The opinion of the court was delivered by: ALFRED M. WOLIN
This matter has been opened upon the motions of defendants Ryan Beck & Co. ("Ryan Beck") and Douglas MacWright to dismiss the ERISA claims against them for lack of subject matter jurisdiction and for summary judgment on all state law claims as pre-empted by federal law. The Court has decided this matter on the written submissions of the parties pursuant to Federal Rule of Civil Procedure 78. For the reasons discussed below, the Court will deny the motions.
This lawsuit arises from investment losses incurred by the Schiffli Embroidery Workers Pension Fund ("Schiffli" or the "Plan") from funds on account with Ryan Beck. Ryan Beck is an investment banking firm and a registered broker dealer. Movants' Brief at 3. Schiffli is multi-employer/employee benefit fund organized and operated pursuant to the Employee Retirement Income Security Act, 29 U.S.C. §§ 186(5), 1001 et seq. ("ERISA"). At the time of the acts complained of, MacWright was a sales representative at Ryan Beck. Id. The amended complaint alleges omissions and misstatements, scheming to defraud, churning, unauthorized transactions, and making unsuitable investments in violation of Section 10(b) and Rule 10b-5 of the Securities and Exchange Act of 1934; violations of fiduciary and co-fiduciary duties under ERISA; performing transactions prohibited by ERISA; and state common law breach of fiduciary duty, fraud, conversion and misappropriation, negligence, and breach of contract. The complaint names as defendants the movants aforementioned and various Trustees of the Schiffli Plan who, it is alleged, were involved with or allowed the wrongdoing.
Plaintiffs are the Plan itself and Alexander Mauro a participant/beneficiary. Mauro was added as a plaintiff when the complaint was amended, pursuant to a consent order entered into by the parties and signed by the Court on March 29, 1993. However, on December 22, 1993, Bernard Hartnett, a temporary counsel to Schiffli, advised the Court by letter that Mauro had contacted him by telephone and said that he was confused as to why he was in the case, and that he no longer wished to participate in it. Affidavit of Marjorie A. Thomas, dated June 6, 1994 ("Thomas June 6 Aff.") Exhibit D.
Upon receipt of a copy of the letter, the law firm of Pollack & Greene who was then representing Schiffli contacted Mauro. Mauro told them that after speaking with representatives of the defendant Trustees, he no longer wished to participate in the suit. Pollack & Greene so advised the Court by letter dated January 1, 1994. The letter stated that it would "serve as notice to [the Court] of Mr. Mauro's decision." Thomas June 6 Aff. Exhibit E.
This was not the last word from plaintiff Mauro. Plaintiffs have submitted an affidavit signed by him on June 29, 1994 in opposition to the motion to dismiss. There Mauro testifies that he is a Plan participant and that he understands his role in the law suit. He swears that he wishes to continue as a plaintiff, and that he never authorized anyone to withdraw on his behalf. Affidavit of Alexander Mauro.
Movants challenge the subject matter jurisdiction of this Court over the allegations of breach of ERISA fiduciary duties, on the ground that there is not a proper party named as plaintiff. They argue that ERISA does not allow a Plan to bring such a claim in its own right, and that the Act does not provide for federal jurisdiction over such claims brought by a Plan. The motion for summary judgment on the state law claims is on the ground that they are pre-empted by the ERISA claims.
1. The Motion to Dismiss for Lack of Subject Matter Jurisdiction
The motion to dismiss for lack of subject matter jurisdiction is quickly dispensed with. The Court finds that Mauro never withdrew from the case. The parties originally consented to the inclusion of Mauro in order to cure a perceived jurisdictional defect. No argument has been made that this Court would lack subject matter jurisdiction with Mauro in the case.
Accordingly the motion will be denied.
The Court finds that the letters that are now claimed to announce his withdrawal fall short of establishing that fact. First, the letters are somewhat equivocal. The telephone conversations as reported in the letters of counsel reflect more confusion and uncertainty than a fixed and intelligent resolution to withdraw. The Court notes that there is a suggestion in the letter from Pollack & Greene that Mauro's uncertainty may have been the result of an improper communication by defendant trustees with a represented party.
