Toomey v. Jones

• Decision Date: 24 June 1994
• Docket Number: Civ. A. No. 92-30222-MAP.
• Citation: 855 F. Supp. 19
• Parties: Richard TOOMEY, Individually and on behalf of the O'Connor Lumber Esop Participants Committee, Plaintiffs, v. Robert L. JONES, Bernard St. George, Pension & Health Associates, Inc. and O'Connor Lumber Co. of Westfield, Inc., a/k/a O'Connor Lumber Co., Inc., Defendants.
• Court: U.S. District Court — District of Massachusetts

855 F. Supp. 19

Richard TOOMEY, Individually and on behalf of the O'Connor Lumber Esop Participants Committee, Plaintiffs, v. Robert L. JONES, Bernard St. George, Pension & Health Associates, Inc. and O'Connor Lumber Co. of Westfield, Inc., a/k/a O'Connor Lumber Co., Inc., Defendants.

Civ. A. No. 92-30222-MAP.

United States District Court, D. Massachusetts.

June 24, 1994.

John J. McCarthy, Michael J. Rye, Doherty, Wallace, Pillsbury & Murphy, Springfield, MA, for Richard Toomey.

Thomas E. Argenio, Springfield, MA, for Robert L. Jones.

Daniel M. Kelly, LaCroix, Fuller, Springfield, MA, for Bernard St. George.

Kenneth I. Gordon, David H. Peltz, Parker, Coulter, Daley & White, Boston, MA, for Pension & Health Associates, Inc.

MEMORANDUM REGARDING DEFENDANT PENSION & HEALTH ASSOCIATES, INC.'s MOTION FOR SUMMARY JUDGMENT

PONSOR, District Judge.

I. INTRODUCTION

The plaintiffs are former employees of O'Connor Lumber Company of Westfield, Massachusetts and were participants in its employer-sponsored stock ownership plan. In 1991, all the assets of the plan were invested in preferred stock of O'Connor Lumber. In that same year, O'Connor Lumber became insolvent, closed its doors and entered bankruptcy. Consequently, the assets of the stock ownership plan became worthless and participants lost any vested pension benefits or other distributions due them under the terms of the plan.

In 1992, plaintiffs filed suit naming as defendants O'Connor Lumber Company, its two principal stockholders, Robert Jones and Bernard St. George, and Pension & Health Associates, a consulting service for pension and health plans. The complaint charged all defendants with violations of the federal Employee Retirement and Income Security Act (ERISA) and with common law breach of contract and misrepresentation. Before the court is defendant Pension & Health Associates' motion for summary judgment as to all claims. For the reasons stated below, the court will allow defendant's motion in its entirety.

II. FACTUAL AND PROCEDURAL BACKGROUND

The facts pertinent to defendant's motion for summary judgment are largely undisputed. Plaintiffs Richard Toomey and thirty-five persons comprising the O'Connor Lumber ESOP Participants Committee were employed by defendant O'Connor Lumber Company of Westfield, Inc. ("O'Connor Lumber") and participated in O'Connor Lumber's Employee Stock Ownership Plan ("ESOP" or "Plan"). Defendants Robert L. Jones and Bernard St. George were the owners and, respectively, President and Vice President of O'Connor Lumber. The Plan Agreement identified O'Connor Lumber as the Plan Administrator and gave O'Connor Lumber's Board of Directors the authority to appoint the Plan trustees. Jones and St. George became the sole owners of O'Connor Lumber in 1977 and appointed themselves as trustees for the Plan.

Beginning in 1977 until 1989, defendants Jones and St. George were jointly responsible for investing the assets of O'Connor Lumber's ESOP. As an employee stock ownership plan, the assets of the Plan were invested in preferred stock of O'Connor Lumber. This investment strategy tied the success of the Plan to the financial health of O'Connor Lumber. Jones and St. George, as Plan trustees, met yearly to decide the amount of any contributions to the Plan and how they would be invested. Except for two years (1988 and 1989), between 1973 and 1991 Plan participants received dividend payments in the form of preferred stock. The 1984 amended Articles of the Plan stated that participants could receive an 8% cash dividend yearly based on the value of their shares. Cash payments were actually made to participants only in 1988 and 1989. The 1989 amendments to the Plan reinstated the former practice of paying dividend payments in preferred stock and eliminated yearly cash payments.

In 1989, St. George resigned from his positions as company vice-president and Plan trustee. At that time, the Plan purchased all of St. George's shares of O'Connor Lumber common stock. In addition, St. George received from O'Connor Lumber an unspecified, but apparently substantial, sum in exchange for his interest in the company's property. These exchanges not only diminished the liquid assets of the Plan but drastically reduced the working capital of O'Connor Lumber. It is not disputed that these deals contributed, at least to some extent, to the economic demise of O'Connor Lumber and the ultimate failure of the Plan.

