JR Pension, from 2005 through 2012. Plaintiffs further allege that each of Integrity, SFW, and PAS had a duty to prevent Gaglio and Gaglio-Bogen from engaging in fraudulent misrepresentations, deceptive business practices, and negligent financial planning. (Compl. ¶¶ 182-95).
Following a pre-motion conference on March 18, 2014, the Gaglio Defendants filed their motion to dismiss on April 16, 2014 (Dkt. #41), and the PAS/SFW Defendants and the Richgat Defendants each filed a motion to dismiss on April 18, 2014 (Dkt. #45, 47). Plaintiffs filed a single opposition brief on July 8, 2014. (Dkt. #54). The Gaglio Defendants filed a reply brief on July 28, 2014 (Dkt. #60), and the PAS/SFW Defendants filed a reply brief on July 30, 2014 (Dkt. #62). On July 30, 2014, the Richgat Defendants filed an affirmation, adopting the arguments made in reply by the Gaglio Defendants. (Dkt. #61). The Court now considers the motions to dismiss.
A. Motions to Dismiss Under Fed. R. Civ. P. 12(b)(6)
When considering a motion under Federal Rule of Civil Procedure 12(b)(6), a court should "draw all reasonable inferences in [plaintiffs'] favor, assume all well-pleaded factual allegations to be true, and determine whether they plausibly give rise to an entitlement to relief." Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted) (quoting Selevan v. N.Y. Thruway Auth., 584 F.3d 82, 88 (2d Cir. 2009).
A plaintiff will survive a motion to dismiss if he alleges "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 569 (2007); see also In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007) ("[W]hile Twombly does not require heightened fact pleading of specifics, it does require enough facts to nudge [plaintiffs'] claims across the line from conceivable to plausible." (internal quotation marks omitted)). A court is not, however, bound to accept "conclusory allegations or legal conclusions masquerading as factual conclusions." Rolon v. Henneman, 517 F.3d 140, 149 (2d Cir. 2008) (citation omitted).
"In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint." DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 111 (2d Cir. 2010). "Even where a document is not incorporated by reference, the court may nevertheless consider it where the complaint 'relies heavily upon its terms and effect,' which renders the document 'integral' to the complaint." Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002) (quoting Int'l Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (per curiam)). "'If a document relied on in the complaint contradicts allegations in the complaint, the document, not the allegations, control, and the court need not accept the allegations in the complaint as true.'" TufAmerica, Inc. v. Diamond, 968 F. Supp. 2d 588, 592 (S.D.N.Y. 2013) (quoting Poindexter v. EMI Record Grp. Inc., No. 11 Civ. 559 (LTS), 2012 WL 1027639, at *2 (S.D.N.Y. Mar. 27, 2012)).
In light of the foregoing legal analysis, two points bear emphasis. First, several of the arguments raised in Defendants' motions to dismiss have merit, but are better suited for summary judgment or trial, where the standards are less restrictive. As such, the fact that certain arguments do not succeed at this time does not bespeak an intrinsic lack of merit; conversely, the fact that certain of Plaintiffs' allegations survive these motions may say more about the restrictions inhering in the Rule 12(b)(6) analysis than the ultimate merit of these allegations. Second, Defendants ask the Court to consider various materials extrinsic to the Complaint. Many of these materials appear, on their face, to mitigate or negate certain allegations made by Plaintiffs, and the Court expects that Plaintiffs will seriously consider whether to press all of their surviving claims as this litigation continues. That said, the Court is limited in the extrinsic materials that it may consider in the Rule 12(b)(6) context, and these limitations are discussed further in this Opinion.
1. The ERISA Violations Alleged Against the Individual Defendants (Counts 1 through 10)
The first 10 counts of the Complaint charge the Individual Defendants with violations of ERISA. In particular, the Complaint charges Gaglio with violations of Section 404 (Count 1), Section 406(b)(3) (Count 3), and Section 405(a) (Counts 5 and 9); Gaglio-Bogen with violations of Section 404 (Count 2), and Section 405(a) (Counts 4 and 10); and Richgat with violations of ERISA's Code of Conduct for Actuaries (Count 6), Section 404 (Count 7), and Section 405(a) (Count 8). For the reasons set forth below, the motions to dismiss the ERISA claims against the Individual Defendants are granted in part and denied in part.
a. Applicable Law
i. Section 404 Liability
"Congress went to great lengths to enumerate ERISA's fiduciary obligations and duties, to create liability for breach of those obligations, and to authorize a civil suit to enforce those provisions." Varity Corp. v. Howe, 516 U.S. 489, 519 (1996) (Thomas, J., dissenting) (internal citations omitted). "To state a claim for breach of the fiduciary duties imposed by ERISA, a plaintiff must allege facts that, if proven, would show that 'the defendant [i] acted as a fiduciary, [ii] breached its fiduciary duty, and [iii] thereby caused a loss to the plan at issue.'" Fastener Dimensions, Inc. v. Mass. Mut. Life Ins. Co., No. 12 Civ. 8918 (DLC), 2013 WL 6506304, at *3 (S.D.N.Y. Dec. 12, 2013) (quoting Pension Ben. Guar. Corp. v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705, 730 (2d Cir. 2013)).
ERISA defines a fiduciary as one who (i) "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"; (ii) "renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so"; or (iii) "has any discretionary authority or discretionary responsibility in the administration of [a] plan." 29 U.S.C. § 1002(21)(A). In contrast to "traditional trust law," "ERISA ... defines 'fiduciary' ... in functional terms of control and authority over the plan[.]" Mertens v. Hewitt Associates, 508 U.S. 248, 262 (1993) (emphasis in original). Accordingly, the threshold question in all cases where a breach of fiduciary duty is alleged, is whether the defendant was "'performing a fiduciary function ... when taking the action subject to complaint.'" Coulter v. Morgan Stanley & Co. Inc., 753 F.3d 361, 366 (2d Cir. 2014) (quoting Pegram v. Herdrich, 530 U.S. 211, 226 (2000)).
Department of Labor Regulation 29 C.F.R. § 2510.3-21(c)(1) (i)-(ii)(A)-(B) explains further that a person is a fiduciary rendering investment advice under 29 U.S.C. § 1002(21)(A)(ii) if he or she "makes recommendations as to the advisability of investing in, purchasing, or selling securities or other property" to an ERISA plan and either "[h]as discretionary authority or control ..., with respect to purchasing or selling securities or other property for the plan," or "[r]enders any advice ... on a regular basis to the plan pursuant to a mutual agreement, arrangement or understanding, written or otherwise, ... that such services will serve as a primary basis for investment decisions with respect to plan assets, and that such person will render individualized investment advice to the plan based on the particular needs of the plan." See also In re Beacon Assocs. Litig., 282 F.R.D. 315, 335 (S.D.N.Y. 2012) ("investment advisors who do not possess discretionary authority over the assets of ERISA-covered plans qualify as fiduciaries only when they [i] provide advice to the plan on a regular basis, pursuant to an agreement with the plan or with a fiduciary to the plan that such advice will be [ii] a primary basis for the investment of plan assets and [iii] individualized to the particular needs of the plan").
In defining the scope of the duty owed, Section 404 of ERISA requires that fiduciaries discharge their duties with respect to a plan "solely in the interest of the participants and beneficiaries," 29 U.S.C. § 1104(a)(1), and "with the care, skill, prudence, and diligence under the circumstances then prevailing," id. § 1104(a)(1)(B). These duties are to be measured by reference to an objective "prudent man" standard. Pension Ben. Guar. Corp., 712 F.3d at 730. "The basic touchstone for the fiduciary responsibility under ERISA is the 'duty of loyalty to guarantee beneficiaries' interests.'" Fastener Dimensions, 2013 WL 6506304, at *3 (quoting Pegram, 530 U.S. at 224).
ii. Section 406(b)(3) Liability
A separate provision of ERISA, Section 406, further codifies the duty of loyalty by prohibiting a fiduciary under ERISA from engaging in self-dealing in plan assets. See Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209, 1213 (2d Cir. 1987). Relevant to the instant matter, a "fiduciary with respect to a plan shall not ... receive any consideration for his own personal account from any party dealing with such plan in connection with a transaction involving the assets of the plan." 29 U.S.C. § 1106(b)(3); see also Skin Pathology Assocs., Inc. v. Morgan Stanley & Co. Inc., 27 F. Supp. 3d 371, 375 (S.D.N.Y. 2014) ("[Section] 406(b)(3) prohibits payment to a plan fiduciary of kickbacks or other consideration by persons having an interest in a transaction involving plan assets.").
iii. Section 405 Co-Fiduciary Liability
Finally, ERISA provides for liability among co-fiduciaries for their breaches. Specifically, a co-fiduciary shall be liable for a breach of another fiduciary if he: (i) "participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach"; or (ii) "has enabled such other fiduciary to commit a breach"; or (iii) "has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach." 29 U.S.C. § 1105(a). "[F]iduciaries may be liable under § 1105(a) even if their co-fiduciary's breach is beyond the scope of their own discretionary authority." In re Polaroid ERISA Litig., 362 F. Supp. 2d 461, 480 (S.D.N.Y. 2005).
i. Plaintiffs Adequately Allege Fiduciary Status as to Gaglio and Gaglio-Bogen, but Not as to Richgat
(a) Alleging Fiduciary Status Under ERISA
As noted, the preliminary inquiry to Plaintiffs' ERISA claims distills to which, if any, of the Individual Defendants functioned as fiduciaries within the meaning of 29 U.S.C. § 1002(21)(A). Courts in this Circuit have previously recognized that "[b]ecause the existence of a fiduciary duty is a fact-intensive inquiry, dismissal on the pleadings is usually inappropriate." In re Merrill Lynch Auction Rate Sec. Litig., 758 F. Supp. 2d 264, 281 (S.D.N.Y. 2010). These courts take their cues from the Second Circuit, which "has recognized Congress's intention that ERISA's definition of fiduciary be broadly construed." Frommert v. Conkright, 433 F.3d 254, 271 (2d Cir. 2006). Consequently, "allegations [that] do little more than track the statutory definition of a fiduciary ... have been found sufficient to satisfy the Rule 8 pleading standard." In re WorldCom, Inc., 263 F. Supp. 2d 745, 759 (S.D.N.Y. 2003) (citing Smith v. Local 819 I.B.T. Pension Plan, 291 F.3d 236, 241 (2d Cir. 2002)).
