duty under the Employee Retirement Income Security Act of 1974
("ERISA"), 29 U.S.C. § 1001, et. seq. and for breach of
contract. Before the Court is the defendant's motion for summary
judgment, filed May 22, 1997 (document # 8), and the plaintiffs'
motion for summary judgment, filed May 23, 1997 (document # 12).
The plaintiffs seek summary judgment on the theory that the
defendant insurance company violated the terms of the investment
contract in force between the parties, and the defendant seeks
summary judgment on the basis that the plaintiffs' fund manager
misunderstood the contract and did not move the pension funds in
sufficient time to avoid a $234,355 loss to the fund. In dispute
is whether the defendant is a fiduciary under ERISA, whether the
plaintiffs have standing to bring the suit, whether ERISA
supersedes any state law contractual claim, and whether any
claims are barred by the applicable statutes of limitations.
Jurisdiction in this court is based on a federal question
pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(f). For the
breach of contract claims, this Court has supplemental
jurisdiction under 28 U.S.C. § 1332 and diversity jurisdiction
under 28 U.S.C. § 1332.
The plaintiffs filed their suit September 27, 1995, and the
case was originally assigned to the Honorable William M. Skretny.
The parties have completed discovery. Following oral argument on
the motions, Judge Skretny transferred the case to the
undersigned by an order entered on December 15, 1997 (document #
26). At the suggestion of the parties, this Court heard
reargument on the motions and reserved decision. For the reasons
stated below, the Court denies the defendant's motion for summary
judgment, and grants in part and denies in part the plaintiffs'
motion for summary judgment.
The plaintiffs are Battenfeld Grease and Oil Corporation of New
York ("BATCO") and Battenfeld-American, Inc. ("BATAM"). Both
companies operated in Buffalo, New York, and had pension plans
which met the definition of a pension plan under ERISA,
29 U.S.C. § 1002(2)(A).
Since 1989, John A. Bellanti Sr. has served as the trustee of
each plan. Kent aff., at 3. The other trustee is his wife,
Florence Bellanti. Kent aff., at 3. Mr. Bellanti had handled the
pension funds for BATAM and BATCO since becoming BATCO's
controller in November, 1956. Defendant's Statement of Undisputed
Facts (May 22, 1997, document # 9) ("Defendant's Statement"), at
2. In September 1983, after having worked his way up through the
ranks, Mr. Bellanti purchased both companies, BATAM and BATCO,
and became president and chairman of the board of directors and
the majority shareholder for both companies. He has also been a
certified accountant for thirty-one years. Id., at 2-3.
The pension plans for BATAM and BATCO were funded by two
contracts with the defendant*fn1. One was a group annuity
contract between the defendant and the trustees of the Battenfeld
Pension Plan, contract 51959. The other was between the defendant
and the trustees of the Battenfeld American Pension Plan, also a
group annuity contract, number 51960. Each was issued on March
17, 1981 with an effective date of January 1, 1980, and each was
identical in all material respects to the other. The contracts
were drafted by the defendant and were not subject to
negotiation. Plaintiffs' Memorandum of Law in Support of
Plaintiffs' Motion for Summary Judgment (May 23, 1997, document #
13) ("Plaintiffs' Memorandum"), at 2. Prior to signing the
contracts as trustee, Mr. Bellanti reviewed them with the
assistance of a lawyer, Gary
Kotaska, Esq. Defendant's Statement, at 3-4.
Both contracts were supported by the defendant's General
Account, about which the defendant stated, "[t]he assets held in
the General Account are invested for the benefit of our insurance
and retirement plan customers," and consisted primarily of bonds
and other loans, such as commercial and residential mortgages.
Defendant's Statement, at 4. The contracts permitted the trustees
of the pension plans to withdraw funds from the contract at any
From the inception of the plans in January 1980 until April
1994, all monies deposited pursuant to the contracts were
invested in the General Asset Fund, sometimes referred to as the
General Account. Plaintiffs' Memorandum, at 3. Principal reported
regularly on the value of the invested funds on a "book value"
basis. The book value consisted of the sum of all contributions
to date, along with the sum of all interest earned to date. Id.
