INTERN. BROTH. OF PAINTERS v. Duval

• Decision Date: 03 April 1996
• Docket Number: Civil Action No. 92-1099.
• Citation: 925 F. Supp. 815
• Parties: The INTERNATIONAL BROTHERHOOD OF PAINTERS AND ALLIED TRADES UNION AND INDUSTRY PENSION FUND, et al., Plaintiffs, v. William A. DUVAL, et al., Defendants.
• Court: U.S. District Court — District of Columbia

925 F. Supp. 815

The INTERNATIONAL BROTHERHOOD OF PAINTERS AND ALLIED TRADES UNION AND INDUSTRY PENSION FUND, et al., Plaintiffs, v. William A. DUVAL, et al., Defendants.

Civil Action No. 92-1099.

United States District Court, District of Columbia.

April 3, 1996.

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Robert Patrick Gallagher, Groom & Nordberg, Chartered, Washington, DC, Jeffrey E. Hartnett, Bartley, Goffstein, Bollato and Lange, St. Louis, MO, Mark W. Weisman, Suelthus & Kaplan, St. Louis, MO, for plaintiffs.

Gerald M. Feder, Paul Limmiatis, Feder & Associates, P.C., Washington, DC, for William A. Duval.

Michael William Solinsky, Arlington, VA, Charles Roe Mills, Kirkpatrick & Lockhart, L.L.P., Washington, DC, for Shearson Lehman Brothers, Inc.

Eugene I. Goldman, Paul Joseph Pantano, Jr., Elizabeth Parry Fohrman, McDermott, Will & Emery, Washington, DC, Charles Roe Mills, Kirkpatrick & Lockhart, L.L.P., Washington, DC, for Kent D. Kitchel.

Gerald M. Feder, Feder & Associates, P.C., Washington, DC, for William A. Duval.

MEMORANDUM OPINION AND ORDER

JOYCE HENS GREEN, District Judge.

The plaintiffs¹ initiated this action pursuant to Sections 409 and 502 of the Employee Retirement Income Security Act of 1974 ("ERISA"), codified at 29 U.S.C. §§ 1001 et seq. (1994), and the Investment Advisors Act of 1940 ("IAA"), codified at 15 U.S.C. §§ 80b-1 et seq. (1994), against Shearson Lehman Brothers, Inc. ("Shearson"), Kent D. Kitchel ("Kitchel"), and William A. Duval ("Duval"). The complaint alleges that the defendants breached their fiduciary duties and engaged in transactions prohibited by ERISA and the IAA. Presently pending are Defendant Shearson's motion to dismiss or, in the alternative, for summary judgment ("Motion for Summary Judgment"); Defendant Kitchel's motion for summary judgment ("Kitchel's Motion for Summary Judgment"); and the plaintiffs' and Defendant Duval's joint consent motion to dismiss and for stipulated agreement ("Consent Motion to Dismiss"). For the reasons explained below, Shearson's motion will be denied in part and granted in part; Kitchel's motion will be granted; and the consent motion to dismiss and for stipulated agreement will not be approved. Partial summary judgment will be entered for Defendant Shearson on Count VII, and summary judgment will be entered for Defendant Kitchel on Counts V, VI and VII. Judgment Orders shall be issued separately this date.

Background

The following facts are undisputed. During all times relevant, Defendant Shearson served as the Plan's investment manager. Defendant William A. Duval was the General President of the International Brotherhood of Painters and Allied Trades, and he acted as a trustee and co-chairman of its $1 billion pension trust fund (the Plan), which was established to provide benefits to retired union employees. Defendant Kent D. Kitchel is Duval's wife's son and was, during all times relevant, an employee of Defendant Shearson and the financial consultant to the Plan.

In 1985, the plaintiffs endeavored to identify and select an new investment manager for the Plan. After retaining an expert consultant, the Plan's Investment Committee, which included Duval, engaged in a review of numerous firms and selected two firms as finalists: Dreman & Embry, Inc. ("Dreman") and Defendant Shearson.² On December 12, 1985, after presentations by Dreman and Shearson, the Board of Trustee's selected Shearson. On December 13, 1985, Shearson was notified that it had been retained to manage the plan, and, on December 24, 1985, Shearson advised the depository bank of its fiduciary status. Shearson managed the Plan until approximately November 1991, when the agreement was terminated.

The essence of the complaint arises from Kitchel's connection to Duval. The plaintiffs allege that Duval knew or should have known that Kitchel would receive compensation in connection with Shearson's retention as Plan manager. The plaintiffs contend that the defendants exploited and then improperly concealed Kitchel's connection to Duval and his status as a financial consultant to the Plan, which status allowed Kitchel to derive compensation from fees generated by Shearson's contract to manage the Plan. The plaintiffs allege, and Duval denies, that Duval actively participated in the discussions regarding Shearson's selection and that he actively lobbied for retaining Shearson.

