Source: https://law.justia.com/cases/federal/appellate-courts/F2/881/626/93750/
Timestamp: 2019-07-19 18:24:09
Document Index: 153769054

Matched Legal Cases: ['§ 1001', '§ 1132', '§ 1109', '§ 1109', '§ 1132', '§ 1109', '§ 1109', '§ 1132', '§ 1109', '§ 1002', '§ 1106', '§ 1106', '§ 1002', '§ 1132', '§ 1109', '§ 1101', '§ 1132', '§ 1132', '§ 1132', '§ 1332', '§ 1002', '§ 1108']

Sterling Call, Ralph Robinson and Edison Willers, Asindividuals; Sterling Call and Ralph Robinson As Planadministrators of the Phase Ii Corporation Restated Profitsharing Plan; and Sterling Call, Kenneth Friedman Andedison Willers As Plan Administrators of the Californiaetching Corporation Restated Profit Sharing Plan,plaintiffs-appellants, v. Sumitomo Bank of California, a California Corporation, Rayw. Sherman, Jr., an Individual, Khateeb A. Lateef,an Individual, and Lateef Managementassociates, a Partnership,defendants-appellees, 881 F.2d 626 (9th Cir. 1989) :: Justia
Justia › US Law › Case Law › Federal Courts › Courts of Appeals › Ninth Circuit › 1989 › Sterling Call, Ralph Robinson and Edison Willers, Asindividuals; Sterling Call and Ralph Robinson As...
Sterling Call, Ralph Robinson and Edison Willers, Asindividuals; Sterling Call and Ralph Robinson As Planadministrators of the Phase Ii Corporation Restated Profitsharing Plan; and Sterling Call, Kenneth Friedman Andedison Willers As Plan Administrators of the Californiaetching Corporation Restated Profit Sharing Plan,plaintiffs-appellants, v. Sumitomo Bank of California, a California Corporation, Rayw. Sherman, Jr., an Individual, Khateeb A. Lateef,an Individual, and Lateef Managementassociates, a Partnership,defendants-appellees, 881 F.2d 626 (9th Cir. 1989)
US Court of Appeals for the Ninth Circuit - 881 F.2d 626 (9th Cir. 1989)
Argued and Submitted June 27, 1989. Decided July 26, 1989
Appellants brought this action in district court under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1382 (1982) (ERISA or the Act). They alleged that appellees had breached fiduciary and other duties owed to two ERISA-regulated profit sharing plans of which appellants were administrators. The four appellants sought to recover as plan fiduciaries on behalf of the plans. In addition, the three appellants who were also plan participants sought to recover individually. After the district court granted appellees' motion to dismiss, appellants brought this appeal.
According to appellants' complaint, in December of 1980 the Administrative Committees of the Phase II Corporation Restated Profit Sharing Plan and the California Etching Corporation Restated Profit Sharing Plan ("the plans") decided to invest plan funds in a residential real estate project. Initially, the plans each invested $100,000. They later invested another $30,000 apiece. While the Administrative Committees were making these investment decisions--a legedly on the advice of appellees Khateeb Lateef and Lateef Management Associates ("Lateef")1 --three of the appellants were participants in at least one of the plans. All four of the appellants were members of one or both of the plans' Administrative Committees. Thus, all appellants were fiduciaries for at least one of the plans.
After reimbursing the plans, appellants brought the present action against appellees Lateef, Sumitomo Bank, and Sherman. Asserting that ERISA Sec. 502(a), 29 U.S.C. § 1132(a), authorized them to bring suit, appellants contended that appellees were at least equally culpable for the loss to the plans and should therefore bear part of that loss. Appellants' first cause of action was for breach of fiduciary duty under ERISA. Suing on behalf of the plans as fiduciaries and, on the part of three of the appellants, as plan participants, appellants in their first cause of action sought, pursuant to Sec. 409(a) of ERISA, 29 U.S.C. § 1109(a), to require all of the appellees "to make good to the Plans the full amount lost, $384,106, less the $252,029 reimbursed to the Plans by Plaintiffs, for a balance of $132,077." Complaint for Breach of Fiduciary Duty and Contribution ("Complaint"), CR 100 at 16.5
In their second cause of action, asserted by appellants in their capacity as fiduciaries, appellants sought contribution from all of the appellees in "an amount to be determined at the time of trial." Appellants based this claim on ERISA Sec. 409(a), 29 U.S.C. § 1109(a).
