Wright v. Heyne, 01-4359.
| Citation | 349 F.3d 321 |
| Decision Date | 14 November 2003 |
| Docket Number | No. 01-4359.,01-4359. |
| Parties | Frank C. WRIGHT, M.D., John P. Goff, M.D., and Carl A. Krantz, M.D., as Trustees of the Wright, Goff, Krantz, Harmon, Jones, M.D.'s Profit Sharing Plan, Plaintiffs-Appellants, v. Michael A. HEYNE, and Vestax Securities Corporation, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
Roger Makley (briefed), Coolidge, Wall, Womsley & Lombard, Dayton, OH, Alphonse P. Cincione (argued and briefed), N. Gerald DiCuccio (briefed), Butler, Cincione, DiCuccio & Barnhart, Columbus, OH, for Plaintiffs-Appellants.
Danny L. Cvetanovich (briefed), Nancy J. Manougian (argued and briefed), Arter & Hadden, Columbus, OH, for Defendants-Appellees.
Before NELSON and COLE, Circuit Judges; ROSEN, District Judge.*
Plaintiff-Appellants Frank C. Wright, John P. Goff and Carl Krantz brought this action as Trustees of the Wright, Goff, Krantz, Harmon and Jones Profit Sharing Plan (the "Retirement Plan") under the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1132(a) ("ERISA"), against Vestax Securities Corporation ("Vestax") and its owner, Michael A. Heyne, investment advisors to Plaintiffs' Retirement Plan, alleging that Vestax and Heyne breached certain fiduciary duties in making investment decisions and engaged in conduct prohibited under ERISA with regard to the receipt of commissions. The District Court for the Southern District of Ohio granted Defendants' Motion for Summary Judgment on the ground that ERISA's three-year statute of limitations barred Plaintiffs' claims. Plaintiffs timely appealed the District Court's decision.
For the reasons set forth below, we affirm the District Court's grant of Defendants' Motion for Summary Judgment.
Plaintiffs Frank C. Wright, John L. Goff and Carl A. Krantz are trustees of the Wright, Goff, Krantz, Harmon Jones, M.D.'s Profit Sharing Plan ("the Retirement Plan"). They are physicians who practiced together as a professional corporation known as "Wright, Goff, Krantz M.D.'s, Inc." from the late 1970s until 1995 when Goff retired.1
Shortly after the corporation was formed, it created a Retirement Plan. Wright and Krantz have been trustees of the Plan since its inception, and Goff was a trustee of the Plan from the time the Plan was created until his retirement from the practice of medicine in 1995.
The Plan included a commonly-managed general account, as well as individual self-directed accounts for those participants who wanted them. Plaintiffs were all participants in the Plan, and each had a self-directed account under the Plan. While Wright, Goff, and Krantz, as trustees, were responsible for directing transactions in the Plan's general account, Goff played the most active role in directing those transactions. With respect to the self-directed accounts, each individual was responsible for the direction of his own self-directed account.
Prior to late 1987, Plaintiffs utilized the services of Professional Investment Management to help them invest the assets of the Plan's general account. Wright, Goff and Krantz also each used the services of Professional Investment Management to help them with investments in their respective self-directed accounts.
Plaintiffs terminated the services of Professional Investment Management in late 1987, and shortly thereafter, hired Defendant Michael Heyne to provide investment advice and services to the Plan with respect to the general account. Each individual also retained Heyne to provide investment advice and services for his self-directed account.
Plaintiffs were also aware that Heyne was affiliated with, and had an ownership interest in, Vestax. In December 1987, the Plan and each of the individual Plaintiffs also entered into a "VesTrak Investment Analysis Service Agreement" with Vestax, under which Vestax was to provide quarterly Investment Analysis Reports to the Plan with respect to the general account, as well as to Plaintiffs with respect to each of their respective self-directed accounts. These reports included a list of each investment made, the date and cost of each investment, the proceeds received from the sale of each investment, the current market value of each investment and the earnings of each investment. The VesTrak Agreements disclosed that Vestax would earn fees for the services it would provide and the amount of the fees that would be earned. The Agreements further disclosed that Vestax could earn commissions on the purchase or sale of certain securities:
Client understands that if he as a purchaser of the VesTrak Investment Analysis Service uses the services of Vestax in connection with the sale or purchase of a security that is the object of the VesTrak Investment Analysis Service, then Vestax may act as principal for its own account or as agent for another person in undertaking such sale or purchase and may be paid a commission on such sale or purchase. Client hereby consents to the payment of such commission to Vestax.
