Williams v. Provident Inv. Counsel, Inc., No. 3:02CV7548.

• Citation: 279 F.Supp.2d 894
• Decision Date: 15 August 2003
• Docket Number: No. 3:02CV7548.
• Parties: David J. WILLIAMS, et al., Plaintiffs v. PROVIDENT INVESTMENT COUNSEL, INC., Defendant-Counterclaimant/Third-Party v. Midwest Continental Company, et al., Third-Party Defendants,
• Court: U.S. District Court — Northern District of Ohio

279 F.Supp.2d 894

David J. WILLIAMS, et al., Plaintiffs v. PROVIDENT INVESTMENT COUNSEL, INC., Defendant-Counterclaimant/Third-Party v. Midwest Continental Company, et al., Third-Party Defendants,

No. 3:02CV7548.

United States District Court, N.D. Ohio, Western Division.

August 15, 2003.

COPYRIGHT MATERIAL OMITTED

Jeffrey S. Creamer, Robert A. Koenig, Shumaker, Loop & Kendrick, Toledo, OH, for Plaintiffs.

Bradley S. Pauley, Paul, Hastings, Janofsky & Walker, LLP, Jamie Broder, Paul, Hastings, Janofsky & Walker, Steven Allison, Paul, Hastings, Janofsky & Walker, LLP, Los Angeles, CA, Anastasia K. Hanson, Spengler Nathanson, Theodore M. Rowen, Spengler Nathanson, Toledo, OH, John J. McHugh, III, McHugh, DeNune & McCarthy, Sylvania, OH, for Defendants.

ORDER

CARR, District Judge.

This is a suit by the trustees of the Toledo Area Sheet Metal Workers Pension Plan and Trust (the "Plan") to recover monies allegedly lost through the failure of the defendant Provident Investment Counsel, Inc. ("Provident") to fulfill its fiduciary duties as the Plan's investment manager. Provident, contending that the other fiduciaries of the Plan are also liable for any alleged losses, has filed a counterclaim against the trustees and a third-party complaint against the trustees' investment consultants, Midwest Continental Company ("Midwest") and Jeffrey Barefoot.

Pending are: 1) the trustees' and third-party defendants' motions to dismiss Provident's counterclaim and third-party complaint for contribution; 2) Provident's motion for leave to file an amended answer, counterclaim, and third-party complaint; and 3) the trustee's motion to strike certain of Provident's affirmative defenses provided in its original answer. This court has jurisdiction pursuant to 29 U.S.C. § 1331.

For the reasons that follow, the trustees' and third-party defendants' motions to dismiss shall be granted, Provident's motion to amend shall be denied, and the trustees' motion to strike shall be granted in part and denied in part.

BACKGROUND

From 1993 to March, 2001, Provident served as the Plan's investment manager. By doing so, Provident agreed to be bound by the Plan's Statement of Investment Goals and Objectives, which included the Plan's Investment Policy Guidelines (the "Guidelines"). Those Guidelines provided, in pertinent part:

No more than five percent (5%) of the equity issues can be invested in any one (1) company. No more than ten percent (10%) of the equity issues can be invested in any one (1) industry. These measures shall be initially applied at cost. The equity issues of any single company shall be allowed to rise to 7% at market. The equity issues concentrated in a single industry shall be allowed to rise to 25% at market.

Complt. at ¶ 8.

Plaintiffs allege that at various times between 1996 and 2000, Provident purchased investments for the Plan in violation of the Guidelines, costing the Plan beneficiaries millions of dollars. In November, 2002, the trustees initiated this civil action claiming Provident breached its fiduciary duties as prescribed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq.¹

Provident does not dispute that it was bound by the Guidelines or that the Guidelines were violated. Provident argues, however, that it was unable to monitor the Plan's investments because of the trustees' decision, made contrary to advice from Provident, to invest the Plan's assets in a "wrap fee" program recommended by Midwest and Barefoot. According to Provident, this program prevented Provident's automatic monitoring of the Plan's portfolio for compliance with the Guidelines. Instead, the wrap fee arrangement compelled Provident to monitor the Plan's account manually on a best efforts basis, generally at the end of each quarter. Doc. 10 at ¶ 49.

Even though Provident denies liability, it nevertheless claims that the other fiduciaries of the Plan—the trustees, Midwest and Barefoot—are jointly liable if Provident is found to have breached its fiduciary duties. In its amended answer, Provident also alleges a separate claim for breach of fiduciary duties against the trustees and Midwest and Barefoot. Provident alleges that they:

(i) failed to discharge their affirmative fiduciary duties to the Plan to prevent the Plan from being harmed; (ii) had knowledge of the other alleged breaches of fiduciary duty and failed to make reasonable efforts to remedy those breaches; (iii) participated knowingly in the acts and omissions that constituted the alleged breaches; and (iv) breached the responsibilities, obligations, and duties that they had as fiduciaries.

Amended Answer at ¶ 61.

