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PEORIA UNION STOCK YARDS v. PENN MUT. LIFE INS. CO.

August 4, 1981

THE PEORIA UNION STOCK YARDS COMPANY, A KENTUCKY CORPORATION; THE PEORIA UNION STOCK YARDS COMPANY RETIREMENT PLAN, AN EMPLOYEE PENSION BENEFIT PLAN; H. FOSTER EMBRY, AINSLIE E. TYLER, HARRY W. EMBRY, JR., AND ELDON J. WALDRON, AS TRUSTEES OF THE PEORIA UNION STOCK YARDS COMPANY RETIREMENT PLAN; AND, H. FOSTER EMBRY, H. FOSTER EMBRY, JR., HARRY W. EMBRY, JR., S. KEYES, L. LEACH, S. LEADLEY, Z. NORRIS, M. D. POWERS, D. SCHEKLER, B. TYLER, F. VICERY, AND ELDON J. WALDRON, AS PARTICIPANTS IN THE PEORIA UNION STOCK YARDS COMPANY RETIREMENT PLAN, PLAINTIFFS,
v.
THE PENN MUTUAL LIFE INSURANCE COMPANY, A PENNSYLVANIA CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Robert D. Morgan, Chief Judge.

  DECISION AND ORDER ON MOTION TO DISMISS

The defendant, hereinafter Penn, has moved to dismiss all eight counts of the Complaint herein as to all of the plaintiffs, or to dismiss certain counts as to some of the plaintiffs named therein, or to compel a more definite statement as to alleged causes of action against it.

The plaintiffs are The Peoria Union Stock Yards Company, hereinafter Company, The Peoria Union Stock Yards Company Retirement Plan, hereinafter the Plan, the Trustees of the Plan, and some eleven named individuals who are alleged to be participants in the Plan. Fewer than all of those named plaintiffs are joined as plaintiffs in certain counts.

Before turning to a specific summarization of the complaint, certain observations are warranted. The genesis of the facts giving rise to the complaint is April 1, 1971. Effective as of that date, Company established a retirement plan for all of its employees. Effective as of the same date, Penn executed Group Deposit Contract No. DRH-152, hereinafter the contract, with the trustees of the Plan as contracting parties. The contract expressly provides that Penn is not a party to the Plan. The salient feature of the contract was that monies provided by Company for funding of the Plan would be deposited by the trustees with Penn to provide an aggregate fund from which Penn would purchase individual annuity contracts for Company employees as each retired and became eligible for retirement benefits.

A key paragraph of complaint which is incorporated in all counts is generic paragraph 7, which alleges, in summary, that Company had deposited $621,089 with Penn through May 30, 1980, that Penn advised the trustees that the fund balance was $714,821.54 as of May 30, 1980, and that in about June 1980, Penn advised the Plan that "after termination charges," the amount available "under the contract" was $605,098.48. Significantly, the complaint does not allege that the contract was terminated or that the trustees desire to terminate it. It contains only the inferences inherent in the paragraph 7 statement.

Penn's position is patently correct, that certain of the counts must be dismissed as to certain of the plaintiffs joined therein. Count I is a suit on the contract, to which only the trustees are parties. That count must be dismissed as to the Plan.*fn1 Company is not a proper party to each of Counts II through IV, inclusive. ERISA creates a cause of action in favor of a retirement plan, the trustees of such plan, and the participants thereof only. 29 U.S.C. § 1132. Those counts must be dismissed as to Company. As to Counts V through VII, inclusive, assuming for present purposes that the contract is a security under both federal and Illinois law, only the trustees are parties to the contract and purchasers of a security within the intendment of the applicable statutes. Thus, Count V must be dismissed as to Company and the Plan; Count VI must be dismissed as to the Plan; and Count VII must be dismissed as to Company, the Plan, and the participants in the Plan.

Penn's memorandum in support of its motion suggests that the complaint is a shotgun blast, designed with the hope that some pellet of discovery might supply the factual basis for some cause of action. Reviewing the complaint as a whole, the characterization appears to have some considerable validity. Although it cannot be said with certainty that a sustainable statement of a cause of action cannot be made were an order entered to compel a more definite statement, it appears that economy of time for both the court and the parties can be advanced by an order allowing the motion to dismiss all counts, without prejudice, however, to a right of the plaintiffs, within some reasonable time, to file an amended complaint, if they can meet the requirements herein expressed. The complaint as now drawn is deemed to be so fraught with conclusory allegations that revision would be anticipated to lead only to subsequent motions to dismiss and further unnecessary proceedings.

An analysis of the complaint, as revised by the noted deletion of parties, proceeds in the context of the above comments. The basic factual background is the institution of the Plan by Company in 1971, and the trustees' negotiation of the contract, effective contemporaneously with the inauguration of the Plan.*fn2 The contract is attached as an exhibit to the complaint. The Plan is not before the court, and the same can have no bearing upon this controversy since Penn is not a party to the Plan.

The contract forms a central feature of any cause of action. It required the trustees to pay to Penn in each contract year, for credit to the Plan deposit account, the amount estimated by Penn to be sufficient to fund the benefits provided by the Plan, or an amount determined by Penn to be necessary to meet the qualification requirements of the Internal Revenue Code. It provided that Penn would credit interest to the deposit account, upon contributions to the account during the first three contract years, at a scale of stated rates set forth in section 3.1 of the contract. On contributions beginning with the fourth contract year, interest was to be "at such rates as shall be determined by" Penn.*fn3 Funds withdrawn from the account were to be charged against deposits in the chronological order of their receipt by Penn. Annuity benefits were made, dependent upon the trustees supplying to Penn sufficient information as to a retiring participant, to enable Penn to determine the amount of annuity payments due. Such benefits were provided by the transfer to Penn from the deposit account, or additional contributions, if necessary, of the sum necessary to purchase an annuity for the retiring participant. The contract provided that Penn might deduct from the deposit account a specified expense charge in each contract year in which the total deposits to the account were less than $75,000, and a termination charge pursuant to a stated scale.*fn4 The pertinent termination clause provided that the contract would terminate, inter alia, upon receipt by Penn of written notice of termination from the trustees. Within 60 days after termination, the trustees were authorized to request that the deposit account be applied to the purchase of paid-up annuities. Absent such request, Penn agreed to pay "the net value of" the account to the trustees, or to their order, provided that payment of an account exceeding $100,000 would be made in equal annual installments over a period of five years, each installment to be not less than the smaller of $100,000, or the balance of the account. Interest was to accrue at the rate of not less than 3% per annum upon the balance, from time to time, of the account until full payment was made. Penn did have the authority to modify the contract terms after the expiration of the third contract year, in the areas of rates and factors set forth for annuity purchases, expense charges, termination charges, and maintenance charges after termination.*fn5

Thus, it patently appears that the contract constituted Penn as the depository of funds required by the Plan, with such funds to be accumulated for the purpose of purchasing individual annuity contracts as the same were warranted by the Plan. The interest to accrue to the fund was specifically fixed, except that, as to deposits for the fourth and subsequent contract years, interest would be credited at such rates as Penn might fix. Penn undertook to do nothing except to accumulate the fund, to credit interest to the fund from time to time, and to expend such portions of the fund as were required from time to time to satisfy the annuity obligations which were created by the Plan.

Counts II through IV of the complaint depend entirely upon conclusory allegations that Penn is a fiduciary within the meaning and intendment of ERISA. The Complaint contains no reference to any provision of the contract which can be arguably construed to create a fiduciary relationship.

ERISA says:

"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) he 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 ...


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