The defendant also reported from time to time the "market value"
of the investments, but did not disclose to the plaintiffs the
formula for calculating this value. Id.
The contracts' Article VI, Limitation on Payments and
Transfers, governed payout of the funds upon demand of the
plaintiffs. Section 1, Subsection 2, Accelerated Payment or
Transfer at Investment Value, reads in pertinent part,
In lieu of the installment payments described in
Subsection 1 above, the Contractholder may request
that subject to the limitations of this Article any
payment or transfer be made on an investment value
basis. In this event, the amount of payment or the
amount transferred will be a percentage of the amount
deducted from the General Asset Fund. Such percentage
adjusts for the difference between the interest rate
currently available for new investments and the
current Experience Interest Rate for this contract.
The Bankers Life will inform the Contractholder in
writing of said percentage within 30 days of the
Contractholder's written request for payment or
In any event, payment or transfer under this
Subsection 2 will not be made until The Bankers Life
has received written agreement from the
Contractholder to the investment value adjustment.
Kent aff., at Exhibit F. The contracts provided that the
plaintiffs could elect either installment payments, or a lump sum
payment at investment value. If the latter, the amount of the
payment would be adjusted by the defendant to account for the
difference in interest rates for current investments and
something they called the "Experience Interest Rate." The
contracts defined Experience Interest Rate in Article 1, Section
3, Miscellaneous, as:
Experience Interest Rate means, as to any
Accounting Year*fn2, a rate of interest per annum,
as determined for this contract by The Bankers Life
by application of its established method of computing
net interest earnings on General Asset Funds held as
to contracts of this class for such year. . . .
In 1982, the defendant announced to all its contract holders,
including the plaintiffs, their adoption of what they termed an
"Investment Quarter Interest" ("IQI") method for the General
Account. Plaintiffs' Memorandum, at 4. The plaintiffs brief
describes this method: "The IQI based investment results [in] an
average rate during a calendar quarter instead of a calendar
year." Plaintiffs' Memorandum, at 4-5. In a letter from Mrs.
Marion Barnhill, dated February 8, 1982, to Mr. Bellanti
(attached as Exhibit 5 to Documents
in Support of Plaintiffs Motion for Summary Judgment) and marked
as Exhibit 15 to Mr. Bellanti's deposition, Mrs. Barnhill
explained, "[t]he quarterly investment periods will more closely
reflect current investment conditions at the time of your deposit
than annual investment periods do."
The plaintiffs allege that the defendant's motivation for
changing to the IQI method was to "reduce the flexibility of
contractholders in deciding whether and when to make an
investment in the General Asset Fund and/or whether or when to
terminate their contract arrangement with Principal." Plaintiffs'
Memorandum, at 5 (citation omitted).
The law on summary judgment is well settled. Summary judgment
may only be granted if "the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law." Fed.R.Civ.P. 56(c). That is, the burden is
on the moving party to demonstrate that the evidence creates no
genuine issue of material fact. Chipollini v. Spencer Gifts,
Inc., 814 F.2d 893 (3rd Cir. 1987) (en banc). Where the
non-moving party will bear the burden of proof at trial, the
party moving for summary judgment may meet its burden by showing
the "evidentiary materials of record, if reduced to admissible
evidence, would be insufficient to carry the non-movant's burden
of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317,
327, 106 S.Ct. 2548, 2554, 91 L.Ed.2d 265 (1986). Once the moving
party has met its initial obligation, the opposing party must
produce evidentiary proof in admissible form sufficient to raise
a material question of fact to defeat a motion for summary
judgment, or in the alternative, demonstrate an acceptable excuse
for its failure to meet this requirement. Duplantis v. Shell
Offshore, Inc., 948 F.2d 187 (5th Cir. 1991); Fed.R.Civ.P.
