Court held that employers and their directors are not fiduciaries when they adopt, modify or terminate pension plans. Id. at 1789. The Court based its conclusion on the analogy between plan sponsors and settlers of trusts, id., thus adverting to the fact that both sponsors and settlers, while no doubt advantaging the beneficiaries, are simply conferring a benefit; they are not using powers entrusted to them to act in the place and for the benefit of the objects of their endeavors. So too here. PSI made an arm's length bargain with the plan concerning the manner in which it would handle certain assets. There is no suggestion that it did not adhere scrupulously to the bargain. In failing to modify its contractual obligation to its own disadvantage, its actions were no different in principle from a plan sponsor deciding what level of benefits it would include in a pension plan or the settlor of a trust deciding how much to place in a trust for the benefit of another.
Plaintiff places principal reliance on Chicago Board Options Exchange v. Connecticut General Life Insurance Co., 713 F.2d 254 (7th Cir. 1983). There a plan sponsor purchased an annuity contract from an insurance company to fund benefits provided under its pension plan. The portion of the annuity contract relevant here permitted some withdrawal of contributions, but reduced the amounts of permitted withdrawals by sums previously withdrawn or transferred from the account. The insurer then unilaterally modified the contract to provide for the annual transfer of 10 percent of the amount in the account to a new account created by the modification. The practical effect of the change in the annuity contract was to eliminate the previous right to withdraw contributions and to lock participants into the annuity contract for a period of ten years.
The Seventh Circuit held on these facts that the insurance company was an ERISA fiduciary. It reasoned that the effect of the insurer's reservation of the right to amend the annuity contract potentially gave it the power to control disposition of plan assets, thus rendering it a fiduciary is so doing. It said that the insurer's action "had effectively determined what type of investment the Plan must make" and that it was bound to act in accordance with fiduciary standards "in exercising this control over an asset of the Plan . . ." Id. at 260. It was careful to note, moreover, that while the insurer's power to amend rendered it a fiduciary when it exercised that power, "this status only governs actions taken in regard to amending the contract and does not impose fiduciary obligations . . . when taking other actions." Id. at 259.
CBOE is inapposite here. In that case, the insurer exercised a power conferred upon it by the plan to control the manner in which plan assets were invested. Here, on the other hand, PSI did no more than offer the Sirna plan a choice of accounts offering different sweep provisions from which the plan made its own choice. Moreover, in failing to modify its sweep frequency to the advantage of the Sirna plan, PSI did not exercise any control over plan assets. Quite the contrary. The plan remained free to invest any free credit balances in its account in whatever manner it chose. Hence, PSI did not exercise control or discretion over the investment of plan assets.
This analysis of CBOE is fully supported by subsequent cases that have considered the circumstances in which the exercise of a power to amend a contract with an ERISA qualified employee benefit plan renders the party exercising that power a fiduciary. In Harris Trust and Savings Bank v. John Hancock Mutual Life Insurance Co., 970 F.2d 1138, 1146 (2d Cir. 1992), aff'd, 510 U.S. 86, 126 L. Ed. 2d 524, 114 S. Ct. 517 (1993), the Second Circuit distinguished CBOE on the ground that the insurer in that case had exercised a right to alter the contract "resulting in prejudice to the contractholder." Judge Conner of this Court did much the same thing in State Street Bank & Trust Co. v. Mutual Life Insurance Co. of New York, 811 F. Supp. 915 (S.D.N.Y. 1993), where he correctly pointed out that "in cases where a court has based an ERISA fiduciary duty on the power to alter an investment contract, the relevant contract allowed the contract seller, on its sole initiative, to alter the contract in a manner which would lessen its value to the plan." Id. at 922 (emphasis added) (citing Associates in Adolescent Psychiatry v. Home Life Ins. Co., 941 F.2d 561, 564 (7th Cir. 1991), cert. denied, 502 U.S. 1099, 117 L. Ed. 2d 426, 112 S. Ct. 1182 (1992) (contract gave insurer right to alter interest rate to beneficiaries' disadvantage); Ed Miniat, Inc. v. Globe Life Ins. Group., 805 F.2d 732, 737-38 (7th Cir. 1986), cert. denied, 482 U.S. 915, 96 L. Ed. 2d 676, 107 S. Ct. 3188 (1987) (contract gave insurer right to increase premium and lower rate of return)).
Here, in contrast, PSI is not alleged to have exercised a power to alter the contract in a manner that disadvantaged the Sirna plan. It did nothing more than fail to alter the contract to give the Sirna plan a deal better than the one it contracted for. The complaint of the Sirna plan is insufficient.
Rock's federal claims previously were dismissed on the merits, and leave to amend neither was sought nor granted. She now seeks to assert, by way of joinder in the second amended complaint, a state law claim for breach of fiduciary duty.
There are procedural objections to her doing so. Insofar as Rock was concerned, the February 7 order finally disposed of her case. She has shown no sufficient basis for relief from that disposition under FED. R. Civ. P. 60(b). Moreover, the only basis of subject matter jurisdiction is a claim of supplemental jurisdiction based on the Court's power over the Sirna plan's ERISA claim. The ERISA claim having been found insufficient, there is no appropriate reason moving the Court to exercise supplemental jurisdiction over Rock's claim. But there is a more basic difficulty with her position.
The premise of Rock's position is that PSI, as a broker-dealer in securities, owed her a fiduciary duty under New York law. The premise is faulty. New York courts repeatedly have held that "a broker does not, in the ordinary course of business, owe a fiduciary duty to a purchaser of securities." Fekety v. Gruntal & Co., 191 A.D.2d 370, 595 N.Y.S.2d 190, 190-91 (1st Dept. 1993); accord, e.g., Feinman v. Dean Witter Reynolds, Inc., Index Nos. 95/123358, 95/124988, slip op. at 3 (Sup. Ct. N.Y. Co. Feb. 21, 1997).
The second amended complaint is dismissed in all respects. The ERISA claim asserted by the Sirna plan is dismissed on the merits, while its state law claims are dismissed for lack of subject matter jurisdiction, as the Court declines to exercise supplemental jurisdiction in light of the dismissal of the federal claim. Rock's motion for leave to join in the second amended complaint to assert a state law claim for breach of fiduciary duty is denied on the alternative grounds that Rock has shown no basis for relief from the prior dismissal, the Court lacks subject matter jurisdiction, declines to exercise supplemental jurisdiction, and the proposed claim is insufficient as a matter of law because the defendant did not owe Rock a fiduciary duty as a matter of state law. This order closes these cases.
Dated: June 3, 1997
Lewis A. Kaplan
United States District Judge