Opinion ID: 165803
Heading Depth: 3
Heading Rank: 2

Heading: Authority or Control Respecting Management or Disposition of Plan Assets

Text: 28 We now look to the specific language of ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A). It is undisputed that the Lunas did not render investment advice under clause (ii) of the definition. Nor did the Lunas exercise discretionary responsibility under clause (iii) in the administration of the plans. Instead, this case focuses on clause (i) of the statutory definition. Specifically, the issue we face is whether the Lunas exercise[d] any authority or control respecting management or disposition of [plan] assets. 29 The question of whether the Lunas exercised authority or control over the asset at issue almost answers itself: It is the Trustees, not the Lunas, who control the contractual right to collect unpaid contributions from the Lunas. Whether to enforce their contractual rights is entirely up to the Trustees; the Lunas, meanwhile, have no say over whether this right will be enforced or not. 9 30 Nonetheless, our analysis cannot stop here. Emphasizing the mutual character of the relationship between an employer and an ERISA plan, at least one court has held that an employer-contributor exercises authority or control of plan assets solely by virtue of its duty to report the basis on which contributions will be made to an ERISA fund, i.e., to give an accurate accounting of how much the employer is contributing each month. Northern Cal. Retail Clerks Unions & Food Employers Joint Pension Trust Fund v. Jumbo Markets, Inc., 906 F.2d 1371, 1372 (9th Cir.1990). Under this view, even though an employer agrees only to a contractual duty to make contributions, its discretion to exercise prudence in upholding this duty — i.e., to pay or not to pay — is enough to make it an ERISA fiduciary. In other words, an employer automatically becomes a fiduciary of an ERISA plan as soon as it breaches its agreement to make employer contributions. We disagree with this logic. 31 In our view, an employer cannot become an ERISA fiduciary merely because it breaches its contractual obligations to a fund. ERISA's text and purpose, the law of trusts, Department of Labor regulatory pronouncements, and case law all lend support to our conclusion. 32
33 We begin by looking at ERISA as a whole to see what it says about fiduciary status. First, the ERISA definition of fiduciary contrasts with the ERISA definition of a party in interest, which includes, among other entities, any fiduciary ... counsel, or employee of [an] employee benefit plan ..., a person providing services to such plan ..., an employer any of whose employees are covered by such plan ..., [and] an employee organization any of whose members are covered by such plan.... ERISA § 3(14), 29 U.S.C. § 1002(14) (emphasis added). In other words, all fiduciaries are parties in interest but not all parties in interest are fiduciaries. The statute thus places employers such as the Lunas in a category of party in interest quite apart from the category of fiduciary. Just from reading the face of the statute, therefore, we would be hard-pressed to infer that the Lunas are ERISA fiduciaries simply because as employers they had a contractual obligation to pay contributions for the benefit of their employees. 34 Second, ERISA addresses the issue of delinquent contributions to an employee benefit plan wholly separate and apart from the statute's fiduciary obligation sections. Section 515 of ERISA, 29 U.S.C. § 1145, states: 35 Every employer who is obligated to make contributions to a multiemployer plan under the terms of the plan or under the terms of a collectively bargained agreement shall ... make such contributions in accordance with the terms and conditions of such plan or such agreement. 36 Thus, ERISA § 515 creates a federal right of action independent of the contract on which the duty to contribute is based and may be enforced by an action brought in the district court. Bituminous Coal Operators' Ass'n v. Connors, 867 F.2d 625, 633 (C.A.D.C.1989). The fact that Congress so explicitly addressed the issue in § 515 suggests that reliance on ERISA's fiduciary obligation sections was not intended in delinquent contribution cases such as this one. 37 More to the point, the language of ERISA § 3(21)(A) does not support a finding that the Lunas acted as fiduciaries. As noted, the relevant language states that a person assumes fiduciary status to the extent he or she exercises any authority or control respecting management or disposition of its assets. The plain meaning of the operative words suggests that Congress envisioned a greater degree of responsibility than was exercised by the Lunas. The act of failing to make contributions to the Funds cannot reasonably be construed as taking part in the management or disposition of a plan asset. 