Pension Plan for Employees v. Principal Mut. Life

• Decision Date: 12 August 1999
• Docket Number: No. 95-CV-7839.,95-CV-7839.
• Citation: 62 F.Supp.2d 1055
• Parties: PENSION PLAN FOR EMPLOYEES OF BATTENFELD GREASE & OIL CORP, et al., Plaintiffs, v. PRINCIPAL MUTUAL LIFE INSURANCE CO., Defendant.
• Court: U.S. District Court — Western District of New York

62 F.Supp.2d 1055

PENSION PLAN FOR EMPLOYEES OF BATTENFELD GREASE & OIL CORP, et al., Plaintiffs, v. PRINCIPAL MUTUAL LIFE INSURANCE CO., Defendant.

No. 95-CV-7839.

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

August 12, 1999.

Gary Kotaska, Phillips, Lytle, Hitchcock, Blaine & Huber, Buffalo, NY, for plaintiffs.

Kevin M. Kearney, Hodgson, Russ, Andrews, Woods & Goodyear, Buffalo, NY, for defendant.

DECISION and ORDER

SIRAGUSA, District Judge.

This action was brought by the plaintiff pension plans against the defendant insurance company alleging breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001, et. seq. and for breach of contract. Before the Court is the defendant's motion for summary judgment, filed May 22, 1997 (document # 8), and the plaintiffs' motion for summary judgment, filed May 23, 1997 (document # 12). The plaintiffs seek summary judgment on the theory that the defendant insurance company violated the terms of the investment contract in force between the parties, and the defendant seeks summary judgment on the basis that the plaintiffs' fund manager misunderstood the contract and did not move the pension funds in sufficient time to avoid a $234,355 loss to the fund. In dispute is whether the defendant is a fiduciary under ERISA, whether the plaintiffs have standing to bring the suit, whether ERISA supersedes any state law contractual claim, and whether any claims are barred by the applicable statutes of limitations.

Jurisdiction in this court is based on a federal question pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(f). For the breach of contract claims, this Court has supplemental jurisdiction under 28 U.S.C. § 1332 and diversity jurisdiction under 28 U.S.C. § 1332.

The plaintiffs filed their suit September 27, 1995, and the case was originally assigned to the Honorable William M. Skretny. The parties have completed discovery. Following oral argument on the motions, Judge Skretny transferred the case to the undersigned by an order entered on December 15, 1997 (document # 26). At the suggestion of the parties, this Court heard reargument on the motions and reserved decision. For the reasons stated below, the Court denies the defendant's motion for summary judgment, and grants in part and denies in part the plaintiffs' motion for summary judgment.

BACKGROUND

The plaintiffs are Battenfeld Grease and Oil Corporation of New York ("BATCO") and Battenfeld-American, Inc. ("BATAM"). Both companies operated in Buffalo, New York, and had pension plans which met the definition of a pension plan under ERISA, 29 U.S.C. § 1002(2)(A).

Since 1989, John A. Bellanti Sr. has served as the trustee of each plan. Kent aff., at 3. The other trustee is his wife, Florence Bellanti. Kent aff., at 3. Mr. Bellanti had handled the pension funds for BATAM and BATCO since becoming BATCO's controller in November, 1956. Defendant's Statement of Undisputed Facts (May 22, 1997, document # 9) ("Defendant's Statement"), at 2. In September 1983, after having worked his way up through the ranks, Mr. Bellanti purchased both companies, BATAM and BATCO, and became president and chairman of the board of directors and the majority shareholder for both companies. He has also been a certified accountant for thirty-one years. Id., at 2-3.

The pension plans for BATAM and BATCO were funded by two contracts with the defendant¹. One was a group annuity contract between the defendant and the trustees of the Battenfeld Pension Plan, contract 51959. The other was between the defendant and the trustees of the Battenfeld American Pension Plan, also a group annuity contract, number 51960. Each was issued on March 17, 1981 with an effective date of January 1, 1980, and each was identical in all material respects to the other. The contracts were drafted by the defendant and were not subject to negotiation. Plaintiffs' Memorandum of Law in Support of Plaintiffs' Motion for Summary Judgment (May 23, 1997, document # 13) ("Plaintiffs' Memorandum"), at 2. Prior to signing the contracts as trustee, Mr. Bellanti reviewed them with the assistance of a lawyer, Gary Kotaska, Esq. Defendant's Statement, at 3-4.