2. The Motion for Summary Judgment of the State Law Claims on the Ground that they are Pre-empted by ERISA
ERISA pre-empts state laws that "relate to any employee benefit plan." 29 U.S.C. § 1144(a). The Supreme Court has read the pre-emption clause broadly. In Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 107 S. Ct. 1549, 95 L. Ed. 2d 39 (1987), the Court stated:
the phrase "relate to" [is] given its broad common-sense meaning, such that a state law "relate[s] to" a benefit plan "in the normal sense of the phrase, if it has a connection with or reference to such a plan.". The pre-emption clause is not limited to "state laws specifically designed to affect employee benefits plans."
Id. at 47-48, 107 S. Ct. at 1553 (citations omitted) ; see Metropolitan Life Ins. Co. v. Massachusetts, 471 U.S. 724, 739, 105 S. Ct. 2380, 2389, 85 L. Ed. 2d 728 (1985); Shaw v. Delta Air Lines, 463 U.S. 85, 97-98, 103 S. Ct. 2890, 2900, 77 L. Ed. 2d 490 (1983); see also Pane v. RCA Corp., 868 F.2d 631 (3d Cir. 1989) (state law claims for breach of contract, breach of covenant of good faith and fair dealing, and intentional infliction of emotional distress pre-empted by ERISA); Shiffler v. Equitable Life Assurance Soc., 838 F.2d 78 (3d Cir. 1988) (state law claims for breach of duty pre-empted by ERISA).
Despite the broad scope of the pre-emption clause, ERISA does not pre-empt all state law claims. Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 111 S. Ct. 478, 483, 112 L. Ed. 2d 474 (1990). The Supreme Court has stated that "some state actions may affect employee benefit plans in too tenuous, remote, or peripheral a manner to warrant a finding that the law 'relates to' the plan." Shaw, 463 U.S. at 100 n.21, 103 S. Ct. at 2901 n.21. Thus, ERISA would not pre-empt "a generally applicable statute that makes no reference to, or indeed functions irrespective of, the existence of an ERISA plan." Ingersoll-Rand, 111 S. Ct. at 483.
An obvious example was provided when the Supreme Court held that a general garnishment statute is not pre-empted even though it operates to garnish benefits payable under an ERISA plan. Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 108 S. Ct. 2182, 100 L. Ed. 2d 836 (1988); see also Shaw, 463 U.S. 85, 103 S. Ct. 2890, 77 L. Ed. 2d 490 (no pre-emption of law forbidding discrimination in employee benefits on the basis of pregnancy). In other cases, the "relates to" standard is not as clear and has led to unpredictable results. In Perry v. P*I* E Nationwide, Inc., 872 F.2d 157 (6th Cir. 1989), employees alleged breach of fiduciary duty, lack of consideration and fraud against their employer when they were induced to accept an irrevocable pay cut in exchange for a benefits package that did not live up to the employer's representations. The Sixth Circuit held that the fiduciary duty and lack of consideration claims were pre-empted, but that the fraud count was not. Id. at 162.
The extent of ERISA's pre-emption of state law governing outside professionals who provide services to ERISA plans has been described as "problematic," Jay Conison, The Federal Common Law of ERISA Plan Attorneys, 41 Syracuse L. Rev. 1049, 1083 (1990), and "unresolved." James F. Gorden, et al., Handbook on ERISA Litigation, § 5.03(A) at 5-25 (1992). Suits over benefits are so clearly within the scope of ERISA's preemption provision that they provide little guidance with regard to professional service providers. As discussed below, the case law is clear that state law claims against investment advisor fiduciaries are pre-empted, but this fact is not helpful where, as here, the status of defendants as investment advisors is at issue in the case. Most cases which have dealt in the area of pre-emption of claims against outside professionals do not propound any universally applicable rationale for their holdings, and so have little weight outside of their specific factual background. Consequently, where the ...