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holding that insurance broker defendants were "fiduciaries with respect to the Plan . . . because each exercised discretionary authority over administration of the Plan. . . ."
Summary of this case from Wheeler v. Northwestern Mutual Life Insurance CompanyOpinion
No. 04 Civ. 2592 (MBM).
February 9, 2005
THOMAS M. KENNEDY, ESQ., DANIEL R. BRIGHT, ESQ., KENNEDY, SCHWARTZ CURE, P.C., New York, NY, Attorneys for Plaintiffs.
BRIAN L. GREBEN, ESQ., TRAUB, EGLIN, LIEBERMAN STRAUS LLP, Hawthorne, NY, Attorney for Defendants JJ Weiser Company and Sanford J. Cohen.
BRIAN T. CARR, ESQ., BABCHIK YOUNG LLP, White Plains, NY, Attorney for Defendant Harvey T. Gluck.
SUZANNE TONGRING, ESQ., New York, NY, Attorney for Defendants Michael J. Fitzpatrick and John Meehan.
OPINION AND ORDER
Plaintiffs in this case are participants in a health benefits plan (the "Plan") open to members of the Transport Workers Union Retirees Association ("Retirees Association"), which is composed of retired employees of the New York Metropolitan Transit Authority ("MTA") who were members of Transport Workers Union, Local 100 ("Local 100"). Defendants are JJ Weiser ("Weiser") — an insurance brokerage firm that helped issue the Plan to the Retirees Association, former and current officers of Weiser, and two former directors of the Retirees Association. Plaintiffs claim that defendants "grossly overcharged the Plaintiffs for insurance benefits provided" through the Plan. Based on this allegation, as explained more fully below, plaintiffs bring claims for breaches of fiduciary duty under the Employment Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1104(a)(1), 1105(a)(2), and 1106(a)(1)(A), (C) (D), breach of fiduciary duty under New York State Insurance Law Section 2120(a) (c), deceptive business practices, unjust enrichment, breach of contract, fraud, unconscionability, and negligent misrepresentation. Defendants move to dismiss on various grounds. For the reasons set forth below, plaintiffs' claims sounding in fraud, all claims by plaintiffs Toussaint and Watt, and all of plaintiffs' state law claims are dismissed. Defendants' motions are otherwise denied.
Interboro Mutual Insurance Company ("Interboro"), the insurance company that issued the Plan, was originally named a defendant in this action. Plaintiffs dropped their claims against Interboro upon learning that it was undergoing a re-organization. (Pls.' Mem. of Law in Opp. to Defs. Fitzpatrick and Meehan's Mot. to Dismiss ("Pls. Opp'n to Former Directors") at n. 5).
I.
The following facts, which are accepted as true for purposes of this motion, are alleged in plaintiffs' complaint, responses to defendants' motions to dismiss, and attached exhibits.
Plaintiffs Roger Toussaint and Ed Watt are officers of Local 100. (Compl. ¶ 1) Plaintiff James Mahoney is the Director of the Retirees Association. (Id.) The Retirees Association operates the Plan, which includes a Limited Medical Expenses and Accidental Death and Dismemberment Policy (the "Policy"). (Id.) Plaintiffs Allman, Beaver, Ingram, Stuckey, Schierman, and Tarnowski (collectively the "Individual Plaintiffs") are members of the Retirees Association and participants in the Plan. (Id.)
Plaintiffs claim that Weiser, former Weiser President Sanford J. Cohen, and current Weiser Vice President Harvey T. Gluck (collectively, the "Broker Defendants") are fiduciaries with respect to the Plan within the meaning of 29 U.S.C. § 1002(21)(A) because each exercised discretionary authority over administration of the Plan and disposition of Plan assets. (Compl. ¶ 32). According to plaintiffs, these defendants controlled the Plan with regard to the Policy's premiums, enrollment, claim determinations, solicitation of membership, and distribution of dividends. (Id.) Plaintiffs also allege that Weiser offers a "claim service." (Id. ¶ 29)
Defendants Meehan and Fitzpatrick (the "Former Directors") are former Directors of the Retirees Association, Meehan from 2000 to 2002 and Fitzpatrick from 1990 to 2000. (Id. ¶ 31) Plaintiffs claim that the Former Directors were fiduciaries with respect to the Plan within the meaning of 29 U.S.C. § 1002(21)(A) during the period in which they were Directors of the Retirees Association because they exercised discretionary authority or control over administration of the Plan and disposition of Plan assets. (Id.) Their functions included signing checks to participants for benefits under the Plan, paying premiums to Weiser and Interboro from the Plan, and determining which bills the Plan would pay. (Id.) They also determined whether the Plan would continue to employ Weiser and Interboro to provide benefits to Plan participants. (Id.)
On January 1, 1978, the Transport Workers Union obtained the Policy from Interboro and Weiser. The Policy guarantees certain benefits to members of the Retirees Association who hold certificates under the Policy. (Id. ¶ 19) All 8,000 members of the Retirees Association are certificate holders in the Policy. (Id. ¶ 20)
Policy members pay dues of $75 per year for family membership and $45 per year for a single membership. (Id. ¶ 21) Of that amount, Weiser receives $65 per year for each participating family and $35 per year for each single participant as premiums for benefits through Interboro. (Id.) The premiums paid by Retirees Association members to Weiser and Interboro total approximately $350,000 per year. (Id.)
The Policy provides the following lines of coverage. Part I provides reimbursement for out-of-pocket costs of up to $25 for blood replacement, oxygen, and rental of crutches, wheelchairs, and hospital equipment for home use. (Id. ¶ 22) Part II provides accidental death and dismemberment coverage for up to $2,000. (Id.) Part III offers Hospital Income Benefits of $75 per week for stays in acute care hospitals and $37.50 per week for up to four weeks of convalescent care. (Id.) Further, approximately 85 members of the Retirees Association pay an additional $240 per year for higher levels of coverage. (Id.)
