No. 16-17055 

IN THE UNITED STATES COURT OF APPEALS FOR THE NINTH 

CIRCUIT
 

CALIFORNIA PACIFIC BANK, ET AL., 

Defendants-Appellants, 

v. 

R. ALEXANDER ACOSTA, 

Secretary, United States Department of Labor, 

Plaintiff-Appellee. 

On Appeal from the United States District Court for the Central District of
 

California 

Case No. 13-cv-03792 JD 

The Honorable James Donato 

BRIEF FOR THE SECRETARY OF LABOR
 

NICHOLAS C. GEALE 

Acting Solicitor of Labor 

G. WILLIAM SCOTT 

Associate Solicitor for 

Plan Benefits Security 

THOMAS TSO 

Counsel for Appellate and Special Litigation 

ANNA O. AREA 

Senior Trial Attorney 

Plan Benefits Security Division 

Office of the Solicitor 

U.S. Department of Labor 

200 Constitution Ave., N.W., Rm. N-4611 

Washington, D.C. 20210 

(202) 693-5587 
 

 

TABLE OF CONTENTS
 

TABLE OF AUTHORITIES ....................................................................................iv 

STATEMENT OF JURISDICTION ......................................................................... 1 

STATEMENT OF THE ISSUES ..............................................................................1 

STATUTORY AUTHORITIES ................................................................................ 2 

STATEMENT OF THE CASE ................................................................................. 2 

I. Factual History .......................................................................................2 

A. Count One Facts .........................................................................3 

B. Count Two Facts.........................................................................4 

C. Count Three Facts. ......................................................................5 

II. Procedural History ................................................................................6 

A. Summary Judgment Order ..........................................................6 

1. Count One ........................................................................... 6 

2. Count Two ........................................................................ 11 

3. Count Three ...................................................................... 15 

B. Findings Of Fact And Conclusions Of Law .............................16 

1. Losses To Plan For Counts One And Two ........................ 16 

2. Count Three ........................................................................ 16 

3. Prejudgment Interest .......................................................... 17 

4. Joint And Several Liability ................................................18 

i 
 

TABLE OF CONTENTS-(continued): 

STANDARD OF REVIEW ..................................................................................... 20 

SUMMARY OF THE ARGUMENT......................................................................21 

ARGUMENT...........................................................................................................23 

I. Count One: The District Court Correctly Found No Genuine Dispute

 Of Material Fact As To Whether Defendants Breached Their 

Fiduciary Duties When They Failed To Liquidate The Shares And

 Distribute Cash Upon Plan Termination .............................................23 

A.	 The District Court Read The Plan Document Correctly ..........25 

B.	 Defendants' Position That The Plan Administrator Had 

 Discretion To Construe The Plan Document In a Way That 

 Eliminates Section 10.4 Is Meritless .........................................30 

C.	 Defendants' "Impossibility" Argument Is Meritless .................32 

D. The District Court Correctly Found Defendants Conveyed 

 Misinformation In Their March 2011 Letter ............................ 34 

II. Count Two: The District Court Correctly Found No Genuine Issue 

 of Material Fact Regarding Defendants' Improper Diversion Of 

 Plan's $132,506 Account Receivable. ................................................. 36 

III.	 Count Three: The District Court Committed No Clear Error In 

Finding Defendants' Transfer Of $69,745.93 In Plan Assets From The 

Plan To The Plan Sponsor Was A Prohibited Transaction .................. 40 

IV.	 The District Court Acted Equitably And Within Its Discretion In 

Awarding Prejudgment Interest ........................................................... 44 

V.	 The District Court Committed No Clear Error In Holding All Five 

Defendants Liable On All Three Counts .............................................. 48 

ii 
 

TABLE OF CONTENTS-(continued): 

A. Liability Of Akila Chen, Kent Chen and William 

Mo .............................................................................................48 

B. William Mo's Alleged Resignation ...........................................53 

CONCLUSION ......................................................................................................54 

STATEMENT OF RELATED CASES 

CERTIFICATE OF COMPLIANCE 

CERTIFICATE OF SERVICE 

iii 
TABLE OF AUTHORITIES 

Federal Cases: 

Allen v. GreatBanc, 

835 F.3d 670 (7th Cir. 2016) ................................................................................. 41 

Allison v. Bank One-Denver, 

289 F.3d (10th Cir. 2002) ..................................................................................... 54 

Anderson v. Liberty Lobby, Inc., 

477 U.S. 242 (1986) ............................................................................................... 23 

Barker v. Am. Mobil Power Corp., 

64 F.3d 1397 (9th Cir. 1995) ................................................................................. 34 

Blankenship v. Liberty Life Assur. Co. of Boston, 

486 F.3d 620 (9th Cir. 2007) ................................................................................. 44 

British Motor Car Distribs. v. San Francisco Auto. Indus. Welfare Fund, 

882 F.2d 371 (9th Cir. 1989) ................................................................................. 42 

Canseco v. Constr. Laborers Pension Tr. for S. Cal., 

93 F.3d 600 (9th Cir. 1996) ............................................................................. 28, 31 

Carmona v. Carmona, 

603 F.3d 1041 (9th Cir. 2010) ............................................................................... 24 

Chaly-Garcia v. U.S., 

508 F.3d 1201 (9th Cir. 2007) ......................................................................... 27, 39 

Chao v. Malkani, 

452 F.3d 290 (4th Cir. 2006) ................................................................................. 41 

Charles Schwab & Co. v. Debickero, 

593 F.3d 916 (9th Cir. 2010) ................................................................................. 33 

Cutaiar v. Marshall, 

590 F.2d 523 (3d Cir. 1979) .................................................................................. 41 

iv 
Federal Cases-(continued): 

Dishman v. UNUM Life Ins. Co. of America, 

269 F.3d 974 (9th Cir. 2001) ................................................................................. 32 

Durning v. Citibank, N.A., 

950 F.2d 1419 (9th Cir. 1991) ......................................................................... 30 n.7 

Dytrt v. Mountain States Tel. & Tel. Co., 

921 F.2d 889 (9th Cir. 1990) ................................................................................. 20 

E.E.O.C. v. Erie Cty., 

751 F.2d 79 (2d Cir. 1984) ............................................................................ 46 n.12 

Free v. Briody, 

732 F.2d 1331 (7th Cir. 1984) ............................................................................... 52 

Glaziers & Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Sec., 

Inc., 

93 F.3d 1171 (3d Cir. 1996) .................................................................................. 54 

Greenwood v. F.A.A., 

28 F.3d 971 (9th Cir. 1994) ............................................................................. 32 n.9 

Gribben v. United Parcel Serv., Inc., 

528 F.3d 1166 (9th Cir. 2008) ............................................................................... 25 

Grosz-Salomon v. Paul Revere Life Ins., 

237 F.3d 1154 (9th Cir. 2001) ................................................................... 21, 44, 47 

Harik v. Cal. Teachers Ass'n, 

326 F.3d 1042 (9th Cir. 2003) ............................................................................... 30 

Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 

530 U.S. 238 (2000) ............................................................................................... 40 

Harris v. A.D. Vallett & Co., 

No. 3:13-0105, 2014 WL 1280490 (M.D. Tenn. Mar. 27, 2014) .......................... 46 

Herman v. NationsBank Trust Co., (Georgia), 

126 F.3d 1354 (11th Cir. 1997) ............................................................................. 37 

v 
Federal Cases-(continued): 

Hexcel Corp. v. Ineos Polymers, Inc., 

681 F.3d 1055 (9th Cir. 2012) ............................................................................... 39 

Howard v. Shay, 

100 F.3d 1484 (9th Cir. 1996) ............................................................................... 41 

In re First Am. Corp. ERISA Litig., 

258 F.R.D. 610 (C.D. Cal. 2009) ........................................................................... 52 

In re Green, 

967 F.2d 1216 (8th Cir. 1992) ......................................................................... 27 n.3 

Klamath Water Users Protective Ass'n v. Patterson, 

204 F.3d 1206 (9th Cir. 1999) ............................................................................... 29 

Lentini v. Cal. Ctr. for the Arts, Escondido, 

370 F.3d 837 (9th Cir. 2004) ................................................................................. 20 

Mendoza v. Block, 

27 F.3d 1357 (9th Cir. 1994) ................................................................................. 43 

Nelson v. City of Davis, 

571 F.3d 924 (9th Cir. 2009) ................................................................................. 38 

Nester v. Allegiance Healthcare Corp., 

315 F.3d 610 (6th Cir. 2003) ................................................................................. 31 

Orr v. Bank of Am., NT & SA, 

285 F.3d 764 (9th Cir. 2002) ................................................................................. 38 

Price v. Stevedoring Servs. of Am., 

697 F.3d 820 (9th Cir. 2012) ........................................................... 45 n.11, 46 n.12 

Russo v. Unger, 

No. 86 CIV. 9741, 1991 WL 254570 (S.D.N.Y. Nov. 20, 1991) .......................... 52 

S. Cal. Gas Co. v. City of Santa Ana, 

336 F.3d 885 (9th Cir. 2003) ................................................................................. 26 

vi
 
Federal Cases-(continued): 

S.E.C. v. First Jersey Sec., 

101 F.3d 1450 (2d Cir.1996) ........................................................................... 44, 45 

S.E.C. v. Platform Wireless Int'l Corp., 

617 F.3d 1072 (9th Cir. 2010) ................................................................... 44, 45, 46 

S.E.C. v. Teo, 

746 F.3d 90 (3d Cir. 2014) .............................................................................. 44, 45 

Solis v. Sonora Envtl., LLC, 

No. CV 10-00675, 2012 WL 5269211 (D. Ariz. Oct. 24, 2012) ........................... 46 

Springate v. Weighmasters Murphy, Inc. Money Purchase Pension Plan, 

217 F. Supp. 2d 1007 (C.D. Cal. 2002) ................................................................. 52 

Tapley v. Locals 302 & 612 of Int'l Union of Operating Eng'rs-Emp'rs Const. 

