Prudential Retirement Insurance v. State Street Bank & Trust Co. (772 F. Supp. 2d 519, 2011)

MEMORANDUM OPINION AND ORDER

RICHARD J. HOLWELL, District Judge:

Plaintiff Prudential Retirement Insurance and Annuity Co. (“PRIAC”), brought this action pursuant to sections 409(a) and 502(a)(2) and (3) of the Employee Retirement Income Security Act of 1974 (“ERISA”) against defendants State Street Bank and Trust Company (“State Street”) and State Street Global Advisors, Inc. (“SSgA, Inc.”) on October 1, 2007. PRIAC commenced this suit as an ERISA fiduciary on behalf of nearly 200 retirement plans (the “Plans”) that invested, through PRIAC, in two collective bank trusts managed by State Street — the Government Credit Bond Fund (“GCBF”) and the Intermediate Bond Fund (“IBF”) (collectively, the “Bond Funds”). In a previous opinion, the Court rejected State Street’s challenge to the Plans’ standing (and thereby PRIAC’s) to bring this suit; denied State Street’s motion for partial summary judgment, which argued that certain loans PRIAC made to the Plans would offset any damages awarded in this action; and dismissed PRIAC’s claims for restitution, disgorgement, and permanent injunctive relief. See generally In re State Street Bank and Trust Co. ERISA Litig., 579 F.Supp.2d 512 (S.D.N.Y.2008). State Street filed its answer on October 27, 2008, bringing common-law counterclaims for contribution or indemnification and for defamation, and another counterclaim under the Massachusetts Unfair Trade Practices Act, Mass. Gen. Laws. ch. 93A, §§ 2, 11. Now before the Court are (1) State Street’s motion for summary judgment based on a failure to mitigate damages and on the doctrine of superseding cause; (2) PRIAC’s motion for partial summary judgment on State Street’s contribution and indemnity, defamation, and Massachusetts Chapter 93A counterclaims; (3) State Street’s cross-motion for partial summary judgment on its contribution counterclaim; and (4) State Street’s motion to strike portions of the expert rebuttal report of Dennis E. Logue. The issue at the core of PRIAC’s single cause of action' — whether State Street breached a fiduciary duty under ERISA — is not addressed by the summary judgment motions. For the reasons that follow, State Street’s motion and cross-motion for summary judgment are DENIED; PRIAC’s motion for partial summary judgment is GRANTED as to the Massachusetts Chapter 93A counterclaim and DENIED as to the contribution and defamation counterclaims; and State Street’s motion to strike sections of the expert report of Dennis E. Logue is DENIED.

BACKGROUND

I. The Parties

Plaintiff was established in 2004 when Prudential Financial, Inc. (“Prudential”) acquired CIGNA Retirement & Investment Services (“CRIS”) and renamed it PRIAC. (Pl.’s Rule 56.1 Stmt. ¶ 1; Def.’s Rule 56.1 Stmt, in Support of Motion for Summary Judgment (“Def.’s SJ Rule 56.1 Stmt”) ¶ 6.) PRIAC provides investment options to defined benefit and defined contribution retirement plans; it provides these options to over 7,000 organizations and three million participants and beneficiaries. (PL’s Rule 56.1 Stmt. ¶¶ 1-3.) Plaintiff commenced this suit on behalf of the Plans, who invested in the Bond Funds through ERISA separate accounts (the “Separate Accounts”) that PRIAC maintained. (PL’s Rule 56.1 Stmt. ¶ 4.) PRI-AC’s role with respect to the transactions at issue in this litigation was to serve as an intermediary between State Street and the Plans. (Def.’s SJ Rule 56.1 Stmt. ¶ 9.)

Defendant State Street, as trustee, established the IBF and the GCBF as unregistered collective trust funds. (Def.’s SJ Rule 56.1 Stmt. ¶ 5.) State Street’s investment arm, State Street Global Advisors (“SSgA”), a large institutional asset manager, managed the Bond Funds at issue in this case. (Pl.’s Rule 56.1 Stmt. ¶¶ 7-9; Def.’s SJ Rule 56.1 Stmt.f3.) The Fixed Income Group within SSgA played a central role in the investment management of the Bond Funds. (See PA 602 Wands.) State Street is a recognized name among institutional asset managers and is regulated by state authorities, the Securities and Exchange Commission (“SEC”), and the Department of Labor. (PL’s Rule 56.1 Stmt. ¶¶ 12,14,15.)

II. The Bond Funds in PRIAC’s “Manager of Managers” Program

The relationship between the parties reaches back to 1996, when CRIS offered the Bond Funds to its retirement plan clients. (Def.’s SJ Rule 56.1 Stmt. ¶ 5.) After Prudential acquired CRIS, PRIAC continued to offer the Bond Funds as part of its “Manager of Managers” (“MOM”) program. (Def.’s SJ Rule 56.1 Stmt. ¶ 6.) The MOM program was “specifically designed to help [defined contribution and defined benefit] plan sponsors manage their responsibilities in selecting and monitoring investments.” (Palmer Deck Ex. 5 at 1.) MOM had two major components: the Multi-Manager Matrix and the Prudential Due Diligence Advisor Program (the “DDA Program”). (Id. at 5.)

A. Institutional Sub-Advised and Alliance Funds in the Multi-Manager Matrix

The first component of the MOM program, the “Multi-Manager Matrix,” classified funds so that plan sponsors could choose from “a comprehensive array of asset classes and fund offerings covering the full spectrum of risk and return objeefives,” which included hundreds of funds in various asset classes. (Palmer Deck Ex. 5 at 6; PL’s Rule 56.1 Stmt. ¶ 32.) Each asset class contained two “primary types” of fund offerings: Institutional Sub-Advised and Alliance. (Palmer Deck Ex. 5 at 6.) PRIAC took a more passive role with the latter category than it did with the former. With Institutional Sub-Advised Funds, PRIAC agreed on an investment strategy with the fund’s investment manager and monitored the funds for the degree to which the manager adhered to the stated process and objective. (PL’s Rule 56.1 Stmt. ¶ 55.) PRIAC also had the authority to replace the investment manager of an Institutional Sub-Advised Fund. (Id. ¶ 56.)

With Alliance Funds, however, PRIAC advised clients that it could not “control the investment process in any way and cannot ensure style consistency.” (Palmer Deck Ex. 5 at 6.) PRIAC acknowledged that it was an ERISA fiduciary “for the selection, monitoring, and, if necessary, the deselection of the investment manager” for the Institutional Sub-Advised Funds, but only one for “selection and monitoring” for the Alliance Funds. (Id.) Although generally deselection was at the plan sponsor’s discretion, “in extenuating circumstances,” PRIAC could terminate an Alliance Fund “as a measure of last resort.” (See id. at 6, 20.) PRIAC negotiated the investment strategy of an Institutional Sub-Advised Fund, but “the outside manager ... controlled the investment process” of an Alliance Fund; that is, PRIAC had no input as to an outside manager’s investment management, risk assessments, and investment decisions for an Alliance Fund. (Palms ¶ 11, PA 3; see also PL’s Rule 56.1 Stmt. ¶ 10.) Furthermore, although PRIAC selected the funds comprising the menu of Alliance Funds from which plan sponsors and participants could choose, the plan sponsors and participants directed the investments of their plans within that menu. (See PA 2220.)

