b. Delinquent Contributions
As noted above, the trustees' failure to collect delinquent contributions from employers and their practice of regularly waiving the interest due thereon constituted both a fiduciary breach and a violation of ERISA's prohibited transactions provision. McCarthy's liability for these breaches depends on the extent of his involvement in them. While as Funds counsel McCarthy would have responsibility for instituting suits to collect delinquent contributions and interest, he could do so only if authorized by the trustees, assuming of course that the trustees, rather than McCarthy made such decisions. The record raises serious questions as to who in fact made such decisions--McCarthy or the trustees. The existence of such questions, however, precludes the entry of summary judgment on the claims against McCarthy relating to his participation in the prohibited transactions of waiving interest on delinquent contributions. Because of the serious nature of the allegations, and the substantial support in the record for plaintiffs' assertions, plaintiffs are given leave to amend their complaint, should they choose to do so, and to assert such a claim.
Plaintiffs' eleventh cause of action states a claim for legal malpractice against McCarthy. McCarthy moves for summary judgment dismissing the claim and plaintiffs move for partial summary judgment on liability. It must first be noted that ERISA does not pre-empt state-law actions for legal malpractice. Custer v. Sweeney, 89 F.3d 1156, 1167 (4th Cir. 1996) ("unanimous body of federal law" holds that ERISA does not preempt legal malpractice claims); see also Messera, 958 F. Supp. at 890 (recognizing legal malpractice claim by ERISA-covered funds against fund counsel). Moreover, contrary to McCarthy's assertion, supplemental jurisdiction is appropriate where, as here, the alleged acts giving rise to the malpractice claim are the same as those giving rise to the claim for breach of fiduciary duty under ERISA. Lyon v. Whisman, 45 F.3d 758, 761 (3d Cir. 1995) (discussing Lentino v. Fringe Employee Plans, Inc., 611 F.2d 474 (3d Cir. 1979)). As plaintiffs have stated a claim for legal malpractice (notwithstanding their failure to establish damages at this juncture), dismissal is inappropriate and McCarthy's motion is denied. See Messera, 958 F. Supp. at 890.
In order to succeed on their malpractice claim, plaintiffs must establish that (1) an attorney-client relationship existed, (2) McCarthy failed to exercise the degree of care commonly exercised by an ordinary member of the legal community, (3) McCarthy's negligence was a proximate cause of plaintiffs' injury and (4) the plaintiffs incurred damages as a direct result of the negligence. Steinfeld v. Marks, 1997 U.S. Dist. LEXIS 13569, No. 96 Civ. 0552 (PKL), 1997 WL 563340 (S.D.N.Y. Sept. 8, 1997) at *4. The causation and damage elements include a "but for" requirement--that is, plaintiffs must demonstrate that "but for" McCarthy's negligent conduct, they would not have suffered the losses alleged. Barry v. Liddle, O'Connor, Finkelstein & Robinson, 98 F.3d 36, 39 (2d Cir. 1996).
Plaintiffs have submitted evidence showing that McCarthy failed to advise the trustees of their fiduciary obligations to (i) consider the relative risk of investments, McCarthy Depo. at 256; (ii) use benchmarks to assess the performance of the Funds, McCarthy Depo. at 257; Smith Depo. at 132; (iii) get professional advice with respect to investments, Zaccherio Depo. at 113-14; (iv) monitor the commissions and fees charged by their broker, David Sigman, McCarthy Depo. at 243, 780-81; Zaccherio Depo. at 52-53; or (v) diversify the Funds' assets, Zaccherio Depo. at 65-66, Smith Depo. at 135.
Plaintiffs have also submitted an affidavit from Mark Brossman, Esq., an ERISA attorney at the law firm of Chadbourne & Park. Mr. Brossman reviewed plaintiffs' Rule 56.1 statement and expressed his professional opinion that by failing to advise the trustees on these and other matters and by failing to disclose his various conflicts of interests, McCarthy's conduct fell below the knowledge, skill and diligence normally required of fund counsel. Brossman Aff. PP 19, 31, 40, 44.
McCarthy has submitted a self-serving affidavit, unsupported by any additional documentary evidence, denying some of the allegations described above. He has also submitted the affidavit of Franklin K. Moss, Esq., of Spivak, Lipton, Watanabe, Spivak & Moss. Mr. Moss is also an experienced ERISA attorney who asserts in his affidavit that "ERISA . . . is conceivably the most arcane statute known to mankind," Moss. Aff. P 6, and concludes that based on his review of the record McCarthy's conduct as Funds counsel "falls within the middle range" of ERISA attorneys. Id. P 10.
The Court views the allegations against McCarthy--and the record submitted by plaintiffs in support thereof--seriously. Moreover, the claim that the complexity of ERISA somehow relieves McCarthy of the obligation to perform his duties as fund counsel competently cannot seriously be entertained, for such a conclusion would eviscerate the duty owed by attorneys who represent ERISA-covered employee benefit funds.
Nevertheless, the Court concludes that summary judgment is inappropriate on the record before it. As noted above, a prima facie showing of legal malpractice requires a showing that defendant's conduct fell below the standard of care exercised by an ordinary member of the legal community. McCarthy's failure to advise the trustees with respect to their fiduciary obligations, coupled with his conflicts of interest and the resulting questionable motives, comes dangerously close to constituting a per se violation of this standard. However,
[a] determination as to whether malpractice has been committed is generally a factual determination to be made by the jury. "Moreover, unless the ordinary experience of the fact-finder provides sufficient basis for judging the adequacy of the professional service or the attorney's conduct falls below any standard of due care, expert testimony will be necessary to establish that the attorney breached a standard of professional care and skill."