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Catherine Pierce, Susan K. Ketcham, and v. P & A Administrative Services

June 6, 2011


The opinion of the court was delivered by: Leslie G. Foschio United States Magistrate Judge




This matter was referred to the undersigned for all pretrial matters by Hon. Richard J. Arcara on July 16, 2009 (Doc. No. 5). It is presently before the court on Defendant Chautauqua Opportunities, Inc.'s motion to dismiss, filed November 15, 2010 (Doc. No. 45), the Amended Complaint*fn2 and to dismiss Defendant P&A Administrative Services Inc.'s Cross-Claim; Defendant Chautauqua Opportunities, Inc.'s motion, filed February 11, 2011 (Doc. No. 55), to dismiss Defendant P&A Administrative Services's First Amended Cross-Claims, filed December 1, 2010 (Doc. No. 47), and Defendant P&A Administrative Services, Inc.'s Cross-Motion for Leave to Add a Cross-Claim, filed March 11, 2011 (Doc. No. 62).


Defendant Chautauqua Opportunities, Inc. ("Defendant COI" or "COI") moved, in lieu of an answer, on November 15, 2010, (Doc. No. 45), pursuant to Fed.R.Civ.P. 12(b)(6) ("Rule 12(b)(6)") to dismiss the Amended Complaint and the Cross-Claim of Defendant P&A Administrative Services, Inc. ("Defendant P&A" or "P&A") against COI for indemnification asserted in P&A's Answer, filed September 14, 2010 (Doc. No. 41) ("COI's motion to dismiss"). COI's motion to dismiss is supported by a Memorandum of Law in Support of Motion to Dismiss (Doc. No. 45-1) ("COI's Memorandum") and the Affidavit of Roberta Keller in Support of Motion to Dismiss ("Keller Affidavit"), attaching Exhibit A ("COI's Exh. A"). Plaintiffs opposed COI's motion to dismiss the Amended Complaint by filing Plaintiffs' Memorandum in Opposition to the Defendant Employer's Motion to Dismiss, filed February 11, 2011 (Doc. No. 56) ("Plaintiffs' Memorandum"). On March 3, 2011, COI filed the Reply Memorandum of Law of Defendant Chautauqua Opportunities, Inc. in Support of Its Motion to Dismiss (Doc. No. 60) ("COI's Reply Memorandum in Support of Motion to Dismiss")

On December 1, 2010, in the absence of an answer by COI to the Amended Complaint, P&A served an Answer to First Amended Complaint with First Amended Cross-Claims asserting three cross-claims, i.e., for indemnification ("First Cross-Claim"), a claim pursuant to 29 U.S.C. § 1132(a)(3)(B) seeking payment of additional employer discretionary contributions from COI on behalf of the COI Retirement Plan ("Second Cross-Claim"), and for payment of such additional employer discretionary non-elective contributions based on COI's breach of contract ("Third Cross-Claim") (collectively "P&A's Cross-Claims") (Doc. No. 47) ("Amended Answer"). On February 11, 2011, Defendant COI moved, pursuant to Rule 12(b)(6), to dismiss P&A's Cross-Claims (Doc. No. 55) ("COI's Motion to Dismiss P&A's Cross-Claims") along with a Memorandum of Law in Support of Motion to Dismiss Cross-Claims (Doc. No. 55-1) ("COI's Memorandum in Support of Motion to Dismiss Cross-Claims").

On March 11, 2011, P&A moved, pursuant to Fed.R.Civ.P. 15(a), for Leave to Amend its Answer to Assert a Cross-Claim for Contribution (Doc. No. 62) ("P&A's motion to amend") along with the Affirmation of Hedwig M. Auletta, Esq. (Doc. No. 63) ("Auletta Affirmation") attaching as an exhibit a Proposed Amended Answer to First Amended Complaint With Cross-Claims (Doc. No. 63-1) ("P&A's Exh. A"), and P&A Administrative Services, Inc.'s Responding Memorandum of Law in Opposition to Chautauqua Opportunities, Inc.'s Motion to Dismiss And In Support Of Its Cross-Motion To Amend Its Answer (Doc. No. 64) ("P&A's Memorandum"). On March 18, 2011, COI filed a Reply Memorandum of Law in Support of Motion of Chautauqua Opportunities, Inc.'s Motion to Dismiss Cross-Claims (Doc. No. 66) ("COI's Reply Memorandum in Support of Motion to Dismiss Cross-Claims"). COI opposed P&A's motion to amend by filing, on April 1, 2011, a Memorandum of Law in Opposition to Motion of P&A Administrative Services, Inc. for Leave to File an Amended Complaint (Doc. No. 67) ("COI Memorandum in Opposition to P&A's Motion for Leave to Amend"). Oral argument was deemed unnecessary.


