939 F.2d 12 (2nd Cir. 1991), 1624, Chemung Canal Trust Co. v. Sovran Bank/Maryland

Docket Nº:1624, Docket 91-7194.
Citation:939 F.2d 12
Party Name:CHEMUNG CANAL TRUST COMPANY, as Trustee of the Fairway Spring Company, Inc. Restated Pension Plan; William H. Brown; Joseph R. Peters, Plaintiffs, Chemung Canal Trust Company, as Trustee of the Fairway Spring Company, Inc. Restated Pension Plan, Plaintiff-Appellee, v. SOVRAN BANK/MARYLAND, Defendant-Appellant. SOVRAN BANK/MARYLAND, Third-Party Plai
Case Date:July 25, 1991
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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939 F.2d 12 (2nd Cir. 1991)

CHEMUNG CANAL TRUST COMPANY, as Trustee of the Fairway

Spring Company, Inc. Restated Pension Plan;

William H. Brown; Joseph R. Peters, Plaintiffs,

Chemung Canal Trust Company, as Trustee of the Fairway

Spring Company, Inc. Restated Pension Plan,

Plaintiff-Appellee,

v.

SOVRAN BANK/MARYLAND, Defendant-Appellant.

SOVRAN BANK/MARYLAND, Third-Party Plaintiff-Appellant,

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 and

Director of Fairway Spring Co., Inc.; John Doe; Jane Doe,

as members of the Investment Committee of the Fairway Spring

Co., Inc. Restated Retirement Income Plan; Lynn G. Keyser,

Third-Party Defendants,

Fairway Spring Co., Inc.; Theodore Peterson, as Director of

Fairway Spring Co., Inc.; Donald R. Peterson, as Vice

President and Director of Fairway Spring Co., Inc.; Dorothy

Tarby, as Secretary-Treasurer and Director of Fairway Spring

Co., Inc. and Lynn G. Keyser, Third-Party Defendants-Appellees.

No. 1624, Docket 91-7194.

United States Court of Appeals, Second Circuit

July 25, 1991

Argued June 5, 1991.

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William F. Hanrahan, Washington, D.C. (Groom and Nordberg, Chtd., Robert P. Gallagher, Stephen M. Saxon, Lonie Hassel, of counsel), for third-party plaintiff-appellant.

Kenneth A. Payment, Rochester, N.Y. (Harter, Secrest & Emery, Robert F. Pizzo, of counsel), for third-party defendants-appellees.

Edward B. Hoffman, Elmira, N.Y. (Sayles, Evans, Brayton, Palmer & Tifft, Donna L. Mitchell), for plaintiff-appellee.

Before OAKES, Chief Judge, and PRATT and ALTIMARI, Circuit Judges.

GEORGE C. PRATT, Circuit Judge:

Defendant-third-party plaintiff-appellant Sovran Bank/Maryland ("Sovran") appeals from a judgment of the United States District Court for the Western District of New York, Michael A. Telesca, Chief Judge, entered pursuant to a certification under Fed.R.Civ.P. 54(b). The judgment dismissed Sovran's counterclaim and third-party complaint based on the court's holdings that (1) as a former fiduciary, Sovran had no standing to sue on behalf of the Fairway Spring Co., Inc. Restated Retirement Income Plan ("the plan"), under the Employee Retirement Income Security Act of 1974, 29 U.S.C. Secs. 1001-1461, ("ERISA"), and (2) Sovran had no cause of action for contribution or indemnity under ERISA. 753 F.Supp. 81. We agree with the district court that ERISA does not grant standing to former fiduciaries, and we affirm the judgment on that issue. However, we conclude that ERISA does not preclude a cause of action for contribution or indemnity. We therefore reverse the judgment of the district court on that issue and remand for further proceedings consistent with this opinion.

BACKGROUND

Fairway Spring Company, Inc. ("Fairway") established the plan in 1981 to provide retirement benefits for its employees. Under the terms of the plan, Fairway, acting through its officers, has the authority to appoint a trustee for the plan. As the plan's first trustee, Fairway appointed Glen Dawson, who made imprudent investments and engaged in transactions prohibited under ERISA's fiduciary standards.

Effective December 1, 1984, Fairway removed Dawson as trustee, and appointed Sovran as his replacement, effective February 1, 1985. During the two-month interim period, Lynn Keyser, counsel to Fairway, exercised fiduciary authority over the plan and its assets.

Some of Dawson's imprudent investments performed adequately for a time after Sovran's appointment as trustee. Eventually, however, payments owed to the plan under some of these investments ceased. In 1989, Fairway removed Sovran as trustee and appointed Chemung Canal Trust Company ("Chemung") as the new trustee.

Chemung, as the present trustee of the plan, along with two beneficiaries of the plan, brought this ERISA action against Sovran, the former fiduciary, alleging that Sovran had breached its fiduciary duties to the plan. Chemung sought to recover for the losses caused by Sovran's lack of prudence and due diligence with respect to some of the original investments made by Dawson but continued by Sovran, as well as two other questionable investments that

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Sovran itself had entered into on behalf of the plan.

