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recognizing that, when repeated efforts to amend do not correct a deficiency, the court has discretion to deny a motion to amend
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No. C 03-4223 MHP.
September 7, 2004
MEMORANDUM ORDER Re: Defendants' Motions to Strike
This action arises out of a complaint filed in state court by plaintiff Laura Serpa against SBC Telecommunications and SBC Services (collectively "defendants"). The complaint alleged that defendants improperly distributed benefits under their retirement program, asserting state law claims for negligence, promissory estoppel, fraud, and unfair business practices under California Business and Professions Code § 17200. After removing the action to federal court, defendants moved, inter alia, for judgment on the pleadings on the ground that Serpa's state law claims were preempted by the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001 et seq. The court granted defendants' motion and at the same time granted Serpa leave to amend her complaint to allege breach of fiduciary duty and promissory estoppel claims under ERISA, 29 U.S.C. § 1132(a)(3). Defendants now move to strike portions of Serpa's second amended complaint, arguing that Serpa violated Federal Rule of Civil Procedure 15(a) by failing to secure leave to assert claims for civil penalties under 29 U.S.C. § 1132(c). Defendants also contend that Serpa should not be granted leave to file a third amended complaint. After having considered the parties' arguments and submissions, and for the reasons set forth below, the court rules as follows.
BACKGROUND
The statement of facts is drawn from allegations contained in Serpa's second amended complaint unless otherwise noted. The court accepts all well-pleaded facts as true for purposes of adjudicating a motion to strike. Farm Credit Bank of Spokane v. Parsons, 758 F. Supp. 1368, 1371 n. 4 (D. Mont. 1990) (citing 2AMoore's Federal Practice ¶ 12.21[3]).
Defendant SBC Services is Serpa's former employer. Defendant SBC Telecommunications is the plan sponsor, administrator, and named fiduciary of SBC Services' pension plan, the SBC Enhanced Pension and Retirement Program ("Pension Plan"). On October 2, 2000, defendants offered Serpa an early retirement option known as an "early enhanced pension" and informed her that she was entitled to a lump sum retirement benefit in the amount of $378,989.77. At the time of the October 2 offer, Serpa was aware that her ex-spouse, Thomas Serpa, had obtained an interest in her pension benefits pursuant to a qualified domestic relations order ("QDRO"). The offer disclosed that the $378,989.77 distribution did not reflect any reduction in Serpa's benefits to account for her ex-spouse's interest in her pension. However, defendants did not calculate the amount due to Serpa's ex-husband under the QDRO at that time.
In an attempt to determine the net lump sum pension that she would receive, Serpa contacted the SBC Pension Plan Office and requested that it calculate the value of Thomas Serpa's interest in her pension. Although the Pension Plan Office told her that it was unable to determine the amount payable to Thomas Serpa because the QDRO had not been reviewed or segregated, Lorrie Stewart, presumably an SBC employee, orally informed Serpa that her ex-husband received a payment of $86,000 in January 2000. In subsequent oral communications with defendants, Serpa was informed that the funds needed to satisfy the QDRO had already been placed in a separate account and would not be deducted from the $378,989.97 payment.
In reliance on these representations, Serpa accepted defendants' October 2, 2000 early retirement offer and was removed from the SBC payroll on November 15, 2000. Following her retirement, however, defendants remitted only $265,000 of the $378,989.77 retirement package that had been offered. In a Calculated Summary Pension Statement dated December 12, 2000, defendants disclosed that her ex-husband had received $118,000 pursuant to the QDRO, which had been deducted from Serpa's net lump sum pension benefit. Sepra now asserts that had defendants disclosed the reduction in her benefits prior to her election to retire, she would not have taken early retirement.
Serpa's complaint does not account for the approximately $4,000 discrepancy between defendants' October 2, 2000 offer and the sum of the distributions to Laura and Thomas Serpa.