In 2001, there were 250 claims under the Policy for which Interboro paid a total of $41,842 in claims. (Id. ¶ 25) In 2002, there were 163 claims under the Policy for which Interboro paid a total of $16,047 in claims. (Id. ¶ 26) The Broker Defendants did not provide plaintiffs with information regarding mailing or administrative expenses they had incurred during 2001 and 2002. (Id. ¶¶ 25-26) In 2003, there were 150 claims made on the policy for which Interboro paid a total of $14,257 in claims. (Id. ¶ 27) Defendants claimed mailing expenses of $7,950 for 2003. (Id.) The total claims and expenses incurred by Interboro for those three years was $80,096. (Id. ¶ 28) During that same period, plaintiffs paid premiums of approximately $1,050,000. (Id.) Weiser and Interboro did not disclose this data on amounts of claims and expenses for 2001, 2002, and 2003, until January 8, 2004. Plaintiffs claim that the benefits offered under the Policy were not proportional to the premiums charged. They claim also that since 1991, defendants have "realized millions of dollars in unconscionable profits by retaining over 80% of the premiums paid under the policy, by failing to pay dividends to the policy holders and by misrepresenting and failing to advise the Plaintiffs of their actual expenses under this policy." (Id.) No reason is given for why this trend commenced in 1991 and not anytime between then and 1978, when the Policy was purchased. Nor do plaintiffs provide claims and expense figures for the pre-2001 period.
An undated Letter of Engagement sent to Mahoney in 2003 reflects an agreement among Weiser, Interboro, and the Retirees Association that the Transport Workers Union is charged annual premiums to pay for hospital income and a limited medical expense policy. (Id. ¶ 29) It states further that Weiser agrees to provide billing and mailing services. (Id.)
On October 8, 1991, Weiser and Interboro contributed $1,000 — allegedly a portion of the premiums paid to Weiser — to a reelection campaign for then President of Local 100, Sonny Hall. (Id. ¶ 33) Weiser gave the money to Meehan, who served as a campaign assistant to Hall while he was Director of the Retirees Association. (Id. ¶¶ 33-34) Plaintiffs allege that Weiser made more such payments and other gifts from 1991 through 2002, during which agents and representatives of Hall controlled the Retirees Association. (Id. ¶ 33) At no time during this period were members of the Retirees Association informed of these alleged "kickbacks." (Id.) Plaintiffs claim that Meehan took gifts and benefits from Weiser and Interboro "both to divert to internal union political campaigns and to utilize for himself and to reward himself for continuing the payment of premiums to Weiser and Interboro." (Id. ¶ 34)
Plaintiffs allege that Fitzpatrick, who succeeded Meehan as Director of the Retirees Association and served also as a campaign assistant to Hall, took gifts and benefits from Weiser and Interboro as well. (Id. ¶ 35) Plaintiffs add that in October 2002, Fitzpatrick became aware that he would be replaced as Director of the Retirees Association and in turn reported a "break-in" at the offices of the Retirees Association. (Id. ¶ 36) Plaintiffs believe that this "break-in" was staged to allow defendants to "cleanse the Retirees Association files of evidence relating to kickbacks and gifts" provided to Hall and his political allies. (Id.)
Plaintiffs allege that because of defendants' misconduct, (i) Local 100 has had to subsidize the operation of the Retirees Association from its general revenues in order to replace the dues diverted from the Retirees Association by the excessive premiums charged by Weiser and Interboro (Id. ¶ 38); (ii) the Retirees Association has had to pay the bulk of its revenue from members' dues to Weiser and Interboro, and as a result, has been unable to spend its revenue on better insurance and other programs for its members (Id. ¶ 39); and (iii) the Individual Plaintiffs have paid grossly excessive premiums for the Policy and have been deprived of additional benefits and dividends they should have received as Policy holders. (Id. ¶ 40).
Plaintiffs commenced the instant action on April 5, 2004. Their complaint contains a series of federal ERISA and state law claims, stemming largely from purported breaches of fiduciary duty by defendants.
II.
This court has subject matter jurisdiction pursuant to ERISA and can exercise supplemental jurisdiction over the state law claims pursuant to 28 U.S.C. § 1367. Dismissal of a claim is appropriate only where "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claims which would entitle him to relief." Chance v. Armstrong, 143 F.3d 698, 701 (2d Cir. 1998) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). Facts alleged in the complaint must be taken as true and all reasonable inferences therefrom must be drawn in the nonmoving party's favor. Jackson Nat'l Life Ins. Co. v. Merrill Lynch Co., 32 F.3d 697, 699-700 (2d Cir. 1994).
Defendants offer various grounds for dismissing plaintiffs' complaint. Those pertaining to plaintiffs' breach of fiduciary duty claims under ERISA are an apt starting point.
III.
Plaintiffs frame defendants' alleged breach of fiduciary duty in four claims, three pursuant to ERISA and the fourth under New York state law. Among the ERISA claims, the first two allege ERISA breaches of fiduciary duty by all defendants and the third appears to apply only to the Former Directors.
A. Subject Matter Jurisdiction
First, defendants argue for dismissal on the ground that the Plan is exempt from ERISA and that plaintiffs lack standing to sue under ERISA. Insofar as Meehan and Fitzpatrick challenge ERISA coverage and certain plaintiffs' standing to sue, their motion arises under Fed.R.Civ.P. 12(b)(1), because the questions of standing and ERISA coverage implicate the court's subject matter jurisdiction. See Arnold v. Lucks, 392 F.3d 512, 518 (2d Cir. 2004); Moore v.PaineWebber, Inc., 189 F.3d 165, 169 n. 3 (2d Cir. 1999);Bona v. Barasch, No. 01-2289, 2003 WL 1395932, at *8 (S.D.N.Y. Mar. 20, 2003). Because dismissal of a complaint for lack of subject matter jurisdiction renders other defenses moot, I must determine whether ERISA governs the Plan and whether plaintiffs have standing to bring their claims.
It does not appear that the Broker Defendants incorporated these two grounds argued only by the Former Directors in their briefs. However, because challenges to subject matter jurisdiction cannot be waived, the Former Directors' challenges to this court's subject matter jurisdiction are applied to the Insurance Broker defendants as well. See Knic Knac Agencies v. Sunkyong Am., Inc., No. 04-735, 1997 WL 177888, at *3 (S.D.N.Y. Apr. 14, 1997) (citing Ins. Corp. of Ireland v.Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982)).
The Former Directors contend that because plaintiffs are former employees of the MTA, the Plan is a "governmental plan" exempt from ERISA's regulatory reach. 29 U.S.C. § 1003(b). A "governmental plan" is "a plan established or maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing." 29 U.S.C. § 1002(32). Although the Second Circuit has held that the MTA is a "political subdivision" within the meaning of 29 U.S.C. § 1002(32), see Rose v. Long Island R.R. Pension Plan, 828 F.2d 910, 915 (2d Cir. 1987), nothing in the complaint or defendants' motion suggests that the MTA "established" or "maintains" the Plan. The Complaint alleges that the Transport Workers Union, not the MTA, obtained the Plan and Policy from Weiser and Interboro. (Compl. ¶ 19) Nor has there been any allegation that the Plan resulted from the collective bargaining agreement between Local 100 and the MTA. According to the Complaint, the Retirees Association and Local 100 sponsor and maintain the Plan. (Id. ¶ 1) The MTA is not mentioned in this regard. Hence, from the face of the statute and the facts alleged in the Complaint, the Plan is not a "governmental" plan exempt from ERISA.