At the time Plaintiff Pierce ("Pierce") commenced this action on June 3, 2009, Pierce, a registered nurse, was employed as a part-time employee of COI, a not-for-profit organization providing charitable services within the state of New York, particularly to persons residing within Chautauqua County. Pierce had previously worked as a full-time employee of COI from 1987 to 2000 when she became a part-time employee, however, working over 1,000 hours annually. Pierce alleged that throughout her employment with COI she was a participant in the Chautauqua Opportunities Retirement Plan, Inc. ("the Plan"), a tax qualified defined contribution plan (401-k) into which eligible employees, including Pierce, made contributions financed through elective employee payroll deductions toward the purchase of a retirement annuity by COI when the employee, such as Pierce, was eligible for retirement. In the original complaint, Pierce alleged that during the period 2002 and 2007, COI failed to consider its part-time employees including Pierce in making annual discretionary employer contributions to the Plan equal to 2% of the part-time employees' wages.

Plaintiff Susan K. Ketcham ("Ketcham"), who joined the lawsuit by filing, on September 30, 2010, along with Pierce, the Amended Complaint alleges she, like Pierce, was a participant in the Plan and was also discriminated against by Defendants based on Defendants' failure to make discretionary contributions to her retirement account because of her status as a part-time COI employee. Plaintiffs sue on behalf of the Plan for the amount of additional employer contributions COI should have made to the Plan based on their wages as part-time employees. Plaintiffs allege that in accordance with the Plan, COI contributed an annual discretionary amount for the benefit of all participants in the Plan equal to 2% of the wages of all COI employees who participated in the Plan. Plaintiffs allege that P&A acted as administrator of the Plan since its inception in 1995 until 2007, when it was replaced by a new administrator. Plaintiffs further state that between 1995 and January 1, 2002, the Plan had excluded from eligibility part-time employees working less than 1,635 hours annually. According to Plaintiffs, the Plan was amended by COI in 2002, to conform to applicable federal tax law requirements, at the recommendation of P&A, to make COI's part-time employees, such as Plaintiffs, eligible for participation in the Plan along with COI's full-time employees to benefit from any annual discretionary employer contributions by CO by reducing to 1,000 the minimal annual hours required for eligibility to participate in the Plan.*fn4

In the original complaint, filed June 3, 2009, Plaintiff Pierce alleged that P&A failed to advise COI of the identities of part-time employees who became eligible as of 2002, including Plaintiff Pierce, so that the retirement accounts of such part-time employees maintained by P&A under the Plan were not properly credited with the annual contributions made by COI that were allocated to COI's full-time employees based on their earnings in accordance with the Plan during the period 2002 through 2007. Plaintiff Pierce, therefore, alleged that P&A, as a plan fiduciary under 29 U.S.C. § § 1000 et. seq., ("ERISA"), breached its fiduciary duty to the Plan, as Plan administrator, in violation of 29 U.S.C. § 1109 ("§ 1109") and sued P&A pursuant to 29 U.S.C. § 1132(a)(2) ("§ 1132(a)(2)"), in her capacity as a participant in the Plan seeking to make the Plan whole as a result of the lower than the amount of COI's annual employer discretionary contributions allegedly required to avoid the exclusion of part-time employees.*fn5

On December 14, 2009, P&A moved for summary judgment on the ground that Pierce had failed to establish standing to seek reimbursement for the Plan based on a breach of fiduciary duty as Plaintiff had not sought to sue in a representative capacity on behalf of other participants and beneficiaries of the Plan adversely affected by P&A's alleged breach as required under § 1132(a)(2). In a Report and Recommendation ("R&R"), filed August 24, 2010, the undersigned found that, contrary to P&A's assertion, the Complaint did seek redress for violations of § 1109 remedies in a representative capacity on behalf of the Plan, and that P&A's motion for summary judgment should therefore be denied. In an Order filed September 10, 2010, District Judge Arcara adopted the R&R and denied P&A's motion (Doc. No. 39).

As part of P&A's motion for summary judgment, P&A filed a copy of the Chautauqua Opportunities, Inc. Retirement Plan, effective January 1, 2002 (Doc. No. 15) ("the Plan"). On March 1, 2010, Plaintiff filed her opposition to Defendant P&A's summary judgment motion and included a copy of the Chautauqua Opportunities, Inc. Retirement Plan Summary Plan Description (Doc. No. 22-4) ("Summary Plan Description").

