Opinion
Civil Action No. 04-00083.
July 19, 2004
MEMORANDUM AND ORDER
Plaintiff Catherine M. Mack brings this action against defendants CTC Illinois Trust Company ("CTC"), First Federal Bank of Hazelton ("First Federal"), BNY Midwest Trust Company ("BNY"), Allstate Insurance Company ("Allstate") and The Bank of New York Company, Inc. ("Bank of NY"), alleging conversion of a negotiable instrument pursuant to 13 PA. CONS. STAT. § 3420 et seq. against CTC (count I) and First Federal (count II), negligence against First Federal (count III) and breach of fiduciary duty against BNY, Bank of N.Y. (count IV) and Allstate (count V). The complaint was originally filed in the Court of Common Pleas of Chester County, Pennsylvania, but was removed to this court pursuant to 28 U.S.C. § 1331 and 1441(a) because the claim contained in count V is preempted by the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001-1053.
Presently before this court are: (1) defendant Allstate's motion to dismiss count V of the complaint; (2) defendants BNY and Bank of NY's motion to dismiss count IV of the complaint; and (3) defendant First Federal's motion to dismiss the complaint (specifically, counts II and III, which contain claims only against it). For the reasons set forth below, I will grant BNY and Bank of NY's motion to dismiss count IV, grant First Federal's motion to dismiss counts II and III and deny Allstate's motion to dismiss count V.
BNY apparently was formerly known as CTC.
BACKGROUND
The facts as alleged in the complaint are as follows. Plaintiff Catherine Mack is the widow of John J. Mack, who died on September 27, 2001. John J. Mack owned an Allstate Insurance Office and was a member of the Allstate Employee Pension Plan ("the plan"). On March 12, 1999, John Mack designated plaintiff as the sole primary beneficiary of his pension plan. On April 24, 2000, John Mack elected a lump sum direct rollover to an IRA in the amount of $848,343.81, to which plaintiff consented. On the rollover election form, John Mack represented that his chosen rollover election, Ashbury Capital Partners, LT ("Ashbury"), was a Qualified Retirement Plan ("QRP"). On this same form, Mack listed the "trustee, bank or company" of the QRP as Bear Stearns Co., Inc. ("Bear Stearns"). On May 12, 2000, defendant CTC issued a check in the amount of $848,343.81 paid to the order of "Bear Stearns Co. FBO: John J. Mack." On May 17, 2000, Ashbury deposited the check into its account at First Federal. The check contained the handwritten endorsement "John J. Mack, Bear Stearns Co. Deposit to FFB# 019007673." CTC charged John Mack's plan account for the full amount of the check. This money was never deposited into the Bear Stearns account indicated by John Mack. Plaintiff contends that this check (presumably she means the funds obtained by depositing the check) was retained by Ashbury and its owner, Mark Yagalla, as part of what was later determined to be a scheme to defraud investors.
Allstate's motion to dismiss attaches a copy of Allstate's Agents Pension Plan. The complaint does not state whether John Mack was an employee or agent of Allstate. I am bound by the allegations or lack of allegations in the complaint.
Nowhere is there an indication in the papers as to whom the check was sent or how Ashbury obtained possession of it.
The basis of counts I-III of plaintiff's complaint is that the check lacked an endorsement by Bear Stearns, and therefore should have been neither deposited into the First Federal account nor debited by CTC from John Mack's plan account. Plaintiff also contends that First Federal was negligent for failing to investigate the "suspicious" handwritten endorsement by "a large investment institution such as Bear Stearns." The basis of counts IV-V of plaintiff's complaint is that the rollover account designated by John Mack was not a QRP and BNY, Bank of N.Y. and Allstate breached their fiduciary duty to plaintiff by failing to ascertain whether John Mack's representation that the account was a QRP was accurate.
DISCUSSION
I. Motions to Dismiss Counts IV V of the Complaint
Counts IV and V of the complaint contain state common law claims for breach of fiduciary duty against BNY and Bank of NY, and Allstate, respectively. Allstate filed its motion to dismiss count V of the complaint on January 15, 2004. On the same day, BNY and Bank of N.Y. filed their motion to dismiss count IV of the complaint. BNY and Bank of N.Y. joined and incorporated the legal arguments presented in Parts A and B of Allstate's motion. The argument contained in these sections of Allstate's brief is that Mack's breach of fiduciary duty claim is preempted by ERISA. Despite the fact that BNY, Bank of N.Y. and Allstate make identical arguments in support of their respective motions to dismiss, the resolution of these motions is dependent on plaintiff's precise claims and allegations against the respective defendants. Allstate also argues in the alternative that (1) the fiduciary duty Mack seeks to enforce does not exist under ERISA, and/or (2) Allstate is not an ERISA fiduciary. BNY and Bank of N.Y. do not join and incorporate these legal arguments. Accordingly, the motions of BNY and Bank of NY, and Allstate will be considered separately.
