Daniels v. National Employee Ben. Services, Inc., 1:92CV2001.

• Decision Date: 23 February 1995
• Docket Number: No. 1:92CV2001.,1:92CV2001.
• Citation: 877 F. Supp. 1067
• Parties: Steven DANIELS, et al., Plaintiffs, v. NATIONAL EMPLOYEE BENEFIT SERVICES, INC., et al., Defendants/Third-Party Plaintiffs, v. Steven DANIELS, et al., Third-Party Defendants.
• Court: U.S. District Court — Northern District of Ohio

877 F. Supp. 1067

Steven DANIELS, et al., Plaintiffs, v. NATIONAL EMPLOYEE BENEFIT SERVICES, INC., et al., Defendants/Third-Party Plaintiffs, v. Steven DANIELS, et al., Third-Party Defendants.

No. 1:92CV2001.

United States District Court, N.D. Ohio, Eastern Division.

February 23, 1995.

COPYRIGHT MATERIAL OMITTED

Christopher S. Williams, Calfee, Halter & Griswold, Jeffrey L. Nischwitz, Law Offices of Jeffrey L. Nischwitz, Cleveland, OH, for plaintiffs and third-party defendants

Robert J. Hanna, Arter & Hadden, Cleveland, OH, Danny L. Cvetanovich, Arter & Hadden, Columbus, OH, for defendants/third-party plaintiffs.

MEMORANDUM AND ORDER

ANN ALDRICH, District Judge.

Steven Daniels, George Daniels, the Daniels Furniture Pension Plan and Trust, the Daniels Furniture Retirement Plan and Trust, and the Electra Acceptance Corporation (collectively "plaintiffs") bring this action against National Employee Benefits, Inc. ("NEBS"), Bruce Kosinski, and Beka Agency, Inc. (collectively "defendants"), pursuant to 29 U.S.C. § 1132(a), 28 U.S.C. § 2201, and Ohio common law.

Daniels asserts a nine count second amended complaint, alleging generally that the defendants violated their fiduciary duties as Plan administrator in selling securities and insurance to the Plans while collecting a commission and in conducting the termination of the Pension Plan, as well as that the defendants committed common law fraud in the sale of securities to the Plans. Specifically, the plaintiffs allege in Count One that the defendants engaged in transactions in violation of 29 U.S.C. § 1106(b); in Count Two, that the defendants engaged in transactions in violation of 29 U.S.C. § 1106(a); in Count Three, that the defendants breached their fiduciary duties to the Plans in violation of 29 U.S.C. § 1104(a)(1); in Count Four, that the defendants violated 29 U.S.C. § 1132(c)(1); in Count Five, that each of the defendants is jointly and severally liable for the violations of the others under 29 U.S.C. § 1105(a); in Count Six, that Kosinski and Beka are liable for their knowing participation in NEBS' acts, even if Kosinski and Beka are not fiduciaries; in Count Seven, that the defendants breached fiduciary duties and contractual obligations in terminating the Pension Plan; in Count Eight, that the plaintiffs are entitled to a declaration of their rights under 28 U.S.C. § 2201; and in Count Nine, that the defendants committed common-law fraud in the sale of investments.

The plaintiffs have stipulated to a voluntary dismissal of Counts Six and Nine.

The defendants assert a counterclaim against Electra, alleging that NEBS provided services, pursuant to contract, for the termination of a benefits plan, but was not compensated for these services. Count One of the counterclaim alleges breach of contract, and Count Two seeks recovery in quantum meruit or quantum valebant. The defendants also assert an amended third party complaint against the Daniels, seeking contribution from each of the Daniels for any amount recovered against the defendants.

This Court has previously held that the defendants acted as fiduciaries with respect to the plans at issue and violated ERISA by engaging in prohibited transactions. Memorandum and Order of June 30, 1994 (published at 858 F.Supp. 684). In doing so, this Court entered judgment in favor of the plaintiffs on Counts One, Two, Three, Five, and Eight. These Counts are identical to Counts One, Two, Three, Five, and Eight in the second amended complaint. The defendants did not move to alter, amend, or modify the judgment pursuant to Rule 59(e).