Appellants' third cause of action, asserted on behalf of the plans by appellants in their capacity as fiduciaries and, on the part of three of them, as plan participants, sought "equitable relief" from Sherman for "non-fiduciary liability under ERISA." The theory underlying this claim was that Sherman had "knowingly participated in the breach of trust by Sumitomo in failing to ensure that the first deed was properly recorded." Complaint at 17. Therefore, appellants asserted, Sherman was "subject to non-fiduciary, third-party liability for violations of trust law" under ERISA Secs. 502(a) (3) and (a) (5), 29 U.S.C. §§ 1132(a) (3) and (a) (5).6 Complaint at 18.7
Appellees moved to dismiss the action for failure to state a claim upon which relief could be granted. Fed. R. Civ. P. 12(b) (6). On June 28, 1988, the district court granted the motion. Call v. Sumitomo Bank, 689 F. Supp. 1014 (N.D. Cal. 1988). The court held, first, that appellants could not recover on their breach of fiduciary duty claim because their settlement with DOL made the plans whole, i.e., "put the plans in the same position they would have occupied absent the breach." Id. at 1016. The court concluded that "any claim on behalf of the plans for losses incurred by virtue of the failed real estate investment must fall, since the plans are not entitled to any further recovery." Id.
Second, the court rejected appellants' claim for contribution. Despite the "plausib [ility]" of appellants' contention that appellees had breached their fiduciary duties in connection with the real estate transaction, id., the court could find no indication that ERISA authorized an action for contribution from co-fiduciaries. Id. at 1019-20. Nor could the court discern a congressional intent that the courts imply such a right of action from ERISA. Id. at 1021. The court therefore held that no right of co-fiduciary contribution is available under ERISA. Id. at 1022.
Last, the court dismissed appellants' claim against Sherman, the escrow holder. The court based this decision on the reasoning it used in resolving the first two claims: the claim against Sherman, if asserted on behalf of the plans, "fails because the plan [s] ha [ve] been fully compensated." Id. Likewise, " [i]f [the claim] is asserted on behalf of plaintiffs individually, it is essentially a claim for individual contribution and therefore fails because ERISA permits no such claim." Id.
This court reviews de novo a trial court's decision to dismiss under Rule 12(b) (6) for failure to state a claim upon which relief may be granted. Sax v. World Wide Press, Inc., 809 F.2d 610, 613 (9th Cir. 1987). A Rule 12(b) (6) dismissal cannot be upheld "unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102, 2 L. Ed. 2d 80 (1957); see also Gibson v. United States, 781 F.2d 1334,1337 (9th Cir. 1986), cert. denied, 479 U.S. 1054, 107 S. Ct. 928, 93 L. Ed. 2d 979 (1987). All allegations of material fact contained in the complaint are taken as true and the reviewing court construes them in the light most favorable to the non-moving party. Sax, 809 F.2d at 613.
