Trustees of the Upstate New York Engineers Pension Fund v. Ivy Asset Management
131 F. Supp. 3d 103
S.D.N.Y.2015Background
- ERISA action by the Upstate New York Engineers Pension Fund Trustees against Ivy Asset Management, Lawrence Simon, Harold Wohl, and Bank of New York Mellon for alleged fiduciary breaches related to Madoff investments.
- Ivy served as investment manager and fiduciary under 1990 and 1994 DIMAs; Bank acquired Ivy in 2000 and continued advisory role with the Plan.
- Madoff investment began in 1990s via BMIS; Ivy raised concerns internally but did not disclose fully to Trustees; large Plan allocations continued.
- Trustees’ guidelines called for conservative, capital-preserving investments; Ivy’s and the Bank’s behavior tied to ongoing advisory and performance fees.
- Madoff Ponzi scheme disclosed in 2008; Plan assets declined dramatically; DOL and New York AG subpoenas followed; BMIS trustee sought claw-back of profits.
- Court granted motion to dismiss Amended Complaint for lack of Article III standing and failure to plead cognizable ERISA losses; disgorgement against the Bank was also dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing and cognizable ERISA injury | Plaintiff claims losses and injury from fiduciary breaches relating to Madoff investments. | No concrete, particularized injury; no loss shown consistent with ERISA §1109. | Plaintiff lacked cognizable injury; standing failure; counts dismissed. |
| Merits of breach of fiduciary duties (Counts I–III) | Breaches occurred by not disclosing concerns and not recommending liquidation. | No cognizable loss shown; breaches not proven to cause plan losses. | Dismissed for lack of cognizable loss or causation. |
| Disgorgement against Simon and Wohl | Profits from Bank’s acquisition of Ivy should be disgorged due to fiduciary breaches. | No causal link shown between disclosures and profits; no withdrawal or loss alleged. | Disgorgement claim dismissed; no proof of causal link. |
| Bank of New York Mellon’s participation | Bank knowingly participated in breaches via acquiescence and fees. | Bank’s mere knowledge and fees do not show affirmative participation or causation. | Bank’s claim dismissed for failure to plead knowing participation. |
Key Cases Cited
- In re Bernard L. Madoff Investment Securities LLC, 654 F.3d 229 (2d Cir. 2011) (Last-Statement vs Net-Investment method for net equity under SIPA; finality considerations.)
- In re Bernard L. Madoff Investment Securities LLC, 773 F.3d 411 (2d Cir. 2014) (SIPA claw-backs; 546(e) protective transfers; no recovery for late profits in certain withdrawals.)
- Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985) (ERISA §409 loss measurement; compare plan earnings with alternative investments.)
- Leigh v. Engle, 727 F.2d 113 (7th Cir. 1984) (DisgorgementCAusation; profits attributable to fiduciary breach concept.)
- Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270 (2d Cir. 1992) (Knowing participation standard for non-fiduciary liability under ERISA.)
- Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209 (2d Cir. 1987) (Knowledge and participation in fiduciary breaches; causation and liability framework.)
- Pension Benefit Guar. Corp. v. Morgan Stanley Inv. Mgmt. Inc., 712 F.3d 705 (2d Cir. 2013) (ERISA §409 damages; causation and scope of relief for plan beneficiaries.)