The separate accounts invested solely in the Bond Funds were Alliance Funds, in which PRIAC had the authority to discontinue investments only in extenuating circumstances as a measure of last resort. (Pl.’s Rule 56.1 Stmt. ¶ 37; see also Palmer Decl. Ex. 5 at 6.) PRIAC also had two “Balanced Funds,” the Balanced Turner Fund and the Balanced Wellington Fund. (PL’s Rule 56.1 Stmt. ¶ 57.) These funds were Institutional Sub-Advised Funds, with 40% of the fund invested in the IBF, and the remainder managed by Turner or Wellington. (Id. ¶ 58.) For these funds, PRIAC had the authority to discontinue investments in the IBF, even without extenuating circumstances. (See id. ¶ 56.)

B. The DDA Program

The second component of the MOM program, the DDA Program, was “the cornerstone of [PRIAC’s] investment offerings, ... [and] employed] a disciplined process ... for identifying, evaluating and selecting leading investment managers across asset classes.” (Palmer Decl. Ex. 5 at 5.) PRIAC monitored the Bond Funds through the DDA Program, which purported to provide reporting and rigorous and objective analysis on funds. (See PL’s Rule 56.1 Stmt. ¶33, 44; Def.’s SJ Rule 56.1 Stmt. ¶ 12.) The MOM Program monitored funds “on an ongoing basis with the understanding that performance goals may not be met quarter to quarter, but are to be achieved over the longer term,” (Palmer Decl. Ex. 5 at 13.), and the DDA Program used a “DDA Score,” a composite score of a fund’s past performance that weighted the longer term periods more heavily than shorter term periods, to monitor funds. (Palms ¶ 15, PA 4-5.)

The DDA Program also produced quarterly “DDA Reports” for each fund PRI-AC offered, which were made available to clients. (Palms ¶ 14, PA 4.) The DDA Reports contained an explanation of the DDA Program, a summary of activity for each fund on the platform, a market review, fund performance and peer group rankings, and a page of data specific to each fund, such as the ten largest bond holdings of the fund, the fund’s net asset value, and commentary on the fund’s performance for each quarter. (PL’s Rule 56.1 Stmt. ¶ 54; Palms ¶¶ 14, 17, PA 4-5.) For each Alliance Fund, PRIAC defined a “peer group” for that fund using certain criteria. (PL’s Rule 56.1 Stmt. ¶ 51.) PRIAC then calculated the DDA Score for the Alliance Fund and for each peer fund, ranked the Alliance Fund among its peer funds, and included that peer ranking in the DDA Report. (Id. ¶ 52.) The DDA Reports contained data and commentary for 100 to 250 funds, and each report was 200 to 300 pages long. (Id. ¶ 62.)

In addition to information provided through the DDA Program, PRIAC provided “Fund Fact Sheets” to the Plans quarterly. These documents provided information about a fund’s objectives, guidelines, and certain fund characteristics. (Palms ¶ 22, PA 6.) The Plans could also access daily performance and other information about the Bond Funds on PRIAC’s Plan Sponsor and Plan Participant websites. (Id. ¶ 24, PA 7.)

C. PRIAC’s Use of Information Provided by State Street

PRIAC had a policy of not providing the names of its clients to anyone, including State Street. (Def.’s SJ Rule 56.1 Stmt. ¶ 17.) State Street asked PRIAC for a list of investors in the Bond Funds in September 2007, but PRIAC refused. (Id.) For the Plans, then, PRIAC served as the primary conduit of information about the Bond Funds, although the Plans could access other publicly available information, such as the sector weights of benchmarks against which Funds were measured. (See Pl.’s Rule 56.1 Stmt. ¶ 65.) State Street provided to PRIAC monthly account summaries that reported on the performance of the Bond Funds and their benchmarks as well as quarterly qualitative and quantitative data reports that included additional information, such as the ten largest bond holdings of the fund, average coupon, average maturity, and a quarterly fund commentary. (Frascona ¶¶ 16, 18, PA 18-19.) PRIAC, in turn, would use this information in composing its DDA Reports and Fund Fact Sheets. (Id. ¶ 18.) PRIAC did not relay the information verbatim, but instead used its judgment to convey to its clients the information it deemed appropriate, which did not always include all the information State Street conveyed to it. (See Palms ¶¶ 14, 15, 17, 18, 22, PA 4-6.) State Street’s monthly reports, for example, compared the sector allocations of the Bond Funds with those of their benchmarks, whereas the DDA Reports did not. (PA 825; Def.’s SJ Rule 56.1 Stmt. ¶ 29.) Instead, the DDA reports displayed a three-year average asset weighting for the funds’ benchmarks. (Def.’s SJ Rule 56.1 Stmt. ¶ 29.)

D. The Watch List

PRIAC could alert its clients about the performance of an Alliance Fund via a quarterly “Watch List.” Placement on the Watch List was a means of informing Plan Sponsors that PRIAC had concerns about the fund’s performance or its investment manager. (PL’s Rule 56.1 Stmt. ¶ 43.) PRIAC compiled the Watch List after the end of each calendar quarter. (Id.) Typically, PRIAC’s Investment Products team would identify Alliance Funds with which they had concerns at the end of each quarter, and submit this list to PRIAC’s Separate Account Committee, who would decide ultimately whether to place the fund on the Watch List. (Palms ¶ 25, PA 7.)

III. The Bond Funds

A. Benchmarks

As mentioned above, the Plans, through PRIAC, invested in two particular funds at issue in this litigation, the GCBF and the IBF. Each of the Bond Funds used a Lehman Brothers Index as a benchmark by which the fund’s performance could be measured; the GCBF used the Lehman Brothers Government Credit Bond Index, and the IBF used the Lehman Brothers Intermediate Government Credit Bond Index. (PL’s Rule 56.1 Stmt. ¶ 18.) The investment objective of the Bond Funds was to match or exceed the performance of the index by which they were measured. (See, e.g., PA 1432 (“The Investment Objective of the Fund shall be to match or exceed the return of the Lehman Brothers Intermediate Government Credit Bond Index... .”).)

B. “Enhanced Index” vs. “Active” Funds

There is some dispute about how State Street categorized the Bond Funds. PRI-AC asserts that State Street used three categories for their funds: “Passive” funds would closely track a benchmark index, “Active” funds sought more aggressive returns, and “Enhanced Index” funds would modestly outperform a benchmark index while mirroring its risk profile. (PL’s Rule 56.1 Stmt. ¶ 16.) Indeed, several State Street presentations depict “Enhanced Index” as a category between “Active” and “Passive.” (E.g., PA 1908, 1943; PA 2119.) State Street, however, disputes that the “Enhanced Index” characterization had any consistent meaning, and emphasizes that the term has no accepted industry-wide meaning. (See Maher Decl. Ex. 8 at 238:9-238:23, Ex. 68 at 31:24 — 32:8; Defi’s SJ Rule 56.1 Stmt. ¶ 23.) State Street maintains, therefore, that the Bond Funds are “Active” funds. It is undisputed that “enhanced index,” to the extent the term is meaningful, would imply at least some “active management qualities.” (Def.’s SJ Rule 56.1 Stmt. ¶ 24.)

