dated January 4, 1990 valued the property at $ 8,300,000.
On February 1, 1990 the Pension Fund loaned $ 15,850,000 to Ronald Miceli ("Miceli") to purchase the 18th Street building. On that same date Miceli purchased the building for $ 7,465,000.
On November 13, 1990 the Pension Fund trustees met and approved unanimously the purchase of the 18th Street Property from Miceli, established a realty corporation to hold title to the property, named Fater President of the Corporation and authorized Gerard W. Cunningham ("Cunningham") to execute the purchase.
Lupo attended the November 13 meeting. Fater was not present at the meeting and took no part in the vote. His counsel, Cunningham, was present at the meeting and presented the Real Estate Committee report which included the discussion of the 18th Street property. Fater was on the Real Estate Committee at that time.
The building was purchased by the Pension Fund on November 27, 1990 for $ 24,000,000.
The Florida Property
The complaint alleges that "...trustee...Fater ...approved the Welfare Fund's purchase of 6060 Indian Creek [Drive, Miami Beach, Florida] for the price of $ 1.45 million, $ 600,000 more than the valuation contained in any contemporaneous valuation of the property."
A June 10, 1987 appraisal letter from Appraisal Professionals, Inc. addressed to Frank Lupo, Trustee, Mason Tenders District Council, estimated that the market value of the property was between $ 750,000.00 and $ 850,000.00.
The purchase of the property for $ 1,400,000 was approved unanimously at the October 28, 1987 trustees' meeting. Fater was not present at the meeting. His counsel, Gerard W. Cunningham ("Cunningham"), was present and gave the Real Estate Committee report including a discussion of the Florida property. Fater was a member of the Real Estate Committee.
At a meeting of the trustees on April 6, 1988, at which Fater was present, minutes of the October 28, 1987 meeting, including discussion of the Florida property, were approved unanimously without alteration.
Defendants Breached their Fiduciary Duties as Trustees
A motion for summary judgment may be granted only when there is no genuine issue of material fact remaining for trial and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c); Silver v. City Univ., 947 F.2d 1021, 1022 (2d Cir. 1991). The moving party bears the burden of proving that no genuine issue of material fact exists. Brady v. Town of Colchester, 863 F.2d 205, 210 (2d Cir. 1988); Pittston Warehouse Corp. v. American Motorists Ins. Co., 715 F. Supp. 1221, 1224 (S.D.N.Y. 1989), aff'd, 954 F.2d 62 (2d Cir. 1992).
The Second Circuit has repeatedly noted that "as a general rule, all ambiguities and inferences to be drawn from the underlying facts should be resolved in favor of the party opposing the motion, and all doubts as to the existence of a genuine issue for trial should be resolved against the moving party." Brady, 863 F.2d at 210; see also Cartier v. Lussier, 955 F.2d 841, 845 (2d Cir. 1992); Burtnieks v. City of New York, 716 F.2d 982, 983-84 (2d Cir. 1983); Swan Brewery Co. v. United States Trust Co., 832 F. Supp. 714, 717 (S.D.N.Y. 1993).
The remedy of summary judgment is viewed "as an integral part of the Federal rules as a whole, which are designed 'to secure the just, speedy and inexpensive determination of every action.'" Celotex Corp. v. Catrett, 477 U.S. 317, 327, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (citations omitted). Once the moving party has met its burden of coming forward with evidence to show that no material fact exists for trial, the nonmoving party must do more than "simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986).
The Government contends that Fater and Lupo breached their fiduciary duties under ERISA in connection with the purchase of the 18th Street property and additionally that Fater breached his duty in connection with the Florida property.
ERISA requires a pension fund fiduciary to act "solely in the interest" of a plan's participants and beneficiaries, and to discharge his duties "with the care, skill, prudence, and diligence ... that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character ...." 29 U.S.C. § 1104(a)(1)(B).