II. Procedural History
In August 2001, Serpa filed an action in state court alleging negligence, promissory estoppel, fraud, and unfair business practices. In August 2002, Serpa amended her original state court complaint, but later abandoned that action to pursue her claims through the Pension Plan's ERISA-mandated claims procedure. After completing the claims procedure without a satisfactory result, Serpa filed a second action in state court on August 12, 2003. On September 16, 2003, defendants removed the second action to federal court, answering the complaint and asserting that Serpa's state law claims were preempted by ERISA.
Serpa subsequently attempted to amend her complaint to assert claims for breach of fiduciary duty and promissory estoppel under ERISA. Because she failed to obtain either a stipulation from defendants or leave from the court to amend her complaint, defendants moved to strike Serpa's first amended complaint for failure to comply with Federal Rule of Civil Procedure 15(a). Defendants also moved for judgment on the pleadings on the ground that Serpa's state law claims were preempted by federal law. The court granted defendants' motions, but permitted Serpa to amend her complaint to assert claims for breach of fiduciary duty and promissory estoppel under 29 U.S.C. § 1132(a)(3). Mem. and Order Re: Def.'s Mot. to Strike and for Judgment on the Pleadings, No. C 03-4223 (May 24, 2004).
On June 24, 2004, Serpa filed her second amended complaint, alleging breach of fiduciary duty and promissory estoppel under section 1132(a)(3). In addition, the second amended complaint asserts that Serpa is entitled to civil penalties pursuant to 29 U.S.C. § 1132(c), alleging (1) that defendants breached their duty to disclose the amount of the net lump sum pension benefit that Serpa would receive under the early enhanced pension program, (2) that defendants did not inform Serpa that she had the option of delaying her retirement election date until after her ex-husband's interest in her pension had been calculated, and (3) that defendants failed to provide certain unidentified records "that would assist" Serpa in pursuing her claim. Pl.'s Second Amended Compl. ¶ 27. In sum, Serpa seeks civil penalties totaling $369,500.
Pursuant to Federal Rule of Procedure 12(f), defendants now move to strike Paragraph 27 of Serpa's second amendment complaint and Paragraph 1 of her prayer for relief. Defendants argue that Serpa failed to obtain leave to amend her complaint to assert a claim for civil penalties, and further contend the court should not grant leave to amend for the purpose of allowing Serpa to allege such a claim.
LEGAL STANDARD
Under Federal Rule of Civil Procedure 12(f), a court may strike a pleading or any portion of a pleading that is "redundant, impertinent, or scandalous." Fed.R.Civ.P. 12(f). Motions to strike are disfavored, and the remedy of striking a pleading should generally be used only when necessary to discourage parties from raising allegations that are completely unrelated to the relevant claims and when the interests of justice so require.Augustus v. Board of Pub. Instruction, 306 F.2d 862, 868 (5th Cir. 1962). However, Rule 12(f) may be used to strike a prayer for relief where the damages sought are not recoverable as a matter of law. Bureerong v. Uvawas, 922 F. Supp. 1450, 1479 n. 34 (C.D. Cal. 1996) (citing Tapley v. Lockwood Green Engineers, Inc., 502 F.2d 559, 560 (8th Cir. 1974) (per curiam)).
DISCUSSION
Defendants move to strike Paragraph 27 of Serpa's second amended complaint, which alleges that Serpa is entitled to civil penalties under 29 U.S.C. § 1132(c), as well as the first paragraph of Serpa's prayer for relief, which seeks an award of civil penalties in the amount of $369,500. According to defendants, this court's May 24, 2004 order granting leave to amend did not contemplate that Serpa would amend her complaint to assert claims for civil penalties under ERISA. Defendants also request that the court deny leave to amend the complaint to assert such claims, arguing that any further amendment would be futile and citing Serpa's numerous opportunities to raise ERISA claims in state and federal court.
