Harris v. Koenig

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
______________________________
WILLIAM S. HARRIS, et al., )
)
Plaintiffs, )
)
v. ) Civil Action No. 02-618 (GK)
)
JAMES E. KOENIG, et. al., )
)
Defendants. )
______________________________)

MEMORANDUM OPINION

Plaintiffs William S. Harris, Reginald E. Howard, and Peter M.

Thornton, Sr. are former employees of Waste Management Holdings,

Inc. (“Old Waste” or “the Company”) and participants in the Waste

Management Profit Sharing and Savings Plan (“Old Waste Plan” or

“Plan”). They bring this action on behalf of the Plan’s

approximately 30,000 participants against Defendants,1 all of whom

were fiduciaries of the Old Waste Plan or are fiduciaries of its

1
Defendants include the “Old Waste Fiduciaries” (Old Waste
(the Plan’s sponsor), the Waste Management, Inc. Profit Sharing and
Savings Plan Investment Committee (“Old Waste Investment
Committee”), the Waste Management, Inc. Profit Sharing and Savings
Plan Administrative Committee (“Old Waste Administrative
Committee”), the individual Trustee Members of the Committees, the
Old Waste Board Directors and its individual members, and fifteen
unidentified fiduciaries) and the “New Waste Fiduciaries” (the
Waste Management Retirement Savings Plan (“New Waste Plan”), the
Investment Committee of the Waste Management Retirement Savings
Plan (“New Waste Investment Committee”) and its individual Trustee
Members; the State Street Bank and Trust Company (“State Street”),
and fifteen unidentified fiduciaries).
successor plan, the Waste Management Retirement Savings Plan (“New

Waste Plan”).2

In the Third Amended Complaint [Dkt. No. 181], Plaintiffs

alleged ten separate violations by Defendants of the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§

1001, et seq. This matter is presently before the Court on

Plaintiffs’ Motion for Leave to File a Fourth Amended Complaint

[Dkt. No. 240], in which they seek to revive five claims dismissed

as time-barred in the March 12, 2009 Order on Defendants’ Motion to

Dismiss and to add two new ERISA claims against Defendants, and

Plaintiffs’ Motion for Leave to File a Substitute Fourth Amended

Complaint [Dkt. No. 257], in which Plaintiffs seek to add two

additional ERISA claims against Defendants. Parties presented oral

argument at a Motions Hearing held on December 2, 2009. Upon

consideration of the parties’ arguments, the Motions, Oppositions,

Replies, and the entire record herein, and for the reasons set

forth below, the Motions for Leave to File are granted in part, and

denied in part.

I. Background

This action arises from Old Waste’s announcement on February

24, 1998 that it was restating several of its financial statements

2
On January 16, 1998, Old Waste and Waste Services, Inc.,
merged to become New Waste. On January 1, 1999, the Old Waste Plan
was merged with the USA Waste Services, Inc. Employee’s Savings
Plan to become the Waste Management Retirement Savings Plan (“New
Waste Plan”).

2
for periods between 1991 and 1997 and that, prior to 1992 and

continuing through the first three quarters of 1997, it had

materially overstated its reported income by $1.43 billion. That

announcement led to a securities class action in the Northern

District of Illinois, which settled on September 17, 1999. In

1999, after Old Waste merged with Waste Services, Inc. to become

New Waste, New Waste announced further after-tax charges and

adjustments of $1.23 billion. The announcement led to the filing

of additional securities class action complaints against New Waste

and certain of its officers and directors in the Southern District

of Texas, which settled on April 29, 2002. Both settlements

included the Plans and its fiduciaries within the scope of the

class.

On February 2, 2005, Plaintiffs filed their Third Amended

Complaint in this action, alleging ten counts of ERISA violations.

The claims were divided into three periods. First, Plaintiffs

alleged five ERISA violations related to the Plan’s purchase of

inflated shares of company stock in the first claim period between

January 1, 1990 and February 24, 1998 (Counts I-V). Second,

Plaintiffs alleged four ERISA violations related to the release of

claims by the Old Waste Plan’s fiduciaries in the Illinois

securities litigation (Counts VI-IX) in the second claim period.

