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).
A. Fiduciary Status
Defendants contend that they were not ERISA fiduciaries with regard to the Plans. In addition to those specifically named as fiduciaries, ERISA holds a person responsible as a fiduciary of a plan if:
(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 any discretionary responsibility in the administration of such plan.
29 U.S.C. § 1002(21)(A). In furtherance of ERISA's remedial purposes, the term "fiduciary" is construed liberally and according to an objective standard. Farm King Supply, Inc. Integrated Profit Sharing Plan & Trust v. Edward D. Jones & Co., 884 F.2d 288, 291-92 (7th Cir. 1989). However, persons falling under any one of these three definitions are held responsible as fiduciaries only to the extent they performed these functions. See Associates in Adolescent Psychology, S.C. v. Home Life Ins. Co. of New York, 729 F. Supp. 1162, 1179 (N.D. Ill. 1989), aff'd, 941 F.2d 561, 569 (7th Cir. 1991), cert. denied, 502 U.S. 1099, 117 L. Ed. 2d 426, 112 S. Ct. 1182 (1992).
Defendants argue that they cannot be considered fiduciaries under § 1002(21)(A)(i), (iii) because each trustee states in his declaration that he did not automatically follow the defendants' recommendations. Further, each trustee asserts that he alone had the discretion to make investment decisions for the plan, and that he understood the defendants to be acting simply as salesmen. To be sure, absent any other evidence these declarations would be sufficient to permit a finding in defendants' favor as to plaintiff's claims under § 1002(21)(A)(i), (iii). See Associates in Adolescent Psychology, 941 F.2d at 569-70 (financial consultants and designers of ERISA benefit plan are not fiduciaries unless they have control over plan); cf. Pappas v. Buck Consultants, Inc., 923 F.2d 531, 535-37 (7th Cir. 1991) (actuaries who advise trustees of an ERISA plan are not fiduciaries).
However, plaintiff introduces evidence that the trustees previously had made substantially different statements to its investigator about defendants' conduct.
For example, Leppert states that the trustee of the Dressel plan said that McManus was the sole financial consultant to the plan from 1978 to 1989, and that investment decisions were based exclusively on his advice. Indeed, in a 1985 letter to that trustee, McManus stated that if the trustee chose not to follow his recommendations then he should look for a new "financial consultant."
Similarly, all of the other trustees indicated to Leppert that they relied exclusively on defendants' investment advice and that most (if not all) of their plans' funds were placed in investments recommended by defendants. For example, the trustee of the Supreme Cartage & Air Cargo Services, Inc. Defined Benefit Pension Plan told Leppert that McManus told him which investments to purchase, how much money to put in, and which sources of plan funds to use.
Other factors suggest that the relationship between defendants and the trustees was different from that portrayed by defendants. The Plans were all created by PAI and defendants continued to act as liaisons between PAI and the trustees. Some trustees indicated to Leppert that they never received offering memoranda before investing in the 2010 Partnership, the Fox Trails Partnership or the Crystal Lake Partnership. Others said they did receive the information, but did not read it before investing funds pursuant to defendants' recommendations. Although professionals do not become fiduciaries simply by providing services, a professional that exerts an unusual degree of influence over a plan can be held accountable as an ERISA fiduciary. See Pappas, 923 F.2d at 538; 29 C.F.R. § 2509.75-5 (under certain circumstances professionals can be considered fiduciaries). The Secretary's submissions seriously undermine defendants' contention that they did not exercise significant control or authority over the management, distribution or administration of the plans. The question of whether a person has demonstrated actual authority over a plan is highly factual in nature, see Pappas, 923 F.2d at 538, and defendants' have failed to establish the absence of any material factual dispute on that critical issue. Furthermore, granting defendants' motion would require us to make credibility determinations as to the trustees and plaintiff's investigator, a task distinctly unsuitable at the summary judgment phase. See AHP Subsidiary Holding Co. v. Stuart Hale Co., 1 F.3d 611, 619 (7th Cir. 1993). Accordingly, we deny defendants' motion as to their fiduciary status under § 1002(21)(A)(i), (iii).
Similarly, we cannot conclude that defendant McManus is entitled to summary judgment on the Secretary's claims stemming from his control over the assets of the Crystal Lake Partnership. Department of Labor regulations define plan assets to include plan investments in an equity position of an entity--other than an operating company--that is neither publicly traded nor registered pursuant to the Investment Company Act of 1940. 29 C.F.R. § 2510.3-101(a)(2). "Therefore, any person who exercises authority or control respecting the management or disposition of such underlying assets, and any person who provides investment advice with respect to such assets for a fee (direct or indirect), is a fiduciary of the investing plan." Id. The Secretary argues that as general manager of Crystal Lake Partnership, McManus is a fiduciary to the plans that invested in that operation.
