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Lynn v. Young Adult Institute, Inc.

United States District Court, S.D. New York

March 31, 2014

JOEL M. LEVY and JUDITH W. LYNN, Plaintiffs,
YOUNG ADULT INSTITUTE, INC., et al., Defendants.


J. PAUL OETKEN, District Judge.

Plaintiffs Joel M. Levy and his wife Judith W. Lynn are a participant and a beneficiary in a retirement plan provided by Levy's former employer, Young Adult Institute, Inc. ("YAI"). The retirement plan includes a pension plan and trust and a life insurance plan and trust. Defendants allegedly violated Plaintiffs' vested rights in these plans.[1] Plaintiffs assert claims under the Employee Retirement Income Security Act of 1974 ("ERISA") and state law claims for breach of contract, unjust enrichment, and breach of fiduciary duty. Defendants have moved to dismiss all fifteen counts in the complaint.

The motion to dismiss was referred to Magistrate Judge Sarah Netburn for a Report and Recommendation (the "Report"). The Court has reviewed the Report, Defendants' objections regarding the recommended denial of the motion to dismiss Count VI, and Plaintiffs' objections regarding the recommended dismissal of Counts XII-XV based on preemption. For the reasons that follow, the Report is adopted as to Counts I-XIV and not adopted as to Count XV, and the underlying motion to dismiss is granted in part (as to Counts V, and IX-XIV) and denied in part (as to Counts I-IV, VI-VIII, and XV).

I. Background

A. Underlying Facts

Plaintiffs' allegations are assumed to be true for purposes of this motion. Familiarity with the facts, which are summarized aptly and without objection in the Report, is assumed. The Court provides only a brief review of facts relevant to the objections.

Levy worked as an executive for YAI from around 1969 until his retirement on June 30, 2009. On July 1, 1985, YAI executed a Supplemental Pension Plan ("pension plan") with Levy as a participant and Lynn as a beneficiary. The plan vested in 1989 and conferred the following benefits, among others:

• An annuity valued at approximately $900, 000 to be paid in monthly installments of $75, 000 over Levy's predicted lifetime, with payments going to his wife and then children in the event of his premature death;
• The right to have a trustee acting at all times; and
• Immunity from retroactive amendments that would reduce the benefits.

In September 2008, YAI received Levy's permission to cap the annuity at $625, 813 and reduce monthly payments to $52, 151. Levy signed an Employment Agreement accepting this reduction on the conditions that (1) other benefits would remain unchanged, and (2) YAI would purchase, by June 30, 2010, a commercial annuity that mimics the pension plan's distribution features. Then, in October 2008, YAI amended the pension plan to reflect the changes in the Employment Agreement and to further reduce Plaintiffs' overall benefit, despite contrary promises in the Employee Agreement.

Levy retired in June 2009 and began to receive benefits. Two months later, in August 2009, YAI withheld Levy's benefits until Levy and Lynn both signed an Acknowledgement and Release which further reduced Lynn's surviving spouse benefits and released YAI from liability for changes in the October 2008 amended pension plan. In 2010, YAI began to pay Levy according to the terms of the amended pension plan. However, these payments were suspended again in August 2011. Furthermore, as of June 2013, YAI had not fulfilled its duty under the Employment Agreement to purchase a commercial annuity to fund the pension plan.

In addition to the pension plan described above, YAI also provided Levy a life insurance plan with policies purchased from The Northwestern Mutual Life Insurance Company ("Northwestern") with a collective face value of $3, 172, 762. Since 2003, YAI has held the Northwestern policies in an irrevocable life insurance trust. Then, in 2011, YAI assigned proceeds from the Northwestern policy as collateral on a debt to a third party. Levy permitted this assignment on the condition that YAI purchase and maintain a separate insurance policy with the same face value during the period of encumbrance. YAI purchased policies from Lincoln Financial Group ("Lincoln"), but allegedly failed to maintain the Lincoln policy past April 2013. The parties contest when the Northwestern policies became unencumbered and therefore, when YAI's obligation to maintain the Lincoln policies ceased. The parties also contest whether proceeds from the Northwestern policies would be applied toward the $625, 813 cap imposed under the Employee Agreement.

B. Plaintiffs' Claims

Based on these facts, Plaintiffs assert the following claims: Counts I-VII are brought under ERISA to clarify Plaintiffs' rights under and seek benefits under the pension plan; Counts VIII-XI are brought under ERISA to clarify Levy's rights under and seek benefits under the life insurance plan; Counts XII and XIII are brought under state contract law for breaches of the Employment Agreement; Count XIV is brought under state unjust enrichment law and repleads the facts from Counts XII and XIII; finally, Count XV is brought under state law and asserts a breach of fiduciary duty.

II. Review of the Report

Magistrate Judge Netburn provided the following recommendations in her Report: (1) dismiss Counts V, IX, and X for lack of subject matter jurisdiction; (2) dismiss Counts XII-XV (collectively, the "state law claims") as preempted; (3) dismiss Count XI for failure to state a claim; (4) deny dismissal of Counts I-IV, VI-VIII, and XI to the extent that claims are asserted against YAI in its capacity as a plan ...

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