The defendants' current motions were filed on October 28, 1994. The defendants move for summary judgment on the remaining counts of the second amended complaint; the plaintiffs oppose the motion. The defendants also move for summary judgment on their counterclaim and on the amended third party complaint; the plaintiffs oppose these motions as well. The plaintiffs move for judgment on the pleadings on the defendants' amended third party complaint, and the defendants oppose that motion. For the reasons set out below, the defendants' motion for partial summary judgment on the second amended complaint is denied; the defendants' motion for summary judgment on the counterclaim is granted in part and denied in part; the defendants' motion for summary judgment on the amended third party complaint is denied; and the plaintiffs' motion for judgment on the pleadings on the amended third-party complaint is granted.

I.

The following facts are undisputed.

Steven and George Daniels are the trustees of the Daniels Furniture Pension Plan and Trust and the Daniels Furniture Retirement Plan and Trust, of which Daniels Furniture is the sponsor. NEBS was the Plan administrator during the events in question. Kosinski owns 50% of NEBS' common stock and is NEBS' president; Kosinski's wife owns the remaining 50% of the shares. Kosinski is the only person with authority to act on NEBS' behalf. Kosinski is the sole shareholder of Beka, Inc., as well as its sole officer and the only person with authority to act on Beka's behalf.

In 1984, the plaintiffs contracted with NEBS for the purpose of establishing the two Plans. After the establishment of the Plans, NEBS, through Kosinski, began acting as the Plan administrator; this entailed the authority to offer investment "instruction," pursuant to the Plan agreement, although NEBS did not in fact offer investment advice. Kosinski, however, purportedly acting as an individual rather than in his capacity as president of NEBS, did offer advice regarding sales of securities products to the Plans. Beka, also acting solely through Kosinski, offered insurance products to the Plans. Kosinski collected a commission on these sales of securities and insurance products, although he did not collect any salary or commission from NEBS. Until 1989, Kosinski annually met with the plaintiffs to offer investment advice. The Plans relied on this advice exclusively until 1988.

The Daniels were of course aware that they relied exclusively on Kosinski's investment advice through 1988. They also knew that Kosinski, but not NEBS, was collecting a commission on sales of securities to the Plans. The Daniels offer evidence to demonstrate that they were unaware of Beka's role, however. That is, the Daniels were not aware that insurance products were sold to them through Beka or that Beka collected any commission on the sale of such products. In addition, the Daniels had no knowledge of Kosinski's ownership interest in Beka.

On May 28, 1991, NEBS sent a letter to Steven Daniels in his capacity as an officer of the Electra Acceptance Corporation. The letter related to amending and restating the Daniels Furniture Retirement Plan and Trust. The letter sought authorization to perform certain services, in return for reimbursement. According to the letter, "the related services covered by these expenses are:

1) An Annual Asset Valuation.

2) Preparation and Filing of the annual 5500 and appropriate Schedules.

3) A report to the Trustees of the required contribution amounts.

4) Determine eligibility and vested interests of each participant.

5) Compute costs and benefits for existing and new participants.

6) Maintain individual account records and allocate employer contributions, trust fund earnings, forfeitures, etc.

7) Statements for each participant in the plan and their individual benefits.

8) Provide a consolidated Trustees Report."

The letter stated that any other services performed would be charged "on a separate basis." Steven Daniels signed this letter and returned it to NEBS. NEBS performed the services detailed in the letter. On October 28, 1991, NEBS sent an invoice to Electra seeking payment for these services in the amount of $1,815.00. Electra has not paid this invoice.

Steven Daniels, who is both a trustee and a participant of the Plans, offers evidence that he requested a copy of certain Plan documents from the defendants. Daniels made this request after a company with whom the Plan had contracted for its termination asked Daniels for these documents. Daniels also offers testimony that these documents were not provided within thirty days.

II.

A. Federal Rule of Civil Procedure 56(c) governs summary judgment motions and provides:

The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law ...

Rule 56(e) specifies the materials properly submitted in connection with a motion for summary judgment:

Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein ... The court may permit affidavits to be supplemented or opposed by depositions, answers to interrogatories, or further affidavits. When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denial of the adverse party's pleading, but the adverse party's response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If the adverse party does not so respond, summary judgment, if appropriate, shall be entered against the adverse party.

However, the movant is not required to file affidavits or other similar materials negating a claim on which its opponent bears the burden of proof, so long as the movant relies upon the absence of the essential element in the pleadings, depositions, answers to interrogatories, and admissions on file. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

In reviewing summary judgment motions, ...