The opinion of the court was delivered by: Yohn, J.
Plaintiff, Gabriel F. Nagy, seeks to recover the assets of the Compass Capital Partners Ltd. Defined Benefit Retirement Plan (the "Plan"). Plaintiff contends that the Plan's assets were misappropriated by defendants Harris M. DeWese ("DeWese"), the Plan administrator, and Compass Capital Partners, Ltd. ("Compass"), the Plan's sponsor, and that Morgan Stanley Smith Barney LLC ("Smith Barney") facilitated their misappropriation. Plaintiff asserts claims for breach of fiduciary duties under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. § 1001 et seq., and state law.
Plaintiff and defendant Smith Barney have now filed cross-motions for summary judgment under Federal Rule of Civil Procedure 56. Plaintiff seeks summary judgment against all defendants for breach of fiduciary duty under ERISA (Count I), and against Smith Barney for breach of fiduciary duty under state law (Count III). Smith Barney seeks summary judgment as to all of plaintiff's claims against Smith Barney.
Because the evidence shows that the sole genuine issue of material fact with respect to plaintiff's claim in Count I against DeWese for breach of fiduciary duty under section 502(a)(2) of ERISA is the amount of damages, I will grant plaintiff's motion for summary judgment as to liability on that claim. However, plaintiff has not demonstrated-or even argued-Compass's liability under Count I, so plaintiff's motion for summary judgment will be denied as to Compass. Plaintiff has also provided no argument with respect to his claim for equitable relief in Count II, so I will not consider that claim.
Although the undisputed evidence shows that Smith Barney was a fiduciary with respect to providing investment advice to the Plan for a fee, it also establishes that Smith Barney did not act as a fiduciary when engaged in the conduct subject to complaint, and therefore did not directly violate its fiduciary duties under ERISA. Smith Barney is thus entitled to summary judgment on plaintiff's claim in Count I to the extent plaintiff seeks to recover for direct breach of fiduciary duty. However, neither Smith Barney nor plaintiff is entitled to summary judgment on plaintiff's claim in Count I that Smith Barney is liable as a co-fiduciary under section 405 of ERISA, because genuine issues of triable fact remain to be decided as to that claim.
Finally, because Smith Barney was an ERISA fiduciary with respect to the Plan, Plaintiff's state-law claim in Count III for breach of fiduciary duty against Smith Barney is preempted.
I. Factual and Procedural Background*fn1
DeWese and plaintiff purchased Compass around January 1998. (Pl.'s Mot. Summ. J.
("Pl.'s Mot.") ¶ 2; Smith Barney's Resp. to Pl.'s Mot. Summ. J. ("Smith Barney Resp.") ¶ 2.) Plaintiff owned 40% of the voting stock of Compass and was its president and chief operating officer until his resignation on November 30, 2003. (Pl.'s Mot. ¶¶ 4, 16.) DeWese owned the remaining 60% of Compass's voting stock and was its chairman and chief executive officer. (Id. ¶ 3.) DeWese provided merger and acquisition investment-banking advice to Compass's clients, specializing in the printing industry. (Id. ¶ 5.) Plaintiff managed the day-to-day affairs of Compass and provided business valuation services to its clients. (Id. ¶ 6.)
The Plan was formed on January 1, 1998, and was a defined benefit plan that provided retirement benefits to participants at age 62. (Id. ¶¶ 7-8; DeWese/Compass Resp. to Pl.'s Mot. Summ. J. ("DeWese Resp.") ¶ 7.) DeWese, plaintiff, and three other Compass employees were all participants in the Plan, but DeWese has renounced any interest in the Plan. (Pl.'s Mot. ¶¶ 11-12.) Plaintiff served as the Plan's administrator until his resignation as trustee on February 13, 2003. (Id. ¶ 9.)