The Former Directors argue also that the Individual Plaintiffs do not have standing to bring ERISA claims because they are not "participants" in an ERISA plan. Under ERISA, the term "participant" means
any employee or former employee of an employer, or any member or former member of an employee organization, who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer or members of such organization, or whose beneficiaries may be eligible to receive any such benefit.29 U.S.C. § 1002(7). An "employee welfare benefit plan" is
any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or maintained for the purpose of providing for its participants or their beneficiaries, . . . (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, . . . .29 U.S.C. § 1002(1). Reading these two definitions together with what constitutes an "employee organization":
[A]ny labor union or any organization of any kind, or any agency or employee representation committee, association, group, or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning an employee benefit plan, or other matters incidental to employment relationships; or any employees' beneficiary association organized for the purpose in whole or in part, of establishing such a plan.29 U.S.C. § 1002(4), the plain language of the statute defeats the Former Directors' argument. Local 100, an "employee organization," established the Plan, while the Retirees Association, another "employee organization," maintains it. For purposes of the Plan, Individual Plaintiffs fall into two of the four categories of "participants" defined by Section 1002(7). They are former members of an "employee organization" (Local 100) and current members of another "employee organization" (the Retirees' Association), both organizations composed of those who are or may become eligible "to receive a benefit of any type from an employee benefit plan which covers . . . members of such organization, or whose beneficiaries may be eligible to receive any such benefit." 29 U.S.C. § 1002(7).
Individual Plaintiffs are also "former employees of an employer" — i.e., the MTA. However, according the Complaint, the "employee benefit plan" at issue was neither established nor maintained by the MTA.
Finally, the Former Directors contend that Toussaint and Watt, who are suing in their capacities as officers of Local 100, are not proper plaintiffs under ERISA Section 1132(a), the civil enforcement provision of ERISA. Section 1132(a) sets out what kinds of actions may be brought by the Secretary of Labor, "participants," "beneficiaries," "fiduciaries," and various combinations of the four. Persons not designated in Section 1132(a) have no standing to sue under ERISA. Franchise Tax Bd. of Cal. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 27 (1983) (ERISA "does not provide anyone other than participants, beneficiaries, or fiduciaries of an ERISA-covered plan with an express cause of action. . . .").
Neither Toussaint nor Watt is alleged to fit any of the above categories; in fact, plaintiffs offer no response to defendants' contention. First, Toussaint and Watt sue as officers of Local 100, and not as participants in the Plan. Nothing in the Complaint suggests that they are participants in the Plan. Second, plaintiffs do not allege any facts indicating that Toussaint and Watt are "fiduciaries" within the meaning of the statute:
[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of the plan.29 U.S.C. § 1002(21)(A). Third, there has been no claim that Toussaint and Watt have been designated by any participant as "beneficiaries" of the Plan, as defined in 29 U.S.C. § 1002(8) ("a person designated by a participant, or by the terms of an employee benefit plan, who is or may become entitled to a benefit thereunder").
Plaintiffs seem to suggest that because Toussaint and Watt are suing in their official capacities as officers of Local 100, the union itself should be treated as a plaintiff. (Pls.' Opp'n to Former Directors at n. 4) However, Local 100 is not a participant as defined by ERISA, because it is not an employee, former employee, member, or former member of an employee organization with eligibility to receive benefits. It is conceivable that, under certain circumstances, a union could be a beneficiary or fiduciary because ERISA further clarifies that the term "person" as used therein encompasses an employee organization, 29 U.S.C. § 1002(9), which specifically includes "any labor union" within its definition. 29 U.S.C. § 1002(4). However, there has been no claim that Local 100 is designated by any participant as a beneficiary nor any suggestion that it qualifies as an ERISA fiduciary. Therefore, Local 100 itself does not have standing to sue under ERISA. See, e.g., District 65, UAW v. Harper Row Publishers Inc., 576 F. Supp. 1468, 1476 (S.D.N.Y. 1983) ("[U]nion has no standing under the clear language of ERISA . . . to assert claims [because union] is not a participant, beneficiary or fiduciary."); McCabe v. Trombley, 867 F. Supp. 120, 125 (N.D.N.Y. 1994) ("Standing for employee organizations is not mentioned in the statute, and this court cannot substitute its will for that of Congress."); N.J. State AFL-CIO v. State of New Jersey, 747 F.2d 891, 893 (3d Cir. 1984) ("It is clear from the statute that labor unions are neither participants nor beneficiaries"). Plaintiffs make no effort to fit Toussaint, Watt, or the "employee organization" that they represent into any of the categories listed under Section 1132. Hence, Toussaint and Watt do not have standing to bring the ERISA claims.
B. "Fiduciary" under ERISA
The Broker Defendants contend that they are not "fiduciaries" within the meaning of 29 U.S.C. § 1002(21)(A). If they are not ERISA fiduciaries, plaintiffs' ERISA claims must be dismissed.
"ERISA makes the existence of discretion a sine qua non of fiduciary duty." Pohl v. Nat'l Benefits Consultants, Inc., 956 F.2d 126, 129 (7th Cir. 1992). Department of Labor regulations provide that "persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures" and thus perform "purely ministerial functions" are not fiduciaries. 29 C.F.R. § 2509.75-8. "Ministerial functions" include the application of rules determining eligibility for participation or benefits, the maintenance of service and employment records, the calculation of benefits, and the processing of claims. Id.; see also Geller v. County Life Auto Sales, Inc., 86 F.3d 18, 21 (2d Cir. 1996).
"Whether or not an individual or entity is an ERISA fiduciary must be determined by focusing on the function performed, rather than on the title held." Blatt v. Marshall Lassman, 812 F.2d 810, 812 (2d Cir. 1987). A party "need not have absolute discretion with respect to a benefit plan in order to be considered a fiduciary." Id. Instead, fiduciary status exists "with respect to any activity enumerated in the statute over which the [party] exercises discretion or control." Id.; see also Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1416-17 (2d Cir. 1985).