The Complaint refers, at times, to the Individual Defendants as "Plan Administrators." (Compl. ¶ 163 ("By acting as Plan Administrator to the Plan, ... Richgat was a fiduciary to the Plan[.]"); id. at ¶ 388 ("As Plan Administrator, ... Gaglio-Bogen had a duty to administer loans properly[.]"); see also id. at ¶¶ 154, 174, 396, 405, 409, 418). The term "administrator" can have particular import when a plan specifically names a party to be the plan "administrator." See 29 U.S.C. § 1002(16)(A)(i) ("The term 'administrator' means ... the person specifically so designated by the terms of the instrument under which the plan is operated."). Any individuals who are designated as such, and who are permitted by the plan documents to exercise discretionary authority or responsibility, are automatically considered fiduciaries regardless of whether they actually exercise any discretionary authority or responsibility. See Bouboulis v. Transp. Workers Union of Am., 442 F.3d 55, 64 (2d Cir. 2006). As Defendants correctly point out (Gaglio Br. 12), despite the use of the term "Administrator" throughout the Complaint, Plaintiffs have not alleged that the Plan or Plan documents (i) named any of the Defendants "administrators"; or (ii) granted any of them discretionary authority or responsibility. Accordingly, the only relevant consideration is whether Defendants functioned as fiduciaries.
More recently, however, district courts have been admonished by the Supreme Court to require plaintiffs to allege facts sufficient "to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570. A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556). Significantly, a plaintiff must show "more than a sheer possibility that a defendant acted unlawfully," id., and cannot rely on mere "labels and conclusions" to support a claim, Twombly, 550 U.S. at 555; see also id. ("a formulaic recitation of the elements of a cause of action will not do"); Iqbal, 556 U.S. 678 ("Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice."); see also Pension Ben. Guar. Corp., 712 F.3d at 718-19 ("[I]f the complaint relies on circumstantial factual allegations to show a breach of fiduciary duties under ERISA, those allegations must give rise to a 'reasonable inference' that the defendant committed the alleged misconduct, thus 'permit[ting] the court to infer more than the mere possibility of misconduct[.]' As we recently explained, 'courts may draw a reasonable inference of liability when the facts alleged are suggestive of, rather than merely consistent with, a finding of misconduct.'" (internal citations omitted)).
"Determining whether a complaint states a plausible claim for relief [is] a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679. Precisely for this reason, some courts — faced with bare allegations of a putative fiduciary's discretionary authority — have dismissed claims at the motion to dismiss stage. See Fastener Dimensions, 2013 WL 6506304, at *3 (dismissing claim against insurance company where plaintiff "allege[d], parroting ERISA's definition of fiduciary, that [defendant] exercised discretionary authority and control over the Plan, [because] legal conclusions of this sort, utterly unsupported by factual allegations, are insufficient to withstand a motion to dismiss" (citing Iqbal, 556 U.S. at 679)); see also Int'l Painters & Allied Trades Indus. Pension Fund v. Clayton B. Obersheimer, Inc., No. 12 Civ. 1000 (ELH), 2013 WL 594691, at *7 (D. Md. Feb. 13, 2013); Bilbrey v. Reliance Standard Ins. Co., No. 09 Civ. 3399 (MHP), 2010 WL 1261998, at *3 (N.D. Cal. Mar. 30, 2010), Bacon v. Stiefel Labs., Inc., 677 F. Supp. 2d 1331, 1341 (S.D. Fla. 2010); but cf. Boyd v. Coventry Health Care Inc., 828 F. Supp. 2d 809, 819 (D. Md. 2011) ("[T]o a considerable degree, the fact-intensive nature of ERISA's definition for fiduciary may require plaintiffs' factual allegations regarding an actor's fiduciary status to track the statutory definition.").
(b) Plaintiffs' Allegations Concerning Fiduciary Status
Beginning with Gaglio and Gaglio-Bogen, the Court finds that the Complaint contains sufficient allegations, albeit barely so, regarding their status as functional fiduciaries. Plaintiffs have alleged that Defendant Gaglio performed a fiduciary function because "Plan assets were remitted to him for investment, and because he provided investment advice with respect to the Plan, for an indirect fee that he received through commissions on Guardian life insurance he sold." (Compl. ¶ 201; see id. at ¶¶ 150, 152). Similarly, Plaintiffs have alleged that Gaglio-Bogen performed a fiduciary function because "she rendered investment advice with respect to the Plan, and because she had discretionary authority and responsibility over administering loans from the Plan." (Id. at ¶ 207; see id. at ¶ 150). These claims of fiduciary duty are "nudged . . . across the line from conceivable to plausible," Twombly, 550 U.S. at 570, by allegations in the Complaint that detail, among other things, (i) Gaglio's and Gaglio-Bogen's extensive contacts with the Forgiones concerning the Plan between 2005 and 2012 (see, e.g., id. at ¶¶ 67-85); (ii) Gaglio-Bogen's assumption of responsibility for investing the non-insurance assets of the Plan (see id. at ¶¶ 82-84); and (iii) Gaglio's and Gaglio-Bogen's involvement in Plan investments (see, e.g., id. at ¶¶ 149-50). "Although [Defendants] den[y] that [they] possess discretionary authority over the [P]lan, we accept the [Plaintiffs'] allegation[s] as true for the purposes of a motion to dismiss[.]" Local 819 I.B.T. Pension Plan, 291 F.3d at 241; see also In re Polaroid ERISA Litig., 362 F. Supp. 2d at 473 ("At this early stage, Plaintiffs have sufficiently alleged that [Defendant] was a fiduciary respecting investment decisions to allow discovery to proceed.").
Plaintiffs' allegations concerning Richgat, however, are a different story. As Defendants point out in their briefs (Richgat Br. 7; Gaglio Br. 13 n.22), "actuaries ... are not ordinarily fiduciaries unless they render investment advice or are given special authority over plan management." Gerosa v. Savasta & Co., 329 F.3d 317, 321 n.3 (2d Cir. 2003). Indeed, the Supreme Court has made clear that "[p]rofessional service providers such as actuaries become liable for damages [under ERISA] when they cross the line from advisor to fiduciary." Mertens v. Hewitt Assocs., 508 U.S. 248, 262 (1993). Even when read as broadly as the law permits, Plaintiffs' allegations do not suggest that Richgat ever crossed that line.
Plaintiffs predicate Richgat's status as a fiduciary on his "discretionary authority and discretionary responsibility in the administration of the Plan." (Compl. ¶ 243). This is, of course, the statutory definition found in ERISA, and Plaintiff provides no examples of Richgat exercising the requisite discretion. To the contrary, while Plaintiffs have levied many allegations concerning Richgat, the vast majority of them concern his retention to provide, and his provision of, actuarial services to the Plan. (See Compl. ¶¶ 56-65 (Richgat's qualifications for and employment as an actuary); id. at ¶¶ 101-29 (Richgat's retention by Gaglio and Gaglio-Bowen to modify the prototype plan documents that would underlie the Plan, and his improper drafting of the adoption agreement in a manner that made the Plan non-IRS-compliant); id. at ¶ 132 (Richgat's retention to provide actuarial services); id. at ¶¶ 155, 157 (Richgat's provision of actuarial and administrative services to the Plan)). And while Plaintiffs allege that, after the creation of the Plan, Gaglio and Gaglio-Bogen retained Richgat to serve as Plan Administrator, the only work that Richgat is alleged to have done is actuarial, viz., the preparation of annual valuation reports. (See id. at ¶¶ 130-42, 146-47).
Repeatedly referring to Richgat in the Complaint as "Plan Administrator" — particularly given the content of the relevant Plan documents — does not confer upon Richgat fiduciary obligations under ERISA. Nor can assertions that Richgat failed to live up to his role as "Plan Administrator" suffice, as these allegations necessarily presuppose the existence of fiduciary obligations under ERISA. (See, e.g., Compl. ¶ 174 ("as Plan Administrator ... Richgat should have provided annual funding notices")). More fundamentally, given the plethora of factual allegations in the Complaint concerning the non-fiduciary services provided by Richgat to the Plan, Plaintiffs cannot transform Richgat into a fiduciary by means of conclusory assertions that are belied by the remainder of the Complaint. (See, e.g., id. at ¶ 163 ("By acting as Plan Administrator to the Plan, Defendant Richgat was a fiduciary of the Plan for the period from 2005 through 2012."); id. at ¶ 243 ("Defendant Richgat was a fiduciary to the Plan because he had discretionary authority and discretionary responsibility in the administration of the Plan."); id. at ¶ 248 ("Defendant Richgat was a fiduciary of the Plan.")). Accordingly, the Court finds that Plaintiffs have alleged sufficiently that Gaglio and Gaglio-Bogen, but not Richgat, functioned as fiduciaries within the meaning of 29 U.S.C. § 1002(21)(A).
ii. The Court Rejects Certain of Plaintiffs' Alleged Breaches of Fiduciary Duty
(a) Certain Conduct Alleged Is Not Actionable Under ERISA
As it did with certain of Plaintiffs' allegations of fiduciary status, the Court rejects certain of Plaintiffs' allegations of breach of fiduciary duty. Some of Plaintiffs' allegations, for example, are directed at flaws in the drafting or adoption of the Plan or related documents. (See, e.g., Compl. ¶ 86 ("Gaglio and ... Gaglio-Bogen permitted the Plan to be established for only two participants ... until 2008."); id. at ¶ 172 ("[T]he Plan was structured and drafted by ... Gaglio to allow participants to take money out of the Plan upon termination of employment[.]"). Significantly, however, allegations regarding negligence or misfeasance with respect to the creation, adoption, or amendment of a plan are not actionable as fiduciary breaches under ERISA. See Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 444 (1999) ("[A] decision ... concern[ing] the composition or design of the plan itself ... does not implicate ... fiduciary duties which consist of such actions as the administration of the plan's assets."); Lockheed Corp. v. Spink, 517 U.S. 882, 890 (1996) (holding that the adoption or amendment of a plan does not trigger fiduciary liability); In re Am. Exp. Co. Erisa Litig., 762 F. Supp. 2d 614, 625 (S.D.N.Y. 2010) ("Under the settlor doctrine, actions taken pursuant to a person's settlor function are not subject to challenge on the grounds of breach of fiduciary duties.").
