Source: https://m.openjurist.org/138/f3d/98
Timestamp: 2020-04-01 15:30:12
Document Index: 550998490

Matched Legal Cases: ['§ 1104', '§ 1104', '§ 1104', '§ 1104', '§ 1105', '§ 1132', '§ 1109', '§ 1109', '§ 1105', '§ 1109', '§ 1102', '§ 194', '§ 1104', '§ 185', '§ 1105', 'art, 991', '§ 1132', '§ 1109', '§ 1105', '§ 1105', '§ 1109', '§ 223', '§ 1105', 'art, 991', '§ 1105', '§ 1105', '§ 1109', '§ 1109', '§ 1105', '§ 1109', '§ 1105', '§ 1105', '§ 1002', '§ 1132', '§ 1105', '§ 1132', '§ 1104', '§ 1105']

138 F3d 98 23941u Silverman v. Mutual Benefit Life Insurance Company | OpenJurist
138 F. 3d 98 - 23941u Silverman v. Mutual Benefit Life Insurance Company
138 F3d 98 23941u Silverman v. Mutual Benefit Life Insurance Company
138 F.3d 98
21 Employee Benefits Cas. 2761,
Pens. Plan Guide (CCH) P 23941U
Plaintiff Silverman was appointed as independent fiduciary of the plan with authority to seek recovery of the remainder of the plan assets. Silverman commenced this action against Mutual Benefit, Helene Gorny, and Principal. In his amended complaint, Silverman alleges that defendants violated 29 U.S.C. §§ 1104 and 1105. Silverman claims that the transfer of funds from Mutual Benefit pursuant to Zucker's instructions violated 29 U.S.C. § 1104(a)(1)(D) because it was "not in accordance with any term or provision of the summary plan description," not in accordance with the annuity contract between Mutual Benefit and the plan, and not in accordance with the terms of the plan itself. The complaint also charges that Mutual Benefit violated 29 U.S.C. § 1104(c) by transferring the plan funds to the trustees. Gorny is alleged to have acted without the requisite care, skill, prudence, and diligence in approving the transfer, in violation of 29 U.S.C. § 1104(a)(1)(B). As to Principal, the complaint alleged that it violated 29 U.S.C. § 1105(a)(2) and (3) by failing to investigate and take action to recover the missing plan funds.4
The district court also granted summary judgment in favor of defendant Principal. The court explained that the sole jurisdictional basis for a suit seeking money damages was 29 U.S.C. § 1132(a)(2), which allows suits for violations of 29 U.S.C. § 1109(a). Under § 1109(a), Principal would be liable for any breach of its fiduciary duty under 29 U.S.C. § 1105(a) only for losses to the plan "resulting from" such breach. 29 U.S.C. § 1109(a). The court concluded that Silverman had failed to offer any evidence that the plan's loss resulted from Principal's breach.
A. Mutual Benefit and Gorny
The transfer of plan funds also complied fully with the terms of the plan itself. Silverman argues that Mutual Benefit and Gorny violated their fiduciary duties of care and prudence by transferring the plan funds because Zucker's letter requesting cancellation of the contract was signed by only one of the two plan trustees. Under ERISA, a trust agreement providing for more than one fiduciary must provide for joint authority to control and manage the plan, see 29 U.S.C. § 1102(a), and the exercise of joint powers typically requires the action of all trustees. See Illinois Conf. of Teamsters and Employers Welfare Fund v. Mrowicki, 44 F.3d 451, 462-63 (7th Cir.1994). However, joint trustees may modify the default rule by agreeing to delegate authority to a single agent. See id. at 463; see also Restatement (Second) of Trusts § 194 (1959) (joint trustees must act unanimously "unless it is otherwise provided by the terms of the trust"). Under the terms of the plan, the joint trustees "may authorize one or more of them to sign all papers on their behalf." The plan further provided that Mutual Benefit "may rely on the signature of any Trustee on an application for or any document used in connection with" its contract with the plan. The plan delegated to Zucker the authority to act on behalf of both trustees in documents used in connection with the plan, and Mutual Benefit lawfully relied on this authority in connection with cancellation of the contract.
