Glaziers and Glassworkers v. Newbridge Securities

• Decision Date: 06 March 1995
• Docket Number: No. 90-CV-8101.,90-CV-8101.
• Citation: 877 F. Supp. 948
• Parties: GLAZIERS AND GLASSWORKERS UNION LOCAL 252 ANNUITY FUND, et al., Plaintiffs, v. NEWBRIDGE SECURITIES, INC., et al., Defendants.
• Court: U.S. District Court — Eastern District of Pennsylvania

877 F. Supp. 948

GLAZIERS AND GLASSWORKERS UNION LOCAL 252 ANNUITY FUND, et al., Plaintiffs, v. NEWBRIDGE SECURITIES, INC., et al., Defendants.

No. 90-CV-8101.

United States District Court, E.D. Pennsylvania.

March 6, 1995.

COPYRIGHT MATERIAL OMITTED

Ira B. Silverstein, Leslie M. Gerstein, David B. Snyder, Lisa A. Carney, Fox, Rothschild, O'Brien and Frankel, Philadelphia, PA, for plaintiffs.

Elizabeth Hoop Fay, Karen Pieslak Pohlmann, Morgan, Lewis & Bockius, Philadelphia, PA, for defendant Janney Montgomery Scott, Inc.

Geoffrey A. Kahn, Ballard, Spahr, Andrews and Ingersoll, Philadelphia, PA, for defendant Provident Nat. Bank.

Robert W. Hayes, Cozen & O'Connor, Philadelphia, PA, for third party defendants James A. Williams, et al.

AMENDED MEMORANDUM AND ORDER

JOYNER, District Judge.

We address today cross-motions for summary judgment filed in this case arising under the Employee Retirement Income Security Act of 1974 (ERISA). The plaintiffs are Glaziers and Glassworkers Union Local 252 Annuity Fund, Glaziers and Glassworkers Union Local 252 Vacation Fund, Glaziers and Glassworkers Union Local 252 Pension Fund, and Glaziers and Glassworkers Union Local 252 Health and Welfare Fund, as well as two individual fiduciaries (collectively, "the Funds"). The Funds have filed a complaint alleging that Defendant Janney Montgomery Scott, Inc. (Janney), a securities brokerage firm located in Philadelphia, breached an ERISA fiduciary duty, causing losses to the Funds of close to $3,000,000. The complaint also alleges a breach of fiduciary duty under both state and federal common law. Further, the individual trustee defendants in this case have brought cross-claims against, inter alia, Janney, seeking indemnity and contribution. Janney and the Funds have each filed a motion seeking summary judgment. Janney's motion seeks the dismissal not only of the claims brought by the Funds, but also of the cross-claims brought by the individual trustees. Plaintiffs have since settled their claim as to the defendant trustees, discharging any claim for contribution the trustees might have had against Janney. Thus, Janney's motion as to the defendant trustees has been rendered moot. For the reasons that follow, Janney's motion will be granted, while the Funds' motion will be denied.

I. BACKGROUND

A. Statement of Undisputed Facts

In the early 1980's, the Funds opened brokerage accounts with Janney, which were managed by a Janney executive named Michael Lloyd. Mr. Lloyd made investment recommendations to the Funds' administrator, who generally assented to the recommendations and allowed Mr. Lloyd to execute the proposed transactions. The relationship between Mr. Lloyd, as Janney's representative, and the Funds continued to the apparent satisfaction of all parties until 1985.

In June of that year, however, Janney began to suspect that Mr. Lloyd had engaged in fraudulent conduct with respect to a personal investment he made in a limited partnership. Pursuant to the limited partnership agreement he had entered, Mr. Lloyd was required to make an installment payment by February 1, 1985. When the partnership asserted, in the months after payment became due, that he had not made the payment in a timely fashion, Mr. Lloyd presented a copy of a cashier's check as proof of payment. It appeared to Janney, however, that Mr. Lloyd had altered the date of the check in an attempt to show that the payment was timely made. After Mr. Lloyd failed to provide a satisfactory explanation for these circumstances, Janney decided to fire Mr. Lloyd, and informed Mr. Lloyd's lawyer of its decision. In the face of this pressure, Mr. Lloyd tendered his resignation on June 18, 1985.

As it was obligated to do, Janney submitted a Uniform Termination Notice to the National Association of Securities Dealers (NASD), describing in detail the nature of Mr. Lloyd's departure. The NASD is a regulatory body with the authority to revoke or suspend a broker's securities license. After an investigation, the NASD issued a letter of caution to Mr. Lloyd, reminding him that he was obliged to ensure that his personal securities transactions were paid for in a timely fashion. Nothing in the letter suggested that the NASD had concluded that Mr. Lloyd had altered checks or engaged in any fraudulent behavior. The NASD allowed Mr. Lloyd to retain his securities license and to establish his own firm, Lloyd Securities, Inc.