Indus. Ret. Plan, 

728 F.3d 1134 (9th Cir. 2013) ................................................................... 27, 29, 31 

Taxman v. Bd. of Educ. of Twp. of Piscataway, 

91 F.3d 1547 (3d Cir. 1996) .......................................................................... 46 n.12 

Tibble v. Edison Int'l, 

729 F.3d 1110 (9th Cir. 2013),vacated, 

135 S. Ct. 1823 (2015) ......................................................................... 30, 31, 31 n.8 

U.S. v. Gravenmeir, 

121 F.3d 526 (9th Cir. 1997) ................................................................................. 41 

Federal Statutes: 

Title 26, Internal Revenue Code: 

26 U.S.C. § 4975(e)(7) ........................................................................................ 27 n.4 

26 U.S.C. § 6621(a)(2).................................................................................. 44, 45, 47 

vii
 
Title 28, Judiciary and Judicial Procedure: 

28 U.S.C. § 1291 ......................................................................................................... 1 

28 U.S.C. § 1961 ............................................................................. 17, 18, 44, 45 n.11 

29 U.S.C. § 1001 et seq.: 

Section 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A) .......................................... passim 

Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B) ........................................... passim 

Section 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D) ....................... 3, 9, 24, 29, 31 n.8 

28 U.S.C. § 1331 ......................................................................................................... 1 

Employee Retirement Income Security Act of 1974 (Title I), 

 Section 2, 29 U.S.C. § 1001 ..................................................................................... 1 

Section 3(21)(A), 29 U.S.C. § 1002(21)(A) ............................................................ 2 

Section 403, 29 U.S.C. § 1103 ................................................................... 36, 41, 43 

Section 403(a), 29 U.S.C. § 1103(a) ...................................................................... 51 

Section 403(c)(1), 29 U.S.C. § 1103(c)(1) .............................................. 5, 6, 17, 40 

Section 403(c)(2)(A)(i), 29 U.S.C. § 1103(c)(2)(A)(i) ........................ 15, 17, 41, 43 

Section 404, 29 U.S.C. § 1104 ............................................................................... 36 

Section 404(a)(1), 29 U.S.C. § 1104(a)(1) ............................................................ 24 

Section 405(a)(2), 29 U.S.C. § 1105(a)(2) .................................... 19, 48, 50, 51, 52 

Section 405(b)(1)(B), 29 U.S.C. § 1105(b)(1)(B)........................................... 51, 52 

Section 406, 29 U.S.C. § 1106 ............................................................................... 40 

Section 406(a), 29 U.S.C. § 1106(a) ...................................................................... 36 

Section 406(a)(1)(D), 29 U.S.C. § 1106(a)(1)(D) ....................................... 5, 17, 40 

viii 
Federal Statutes-(continued): 

Section 406(b), 29 U.S.C. § 1106(b) ..................................................................... 36 

Section 406(b)(1), 29 U.S.C. § 1106(b)(1) ......................................................... 5,17 

Section 406(b)(2), 29 U.S.C. § 1106(b)(2) ........................................................ 5, 17 

Section 408, 29 U.S.C. § 1108 ............................................................................... 41 

Section 409, 29 U.S.C. § 1109 ................................................................... 18, 20, 48 

Section 409(a), 29 U.S.C. § 1109(a) ...................................................................... 18 

Section 502(e), 29 U.S.C. § 1132(e) ........................................................................ 1 

Miscellaneous: 

Fed. R. Civ. P. 56(a) .................................................................................................. 23 

Emp. Benefits Sec. Admin.Voluntary Fiduciary Correction Program., 

67 Fed. Reg. 15062, 15066 (Mar. 28, 2002) .................................................... 45, 46 

Pension Payback Program, 

61 Fed. Reg. 9205 (Mar. 7, 1996) ...................................................................... 45, 46
 

ix 
STATEMENT OF JURISDICTION 

The district court had jurisdiction under 28 U.S.C. § 1331 and 29 U.S.C. 

§ 1132(e). Pursuant to 28 U.S.C. § 1291, this Court has jurisdiction to review the 

court's judgment. 

STATEMENT OF THE ISSUES 

As restated, the questions presented are:
 

I. Whether the district court correctly found no genuine dispute of material fact 

as to whether Defendants breached their fiduciary duties under the Employee 

Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001, et seq., when they 

failed to liquidate their pension plan's assets and distribute cash to its participants 

upon plan termination, as required by the governing plan document. 

II. Whether the court correctly found no genuine dispute of material fact as to 

whether Defendants improperly diverted plan assets, in the form of a significant 

portion ($81,407.18) of a $132,506 account receivable, from the plan to a 

Defendant. 

III. Whether the court correctly found Defendants' transfer of $69,745.93 in plan 

assets from the plan to a Defendant was a transaction prohibited by ERISA. 

IV. Whether the court acted within its discretion in awarding prejudgment 

interest. 

V. Whether the court correctly held all Defendants, who all served as ERISA 
                                                            

trustees and fiduciaries to the plan, liable for their fiduciary breaches and prohibited 

transactions. 

STATUTORY AUTHORITIES 

Authorities not provided in Appellants' Addendum, Dkt. 11-2, appear in the 

Addendum. 

STATEMENT OF THE CASE 

I. Factual History 

These facts are undisputed. Defendant California Pacific Bank (the "Bank") 

is a small, privately-held bank. 1 E41

; 7 E1298, 1309. The Bank established the 

California Pacific Bank Employee Stock Ownership Plan (the "Plan"), a pension 

plan governed by ERISA. 8 E1427; 1 E4. The Bank was a named fiduciary and 

the Plan Sponsor. 1 E4; 8 E1427; Defs. Br. 12. The Plan was terminated on 

December 31, 2010. Defs. Br. 12; 1 E5; 8 E1427. 

Defendant Richard Chi was the Bank's CEO, a member of its Board of 

Directors, the Plan Administrator, and a Plan Trustee. 1 E4; 7 E1299, 1310; Defs. 

Br. 12. Defendants Akila Chen, Kent Chen, and William Mo were the other Plan 

Trustees and also served as Board members. 1 E4; 7 E1299, 1311; Defs. Br. 12. 

Defendants were ERISA fiduciaries to the Plan under 29 U.S.C. § 1002(21)(A). 1 

1

 "E" refers to Excerpts of Record, preceded by the volume and followed by the 

page. 

2 
E2, 4. 

The Secretary filed a complaint alleging that the Bank, Richard Chi, Akila 

Chen, Kent Chen, and William Mo breached their fiduciary duties and engaged in 

prohibited transactions in violation of ERISA as detailed in three Counts. 7 

E1307. 

A. Count One Facts 

Section 10.4 of the governing Plan document, entitled "Termination of Plan," 

states: 

Upon termination . . . of the Plan and Trust. . . each affected Participant shall 

be 100% vested . . . and payment to such Participant shall be made in cash as 

soon as practicable after liquidation of the assets of the Trust but not later 

than one year following the date of termination. 

1 E24; 8 E1404. Akila Chen, Kent Chen and William Mo passed a resolution as 

Plan trustees, resolving that "the Plan be terminated as of December 31, 2010" and 

"the Administrator of the Plan [i.e., Richard Chi] take all necessary steps to 

liquidate the assets of the Plan and distribute the Plan assets as required by law." 1 

E24-25. On June 24, 2011, the Plan distributed 97,237 Bank shares, not cash, to 

participants' individual retirement accounts ("IRAs") held at the Bank. 1 E25; 7 

E1299; Defs. Br. 26. 

The Secretary alleged that Defendants violated their fiduciary duties by not 

following the Plan document as ERISA requires under section 404(a)(1)(D), 29 

3 
U.S.C. § 1104(a)(1)(D), when they distributed the assets of the terminated Plan in 

the form of Bank shares, not cash. 8 E1319. The Secretary alleged that the 

distribution violated Defendants' fiduciary duties of prudence and loyalty under 

ERISA sections 404(a)(1)(A) and (B), 29 U.S.C. § 1104(a)(1)(A) and (B), because 

Defendants acted in the Bank's, rather than the Plan participants' interests, by 

choosing to distribute shares and not cash. Id. 

B. Count Two Facts 

In 2000, the Plan acquired a 13.3261% interest in Seclusion Alcade LLC 

("SA LLC"). Defs. Br. 49; 7 E1300, 1313. In 2005, the Plan sold its interest to 

Seclusion Alcade Management LLC ("SAM LLC") for a $132,506 account 

receivable. Id. 

In 2010, when Defendants decided to terminate the Plan, the Plan's assets 

still included the account receivable. Defs. Br. 16. At that time, Akila Chen, Kent 

Chen, and William Mo, as Plan Trustees, demanded payment on the account 

receivable. 7 E1300, 1314; Defs. Br. 52. SAM LLC made a $132,506 payment in 

2011. 7 E1298. However, the $132,506 was only partially delivered to the Plan: 

the Plan received only $35,060.85, which was distributed to individual Plan 

participants; SAM LLC retained $16,037.97 as the Plan's final payment on a loan 

from SAM LLC; and the Bank collected the remaining $81,407.18. Defs. Br. 53; 8 

E1429; 7 E1300, 1314. 

4 
The Secretary alleged that Defendants committed a transaction prohibited by 

ERISA when they diverted $81,407.18 in Plan assets to the Bank. See 7 E1320. 

Defendants violated ERISA's prohibition against transfers of plan assets to certain 

parties related to the Plan, such as the Bank, under ERISA section 406(a)(1)(D), 29 

U.S.C. § 1106(a)(1)(D), and ERISA's prohibitions under section 406(b)(1)-(2) 

against transactions where plan fiduciaries, like Defendants, conduct plan 

transactions while representing their own interests or an adverse party. 29 U.S.C. 

§§ 1106(b)(1)-(2). See 7 E1320. The Secretary also alleged Defendants caused 

the Plan's assets to inure to the employer, the Bank, violating ERISA's antiinurement provision, section 403(c)(1), 29 U.S.C. § 1103(c)(1), as well as their 

fiduciary duties of prudence and loyalty, sections 404(a)(1)(A) and (B). 7 E1319­

20. 

C. Count Three Facts 

On September 10, 2012, $69,745.93 was transferred from the Plan Account 

No. ######6510 ("Account 6510") to the Bank. 7 E1298; 8 E1429; Defs. Br. 56­

57. 

In Count Three, the Secretary alleged that Defendants committed a 

transaction prohibited by ERISA when they permitted or authorized the transfer of 

$69,745.93 in Plan assets to the Bank. See 7 E1321 (citing ERISA sections 

406(a)(1)(D), 406(b)(1)-(2)). The Secretary also alleged Defendants illegally 

5 
caused the Plan's assets to inure to the employer, the Bank, violating ERISA's antiinurement provision, ERISA section 403(c)(1), and their fiduciary duties of 

prudence and loyalty, sections 404(a)(1)(A) and (B). 7 E1321-22. 

II. Procedural History 

Defendants moved for summary judgment on Count One. 6 E880. The 

Secretary filed cross-motions for summary judgment on all Counts. 5 E806. 

The district court issued its order denying Defendants' summary judgment 

motion, and granting in part and denying in part the Secretary's motion. 5 E591, 1 

E21. The court found Defendants liable for Counts One and Two, reserving the 

amounts of liability for trial. Id. The court reserved Count Three for trial. Id. 

Defendants moved for leave to file a motion for reconsideration, which the 

court denied. 4 E493. 

 After a one-day trial, the court entered judgment for the Secretary. The court 

found Defendants jointly and severally liable for violating their fiduciary duties on 

all three Counts, and for committing prohibited transactions on Counts Two and 

Three. 1 E2. The court awarded the Plan damages with prejudgment interest. Id.; 2 

E35. 

A. Summary Judgment Order 

1. Count One 

The district court explained that Defendants' own submissions established as 

6 
"undisputed and indisputable" the fact that Section 10.4 of the Plan, entitled 

"Termination of Plan," required that "Upon termination . . . [e]ach affected 

Participant shall be 100% vested in his Accounts, and payment to such Participant 

shall be made in cash as soon as practicable after liquidation of the assets of the 

Trust but not later than one year following the date of termination;" that the Plan 

was terminated in December 2010; and that Plan assets were distributed to IRAs in 

the form of Bank stock, not cash. 1 E24-25. The court noted that "[i]n the face of 

these undisputed facts, defendants raise two main arguments against liability," but 

found both "unpersuasive." 1 E25. 

First, the court considered Defendants' argument that they should not be 

held liable "because it was 'impossible' for the Bank to liquidate the plan 

participants' Bank shares . . . because, [defendants] say, the Federal Deposit 

Insurance Corporation ("FDIC") 'refused to permit the Bank to repurchase the 

stock held by the plan participants' for the 'sole reason' of the Secretary's ongoing 

investigation and subsequent lawsuit." Id. The court found that Defendants' own 

exhibits undermined this argument as a factual matter. 1 E25. 

The court noted that it is undisputed that it was not until March 1, 2011, that 

Defendants sent their first letter to the FDIC requesting permission to repurchase 

the shares. Id. The court further noted that on the same date, March 1, 2011, Chi 

sent a letter to Plan participants informing them that the Plan had been terminated 

7 
and "[t]he plan assets were rolled over into IRA accounts in the name of each 

participant in February 2010" in the form of Bank shares. 1 E25, 27. Thus, they 

received no refusals from the FDIC before they "informed plan participants the 

distributions would be made (or had already been made) in Bank shares." 1 E25. 