Descriptions of the Bond Funds within a single document lend support for both interpretations of their categorization. One State Street presentation, for example, describes the “investment philosophy” of the Bond Funds as a “risk-controlled process [that] ensures consistent, steady performance,” implying that the Bond Funds lie between Active and Passive, but elsewhere describes the Bond Funds’ “active core bond strategy.” (Compare PA 2050 with PA 2092-94.) The confusion exists elsewhere. An e-mail from Robert Frascona, Vice President of Investment Product Management for PRIAC, acknowledges that “SSgA characterizes the [GCBF] and [IBF] strategies as actively managed,” but also says that “they truly fall between passive management ... and active management.” (Maher Decl. Ex. 72 at 334233.) A State Street employee described the fee paid to State Street for the Bond Funds as “recogniz[ing] the role of enhanced funds between active and passive strategies.” (PA 1651.)

Regardless of whether State Street intended to distinguish the Bond Funds from Active Funds by describing them as “Enhanced Index” on some occasions, PRIAC described the Bond Funds as “enhanced index” funds in certain materials that it sent to its clients in early 2005. (See PA 1057-58, 1061.) PRIAC also stated that the Bond Funds “combine!] the usually predictable strength of passive management with the repeatable aspects of active management to seek to provide a stable pattern of incremental returns” in its Fund Fact Sheets. (PL’s Rule 56.1 Stmt. ¶ 26.) The Fact Fund Sheets also described State Street’s management style as “enhanced” from 1996 through 2007. (Id. ¶25.) State Street reviewed Fact Fund Sheets containing the language described above on March 30, 2005 and August 1, 2007 and generally found them to be accurate, though it did not specifically comment on the relevant language. (PA 1057, 1355.) Until July 2005, PRIAC had sent Fund Fact Sheets to State Street for its review and approval each quarter, but PRIAC stopped this practice in mid-2005 to speed up the production and delivery to clients of the Fund Fact Sheets. (PL’s Rule 56.1 Stmt. ¶¶ 84, 85.)

C. Targeted Excess Returns and Predicted Tracking Error

Related to the categorization of “Active” or “Enhanced Index” are the Bond Funds’ targeted excess returns and predicted tracking error as compared to their benchmarks. Both of these characteristics are measured in “basis points.” Each basis point represents a 0.01% deviation from the benchmark. The points for targeted excess returns represent the margin by which the Bond Funds strove to outperform their benchmark; the predicted tracking error measured the anticipated deviation from the benchmark.

In 2003, in a presentation to PRIAC’s predecessor, State Street stated that the Bond Funds’ targeted excess return was 30 to 40 basis points (0.3 — 0.4%), and its target predicted tracking error was 40 to 50 basis points. (PA 2050.) CIGNA informed State Street that the Bond Funds were available for selection if Plan Sponsors chose the “particular style offered by the strategies — low tracking error fixed income.” (PA 2027.) In February 2005, State Street informed PRIAC that the Bond Funds’ excess returns target was 40 to 60 basis points and that their targeted predicted tracking error was 50 to 75 basis points. (Pl.’s Rule 56.1 Stmt. ¶ 24; Maher Deel. Ex. 8 at 564:9-565:9.)

In early 2006, State Street increased the excess returns target for the Bond Funds to 70 to 80 basis points. (PL’s Rule 56.1 Stmt. ¶ 96.) State Street never specifically disclosed this to PRIAC. (Compare PA 1574 with Frascona ¶ 9, PA 17; see also PA 2145 (“Our fee structure may very well suggest that our strategy is ‘only’ enhanced. ...”).) State Street informed PRIAC that there had been no changes in its investment strategy for the Bond Funds in September 2005 and August 2007 — a statement that State Street contends is true because its view is that the Bond Funds were “Active” all along. (PL’s Rule 56.1 Stmt. ¶ 28.)

IV. Investment Strategy for the Bond Funds from 2005 to 2007

A. Active Management

The overall investment philosophy of State Street’s Fixed Income Group provides a backdrop to the increase in the excess return targets for the Bond Funds from 2005 to 2007. At the end of 2005, State Street’s chief executive officer set for the Fixed Income Group a goal of tripling the group’s revenues and assets under management within three years. (PL’s Rule 56.1 Stmt. ¶ 91.) Typically State Street set its fees at 20-25% of a fund’s excess return target, so the fee for an active fund would be higher than that for a passive fund. (PA 498 Kelly.) Although State Street had primarily been known as a passive fund manager in the past, State Street’s executive group wanted the fixed income team’s active fixed-income capabilities to be more widely known in 2006. (PA 466-69 Greff; PA 490-91 Hunt; PA 606-07 Wands.) In that year, State Street had eight “global strategy initiatives,” known as the G-8, the third of which was “Leveraging Fixed Income.” (PA 2153.) As part of implementing these initiatives, the Fixed Income Group decided to “take more active risk” in its bond investments and to “[g]enerate higher returns for clients in existing products.” (PL’s Rule 56.1 Stmt. ¶ 95.) By early 2006, State Street had increased the return targets for the Bond Funds to 70 to 80 basis points above their respective benchmarks, a target consistent with an active fund. (Id. ¶ 96; PA 544-M6 Pickett.)

B. The Limited Duration Bond Fund

State Street also invested the Bond Funds in the Limited Duration Bond Fund (“LDBF”), a “portable alpha” fund State Street managed and in which other State Street-managed funds invested. (See Pl.’s Rule 56.1 Stmt. ¶¶ 101, 102, 107.) Portable alpha refers to a strategy in which a number of funds invest in one “alpha-seeking” fund; alpha refers to the excess return on an investment over its benchmark. (Id. ¶¶ 102, 103.) In 2006 and 2007, the LDBF invested in home equity asset-backed securities (“ABS”), and by early 2007, virtually all of the LDBF’s assets were invested in subprime mortgage-related securities. (Id. ¶¶ 104,105.)

C. Leverage

Between 2005 and 2007, State Street increased its use of leverage in the IBF and the GCBF. “Leverage” involves the use of financial instruments or debt to increase exposure to an investment beyond the cash invested. (Pl.’s Rule 56.1 Stmt. ¶ 72.) Specifically, State Street increased the leverage in the IBF from 1.28 in September 2005 to 4.56 at the end of July 2007, and in the GCBF from 1.35 in September 2005 to 6.1 at the end of July 2007. (Id. ¶ 117.)

V. Disclosures Regarding the Bond Funds Between 2005 and 2007

A. The “Passive” Name Change for the IBF

On September 19, 2005, State Street advised PRIAC that it had made changes to certain funds to create operational efficiencies, including minor name changes. (Pl.’s Rule 56.1 Stmt. ¶ 78.) Sonya Hughes, State Street’s “relationship manager” for PRIAC at the time, sent PRIAC an e-mail that mistakenly indicated that the name of the IBF had changed to the “Passive Intermediate Bond Index Securities Lending Series Fund.” (Def.’s SJ Rule 56.1 Stmt. ¶ 18.) A fund declaration also included “passive” and “index” in the IBF’s name. (Pl.’s Rule 56.1 Stmt. ¶ 79.) PRIAC requested a conference call to speak with State Street generally about the September 19, 2005 changes to the funds, though not specifically one to discuss the name change. (Id. ¶ 80.) After that call, Hughes sent a document to PRI-AC confirming that the name of the IBF had been changed to include the words “passive” and “index.” (See id. ¶ 81; PA 669.) The document also indicated that the investment objectives of the funds listed, including the IBF, had not changed. (PA 669.) Following this, PRIAC used the new name for the IBF in its communications with the Plans from October 2005 to July 2007, and its materials referred to the IBF as the Passive Intermediate Bond Index Fund during that time. (Id. ¶ 82.)