A. BNY and Bank of N.Y. — Preemption by ERISA
Plaintiff claims that BNY "owed a fiduciary duty to Plaintiff, as the sole primary beneficiary of John J. Mack's Allstate Pension Plan monies, to ascertain whether the rollover account designated as a Qualified Retirement Plan by John J. Mack was actually a QRP. . . . [and] breached its fiduciary duty to Plaintiff by failing to do so." Compl. ¶¶ 38-39. BNY argues that ERISA preempts this common law breach of fiduciary duty claim.
Plaintiff does not specifically allege that Bank of NY, BNY's parent company, see Answer of CTC at ¶ 5, breached any fiduciary duty to plaintiff, although count IV of the complaint is entitled as if she does so.
First, for the sake of clarity, I will refer to BNY and Bank of N.Y. collectively as "BNY," especially since count II only explicitly contains a claim against BNY. Further, even though Allstate literally made the arguments contained in this section and BNY merely joined and incorporated them, I will consider and refer to the arguments as if BNY articulated them itself. It should be kept in mind for the next section, though, that Allstate articulated these arguments itself.
The first step in determining whether or not Mack's state common law claims are preempted by ERISA is ensuring that the particular plan at issue, i.e. the plan that created the benefits to which plaintiff asserts a right, is in fact an ERISA benefit plan. ERISA applies to "any employee benefit plan if it is established or maintained . . . by an employer engaged in commerce." 29 U.S.C. § 1003(a). "Employee benefit plan" includes "employee pension benefit plan," which is defined as:
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 by its express terms or as a result of surrounding circumstances such plan, fund, or program —
(I) provides retirement income to employees, or
(ii) results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating the contributions made to the plan, the method of calculating the benefits under the plan or the method of distributing benefits from the plan.29 U.S.C. § 1002(2)(A). In her response in opposition to BNY's motion to dismiss, Mack does not challenge that the Allstate pension plan is an ERISA benefit plan. Rather, she focuses on the second step in determining whether her breach of fiduciary duty claim is preempted by ERISA, whether the claim "relates to" the plan. Hence, she concedes that Allstate's pension plan is, in fact, an ERISA benefit plan that is subject to ERISA's preemption provisions. See 29 U.S.C. § 1144.
Section 514 of ERISA explicitly provides, "[T]he provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title." 29 U.S.C. § 1144(a). The term "State law" is defined as: "all laws, decisions, rules, regulations, or other State action having the effect of law, of any State." 29 U.S.C. § 1144(c)(1). The crucial inquiry, then, is whether the state law at issue "relates to" this ERISA plan. As BNY highlights, the Supreme Court has stated, "[T]he phrase `relate to' was given its broadest common-sense meaning, such that a state law `relate[s] to' a benefit in the normal sense of the phrase, if it has a connection with or reference to such a plan." Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47 (1987) (second emendation in original) (internal quotations and citations omitted). Mack's state common law breach of fiduciary duty claim in count IV clearly relates to Allstate's pension plan; the claim is entirely dependent upon the plan and the responsibilities of the plan's fiduciaries, BNY (the administrator of the plan) and Bank of N.Y. (the trustee of the plan). The claim is that they breached their fiduciary duties as administrators and trustees of the plan to ascertain whether the rollover account was actually a QRP. Hence, Mack's state common law breach of fiduciary duty claims against BNY and Bank of N.Y. are preempted by ERISA and BNY's motion to dismiss count IV will be granted.
B. Allstate — Preemption by ERISA
Plaintiff claims that Allstate "owed a fiduciary duty to Plaintiff, as the sole primary beneficiary of John J. Mack's Allstate Pension Plan monies, to ascertain whether the rollover account designated as a Qualified Retirement Plan by John J. Mack was actually a QRP. . . . [and] breached its fiduciary duty to Plaintiff by failing to do so." Compl. ¶¶ 41-42. This claim is identical (except for the named defendant) to the claim contained in count IV of the complaint. So, like BNY and Bank of NY, Allstate argues that ERISA preempts this state common law claim. Although the claims contained in counts IV and V, respectively, and the arguments in support of dismissal of these counts are indistinguishable, there is one crucial difference that significantly alters the analysis: the named defendant's alleged relationship to the Allstate pension plan.