Appellants and the DOL as amicus curiae offer several persuasive arguments in support of their position that ERISA may be interpreted to authorize a contribution cause of action among co-fiduciaries. However, we are foreclosed from considering these arguments because they were rejected in our recent decision in Kim v. Fujikawa, 871 F.2d 1427 (9th Cir. 1989). In that case, we held that ERISA Sec. 409, 29 U.S.C. § 1109, the provision upon which appellants in the instant case rely,8 "only establishes remedies for the benefit of the plan " and therefore "cannot be read as providing for an equitable remedy of contribution in favor of a breaching fiduciary." Id. at 1432 (emphasis in the original).9
In Kim we explicitly rejected the appellant's argument that "ERISA does not and should not prohibit actions for contribution among fiduciary trustees." Id. We also rejected the arguments that, "in enacting ERISA, Congress provided for 'broad equitable remedies,' including contribution, ..." id., and that "actions for contribution are consistent with the language and purposes of the statute." Id. Moreover, quoting from the Supreme Court's decision in Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 105 S. Ct. 3085, 87 L. Ed. 2d 96 (1984), we stated that "it seems clear that 'Congress did not intend to authorize other remedies [under ERISA] that it simply forgot to incorporate expressly.' " Kim, 871 F.2d at 1432 (quoting Russell, 473 U.S. at 146, 105 S. Ct. at 3092). We therefore rejected the notion that Congress, in enacting ERISA, had "implicitly intended to allow a cause of action for contribution under ERISA." Id. Indeed, we stated,
Id. at 1433 (quoting Texas Industries Inc. v. Radcliffe Materials, Inc., 451 U.S. 630, 639, 101 S. Ct. 2061, 2066, 68 L. Ed. 2d 500 (1981) (no right to contribution under the antitrust laws)).
Nonetheless, while affirming the district court on this point, we must address certain statements contained in the district court' discussion of ERISA. The district court expressed an overly restrictive view of the scope of relief afforded by ERISA. The district court, for example, stated that the Supreme Court's Russell opinion stood for the proposition that "ERISA's comprehensive civil remedy scheme reflects a congressional intent that the remedies explicitly provided be the only remedies available under the statute." Call v. Sumitomo Bank, 689 F. Supp. 1014, 1019 (N.D. Cal. 1988) (emphasis in the original). Yet in Amalgamated Clothing & Textile Workers Union v. Murdock, 861 F.2d 1406 (9th Cir. 1988),10 we declined to give Russell such a broad reading. Instead, the Murdock court, relying in part on "ERISA's adoption of common law trust principles," id. at 1411,11 held that Russell permitted a remedy--imposition of a constructive trust on a fiduciary's ill-gotten profits in favor of plan participants and beneficiaries--not explicitly provided for by ERISA "where that is the only available means of removing the ill-gotten profits from a culpable fiduciary's hands." Id. at 1416. We pointed out that the constructive trust remedy "merely tailors the remedy already contained in Sec. 409(a) [fiduciary's disgorgement to the plan of profits earned by means of a breach of fiduciary duty] to fit [a] ... situation ... where the return of the alleged ill-gotten profits to the plan would not deprive an allegedly culpable fiduciary of those profits." Id.12
Appellants' first cause of action, asserted in appellants' capacity as fiduciaries and, on the part of three of them, in their capacity as plan participants, sought to require appellees "to make good to the Plans the full amount lost, $384,106, less the $252,029 reimbursed to the Plans by Plaintiffs, for a balance of $132,077." The district court, finding that appellants' settlement with the DOL had made the plans whole, denied recovery, holding that "any claim on behalf of the plans for losses incurred by virtue of the failed real estate investment must fall, since the plans are not entitled to any further recovery." Call v. Sumitomo Bank, 689 F. Supp. at 1016. Appellants now argue that the district court erred in determining that the settlement put the plans in the same position they would have occupied absent the breach, and therefore improperly dismissed this claim.
Appellants' claim for breach of fiduciary duty14 was based on ERISA Sec. 409(a), 29 U.S.C. § 1109(a). This section states, in pertinent part:
Call v. Sumitomo Bank, 689 F. Supp. at 1016.
Appellants' third cause of action sought "equitable relief" from Sherman, the escrow holder who failed to record the trust deed, for "non-fiduciary" liability under ERISA Secs. 502(a) (3) and (a) (5), 29 U.S.C. §§ 1132(a) (3) and (a) (5).16 The district court, following the reasoning it used to resolve the first two claims, dismissed this claim. The court held that if the claim against Sherman was asserted by appellants on behalf of the plans, the claim "fails because the plan [s] ha [ve] been fully compensated." Call v. Sumitomo Bank, 689 F. Supp. at 1022. If, on the other hand, the claim was being asserted by appellants on their own behalf, then it was "essentially a claim for individual contribution and therefore fails because ERISA permits no such claim." Id.