After plaintiff's resignation as trustee and administrator, DeWese assumed both roles with respect to the Plan. (Id. ¶¶ 10, Pl.'s Mot. Ex. A ("DeWese Dep.") 95:25-96:2.) After becoming the administrator and trustee of the Plan, DeWese moved the Plan's assets to an account at Legg Mason Wood Walker, Inc., where his son Andrew DeWese was a trainee, and Smith Barney came to hold the Plan's assets as successor to Legg Mason Wood Walker. (Pl.'s Mot.¶ 14; Smith Barney's Mot. Summ. J. ("Smith Barney Mot.") 1.)
John Jason Bish ("Bish"), a Smith Barney employee, was at all relevant times assigned to the Plan's account, and Smith Barney characterizes his role as that of "financial advisor" to the account. (Smith Barney's Statement of Undisputed Facts ¶ 8.) In that capacity Bish recommended securities for the Plan to buy and sell, and DeWese always accepted those recommendations. (Id. ¶ 14; Smith Barney Resp. ¶ 31.)
Plaintiff decided to retire in late 2003, and on October 6, 2003, DeWese accepted plaintiff's retirement proposal pursuant to which plaintiff resigned as an officer and director of Compass and transferred his shares in Compass back to the company. (Pl.'s Mot. ¶ 16.) Plaintiff claims to have performed part-time work as a consultant for Compass from time to time thereafter. (Id. ¶ 17.)
In February 2005, plaintiff elected to receive retirement benefits from the Plan in the form of a stream of monthly payments of $2,111.07 to continue until the later of his death or the death of his wife. (Id. ¶ 22.) DeWese then instructed Smith Barney to send a monthly payment to plaintiff for that amount. (Id. ¶ 23.) Until December 2007, these payments were made on schedule. (Id. ¶ 63.)
In April 2005 DeWese acquired stock in a Tampa, Florida-based company known as Hillsboro Printing ("Hillsboro"), in lieu of cash payment for investment-banking services he provided to Hillsboro. (Id. ¶ 33.) The following year DeWese purchased additional shares of Hillsboro stock, bringing his total share in that company to at least 40%. (Id. ¶ 34.)
Hillsboro was experiencing financial difficulties, and was unsuccessful in its attempts to borrow money from banks in Florida.*fn2 (Id. ¶¶ 35-36; Smith Barney Resp. ¶ 36.) In order to allow Hillsboro to weather its cash-flow problems, DeWese lent the company approximately $800,000, using both his personal funds and funds from the Plan. (Pl.'s Mot. ¶¶ 37-38.)
DeWese accessed the Plan's funds by requesting that Smith Barney issue checks to him. (Id. ¶ 42; Smith Barney Resp. ¶ 42.) Over a period of approximately one year, from October 2006 to October 2007, Smith Barney issued eight checks representing Plan funds, totaling $536,417.53, to DeWese. (Pl.'s Mot. ¶ 40; Smith Barney Resp. ¶¶ 40, 59; Pl.'s Mot. Ex. G (checks and deposit slips).)*fn3 All of the checks from the Plan were made payable to "Harris M. DeWese TTE." (Pl.'s Mot. ¶ 41; Smith Barney Resp. ¶ 41.) The checks were either deposited into the Compass bank account or into DeWese's personal account. (Pl.'s Mot. ¶ 50; DeWese Resp. ¶ 50.) Some of the funds were then used in the operation of Compass, and the rest were transferred to Hillsboro. (Pl.'s Mot. ¶ 50; DeWese Resp. ¶ 50.)*fn4 After the last check was issued to DeWese, there remained $3,804.41 in the Plan's Smith Barney account. (Pl.'s Mot. ¶ 61; Smith Barney Resp. ¶ 61.)
Hillsboro's financial troubles subsequently resulted in its collapse. (Pl.'s Mem. in Support of Pl.'s Mot. ("Pl.'s Mem.") 7; DeWese Dep. 95:9-11.) After December 2007, because there were insufficient funds in the Plan's Smith Barney account to make plaintiff's scheduled monthly payments those payments became irregular and were made only as DeWese periodically transferred sufficient funds to Smith Barney to make the payments. (Pl.'s Mot. ¶¶ 63, 65; Smith Barney Resp. ¶ 65.)
