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September 6, 1989

DEAN PETER DeBRUYNE and EVELYN S. CARLYLE, individually and on behalf of all others similarly situated, Plaintiffs,

Nicholas J. Bua, United States District Judge.

The opinion of the court was delivered by: BUA


 When the stock market crashed in October 1987, a retirement fund in which plaintiffs had invested suffered severe losses. Plaintiffs claim that defendants, the managers of the fund, followed an imprudent investment policy that left the fund particularly vulnerable to a sharp decline in the stock market. Plaintiffs also allege that defendants' investment strategy did not comport with defendants' description of the fund to investors. Based on these allegations, plaintiffs assert that defendants violated various federal laws regulating retirement plans and securities. In addition, plaintiffs claim that defendants violated a New York insurance statute. In response to plaintiffs' claims, defendants have moved for summary judgment on all six counts of plaintiffs' complaint. For the reasons stated herein, this court grants defendants' motion for summary judgment.


 In order to satisfy the retirement needs of its members, the American Bar Association ("ABA") formed a corporation called the American Bar Retirement Association ("ABRA"). For a number of years, the ABRA has offered ABA members the option of participating in a retirement benefits program now known as the ABA Members Retirement Plan ("the ABA Plan"). To fund the ABA Plan, the ABRA entered into a group annuity contract with the Equitable Life Assurance Society of the United States ("Equitable Life"), a mutual life insurance company based in New York.

 In November 1977, Miller, Hickey & DeBruyne, Ltd., a corporate law firm in Rockford, Illinois, adopted the ABRA Master Profit Sharing Plan, the retirement benefits program that later became known as the ABA Plan. Under the terms of its participation agreement with the ABRA, the Miller firm agreed to be bound by the terms and provisions of the ABRA's plan and trust. Only employees of Miller, Hickey & DeBruyne, Ltd. could participate in the firm's newly adopted profit sharing plan. The plan attracted several participants, including plaintiff Dean Peter DeBruyne, a partner in the Miller firm, and plaintiff Evelyn Carlyle, a legal secretary who worked at the firm.

 In 1982, the partners in Miller, Hickey & DeBruyne, Ltd. decided to dissolve the firm. Then Francis E. Hickey, a partner in the Miller firm until its dissolution, established his own law firm. This new firm, Francis E. Hickey, Ltd., employed Carlyle as a legal secretary. The Hickey firm retained the same ABRA retirement plan that the Miller firm had created in 1977. Only Hickey and Carlyle participated in the Hickey firm's profit sharing plan.

 Following the dissolution of the Miller firm, DeBruyne formed a new corporate law firm called DeBruyne & Roman, P.C. In May 1982, DeBruyne & Roman, P.C. adopted the ABRA Master Profit Sharing Plan. At the time it adopted this retirement plan for its employees, DeBruyne & Roman, P.C. agreed to be bound by the terms and provisions of the ABRA's plan and trust. When DeBruyne elected to participate in his new firm's profit sharing plan, the ABRA transferred DeBruyne's account in the Miller firm's plan to the newly established DeBruyne & Roman, P.C. plan.

 After the dissolution of DeBruyne & Roman, P.C. in early 1986, DeBruyne formed another law firm called Peter DeBruyne, P.C. Since the inception of Peter DeBruyne, P.C., DeBruyne has served as the firm's president and sole stockholder. In December 1986, Peter DeBruyne, P.C. executed a participation agreement adopting the ABA Plan. This participation agreement expressly provided that Peter DeBruyne, P.C. was adopting a standardized profit sharing plan under the ABA Plan and its related trust. Although Peter DeBruyne, P.C. offered its profit sharing plan to all of its employees, only DeBruyne himself chose to participate in the plan. Once DeBruyne indicated his intention to participate in the new plan, the ABRA transferred DeBruyne's account in the DeBruyne & Roman, P.C. plan to the Peter DeBruyne, P.C. plan. From 1986 through 1988, DeBruyne remained the sole participant in the profit sharing plan established by Peter DeBruyne, P.C.

 Both before and after they decided to invest in the Balanced Fund, plaintiffs received various reports, prospectuses, and other publications from Equitable Life. These documents described the different investment options available under the ABA Plan. In these publications, Equitable Life stated that the Balanced Fund would seek to accomplish the twin goals of achieving a high rate of return while avoiding the volatility that plagues pure equity funds. Equitable Life explained that the Balanced Fund would attempt to meet its dual objective through investment in a diversified portfolio of equity and debt securities. Noting that the Balanced Fund's investment in debt would tend to reduce the Fund's volatility, Equitable Life characterized the Balanced Fund as the least volatile of the ABA Plan's equity funds. Nonetheless, Equitable Life cautioned investors that the Balanced Fund's volatility could vary depending on market conditions. In addition, Equitable Life repeatedly warned that it could not guarantee that the Balanced Fund would succeed in generating income or attaining its objectives.

 During the time that plaintiffs participated in the Balanced Fund, defendants Equitable Life and Equitable Capital determined the mix of investments in the Balanced Fund's portfolio. According to the reports that Equitable Life sent to ABA Plan participants, defendants actively managed the Balanced Fund's portfolio. Consequently, Equitable Life anticipated that the proportion of the Balanced Fund's assets invested in equity would vary in accordance with economic conditions, stock prices, interest rates, and other relevant considerations. Equitable Life also indicated that defendants' active management of the Balanced Fund could entail investment in both short-term and long-term debt. Although the composition of the Balanced Fund's portfolio frequently fluctuated, published descriptions of the portfolio in 1985 consistently reported an average investment of about 80 percent of the Balanced Fund's assets in equity securities (including convertibles).

 For the first three quarters of 1987, stock prices rose dramatically. Taking advantage of this upward surge in the stock market, defendants invested a very large proportion of the Balanced Fund's assets in common stock and other equity securities. In the ABA Plan's 1987 Semi-Annual Report, which plaintiffs received in September 1987, Equitable Life forecast that stock prices would continue to rise. At the same time, Equitable Life predicted that bond prices would stabilize and decline. Based on these projections, Equitable Life informed investors that the Balanced Fund's portfolio, although hedged with convertibles to reduce volatility, would remain heavily weighted in equities.

 Suddenly, on October 19, 1987, the Dow Jones Industrial Average plummeted more than 500 points, the largest one-day decline in the stock market's history. Due to its heavy investment in equity securities, the Balanced Fund immediately felt the reverberations of the stock market crash. The Balanced Fund's net asset value fell from $ 15.11 per unit on October 15, 1987 to $ 12.44 per unit when the market closed on October 19, 1987. Shortly thereafter, in an Insider's Update dated October 1987, Equitable Life ...

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