In short, Defendants decided to distribute the Plan assets in the form of Bank 

shares before receiving any communications from the FDIC. Id. 

The court explained that even though the shares were not distributed to 

participants until June 2011, as Chi stated in his October 14, 2014 declaration, 

"[a]s of then, the only communication defendants had received from the FDIC 

rejected the Bank's application as incomplete." Id. "The FDIC's first refusal to 

permit any repurchase because of the Bank's ongoing issues with the Department 

of Labor did not come until October 13, 2011, months after the Bank had already 

made the distributions in Bank shares rather than cash." 1 E25-26. 

Second, the district court considered Defendants' argument "that the Plan 

does not really require distributions to be made only in cash upon termination, 

despite its express language saying so." 1 E26. Defendants argued that other parts 

of the Plan, i.e., Section 7.2, permit distributions to be made in cash or stock at the 

participant's election. The court found that "[t]his textual interpretation argument 

is dead on arrival in the face of an express provision entitled 'Termination of the 

Plan,' which states, 'payment to [each affected] Participant shall be made in 

8 
cash[.]'" Id. In addition, the court emphasized, "even assuming that Section 7.2 

could apply, which the court finds [it] does not, defendants did not give plan 

participants any opportunity to choose between Bank shares or cash; they simply 

went ahead and made the distributions in the form of Bank shares." 1 E26. 

As a result, the court concluded that "there is no genuine issue of material 

fact on the issue of whether defendants violated ERISA section 404(a)(1)(D) by 

failing to act 'in accordance with the documents and instruments governing the 

plan[.]'" Id. Noting that Defendants' alleged violations of their duties of loyalty 

and prudence under ERISA sections 404(a)(1)(A) and (B) with respect to Count 

One require a "slightly different analysis," the court found that the Secretary was 

"entitled to judgment as a matter of law on those claims as well." Id. 

As the court explained, "[u]nder the 'exclusive purpose' rule of section 

404(a)(1)(A), fiduciaries have the duty to act with complete and undivided loyalty 

to the beneficiaries[.]" Id. And "[u]nder the so-called 'prudence' rule of section 

404(a)(1)(B), the court inquires whether the trustees, at the time they engaged in 

the challenged transaction, employed the appropriate methods to investigate and/or 

structure the investment." 1 E26-27. The court concluded that Defendants failed 

to meet these standards. 1 E27. 

The court found significant the March 1, 2011 letter Defendants sent to Plan 

participants, which stated: 

9 
The Trustees . . . voted to terminate the Plan effective December 31, 2010. 

The plan assets were rolled over into IRA accounts in the name of each 

participant in February 2010. Section 7.6 of the Plan document allows 

participants the right to request California Pacific Bank (the Bank) 

repurchase the Bank's stock rolled over to your IRA account at the fair value 

of the stock for a 60 day period beginning on date of the distribution. After 

this 60 day period has ended, the Bank will have no further requirement to 

repurchase stock from your account under the Plan document. 

Id. The court stated that this letter is "replete with misinformation" and "on its 

face communicates to plan participants that they have no right to request the Bank 

to repurchase their stock at all, since the letter was sent in March 2011, more than 

a year after the alleged distribution 'in February 2010' and well past the '60 day 

period beginning on date of the distribution.'" Id. Defendants' letter to participants 

continued: 

If you wish the Bank to repurchase the stock from your account, please notify 

the Bank as soon as possible . . . . [R]egulatory agencies require the Bank to 

apply for permission to repurchase the stock from your account. Any 

distribution will be delayed until such regulatory approval is obtained. It is 

possible that regulatory approval will be denied and, if such an[] event were 

to occur, the Bank would be prohibited from repurchasing the stock from 

your account. 

Id. The court noted that "there is no mention of any further recourse participants 

might have" in the event that the Bank is "'prohibited from repurchasing the stock 

from [their] accounts' because regulatory approval is denied.'" Id. The court found 

that "[k]eeping in mind that the shares are not publicly traded . . . and that the Plan 

in fact expressly requires distributions to be made in cash upon termination, the 

10 
letter shows an utter disregard by defendants for the rights and interests of the 

participants." Id. The court considered Defendants' contention that they made afterthe-fact efforts to help Plan participants liquidate their shares but concluded that 

these contentions pertain solely to relief, not liability, and thus "there is no genuine 

dispute as to any material fact that defendants violated their duty of loyalty[.]" 1 

E28. 

Regarding Defendants' duty of prudence, the court emphasized that 

"Defendants had not so much as requested permission from the FDIC to repurchase 

the plan participants' Bank shares when they informed participants that distributions 

would be made as Bank shares rather than cash." Id. The court found "that 

defendants failed to perform their fiduciary responsibilities 'with the care, skill, 

prudence, and diligence under the circumstances . . . required by ERISA Section 

404(a)(1)(B).'" Id. 

2. Count Two 

The parties agree that the Plan had a $132,506 account receivable, that 

payment was made after Akila Chen, Kent Chen, and William Mo, acting as Plan 

trustees, passed a resolution to demand its payment, and that the Bank, not the 

Plan, ultimately collected $81,407.18 of the $132,506 payment. 1 E29. The 

parties disputed below whether this $81,407.18 was a Plan asset and therefore 

could not be transferred to the Bank. Id. The court concluded that "[a]ll 

11 
 

indications are that the $132,506 was a Plan asset." Id. 

The court pointed out that the resolution characterizes the $132,506 account 

receivable as belonging to the Plan. Id. The "resolution states that 'the 

undersigned Trustees have a right to demand payment of the $132,506 book value 

of the Plan's membership interest [']. . . and resolves that, 'prior to the termination 

of the Plan as of December 31, 2010, the Plan exercise its right . . . to receive 

payment of the $132,506[.] '" Id. (emphasis added). 

The court considered Defendants' argument that the Bank properly took 

$81,407.18 of the account receivable payment, but found "several problems" with 

it. 1 E29-31. Defendants rely on Defendant Chi's declaration. 5 E709. 

Defendants argued below that the Plan's $132,506 account receivable was received 

by the Plan as a dividend on Bank stock held by the Plan, but, according to Chi, 

because most of that stock was collateral for outstanding loans to the Plan from the 

Bank, the stock held in collateral was neither allocated to nor owned by any Plan 

participants. 1 E29. Chi contended that this unallocated stock held as collateral 

was later repurchased by the Bank. 1 E30. At that point, Chi argued, the "'portion 

of the dividend allocated to the repurchased stock followed the shares repurchased 

by the Bank, while the portion of the dividend allocated to the stock owned by the 

Plan Participants remained in the Plan and was distributed to the Plan 

Participants . . . . [so] the Plan participants received dividends on the stock that 

12 
they owned. They did not receive dividends on the unallocated stock 

collateralizing the loans because they did not own that stock.'" Id. 

The first problem the court found with Chi's explanation is that Defendants 

"submitted no documents or other evidence relating to the purported repurchase by 

the Bank of '[t]he unallocated stock collateralizing the loans,' or . . . any 

agreement between the Bank and the Plan relating to whether that repurchase 

would encompass any dividends associated with that stock." 1 E30. "Certainly," 

the court noted, defendants' "resolution makes no mention that part of the 

$132,506 might in fact properly belong to the Bank and not the Plan because of 

repurchases by the Bank of unallocated stock held by the Plan." Id. 

Next, the court pointed out that "Defendants have also offered no 

explanation for how the transfer of $81,407 from the Plan to the Bank could be 

made consistent with the Plan document." Id. The court highlighted a couple of 

sections, including Section 7.7, Distribution of Dividends, which provides, "the 

Trustee shall determine whether any or all of the cash dividends received on any 

Bank stock, if any, by the Plan shall be (i) retained by the Plan . . . (ii) distributed 

to each Participant, or (iii) used to make payments on an Exempt Loan." Id. 

(emphasis added). 

The court also noted that, according to Chi's declaration "'[t]he Plan retained 

Richardson & Company to determine the appropriate allocation of the dividend to 

13 
the stock held in the Plan.'" 1 E31. The court further noted that, according to the 

same declaration, Chi himself "'consulted with Brian Nash of Richardson & 

Company, the accounting firm used by the Bank,'" and discussed with him "'the 

fact that the $132,506 dividend would be allocated to the stock held by the Plan,'" 

as well as the Bank's repurchase of a portion of the unallocated stock 

collateralizing loans made to the Plan and the resultant allocation of the dividend. 

Id. The court emphasized, however, that "defendants have submitted nothing at all 

from Mr. Nash or Richardson & Company, nor any specific documentation that 

shows how the calculation for the allocation was made and why it was proper." Id. 

"Instead," the court points out, "the only documents that relate to Mr. Nash 

in the present record before the Court are two documents[.]" Id. In those 

documents, Nash expressly states, "'We are not ESOP experts, and so we strongly 

recommend that Bank consult with an ESOP expert to determine the number of 

shares to allocate for all plan years,'" and "'Although we did not audit the ESOP 

and had no responsibility for it, we suggested to the Bank that it hire an ESOP 

administrator[.]'" Id. (citing 5 E682, 684). 

With no evidence supporting Defendants' argument that the Bank could 

properly take $81,407.18 of the Plan's $132,506 account receivable payment, other 

than Chi's own declaration asserting that argument, the court found that "the 

explanation offered by defendants is without any evidentiary support and rings 

14 
hollow" 1 E31 (citation omitted). Finding that Defendants' explanation "is not 

enough to defeat summary judgment in favor of the Secretary," the court 

concluded that "defendants diverted to the Bank a significant portion ($81,407.18) 

of the $132,506 account receivable that belonged to the Plan, and by doing so, 

defendants violated ERISA[.]" 1 E31. 

3. Count Three 

The court noted that Defendants did not dispute making the transfer of 

$69,745.93 in Plan assets from the Plan to the Bank. 1 E32; see also 8 E1429. 

Rather, Defendants argued that they were entitled to make this transfer because the 

money represented an "excess contribution" from the Bank and was therefore a 

"return" of money that belonged to the Bank. 1 E32 (citing 5 E699-700). The 

Secretary argued below that even if this amount did represent an excess 

contribution, ERISA prohibited the transfer. 1 E32. ERISA prohibits the return of a 

contribution to the employer unless the contribution (a) resulted from a "mistake of 

fact," and (b) is returned within one year after it is made. Id. (citing ERISA section 

403(c)(2)(A)(i), 29 U.S.C. § 1103(c)(2)(A)(i)). The Secretary contended that the 

Bank's last contribution to the Plan was made in 2006 and the transfer occurred in 

2012; therefore, ERISA forbade the return of the contribution six years after it was 

made. Id. The court found that it was unable to determine on summary judgment 

whether the Bank truly did not make any contributions after 2006, or whether either 

15 
                                                            

the Plan's termination or government investigations had any legal effect on the oneyear time-limit. Id. 

B. Findings Of Fact And Conclusions Of Law 

After a one-day trial, the court resolved the remaining questions on losses for 

Counts One and Two, and on liability and losses for Count Three. 1 E2. 

1. Losses For Counts One And Two 

The court found that the Plan and individual participants suffered losses 

because of Defendants' failure to distribute shares as cash to participants. 1 E5-8, 

12-13. Defendants do not dispute these findings on appeal, other than to contest 

their liability generally.2

 The parties agreed that the damages under Count Two 

was $81,407.18. 1 E8; see also 8 E1429. 