(See JA 1502, 1551)
Also in December 1987, the Plan and Wright, Goff, and Krantz, individually with respect to their self-directed accounts, entered into a Soliciting Agent Agreement with Heyne. The Soliciting Agent Agreements disclosed that Heyne solicited clients to enter into VesTrak Agreements with Vestax, that Heyne was an officer and stockholder of Vestax, that Heyne could receive a portion of the fees that a client would pay to Vestax, that Vestax would receive "commissions or other compensation" if "financial service products or investments are purchased through Vestax" and that Heyne would receive "a portion of such commissions if such sales are arranged through [Heyne] and [he] is a registered representative of Vestax." (See JA 1522).
Pursuant to the VesTrak Agreements, quarterly Investment Analysis Reports were provided to the Plan and to Wright, Goff and Krantz, individually, for their respective self-directed accounts. Heyne also usually met with Plaintiffs on a quarterly basis to discuss the reports as well as to answer any questions Plaintiffs had about the investments and other information reflected in the reports.
In 1991 or 1992, approximately three or four years after the Plan's relationship with Heyne and Vestax began, Goff began to feel some "dissatisfaction" with Heyne. The dissatisfaction stemmed from Goff's learning that Heyne was an officer of AFA Financial, Inc., an entity with which the Plan and Wright, Goff and Krantz on behalf of their own respective self-directed accounts had placed money for management. Goff considered Heyne's affiliation with AFA Financial to be a conflict of interest and he instructed Heyne to take his money out of AFA, which Heyne did. Goff was also concerned that the general account and his own self-directed account were not meeting his financial objectives and that the fees and commissions that Heyne was earning was "driving the choice of investment as opposed to the appropriateness of the investment." (JA 86, 97-104).
During 1992 and 1993, Krantz likewise began to become dissatisfied with Heyne's services. Like Goff, Krantz was concerned with Heyne's affiliation with AFA Financial, Heyne's failure to follow investment objectives, and the fees and commissions paid to Heyne.
Sometime in 1993, Goff asked Philip Shaffer of the Consulting Group at Smith Barney Shearson to review the performance of the general account and his own self-directed account. Shaffer informed Goff that the investments in his portfolio were "driven by fees and commissions" and were "not proper." (JA 105). Shaffer also informed Goff that Heyne had deviated from the investment plans for the Plaintiffs' self-directed accounts. (JA 125).
Later in 1993 or early 1994, Goff also asked Denny Dicky of Berwanger Overmeyer to review the Plan's investments and performance. Dicky informed Goff that after reviewing the Plan's investments, he "couldn't sleep at night." (JA 108) Dicky also made statements of "the same tenor as Mr. Shaffer's comments." Id.
In 1994, Wright asked his brother, Tom Wright (who had experience managing his own investments and later registered as an investment advisor), to review his self-directed account. In June 1994, Tom Wright advised his brother to "get away from" Heyne, Vestax, and AFA Financial. (JA 889) Tom Wright further advised his brother that he had received "bad [investment] advice" from Heyne, should "not purchase any more limited partnerships," and should not "annuitize any more of the annuities." (JA 1773-74). Tom Wright also concluded that Heyne had been paid "excessive compensation" for his services. (JA 1804-05).
Then, in early 1995, Goff asked William Cseplo of McDonald & Company to review his self-directed account. In a letter dated March 18, 1995, Cseplo specifically stated that he was (JA 558-59, 622-23). The letter went on to state:
If you feel as if you have been wronged by what has occurred in this portfolio, I would suggest you could probably seek legal action. I believe you have some basis. Michael Heyne invested your money in high yield bonds that you specifically told him not to buy. He annuitized an annuity and, in my opinion, had no reason to do so.... I would seek full restitution for the transactions that were not in your specific written directions and the annuity transactions that make no sense at all....
On March 26, 1995, just a few weeks after receiving Cseplo's conclusions with respect to his review of Goff's self-directed account, Goff terminated his relationship with Heyne and Vestax and transferred his self-directed account to Cseplo.
In April 1995, Plaintiff...
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