The trustees, Midwest and Barefoot seek dismissal of Provident's counterclaim on the basis that there is no contribution among ERISA fiduciaries. Plaintiffs and third-party defendants also oppose Provident's motion to amend its answer, arguing that Provident, as a former, rather than a current fiduciary, is without standing to bring a counterclaim for breach of fiduciary duty. The trustees also move to strike certain affirmative defenses from Provident's original answer.

DISCUSSION

I. Provident's Counterclaim for Contribution

A. Parties' Arguments

Although the parties dispute whose position is the prevailing view in the federal courts, the parties agree that there is no binding authority from the Supreme Court or the Sixth Circuit that determines the outcome of this case.²

Plaintiffs and third-party defendants argue that Provident's counterclaim for contribution must be dismissed because contribution among co-fiduciaries cannot be found in or implied from the terms of ERISA. Therefore, because ERISA's remedial provisions are fully integrated and comprehensive, courts should not judicially create a contribution remedy.

Provident argues that a claim for contribution does not conflict with ERISA's enforcement scheme and that the statutory language, underlying purpose, and legislative history of ERISA recognize that more than one fiduciary can be held liable for the same loss. Provident further argues that Congress intended courts to apply the rules of common law trusts and to allow the development of equitable remedies when interpreting ERISA—both of which support contribution among co-fiduciaries. These principles are especially important in this case, defendant argues, because it was plaintiff and third-party defendants who invested the Plan's funds in a wrap fee program, against the advice of Provident.

B. Standard of Review

No complaint shall be dismissed unless the plaintiff has failed to allege facts in support of plaintiff's claim that, construed in plaintiff's favor, would entitle the plaintiff to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). When deciding a motion brought pursuant to Fed.R.Civ.P. 12(b)(6), the inquiry is essentially limited to the content of the complaint, although matters of public record, orders, items appearing in the record, and attached exhibits also may be taken into account. See Yanacos v. Lake County, 953 F.Supp. 187, 191 (N.D.Ohio 1996). The court must accept all the allegations stated in the complaint as true, Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984), while viewing the complaint in the light most favorable to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). A court, however, is "not bound to accept as true a legal conclusion couched as a factual allegation." Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986).

C. Analysis

Two Judges of this District have concluded that contribution is not available in favor of a party that has breached its fiduciary duties to an ERISA plan against other fiduciaries. Roberts v. Taussig, 39 F.Supp.2d 1010, 1011-12 (N.D.Ohio 1999) (Economus, J.); Daniels v. National Employee Ben. Services, Inc., 877 F.Supp. 1067, 1073-74 (N.D.Ohio 1995) (Aldrich, J.). The Sixth Circuit has not addressed the question of whether an ERISA fiduciary may sue another fiduciary for contribution. The other circuits to have done so are split on the issue. Compare Kim v. Fujikawa, 871 F.2d 1427, 1432-33 (9th Cir. 1989) (no right of contribution among ERISA fiduciaries) with Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12, 15-18 (2d Cir.1991) (finding right to contribution under ERISA) and Alton Memorial Hospital v. Metropolitan Life Ins. Co., 656 F.2d 245, 250 (7th Cir.1981) (same) (dictum).

District courts outside of the Second, Seventh, and Ninth Circuits likewise disagree on this issue. Some trial courts have allowed a right of contribution among ERISA fiduciaries, including Site-Blauvelt Engrs. Inc. v. First Union Corp., 153 F.Supp.2d 707, 709 (E.D.Pa.2001); Cooper v. Kossan, 993 F.Supp. 375 (E.D.Va.1998); Green v. William Mason & Co., 976 F.Supp. 298 (D.N.J.1997); Duncan v. Santaniello, 900 F.Supp. 547, 550-51 (D.Mass. 1995); Maher v. Strachan Shipping Co., 817 F.Supp. 43 (E.D.La.1993); Jones v. Trevor, Stewart, Burton and Jacobsen, Inc., 1992 WL 252137 (N.D.Ga.1992).

Other district courts have, however, like the two Judges from this District, held that there is no right of contribution among ERISA fiduciaries. Center Physicians Inc. v. Painewebber Group Inc., 1996 WL 622470 (E.D.Mo.1996); Int'l Bhd. of Painters & Allied Trades Union Pension Fund v. Duval, 1994 WL 903314 (D.D.C.1994); Aks v. Southgate Trust Co., 1992 WL 401708 (D.Kan.1992); Schloegel v. Boswell, 766 F.Supp. 563, 569 (S.D.Miss. 1991); Physicians HealthChoice v. Trs. of Auto. Employee Benefit Trust, 764 F.Supp. 1360, 1364 (D.Minn.1991); Hollingshead v. Burford Equipment Co., 747 F.Supp. 1421, 1445 (M.D.Ala.1990); NARDA, Inc. v. Rhode Island Hosp. Trust National Bank, 744 F.Supp. 685, 697-98 (D.Md.1990); Franklin v. Aetna Life Insurance Co., 1988 U.S. Dist. LEXIS 10842 (D.S.C.1988); see also North Carolina Life & Acc. & Health Ins. Guaranty Assn. v. Alcatel,...