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December 29, 1983

JOSEPH BUCCINO, JULIUS SEIDE and WILBUR HASSLINGER, as Fiduciaries, Participants and Beneficiaries of Pressroom Unions-Printers League Income Security Fund, Plaintiffs, against CONTINENTAL ASSURANCE CO., et al., Defendants; GEORGE S. KRIEGLER, et al., Third-Party Plaintiffs, against JULIUS BRISKIE, et al., Third-Party Defendants.

The opinion of the court was delivered by: CARTER

CARTER, District Judge.

Plaintiffs allege breaches of fiduciary duty in violation of the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"), common law fraud and breach of fiduciary duty, and violations of the General Business and Insurance Laws of New York. Defendants George S. Kriegler, Raymond M. Kriegler (now deceased), Benjamin A. Kriegler, Labor Security Programs, Inc. ("LSP"), and Continental Assurance Co. move under F.R.Civ.P. 56 for summary judgment dismissing the complaint. For the reasons that follow, the motion is granted in part and denied in part.

 Plaintiffs are participants in and beneficiaries and fiduciaries of the Pressroom Unions-Printers League Income Security Fund (the "Fund"), an employee benefit plan subject to the provisions of ERISA, 29 U.S.C. § 1003(a). The Fund was established in May, 1971 to provide life insurance and mutual fund benefits to the members of Local 51 of the New York Printing Pressmen's & Offset Workers Union. Several other unions joined the Fund thereafter.

 Plaintiffs' central contention is that beginning in 1971, George and Raymond Kriegler, acting in concert with Continental, defrauded and breached their fiduciary duties to the Fund by inducing it to buy and retain individual, permanent, whole life insurance policies, rather than a single group policy. Plaintiffs contend that the Krieglers, who advised the Fund and acted on its behalf in insurance matters, knew that individual policies, costing more than a group policy without providing superior benefits, were inappropriate for the Fund, but concealed their knowledge and made representations to the contrary because individual policies yielded greater premiums for Continental, the insurance underwriter, and greater commissions for the Krieglers than the proper policy would have. Plaintiffs also allege that after being paid commissions by Continental on the Fund's initial purchase of insurance, the Krieglers continued to receive money from the insurance company, as salary or in the form of reimbursement for office expenses. Plaintiffs contend that this fraudulent scheme, whereby the insurance company received inflated premiums from the Fund, and the Krieglers, Fund fiduciaries, received salary or other compensation from the insurance company, continued until mid-1980. *fn1"

 I Accrual of the Breach of Fiduciary Duty Claims

 Defendants do not, for the purpose of this motion, dispute that they were fiduciaries or that they breached their fiduciary duties, but they contend that plaintiffs' action, filed August 20, 1982, is barred by ERISA's statute of limitations. *fn2" Defendants' principal argument is that the "last action which constituted a part of the breach or violation," 29 U.S.C. § 1113(a)(1), occurred in 1971 when the initial decision was made to acquire individual life insurance policies. The payment of excessive premiums pursuant to those policies, defendants maintain, "simply flowed from the 1971 purchase decision" and did not give rise to new, independent wrongs. Defendants' Memorandum, p. 23. Therefore, under ERISA's six year statute of limitations, this action has been barred since 1977.

 The flaw in defendants' argument is that as Fund fiduciaries they were under a continuing obligation to advise the Fund to divest itself of unlawful or imprudent investments. Their failure to do so gave rise to a new cause of action each time the Fund was injured by its continued possession of individual policies, that is, each time it made a premium payment.

 See, Morrissey v. Curran, 567 F.2d 546 (2d Cir. 1977).

 In Morrissey, plaintiffs brought an ERISA action based upon an investment made well before the statute took effect in 1975. The District Court dismissed for lack of subject matter jurisdiction, but the Second Circuit held that although ERISA could not be applied retroactively, employee benefit plan fiduciaries beginning in 1975 acquired a duty to review plan investments and to dispose of those pre-ERISA holdings which were improper. Thus it was an actionable breach of fiduciary duty under ERISA for the plan's trustees to have failed to divest the plan of the challenged investment even though the trustees were immune from suit for the original pre-ERISA investment decision. Similarly, in this case, although the statute of limitations may protect defendants from liability for the initial purchase decision and for subsequent failures to take corrective action prior to August 20, 1976, (see Part II), it does not bar suit for defendants' continued failure to take steps to terminate the Fund's insurance arrangement after that date.