Under these circumstances, Mutual Benefit had no duty of inquiry pursuant to § 1104(a)(1)(B) prior to releasing plan funds to Zucker. It had no reason to be suspicious of Zucker's cancellation of the contract. Cf. FirsTier Bank N.A. v. Zeller, 16 F.3d 907, 911 (8th Cir.) (bank could be liable for complying with trustee's order "if the [bank] knows or ought to know that the [trustee] is violating his duty to the beneficiaries as fiduciary in giving the directions") (quoting IIA Scott on Trusts § 185, at 574 (4th ed.1987)), cert. denied, 513 U.S. 871, 115 S.Ct. 194, 130 L.Ed.2d 126 (1994). Mutual Benefit's financial problems in the Spring and Summer of 1991 provided ample reason for the cancellation. Zucker's cancellation request complied fully with the terms of all relevant plan documents and the contract itself. Cf. Brandt v. Grounds, 687 F.2d 895, 898 (7th Cir.1982) (refusing to impose a fiduciary duty to inquire about the prudence of trustee's withdrawal of plan funds where bank had contractual duty to honor trustee's withdrawal slips). Summary judgment was properly granted in favor of Mutual Benefit and Gorny.6
We do not discuss the contentions that Silverman raises for the first time on appeal, as these arguments are waived for failure to raise them below. See Jacobson v. Fireman's Fund Ins. Co., 111 F.3d 261, 266 (2d Cir.1997).
Under 29 U.S.C. § 1105(a), a plan fiduciary7shall be liable for a breach of fiduciary responsibility of another fiduciary ...
Silverman argues that liability should be imposed on Principal based on Principal's failure to investigate Zucker and Fertig's embezzlement and to take reasonable steps to recover missing plan funds. See Lee v. Burkhart, 991 F.2d 1004, 1010-11 (2d Cir.1993).
Like the district court, we read the relevant statutes to require Silverman to show that the loss claimed resulted from Principal's breach. Jurisdiction for this suit for compensatory damages arises under § 1132(a)(2), which permits a fiduciary to bring a civil action "for appropriate relief under section 1109 of this title."8 Section 1109, in turn, provides
29 U.S.C. § 1109(a) (emphasis added). This statute therefore requires a plaintiff to demonstrate in a suit for compensatory damages that the plan's losses "result[ed] from" Principal's breach of § 1105(a)(3). See Willett v. Blue Cross and Blue Shield, 953 F.2d 1335, 1343 (11th Cir.1992) (defendant who breaches § 1105(a) is liable under § 1109(a) for the resulting loss); see also Free v. Briody, 732 F.2d 1331, 1336 (7th Cir.1984); Justice v. Bankers Trust Co. Inc., 607 F.Supp. 527, 535-36 (N.D.Ala.1985). Specifically, Silverman must show some causal link between the alleged breach of Principal's duties and the loss plaintiff seeks to recover. See Felber v. Estate of Regan, 117 F.3d 1084, 1087 (8th Cir.1997); In re Unisys Sav. Plan Litig., 74 F.3d 420, 445 (3d Cir.), cert. denied, --- U.S. ----, 117 S.Ct. 56, 136 L.Ed.2d 19 (1996); Friend v. Sanwa Bank California, 35 F.3d 466, 469 (9th Cir.1994); Ironworkers Local # 272 v. Bowen, 695 F.2d 531, 536 (11th Cir.1983); Brandt, 687 F.2d at 898; see also Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 279 (2d Cir.1992) (defendant fiduciary may not be held liable for breaching fiduciary duty to pay contributions to ERISA fund "unless, absent a fraudulent breach, the funds could have collected them"). This principle is consistent with the common law of trusts, which imposes a duty on a successor trustee to remedy the breach of a prior trustee, and imposes liability for breach of this duty "to the extent to which a loss results from [the successor trustee's] failure to take such [remedial] steps." See Restatement (Second) of Trusts § 223(2) and cmts. c. and d. (1959).
Thus, in order to satisfy the necessary elements imposed by §§ 1105(a)(3) and 1109(a), Silverman must show that (i) Principal had knowledge of the trustees' embezzlement, (ii) Principal failed to make reasonable efforts to remedy the trustees' breach, and (iii) the fund's loss resulted from that failure.