Prior to Judge Arcara's ruling adopting the R&R, Pierce and, as noted, Ketcham, Facts, supra, at 4-5, another part-time nurse employee of COI, filed, on September 3, 2010, the Amended Complaint against P&A and COI pursuant to 29 U.S.C. §§ 1109 and 1132(a)(2). As in the original complaint, Plaintiffs alleged that P&A, as Plan administrator, violated its fiduciary duties to the Plan so that Plaintiffs, as well as other similarly situated employees of COI, i.e., part-time employees working at least 1,000 hours per year, during the period 2002 - 2007, did not receive the benefit of COI's annual discretionary employer contributions to the Plan in the amount of 2% of each such participant's earnings as eligible part-time employees in accordance with the amended version of the Plan adopted by COI in 2002. Amended Complaint ¶ ¶ 13, 15-17. Plaintiffs also allege that COI violated its fiduciary duty to make discretionary employer contributions to the Plan annually from 2002 to 2007, on behalf of Plaintiffs and other similarly situated employees as eligible participants, based on Defendants' failure to include the wages of Plaintiffs and such other COI part-time employees in determining the correct amount (2% of the wages of the excluded employees) of such annual employer contributions. Id. ¶ ¶ 18-19.

Specifically, as to P&A, Plaintiffs allege a breach of P&A's fiduciary duty to properly administer the Plan according to its terms by failing to advise COI of the need to make contributions on behalf of its eligible part-time employees, Amended Complaint ¶ 17A, failing to assure the Plan was administered in accordance with its terms to include part-time employees in the calculation of the annual employer discretionary contributions made by COI during the 2002-2007 period, id. ¶ 17 B, failing to confirm all eligible employees received the benefit of employer contributions under the Plan for the period 2002 - 2007, id. ¶ 17C, and by failing to advise Plan participants, including Plaintiffs and other employees similarly situated, that employer discretionary contributions by COI during this period to the Plan, which were required to be made under the Plan, were not made for the benefit of such eligible employees. Id. ¶ 17D. As a result, according to Plaintiffs, Plaintiffs and other similarly situated employees failed to receive the financial benefit of the employer discretionary contributions for which COI was responsible under the Plan of approximately $250,000 which amount should have been but was not contributed by COI as the employer, pursuant to the Plan, as a result of P&A's breach of its fiduciary duties under the Plan. Amended Complaint ¶ ¶ 16, 17 at 5, 6. Plaintiffs, therefore, seek damages on behalf of the Plan from P&A and COI to make all eligible participants who were omitted from COI's contribution whole for the deficiency in the amount of employer discretionary contributions for the period 2002-2007 and subsequent related lost earnings, attorneys fees and costs. Id. at 5.

As to COI, Plaintiffs allege that (1) COI had a fiduciary duty under the Plan to make employer discretionary contributions to the Plan for eligible part-time employees including Plaintiffs and other similarly situated employees, Amended Complaint ¶ 17 at 6, (2) COI during 2002-2007 made employer contributions under the Plan in the amount of 2% of all eligible full-time employee's annual earnings but excluded the wages of its part-time employees in determining the amount of COI's discretionary contribution to the Plan, id. ¶ 18, and (3) as a result of COI's breach of fiduciary duty to make discretionary contributions to the Plan on behalf of all eligible COI employees, the Plan was not properly funded and that part-time employees, including Plaintiffs who are otherwise eligible to receive the benefits of such employer contributions, were not credited with the financial benefit of any employer discretionary contributions as required by the Plan during the 2002-2007 period. Amended Complaint ¶ 19.

Under the Plan, each participant has an individual account based on the participants' elective contributions to be used to fund a pension annuity upon such eligible employee's retirement. Plan §§ 1.36, 1.38, 1.40. As employer and sponsor of the Plan, COI, was to contribute to the Plan the annual total elective salary reductions of all participants, and an annual discretionary amount referred as the Employer Non-Elective Contribution. Plan § 4.1(a), (b).*fn6 Further, the administrator, P&A, was required to maintain an account in the name of each participant and credit all amounts of each employee's elective salary reduction allocated to each employee-participant account as required by the Plan. Plan § 4.4(a), (b)(1). As relevant, the annual employer discretionary elective contribution was to be allocated among each participant's retirement accounts as maintained by P&A proportionally based on a fraction equal to the ratio each participant's own compensation for the calendar year bears to the total compensation of all participants for such year. Plan § 4.4(a), (b)(2).

