Tybout v. Karr Barth Pension Admin., Inc.

• Decision Date: 31 March 1993
• Docket Number: Civ. A. No. 92-149 MMS.
• Citation: 819 F. Supp. 371
• Court: U.S. District Court — District of Delaware
• Parties: F. Alton TYBOUT, Trustee of the Tybout, Redfearn & Pell 401(k) Plan, Plaintiff, v. KARR BARTH PENSION ADMINISTRATION, INC., a corporation of the State of Pennsylvania; and the Equitable Life Assurance Society of the United States, a corporation of the State of the State of New York, Defendants.

819 F. Supp. 371

F. Alton TYBOUT, Trustee of the Tybout, Redfearn & Pell 401(k) Plan, Plaintiff, v. KARR BARTH PENSION ADMINISTRATION, INC., a corporation of the State of Pennsylvania; and the Equitable Life Assurance Society of the United States, a corporation of the State of the State of New York, Defendants.

Civ. A. No. 92-149 MMS.

United States District Court, Delaware.

March 31, 1993.

COPYRIGHT MATERIAL OMITTED

F. Alton Tybout, David G. Culley, and Michael I. Silverman of Tybout, Redfearn & Pell, Wilmington, DE, for plaintiff F. Alton Tybout, Trustee.

Robert J. Katzenstein and Michele C. Got of Smith, Katzenstein & Furlow, Wilmington, DE, for defendant Karr Barth Pension Admin., Inc.

Mary E. Urann and Kathleen Furey McDonough of Potter Anderson & Corroon, Wilmington, DE, for defendant the Equitable Life Assur. Soc. of the U.S.

OPINION

MURRAY M. SCHWARTZ, Senior District Judge.

Both defendants, Karr Barth Pension Administration, Inc., a Pennsylvania corporation (Karr Barth), and The Equitable Life Assurance Society of the United States, a New York corporation (Equitable), have filed motions to dismiss plaintiff F. Alton Tybout's amended complaint pursuant to Rule 12 of the Federal Rules of Civil Procedure. Docket Items (D.I.) 21, 22. Plaintiff, as trustee of two pension plans, and a resident of Delaware, alleges claims under both the Employee Retirement Income Security Act (ERISA), 29 U.S.C. § 1001 et seq. (1988), and Delaware law based upon the failure of certain assets to be transferred from one pension plan to another. D.I. 18 at ¶ 1. This Court has jurisdiction under 29 U.S.C. § 1132(e)(1) and 28 U.S.C. § 1331 for the ERISA claims and under 28 U.S.C. § 1332 for the state law claims.

Plaintiff's amended complaint alleges three counts against each defendant. D.I. 18 at ¶¶ 45-77. The allegations are parallel in nature and consist of one claim under ERISA against each defendant individually, Counts I and IV, one claim under ERISA against the defendants jointly and severally, Counts II and V, and one claim under state law for negligence and breach of contract against each defendant, Counts III and VI. Defendants have asserted that the amended complaint fails to state a cause of action under ERISA and that the state law claims have been pre-empted by ERISA.¹ For the reasons which follow, defendants' motions will be denied as to plaintiffs claims under ERISA and will be granted with respect to plaintiff's state law claims.

I.

Plaintiff's amended complaint focuses upon the action taken, or not taken, by the defendants with respect to two pension plans, a tax-qualified defined contribution plan, "the 401(k) Plan". D.I. 18 at ¶ 3. These plans were established by the law firm of Tybout, Redfearn, Casarino & Pell or its successor, Tybout, Redfearn & Pell, (both of whom will be referred to as "Tybout, Redfearn") on behalf of whom plaintiff acts as trustee.

Prior to July 1, 1988, defendant Equitable recommended that Tybout, Redfearn terminate the Defined Benefits Plan, establish the 401(k) Plan with Equitable as investment manager, and permit the participants to transfer any benefits into the 401(k) Plan. D.I. 18 at ¶ 11. Completing the transition from one plan to another involved at least one intermediate step. The assets, remaining in the Defined Benefits Plan, were to be transferred into a Fixed Income Account under Equitable's control. Thus, the Defined Benefits Plan remained in existence but the funding vehicle was changed to a Fixed Income Account under Equitable's control. D.I. 39 at 48. The Defined Benefits Plan, with its assets in the Fixed Income Account, was to remain in existence only until such time as the assets were utilized to fund the 401(k) Plan. The nub of the dispute is the unexplained failure to transfer the assets from the Fixed Income Account to the 401(k) Plan with consequent loss to the beneficiaries.

Equitable proposed that it manage the funds invested in the Defined Benefits Plan before and those funds which were to be transferred to the 401(k) Plan occurred. D.I. 18 at ¶ 12. Tybout, Redfearn agreed to adopt these proposals and Equitable prepared and delivered documents by which the proposals could be completed. D.I. 18 at ¶ 14.

