* District Judge for the Southern District of Texas, sitting by designation. UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 00-10748

JESSE C. BANNISTOR, LARRY A. BENBERRY, KARL BRADFORD,

WILLIAM J. BREWER, WILLIAM C. BROWN, et al.

,

Plaintiffs-Appellees,

v.

GARY ULLMAN, and TOM VILLANO

,

Defendants-Appellants,

BANKERS TRUST NEW YORK CORPORATION; BT CAPITAL PARTNERS, INC.;

SPHINX GRAPHIC VENTURES, INC.; PYRAMID VENTURES INC.; and

JAMES M. DWORKIN ;

Appellants.

Appeal from the United States District Court

for the Northern District of Texas

April 2, 2002

Before EMILIO M. GARZA and PARKER, Circuit Judges, and HINOJOSA, * District Judge.

ROBERT M. PARKER, Circuit Judge:

Appellant s appeal the judgment of the district court imposing fiduciary liability under the2

Employment Retirement Income Security Act (“ERISA”). Although some of the district court’s

conclusions are erroneous and thereby vacated or modified, we ultimately affirm the judgment based

on Appellants’ status as “fiduciaries” under ERISA. We also affirm the award of attorney’s fees in

favor of Appellees. However, because there is no finding or conclusion on whether Appellees’

damages should be reduced b y t he amo unt of a settlement reached between Appellees and a codefendant, we remand this action to the district court for such determination.

I.

Appellees were employees of Co lo t o ne-Riverside, Inc., which was later renamed Charter

Graphics Services, Inc. (“Debtor”). Colotone Imaging, Inc. (“Colotone”), Debtor’s “sister”

corporation, owned all of Debtor’s stock. Sphinx Graphic Ventures, Inc. (“Sphinx”), owned all of

Colotone’s stock. Pyramid Ventures (“Pyramid”) owned a majority-shareholder interest in Sphinx.

BT Capital Partners, Inc. (“BT Capital”) acted as an advisor to Pyramid, and Pyramid and BT Capital

were both second-tier, wholly-owned subsidiaries of Bankers Trust New York (“BTNY”). BTNY

operated its private-equity-investment business through BT Capital and BT Investment Partners, Inc.

(“BTIP”). BTIP, which is not a party to this action, managed BTNY’s private-equity investments

by advancing funds to Pyramid for eventual investment in Debtor. From March 1994 to December

1995, BT Capital employed James Dworkin, who served on the board of dir ect ors of Sphinx,

Colotone, and Debtor. Dworkin also served as Debtor’s assistant secretary. For the purposes of this

appeal, “BT Appellants” collectively refers to BTNY, BT Capital, Pyramid, Sphinx, and Dworkin.

In Summer 1995, Gary Ullman was hired as Debtor’s acting president and chief executive officer, and

Tom Villano, who was Colotone’s chief financial officer, was reassigned as Debtor’s acting CFO.

Ullman and Villano are collectively referred to as “Officer Appellants.”1 While Appellants state the existence of a trustee for the 401(k) plan, the bankruptcy court

concluded that there was no trust account. Appellants do not challenge this conclusion.

3 In f i nancing the BT Appellants’ acquisition of Debtor through Pyramid, Sphinx, and Colotone,

Dworkin, on behalf of the BT Appellants and a s Debtor’s officer, negotiated, executed, and

implemented a loan between Debtor and Gibralta r Financial Corp. (“Gibraltar”) by which Debtor

would pledge its acco unt s receivable to Gibraltar in exchange for the loan and a revolving line of

credit, and by which Gibraltar obtained a lien on Debtor’s assets in the event of a default. Under the

loan Debtor’s accounts receivable were collected in a “lockbox” controlled by Gibraltar, which would

apply the accounts receivable to the outstanding balance of the loan and then re-advance funds t o

Debtor under a formula based on the value of its collateral. Once Debtor received such funds, Debtor

paid its expenses, incl

uding its employees’ payroll. The Officer Appellants were hired after this

arrangement was implemented and had nothing to do with its negotiation and implementation.

Debtor offered its employees a 401(k) plan and a self-insured, health-benefit plan. When a

payroll period ended, ADP, a payroll administrator, supplied Debtor with a report of the employees’

401(k)- and health-plan contributions. The 401(k) plan contributions were vouchered through

Debtor’s accounts payable system, and the amounts were forwarded to the 401(k) plan trustee 1 for

contribution to each employee’s plan once Debtor received sufficient funds from Gibraltar. Because

the health plan was self-insured, Debtor paid health claims as an expense through a third-party

administrator, Health Choice of Connecticut. The employee contributions were not separately

deposited in a trust account, but were treated as accounting offsets against th e healt h claims that

Debtor had already paid.

In Fall 1995, Debto r’s business suffered, and Debtor became insolvent by December.4

Dworkin, representing the BT Appellants, informed Gibraltar that the BT Appellants would no longer

invest in Debtor, and that as a lienholder it could either continue to fund Debtor’s operations or cease

it s o perations and foreclose on the lien. Dworkin told Villano to “make sure you take care of the

employees,” 7 Supp. R. at 1968, but because of Debtor’s insolvency, Appellees’ 401(k) and health

plan contributions made in November and December were not forwarded or applied to the plans. The

Officer Appellants were able to secure some funds from Gibraltar to operate Debtor while exploring

t he po ssibility of selling it, but no buyer was found. Debtor ultimately shut down operations o n

January 4, 1996, without forwarding approximately $30,000 in 401(k) contributions to the plan and

without paying $176,000 in healt h claims made pursuant to the health plan. Debtor filed for

bankruptcy under Chapter 11 of the Bankruptcy Code.

Appellees originally brought this action pursuant to ERISA §§ 404(a)(1) and 405(a)(1), 29

U.S.C. §§ 1104(a)(1) & 1132(a), against Appellants and Gibraltar in the district court, but the action

was referred to the bankruptcy court under 28 U.S.C. § 157(a), because it related to Debtor’s

bankruptcy action. Appellees alleged, i nter alia

, that Appellants violated ERISA by breaching their

fiduciary duties in relation to plan assets. Appellees settled their claims with Gibraltar on January 5,

1998, for $100,000. The bankruptcy court tried the action and submitted proposed findings of fact

and conclusions of law, imposing liabilit y on Appellants for breach of ERISA fiduciary duti e s.

Because this action was not a core-proceeding and because Appellants objected to the bankruptcy

court’s entry of final judgment, the bankruptcy court on June 3, 1998, transmitted the findings and

conclusions to the district court for de novo review. Appellants filed t imely objections to the findings

and conclusions.