56(f). Once the moving party has met its burden, mere conclusions
or unsubstantiated allegations or assertions on the part of the
opposing party are insufficient to defeat a motion for summary
judgment. Knight v. United States Fire Ins. Co., 804 F.2d 9 (2d
Cir. 1986). The Court, of course, must examine the facts in the
light most favorable to the party opposing summary judgment,
according the non-moving party every inference which may be drawn
from the facts presented. International Raw Materials, Ltd. v.
Stauffer Chemical Co., 898 F.2d 946 (3d Cir. 1990). However, the
party opposing summary judgment "may not create an issue of fact
by submitting an affidavit in opposition to a summary judgment
motion that, by omission or addition, contradicts the affiant's
previous deposition testimony." Hayes v. New York City,
Department of Corrections, 84 F.3d 614, 619 (2d Cir. 1996). It
is equally well settled that in diversity actions, such as the
one at bar, federal court sits and "operates as if it were a
state court, and must apply state substantiative law" Smith v.
Bell Sports, Inc., 934 F. Supp. 70, 73 (W.D.N.Y. 1996).
Preemption of State Contractual Claims
ERISA § 514, 29 U.S.C. § 1144(a) is the preemption language
which has been described by the Second Circuit as "purposefully
sweeping." Romney v. Lin, 94 F.3d 74, 78 (2nd Cir. 1996).
Section 1144(a) reads,
Except as provided in subsection (b) of this section,
the provisions of this subchapter and subchapter III
of this chapter shall supersede any and all State
laws insofar as they may now or hereafter relate to
any employee benefit plan described in section
1003(a) of this title and not exempt under section
1003(b) of this title. This section shall take effect
on January 1, 1975.
29 U.S.C. § 1144(a). The exemptions in subsection (b) refer to
state laws that regulate insurance, banking, or securities and
state criminal statutes. The plaintiffs argue that ERISA does not
state law contract claim since, "[t]he breach of contract claim
here at issue has no connection to any question of plan structure
or administration . . . [the plaintiffs'] claim against Principal
arises under a private contract, and not under the terms of an
employee benefit plan." Plaintiffs' Memorandum of Law in
Opposition to Defendant's motion for Summary Judgment (Jun. 30,
1997, document # 19) ("Plaintiffs' Memorandum in Opposition"), at
4. The plaintiffs also argue that the contracts at issue were
"intended as funding vehicles for pension plans" and that the
defendants knew that purpose. Plaintiffs' Memorandum, at 2-3.
Additionally, the plaintiffs' argued that their claims concern
"the valuations that Principal performed of the plan assets
invested with it by the Battenfeld Pension Plans." Plaintiffs'
Memorandum in Opposition, at 21.
This Court's research has revealed that courts have found
preemption when the litigants sued to enforce a benefit due under
a pension plan and, as the Supreme Court has held in at least
three cases "[t]he phrase `relate to' was given its broad
common-sense meaning, such that a state law `relate[s] to' a
benefit plan `in the normal sense of the phrase, if it has a
connection with or reference to such a plan. . . .'" Pilot Life
Ins. Co. v. Dedeaux, 481 U.S. 41, 47, 107 S.Ct. 1549, 95 L.Ed.2d
39 (1987) (quoting Metropolitan Life Ins. Co. v. Commonwealth of
Massachusetts, 471 U.S. 724, 739, 105 S.Ct. 2380, 85 L.Ed.2d 728
(1985) quoting Shaw v. Delta Air Lines, 463 U.S. 85, 97, 103
S.Ct. 2890, 77 L.Ed.2d 490 (1983)). In Dedeaux, the Court wrote
that, "[t]he common law causes of action raised in Dedeaux's
complaint, each based on alleged improper processing of a claim
for benefits under an employee benefit plan, undoubtedly meet the
criteria for pre-emption under § 514(a)." Dedeaux, 481 U.S. at
48, 107 S.Ct. 1549. Metropolitan involved a Massachusetts
statute that required mandatory minimum health care benefits for
inclusion in general insurance policies and was held not
preempted under ERISA. Shaw involved similar concerns under New
York law which mandated disability benefits for pregnant women
and was held to be partially preempted.