10 The asset in question, it must be remembered, is the Trustees' contractual right to collect the unpaid contributions, and the Lunas exercised no control over how the Trustees manage or dispose of that asset. 38 Even if, however, the asset were the unpaid contributions themselves, it is still not clear that the statutory definition would be met. For one, there were never any earmarked funds or segregated accounts for the contributions. And secondly, courts have noted that the management or disposition language refers to the common transactions in dealing with a pool of assets: selecting investments, exchanging one instrument or asset for another, and so on. Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 302 F.3d 18, 28 (2d Cir.2002) (quoting Johnson v. Georgia—Pacific Corp., 19 F.3d 1184, 1189 (7th Cir.1994)). The Lunas exercised no such authority or control here. The statutory language, thus, does not support the Trustees' contention that the Lunas were fiduciaries under ERISA. 39
40 Our interpretation of the statutory language is also supported by the law of trusts. First, a trustee is almost always given powers of management over trust property, see George Gleason Bogert, TRUSTS & TRUSTEES § 50 (2d ed.1984), which, as we have shown, the Lunas do not have. Additionally, at common law, fiduciary duties characteristically attach to decisions about managing assets and distributing property to beneficiaries. Pegram v. Herdrich, 530 U.S. 211, 231, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000) (citing G. Bogert & G. Bogert, LAW OF TRUSTS AND TRUSTEES §§ 551, 741-747, 751-775, 781-799 (2d. ed.1980); 2A A. Scott & W. Fratcher, TRUSTS §§ 176, 181 (4th ed.1987)). Trustees buy, sell, and lease investment property, lend and borrow, and do other things to conserve and nurture assets. They pay out income, choose beneficiaries, and distribute remainders at termination. Id. Making contractually-owed contributions to an ERISA plan bears only a limited resemblance, if any, to these traditional fiduciary responsibilities. 41 In fact, given the context of the CBA whereby the Lunas agreed to make regular contributions to the Funds, as we have discussed above, the relationship between the Lunas and the Funds is best characterized as contractual, not fiduciary. This is well-supported by the law of trusts: A contract to convey property does not give rise to a fiduciary relationship. See THE RESTATEMENT (THIRD) OF TRUSTS § 5(i) and cmt. i (2001). Furthermore, the relationship of debtor to creditor that results from contract is not fiduciary in nature. Id. at § 5(k). As explained in the Restatement, When a trust is created there is a fiduciary relationship between the trustee and the beneficiaries.... A debtor does not as such stand in a fiduciary relationship to his or her creditors. A creditor as such has against the debtor merely a personal claim, which can be enforced by judicial proceedings to reach the debtor's property. Id. at cmt. k. 42 Thus, as with the statute's language, the law of trusts does not support the Trustees' contention that the Lunas were fiduciaries under ERISA — in fact, it compels the opposite conclusion. 43
44 Next, the Department of Labor's guidance with respect to ERISA's definition of fiduciary makes clear that persons who have no power to make any decisions as to plan policy, interpretations, practices or procedures, but instead who perform only administrative or ministerial functions related to the plan, are not fiduciaries under ERISA § 3(21)(A). 29 C.F.R. § 2509.75-8 at D-2. The question, then, is whether the Lunas' obligation to make contributions under the CBA is more akin to a plan administrator's ability to make decisions as to plan policy, practices, or procedures, or whether it is closer to non-fiduciary ministerial functions. In our view it is the latter. Ministerial functions include, among other things, the [c]ollection of contributions and application of contributions as provided in the plan. Id. This ministerial function closely resembles the Lunas' obligation to make plan contributions according to the dictates of the CBA. 45