On September 8, 1999, the district court entered a one-page order adopting the findings and5

conclusions and overruling Appellants’ objections. The order stated that the district court reviewed

the record, the findings and conclusions, and Appellants’ objections, but did not state any detailed

reasons for such adoption, and instead of entering a final judgment, the district court remanded the

action to the bankruptcy court for further proceedi ngs. Pursuant to F E D

. R. C IV

. P. 59 and 60,

Appellants filed a motion to alter or amend or for relief from the order. The district court referred

that motion to a magistrate judge fo r report and recommendation. The magistrate judge

recommended denial of the motion because there was no entry of a final judgment, and the district

court adopted the recommendation and denied the motion. Thereafter, on January 25, 2000, the

district court entered a final judgment for Appellees for the reasons stated in the bankruptcy court’s

findings and conclusions.

On February 4, 2000, Appellants filed a renewed motion to alter or amend judgment or for

relief from judgment, and the district court again referred the mot ion to the magistrate judge. On

June 6, 2000, the magistrate judge recommended denial of the motion on its merits. On June 12,

2000, before Appell ant s filed any objections, the district court entered an order adopting the

recommendation and denying the motion. Then, on June 16, 2000, Appellants filed objections to the

magistrate’s recommendation. Appellants also filed notices of appeal on July 11, 2000. Eventually

on July 17, 2000, the district court entered an order overruling Appellants’ objections.

II.

A.

Appellant s initially argue that the district court failed to conduct d e novo review of the

bankruptcy court’s findings and conclusions as required by 28 U.S.C. § 157(c)(1), which provides

that6

A bankruptcy judge may hear a proceeding that is not a core proceeding but that is

otherwise related to a case under title 11. In such proceeding, the bankruptcy judge

shall submit proposed findings of fact and conclusions of law to the district court, and

any final order or judgment shall be entered by the district judge after considering the

bankruptcy judge's proposed findings and conclusions and after reviewing de novo

those matters to which any party has timely and specifically objected.

Appellants assert that the district court’s entry of an order adopting the findings and conclusions and

erroneously remanding the action to th e bankrupt cy court indicates a failure to conduct d e novo

review. They also argue that the district court’s reference of their post-judgment motions to a

magistrate judge and adopting her report before reviewing their object ions further suggests such

failure and thwarts the purpose of § 157(c)(1).

While we note that the district court’s orders were flawed, we ultimately cannot agree with

Appellants that the district court failed to conduct de novo review under § 157(c)(1). It is clear that

a district court must consider the record and not merely t he report and recommendations of a

magistrate or bankruptcy judge. S ee, e.g.

, United States v. Elsoffer , 644 F.2d 357, 358 (5th Cir.

1981). But in Longmire v. Guste , 921 F.2d 620 (5th Cir. 1991), we stated:

The district court's order stated that "[f]or the reasons set for th in the Magi strate's

Report to which an objection was filed; IT IS ORD ERED that . . . the defendant's

motion for summary judgment be granted." We cannot say that this language

indicates a failure to make a de novo review of the magistrate's report, the record, and

plaint iff's objections. In granting a motion for summary judgment, the district court

would be required to engage in exactly the same method of analysis as employed by

the magistrate. W

e assume that the district court did its statutorily commanded duty

in the absence of evidence to the contrary. Therefo re, we decline to reverse the

district court on these grounds.

Id. at 623 (alterations in original) (emphasis added). Therefore, a district court’s statement that it

conducted de novo review is presumptiv ely valid, if not dispositive. S ee id. ; see also Warren v.

Miles

, 230 F.3d 688, 694 (5th Cir. 2000) (“The district court specified in its final judgment that it had7

reviewed the entire record. Absent evidence to the contrary, this court is compelled to believe that

the district court performed this duty.”); Lara v. Johnson

, 141 F.3d 239, 241 (5th Cir.) (“This court

presumes that the district court followed the law and did its statutorily commanded duty.”), modified

,

149 F.3d 1226 (5th Cir. 1998) (per curiam); Koetting v. Thompson

, 995 F.2d 37, 30 (5th Cir. 1993);

see also Home Fed. Savs. & Loan Ass’n, Inc. v. Dillon Constr. Co. (In re Dillon Constr. Co.)

, 922

F.2d 495, 497 (8th Cir. 1991).

We believe that the district court performed its statutory duty. The district court’s order

adopting the bankruptcy court’s report expressly states that the court reviewed the record, report,

and Appellants’ objections. R. at 121. Appellants offer no evidence that the district court did not

consider the record as expressly stated, and we decline to l o o k behind the district court’s plain

statement of its decision.

Likewise, while the district court’s reference of Appellants’ motions to a magistrate judge are

unusual, we do not hold that such reference amounts to reversible error in this action. There is no

authority that precludes t he reference of Rule 59 motions to magistrate judges, and this court has

permitted district courts to refer Rule 60 motions to magistrate judges for report and recommendation

under 28 U.S.C. § 636(b)(3). S ee McLeod, Alexander, Pow el & Apffel, P.C. v. Quarles , 925 F.2d

853, 856 (5th Cir. 1991). Also, while the district court prematurely adopted the magistrate judge’s

first report before Appellants filed objections, reversal is unnecessary under these facts. Appellants

cite McGill v. Goff

, 17 F.3d 729, 731 (5th Cir. 1994), in stating that the “failure to allow parties the

opportunity to object to a magistrate judge’s recommendation has previously been reviewed as not

being the correct procedure,” Appellants’ Br. at 18, but they fail to mention that in M cGill we

specifically held that the district court’s adopti on of the magistrate’s report before the parties filed8

objections was not automatically reversible and was harmless because the appe llant s suffered no

prejudice. M

cGill

, 17 F.3d at 731. M

cGill held that such adopti on was not reversible error because

(1) the appellants could not establish that the district court did not in fact conduct de novo review in

the absence of object ions; (2) the mere fact that the district court adopted the report before the

objections were filed did not warrant the presumption that the court adopted the report wi thout de

novo review; (3) the district court has authority to review and adopt the magistrate’s report without

objections; (4) meaningful review of the report was possible notwithstanding the filing of objections;

and (5) the appellants could have filed objections after the adopti on by post-judgment motions. I d.

at 732. The district court in this action may have erred by adopting the report before objections were

filed, but under McGill Appellants suffered no prejudice because the district court expressly stated

it performed de novo review, Appellants never t heless filed their objections, and the district court

reviewed and overruled such objections shortly thereafter.

