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ERISA Watch – Pension Fund Customer of Maddoff Investment Securities Lacks Standing to Sue Investment Manager

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This week’s notable decision is Trustees of The Upstate New York Engineers Pension Fund v. Ivy Asset Management, Lawrence Simon, Howard Wohl, & Bank Of New York Mellon Corporation, No. 15-3124, __F.3d__, 2016 WL 7157992 (2d Cir. Dec. 8, 2016), which involves a lawsuit brought by the Board of Trustees of the Upstate New York Engineers Pension Fund against the fund’s investment manager, alleging breach of fiduciary duty in failing to advise the fund in 1998 that it had become imprudent to continue as a customer of Bernard L. Madoff Investment Securities LLC (“BLMIS”).  The Trustees also sued Bank of New York Mellon Corporation for knowingly participating in the fiduciary breach.  The Second Circuit affirmed the district court’s dismissal of the complaint for failure to state a claim and for failure to allege an actual injury sufficient to establish Article III standing.

The Trustees alleged that if warned, the fund would have withdrawn the full sum appearing on its 1998 BLMIS account statements; and that prudent alternative investment of that sum would have earned more than the fund’s actual net withdrawals from its BLMIS account between 1999 and 2008.  The court found that such comparable profit would have been extremely difficult to achieve as the Trustees have not claimed that any of the Plan’s alternative investment options offered returns as high as 25 percent every year between 1998 and 2005.  “The valid measure is a prudent alternative investment, not an alternative Ponzi scheme.”  Because the alleged breach of fiduciary duty does not result in a cognizable investment loss, there is no injury-in-fact sufficient for constitutional standing.

The Trustees also claimed additional losses:  (1) the $1.8 million in performance fees paid to Ivy Asset Management in connection with the Plan’s BLMIS investment after 1998; and (2) the costs incurred responding to the unsuccessful clawback action filed by the Madoff bankruptcy trustee and to the subpoenas issued by the United States Department of Labor and the Attorney General of the State of New York in their actions against Ivy, Lawrence Simon, and Howard Wohl.  The court found that these losses do not come close to matching the extraordinary profits made by the Plan’s BLMIS investment over and above what it could have made through a prudent alternative investment.

The court also found that the increase in pension benefits, which were increased in 1999 in partial reliance on the stated performance of the BLMIS investment, does not constitute a cognizable loss because the Complaint does not allege that the Plan has been or will be unable to pay the increased benefits to participants.  On the Trustees’ request for disgorgement of the $200 million that Simon and Wohl shared when BNY Mellon acquired Ivy, the court found that there was no reasonable inference that Simon and Wohl’s concealment of information about Madoff affected Ivy’s acquisition price.  Lastly, the court found that the Complaint fails to state a claim against BNY Mellon for participating in a breach of fiduciary duty by Ivy, Simon, and Whol.

Other than Ponzi schemes, nothing else too exciting to report this week.  Until next week!

Below is Kantor & Kantor LLP’s summary of this past week’s notable ERISA decisions.

Attorneys’ Fees

First Circuit

  • In matter seeking deferred compensation benefits under an ERISA top hat plan, the court denied the plan administrator’s request for attorneys’ fees and granted Plaintiff’s request because it found the denial of Plaintiff’s application for benefits under the Plan was not only incorrect, it was plainly arbitrary and capricious. Plaintiff secured a reversal of the denial of his benefits request, an immediate award of a portion of those benefits, and remand to the plan administrator so he may fully and carefully consider how he will distribute the remaining deferred compensation to which Plaintiff is entitled.  The court found that Plaintiff’s victory was substantially more than “trivial” or “purely procedural.”  Rhodes v. Holden Eng’g & Surveying, Inc., No. 16-CV-35-SM, 2016 WL 7052929 (D.N.H. Dec. 5, 2016) (Judge Steven J. McAuliffe).

Seventh Circuit

  • In this matter seeking prejudgment interest and attorneys’ fees following administrative award of disability pension benefits (upon remand by the Seventh Circuit), the court found that Plaintiff is entitled to prejudgment interest as the Trustees’ decision was arbitrary and capricious. The Trustees would have requested additional information leading to the approval of Plaintiff’s application had they applied the right standard in 2010, as set forth by the Seventh Circuit.  On attorneys’ fees, the Plan conceded that it could not point to any case law which prevented Plaintiff from seeking attorney’s fees after being awarded benefits after a remand from the Seventh Circuit.  The court found that Plaintiff clearly achieved some degree of success on the merits in obtaining a remand and reconsideration of his application for disability benefits in light of the Trustees’ arbitrary and capricious analysis.  The court also found that Plaintiff would be entitled to attorney’s fees even under the five factor testCerentano v. United Maine Workers of Am. 1974 Pension Plan, No. 15-CV-874-SCW, 2016 WL 7117150 (S.D. Ill. Dec. 7, 2016) (Magistrate Judge Stephen C. Williams).

