role of the Court is not to weigh the evidence, but to determine whether genuine issues of material fact exist for trial. Abraham v. Graphic Arts Int'l Union, 212 U.S. App. D.C. 412, 660 F.2d 811, 814 (D.C. Cir. 1981). Faced with a motion for summary judgment, the nonmoving party must offer more than mere allegations. Anderson, 477 U.S. at 249, 106 S. Ct. at 2510. If the material facts proffered by the nonmoving party are subject to diverse interpretations, summary judgment is not available. Tao v. Freeh, 307 U.S. App. D.C. 185, 27 F.3d 635, 638 (D.C. Cir. 1994). Any doubts must be resolved in favor of the nonmoving party, Abraham, 660 F.2d at 815, and the nonmoving party is entitled to all justifiable inferences. Anderson, 477 U.S. at 255, 106 S. Ct. at 2513.
Shearson's Motion for Summary Judgment
Shearson seeks summary judgment in its favor on Counts III, IV, VII and IX.
1. Count III.
In Count III, the plaintiffs claim that Shearson violated Section 404(a)(1) of ERISA, 29 U.S.C. § 1104(a)(1), because Shearson failed to disclose and deliberately concealed Kitchel's connection to the Fund and by paying Kitchel compensation from Plan assets. Amended Complaint, at P 47. Shearson offers several arguments upon which, it asserts, it is entitled to summary judgment. These arguments are unpersuasive and Shearson's motion will be denied.
First, Shearson contends that because there is no suggestion that the investment portfolio was mismanaged, there can be no liability under Section 404(a)(1). Motion for Summary Judgment, supra, at 24-25. Second, Shearson argues that its liability under ERISA's Section 404(a)(1) arose only after it began to manage the Fund on January 1, 1986, and that it cannot be held liable for any conduct occurring prior to December 31, 1985. Id. at 25. Finally, Shearson avers that because the Fund suffered no investment losses and because the fees that Shears on was paid were reasonable, there can be no Section 404(a)(1) liability. Id. at 25-27.
Under Section 404(a)(1) of ERISA, a fiduciary must discharge its duties in managing an investment plan "solely in the interests of the participants and beneficiaries ... with the care, skill, prudence, and diligence" that would be employed by a "prudent [person] acting in a like capacity and familiar with such matters." ERISA, Section 404(a)(1), codified at 29 U.S.C. § 1104(a)(1); see NLRB v. Amax Coal Co., 453 U.S. 322, 332-33, 101 S. Ct. 2789, 2796, 69 L. Ed. 2d 672 (1981); Fink v. Nat'l Sav. & Trust Co., 249 U.S. App. D.C. 33, 772 F.2d 951, 955 (D.C. Cir. 1985); Leigh v. Engle, 727 F.2d 113, 125 (7th Cir. 1984). The fiduciary's obligations are based on both the specific statutory charge and the common law of trusts. See Firestone Tire and Rubber Co. v. Bruch, 489 U.S. 101, 110-11, 109 S. Ct. 948, 954, 103 L. Ed. 2d 80 (1989); Acosta v. Pacific Enterprises, 950 F.2d 611, 618 (9th Cir. 1991); Eddy v. Colonial Life Ins. Co., 287 U.S. App. D.C. 76, 919 F.2d 747, 750 (D.C. Cir. 1990).
The duty of loyalty owed by ERISA fiduciaries is broad, Eddy, 919 F.2d at 750-51, and includes a duty to disclose material information. See Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 140-41 n.8, 105 S. Ct. 3085, 3089-90 n.8, 87 L. Ed. 2d 96 (1985) (compiling floor statements by ERISA drafters describing congressional concerns, which include abuses arising from fraud and nondisclosure); Eddy, 919 F.2d at 750 ("the duty to disclose material information is the core of a fiduciary's responsibility"). The fiduciary's duty of disclosure is not limited to those disclosures mandated by the statute, see Acosta, 950 F.2d at 618, and deceptive conduct, such as lying, is clearly inconsistent with the duty of loyalty owed by an ERISA fiduciary. See Varity Corp. v. Howe, U.S. , , 64 U.S.L.W. 4138, 4142 (March 19, 1996). In short, the fiduciary provisions of ERISA were designed to prevent a fiduciary "from being put into a position where [it] has dual loyalties, and, therefore, [it] cannot act exclusively for the benefit of a plan's participants and beneficiaries." Amax Coal Co., 453 U.S. at 334, 101 S. Ct. at 2796.
Summary judgment on Count III is precluded, because the plaintiffs have offered sufficient evidence to establish the existence of genuine issues of material fact. Based on the materials submitted by the plaintiffs, a reasonable factfinder could find that Shearson violated its fiduciary obligations under Section 404(a) by concealing material facts such as Kitchel's connection to Duval and Kitchel's role as a financial consultant to the Plan. The evidence allows for the reasonable inference that Kitchel's connection to Duval, his stepfather and a Plan fiduciary, was well known to Shearson both before and after it became a fiduciary. There is evidence that Kitchel played a key role in bringing the plaintiffs' business to Shearson; that the link to Duval was not insignificant; and that Shearson was not only aware of the link, but capitalized upon it by using Kitchel to "put out fires" when it served Shearson's interests.
Based upon the plaintiffs' proffer, a genuine issue of material fact exists as to whether Shearson concealed Kitchel's role and existence from the plaintiffs. The Hagerman memorandum of December 31, 1985, which was drafted shortly after Shearson was first retained, states: "On correspondence, do not cc Kent Kitchel--use blind copies, 'bcc'." Plaintiffs' Opposition, supra, at Ex. 12 (emphasis in original). Drafted by one of Shearson's senior vice presidents after a meeting with Kitchel and Duval, this memo to file supports an inference that Defendant Shearson intended to conceal the Kitchel-Duval connection. Moreover, there is evidence that Shearson's acts to conceal the Kitchel connection were ongoing. Three and a half years after Shearson was retained, Robin Pinkham, Plan Account Manager, stated:
As you know, Kent Kitchel is my source of information on IBPAT. And he implores us never to mention his name in connection with this business. Noone (sic) at the Union knows of his relationship with Mr. Duval and the account, and he would like to keep it that way.
Id. at Ex. 37 (Memorandum of Robin Pinkham of June 26, 1989).
A reasonable factfinder could determine that Kitchel's own words to one of Shearson's account managers speaks volumes as to what Shearson knew and what it did or did not do with that knowledge:
There have been several times throughout the history of this account when events (results) have called for the client to question retaining you (us) as the manager. Each time, including now, you (and I) have been dispatched to put out the fires. You're aware of my rapport with Mr. Duval and we both know it is in our best interests to try and not rock the boat.