The Plan also required that COI, as the employer, appoint an administrator for the Plan, Plan §§ 1.2, 2.2, establish a funding policy and method, i.e., designate the financial instruments used to fund accrued participant benefits, and review periodically the performance of any fiduciary to whom duties have been delegated or allocated under the Plan. Plan § 2.1. The Plan also required COI, as employer, to provide "full and timely" information to the administrator of the Plan of all pertinent facts as the administrator may require in order to perform its function under the Plan, Plan § 2.7, and to periodically review the performance of the Plan administrator. Plan § 2.1(d). COI, as employer was granted authority to identify a Designated Investment Alternative as an available investment for assets of the Plan. Plan § 1.12. The Plan Funds, representing the assets of the Plan, were to be invested in Funding Vehicles approved by COI as the employer. Plan § 1.24.

The administrator of the Plan, P&A, was required to administer the Plan in accordance with its terms and specifically to determine the eligibility of employees to participate in the Plan, determine the amount of benefits to which any participant was entitled under the Plan, maintain all records necessary to administer the Plan, to compute and certify to the employer the amounts necessary and desirable to be contributed to the sponsor of the investment instruments required to provide participant benefits, Plan § 2.4(a), (b), (d), (f), to assist participants regarding the participants' rights and benefits, and to perform all acts necessary to carry out the purposes of the Plan. Plan § 2.4(j), (l).

The administrator was further required to determine the eligibility of each employee for participation in the Plan based on information provided by the employer.

Plan § 3.3. The Plan also stated that any participant actively employed in the Plan during the Plan year was eligible to share in the annual discretionary employer contribution provided by the employer for such year. Plan § 4.4(b). A participant was vested 100% in the participant's account or the amount resulting in the account from the employer non-elective discretionary contributions according to a schedule under which the participant would be vested 50% in such account after two years of service. and 100% after three years of service. Plan § 5.4(b), § 1.38.

The Plan designated both the employer, COI, and the administrator, P&A, as fiduciaries of the Plan, Plan § 7.11, with the employer having the sole responsibility for making all contributions provided under the Plan including both the elective employee and non-elective annual employer discretionary contribution. Plan § 4.1. Fiduciaries of the Plan also included persons exercising discretion in management of the Plan, having any authority over Plan assets, or granted any "discretionary authority or . . . responsibility in the administration of the Plan." Plan § 1.20. Each fiduciary warranted that any "directions given, information furnished or action taken by it [the fiduciary]" shall be in accordance with the Plan. Plan § 7.11. However, each fiduciary was entitled to "rely upon any such direction, information or action of another fiduciary as being proper under the Plan and is not required under the Plan to inquire into the propriety of any such direction, information, or action." Id. The Plan provided that each fiduciary was responsible for "the proper exercise of its own powers, duties, responsibilities and obligations under the Plan." Id.

According to the Plan Summary Description, all participant elective contributions were to be automatically invested in annuity contracts on behalf of each participant and upon retirement or termination, participants became eligible to receive the value of the amounts accumulated in their respective accounts. Summary Plan Description (Doc. No. 22-4) at 5. As employer, COI, was expected to contribute the amount of salary reduction which each participant elected to defer as wages as well as a discretionary amount of the annual employer contribution determined by COI which eligible employees shared in accordance with the allocation ratio provided in § 4.4 of the Plan. Summary Plan Description at 7. Participants were 100% vested in the their respective employee elective salary reduction amounts contributed to the retirement accounts maintained on their behalf by the administrator. Summary Plan Description at 8, 12. The Summary Plan Description also stated that the Employer, COI, "intends to make discretionary contributions" for each Plan participant as a reward for "long and loyal service" in order to provide additional retirement benefits. Summary Plan Description at 5. The Summary Plan Description further stated that those who operate the Plan are considered as fiduciaries of the Plan and have a "duty to do so prudently and in the interests of you and other Plan participants and beneficiaries." Summary Plan Description at 25.

In support of its cross-claim for indemnification, as pleaded in its Answer to the Amended Complaint ("Answer"), P&A alleged that COI was the Plan sponsor and the Plan fiduciary having responsibility for proper administration of the Plan, specifically the authority and responsibility to assure the Plan was operated for the benefit of the participants in accordance with the terms of the Plan, and had the responsibility for establishing a funding policy and method of funding for the Plan along with the responsibility to periodically review the performance of any other fiduciary such as P&A, the Plan Administrator. Answer ¶ ¶ 30-34. P&A also alleged that in the event it is found that employees of COI, such as Plaintiffs, should ...

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