Opinion ID: 702291
Heading Depth: 1
Heading Rank: 2

Heading: concha i

Text: 4 The Conchas filed their complaint in Concha I in the district court for the Central District of California. The Conchas alleged that, at all relevant times, they were employees of the Corporation and participants in the Plan. Their complaint contains seven claims: (1) breach of ERISA fiduciary duty; (2) state law breach of fiduciary duty; (3) state law negligence; (4) state law fraud; (5) state law breach of contract; (6) state law negligent misrepresentation; and (7) equitable relief under ERISA. 5 In response to the Conchas' original complaint, the defendants moved for dismissal pursuant to Fed.R.Civ.P. Rule 12(b)(6). Defendants asserted that all the state laws claims (counts two through six) should be dismissed, because they are preempted by ERISA. They also argued that the state law fraud claim (count four) should be dismissed on the ground that the Conchas had failed to plead with specificity any facts relating to the alleged fraud or misrepresentation, as required by Rule 9(b). While some of the defendants argued that the Conchas' claim for equitable relief under ERISA (count seven) should be dismissed for failure to state a claim, others conceded that this count stated a claim on which relief could be granted. 1 The district court dismissed the complaint with leave to amend. 6 The Conchas subsequently filed a first amended complaint in Concha I. This complaint was virtually identical to the original complaint. Each group of defendants again moved to dismiss, on grounds similar to those stated in their prior motions. In addition, the London Defendants moved to dismiss the claim for breach of ERISA fiduciary duty (count one), on the ground that the Conchas lacked standing. This time, the district court dismissed counts two through seven with prejudice on the ground that these counts were preempted by ERISA. 2 The court also granted the London Defendants' motion to dismiss count one, but with respect to this count provided the Conchas with leave to amend. 7 In their second amended complaint, the Conchas restated their seven claims against each group of defendants. While essentially repeating the allegations contained in the prior complaint regarding the state-law claims, the Conchas amended their allegations with respect to ERISA standing. The second amended complaint stated: 8 At all relevant times, plaintiffs Pano Concha and Marta Concha (collectively Conchas) were employees of The Pano Concha, M.D., a Professional Corporation, and thus were participants and beneficiaries of The Pano Concha, M.D., a Professional Corporation Defined Benefit Plan (the Plan). At all relevant times, the Conchas were also fiduciaries of the Plan. 9 The complaint alleged the following breaches of duty under ERISA: 10 All defendants, and each of them, breached their ERISA fiduciary duties to the Plan, by, among other things: 11 a. Paying out assets of the Plan which were neither for the benefit nor for the reasonable expense of administering the Plan, all in violation of 29 U.S.C. Sec. 1104(a)(1)(A) and related statutes, including, without limitation, the taking of Plan assets for the defendants' personal use; 12 b. Engaging in self-dealing and prohibited transactions with Plan; 13 c. Loaning out Plan assets in amounts and on terms inconsistent with law; 14 d. Causing excess assets to be contributed to Plan, jeopardizing and threatening tax-exempt status; and 15 e. Failing to discharge their duties with respect to Plan: 16 (i) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent person acting in a like capacity, and familiar with such matters would use in the conduct of an enterprise of like character and with like aims; 17 (ii) by diversifying the investments of Plan so as to minimize the risk of large losses, where no circumstances existed under which it was not prudent to do so; 18 (iii) in accordance with the documents and instruments governing the Plan. 19 The complaint further alleged that the defendants had been unjustly enriched, and that they should be held personally liable to the Plan for any losses suffered and any profits realized. The Conchas requested restitution and such other equitable or remedial relief as the court deemed appropriate. 20 Again, the defendants moved to dismiss, arguing that, as to count one, the Conchas lacked standing under ERISA to challenge the alleged breaches of fiduciary duties and that the complaint failed to state a claim for breach of fiduciary duty; as to the other claims, the defendants argued that they had already been dismissed with prejudice. After a hearing, the district court dismissed all counts against all defendants with prejudice. In explaining his decision, Judge Real stated: I think Dr. and Mrs. Concha can bring--are the right plaintiffs to bring the action if they are interested in the plan. Although this remark is not entirely clear, it appears that the district judge believed that the Conchas probably had standing under ERISA but had failed to state a claim on which relief could be granted. The Conchas appealed the district court's dismissal of their ERISA and state law claims.
