Prudential Ret. Ins. & Annuity Co. v. State St. Bank & Trust Co.

• Decision Date: 19 November 2012
• Docket Number: 07 Civ. 8488 (PAC)
• Parties: PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY, Plaintiff and Third-Party Defendant, v. STATE STREET BANK AND TRUST COMPANY, Defendant and Third-Party Plaintiff
• Court: U.S. District Court — Southern District of New York

PRUDENTIAL RETIREMENT INSURANCE AND ANNUITY COMPANY, Plaintiff and Third-Party Defendant,

v.STATE STREET BANK AND TRUST COMPANY, Defendant and Third-Party Plaintiff

07 Civ. 8488 (PAC)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

Dated: November 19, 2012

OPINION & ORDER

HONORABLE PAUL A. CROTTY, United States District Judge:

On October 1, 2007, Plaintiff Prudential Retirement Insurance and Annuity Co. ("PRIAC") brought this action, pursuant to sections 409(a) and 502(a)(2) and (3) of the Employee Retirement Income Security Act of 1974¹ ("ERISA") against defendants State Street Bank and Trust Co. ("State Street"). ² PRIAC acted as an ERISA fiduciary on behalf of nearly 200 retirement plans (the "Plans") that invested, through PRIAC, in two collective bank trusts managed by State Street: the Government Credit Bond Fund ("GCBF") and the Intermediate Bond Fund ("IBF," and, collectively, the "Bond Funds"), both of which PRIAC alleged lost significant value due to State Street's breaches of fiduciary duty. State Street filed its answer on October 27, 2008, and counterclaimed for contribution or indemnification, defamation, andviolations of the Massachusetts Unfair Trade Practices Act.³ Def.'s Answer & Counterclaim, Dkt. No. 97.

On March 28, 2011, Judge Holwell (1) denied State Street's motion for summary judgment based on PRIAC's failure to mitigate damages and on the doctrine of superceding cause; (2) denied State Street's cross-motion for partial summary judgment on its contribution counterclaim; (3) granted PRIAC's motion to dismiss State Street's claim under the Massachusetts Unfair Trade Practices Act, and (4) denied PRIAC's motion to dismiss State Street's contribution and defamation claims. In re State St. Bank & Trust Co. ERISA Litig., 772 F. Supp. 2d 519, 523 (S.D.N.Y. 2011) (the "SJ Decision").

Judge Holwell conducted a seven day bench trial in October 2011 on PRIAC's claims against State Street, with State Street's contribution and defamation claims against PRIAC to be tried separately at a later date. On February 1, 2012, Judge Holwell awarded PRIAC $28,143,656, finding that State Street (1) violated its duty of care, skill, prudence and diligence; (2) did not violate its duty of loyalty; and (3) violated its duty to diversify its investment portfolio. See generally In re State St. Bank & Trust Co. ERISA Litig., 842 F. Supp. 2d 616 (S.D.N.Y. 2012) (the "ERISA Decision").

PRIAC has renewed its motion for partial summary judgment dismissing State Street's contribution and defamation claims, asserting that the ERISA Decision has changed the landscape. The parties have fully briefed the issues and oral arguments were held on November 13, 2012. For the reasons stated below, PRIAC's motion for summary judgment is denied.

BACKGROUND⁴

PRIAC argues that the Court should revisit its motion for summary judgment because "[t]he ERISA Decision provides an expansion of the record by adding factual findings and legal conclusions that make it possible to dispose of State Street's remaining claims." PRIAC's Mem. of Law at 11, Dkt. No. 348. State Street counters: (1) PRIAC's arguments have already been considered and rejected in the SJ Decision, and (2) the ERISA Decision specifically excluded the disputed questions of fact that Judge Holwell previously determined precluded summary judgment of State Street's claims. State St.'s Opp'n at 10-17, Dkt. No. 349.

As Judge Holwell explained with regard to State Street's contribution claim,

The factual core of State Street's argument begins with its assertion that PRIAC was fully aware of the leverage and subprime exposure in the Bond Funds by mid-July 2007. According to State Street, PRIAC had a duty to pass on that information to the Plans at that time, but failed to do so until late August 2007. If PRIAC had passed on that information in July, State Street surmises that the Plans would then have redeemed their interests in the Bond Funds. If the Plans had done so in mid-July instead of late August 2007, their losses would have been substantially less than that which is claimed in this litigation.⁵

SJ Decision at 538. PRIAC argues that the ERISA Decision found State Street liable for breaching fiduciary duties related to managing the Bond Funds' assets, which PRIAC cannot be held jointly liable for because it played no role in State Street's investment decisions. PRIAC's Mem. of Law at 16-18. Alternatively, PRIAC argues that the ERISA Decision makes clear that State Street was "substantially more at fault" than PRIAC, which would also bar holding PRIAC jointly liable for the damages suffered by the Plans. Id. at 18-19.