On the other hand, more recent interpretations of the
preemption language in ERISA have been more limiting. The Second
Circuit wrote that the Supreme Court has moved away from a strict
dictionary definition of the "relates to" language in § 514 of
the Act and has instructed the courts to "`look . . . to the
objectives of the ERISA statute as a guide to the scope of the
state law that Congress understood would survive.' . . . That
look should be guided by common sense. It should avoid a
construction that theoretically is unending, which the Supreme
Court warned against when it turned away from `relate to' as a
guide." Plumbing Industry Board, Plumbing Local Union No. 1 v.
E.W. Howell Co., Inc., 126 F.3d 61, 66 (2nd Cir. 1997) (quoting
New York State Conference of Blue Cross & Blue Shield Plans v.
Travelers, 514 U.S. 645, 656, 115 S.Ct. 1671, 131 L.Ed.2d 695
(1995)). The Second Circuit held in Plumbing Industry Board
that "to overcome the anti-preemption presumption, a party
challenging a statute must convince a court that there is
something in the practical operation of the challenged statute to
indicate that it is the type of law that Congress specifically
aimed to have ERISA supersede." Plumbing Industry Board, 126
F.3d at 66 (citation omitted). Because that case involved the
construction of a statute which was allegedly preempted by ERISA,
and the case at bar involves an application of a common law
breach of contract claim, the Court must look further into the
case law to determine whether the plaintiffs' breach of contract
claim is preempted.
In Plumbing Industry Board, the Second Circuit identified
further methods by which the Supreme Court held that the
anti-preemption presumption could be overcome:
First, preemption will apply where a state law
clearly `refers to' ERISA plans in the sense that the
measure `acts immediately and exclusively upon ERISA
plans' or where `the existence of ERISA plans is
essential to the law's operation.' Dillingham, at
324, 117 S.Ct. at 838. Second, a state law is
preempted even though it does not refer to ERISA or
ERISA plans if it has a clear `connection with' a
plan in the sense that it `mandate[s] employee
benefit structures or their administration' or
`provide[s] alternative enforcement mechanisms.'
Travelers, 514 U.S. at 658, 115 S.Ct. 1671. Outside
these areas, the presumption against preemption is
considerable-state laws of general application that
merely impose some burdens on the administration of
ERISA plans but are not `so acute' as to force an
ERISA plan to adopt certain coverage or to restrict
its choice of insurers should not be disturbed. De
Buono, at 816 & n. 16, 117 S.Ct. at 1753 & n. 16.
Plumbing Industry Board, Plumbing Local Union No. 1 v. E.W.
Howell Co., Inc., 126 F.3d 61, 67 (2nd Cir. 1997) (quoting
Calif. Div. of Labor Standards Enforcement v. Dillingham Const.,
N.A., Inc., 519 U.S. 316, 325, 117 S.Ct. 832, 838, 136 L.Ed.2d
791 (1997); New York State Conference of Blue Cross & Blue
Shield Plans v. Travelers, 514 U.S. 645, 658, 115 S.Ct. 1671,
131 L.Ed.2d 695 (1995); De Buono, 520 U.S. 806, 816 & n. 16,
117 S.Ct. 1747, 1753 & n. 16, 138 L.Ed.2d 21 (1997)).
Applying this analysis, the Court finds that the breach of
contract claim (the second cause of action in the complaint) is
not preempted by ERISA. Here the insurance contracts funding the
plan and the particular dispute were not formed under any state
law mandating this particular method of funding the ERISA pension
plans. Although at first blush the breach of contract claim may
appear to be an alternate enforcement mechanism, that claim is
not dependant on the ERISA pension plan, but merely on the
existence of the contracts at issue here. In Krass v.
Connecticare, Inc., No. Civ.3:96CV2565(AHN), 1998 WL 26409 (D.