Reciting 29 U.S.C. § 1002(21)(A), plaintiffs allege that the Broker Defendants "(i) exercised discretionary authority respecting management of the Plan and exercised authority and control respecting the management and disposition of Plan assets and (ii) exercised discretionary authority and responsibility in the administration of the Plan." (Compl. ¶ 32) In addition, these defendants "controlled the Plan regarding the Policy's premiums, enrollment, claim determinations, solicitation of membership and dividends." (Id.) Plaintiffs allege also that an "undated Letter of Engagement between Weiser, Interboro, and the Retirees Association" sent to Mahoney in 2003 "reflect[s] an agreement" among the three parties that "Weiser agrees to provide the billing and mailing services as well as a billing service, claim service and related software support." (Id. ¶ 29) Through the "claim service," according to plaintiffs, the Broker Defendants possess discretion over interpretation of the Plan and determination of who receives benefits under the Plan. (Pls.' Mem. of Law in Opp. to Mot. to Dismiss by Weiser, Cohen, and Gluck ("Pls.' Opp'n to Broker Defs.") at 4)
Broker Defendants respond that their tasks as described in the Complaint amount to nothing more than the abovementioned "ministerial functions." They argue that plaintiffs' mere recitation of the statute is conclusory and provides nothing in the way of fact allegations.
At this stage, the content of the "claim service" and "billing service" provided by the Broker Defendants to plaintiffs is unclear. Courts have held or suggested in some circumstances that insurance brokers and other plan administrators are ERISA fiduciaries. See, e.g., Patelco Credit Union v. Sahni, 262 F.3d 897, 909 (9th Cir. 2001) (insurance broker was fiduciary when he determined the amounts paid to plan members, which were deposited into an account under his sole control; transferred some of these funds to a different account from which he wrote checks to pay claims; and was entitled to keep, as his administrative fee, a portion of the insurance company's payments); Blue Cross Blue Shield of Ala. v. Sanders, 138 F.3d 1347, 1353 (11th Cir. 1998) (third-party administrators are fiduciaries if they "have the authority to make ultimate decisions regarding benefits eligibility"); Reich v.Lancaster, 55 F.3d 1034, 1046 (5th Cir. 1995) (a party is a fiduciary to a fund where he "in effect, exercised discretionary authority and control over assets of the Fund" because the trustees accepted every recommendation he made); Olson v. E.F. Hutton Co., 957 F.3d 622, 626-67 (8th Cir. 1992) (insurance broker had discretionary authority over pension plan because broker and plan trustees had "an understanding that [the broker's] investment advice would serve as the primary basis for investment decisions"); Brink v. DaLesio, 496 F. Supp. 1350, 1374-75 (D. Md. 1980), rev'd in part on other grounds, 667 F.2d 420 (4th Cir. 1981) (insurance broker was fiduciary when plan trustees relied heavily on his advice for which insurance to purchase and other matters regarding the plan's investments);but see, e.g., Fink v. Union Cent. Life Ins. Co., 94 F.3d 489, 493 (8th Cir. 1996) (insurance broker was not fiduciary to plan holder merely because he recommended insurance plan and helped one member apply for death benefits); Kerns v. Benefit Trust Life Ins. Co., 992 F.2d 214, 217-218 (8th Cir. 1993) (insurance broker did not become plan fiduciary merely because it handled claims under the plan).
At a conference held by this court on January 7, 2004, plaintiffs attempted to clarify their argument by asserting that the Broker Defendants "did the claims adjudications." (Tr. of Conference, dated January 7, 2004 ("Conference Tr.") at 4) To what extent these adjudications invoked discretion over management of the Plan or disposition of the Plan's assets — and hence whether the Broker Defendants are ERISA fiduciaries — cannot be determined dispositively at this time. See Liss v.Smith, 991 F. Supp. 278, 304 (S.D.N.Y. 1998) ("the issue of ERISA fiduciary status is a mixed question of fact and law"; factual component of inquiry relates to "whether a person exercised authority or control in managing plan assets" (quotingReich v. Lancaster, 55 F.3d 1034, 1044 (5th Cir. 1995)). Regardless, construing the allegations in the Complaint and inferences therefrom in the light most favorable to plaintiffs, the Broker Defendants are deemed at this stage to be fiduciaries under ERISA.
C. Pleading Requirements
Defendants move to dismiss the ERISA claims on the alternative ground that plaintiffs have not pleaded with sufficient particularity what they deem are allegations of fraud. They contend that the ERISA claims must satisfy the pleading requirement for fraud under Fed.R.Civ.P. 9(b), which states that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake must be stated with particularity." This requirement is designed "(1) to provide a defendant with fair notice of the plaintiff's claim, (2) to protect a defendant from harm to his or her reputation or goodwill, and (3) to reduce the number of strike suits." Cosmas v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989) (quoting Stern v. Leucadia Nat'l Corp., 844 F.2d 997, 1003 (2d Cir. 1988)).
Under Rule 9(b), allegations of fraud must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent."Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). "In instances where the alleged fraud is premised on an omission, a plaintiff must specify the person responsible for the failure to speak, the context of the omission, and the manner in which the omission misled the plaintiff." Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp.2d 282, 293 (S.D.N.Y. 2000). Where, as here, there are multiple defendants, the complaint must specify the nature of each defendant's participation in the alleged fraud. DiVittorio v. Equidyne Extractive Indus., 822 F.2d 1242, 1247 (2d Cir. 1987); O'Brien v. Nat'l Prop. Analysts Partners, 719 F. Supp. 222, 225 (S.D.N.Y. 1989).
Rule 9(b) "extends to all averments of fraud or mistake, whatever may be the theory of legal duty — statutory, common law, tort, contractual or fiduciary." Official Comm. of Unsecured Creditors v. Dondson, Lufkin Jenrette Sec. Corp., No. 00-8688, 2002 WL 362794, at *8 (S.D.N.Y. Mar. 6, 2002) (quotingFrota v. Prudential-Bache Sec., Inc., 639 F. Supp. 1186, 1193 (S.D.N.Y. 1986)). By the same logic, the rule "does not extend to allegations of breach of duty, whether or not characterized as fiduciary, by conduct not amounting to fraud or mistake." Id. (quoting Shapiro v. Miami Oil Producers, Inc., 84 F.R.D. 234, 236 (D. Mass. 1979)).