2. Count Three 

The court noted that there "is no dispute that $69,745 was transferred from 

the Plan to the Bank . . . and that Chi made the decision[.]" 1 E17. As a result, the 

court held: "On its face, this is a prohibited transaction under ERISA 

2

 In a footnote, Defendants assert that if the Secretary were to prevail on Count One, 

"almost the entire $1.2 million would be paid to Richard Chi, Alan Chi and Allen 

Chiang as they now collectively own approximately 96% of the stock held by the 

Participants." Defs. Br. 15, n.5. This statement is incorrect. First, the relevant 

allocation of shares upon which damages must be calculated is the allocation at the 

time of the Plan's termination, not the current allocation resulting from the breach 

and the subsequent actions of Chi and others. Moreover, the court's calculations 

credited Defendants with all payments to participants. 1 E5-7, 13. Defendants 

failed to contest those calculations on appeal. 

16 
§ 406(a)(1)(D)." Id. The court found that Defendants also violated ERISA sections 

406(b)(1) and (2), 403(c)(1), and 404(a)(1)(A) and (B). Id. 

The court found that "Defendants failed to prove" that the $69,746 transfer 

was justified as a return of an over-contribution made "by a mistake of fact" under 

ERISA section 403(c)(2)(A)(i) because the "only evidence defendants offered was 

their conclusory and self-serving testimony that the account balance 'must have 

been' an over-contribution." Id. The court also found "no actual credible and 

specific evidence showing what mistake was made, when, or how." Id. The court 

concluded that this showing "is plainly insufficient," holding that "[a] true mistake 

of fact occurs when there is an arithmetic or clerical error in making 

contributions, . . . and no such error was ever identified here." Id. 

3. Prejudgment Interest 

The court determined the applicable prejudgment interest. 1 E13-14. The 

court first found that "there is no rate of return specified by the Plan," noting that 

the rate in Section 7.6(a) cited by Defendants relates to put options and "has no 

application" here. 1 E13. 

Next, the court explained that "[g]enerally, the interest rate prescribed for 

post-judgment interest under 28 U.S.C. § 1961 is appropriate for fixing the rate of 

prejudgment interest unless the trial judge finds, on substantial evidence, that the 

equities of the particular case require a different rate." 1 E13-14. Noting that 

17 
"[p]rejudgment interest is an element of compensation, not a penalty," and that 

"Defendants' conduct was in blatant disregard of the express terms of the Plan 

document and the defendants' fiduciary duties under ERISA," the court found that, 

"the equities support an award of prejudgment interest." 1 E14. Further, the court 

held that "the equities of this case support the imposition of the higher IRC rate 

advocated by the Secretary rather than the [lower] 28 U.S.C. § 1961 rate advocated 

by defendants." 1 E14. The court noted that "the IRC rate . . . is the rate the 

Secretary uses for plan sponsors who self-report and voluntarily correct violations 

of ERISA," and that voluntary correction "of course, did not happen here." Id. The 

court therefore held that "to use a significantly lower § 1961 rate in a case like this 

one would produce an inequitable result, as it would effectively result in a windfall 

for defendants who have neither self-reported nor voluntarily corrected." Id. The 

court concluded that it "finds this to be substantial evidence that supports the use of 

the IRC rate in this case." Id. 

4. Joint And Several Liability 

The court held that "[t]he facts show ample basis to impose joint and several 

liability on all four individual fiduciary defendants: Richard Chi, Akila Chen, 

William Mo and Kent Chen" for all Counts. 1 E15, 16, 17. First, the court noted 

that Chi committed the acts underlying Count One and was therefore liable for the 

resulting losses under ERISA section 409(a), 29 U.S.C. § 1109(a). 1 E15. Chi 

18 
admitted his significant involvement in transferring funds in violation of ERISA 

under Count Two, and the court found that Chi made the decision to transfer funds 

in violation of ERISA under Count Three. Defs. Br. 60 (Count Two); 1 E17 (Count 

Three). 

Next, the court rejected Mo's defense that he had resigned as a trustee in 

October 2010, finding that the "evidence showed only that he had resigned as a 

board member, not as a trustee of the Plan," that "[h]is resignation letter itself made 

no mention of the Plan," and that "he continued to act as a trustee, including signing 

without notation the termination resolution for the Plan as one of its trustees" in 

December 2010. 1 E15. The court held that "this was inconsistent with the Plan's 

requirements for resignation as a trustee" and with ERISA's requirement that "a 

trustee must be held to have continued in a fiduciary status absent a clear 

resignation." 1 E15-16. 

Finally, the court held that "[a]s a trustee, Mo failed in his duties, as did Akila 

Chen and Kent Chen." 1 E16. The court found that "[t]he testimony of each of 

these trustees show that they did not understand or appreciate their responsibilities 

as fiduciaries of the Plan, and they provided little or no oversight of Chi." Id. The 

court concluded that they were liable for their co-fiduciary Chi's breaches under 

ERISA section 405(a)(2), 29 U.S.C. § 1105(a)(2) because "[t]hese trustees failed to 

fulfill their fiduciary responsibilities, and by doing so enabled Chi to commit [his 

19 
fiduciary breaches]." 1 E16, 18. The court explained that, as a matter of law, under 

ERISA section 405, "fiduciaries can be liable for breach of their fiduciary duties 

even if they did not know of another defendant's malfeasance, so long as they could 

have known about it had they acted 'with the care, skill, prudence and diligence 

under the circumstances then prevailing. . .'" 1 E16. The court further noted that a 

"fiduciary cannot avoid liability for another trustee's mismanagement of the Plan by 

simply doing nothing," and "the law requires more from a fiduciary than blind faith 

in another fiduciary's integrity." Id. The court also found that "the evidence 

supports a finding that Defendants William Mo, Akila Chen, and Kent Chen are 

liable in their own rights under § 409 for the breaches of their own fiduciary duties 

under §§ 404(a)(1)(A) and (B)" based on the court's extensive factual findings 

supporting their failure as trustees in managing Plan assets in the transactions 

underlying these violations. Id. The court concluded that "all defendants should be 

held liable jointly and severally" for all Counts. 1 E16, 18. 

STANDARD OF REVIEW 

This Circuit "reviews a district court's grant of summary judgment de 

novo[.]" Dytrt v. Mountain States Tel. & Tel. Co., 921 F.2d 889, 893 (9th Cir. 

1990) (citations omitted). 

This Circuit reviews a district court's conclusions of law following a bench 

trial de novo. Lentini v. Cal. Ctr. for the Arts, Escondido, 370 F.3d 837, 843 (9th 

20 
 

Cir. 2004). "Following a bench trial, the judge's findings of fact are reviewed for 

clear error." Id. 

This Circuit reviews "the district court's calculation of prejudgment interest 

for an abuse of discretion." Grosz-Salomon v. Paul Revere Life Ins., 237 F.3d 

1154, 1163-64 (9th Cir. 2001). 

SUMMARY OF THE ARGUMENT 

Defendants fail to demonstrate that the district court erred in any of its legal 

conclusions, committed clear error as to any factual finding, or abused its discretion 

in any manner. 

1. Defendants violated their pension plan's governing document and their 

fiduciary duties of loyalty and prudence when they terminated the Plan and 

distributed the Plan's assets to its participants in the form of closely-held and illiquid 

employer stock, instead of cash as the Plan document explicitly required. 

Defendants also misinformed the Plan participants of the Plan's actions and 

obligations at that time, consistent with their efforts to limit the participants' right to 

cash as the Plan document required. Defendants raise two meritless defenses. First, 

they blame the Government by pointing to communications from the Government 

that clearly occurred months and years after their violations. Second, they request 

the Court to ignore the plain text of the Plan document and the misinformation they 

conveyed to participants by pointing to inapposite Plan provisions in a futile attempt 

21 
at obfuscation. 

2. Defendants cannot dispute the fact that they permitted the Bank's 

misappropriation of the Plan's asset in the form of an account receivable. No one 

disputes that Defendants themselves contemporaneously classified the account 

receivable as the Plan's asset and that they also permitted the Bank to collect 

$81,407.18 of the payment on the account receivable. This constitutes a clear case 

of misappropriation of Plan assets in violation of ERISA's basic protections. 

Defendants can only muster an unsupported declaration from a defendant outlining a 

legal theory as to why the Bank could take Plan assets which has no basis in law or 

record evidence. The district court correctly rejected this defense. 

3. The undisputed facts show Defendants also removed $69,745.93 from the 

Plan's own account and handed the money over to the Bank. Defendants now defend 

this action based on speculation and a legal theory that the money in the Plan 

account was actually the Bank's money, again, without basis in law or record 

evidence. The district court correctly rejected Defendants' argument. 

4. Defendants' arguments that the district court abused its discretion in its 

choice of the prejudgment interest rate are meritless; the court provided a wellreasoned decision which considered long-standing Department of Labor policy as 

applied to the equities in this case. 

5. Finally, Defendants argue that no law or evidence supports the imposition 

22 
of liability on three individual trustees, because only the fourth trustee, who was also 

Plan Administrator, made the pertinent decisions. Defendants ignore the evidence 

supporting liability for the other trustees, including their failure to fulfill their basic 

duty to jointly manage Plan assets, and the fact that they permitted their co-fiduciary 

to misuse those assets to the detriment of Plan participants without oversight. 

For these reasons, this Court should affirm the district court's decision. 

ARGUMENT 

I.	 Count One: The District Court Correctly Found No Genuine Dispute 

Of Material Fact As To Whether Defendants Breached Their 

Fiduciary Duties When They Failed To Liquidate The Shares And 

Distribute Cash Upon Plan Termination 

"The court shall grant summary judgment if the movant 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. P. 56(a). A court "need not draw all possible inferences 

in [non-moving party's] favor, but only all reasonable ones." 4 E469. "Only 

disputes over facts that might affect the outcome of the suit under the governing 

law" will preclude summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 

242, 248 (1986). Despite citing the Anderson standard, Defendants failed to 

produce below or cite any record evidence that controvert summary judgment. 

Defendants' own submissions established as "undisputed and indisputable" 

the following three facts: (1) Section 10.4 of the Plan, entitled "Termination of 

23 
Plan," required that "Upon termination . . . [e]ach affected Participant shall be 

100% vested in his Accounts, and payment to such Participant shall be made in cash 

as soon as practicable after liquidation of the assets of the Trust but not later than 

one year following the date of termination"; (2) the Plan was terminated in 

December 2010; and (3) Plan assets were distributed to the Plan participants' IRAs 

on June 24, 2011, in the form of Bank stock, not cash. 1 E24-25. These undisputed 

facts alone demonstrate a violation of Defendants' duty to comply with the Plan 

document under ERISA section 404(a)(1)(D). See Carmona v. Carmona, 603 F.3d 

1041, 1053 (9th Cir. 2010) (ERISA "established 'a straightforward rule of hewing to 

the directives of the plan documents,' imposing on plan administrators a 'bright-line 

requirement to follow plan documents in distributing benefits.'") (citation omitted). 

On appeal, Defendants also do not dispute the content of their March 2011 

letter and their scheme to distribute the Bank shares instead of cash; the letter is the 

"significant" basis for the court's conclusion that Defendants violated their duty of 

loyalty, 29 U.S.C. § 1104(a)(1)(A). 1 E27; see also Defs. Br. 35-36. Nor do 

Defendants contest the timing of their actions, including their failure to request 

"permission from the FDIC to repurchase the plan participants' bank shares when 

they informed participants that distributions would be made as Bank shares rather 

than cash," facts that supported the district court's conclusion that Defendants 

violated their duty of prudence, 29 U.S.C. § 1104(a)(1). 1 E28; see also Defs. Brief, 

24 
at 24-25. 