During this time, PRIAC employees responsible for monitoring the IBF believed that the IBF, despite its name, was an enhanced index fund. (Def.’s SJ Rule 56.1 Stmt. ¶ 19.) As noted, an enhanced index fund, to the extent the term has meaning, is not the same as a passive or index fund because of certain active management qualities. (Def.’s SJ Rule 56.1 Stmt. ¶ 24.) PRIAC continued, however, to use the new name for the IBF after State Street had advised PRIAC twice regarding the name change.

In late June 2007, PRIAC asked State Street about the accuracy of the IBF’s name. (PL’s Rule 56.1 Stmt. ¶ 86.) Specifically, Matthew Dingee, a PRIAC investment analyst responsible for monitoring the IBF, forwarded Sonya Hughes’s September 2005 e-mail regarding the name change to Mark Flinn, the new relationship manager for PRIAC at State Street, and stated that PRIAC was “confused as to why the fund’s performance matches what SSgA considers to be the Active Intermediate Bond Fund (i.e., in the Q1 SSgA Investment commentary ...).” (Palmer Ex. 21 at 529728.) On July 12, 2007, Flinn e-mailed Robert Frascona of PRIAC to confirm that State Street had mistakenly provided PRIAC with an incorrect name for the IBF and attached a document indicating the correct name for the IBF and that the IBF was an actively managed fund. (Pl.’s Rule 56.1 Stmt. ¶ 87; Def.’s SJ Rule 56.1 Stmt. ¶ 46.) State Street reiterated these points on a July 18, 2007 conference call with CIGNA, PRIAC, and State Street. (Def.’s SJ Rule 56.1 Stmt. ¶ 47.)

On July 27, 2007, Frascona internally forwarded to Dingee an IBF fact sheet that Dingee was to ask State Street to review for accuracy. (Def.’s SJ Rule 56.1 Stmt. ¶ 48.) Dingee did so, forwarding that fact sheet to Flinn at State Street on July 30, 2007. (Id. ¶ 49; Pl.’s Rule 56.1 Stmt. ¶ 88.) Because PRIAC had stopped regularly sending fact sheets to investment managers for quarterly review in mid-2005, this was the first time State Street had reviewed the IBF fact sheet since that time. (See Pl.’s Rule 56.1 Stmt. ¶¶ 84, 85.) On August 1, 2007, State Street responded that the name of the IBF was inaccurate on the Fund Fact Sheet. (Id. ¶ 89.) That same day, Frascona e-mailed co-workers at PRIAC to inform them that because they had “recently” been advised by State Street that they were using an incorrect name for the IBF, they were “immediately” changing the name of the fund. (Def.’s SJ Rule 56.1 Stmt. ¶ 52.) PRIAC updated its websites that day and began the process of correcting in-production reports to reflect the IBF’s corrected name. (PL’s Rule 56.1 Stmt. ¶ 90.) PRIAC ultimately notified its clients (other than CIGNA, who was already aware) of the name change by a method other than its website on August 20, 2007. (Maher Decl. Ex. 51, at Answer to Interrogatory No. 8.)

B. Leverage Disclosure

In the fourth quarter 2004 report for the GCBF, State Street showed sector allocations totaling 116%; the 2004 report for the IBF showed sector allocations totaling 100%. (PL’s Rule 56.1 Stmt. ¶ 73.) When PRIAC asked State Street why the total for the GCBF was over 100%, State Street explained that 116% included the GCBF’s leverage component which might hold “a future or a swap.” (Id.) PRIAC was therefore aware that the funds could use, and at least in GCBF’s case, had previously used, moderate leverage to achieve returns above those of their benchmarks. (Id. ¶ 77.) In early 2005, State Street made an internal decision to “normalize” sector weights in its reports so that the weights would total 100%, even if the amount of invested assets exceeded the amount invested in a fund because of leverage. (Id. ¶ 75.) Subsequent reports did not disclose negative cash or sector exposures of more than 100%. (See PA 1047; PA 1082; PA 2161-63.) State Street’s monthly and quarterly reports to PRIAC after this decision therefore did not show leverage in the Bond Funds. (PL’s Rule 56.1 StmtJ 118.)

On July 12, 2007, PRIAC received from State Street a spreadsheet showing portfolio holdings of the IBF and a breakdown of the components of the IBF’s ABS exposure. (PL’s Rule 56.1 Stmt. ¶ 136.) The spreadsheet listed the over 2,600 individual holdings of the IBF, associating each one with an alphanumeric identifier, a notional amount, and a description such as “US TREASURY BONDS,” “CSX CORP,” or “IRSwap USD 4.0 LIBOR 2Y.” (See PA 689-776.) Although it was possible to divine the amount of leverage (namely, 4 to 1) in the IBF from this spreadsheet and other available information, PRIAC employees who received it at the time either did not conduct a detailed enough review to reveal that leverage or could not understand it. {See PA 516 Kinney; Dingee ¶ 6, PA 24; Palmer Decl. Ex. 18 (“Molinaro Dep.”) at 105:21-107:6.)

C. Other Disclosures

i. Performance of the Bond Funds Compared with Their Benchmarks

State Street sent monthly reports to PRIAC that reported the Bond Funds’ investment in various sectors by percentages as well as supplemental quantitative and qualitative information that reported other characteristics of the Bond Funds, such as their ten largest bond holdings, average coupon, average maturity, and a quarterly fund commentary. (PL’s Rule 56.1 Stmt. ¶¶ 69-70.) The reports showed that the performance of the Bond Funds, at times, varied from their benchmarks. In December 2006, for example, the IBF outperformed its benchmark by 69 basis points for the month, and by 27 basis points over a five year period; the GCBF outperformed its benchmark by 8 basis points that month, and by 23 points over a five year period. (Palmer Decl. Ex. 31 at 8182.) Performance in individual months would vary. In June 2006, both Bond Funds underperformed, the GCBF by 3 basis points, and the IBF by 2 basis points. (PA 2706.) And by March 31, 2007, the long-term performance of the Bond Funds showed less of a variance from their benchmarks than they did in December 2006. At that point, the IBF outperformed its benchmark by 10 basis points over a five-year period and just 6 points over a ten-year period; the GCBF outperformed its benchmark by 6 basis points over a five-year period and actually underperformed relative to its benchmark by 6 basis points over a ten-year period. (PA 1078; PA 1073.)

ii. Investment Strategy

State Street never specifically disclosed to PRIAC that the Bond Funds’ target was 70 to 80 basis points above their benchmarks. {Compare PA 1574 with Frascona ¶ 9, PA 17; see also PA 2145 (“Our fee structure may very well suggest that our strategy is ‘only’ enhanced....”).) In February 2005, State Street did disclose that “[t]he strategy’s goal is to generate excess returns of 40-60 bps [basis points], while targeted predicted tracking error is 50-75 bps. More recently we have generated less excess return than our goal, but we have also had a lower predicted tracking error.... We have started to increase both the tracking error and hopefully the excess returns.” (PA 987.) In its commentaries for the fourth quarter of 2006 and the first quarter of 2007 on the Bond Funds, State Street also used the word “active” in the name of each fund, as opposed to its use of the word “passive” in the IBF’s name in 2005. (Maher Decl. Ex. 27 at 7411; Ex. 28 at 274915; see also PL’s Rule 56.1 Stmt. ¶ 79.) Also, State Street’s commentary for the first quarter of 2006 on the GCBF mentioned that “[overweight positions to the long triple B securitized debt sector” made a “[Contribution to excess return in our strategy” and that the GCBF would “maintain our existing triple B home equity exposure,” although it did not explain those statements beyond that. (Palmer Decl. Ex. 40 at 6247.) PRI-AC reviewed this commentary and used portions of it in its DDA Reports. (Def.’s SJ Rule 56.1 Stmt. ¶ 27.)

