However, U.S. District Judge Richard J. Holwell of the U.S. District Court for the Southern District of New York let stand Minnesota state law allegations by plaintiff Apogee Enterprises, a Minneapolis-based glassware manufacturer, that CitiStreet could be held liable for misinforming Apogee about how long it would take to get out of the bond fund.
Apogee alleged CitiStreet said it would take 60 to 90 days when other plans were permitted to leave the fund on 48 hours’ notice; the court ruled state-law claims related to this allegation were not pre-empted by the Employee Retirement Income Security Act (ERISA).
In dismissing the ERISA charges, Holwell found that CitiStreet was not acting as a fiduciary by providing recordkeeping and administrative services to the Apogee 401(k).
Holwell contended CitiStreet was not an ERISA fiduciary because it did not communicate directly with the plan participants even though it may have provided investment reports to the Apogee plan’s investment committee. Further, Holwell found, while CitiStreet’s alleged misrepresentations influenced the Apogee plan’s investment committee to invest in the Daily Bond Market Fund, the allegations made clear that only the committee had the ultimate authority over the plan’s assets.
Apogee had argued CitiStreet acted as a fiduciary because its misrepresentations about the fund being low-risk effectively persuaded investment committee members from moving assets out of the bond offering and that that persuasion constituted fiduciary control under ERISA (see Minn. Firm Slaps State Street with Subprime Mortgage Suit).
In fact, according to Apogee, the fund had changed strategy and had become highly leveraged in much higher risk positions including mortgage-backed securities. When the housing market collapsed, Apogee claimed it lost $5 million in the fund.
“Making a harmful misrepresentation to a plan does not spawn a simultaneous fiduciary duty under ERISA to not make misrepresentations; otherwise anyone who swindled a plan through false advertising or a dishonest sales pitch would be a fiduciary. The statute does not go that far,” Holwell wrote in the ruling. .
Apogee’s claims against State Street were settled in a $90 million settlement that, if approved by the court, will be paid out to Apogee’s plan along with 82 other ERISA plans (see Court Rejects State Street’s Settlement Do-Over Request).
The case is Apogee Enterprises Inc. v. State Street Bank and Trust Co., S.D.N.Y., No. 09 Civ. 1899 (RJH).