Friday, July 04, 2008

3d Dep't agrees with ABL re hold harmless clause

In Elmira Teachers' Association v. Elmira City School District, the Third Department held that a hold harmless clause contained in Salary Reduction Agreements signed by school district employees barred their claims for losses stemming from investment in the district's 403(b) Plan. The hold harmless provision provided that "[t]he Employee agrees that the Employer shall have no liability whatsoever for any loss suffered by the Employee with regard to his [or her] selection of an insurance company or mutual fund, or the solvency of, operation of, or benefits provided by said insurance company or mutual fund company." The Court held that this provision was clear and unambiguous -- that it encompassed losses suffered by employees who invested their money in a fund that was ultimately liquidated. Plaintiffs attempted to avoid this result by arguing that their claims against the District were for negligent selection and supervision of the third-party-administrator. This argument, however, was rejected because employees who selected other investment options -- but who participated in the same 403(b) Plan administered by the TPA selected by the District -- did not lose any money.

The District filed a pre-discovery summary judgment motion that eliminated three claims, with two claims surviving. Those two claims were dismissed by the Third Department. The District also obtained a stay of discovery in the action pending resolution of the appeal.

The Third Department's ruling is consistent with a ruling by Justice Arthur G. Pitts of Suffolk County that dismissed an identical Complaint brought by teachers in Long Island. That decision is currently on appeal to the Second Department.

ABL thanks Matt Lerner for his insights concerning the Third Department.


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