Defendants do not contest these material facts that support liability, but 

instead raise three legal contentions: (a) the court misinterpreted the Plan document 

and Defendants' March 1 Letter; (b) the court should have deferred to Defendants' 

interpretations; and (c) it was "impossible" to comply with ERISA. Defs. Br. 20-21. 

Defendants raised the first and third issues below, and the district court correctly 

found their arguments "unpersuasive." 1 E25. The second issue is now raised for 

the first time, and, in addition to being meritless, is waived. See, e.g., Gribben v. 

United Parcel Serv., 528 F.3d 1166, 1171 (9th Cir. 2008). 

A. The District Court Read The Plan Document Correctly 

Defendants first rehash their argument that, as the district court put it, "the 

Plan does not really require distributions to be made only in cash upon termination, 

despite its express language saying so." 1 E26; Defs. Br. 30-34. It is undisputed 

that Plan document Section 10.4 governs the distribution of Plan assets to 

participants when the Plan is terminated. Section 10.4, entitled "Termination of 

Plan, "required that "Upon termination . . . [e]ach affected Participant shall be 100% 

vested in his Accounts, and payment to such Participant shall be made in cash as 

soon as practicable after liquidation of the assets of the Trust but not later than one 

year following the date of termination[.]" 8 E1404. 

Defendants attempt to ignore Section 10.4's clear mandate by pointing to 

25 
three inapposite Plan provisions. First, Defendants point out that the Plan was an 

employee stock ownership plan ("ESOP") whose stated purpose was to enable 

participants to acquire stock ownership interests in the Bank. Defs. Br. 30. But this 

general-purpose language for creating the Plan is irrelevant to the winding up of its 

assets upon the Plan's termination and the specific language governing that situation 

in Section 10.4. E.g., S. Cal. Gas Co. v. City of Santa Ana, 336 F.3d 885, 891 (9th 

Cir. 2003) (recognizing standard rule that specific, not general, provisions govern). 

Next, Defendants focus on Sections 7.2 and 7.6 of the Plan which describe 

procedures for regular distributions to individual participants from their Plan 

accounts upon the occurrence of certain life events. Defendants ignore the premise 

of Section 7, described in Section 7.1. 8 E1388. According to Section 7.1, the 

individual distributions listed in Sections 7.2 and 7.6 apply only in the case of an 

individual participant's death, disability, retirement, or other termination of their 

employment. Id. Section 7.1 does not apply to Plan termination. See id. 

Section 7.2 describes participants' ability to "elect" between a distribution in 

cash versus a distribution in stock upon the occurrence of those life events. Section 

7.6 describes the mechanism for selling distributed stock back to the Bank, i.e., 

"putting" stock back to the Bank, when their employment ends. See Defs. Br. 31­

26 
 

                                                            

 

32.3 Sections 7.2 and 7.6 did not give Defendants the option of distributing shares 

when terminating the Plan; those sections clearly refer to different circumstances.4 

Nor do they conflict with Section 10.4, which only covers Plan termination, a 

situation not covered by Sections 7.2 and 7.6. The fact that participants could 

(when leaving employment) choose to accept stock under certain circumstances 

according to Sections 7.2 and 7.6 is irrelevant to Plan termination. 

As a matter of textual interpretation, Defendants' argument fails on any 

reasonable review of the Plan document. Any interpretation of the Plan document 

should construe every provision of the document to accomplish its intended purpose 

and to render none superfluous. See Tapley v. Locals 302 & 612 of Int'l Union of 

Operating Engineers-Employers Const. Indus. Ret. Plan, 728 F.3d 1134, 1140 (9th 

Cir. 2013); Chaly-Garcia v. U.S., 508 F.3d 1201, 1204 (9th Cir. 2007). Defendants' 

interpretation – that the Plan document permitted them to distribute shares instead 

of cash after the Plan was terminated – renders Section 10.4 both superfluous and 

meaningless. Section 10.4, the only Plan provision entitled "Termination of Plan," 

3

 These provisions are not unique, but a typical requirement due to tax rules and 

other regulations. See, e.g., In re Green, 967 F.2d 1216, 1217 (8th Cir. 1992). 

4

 Defendants assert that the put option continued to apply to Bank stock even if the 

Plan ceased to be an ESOP. Defs. Br. 32 (citing Section 7.6(c)). Although those 

repurchase rights may continue to exist if the Plan ceases to be an ESOP as defined 

by Internal Revenue Code section 4975(e)(7), 26 U.S.C. § 4975(e)(7), Defendants 

provide no basis to suggest that such rights exist after Plan termination. 

27 
 

                                                            

which, by its terms, applies when the Plan is terminated, obligated Defendants to 

have the Plan liquidate participant accounts and dictated that payments of those 

accounts "shall be made in cash." This interpretation is also consistent with the 

Trustees' own resolution, requiring the Administrator to "liquidate" the Plan's assets. 

6 E962. In setting out a special provision for Plan termination that mandated cash 

payments, the Plan document intentionally differentiated Plan termination from the 

"election" mechanism described in Section 7.2. If an election was intended for Plan 

termination, the Plan document could easily have so stated or cross-referenced 

Sections 7.2 and 7.6. It clearly did not. See Canseco v. Constr. Laborers Pension 

Trust for S. Cal., 93 F.3d 600, 607 (9th Cir. 1996) (refusing to imply additional 

terms from inapposite plan provisions to conflict with the plain and mandatory 

language of the relevant provision). 

Defendants' citation to Section 10.4's context does not help their argument. 

Defs. Br. 33. Section 10.4 is found in Section X, specifically titled "Amendment 

and Termination." The very next provision, Section 10.5, concerns the procedures 

for Plan assets in circumstances of a "Plan Merger or Consolidation;" thus, both 

Sections 10.4 and 10.5 govern Plan procedures for special situations, to the 

exclusion of the other more general Plan provisions.5 

5Requiring a cash payment is reasonable in light of Defendants' own description of 

the disadvantages of holding company stock: there is "no market for the Bank 

28 
                                                                                                                                                                                                  

Pointing to inapplicable provisions simply cannot erase the clear language of 

Section 10.4, or its requirement that participants be paid in cash. "The fact that the 

parties dispute a contract's meaning does not establish that the contract is 

ambiguous; it is only ambiguous if reasonable people could find its terms 

susceptible to more than one interpretation." Klamath Water Users Protective Ass'n 

v. Patterson, 204 F.3d 1206, 1210 (9th Cir. 1999). Defendants' attempt to ignore the 

clear application of Section 10.4 to Plan termination and thus excuse their failure to 

comply is not supported by law. See Tapley, 728 F.3d at 1140 (abuse of discretion 

to construe plan provisions in way that clearly conflicts with plain language or 

renders other provisions nugatory); Chaly-Garcia, 508 F.3d at 1204. Defendants 

cite no case law under ERISA that would allow them to simply ignore an express 

lawful term of the Plan – because none exists. See 29 U.S.C. § 1104(a)(1)(D). The 

district court correctly found that Defendants' "textual interpretation argument is 

dead on arrival in the face of an express provision entitled 'Termination of the Plan,' 

which states, 'payment to [each affected] Participant shall be made in cash[.]'" 1 

E26. 

stock" and "very few investors were interested in purchasing shares in privatelyheld banks . . . investors were not interested in purchasing Bank stock generally[.]" 

Defs. Br. 43. As the district court noted, requiring payments in cash upon Plan 

termination protects participants' pensions from arbitrary Bank restrictions imposed 

on its stock with "utter disregard" for participants' rights. 1 E27. 

29 
 

                                                            

B.	 Defendants' Position That The Plan Administrator Had 

Discretion To Construe The Plan Document In A Way That 

Eliminates Section 10.4 Is Meritless 

Defendants raise for the first time the issue of whether the Plan document 

gave the Plan Administrator, Defendant Chi, "discretionary authority to construe the 

terms of the Plan and make decisions regarding the meaning of the Plan's 

provisions" and whether "[t]he Administrator's determination is entitled to 

substantial deference" to which they believe "a deferential abuse of discretion 

standard applies" in fiduciary breach cases such as this one. Defs. Br. 34.6 

Defendants rely on a vacated opinion, Tibble v. Edison Int'l, 729 F.3d 1110, 1130 

(9th Cir. 2013), vacated, 135 S. Ct. 1823, (2015), as authority.7 Defendants argue 

that the district court erroneously rejected Chi's reading of the Plan document that 

ignores Section 10.4 and permits Defendants to distribute Bank shares to 

participants instead of cash upon Plan termination. Defs. Br. 34-35. 

"[W]e do not ordinarily consider on appeal issues not raised below." Harik v. 

6

 Defendants narrowly raised this deference issue in their post-trial brief with 

respect to the applicable interest rate. 2 E133; 134-35. In a footnote in that brief, 

Defendants attempted to belatedly raise this issue with respect to liability on Count 

One, long after summary judgment on Count One had been entered, and despite the 

fact that such liability was outside the scope of the post-trial briefing order. 2 E133, 

n. 4; 2 E148. On appeal, Defendants inappropriately attempt to expand their prior 

untimely deference argument to apply to Counts One and Two in their entirety. 

7

 "[A] decision that has been vacated has no precedential authority whatsoever." 

Durning v. Citibank, N.A., 950 F.2d 1419, 1424 (9th Cir. 1991) (citation omitted). 

30 
                                                            

Cal. Teachers Ass'n, 326 F.3d 1042, 1052 (9th Cir. 2003). Defendants cannot 

expect this Court to consider whether the district court should have deferred to Chi's 

interpretation at this late stage. See Nester v. Allegiance Healthcare Corp., 315 F.3d 

610, 612-13 (6th Cir. 2003). 

Even if the Court were to consider this issue, Defendants' argument fails. As 

explained in detail above, Section 10.4 contains no ambiguity requiring 

interpretation. See supra Section I.A. Chi's reading of the Plan simply ignores 

Section 10.4; he provides no interpretation. Further, if Chi's reading could 

somehow be viewed as an interpretation, it would be a clear abuse of his discretion 

in the face of the plain language of Sections 7 and 10. Id. "The Trustees abuse their 

discretion where they construe provisions of [a] plan in a way that clearly conflicts 

with the plain language of the Plan" or "render[s] nugatory other provisions of the 

Plan." Tapley, 728 F.3d at 1140 (9th Cir. 2013) (citations omitted); see also, e.g., 

Canseco, 93 F.3d at 606. Cases like Tapley and Canseco dictate the result here; 

Tibble is inapposite.8 

8

 Moreover, this Court limited its discussion in Tibble to claims that fiduciaries 

violated the plan documents under ERISA section 404(a)(1)(D), not claims that 

fiduciaries violated their other statutory duties, including their duties of loyalty and 

prudence, as in Count One, or their obligation to override plan provisions if the 

provisions violate ERISA. See Tibble, 729 F.3d at 1129 & n.17. Even under this 

now vacated decision, the abuse of discretion standard has no applicability to the 

loyalty and prudence violations under this Count. 