Third, Plaintiffs alleged one ERISA violation in the third claim

period related to the release of claims by the New Waste Plan’s

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trustee--Defendant State Street--in the Texas securities

litigation.

In this Court’s March 12, 2009 Order [Dkt. No. 218], Counts I-

V were dismissed as time-barred under ERISA § 413 because

Plaintiffs had “actual knowledge of the breach or violation” more

than three years before filing the original Complaint. March 12,

2009 Order at 26. The Order also rejected Plaintiffs’ argument

that the three-year limitation should be tolled, finding that

Defendants’ failure to disclose material information was

insufficient to establish fraud or concealment under ERISA. Id. at

27-29. In the Motion for Leave to File a Fourth Amended Complaint,

Plaintiffs request leave to amend their Complaint to include new

facts that establish acts of fraud or concealment by Defendants--

namely, that certain Old Waste Plan fiduciaries “fraudulently

misstated, or caused to be fraudulently misstated, material

financial information contained in disclosures required by ERISA

and the 1934 Act.” Substitute Fourth Amended Complaint at ¶ 79.

Plaintiffs also seek to add Counts XI and XII, both of which

relate to the third claim period covering the Texas securities

litigation. The Third Amended Complaint currently includes one

count (Count X) related to this period, which alleges that

Defendant State Street breached its fiduciary duties under ERISA §

404 by releasing the ERISA claims in the Texas litigation without

first conducting an adequate review, and without adequate

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consideration. Count XI would further allege that State Street

caused the New Waste Plan to engage in a prohibited exchange with

New Waste, a party in interest, by releasing the claims. Count XII

would allege that State Street, along with Defendants New Waste

Investment Committee and its individual Trustee Members, breached

their fiduciary duties by enabling each other (as co-fiduciaries)

to commit the violations described in Counts X-XI.

Finally, in the Motion for Leave to File a Substitute Fourth

Amended Complaint, Plaintiffs seek to add Counts XIII and XIV.

These counts stem from Defendants’ statement, made in the course of

opposing the Motion to add Counts XI and XII, that Defendant State

Street was released from all third period claims because it was

acting as an “agent” of New Waste. Each count alleges that such a

principal-agent relationship conflicts with State Street’s

fiduciary obligations, and so State Street’s participation in the

Illinois and Texas settlements constitutes prohibited self-dealing

in violation of ERISA § 406(b), 29 U.S.C. § 1106(b).

In opposing the Motions, Defendants argue that all nine counts

are barred by the statute of limitations contained in § 413 of

ERISA. Defendants further argue that the Motions for leave to

amend should be denied because of the undue delay in adding Counts

I-V, XI, and XII and the prejudice that would follow from

permitting amendment at this point in the proceedings.

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II. Standard of Review

Under Rule 15(a), after amending as a matter of course “a

party may amend its pleading only with the opposing party's written

consent or the court's leave.” Fed. R. Civ. P. 15(a). “In the

absence of any apparent or declared reason--such as undue delay,

bad faith or dilatory motive on the part of the movant, repeated

failure to cure deficiencies by amendments previously allowed,

undue prejudice to the opposing party by virtue of allowance of the

amendment, futility of amendment, etc.--the leave sought should, as

the rules require, be freely given.” Foman v. Davis, 371 U.S. 178,

182, 83 S.Ct. 227, 230 (U.S. 1962); Atchinson v. District of

Columbia, 73 F.3d 418, 425-26 (D.C. Cir. 1996); Caribbean Broad.

Sys., Ltd. v. Cable & Wireless P.L.C., 148 F.3d 1080, 1083-85 (D.C.

Cir. 1998).

When a party amends its complaint to add a claim or defendant,

the statute of limitations may bar the amendment unless it “relates

back” to the original complaint, in which case the date of the

original pleading is used. Under Federal Rule of Civil Procedure

15(c):

[A]n amendment to a pleading relates back to the date
of the original pleading when: (A) the law that
provides the applicable statute of limitations allows
relation back; (B) the amendment asserts a claim or
defense that arose out of the conduct, transaction, or
occurrence set out--or attempted to be set out--in the
original pleading; or (C) the amendment changes the
party or the naming of the party against whom a claim
is asserted . . . .