Sovran counterclaimed against Chemung and filed a third-party complaint against Fairway, its officers, certain members of an investment committee of the plan, and Lynn Keyser, counsel to Fairway (hereinafter collectively referred to as "Fairway"). Sovran alleged that Fairway had breached its fiduciary duties by failing to monitor Dawson's activities, to correct Dawson's fiduciary breaches, and to disclose them to Sovran. It claimed that Fairway had a duty to monitor Dawson's performance, and that it knew or should have known of Dawson's fiduciary breaches, but, without acknowledging or taking action to remedy those breaches, Fairway had merely removed Dawson as trustee. As against Chemung, Sovran's successor trustee, Sovran alleged that Chemung had failed to adequately evaluate and pursue claims of the plan and that this failure contributed to the losses which were the subject of its present suit against Sovran. Sovran requested relief directly on behalf of the plan, as well as contribution or indemnity should it be found liable to the plan.

Fairway moved to dismiss Sovran's third-party complaint, pursuant to Fed.R.Civ.P. 12(b)(6), claiming that ERISA did not allow claims for contribution or indemnity. Chemung joined in this motion. In addition to the contribution and indemnity argument, Chemung argued that Sovran lacked standing to sue on behalf of the plan, because it was no longer a fiduciary.

The district court granted these motions and dismissed the counterclaim and third-party complaint, holding (1) that Sovran had no standing and (2) that there was no cause of action for contribution or indemnity under ERISA. The district court then entered an order pursuant to Fed.R.Civ.P. 54(b), authorizing entry of a final judgment as to those claims, thereby permitting an immediate appeal. Such an appeal, wrote the court, "would promote judicial economy and reduce the expenses of both parties by eliminating the potential for duplicative litigation involving substantially similar facts". Sovran now appeals both holdings.

DISCUSSION

  1. Standing

    Sovran claims that as a former fiduciary it has a right under ERISA to sue on behalf of the plan to recover for the plan's losses. We disagree. Section 502 of ERISA, 29 U.S.C. Sec. 1132(a), specifies those who may bring actions under ERISA and the types of actions each may pursue. The statute names only three classes of persons who may commence an action, and a former fiduciary is not one of them. Those who can sue are: (1) a participant or beneficiary, (2) the Secretary of Labor, and (3) a fiduciary. 29 U.S.C. Sec. 1132(a).

    We have previously determined that, in the absence of some indication of legislative intent to grant additional parties standing to sue, the list in Sec. 502 should be viewed as exclusive. Pressroom Unions-Printers League Income Security Fund v. Continental Assurance Co., 700 F.2d 889, 892 (2d Cir.1983), cert. denied, 464 U.S. 845, 104 S.Ct. 148, 78 L.Ed.2d 138 (1983) (rejecting standing of plan itself); see also Tuvia Convalescent Center, Inc. v. National Union of Hospital & Health Care Employees, 717 F.2d 726, 730 (2d Cir.1983) (rejecting standing of employer). There is no indication of any legislative intent to grant a former fiduciary a continuing right to sue on behalf of the plan; consequently, Pressroom controls, and Sovran's claim falls for lack of standing.

    The eighth circuit, in Blackmar v. Lichtenstein, 603 F.2d 1306 (8th Cir.1979), considered the same issue under a fact pattern that was even stronger for Sovran's position. Nevertheless, that court held that a former fiduciary does not have standing to sue on behalf of the plan, even when he was removed for the very purpose of preventing his bringing suit. There, the trustee, Blackmar, filed suit against former trustees and informed the employer that he planned to join the employer as a party defendant. To prevent this, the employer promptly removed Blackmar as trustee and appointed a successor. Blackmar challenged his removal and the appointment of new trustees, thus raising the issue of

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    whether a former fiduciary had standing to challenge such an appointment. The eighth circuit held that once the former trustee had been removed, he ceased to be a fiduciary and could no longer sue for violations of fiduciary duty: "Adequate protection is afforded the beneficiaries under Section 502. * * * In short, Blackmar no longer has an interest in this suit." Id. at 1310.

    Sovran claims that Blackmar is distinguishable because Sovran is not challenging the validity of Chemung's appointment, as was the case in Blackmar, but instead seeks merely to advance claims on behalf of the plan. We reject the proffered distinction. The crux of the eighth circuit's holding was that a former fiduciary no longer has an interest in protecting a plan to which it is now a complete stranger. Like Blackmar, Sovran is no longer a fiduciary of the plan and cannot be deemed one for purposes of asserting a claim under ERISA. Thus, we affirm the district court's rejection of standing for former fiduciaries under ERISA.

  2. Contribution or Indemnity

    We next address the issue of whether ERISA permits a claim for contribution or indemnity. The district court rejected such a cause of action, relying primarily on the methodology of Cort v. Ash, 422 U.S....

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