31 
                                                            

C. Defendants' "Impossibility" Argument Is Meritless 

Defendants continue to argue that the FDIC, and the Department of Labor 

(DOL) through its alleged direction of the FDIC, made it "impossible" for 

Defendants to liquidate and distribute Plan assets to participants in cash, despite the 

district court's findings that Defendants' own evidence undermined this argument. 1 

E25.9 

It is undisputed that on June 24, 2011, the Plan distributed 97,237 Bank 

shares to participant IRA accounts held at the Bank. 1 E25; Defs. Br. 26, 30; 7 

E1299. Defendants violated their fiduciary duties when they executed this 

distribution in Bank shares and not cash. 1 E28. It is also undisputed that 

"Defendants had not so much as requested permission from the FDIC to repurchase 

the plan participants' Bank shares when they informed participants that distributions 

would be made as Bank shares rather than cash." 1 E28. Furthermore, it is 

undisputed that, as the district court noted, by the time they distributed the shares in 

June 2011, "the only communication defendants had received from the FDIC [was 

that it] rejected the Bank's application as incomplete." 1 E25. It is, therefore, 

undisputed that neither the FDIC nor the DOL forced Defendants to violate their 

9

 Defendants also allege that the court denied them due process when it denied their 

motion to compel the FDIC to produce communications with the DOL. Defs. Br. 9­

10, 19, 27. Defendants failed to appeal the court's denial of their motion, failed to 

identify any errors with the district court's reasoning on appeal, and thus waived this 

argument. See Greenwood v. F.A.A., 28 F.3d 971, 977 (9th Cir. 1994). 

32 
duties by distributing the Plan assets in the form of shares at that time. Defendants 

have not provided any basis to question these conclusions. 

Defendants' reliance on subsequent events does not excuse their decision to 

violate the Plan document and their duties. 1 E25-26 ("The FDIC's first refusal to 

permit any repurchase because of the Bank's ongoing issues with the Department of 

Labor did not come until October 13, 2011, months after the Bank had already made 

the distributions in Bank shares rather than cash."); cf. Dishman v. UNUM Life Ins. 

Co. of Am., 269 F.3d 974, 986 (9th Cir. 2001) (rejecting post-hoc justifications 

offered in litigation). Defendants' violations under Count One occurred in June 

2011, when they transferred the shares out of the Plan and into IRA accounts owned 

by participants, even though the one-year time limit to liquidate the shares and 

distribute cash as required by Section 10.4 had not yet expired. 8 E1404. Once that 

transfer to participants' IRAs was made, it became impossible for the Plan to 

liquidate and distribute the shares because the shares were no longer in the Plan, 

placing the onus on the participants and not the fiduciaries to liquidate their shares. 

Cf. Charles Schwab & Co. v. Debickero, 593 F.3d 916, 919 (9th Cir. 2010). 

"Receiving illiquid Bank shares rather than cash amounts to a loss for the 

participants of the Plan." 1 E12-13. Incredibly, Defendants are still arguing that the 

FDIC's actions in October 2011 could have caused Defendants' own actions four 

months prior in June 2011. Defendants have failed to demonstrate that they 

33 
attempted to prudently abide by Section 10.4; instead they admit that they 

transferred shares to participants in June 2011, six months before the one-year 

deadline under Section 10.4. Defs. Br. 26; 1 E25; 7 E1299. The district court 

properly rejected Defendants' "impossibility" argument. 

D.	 The District Court Correctly Found Defendants Conveyed 

Misinformation In Their March 2011 Letter 

Defendants fail to identify any error with the district court's primary basis for 

liability, namely their failure to follow Section 10.4's plain requirements. 

Defendants' arguments regarding the court's alternative bases for liability are 

likewise meritless. The district court ruled that "even assuming that Section 7.2 

could apply, which the court finds [it] does not, defendants did not give plan 

participants any opportunity to choose between Bank shares or cash; they simply 

went ahead and made the distributions in the form of Bank shares." 1 E26. The 

court found that Defendants' March 2011 letter informing participants about this 

unilateral decision was also "replete with misinformation," and supported the court's 

decision that Defendants violated their duty of loyalty to speak truthfully to 

participants. 1 E27; see Barker v. Am. Mobil Power Corp., 64 F.3d 1397, 1403 (9th 

Cir. 1995) ("A fiduciary has an obligation to convey complete and accurate 

information material to the beneficiary's circumstance[.]"). 

Defendants fail to address the district court's basis for its conclusions. Defs. 

34 
Br. 36-38. Defendants do not contest the court's reliance on the letter's plain 

language, which conveyed Defendants' unilateral decision to terminate the Plan by 

providing shares to participants, instead of cash. Defendants, in fact, concede that 

the letter conveyed misinformation by referring to a distribution of stock that never 

occurred in February 2010. Id. at 37. Instead, Defendants focus completely on the 

immaterial fact that the letter permits the Bank's possible repurchase of that stock 

subject to several qualifications. Id. at 36. This fact is irrelevant to Defendants' 

unilateral decision to provide shares, and not cash, in violation of ERISA and the 

Plan document. 

The district court also found Defendants disloyal when forcing participants to 

hold stock that Defendants admit is almost impossible to sell, see supra note 5, 

while misinforming participants in the March 2011 letter that the Bank's 

"requirement to" repurchase the stock ends after 60 days and is subject to 

governmental approval. See Defs. Br. 36. In fact, the Plan required payment to 

participants in cash. Defendants never contest the fact that they told participants the 

Bank was not "required" to repurchase the stock after 60 days, and, instead, 

Defendants raise an immaterial issue as to whether they ever "refused" to 

repurchase the stock subsequent to the letter. Defs. Br. 37. This issue is irrelevant 

to the district court's conclusion that Defendants violated their duties of loyalty 

when they imposed qualifications on the repurchase of stock in the March 2011 

35 
letter, when a cash payment was required under the Plan. 

II. Count Two: The District Court Correctly Found No Genuine Issue Of 

Material Fact Regarding Defendants' Improper Diversion Of Plan's 

$132,506 Account Receivable 

As the district court correctly concluded, the simple undisputed facts 

regarding Defendants' transfer of $81,407.18 of the Plan's $132,506 account 

receivable to the Bank clearly satisfy the elements for ERISA violations under 

section 403 (the anti-inurement provision, requiring that "assets of a plan shall 

never inure to the benefit of any employer"), section 406(a) (the prohibited 

transaction provisions, barring certain transactions between a plan and a party in 

interest), section 406(b) (the prohibition of self-dealing), and section 404 (the 

duties of prudence and loyalty). 1 E31. 

On appeal, Defendants contest only one element: whether the $132,506 was 

a Plan asset. As the district court recognized, Defendants' own evidence and 

statements describe the entire $132,506 account receivable as a Plan asset. 1 E29 

(citing 5 E735 (Defendants' December 28, 2010 "Resolution to Demand Payment 

of Book Value Interest in Seclusion Alcalde, LLC")); see also 6 E975 (Audited 

Financial Statements, note H). As a result, the court correctly concluded that "[a]ll 

indications are that the $132,506 was a Plan asset." 1 E29. 

Defendants present no argument or record evidence that raises a dispute of 

material fact with respect to this conclusion. Instead, Defendants' brief raises a 

36 
                                                            

completely immaterial argument as to whether the $132,506 was "owned by any of 

the Participants." See Defs. Br. 52, 55. Defendants never challenge on appeal the 

district court's conclusion and the undisputed evidence that the Plan, not the 

participants or the Bank, owned the rights to the account receivable in its name. 1 

E31 (an "account receivable that belonged to the Plan"). Defendants do not 

dispute that the account receivable originated from dividends that were owed to 

the Plan on stock "allocated" to participants' accounts (but owned by the Plan) as 

well as any unallocated shares owned by the Plan at that time.10 As the district 

court recognized, the unallocated shares and control over those shares' dividends 

are governed by the Plan document, reinforcing the undisputable conclusion that 

the Plan owns these unallocated shares and its dividends. 1 E30; Defs. Br. 49, 54­

55; 8 E1380, 1383, 1392 (Sec. 4.4; 5.3; 7.7). For example, Defendants rely on 

Section 4.4, Defs. Br. 54, which states that "Bank Stock when initially acquired by 

the Trustee . . . shall be credited to the Unallocated Stock Account." (emphasis 

added). While Defendants are correct that such stock is not allocated to individual 

participants, these assets are still Plan assets, and any dividend on this stock is also 

a Plan asset. See generally Herman v. NationsBank Trust Co., (Georgia), 126 F.3d 

1354, 1367 (11th Cir. 1997). 

10 Defendants contend that the account receivable was "treated as a dividend to the 

Plan because the land that was the basis for the receivable was recorded as a 

dividend to shareholders," including the Plan. 5 E599. 

37 
There is no basis to jump to Defendants' conclusion that these assets are 

Bank assets. The district court found that Defendants submitted no evidence in 

support of their argument, other than Defendant Chi's own declaration. 1 E12; see 

Defs. Br. 53 (citing Nelson v. City of Davis, 571 F.3d 924, 928-29 (9th Cir. 

2009)). But Defendants conflate testimony that serves as evidence of events that 

transpired, as discussed in Nelson, 571 F.3d at 928-29, with Chi's self-serving 

testimony that presents arguments for why the events that undisputedly transpired 

here were not violations of the law. Defendants inaptly criticize the court for 

"making credibility determinations" with regards to Chi's own opinion regarding 

why the undisputed events do not constitute violations of ERISA, Defs. Br. 56, 

when in fact the court was merely rejecting what amounts to an unsupported legal 

argument that the Bank had legal rights to the dividend. Orr v. Bank of Am., NT 

& SA, 285 F.3d 764, 783 (9th Cir. 2002) ("To defeat summary judgment, she must 

respond with more than mere hearsay and legal conclusions.") (internal quotation 

marks and citation omitted). 

The district court did not "disregard" Chi's declaration, as Defendants allege. 

Defs. Br. 53. Rather, the court found it unsupported by evidence, noting that "the 

explanation offered by defendants is without any evidentiary support[.] '" 1 E31. 

For example, Defendants "submitted no documents or other evidence relating to the 

purported repurchase by the Bank of the unallocated stock collateralizing the loans, 

38 
 

or, perhaps more importantly, any agreement between the Bank and the Plan 

relating to whether that repurchase would encompass any dividends associated with 

that stock." 1 E30. Finding that Defendants' explanation "is not enough to defeat 

summary judgment in favor of the Secretary," the court correctly concluded that 

"defendants diverted to the Bank a significant portion ($81,407.18) of the $132,506 

account receivable that belonged to the Plan, and by doing so, defendants violated 

ERISA[.]" 1 E31. This Court has repeatedly affirmed summary judgment decisions 

where the parties only offer self-serving and conclusory affidavits in opposition to 

unrefuted evidence. See, e.g., Hexcel Corp. v. Ineos Polymers, Inc., 681 F.3d 1055, 

1063 (9th Cir. 2012). 

Defendants also contend that the district court should have deferred to Chi's 

Plan interpretations pertaining to this Count. Defs. Br. 55-56. As with Count One, 

Defendants raise this issue for the first time in this appeal, so this issue is waived. 

See supra, note 6. Moreover, Defendants fail to refute the district court's finding 

that Defendants offered no explanation for how the transfer of $81,407 from the 

Plan to the Bank could have been properly made in conformity with the Plan 

document. Rather than explaining why they offered no such explanation, 

Defendants criticize the court for "fail[ing] to consider all of the provisions of the 

Plan Document," implying that it was the court's responsibility to provide the 

explanation, not their own. Defs. Br. 54. The Plan provisions clearly support the 

39 
district court's conclusion that the account receivable was a Plan asset; Defendants 

provide no contrary reading. Any argument for deference fails here for the same 

reasons it failed with respect to Count One. See supra Section I.B. 

III.	 Count Three: The District Court Committed No Clear Error In 

Finding Defendants' Transfer Of $69,745.93 In Plan Assets From The 

Plan To The Plan Sponsor Was A Prohibited Transaction 

Defendants do not dispute that $69,745.93 was transferred from Plan Account 

6510 to the Bank, or that Chi made the transfer decision. 1 E17; Defs. Br. 56-57. 