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Fed. R. Civ. P. 15(c).

Relation back is improper when the amended claim "asserts a

new ground for relief supported by facts that differ in both time

and type from those the original pleading set forth." Mayle v.

Felix, 545 U.S. 644, 650, 125 S.Ct. 2562, 162 L.Ed.2d 582 (2005);

see also Jones v. Bernanke, 557 F.3d 670, 674 (D.C. Cir. 2009)

(“[A]ttempts to introduce a new legal theory based on facts

different from those underlying the timely claims does not relate

back”) (internal quotation and citation omitted). Instead, “[t]he

underlying question is whether the original complaint adequately

notified the defendants of the basis for liability the plaintiffs

would later advance in the amended complaint.” Meijer, Inc. v.

Biovail Corp., 533 F.3d 857, 866 (D.C. Cir. 2008).

III. Analysis

First, Plaintiffs seek to revive Counts I-V, which were

dismissed as time-barred in the March 12, 2009 Order, in the Motion

for Leave to File a Fourth Amended Complaint. Second, Plaintiffs

seek leave to add Counts XI and XII against Defendants State

Street, the New Waste Investment Committee, and the Committee’s

individual trustee members. Third, Plaintiffs seek to add Counts

XIII and XIV against Defendant State Street in the Motion for Leave

to File a Substitute Fourth Amended Complaint.

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 A. Plaintiffs Are Granted Leave to Revive Counts I-V

Counts I-V allege the Old Waste fiduciaries’ liability for

their conduct during the years in which the Old Waste Plan

purchased and maintained shares of Old Waste stock at artificially

inflated prices. These claims were dismissed as time-barred in the

March 12, 2009 Order under the three-year limitations period.

March 12, 2009 Order at 26. Section 413 of ERISA sets forth the

statute of limitations for ERISA violations:

No action may be commenced under this subchapter with
respect to a fiduciary's breach of any responsibility,
duty, or obligation under this part, or with respect
to a violation of this part, after the earlier of (1)
six years after (A) the date of the last action which
constituted a part of the breach or violation, or (B)
in the case of an omission the latest date on which
the fiduciary could have cured the breach or
violation, or (2) three years after the earliest date
on which the plaintiff had actual knowledge of the
breach or violation; except that in the case of fraud
or concealment, such action may be commenced not later
than six years after the date of discovery of such
breach or violation.

29 U.S.C. § 1113 (2008) (emphasis added).

Plaintiffs now seek leave to amend Counts I-V to add

allegations of fraud or concealment in order to use the six-year

tolling provision. The parties agreed at the motions hearing that,

if the tolling provision is found to apply, Plaintiffs’ discovery

of the violations alleged in Counts I-V is February 24, 1998, the

date on which Old Waste announced the accounting irregularities.

8
 Leave to amend to cure deficiences in pleading fraud is

favored in this Circuit. See, e.g., Firestone v. Firestone, 76

F.3d 1205, 1209 (D.C. Cir. 1996). Under Rule 9(b), “[i]n alleging

fraud or mistake, a party must state with particularity the

circumstances constituting fraud or mistake. Malice, intent,

knowledge, and other conditions of a person's mind may be alleged

generally.” Fed. R. Civ. P. 9(b) (2007). This Court is satisfied

that Plaintiffs have stated the circumstances constituting fraud--

namely, the fraudulent misstatements made by Plan fiduciaries in

public filings--in the Substitute Fourth Amended Complaint with

sufficient particularity to satisfy Rule 9(b).

There also is no sufficiently compelling reason to deny leave

to amend. As only four months have passed between this Court’s

order dismissing Counts I-V and the Motion for Leave to File a

Fourth Amended Complaint, there is no indication of Plaintiffs’

undue delay, bad faith, dilatory motive, or repeated failure to

cure this deficiency in previous amendments.