Plaintiff tried but was unable to obtain information from Smith Barney as to why his payments were not being made on time, because Smith Barney followed a policy of communicating only with the named account holder (DeWese) and refused to discuss details of the account with plaintiff. (Pl.'s Mot. ¶¶ 71-72.) DeWese eventually admitted to plaintiff that he had emptied the Plan account at Smith Barney and that the Plan was "broke." (Pl.'s Mot. Ex. E, Doc. SB0008 ("DeWese Email" to Pl., July 7, 2008).) DeWese claimed that he would restore the Plan's funds using fees he expected to earn in 2008. (Pl.'s Mot. Ex. C at 124 (email from DeWese to Pl., July 15, 2008).) After giving DeWese one year to replace the Plan funds, plaintiff initiated this litigation. (Pl.'s Mot. ¶ 82; Smith Barney Resp. ¶ 82.)
Plaintiff filed this civil action in September 2009 and, by consent of the parties, filed an amended complaint in November 2009. Defendants-including former defendant Bish, who has been dismissed as a defendant by consent of the parties-filed various motions to dismiss under Federal Rules of Civil Procedure 12(b)(6) and 12(c), which I disposed of by order dated April 7, 2010, Nagy v. De Wese, 705 F. Supp. 2d 456 (E.D. Pa. 2010). Pursuant to that order, the claims that remain before the court are (a) plaintiff's claims in Count I for breach of fiduciary duty under ERISA against DeWese, Compass and Smith Barney under section 502(a)(2) of ERISA (b) plaintiff's claims in Count II for equitable relief based on unjust enrichment, under section 502(a)(3)(B) of ERISA, against DeWese and Compass, and (c) plaintiff's claim in Count III against Smith Barney for breach of fiduciary duty to the Plan*fn5 under Pennsylvania law. See Nagy, 705 F. Supp. 2d at 470.
Plaintiff now seeks summary judgment on his breach-of-fiduciary-duty claims under ERISA against DeWese, Compass, and Smith Barney and, alternatively, under Pennsylvania law against Smith Barney. Smith Barney seeks summary judgment on plaintiff's ERISA and state-law claims against it.
A motion for summary judgment must be granted "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c)(2). Rule 56 mandates the entry of summary judgment against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and upon which that party will bear the ultimate burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once a party moving for summary judgment has met its initial burden, the nonmoving party may not rely merely on bare assertions, conclusory allegations, or suspicions, see Fireman's Ins. Co. v. DuFresne, 676 F.2d 965, 969 (3d Cir. 1982), but instead must present "specific facts showing that there is a genuine issue for trial," Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting Fed. R. Civ. P. 56(e)) (emphasis added in Matsushita). "If the [nonmoving] party does not so respond, summary judgment should, ifappropriate, be entered against that party." Fed. R. Civ. P. 56(e)(2).
"Facts that could alter the outcome are 'material,' and disputes are 'genuine' if evidence exists from which a rational person could conclude that the position of the person with the burden of proof on the disputed issue is correct." Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d 737, 743 (3d Cir. 1996) (citation omitted). For elements on which the nonmoving party bears the burden of production, the party must show more than "[t]he mere existence of a scintilla of evidence," but instead must present concrete evidence supporting each essential element of its claim. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986); Celotex, 477 U.S. at 322-23. Thus, "[w]here the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita, 475 U.S. at 587 (citations omitted).