Pension & Health Associates, Inc. ("PHA") is a Springfield, Massachusetts company that provides administrative and consulting services for pension and health plans. In the summer of 1990 PHA was hired by the Plan trustees to perform services associated with the administration of the Plan. In an engagement letter to O'Connor Lumber dated September 1, 1990, William Massidda, PHA's President, described the services it was to provide. These included accounting, maintenance of individual employee accounts, preparation and communication of an Annual Report to participants, reporting to government agencies as required by law and advice concerning Plan design, reporting requirements, fiduciary responsibilities and changes in the law governing the Plan. At his deposition, Massidda stated that it is PHA's policy not to involve itself in decisions regarding Plan investments. According to Massidda, "That's the one duty we don't get involved in, but we help them with almost everything else." Deposition of William Massidda, Ex. A, Defendant's Memorandum in Support of its Motion for Summary Judgment. Massidda had access to the financial records of the Plan but not to the business records of O'Connor Lumber.

In 1989, the United States Department of Labor ("Department") initiated an audit of the Plan because the Department was concerned that the employee-owned shares of O'Connor Lumber were strictly non-voting stock. One of the first things PHA did was to participate in negotiations with the Department to help broker an agreement allowing Plan participants to convert their nonvoting shares of preferred stock to voting shares when an employee became eligible for a distribution of benefits.

PHA suggested that Jones revamp the Plan's structure in accordance with a model plan developed and used by PHA. As sole trustee, Jones adopted this proposal, and the O'Connor Lumber Plan was revised accordingly. Beginning June 30, 1990, in order to preserve assets to pay benefits due, the revised plan eliminated the 8% yearly cash dividend paid to participants. In place of cash payments, stock dividends were once again issued to participants.

PHA held two informational meetings for Plan participants to explain the nature of the stock ownership plan and the benefits they were entitled to receive. At the April 11, 1991 meeting, Massidda reported that accountants were currently auditing the Plan and, that upon completion of the audit, a firm valuation of their preferred stock would be reported to participants. Massidda reported to participants that the accountants thought the actual value of the stock might be around eighty dollars per share, considerably less than the one hundred dollar per share value assumed by participants in the Plan. Subsequent to this meeting, Massidda had a number of individual conversations with Toomey regarding the value of the Plan's preferred stock. Massidda informed Toomey that he did not know the actual value of the stock and would only be able to report that to participants when the audit was complete.

During this same time period, O'Connor Lumber was faced with a number of serious financial problems¹ including a shortage of working capital and an inability to secure a line of credit from any area bank. In October, 1991, O'Connor Lumber ceased operations and went into an assignment for the benefit of creditors. On November 19, 1991 the assets of O'Connor Lumber were liquidated and plaintiffs were notified that their Plan was discontinued. Subsequently, no participant has received any distribution of benefits from the Plan. In October, 1992, plaintiffs filed this suit naming Jones, St. George, O'Connor Lumber and PHA as defendants and alleging violations of ERISA, breach of contract and misrepresentation.

III. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when "... the pleadings, depositions, answers to interrogatories, and admissions on file, together with 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). See Goldman v. First Nat'l Bank, 985 F.2d 1113, 1116 (1st Cir.1993). First, the moving party must aver an absence of evidence to support the nonmoving party's case. Garside v. Osco Drug, Inc., 895 F.2d 46, 48 (1st Cir.1990). In order to fend off summary judgment, a plaintiff must then "establish at least a genuine issue of material fact on every element essential to his case in chief." Vega v. Kodak Caribbean, Ltd., 3 F.3d 476, 479 (1st Cir.1993), quoting Mesnick v. General Electric Co., 950 F.2d 816, 820 (1st Cir. 1991), cert. denied, ___ U.S. ___, 112 S.Ct. 2965, 119 L.Ed.2d 586 (1992). At summary judgment it is this court's obligation "to review the record in the light most favorable to the nonmoving party, and draw all reasonable inferences in the nonmoving party's favor." LeBlanc v. Great American Insurance Co., 6 F.3d 836, 841 (1st Cir.1993), citing Mesnick v. General Electric Co., 950 F.2d at 820.

Keeping this standard in mind, the court will address PHA's motion for summary judgment.

IV. DISCUSSION

Six of plaintiffs' sixteen counts are directed against PHA. In Counts I and II plaintiffs allege that PHA breached its fiduciary duty under the Employment Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001-1461, and breached the terms of the Plan. Plaintiffs argue that PHA became the de facto Plan administrator and, as such, owed the plaintiffs a fiduciary's duty of care. PHA allegedly...