Paragraphs 42 and 43 in the complaint are mistakenly numbered 39 and 40, respectively. When referencing these paragraphs of the complaint, I will use the correct numbers.
It is important to note that BNY and Bank of N.Y. only joined and incorporated Allstate's main arguments concerning ERISA preemption. They did not join and incorporate Allstate's alternative arguments, that there is no fiduciary duty under ERISA to ensure that a beneficiary's elected rollover account is a QRP and that Allstate is not an ERISA fiduciary. Plaintiff's response to the latter alternative argument highlights the incongruity of Allstate simultaneously claiming that Mack's claims are preempted by ERISA and that Allstate is not itself an ERISA fiduciary. It is not clear whether or not Allstate is a fiduciary of the Allstate pension plan; Allstate claims not to be, see Allstate Br. 8, and Mack does neither alleges nor provides any evidence that Allstate is a fiduciary. Obviously, if one is not an ERISA fiduciary, one cannot be found liable for breach of fiduciary duty under § 502(a) of ERISA. Since it is not clear at this point whether or not Allstate is an ERISA fiduciary, and the complaint does not allege that it is, it is inappropriate to dismiss plaintiff's claims as preempted by ERISA. At this juncture I am bound to consider only the allegations in the complaint. It may become clear in the future that Allstate is, in fact, an ERISA fiduciary and that Mack's state common law breach of fiduciary duty claims are therefore preempted. However, if this court were to dismiss plaintiff's state common law claims as preempted now, plaintiff would be left with only a potential ERISA breach of fiduciary duty claim to pursue against Allstate, at which point Allstate could push forward with its claim that it is not an ERISA fiduciary, which, if successful, would deprive Mack of any chance of recovery. This would be an unreasonable and unfair result. Hence, I will deny Allstate's motion to dismiss on this ground.
In fact, in Part I of the complaint, in which Mack delineates who are the parties, she neglects to provide information on Allstate. In contrast, Mack referred to BNY as the administrator of the plan and to Bank of N.Y. as the trustee for the plan. See Compl. ¶¶ 6-7. Mack also does not provide any detail regarding Allstate's precise relationship to the plan or its administration in count V, where she alleges that Allstate breached its fiduciary duty to her.
Of course, this court does not now imply that Mack will be able to recover on any breach of fiduciary duty claim against Allstate.
Allstate also raises the argument that it had no fiduciary duty to ascertain whether or not John J. Mack's elected rollover account was, in fact, a QRP, as he represented it to be. Allstate's argument, however, is based on fiduciary duties found to exist under ERISA. See Allstate Br. 6-8. As already established, Mack's claim as stated is not an ERISA breach of fiduciary duty claim, nor is her claim preempted by ERISA. Therefore, this argument does not support the motion to dismiss Mack's state common law breach of fiduciary duty claims. Accordingly, Allstate's motion to dismiss on this ground will be denied.
This court does not address whether or not this type of fiduciary duty exists under state common law because Allstate has not raised this argument.
II. Motion to Dismiss Counts II III of the Complaint
Count II of the complaint contains a claim for conversion of a negotiable instrument pursuant to 13 PA. CONS. STAT. § 3420 et seq. against First Federal and count III contains a claim for negligence against First Federal. First Federal argues that plaintiff's conversion claim should be dismissed because (1) plaintiff does not have standing to bring a claim for conversion, First Federal Mot. to Dismiss 6-7, and/or (2) plaintiff has not alleged that the check in question was paid over a forged endorsement, as she must in order to maintain a claim for conversion, Id. at 7-9. First Federal argues that plaintiff's negligence claim should be dismissed because (1) this claim is time barred, Id. at 10-11, and/or (2) plaintiff's negligence claim is displaced by the Pennsylvania Commercial Code, Id. at 11-12. Each of these arguments will be addressed in turn.
