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ASIAN VEGETABLE RESEARCH & DEV. CTR. v. INSTITUTE

October 31, 1996

ASIAN VEGETABLE RESEARCH AND DEVELOPMENT CENTER, et al., Plaintiffs, against INSTITUTE OF INTERNATIONAL EDUCATION, Defendant.


The opinion of the court was delivered by: SWEET

 Sweet, D. J.,

 Plaintiffs Asian Vegetable Research and Development Center, et. al ("the Centers") have moved pursuant to Federal Rules of Civil Procedure 56 for summary judgment on their claims for breach of contract and fiduciary duty, and Defendant Institute of International Education ("IIE") has moved pursuant to Federal Rules of Civil Procedure 56 for summary judgment to dismiss each of the Centers' claims.

 For the reasons set forth below, the Centers' motion will be granted in part and denied in part and IIE's cross-motion will be denied in part and granted in part.

 The Parties

 The parties and prior proceedings are described in two earlier opinions of this Court, familiarity with which is assumed. See Asian Vegetable v. Institute of International Education, 1995 U.S. Dist. LEXIS 11776, 1995 WL 491491 (S.D.N.Y. August 17, 1995) (the "1995 Opinion"); Asian Vegetable v. Institute of International Education, 1996 U.S. Dist. LEXIS 307, 1996 WL 14448 (S.D.N.Y. January 16, 1996) (the "January Opinion"). The parties and prior proceedings are repeated below only insofar as they relate to this motion.

 The Centers are agricultural and/or scientific research organizations with headquarters in cities around the world.

 IIE is a non-profit New York corporation which develops and administers programs for various international organizations, corporations, foundations and universities, and which provides administrative and purchasing services to universities, foreign countries and agricultural research centers. It provided personnel, payroll, insurance and other administrative services to the Centers, including services with respect to a retirement plan maintained by the Centers for their non-U.S. personnel (the "Offshore Plan").

 Prior Proceedings

 The Centers filed the complaint in this action on September 12, 1994 alleging breach of contract, negligence, gross negligence, breach of fiduciary duty, malpractice, concealment, negligent misrepresentation, and intentional misrepresentation and seeking compensatory and punitive damages, interest, attorneys' fees and costs.

 In the 1995 Opinion, the Court held that the fiduciary exception to the attorney client privilege did not apply to letters between IIE and its counsel after December 1992, when the relationship between IIE and the Centers was terminated; the Centers were not entitled to those documents under the fiduciary exception.

 By Opinion dated January 16, 1996, the Court denied the Centers' motion to compel production of documents, and granted IIE's cross-motion for a protective order. The January Opinion addresses the applicability of the fiduciary duty exception to privileged communications between IIE and its counsel prior to the termination of the contractual relationship between the parties.

 That Opinion held:

 
Under the Cooperation Agreements, the single relationship is between IIE and the Contracting Centers. The language of the Contract is not directly between IIE and any employee of a Center or even between IIE and the Offshore Plan. Plaintiffs draw on and this Opinion has described the fiduciary duty between Plan administrators and Plan beneficiaries, but that is not the relationship described by the contracts at issue here.
 
Section 3.1 of the Plans makes it clear that IIE is not a fiduciary to the Offshore Plan because it has no relationship to the Offshore Plan or its beneficiaries. The Second Restatement of Torts explains that "a person in a fiduciary relation to another is under the duty to act for the benefit of the other as to matters within the scope of the relation." Here the contract negotiated by two large sophisticated parties clearly defined the relationship.

 Asian Vegetable, 1996 U.S. Dist. LEXIS 307, 1996 WL at *6.

 On July 31, 1996, IIE and the Centers filed the instant motions for summary judgment. The Centers move for summary judgment with respect to their claims for breach of contract and breach of fiduciary duty. IIE moves for summary judgment to dismiss the Centers' claim for breach of contract, breach of fiduciary duty, negligence, gross negligence, malpractice and fraud. Oral argument on the motions was heard on September 11, 1996, at which time the motions were considered fully submitted.

 Facts

 Beginning in approximately 1985, the Centers retained IIE, an outside contractor, to administer their employee benefits plan. Pursuant to a series of Cooperation Agreements For Personnel Services (the "Cooperation Agreements" or the "Agreements") among the parties, the Centers retained IIE to provide various personnel, payroll, insurance and other administrative services, including the maintenance of a retirement plan for the benefit of the Centers' non-United States personnel (the "Offshore Plan").

 The "Offshore Plan" is a fully vested, defined contribution plan in which each eligible Center employee chooses among investment options. Several provisions of the Cooperation Agreements address IIE's duties with respect to administration of the Offshore Plan.