In defining the scope of a fiduciary's duty under ERISA, courts have distinguished between fiduciary functions, which give rise to ERISA liability, and "settlor" functions, which are akin to actions taken by the settlor of a trust and do not trigger ERISA liability. Fiduciary functions include, for instance, the common transactions in dealing with a pool of assets: selecting investments, exchanging one instrument or asset for another, and so on. "Settlor" functions, in contrast, include conduct such as establishing, funding, amending, or terminating a plan.
In a similar vein, Plaintiffs allege that Gaglio-Bogen is a fiduciary because she "performed administrative tasks" for the Plan. (See Compl. ¶¶ 100, 154). But allegations regarding the negligent and even the intentionally poor performance of administrative tasks cannot suffice to constitute breaches of fiduciary duties:
[A]lthough Congress intended the term "fiduciary" to be broadly construed, even this broad construction has limits. Falling outside these limits are plan employees who perform ministerial tasks with respect to the plan[.] These tasks have been held not to require the exercise of discretionary authority and do not, therefore, implicate any fiduciary duty.
Bell v. Pfizer, Inc., 626 F.3d 66, 74 (2d Cir. 2010) (internal citation, quotation marks, and brackets omitted); accord Tocker v. Kraft Foods N. Am., Inc. Ret. Plan, 494 F. App'x 129, 131 (2d Cir. 2012) (summary order). The Court therefore puts to the side allegations regarding the creation of the Plan or ministerial tasks completed on behalf of the Plan, and focuses solely on the alleged breaches related to the management of the Plan or of Plan assets.
(b) Plaintiffs Adequately Allege Breaches of Fiduciary Duty as to Gaglio (Counts 1 and 3)
The gravamen of Plaintiffs' allegations with respect to Gaglio is that the continued sale of life insurance policies to fund the Plan was motivated by Gaglio's receipt of undisclosed commissions in violation of the duties of loyalty imposed by Section 404 and Section 406(b) of ERISA. (See Pl. Opp. 30-31, 34-40). Gaglio argues that providing advice regarding life insurance investments cannot, as a matter of law, constitute a breach of fiduciary duty, and that the alleged life insurance purchases would be exempt transactions. (Gaglio Br. 21-24). As with many points raised in the instant motions, these arguments are not without merit, but cannot prevail at the motion to dismiss stage.
Gaglio is correct to note that courts have found a mere recommendation by an insurance broker insufficient to constitute a breach of fiduciary duty. (Gaglio Br. 21). See, e.g., Mahoney v. J.J. Weiser & Co., 339 F. App'x 46, 49 (2d Cir. 2009) (summary order) (finding the "mere acceptance of a recommendation to purchase insurance" non-actionable where there was no evidence of the insurance broker's authority or control); Am. Fed'n of Unions Local 102 Health & Welfare Fund v. Equitable Life Assur. Soc. of the U.S., 841 F.2d 658, 664 (5th Cir. 1988) ("Simply urging the purchase of [insurance] does not make an insurance company an ERISA fiduciary[.]"); Grohowski v. U.E. Sys., Inc., 917 F. Supp. 258, 261 (S.D.N.Y. 1996) ("[A] recommendation to purchase life insurance does not constitute investment advice." (collecting cases)). Here, however, Plaintiffs have alleged more. Specifically, they have alleged that "Plan assets were remitted to [Gaglio] for investment[.]" (Compl. ¶ 201 (emphasis added)). Where an insurance broker also has the discretion to invest, or otherwise exerts significant influence over how a plan's assets are invested, courts have sustained claims predicated upon fiduciary breaches under ERISA. See, e.g., Reich v. Lancaster, 55 F.3d 1034, 1048-49 (5th Cir. 1995) ("[T]he trial court permissibly found and concluded that [insurance agent] effectively exercised discretionary authority or control over the management of the plan's insurance assets, and exercised discretionary authority or responsibility in the plan's administration. The district court did not clearly err in finding that [insurance agent] was the decision maker when it came to insurance purchases[.]"); see also Indep. Order of Foresters v. Donald, Lufkin & Jenrette, Inc., 157 F.3d 933, 940 (2d Cir. 1998) ("Under New York law, as generally, there is no general fiduciary duty inherent in an ordinary broker/customer relationship. Such a duty can arise only where the customer has delegated discretionary trading authority to the broker." (citation omitted)); cf. United States v. Glick, 142 F.3d 520, 527-28 (2d Cir. 1998) (affirming a sentencing enhancement after concluding that insurance broker "had sufficient control over at least part of the ... assets to create a fiduciary relationship"); Black v. Bresee's Oneonta Dep't Store, Inc. Sec. Plan, 919 F. Supp. 597, 607 (N.D.N.Y. 1996) (finding no fiduciary liability where "there [wa]s no evidence of [insurance broker] taking any discretionary action in reference to the plan, or indeed ever having the power to take any such actions"). Accepting Plaintiffs' allegations as true, as the Court must at this stage, the Court finds that the Complaint sufficiently states a claim for a breach of fiduciary duty against Gaglio under Section 404.
Gaglio also argues that he did not violate Section 406(b) because any self-interested life insurance transactions would be excluded under an exemption issued by the Secretary of Labor. (Gaglio Br. 23). Specifically, he relies on Prohibited Transaction Exemption 84-24, 71 Fed. Reg. 5887, 5889 (2007), which excludes liability under Section 406(b) for insurance transactions meeting certain specifications. Again, however, Gaglio is relying on an argument that will prevail, if at all, at a later stage of this case. Significantly, the burden is on him to "prove by a preponderance of the evidence that the transaction in question f[alls] within [the] exemption[.]" Lowen, 829 F.2d at 1215 (citation omitted); In re Beacon Assocs. Litig., 818 F. Supp. 2d 697, 711 (S.D.N.Y. 2011) ("The burden of proving that payments that otherwise would violate § 406(b) are covered by [an] exemption lies squarely with the defendant."); see also Fish v. GreatBanc Trust Co., 749 F.3d 671, 685 (7th Cir. 2014) ("Under ERISA, the burden of proof is on a defendant to show that a transaction that is otherwise prohibited under [Section 406(b)] qualifies for an exemption[.]").
In order to qualify for this exemption, Gaglio must demonstrate, inter alia, that: (i) "[t]he transaction is on terms at least as favorable to the plan as an arm's-length transaction with an unrelated party would be"; and (ii) "[t]he combined total of all fees, commissions and other consideration received by the insurance agent or broker is not in excess of 'reasonable compensation[.]'" PTE 84-24, 71 Fed. Reg. at 5889. Given the restrictions on what the Court may consider, Gaglio is unable to satisfy either of these fact-intensive conditions; accordingly, he is unable to invoke the exemption at this time. See Perez v. First Bankers Trust Servs., Inc., No. 12 Civ. 8649 (VB), 2014 WL 521370, at *8 (S.D.N.Y. Jan. 13, 2014) (denying motion to dismiss prohibited transaction claim because it involved a question of fact).
(c) Plaintiffs Fail to Allege a Breach of Fiduciary Duty as to Gaglio-Bogen (Count 2)
A different result obtains, however, with respect to the allegations of breach of Section 404 fiduciary duty by Gaglio-Bogen. Plaintiffs argue that "Gaglio-Bogen ... breached her fiduciary duty by providing investment advice that harmed, rather than helped, the Plan." (Pl. Opp. 35). However, a careful review of the Complaint belies this argument. The Complaint alleges that "Gaglio-Bogen failed to act as a prudent investment advisor with respect to the assets of the Plan because a prudent investment advisor would have realized that a 154% benefit upon retirement was illegal, and a prudent investment advisor would have asked how many employees the Company employs." (Compl. ¶ 208). Even assuming as true that Gaglio-Bogen erred in advising the Company, the proffered breaches concern settlor functions, rather than fiduciary functions, and thus do not a establish a breach of Gaglio-Bogen's fiduciary duties. See Coulter, 753 F.3d at 367. After all, the allegations do not implicate Gaglio-Bogen's management of the Plan, nor her choice to invest Plan assets in a particular manner.