46 Turning to ERISA case law, we begin with the noncontroversial position that the Lunas' status as employers, standing alone, is not enough to confer fiduciary status. Siskind v. Sperry Retirement Program, 47 F.3d 498, 505 (2d Cir.1995) (An employer acts as a fiduciary within the meaning of ERISA ... only when fulfilling certain defined functions....); Barnes v. Lacy, 927 F.2d 539, 544 (11th Cir.1991) (Generally, employers owe no fiduciary duty toward plan beneficiaries under the ERISA.); Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1325 (9th Cir.1985) (Once [employer] appointed the Plan Administrator and gave him control over the Plan, [employer] was no longer a fiduciary because it retained no discretionary control over the disposition of claims.). Therefore, for the Trustees to prevail, they must point to something about the Lunas' relationship to the Funds that indicates authority or control over the management or disposition of a plan asset. This they cannot do. 47 A number of cases support the proposition, which we discussed above, that the true nature of the relationship between the Lunas and the Funds was contractual, and not fiduciary, in nature. See Hunter v. Philpott, 373 F.3d 873, 877 (8th Cir.2004) (in a bankruptcy case involving the same plaintiffs and same CBA at issue here, holding that the substance of the relationship between [defendant] individually and the Funds was basically contractual, not fiduciary, in nature); ITPE Pension Fund v. Hall, 334 F.3d 1011, 1016 (11th Cir.2003) (Barkett, J., concurring) (An employee pension plan that identifies receivables as a type of asset does not thereby create fiduciary obligations on the part of persons with control over the actual funds out of which obligors might satisfy these outstanding claims.). 48 Following from this proposition is the conclusion that a delinquent employer-contributor is merely a debtor, not a fiduciary. 11 Meanwhile, the benefit plan does not own the actual unpaid contributions, but only a contractual claim for damages. 12 It is the Trustees, not the Lunas, that exercise control over the contractual right to unpaid contributions. Under the CBA, the Lunas had no duty other than to make monthly contributions, and no discretion other than to fail to make those required contributions. The mere discretion whether to pay debts owed to an employee benefit plan, however, does not suffice to confer fiduciary status under ERISA. See Bd. of Trustees of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164, 174 (3d Cir.2002) (where employer owed money to multi-employer pension fund, holding that employer was not a fiduciary because it played no role in the management or investment of assets); Kopilas v. Disipigna, 1992 WL 96360, No. 90-CIV. 5075(JFK), at  (S.D.N.Y.1992) (holding that employer was not a fiduciary because [w]hile the collective bargaining agreement required [employer] to make periodic contributions to the plan, there is no indication and no allegation that [employer] exercised authority and control of any kind with respect to the Pension Plan); Laborers' Pension Fund v. Litgen Concrete Cutting & Coring Co., 709 F.Supp. 140, 145 (N.D.Ill.1989) (in case based on allegations that employer failed to make contributions as required by a collective bargaining agreement, noting that this court would be surprised to learn that [employer] holds any authority, discretionary control, or responsibility with respect to management or administration of the plaintiffs' funds or assets). 13 49 Admittedly, there is contrary authority suggesting the discretion whether to pay contractually-owed monies to an employee benefit plan is sufficient to establish fiduciary status. See Jumbo Markets, Inc., 906 F.2d at 1372; Bd. of Trustees v. J.R.D. Mech. Servs. Inc., 99 F.Supp.2d 1115, 1122 (C.D.Cal.1999) (citing cases). Such cases, however, are either easily distinguished on the facts, see, e.g., Pension Ben. Guar. Corp. v. Solmsen, 671 F.Supp. 938 (E.D.N.Y.1987), 14 or otherwise identify the plan asset as the actual unpaid contributions — i.e., the pool of funds — rather than, as we have held, a contractual right belonging to the fund trustees. When the asset in question is properly identified as a contractual right to unpaid contributions, the issue of control over that asset is straightforward. See Witt v. Allstate Ins. Co., 50 F.3d 536, 537 (8th Cir.1995) (holding that an insurer of a third-party tortfeasor was not an ERISA fiduciary merely because it owed money to the employee benefit plan); Chapman v. Klemick, 3 F.3d 1508, 1508 (11th Cir.1993) (rejecting the view that a person breached his fiduciary duty to the trust fund by disposing of [monies] contrary to an agreement with an employee benefit fund). 