United States District Court, N.D. New York
EDWARD HUGLER,  acting Secretary of Labor, Department of Labor, Plaintiff,
DANIEL M. BYRNES and FORT ORANGE CAPITAL MANAGEMENT, INC. PROFIT SHARING PLAN, Defendants.
STATES DEPARTMENT OF LABOR Office of the Solicitor Attorneys
M. BYRNES Defendant pro se
ALLISON L. BOWLES, ESQ. JEFFREY S. ROGOFF, ESQ. DARREN J.
MEMORANDUM-DECISION AND ORDER
FREDERICK J. SCULLIN JR, JUDGE.
brought this action against Defendant Daniel M. Byrnes
pursuant to § 404(a)-(c) of the Employee Retirement
Income Security Act ("ERISA"). These ERISA
provisions impose a duty of loyalty, a duty of prudence, and
a duty to diversify on trustees of ERISA-covered plans.
See 29 U.S.C. § 1104(a)(1)(A)-(C). Pending
before the Court is Plaintiff's motion for summary
judgment pursuant to Rule 56 of the Federal Rules of Civil
Procedure. See generally Dkt. No. 40. Defendant
opposes this motion. See Dkt. No. 45.
owned and served as the president and CEO of Fort Orange
Capital Management, Inc. ("Fort Orange") from 1996
until it went out of business in 2005. See Dkt. No.
40-2 at ¶¶ 1-5. The Fort Orange Capital Management,
Inc. Profit Sharing Plan ("the Plan") was established
to provide retirement income for Fort Orange's employees.
See Dkt. No. 40-1 at 2. Defendant was the Plan's
sole trustee and exercised authority with respect to the
management, administration, and disposition of the Plan's
assets. See Dkt. No. 40-2 at ¶ 10. The Plan has
not kept up with federal reporting requirements since 2002,
nor has it issued individual benefits statements to plan
participants since 2003. See id. at ¶¶
Plan's resources have been held at Wells Fargo and other
financial institutions. See id. at ¶ 16;
see also Dkt. No. 45-2 at ¶ 16. In 2010, the
Plan's assets grew from $195, 616.01 to $221, 128.90.
See Dkt. No. 40-2 at ¶ 20. In 2011, at the time
of the first relevant investment, the Plan's assets
totaled $227, 565.94. See Id. at ¶ 21.
Inc. ("Sarissa") is a development stage mining
project that owns various assets, including property in
Canada with a niobium deposit. See Id. at ¶¶
27, 39. Sarissa stock was traded on the over-the-counter
market and was generally known as a "penny stock."
See Id. at ¶¶ 50, 56. Sarissa was on Wells
Fargo's list of banned securities in 2011 and 2012.
See Id. at ¶ 54. Defendant has been a personal
investor in Sarissa since 2008, and he and his family have
more than $500, 000.00 invested in the company. See
Id. at ¶¶ 59, 64.
March 2011, Sarissa was attempting to raise up to $200,
000.00 via a private placement. See Id. at ¶
72. That same month, Defendant, in his capacity as trustee,
used $100, 000.00 of the Plan's assets to purchase five
million common shares of Sarissa at a subscription price of
$0.02 per share. See Id. at ¶ 82. The five
million shares were restricted securities, meaning they could
not be sold for one year. See id. at ¶ 85.
Defendant relied on his "personal knowledge" of
Sarissa in making the investment decision. See id.
at ¶ 88. Defendant claims that he also consulted
geological reports from the company and read about niobium as
an asset. See Dkt. No. 45-2 at ¶ 88.
in August 2012, Sarissa was attempting to raise up to $250,
000.00 by private placement. See Id. at ¶ 119.
Defendant, acting as trustee, purportedly
loaned $120, 000.00 from the Plan to Fort Orange
(himself) to purchase six million shares of common stock in
Sarissa at $0.02 per share. See Id. at ¶ 129.
However, the stock certificates named the Plan as the owner.
