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REICH v. MCMANUS

January 30, 1995

ROBERT REICH, Secretary of the United States Department of Labor, Plaintiff,
v.
ARTHUR MCMANUS and RICHARD COVELLI, Defendants.



The opinion of the court was delivered by: MARVIN E. ASPEN

 MARVIN E. ASPEN, District Judge:

 Plaintiff Robert Reich, Secretary of the United States Department of Labor ("Secretary"), brings this three count complaint against defendants Arthur McManus and Richard Covelli alleging violation of the Employee Retirement Income Security Act of 1974 ("ERISA"). Presently before us is defendants' motion for summary judgment. *fn1" For the reasons set forth below defendants' motion is granted in part and denied in part.

 I. Background2

 Defendants are licensed brokers of insurance, annuities and private securities. In addition to their sales activities, defendants were owners of Pension Administrators, Inc. ("PAI"), a company which provided administrative services to pension plans. Plaintiff contends that through PAI, defendants established and served many pension and benefit plans from 1981 to 1987. Although defendants assert that they were never employed by PAI, and that co-owner Terrence Ronczkowski and his staff performed all of the pension related services for PAI's clients, defendants did act as liaisons between PAI and the trustees of numerous pension plans. These plans included Dressel's Ace Hardware, Inc. Profit Sharing Plan, the Emco Gears Pension Plan, the Supreme Cartage & Air Cargo Service, Inc. Defined Benefit Pension Plan, the Battery Service Corporation Money Purchase Pension Plan, the Battery Service Corporation Pension Plan, and the Tu-Kaiz Litho, Inc. 401(k) Plan (collectively, "the Plans").

 In April 1987, defendants sold their interests in PAI to Ronczkowski and resigned as officers and directors. The following month, defendants offered to the trustees of the Plans the opportunity to invest in the 2010 Building Limited Partnership ("2010 Partnership"). At the time they created the 2010 Partnership, defendants were both owners of the medical professional building that was to be purchased by the partnership, as well as directors and officers of a general partner of the 2010 Partnership. This information, as well as other critical data, was included in an offering memorandum for the 2010 Partnership which defendants claim was distributed to all prospective investors in May 1987. However, the Secretary contends that some of the trustees did not receive this memorandum until after they had actually invested plan assets in the project. Additionally, the Secretary asserts that none of the trustees read the offering memorandum before investing in the 2010 Partnership, but rather, they relied upon the defendants' representations and advice when deciding whether to invest. Subsequently, all of the trustees invested plan assets in the 2010 Partnership.

 In 1988, defendants created the Fox Trails Limited Partnership ("Fox Trails Partnership") and offered the trustees an opportunity to invest. The Secretary claims that pursuant to defendants' advice, the Battery Service Corporation Money Purchase Pension Plan, the Battery Service Corporation Pension Plan, and the Supreme Cartage & Air Cargo Service, Inc. Defined Benefit Pension Plan invested in the Fox Trails Partnership, although the remaining Plans did not.

 In 1990, defendant McManus formed the Crystal Lake Avenue Limited Partnership ("Crystal Lake Partnership") in order to develop approximately 20 acres of real estate in Crystal Lake, Illinois. In conjunction with the Crystal Lake Partnership offering, McManus entered into a joint venture agreement with Calia Development Corporation in order to construct improvements and single-family homes on the property. According to the joint venture agreement and offering memorandum concerning the partnership, the real estate in question would be owned by the Crystal Lake Partnership. However, the partnership would not be included in the joint venture with McManus and Calia and would not participate in its management. Rather, the McManus-Calia joint venture would purchase the developed property on a lot-by-lot basis from Crystal Lake Partnership when it was sold to retail customers. McManus issued an offering memorandum concerning Crystal Lake Partnership, and the Emco Gears Pension Plan, the Tu-Kaiz Litho, Inc. 401(k) Plan and the Supreme Cartage & Air Cargo Service, Inc. Defined Benefit Pension Plan invested in the project. As with the 2010 Partnership, the Secretary contends that at least some of the trustees did not read the offering memorandum, but rather, invested plan assets into Crystal Lake Partnership based solely on defendants' representations.