A material question of fact exists as to whether Principal had knowledge of a breach of fiduciary duty by the trustees. Principal knew that Zucker and Fertig had not forwarded all the plan assets remitted by Mutual Benefit; it knew also that Unitron had failed to make the required salary deferral contributions. Principal sent letters on November 5 and November 14 raising the issue of the trustees' failure to forward all of the plan funds. It received no answer to either letter. Principal's internal memoranda show that by November 13 it recognized that it had a legal problem and had involved its legal department. Although Principal did not know all the facts concerning embezzlement, a reasonable factfinder could conclude that, at some point prior to its report to the Department of Labor, Principal had knowledge of the trustees' breach. See Lee v. Burkhart, 991 F.2d 1004, 1011 (2d Cir.1993).
Silverman has also adduced sufficient evidence to present a jury question whether Principal breached its duty under § 1105(a)(3) to "make[ ] reasonable efforts under the circumstances to remedy the breach." In the face of indications of impropriety concerning the fund's monies, Principal did nothing. Indeed, its inaction continued even after it had been told in late January or early February 1992 of the embezzlement of salary deferral contributions. The deficiency of funds, coupled with the trustees' failure to respond to Principal's inquiries, could reasonably sustain a finding that Principal had a duty to take further action to explore the reason for the deficiency and take steps to recover the missing funds.
An ERISA plaintiff who seeks compensatory damages under § 1105(a)(3) must show, inter alia, that the losses "result[ed] from" the defendant's failure to take reasonable steps to remedy the co-fiduciary's breach. See 29 U.S.C. §§ 1109(a), 1105(a)(3) (1985); Diduck v. Kaszycki & Sons Contractors, 974 F.2d 270, 279 (2d Cir.1992). Causation of damages is therefore an element of the claim, and the plaintiff bears the burden of proving it. The specific factual question is whether Zucker or Fertig, during the time period in which Principal is alleged to have violated its duty to act, possessed assets from which any portion of the embezzled funds could be recovered. The date of Principal's alleged breach of its duty to act (if any) is a question for the fact-finder; but if there was a breach, it took place on some date between mid-November 1991 and March 1992. Unless Zucker and Fertig had resources that could be found and seized to replenish the plan at such time as Principal breached a duty to act, the loss cannot have been caused by Principal's inaction.
Silverman has expressly declined to proffer evidence as to what Fertig and Zucker did with the funds they embezzled, or as to whether at any pertinent time they had assets that could have made good the loss. Silverman and the Department of Labor (appearing as amicus curiae ) evidently recognize that there is no record evidence to demonstrate a causative link between Principal's inaction and the plan's losses. That is why they have argued (both in district court and on appeal) for a shift of the burden of proof on the issue of causation, so that once a plaintiff has shown a breach of section 1105(a)(3) and a related loss, the defendant must "prove that the loss was not caused by its breach of fiduciary duty." Brief of the Secretary of Labor as Amicus Curiae at 7 (emphasis added).
This argument is derived from the common law of trusts, under which a defaulting fiduciary bears the burden of disproving causation. See In re Beck Industries, Inc., 605 F.2d 624, 636-37 (2d Cir.1979).1 But the Supreme Court has cautioned that "the law of trusts often will inform, but will not necessarily determine the outcome of, an effort to interpret ERISA's fiduciary duties." Varity Corp. v. Howe, 516 U.S. 489, 497, 116 S.Ct. 1065, 1070, 134 L.Ed.2d 130 (1996). Congress has placed the burden of proving causation on the plaintiff by requiring him to prove that the losses "result[ed] from" the defendant's inaction. See 29 U.S.C. §§ 1109(a), 1105(a)(3). And we have held that it is the plaintiff's burden to "prov[e] an amount of damages caused by the fraud." Diduck, 974 F.2d at 279. Section 1105(a)(3) provides for extraordinarily broad liability for co-fiduciaries because it requires only that the defendant be a fiduciary of the same plan as the breaching fiduciary, not that they be fiduciaries with respect to the same assets. So a co-fiduciary, like Principal in this case, may be held liable for another trustee's breach with respect to assets over which the defendant co-fiduciary never exercised dominion or control. See 29 U.S.C. § 1105(a)(3).2 The causation requirement of § 1109(a) acts as a check on this broadly sweeping liability, to ensure that solvent companies remain willing to undertake fiduciary responsibilities with respect to ERISA plans.