Plaintiffs do not dispute that their ERISA claims should be subject to Rule 9(b) pleading requirements. Regardless, upon a liberal reading of the Complaint, defendants may be found to have breached their fiduciary duty to plaintiffs under ERISA by conduct not amounting to fraud, but by failing to fulfill duties of care, disclosure, and loyalty. In particular, plaintiffs allege in their First Cause of Action that defendants breached their fiduciary obligations to act in the best interests of the Plan and its participants and beneficiaries, in violation of ERISA Section 1104, and not that they attempted to induce action or inaction on the part of investors by fraudulent means.See McCoy v. Goldberg, 810 F. Supp. 539, 548 (S.D.N.Y. 1993) ("[t]he principle . . . that a fiduciary may be held liable without proof of deceitful intent . . . has long remained the uniform law of New York"). This claim encapsulates in the language of ERISA Section 1104 plaintiffs' allegations that defendants breached their fiduciary duty by charging grossly excessive premiums and failing to disclose to plaintiffs the amounts of benefits paid out and expenses incurred by defendants in administering the Policy. Because plaintiff's first claim of breach of fiduciary duty under ERISA does not sound in fraud but instead implicates defendants' duties of care, loyalty, and disclosure, Rule 9(b)'s particularity requirements do not apply.
In what they term their Second Cause of Action for breach of fiduciary duty, plaintiffs allege that defendants knowingly concealed acts and omissions committed by each other, in violation of ERISA Section 1105. Plaintiffs bring their third ERISA claim only against the Former Directors for "failing to safeguard assets of the Plan, entering into long-term imprudent insurance contracts with Weiser and Interboro, accepting gifts and benefits from Weiser and Interboro and by using plan assets to further the political careers of certain Local 100 union officers," in violation of ERISA Section 1106. (Compl. ¶ 44).
To the extent that plaintiffs rely on a theory of fraud or fraudulent concealment in these claims, their allegations are spare and non-specific. These deficiencies exist partly because of plaintiffs' withdrawal of Interboro as a defendant and their subsequent unwillingness to amend the complaint to account for that development, despite this court's invitation to do so. In what appeared to be an effort to supplement and clarify their Complaint, plaintiffs offered the following allegations at the January 7, 2004 conference "for concluding that there was fraud here": (i) the gross disparity between benefits and premiums; (ii) "the omission fairly to advise individuals running the plan" of this disparity; (iii) the October 2002 "break-in"; and (iv) the $1,000 payment by the Broker Defendants to Sonny Hall's election fund. (Conference Tr. at 3-5)
Plaintiffs' allegations of fraud do not satisfy Rule 9(b). In particular, they fail to plead "events which give rise to a strong inference that the defendant had an intent to defraud, knowledge of the falsity, or a reckless disregard for the truth."Conn. Nat'l Bank v. Fluor Corp., 808 F.2d 957, 962 (2d Cir. 1987) (internal quotation marks and citation omitted); see also Diduck v. Kaszycki Sons Contractors, Inc., 974 F.2d 270, 276 (2d Cir. 1992) (noting that fiduciary breach alone does not equate with fraud and that to prove the latter, plaintiff must show: (i) a material false representation or the omission of a material fact; (2) made with knowledge of its falsity and an intent to defraud; and (3) leading to reasonable reliance on the part of the plaintiff and actual damages as a result of such reliance).
First, the disparity between benefits and premiums does not signal an intent to defraud. Nor do the alleged omissions. Neither allegation gives rise to inferences that any of the defendants knew that the premium-to-expense ratio was excessive and even if they had such knowledge, that their silence was due to an intent to defraud plaintiffs. Plaintiffs fail also to specify the nature of each defendant's participation in the alleged fraud, especially with regard to the Weiser Officers and Former Directors. DiVittorio, 822 F.2d at 1247 (2d Cir. 1987).
To the extent plaintiffs accuse defendants of having made affirmative fraudulent misrepresentations of claims and expense figures — such as false invoices — such allegations are made without specificity. (Compl. ¶ 28) The Complaint sets forth neither the content of such misrepresentations nor when and where they were made. Particular individuals are not identified as making the fraudulent representations or concealing others' breaches of fiduciary duty. Oechsner v. Connell Ltd. P'ship, 283 F. Supp.2d 926, 933 (S.D.N.Y. 2003) ("Generically pleading unspecified false statements" made by unspecified individuals at unspecified times does satisfy "requirements necessary for allegations of fraudulent concealment pursuant to Rule 9(b).") (citing Losquadro v. FGH Realty Credit Corp., 959 F. Supp. 152, 157 (E.D.N.Y. 1997)).
Without specific facts to support the allegation that particular defendants "knowingly and intentionally" made the alleged omissions or misrepresentations, the mere incantation of these words is insufficient to establish that any of the defendants acted fraudulently. It is one thing to accuse defendants of having breached their fiduciary duties; it is another to accuse them of having done so with the intent to defraud. See Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir. 1986) (affirming the dismissal of fraud claims that were "entirely conclusory and unsupported by assertions of facts");Inst. of Applied Human Dynamics v. Mut. of Am., No. 02-2331, 2003 WL 22126691, at *3 (S.D.N.Y. Sept. 12, 2003).
Plaintiffs' allegation of kickbacks paid by the Broker Defendants to Local 100 officers and the Former Directors are made "on information and belief." Allegations of fraud can be based "on information and belief" with regard to "matters peculiarly within the opposing party's knowledge." First Capital Asset Mgmt. v. Satinwood, Inc., 385 F.3d 159, 179 (2d Cir. 2004). However, to satisfy Rule 9(b) in such instances, the allegations must be accompanied by a statement of facts upon which the belief is founded. See id.; DiVittorio, 822 F.2d at 1247. Plaintiffs do not provide facts explaining why they believe the Broker Defendants contributed $1,000 to Hall's re-election campaign or why they believe these payments continued from 1991 through 2002, let alone how the payments were fraudulent or otherwise improper.
Likewise, plaintiffs' allegation "on information and belief" of the October 2002 staged "break-in" at the offices of the Retirees' Association suffers from the same deficiencies. A conclusory statement that the "break-in" was engineered to "cleanse" evidence of kickbacks is insufficient. See Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 379 (2d Cir. 1974);Int'l Telecom, Inc. v. Generadora Electrica del Oriente S.A., No. 00-8695, 2002 WL 465291, at *7 (S.D.N.Y. Mar. 27, 2002) (plaintiff "bases the misrepresentation on information and belief, yet provides no sources for its conclusory allegations");accord Conn. Nat'l Bank, 808 F.2d at 962 ("[t]he absence of a requirement that scienter be alleged with `great specificity' . . . does not mean . . . that plaintiffs are relieved of their burden of pleading circumstances that provide at least a minimal factual basis for their conclusory allegations of scienter"). To base a general allegation of fraud on allegations that themselves rest "on information and belief" without any factual support or source does not satisfy Rule 9(b).
Hence, plaintiffs' ERISA claims fail to the extent that they are based on allegations of fraud and fraudulent concealment. At the January 7, 2004 conference, plaintiffs declined the invitation to amend their complaint to meet Rule 9(b) requirements, and hence will not be given a second opportunity. However, they may proceed with their ERISA claims under a theory that defendants breached fiduciary duties of loyalty, care, and disclosure.