In Nieto v. Ecker, 845 F.2d 868 (9th Cir. 1986), we were asked to decide whether an attorney who had performed services for an ERISA plan could be held liable under ERISA despite the fact that he was not a plan fiduciary. We held, first, that the attorney could not be sued under ERISA Sec. 409(a), 29 U.S.C. § 1109(a),17 because that section authorized actions only against fiduciaries. 845 F.2d at 873. We next addressed plaintiffs' contention that "the broad equitable powers conferred on [the court] by ERISA section 50wra) (3) ... authorizes the relief [plaintiffs] seek." Id.18 We noted that in Foltz v. U.S. News & World Report, 627 F. Supp. 1143, 1167-68 (D.D.C. 1986), the court held that the language of this section permitted the equivalent of an action for damages under section 409(a) against non-fiduciaries who participated in a breach of trust by fiduciaries. The Nieto court, however, refused to adopt Foltz 's reasoning. 845 F.2d at 873. We stated that " [p]ermitting recovery of damages under section 502(a) (3) would render section 409(a) superfluous, a result contrary to a fundamental canon of statutory construction." Id. (citations omitted).
Nevertheless, we held in Nieto that the attorney was subject to liability under ERISA because, as a "party in interest" under ERISA Sec. 3(14) (B), 29 U.S.C. § 1002(14) (B),19 the attorney was covered by ERISA's "prohibited transactions" provisions, Secs. 406(a) (1), 408(b), 29 U.S.C. §§ 1106(a) (1), 1108(b).20 We stated:
[ERISA] prohibits certain transactions between ERISA plans and their parties in interest. Some of the allegations in the complaint, if true, establish that [the attorney] participated in such "prohibited transactions" with the Funds by receiving excessive compensation for legal services, obtaining a loan from the Funds, and engaging in similar activities in violation of ERISA Secs. 406(a) (1), 408(b), 29 U.S.C. §§ 1106(a) (1), 1108(b). Because these transactions are illegal under the Act, the district courts are authorized by section 502(a) (3) "to redress such violations."
Nieto demonstrates that appellants have not stated a claim against Sherman for which ERISA provides relief. Appellants' third claim sought "equitable relief" under section 502(a) (3). By seeking equitable relief rather than damages, appellants evidently hoped to avoid Nieto 's rejection of a damages cause of action under Sec. 502(a) (3) against non-fiduciaries. However, while Sherman is a "party in interest" under Sec. 3(14) (B), 29 U.S.C. § 1002(14) (B), and even if appellants may seek "equitable relief" under Sec. 502(a) (3),21 appellants have not alleged facts that, if true, would establish that Sherman participated in any "prohibited transactions." In their complaint, appellants simply allege that Sherman "knowingly participated in the breach of trust by Sumitomo in failing to ensure that the first deed was properly recorded." Because Nieto 's holding extends only to cases in which a non-fiduciary "party in interest" engages in a "prohibited transaction," Nieto, 845 F.2d at 874 n. 7, appellants may not maintain their claim for "non-fiduciary liability" under ERISA.
Call v. Sumitomo Bank, 689 F. Supp. 1014, 1016 n. 2 (N.D. Cal. 1988). We are not convinced that appellants seek recovery only on behalf of the plans and not individually. Rather, it appears that appellants seek to sue "on behalf of" the plans, but at the same time wish any recovery to accrue only to their own accounts in the plans. We note that ERISA has no provision which would permit damages recovered on behalf of a plan to be allocated entirely to the account of a particular plan participant. The district court will determine the proper allocation of any recovery obtained on remand.