Both contracts were supported by the defendant's General Account, about which the defendant stated, "[t]he assets held in the General Account are invested for the benefit of our insurance and retirement plan customers," and consisted primarily of bonds and other loans, such as commercial and residential mortgages. Defendant's Statement, at 4. The contracts permitted the trustees of the pension plans to withdraw funds from the contract at any time. Id.

From the inception of the plans in January 1980 until April 1994, all monies deposited pursuant to the contracts were invested in the General Asset Fund, sometimes referred to as the General Account. Plaintiffs' Memorandum, at 3. Principal reported regularly on the value of the invested funds on a "book value" basis. The book value consisted of the sum of all contributions to date, along with the sum of all interest earned to date. Id. The defendant also reported from time to time the "market value" of the investments, but did not disclose to the plaintiffs the formula for calculating this value. Id.

The contracts' Article VI, Limitation on Payments and Transfers, governed payout of the funds upon demand of the plaintiffs. Section 1, Subsection 2, Accelerated Payment or Transfer at Investment Value, reads in pertinent part,

In lieu of the installment payments described in Subsection 1 above, the Contractholder may request that subject to the limitations of this Article any payment or transfer be made on an investment value basis. In this event, the amount of payment or the amount transferred will be a percentage of the amount deducted from the General Asset Fund. Such percentage adjusts for the difference between the interest rate currently available for new investments and the current Experience Interest Rate for this contract. The Bankers Life will inform the Contractholder in writing of said percentage within 30 days of the Contractholder's written request for payment or transfer.

* * * * * *

In any event, payment or transfer under this Subsection 2 will not be made until The Bankers Life has received written agreement from the Contractholder to the investment value adjustment.

Kent aff., at Exhibit F. The contracts provided that the plaintiffs could elect either installment payments, or a lump sum payment at investment value. If the latter, the amount of the payment would be adjusted by the defendant to account for the difference in interest rates for current investments and something they called the "Experience Interest Rate." The contracts defined Experience Interest Rate in Article 1, Section 3, Miscellaneous, as:

Experience Interest Rate means, as to any Accounting Year², a rate of interest per annum, as determined for this contract by The Bankers Life by application of its established method of computing net interest earnings on General Asset Funds held as to contracts of this class for such year....

In 1982, the defendant announced to all its contract holders, including the plaintiffs, their adoption of what they termed an "Investment Quarter Interest" ("IQI") method for the General Account. Plaintiffs' Memorandum, at 4. The plaintiffs brief describes this method: "The IQI based investment results [in] an average rate during a calendar quarter instead of a calendar year." Plaintiffs' Memorandum, at 4-5. In a letter from Mrs. Marion Barnhill, dated February 8, 1982, to Mr. Bellanti (attached as Exhibit 5 to Documents in Support of Plaintiff's Motion for Summary Judgment) and marked as Exhibit 15 to Mr. Bellanti's deposition, Mrs. Barnhill explained, "[t]he quarterly investment periods will more closely reflect current investment conditions at the time of your deposit than annual investment periods do."

The plaintiffs allege that the defendant's motivation for changing to the IQI method was to "reduce the flexibility of contractholders in deciding whether and when to make an investment in the General Asset Fund and/or whether or when to terminate their contract arrangement with Principal." Plaintiffs' Memorandum, at 5 (citation omitted).

DISCUSSION

The law on summary judgment is well settled. Summary judgment may only be granted 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). That is, the burden is on the moving party to demonstrate that the evidence creates no genuine issue of material fact. Chipollini v. Spencer Gifts, Inc., 814 F.2d 893 (3rd Cir.1987) (en banc). Where the non-moving party will bear the burden of proof at trial, the party moving for summary judgment may meet its burden by showing the "evidentiary materials of record, if reduced to admissible evidence, would be insufficient to carry the non-movant's burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). Once the moving party has met its initial obligation, the opposing party must produce evidentiary proof in admissible form sufficient to raise a material question of fact to defeat a motion for summary judgment, or in the alternative, demonstrate an acceptable excuse for its failure to meet this requirement. Duplantis v. Shell Offshore, Inc., 948 F.2d 187 (5th Cir.1991); Fed.R.Civ.P. 56(f). Once the moving party has met its burden, mere conclusions or unsubstantiated allegations or assertions on the part of the opposing party are insufficient to defeat a motion for summary judgment. Knight v. United States Fire Ins. Co., 804 F.2d 9 (2d Cir. 1986). The Court, of course, must examine the facts in the light most favorable to the party opposing summary judgment,...