D. Statute of Limitations
Finally, the Former Directors move to dismiss plaintiffs' ERISA claims as time-barred. Dismissal for failure to state a claim based on a statute of limitations is appropriate only if a complaint shows clearly that a claim is not timely. See Harris v. City of New York, 186 F.3d 243, 251 (2d Cir. 1999). ERISA Section 1113 sets forth the limitations period applicable to claims alleging breach of fiduciary duty under ERISA:
No action may be commenced under this subchapter with respect to a fiduciary's breach of any responsibility, duty, or obligation under this part, or with respect to a violation of this part, after the earlier of:
(1) six years after (A) the date of the last action which constituted a part of the breach or violation, or (B) in the case of an omission the latest date on which the fiduciary could have cured the breach or violation, or
(2) three years after the earliest date on which the plaintiff had actual knowledge of the breach or violation;
except in the case of fraud or concealment, such action may be commenced not later than six years after the date of discovery of such breach or violation.29 U.S.C. § 1113. Plaintiffs cannot take advantage of the six-year statute of limitations for acts of fraud or concealment because to the extent its claims are premised on allegations of fraud (or fraudulent concealment), see Caputo v. Pfizer, Inc., 267 F.3d 181, 190 (2d Cir. 2001) ("concealment" in 29 U.S.C. § 1113 "incorporates `fraudulent concealment' doctrine"), the Complaint does not satisfy the standard of particularity in pleading fraud under Fed.R.Civ.P. 9(b), see supra.
The Former Directors contend that because the Individual Plaintiffs "knew or should have known shortly after they got the policy whether they were getting any benefit out of it" (Former Directors' Reply Mem. of Law in Supp. of Mot. to Dismiss ("Former Directors' Reply") at 5) more than three years before the Complaint was filed, the ERISA claims should be time-barred.
To trigger the three-year statute of limitations, a plaintiff must have "actual knowledge of all material facts necessary to understand that some claim exists, which facts could include necessary opinions of experts, knowledge of a transaction's harmful consequences, or even actual harm." Bona, 2003 WL 1395932, at *14 (citing Reich v. Lancaster, 55 F.3d 1034, 1057 (5th Cir. 1995)). "It is not enough that a plaintiff suspects something is awry; rather, the plaintiff must have specific knowledge of the actual breach on which he sues." Id. (citing Martin v. Consultants Adm'rs., Inc., 966 F.2d 1078, 1086 (7th Cir. 1992)). In other words, the Former Directors must show that plaintiffs "knew not only of the relevant events that occurred, but also that those events supported a claim for breach of fiduciary duty or violation under ERISA." McConnell v.Costigan, No. 00-4598, 2002 WL 313528, at *7 (S.D.N.Y. Feb. 28, 2002) (citing Int'l Union v. Murata Erie N. Am., 980 F.2d 889, 890 (3d Cir. 1992) and Caputo, 267 F.3d at 193).
Plaintiffs allege that defendants failed to disclose claims and expense experiences under the Policy for the years 2001, 2002, 2003. Not until January 8, 2004 did plaintiffs discover the claims and expenses incurred by Weiser and Interboro during the 2001-03 period. They appear to extrapolate from the figures for the 2001-03 period that Interboro and Weiser "realized millions of dollars in unconscionable profits" by "misrepresenting and failing to advise the Plaintiffs of their actual expenses under this Policy." (Compl. ¶ 28) However, plaintiffs do not allege explicitly that defendants failed to advise them of claims and expense disparities pre-2001 as defendants failed to do during the 2001-03 period.
Regardless, plaintiffs cannot, based on the pleadings alone, be charged with actual knowledge of the alleged breaches of fiduciary duty. Although plaintiffs allege that defendants began overcharging premiums and concealing actual claims and expense figures as early as 1991, these allegations do not support the inference that plaintiffs had actual knowledge that the premiums were in fact excessive. Martin, 966 F.2d at 1086 n. 6 (explaining that Section 1113 was amended to delete a constructive knowledge provision and replace it with a more stringent actual knowledge requirement). Because Mahoney served as Director of the Retirees Association for less than three years before plaintiffs filed their complaint, he cannot be charged with disqualifying knowledge of the alleged breaches of fiduciary duty. Indeed, other than noting that Individual Plaintiffs joined the Plan at different times during a 26-year period, the Former Directors do not offer any theory as to how any of the plaintiffs knew about the potential claims arising from their joining the Plan or whether plaintiffs received claims and expense reports at any time during the period in question. The Former Directors do not address whether any of the plaintiffs had "actual knowledge" of their potential ERISA claim arising from the alleged kickbacks taken by the Former Directors. At this stage, it is impossible to discern with any certainty whether any of the plaintiffs had "actual knowledge" of a kickback scheme more than three years before they filed the Complaint.
IV.
Plaintiffs' Fourth through Thirteenth Causes of Action, all under New York state law, are asserted only against the Broker Defendants and not against the Former Directors. (Pls.' Opp'n to Former Directors at n. 9)
The Broker Defendants argue that plaintiffs' state law claims are preempted by ERISA. ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." 29 U.S.C. § 1144(a). The phrase "`[r]elates to' must be construed in its `normal sense' — that is, a state law claim is preempted `if it has a connection with or reference to such a plan.'" Gilbert v. Burlington Indus., 765 F.2d 320, 326-27 (2d Cir. 1985) (quoting Shaw v. Delta Air Lines, 463 U.S. 85, 97 (1983)); see also NYSA-ILA Med. Clinical Serv. Fund by Bowers v. Axelrod, 27 F.3d 823, 826 (2d Cir. 1994) ("even where a state law has no express link to an employee benefit plan, it can be preempted `insofar as the law applies to benefit plans in particular cases'").
Further, "the preemption clause is not limited to `state laws specifically designed to affect employee benefit plans.'" Pilot Life Ins. Co. v. Dedaux, 481 U.S. 41, 47-48 (1987) (quoting Shaw, 463 U.S. at 98). State common law claims involving claims for benefits or affecting the management and administration of an ERISA-governed plan are preempted as well.See id.
