The opinion of the court was delivered by: SWEET
This Court, in its opinion and order of May 15, 1995, (the "May 15 Opinion") granted partial summary judgment in favor of Plaintiffs, the United States of America and Robert B. Reich, Secretary of the United States Department of Labor (collectively, the "Government"), against Defendants Joseph Fater ("Fater") and James Lupo ("Lupo") (collectively, "Defendants"), for ERISA violations in connection with the Mason Tenders Pension and Welfare Funds' (the "Funds") purchase of certain real property in New York (the "West 18th Street Property") and Florida (the "Florida Property") (collectively, the "Properties"). United States v. Mason Tenders Dist. Council, 94 Civ. 6487 (RWS), 1995 U.S. Dist. LEXIS 6470 (S.D.N.Y. May 15, 1995). Defendants' motion for reconsideration of the Court's decision and order was denied for reasons set forth in the Opinion of August 18, 1995 (the "August 18 Opinion"). United States v. Mason Tenders Dist. Council, 94 Civ. 6487 (RWS), 1995 U.S. Dist. LEXIS 11971 (S.D.N.Y. August 18, 1995). Familiarity with both opinions is assumed.
The August 18 Opinion deferred entry of final judgment against Fater and Lupo until the parties had submitted evidence on the issue of damages. On September 11, 1995, the Government submitted a letter presenting such evidence, and Fater responded on September 18, 1995. The matter was deemed fully submitted and oral argument was heard on September 26, 1995. Lupo neither submitted papers nor appeared for oral argument.
ERISA establishes that a trustee who breaches a fiduciary duty to an employee benefit plan "shall be personally liable to make good to such plan any losses to the plan resulting from such breach." 29 U.S.C. § 1109(a). This has been held to be a restitutionary measure of damages: under this standard, plan participants must be placed in the position they would have occupied absent the breach. See Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985); Reich v. Valley Nat'l Bank of Ariz., 837 F. Supp. 1259, 1285 (S.D.N.Y. 1993) (Motley, J.). As this Court noted in Reich, where the breach has resulted in an excessive price being paid for an investment, the fiduciary is "liable for the difference between the price paid and the price that should have been paid." Reich, 837 F. Supp. at 1289. The May 15 Opinion held Defendants liable for the excessive price paid by the Funds for the Properties.
I. The Source of Defendants' Liability
According to Fater, the May 15 Opinion and the August 18 Opinion held that his breach of fiduciary duty had arisen only from his failure to mitigate losses to the Funds after the Properties had been purchased, that because he was not present at the meetings at which the decisions to purchase were made, his breach of fiduciary duty had not arisen from his failure to prevent the purchase, and therefore that he was liable only for losses suffered after the purchase.
However, the August 18 Opinion rejected Fater's contention that the May 15 Opinion had left open the source of his and Lupo's liability. The May 15 Opinion noted that "the lack of any independent investigation of the purchases of these properties failed the careful inquiry required of a trustee [under ERISA]." 1995 U.S. Dist. LEXIS 6470 at *7. In moving for reconsideration, Fater contended that the May 15 Opinion had premised the breach of duty on a presumption that Fater had actual, advance knowledge of the contemplated purchases. The August 18 Opinion rejected that reading, reiterating that:
Defendants' liability does not depend on a definitive finding that they affirmatively acted to approve the real estate purchases but, rather, is based on the conclusion that, through various of their actions and omissions, they failed to discharge their fiduciary obligations under ERISA "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 a like character."
1995 U.S. Dist. LEXIS 11971, at *3 (citing 29 U.S.C. § 1104(a)(1)(b) (other citations omitted). Fater's liability is based on his failure to prevent the purchase of the Properties, regardless of the extent of his knowledge, and the judgment will be calculated on that basis.
Only Fater, not Lupo, was held in the May 15 Opinion to be liable for breach of fiduciary duty with regard to the Florida Property. The Welfare Fund paid $ 1,450,000 for that Property on November 7, 1987. On June 2 of that same year, Eugene Klein, a certified appraiser with Professional Appraisals, Inc., assessed the Property as worth between $ 750,000 and $ 850,000 (the "Klein Appraisal"). Taking the higher of the two values to be the proper measure, in Fater's favor and as stipulated by the Government, the damages to the Fund amount to the difference between $ 1,450,000 and $ 850,000: that is, $ 600,000.
According to Fater, the Florida Property had a higher intrinsic value according to a "value-in-use" theory of property valuation, based upon Klein's statement that had the property been purchased and put to an ancillary use by St. Francis Hospital, it would have "attained a higher price than that based strictly on market value." However, even supposing that any value-in-use could have risen to $ 1,450,000, that value could not have been reaped by the Welfare Fund in its purchase and use of the property. Indeed, there is ...