The amended complaint only mentions two of the documents delivered by Equitable. These two documents by no means represent the entire framework of the pension plans at issue here. Instead, they appear to govern, in part, the relationship between the trustees and Equitable. The first document addresses the relationship between the trustee and Equitable with respect to the 401(k) Plan. The second document addresses their relationship with respect to the Defined Benefits Plan.²

The first document, the "Master Retirement Trust Participation Agreement Participant Direction" (the 401(k) agreement), establishes the 401(k) Plan, although without any funding.³ The 401(k) agreement provides that where participants

have the right to direct the proportion of contributions to be invested in the Accounts, the trustees of the participating trust shall together with each transfer to Equitable of contributions for investment under the RIA Master Trust, direct the allocation of the investment of such contributions in the Accounts in accordance with Participants' directions. If the Plan provides that the Participants have the right to direct the transfer of amounts invested in an Account to another Account or Accounts, then upon any such direction in accordance with the Plan, the trustees of a Participating Trust shall direct such transfers between the Accounts in accordance with the Participants directions, and all such transfers between Accounts shall be effected subject to the applicable provisions of the RIA Master Trust.

D.I. 34 at Ex. A, ¶ 5.⁴ Because the complaint alleges "participants in the 401(k) Plan have the right to direct the proportion of contributions to their Plan accounts to be invested in the investment accounts available under the 401(k) Plan", D.I. 18 at ¶ 25, the language of this provision applies to the decision making within the 401(k) Plan.

The second document, the "Master Retirement Trust Participation Agreement Trustee Direction" (the "Defined Benefits Plan" agreement), changes the funding vehicle of the Defined Benefits Plan by authorizing transfer of assets into a Fixed Income Account, established under the control of Equitable.⁵ According to the complaint, the trustee of the Defined Benefits Plan, pursuant to the instructions and advice of Equitable, transferred to Equitable $1,294,476.68, which was the amount of benefits to be transferred at the election of Defined Benefits Plan participants. D.I. 18 at ¶ 27. This amount was to be held in the Fixed Income Account until it became "legally permissible and administratively practicable" to transfer the amount to the trust created under the 401(k) Plan and invest the amount according to the procedures outlined. D.I. 18 at ¶ 28.

The Defined Benefits Plan agreement itself indicates that those assets were to be transferred into a Fixed Income Account. Under the heading "Prior Contributions", paragraph five of the document reads:

The trustees of the Participating Trust hereby direct that all amounts held under the Participating Trust as of the date this participation Agreement is executed ... shall upon the initial transfer thereof for investment under the RIA Master Trust, be allocated to the Accounts in accordance with the following....

D.I. 34 at Ex. B, ¶ 5. Beneath this passage, it is indicated that 100% of the assets should be in the Fixed Income Account. An identical indication immediately follows under the heading "Future Contributions".⁶

While these provisions explain the different roles of these documents, they do not indicate how the two documents fit into the larger scheme of the plans. Both documents, for instance, contain an identical provision which incorporates the "Retirement Investment Account Master Retirement Trust" into whatever the terms of the participating trust may be. This "Master Trust" was established in 1979 and amended in 1984, pursuant to an agreement between Equitable and the United States Trust Company of New York. By executing these documents, the trustees agreed to amend their participating trust to provide:

Notwithstanding any other provision of this trust agreement the trustee(s) may cause the monies or funds of this trust to be commingled with the assets of other employee benefit trusts qualified under the applicable provisions of the Internal Revenue Code by causing such monies or funds to be invested as part of the RIA Master Trust. The monies or funds so invested shall be subject to all the provisions of said RIA Master Trust and the agreement establishing said RIA Master Trust shall be deemed to be a part of this trust agreement as if expressly incorporated herein.

D.I. 34 at Ex. A, ¶ 9; Ex. B, ¶ 9.

The RIA Master Trust Agreement has not been included in the record. However, it is explained somewhat in the appendix which both of the documents contain. The appendix explains,

Under the RIA Master Trust, all amounts received will be allocated as directed among the four Investment Accounts under the Master Contract: the Fixed Income Account, the Common Stock Account, the Balanced Account, and the Aggressive Stock Account. The Master Contract also states Equitable's obligations with respect to contributions, distributions, Investment Accounts, loans, transfers among Investment Accounts, if applicable, fees, expenses, interest allocations, and provides a wide variety of annuity options for retiring participants.

D.I. 34 at Ex. A, 2; Ex. C, 2. The Master Contract, which defines certain obligations of Equitable, also has not been included in the record.

On the advice of Equitable, the trustees of the 401(k) Plan retained the services of defendant Karr Barth to assist in transferring the pertinent funds, to advise the trustees of the Plans concerning...