21 We conclude that the Conchas have standing under ERISA and that they have stated claims under ERISA against each group of defendants. Thus, we reverse the dismissal of count one as to the London and Southland Defendants and the dismissal of count seven as to all defendants. However, we affirm the district court's dismissal of all the plaintiffs' state law claims, because these claims are preempted by ERISA.
22 The first question is whether Dr. Concha and Mrs. Concha are entitled to bring this action under ERISA. We conclude that, as fiduciaries of the Plan, Dr. and Mrs. Concha have standing to challenge the alleged violations of that statute. 23 The Conchas assert two ERISA claims against the defendants: (1) a claim under 29 U.S.C. Secs. 1104, 1109, and 1132(a)(2), for breach of fiduciary duty; and (2) a claim under 29 U.S.C. Secs. 1106 and 1132(a)(3), for participation in prohibited transactions. The standing requirements for these two causes of action are identical. Sections 1109 and 1132(a)(2) of ERISA allow a participant, beneficiary or fiduciary to bring a civil action for breach of fiduciary duty. Section 1132(a)(3) allows a participant, beneficiary or fiduciary to bring a civil action challenging other violations of ERISA. 24 In their second amended complaint, the Conchas allege that they are fiduciaries of the Plan, and there is no dispute that they qualify as such. As ERISA fiduciaries, the Conchas are entitled to bring suit on behalf of the Plan and, in this capacity, may sue co-fiduciaries for breaches of fiduciary duty. Credit Managers Association v. Kennesaw Life and Accident Insurance, 809 F.2d 617, 626 (9th Cir.1987). We note that Dr. and Mrs. Concha have brought suit not on their own behalf but on behalf of the Plan. Plaintiffs allege that each group of defendants violated duties owed to the Plan, and should be held liable to the Plan. Sections 1109, 1132(a)(2), and 1132(a)(3) allow the Conchas to bring an action on behalf of the Plan against co-fiduciaries and other parties in interest who breach their duties to the Plan. See Sokol v. Bernstein, 803 F.2d 532, 536 (9th Cir.1986) (ERISA grants beneficiaries right to sue on behalf of their plan, but not on their own behalf). 25 In arguing that Dr. and Mrs. Concha do not have standing to challenge the actions of alleged co-fiduciaries, the defendants rely on Call v. Sumitomo Bank, 881 F.2d 626, 630-31 (9th Cir.1989) and Kim v. Fujikawa, 871 F.2d 1427, 1432-33 (9th Cir.1989). Neither of these cases supports the defendants' position that the Conchas, as fiduciaries, are barred from bringing suit against co-fiduciaries on behalf of the Plan. In both Kim and Call, fiduciaries had been found liable for breaches of fiduciary duty, and were bringing contribution actions against their co-fiduciaries. Both Kim and Call state that sections 1109 and 1132(a)(2) of ERISA establish remedies for the benefit of the plan, but do[ ] not provide an equitable remedy of contribution in favor of a breaching co-fiduciary. Kim, 871 F.2d at 1432, Call, 881 F.2d at 630-31. 26 Contrary to the defendants' contention, Kim and Call actually support the Conchas' position on the question of standing. Both cases permit fiduciaries to sue co-fiduciaries under ERISA for losses sustained by a covered plan. Although Call and Kim prohibit actions for contribution, they explicitly allow fiduciaries to sue on behalf of the plan for losses suffered by the plan. 3 In this case, the Conchas are not breaching fiduciaries seeking contribution. Rather, they are fiduciaries seeking relief on behalf of the Plan. Under the plain language of section 1132(a)(2) and 1132(a)(3), they have standing to bring suit as fiduciaries of the Plan. 4
27 The Conchas contend that the district court erred in dismissing the ERISA counts in their second amended complaint for failure to state a claim. We agree. The Conchas' allegations are sufficient to state a claim against the London and Southland Defendants for breach of fiduciary duty, in violation 29 U.S.C. Sec. 1104. In addition, their allegations are sufficient to state a claim against all of the defendants for participation in prohibited transactions, in violation of 29 U.S.C. Sec. 1106. 