Nevertheless, Defendants criticize the district court for concluding that these facts 

establish a prohibited transaction under ERISA. Defs. Br at 56. The court correctly 

held, however, that this transaction was per se illegal under ERISA section 

406(a)(1)(D). 1 E17. The court also correctly held that Defendants violated other 

provisions of section 406, which bars certain transactions between a plan and a 

party in interest, and ERISA section 403(c)(1), which prohibits "assets of the plan" 

from inuring to the employer's benefit. 1 E17. 

To protect the assets of plans, Congress forbade certain types of transactions 

altogether in ERISA section 406, with the goal to "categorically bar[ ] certain 

transactions deemed 'likely to injure the pension plan,'" Harris Trust & Sav. Bank v. 

Salomon Smith Barney, Inc., 530 U.S. 238, 242 (2000). ERISA section 406 bars 

these transactions, e.g., Defendants' transfer of Plan assets to the Bank as Plan 

Sponsor (Count Three), and Defendants' transfer of the Plan's account receivable 

40 
 

payment to the Bank (Count Two), without regard to whether or not they may be 

otherwise justified. See Cutaiar v. Marshall, 590 F.2d 523, 528-529 (3d Cir. 1979). 

Defendants do not and cannot contest the undisputed facts that support all 

elements of the prohibited transaction here. Defendants do not cite any statutory 

authority for an exemption. Instead, Defendants repeat their argument below that 

the $69,745.93 was an overpayment that belonged to the Bank. Below, they relied 

on ERISA section 403(c)(2)(A)(i), 1 E17, which provides that a purported 

"overpayment" of employer contributions to the Plan may be returned to the 

employer "within one year after the payment of the contribution" if a "mistake of 

fact" is established. Defendants fail, however, to recite this legal authority on 

appeal or to cite any evidence that satisfies the statutory conditions. See Defs. Br. 

56-59. Defendants have the burden to establish an exemption to a prohibited 

transaction, an exception to the anti-inurement provision, or any other affirmative 

defense. Chao v. Malkani, 452 F.3d 290, 297 (4th Cir. 2006) (describing section 

403(c)(2)(A)(i) as a narrow "exception" to ERISA section 403's anti-inurement 

provision); cf. Howard v. Shay, 100 F.3d 1484, 1488 (9th Cir. 1996); Allen v. 

GreatBanc, 835 F.3d 670, 676 (7th Cir. 2016) (discussing defendants' burden to 

establish ERISA section 408, 29 U.S.C. § 1108, exemptions to prohibited 

transactions); see generally, e.g., U.S. v. Gravenmeir, 121 F.3d 526, 528 (9th Cir. 

1997) (noting the "'well-established rule . . . that a defendant who relies upon an 

41 
exception to a statute . . . has the burden of establishing and showing that he comes 

within the exception[.]'") (citation omitted). 

In complaining that "the DOL offered no evidence establishing that the 

$69,746 was anything other than an overpayment," Defs. Br. 59, Defendants forget 

their burden of proof. Defendants argue that "the only evidence submitted was that 

the $69,746 represented an overpayment[,]" and therefore the transfer of the 

$69,746 back to the Bank was justified. Defs. Br. 57. Cf. British Motor Car 

Distributors v. San Francisco Automotive Indus. Welfare Fund, 882 F.2d 371, 374­

75 (9th Cir. 1989) (rejecting employers' theory that "the fact that the Trust 

terminated (having paid off all beneficiary claims) with surplus assets . . . proves 

that the Trust fiduciaries' actual projections were mistaken" and constitutes "mistake 

of fact"). Defendants allege that "unrefuted evidence" established that Chi 

"consulted with Mr. Nash regarding the propriety of returning the $69,746 to the 

Bank," noting that both Chi and Nash "testified that the $69,746 was an 

overpayment that should be returned[.]" Defs. Br. 57. The court agreed that this 

was the "only evidence defendants offered," but found that it was "conclusory and 

self-serving testimony that the account balance 'must have been' an overcontribution." 1 E17 (emphasis added). Defendants merely repeat Chi and Nash's 

speculation about the origins of the money without any documents or accounting, 

and years after the last contribution to the Plan was made, ignoring the statutory 

42 
requirement of ERISA section 403(c)(2)(A)(i) that any return of a contribution 

made by mistake of fact be returned "within one year after the payment of the 

contribution." 29 U.S.C. § 1103(c)(2)(A)(i); 8 E1430 ("The last contribution . . . 

occurred in 2006 or earlier."). The court also found that "there was no actual 

credible and specific evidence showing what mistake was made, when, or how." 1 

E17. As the court rightly concluded, Defendants' showing "is plainly insufficient," 

because "[a] true mistake of fact occurs when there is an arithmetic or clerical error 

in making contributions, . . . and no such error was ever identified here." Id. 

Defendants never offered any evidence that the $69,746 was an "overpayment" or 

was created by a "mistake" under ERISA section 403(c)(2)(A)(i) apart from 

conclusory speculation. On appeal, they completely ignore the court's findings that 

Defendants presented no evidence on the mistake of fact element. Defendants thus 

waived any challenge to these findings, which alone is a sufficient basis for 

affirmance on Count Three. Mendoza v. Block, 27 F.3d 1357, 1363 (9th Cir. 1994) 

(failure to raise an issue in an opening brief results in waiver). 

The court correctly held that the $69,745.93 transfer of Plan assets constituted 

a prohibited transaction, violated ERISA section 403, and that Defendants failed to 

provide evidence that any exemption from or exception to those prohibitions 

applied. 1 E17-18. 

43 
IV.	 The District Court Acted Within Its Discretion In Awarding 

Prejudgment Interest 

A district court has discretion to award prejudgment interest in an ERISA 

case at a rate it deems appropriate. Blankenship v. Liberty Life Assur. Co. , 486 

F.3d 620, 628 (9th Cir. 2007) (affirming 10% prejudgment interest in an ERISA 

context). In ERISA cases, this Circuit has held that the "rate prescribed for postjudgment interest under 28 U.S.C. § 1961 is appropriate for fixing the rate of prejudgment interest unless the trial judge finds, on substantial evidence, that the 

equities of that particular case require a different rate." Grosz-Salomon, 237 F.3d at 

1164. This Circuit reviews "the district court's calculation of prejudgment interest 

for an abuse of discretion." Id. at 1163-64. 

The court granted the Secretary's request for the IRS underpayment rate, 26 

U.S.C. § 6621(a)(2) (the "IRC Rate"), which is generally higher than the interest 

rate under 28 U.S.C. § 1961. 1 E14. The court agreed that using this rate is 

consistent with the Secretary's long-standing policy of using the IRC rate in cases of 

voluntary compliance, which would strongly support its use in litigated cases of 

fiduciary breach. Id. Several circuit courts, including this Court, have endorsed an 

analogous approach for disgorgement claims in the S.E.C. context. See, e.g., S.E.C. 

v. Platform Wireless Int'l Corp., 617 F.3d 1072, 1099 (9th Cir. 2010); S.E.C. v. Teo, 

746 F.3d 90, 109 (3d Cir. 2014); S.E.C. v. First Jersey Sec., 101 F.3d 1450, 1476 

44 
                                                            

  

(2d Cir. 1996). Starting in First Jersey Sec., the Second Circuit found no abuse of 

discretion in awarding the IRC Rate, because that rate was consistent with the 

S.E.C.'s own regulations when it ordered disgorgement in administrative 

proceedings.11 101 F.3d at 1476. This Court in Platform Wireless agreed and found 

the agency's reasoning in the parallel administrative context for the IRC rate 

"persuasive." 617 F.3d at 1099 (citing reasons, including the rate as "a reasonable 

proxy for the interest rate that would ordinarily be charged."). The Third Circuit 

also agreed, concluding that "[t]he SEC's request for this rate of interest on 

disgorged sums was consistent with its own regulation." Teo, 746 F.3d at 109. 

Likewise, it is the Department's long-standing policy to use the IRC rate for 

fiduciaries who self-report and voluntarily correct ERISA violations through its 

Employee Benefits Security Administration's Voluntary Fiduciary Correction 

Program. 1 E14; 67 Fed. Reg. 15062, 15066 (Mar. 28, 2002) (policy implemented 

after notice and comment and justified use of the section 6621 rate); Pension 

Payback Program, 61 Fed. Reg. 9205 (Mar. 7, 1996) (adopting, in a predecessor 

program, the section 6621 rate). Like the S.E.C., the Department recognized the 

IRC rate as the rate participants would ordinarily earn but for the violation. As the 

11 In Price v. Stevedoring Servs. of Am., 697 F.3d 820, 839 & n.12 (9th Cir. 2012) 

(en banc), this Court granted Skidmore deference to the agency's use of the section 

1961 rate in administrative proceedings, but also noted the agency could have used 

the section 6621 rate. 

45 
 

                                                            

Department noted in 1996, the section 6621 rate "requires that the earnings be 

calculated on an account by account basis in order to mirror the earnings the 

participants would have otherwise accrued . . . [and] is designed to reflect market 

rates of interest rather than serve as a penalty." 61 Fed. Reg. 9205. The Department 

noted in 2002 that the section 6621 rate serves to "make the plan whole." 67 Fed. 

Reg. 15066.12 

As in Platform Wireless, it would be contrary to the purposes of the 

Voluntary Fiduciary Correction Program, and contrary to good public policy, to 

apply a lesser interest rate for recoveries from breaching fiduciaries such as 

Defendants who have neither self-reported nor voluntarily corrected. See, e.g., 

Solis v. Sonora Envtl., LLC, No. CV 10-00675, 2012 WL 5269211, at *5 (D. Ariz. 

Oct. 24, 2012); Harris v. A.D. Vallett & Co., No. 3:13-0105, 2014 WL 1280490, at 

*4 (M.D. Tenn. Mar. 27, 2014). 

Relying on this reasoning, the district court explained, "[p]rejudgment interest 

is an element of compensation, not a penalty." 1 E14. The court recognized that 

"[a]lthough a defendant's bad faith conduct may influence whether a court awards 

12 "ERISA, like the Longshore Act, has a remedial purpose, and both schemes 

provide payments on which recipients are likely to depend, in whole or in part, for 

their livelihood." Price, 697 F.3d at 836. A section 6621 rate is appropriate when 

defendants deprive parties of their livelihoods. See E.E.O.C. v. Erie Cty., 751 F.2d 

79, 82 (2d Cir. 1984); Taxman v. Bd. of Educ. of Twp. of Piscataway, 91 F.3d 1547, 

1566 (3d Cir. 1996) . 

46 
prejudgment interest, it should not influence the rate of the interest." Id. The court 

therefore correctly considered the fact that "Defendants' conduct was in blatant 

disregard of the express terms of the Plan document and of the defendants' fiduciary 

duties under ERISA" in determining that "the equities support an award of 

prejudgment interest." 1 E14. 

In determining the rate of the interest, however, the court considered the 

"equities of [this] particular case" in accordance with this Court's holding in GroszSalomon. As explained above, had Defendants self-reported and/or voluntarily 

corrected their violations through the Department's program, prejudgment interest 

would have been applied at the IRC rate. For the court to compensate the Plan with 

a lower rate here would produce an inequitable result. Id. Consequently, the court 

applied the section 6621 rate. Id. The court did not, as Defendants allege, consider 

the bad faith conduct itself in setting the interest rate. Defs. Br. 47. 

The district court also considered Defendants' argument that the 0.25% 

interest rate specified in Section 7.6 of the Plan document was an appropriate rate. 