Conn. Jan 14, 1998), where a claimant alleged breach of contract,
misrepresentation, fraud and violation of the Connecticut Unfair
Trade Practices Act, the district court held that ERISA did
preempt her claims since, "[w]ithout the [ERISA pension] plan,
it's apparent Krass could not assert this claim. Because the
merits of this claim are contingent upon the rights conferred by
the ERISA plan, it fails the first prong of the preemption test
and must be dismissed." Id., at *4 (citation omitted). In
contrast, the breach of contract claim here is entirely
independent of the ERISA pension plan. It can stand on its own.
The contracts refer to the "Pension Plan for Employees of
Battenfeld Grease & Oil Corp. of New York" and "The
Battenfeld-American, Inc. Pension Plan" but those contracts are
not the pension plans. The breach alleged here refers to the
valuation of the assets under the contracts at the time of their
transfer to another insurance company, not the benefits due to
plan participants. The Court concludes that ERISA does not
preempt the plaintiffs' cause of action for breach of contract.
The Plaintiffs' Breach of Contract Claim
Before reaching the merits of the plaintiffs' breach of
contract claim, the Court must address the defendant's argument
that it is precluded by the New York six-year Statute of
Limitations. N.Y.C.P.L.R. § 213(2). The defendant argues that the
breach of contract claim accrued when it sent a letter to the
plans' administrator in 1982 informing him of a new method of
crediting interest rates. It claims the statute limits claims
filed after 1988. Defendant's Memorandum of Law (May 22, 1997,
document # 10), at 13. The plaintiffs counter that the 1982
letter from Marion Barnhill to John A. Bellanti (February
8, 1982)*fn3, "advis[ed] plaintiffs of a change in the method
of crediting interest on deposits . . . [not] that [defendant]
was changing the method of calculating the investment value of
the Contracts on termination." Plaintiffs' Memorandum of Law in
Opposition, at 13-14 (emphasis in original, citations omitted).
The Court has reviewed Ms. Barnhill's February 1982 letter as
well as her later April 21, 1982 letter*fn4 and the declaration
of Gary F. Kotaska (Jun. 30, 1997, document # 21) with its
attached exhibits and concludes that a material question of fact
exists as to whether the plaintiffs had notice of the change in
the cash-out valuation procedures in 1982. A material question of
fact about when a cause of action accrued on a statute of
limitations defense is sufficient to preclude summary judgment.
See Schmidt v. McKay, 555 F.2d 30, 36-37 (2nd Cir. 1977)
(district court erred in holding there was no "genuine issue" of
fact on accrual of fraud cause of action); Shinabarger v. United
Aircraft Corp., 381 F.2d 808, 810 (2nd Cir. 1967) (district
court erred in determining material issues of fact on summary
judgment motion); West Haven School District v. Owens-Corning
Fiberglas, Corp., 721 F. Supp. 1547, 1556 (D.Conn. 1988) ("[t]he
question of when a cause of action accrues . . . is ordinarily a
question of fact for a trier. . . .").
Ms. Barnhill's February 1982 letter stated, in addition to the
portions quoted by the plaintiffs, that "[w]e're also making a
change in the method we use to determine interest earned on funds
deposited in prior years." This sentence could imply that
defendants were also changing the valuation of the funds for the
purposes of a cash-out in addition to the plaintiffs'
interpretation that the letter merely notified them of a change
in the interest to be earned on new deposits to the pension fund.
Since summary judgment cannot be granted because of at least one
material issue of fact, the Court will not consider whether the
defendant's change in interest crediting in 1982, or the
calculations used to determine the funds' values upon cash-out in
1994, violated the terms of the contracts, leaving that question
for determination at trial.
The defendant's motion for summary judgment (document # 8) is
denied in its entirety and the plaintiffs' motion for summary
judgment (document # 12) is granted in part and denied in part.
Specifically, the Court holds that the plaintiffs' breach of
contract cause of action, the second cause of action in the
complaint, is not preempted by ERISA, but that the current
plaintiffs do not have authority to sue for an alleged breach of
fiduciary duties under ERISA. Therefore, the Court dismisses the
plaintiffs' first cause of action and will issue a separate
pre-trial order with regard to the second cause of action over
which the Court has jurisdiction on diversity grounds.