28 Because this action was dismissed under Rule 12(b)(6), the allegations contained in the complaint must be read in the light most favorable to the plaintiffs. Russell v. Landrieu, 621 F.2d 1037, 1039 (9th Cir.1980). The Conchas allege that the London Defendants (the Plan's accountants) and the Southland Defendants (the Plan's actuaries) were fiduciaries of the Plan under ERISA. The London defendants allegedly accepted ... the discretion to administer the Plan on a day to day basis so that the Plan would comply with all applicable laws and regulations, including ... those designed to maintain the tax qualification of the Plan. The Southland defendants were also given, and they accepted ... the discretion necessary to administer the Plan and assure Plan complied with all applicable laws and regulations, including tax laws. Although the Conchas do not assert that the Brady and Jacobs Defendants (the Plan's lawyers) were given discretion to administer the Plan, they do allege that they were retained by and acted as attorneys for the Plan. 29 According to the Conchas, each group of defendants breached its duties to the plan by: (1) paying out assets that were neither for the benefit of the Plan nor for reasonable administrative expenses, including the paying out of benefits for the defendants' personal use; (2) engaging in self-dealing and other prohibited transactions; (3) loaning out assets on terms inconsistent with the law; (4) causing excessive contributions to be made to the Plan, jeopardizing its tax-exempt status; (5) failing to discharge their duties with the care, skill, prudence, and diligence that a reasonably prudent person would use under the circumstances; (6) failing to diversify investments so as to avoid the risk of large losses, where no circumstances existed under which it was not prudent to do so; and (7) failing to discharge their duties with respect to the Plan in accordance with the documents governing the Plan. Plaintiffs further allege that the Plan suffered losses as a proximate result of defendants' breaches, and that the defendants were unjustly enriched by their actions. 30
31 The Conchas argue that the London Defendants and the Southland Defendants may be held liable under ERISA for breaching their fiduciary duties to the Plan. We agree that the allegations contained in count one of the second amended complaint are sufficient to state a claim for breach of fiduciary duty in violation of 29 U.S.C. Sec. 1104 as to the London and Southland Defendants. 5 32 Section 1104 imposes on fiduciaries a duty to discharge their duties solely in the interests of the participants and beneficiaries and with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use.... 29 U.S.C. Sec. 1104(a)(1)(B). Fiduciaries are also required to diversify the assets of the plan and to abide by the documents and instruments governing the plan. 29 U.S.C. Sec. 1104(a)(1)(C) & (D). Under section 1109, any fiduciary who breaches any of the responsibilities, obligations, or duties imposed on fiduciaries by this subchapter shall be personally liable to make good to such plan any losses and to restore to such plan any profits of such fiduciary. 29 U.S.C. Sec. 1109(a). Fiduciaries who breach their duties to covered plans may also be required to afford other equitable and remedial relief. 29 U.S.C. Sec. 1109(a). 33 A person is considered a fiduciary with respect to a plan, to the extent that: 34 (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. 35 29 U.S.C. Sec. 1002(21)(A). 36 In this case, the Conchas' complaint not only alleges that the London and Southland Defendants were fiduciaries, but also states that each group of defendants was given and accepted discretion to manage the Plan. The allegations contained in the Conchas' complaint are more than sufficient to state a claim for breach of fiduciary duty. 37 Contrary to the defendants' suggestion, there need not be an express delegation of fiduciary duty in the Plan instrument itself for persons performing duties of a fiduciary nature to be considered fiduciaries. It is true that a person designated in the Plan as a named fiduciary is subject to liability. See 29 U.S.C. Secs. 1102(a)(1) and 1105. Defendants are not correct, however, in asserting that the Plan instrument must set forth an express delegation of authority, if anyone other than a named fiduciary is to be held liable for breach of fiduciary duty. We are aware of no case so holding, and find no basis in the statute for adopting such a rule. 38 As we held in Yeseta v. Baima, 837 F.2d 380, 384-85 (9th Cir.1988), one must perform more than the usual professional services in order to be considered a fiduciary. In this case, the Conchas have alleged that the London and Southland defendants did in fact perform more than the usual professional or ministerial functions found in Yeseta. Id. at 384-85. The second amended complaint specifically alleges that the Southland defendants were given and accepted discretion to manage the Plan, and that the London defendants were given and accepted discretion to manage the Plan on a day-to-day basis. Thus, the Conchas have alleged precisely the kind of discretionary control over the management of the Plan that Yeseta requires. 