 Defendants would construe Morrissey narrowly as holding not that plan fiduciaries have an ongoing obligation to rid their plans of illegal or unwise investments, but only that they had a one-time duty to review pre-ERISA investments when the statute became effective on January 1, 1975. If they violated this latter, narrow duty, defendants argue, the statute of limitations expired in 1981. The rule defendants suggest would recognize no obligation on the part of a plan fiduciary to dispose of unsound investments once he had been neglectful for six years, because only the initial failure to act, not subsequent failures, would give rise to a cause of action, and that action would be time barred. Nothing in Morrissey or any subsequent case, however, supports such a constructed interpretation of an ERISA fiduciary's duty to purge a benefit plan of bad investments. Trustees of the Retirement Plan of the Pittsburgh Press Company and Pittsburgh Mailers Union Local No. 22 v. Egibank, N.A., 487 F. Supp. 58, 62 (W.D. Pa. 1980) (interpreting the Morrissey Court as "reasoning that ERISA imposed a continuing duty to review and liquidate improvident investments"), appeal dismissed, 639 F.2d 776 (3rd Cir. 1980); see, e.g., O'Neil v. Marriott Corp., 538 F. Supp. 1026, 1033 (D. Md. 1982); Marshall v. Craft, 463 F. Supp. 493, 496-97 (N.D.Ga. 1978).

 Defendants' interpretation would be inconsistent with ERISA's stringent standards of fiduciary conduct and with the common law "prudent investor" rule, a fiduciary has the duty "from time to time to examine the state of the investments to see whether any of them have become such that it is no longer proper to retain them." III A. Scott, The Law of Trusts § 231 (1967). If defendants failed, for ten years, to inform the Fund that its insurance plan was unlawful or otherwise improper, they continuously and repeatedly violated their fiduciary duties under ERISA. Only those violations that occurred more than six years before this action was filed are time barred.

 The non-ERISA cases relied upon by defendants are not to the contrary. In Korn v. Merrill, 403 F. Supp. 377 (S.D.N.Y. 1975) (Carter, J.), aff'd, 538 F.2d 310 (2d Cir. 1976), plaintiff brought a derivative suit on behalf of an investment fund attacking, inter alia, the legality of an investment advisory agreement entered into by the fund in connection with a merger between the advisor and a third party. Plaintiff maintained that even if his challenge to the merger and the agreement were time barred, he could still recover damages for subsequent payments made by the fund to the advisor pursuant to the agreement. This Court rejected that argument, holding that the payments were not independently actionable because plaintiff had alleged no wrongful conduct on the part of any defendant after the merger. 403 F. Supp. at 388. The Court noted that the advisory agreement had been re-approved annually and that if such re-approvals were wrongful they might have generated a cause of action, but plaintiff did not raise that issue. He complained of no acts subsequent to the merger and hence had no grounds on which to recover for the payments. In contrast, plaintiffs here have complained of defendants' post-August 20, 1976 failure to take any steps to terminate the Fund's insurance arrangement, a breach of their fiduciary duty independent of the original purchase of the individual policy insurance coverage.

 Similarly, in Lowell Wiper Supply Co. v. Helen Shop, Inc., 235 F. Supp. 640 (S.D.N.Y. 1964) (Weinfeld, J.), it was held that rental payments made pursuant to an improper sublease were merely elements of plaintiff's damages, not independently actionable wrongs. Again, no wrongful conduct, only the payment of monies owing under contract, was alleged to have occurred after the initial agreement was signed. Here, defendants were obliged to terminate the Fund's allegedly wrongful insurance policies. They were under no contractual obligation to maintain the improper insurance arrangement and if they did so, they repeatedly violated their fiduciary duty.

 Finally, the court is unpersuaded that its holding, that an employee benefit plan fiduciary's failure to act to eliminate an illegal or imprudent investment gives rise to a new cause of action each time the plan is injured by the fiduciary's neglect, is inconsistent with the important policies that lie behind statutes of limitations. See, Board of Regents of the University of the State of New York v. Tomanio, 446 U.S. 478, 487, 64 L. Ed. 2d 440, 100 S. Ct. 1790 (1980) (statutes of limitations reflect legislatures' and courts' judgment that there comes a point at which delay in asserting a claim is likely to impair accuracy of fact-finding process or upset settled expectations that claim will be barred regardless of its merits). Defendants' contention that this rule would permit a lawsuit challenging an investment to be brought "fifty years or more" after the fact is incorrect. Defendants' Reply Memorandum p. 4. While new causes of action may periodically accrue if a fiduciary continually fails to dispose of an inappropriate investment, the statute of limitations begins to run on each such cause of action as it accrues. Thus, if a suit were brought under ERISA challenging the acquisition and retention of a fifty year old investment, to use defendants' example, only the causes of action for failure to divest which accrued over the six years prior to the suit would not be time barred. The propriety or impropriety of the initial investment decision and the first forty-four years of retention would be irrelevant. No stale claim would be litigated, but, conversely, the fiduciary's breach of duty fifty years ago would not serve to shield him from liability for his most recent transgressions. Applying this analysis to the case before the Court, absent fraud or concealment (see part ...

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