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Prudential Retirement Insurance Doc #: and Annuity Company v. State Street Bank and Trust Company

November 19, 2012

PRUDENTIAL RETIREMENT INSURANCE DOC #: AND ANNUITY COMPANY,
PLAINTIFF AND THIRD-PARTY DEFENDANT,
v.
STATE STREET BANK AND TRUST COMPANY, DEFENDANT AND THIRD-PARTY PLAINTIFF



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:

DOCUMENT ELECTRONICALLY FILED

OPINION & ORDER

On October 1, 2007, Plaintiff Prudential Retirement Insurance and Annuity Co. ("PRIAC") brought this action, pursuant to sections 409(a) and 502(a)(2) and (3) of the Employee Retirement Income Security Act of 1974*fn1 ("ERISA") against defendants State Street Bank and Trust Co. ("State Street"). *fn2 PRIAC acted as an ERISA fiduciary on behalf of nearly 200 retirement plans (the "Plans") that invested, through PRIAC, in two collective bank trusts managed by State Street: the Government Credit Bond Fund ("GCBF") and the Intermediate Bond Fund ("IBF," and, collectively, the "Bond Funds"), both of which PRIAC alleged lost significant value due to State Street's breaches of fiduciary duty. State Street filed its answer on October 27, 2008, and counterclaimed for contribution or indemnification, defamation, and violations of the Massachusetts Unfair Trade Practices Act.*fn3 Def.'s Answer & Counterclaim, Dkt. No. 97.

On March 28, 2011, Judge Holwell (1) denied State Street's motion for summary judgment based on PRIAC's failure to mitigate damages and on the doctrine of superceding cause; (2) denied State Street's cross-motion for partial summary judgment on its contribution counterclaim; (3) granted PRIAC's motion to dismiss State Street's claim under the Massachusetts Unfair Trade Practices Act, and (4) denied PRIAC's motion to dismiss State Street's contribution and defamation claims. In re State St. Bank & Trust Co. ERISA Litig., 772 F. Supp. 2d 519, 523 (S.D.N.Y. 2011) (the "SJ Decision").

Judge Holwell conducted a seven day bench trial in October 2011 on PRIAC's claims against State Street, with State Street's contribution and defamation claims against PRIAC to be tried separately at a later date. On February 1, 2012, Judge Holwell awarded PRIAC $28,143,656, finding that State Street (1) violated its duty of care, skill, prudence and diligence;

(2) did not violate its duty of loyalty; and (3) violated its duty to diversify its investment portfolio. See generally In re State St. Bank & Trust Co. ERISA Litig., 842 F. Supp. 2d 616 (S.D.N.Y. 2012) (the "ERISA Decision").

PRIAC has renewed its motion for partial summary judgment dismissing State Street's contribution and defamation claims, asserting that the ERISA Decision has changed the landscape. The parties have fully briefed the issues and oral arguments were held on November 13, 2012. For the reasons stated below, PRIAC's motion for summary judgment is denied.

BACKGROUND*fn4

PRIAC argues that the Court should revisit its motion for summary judgment because "[t]he ERISA Decision provides an expansion of the record by adding factual findings and legal conclusions that make it possible to dispose of State Street's remaining claims." PRIAC's Mem. of Law at 11, Dkt. No. 348. State Street counters: (1) PRIAC's arguments have already been considered and rejected in the SJ Decision, and (2) the ERISA Decision specifically excluded the disputed questions of fact that Judge Holwell previously determined precluded summary judgment of State Street's claims. State St.'s Opp'n at 10-17, Dkt. No. 349.

As Judge Holwell explained with regard to State Street's contribution claim,

The factual core of State Street's argument begins with its assertion that PRIAC was fully aware of the leverage and subprime exposure in the Bond Funds by mid-July 2007. According to State Street, PRIAC had a duty to pass on that information to the Plans at that time, but failed to do so until late August 2007. If PRIAC had passed on that information in July, State Street surmises that the Plans would then have redeemed their interests in the Bond Funds. If the Plans had done so in mid-July instead of late August 2007, their losses would have been substantially less than that which is claimed in this litigation.*fn5

SJ Decision at 538. PRIAC argues that the ERISA Decision found State Street liable for breaching fiduciary duties related to managing the Bond Funds' assets, which PRIAC cannot be held jointly liable for because it played no role in State Street's investment decisions. PRIAC's Mem. of Law at 16-18. Alternatively, PRIAC argues that the ERISA Decision makes clear that State Street was "substantially more at fault" than PRIAC, which would also bar holding PRIAC jointly liable for the damages suffered by the Plans. Id. at 18-19.

With regard to its defamation claim, State Street identified twenty-three instances in which PRIAC sought to "conceal its fiduciary failures and to disclaim any responsibility" by "cast[ing] blame on State Street through defamatory statements."*fn6 Compl. at ΒΆ 33. Judge Holwell found that triable issues of fact existed only as to six of these statements. PRIAC's other statements were privileged as a result PRIAC's common interest with the Plans arising out of their business relationship. SJ Decision at 560-62. With regard to the six statements still at issue, however, Judge Holwell found that they would not have been privileged if PRIAC made them with "actual malice," id. at 561 n.27, which requires a factual determination that the declarant had "knowledge that [the statement] was false or [made the statement] with reckless disregard of whether it was false or not." Id. at 560 (quoting N.Y. Times ...


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