PRIAC knew in 2006 and 2007 that State Street’s investment strategy for the Bond Funds involved making some investments in sectors in which their benchmarks did not invest to generate returns above those of the benchmarks. (PL’s Rule 56.1 Stmt. ¶ 109.) PRIAC also knew during that time that some of the Bond Funds’ ABS holdings were backed by the home equity market. (Id. ¶ 114.) State Street’s monthly reports did not detail the specific types of ABS exposure or break down by type the Bond Funds’ ABS investments, although some quarterly commentaries alluded to subprime exposure, as discussed above. (Frascona ¶ 17, PA 19.) State Street did not inform PRIAC of the Bond Fund’s investments in the LDBF until July 2007. ¶ 108.) (PL’s Rule 56.1 Stmt.

iii. Sector Composition

The reports also indicated that the Bond Funds invested in certain sectors, including asset-backed securities, that their benchmarks did not. (Def.’s SJ Rule 56.1 Stmt. ¶ 25.) The reported ABS holdings of the Bond Funds fluctuated during 2006 and 2007, as shown in the graphs below:

(PA 2595; PA 2617; PA 2639; PA 2668; PA 2690; PA 2712; PA 2742; PA 2764; PA 2785; PA 2817; PA 2839; PA 2861; PA 2892; Palmer Decl. Ex. 35 at 527898; Palmer Decl. Ex. 36 at 534579; PA 2914.) (PA 2597; PA 2619; PA 2641; PA 2670; PA 2692; PA 2714; PA 2744; PA 2766; PA 2787; PA 2819; PA 2841; PA 2863; PA 2894; Palmer Decl. Ex. 35 at 527900; Palmer Deel. Ex. 36 at 534581; PA 2916.) Over this period, the State Street reports also indicated that the Bond Funds’ benchmarks held 0% ABS exposure. (Def.’s SJ Rule 56.1 Stmt. ¶ 26.)

VI. The End of the Bond Funds

A. Decline in Performance, the Watch List, and Redemption

In the first quarter of 2007, the IBF gained 62 fewer basis points than its benchmark, and the GCBF gained 57 fewer basis points than its benchmark. (Pl.’s Rule 56.1 Stmt. ¶ 122.) In April and May 2007, the performance of the Bond Funds improved relative to the first quarter of 2007. (Id. ¶¶ 124, 125.) Beginning in late July 2007, the Bond Funds’ performance declined significantly. (Id. ¶ 126.) From May 31 to August 31, 2007, the IBF lost 16.9% of its net asset value while its benchmark increased in value by 2.2%; during that period, the GCBF lost 23.9% of its net asset value while its benchmark increased in value by 2.1%. (Id. ¶ 127.)

On August 20, 2007, PRIAC placed the Bond Funds on its Watch List and notified its clients of that fact via e-mail, without waiting for the end of the third quarter, and redeemed the Balanced Funds’ investments in the IBF, pursuant to its authority to discontinue investments made by an Institutional Sub-Advised Fund. (PL’s Rule 56.1 Stmt. ¶ 162; Def.’s SJ Rule 56.1 Stmt. ¶ 58.) The client notification did not mention that CIGNA had redeemed its investment in the IBF earlier that day or that PRIAC had redeemed the Balanced Funds’ investments. (Def.’s SJ Rule 56.1 Stmt. ¶ 59.) On August 23, 2007, PRIAC sent to its client-facing personnel a packet of documents to assist them in explaining to the Plans the situation involving the Bond Funds. (PL’s Rule 56.1 Stmt. ¶ 166.)

On August 28, 2007, PRIAC implemented a “negative election” process for the Plans, under which the Plans would redeem their investments in the Bond Funds unless they instructed PRIAC otherwise. (PL’s Rule 56.1 Stmt. ¶ 167.) As a result, 179 of the 180 plans did not object to the redemption of their investments in the Bond Funds, and the one objecting Plan requested redemption shortly thereafter. (Def.’s SJ Rule 56.1 Stmt. ¶ 62.) That day, PRIAC also sent letters to the Plans in which it stated that “State Street is not providing sufficient information to allow us to monitor” each Fund. (Pl.’s Rule 56.1 Stmt. ¶ 168.) PRIAC personnel were instructed to provide that letter to affected clients and their investment consultants, along with three documents provided by State Street: the SSgA Q & A, the SSgA Characteristics Report through July 31, 2007, and the SSgA Weekly Fund Update through August 24, 2007. (Id. ¶ 169.)

PRIAC requested that State Street redeem the Plans’ investments in the Bond Funds on August 29, 2007, and State Street closed the Bond Funds a few days later. (Pl.’s Rule 56.1 Stmt. ¶¶ 128, 129.) PRIAC sent various documents to its personnel for their use in updating the Plans about the Bond Funds on September 4 and 5, 2007. (Id. ¶¶ 170,171.)

B. PRIAC and CIGNA’s Concerns About Underperformance

Leading up to the eventual redemption of the Bond Funds, in April and May 2007, PRIAC asked State Street for an explanation of the Bond Funds’ first-quarter underperformance. (PL’s Rule 56.1 Stmt. ¶ 130.) State Street had sent a “ClientAWRisk Alert” in February 2007 to some clients and a “client-friendly” letter to some clients in mid-April 2007 that attributed its fixed income funds’ underperformance to investments in subprime mortgage securities, but sent neither of these to PRIAC. (Id. ¶¶ 131-133.) The ClienbAb-Risk Alert notified State Street clients that “[mjany of our active portfolios, whether they be benchmark-oriented or Libor-oriented, are exposed to the triple B ABX sector,” and explained that the decline in that sector was causing a decline in value in the portfolios as well. (PA 1598.) The ABX index was an index composed of credit default swaps on twenty subprime mortgage-backed securities. (PL’s Rule 56.1 Stmt. ¶ 123.) The Clienb-AWRisk Alert contained quantitative data on the decline in the ABX, as well as a qualitative description of the subprime mortgage crisis. (PA 1596-99.) State Street offers no particular reason why PRIAC did not receive this alert and the April 2007 letter. (PA 457 Flinn; PA 597-99 Thornton.)

On April 11, 2007, State Street did provide commentary on the Bond Funds’ performance in the first quarter of 2007 to PRIAC, which stated:

The Active Core U.S. Government/Credit Fund under-performed the return of its benchmark by 56 basis points for the quarter, posting a return of 0.90%. The Active Intermediate Bond Fund underperformed its benchmark for the quarter by 62 basis points, posting a return of 0.97%....