I. Serpa's Failure to Obtain Leave to Amend Complaint
Defendants first argue that the court should strike from Serpa's second amended complaint all references to civil penalties available under 29 U.S.C. § 1132(c) because Serpa failed to comply with Federal Rule of Civil Procedure 15(a). Under Rule 15(a), a party is entitled to amend its pleadings once as a matter of course before a responsive pleading is served. Fed.R.Civ.P. 15(a). After a response has been filed, a party may amend its pleadings "only by leave of court or by written consent of the adverse party." Id. In its May 24, 2004 order, this court granted Serpa leave to file her second amended complaint. However, Serpa neither sought nor was granted leave to file a claim for civil penalties under 29 U.S.C. § 1132(c). Rather, the order granted leave to amend solely for the purpose of asserting claims for breach of fiduciary duty and promissory estoppel under 29 U.S.C. § 1132(a)(3). May 24, 2004 Order at 9. Furthermore, there is no dispute that Serpa failed to obtain defendants' written consent to amend her complaint to assert additional claims.
Nonetheless, Serpa contends that she is entitled to civil penalties based on several breaches of fiduciary duty alleged in Paragraph 27 of the second amended complaint. As noted above, the court granted Serpa leave to assert such a claim for breach of fiduciary duty. However, as the court's order granting leave to amend makes clear, a plaintiff alleging breach of fiduciary duty under section 1132(a)(3) "must ensure that the remedy she seeks . . . is equitable in nature." May 24, 2004 Order at 8 (citingGreat-West Life Annuity Ins. Co. Knudson, 534 U.S. 204, 213-14 (2002)); see also 29 U.S.C. § 1132(a)(3) (allowing for a civil action to be brought by a plan participant "(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan"). Because Paragraph 27 seeks money damages in the form of civil penalties under section 1132(c), the remedy sought in Paragraph 27 and the first paragraph of the prayer for relief is unambiguously legal in nature. Great-West Life, 534 U.S. at 210 (observing that money damages are a "classic form" of legal relief). Thus, Serpa's claims for civil penalties fall outside the scope of this court's May 24 order granting leave to amend, and the court must grant defendants' motion to strike the contested paragraphs of the second amended complaint.
II. Leave to File a Third Amended Complaint
The more difficult question is whether the court should now grant Serpa leave to amend to file a claim for civil penalties under section 1132(c). Although the grant or denial of a motion for leave to amend is committed to the court's discretion, "a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1127 (9th Cir. 2000) (en banc) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)).
In Foman v. Davis, 371 U.S. 178 (1962), the Supreme Court identified four factors relevant to whether leave to amend pleadings should be denied: undue delay, bad faith or dilatory motive, futility of amendment, and prejudice to the opposing party. Id. at 182; see also United States v. Webb, 655 F.2d 977, 980 (9th Cir. 1981). However, the enumerated factors are not of equal weight. Webb, 655 F.2d at 980 (citing Howey v. United States, 481 F.2d 1187, 1191 (9th Cir. 1973)). "Prejudice is the touchstone of the inquiry under rule 15(a)." Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir. 2003). Absent prejudice, there is a presumption under Rule 15(a) in favor of granting leave to amend. Id. The party opposing leave to amend bears the burden of showing prejudice. DCD Programs, Ltd. v. Leighton, 833 F.2d 183, 187 (9th Cir. 1987).
A. Futility of Amendment
In their motion to strike, defendants contend that granting Serpa leave to amend her complaint for the purpose of asserting a claim for civil penalties under ERISA would be futile. Despite the four factor test announced in Foman, "[f]utility of amendment can, by itself, justify the denial of a motion for leave to amend." Bonin v. Calderon, 59 F.3d 815, 845 (9th Cir. 1995), cert. denied, 516 U.S. 1051 (1996). Where the theory presented in the amendment lacks any legal foundation or where previous attempts have failed to cure a deficiency and it is clear that the amendment does not correct the defect, the court has discretion to deny a motion for leave to amend. Shermoen v. United States, 982 F.2d 1312, 1319 (9th Cir. 1992), 509 U.S. 903 (1993).
