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H&R Convention and Catering Corp. and Quinn Restaurant Group v. Marianna Somerstein

May 8, 2013

H&R CONVENTION AND CATERING CORP. AND QUINN RESTAURANT GROUP,
PLAINTIFFS,
v.
MARIANNA SOMERSTEIN, STUART SOMERSTEIN, SOMERSTEIN CATERERS OF LAWRENCE, INC. PENSION PLAN, CAPITAL ONE, N.A., AND PENSION BENEFIT GUARANTY CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Jack B.WEINSTEIN, Senior United States District Judge:

MEMORANDUM, ORDER AND JUDGMENT

Table of Contents

I. Introduction ............................................................................................................................. 2

II. Facts ........................................................................................................................................ 5

III. Procedural History .................................................................................................................. 9

IV. No Cognizable Claim ............................................................................................................ 12

A. No Statutory Standing to Pursue ERISA Fiduciary Duty Claims..................................... 12

B. Unavailability of Contribution Claim ............................................................................... 14

C. Jurisdiction Not Exercised Over Request for Declaratory Relief ..................................... 17

1. Discretionary Nature of Declaratory Judgment Jurisdiction ...................................... 17

2. Availability of Special Statutory Proceeding ............................................................. 19

3. Interference with Ongoing State Court Action ........................................................... 22

4. Jurisdiction Denied for Declaratory Judgment Action ............................................... 24

D. Jurisdiction Not Exercised Over State Law Claims .......................................................... 24

V. Conclusion ............................................................................................................................ 25

I.Introduction

H&R Convention and Catering Corporation ("H&R") alleges it was cheated when it bought Quinn Restaurant Corporation ("Quinn") in 2009. It had bargained for the former shareholders of Quinn-defendant Marianna Somerstein and non-party Daniel Culnen-and Somerstein's husband, defendant Stuart Somerstein, to terminate a pension plan sponsored by Quinn (the "Plan") and make payments to fund the Plan's remaining obligations within ninety days of the deal's closing.

H&R's grievance-which it now shares with Quinn-is that the former shareholders and Mr. Somerstein breeched. They have left, according to H&R and Quinn ("Plaintiffs"), the Plan depleted of resources and Quinn (and its corporate parent, H&R) facing potential liabilities to the Plan and possible civil penalties from the United States Department of Labor. Cross-claims for breach of contract and issues related to the sale of Quinn-filed several months before the initiation of this lawsuit-are currently being litigated by all but one of the parties to this litigation in a New York State court. See Marianna Somerstein, Stuart Somerstein, and Daniel Culnen v. H&R Convention & Catering Corp., Quinn Restaurant Corporation, and Harendra Singh, No. 26896/2011 (N.Y. Sup. Ct. Queens Cty.) (motion to intervene by Pension Benefit Guaranty Corporation pending).

Because it lacked adequate funds to make beneficiary payments, the Plan was terminated by another judge of this court in an order retroactive to February 29, 2012. See Order & Judgment upon Failure to Show Cause, Pension Benefit Guaranty Corp. v. Quinn Restaurant Corp., No. 12-CV-2881 (E.D.N.Y. June 14, 2012) ("Termination Order and Judgment"), ECF No. 10. The federal government's wholly-owned Pension Benefit Guaranty Corporation ("PBGC") is now statutory trustee to the Plan. Levied upon Quinn by the PBGC is a lien of nearly $1.9 million based upon the Plan's liabilities. Plaintiffs have not satisfied the lien, and no enforcement action has been initiated by the PBCG or the United States Department of Labor.

Plaintiffs sue under various provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq., and New York State common law. Following voluntary dismissal of some parties, the remaining defendants are: Mrs. Somerstein, a United States citizen, who resides in Costa Rica; Mr. Somerstein, a United States citizen, who resides in Costa Rica; the Plan itself, Somerstein Caterers of Lawrence, Inc. Pension Plan; the former Plan trustee, Capital One, N.A., whose principal place of business is Virginia; and the Plan's current trustee, the PBGC. See Complaint, Mar. 22, 2012, ECF No. 1 ("Compl."), ¶¶ 2-9.

Both Somerstein Caterers of Lawrence, Inc. ("SCL"), a now-defunct New York corporation formerly controlled by the Somersteins and which once served as administrator of the Plan, and Daniel Culnen, a resident of New York and former shareholder of SLC who authorized the sale of Quinn, have been voluntarily dismissed by Plaintiffs. See Stip. of Discontinuance, Mar. 25, 2013, ECF No. 89.