Finally, Appellants’ argument that the referral is inconsistent with “the statutory scheme of

de novo review” under § 157(c)(1) is likewise unconvincing. It is clear that a district court may not

refer an appeal from a bankruptcy court in a core-proceeding under § 158 to the magistrate for

decision

. S ee Minerex Erdoel, Inc. v. Sina, Inc.

, 838 F.2d 781, 786 (5th Cir.), cert. denied sub nom.

Baker, Smith & Mills v. Minerex Erdoel, Inc.

, 488 U.S. 817 (1988). However, unlike a § 158 appeal,

which is a final decision by the bankruptcy court, this action involves a bankruptcy court’s non-final

report to the district court pursuant to § 157. The district court satisfied § 157(c)(1)’s requirements

by performing de novo review, adoptin g t he repo rt , and eventually entering a final judgment.

Importantly, the district court did not refer the bankruptcy court ’s findings and conclusions to the

magistrate; it referred Appellants’ post-judgment motions to the magistrate for recommendation

, not9

decision. M inerex forbids the referral of § 158 appeals to magist rat es for decision, and does not

address whether distr ict co urt s could refer post-judgment motions to magistrates even if they

concerned the report of a bankruptcy co urt. While we note that such motions should be decided

without reference, we cannot conclude tha t t he district court’s actions in this action amount to

reversible error.

B.

Appellants next raise numerous arguments challenging the district court’s judgment imposing

ERISA fiduciary liabilit y. We review the findings and conclusions concerning ERISA fiduciary

liabilit y under mult iple standards: findings of fact are reviewed for clear error, conclusions of law are

reviewed de novo

, and mixed decisions of fact and law are reviewed by combining the two standards

to review factual components for clear error and legal components de novo

. R eich v. Lancaster

, 55

F.3d 1034, 1044 (5th Cir. 1995). Under Rule 52(a) we may not reverse findings of fact if they are

plausible in light of the record viewed in its entirety, and may not substitute our own view of such

findings because we must give due regard to the trial judge’s unique ability to assess the record.

Varity Corp. v. How e , 116 S. Ct. 1065, 1071 (1996); Lancaster , 55 F.3d at 1044. However, legal

conclusions are subject to our plenary review and are not entitled to such deference. Id.

Under ERISA § 409(a), 29 U.S.C. § 1109(a):

Any person who is a fiduciary with respect to a plan who breaches any of the

responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter

shall be personally liable to make good to such plan any losses to the plan resulting

from each such breach. . . .

A “fiduciary with respect to a plan” is defined as follows:

a person is a fiduciary with respect to a plan to the extent (i) he e xercises any

discretionary authority or discretionary control respecting management of such plan10

or exercises any authority or control respecting management or dispo sition of i ts

assets,

. . . or (iii) he has any discretionary authority or discretionary responsibility in

the administration of such plan.

§ 3(21)(A), 29 U.S.C. § 1002(21)(A). The term “fiduciary” is liberally construed in keeping with the

remedial purpose of ERISA. Am. Fed. of Unions Local 102 Health & Welfare Fund v. Equitable

Life Assurance Soc’y of the United States

, 841 F.2d 658, 662 (5th Cir. 1988). “The phrase ‘to the

extent’ indicates that a person is a fiduciary only with respect to those aspects of the plan over which

he exercises authority or control.” S ommers Drug Sto res Co. Employee Profit Sharing Trust v.

Corrigan Enters., Inc.

, 793 F.2d 1456, 1459-60 (5th Cir. 1986), cert. denied

, 479 U.S. 1034, 1089

(1987). However, “‘fiduciary’ should be defined not only by reference to particular titles, . . . but also

by considering the authority which a particular person has or exercises over an employee benefit

plan.” Donovan v. Mercer , 747 F.2d 304, 308 (5th Cir. 1984).

1.

The BT Appellants principally argue that the bankruptcy court erroneously imposed per se

ERISA fiduciary liabilit

y for implement ing the Gibraltar loan and not ifying Gibraltar that they would

not further invest in Debt o r because such actions did not involve plan assets. They argue that

Debtor’s accounts receivable are not plan assets, but assets pledged to Gibraltar under the loan. They

also argue that because the loan and the decision not to further invest in Debtor were perfectly normal

business decisions, they cannot be held liable even i f such decisio ns had a collateral effect on the

plans. They claim that upholding their liability would result in p er se ERISA fiduciary liabilit y for all

lenders and borrowers of asset-based loans.

While we do not believe that negotiating and impl ementing the loan or communicating the

decision not to further invest in Debtor ipso facto v io lat ed fiduciary duties, we agree with the11

bankruptcy court that the BT Appellants ultimately exercised authority or control respecting

manag ement or disposition of plan assets to make them fiduciaries. ERISA does not define “plan

assets” but the Secretary of Labor defines it to include amounts “that a participant or beneficiary pays

to an employer, or amounts that a participant has withheld from his wag e s by an employer, for

co ntribution to the plan as of the earliest date on which such contributions can reaso nably be

segregated from the employer’s general assets.” 29 C.F.R. § 2510.3-102 (2000). Other courts have

similarly defined the term to “include employee contributions to benefit plans which are withheld from

employees’ paychecks and for deposit into their benefit plans, even though the contributions have not

actually been delivered to the benefit plan.” U nited States v. Grizzle

, 933 F.2d 943, 946 (11th Cir.),

cert. denied , 502 U.S. 897 (1991); L.W. Cochran v. Coleman (In re Coleman) , 231 B.R. 393, 395

(S.D. Ga. 1999); In re College Bound, Inc.

, 172 B.R. 399, 403 (S.D. Fla. 1994); Prof’l Helicopter

Pilots Ass’n v. Denison , 804 F. Supp. 1447, 1453 (M.D. Ala. 1992); Pension Benefit Guar. Corp.

v. Solmsen , 671 F. Supp. 938 (E.D.N.Y. 1987).

The bankruptcy court correctly concluded that the Nov ember and December 1995

contributions were plan assets over which the BT Appellants exercised authority or control respecting

their management or disposition to render them fiduciaries under ERISA § 3(21)(A)(i), 29 U.S.C.