Silverman did not raise a fact issue as to whether Zucker and Fertig had assets at the time of the breach by showing that Zucker and Fertig had received $130,000 in late September or early October. Initially at least, an embezzler will almost always have the stolen funds in his hands. But the embezzler's initial possession of the stolen funds cannot support an inference that an embezzler maintains the funds continuously thereafter in a place accessible to creditors (subject to the defendant's showing that the funds were dissipated or hidden). Otherwise, a plaintiff who demonstrates a breach of the embezzler's fiduciary duty--a threshold requirement under section 1105(a)(3)--would often be relieved of the burden of proving causation in any meaningful sense: evidence that the embezzler once possessed the money would constitute a prima facie showing that the money could have been recovered when the co-fiduciary later failed to alert the authorities.
Silverman would have us adopt implicitly an unsupported presumption that embezzled funds are retained in an accessible place for some predictable and substantial period of time. However, "[i]t is generally understood that in law for a specified fact to be presumptive evidence of another it must be one which in common experience leads naturally and logically to that other." Wilkins v. American Export Isbrandtsen Lines, Inc., 446 F.2d 480, 484 (2d Cir.1971), cert. denied, 404 U.S. 1018, 92 S.Ct. 679, 680, 30 L.Ed.2d 665 (1972). There is no body of common experience to establish that embezzlers as a class are so thrifty and provident that one may presume their prudent stewardship of the money they steal. The fact that Zucker and Fertig stole money in September does not support an inference that they had funds available for recovery one, two, three or four months later.
Although Silverman's complaint refers solely to 29 U.S.C. §§ 1105(a)(2)-(3), he argued to the district court that Principal's actions also violated 29 U.S.C. § 1105(a)(1)
In view of this disposition, we need not consider Mutual Benefit's contention that it was not acting as a fiduciary in transferring the plan funds to the trustees because it lacked discretionary authority in connection with that action. See Geller v. County Line Auto Sales, Inc., 86 F.3d 18, 21 (2d Cir.1996)
Principal meets the definition of a "fiduciary with respect to a plan" under 29 U.S.C. § 1002(21)(A)(i), (iii) (stating that a person who "exercises any authority or control respecting management or disposition of its assets" or who "has any discretionary authority or discretionary responsibility in the administration of such plan" is "a fiduciary with respect to a plan")
Silverman does not contend that he has authority to sue Principal for recovery of compensatory money damages under § 1132(a)(3), although that provision might authorize the recovery of equitable monetary relief for a violation of § 1105(a)(3). See Varity Corp. v. Howe, 516 U.S. 489, 510-14, 116 S.Ct. 1065, 1077-78, 134 L.Ed.2d 130 (1996). Compensatory damages are not "equitable relief" under the meaning of § 1132(a)(3). See Mertens v. Hewitt Assocs., 508 U.S. 248, 255-59, 113 S.Ct. 2063, 2068-70, 124 L.Ed.2d 161 (1993)
The Department of Labor also relies on Martin v. Feilen, 965 F.2d 660, 671 (8th Cir.1992), cert. denied, 506 U.S. 1054, 113 S.Ct. 979, 122 L.Ed.2d 133 (1993), which holds that "once the ERISA plaintiff has proved a breach of fiduciary duty and a prima facie case of loss to the plan or ill-gotten profit to the fiduciary, the burden of persuasion shifts to the fiduciary to prove that the loss was not caused by, or his profit was not attributable to, the breach of duty." Even if the Eighth Circuit's analysis is correct, the issue in Martin involved the calculation of damages after the plaintiff proved a prima facie case that the plan suffered a loss resulting from the defendant's breach of its fiduciary duty. See id. (holding that Secretary of Labor had established a prima facie case by proving that defendants "violated § 1104 by causing the ESOP to engage in stock transactions that caused specific injury to the ESOP at the time in question."). The issue before this Court involves the burden of proving causation, not damages
Section 1105(a)(3) provides that "a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan if he has knowledge of a breach by such other fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach." 29 U.S.C. § 1105(a)(3) (1985)