The bond market in the past few weeks has reversed most of the sell-off that occurred during the end of the fourth quarter of 2006. This move reflects some recent economic data that has been somewhat weaker than the trend of recent months. It also reflects the impact of the turmoil that has occurred in the sub-prime mortgage industry, as several companies in that business have filed for bankruptcy and others are feeling a great deal of financial stress. This has caused the treasury market to see bond yields decline about 30 basis points in the five-year area as the market has experienced a classic “flight to quality” move. This move into treasuries has caused spreads to widen in corporate sector and lower-quality mortgage bonds. It has even affected the agency market as spreads have widened from about 25 basis points to 32 basis points in the five-year maturity area. Another factor in the bond market rally has been the recent decline in the stock market, which has resulted in cash flowing out of stocks and into bonds.

The strategies’ under-performance was primarily driven by exposure in the triple B asset-backed securities market. The sub-prime housing market has been plagued by negative headlines in the media. The hedge fund community seized upon these negative reports and began to use this Index as a means of expressing a negative view (i.e. shorting) on the U.S. housing market. A combination of thin volume and one-way hedge fund activity has led to extreme market volatility that has paralyzed value-oriented investors from entering the market. This has lead to extreme illiquidity in the market, which has translated into unprecedented transactions costs. Although we respect the technicals surrounding this issue, we are comfortable and confident in our analysis of the fundamentals and continue to hold this exposure____

Looking forward, we will continue to hold our asset-backed exposure. Our analysts remain confident in the fundamentals of these securities within the portfolio.

(Maher Deck Ex. 28 at 274915.) The commentary contained the qualitative description of the subprime mortgage crisis, although not the quantitative data contained in the Client-At-Risk Alert, or any mention of the ABX. (Compare id. with PA 1596-99.)

In May and June 2007, CIGNA, one of PRIAC’s clients, was considering transferring more money to the IBF, and on June 21, Dean Molinaro of PRIAC forwarded the April 11 State Street commentary to Tracy Labonte of CIGNA in response to questions she had posed about the IBF. (Def.’s SJ Rule 56.1 Stmt. ¶ 31.) In June and July, PRIAC asked State Street several questions about the Bond Funds on behalf of CIGNA. (Palmer Deck Ex. 18 at 85:9-85:16; PA 671; PA 777-78.) On June 29, PRIAC received from State Street characteristics data as of May 31, 2007 and forwarded it to CIGNA that same day. (Defi’s SJ Rule 56.1 Stmt. ¶ 34.)

On July 6, 2007, State Street e-mailed commentary to PRIAC discussing the sub-prime impact on State Street’s “active” funds in the first quarter and June of 2007, although the commentary did not specifically mention the Bond Funds by name. (See PA 674-77.) The commentary also noted that the subprime market was continuing to experience extreme volatility and illiquidity, and that State Street was planning to maintain its subprime exposure. (Def.’s SJ Rule 56.1 Stmt. ¶ 35.) PRIAC forwarded the commentary to CIGNA that same day. (Id.)

On July 9, 2007, CIGNA e-mailed PRI-AC noting that “[t]he writeup was very good in terms of understanding the investing philosophy and recent market developments” but that it “did not cover some things such as how much exposure to these subprime markets there was over time and how much there is currently, and what [specifically] the exposure is.” (Palmer Deck Ex. 56.) That day, PRIAC e-mailed State Street asking for a holdings report as of June 30, a breakout of quality ratings and holdings type for the ABS holdings of the IBF for the past four quarters, and an indication of the amount and type of IBF’s exposure to the subprime market. (Palmer Deck Ex. 57 at 8764.) On July 12, 2007, PRIAC received from State Street and forwarded to CIGNA a spreadsheet with this information. (Ph’s Rule 56.1 Stmt. ¶ 136.) The spreadsheet was similar to one used within State Street, but lacked certain data in that sheet, such as market value data. (Compare Palmer Decl. Ex. 57 to PA 1655.)

On July 17, 2007, CIGNA e-mailed PRI-AC stating that CIGNA “may need to talk with someone from State Street about strategy, leverage, etc. eventually,” and CIGNA and PRIAC requested a conference call with State Street to ask about, among other things, leverage in the IBF. (Def.’s SJ Rule 56.1 Stmt. ¶ 39; Pi’s Rule 56.1 Stmt. ¶ 140.) The conference call took place on July 18, 2007; on the line were Tracy Labonte and Marguerite Boslaugh from CIGNA, Dean Molinaro and Matthew Dingee from PRIAC, and Michael Wands, Mark Flinn, and Jim Hopkins from State Street. (Def.’s SJ Rule 56.1 Stmt. ¶ 41.) The conference call generated follow-up requests for information from PRIAC. (See PA 2391; PA 2394.) State Street did not respond to these requests. (Dingee ¶ 8, PA 25; see also PA 2391; PA 2394.) On July 31, 2007, CIG-NA indicated that it wished to begin the process of exiting the IBF. (Def.’s SJ Rule 56.1 Stmt. ¶ 50.) CIGNA redeemed its investment in the IBF on August 20, 2007. (Id. ¶ 59.)

C. Other Exchanges Between PRIAC and State Street About the Bond Funds

Apart from the questions it sent to State Street on behalf of CIGNA, PRIAC asked its own questions of State Street about the Bond Funds. On July 26, 2007, Matthew Dingee asked State Street whether a characteristics report PRIAC had received for the IBF reflected leverage. (Dingee ¶ 8, PA 25.) On August 8, Dingee asked for an updated data set reflecting the notional principal on the IBF’s swaps and also asked for second quarter 2007 characteristics and commentary for the Bond Funds. (Id. ¶¶ 11,12.) State Street responded the next day with commentary for the IBF only. (Id. ¶ 12.) On August 13, Dingee asked for the percentage of the IBF that was exposed to the subprime market. (Id. ¶ 13, PA 26.) In late July or early August, Robert Frascona asked State Street for portfolio characteristics for the IBF. (See Frascona ¶ 26, PA 20.) State Street responded to that request two weeks later, on August 15, showing 4 to 1 leverage in the IBF as of July 31, 2007. (Id.) And after an August 16 conference call, Frascona emailed State Street with additional questions about the IBF’s leverage, including how it was used and how long it had existed. (Id. ¶ 27, PA 21.) State Street did provide PRIAC with a document entitled “How State Street Looks at and Uses Leverage,” which detailed State Street’s general philosophy about leverage, but did not otherwise answer these questions. (See id.; Maher Decl. Ex. 100.) Except as noted, State Street did not respond to the preceding requests for information.

On August 2, 2007, State Street sent an e-mail to PRIAC with the subject line “IMPORTANT: SSgA Subprime Update.” (Def.’s SJ Rule 56.1 Stmt. ¶ 56.) The email recapped the recent events surrounding the subprime mortgage market. (PA 984.) The e-mail went on to detail the “impact on your investments with SSgA” stemming from the “problems in the sub-prime mortgage market.” (Id.) With respect to the IBF, the e-mail reflected that it had returned -3.11% year-to-date versus the benchmark, which had performed at 2.40% — an underperformance of approximately 550 basis points, and PRIAC was aware that a similar loss had occurred in the GCBF. (Def.’s SJ Rule 56.1 Stmt. ¶ 56.) The e-mail also stated that State Street had sold a “significant amount” of AAA-rated bonds held by the LDBF, and expressed confidence that State Street would “weather[ ]” the “storm.” (PA 985.) Matthew Dingee, the recipient 'of the August 2 e-mail, forwarded it internally within PRIAC, but PRIAC did not forward the e-mail in its entirety to any of the PRIAC clients invested in the Bond Funds. (Def.’s SJ Rule 56.1 Stmt. ¶ 57.)