§ 1002(21)(A)(i). The BT Appellants wrongly focus on the pledge of accounts receivable and the

decision not to further invest in Debtor as absolving them of liabilit y. Those facts are less important

than the fa ct that the BT Appellants relinquished control over Debtor without allocating the

contri but io ns t o the plans, leaving the management or disposition of such contributions to be

determined by Gibraltar. Such action managed or disposed of plan assets by causing them to be used

by Gibraltar pursuant to the loan’s terms. The BT Appellants’ complaint of the lack of any “res” of2 We reiterate that the “lockbox” financing arrangement was not in and of itself p er se

violative of ERISA. However, the arrangement became problematic because of BT Appellants’

conscious decision to allow ERISA plan assets which rightly belonged to plan members (and which

were supposed to be used for the benefit of those members) to be used for the benefit of the

company. Thus, the source of liability for the BT Appellants is actually two-fold: (1) negotiating,

implementing, and operating the “lockbox” financing arrangement with Gibraltar; and (2) devising

and ut ilizing a payroll system where the withheld contributions, i.e. the ERISA plan assets, were not

immediately applied to a separately segregated trust account but were instead only paid to the plans

after funds were received from Gibraltar pursuant to the revo lving line of credit made part of the

“lockbox” financing arrangement. These two factors paved the way for BP Appellants to unlawfully

use general

asset s t o pay other creditors (Gibraltar included) prior to paying the plans, thereby

improving their financial position at the expense of the plan members. As mentioned previously, BT

Appellants used the December 1995 advan ces t o pay other creditors and shortly thereafter

relinquished all control over plan assets to Gibraltar

- without first fully funding the 401(k) and health

insurance plans. In our view, the BT Appellants’ course of conduct demonstrates that it used ERISA

plan assets to further its own interests at the expense of and to the detriment of the plan members.

Therefore, this is a classic, albeit unconventional, case of breach of fiduciary duty.

12 cash reflecting payroll deductions actually transferred to Gibraltar is irrelevant because it is

undisputed that Appellees’ contributions were withheld but not applied to the plans. The fact that

there was no physical transfer of amounts from the BT Appellants to Gibraltar is simply the result of

the very financing agreement the BT Appellants established, and does not undermine the bankruptcy

court’s conclusion. 2

We are unpersuaded by the BT Appellants’ reference to LoPresti v. Terw illiger

, 126 F.3d 34,

39 (2d Cir. 1997), in their e ffort t o avoid liability . In L oPresti the Second Circuit held that a coowner/officer (Donald LoPres t i) of a closely held corporation who commingled employee

contributions with corporate assets in a general account and using that account to pay creditors, but

not the plan’s trust fund, was a fiduciary by exercising authority or control respecting disposition of

plan assets. Id. at 40. The court did not hold the other co-owner/officer (John LoPresti, Donald’s

brother) liable because he was “primarily” a “production person” who had only general knowledge

of employee contributions and with no responsibility for determining which creditors would be paid13

or in what order, notwithstanding the fact that he too had check-signing authority. I d. at 40-41. The

BT Appellants analogize their actions to John LoPresti’s because they argue that they did not use

Debtor’s account to pay cred it o rs o t her than Appellees’ plans, and because there was no cash to

allocate to the plans, but this argument is unconvincing. In light of the record, we do not believe that

the BT Appellants were “primarily producti on persons” like John LoPresti with no responsibility for

determining which creditors would be paid. In fact, Dworkin testified that if he told Villano to pay

health claims before paying other vendors, Villano would have done so because Dworkin represented

the BT Appellants, “who ultimately can make such demands.” 8 Supp. R. at 2215-16. Ullman at his

deposition testified that the BT Appellants as shareholder owned and controlled the assets and was

ultimately responsible for the plan s, but at trial he made an inconsistent statement that the

“shareholder” was Gibraltar, even though Gibraltar was the lender, did not own any shares in Debtor,

a nd controlled Debtor’s assets after the BT Appellants relinquished control. I d. at 2326-40.

Moreover, the fact that Debtor ran out of cash is irrelevant because Debtor’s other accounts payable

were paid, but Appellees’ co nt ributions and health claims weren’t. In light of such testimony, we

believe that the BT Appellants’ actions were more akin to Donald LoPresti’s actions because their

actions disposed of plan assets by effectively delivering them to Debtor’s primary creditor, Gibraltar.

See LoPresti

, 126 F.3d at 40; see also Yese ta v. Baima , 837 F.2d 380, 386 (9th Cir. 1988)

(concluding that an employee who loaned an officer money from a benefit plan was a fiduciary for

exercising authority or control over disposition of plan assets); Connors v. Paybra Mining Co.

, 807

F. Supp. 1242, 1246 (S.D. W. Va. 1992) (holding that officers and directors were fiduciaries by using

withheld employee contributions to cover company expenses), appeal dismissed

, 21 F.3d 421 (4th

Cir. 1993).14

Appellants’ attempt to blame Gibraltar as controlling plan assets is disingenuous. Whether

the plans could have been funded with advances from Gibraltar in December 1995 was disputed, but

the bankruptcy court did not clearly err in finding that Ullman and Villano had the abilit y to authorize

the funding with such advances. Villano testified that when the BT Appellants relinquished control

to Gibraltar, Gibraltar refused to fund the 401(k) p lan. 10 Supp. R. at 3108. Harvey Mackl er of

Gibraltar testified to the contrary that Gibraltar did advance sufficient funds for the plans, and that

Debtor’s management ultimately controlled how the advances would be applied to its acco unt s

payable. 1 Mackler Depo. at 101-08. Ullman and Villano had check-signing authority and authorized

payments for Ullman’s salary and personal ex penses as well as Debtor’s vendors, even though

Appellees’ contributions were not forwarded to the plans. Ullman testified that he had ultimate

responsibility for the plans and he delegated that responsibility to Villano. 8 Supp. R. at 2315, 2358,

& 2442. In light of such evidence, and with due deference to the bankruptcy court’s factual findings,

we cannot say that the bankruptcy court clearly erred in rejecting A ppellants’ attempt to blame

Gibraltar. We also disagree with Appellants’ suggestion that Appellees’ allegation in their complaint,

as well as the bankruptcy court’s conclusion, that Gibraltar controlled plan assets after Debtor

surrendered its collateral somehow absolves Appellants’ of liabilit y. Even if we were to conclude that

Gibraltar also controlled plan assets to be deemed a fiduciary un der § 3(21)(A)(i), Appellants’

fiduciary status would not be negated. At a minimum, bo t h Appellants and Gibraltar may be

fiduciaries.

We also find unpersuasive Appellants’ argument that since the loan was an ordinary “business

decision,” any collateral impact on ERISA plans cannot create fiduciary liabilit y as a matter of law.

A “business decision” f

ree from ERISA liability is a conclusion based on relevant facts, and a15

particular act or omission is not a business decision by simply labeling it as such. See Hamilton v.