Plaintiffs allege that "Gaglio-Bogen also performed administrative tasks for the Plan by administering loans to participants from the Plan." (Compl. ¶ 100). They further allege that Gaglio-Bogen was a fiduciary because "she had discretionary authority and responsibility over administering loans from the Plan." (Id. at ¶ 207). However, they do not allege that Gaglio-Bogen breached a fiduciary duty by failing to administer these loans properly. (See id. at ¶¶ 205-09). Instead, Plaintiffs allege that Gaglio-Bogen's failure to administer loans properly constituted common-law negligence. (See id. at ¶¶ 387-94). Although the Court need not speculate as to why Plaintiffs made this choice in their pleading, one plausible explanation is that Gaglio-Bogen performed purely "ministerial tasks" in her capacity as loan administrator for which liability under ERISA is precluded. See Bell, 626 F.3d at 74.
Alternatively, the allegations fail to establish a breach of Gaglio-Bogen's fiduciary duty because they concern matters outside the scope of her fiduciary duty. Under ERISA, a fiduciary is only liable under Section 404 for conduct that falls within the scope of his or her fiduciary authority. See Bd. of Trs. of Aftra Ret. Fund v. JPMorgan Chase Bank, N.A., 806 F. Supp. 2d 662, 680 (S.D.N.Y. 2011); In re Polaroid ERISA Litig., 362 F. Supp. 2d at 471 ("An ERISA fiduciary may be liable for breaching his fiduciary duties through conduct adversely affecting the plan only to the extent that conduct occurs while the individual is a fiduciary and falls within the scope of his fiduciary authority." (citing 29 U.S.C. § 1109; Pegram, 530 U.S. at 225-26)). The claims against Gaglio-Bogen for alleged breaches under Section 404 of ERISA must therefore be dismissed.
Even had the Court found that Plaintiffs had adequately alleged that Richgat was a fiduciary under ERISA, it would have found that Plaintiffs had failed to allege a breach of fiduciary duty under Section 404. Plaintiffs argue that "Richgat breached his fiduciary duties by drafting the Plan document to provide participants with 154% of income upon retirement" and "by failing to keep the Plan IRS Compliant as he was obligated to do." (Pl. Opp. 35). Richgat's drafting of the Plan and related documents falls squarely within the realm of non-actionable settlor conduct. And just as there can be no fiduciary breach from Richgat's failure to draft the Plan to ensure it was "IRS Compliant," so too can there be no breach from his failure to amend the Plan to remediate this structural flaw. See Coulter, 753 F.3d at 367 ("[A]ctions taken by the settlor of a trust ... do not trigger ERISA liability[.] 'Settlor' functions ... include conduct such as establishing, funding, amending, or terminating a plan."). Finally, to the extent Plaintiffs' Section 404 claim against Richgat is premised on his performance of "administrative tasks" (see Compl. ¶ 157), it must fail because the performance of purely ministerial tasks falls outside the scope of actionable conduct under ERISA. See Bell, 626 F.3d at 74.
(d) Plaintiffs Adequately Allege Co-Fiduciary Liability Only with Respect to Gaglio's Breaches (Counts 4, 5, 8, 9, and 10)
There remains the issue of co-fiduciary liability. As an initial matter, because the Court finds that Richgat was not a fiduciary under ERISA, he cannot be held liable as a co-fiduciary. See 29 U.S.C. § 1105(a) (only "a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan" (emphasis added)). Count 8, therefore, must be dismissed.
Additionally, because the Court finds that Plaintiffs have not alleged fiduciary breaches on the part of Gaglio-Bogen or Richgat, Counts 5 and 9 of the Complaint, which seek to impose co-fiduciary liability upon Gaglio for the breaches of his colleagues, must be dismissed for lack of an antecedent co-fiduciary breach. In re JPMorgan Chase & Co. ERISA Litig., No. 12 Civ. 4027 (GBD), 2014 WL 1296882, at *8 (S.D.N.Y. Mar. 31, 2014) ("Because Plaintiffs have failed to plead any antecedent or underlying breach of fiduciary duty claims against any of the Defendants, their claims for ... co-fiduciary liability ... also fail."); In re Citigroup Erisa Litig., No. 07 Civ. 9790 (SHS), 2009 WL 2762708, at *2 (S.D.N.Y. Aug. 31, 2009) (dismissing claims for lack of "a fiduciary breach on which to base a claim of co-fiduciary liability"), aff'd, 662 F.3d 128 (2d Cir. 2011). Similarly, Count 10 of the Complaint, which seeks to impose co-fiduciary liability upon Gaglio-Bogen for the breach of Richgat, must be dismissed for lack of an antecedent co-fiduciary breach.
Because direct claims for breach of fiduciary duty with respect to Gaglio survive the instant motions, the Court must consider whether Plaintiffs have alleged that Gaglio-Bogen can be held liable, under Section 405(a), for Gaglio's breaches. (See Compl. ¶¶ 216-22, 247-52). In this regard, Plaintiffs allege that Gaglio-Bogen "had knowledge of ... Gaglio's self-dealing" (Compl. ¶ 219), "made no efforts to remedy [his] breaches of fiduciary duty (id. at ¶ 220), and "[i]n fact, ... knowingly participated in ... Gaglio's self-dealing by assisting him with ... investments" (id. at ¶ 221). The Court finds these allegations of knowledge and complicity sufficient "to plead plausibl[e] ... grounds for co-fiduciary liability." In re Am. Int'l Grp., Inc. ERISA Litig. II, No. 08 Civ. 5722 (LTS), 2011 WL 1226459, at *11 (S.D.N.Y. Mar. 31, 2011); see also In re Beacon Assocs. Litig., 745 F. Supp. 2d 386, 422 (S.D.N.Y. 2010) ("Because the Court has allowed the aforementioned theories of breach to go forward, it is premature to dismiss the enabling claims at this time, and the motion to do so is denied."); cf. Lee v. Burkhart, 991 F.2d 1004, 1011 (2d Cir. 1993) (affirming dismissal and denying leave to amend where "neither the Proposed Complaint nor its predecessors alleges that [co-fiduciary] knew about [fiduciary's]" breach).
In sum, Defendants' motion to dismiss Count 4 of the Complaint is denied. The motion to dismiss Count 8 is granted for lack of a fiduciary duty on the part of Richgat, and the motion to dismiss Counts 5, 9 and 10 is granted for lack of antecedent breaches by Gaglio-Bogen or Richgat.
iii. Plaintiffs Fail to Allege a Claim for Breach of the Code of Conduct for Actuaries (Count 6)
As a final ERISA claim, Plaintiffs allege that Richgat "fail[ed] to comply with ERISA's Code of Conduct for Actuaries" because his employment with Guardian created a conflict of interest. (Compl. ¶ 235). To be clear, Plaintiffs do not include this allegation among the counts of the Complaint alleging Section 404 and Section 405 violations, but rather plead it as a stand-alone violation. (See id. at ¶¶ 231-39). Further, Plaintiffs cite no statutory authority that supports the maintenance of a cause of action for such a violation, merely relying on the Standards of Performance for Enrolled Actuaries, 20 C.F.R. § 901.20. (See id.). The Richgat Defendants challenge this claim, but solely on the basis that Plaintiffs have not pleaded adequately a conflict of interest. (See Richgat Br. 4-5). Thus, neither Plaintiffs nor Defendants address whether the cause of action, as pleaded, actually exists.
The Court has an independent obligation to establish its own subject matter jurisdiction; "[i]f subject matter jurisdiction is lacking and no party has called the matter to the court's attention, the court has the duty to dismiss the [claim] sua sponte." Durant, Nichols, Houston, Hodgson & Cortese-Costa, P.C. v. Dupont, 565 F.3d 56, 62 (2d Cir. 2009) (citing Louisville & Nashville R.R. v. Mottley, 211 U.S. 149, 152 (1908)). From a review of 20 C.F.R. § 901.20, it appears to the Court that the proper (and perhaps only) way to pursue a violation of what Plaintiffs refer to as the Code of Conduct for Actuaries is by filing an administrative complaint with the Joint Board for the Enrollment of Actuaries, an administrative body established by 29 U.S.C. § 1241. See 20 C.F.R. § 901.33 ("Whenever ... an enrolled actuary has violated any provision of the laws or regulations governing enrollment, such individual may be reprimanded or a proceeding may be initiated for the suspension or termination of such individual's enrollment[.] A proceeding for suspension or termination of enrollment shall be initiated by a complaint naming the respondent actuary, signed by the Executive Director and filed in the Executive Director's office."). Because this Court cannot entertain such a suit, Count 6 of the Complaint is dismissed.
2. The State-Law Claims Alleged Against the Individual Defendants
a. Plaintiffs Have Not Adequately Alleged a Claim Under New York General Business Law § 349 (Count 13)
Plaintiffs also allege a variety of claims under New York state law, all of which Defendants challenge. First, Defendants move to dismiss Plaintiffs' deceptive business practice claim brought under New York General Business Law § 349, which makes unlawful "[d]eceptive acts or practices in the conduct of any business, trade, or commerce or in the furnishing of any service" in New York. N.Y. G.B.L. § 349(a). (See Gaglio Br. 29-33; Richgat Br. 8-10; PAS/SFW Br. 13-17). To state a claim under Section 349, "a plaintiff 'must prove three elements: [i] that the challenged act or practice was consumer-oriented; [ii] that it was misleading in a material way; and [iii] that the plaintiff suffered injury as a result of the deceptive act.'" Crawford v. Franklin Credit Mgmt. Corp., 758 F.3d 473, 490 (2d Cir. 2014) (quoting Stutman v. Chemical Bank, 95 N.Y.2d 24, 29 (2000)).