1. Civil Penalties under 29 U.S.C. § 1132(c)
The court first looks to the merits of Serpa's claim for civil penalties under 29 U.S.C. § 1132(c) to determine whether it is appropriate to grant leave to amend her complaint. Section 1132(c)(1) allows a plan participant to recover civil penalties of up to $100 per day if the plan administrator "fails or refuses to comply with a request for any information which such administrator is required . . . to furnish to a participant or beneficiary . . . within 30 days after such request [has been made]." 29 U.S.C. § 1132(c)(1). In support of her claim for civil penalties under this provision, Serpa cites 29 U.S.C. § 1024(b)(4), which states:
The administrator shall upon written request of any participant or beneficiary, furnish a copy of the latest updated summary plan description, and the latest annual report, any terminal report, bargaining agreement, trust agreement, or other instrument under which the plan was established or operated.Id. In construing the scope of the term "other instruments under which the plan was operated," the Ninth Circuit applies the rule of construction that "words grouped in a list should be given related meaning." Hughes Salaried Retirees Action Comm. v. Hughes Non-Bargaining Retirement Plan, 72 F.3d 686, 689 (9th Cir. 1995) (en banc), cert. denied, 517 U.S. 1189 (1996). The court characterized the annual reports, terminal reports, bargaining agreements, and trust agreements as "governing plan documents" — i.e., documents that provide individual participants with information about the plan and benefits. Id. at 690 (quoting Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 83 (1995)). Accordingly, the court held that only such "governing plan documents" fall within the scope of "other instruments" that are subject to section 1024(b)(4)'s disclosure requirement and have the potential to serve as a predicate for a section 1132(c)(1) civil penalties claim. Id. at 690-91.
Applying this standard to Serpa's second amended complaint, the allegations in Paragraphs 27(a)-(c) do not support a claim for civil penalties under ERISA. These subparagraphs merely allege that defendants did not accurately disclose the amount of Serpa's early enhanced pension, and that they failed to inform Serpa that she had the option to delay her election date until such amount had been determined. Subparagraphs (a)-(c) do not identify any request — written or otherwise — that Serpa made upon defendants for disclosure of "governing plan documents." Because there is no suggestion that a written request was made nor that defendants wrongfully withheld governing plan documents, these allegations fall outside the scope of the disclosures required by 29 U.S.C. § 1124(b)(4).
In contrast, Paragraph 27(d) of the second amended complaint alleges that during the claim and appeal process and during this action, defendants "did not provide records that would assist . . . Serpa." Although Serpa's complaint fails to identify a specific written request that would establish a cause of action under sections 1024(b)(4) and 1132(c)(1), the record contains at least one written request for records submitted by Serpa's attorney on her behalf. Harris Decl., Exh. 1. Moreover, at this stage of the proceedings, it is impossible to conclude that other written requests for plan documents made by Serpa or her attorney would not fall within the scope of section 1024(b)(4). Accordingly, defendants fail to meet their burden of showing that amendment would be futile with respect to Paragraph 27(d).
Defendants argue that the request for documents contained in the letter from Serpa's attorney is too vague to support a claim for civil penalties under ERISA. However, even assuming that defendants are correct in this assertion, the legal inadequacy of the cited request for documents does not preclude Serpa from amending her complaint to state a claim based on another request for documents. Given the broad scope of the allegations in Paragraph 27(d), defendants have failed to show that it is impossible for Serpa to amend her complaint to state a claim under 29 U.S.C. § 1132(c)(1).
In their reply, defendants also argue that amendment would be futile because Serpa's case has been mooted by the general release of liability that she signed in consideration for her eligibility to participate in the early enhanced pension program.See Second Harris Decl., Exh. B. Ordinarily, a court does not consider evidence outside the pleadings in support of a motion to strike, Farm Credit Bank of Spokane, 758 F. Supp. at 1371 n. 4, nor will the court entertain new arguments in raised for the first time in the movant's reply brief. Eberle v. City of Anaheim, 901 F.2d 814, 818 (9th Cir. 1990). The court therefore declines to address the merits of defendants' waiver argument in this order.
