United States District Court, W.D. New York
July 19, 2004.
GEOFFREY S. RUBIN, as Trustee of the Southern Tier News Company Pension Plan, Plaintiff,
VALICENTI ADVISORY SERVICES, INC., et al., Defendants.
The opinion of the court was delivered by: DAVID LARIMER, Chief Judge, District
DECISION AND ORDER
Plaintiff, Geoffrey Rubin, as trustee of the Southern Tier News
Company Pension Plan ("Plan"), has brought an action under the
Employee Retirement Income Security Act ("ERISA"),
29 U.S.C. § 1101 et seq., against the former investment manager of the
Plan, Valicenti Advisory Services ("VAS"), and its president,
Vincent Valicenti, to recover losses the Plan allegedly suffered
as the result of VAS's imprudent investments. Defendants have
asserted counterclaims against Rubin for contribution and
indemnity, alleging that the losses were caused by the breach of
his own fiduciary duties. See Docket #18 Ex. A.
Plaintiff moves to dismiss the counterclaims. Defendants have
cross-moved for leave to redesignate and amend their answer to
reassert these claims as third-party claims against Rubin.
Both motions are granted. The so-called counterclaims seek
contribution and indemnity, not against the Plan itself, but
against Rubin, the trustee, for his alleged breach of his own
fiduciary obligations. See Chemung Canal Trust Co. v. Sovran
Bank/Maryland, 939 F.2d 12, 16 (2d Cir. 1991), cert. denied,
505 U.S. 1212 (1992). The proper mechanism to seek such relief is
by way of a third-party complaint against Rubin individually.
Lee v. Manufacturers & Traders Trust Co., 219 F.R.D. 265, 266
Plaintiff also contends that the Court should deny defendants'
motion for leave to amend on the ground that the proposed
amendment would be futile. Rule 15(a) of the Federal Rules of
Civil Procedure, however, provides that leave to amend a pleading
"shall be freely given when justice so requires." "Parties are
generally allowed to amend their pleadings absent bad faith or
prejudice." Commander Oil Corp. v. Barlo Equip. Corp.,
215 F.3d 321, 333 (2d Cir.), cert. denied, 531 U.S. 979 (2000).
It is true that leave may be denied where the amendment would
be futile. See Health-Chem Corp. v. Baker, 915 F.2d 805, 810
(2d Cir. 1990) ("where . . . there is no merit in the proposed
amendments, leave to amend should be denied"). I am not
convinced, however, that the proposed third-party claims are so
patently meritless that leave to amend should be denied.
In support of his position, plaintiff principally relies upon
29 U.S.C. § 1105(d)(1), which generally insulates trustees from
liability for acts or omissions of investment managers. That does
not mean, however, that a trustee can never be liable to an
investment manager for contribution or indemnity where the
trustee's own actions were the cause of some or all of the loss
at issue. See 29 U.S.C. § 1105(d)(2) ("Nothing in this
subsection shall relieve any trustee of any liability under this
part for any act of such trustee").
Here, defendants have alleged that Rubin withheld and
misrepresented material information about the Plan, that he
personally directed many of the trades that he now claims were
imprudent, and that he prevented defendants from exercising any investment
discretion. Given the fact that this case is still in its early
stages, the Court cannot say as a matter of law that under no set
of facts consistent with those allegations could defendants be
entitled to contribution or indemnity from Rubin for any losses
suffered by the Plan. See Lee, 219 F.R.D. at 267 ("Whether
[defendant/third-party plaintiff] can convince the factfinder
that the [plaintiff] Trustees' alleged defalcations caused the
Plan's loss or contributed to it, is a matter of proof and cannot
be decided as a matter of law").
Plaintiff also contends that the amendment would be futile
because former fiduciaries lack standing to sue under ERISA. The
Second Circuit made clear in Chemung Canal Trust, however, that
former fiduciaries have a right under federal common law to seek
equitable distribution of the Plan's alleged losses among those
responsible for those losses. 939 F.2d at 15-16. See also Lee,
219 F.R.D. 265 (allowing third-party claims against trustees by
Plaintiff also contends that defendants' claims against Rubin
are subject to mandatory arbitration under a brokerage services
agreement. See Ex. to Docket #23. I am not persuaded by this
contention. It appears from that agreement that it requires
arbitration only as to disputes between the Plan and Charles
Schwab & Co., the Plan's custodian of assets. Defendants are not
a signatory to that agreement. Id.*fn1 CONCLUSION
Plaintiff's motion to dismiss defendants' counterclaims (Docket
#12) is granted. Defendants' motion for leave to amend the answer
to assert third-party claims against Geoffrey S. Rubin (Docket
#17) is granted. Defendants are directed to file an amended
answer within fourteen (14) days of the date of issuance of this
Decision and Order.
IT IS SO ORDERED.