When a court evaluates a motion for summary judgment, "[t]he evidence of the non-movant is to be believed." Anderson, 477 U.S. at 255. Furthermore, "[a]ll justifiable inferences are to be drawn in [the nonmoving party's] favor." Id. "Summary judgment may not be granted . . . if there is a disagreement over what inferences can be reasonably drawn from the facts even if the facts are undisputed." Ideal Dairy, 90 F.3d at 744. However, "an inference based upon a speculation or conjecture does not create a material factual dispute sufficient to defeat entry of summary judgment." Robertson v. Allied Signal, Inc., 914 F.2d 360, 382 n.12 (3d Cir. 1990) (citation omitted). In addition, the mere fact that parties have filed cross-motions for summary judgment "does not mean that the case will necessarily be resolved at the summary judgment stage" because "[e]ach party must still establish that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law." Atl. Used Auto Parts v. City of Phila., 957 F. Supp. 622, 626 (E.D. Pa. 1997) (citation omitted).
A. BREACH OF ERISAFIDUCIARY DUTY --COUNTI*fn6
Plaintiff asserts that DeWese and Smith Barney were each fiduciaries of the Plan under ERISA, that they each breached their fiduciary duties to the Plan, and that Smith Barney is also liable as a co-fiduciary for DeWese's actions.*fn7
Plaintiff brings these claims under section 502(a)(2) of ERISA, 29 U.S.C. § 1132(a)(2), which allows plan participants to bring suit against plan fiduciaries for relief under section 409. Section 409 imposes personal liability on "[a]ny person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by [ERISA]." 29 U.S.C. § 1109(a). To support a claim for breach of fiduciary duty under sections 502(a)(2) and 409, plaintiff must prove that (a) each defendant was an ERISA fiduciary; (b) each defendant breached an ERISA-imposed duty; and (c) such breach caused a loss to the Plan. Leckey v. Stefano, 501 F.3d 212, 225-26 (3d Cir. 2007).
Specific statutory duties imposed on ERISA fiduciaries include, as relevant to this case, duties of prudence, diligence and loyalty, and prohibitions against self-dealing or transactions with interested parties. See 29 U.S.C. §§ 1104(a), 1106(a)-(b). ERISA also imposes liability upon fiduciaries for the acts of other fiduciaries under certain circumstances. See 29 U.S.C. § 1105. "[T]he law of trusts often will inform, but will not necessarily determine the outcome of, an effort to interpret ERISA's fiduciary duties." Varity Corp. v. Howe, 516 U.S. 489, 497 (1995).
The mere fact that a person is a fiduciary because of conduct fitting the statutory definition in section 3(21)(A), 29 U.S.C. § 1002(21)(A), does not, however, necessarily mean that such person's actions in all spheres must be judged under applicable fiduciary standards of against Compass in his motion for summary judgment. The Plan description submitted with plaintiff's motion for summary judgment lists Compass as administrator of the Plan (Pl.'s Mot. Ex. C at 49), but plaintiff neither argues nor introduces evidence that Compass remained a fiduciary during the relevant time period; nor does plaintiff set forth the theory or theories under which he would have the court grant summary judgment against Compass and the evidence to support them.
The court will not make plaintiff's argument for him. Summary judgment against Compass will be denied as to both Counts I and II.
prudence and loyalty. Rather, such a person is a fiduciary only "to the extent" engaged in fiduciary conduct as defined in the statute. 29 U.S.C. § 1002(21)(A); see also 29 C.F.R. § 2509.75-8, Question 16 ("The personal liability of a fiduciary who is not a named fiduciary is generally limited to the fiduciary functions, which he or she performs with respect to the plan.").
Thus, "[i]n every case charging breach of ERISA fiduciary duty . . . the threshold question is not whether the actions of some person employed to provide services under a plan adversely affected a plan beneficiary's interest, but whether that person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint." Pegram v. Herdrich, 530 U.S. 211, 226 (2000)."[F]iduciary status under § 1002(21)(A) is not an all or nothing concept" and a court "must ask whether a person is a fiduciary with respect to the particular activity in question." Srein v. Frankford Trust Co., 323 F.3d 214, 221 (3d Cir. 2003) (quoting Maniace v. Commerce Bank of Kansas City, N.A., 40 F.3d 264, 267 (8th Cir. 1994)).
I apply these standards to DeWese and Smith ...