Carell

, 243 F.3d 992, 997 (6th Cir. 2001). By advancing this argument, we are unsure whether the

BT Appellants are admitting that Debtor’s employees were the BT Appellant s’ employees, but

regardless of such admission, to focus on whether the Gibralt ar lo an is a business decision is

misplaced because the critical issue is whether any Appellant exercised authority or control respecting

management or disposition of plan assets. ERISA fiduciary status is not contingent on whet her a

particular act or omission is unusual or abnormal. It is sufficient if a person or organization is

covered by § 3(21)(A). S ee Lanca s ter

, 55 F.3d at 1050 (explaining that parties may be “found to

have stepped into the role of ERISA fiduciary.”).

Appellants’ claim that the bankruptcy court’s conclusion subjects all lenders and borrowers

of asset-based financing arrangements to ERISA fiduciary responsibilities is without merit. As we

stated above, there is nothing inherently wrong with such financing arrangements, and we do not see

how o ur co nclusion could negatively affect their continued use. Our conclusion is limited to this

action’s facts, which include a non-existent entity named as the 401(k) plan administrator, the lack

of a trust account for the health plan, the lack of any written plan or summary plan description of the

health plan, Appe llants’ inability to identify a properly designated plan administrator (much less a

properly designated fiduciary), their surrender of control over Debtor even th o ugh employee

contributions were wi t hheld from paychecks and health claims were unpaid, and their payment of

other accounts payable while failing to forward such contributions to the plans. In light of these facts,

we cannot conclude that Appellants’ actions were simply business decisions having a collateral effect

on ERISA plans. Moreover, Appellants’ attempt to blame Gibraltar as exclusively “controlling” the

disposition of plan assets confirms the weakness of this argument because, on one hand, Appellants3 Relatedly, we express no opinion on whether a lender like Gibraltar who refuses to fund

ERISA plans when in possession of Debtor’s assets is subject to fiduciary duties. It is sufficient to

note that Gibraltar is not before the court due to a settlement with Appellees for $100,000.

16 allege that lenders of asset-based-financing agreements will be s ubject to per se ERISA fiduciary

status, yet on the other hand they contradict themselves by arguing later in th eir brief that only

Gibraltar as lender should be liable for controlling plan assets for its refusal to fund the 401(k) plan.

Appellants cannot have it both ways. 3 C f. Lowen v. Tower Asset Mgmt., Inc.

, 829 F.2d 1209, 1220

(2d Cir. 1987) (“Parties may not use shell-game-like maneuvers to shift fiduciary obligations to one

legal entity while channeling profits from self-dealing to a separate legal entity under their control.”).

2.

The Officer Appellants also raise various arguments against the bankruptcy court’s findings

and conclusions. They argue that the bankruptcy court erred by concluding that they breached their

fiduciary duty by failing to correct the terms of the Gibraltar loan to protect plan assets, by holding

them liable for failing to issue a written health plan although no damages occurred as a result of such

conduct, and by concluding that they were “plan administrators” or “employers” under ERISA.

We agree with the first argument and co nclude that the bankruptcy court erred by holding

the Officer Appellants liable for failing to correct or modify the Gibraltar loan’s terms to ensure

adequate funding of plan assets. As noted above, the loan itself is not problematic. Moreover, the

bankruptcy court offered no authority for such co nclusion, and we cannot find any. Also, while

modification of the loan’s terms could have ensured adequate funding of plan assets, we cannot hold

the Officer Appellants liable for not doing so because they had no such power, and they assumed their

duties long after the loan was implemented. C f. ERISA § 409(b), 29 U.S.C. § 1109(b) (“No fiduciary

shall be liable wi t h respect to a breach of fiduciary duty under this subchapter if such breach was17

committed before he became a fiduciary or after he ceased to be a fiduciary.”). Thus, we vacate that

conclusion.

However, such result doesn’t absolve the Of ficer Appellants of liability because the

bankruptcy court correctly concluded that t hey were fiduciaries when they exercised authority or

control respecting management or disposition of plan assets by using advan ces fro m Gibraltar in

December 1995 for other accounts payable rather than the plans. Gibraltar advanced over $300,000

to Debtor after December 15, 1995. It was disputed whether Ullman and Villano had the abilit y to

use the advances to fund the plans, but we cannot conclude that the bankruptcy court clearly erred

in finding that they had such ability. While Villano testified that Gibraltar expressly refused to fund

the plans, Mackler testified that D ebtor’s management ultimately controlled how such advances

would be spent. Ullman and Villano had check-signing authority, and Dworkin testified that Villano

would have paid the health claims if he were asked to do so. Instead of funding the plans, they paid

other accounts payable, including Ullman’s salary and business expenses, and other vendors.

Therefore, they exercised authority or control respecting management or disposition of plan assets

by paying other accounts receivable rather than the plans. See LoPresti

, 126 F.3d at 40; Connors

,

807 F. Supp. at 1246.

In addition, contrary to the Officer Appellants’ arguments, we conclude that they were “plan

administrators” and “employers” as defined by ERISA § 3(16), 29 U.S.C. § 1002(16), which provides

in pertinent part:

(A) The term “administrator” means--

(i) the person specifically so designated by the terms of the instrument

under which the plan is operated;

(ii) if an administrator is not so designated, the plan sponsor; or

(iii) in the case of a plan for which an administrator is not designated18 and a plan sponsor cannot be identifi ed, such other person as the

Secretary may by regulation prescribe.

(B) The t erm ''plan sponsor'' means (i) the employer in the case of an employee

benefit plan established or maintained by a single employer. . . .

In this action, there is no evidence of anyone being designated as administrator for the health plan,

the 401(K) plan designated a non-existent entity as administrator, and the Secretary has prescribed

no regulations designating any person as plan administrator, and hence, the above definition operates

to identify the “plan sponsor,” or “employer” as administrator of the plans. The nominal employer

in this action was Debtor, but our analysis doesn’t stop with Debtor because ERISA further defines

“employer” as “any person acting directly as an employer, or indirectly in the interest of an employer,

in relation to an employee benefit plan.” ERISA § 3(5), 29 U.S.C. § 1002(5).