Although the Defendants raise a number of challenges to Plaintiffs' Section 349 claim, the Court finds persuasive the argument that Plaintiffs have failed to meet the "threshold test" of alleging consumer-oriented conduct. Shapiro v. Berkshire Life Ins. Co., 212 F.3d 121, 126 (2d Cir. 2000); see also Int'l Diamond Importers, Inc. v. Oriental Gemco (N.Y.), Inc., No. 14 Civ. 3506 (SAS), 2014 WL 6682622, at *10 (S.D.N.Y. Nov. 24, 2014) ("A plaintiff bringing claims under section 349 must, at the threshold, charge conduct that is consumer oriented." (internal quotation marks and citations omitted)). Fatal to Plaintiffs' Section 349 claim is the conspicuous absence of allegations suggesting broad consumer impact. See, e.g., Air & Power Transmission, Inc. v. Weingast, 992 N.Y.S.2d 46, 48-49 (2d Dep't 2014) (affirming dismissal of Section 349 claim related to creation of benefits plan where "the conduct complained of was not consumer-oriented, as it did not affect consumers at large"); Cathy Daniels, Ltd. v. Weingast, 936 N.Y.S.2d 44, 48 (1st Dep't 2012) (same).
Plaintiffs do not allege that the Plan was a generic plan made for broad consumption; to the contrary, Plaintiffs allege that the Plan was tailor-made (albeit in a deficient manner) for the Forgiones. Specifically, Plaintiffs allege that "Richgat engaged in deceptive business practices under [Section] 349 when he falsely represented to Plaintiffs through his actions that he was competent to prepare a legal document using his independent judgment without the supervision of an attorney when he was not competent to do so," and that "Gaglio and Richgat engaged in deceptive business practices under [Section] 349 when they falsely represented that the Plan, as drafted and designed, was qualified by the IRS." (Compl. ¶¶ 327-28).
In analyzing these allegations, the Court finds instructive the analogous decision of the First Department in Denenberg v. Rosen, 897 N.Y.S.2d 391 (1st Dep't 2010). In Denenberg, "the operation of plaintiff's specific plan was not acceptable to the IRS because it utilized excessive amounts of whole life insurance," and defendants were alleged to have known that this structure "would disqualify the Plan for tax purposes and result in the loss of deductions and the imposition of excise taxes." Id. at 394. The First Department dismissed the plaintiff's Section 349 claim because he had not pleaded consumer-oriented conduct:
[I]t was not the form of the ... Plan in general that ran afoul of IRS regulations, but rather the operation of plaintiff's particular plan[.] As it was the operation of plaintiff's particular plan that caused the problems with the IRS, this is essentially a private dispute among the parties relating to advice that plaintiff received and his particular plan structure, rather than conduct affecting the consuming public at large.
Id. at 396; see also Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25 (1995) (deceptive act or practice alleged must extend beyond mere "[p]rivate contract disputes, unique to the parties," and must have a "broader impact on consumers at large"); accord Fischer v. Forrest, No. 14 Civ. 1304 (PAE), 2015 WL 195822, at *13 (S.D.N.Y. Jan. 13, 2015).
The Court adopts the First Department's analysis. Contrary to the Plaintiffs' argument, the instant dispute does not arise from the Defendants' deployment of an off-the-shelf prototype plan made ready for the general consumer. (See Pl. Opp. 43). Rather, Plaintiffs' grievances stem from Defendants' departures from the IRS-approved prototype plan, or their misrepresentations regarding the suitability of the Plan to meet the Company's unique needs. (See Compl. ¶¶ 73-74, 119-28, 281).
In any event, assuming arguendo the existence of a defect endemic in all prototype plans, Plaintiffs have not alleged that such plans were marketed or sold to non-business consumers, as required to bring them within the ambit of Section 349. See Eaves v. Designs for Fin., Inc., 785 F. Supp. 2d 229, 266 (S.D.N.Y. 2011) (collecting cases). Although the Forgiones' alleged lack of sophistication may put them on equal footing with non-business consumers in some ways, it does not follow that the transactions at issue here are ones that Section 349 was designed to insulate. See Shema Kolainu-Hear Our Voices v. ProviderSoft, LLC, 832 F. Supp. 2d 194, 204 (E.D.N.Y. 2010) ("Although [plaintiff] alleges that this case involves a standard-issue contract, a relatively small amount of money and parties of differing expertise, none of these allegations suffices to bring its claim of deceptive practices within the ambit of section 349.").
"To be sure, a business plaintiff may state a claim under Section 349 where it demonstrates that the defendant's deceptive conduct is, at least to some extent, directed at non-business consumers." Eaves, 785 F. Supp. 2d at 266 (internal quotation marks and citation omitted). But the instant case does not present such a situation. "By its very nature, the ... Plan is not a product for personal, family or household use and the deceptive conduct alleged by Plaintiffs was not directed at non-business consumers." Id. (internal quotation marks omitted); see also Sheth v. New York Life Ins. Co., 709 N.Y.S.2d 74, 75 (1st Dep't 2000) ("[S]ection 349 ... is intended to protect consumers, that is, those who purchase goods and services for personal, family or household use."). Accordingly, Count 13 of the Complaint, alleging a violation of Section 349, must be dismissed.
b. Plaintiffs Have Adequately Alleged Fraud Claims Against Gaglio (Count 11), But Not Against Gaglio-Bogen (Count 12)
Plaintiffs next advance several fraudulent misrepresentation claims. "Under New York law, 'the elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.'" IKB Int'l S.A. v. Bank of Am. Corp., 584 F. App'x 26, 27 (2d Cir. 2014) (summary order) (quoting Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)). A claim for common law fraud in federal court is also subject to the particularity pleading requirements of Federal Rule of Civil Procedure 9(b). Id. Accordingly, a plaintiff must "[i] detail the statements (or omissions) that the plaintiff contends are fraudulent, [ii] identify the speaker, [iii] state where and when the statements (or omissions) were made, and [iv] explain why the statements (or omissions) are fraudulent." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of N.Y., 375 F.3d 168, 187 (2d Cir. 2004) (citation omitted).
Beginning with Gaglio, Plaintiffs identify a number of statements and omissions that they allege were material misrepresentations or omissions:
¦ "Gaglio falsely represented himself to Plaintiffs to be a financial advisor with a specific expertise in employee benefit plans" (Compl. ¶ 268);
¦ "Gaglio's business card identified himself as a 'Registered Representative and Financial Advisor' even though he lacked a Series 65 license" (id. at ¶ 269);
¦ "Gaglio never told Plaintiffs he could not charge a fee because he never passed his Series 65 exam" (id. at ¶ 272);
¦ "[Gaglio] never told Plaintiffs that his income was commissions-based off the sale of Guardian whole life insurance" (id.);
¦ "Gaglio cloaked the costs of whole life insurance as 'invoices' from ... Integrity to induce Plaintiffs to believe that they were paying for consulting services" (id. at ¶ 273);
¦ "[Gaglio] fail[ed] to disclose he was a life insurance salesman whose compensation was commission-based" (id. at ¶ 276); and
¦ "[Gaglio made] annual representations that the Plan was qualified" and "continued to provide false information to the Plaintiffs by claiming that the Plan was qualified at least through May 16, 2012" (id. at ¶¶ 285-86).
Defendants counter that these statements and omissions were not fraudulent because: (i) Gaglio actually held the licenses and titles he averred to having; (ii) the invoices Plaintiffs received made clear that Plaintiffs' payments were not consulting fees, but insurance premiums; and (iii) Plaintiffs knew that Gaglio was a Guardian insurance agent. (Gaglio Br. 35; Gaglio Reply 17). Separately, Defendants argue that Plaintiffs have not adequately pleaded scienter. (Gaglio Br. 34-35).
Defendants base many of their arguments on documents that are not attached to the Complaint. (See, e.g., Gaglio Br. 31-32 (citing an invoice for services sent to the Forgiones and a "BrokerCheck" report)). They argue that these extrinsic materials should be considered at this stage either because they are integral to the Complaint or because the Court can take judicial notice of them. (See id. at 16, 24, 31-32). Because the Plan document and adoption agreement are undoubtedly integral to the Complaint, the Court may consider these materials in connection with the instant motions. (See Pl. Opp. 10-11). See also Winfield v. Citibank, N.A., 842 F. Supp. 2d 560, 568 n.3 (S.D.N.Y. 2012) ("The Court can properly consider the Plan and the Summary Plan Description on this motion to dismiss because they are essential to the plaintiffs' ERISA claims and incorporated by reference into their complaint").
The Court also agrees with Defendants (see Gaglio Br. 31-32; PAS/SFW Br. 16-17 n.9), that it may take judicial notice under Federal Rule of Evidence 201 of Gaglio's BrokerCheck report, a publicly available document that is maintained online by the Financial Industry Regulatory Authority ("FINRA"), as well as FINRA's registration requirements. See http://brokercheck.finra.org (last visited Feb. 10, 2015). By law, FINRA is required to maintain registration information for member brokers and to make that information available to the public. 15 U.S.C. § 78o-3(i); Rosenberg v. Metlife, Inc., 453 F.3d 122, 123 (2d Cir. 2006). "To carry out its statutory duties, FINRA established the CRD [Central Registration Depository] database and BrokerCheck, an internet resource that the public can use to obtain registration information about current and former representatives." Buscetto v. Fin. Indus. Reg. Auth., No. 11 Civ. 6308 (JAP), 2012 WL 1623874, at *3 (D.N.J. May 9, 2012); see 15 U.S.C. § 78o-3(i)(1)(B). Against this backdrop, the Court may take judicial notice of FINRA's registration requirements and the reports in which they are maintained. See Fed. R. Evid. 201(b) ("The court may judicially notice a fact that is not subject to reasonable dispute because it ... can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned."). The BrokerCheck report demonstrates that Gaglio had his Series 6 and 63 licenses, and was appropriately considered a registered representative — with the attendant ability to provide certain types of financial advice — during the period alleged in the Complaint.