On August 23, 2007, PRIAC asked State Street about the management style and investment guidelines of the Funds, and requested that State Street respond by August 27. (Pl.’s Rule 56.1 Stmt. ¶ 154.) State Street did not respond by August 27, and when it did, its responses were incomplete. (Id. ¶ 155.)

VII. Filing of the Complaint and Actions Thereafter

A. Exclusion of Other State Street-Managed Funds

PRIAC commenced this action on October 1, 2007. On that date, PRIAC distributed talking points to its personnel for use in conversations with affected clients and their investment consultants about this action. (Pl.’s Rule 56.1 Stmt. ¶ 172.) The next day, PRIAC advised its clients that, due to its “loss of confidence” in State Street, its “concerns now extended] to the other products on our platform that SSgA manages,” and placed the other State Street-managed funds on the Watch List. (Id. ¶ 173.) On October 26, 2007, PRIAC announced that it would no longer make available to its clients other State Street-managed funds. (Id. ¶ 174.)

B. PRIAC’s Loans to the Plans

Shortly after filing this lawsuit, PRIAC sent plans formerly invested in the Bond Funds a “Formal Plan Authorization” document by which Plans acknowledged that PRIAC was a fiduciary of the Plan and authorized PRIAC to prosecute this action on behalf of the Plan. (Def.’s SJ Rule 56.1 Stmt. ¶ 66.) In return for this authorization, PRIAC made a “Special Loan Payment” to each Plan. (Id. ¶ 67.) The payment consisted of an amount equal to what the Plan would have earned had the return of the Bond Funds equaled that of their benchmarks for a specified period and a portion of the legal fees and expenses incurred in prosecuting the lawsuit. (Id.) The Formal Plan Authorization noted that the Plans were “not obligated to repay the Special Loan Payment ... except to the extent that the Plan (or a Plan participant) receives any Lawsuit Proceeds.” (Palmer Decl. Ex. 88 at 2066721.) In February 2008, PRIAC sent a set of talking points to affected clients in which it explained its actions regarding the Bond Funds and the non-recourse loans to affected Plans. (Pl.’s Rule 56.1 Stmt. ¶ 176.)

C.The “Fair Fund” from State Street’s Settlement with the SEC

In February 2010, State Street entered into a settlement with the SEC and state regulators to resolve their investigations into losses incurred by some of State Street’s active fixed-income strategies during 2007 and earlier periods. (Def.’s SJ Rule 56.1 Stmt. ¶ 69.) A Fair Fund was established and distributed to affected investors in these strategies, and PRIAC received $52,552,696.77 through the Fair Fund, a portion of which serves as a credit against damages in this action. (Id.)

DISCUSSION

I. Standard of Review

Summary judgment is proper if the moving party shows that “there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. Proc. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). “In deciding whether there is a genuine issue of material fact as to an element essential to a party’s case, the court must examine the evidence in the light most favorable to the party opposing the motion, and resolve ambiguities and draw reasonable inferences against the moving party.” Abramson v. Pataki, 278 F.3d 93, 101 (2d Cir.2002) (internal quotation marks omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party must demonstrate that no genuine issue exists as to any material fact. Celotex, 477 U.S. at 323-25, 106 S.Ct. 2548. As to an issue on which the non-moving party bears the burden of proof, “the burden on the moving party may be discharged by ‘showing’ — that is, pointing out to the district court — that there is an absence of evidence to support the nonmoving party’s case.” Id. at 325, 106 S.Ct. 2548 (rejecting a construction of Rule 56(c) that would require the party moving for summary judgment to produce evidence affirmatively establishing the absence of a genuine issue of material fact with respect to an issue on which the nonmoving party bears the burden of proof).

If the moving party makes such a showing, the “non-movant may defeat summary judgment only by producing specific facts showing that there is a genuine issue of material fact for trial.” Samuels v. Mockry, 11 F.3d 34, 36 (2d Cir.1996); Celotex, All U.S. at 322-23, 106 S.Ct. 2548. In seeking to show that there is a genuine issue of material fact for trial, the non-moving party cannot rely on mere allegations, denials, conjectures or conclusory statements, but must present affirmative and specific evidence showing that there is a genuine issue for trial. See Anderson, 477 U.S. at 256-57, 106 S.Ct. 2505; Gross v. Nat’l Broad. Co., 232 F.Supp.2d 58, 67 (S.D.N.Y.2002).

II. Motions Relating to PRIAC’s Alleged Failure to Relate Information to the Plans

State Street has not moved for summary judgment on the claim that is at the core of this litigation, PRIAC’s allegation that State Street breached its fiduciary duties to the Plans. Rather, State Street has taken aim at PRIAC’s conduct, which, according to State Street, renders the question of whether State Street breached its fiduciary duties unnecessary to reach. The factual core of State Street’s argument begins with its assertion that PRIAC was fully aware of the leverage and sub-prime exposure in the Bond Funds by mid-July 2007. According to State Street, PRIAC had a duty to pass on that information to the Plans at that time, but failed to do so until late August 2007. If PRIAC had passed on that information in July, State Street surmises that the Plans would then have redeemed their interests in the Bond Funds. If the Plans had done so in mid-July instead of late August 2007, their losses would have been substantially less than that which is claimed in this litigation; notably, they would have been less than the amount State Street has already paid to PRIAC in its Fair Fund settlement with the SEC. State Street argues that therefore no possible damages can be claimed in this action, and there is no need to proceed to trial.

State Street clothes this factual argument in the raiment of three legal theories: (1) an affirmative defense based on a failure to mitigate damages; (2) the doctrine of superseding cause; and (3) a counterclaim for contribution. State Street has moved for summary judgment on all three theories. PRIAC has moved for partial summary judgment on State Street’s contribution counterclaim, and suggests that partial summary judgment be entered on the first two theories. The Court addresses these theories in turn.

A. Mitigation of Damages

State Street’s mitigation-of-damages theory is this: PRIAC breached fiduciary duties by failing to provide material information to the Plans about the Bond Funds that State Street had provided to PRIAC. PRIAC’s breach caused the Plans not to redeem their interests in the Bond Funds earlier, which would have allowed them to lose less money in the Funds. If the Plans had redeemed at an earlier date, their losses would have been less than the amount PRIAC received in the Fair Fund payout. Therefore, no amount is recoverable in this action because PRIAC’s breach resulted in a failure by the Plans to mitigate damages and any damage recoverable is less than what PRI-AC has already received.