While we agree with the Officer Appellants that the bankruptcy court may have erroneously

assigned per se “administrator” status to them based on their role as officers, the record cl earl y

revea ls t hat the Officer Appellants did nonetheless satisfy that definition. The bankruptcy court

err o neo usly stated that “[t]he employer acts here through its chief executive officer and its chief

financial officer,” R. at 101, because the mere status as an officer or director does not, ipso facto

,

result in ERISA fiduciary status. S ommers Drug Stores

, 793 F.2d at 1459-60. However, the Officer

Appellants did act at least “indirectly in the interest” of Debtor, if not directly as Appellees’ employer,

in relation to the plans. Ullman and Villano, as Debtor’s board and operating committee members,

approved of a new health plan. Both had check-signing authority for Debtor—apparently the only

individuals with such authority excep t fo r Tony Mendoza, Debtor’s comptroller, who was under

Villano’s supervision. Ullman testified that he and Villano were ultimately responsible for the plans,

he delegated plan administration to Villano, and assumed that Villano was administering the plans.4 This section states in relevant part:

Any administrator

. . . (B) who fails or refuses to comply with a request for any

information which such administra t or is required by this subchapter to furnish to a

participant o r beneficiary (unless such failure or refusal results from matters

19 Villano, as acting CFO, managed Debtor’s finances and was the only Appellant who offered detailed

testimony on the plans’ operation. He was the third-party administrator’s contact for health claims,

and approved payment of such claims f ro m Debtor’s account. Dworkin testified that he believed

Villano had discretion to handle employee-benefit i ssues, and t old Villano to “take care of the

employees” when Villano informed him that Debtor could not meet payroll. These facts confirm that

the Officer A

ppellant s acted at least indirectly in the interest of Debtor in relation to the plans to

render them plan “administrators.” See McDow ell

, 125 F.3d at 961 (holding that a shareholder of

s eparately-incorporated corporations who obtained insurance for the corporations’ employees,

received questions on health-care coverage, and made decisions regarding the plan on behalf of the

corporati ons was an ERISA “employer .”). Moreover, such facts support the concl usi on that the

Officer Appellants were fiduciaries for having “any discretionary authority or discreti onary

responsibility in the administration” of the plans. ERISA § 3(21)(A)(iii), 29 U.S.C. §

1002(21)(A)(iii). They do not suggest that they merely had ministerial responsibility in the

management or administration of the plans. Therefore, we modify the bankruptcy court’s conclusion

respecting the Officer Appellants’ fiduciary status.

We do agree with the Officer Appellants’ next argument that the bankruptcy court erred by

concluding that they breached their fiduciary duty by failing to issue a written heal th plan, or a

summary plan d escription, pursuant to ERISA § 101, 29 U.S.C. § 1021. Section 502(c)(1), 29

U.S.C. § 1132(c)(1), 4 requires Appellees to make a request for such plan description before liabilit yreasonably beyond the control of the administrator) by mailing the material requested

to the last known address of the requesting participant or beneficiary within 30 days

after such request may in the court's discretion be personally liable to such participant

or beneficiary in the amount o f up t o $100 a day from the date of such failure or

refusal, and the court may in its discretion order such other relief as it deems proper.

20 may be imposed, and Appellees d id not make such a request. We disagree with the Officer

Appellants’ suggestion that liabilit y may be imposed only if Appellees incurred damages. The plain

language of § 502(c)(1)(B) does not require any showing of damages. Our decisions construing that

section discusses “prejudice” that could be considered in det ermining whether penalties may be

imposed. S ee, e.g.

, Godwin v. Sun Life Assurance Co. of Canada , 980 F.2d 323, 327 (5th Cir.

1992). Most importantly, the Officer Appellants misstat e the record by claiming that it is

uncontroverted that all “known” health claims were paid by the time Debtor closed, and that Ullman

had nothing to do with the ongoing administration of the health plan. Villano himself testified to the

existence of unpaid health claims, 9 Supp. R. at 2572, Ullman t est ified that he and Villano were

ultimately responsible for the plans, and Appellants stipulated to the amount of unpaid health claims.

Therefore, we vacate the bankruptcy court’s conclusion imposing liabilit y for the lack of a written

healt h plan based not on the Officer Appellants’ arguments, but on the lack of any request by

Appellees pursuant to § 502(c)(1)(B).

3.

The BT Appellants next argue that the bankruptcy court erred by concluding that Ullman and

Villano were the BT Appellants’ agents. However, t he bankruptcy court’s conclusion on the

purported agency relationship is unnecessary to establish BT Appellants’ liabilit y. BT Appellants are

liable in this case because: (1) they were a fiduciary who exercised control over Appellees’ plan assets

pursuant to 29 U.S.C. § 1002(21)(A) ; and (2) “actively and knowingly p art icipated” in the21

disposition of Appellees’ plan assets.

In American Federation of U nions Local 102 Health & Welfare Fund v. Equitable Life

Assur. Soc . of the U.S. , 841 F.2d 658, 665 (5th Cir. 1988), we held that non-fiduciary respondeat

superior liabilit

y att ached under ERISA only when the principal “actively and knowingly”

participated in the agent’s breach. In the instant case, we express no opinion as to whether there was

a principal/agent relationship and thus do not rest BT Appellants’ liabilit y on a theory of respondeat

superior liabilit y. However, we find it instructive to apply the “actively and knowingly” requirement

to BT Appellants’ conduct because the ultimate issue in any non-fiduciary respondeat superior theory

of liabilit y is virtually identical to a case such as this in which liability is directly predicated upon

breach of the fiduciary duty to exercise proper control over plan assets. In the context of respondeat

superior liability, the issue is whether the principal, by virtue of its de facto control over the agent,

had control over the disposition of plan assets. Here, the issue is whether BT Appellants, as majority

shareholder of the various corporations, had de facto control over Ullman and Villano’s actions.

Despit e the elaborate corporate structure which existed between Debtor, the Officer

Appellants, and the BT Appellants, it is evident to us that BT Appellants had de facto control over

Ullman and Villano’s actions and actively and knowingly participated in their breach. The reco rd

demonstrates that BT Appellants acting through Dworkin told Villano to “make sure you take care

of the employees.” The undeniable implication of this statement is that Dworkin had the authority

to make Villano fund the pl ans prio r to paying off other creditors. Indeed, Dworkin specifically

testified that Villano would have paid the heal t h claims if he were asked to. The record further

reveals that Dw o rkin and t he BT Appellants knew that plan assets were not being properly

forwarded, yet they failed to act because their equity value in Debtor was zero and because their “exit22

strategy” had been automatically implemented by the Gibraltar loan. 8 Supp. R. at 2255. Since the

loan already pledged Debtor’s assets to Gibraltar, the BT Appellants apparently believed that they

had no responsibility for Appellees’ unfunded contributions—it w a s Gibraltar’s problem. We

disagree with that belief.

In sum, the ba nkrupt cy court’s factual finding that Dworkin and the BT Appellants had

ultimate authority and control relating to the management or control of plan assets is not clearly

erroneous. For the preceding reasons, BT Appellants are directly liable for breach of fiduciary duty

under ERISA.