With regard to its defamation claim, State Street identified twenty-three instances in which PRIAC sought to "conceal its fiduciary failures and to disclaim any responsibility" by"cast[ing] blame on State Street through defamatory statements."⁶ Compl. at ¶ 33. Judge Holwell found that triable issues of fact existed only as to six of these statements. PRIAC's other statements were privileged as a result PRIAC's common interest with the Plans arising out of their business relationship. SJ Decision at 560-62. With regard to the six statements still at issue, however, Judge Holwell found that they would not have been privileged if PRIAC made them with "actual malice," id. at 561 n.27, which requires a factual determination that the declarant had "knowledge that [the statement] was false or [made the statement] with reckless disregard of whether it was false or not." Id. at 560 (quoting N.Y. Times Co. v. Sullivan, 376 U.S. 254, 279-280 (1964)). PRIAC argues that the ERISA Decision made clear that these statements are "substantially true," and therefore cannot form the basis of a defamation claim. PRIAC's Mem. of Law at 21-25.

ANALYSIS

I. Law of the Case Doctrine

A. Legal Standard

The law of the case doctrine applies "when a court reconsiders its own ruling on an issue in the absence of an intervening ruling on the issue by a higher court. It holds that when a court has ruled on an issue, that decision should generally be adhered to by that court in subsequent stages in the same case, unless cogent and compelling reasons militate otherwise." U.S. v. Quintieri, 306 F.3d 1217, 1226 (2d Cir. 2002) (internal quotations omitted). "A district court may revisit [summary judgment] decisions but with the caveat that 'where litigants have once battled for the court's decision, they should neither be required, nor without good reason permitted, to battle for it again.'" Bergerson v. N.Y. State Office of Mental Health, 652 F.3d277, 288 (2d Cir. 2011) (quoting Zdanok v. Glidden Co., 327 F.2d 944, 953 (2d Cir. 1964)). Cogent and compelling reasons to revisit an earlier decision are generally found only where there is "'an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent a manifest injustice.'" Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand LLP, 322 F.3d 147, 167 (2d Cir., 2003) (quoting Virgin Atl. Airways Ltd. V. Nat'l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992)); see also Bergerson, 652 F.3d at 288 ("generally, there is a strong presumption against amendment of prior orders.").

B. Contribution

1. Joint Liability

PRIAC argues that Judge Holwell held that PRIAC's liability for contribution requires State Street to prove that it acted jointly with PRIAC in breaching their fiduciary duties to the Plans. Judge Holwell found that State Street violated its fiduciary duties through improper investment decisions by "fail[ing] to manage the Bond Funds 'with [the requisite] care, skill, prudence, and diligence under the circumstances then prevailing,'" ERISA Decision at 649 (quoting 29 U.S.C. § 1104(a)(1)(B)), and by investing in a manner that "resulted in undiversified risk for the Bond Funds." Id. at 652. It is undisputed that PRIAC played no role in State Street's decisions regarding the Bond Fund's investments and therefore shares no culpability for these violations.

That is not dispositive, however, because PRIAC omits the theory on which the SJ decision actually relied in finding that "State Street and PRIAC may have failed jointly to fulfill [an] obligation" to the Plans. SJ Decision at 554. Joint failure would make contribution available to State Street. It argues that, regardless of the propriety of its investment strategy, asdiscussed in the ERISA Decision, PRIAC was fully aware of the Bond Funds' asset allocations by mid-July 2007. Accordingly, PRIAC was obligated to disclose this information to the Plans and breached its duty by not doing so, exacerbating the Plans' losses. State Street could not communicate the information directly to the Plans itself because of PRIAC's policy of not providing the names of its clients to anyone, and its refusal to provide that information to State Street when it was requested. Id. at 526. State Street was therefore reliant on PRIAC, functioning as an intermediary, to relay information to the Plans. Id. at 551.

Judge Holwell denied PRIAC's motion for summary judgment, holding that "[a]lthough the duties of State Street and PRIAC are not coextensive, they overlap, and PRIAC's claim of mismanagement by State Street also encompasses an element of nondisclosure to the Plans." Id. at 551. State Street's contribution claim against PRIAC was not barred "based solely on the idea that they owed wholly separate duties" to the Plans because, "to the extent an element of the claim relies on information not reaching the Plans, it walks too fine a line to carve out PRIAC's piece of the nondisclosure chain from the Plans' claim against State Street" given that "State Street was dependent upon PRIAC to deliver information to the Plans that State Street provided to PRIAC." Id. at 551-52. Rather, Judge Holwell found that there was a "limited" disclosure obligation because "the Plan's reliance on previous documents sent by PRIAC incorporating...