Defendant claims that he structured the deal as a loan
because he did not want all the Plan's assets in
"one basket"; but, when the stocks came back with
the Plan's name, he decided that he would just leave it
as is because "it was [the Plan's] money, so [it]
should get the shares." See Dkt. No. 40-5 at
233. In deciding to invest the Plan's funds in 2012,
Defendant reviewed the following: "(1) the Dominion Gulf
Columbium Process; (2) a non-disclosure agreement [Defendant]
and Sarissa signed; (3) Subscription Agreement for Common
Shares; and (4) a press release announcing Sarissa's
letter of intent to form a joint venture." See
Dkt. No. 45-2 at ¶ 135. Defendant believed that the 2012
investment was "basically a risk-free opportunity"
because Sarissa management told him that a Chinese deal was
all set to go through. See Dkt. No. 40-5 at 235.
total, the Plan has invested $220, 000.00, or more than 95%
of the Plan's total asset portfolio with Sarissa. See
Id. at ¶ 158. As of August 2012, only $8, 227.79
remained in the Plan's Wells Fargo account. See
Dkt. No. 40-1 at 7. According to a report that Plaintiff
furnished, "[a]s a result of [Defendant's]
investments in Sarissa, the Plan has experienced an
unrealized loss of principal totaling $171, 091.00 and
another $143, 727.00 in lost opportunity cost, or a total
loss of $314, 818.00." See Id. (citing Dkt. No.
40-17 at 11-14).
initiated the instant action on January 26, 2015, alleging
that Defendant "failed to discharge his fiduciary duty
with respect to the Plan solely in the interest of the
participants and beneficiaries and for the exclusive purpose
of providing benefits to participants of the Plan and their
beneficiaries and defraying reasonable expenses of
administering the Plan, in violation of 29 U.S.C. §
1104(a)(1)(A)(i)." See Dkt. No. 1 at ¶
51(a). Furthermore, Plaintiff alleged that Defendant
"failed to discharge his fiduciary duty with . . . the
care, skill, prudence and diligence under the circumstances
then prevailing that a prudent person acting in a like
capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like
aims, in violation of 29 U.S.C. § 1104(a)(1)(B)."
See Id. at ¶ 51(b). Finally, Plaintiff
contended that Defendant "failed to diversify the
Plan's investments so as to minimize the risk of large
losses, in violation 29 U.S.C. § 1104(a)(1)(C)."
See Id. at ¶ 51(c).
pending motion, Plaintiff requests that the Court issue an
Order holding Defendant liable to the Plan for $314, 818.00,
as well as a permanent injunction removing Defendant as
Trustee, appointing an independent trustee, and barring
Defendant from serving as a trustee for this, or any other,
ERISA-covered plan in the future. See Dkt. No. 40-1
Standard of review
must grant summary judgment "if the movant shows that
there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law."
Fed.R.Civ.P. 56(a). The movant for summary judgment
"always bears the initial responsibility of informing
the district court of the basis for its motion" and
identifying which materials "demonstrate the absence of
genuine issues of material fact." Celotex Corp. v.
Catrett, 477 U.S. 317, 323 (1986). A fact is
"material" if it "might affect the outcome of
the suit under the governing law" and is genuinely in
dispute "if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party."
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). If the movant meets this burden, the nonmoving party
must "'"set forth specific facts showing a
genuine issue for trial."'" Id.
(quotation omitted). The nonmoving party cannot rely on
"mere speculation or conjecture as to the true nature of
the facts to overcome a motion for summary judgment."
Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 12 (2d
Cir. 1986) (citing [Quarles v. Gen. Motors
Corp., 758 F.2d 839, 840 (2d Cir. 1985) (per
curiam)]). "[I]n ruling on a motion for summary
judgment, the district court is not to weigh the evidence but
is instead required to view the evidence in the light most
favorable to the party opposing summary judgment, to draw all
reasonable inferences in favor of that party, and to eschew
credibility assessments[.]" Weyant v. Okst, 101
F.3d 845, 854 (2d Cir. 1996) (citations omitted).
ERISA breach of fiduciary duty
elements of a claim for breach of fiduciary duty under ERISA
are '(1) that defendant was a fiduciary who, (2) was
acting within his capacity as a fiduciary, and (3) breached
his fiduciary duty.'" Bd. of Trustees of Aftra
Ret. Fund v. JPMorgan Chase Bank, N.A., 806 F.Supp.2d
662, 679 (S.D.N.Y. 2011) (quotation omitted). The statute
generally provides that "a person is a fiduciary with
respect to a plan" and therefore subject to ERISA
fiduciary duties, "to the extent  he exercises any
discretionary authority or discretionary control respecting
management of such plan" or "has any discretionary
authority or discretionary responsibility in the
administration of such plan." 29 U.S.C. §
1002(21)(A). "'Under this definition, a person . . .
has [fiduciary] status only "to the extent" that he
has or exercises the described authority or
responsibility.'" Flanigan v. Gen. Elec.
