NY Commercial Division Blog

Commercial Division Reiterates Broad Scope of ERISA Preemption and Difficulty of Pleading Breach of Fiduciary Duty and Conversion Claims Alongside Breach of Contract Claims

The Commercial Division’s decision in Rockmore v. Plastic Surgery Associates, LLP[1] demonstrates the broad scope of ERISA preemption and the difficulty of pleading breach of fiduciary duty and conversion claims alongside breach of contract claims.  In Rockmore, Albany County Supreme Court Justice Richard M. Platkin dismissed several claims brought by the departing member of a partnership of physicians.  The core claims—which concerned the funding of the partnership’s defined benefit plan—were preempted by ERISA.  Separately, Justice Platkin also dismissed breach of fiduciary duty and conversion claims as duplicative of a claim alleging a breach of the operative Partnership Agreement.

Background

Plastic Surgery Associates (“PSA”) is a partnership of professional corporations owned by physicians specializing in plastic or reconstructive surgery.[2]  In January 2018, Jeffrey L. Rockmore and his professional corporation, Plaintiff Jeffrey L. Rockmore, M.D., P.C. (“Rockmore PC”) gave written notice of Rockmore PC’s intention to withdraw from PSA.[3]  Pursuant to the operative Partnership Agreement, Rockmore PC was required to remain a partner for one year following this notice.[4]

According to the allegations in the Complaint, after Rockmore PC provided notice of its intent to withdraw, the remaining partners—Douglas M. Hargrave, M.D., P.C. (“Hargrave PC”) and Susan M. Gannon, M.D., P.C. (“Gannon PC”)—began to exclude Rockmore PC from the business and affairs of PSA, while engaging in a “deliberate and continuous effort to shift the burden of future practice liabilities and expenses to [Rockmore PC].”[5] 

Most prominently, the remaining partners voted to terminate the PSA’s Defined Benefit Pension Plan (the “Plan”), which was a single-employer defined benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (“ERISA”).  The funding of the Plan had been described in a Benefit Reconciliation Agreement (the “BRA”) that the three partners signed in 2004, and amended in 2012.  The termination of the Plan took place on December 31, 2018—the same day Rockmore PC was permitted to withdraw from PSA.[6]  The Plaintiffs allege that the termination of the Plan created new and immediate financial liabilities arising from ERISA’s standard termination requirement that the present value of the Plan’s benefit liabilities be fully funded and paid out less than a year after the termination date.[7]

Dr. Rockmore and Rockmore PC (together, “Plaintiffs”) sued PSA, Hargrave PC, and Gannon PC, as well as the remaining physician owners, Douglas M. Hargrave and Susan M. Gannon (together, “Defendants”) on December 31, 2019.  Following an amendment to the Complaint, Plaintiffs asserted 5 claims:  (1) breach of the Partnership Agreement (for failing to properly calculate and pay Rockmore PC’s redemption value, failing to comply with provisions regarding patient relationships, and excluding Rockmore PC from partnership business); (2) breach of fiduciary duty (for excluding Rockmore PC from partnership business and misappropriating PSA’s revenues; (3) aiding and abetting breach of fiduciary duty (against Hargrave and Gannon as individuals); (4) breach of the Plan and the BRA; and (5) conversion of certain PSA revenues.

Defendants moved to dismiss all of the claims except for the breach of the Partnership Agreement.

Breach of Fiduciary Duty is Duplicative of Breach of the Partnership Agreement

Justice Platkin dismissed Plaintiff’s claim for a breach of fiduciary duty as duplicative of the claim for a breach of the Partnership Agreement.[8]  The court began by recognizing that “a claim for breach of fiduciary duty must be dismissed where it ‘fails to allege conduct by defendants in breach of a duty other than, and independent of, that contractually established between the parties.’”[9]

Plaintiffs argued that the claim for breach of fiduciary duty arose from “substantive business and management decisions and actions taken by the other partners of PSA,” while the breach of contract claim addressed only procedural failures.[10]  Justice Platkin rejected this distinction, finding that “close review of the Amended Complaint shows that plaintiffs are, in fact, challenging PSA’s substantive decisions” through their breach of contract claim.[11]

Justice Platkin then rejected Plaintiffs’ argument that the breach of fiduciary duty claim concerned the overarching scheme to exclude Rockmore PC from partnership business, while the breach of contract claim concerned specific violations of the Partnership Agreement.  Under CPLR 16(b), a breach of fiduciary duty claim must be pleaded with particularity.[12]  As the Court noted, the Amended Complaint “specifically cites and relies upon plaintiffs’ rights under the Partnership Agreement” to support the breach of fiduciary duty claim, and therefore, “the breaches of fiduciary duty pleaded with particularity in the Amended Complaint arise out of the parties’ contractual relationship, as opposed to their fiduciary relationship.”[13]

Since the specific allegations regarding breach of fiduciary duty arose out of the contractual relationship, the Court dismissed the breach of fiduciary duty claim as duplicative.  And because an aiding and abetting claim cannot be maintained without an underlying cause of action, Plaintiffs’ claim against Hargrave and Gannon for aiding and abetting the breach of fiduciary duty was also dismissed.[14]

