United States District Court, D. Kansas
ROBERT J. BARNETT, DDS and STEPHEN D. ZELLER, DDS, Plaintiffs,
v.
GREAT PLAINS TRUST COMPANY and KORNITZER CAPITAL MANAGEMENT, INC., Defendants.
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.)
II.
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