 Plaintiff alleges that defendants have engaged in prohibited transactions under ERISA. See 29 U.S.C. § 1106. First, plaintiff contends that defendants were fiduciaries to the Plans with respect to the offerings of the 2010 Partnership, Fox Trails Partnership and Crystal Lake Partnership, see 29 U.S.C. § 1002(21), and therefore were prohibited from self-dealing with the Plans. See 29 U.S.C. § 1106(b). The Secretary also alleges that defendant McManus was a fiduciary to some of the Plans by dint of his position as general partner of Crystal Lake Partnership--an entity which contained "plan assets." Finally, plaintiff contends that defendants are "parties in interest" because they provided administrative services to the Plans through PAI, see 29 U.S.C. § 1002(14), and thus are liable for self-dealing with the plans. See 29 U.S.C. § 1106(a).

 Defendants have moved for summary judgment, arguing that the evidence shows they were not ERISA fiduciaries or parties in interest with regard to the Plans. In support of their motion, defendants have submitted declarations from the still living trustees of the Plans. Each of these declarations states (in near boilerplate language) that the trustee made his own independent investment decisions with regard to his Plan and did not simply "rubber stamp" the defendants' recommendations. Further, with regard to the Dressel's Ace Hardware, Inc. Profit Sharing Plan, defendants state in their own declarations that they simply acted as salesmen and that the plan trustee (who is now deceased) made the decision to invest in the 2010 Partnership after receiving the offering memorandum and discussing the investment with McManus. Defendant McManus also argues that because Crystal Lake Partnership is a "real estate operating company," he is not an ERISA fiduciary with regard to the plans that invested in that project. See 29 C.F.R. § 2510.3-101(e). Finally, defendants contend that they did not provide any administrative services to the Plans that would qualify them as "parties in interest." In response, plaintiff has submitted the affidavit of Cheryl Leppert, a Department of Labor investigator, who had previously interviewed the same trustees that have submitted declarations in support of defendants' motion. Plaintiff's investigator claims that during these interviews the trustees told her, inter alia, that they relied on the defendants' advice to a large extent when making investment decisions concerning their plans; that they were unaware that defendants had sold their interest in PAI; and that at least one of the Plans had invested all of its assets in accord with defendant Covelli's recommendations. Moreover, plaintiff suggests that at the time the trustees made the declarations introduced by the defendants, they were under the misconception that the Secretary was seeking to hold them responsible for financial problems involving the Plans. Finally, the Secretary argues that because defendants' motion was filed before answering the complaint, and prior to the exchange of substantial discovery, we should deny defendants' motion under Fed.R.Civ.P.56(f).

 II. Summary Judgment Standard

 A motion for summary judgment will be granted if "there is no genuine issue of material fact and . . . the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P.56(c). The movant bears the initial burden of identifying "those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986) (quoting Fed.R.Civ.P.56(c)). Once the moving party has met this burden, the non-moving party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P.56(c); see Maxwell v. City of Indianapolis, 998 F.2d 431, 433 (7th Cir. 1993). In deciding a motion for summary judgment, the facts must be read in a light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 254, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). Although "[a] motion for summary judgment cannot be defeated merely by an opposing party's incantation of lack of credibility over a movant's supporting affidavit," Walter v. Fiorenzo, 840 F.2d 427, 434 (7th Cir. 1988), specific attacks on an affiant's credibility with regard to central issues in a case can be sufficient to deny a motion for summary judgment. See In the Matter of Guglielmo, 897 F.2d 58, 63 (2d Cir. 1990) (summary judgment inappropriate where affiant's deposition testimony on central issue contradicted his affidavit).

 III. Discussion

 A. Fiduciary ...


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