Co., 242 F.3d 78, 87 (2d Cir. 2001) (quoting F.H.
Krear & Co. v. Nineteen Named Trs., 810 F.2d 1250, 1259
(2d Cir. 1987)). There is no dispute in this case that
Defendant was operating as a fiduciary for the Plan or that
his decision to invest in Sarissa was made in his capacity as
imposes several fiduciary duties, three of which are relevant
to this litigation: (1) the duty of loyalty, (2) the duty of
prudence, and (3) the duty to diversify. See 29 U.S.C. §
1104(a)(1)(A)-(C). Generally, Plaintiff alleges that
Defendant breached ERISA's (1) duty of loyalty by
investing in a company in which he had a significant
financial stake; (2) duty of prudence by failing properly to
investigate whether investing in Sarissa was appropriate; and
(3) duty to diversify by placing 95% of the Plan's assets
in a single penny stock.
Duty of loyalty
404(a)(1)(A) provides that "a fiduciary shall discharge
his duties with respect to a plan solely in the interest of
the participants and beneficiaries . . . for the exclusive
purpose of  providing benefits to participants and their
beneficiaries . . . ." 29 U.S.C. §
1104(a)(1)(A)(i). This is commonly known as a fiduciary's
duty of loyalty. Generally speaking, the fiduciary must make
decisions "with an eye single to the interests
of the participants and beneficiaries." Donovan v.
Bierwirth, 680 F.2d 263, 271 (2d Cir. 1982)
("Bierwirth II") (citations omitted)
(emphasis added). However, "in the ERISA context, 'a
conflict of interest alone is not a per se breach:
"nowhere in the statute does ERISA explicitly prohibit a
trustee from holding positions of dual
loyalties."'" In re State St. Bank & Trust
Co. Fixed Income Funds Inv. Litig., 842 F.Supp.2d 614,
649 (S.D.N.Y. 2012) ("State St. Bank &
Trust") (quoting Tibble, 2010 WL 2757153,
at *18 (quoting Friend v. Sanwa Bank of Cal., 35
F.3d 466, 468-69 (9th Cir. 1994))). "'Consistent
with this rule, a fiduciary does not breach his duty of
loyalty by pursuing a course of conduct which serves the
interests of the plan's beneficiaries while at the same
time "incidentally benefitting" the plan sponsor or
even the fiduciary himself.'" Id. (quoting
Tibble, 2010 WL 2757153, at *18). In short, any
benefit to the plan's fiduciary must be incidental to a
decision that is otherwise independently in the best
interests of the plan participants. See id.
language of the statute, requiring that the fiduciary's
"exclusive purpose" be for the benefit of
plan participants, suggests that a court should use a
subjective test when determining whether a defendant has
breached his duty of loyalty. See 29 U.S.C. §
1104(a)(1)(A) (emphasis added); see also Tibble v.
Edison, Int'l, No. 07 Civ. 5359, 2010 WL 2757153,
*24 n.19 (C.D. Cal. July 8, 2010), vacated and remanded
on other grounds, 843 F.3d 1187 (9th Cir. 2016) (stating
that "a breach of th[e] duty [of loyalty] requires some
showing that the fiduciaries' decisions were motivated by
a desire to serve the interests of [the fiduciaries] over
those of the beneficiaries" (citations omitted));
A.F. v. Providence Health Plan, 173 F.Supp.3d 1061,
1073 (D. Or. 2016) (citing [Peter J.] Wiedenbeck, [ERISA
in the Courts], 165 [(Federal Judicial Center 2008)]
("In making the fiduciary's 'exclusive
purpose' the touchstone, ERISA demands assessment of a
conflicted decisionmaker's state of mind. Subjective
purpose, of course, is necessarily inferred from objective
facts.")). Under a subjective test, the court may rely