Breach of Fiduciary Duty

Second Circuit

Disability Benefit Claims

Fifth Circuit

  • The court found that Unum did not abuse its discretion in denying Plaintiff’s long-term disability claim. Plaintiff worked as a telephone operator before leaving work due to transient ischemic attacks, rheumatoid arthritis, diabetes mellitus, and heart problems.  The court explained that ERISA does not require a plan administrator to have an independent doctor perform a physical examination, nor does it require plan administrators to accord special deference to the opinions of treating physicians.  The court found that the record contains substantial evidence from which Unum could have found plaintiff was not disabled under the terms of the PlanBellard v. Unum Life Ins. Co. of Am., No. CV 15-0428, 2016 WL 7108577 (W.D. La. Dec. 5, 2016) (Judge Rebecca F. Doherty).

Eighth Circuit

  • In disability pension dispute, the court found in favor of the plan administrator, who denied Plaintiff benefits because he did not become disabled after reaching 45 years of age as required by the Plan. Because the SPD terms do not qualify as plan terms, the court rejected the argument that the plan administrator’s decision was an abuse of discretion because it contradicted statements made in the SPD.  The rule of contra proferentum is preempted by ERISA and does not apply in this caseJones v. Kohler Co. Pension Plan, No. 4:14-CV-00083 KGB, 2016 WL 7030445 (E.D. Ark. Dec. 1, 2016) (Judge Kristine G. Baker).

ERISA Preemption

Second Circuit

  • In lawsuit alleging state law claims for medical malpractice, lack of informed consent, wrongful death, and loss of services, it is undisputed that decedent received treatment from an authorized provider under his ERISA plan. The question presented is whether JP Morgan and the Center are vicariously liable for the alleged malpractice of the treating doctor and nurse under state law. The court found that it would not need to interpret the terms of the ERISA plan to answer these questions, and as such, Plaintiffs’ claims are not preempted by ERISAWalsh v. Pisano, No. 16-CV-4589 (LAK), 2016 WL 7046823 (S.D.N.Y. Dec. 2, 2016) (Judge Lewis A. Kaplan).

Pleading Issues & Procedure

Sixth Circuit


  • In lawsuit alleging wrongful denial of insurance coverage for prescription drugs and medical treatment, the court denied Plaintiff’s motion to remand because, notwithstanding the label of the claims, clearly the essence of the claims are for the recovery of ERISA plan benefits. Additionally, the Complaint alleges a violation of federal anti-trust law which would justify removal on that basis alone. Roll v. Med. Mut. of Ohio, No. 1:16 CV 2487, 2016 WL 7097630 (N.D. Ohio Dec. 6, 2016) (Judge Patricia A. Gaughan).

Statutory Penalties

Third Circuit

  • When Plaintiff, who is African-American, learned that two white employees had received much larger lump-sum retirement payments than he did despite having held similar positions at Sysco for about the same number of years, he brought suit under ERISA and the New Jersey Law Against Discrimination. The court affirmed the dismissal of his complaint because he failed to state a claim under either act.  With respect to the ERISA statutory penalty claim, the court held that Plaintiff’s allegation that Defendants did not provide him with information about his retirement benefit did not state a claim under ERISA Section 1132(c)(1).  Galman v. Sysco Food Servs. of Metro N.Y. LLC, No. 16-1744, __F.App’x__, 2016 WL 7158009 (3d Cir. Dec. 8, 2016) (Before: AMBRO, SHWARTZ, and FUENTES, Circuit Judges).

Seventh Circuit

  • Statutory penalties under 29 U.S.C. § 1132(c)(1) do not apply generally to violations of 29 U.S.C. § 1024 but rather apply only where an administrator “fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary.” 29 U.S.C. § 1132(c)(1)(B)Bhattacharya v. Capgemini N. Am., Inc., No. 16 C 7950, 2016 WL 7049082 (N.D. Ill. Dec. 4, 2016) (Judge Matthew F. Kennelly).

Withdrawal Liability & Unpaid Contributions

Sixth Circuit

Ninth Circuit

* Please note that these are only case summaries of decisions as they are reported and do not constitute legal advice.  These summaries are not updated to note any subsequent change in status, including whether a decision is reconsidered or vacated.  If you have questions about how the developing law impacts your ERISA benefit claim, contact an experienced ERISA attorney.  Case summaries authored by Michelle L. Roberts, Partner, Kantor & Kantor LLP, 1050 Marina Village Pkwy., Ste. 105, Alameda, CA 94501; Tel:  510-992-6130. 

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