Janney also notified the Funds' trustees of Mr. Lloyd's resignation and assigned Mr. Lloyd's accounts to another executive, but it did not inform the trustees as to the nature of Mr. Lloyd's departure or as to two other incidents which reflected poorly on Mr. Lloyd's professional fitness.¹ Six days following Mr. Lloyd's resignation from Janney, the Funds' trustees elected to follow Mr. Lloyd to his new firm. The Funds' accounts remained at Janney until Mr. Lloyd received regulatory approval to establish Lloyd Securities, whereupon they were transferred to Mr. Lloyd's new firm in September of 1985. While the accounts were at Lloyd Securities, Mr. Lloyd defrauded the Funds by making unauthorized withdrawals and converting the Funds' assets to his personal use. The Funds contend that they incurred losses of close to $3,000,000 as a result of Mr. Lloyd's misdeeds. Mr. Lloyd subsequently entered a guilty plea to charges stemming from his activities at Lloyd Securities and is currently serving a prison sentence.

B. Procedural Summary

The Funds later initiated this action, in which they allege that Janney breached the fiduciary duty it owed the Funds by not informing them of the circumstances surrounding Mr. Lloyd's resignation. The Funds contend that they would have placed the accounts with another firm had Janney informed them of Mr. Lloyd's conduct while he worked at Janney. Thus, they argue that the losses were incurred as a result of Janney's failure to disclose the information concerning Mr. Lloyd. Janney has filed this motion for summary judgment and argues that it is not an ERISA fiduciary, and therefore cannot be liable. In the alternative, Janney argues that even if it were a fiduciary, it was under no obligation to inform the Funds of the circumstances surrounding Mr. Lloyd's resignation.

We do not today address the issue of whether Janney is an ERISA fiduciary because of our conclusion that the circumstances complained of fall outside the scope of any fiduciary relationship that may have existed between Janney and the Funds. Thus, any fiduciary obligation did not encompass a duty to inform the Funds of the circumstances regarding Mr. Lloyd. Further, we find no merit in the contentions raised by the Funds in Counts II and III of their complaint. As a result, as we explain below, we must grant Janney's motion for summary judgment as to all claims alleged against it by the Funds.

II. DISCUSSION

A. The Summary Judgment Standard

This Court is authorized to award summary judgment "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 judgment as a matter of law." Fed.R.Civ.P. 56(c). Thus, the Court's responsibility is not to resolve disputed issues of fact, but to determine whether there exist any factual issues to be tried. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-49, 106 S.Ct. 2505, 2509-11, 91 L.Ed.2d 202 (1986). The non-moving party must raise "more than a mere scintilla of evidence in its favor" in order to overcome a summary judgment motion. Williams v. Borough of W. Chester, 891 F.2d 458, 460 (3d Cir.1989) (citing Liberty Lobby, 477 U.S. at 249, 106 S.Ct. at 2510). Further, the non-moving party cannot rely on unsupported assertions, conclusory allegations, or mere suspicions in attempting to survive a summary judgment motion. Id. (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986)). Boiled to its essence, the summary judgment standard requires the non-moving party to create a "sufficient disagreement to require submission of the evidence to a jury." Liberty Lobby, 477 U.S. at 251-52, 106 S.Ct. at 2512.

In cases where the parties have filed cross motions for summary judgment, as the parties have in the present action, each side contends that no issues of material fact exist. Yet the standard under which the Court weighs the merits of the motions does not change simply because cross-motions have been filed. United States v. Hall, 730 F.Supp. 646, 648 (M.D.Pa.1990). Each party must establish that no issues of fact exist and that it is entitled to judgment as a matter of law. As a result, a case will not necessarily be decided at the summary judgment stage merely because cross-motions have been filed. Id. (citing Rains v. Cascade Indus., Inc., 402 F.2d 241, 245 (3d Cir.1968)). If an issue of fact exists, both summary judgment motions will fail. With these principles in mind, the Court turns to the substance of the motions.

B. The ERISA Claim

1. Fiduciaries under ERISA

It is helpful to explore the circumstances under which a party will be deemed a fiduciary for ERISA purposes before proceeding with the analysis. The Third Circuit Court of Appeals has noted that the threshold inquiry with respect to a party's liability under ERISA is whether that party is a fiduciary. Painters of Philadelphia Dist. Council No. 21 Welfare Fund v. Price Waterhouse, 879 F.2d 1146, 1148-49 (3d Cir.1989). An ERISA fiduciary is defined thusly:

Except as otherwise provided in subparagraph (B), a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to

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