Finally, Defendants argue that, under the fraudulent

concealment doctrine, Plaintiffs’ actual knowledge of the

underlying claims prevents application of the six-year tolling

provision for fraud or concealment, and so Counts I-V are still

time-barred. Given the significance and dispositive nature of

Defendants’ argument, the briefings and argument on this subject

were not sufficiently clear or convincing to deny the Motions for

9
Leave to File at this early point in the history of the proposed

amendments. Further development is needed on the issue of whether,

and how, § 413’s six-year tolling provision for fraud or

concealment applies when a plaintiff gained actual knowledge of the

violation after it had ceased, and only upon the defendant’s

voluntary disclosure of the information. In short, the Court

defers ruling on the merits of Defendants’ statute of limitations

argument, which is better addressed in a motion to dismiss.

Therefore, the Motion for Leave to amend Counts I-V in order

to add sufficient allegations of fraud or concealment is granted.

While relatively short delays will undoubtedly follow this

decision, given the likelihood of Defendants’ filing a motion to

dismiss, the Court is aware that counsel have been working

cooperatively and productively on discovery, and anticipates that

they will continue to do so.

B. Plaintiffs Are Denied Leave to Add Counts XI and XII

In the Motion for Leave to File A Fourth Amended Complaint,

Plaintiffs also seek to add two new claims relating to the third

claim period. Count XI alleges that Defendant State Street engaged

in a prohibited exchange of choses in action between the New Waste

Plan and New Waste in violation of ERISA § 406(a)(1)(A), and Count

XII alleges that Defendant State Street, as well as Defendants New

Waste Investment Committee and its individual trustee members--

named as Defendants for their conduct in the third claim period for

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the first time--enabled their co-fiduciaries to commit ERISA

violations in the third claim period in violation of ERISA §§

405(a)(2) and (3).

Defendants argue that the Court has discretion to deny

amendment on the grounds of undue delay and prejudice because

Plaintiffs could have alleged these claims in the Third Amended

complaint filed in 2005. At the motions hearing, Plaintiffs

conceded that, while Counts XI and XII may not have been fully ripe

when the Third Amended Complaint was filed in February 2005, over

four years ago, there was no legal bar that prevented them from

filing. Had the claims had been filed at that time, they would

have been addressed in Defendants’ Motion to Dismiss the Third

Amended Complaint, which was decided in the March 12, 2009 Order.

There is no justification for Plaintiffs having waited over

four years to bring these claims. While the case law indicates

that, “[a]bsent evidence of prejudice, delay . . . cannot justify

denying a motion to amend to clarify the legal basis for a

complaint,” this is an old, complex case and permitting two new

counts will drag it out even further. Harrison v. Rubin, 174 F.3d

249, 250, (D.C. Cir. 1999). Moreover, Count XII carries real

prejudice to the New Waste Investment Committee and its individual

members, who were not previously given notice that they would be

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held liable for their conduct in the third claim period. Thus, the

Motion for Leave to add Counts XI and XII is denied.3

C. Plaintiffs Are Granted Leave to Add Counts XIII and XIV

Finally, in the Motion for Leave to File a Substitute Fourth

Complaint, Plaintiffs seek leave to add two new counts. These

claims arise from the argument, made by Defendants in their

Opposition to the Motion for Leave to File a Fourth Amended

Complaint, that Defendant State Street was released from liability

for Counts XI and XII under the terms of the settlement agreement

entered in the Texas securities litigation. Opp’n to Motion for

Leave to File A Fourth Amended Complaint at 18-19. Specifically,

Defendants argue that State Street qualified as an “agent” of New

Waste under the terms of the settlement agreement, and thus was a

“Releasee,” as defined in that agreement.

Given the conflicts that could arise from a Plan trustee being

subject to such a principal-agent relationship during the course of

settlement negotiations, Plaintiffs seek leave to add two new

counts alleging that Defendant State Street’s participation in the

Illinois and Texas settlements constituted prohibited self-dealing

in violation of ERISA § 406(b).4 The Waste Management Defendants’

3
Because the Motion is denied on grounds of undue delay and
prejudice, Defendants’ argument that Counts XI and XII are time-
barred because they do not relate back to the Third Amended
Complaint need not be addressed.
4
Count XIII addresses Defendant State Street’s involvement in
the Illinois litigation, while Count XIV addresses Defendant State

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main argument in response addresses the definition of “agent” under

the Illinois and Texas settlement agreements, and whether Defendant

State Street was capable of exercising independent judgment despite

being an agent of Old Waste and New Waste. Waste Management Defs.’