39 We also reject the London Defendants' contention that the Conchas complaint was properly dismissed for their failure to allege with particularity the circumstances surrounding the alleged breaches of fiduciary duty. As a general rule, of course, the complaint need only contain a short and plain statement of the relevant facts. Fed.R.Civ.P. Rule 8(a). An exception exists, however, for claims of fraud or mistake. Rule 9(b) provides that: [i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Fed.R.Civ.P. Rule 9(b). The purpose of this rule is to ensure that defendants accused of the conduct specified have adequate notice of what they are alleged to have done, so that they may defend against the accusations. Without such specificity, defendants in these cases would be put to an unfair disadvantage, since at the early stages of the proceedings they could do no more than generally deny any wrongdoing. Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir.1985). 40 Rule 9(b), by its terms, applies only to allegations of fraud or mistake. Nevertheless, the London Defendants argue that Rule 9(b) should be extended to all breaches of fiduciary duty under ERISA, so as to require that plaintiffs in those cases plead with particularity the circumstances surrounding the defendants' alleged breaches. We decline to extend Rule 9(b) beyond its plain terms. We have held that Rule 9(b) applies in cases of alleged securities fraud. See Moore v. Kayport Package Express, Inc., 885 F.2d 531, 539-41 (9th Cir.1989); Deutsch v. Flannery, 823 F.2d 1361, 1365 (9th Cir.1987). We have also required compliance with the rule in cases in which the complaint alleges fraud under the Racketeer Influenced and Corrupt Organizations Act. See Moore, 885 F.2d at 541; Blake v. Dierdorff, 856 F.2d 1365, 1368 (9th Cir.1988). However, we have never applied Rule 9(b) in cases in which the plaintiffs allege a breach of fiduciary duty but do not allege fraud. In fact, the London Defendants cite no case from any jurisdiction requiring plaintiffs to comply with Rule 9(b) when they allege breaches of fiduciary duty--under ERISA or any other law--but do not plead the commission of fraud. 6 41 Cases from other jurisdiction confirm that Rule 9(b) is applicable where the plaintiffs allege fraud, but not where they simply allege breaches of ERISA fiduciary duties. In Peoria Union Stock Yards Co. v. Penn Mutual Life Insurance Co., 698 F.2d 320 (7th Cir.1983), the Seventh Circuit applied Rule 9(b) to the plaintiffs' claims of fraud under state common law, but did not apply the rule to the plaintiff's allegation that defendants had breached their fiduciary duties under ERISA. Id. at 327. In another ERISA case, Fink v. National Savings and Trust Co., 772 F.2d 951, 959 (D.C.Cir.1985), the District of Columbia Circuit vacated the district court's grant of summary judgment which had been based on the plaintiff's failure to comply with Rule 9(b). Absent an allegation of fraud in the pleadings, the District of Columbia Circuit held, Rule 9(b) is inapplicable. Id. at 989. 42 The reasons for requiring compliance with Rule 9(b) in fraud claims, but not in breach of fiduciary duty claims generally, can be understood by considering the differences between the respective causes of action. Fraud arises from the plaintiff's reliance on the defendant's false representations of material fact, made with knowledge of falsity and the intent to deceive. Pence v. United States, 316 U.S. 332, 338, 62 S.Ct. 1080, 1083-84, 86 L.Ed. 1510 (1942); 2A Moore's Federal Practice p 9.03 (1994). Plaintiffs may fairly be expected to identify with specificity the defendant's alleged misrepresentations, though they are not expected to plead with specificity the defendant's state of mind. See Graue Mill Development Corp. v. Colonial Bank & Trust Co., 927 F.2d 988 (7th Cir.1991) (sustaining dismissal where plaintiff had failed to allege specific acts or omissions); Simcox v. San Juan Shipyard, Inc., 754 F.2d 430, 439 (1st Cir.1985) (Rule 9(b) allows state of mind to be averred generally). Rule 9(b) thus requires that plaintiffs specifically plead those facts surrounding alleged acts of fraud to which they can reasonably be expected to have access. 43 In contrast, the circumstances surrounding alleged breaches of fiduciary duty may frequently defy particularized identification at the pleading stage. Where a fiduciary exercises discretionary control over a plan, and assumes the responsibilities that this control entails, the victim of his misconduct often will not, at the time he files his complaint, be in a position to describe with particularity the events constituting the alleged misconduct. These facts will frequently be in the exclusive possession of the breaching fiduciary. Even in cases where fraud is alleged, we relax pleading requirements where the relevant facts are known only to the defendant. See Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir.1987). 