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COLEMAN CLINIC v. MASS. MUT. LIFE INS. CO.

October 28, 1988

COLEMAN CLINIC, LTD., AND COLEMAN CLINIC, LTD. EMPLOYEE PENSION PLAN, PLAINTIFFS,
v.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, ET AL., DEFENDANTS. JACK L. GIBBS, M.D., PLAINTIFF, V. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Mihm, District Judge.

ORDER

This case is before the Court for resolution of Defendant Charles Longanecker II's Motions for Partial Summary Judgment, Defendant Massachusetts Mutual Life Insurance Company's Motion for Judgment on the Pleadings, and Third Party Defendants' Motion for Summary Judgment on the Third Party Complaint.

As described below, the Court GRANTS Defendant Longanecker's Motion for Partial Summary Judgment, GRANTS Defendant Massachusetts Mutual's Motion for Judgment on the Pleadings insofar as it relates to Plaintiff Coleman Clinic and DENIES the Motion insofar as it relates to Plaintiffs Coleman Clinic, Ltd. Employee Pension Plan and Jack L. Gibbs, M.D. Massachusetts Mutual's Motion is also DENIED with respect to Counts II and III. Finally, the Court sua sponte DISMISSES the Third Party Complaint for lack of jurisdiction, so that Third Party Defendants' Motion for Summary Judgment is MOOT.

FACTS

Plaintiff, Coleman Clinic, Ltd. (hereinafter referred to as "Coleman") is a medical clinic with its principal offices located in Canton, Illinois; Plaintiff Coleman Clinic, Ltd. Employee Pension Plan (hereinafter referred to as "the plan") is a defined benefit pension plan maintained by Coleman for the benefit of its employees, and Plaintiff Jack L. Gibbs, M.D. was a trustee of the plan. The purpose of the plan is to provide retirement and life insurance benefits for Coleman employees, principally through yearly contributions by Coleman to the plan. Count I of Plaintiffs' Complaint is brought pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), § 502(a)(2), 29 U.S.C. § 1132(a)(2) and under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Counts II and III of Plaintiffs' Complaint are pendent state law claims.

In 1979, Coleman was approached by Defendant Massachusetts Mutual Life Insurance Company (hereinafter referred to as "Mass. Mutual") regarding the possibility of Coleman placing its existing pension plan with a pension plan sponsored, prepared, and serviced by Mass. Mutual. Upon review of the information provided to it by Mass. Mutual, Coleman agreed to revise its existing pension plan into a Mass. Mutual plan. The new plan was designated the Coleman Clinic, Ltd. Employee Pension Plan.

Under the pension agreement established through Mass. Mutual's dealings with Coleman, the plan was to purchase insurance contracts for Mass. Mutual on behalf of certain plan participants. From time to time, upon Mass. Mutual's recommendation, the plan purchased individual cash value life insurance policies that insured the lives of some of the plan participants. The plan's purchase of such insurance resulted in monetary benefits to Mass. Mutual and its agents in the form of premiums and commissions. In addition, Mass. Mutual and its agents received fees for actuarial and non-actuarial services associated with the plan.

On August 15, 1984, Coleman's board of directors voted to terminate the plan. It was Coleman's goal to terminate the plan before the plan was required to accrue benefits for the July 1, 1984 to June 30, 1985 plan year (hereinafter referred to as "1985 plan year"). In order to do so, that termination had to occur before participants in the plan performed 1,000 hours of work for Coleman during that period. Shortly after the vote, Coleman advised Judith Dudiak, an agent of Mass. Mutual, that the plan had to be terminated. Coleman requested that a Mass. Mutual agent provide it with the necessary information and paperwork to terminate the plan. However, Coleman was not provided with the information and paperwork to terminate the plan until April of 1985. By that time, plan participants were entitled to be credited with 1,000 hours of service, so that the plan was required to accrue benefits for the 1985 plan year.

According to Plaintiffs, had the plan been terminated effective June 30, 1984, the costs of all benefits under the plan would have totaled approximately $462,562, but because Defendants did not provide the necessary paperwork to terminate the plan until April 1985, the plan was terminated effective April 25, 1985, so that the cost of all benefits under the plan totaled approximately $555,876. It is also alleged by Plaintiffs that, on March 5, 1985, the plan surrendered the individual cash value life insurance policies that it had purchased to Mass. Mutual in exchange for the payment of $118,760.46 by Mass. Mutual to the plan. Plaintiffs claim that the amounts paid to the plan by Mass. Mutual upon surrender of the policies were substantially less than the amounts paid by the plan as premiums on the policies, plus interest, less the reasonable value of life insurance protection provided by the policies.

MASS MUTUAL'S MOTION FOR JUDGMENT ON THE PLEADINGS

In its Motion for Judgment on the Pleadings, Defendant Mass. Mutual argues that Count I should be dismissed in its entirety for the reasons that: (1) the employer, Coleman, has no standing to sue under ERISA; (2) the plan has no standing to sue under ERISA; and (3) neither Plaintiff Gibbs nor the plan have alleged injury in fact under ERISA. Furthermore, because dismissal of Count I deprives this Court of federal subject matter jurisdiction, Mass. Mutual argues that the common law claims in Counts II and III should be dismissed as well.

COLEMAN'S STANDING

According to Mass. Mutual, even assuming that Coleman retained the right to amend certain aspects of the plan, to appoint trustees and the plan administrator, and to terminate the plan, Coleman nevertheless lacks standing to sue in the instant case. The basis of Mass. Mutual's argument is that there must be a nexus between an employer's fiduciary responsibility and the particular cause of action in order to grant standing to an employer to sue in an ERISA case. In other words, the approach is a functional one: by the express terms of 29 U.S.C. § 1002(21)(A), a person is a fiduciary only to the extent that he or she is exercising discretion in the management or administration of a plan or its assets, or in the rendering of investment advice. An employer's status as a fiduciary does not confer standing generally, but only to the extent that the employer is acting in a particular fiduciary capacity. Cf. Schulist v. Blue Cross of Iowa, 717 F.2d 1127, 1131 (7th Cir. 1983) ("Congress took a functional approach to defining who was to be treated as a fiduciary").


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