Chemung Canal Trust Co. v. Sovran Bank/Maryland

• Citation: 753 F. Supp. 81
• Decision Date: 27 December 1990
• Docket Number: No. CIV-90-0013T.,CIV-90-0013T.
• Parties: CHEMUNG CANAL TRUST COMPANY, As Trustee of the Fairway Spring Company, Inc., Restated Pension Plan, William H. Brown and Joseph R. Peters, Plaintiffs, v. SOVRAN BANK/MARYLAND, Defendant and Third-Party Plaintiff, v. FAIRWAY SPRING CO., INC., Theodore Peterson, As President and Director of Fairway Spring Co., Inc., Donald R. Peterson, As Vice-President and Director of Fairway Spring Co., Inc., Dorothy Tarby, As Secretary-Treasurer of Fairway Spring Co., Inc., and John Doe and Jane Doe, As Members of the Investment Committee of the Fairway Spring Company, Inc., Restated Retirement Income Plan, and Lynn Keyser, Third-Party Defendants.
• Court: U.S. District Court — Western District of New York

753 F. Supp. 81

CHEMUNG CANAL TRUST COMPANY, As Trustee of the Fairway Spring Company, Inc., Restated Pension Plan, William H. Brown and Joseph R. Peters, Plaintiffs, v. SOVRAN BANK/MARYLAND, Defendant and Third-Party Plaintiff, v. FAIRWAY SPRING CO., INC., Theodore Peterson, As President and Director of Fairway Spring Co., Inc., Donald R. Peterson, As Vice-President and Director of Fairway Spring Co., Inc., Dorothy Tarby, As Secretary-Treasurer of

Fairway Spring Co., Inc., and John Doe and Jane Doe, As Members of the Investment Committee of the Fairway Spring Company, Inc., Restated Retirement Income Plan, and Lynn Keyser, Third-Party Defendants.

No. CIV-90-0013T.

United States District Court, W.D. New York.

December 27, 1990.

Edward B. Hoffman, Sayles, Evanas, Trayton, Palmer & Tifft, Elmira, N.Y., for plaintiffs.

Anthony Daniele, Rochester, N.Y., for defendant and third-party plaintiff.

Kenneth A. Payment, Harter, Secrest & Emery, Rochester, N.Y., for third-party defendants.

DECISION AND ORDER

TELESCA, Chief Judge.

INTRODUCTION

The Chemung Canal Trust Company (Chemung), as the present trustee of the Fairway Spring Company, Inc. Restated Pension Plan (the Plan), and two beneficiaries of the Plan brought this action against Sovran Bank/Maryland (Sovran) pursuant to the Employee Retirement Income Security Act (ERISA). Plaintiffs allege that Sovran, which was trustee of the Plan immediately prior to Chemung, breached its fiduciary duties by failing to exercise prudence and due diligence in discovering and rectifying the wrongful acts of Glenn Dawson, who had been trustee of the Plan before Sovran. Plaintiffs further allege that Sovran itself made two "disastrous" investments which also constituted a breach of its fiduciary duty.

Sovran then filed a third-party complaint against Fairway Spring Co. (Fairway), the employer who established the Plan, for indemnity and/or contribution, alleging that Fairway is a fiduciary of the Plan, and as a result of its own breach of its duty with regard to the activities of Dawson, it must either indemnify Sovran or contribute to satisfaction of the judgment should Sovran be found liable. Sovran also filed a counterclaim against Chemung Canal Trust, alleging that it failed to evaluate adequately and pursue claims of the Plan and this failure contributed to the losses which are the subject of its present suit against Sovran. It requests relief on behalf of the Plan, as well as contribution and or indemnity should it be found liable.

Fairway, the third party defendant, now moves to dismiss Sovran's third party complaint for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6) on the grounds that ERISA does not permit a fiduciary to sue a co-fiduciary for indemnification or contribution. Chemung moves to dismiss Sovran's counterclaim for indemnification or contribution for essentially the same reasons— that ERISA does not allow fiduciaries to seek contribution or indemnity. In addition, Chemung moves to dismiss Sovran's counterclaim on behalf of the Plan because Sovran is no longer a trustee and thus does not have standing to sue. For the reasons discussed below, the motions of Chemung and Fairway are granted and accordingly, Sovran's counterclaims and third-party complaint are dismissed.

DISCUSSION

A. SOVRAN'S STANDING TO SUE ON BEHALF OF THE PLAN:

The defendant Sovran brings a counterclaim against Chemung on behalf of the Plan, alleging that Chemung breached its fiduciary duty by failing adequately to evaluate and pursue claims of the Plan. Sovran claims that, as a former fiduciary, it has a continuing obligation to address and attempt to remedy breaches on behalf of the Plan. After carefully reviewing the relevant authority, I find that Sovran is without standing to bring such a claim.

Section 409 of ERISA contemplates actions by four classes of plaintiffs: the Secretary of Labor, beneficiaries, participants, and fiduciaries. 29 U.S.C. § 1132. Because Sovran is no longer a fiduciary, it has no standing to sue Chemung on behalf of the Plan. Blackmar v. Lichtenstein, 603 F.2d 1306, 1310 (8th Cir.1979); see also Molnar v. Wibbelt, 789 F.2d 244, 250 (3d Cir.1986).