Over all, "a state common law action which merely amounts to an alternative theory of recovery for conduct actionable under ERISA is preempted." Diduck v. Kaszycki Sons Contractors, Inc., 974 F.2d 270, 288 (2d Cir. 1992). In Aetna Life Ins. Co. v.Borges, the Second Circuit held that
laws that have been ruled preempted are those that provide an alternative cause of action to employees to collect benefits protected by ERISA, refer specifically to ERISA plans and apply solely to them, or interfere with the calculation of benefits owed to an employee. Those that have not been preempted are laws of general application — often traditional exercises of state power or regulatory authority — whose effect on ERISA plans is incidental.869 F.2d 142, 146 (2d Cir. 1989). Accordingly, "[w]hat triggers ERISA preemption is not just any indirect effect on administrative procedures but rather an effect on the primary administrative functions of benefit plans, such as determining an employee's eligibility for a benefit and the amount of that benefit." Id. at 146-147.
ERISA's civil enforcement mechanism, Section 1132(a), is intended to be the exclusive method of enforcing its substantive provisions. See Pilot Life, 481 U.S. at 52. Indeed, "[t]he six [now nine] carefully integrated civil enforcement provisions found in [ 29 U.S.C. § 1132(a)] . . . provide strong evidence that Congress did not intend to authorize other remedies that it simply forgot to incorporate expressly."Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146 (1985). As the Supreme Court stated in Pilot Life:
The deliberate care with which ERISA's civil enforcement remedies were drafted and the balancing of policies embodied in its choice of remedies argue strongly for the conclusion that ERISA's civil enforcement remedies were intended to be exclusive.481 U.S. at 54. The Court concluded further that "the express preemption provisions of ERISA are deliberately expansive, and designed to `establish pension plan regulation as exclusively a federal concern.'" Id. at 45-46 (quoting Alessi v.Raybestos-Manhattan, Inc., 451 U.S. 504, 523 (1981)).
Plaintiffs "submit that the developing law in [preemption] limits federal preemption to instances in which the invoked state law, be it common or statutory, requires construction of the terms of the plan and affects the determination of eligibility for benefits, amounts of benefits, or means of securing unpaid benefits." (Pls.' Opp'n to Broker Defs. at 14) According to plaintiffs, their state law claims are not preempted by ERISA because none of the claims aim to recover "benefits due under the plan or damages for failing to pay promised benefits." (Id.)
In support, plaintiffs argue that the Second Circuit inGerosa v. Savasta Co., 329 F.3d 317 (2d Cir. 2003), "renewed the presumption that Congress does not intend to displace state law, especially in traditional areas of state control." (Pls.' Opp'n to Broker Defs. at 15) The Gerosa Court observed that where enforcement of "state remedies are consistent with ERISA's core purposes . . . the ERISA text is open to the possibility that alternate state remedies might be available." 329 F.3d at 325.
Plaintiffs' suggestion that their state law claims "are entirely independent" is starkly wrong. First, all of their state law claims, based largely on the same factual allegations of excessive premiums and failure to disclose, address the Plan and the terms of the Plan. The Plan terms control the amount of benefits paid and the amount of premiums charged. Where "interpretation of the terms of [plaintiffs'] benefit plans forms an essential part of their" claims and defendants' "potential liability . . . derives entirely from the particular rights and obligations established by the benefit plans," plaintiffs' state law claims "are not entirely independent of the federally regulated contract itself." Aetna Health Inc. v. Davila, 124 S. Ct. 2488, 2498 (2004).
Moreover, that the Broker Defendants are ERISA fiduciaries places plaintiffs' state law claims within ERISA's preemptive reach. As a suit brought by plan participants to recover for breaches of fiduciary duty by parties deemed fiduciaries to the Plan under ERISA, it falls within the scope of 29 U.S.C. § 1132(a)(2), which provides an exclusive claim for the resolution of such disputes:
A civil action may be brought . . . by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title.29 U.S.C. § 1132(a)(2). Section 1109 provides:
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.29 U.S.C. § 1109(a). See also Pedre Co. v. Robins, 901 F. Supp. 660, 666 (S.D.N.Y. 1995) ("If [defendants] are fiduciaries, plaintiffs must plead their injuries under ERISA. If they are not fiduciaries, plaintiffs have no ERISA claim, but may proceed at common law."); Local 875 I.B.T. Pension Fund v. Pollack, 992 F. Supp. 545, 571 (E.D.N.Y. 1998).
"[A]ny state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore preempted." Aetna, 124 S. Ct. at 2495. Indeed, one of ERISA's "core purposes," Gerosa, 329 F.3d at 325, is the prosecution of claims arising from the management of ERISA-governed plans through "a comprehensive civil enforcement scheme." Pilot Life, 418 U.S. at 54. The state law claims here run afoul of that "core purpose" because plaintiffs seek on those claims
judgment against the Defendants, jointly and severally, in favor of Transport Workers Union, Local 100, the Retirees Association, and the individual Plaintiffs and the class they represent of participants in the Limited Medical Expenses and Accidental Death and Dismemberment Policy, in an amount of money equal to the damages they suffered as a result of the conduct by Defendants from 1991 to the present.
(Compl. at 20, ¶ 4) In other words, these state law claims are preempted because through them, plaintiffs attempt to add (or convert) equitable remedies provided under ERISA to legal ones for money damages to the Individual Plaintiffs. See Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 379 (2002);Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 484 (1990). The Supreme Court has held these types of claims to be incompatible with ERISA's enforcement scheme; they provide a form of ultimate relief in a judicial forum that adds to the judicial remedies provided by ERISA. See Pilot Life, 481 U.S. at 56. "Any such provision patently violates ERISA's policy of inducing employers to offer benefits by assuring a predictable set of liabilities, under uniform standards of primary conduct and a uniform regime of ultimate remedial orders and awards when a violation has occurred." Rush Prudential, 536 U.S. at 379.
Accordingly, plaintiffs' claim breach of fiduciary duty under New York State Insurance Law is preempted by ERISA. That "[c]ourts routinely find that garden-variety state-law malpractice or negligence claims against non-fiduciary plan advisors . . . are not preempted" is irrelevant here because the Broker Defendants are ERISA fiduciaries. (Pls.' Opp'n to Broker Defs. at 17) Moreover, plaintiffs allege the same wrongdoing in their state fiduciary breach claim as they do in their ERISA claims. ERISA provides a remedy for the conduct upon which plaintiffs base their state law breach of fiduciary duty claim.See Ingersoll-Rand Co. v. McClendon, 498 U.S. at 145 (ERISA preempts claims that "purport to provide a remedy for the violation of a right expressly granted by [ERISA]."). In such cases, breach of fiduciary duty with regard to an ERISA-covered employee benefits plan is necessarily an ERISA claim. See Pedre Co., 901 F. Supp. at 665; Mason Tenders Dist. Council v. Messera, 958 F. Supp. 869, 1880 (S.D.N.Y. 1997). Plaintiffs' claim of breach of fiduciary duty under New York state law therefore is dismissed.
