The opinion of the court was delivered by: SHIRLEY WOHL KRAM
SHIRLEY WOHL KRAM, U.S.D.J.
Plaintiffs bring these consolidated actions
for breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. Presently before the court are plaintiffs' motions, pursuant to Rule 56(b) of the Federal Rules of Civil Procedure, for an order granting them summary judgment upon their various ERISA and common law claims in each of the consolidated actions. The Court has subject matter jurisdiction over these actions pursuant to 29 U.S.C. § 1132(e)(1).
Plaintiff Welfare Fund of the Plumbing Industry of New York (the "Welfare Fund" or "Fund") is a joint trusteed fund, established in 1954. Plaintiffs William Greenblatt and Peter N. Salzarulo are trustees and Chairman and Co-Chairman, respectively, of the Welfare Fund (the plaintiffs are referred to collectively as the "Trustees").
In 1979, the Welfare Fund entered into a written agreement with PPS (the "PPS Contract") pursuant to which PPS would administer a drug program established by the Welfare Fund for the benefit of its eligible participants and their dependents, pensioners and spouses.
On March 23, 1989, David Konigsberg, PPS's president, requested that the Fund increase its cash reserve to $ 180,000. The Fund instead increased the reserve to $ 150,000.
On August 10, 1989, the Fund gave written notice to PPS of termination of the PPS Contract, providing the requisite 90 days advance notice of termination. The PPS Contract permitted PPS to use the cash reserve for obligations arising within 120 days after termination, and could have been used to satisfy claims arising between November 15, 1989, the Contract termination date, and March 15, 1989.
PPS, however, did not use the reserve to satisfy claims during the 120 period. Instead, it billed the Fund directly for services provided by panel pharmacies.
On January 15, 1990, the Fund's attorneys sent letters to PPS and Alvin Konigsberg demanding the return of the $ 150,000 cash reserve. PPS, through Alvin Konigsberg, responded that the demand was not in accordance with the provisions of the PPS Contract which permitted PPS to use the reserve to satisfy claims during the 120 day post-termination period. The Fund sent a further letter dated January 30, 1990, confirming a phone conversation between counsel in which PPS stated it would provide an accounting on or about March 15, 1990, and would return any unused portion of the reserve. To date, defendants have failed to provide an accounting or return any portion of the cash reserve.
In March 1988, the Welfare Fund entered into an agreement with defendant NHP pursuant to which NHP would administer a dental health plan on behalf of the Welfare Fund (the "NHP Contract"). To facilitate NHP's processing of plan participants' claims, the Fund authorized the Bank of New York to issue checks to NHP bearing the Fund's account number, enabling NHP to draw directly against the Fund's account. The Contract granted NHP no right to draw directly against the Fund's account but rather permitted NHP to do so as an accommodation and at the Fund's sole discretion.
On January 24, 1990, the Fund notified NHP of its termination of the NHP Contract, again providing the requisite 90-days advance notice. The NHP Contract was cancelled as of April 30, 1990. Defendants NHP and Alvin Konigsberg, however, continued to write checks directly against the Welfare Fund account, and refused to return unused checks until ordered to do so by this Court. Defendants based their refusal on industry custom and practice which, according to defendants, granted NHP a right to draw checks on the account for a period of one year after the Contract cancellation date. On June 20, 1990, this Court issued a Temporary Restraining Order (the "June 20th TRO") enjoining NHP and Alvin Konigsberg from writing and distributing checks against the Fund's account.
In the PPS Action, the Trustees claim that defendants' failure and continuing refusal to return the $ 150,000 reserve to the Fund after the March 15, 1990 termination of the PPS Contract constitutes a breach of the PPS Contract and a breach of fiduciary duty under ERISA § 404, 29 U.S.C. § 1104, making defendants liable as fiduciaries under ERISA § 409, 29 U.S.C. § 1109. The Trustees seek $ 150,000 plus any interests and profits earned on that amount by defendants, an accounting of the cash reserve retained by the defendants and of all claims submitted to PPS by participating pharmacies from November 15, 1979 to date, an accounting of Alvin and David Konigsberg's bank accounts over the past five years, imposition of a constructive trust upon defendants, and appropriate interest, costs, and disbursements incurred in the prosecution of this action together with reasonable attorney's fees pursuant to 29 U.S.C. § 1132(g).
Defendants raise no affirmative defenses or counterclaims to the Trustees' claims but argue that they are nevertheless entitled to retain possession of the cash reserve as a potential offset against their counterclaim in the NHP Action.