 Section 1.3 of the Agreements provides:

 IIE's record-keeping duties with respect to the pension plan were enumerated more specifically in Exhibit 1 to the Cooperation Agreements, which states that IIE was responsible for:

 
maintenance of employee/employer and additional voluntary contribution records for pension plans, and of all necessary related records to facilitate changes in beneficiaries, allocations between funds, withdrawals and other changes; issuance of annual benefits statements to employees.

 IIE's role as an "intermediary" between the Centers and those organizations necessary for the operations of the Offshore Plan was expressed as follows:

 
2.1(c) TIAA/CREF, MONY, Generali & Alliance Retirement Plans : IIE, as Agent, in the name of and for the account of the Sponsor, will act as an intermediary between the Sponsor and the TIAA/CREF, MONY, Generali and Alliance Retirement Plans. IIE's responsibilities include the payment of employer contributions, and other related services as described in Exhibit 1. Nothing in this Section 2.1 shall cause IIE to be a fiduciary with respect to the TIAA/CREF, MONY, Generali and Alliance Retirement Plans.

 The Centers assert that they executed the Cooperation Agreement in reliance upon IIE's representations that it possessed the knowledge and expertise to administer the Offshore Plan. Beginning in the 1989-1990 Cooperation Agreements, the Agreements contained a "fiduciary duty disclaimer" clause (or "Section 3.1"). That clause reads:

 
Nothing in this Section...shall cause IIE to be a fiduciary with respect to ... [the] Retirement Plans.

 This clause did not appear in the Cooperation Agreements prior to 1989, and appears in all but the "ISNAR" Agreement with IIE after 1989.

 Additionally, the Cooperation Agreements contained a clause that reads:

 
Under the terms of this Agreement, IIE shall act as representative of [a Center] only with respect to the acts covered in this agreement and nothing contained herein is intended or shall be construed to create an employer-employee relationship between IIE and individuals on the staff of [a Center]. Nothing contained in this Agreement shall be interpreted as giving any ... employee or any beneficiary ... rights of action or suits at law or in equity of whatever kind or nature against IIE for compensation or any other benefit arising under his employment or other association with the [Center].

 The Cooperation Agreements include an indemnification clause, section 3.2, which provides:

 
Indemnification : The [Centers] shall pay and shall protect, indemnify and save harmless IIE and its officers, employees and agents from and against any and all losses, liabilities (including liabilities for penalties), actions, suits, judgments, demands, damages, costs and expenses (including without limitation, attorneys' fees and expenses) of any nature arising from or relating to the performance of the services contemplated under this Agreement, including any claim brought by an employee of the [Centers] or the employee's heirs, beneficiaries or representatives regarding this agreement or the Letter Agreement between IIE and the employee entered into in the form attached hereto, except to the extent that any such loss, liability, action, suit, judgment, demand, damage, cost or expense has been determined by a final judgment of a court of competent jurisdiction to be the result of the gross negligence or willful misconduct of IIE, its officers, employees or agents, IIE assumes no responsibility with respect to any action or duty required by this Agreement on the part of the [Centers].

 Section 1.5(g) requires that, upon termination of the Agreements:

 In 1992, the Centers began to suspect that IIE had materially breached its duties to administer the Offshore Plan. In particular, Plaintiffs assert that IIE had failed to reconcile the contributions and withdrawals made by Center employees, payments to service providers, and the investment performance to individual employee statements. Plaintiffs allege that IIE knew of these and other major control problems in IIE's operation and administration of the Offshore Plan but IIE had nevertheless failed to correct them. Plaintiffs assert that IIE knew about deficiencies in its operation and control of the Offshore Plan at least as far back as 1986 and had not corrected those deficiencies.

 In December of 1992, claiming dissatisfaction with the Institute's prices and services under the Cooperation Agreements, the Centers terminated their contractual relationship with the Institute and assumed responsibility for various of the payroll and personnel services the Institute had performed under the Cooperation Agreements, including administration of the Offshore Plan. On September 12, 1994, the Centers commenced this action against the Institute, asserting claims for breach of contract, negligence, malpractice, misrepresentation and breach of fiduciary duty.

 Discussion

 I. Breach of Contract

 Both parties have moved for summary judgment with respect to the Centers' claim for breach of contract. IIE argues that under the unambiguous terms of the Cooperation Agreements, its role was to act as an "intermediary" between the Centers and the organizations necessary for the Offshore Plan's operations, and it had no obligation to perform accounting functions or reconciliations of the Offshore Plan. IIE claims to have demonstrated that it has performed all of its obligations under the Agreements -- i.e., the maintenance of records adequate to enable the Offshore Plan to communicate with and provide information to Plan participants and provide the record-keeper (AccuRecord) with the proper contribution amounts. IIE further argues that the Cooperation Agreements included an indemnification clause that requires the Centers to indemnify IIE against all losses and liabilities arising from IIE's duties under the Agreements, absent ...


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