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MACK v. CTC ILLINOIS TRUST COMPANY

July 19, 2004.

CATHERINE M. MACK Plaintiff,
v.
CTC ILLINOIS TRUST COMPANY, FIRST FEDERAL BANK OF HAZELTON, BNY MIDWEST TRUST COMPANY, ALLSTATE INSURANCE COMPANY and THE BANK OF NEW YORK COMPANY, INC. Defendants.



The opinion of the court was delivered by: WILLIAM YOHN, JR., District Judge

MEMORANDUM AND ORDER

Plaintiff Catherine M. Mack brings this action against defendants CTC Illinois Trust Company ("CTC"), First Federal Bank of Hazelton ("First Federal"), BNY Midwest Trust Company ("BNY"), Allstate Insurance Company ("Allstate") and The Bank of New York Company, Inc. ("Bank of NY"), alleging conversion of a negotiable instrument pursuant to 13 PA. CONS. STAT. § 3420 et seq. against CTC (count I) and First Federal (count II), negligence against First Federal (count III) and breach of fiduciary duty against BNY, Bank of N.Y. (count IV) and Allstate (count V). The complaint was originally filed in the Court of Common Pleas of Chester County, Pennsylvania, but was removed to this court pursuant to 28 U.S.C. § 1331 and 1441(a) because the claim contained in count V is preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001-1053.

Presently before this court are: (1) defendant Allstate's motion to dismiss count V of the complaint; (2) defendants BNY*fn1 and Bank of NY's motion to dismiss count IV of the complaint; and (3) defendant First Federal's motion to dismiss the complaint (specifically, counts II and III, which contain claims only against it). For the reasons set forth below, I will grant BNY and Bank of NY's motion to dismiss count IV, grant First Federal's motion to dismiss counts II and III and deny Allstate's motion to dismiss count V.

  BACKGROUND

  The facts as alleged in the complaint are as follows. Plaintiff Catherine Mack is the widow of John J. Mack, who died on September 27, 2001. John J. Mack owned an Allstate Insurance Office and was a member of the Allstate Employee Pension Plan*fn2 ("the plan"). On March 12, 1999, John Mack designated plaintiff as the sole primary beneficiary of his pension plan. On April 24, 2000, John Mack elected a lump sum direct rollover to an IRA in the amount of $848,343.81, to which plaintiff consented. On the rollover election form, John Mack represented that his chosen rollover election, Ashbury Capital Partners, LT ("Ashbury"), was a Qualified Retirement Plan ("QRP"). On this same form, Mack listed the "trustee, bank or company" of the QRP as Bear Stearns & Co., Inc. ("Bear Stearns"). On May 12, 2000, defendant CTC issued a check in the amount of $848,343.81 paid to the order of "Bear Stearns & Co. FBO: John J. Mack."*fn3 On May 17, 2000, Ashbury deposited the check into its account at First Federal. The check contained the handwritten endorsement "John J. Mack, Bear Stearns & Co. Deposit to FFB# 019007673." CTC charged John Mack's plan account for the full amount of the check. This money was never deposited into the Bear Stearns account indicated by John Mack. Plaintiff contends that this check (presumably she means the funds obtained by depositing the check) was retained by Ashbury and its owner, Mark Yagalla, as part of what was later determined to be a scheme to defraud investors.

  The basis of counts I-III of plaintiff's complaint is that the check lacked an endorsement by Bear Stearns, and therefore should have been neither deposited into the First Federal account nor debited by CTC from John Mack's plan account. Plaintiff also contends that First Federal was negligent for failing to investigate the "suspicious" handwritten endorsement by "a large investment institution such as Bear Stearns." The basis of counts IV-V of plaintiff's complaint is that the rollover account designated by John Mack was not a QRP and BNY, Bank of N.Y. and Allstate breached their fiduciary duty to plaintiff by failing to ascertain whether John Mack's representation that the account was a QRP was accurate.

  DISCUSSION

  I. Motions to Dismiss Counts IV & V of the Complaint

  Counts IV and V of the complaint contain state common law claims for breach of fiduciary duty against BNY and Bank of NY, and Allstate, respectively. Allstate filed its motion to dismiss count V of the complaint on January 15, 2004. On the same day, BNY and Bank of N.Y. filed their motion to dismiss count IV of the complaint. BNY and Bank of N.Y. joined and incorporated the legal arguments presented in Parts A and B of Allstate's motion. The argument contained in these sections of Allstate's brief is that Mack's breach of fiduciary duty claim is preempted by ERISA. Despite the fact that BNY, Bank of N.Y. and Allstate make identical arguments in support of their respective motions to dismiss, the resolution of these motions is dependent on plaintiff's precise claims and allegations against the respective defendants. Allstate also argues in the alternative that (1) the fiduciary duty Mack seeks to enforce does not exist under ERISA, and/or (2) Allstate is not an ERISA fiduciary. BNY and Bank of N.Y. do not join and incorporate these legal arguments. Accordingly, the motions of BNY and Bank of NY, and Allstate will be considered separately.

  A. BNY and Bank of N.Y. — Preemption by ERISA

  Plaintiff claims that BNY*fn4 "owed a fiduciary duty to Plaintiff, as the sole primary beneficiary of John J. Mack's Allstate Pension Plan monies, to ascertain whether the rollover account designated as a Qualified Retirement Plan by John J. Mack was actually a QRP. . . . [and] breached its fiduciary duty to Plaintiff by failing to do so." Compl. ¶¶ 38-39. BNY*fn5 argues that ERISA preempts this common law breach of fiduciary duty claim.

  The first step in determining whether or not Mack's state common law claims are preempted by ERISA is ensuring that the particular plan at issue, i.e. the plan that created the benefits to which plaintiff asserts a right, is in fact an ERISA benefit plan. ERISA applies to "any employee benefit plan if it is established or maintained . . . by an employer engaged in commerce." 29 U.S.C. § 1003(a). "Employee benefit plan" includes "employee pension benefit plan," which is defined as:
any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that by its express terms or as a result of surrounding circumstances such plan, fund, or program —
(I) provides retirement income to employees, or
(ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.
29 U.S.C. § 1002(2)(A). In her response in opposition to BNY's motion to dismiss, Mack does not challenge that the Allstate pension plan is an ERISA benefit plan. Rather, she focuses on the second step in determining whether her breach of fiduciary duty claim is preempted by ERISA, whether the claim "relates to" the plan. Hence, she concedes that Allstate's pension plan is, in fact, an ERISA benefit plan that is subject to ERISA's preemption provisions. See 29 U.S.C. § 1144.

  Section 514 of ERISA explicitly provides, "[T]he provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title." 29 U.S.C. § 1144(a). The term "State law" is defined as: "all laws, decisions, rules, regulations, or other State action having the effect of law, of any State." 29 U.S.C. § 1144(c)(1). The crucial inquiry, then, is whether the state law at issue "relates to" this ERISA plan. As BNY highlights, the Supreme Court has stated, "[T]he phrase `relate to' was given its broadest common-sense meaning, such that a state law `relate[s] to' a benefit in the normal sense of the phrase, if it has a connection with or reference to such a plan." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47 (1987) (second emendation in original) (internal quotations and citations omitted). Mack's state common law breach of fiduciary duty claim in count IV clearly relates to Allstate's pension plan; the claim is entirely dependent upon the plan and the responsibilities of the plan's fiduciaries, BNY (the administrator of the plan) and Bank of N.Y. (the trustee of the plan). The ...


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