Recommending Investments to an ERISA Plan For a Fee Imposes Fiduciary Duties: Severstal Wheeling, Inc. v. WPN Corp.
No. 10 Civ. 954 (LTS)(GWG), 2014 U.S. Dist. LEXIS 51486 (S.D. N.Y., 4/11/14). Account Administration * ERISA (§§3(21)(A)(i), (ii), 3(38)) * Statutory Definitions (“Fiduciary;” “Investment Manager”) * FRCP (Rule 56) * Fiduciary Standards (Investment Advisers) * Insurance Issues * Pension/Profit Sharing Plans * Scope of Liability Issues (Account Transfers; Retention of Investments) * Motion Practice Issues (Summary Judgment) * Standard of Review (Magistrate Judge Recommendations; De Novo). An investment advisor is a fiduciary with respect to a plan under ERISA § 3(21)(A)(ii), if the advisor makes recommendations to the plan about the advisability of investing in, purchasing or selling securities or other property, renders advice on a regular basis under a mutual agreement that such advice would serve as a primary basis for investment decisions regarding the plan’s assets, and structures its advice to address the particular needs of the plan.
Plaintiffs Severstal Wheeling, Inc. Retirement Committee and related plans and individuals sued WPN Corporation (“WPN”) and its principal and sole executive officer, Ronald LaBow (“LaBow”) under ERISA § 502(a)(2) for breaching their fiduciary duty by failing to loyally manage and adequately diversify plan assets. Plaintiffs moved for partial summary judgment, which the Court submitted to a magistrate judge. The latter recommended denying summary judgment on the issues of whether WPN and LaBow were fiduciaries under ERISA §§3(21)(A)(i) or (ii) or investment managers under ERISA §3(38), and as to whether their fiduciary duty was coextensive. Plaintiffs object to the magistrate judge’s report to the extent that it denies summary judgment on the issue of fiduciary status under §§ 3(21)(A)(ii) and 3(38). Section 3(38) of ERISA, the Court holds, does not, by its terms, create a path to fiduciary status independent of the functional definitions set forth in section 3(21)(A). Rather, to come within section 3(38)’s definition of investment manager, one must be a fiduciary and meet statutory criteria, which turn on, among other things, whether the advisor exercised any authority or control respecting management or disposition of plan assets. Material issues of fact preclude a determination on this motion as to whether Defendants had the power to exercise any such authority or control. On the other hand, Plaintiffs have established Defendants’ fiduciary status element under § 3(21)(A)(ii) of their breach claim relating to the rendering of investment advice for a fee: Defendants made recommendations to the Severstal Plans about the advisability of investing in, purchasing or selling securities or other property for these particular plans, activity that clearly constitutes the rendering of investment advice for a fee. Plaintiffs still bear the burden of proving that WPN breached its ERISA duties in its capacity as investment adviser and that the Severstal Plans are entitled to relief as a result.
(Ed: The Third Amended Complaint (the one in effect when the motion for summary judgment was made) also alleged that WPN breached its contract with Plaintiffs by failing to obtain and maintain a fiduciary liability insurance policy and that another defendant, WHX Corporation, knowingly participated in a fiduciary breach. Plaintiffs’ motion also asserted, and the Magistrate Judge’s Report recommended granting summary judgment on, the breach of contract claim, but Plaintiffs and Magistrate Judge differed as to whether there was sufficient evidence to support WPN’s affirmative defense of impossibility. The Court grants summary judgment on both breach of contract and impossibility.) (SLC Ref. No. 2014-18-08)