In the NHP Action, the Trustees claim that NHP and Alvin Konigsberg violated their fiduciary duties under ERISA by continuing to write checks against the Fund's account and refusing to return unused checks after the termination of the NHP contract. Defendants contend that their actions were justified by industry custom, and that such custom and practice is an implicit part of the parties' contract. Plaintiffs seek a permanent injunction enjoining NHP and Alvin Konigsberg from writing additional checks against the Fund's account, an award of any increased administrative costs incurred by the Welfare Fund resulting from defendants' conduct, an accounting of all checks written by NHP on the Fund's account after cancellation of the NHP Contract, and reasonable attorneys's fees and costs pursuant to ERISA §§ 409 and 502(g)(1), 29 U.S.C. §§ 1109 and 1132(g)(1).
In the NHP Action defendants assert two counterclaims. The first alleges misappropriation of proprietary information, and is premised upon allegations that NHP created a list of specially selected dentists for use in administering the Fund's dental program in which it has a proprietary interest and which the Fund wrongfully misappropriated. The second alleges injury to defendants' business and reputation stemming from the Fund's obtaining from this Court the June 20th TRO. Defendants allege that the injunction prevented defendants from paying properly preauthorized dental claims, causing injury to their business and reputation. Defendants seek $ 200,000 on the first counterclaim and $ 1,000,000 on the second counterclaim.
I. Summary Judgement Standard
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In testing whether the movant has met this burden, the Court must resolve all ambiguities against the movant. Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir. 1987) (citing United States v. Diebold, Inc., 369 U.S. 654, 655, 8 L. Ed. 2d 176, 82 S. Ct. 993 (1962)).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 26 L. Ed. 2d 142, 90 S. Ct. 1598 (1970). The movant may discharge this burden by demonstrating to the Court that there is an absence of evidence to support the non-moving party's case on which that party would have the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986).
The non-moving party then has the burden of coming forward with "specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e). The non-movant must "do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986). Speculation, conclusory allegations and mere denials are not enough to raise genuine issues of fact. To avoid summary judgment, enough evidence must favor the non-moving party's case such that a jury could return a verdict in its favor. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986) (interpreting the "genuineness" requirement).
ERISA Section 409 provides in relevant part:
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from such breach, and to restore to such plan any profits of such fiduciary which have been made through the use of such assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate. . . .
29 U.S.C. § 1109(a). To succeed on a claim under Section 1109, plaintiffs must establish that defendants are ERISA fiduciaries with respect to the Fund, and that defendants breached their fiduciary duties.
A. Defendants' Fiduciary Status
ERISA provides that "a person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets. . . ." ERISA § 3(21)A, 29 U.S.C. § 1002(21)(A) (emphasis added). ERISA's definition of "fiduciary" emphasizes "the exercise, as well as the possession, of authority or control." Blatt v. Marshall and Lassman, 812 F.2d 810, 813 (2d Cir. 1987). One who exercises actual control over disposition of assets is a fiduciary under ERISA; one who engages in purely "ministerial" functions is not. Id. at 812, 813.
Courts have generally applied a liberal interpretation to "fiduciary" within the ERISA context, since "applying a restrictive judicial gloss to the term 'fiduciary' would, in effect, enable trustees to transfer important responsibilities to a largely immunized 'administrative' entity. A clear congressional desire to expand the scope of fiduciary standards of conduct should not be so undermined." Lowen v. Tower Asset Management, Inc., 653 F. Supp. 1542, 1550 (S.D.N.Y.) (quoting Eaton v. D'Amato, 581 F. Supp. 743, 746 (D.D.C. 1980), aff'd, 829 F.2d 1209 (2d Cir. 1987)).
Plaintiffs have met their burden of demonstrating that PPS is a fiduciary within the meaning of ERISA.
First, PPS's obligations under the PPS Contract are sufficient to establish PPS as an ERISA fiduciary. In Sixty-Five Sec. Plan v. Blue Cross and Blue Shield, 583 F. Supp. 380, 387 (S.D.N.Y. 1984), this Court held that the design and implementation of claims processing systems was not a purely ministerial function, and that broad latitude in performing administrative tasks was sufficient to establish fiduciary status under ERISA. See also Eaton v. D'Amato, 581 F. Supp. at 743 (corporation administering employee benefit plans which made critical management and administrative decisions and established recordkeeping systems was ERISA fiduciary). The PPS Contract calls for PPS to "manage and administer" a drug program on behalf of the Fund, issue "Identification Enrollment" cards to eligible Fund participants, verify eligibility of card holders in accordance with lists of eligible participants provided by the Fund, pay the prescription cost of drugs falling within certain categories, maintain a "Central Pharmacy" for the use of Fund members with chronic ailments, process all claims and verify that the filled prescriptions fall within the scope of the program, verify the price computation of each prescription, design and supply all forms for the program, and submit a monthly statement of charges to the Fund. Although ...