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November 6, 1992

THOMAS LANKA, D.D.S., and GORDON L. WRIGHT, D.D.S., as Co-Trustees of the Plans and Trusts known as Thomas Lanka, D.D.S., Gordon L. Wright, D.D.S., P.C., Employees' Pension Plan and Trust and Employees' Profit Sharing Plan and Trust, Plaintiffs,

The opinion of the court was delivered by: FREDERICK J. SCULLIN, JR.

Frederick J. Scullin, Jr., D.J.:



 The plaintiffs commenced this action on August 30, 1988, seeking $ 250,000 in damages plus interest, costs and attorney's fees from the defendant, *fn1" alleging that he, while employed as their sole "investment manager," violated the applicable ERISA and investment industry standards and breached his duties of loyalty, diversification and prudence. They alleged specifically that he breached his duties in that he:

 1) failed to follow the plaintiffs' specific instructions to invest in a conservative, diversified portfolio;

 2) allowed plaintiffs' complete portfolio to be invested in just three different stocks in the year 1986;

 3) failed to diversify the plaintiffs' portfolio pursuant to 29 U.S.C. ยง 1104;

 4) subjected plaintiffs' pension and profit sharing plans to imprudent and unreasonable losses under the existing market conditions; and

 5) generally invested without care, skill or prudence in an undiversified portfolio.

 Complaint at P 12.

 The defendant contends that he did not violate any ERISA provisions, that he utilized a proper investment philosophy and made investment decisions utilizing all skill, care, prudence and diligence as required of him under the prevailing circumstances. He further alleges that the damages suffered by the plaintiffs were not as a result of his conduct, since he counselled the plaintiffs against moving the investments of which they complain and they nevertheless transferred their investment accounts, sold off the stocks and realized a loss.

 A three day non-jury trial was held before this court on September 29 through October 1, 1992. At this trial, the plaintiffs called the following witnesses: Dr. John Thomas Lanka; Mrs. Leonore Lanka; Mr. Robert Matt; Dr. Gordon L. Wright; Ms. Sylvia Anapolis; Mrs. Terry Hunsinger; Mrs. Loretta C. Maurer; Mr. Michael B. O'Higgins; Mr. Dominick J. Izzo; Mr. Christopher M. Briggs; Mr. Daniel Steinberg; and pursuant to stipulation between the parties, the deposition of Mrs. Helen Cary was read into the record since she was unavailable to testify. The defendant testified on his own behalf and called Mr. Simon John Aman as his only additional witness.

 Prior to the commencement of the trial, the parties stipulated in writing to the following statement of facts, which was introduced in evidence at the trial as Court's Exhibit No. 1:

 1) that the plaintiffs, Thomas Lanka, D.D.S. and Gordon L. Wright, D.D.S., are co-trustees and administrators of the pension and profit sharing plans and trusts, which were established on December 1, 1972, as amended on December 1, 1984;

 2) that Thomas Lanka, D.D.S. and Gordon L. Wright, D.D.S. reside in the County of Schenectady and State of New York; that the defendant resides in the County of Albany and State of New York;

 3) that the plans are duly qualified plans pursuant to the Internal Revenue Code, Section 401;

 4) that on August 18, 1983, the plaintiffs retained the Defendant for the management of the plaintiffs' Employees' Pension and Profit Sharing Plans and Trusts;

 5) that the Investment Management Agreement dated August 18, 1993 gave Michael B. O'Higgins sole, complete and discretionary management and control of the portfolios of both plans in such a manner as he deemed advisable; that the defendant was also given a limited power of attorney by plaintiffs at that time;

 6) that for services rendered, the plaintiffs agreed to pay the defendant, in advance, a quarterly fee of 1/4% of the value of the assets under his management at the beginning of each quarter; that all fees due the defendant have been paid in full;

 7) that in conjunction with this portfolio, Dr. Lanka executed a custodial account agreement with the Bank of New York on August 2, 1983, which instructed the Bank to proceed with instructions from the defendant in regard to any investment decisions or cash movements in the portfolio accounts;

 8) that the investments of the plans were never transferred by the defendant or his staff into the "Big Cap 90" fund;

 9) that on October 31, 1986, Dr. Lanka terminated the defendant in his position as the sole investment manager of the plan portfolios' assets;

 10) that the plaintiffs were provided with quarterly review statements from the defendant from October, 1983 through October, 1986;

 11) that the plaintiffs relieved the defendant of his duties as investment manager of the plan portfolios on October 31, 1986 and assumed responsibility and custody of the plan stock portfolios at that time. Orally, at the commencement of the trial, the parties stipulated to the following additional facts:

 12) that the defendant was an "investment manager" and fiduciary under the applicable law; and

 13) that the portfolio was concentrated and not diversified.

 Based upon these stipulations of fact, upon the documentary evidence introduced and upon credible testimony presented during the trial, the following findings of fact and conclusions of law are made.

  Findings of Fact

 Sometime in 1981 or 1982, Mr. Dominick Izzo, a stockbroker and institutional advisor then with Spencer Trask & Co. and a personal friend, upon inquiry from Dr. Thomas Lanka, recommended a number of investment managers, including the defendant, who could manage the pension and profit sharing plans for the professional corporation.

 In late 1982, *fn2" the defendant met with Dr. and Mrs. Lanka at their home. Prior to the meeting, the defendant had provided them with various materials for their review. These materials included the defendant's brochure (Plaintiffs' Exhibit No. 2), an article entitled "He competes with the stockbrokers" published in the April 25, 1982 issue of the Albany Times Union (Plaintiffs' Exhibit No. 5), various correspondence (Plaintiffs' Exhibit Nos. 7a, 7b, 7e, 7f, 7g & 7h), the defendant's market bulletin dated February 25, 1982 (Plaintiffs' Exhibit No. 7c) and defendant's report entitled "Historical Performance Data" dated June 1982 (Plaintiffs' Exhibit No. 7d). *fn3" At this meeting, they discussed the defendant's investment philosophy; he made a presentation using charts, explaining that he employed a unified approach for his clients, investing their money in primarily Dow Jones "blue chip" stocks. The defendant explained that his goal was not to lose money. Dr. Lanka explained to the defendant that he wanted to retire at age 60; his birth date being May 13, 1936, he was then 46 years old. No mention was made of any of the other plan participants.

 At some point prior to retaining the defendant, the Lankas were advised that the defendant was to be a guest on "Wall Street Week with Louis Rukeyser." (Plaintiffs' Exhibit No. 7g) They watched the program. They also interviewed other investment managers prior to deciding to retain the defendant.

 By agreement executed on August 18, 1983 (Plaintiffs' Exhibit No. 7i), the plaintiffs retained the defendant as their investment manager for their pension and profit sharing plans. That agreement provides in pertinent part:

 "You (referring to the defendant) will assume complete and discretionary management of this portfolio in such a manner as you deem advisable. . . .

 For your services I [referring to Thomas Lanka, D.D.S.] agree to pay, in advance, a quarterly fee of 1/4 % of the value of the assets under management at the beginning of each quarter . . . ."

 The agreement further provided that:

 "This agreement may be cancelled by me [referring to Dr. Lanka] at any time, simply by notifying you [referring to the defendant] in writing and cancelling the limited power of attorney . . . ."

 At the same time this "Investment Management Agreement" was signed, the defendant received a limited power of attorney. These documents were executed in the Lankas's home. At that time, the defendant again assured the Lankas that he could meet their investment objectives and work with them in an efficient manner. On August 31, 1983, the funds were transferred as follows: Profit Sharing Plan $ 192,542,59 Pension Plan 128,144.04


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