Claim for Breach of the Plan and BRA Preempted by ERISA

The Court next dismissed Plaintiffs claims for a breach of the Plan and the BRA as preempted by ERISA.  Justice Platkin began by noting that a state-law claim is statutorily preempted to the extent that it “‘relate[s] to any employee benefit plan’ subject to ERISA.”[15] Although contract law is generally left to the states, Justice Platkin emphasized the “‘extraordinary pre-emptive power’” of ERISA’s civil enforcement mechanisms[16] based on the U.S. Supreme Court precedent that “‘any state-law cause of action that duplicates, supplements, or supplants the ERISA civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy exclusive and is therefore pre-empted.’”[17] 

Turning the case at hand, Justice Platkin determined that Plaintiffs claims “‘focus on the core ERISA entities: beneficiaries, participants, administrators, employers, trustees . . . and the plan itself . . . and the relationships among these groups.”[18]  Additionally, resolution of the claims would “‘affect[] the determination of eligibility for benefits [under an ERISA plan and] amounts of benefits.’” [19] Furthermore, damages calculations would require reference to the Plan.

Given the intertwining of Plaintiffs’ claims with the Plan benefits, Justice Platkin ruled that enforcing the Plan and the BRA would “‘implicate the regulation of, administration of, or benefits provided under an ERISA plan” and would also “‘implicate other relationships regulated by ERISA or overlap with ERISA’s remedial scheme.’”[20]  Accordingly, Plaintiffs’ claims for breach of the Plan and BRA were dismissed as preempted by ERISA.  Furthermore, the Court noted that ERISA preemption provided an alternative basis for dismissing Plaintiffs’ claims for breach of fiduciary duty, to the extent those claims were based on the alleged misuse of Plan contributions or failure to fund the Plan.[21]

Conversion

Lastly, Justice Platkin dismissed Plaintiffs’ claim for conversion as duplicative and preempted.  First, he found that two of the allegations supporting the claim regarding failure to distribute funds to Rockmore PC were “a mere restatement of the[] claim for breach of the Partnership Agreement.”[22]  Since “‘[a] cause of action [for conversion] cannot be predicated on a mere breach of contract,’” the claim was dismissed insofar as it relied upon those allegations.[23]

The Court further concluded that the remaining allegation underlying the conversion claim—concerning misuse of the Plan contributions—was preempted by ERISA for the same reasons as Plaintiffs’ claims for breach of the plan and the BRA were preempted.[24]  With all of Plaintiffs’ allegations either duplicative of other claims or preempted by ERISA, the conversion claim was dismissed.

Conclusion

The ruling in Rockmore v. Plastic Surgery Associates is notable for two reasons.  First, it emphasizes the breadth of ERISA preemption.  The preempted claims were directed at a dispute between business partners regarding the funding of a benefit plan—not the payout or eligibility for the plan.  Yet, because the resolution of the claim would impact those aspects of a plan subject to ERISA, they were preempted by the federal law.

Second, Rockmore is yet another reminder of the difficulty in pleading a breach of fiduciary duty or conversion claim alongside a breach of contract claim.  As the Court’s analysis illustrates, a plaintiff must identify specific breaches of a duty or misappropriation of property that fall outside the obligations of the contract for separate claims to proceed.


[1] Rockmore v. Plastic Surgery Assocs., LLP, 2020 BL 478175, 69 Misc. 3d 1222(A), 135 N.Y.S.3d 259 (Sup. Ct. Albany Cnty. Dec. 2, 2020).

[2] Id. at *1.

[3] Id. at *1.

[4] Id. at *1.

[5] Id. at *2.

[6] Id. at *3.

[7] Id. at *2.

[8] Id. at *9.

[9] Id. at *7 (quoting Kaminsky v. FSP Inc., 5 A.D.3d 251, 252, 773 N.Y.S.2d 292 (N.Y. App. Div. 1st Dep’t 2004).

[10] Id. at *8.

[11] Id. at *8.

[12] Id. at *9 (citing CPLR 3016(b)).

[13] Id. at *8-9.

[14] Id. at *12 (citing Fiala v. Metropolitan Life Ins. Co., 6 A.D.3d 320, 323, 776 N.Y.S.2d 29 (N.Y. App. Div. 1st Dep’t 2004)).

[15] Id. at *10 (quoting 29 U.S.C. § 1144(a)).

[16] Id. at *10 (quoting Davila, 541 U.S. at 209 (quoting Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65-66 (1987))).

[17] Id. at *10 (quoting Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004)).

[18] Id. at *11 (quoting Gerosa v. Savasta & Co., 329 F.3d 317, 324 (2d Cir. 2003)).

[19] Id. at *11 (quoting Verla v. Barnum Fin. Grp., 644 F. App’x 30, 31 (2d Cir. 2016)).

[20] Id. at *11 (quoting Greenbrier Hotel Corp. v. Unite Here Health, 719 F. App’x 168, 180 (4th Cir. 2018)).

[21] Id. at *12.

[22] Id. at *12-13.

[23] Id. at *13.

[24] Id. at *13.