Plaintiffs allege that the Somersteins breached their fiduciary duties to the Plan prior to H&R's acquisition of Quinn, and that the other defendants knowingly allowed them to do so. Plaintiffs sue the PBGC on a theory that it has breached a fiduciary duty to the Plan by continuing to make benefit payments to the Somersteins. Sought is an injunction halting the PBGC from issuing new payments to the Somersteins.

Plaintiffs also seek declaratory relief absolving them of any requirement to comply with minimum funding requirements set by ERISA and of any potential penalties it may be assessed by the United States Department of Labor. They seek declarations, pursuant to ERISA, that they are not "responsible for any . . . penalties under ERISA attributable to the misfeasance and/or malfeasance of the Somersteins and/or any other Defendant," and that they are not "responsible . . . for any [minimum] funding requirements in connection with" the Plan. Compl.

¶ 46.Also pursued by Plaintiffs are state common law claims against the Somersteins. Id. ¶¶ 60-61, 70-71.

The PBGC and Capital One move to dismiss Plaintiffs' fiduciary duty claims for lack of statutory standing under ERISA. Civil actions to enforce ERISA may only be brought by an exclusive class: plan participants, plan fiduciaries, plan beneficiaries, and the United States Secretary of Labor. See 29 U.S.C. § 1132. Because Plaintiffs lack authority to bring claims pursuant to ERISA or to initiate a suit for contribution, their claims for breach of fiduciary duty are dismissed.

Although no defendant has moved to dismiss Plaintiffs' declaratory judgment actions, the court exercises its discretion to decline jurisdiction over a request for declaratory relief. Plaintiffs have not demonstrated an inability to avail themselves of ERISA's comprehensive scheme for claiming the very same redress sought from this court; nor is interference with the ongoing state court litigation warranted. Finally, because there is an absence of complete diversity among the parties, the court is without power to decide this case on diversity grounds. It declines to exercise supplemental jurisdiction over any state law claims.

All of the partial motions to dismiss are granted. The fact that no defendant has requested dismissal of the entire case does not preclude total dismissal. There is no cognizable claim by any named plaintiff against any named defendant. See Part IV, infra. What Plaintiffs have tried to do is convert an entrepreneurial dispute about money due from the sale of a business into an ERISA-type litigation fashioned to protect workers' retirement benefits. Congress carefully designed ERISA to prevent this procedural abuse. The case is dismissed in its entirety.

II.Facts

As alleged in the complaint, whose factual allegations are accepted as true, in March 2009, H&R acquired from Mrs. Somerstein and Culnen all of the outstanding stock in Quinn. See Compl. ¶ 35.

The Plan, of which Quinn was a contributing sponsor, was established in 1980 by SCL, then controlled by the Somersteins. See id. ¶¶ 2, 14; see also PBGCRenewed Mot. for Partial Dismissal, Nov. 30, 2012, ECF No. 68 ("Renewed Mot."), ¶¶ 1-3. It is a defined-benefit plan governed by ERISA and guaranteed by the PBGC. See Renewed Mot. ¶ 2. Among the Plan's beneficiaries are defendants Marianna and Stuart Somerstein. See Compl. ¶ 41; Renewed Mot.

¶¶ 42-45.

The Somersteins were co-trustees of the Plan until 1998, when they were convicted of various federal crimes. See Compl. ¶¶ 20-21; Judgment as to Marianna Somerstein, United States v. Somerstein, et al., 96-CR-657 (E.D.N.Y. July 24, 1998), Dkt. No. 278; Judgment as to Stuart Somerstein, United States v. Somerstein, et al., 96-CR-657 (E.D.N.Y. Aug. 5, 1998), Dkt. No. 291.

Mrs. Somerstein was convicted of crimes related to underreporting employee numbers to union-sponsored vacation, welfare and pension plans. See Reply to Renewed Mot., Feb. 20, 2013, ECF No. 81 ("Reply"), at 10. She was sentenced to six months of home detention and three years of probation. Id. Mr. Somerstein was convicted on the same charges, as well as one count of theft from the Plan. Id. He was sentenced to a term of imprisonment of twenty-seven months followed by three years of probation. Id.

Following the Somerstein's convictions, North Fork Bank was appointed trustee of the Plan by court order. See Compl. ΒΆ 22; Order, United States v. Somerstein, et al., 96-CR-657 (E.D.N.Y. Oct. 9, 1998), Dkt. No. 328. The bank was later acquired by defendant Capital One, N.A., which was the Plan's trustee until February 2012. Plaintiffs allege that, despite her conviction, Mrs. Somerstein continued to act as a fiduciary to the Plan-for example, by providing the Plan's actuary and trustee with ...


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