In Katsaros v. Cody, 744 F.2d 270 (2d Cir.), cert. denied, 469 U.S. 1072 (1984), the Court of Appeals described the now well-settled standards for evaluating the prudence of a trustee's acts:
Prudence is measured according to the objective "prudent person" standard developed in the common law of trusts. Donovan v. Mazzola, 716 F.2d 1226, 1231 (9th Cir. 1983), cert. denied, 464 U.S. 1040 [104 S. Ct. 704, 79 L. Ed. 2d 169] (1984); S.Rep. No. 127, 93d Cong., 2d Sess., reprinted in 1974 U.S.Code Cong. & Ad.News 4639, 4838, 4865 (the fiduciary responsibility section, in essence, codifies and makes applicable to these fiduciaries certain principles developed in the evolution of the law of trusts.) The court's task is to inquire "whether the individual trustees, at the time they engaged in the challenged transactions, employed the appropriate methods to investigate the merits of the investment and to structure the investment." Donovan v. Mazzola, 716 F.2d 1226, 1232 (9th Cir.1983), cert. denied, 464 U.S. 1040 [104 S. Ct. 704, 79 L. Ed. 2d 169] (1984); Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir.1983) ("courts have focused the inquiry under the 'prudent man' rule on a review of the fiduciary's independent investigation of the merits of a particular investment"). A trustee's lack of familiarity with investments is no excuse: under an objective standard trustees are to be judged "according to the standards of others 'acting in a like capacity and familiar with such matters.'" Marshall v. Glass/Metal Ass'n, 507 F. Supp. 378, 384 (D.Haw 1980).
Katsaros v. Cody, 744 F.2d at 279; see also Fink v. National Savings and Trust Co., 249 U.S. App. D.C. 33, 772 F.2d 951, 955 (D.C. Cir. 1985).
ERISA's prudence standard "is not that of a prudent lay person but rather that of a prudent fiduciary with experience dealing with a similar enterprise." Marshall v. Snyder, 1 Empl. Ben. Cases (BNA) 1878, 1886 (E.D.N.Y. 1979); see Donovan v. Mazzola, 716 F.2d at 1231-32 ("Courts have also recognized that in enacting ERISA Congress made more exacting the requirements of the common law of trusts relating to employee benefit trust funds."); indeed, the Second Circuit has recognized that the duties of an ERISA trustee are "the highest known to the law." Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir.), cert. denied, 459 U.S. 1069, 74 L. Ed. 2d 631, 103 S. Ct. 488 (1982). In sum, courts have construed the "prudent person standard" under ERISA as an "objective standard, requiring the fiduciary (1) to employ proper methods to investigate, evaluate and structure the investment; (2) to act in a manner as would others who have a capacity and familiarity with such matters; and (3) to exercise independent judgment when making investment decisions." Lanka v. O'Higgins, 810 F. Supp. 379, 387 (N.D.N.Y. 1992) (citations omitted).
The test of prudence focuses on the trustee's conduct in investigating, evaluating and making the investment. See Fink v. National Savings and Trust Co., 772 F.2d at 957 (D.C. Cir. 1985) ("A fiduciary's independent investigation of the merits of a particular investment is at the heart of the prudent person standard."). While a trustee has a duty to seek independent advice where he lacks the requisite education, experience and skill, Donovan v. Bierwirth, 680 F.2d at 272-73, the trustee, nevertheless, must make his own decision based on that advice. Donovan v. Mazzola, 716 F.2d at 1234; Withers v. Teachers' Retirement System of the City of New York, 447 F. Supp. 1248, 1254 (S.D.N.Y. 1978), aff'd. mem., 595 F.2d 1210 (2d Cir. 1979) ("In the area of investment decisions, the obligation to exercise prudence [includes] an obligation to ... make independent inquiry into the merits of particular investments rather than to rely wholly on the advice of others.").
The failure to make any independent investigation and evaluation of a potential plan investment is a breach of fiduciary obligations, Fink v. National Savs. & Trust Co., 772 F.2d at 957, that may warrant an injunction against or the removal of the trustee and possibly the recovery of trustee fees paid for the investigative and evaluative services that went unperformed. Id. at 962. cHaving found that a trustee has failed to investigate a particular investment adequately, however, a court must then examine whether, considering the facts that an adequate and thorough investigation would have revealed, the investment was objectively imprudent. Id. (Scalia, J., concurring in part and dissenting in part); see also Katsaros v. Cody, 744 F.2d at 279-80; Withers v. Teachers Retirement System of the City of New York, 447 F. Supp. at 1254.
Lupo was a trustee at the time that the 18th Street property was purchased and Fater was a trustee at the time that both properties were purchased. Applying the above principles to the facts of this case, the lack of any independent investigation of the purchase of these properties failed the careful inquiry required of a trustee. In response to this motion neither Lupo or Fater claimed that they made the independent investigation required.
Specifically, in relation to the 18th Street property, the Government alleges in its papers, and the defendants have not refuted the following:
-- the Trustees failed to obtain, let alone scrutinize, any valuation or appraisal of the building in or about November 1990 before approving of the Pension Fund's $ 24 million purchase of the 18th Street building;
-- the Trustees failed to ascertain the identity of the seller -- which would have revealed that the seller was the identical person who had received the $ 15.85 million loan from the Pension Fund to purchase the building ten months earlier;