The opinion of the court was delivered by: U.S. District Judge, McAvoy, D.J.
MEMORANDUM - DECISION & ORDER
Plaintiff Ulico Casualty Company ("Ulico") commenced the instant action
against Defendant Clover Capital Management, Inc. ("Clover"), pursuant to
§§ 404(a)(1)(B); 404(a)(1)(D); and 405(a)(2) of the Employee
Retirement Income and Security Act ("ERISA"),
29 U.S.C. § 1104(a)(1)(B); 1104(a)(1)(D); and 1105(a)(2), alleging
that Clover breached its fiduciary duties and alleging a common law
breach of contract arising out of Clover's sale of collateralized
mortgage obligation and real estate mortgage investment conduit bonds,
known as Z-Bonds, held by certain pension plans. Presently before the
Court is Clover's motion for summary judgment pursuant to FED. R. CIV.
P. 56 seeking dismissal of the Complaint in its entirety.
The Laborers International Union of North America Local Union 35
Pension Fund, Laborers International Union of North America Local Union
No. 322 Pension Fund, and Carpenters Local No. 120 Pension Plan
(collectively the "Funds") are employee pension benefit plans within the
meaning of 29 U.S.C. § 1002 (2)(A). At all times relevant hereto,
Ulico issued fiduciary liability insurance coverage policies (the
"Policies") to the Funds and their trustees.
During the period of 1988 and 1995, certain individuals, whose names
are not relevant hereto, were the trustees of the funds. The trustees
retained W.J. Nolan & Company ("Nolan") to invest in fixed income
securities on behalf of the Funds. Beginning in 1992 and continuing
through 1994, Nolan purchased the aforementioned Z-Bonds for each of the
funds. By the end of 1994, the Funds' portfolio of investments purchased
by Nolan consisted primarily of Z-Bonds. During 1994, the market value of
Z-Bonds declined significantly.
Sometime in the first quarter of 1995, the Funds retained Clover as
their investment manager. Thereafter, Clover sold the Z-bonds at a
substantial loss to the Funds.
The United States Department of Labor ("DOL") investigated the matter
and filed lawsuits against the trustees for breaching their fiduciary
duties seeking recovery of all losses to the Funds attributable to the
investment in the Z-Bonds. The trustees then entered into Consent Decrees
with the DOL, pursuant to which the DOL lawsuits were discontinued and
the trustees agreed to make payments to the Funds totaling $3 million,
plus a 20% penalty under 29 U.S.C. § 1132 (1).
Ulico assumed responsibility for the defense of the DOL lawsuits, the
$3 million in settlement payments, and the $600,000 penalty. In
connection with these payments, Ulico and the trustees entered into a
settlement agreement that provides, in relevant part, as follows:
In consideration for the payments of the sums set
forth in Paragraph 1. above and pursuant to Section
VII.5 of the Policy, the Pension Fund and the
Trustees hereby assign, transfer, and convey to Ulico
all claims, causes of action, rights and recoveries
to which they are entitled as against any culpable or
potentially culpable parties who may be responsible
for all or any part of the losses allegedly sustained
by the Pension Fund, including, but not limited to
Clover Capital Management, Inc. ("Clover") based
upon, or arising from Clover's management and sale of
the Z-Bonds referred to in the DOL Action, including,
but not limited to, the assertion that Clover
improperly and/or imprudently sold the Z-Bonds held
by the Pension Fund when Clover became an investment
manager for the Pension Fund, by making such sales on
an overly precipitous basis, and/or at lower than
prices available in the market at the time of the
sale. Further, also pursuant to Section VII.5 of the
Policy, the Pension Fund and the Trustees shall
execute all papers required and shall do everything
that may be necessary to secure any rights assigned,
transferred, or conveyed to Ulico pursuant to this
paragraph and the Pension Fund and the Trustees shall
do nothing to prejudice any such rights of Ulico.
Setetlement Agr., ¶ 5. Section VII.5 of the Policies referenced in
the settlement agreements is entitled "Subrogation and Recourse" and
provides as follows:
In the event of any claim or payment under this insurance,
the Company shall be subrogated to the extent of such
payment to all rights of recovery therefore, and the
insureds shall execute all papers required and shall do
everything that may be necessary to secure such rights
including the execution of such documents necessary to
enable the Company to effectively bring suit in the name
of the Insureds.
Ulico commenced the instant action against Clover asserting claims on
behalf of the Funds and the Trustees pursuant to ERISA for breach of its
fiduciary duties and for breach of contract. Presently before the Court
is Clover's motion for summary judgment pursuant to FED. R. CIV. P. 56
seeking dismissal of the Complaint in its entirety.