50 Another essential ingredient in this case is the fact that the Lunas, as owners of a closely-held corporation, were required to make business decisions with respect to general corporate funds. Such business decisions must not be confused with fiduciary actions. It is well-established that an ERISA fiduciary can wear two hats, meaning an individual can be both an employer and a fiduciary. See, e.g., Amato v. Western Union Int'l, Inc., 773 F.2d 1402, 1417 (2d Cir.1985). Therefore, as the Supreme Court has noted, the threshold question in an action for breach of fiduciary duty is whether the alleged fiduciary was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to complaint. Pegram v. Herdrich, 530 U.S. 211, 226, 120 S.Ct. 2143, 147 L.Ed.2d 164 (2000). 51 Because virtually every business decision an employer makes can have an adverse impact on an employee benefit plan, Varity Corp. v. Howe, 516 U.S. 489, 527, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996) (Thomas, J., dissenting), courts must examine the conduct at issue to determine whether it constitutes management or administration of the plan, giving rise to fiduciary concerns, or merely a business decision that has an effect on an ERISA plan not subject to fiduciary duties. COB Clearinghouse Corp. v. Aetna U.S. Healthcare, Inc., 362 F.3d 877, 881 (6th Cir.2004) (citation and quotation omitted). This is so even where some of the decisions personally benefitted the employer, such as some of the payments made by the Lunas to themselves for personal expenses. Cf. Izzarelli v. Rexene Prods. Co., 24 F.3d 1506, 1523-25 (5th Cir.1994) (holding that even though employer was motivated by self-interest in amending an employee stock bonus plan, employer was not acting in a fiduciary capacity, but rather making a business decision not regulated by ERISA). 52 Under the circumstances of this case, the Lunas' decision to use their limited funds to pay other business expenses rather than to make contributions to the Funds was a business decision, not a breach of fiduciary duty. See Local Union 2134, United Mine Workers v. Powhatan Fuel, Inc., 828 F.2d 710, 714 (11th Cir.1987) (corporate president's decision to pay business expenses rather than insurance premiums was a business decision not regulated by ERISA). In an attempt to keep the company afloat in the face of deteriorating finances, the Lunas opted to pay expenses such as employee wages, insurance, and equipment leases. The company's financial condition was so severe, in fact, that Joyce Luna withdrew funds from her IRA to help cover expenses and Mark Luna borrowed money from a local bank for company use. Although the decision to pay expenses rather than make plan contributions had an adverse impact on the Funds, we decline to impute fiduciary status to the Lunas based on this fact alone. 53
54 Finally, we are confident that our decision honors the statutory balance struck by Congress. As one court has stated, 55 If ERISA did not limit the definition of fiduciaries to those with knowledge of their authority and discretion, then persons or entities could become subject to fiduciary liability without notice. Such a result would not only be unfair, but it would also disserve a core purpose of ERISA, which is to create a system whereby accountable fiduciaries are motivated by their accountability to protect the interests of participants in ERISA plans. 56 Herman v. NationsBank Trust Co., 126 F.3d 1354, 1366 (11th Cir.1997). Indeed, at the time the Lunas signed the CBA, nobody would have suggested by virtue of the agreement that they became bound automatically by the fiduciary obligations spelled out in 29 U.S.C. §§ 1102, 1103, 1104, 1105, 1106, 1108, 1110, 1111, and 1112 (various statutory obligations of ERISA fiduciaries). 57 ERISA's definition of fiduciary is broad but not all-encompassing. Every employer in some sense has discretion in meeting its obligations. But discretion alone does not confer fiduciary status under ERISA. If it did, any obligor to an employee benefit plan could become an ERISA fiduciary. One can imagine, for example, a business that rents space in an investment property owned by a pension fund. Under the Trustees' logic, the tenant's failure to pay its rent obligation might create a de facto fiduciary relationship nondischargeable in bankruptcy. Plainly, Congress did not intend such a rule, for it would, among other things, undermine the very purpose of ERISA by creating an enormous disincentive to offer an employee-benefit fund or contract with one. We recognize, of course, that Congress enacted ERISA because it found that prior law did not sufficiently protect the rights of plan beneficiaries. This does not mean, however, that Congress meant to impose fiduciary obligations on all employer-contributors. In the absence of Congressional direction, therefore, we are not inclined to expand ERISA beyond its plain meaning and hold that the officers of a company who contract with an ERISA-covered fund automatically become fiduciaries under the Bankruptcy Code.