PRIAC argues that State Street’s mitigation-of-damages defense is not a traditional mitigation-of-damages defense, but a “mitigation prevention” doctrine that is without legal precedent and that was not pled properly in State Street’s answer. State Street’s answer pled as its tenth affirmative defense that “[t]he Complaint is barred, in whole or in part, because plaintiff has failed, refused and/or neglected to mitigate or avoid damages it allegedly incurred as a result of State Street’s alleged breaches of fiduciary duty.” (Def.’s Answer & Countercl. at 8.) PRIAC argues that the defense on which State Street’s motion for summary judgment is based is not that which was pled, but a different “mitigation prevention” theory of law — a defense based on allegations that PRIAC’s actions prevented the Plans from mitigating damages, not a defense that PRIAC’s actions failed to mitigate its own damages. State Street argues that PRI-AC’s labeling of its affirmative defense as “mitigation prevention” is “nothing more than a sleight of hand.” (Def.’s Opp’n at 6.) According to State Street, its motion “is based on PRIAC’s own failure to do its part to mitigate the investment losses that PRIAC — the plaintiff — now seeks to recover for itself” (Id. (emphasis in original).) Presumably, State Street’s argument is based on the non-recourse loans that PRI-AC made to the Plans to cover most of the Plans’ losses and the provision in the associated loan agreements allows PRIAC to recover loan proceeds from the outcome of this litigation. According to State Street, any damages recovered in this lawsuit are in reality PRIAC’s damages, and therefore its pleading of a traditional mitigation-of-damages affirmative defense covers this case.

The Court, however, has dealt with this argument before, albeit in different form. See In re State Street Bank and Trust Co. ERISA Litig., 579 F.Supp.2d at 518-19. In its motion to dismiss, State Street argued that the Plans lacked standing because the Complaint requested that relief be paid to the Separate Accounts, not to the Plans; therefore, according to State Street, this action sought recovery for PRIAC, not for the Plans. Id. The Court rejected this argument, noting that “[t]he limited evidence indicates that the Plans retain an interest in the Separate Accounts.” Id. at 519. The evidence at that time indicated that the Plans retained an interest in the Separate Accounts and that any lawsuit proceeds in excess of the loan amount plus legal fees would be allocated to the Plans. Id. The Court therefore found that the Separate Accounts were assets of the Plans and that therefore the Plans had standing to sue. Id.

State Street contends that the earlier ruling “does not address the issue presented on summary judgment, namely, whether PRIAC can shield itself from affirmative defenses and counterclaims based on its own conduct by bringing claims ‘on behalf of the Plans, where any recovery would go to PRIAC.” (Def.’s Reply at 3 n. 2.) Even if that were true, however, other binding case law would still compel a conclusion that the damages in this action are the Plans’ damages, not PRIAC’s damages. See Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 140, 105 S.Ct. 3085, 87 L.Ed.2d 96 (1985) (“[Rjecovery for a violation of § 409 inures to the benefit of the plan as a whole. We find this contention supported by the text of § 409, by the statutory provisions defining the duties of a fiduciary, and by the provisions defining the rights of a beneficiary.”); see also Lee v. Burkhart, 991 F.2d 1004, 1009 (2d Cir.1993) (noting that plaintiffs are “bar[red] ... from suing under Section 502(a)(2)” when they “are seeking damages on their own behalf, not on behalf of the Plan”).

State Street’s legal theory, then, cannot be that PRIAC failed to mitigate its own damages, which are not at issue in this action, but must instead be that PRIAC’s actions caused the Plans to fail to mitigate their own damages. This is not a traditional mitigation-of-damages defense. Compare Restatement (Second) of Torts § 918(1) (“[0]ne injured by the tort of another is not entitled to recover damages for any harm that he could have avoided by the use of reasonable effort or expenditure after the commission of the tort.” (emphasis added)). Even assuming that State Street had pled such a defense, State Street cites to no case recognizing such a defense in any context, let alone in the context of ERISA. Among the cases cited by both parties, the one that appears to be most on point is Trustees of the Local i6JpA United Food and Commercial Workers Union Pension Fund v. Wachovia Bank, N.A, Civ. No. 09-668(WJM), 2009 WL 4138516 (D.N.J. Nov. 24, 2009). In Wachovia, the defendants, who were investment managers to the pension plan, attempted to assert an affirmative defense based on the “breaches of fiduciary duties by some or all of the Plaintiffs,” who were trustees of the relevant pension plan. 2009 WL 4138516, at *3. The defendants argued that “equity dictates that they be able to assert Plaintiffs’ purported fiduciary breaches in order to mitigate or negate its own potential liability.” Id. The court, however, found that “such a proposition appears ‘antithetical to the provisions of ERISA which tailor fiduciary liability to fit particular breaches’ ” because the proposed affirmative defense did not comport with the “statutory mandate of individualized liability” wherein “a fiduciary is held liable for those losses resulting from each breach of his fiduciary duties” in ERISA section 409. Id. at *3-4 (quoting Openshaw v. Cohen, Klingenstein & Marks, Inc., 320 F.Supp.2d 357, 364 (D.Md.2004)). The court further noted that “any fiduciary duty owed by Plaintiffs with regard to the management of the Plans’ assets was to the Plans themselves and their beneficiaries — not to Defendants.” Id. at *4. As such, “Plaintiffs breach of their duties would not absolve Defendants of liability for their breaches to the Plan.” Id. Instead, “[i]f anything, it could simply give rise to a cause of action to be asserted on behalf of the Plan against Plaintiffs.” Id. Therefore, the court struck the affirmative defense.

The Court agrees with the reasoning in Wachovia. Because the true plaintiffs here are the Plans, it would defeat the purposes of ERISA to allow State Street to use another fiduciary’s actions as a shield against awarding damages to the Plans. Furthermore, as the Court finds that no issue of material fact exists with respect to this defense, summary judgment in PRIAC’s favor is appropriate as to this defense. See Project Release v. Prevost, 722 F.2d 960, 969 (2d Cir.1983) (“[A] district judge may grant summary judgment to a non-moving party, if no genuine issues of material fact have been shown.”); Algarin v. New York City Dep’t of Corr., 460 F.Supp.2d 469, 478 (S.D.N.Y.2006) (same).

B. Superseding Cause

State Street next seeks summary judgment on the grounds that PRIAC decided to withhold material information about the Bond Funds from the Plans, and that this decision constitutes a superseding cause. PRIAC makes several arguments opposing summary judgment in State Street’s favor.

i. Pleading

PRIAC first argues that superseding cause is an affirmative defense that State Street faded to plead. In support, PRIAC cites two federal cases and one state case from New York. But all of these cases merely note that the defendants in those cases pled superseding cause as an affirmative defense, not that it must always be so pled. See Westwood Pharm., Inc. v. Nat’l Fuel Gas Distrib. Corp., 737 F.Supp. 1272, 1286-87 (W.D.N.Y.1990) (noting that defendant had pled as an affirmative defense that “recovery is precluded because any violations alleged in the complaint either were not proximately caused by [defendant] or resulted from a superseding cause beyond [defendant’s] control”); United States v. Hooker Chems. & Plastics Corp., 722 F.Supp. 960, 967 n. 3 (W.D.N.Y.1989) (same); Gerbino v. Tinseltown USA, 13 A.D.3d 1068, 1071, 788 N.Y.S.2d 538 (N.Y.App.Div.2004) (noting only that “because the criminal actions of third parties were a normal and foreseeable consequence of Cinemark’s negligence, there was no basis to instruct the jury on the defense of superseding causes”). State Street argues correctly that superseding cause is merely part of the doctrine of proximate cause, and where proximat