McManus maintains that because Crystal Lake Partnership is a "real estate operating company," he is not automatically a fiduciary. See 29 C.F.R. § 2510.3-101(c) (term "operating company" includes "real estate operating company"). A real estate operating company is an entity with at least 50% of its assets invested in real estate that is managed or developed, so long as the entity substantially participates directly in those management or development activities. 29 C.F.R. § 2510.3-101(e). McManus states in his declaration that he has substantially participated in the management and development of the Crystal Lake property, including the subdividing of the land, mortgaging the property to finance improvements, hiring contractors and approving building plans. However, the Secretary contends that McManus took such steps solely as a member of the joint venture between himself and Calia Development, not as general manager of the partnership. In support, plaintiff points to the offering memorandum and a summary description of the Crystal Lake Partnership, which state:
The [Crystal Lake] Partnership is not to participate in the development of the Property, which shall be undertaken by a joint venture between Arthur F. McManus and Calia Development Corp. (the "Joint Venture").
McManus argues in response that the regulations permit a real estate operating company to hire independent contractors to conduct day-to-day activities without becoming an ERISA fiduciary, see 29 C.F.R. § 2510.3.10(j)(8), and therefore the partnership's hiring of the McManus-Calia joint venture to develop the property does not make him a fiduciary. However, given the language of the offering memorandum and summary description, we cannot conclude that McManus was actually hired as an independent contractor by the partnership; rather, he might have been hired only by the joint venture. Faced with such inconclusive evidence, it is apparent that McManus cannot demonstrate that he is entitled to judgment as a matter of law on this issue. Consequently, we deny his motion for summary judgment as to his liability under § 1002(21)(A)(i), (iii).
Finally, we address the Secretary's claims under 29 U.S.C. § 1002(21)(A)(ii), which require defendants to have rendered investment advice to the Plans for a fee or other compensation. The parties spend a considerable portion of their briefs arguing about whether defendants gave "investment advice" to the Plans.
However, the defendants and the trustees all state that McManus and Covelli were not paid any sort of fee or compensation by the Plans for their services; rather, they were paid commissions on the sales made to their clients. The Secretary does not introduce any evidence directly challenging the veracity of this fact; indeed, plaintiff's investigator also asserts that defendants were compensated through commissions. Absent some indication that defendants were paid "a fee or other compensation, direct or indirect" by the Plans themselves, they cannot be considered fiduciaries under § 1002(21)(A)(ii). American Federation of Unions Local 102 Health & Welfare Fund v. Equitable Life Assurance Soc., 841 F.2d 658, 664 (5th Cir. 1988) (salesman who only received commissions not liable for giving investment advice); cf. Harris Trust & Sav. Bank v. Salomon Bros., Inc., 813 F. Supp. 1340, 1344 (N.D. Ill. 1992) (plaintiff's claim that advisor retained 5% interest in security as compensation satisfied § 1002(21)(A)(ii)). Accordingly, without deciding whether defendants dispensed "investment advice," we grant their motion for summary judgment as to § 1002(21)(A)(ii).
B. "Party in Interest "
The Secretary also alleges that defendants are liable under 29 U.S.C. § 1106(a), which prohibits, inter alia, a fiduciary from causing plan assets to be used in a transaction between the plan and a "party in interest." A party in interest with a plan includes a fiduciary and "a person providing services to such plan." 29 U.S.C. § 1002(14)(B). Defendants contend that at worst they merely provided liaison and "follow through" services to the Plans, and thus were not "parties in interest" with the plans under § 1002(14)(B).
In addition to the possibility that defendants may be fiduciaries--an issue discussed above--we cannot conclude as a matter of law that defendants did not provide a sufficient amount of services to the Plans to become "parties in interest." Plaintiff's investigator stated that each trustee used the defendants as liaisons between their plan and PAI. Although defendants contend that Ronczkowski and his staff performed PAI's pension services, this does not necessarily mean that defendants did not provide additional services to the Plans.
Finally, the declarations of the trustees introduced by defendants fail to show that McManus and Covelli did not provide any services to the Plans. Because defendants have failed to demonstrate that they were not parties in interest to the Plans, their motion is denied.
For the reasons set forth above, defendants' motion is granted in part and denied in part. It is so ordered.
MARVIN E. ASPEN
United States District Judge