4.

The BT Appellants argue that the bankruptcy court improperly awarded attorney’s fees.

ERISA provides that “[i]n any action under this subchapter ( o t her than an action described in

paragraph (2)) by a participant, beneficiary, or fiduciary, the court in its discretion may allow a

reasonable attorney's fee and costs of action to either party.” § 502(g)(1), 29 U.S.C. § 1132(g)(1).

We review an award of attorney fees under ERISA for abuse of discretion. I ron Workers Local No.

272 v. Bowen

, 624 F.2d 1255, 1266 (5th Cir. 1980). In conducting such review we consider the

following factors:

(1) the degree of the opposing parties' culpability or bad faith; (2) t he ability of the

opposing parties to sati sfy an award of attorneys' fees; (3) whether an award of

attorneys' fees against the opposing parties would deter other persons acting under

similar circumstances; (4) whether the p art ies requesting attorney s' fees sought to

benefit all participants and beneficiaries of an ERISA plan or to resolve a significant

legal question regarding ERI SA it self; and (5) the relative merits of the parties'

positions.

Id. No single factor is determinative, but “together they are the nuclei of concerns” guiding our

review. Id.23

The BT Appellants specifically assert that, while the bankruptcy court correctly determined

that they did not act in bad faith and that they had the ability to satisfy an award of attorney fees, it

erred by making an award because they were not liable, apparently the conduct to be deterred is the

commonplace practice of asset-based borrowing or lending, and Appellees did not seek to benefit all

participants and beneficiaries of an ERISA plan. Therefore, the BT Appellants argue that since only

one of the Bowen factors—the abilit y to pay—points to an award of attorney’s fees, the bankruptcy

court abused its discretion.

We reject this argument and conclude that the bankruptcy court did not abuse its discretion

in awarding attorney’s fees. In light of our conclusion affirming the BT Appellants’ liability, the first

factor weighs in favor of the award notwithstanding any lack of bad faith because their actions were

primarily responsible for Appellees’ losses. The second factor—deterrence—also supports an award

because the c o nduct to be deterred is not “apparently” asset-based borrowing or lending, but

improper management or disposition of plan assets and improper management and administration of

ERISA plans. Furthermore, even though Appellees did not represent all participants or beneficiaries

of the plans, they constituted a substantial group of employees who did not receive their voluntary

contributions and reimbursements for covered health claims. They did not present a “significant”

legal question regarding ERISA itself, but they did present a significant question invo lving application

o f ERISA to unusual facts. The fifth factor also weighs for the award because Appellants’ co re

argument that Appellees’ contributions are not plan assets, and that Gibraltar exclusively controlled

the assets, lacked merit. Therefore, the award o f attorney’s fees was not an abuse of discretion.

However, we decline to exercise our discretion to award attorne y’s fees on appeal, and thus,

Appellees’ application for attorney’s fees on appeal is denied.24 5.

Finally, we agree with Appellants that the bankruptcy court e r red by failing to make any

finding or conclusion relating to Appellees’ settlement with co-defendant Gibraltar. A non-settling

co-defendant may obtain a credit against a judgment by showing that the damages against him have

been in fact and in actuality been previously covered. I n re T ex. Gen. Petroleum Corp. , 52 F.3d

1330, 1340 (5th Cir. 1995). Appellees settled their claims with Gibraltar for $100,000, but there is

nothing in the record indicating how such settlement affects Appellees’ recovery of damages against

Appellants, except for the bankruptcy court’s statement that Appellees “have not been made whole.”

R. at 81. Therefore we must remand to the district court for a decision on whether such settlement

amount, if any, should be credited to the judgment entered against Appellants.

III.

In light of t he fo rego ing, we affirm in part, vacate and modify in part, the judgment of the

district court. Appellees’ application for attorney’s fees on appeal is denied. We also remand to the

district court, not to the bankruptcy court, for a determination on whether Appellees’ recovery from

Gibraltar should be credited to the amount o f damages assessed against Appellants, and for any

further proceedings consistent with this opinion.5 BT contends that, by the terms of the Department of Labor regul at ion, the “amounts

deducted from employee paychecks” do not become plan assets until “the earliest date on which such

contribu t io ns can reasonably segregated from the employer’s general assets.” 29 C.F.R. §

2510.3-102(a). If this interpretation of the regulation were correct, we would have to remand to the

district court for it to determine the “reasonable date” for segregation, and the BT Appellants would

only be liable to the extent that assets were transferred under the lockbox ar rangement from the

Debtor to Gibraltar after that date.

The BT Appellant’s interpretation is not correct. The correct interpretation is that the

regulation provides that the amounts deducted from employee paychecks are plan assets immediat ely,

but companies have a grace period before segregating the deductions from their general funds. S ee

U.S. v. Corace

, 146 F.3d 51, 53 (2d Cir. 1998) (referring to the regulation as a “grace period between

the deduction of employee contributions and their deposit into a plan”). The text of the regulation

reads: “the assets of the plan include amounts

. . . that a participant has withheld from his wages by

-25- EMILIO M. GARZA, Circuit Judge, specially concurring:

I concur in the majority’s conclusion that the BT Appellants breached a fiduciary obligation

under ERISA. I write separately to clarify which of the BT Appellant’s actions gave rise to liability.

I also write to clarify the relationship bet ween respondeat superior and fiduciary liability under

ERISA.

The BT Appel l ants are liable under ERISA because the “lockbox” arrangement they

negotiated had the effect of transferring “plan assets” )) in this case, amounts in the general assets of

the Debtor belonging to the plans )) to a secured creditor of the Debtor instead of the plans. At least

two other courts have held that deducting employee contributions to plans from paychecks, and then

paying creditors out of the general assets of the company instead of meeting the obligations to the

plans, violates the fiduciary duty provisions of ERISA. L oPresti v. Terw illiger

, 126 F.3d 34 (2d Cir.

1997); Connors v. Paybra Mining Co.