2. Breach of Fiduciary Duty and Equitable Estoppel Claims
The court reaches a different conclusion with respect to Serpa's allegations of breach of fiduciary duty and equitable estoppel. As noted above, 29 U.S.C. § 1132(a)(3) allows a plan participant or beneficiary to seek an injunction or "other appropriate equitable relief" against defendants who violate any provision of ERISA subch. I, 29 U.S.C. §§ 1001- 1191a, or the terms of the retirement plan. 29 U.S.C. § 1132(a)(3); see also 29 U.S.C. § 1132(a)(2) (establishing private right of action for breach of fiduciary duty in violation of 29 U.S.C. § 1109). Relying on Mertens v. Hewitt Associates, 503 U.S. 248 (1993), the Ninth Circuit has concluded that "other appropriate equitable relief" authorized by section 1132(a)(3) does not permit plaintiffs to seek money damages in ERISA actions for breach of fiduciary duty or for equitable estoppel. Watkins v. Westinghouse Hanford Co., 12 F.3d 1517, 1527-28 (9th Cir. 1993) (holding that ERISA does not permit recovery of money damages under common law or statutory equitable estoppel theory); see also Farr v. U.S. West Communications, Inc., 151 F.3d 908, 916 (9th Cir. 1998) (holding that plaintiffs were not entitled to legal relief in an action alleging that employer breached its fiduciary duties by misrepresenting facts relating to the tax consequences of an early retirement program and failing to allow plaintiffs to rescind their early retirement),amended by 179 F.3d 1252 (9th Cir. 1999), cert. denied, 528 U.S. 1116 (2000).
In the second cause of action of her second amended complaint, Serpa alleges promissory estoppel under federal common law rather than equitable estoppel under 29 U.S.C. § 1132(a)(3). Under federal common law, the elements of promissory and equitable estoppel are "similar" causes of action. DeVoll v. Burdick Painting, Inc., 35 F.3d 408, 412 n. 4 (9th Cir. 1994). Moreover, both are "considered a form of `appropriate equitable relief' that is available under [s]ection 1132(a)(3)." Local 369, Utility Workers v. NSTAR Elec. Gas Corp., 317 F. Supp. 2d 69, 72 (D. Mass. 2004). However, equitable estoppel involves reliance upon "misrepresentations or concealments of present fact," while promissory estoppel requires that the plaintiff show reliance on a promise or future guarantee. Id. Because Serpa alleges that she was induced to retire by defendants' misrepresentation regarding the status of her husband's QDRO — a present fact — her second cause of action is properly considered under the rubric of equitable rather than promissory estoppel.
As this court noted in its May 24, 2004 order, a plaintiff seeking equitable relief under 29 U.S.C. § 1132(a)(3) must identify particular funds or a particular property in the defendant's possession that would allow a court of equity to grant the requested remedy. May 24, 2004 Order at 8 (citingGreat-West Life, 534 U.S. at 213-14). In the three complaints that have thus far been filed in this action, Serpa has failed to point to any such property or funds. Because Serpa has been unable to identify any basis for equitable relief, granting leave to amend her complaint to allege causes of action for breach of fiduciary duty or equitable estoppel would be futile. Indeed, Serpa's attorney conceded as much in his August 23, 2004 appearance before this court, indicating that civil penalties under 29 U.S.C. § 1132(c) are the only remaining avenue for relief that Serpa will seek to pursue. Accordingly, the court declines to grant Serpa leave to amend her complaint to assert claims for breach of fiduciary duty or equitable estoppel under ERISA.
B. Delay, Bad Faith or Dilatory Motive, and Prejudice
Defendants also argue that Serpa should be denied leave to amend because Serpa's "method of litigating is extremely inefficient and is causing defendants unnecessary expense." Def.'s Mot. to Strike at 6. In support of their claim that leave to amend should be denied, defendants cite the two state court actions arising out of the same transaction as the matter now before this court, as well as the first and second amended complaints filed in this court.