In Blackmar, the settlor of a plan governed by ERISA removed the plan's thentrustee and appointed a new trustee in accordance with the provisions of the plan. 603 F.2d at 1308. The former trustee, Charles Blackmar, challenged the settlor's actions, alleging that the settlor breached its fiduciary duty by removing him in order to preclude him from filing a suit against it. Id. at 1309. The court held that it could not "deem Blackmar a fiduciary, though he once was, and allow him to bring suit in a fiduciary capacity" when he had been removed in a manner consistent with the trust document itself. Id.; see also Blassie v. Kroger Co., 345 F.2d 58, 67 (8th Cir.1965) ("a fiduciary, after his removal or resignation, does not have sufficient official interest to authorize him to seek appellate review of an adverse judgement...."). The court concluded that, "in short, Blackmar no longer has an interest in this suit." Blackmar, 603 F.2d at 1309.

This case presents a situation analogous to that in Blackmar. Chemung replaced Sovran as trustee of the Plan, but did not obtain fiduciary status until after Sovran was terminated. Sovran now essentially challenges Chemung's failure to include Fairway in an action against Sovran for breach of its fiduciary duties. ERISA, however, provides adequate protection to plans and their participants, in that either they or the Secretary of Labor have standing to bring suit if Chemung breaches any of its fiduciary duties. See Blackmar, 603 F.2d at 1310. Accordingly, because Sovran is a stranger to the Plan in so far as any alleged breach by Chemung, it has no standing to assert a counterclaim on behalf of the Plan.

B. SOVRAN'S CLAIMS FOR CONTRIBUTION AND INDEMNITY:

Sovran's remaining claims against plaintiff Chemung and third-party defendant Fairway are for contribution and/or indemnity. Essentially, Sovran argues that if it is found to have breached its fiduciary duties, that it should be able to recover all or part of the judgment from Chemung and Fairway, which it claims are also liable.

In order to find a cause of action for indemnity and/or contribution, the court must determine either that Congress expressly provided for it or Congress' intent to allow it is clearly implied in the statute, or that the cause of action has become part of federal common law. Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 638, 101 S.Ct. 2061, 2065, 68 L.Ed.2d 500 (1981) (holding that no cause of action for contribution and/or indemnity exists under Federal Anti-trust law).

Although the Second Circuit has indicated that a fiduciary may be able to seek indemnification from a co-fiduciary under ERISA, it has neither considered nor decided this issue. See Dardaganis v. Grace Capital, Inc., 889 F.2d 1237, 1241 (2d Cir. 1989). It is uncontroverted that ERISA does not explicitly provide for fiduciary contribution or indemnity. The parties differ, however, on whether the statute implies a cause of action and whether one exists or should be created as part of the federal common law.

Where it is alleged that a statute implies a right of action, the Court must focus on Congressional intent through examination of the legislative history and other factors such as "the identity of the class for whose benefit the statute was enacted, the overall legislative scheme, and the traditional role of the states in providing relief." Texas Industries, 451 U.S. at 639, 101 S.Ct. at 2066.

In enacting ERISA, Congress repeatedly expressed its intent that the statute "establish judicially enforceable standards to insure honest, faithful, and competent management of pension and welfare funds," and "reduce substantially the potentialities for abuse" by fiduciaries. Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 140 n. 8, 105 S.Ct. 3085, 3089 n. 8, 87 L.Ed.2d 96 (1985) (remarks of Sen. Bentsen, Sen. Nelson, reprinted in 3 Leg.Hist. 4795, 4803; 120 Cong.Rec. 29954, 29957 (1974)). Nowhere, however, does the legislative history suggest that Congress intended that a fiduciary be allowed to seek contribution or indemnity for a breach of its fiduciary responsibilities.

In fact, Congress has carefully set forth those acts or omissions for which a fiduciary is personally liable. Narda, Inc. v. Rhode Island Hospital Trust National Bank, 744 F.Supp. 685, 696-97 (D.Md. 1990). For example, a fiduciary is liable for a co-fiduciary's breach only

(1) if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other fiduciary, knowing such act or omission is a breach;

(2) if, by his failure to comply with section 1104(a)(1) of this title in the administration of his specific responsibilities which give rise to his status as a fiduciary, he has enabled such other fiduciary to commit a breach; or

(3) if he 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). As section 1105(a) demonstrates, Congress carefully and narrowly defined the circumstances under which a fiduciary could be held personally liable for a co-fiduciary's breach. See 29 U.S.C. § 1105(a)(3); Narda, 744 F.Supp at 696. Given Congress' attempts to "precisely tailor fiduciary liability to fit particular breaches, ... it is not surprising that rights of indemnification and contribution among culpable fiduciaries are not provided." Narda, 744 F.Supp. at 696. Thus, the intent to allow a fiduciary to sue for contribution and/or indemnity is absent both from the express language of ERISA and from its legislative history.

Furthermore, a fiduciary is not a member of the class for whose benefit ERISA was enacted. Id. (Congress intended to "protect participants, beneficiaries and plans, and remedies...