"FINRA is a self-regulatory organization and national securities association that is registered with the Securities and Exchange Commission (the 'SEC')," and "is the successor entity to the National Association of Securities Dealers ('NASD')." WC Capital Mgmt., LLC v. UBS Sec., LLC, 711 F.3d 322, 326 n.2 (2d Cir. 2013). "As an integral part of a comprehensive system of federal regulation of the securities industry, [FINRA] regulates the over-the-counter securities market, which includes securities firms and registered representatives who buy and sell over-the-counter-securities." Desiderio v. Nat'l Ass'n of Sec. Dealers, Inc., 191 F.3d 198, 201 (2d Cir. 1999); see 15 U.S.C. § 78o-3. FINRA's "authority is exercised under the close supervision of the SEC, which must approve all [of FINRA's] rules and regulations." Desiderio, Inc., 191 F.3d at 201; see 15 U.S.C. § 78s(b).
Significantly, Plaintiffs do not allege that Gaglio misrepresented having a Series 65 license, which is needed to register as an investment advisor. Instead, Plaintiffs allege that lacking a Series 65 license prevented Gaglio from listing himself as a "financial advisor" and from charging fees to clients for investment advice. (Compl. ¶¶ 17, 269-72). That is not so; Gaglio's Series 6 and 63 licenses permitted him to sell "registered" products, including variable life insurance policies, mutual funds, and other products regulated by FINRA. See FINRA Registration and Examination Requirements, http://www.finra.org/industry/compliance/registration/qualificationsexams/qualifications/p011051 (last visited Feb. 10, 2015).
With respect to other extrinsic documents, Defendants have failed to "overcome the presumption that a motion to dismiss should be decided solely on the basis of the [Plaintiffs'] allegations." Chiaramonte v. Animal Med. Ctr., No. 13 Civ. 5117 (KPF), 2014 WL 3611098, at *3 (S.D.N.Y. July 22, 2014). The Second Circuit in Chambers made clear that "a plaintiff's reliance on the terms and effect of a document in drafting the complaint is a necessary prerequisite to the court's consideration of the document on a dismissal motion; mere notice or possession is not enough." 282 F.3d at 154 (emphasis in original). In a subsequent decision, the Court noted further restrictions on the documents that could properly be considered in connection with a motion to dismiss:
However, before materials outside the record may become the basis for a dismissal, several conditions must be met. For example, even if a document is "integral" to the complaint, it must be clear on the record that no dispute exists regarding the authenticity or accuracy of the document. It must also be clear that there exist no material disputed issues of fact regarding the relevance of the document.
Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir. 2006) (citations omitted); see also DiFolco, 622 F.3d at 111 (finding error in district court's consideration of "ambiguous" emails in employment discrimination case). Here, Plaintiffs contest the authenticity and the accuracy of the invoices submitted by Defendants, and there are indeed differences between the invoice samples submitted by the parties. (Compare Dkt. #43-7 (invoice submitted by Defendants), with Dkt. #55 at Ex. A and B (invoices submitted by Plaintiffs)). The invoices are thus too ambiguous for the Court to consider. Nor will the Court consider the Disclosure Form for Sales Commission Information ostensibly signed by Gaglio and the Forgiones (Dkt. #43-8), which cannot fairly be said to have been "relied on" by Plaintiffs in drafting the Complaint.
The Court is mindful of the arguments raised by Defendants in reply that the invoices by Plaintiffs are inapposite. (See Gaglio Reply. 5-6 and n.6). However, it is precisely because of factual disputes like this one that the Court will not consider any of the invoices at this time.
After reviewing the Complaint and the proper extrinsic materials that may be considered, the Court concludes that only Plaintiffs' allegations concerning Gaglio's possession of a Series 65 license must be dismissed for failure to allege a knowingly false material misrepresentation. The remaining issue is whether the Complaint alleges with sufficient particularity the other elements of the fraud claim. At this stage in the litigation, the Court is constrained to find that it does. The Court agrees with Defendants (see Gaglio Br. 34) that a general desire to earn fees or make a profit is an insufficient motive on which to predicate scienter. See Szulik v. Tagliaferri, 966 F. Supp. 2d 339, 364 (S.D.N.Y. 2013) (citing Edison Fund v. Cogent Inv. Strat. Fund, Ltd., 551 F. Supp. 2d 210, 227 (S.D.N.Y. 2008); Acito v. IMCERA Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995)); see also Defer LP v. Raymond James Fin., Inc., 654 F. Supp. 2d 204, 217-18 (S.D.N.Y. 2009) ("This Circuit has repeatedly held that similar allegations of a generalized motive that could be imputed to any for-profit endeavor therefore are not sufficiently concrete for purposes of inferring scienter. Rather, plaintiff must allege that defendants benefitted in some concrete and personal way from the purported fraud." (citations omitted)). Here, however, Plaintiffs have alleged more than a generic concern about retaining or increasing management fees; instead, Plaintiffs have alleged that Gaglio made these false representations in order to permit him to sell more whole life insurance products, and thereby obtain additional undisclosed commissions. (See, e.g., Compl. ¶¶ 17, 18, 176, 202, 272, 310). These allegations of non-disclosure and concrete, personal benefit suffice. See Beaumont Offset Corp. v. Montgomery Land and Cattle Co., Inc., 684 F. Supp. 75, 77 (S.D.N.Y. 1988) ("allegation regarding ... undisclosed receipt of commissions suggests a motive for ... failure to disclose and thus adequately supports an inference of fraud"); see also Szulik, 966 F. Supp. 2d at 364.
Lest it not be clear from other portions of the Opinion, the Court observes here that there are reasons to believe that Plaintiffs may not ultimately prevail on this claim. For starters, Plaintiffs suggest that part of the reason for the undisclosed fees was that Gaglio was ineligible to receive fees for providing investment advice; in fact, his Series 6 and 63 licenses allowed him to provide advice as to contracts issued by insurance companies. (See Compl. ¶ 17). The invoices to which Plaintiffs cite in the Complaint (see id. at ¶¶ 18, 273), may also prove to be less helpful, since two of the three presented to the Court in the context of this motion state explicitly that they pertain to premiums for insurance policies, and not fees to Gaglio. Conversely, the commission disclosure form signed by the Forgiones would seem to put the lie to Plaintiffs' claims of undisclosed commissions. To be clear, the Court indicated that it would not rely on those two categories of documents in deciding this motion, and it has not. That said, Plaintiffs may fare differently in a summary judgment context.
Turning to the allegations directed at Gaglio-Bogen, however, the Court finds that Plaintiffs have failed to plead scienter. Indeed, Plaintiffs fail to allege even a profit motive for Gaglio-Bogen, because they do not allege how she was compensated for her work related to the Plan. (See Gaglio Reply 11 n.13). The Court also agrees with Defendants that the "Complaint does not specify any false statements made by ... Gaglio-Bogen to Plaintiffs." (Gaglio Reply 19). The only representation alleged to be false was that "Gaglio-Bogen represented herself to Plaintiffs to be a pension consultant with a specific expertise in employee benefit plans." (Compl. ¶ 294). Critically, there is no explanation of why this representation was false or fraudulent, and Plaintiffs concede as much when they plead that "it is unclear what qualifications or knowledge Defendant Gaglio-Bogen possessed regarding retirement and/or pension plans." (Id. at ¶ 54). Accordingly, Count 12 is dismissed, but Count 11 remains.
c. Plaintiffs Have Adequately Alleged Negligence Claims Against Gaglio, Gaglio-Bowen, and Richgat (Counts 15 through 19)
Defendants also seek to dismiss Counts 15 through 19, which allege that Defendants Gaglio, Gaglio-Bogen, and Richgat were negligent in drafting and administering the Plan. (See Compl. ¶¶ 351-407). Taking all of Plaintiffs' allegations as true, and resolving all ambiguities in their favor, the Court denies these motions.
"Under New York law, ... a plaintiff must establish three elements to prevail on a negligence claim: [i] the existence of a duty on defendant's part as to plaintiff; [ii] a breach of this duty; and [iii] injury to the plaintiff as a result thereof." Aegis Ins. Servs., Inc. v. 7 World Trade Co., L.P., 737 F.3d 166, 177 (2d Cir. 2013) (internal quotation marks and citation omitted); accord Akins v. Glens Falls City Sch. Dist., 53 N.Y.2d 325, 333 (1981); Stukas v. Streiter, 918 N.Y.S.2d 176, 180 (2d Dep't 2011).
The Individual Defendants argue that Plaintiffs have failed to allege a breach of the duty of care and resulting damages. (Gaglio Br. 38-40; Richgat Br. 10-12). The Court finds that Plaintiffs have adequately alleged duties and breaches thereof in alleging that: (i) Gaglio had a duty in holding himself out as a financial advisor to the Forgiones not to recommend establishment of a "top-heavy" plan that was subject to IRS disqualification (Compl. ¶¶ 351-61); (ii) Gaglio similarly had a duty to provide competent financial advice, which included inquiring into the demographics of the Company (id. at ¶¶ 362-72); (iii) Gaglio-Bogen had a duty in holding herself out as a pension consultant to the Forgiones to provide competent advice, which included inquiring into the composition of the Company's workforce (id. at ¶¶ 373-85); (iv) Gaglio-Bogen had a duty as administrator of loans for the Plan to collect loan repayments from Plan participants properly (id. at ¶¶ 386-94); and (v) Richgat had a duty as an actuary and a service provider to the Plan to stay within the scope of actuarial services, to draft Plan documents competently, and to perform administrative functions competently (id. at ¶¶ 395-407).