, 807 F. Supp. 1242 (S.D. W. Va. 1992). Department of Labor

regulations define amounts withheld from employee paychecks to reflec t cont ributions to plans as

“plan assets.” 29 C.F.R. § 2510.3-102(a). 5 By paying creditors out o f t he general assets of thean employer, for contribution to the plan as o f t he earliest date on which such contributions can

reasonably be segregated fr o m t he employer’s general assets.” Under BT’s interpretation the

deducted amounts become plan assets when they can reasonably be segregated. The better reading,

both grammatically and in terms of the purposes of the regulation, is that the deducted amounts are

plan assets immediately and they are to be seg regated as soon as reasonably possible. BT’s

interpretation gives employers an abilit y and incentive to borrow against the plans in the dying days

of a company without any real prospect of returning the funds. As long as the fiduciary is able to

spend all of its assets before the "reasonable date" roles around, it is not liable at all for the deductions

it took from the plans. This cannot have been an intended result of the regulation. The Department

of Labor could not have intended for companies to be able to borrow with impunity from qualifying

plans so long as the company is able to exhaust all of its assets before the debts become due.

When comp a

nies deduct contributions from employee paychecks, those amounts are not loans

to the company that it can use for any purpose until the loan becomes due. Those contributions are

monies that have already been paid to the employees as compensation. The company is acting merely

as a steward; holding the plan participants’ property until the assets can be segregated into a separate

fund. The company may not dip into the plan assets to use for its own purposes any mo re t han it

could dip into the private bank accounts of its employees to fund its shortfalls; once the contributions

are withheld, the money no longer belongs to the company.

-26- company instead of segregating the amounts belonging to the plans, the defendant s in these cases

“exercised control” over plan assets, making them fiduciaries under E R ISA. 29 U.S.C. §

1002(21)(A) (defini ng “fiduciary” as a person who “exercises any authority or control respecting

management of [the plan’s] assets”). Using the plan assets to pay creditors instead of segregating the

assets into a separate fund breaches a fiduciary duty because it uses the plan assets for the benefit of

the company instead of the benefit of the plan. 29 U.S.C. § 1104(a)(1) (requiring a fiduciary to

“discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries”).

The “lockbo x” arrangement negotiated by the BT Appellants meant that a creditor of the

Debtor, Gibraltar, would be paid first out of the general assets of the company, even though a porti on

of those assets belonged to the plans. The BT Appellants therefore caused “plan assets” to be paid

to a creditor instead of to the plans. This exercised control over “plan assets,” making BT a fiduciary

under ERISA, and breached a fiduciary duty by using the assets for BT’s benefit instead of for the-27-

benefit of the plan participants.

The BT Appellants argue against attaching liability to the financing arrangement they

n ego t iated because finding liability in these circumstances would deter “all asset-based financing

invo lving accounts receivable financing.” They contend that the “lockbox” arrangement is a “normal

and customary” business arrangement that should not be deterred. BT’s position is that lenders will

not agree to a “carve-out” of their collateral in favor of possible ERISA obligations.

Either the creditors of a company, like Gibraltar, or plan participants will bear the risk of a

company not being able to meet its obligations to both qualifying plans and creditors. When BT talks

about creditors not being willing to “carve out” of its collateral, they are arguing that the plan

participants, instead of creditors and by extension shareholders like BT who want to take advantage

of cheaper financing, should bear the risk. This would be contrary to the essential purposes of

ERISA, which is to protect plan participants and make sure that their contributions to the plans are

used only for the plan’s benefit. Plan participants’ deductions should be used only to fund the plans,

not as a subsidy to reduce the cost of capital for companies like BT.

The majority also correctly concludes that the BT Appellants are liable under ERISA by virtue

of their control over how the $300,000 advanced from Gibraltar after December 15, 1995 would be

spent. Although the money was advanced from Gibraltar to the Debtor, the trial court found that the

BT Appellants, especially Dworkin, participated i n t he decision about how this money would be

expended. ERISA defines anyone who “exercises any authority or control” over plan assets a

fiduciary. The definition of “fiduciary” is phrased broadly: it extends to anyone who exercises “any”

authority or control. We have therefore interpreted the term “fiduciary” liberally in the ERISA

context. A m. Fed. of Unions Local 102 Health & Welfare Fund v. Equitable Life Assurance Soc’y-28-

of the U.S.

, 841 F.2d 658, 662 (5th Cir. 1988). Here, even if the BT Appellants were not the persons

formally vested by state law with the authority to dispose of the $300,000 advance, they nevertheless

had some actual authority over how the Debtor would spe nd t he funds. The Debtor’s officers,

Ullman and Villano, answered to the BT Appellants. Because the BT Appellants exercised control

over Ullman and Villano, who had control over plan assets, the BT Appellants were fiduciaries under

ERISA.

In my view, the majority’s allusion to respondeat superior and the “active and knowing”

requirement requires further explanation. Holding a person vicariously liable for breach of fiduciary

duty under ERISA involves a mix of federal and state law. ERISA supplies the standard for breach

of fiduciary duty and the source of liabilit y. State law determines who is vicariously liable and under

what circumstances. S ee, e.g., id. at 665 (applying Louisiana law t o determine if a principal was

vicariously liable for a breach of ERISA by its agent). We have also added an addit io nal, federal

requirement to vi cario us liability under ERISA: the principal must be an “active and knowing”

participant in the agent’s breach. Id.

The “active and knowing” requirement means that respondeat supe rio r will rarely do any

heavy lifting in the ERISA context. Remember that ERISA makes anyone who “exercises any

authority or co nt ro l” o ver plan assets directly responsible as a fiduciary. Whenever a principal

“actively” participates in an agent’s decision about how to use plan assets, he will, by virtue of his

control over the agent’s actions, also be exercising a degree of control over the assets themselves.

The “active and knowing” requirement th erefore makes respondeat superior basically a non-issue.

The issue is only whether the princip al, by virtue of its de facto control over the agent, also had

control over the disposition of plan assets.-29-

I agree with the majority that the relationship between the BT Appellants and the Officer

Appellants resembles respondeat superior. The BT Appellants exercised control over plan assets by

virtue of their de facto authority over Ullman and Villano, the two people who had the formal legal

authority to dispose of the $300,000 advance. Assuming for the sake of argument that Ullman and

Villano were not formally B T’s agent s under state law, Ullman and Villano responded to BT’s

authority just as agents typically respond to their principal’s authority.

I would not give the phrase “active and knowing” the same prominence in this discussion as

the majority chooses to give it, nor would I announce a new test for fiduciary liabilit y under ERISA,

as the majority seems to do. Although I agree that the situation here resembles respondeat superior,

importing concepts from respondeat superior does not seem to provide any particular analytical value.

The question in my mind is simply whether the BT Appellants exercised control over how the

$300,000 advance would be spent. I agree with the majority that, on the facts as described by the

trial court, the BT Appellants did exercise such control. As such, I agree that the BT Appellants are

liable for using this advance to meet obligations of the Debtor other than those to the plans.

I therefore concur in the majority’s opinion.