A. Claim for Conversion (Count II)
In count II, plaintiff claims that "First Federal converted the funds of the Plan when it accepted the check for payment without the indorsement of Bear Stearns" in violation of 13 PA. CONS. STAT. § 3420. The check was made payable to "Bear Stearns Co. FBO: John J. Mack." The back of the check is endorsed with the words "John J. Mack," and, in what appears to be different handwriting, "Bear Stearns Co. Deposit to FFB#: 019007673." The complaint does not allege who placed either or both endorsements on the check, who had possession of the check after it was issued, whether the purported endorsements were forgeries, who presented the endorsed check to First Federal for payment, or the relationship between Bear Stearns Co., Ashbury and First Federal. Without specific allegations with reference to at least some of these facts, the court is unable to make a determination as to the validity of this claim. Presumably the parties have engaged in discovery since the time the complaint was filed so that the plaintiff can now make allegations with reference to these issues with some specificity. Therefore, count II of the complaint will be dismissed without prejudice to the right of plaintiff to file an amended count II. B. Claim for Negligence (Count III)
Since I am dismissing count II of the complaint on this ground I do not consider First Federal's arguments in support of dismissing count II, that plaintiff does not have standing to bring a claim for conversion because she was not a payee on the check and that plaintiff has not alleged that the check in question was paid over a forged endorsement, as she must in order to maintain a claim for conversion.
In count III, plaintiff claims that First Federal negligently failed to "investigate further into the `indorsement' of the check when First Federal was presented with a check with a suspect and improper indorsement, i.e., a handwritten indorsement from a large investment institution such as Bear Stearns." Compl. ¶ 34. First Federal argues that Mack's negligence claim should be dismissed because it is displaced by the Pennsylvania Commercial Code. First Federal Mot. to Dismiss 11-12. I agree with First Federal.
In Gress v. PNC Bank, National Association, another court in this jurisdiction, predicting what the Pennsylvania Supreme Court would do if faced with this issue, held that § 3420 "displaces any negligence actions that are based on wrongfully paying a negotiable instrument to `a person not entitled to enforce the instrument or receive payment.'" Gress, 100 F. Supp.2d 289, 292 (E.D. Pa. 2000). The court cited cases from a variety of jurisdictions "which have held that the U.C.C. intends to produce inter-jurisdictional uniformity as to the commercial activities it governs and, further, that displacing common law tort liability with respect to such activities is vital to that project." Id. Although not binding on this court, the Gress court's reasoning is convincing. Hence, First Federal's motion to dismiss count III on the ground that plaintiff's negligence claim is displaced by the Pennsylvania Commercial Code will be granted.
Plaintiff, in her response to First Federal's motion to dismiss, did not address this argument. Rather, she focused on First Federal's alternative statute of limitations argument in support of its motion to dismiss count III, that plaintiff's negligence claim is time bared because it was not filed within Pennsylvania's two year statute of limitations for negligence actions. Since I will grant First Federal's motion to dismiss count III on other grounds, it is not necessary to address this claim.
CONCLUSION
The motion to dismiss of BNY and Bank of N.Y. will be granted because plaintiff Catherine Mack's state common law breach of fiduciary duty claims are preempted by ERISA. However, Allstate's motion to dismiss on the same grounds will be denied because it is not clear whether or not Allstate is actually an ERISA fiduciary (Allstate argues that it is not an ERISA fiduciary), making dismissal at this point on preemption grounds premature. Allstate's alternative argument, that there is no fiduciary duty under ERISA to ensure that a beneficiary's elected rollover account is a QRP, must likewise fail because, again, it is not clear that ERISA applies to this claim. Finally, First Federal's motion to dismiss will be granted because plaintiff has failed to allege with sufficient specificity facts necessary to maintain a conversion claim and plaintiff's negligence claim is displaced by the Pennsylvania Commercial Code. Plaintiff's conversion claim, however, is dismissed without prejudice to the right of plaintiff to file an amended claim for conversion. An appropriate order follows.
ORDER
And now on this ____ day of July, 2004, upon consideration of defendant Allstate Insurance Company's motion to dismiss (Doc. #4), the motion to dismiss of BNY Midwest Trust Company and the Bank of New York Company, Inc. (Doc. #3), and defendant First Federal Bank of Hazelton's motion to dismiss (Doc. #12), plaintiff Catherine M. Mack's responses in opposition thereto, and defendants' replies to plaintiff's responses, it is hereby ORDERED that:(1) Defendant Allstate's motion to dismiss is DENIED;
(2) Defendants BNY Midwest Trust Company and the Bank of New York Company, Inc.'s motion to dismiss is GRANTED and count IV of plaintiff's complaint is dismissed with prejudice;
(3) Defendant First Federal Bank of Hazelton's motion is GRANTED and count III of plaintiff's complaint is dismissed with prejudice and count II of plaintiff's complaint is dismissed without prejudice to her right to file an amended count II within 20 days of the date hereof.