Appellants also sought reasonable attorneys' fees and costs on all counts pursuant to ERISA Sec. 502(g), 29 U.S.C. § 1132(g)
In Murdock, we held that ERISA Sec. 409(a), 29 U.S.C. § 1109(a), authorized imposition of a constructive trust, on behalf of plan participants and beneficiaries, on allegedly ill-gotten gains obtained by a plan trustee in violation of ERISA's fiduciary obligations
The Supreme Court recently reaffirmed the important role of the common law of trusts in judicial interpretation of ERISA. In Firestone Tire and Rubber Co. v. Bruch, --- U.S. ----, 109 S. Ct. 948, 103 L. Ed. 2d 80 (1989), the Court noted:
ERISA abounds with the language and terminology of trust law.... ERISA's legislative history confirms that the Act's fiduciary responsibility provisions, 29 U.S.C. §§ 1101-1114, "codif [y] and make [ ] applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts." H.R.Rep. No. 93-533, p. 11 (1973), U.S.Code Cong. & Admin.News 1974, pp. 4639, 4649. Given this language and history, we have held that courts are to develop a "federal common law of rights and obligations under ERISA-regulated plans."
Id. at 954 (quoting Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56, 107 S. Ct. 1549, 1557, 95 L. Ed. 2d 39 (1987)). See also Central States, Southeast & Southwest Areas Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570, 105 S. Ct. 2833, 2840, 86 L. Ed. 2d 447 (1985); Franchise Tax Board v. Construction Laborers Vacation Trust, 463 U.S. 1, 24 n. 26, 103 S. Ct. 2841, 2854, n. 26, 77 L. Ed. 2d 420 (1983); Nieto v. Ecker, 845 F.2d 868, 872 (9th Cir. 1988).
Nor can we approve the district court's statement that "Russell and Sokol [v. Bernstein, 803 F.2d 532 (9th Cir. 1986),] establish a rule that ERISA expressly authorizes only the employee benefit plan itself to bring an action on a theory of breach of a fiduciary duty under ERISA." Call v. Sumitomo Bank, 689 F. Supp. at 1020. As Sokol states, "ERISA grants no private right of action by a beneficiary qua beneficiary; rather, it accords beneficiaries the right to sue on behalf of the entire plan if a fiduciary breaches the plan's terms." 803 F.2d at 536 (emphasis added)
Appellants have standing to raise this claim as plan fiduciaries. ERISA Sec. 502(a) (2), 29 U.S.C. § 1132(a) (2). Three of the appellants have standing as plan participants under this same provision
ERISA Sec. 502(a) (5), 29 U.S.C. § 1132(a) (5), authorizes the Secretary to "enjoin any act or practice which violates any provision of this subchapter" and to "obtain other appropriate equitable relief...." This provision does not authorize actions by plan participants or fiduciaries. Therefore, the viability of appellants' third cause of action depends on ERISA Sec. 502(a) (3), 29 U.S.C. § 1132(a) (3)
Section 502(a) (3) provides that a civil action may be brought
29 U.S.C. § 1332(a) (3).
Section 3(14) (B) provides that a "party in interest" is "a person providing services" to an employee benefit plan. 29 U.S.C. § 1002(14) (B)
Section 406(a) (1) defines "prohibited transactions." The provision states:
Section 408(b), 29 U.S.C. § 1108(b), creates a number of exceptions to section 406's prohibitions.
The Nieto court cited, with apparent approval, McDougall v. Donovan, 539 F. Supp. 596, 598-99 (N.D. Ill. 1982). McDougall held that section 502(a) (3) permits a district court to order equitable relief against a party in interest who engages in a prohibited transaction
We do not decide whether Sherman was a "fiduciary" under ERISA. (The district court did not reach this question. Call v. Sumitomo Bank, 689 F. Supp. at 1016 n. 1.) Sherman is named as a fiduciary defendant in appellants' first and second causes of action. Because we affirm the district court's dismissal of the second claim (contribution), Sherman's liability depends, first, upon the district court's resolution, on remand, of the merits of appellants' first cause of action (breach of fiduciary duty), and, second, on whether appellants can establish that Sherman was in fact a fiduciary