Barnett v. Great Plains Trust Co.

          MEMORANDUM AND ORDER

          CARLOS MURGUIA UNITED STATES DISTRICT JUDGE

         Plaintiffs Robert J. Barnett, DDS and Stephen D. Zeller, DDS, as trustees and fiduciaries of retirement plans sponsored by their respective dental practices, filed this action against defendants Great Plains Trust Company (“Great Plains”) and Kornitzer Capital Management, Inc. (“Kornitzer”), alleging violations of the Employee Retirement Income Security Act (“ERISA”) and state law claims for Negligent Misrepresentation and Breach of Contract. The matter is before the court on defendant Kornitzer's Motion to Dismiss (Doc. 34) and defendant Great Plains' Motion to Dismiss Counts III and IV (Doc. 36).

         I. Background

         The following facts are summarized from plaintiffs' First Amended Complaint (Doc. 29). On August 20, 1991, plaintiff Barnett-a dentist practicing in Hot Springs, Arkansas-opened a retirement account for his dental practice with defendant Great Plains. Under this agreement, defendant Great Plains was appointed the “Investment Manager” and defendant Kornitzer was appointed as an “Investment Advisor.” With respect to Kornitzer's role as Investment Advisor, plaintiff Barnett's agreement with defendant Great Plains provided that Kornitzer would receive “.00125 of the closing market value of assets” each quarter for its investment advice. (Doc. 29-1, at 5.) Plaintiff Barnett also executed Statements of Investment Direction that directed the allocations of the retirement plan among eight Collective Trusts Funds, and that half of the total principal of the plan was to be invested in two Collective Trust Funds: the “Equity Fund” and the “Fixed Fund.”

         On September 19, 2015, Ryan Thompson, on behalf of defendants, contacted plaintiff Zeller-a dentist in Topeka, Kansas-to solicit the investment services offered by defendants. Thompson stated that under defendant Kornitzer's strategy, defendant Great Plains offered investments with less volatility compared to other market funds. Thompson also discussed defendants' connection with Lions Gate Entertainment Corp. (“Lions Gate”):

Yes we do have some convertible and strait fixed Lionsgate bonds in our Fixed Fund, among many other traditional fixed bonds. Again, there is no Lionsgate stock in the Fixed Fund. Your advisor tells you John [Kornitzer] is crazy and owns all this Lionsgate and it's so risky... They don't know what they are talking about. For instance, the GPTC Collective Fixed Fund was up 4.04% at the end of August (see second attachment). Lionsgate stock was up 14.58% through the end of August this year. CLEARLY, the exposure to the Lionsgate bonds that the Fund holds doesn't greatly impact the overall performance of that Fund.

Odierwise we would be up a hell of a lot more! I'll tell you right now, there are great things in store for that company in the near future, and shareholders of that Fund are going to benefit tremendously, so I would move your money sooner rather than later.

(Doc 29, at 4-5.) On or around September 28, 2015, plaintiff Zeller opened two retirement accounts with defendant Great Plains. Ryan Thompson, along with John Kornitzer and John Shepley of Kornitzer attended plaintiff Zeller's execution of the agreement. Much like the agreement with plaintiff Barnett, plaintiff Zeller's agreement appointed defendant Great Plains as the “Investment Manager” and defendant Kornitzer as “Investment Advisor.” The Zeller agreement further provided that defendant Kornitzer would receive .00125 of the closing market value of assets each quarter for its investment advice. Plaintiff Zeller also executed Statements of Investment Direction that directed the allocations of the retirement plans among eight Collective Trust Funds and that half of the total principal of the plans were to be invested in the Equity Fund and the Fixed Fund. The Statements of Investment Direction also disclosed that defendant Kornitzer participates in the management of the Collective Trust Funds:

An independent Advisor. Kornitzer Capital Management. Inc. (KCM) may be employed in connection with the management of the Common Trust Funds of the Personal Trust of [Great Plains], Some Shareholders of [Great Plains] are employees of KCM. Some Shareholders of [Great Plains] are family members of Shareholders of KCM. Some Shareholders of [Great Plains] are neither employees of KCM. nor family members of Shareholders of KCM.

(Id., at 6.) Defendants were responsible for choosing, administering, and structuring the investments that were in the Equity Fund and Fixed Fund. Defendants invested the principal from the Barnett retirement plan and the Zeller retirement plan in corporate securities. As of December 31, 2015, the Equity Fund held 30 percent of its total assets in corporate securities in Lions Gate. The Fixed Fund held 79 percent of its total assets in Lions Gate. The Lions Gate investments in both the Equity and Fixed Funds represented 35 percent of the entire Collective Trust Fund Portfolio. In 2016, Lions Gate stock fell from its peak price of $41.07 in 2015 to $18.53 per share and plaintiffs' retirement plans sustained significant losses.

         In March 2016, plaintiff Zeller contacted Thompson and another Kornitzer representative to discuss the losses to the retirement plans. In an email, plaintiff Zeller sought assurances that defendants would take remedial action to mitigate losses:

... Going forward I need some reassurance that this is not [Kornitzer's] modus operandi. I realize that I bought into a fund and [Kornitzer] cannot trade with just rne in mind, but, if in rny individually managed portfolios there is a large Lionsgate exposure I would like to decrease that when feasible.

Please copy [John] Shepley [of Kornitzer] in on this.

(Id., at 8.) Thompson replied, assuring plaintiff Zeller that defendants planned to spread some of his assets among other funds. Despite any remedial measure that were promised or taken, the Zeller and Barnett retirement plans continued to sustain losses.

         Plaintiffs filed the present action on March 13, 2017 alleging 1) Breach of Fiduciary Duty to Act Prudently 2) Breach of Fiduciary Duty - Failure to Diversify, 3) Negligent Misrepresentation, and 4) Breach of Contract. Plaintiffs maintain that both defendants are fiduciaries, and that specifically defendant Kornitzer is a fiduciary because it “rendered investment advice for a fee as the “Investment Advisor.” (Id., at 10.)

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