Opp’n to Motion for Leave to File a Substitute Fourth Amended

Complaint at 3-4 [Dkt. No. 260]. At this point, discovery is

needed on this issue, and Defendants’ argument would be better

addressed in a more fully fleshed out motion to dismiss.

Defendants also argue, however, that these claims are time-

barred under ERISA § 413 because Plaintiffs were put on notice of

the alleged principal-agent relationship years ago by the New Waste

Plan’s Master Trust Agreement.5 Plaintiffs respond that they “knew

that State Street was a fiduciary, but [] did not know that State

Street purported to act as an agent of Waste.” Reply to Opp’n to

Motion for Leave to File A Substitute Fourth Amended Complaint at

Street’s involvement in the Texas litigation.
5
Defendants also rely on various allegations made by
Plaintiffs in 2002 that State Street’s participation in the Texas
settlement was a prohibited transaction under § 406(a) to argue
Plaintiffs’ actual knowledge. Opp’n to Motion for Leave to File a
Substitute Fourth Amended Complaint at 4-7 [Dkt. No. 259].
However, this argument is unpersuasive because Counts XIII and XIV
allege prohibited transactions under § 406(b), not § 406(a). The
§ 406(a) violations alleged in 2002 are based on a different set of
facts: the prohibited exchange of the ERISA claims with a party in
interest. A § 406(b) violation, in contrast, occurs when a
fiduciary acts on behalf of or represents a party whose interests
are adverse to beneficiaries. 29 U.S.C. § 1106(b) (2008). Thus,
the 2002 allegations do not demonstrate Plaintiffs’ actual
knowledge of the principal-agent relationship.

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4 [Dkt. No. 267]. Further, because Plaintiffs seek leave to add

these claims in 2009, over six years since the Texas litigation was

settled, they must allege fraud or concealment with particularity

in order to rely on the six-year tolling provision, which runs from

the date of Plaintiffs’ discovery of the allegedly prohibited

relationship between Defendant State Street and the company. 29

U.S.C. § 1113 (2008) (“[I]n the case of fraud or concealment, such

action may be commenced not later than six years after the date of

discovery of such breach or violation.”) (emphasis added).

The reasoning applied to the statute of limitations argument

above, supra Part III.A, applies equally here. At this point in

the early history of Counts XIII and XIV, and given the

significance and dispositive nature of Defendants’ statute of

limitations argument, the arguments presented at the hearing and in

the parties’ briefs are not sufficiently developed to warrant

denying Plaintiffs’ Motion. Clarification is needed on when

Plaintiffs first learned of the principal-agent relationship, what

the scope and nature of that relationship was, and whether

Plaintiffs must allege more than the fact of the relationship to

make out a claim under ERISA § 406(b). Thus, the Motion for Leave

to File a Substitute Fourth Amended Complaint is granted without

addressing Defendants’ statute of limitations argument, which they

are free to raise in a motion to dismiss.

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IV. CONCLUSION

For the reasons set forth above, Plaintiffs’ Motion for Leave

to File a Fourth Amended Complaint is granted with respect to

Counts I-V, and denied with respect to Counts XI and XII. The

Motion for Leave to File a Substitute Fourth Amended Complaint is

granted with respect to Counts XIII and XIV.

In the interest of ensuring that this case continues to move

forward at an appropriate pace, any motion to dismiss must be filed

no later than January 15, 2010. Oppositions to any motion to

dismiss will be due by February 15, 2010, and the reply by March 1,

2010. Because brevity often forces parties to better focus their

arguments, the motions and oppositions are limited to thirty pages

each, and the reply to fifteen pages.

An Order will accompany this Memorandum Opinion.

/s/
December 14, 2009 Gladys Kessler
United States District Judge

Copies to: attorneys on record via ECF

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