With respect to the allegations of breach, Defendants focus on the allegation that Gaglio and Gaglio-Bogen should have inquired into whether the Company had additional employees — such as their extensive landscaping crew members — who worked over 1,000 hours per year. (See Gaglio Br. 38-39). Defendants rely on various "census of employees" forms that the Forgiones purportedly filled out from 2007 to 2011. (See Gaglio Br. 39; Richgat Br. 11-12). These forms were not attached to or incorporated by the Complaint, and the Court declines to consider them at this stage because it cannot say that the invoices (however many they number) (i) were relied upon by Plaintiffs to a degree sufficient to render them "integral" to the Complaint or (ii) definitively resolve the issue. See Faulkner, 463 F.3d at 134 ("[E]ven if a document is 'integral' to the complaint, it must be clear on the record that no dispute exists regarding the authenticity or accuracy of the document. It must also be clear that there exist no material disputed issues of fact regarding the relevance of the document."). Although these documents may ultimately support Defendants' arguments at summary judgment or at trial, the Court will not consider them in a pre-discovery vacuum.
With respect to the injury requirement, the Individual Defendants argue that the Plan never lost its tax-favored status and therefore no damages were sustained. (Gaglio Br. 39; Richgat Br. 11). The Court disagrees. Plaintiffs have alleged that they have incurred expenses in modifying the Plan (Compl. ¶ 142), which suffices at this stage to plead damages resulting from Defendants' negligence. See Tenzer, Greenblatt, Fallon & Kaplan v. Ellenberg, 604 N.Y.S.2d 947, 948 (1st Dep't 1993) (finding a pleading to be "sufficient since it contain[ed] allegations from which damages ... might be reasonably inferred").
Finally, Gaglio-Bogen argues that the Plan documents did not delegate the duty of collecting loans to her, so she could not possibly have owed such a duty to Plaintiffs. (Gaglio Br. 39-40; Gaglio Reply 19-20). The Court disagrees with this contention as well. That Gaglio-Bogen assumed the task of administering loans — regardless of whether the Plan documents afforded her such authority — must be assumed at this stage in light of the well-pleaded allegations of the Complaint. (Compl. ¶ 100). Accordingly, the motions to dismiss the negligence claims are denied.
d. Plaintiffs Have Failed to Allege a Claim of Actuarial Malpractice Against Richgat (Count 20)
Count 20 alleges that Defendant Richgat committed professional malpractice in drafting the Plan. The Court agrees with Defendants that, under New York law, there is no cause of action for actuarial malpractice. (Richgat Br. 13). See, e.g., Health Acquisition Corp. v. Program Risk Mgmt., Inc., 964 N.Y.S.2d 554, 557 (2d Dep't 2013) ("Because an actuary is not required to be licensed, is not regulated, and is not subject to a State-created disciplinary system, an actuary is not a 'professional' for purposes of a malpractice cause of action."); Castle Oil Corp. v. Thompson Pension Employee Plans, Inc., 750 N.Y.S.2d 629, 631 (2d Dep't 2002) (same). Accordingly, Count 20 must be dismissed. This conclusion is largely — if not completely — tempered by the fact that the Complaint "sufficiently alleges a cause of action against [the Richgat Defendants] on a theory of common-law negligence [in Count 19]," Health Acquisition Corp., 964 N.Y.S.2d at 557, which stems from precisely the same conduct.
e. Plaintiffs Have Adequately Alleged a Breach of the Covenant of Good Faith and Fair Dealing Against Gaglio (Count 14)
Additionally, Plaintiffs have alleged that Gaglio breached the covenant of good faith and fair dealing. (Compl. ¶¶ 336-50). "[I]mplicit in all contracts is a covenant of good faith and fair dealing in the course of the contract." DBT Gmbh v. J.L. Mining Co., 544 F. Supp. 2d 364, 384 (S.D.N.Y. 2008) (internal quotation marks and citation omitted). "The covenant 'embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 98 (2d Cir. 2007) (quoting Dalton v. Educ. Testing Serv., 87 N.Y.2d 384, 389 (1995)). To state a cause of action for breach of the implied covenant of good faith and fair dealing, "the plaintiff must allege facts which tend to show that the defendant sought to prevent performance of the contract or to withhold its benefits from the plaintiff." Dweck Law Firm, L.L.P. v. Mann, 340 F. Supp. 2d 353, 358 (S.D.N.Y. 2004) (quoting Aventine Inv. Mgmt., Inc. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 514 (2d Dep't 1999)).
Plaintiffs allege that they contracted with Gaglio to provide them with a retirement plan that would offer certain tax benefits, and that, by virtue of the Plan's structure, the Plan failed to do so. (See Compl. ¶¶ 75-80, 337-44). Gaglio's motivation for structuring the Plan in this way, Plaintiffs allege, was to generate commissions from the sale of insurance policies. (See id. at ¶¶ 202, 213, 337-44). Plaintiffs allege that the end result was a Plan that did not offer them the tax benefits they sought. (Id. at ¶¶ 141-42). Thus, taking Plaintiffs' allegations as true, Plaintiffs have adequately alleged that Gaglio sought to withhold from Plaintiffs the "'fruits of the contract.'" Tractebel, 487 F.3d at 98 (quoting Dalton, 87 N.Y.2d at 389).
Gaglio argues that Plaintiffs' claim cannot survive the instant motion because they have failed to plead the existence of a contract. (Gaglio. Br. 37 (citing Eaves, 785 F. Supp. 2d at 258, which dismissed a similar claim where "Plaintiffs fail[ed] to provide facts regarding any specific contract between the parties, how or when such contract was formed, or any terms of the contract(s) at issue")). However, a plaintiff need not attach or even quote the language of a contract in order to plead adequately the existence of a contract. See, e.g., Speedfit LLC v. Woodway USA, Inc., No. 13 Civ. 1276 (KAM), 2014 WL 5093161, at *11 (E.D.N.Y. Oct. 10, 2014). Here, Plaintiffs have plausibly alleged that a contractual relationship existed between themselves and Gaglio, who was setting up a retirement plan on their behalf. They have also alleged that one of the benefits expected under the contract would be that the retirement plan would offer the Forgiones certain tax benefits. Accordingly, Plaintiffs have alleged adequately a breach of the covenant of good faith and fair dealing.
3. The Claims Against the Entity Defendants (Counts 11 Through 20)
In addition to the making direct claims against individual defendants Gaglio, Gaglio-Bogen, and Richgat, Plaintiffs seek to hold Integrity, JR Pension, PAS, and SFW liable for violations of state law on the part of their alter egos or agents. (Compl. ¶¶ 182-97, 289-92, 300-02, 330-335, 345-50, 357-61, 368- 72, 381-85, 392-94). The Court shall consider the claims against each of these Entity Defendants, in turn.
In Plaintiffs' opposition brief, they argue that "the agency concept can apply in the context of ERISA relationships." (Pl. Opp. 57-58). As Defendants correctly point out, "[t]his is irrelevant, however, because Plaintiffs have not asserted any of their ERISA claims (Counts  through  of the Complaint)" against the Entity Defendants. (PAS/SFW Reply 6 n.5).
a. Defendant JR Pension
Richgat is alleged to be the agent or alter ego of JR Pension, such that JR Pension should be held liable for Richgat's conduct. (Compl. ¶ 197). The Richgat Defendants do not contest this allegation, and all arguments for dismissal made in their brief are made on behalf of both Richgat and JR Pension collectively. (See Richgat Br. 1). Accordingly, all state-law claims that have been dismissed against Richgat shall be dismissed as to JR Pension. Specifically, Counts 13 and 20 are dismissed as to JR Pension.
b. Defendant Integrity
Integrity is alleged to be liable for the acts of its agents, Gaglio and Gaglio-Bogen. (Compl. ¶¶ 182-96). The Gaglio Defendants do not contest that Gaglio and Gaglio-Bogen are Integrity's agents. Nor do they offer any arguments, independent of those raised on behalf of Gaglio and Gaglio-Bogen, for Integrity's dismissal. Because the only claims asserted against Defendant Integrity "are premised upon the conduct of ... Gaglio and ... Gaglio-Bogen under an agency theory" (Gaglio Br. 40 n.43), the Court will dismiss any state-law claims that have been dismissed as to Gaglio and Gaglio-Bogen. Accordingly, Counts 12 and 13 are dismissed as to Integrity.
c. Defendants PAS and SFW
Plaintiffs also allege that PAS and SFW are liable as principals for the acts of their putative agents, Gaglio and Gaglio-Bogen. Specifically, Plaintiffs seek to hold PAS and SFW liable with respect to Counts 11, 13, 14, 15, 16, and 17. As with their other claims against Entity Defendants, Plaintiffs do not bring any direct claims against PAS or SFW. Accordingly, there can be no principal liability for PAS or SFW for claims dismissed as to their agents.
Plaintiffs do not allege that PAS and SFW are liable as principals with respect to Count 12, alleging fraudulent misrepresentations by Gaglio-Bogen, or Count 18, alleging negligence by Gaglio-Bogen. (See PAS/SFW Br. 8 n.5 (citing Compl. ¶¶ 293-302, 386-94)). --------
In addition to challenging Plaintiffs' state-law claims on substantive grounds (see PAS/SFW Br. 13-18; PAS/SFW Reply 1-5), PAS and SFW argue that the claims against them should be dismissed for failure to plead an agency relationship between them and Gaglio, Gaglio-Bowen, and/or Integrity (see PAS/SFW Br. 1-13; PAS/SFW Reply 6-9). Because some of the relationships have been pleaded sufficiently, and others have not, the motion of the PAS and SFW to dismiss for failure to plead an agency relationship is granted in part and denied in part.