1 E13. The court correctly found, however, that "the 'rate of interest' specified in 

Section 7.6(a) of the Plan . . . relates to put options for participants who received a 

distribution of Bank stock because they elected that option under Section 7.2 . . . . 

[and] has no application to the facts of this case, where Plan participants were 

distributed Bank shares in violation of Section 10.4." Id. 

47 
Finally, Defendants repeat their flawed assertion that deference should be 

accorded to the Plan Administrator's interpretation of the Plan document. Defs. Br. 

45-46. Their position fails here for the same reasons previously discussed, see supra 

Section I.B., as again the Plan document's text does not support Defendants' reading. 

The district court did not abuse its discretion. 

V.	 The District Court Committed No Clear Error In Holding All 

Defendants Liable 

A. Liability Of Akila Chen, Kent Chen, And William Mo 

The district court found Akila Chen, William Mo, and Kent Chen (the "NonAdministrator Trustees") liable as co-fiduciaries under ERISA section 405(a)(2) for 

the breaches of Chi and the Bank. See also ERISA section 405(a) ("a fiduciary . . . 

shall be liable for a breach of fiduciary responsibility of another fiduciary. . ."). The 

court further found that "the evidence supports a finding that they are also liable in 

their own rights under § 409 for the breaches of their own fiduciary duties under §§ 

404(a)( l )(A) and (B)." 1 E16, 18. 

Defendants contest the court's finding of liability for these three individuals 

purely on the theory that there is insufficient evidence to support its finding. 

Defendants do not contest the legal basis for their liability under ERISA section 405 

or 409. Defs. Br. 59-63. They allege that the "only" evidence regarding the NonAdministrator Trustees' conduct consists of the two resolutions terminating the Plan 

48 
(6 E962) and requesting payment of the account receivable (5 E735). Defs. Br. 62. 

This evidentiary assertion is incorrect. 

It is undisputed that the Non-Administrator Trustees were Trustees. Defs. Br. 

12; 7 E1299, 1311. As Trustees, they had discretionary authority and responsibility 

over the administration of the entire Plan. See 8 E1397 (Sec. 8.1(c)(2) ("Duties and 

Responsibilities" of the Trustee include: "Communicating with Participants" and 

"Investing and controlling the Plan assets.")). Defendants do not dispute that they 

were ERISA fiduciaries. 

The district court correctly ruled that each Non-Administrator Trustee was 

liable along with the Bank and Chi. 4 E468, 1 E21, 1 E2. The court had sufficient 

evidence for this ruling. E.g., Defs. Br. 25 (acknowledging, for Count One, that all 

Defendants knew about the request to repurchase stock from participants and, thus, 

concurred with payment in stock and not cash); Chi Declaration ¶ 10 (5 E714) 

(admitting for Count Two that the Plan, not just the Administrator, hired Richardson 

& Company to allocate the account receivable). As the court noted, Defendants 

conceded in their motion for leave to file a motion for reconsideration that "they 

presented [no material fact] that may have defeated summary judgment against 

these individual trustee defendants." 4 E469. 

As the court held, the trial testimony of each Non-Administrator Trustee 

"showed that they did not understand or appreciate their responsibilities as 

49 
fiduciaries of the Plan," and demonstrated that "they provided little or no oversight 

of Chi." 1 E16; see also 1 E10-11. For example, Akila Chen testified that "he 

believed '[t]he most important job duty for me is watch the bank's security and 

profit[.]' . . . and he did not believe that he was the 'right power to check' the 

$69,746 that was transferred from the Plan to the Bank." 1 E11. Kent Chen 

admitted he did not know the reason for the transfer or if it was right or wrong. 3 

E321 (Tr. 168:10-12). He identified no oversight of Chi's activities regarding Plan 

assets post-termination and testified only that Chi told him that Richardson & 

Company had been engaged to allocate shares before liquidating Plan assets. 3 

E316-17 (Tr. 163:10-164:15). Mo admitted that he did not take any action 

regarding the Plan after he signed the resolution to terminate it. 3 E326-27 (Tr. 

173:25-174:2). The Non-Administrator Trustees' inattention enabled Chi's 

malfeasance. 1 E16, 18. "These trustees failed to fulfill their fiduciary 

responsibilities, and by doing so enabled Chi" to commit fiduciary breaches. Id. 

As trustees who failed to abide by their fiduciary duties and allowed harm to 

come to the Plan, the Non-Administrator Trustees are liable for breaching their 

duties of prudence and loyalty under ERISA sections 404(a)(1)(A) and (B). They 

are also liable as co-fiduciaries who through their inattention enabled the breaches 

of Chi and the Bank under ERISA section 405(a)(2), which states: "a fiduciary with 

respect to a plan shall be liable for a breach of fiduciary responsibility of another 

50 
fiduciary . . . (2) if, by his failure to comply with section [404](a)(1) . . . in the 

administration of his specific responsibilities which give rise to his status as a 

fiduciary, he has enabled such other fiduciary to commit a breach." 29 U.S.C. § 

1105(a)(2). 

The Non-Administrator Trustees' status as fiduciaries derive from their duties 

as trustees, and ERISA trustees must "jointly manage and control the assets of the 

plan." 29 U.S.C. § 1105(b)(1)(B); see 29 U.S.C. § 1103(a) ("the trustee or trustees 

shall have exclusive authority and discretion to manage and control the assets of the 

plan"). The Plan document clearly states that the duties and responsibilities of the 

trustees include "[i]nvesting and controlling the Plan assets." 8 E1397 (Sec. 

8.1(c)(2)(I)); see 8 E1397 (Sec. 8.1(c)(4) ("[t]he custody of Plan assets shall at all 

times be retained by the Trustee[.]")). If more than one person is appointed as "the 

Trustee," the Plan states that "[a]ll decisions required to be made by the Trustee 

involving the interpretation, application and administration of the Plan shall be 

resolved by majority vote[.]" 8 E1396-97 (Sec. 8.1(c)(1)). There is no argument 

that the Trustee requirements in the statute or the Plan did not apply. See 29 U.S.C. 

§ 1105(b)(1)(B) & (c)(1) (non-delegation of trustee obligations); 8 E1398 (Sec. 

8.1(c)(3) and App. A, Art. 1.3 (strict requirements for delegation of fiduciary 

functions)). All Plan trustees therefore retain their joint duty and responsibility to 

manage and control Plan assets. 

51 
Directly contrary to these statutory duties and the Plan requirements, the NonAdministrator Trustees testified to exercising no authority or oversight over Chi's 

unilateral decisions to deal with the Plan assets for termination (Count One) or his 

misappropriation of Plan assets for the benefit of the Bank (Counts Two & Three), 

in violation of the Plan document, their fiduciary duties, and ERISA's antiinurement and prohibited transaction provisions. Even on appeal, Defendants admit 

that the Non-Administrator Trustees gave free rein to Chi to deal with Plan assets 

despite their statutory obligation to "manage and control the assets of the plan," 29 

U.S.C. § 1105(b)(1)(B). E.g., Defs. Br. 60 ("The actions taken to effectuate those 

resolutions were taken by the Administrator and the Bank."). 

Once each Non-Administrator Trustee accepted a position as trustee, he 

"could not avoid liability for [another's] mismanagement of the Plan by simply 

doing nothing." Free v. Briody, 732 F.2d 1331, 1336 (7th Cir. 1984) (relying on 29 

U.S.C. § 1105(a)(2)). Like the trustee in Free, these trustees admitted to 

"nonfeasance" in their critical trustee roles, thereby permitting the conversion of 

Plan assets under their dominion. Id.; see also In re First Am. Corp. ERISA Litig., 

258 F.R.D. 610, 623 (C.D. Cal. 2009); Russo v. Unger, No. 86 CIV. 9741, 1991 

WL 254570, at *7 (S.D.N.Y. Nov. 20, 1991); Springate v. Weighmasters Murphy, 

Inc. Money Purchase Pension Plan, 217 F. Supp. 2d 1007, 1023-24 (C.D. Cal. 

2002). Defendants cite cases concerning ERISA fiduciaries' monitoring duties 

52 
when they appoint a non-fiduciary to carry out certain fiduciary roles. See Defs. Br. 

61. Here, however, the Non-Administrator Trustees undertook their crucial 

responsibilities as trustees jointly with ultimate control and dominion over Plan 

assets imposed by both ERISA and the Plan document. These violations do not 

merely concern the Non-Administrator Trustees' failure to monitor Chi as an 

appointee. Rather, the violations concern their dereliction of their primary 

responsibility of overseeing and managing Plan assets—assets that were diverted 

and converted under their watch by Chi as a co-fiduciary. The court committed no 

clear error in holding all Defendants jointly and severally liable. 

B. William Mo's Alleged Resignation 

Finally, the court committed no clear error in rejecting William Mo's defense 

that he had resigned as a trustee in October 2010. The court found that the 

"evidence showed only that he had resigned as a board member, not as a trustee of 

the Plan," that "[h]is resignation letter itself made no mention of the Plan," and that 

"he continued to act as a trustee, including signing . . . the termination resolution for 

the Plan as one of its trustees" in December 2010. 1 E15. Moreover, his purported 

resignation "was inconsistent with the Plan's requirements for resignation as a 

trustee" under Sections 8.1(c)(1) and 8.6, both of which require that any resignation 

be submitted to the Bank via written notice, as well as with ERISA's requirement 

that "a trustee must be held to have continued in a fiduciary status absent a clear 

53 
 

resignation." Id.; see generally Glaziers & Glassworkers Union Local No. 252 

Annuity Fund v. Newbridge Sec., 93 F.3d 1171, 1184 (3d Cir. 1996); Allison v. 

Bank One-Denver, 289 F.3d 1223, 1237 (10th Cir. 2002) (refusing to permit 

fiduciaries to walk away without complying with plan documents). 

CONCLUSION 

The Secretary respectfully requests this Court affirm the judgment. 

STATEMENT OF RELATED CASES 

There are no related cases. 

DATED: June 23, 2017 

Respectfully submitted, 

NICHOLAS C. GEALE 

Acting Solicitor of Labor 

G. WILLIAM SCOTT 

Associate Solicitor for Plan Benefits Security 

 /s/Thomas Tso 

THOMAS TSO 

Counsel for Appellate and Special Litigation 

ANNA O. AREA 

Senior Trial Attorney 

Plan Benefits Security Division 

Office of the Solicitor 

U.S. Department of Labor 

200 Constitution Ave., N.W., Rm. N-4611 

Washington, D.C. 20210 

(202) 693-5587 

54 
CERTIFICATION OF COMPLIANCE 

Pursuant to Fed. R. App. P. 32(a)(7)(B)(i), I hereby certify that the attached 

brief is proportionately spaced, has a typeface of 14 points, and contains 12,989 

words. 

DATED: June 23, 2017 

/s/ Thomas Tso 

THOMAS TSO 

Counsel 
CERTIFICATE OF SERVICE 

I hereby certify that on June 23, 2017, I electronically filed the foregoing 

with the Clerk of the Court for the United States Court of Appeals for the Ninth 

Circuit by using the appellate CM/ECF pacer NEXT/GEN System. 

DATED: June 23, 2017 

/s/ Thomas Tso 

THOMAS TSO 

Counsel 
 

CERTIFICATE OF IDENTICAL COMPLIANCE OF BRIEF 

I, Thomas Tso, certify that this brief is identical to the version submitted 

electronically on June 23, 2017. 

Dated: June 23, 2017 

/s Thomas Tso 

THOMAS TSO 

Counsel 

United States Department of Labor 

Plan Benefits Security Division 

200 Constitution Ave., NW, N-4611 

Washington, DC 20210 

Telephone: (202) 693-5632