The court shares defendants' concerns about efficient use of the judicial process. Ideally, a plaintiff's complaint should put the defendant on notice of all potential claims arising out of a single transaction or occurrence and identify the issues that will be litigated by the parties. See Self Directed Placement Corp. v. Control Data Corp., 908 F.2d 462, 466 (9th Cir. 1990). However, the Federal Rules of Civil Procedure require the court to balance the notice function of the plaintiff's complaint with the need to avoid dismissing potentially meritorious claims because of technical defects in the pleadings. See Lopez, 203 F.3d at 1127. Accordingly, Rule 15(a) requires a strong showing of delay, bad faith, or prejudice before leave to amend may be denied.Eminence Capital, 316 F.3d at 1052.
In the instant case, Serpa's repeated failure to follow procedural rules in seeking to amend her complaint has undoubtedly inconvenienced both defendants and the court. Yet, there is no suggestion that Serpa's repeated attempts to amend her complaint and failure to comply with Rule 15(a) are dilatory litigation tactics or were otherwise motivated by bad faith. The point at which poor pleading practices, however, reach the level of delay and prejudice is fast approaching and plaintiff's counsel is so advised. At this stage, granting leave to amend will result in neither undue delay nor prejudice against defendants because they may promptly move for judgment on the pleadings or for summary judgment. Accord Webb, 655 F.2d at 980 (observing that "[t]he mere fact that an amendment is offered late in the case is not enough to bar [amendment]" (alterations in original omitted)). Accordingly, the court rejects defendants' contention that the court should deny Serpa leave to amend her complaint on the grounds of bad faith, delay, or prejudice.
C. Leave to File Third Amended Complaint
While the court grants Serpa leave to amend for the purpose of alleging civil penalties under 29 U.S.C. § 1132(c), the policy of allowing liberal amendment of pleadings set forth in Rule 15(a) has its limits. See Shermoen, 982 F.2d at 1319 (noting that repeated failure to cure deficient pleadings may justify denying leave to amend). Thus, to avoid dismissal of this action with prejudice, Serpa's third amended complaint must plead each element required to state claim for civil penalties under 29 U.S.C. § 1132(c). Among other things, her complaint must identify a particular written request for documents made upon defendants, the nature of the documents requested, and the statutory provision that requires defendants to furnish the requested documents to a plan participant or beneficiary. See 29 U.S.C. §§ 1024(b)(4), 1132(c)(1)(B). If Serpa fails to meet these requirements, she is likely to face a meritorious motion to dismiss or for summary judgment. CONCLUSION
Serpa contends that "[c]ourts have waived the written request requirement [of 29 U.S.C. § 1024(b)(4)] in cases where the participants should be provided with documents automatically," citing Bins v. Exxon Co. U.S.A., 220 F.3d 1042 (9th Cir. 2000) (en banc) and Wayne v. Pacific Bell, 238 F.3d 1048 (9th Cir.), cert. denied, 534 U.S. 814 (2001). Pl.'s Opp. to Mot. to Strike at 5. However, Bins and Wayne both involved breach of fiduciary duty claims arising out of the defendants' failure to inform retiring employees of proposed changes to their retirement plans. See Wayne, 238 F.3d at 1053; Bins, 220 F.3d at 1047-48. Neither court created an "exception" to the written request requirement in actions for civil penalties under 29 U.S.C. § 1024(b)(4) and § 1132(c), and Serpa fails to explain under what circumstances a court would have the power to do so. Furthermore, there is nothing in either of these cases that suggests they were brought under section 1132(c). Thus, in accordance with the plain language of the statute, the court holds that Serpa must identify a specific, written request for plan documents to state a claim under sections 1024(b)(4) and 1132(c).
For the reasons stated above, the court hereby GRANTS defendants' motion to strike Paragraph 27 and the first paragraph of the prayer for relief of plaintiff's second amended complaint. Plaintiff may amend her complaint for the purpose of alleging claims for civil penalties under 29 U.S.C. § 1132(c) and she must do so in accordance with the foregoing. Plaintiff shall file her amended complaint, if any, within twenty (20) days of the date of this order. Defendants shall file their answer within twenty (20) days of the date that plaintiff files her amended complaint.
IT IS SO ORDERED.