Plaintiffs do not raise whether New York Insurance Law Section 2120 is a law that regulates insurance, and hence falls under the ERISA preemption savings clause, 29 U.S.C. § 1144(b)(2)(A), which provides that "nothing in this subchapter shall be construed to exempt or relieve any person from any of any State which regulates insurance, banking, or securities." Regardless, the Supreme Court has held that even if the state law claim falls within the savings clause, it is preempted if it conflicts with the civil enforcement provisions of ERISA. See Pilot Life, 481 U.S. at 52 (even if state law bad faith claim fell under ERISA savings clause, it was preempted because ERISA's civil enforcement provisions are the "exclusive vehicle for actions by ERISA-plan participants and beneficiaries asserting improper processing of a claim for benefits"). Accordingly, any state law claim that adds to the remedies available under ERISA conflicts with the express provisions of ERISA and is preempted regardless of the savings clause. See id. at 56-57; see also Aetna Health, Inc. v. Davila, 124 S. Ct. 2488, 2500 (2004) (ERISA savings clause "must be interpreted in light of the congressional intent to create an exclusive federal remedy in ERISA § [1132(a)]" and that "even a state law that can arguably be characterized as `regulating insurance' will be preempted if it provides a separate vehicle to assert a claim for benefits outside of, or in addition to, ERISA's remedial scheme"); Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 377 (2002) ("savings clause had to stop short of subverting congressional intent clearly expressed through the structure and legislative history, that the federal remedy displace state causes of action" and hence, state causes of action that provide a "form of ultimate relief in a judicial forum that added to the judicial remedies provided by ERISA" are preempted under Pilot Life regardless of the savings clause). As explained above, plaintiffs' claim under New York State Insurance Law constitutes "a separate vehicle" for obtaining relief beyond what is authorized under ERISA's civil enforcement provisions. Hence, that claim is preempted regardless of whether it falls under the ERISA savings clause.
Plaintiffs' claim of deceptive business practices is another attempt to enforce what is exclusively within ERISA's civil enforcement provisions. ERISA preempts causes of action aimed "`to recover benefits due to [the plaintiff under the terms of the] plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan.'" Lupo v. Human Affairs, Int'l, Inc., 28 F.3d 269, 272 (2d Cir. 1994) (citing 29 U.S.C. § 1132(a)(1)(B)). Hence, the deceptive business practices claim is preempted. See Kolaskinski v. CIGNA Healthplan of Connecticut, Inc., 163 F.3d 148, 149 (2d Cir. 1998) (state law unfair trade practices and breach of contract claims brought to enforce rights under ERISA plan are preempted by ERISA); Reichelt v. Emhart Corp., 921 F.2d 425, 431-32 (2d Cir. 1990).
Likewise, plaintiffs plead in their unjust enrichment claim the same supporting facts and allege the same losses as in their ERISA claims. Courts have held uniformly that there is no need to supplement ERISA with a common law claim of unjust enrichment because ERISA already provides adequate relief for an injury such as the losses claimed by plaintiffs here. See, e.g., Amato v.W. Union Int'l, 773 F.2d 1402, 1419 (2d Cir. 1985), abrogated on other grounds, Mead Corp. v. Tilley, 490 U.S. 714 (1989);Am. Medical Ass'n v. United Healthcare Corp., No. 00-2800, 2001 WL 863561, at *14 (S.D.N.Y. July 31, 2001).
Plaintiffs' breach of contract and breach of implied contract claims are also preempted. In support of these claims, plaintiffs allege that Broker Defendants were bound under the Plan "to fully disclose all relevant information concerning the insurance benefits they supplied to the Plaintiffs" and "to provide insurance benefits reasonably related to the amount of premiums being paid by the Plaintiffs." (Compl. ¶ 55) Where the obligations alleged to have been unmet or violated are contained in the ERISA-regulated benefits plan, state law claims based on such violations are preempted by ERISA. See Aetna, 124 S. Ct. at 2498 (citing Allis-Chalmers Corp. v. Lueck, 471 U.S. 202, 217 (1985) and Steelworkers v. Rawson, 495 U.S. 362, 371 (1990)); Tappe v. Alliance Capital Mgmt., 177 F. Supp.2d 176, 187-88 (S.D.N.Y. 2001).
Plaintiffs' fraud claims fail to satisfy the particularity requirements of Fed.R.Civ.P. 9(b), see supra. In addition, the claims are preempted by ERISA because they are based on the same facts alleged in support of plaintiffs' ERISA claims. Their gravamen is that the Broker Defendants misrepresented, concealed, and failed to inform plaintiffs of material facts, which resulted in plaintiffs' continued payment of premiums to defendants. (Compl. ¶¶ 38-40, 59-62) See Allen v. Westpoint-Pepperell, Inc., 11 F. Supp.2d 277, 282 (S.D.N.Y. 1997). Not only do these fraud claims have "as a `critical factor in establishing liability' the existence of a plan and duties similar to those imposed by ERISA," Geller, 86 F.3d at 22-23 (quoting Diduck, 974 F.2d at 288), but they also allege wrongdoing in the operation and management of an ERISA plan.Id. at 23. Therefore, plaintiffs' claims of actual and constructive fraud are dismissed. Plaintiffs' claim of negligent misrepresentation, again based on the same facts and alleging the same injuries, is preempted as well.
Plaintiffs' unconscionability claim is no different. Again, plaintiffs attempt to enforce purported rights under the Plan by citing the Broker Defendants' obligations under the Plan as ERISA fiduciaries to disclose information regarding benefits and expenses. Whether the terms of the insurance contract are unconscionable necessarily involves interpretation of the contract itself, see Franks v. Prudential Health Care Plan, Inc., 164 F. Supp.2d 865, 873 (W.D. Tex. 2001), and any state law requiring such an exercise falls within the ERISA preemption provision.
Sections 1132(a)(2) and 1109(a) provide specifically for "personal liability" against ERISA fiduciaries for breach of their duties. 29 U.S.C. § 1109(a) ("Any person who is a fiduciary . . . shall be personally liable to make good to such plan any losses resulting from [his breach]. . . ."). Hence, plaintiffs' claims for personal liability against Cohen and Gluck, which appear to have been brought under state common law, are preempted by ERISA.
For the reasons set forth above, defendants' motions to dismiss are granted as to all claims by plaintiffs Toussaint and Watt, all claims sounding in fraud, and all state law claims. Defendants' motions are otherwise denied.
SO ORDERED.