Under New York agency law, "an agency relationship results from a manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and the consent by the other to act." N.Y. Marine & Gen. Ins. Co. v. Tradeline, L.L.C., 266 F.3d 112, 122 (2d Cir. 2001) (internal quotation marks and citation omitted). The authority to act for a principal may be actual or apparent. Meisel v. Grunberg, 651 F. Supp. 2d 98, 110 (S.D.N.Y. 2009).
"[Actual] authority may be express or implied, but in either case, it exists only where the agent may reasonably infer from the words or conduct of the principal that the principal has consented to the agent's performance of a particular act." Minskoff v. Am. Express Travel Related Servs. Co., 98 F.3d 703, 708 (2d Cir. 1996) (citation omitted)). The existence of actual authority "depends on the actual interaction between the putative principal and agent, not on any perception a third party may have of the relationship." Cromer Finance Ltd. v. Berger, 245 F. Supp. 2d 552, 560 (S.D.N.Y. 2003) (internal quotation marks and citation omitted). By contrast, "[a]pparent authority originates from 'written or spoken words or any other conduct of the principal which, reasonably interpreted, causes a third person to believe that the principal consents to have an act done on his behalf by the person purporting to act for him.'" Mun. Corp. of Bremanger v. Citigroup Global Markets Inc., 555 F. App'x 85, 88 (2d Cir. 2014) (summary order) (quoting Minskoff, 98 F.3d at 708) (brackets omitted).
First, the Court rejects Defendants' argument that Plaintiffs' allegations with respect to PAS are too conclusory to withstand a motion to dismiss. Plaintiffs allege that Gaglio and Gaglio-Bogen handed Plaintiffs business cards that indicated they were representatives of PAS. (Compl. ¶¶ 53, 71). At this stage, Plaintiffs are "not ... privy to the details of what conversation or conduct took place between" the Gaglio Defendants and PAS, Amusement Indus., Inc. v. Stern, 693 F. Supp. 2d 327, 344 (S.D.N.Y. 2010); thus it suffices that Plaintiffs have alleged that the Gaglio Defendants held themselves out as representatives of the company. As a natural corollary, the Court cannot expect allegations of actual authority to be pleaded in excruciating detail. What Plaintiffs have alleged are facts that "raise a sufficient inference that some sort of agency relationship existed between" the Gaglio Defendants and PAS. Id. (internal quotation marks and citation omitted). Such allegations are sufficient at this juncture. See, e.g., Chabra v. Maplewood Partners, L.P., No. 12 Civ. 1113 (JS), 2014 WL 652465, at *4 (E.D.N.Y. Feb. 19, 2014) ("The Amended Complaint alleges that Maplewood knew, approved, accepted, and adopted Glaser and Reale's actions and that Glaser and Reale were acting 'for and on behalf' of Maplewood. At this juncture, these allegations are sufficient." (internal citation omitted)); Meisel, 651 F. Supp. 2d at 112 (finding insufficient allegations of an agency relationship).
Next, the Court finds that Plaintiffs' allegations with respect to the relationship between Gaglio and SFW are similarly sufficient at this stage. Plaintiffs allege that Gaglio was employed by SFW, and that SFW advertised his services on its website. (Compl. ¶¶ 35, 37-40). These allegations "raise the possibility of a principal-agent relationship," which suffices at this stage. Amusement Indus., 693 F. Supp. 2d at 345 (internal quotation marks and citations omitted).
In contrast, the allegations with respect to the principal-agent relationship between Gaglio-Bogen and SFW are so attenuated as to render any inference of agency implausible. The crux of the principal-agent relationship alleged is that "Gaglio-Bogen was an agent of ... Integrity," which "was an agent of ... PAS," which "was an agent ... of SFW." (Compl. ¶¶ 190, 193). Unlike the other alleged agency relationships discussed supra, there is no allegation that Gaglio-Bogen was an employee of SFW, that she held herself out as a representative of SFW, or that SFW advertised her services. The dearth of supporting facts leaves the Court with no sense of how, if at all, Gaglio-Bogen was connected to SFW.
"The Court is mindful that, at this point, the issue is not whether [P]laintiff has demonstrated the existence of an agency relationship, but only whether [P]laintiff is entitled to offer evidence to prove an agency relationship existed." Meisel, 651 F. Supp. 2d at 111. Indeed, this posture has informed the Court's treatment of the agency allegations connecting Gaglio and Gaglio-Bogen to PAS, and Gaglio to SFW. Where, however, there are no facts connecting the putative agent to the putative principal, the only allegations of agency are stated in a conclusory fashion, and the alleged relationship is attenuated by the presence of intermediary principal-agent relationships, there can be no plausible inference of agency. See Anastasia Int'l, Inc. v. EM Online Pty LTD., No. 13 Civ. 2919 (KBF), 2013 WL 5550211, at *2 (S.D.N.Y. Oct. 4, 2013) (finding the inference of an agency relationship "wholly implausible" and dismissing complaint where plaintiff "utterly failed to allege facts to show ... any connection between the two Defendants"); RSM Prod. Corp. v. Fridman, 643 F. Supp. 2d 382, 408 (S.D.N.Y. 2009) ("[C]onclusory allegations regarding [an] agency relationship ... are not sufficient to survive a motion to dismiss."); Cannon v. Douglas Elliman, LLC, No. 06 Civ. 7092 (NRB), 2007 WL 4358456, at *5 (S.D.N.Y. Dec. 10, 2007) (dismissing a complaint where plaintiffs alleged "the defendants acted 'as agents for each other' ... but offer[ed] no facts from which inferences of actual or apparent authority [could] be drawn").
Accordingly, Count 13 is dismissed as to PAS, and Counts 11, 14, 15, 16, and 17 remain. With respect to SFW, Counts 13 and 17 are dismissed, and Counts 11, 14, 15, and 16 remain.
For the reasons discussed herein:
Defendant Gaglio's motion to dismiss Count 1 of the Complaint, alleging a violation of ERISA Section 404, is DENIED; his motion to dismiss Count 3 of the Complaint, alleging a violation of ERISA Section 406(b), is DENIED; his motion to dismiss Counts 5 and 9 of the Complaint, alleging violations of ERISA Section 405(a), is GRANTED; his motion to dismiss Count 11 of the Complaint, alleging fraudulent misrepresentation, is DENIED; his motion to dismiss Count 13 of the Complaint, alleging deceptive business practices, is GRANTED; his motion to dismiss Count 14, alleging a breach of the covenant of good-faith and fair dealing is DENIED; and his motion to dismiss Counts 15 and 16, alleging negligence, is DENIED;
Defendant Gaglio-Bogen's motion to dismiss Count 2 of the Complaint, alleging a violation of Section 404, is GRANTED; her motion to dismiss Count 4 of the Complaint, alleging a violation of Section 405(a), is DENIED; her motion to dismiss Count 10 of the Complaint, alleging a violation of Section 405(a), is GRANTED; her motion to dismiss Count 12 of the Complaint, alleging fraudulent misrepresentation, is GRANTED; and her motion to dismiss Counts 17 and 18, alleging negligence, is DENIED;
Defendant Richgat's motion to dismiss Count 6 of the Complaint, alleging a violation of ERISA's Code of Conduct, is GRANTED; his motion to dismiss Count 7 of the Complaint, alleging a violation of Section 404, is GRANTED; his motion to dismiss Count 8 of the Complaint, alleging a violation of Section 405(a), is GRANTED; his motion to dismiss Count 13 of the Complaint, alleging deceptive business practices is GRANTED; his motion to dismiss Count 19 of the Complaint, alleging negligence, is DENIED; and his motion to dismiss Count 20 of the Complaint, alleging malpractice, is GRANTED;
Defendant JR Pension's motion to dismiss Count 13 of the Complaint, alleging deceptive business practices is GRANTED; its motion to dismiss Count 19 of the Complaint, alleging negligence, is DENIED; and its motion to dismiss Count 20 of the Complaint, alleging malpractice, is GRANTED;
Defendant Integrity's motion to dismiss Counts 11 and 12 of the Complaint, alleging fraudulent misrepresentation, is DENIED as to Count 11 and GRANTED as to Count 12; its motion to dismiss Count 13 of the Complaint, alleging deceptive business practices, is GRANTED; its motion to dismiss Count 14, alleging a breach of the covenant of good-faith and fair dealing is DENIED; and its motion to dismiss Counts 15, 16, 17, and 18, alleging negligence, is DENIED;
Defendant PAS's motion to dismiss Count 11 of the Complaint, alleging fraudulent misrepresentation, is DENIED; its motion to dismiss Count 13 of the Complaint, alleging deceptive business practices, is GRANTED; its motion to dismiss Count 14, alleging a breach of the covenant of good-faith and fair dealing is DENIED; and its motion to dismiss Counts 15, 16, and 17, alleging negligence, is DENIED; and
Defendant SFW's motion to dismiss Count 11 of the Complaint, alleging fraudulent misrepresentation, is DENIED; its motion to dismiss Count 13 of the Complaint, alleging deceptive business practices, is GRANTED; its motion to dismiss Count 14, alleging a breach of the covenant of good-faith and fair dealing is DENIED; its motion to dismiss Counts 15 and 16, alleging negligence, is DENIED; and its motion to dismiss Count 17, alleging negligence, is GRANTED.
The parties are hereby ORDERED to appear for a conference on February 27, 2015, at 2:30 p.m. in Courtroom 618 of the Thurgood Marshall Courthouse, 40 Foley Square, New York, New York, to set a schedule for discovery. The parties should submit a proposed Case Management Plan to the Court in PDF format by February 19, 2015.
The Clerk of Court is directed to terminate Docket Entries 41, 45, and 47.
SO ORDERED. Dated: February 13, 2015
New York, New York
KATHERINE POLK FAILLA
United States District Judge
Coulter, 753 F.3d at 367 (internal quotation marks and citations omitted).