The plaintiffs have filed a nine-count complaint. Counts I-VI allege that the defendants breached their fiduciary duties owed to the Plan and engaged in transactions prohibited by ERISA (Counts I and II are against Duval, Counts III and IV are against Shearson, and Counts V and VI are against Kitchel). Count VII asserts that the defendants are liable for the breach of fiduciary duties by their cofiduciaries to the Plan. Count VIII is an alternative claim for nonfiduciary liability against Kitchel, which claim alleges that Kitchel, as a nonfiduciary, participated in Shearson's and Duval's breaches of their fiduciary duties. Finally, Count IX alleges that Shearson violated the IAA.

In their answers, the defendants counterclaimed against the trustee plaintiffs, seeking contribution and indemnification. Duval also counterclaimed against Trustee A.L. Monroe, claiming that Monroe breached his fiduciary duty because he was aware that Shearson employed a person with a family relationship to Duval, but nevertheless failed to advise the other trustees. In its claim, Shearson also alleged that the Plan was liable for restitution due to the increase in the Plan's value while under Shearson's management.

On April 14, 1994, this Court ruled on the pending motions. The Court granted the plaintiffs' motion to dismiss the defendants' claim for contribution and indemnification; denied Shearson's restitution claim for the increase in the value of the Plan; denied Plaintiff A.L. Monroe's motion for summary judgment on Duval's counterclaim; granted Plaintiff Richard A. Grund's motion for partial summary judgment on the defendants' counterclaims; granted the plaintiffs' motion to amend their name; granted the plaintiffs' motion for limited discovery; and denied Kitchel's motion for judgment on the pleadings. After limited discovery, the instant motions followed.

Discussion

Summary judgment is appropriate when there is "no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "The inquiry performed is the threshold inquiry of determining whether there is a need for trial — whether, in other words, there are any genuine issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). In considering a motion for summary judgment, the "evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in its favor." Id. at 255, 106 S.Ct. at 2513. At the same time, however, Rule 56 places a burden on the nonmoving party to "go beyond the pleadings and by its own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986) (internal quotations omitted). A fact is material if its resolution would affect the outcome of the litigation. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.

To survive a motion for summary judgment, the nonmovant must offer sufficient evidence and designate specific facts to show that there is a reason for trial. The role of the Court is not to weigh the evidence, but to determine whether genuine issues of material fact exist for trial. Abraham v. Graphic Arts Int'l Union, 660 F.2d 811, 814 (D.C.Cir.1981). Faced with a motion for summary judgment, the nonmoving party must offer more than mere allegations. Anderson, 477 U.S. at 249, 106 S.Ct. at 2510. If the material facts proffered by the nonmoving party are subject to diverse interpretations, summary judgment is not available. Tao v. Freeh, 27 F.3d 635, 638 (D.C.Cir. 1994). Any doubts must be resolved in favor of the nonmoving party, Abraham, 660 F.2d at 815, and the nonmoving party is entitled to all justifiable inferences. Anderson, 477 U.S. at 255, 106 S.Ct. at 2513.

Shearson's Motion for Summary Judgment

Shearson seeks summary judgment in its favor on Counts III, IV, VII and IX.

1. Count III.

In Count III, the plaintiffs claim that Shearson violated Section 404(a)(1) of ERISA, 29 U.S.C. § 1104(a)(1), because Shearson failed to disclose and deliberately concealed Kitchel's connection to the Fund and by paying Kitchel compensation from Plan assets. Amended Complaint, at ¶ 47. Shearson offers several arguments upon which, it asserts, it is entitled to summary judgment. These arguments are unpersuasive and Shearson's motion will be denied.

First, Shearson contends that because there is no suggestion that the investment portfolio was mismanaged, there can be no liability under Section 404(a)(1). Motion for Summary Judgment, supra, at 24-25. Second, Shearson argues that its liability under ERISA's Section 404(a)(1) arose only after it began to manage the Fund on January 1, 1986, and that it cannot be held liable for any conduct occurring prior to December 31, 1985. Id. at 25. Finally, Shearson avers that because the Fund suffered no investment losses and because the fees that Shearson was paid were reasonable, there can be no Section 404(a)(1) liability. Id. at 25-27.

Under Section 404(a)(1) of ERISA, a fiduciary must discharge its duties in managing an investment plan "solely in the interests of the participants and beneficiaries ... with the care, skill, prudence, and diligence" that would be employed by a "prudent person acting in a like capacity and familiar with such...