44 We therefore hold that Rule 9(b) is not applicable in cases in which the complaint alleges breaches of fiduciary duty under ERISA, and does not allege fraud or mistake. Complaints in such cases need contain only a short and plain statement of the claim, as required by Rule 8(a). Because count one of the Conchas' second amended complaint against the London and Southland Defendants meets this requirement, we conclude that it states a claim for breach of fiduciary duty under ERISA. 45 We do not decide whether the London and Southland Defendants were in fact fiduciaries nor, of course, whether they actually breached any duties owed. We hold only that because the Conchas have sufficiently alleged that the London and Southland Defendants were given and accepted discretionary authority over the Plan and that they breached the fiduciary duties owed to the Plan under ERISA section 1104, the complaint states a claim on which relief may be granted. 46
47 The Conchas also challenge the district court's dismissal of their ERISA claim for equitable relief based on their allegation that the defendants engaged in prohibited transactions. We conclude that, under our decision in Nieto v. Ecker, 845 F.2d 868 (9th Cir.1988), the Conchas are entitled to pursue that claim (count seven) against all defendants. 48 The Brady and Jacobs Defendants argue that because they are not fiduciaries they cannot be held liable under ERISA. We disagree. Under our decision in Nieto, nonfiduciaries may be held liable for equitable relief under ERISA, if they are parties in interest and they engaged in transactions prohibited by ERISA section 1106. 845 F.2d at 873. 49 Nieto concerned lawyers retained by a covered plan who had failed to prosecute lawsuits and had been paid for services they did not render. We held that, although the defendants were not fiduciaries they could nevertheless be held liable as parties in interest. Id. Included in the definition of a party in interest is a person providing services to a covered plan. 29 U.S.C. Sec. 1002(14)(B). In Nieto, we concluded that the plan's lawyers were parties in interest and could be sued for equitable relief under section 1132(a)(3) for certain prohibited transactions, including 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. Secs. 1106(a)(1), 1108(b). 845 F.2d at 873. 50 Even though section 1106(a)(1) on its face appears to apply only to fiduciaries, Nieto holds that the section is also applicable to parties in interest who engage in transactions enumerated in section 1106. Id. at 873-74. That section specifically prohibits: (1) the sale or lease of property between the plan and the party in interest; (2) the lending of money between the plan and party in interest; (3) the furnishing of goods to the party in interest; (4) transfer to the party in interest of any plan assets; and (5) acquisition on behalf of the plan of any employer security in violation of ERISA section 1107(a). 29 U.S.C. Sec. 1106(a)(1). 51 The allegations contained in the second amended complaint are sufficient to state a claim for participation in prohibited transactions as to all the defendants. The complaint alleges that the London and Southland Defendants were employed to administer the Plan, and that the Brady and Jacobs defendants were retained by and acted as attorneys to the Plan. Under section ERISA section 1002(14)(B), all the defendants are parties in interest because they all provided services to the Plan. See Nieto, 845 F.2d at 873. The complaint also alleges that all the defendants, including the Brady and Jacobs defendants, engaged in prohibited transactions. Specifically, the complaint accuses all the defendants of taking Plan assets for their personal use, engaging in self-dealing, and loaning out assets on prohibited terms. These allegations are sufficient to state a claim for participation in prohibited transactions. 52 We emphasize that, under Nieto, equitable relief is the sole recourse for ERISA claims against nonfiduciaries. In Mertens v. Hewitt Associates, the Supreme Court held that relief under ERISA section 1132(a)(3) is limited to remedies available in equity, such as injunction, mandamus, and restitution. Such relief does not include compensatory or punitive damages. --- U.S. ----, ---- - ----, 113 S.Ct. 2063, 2068, 2071-72, 124 L.Ed.2d 161 (1993). In this case, the Conchas' second amended complaint requests appropriate equitable relief, including restitution to the Plan. Contrary to the defendants' suggestion, section 1132(a)(3) of ERISA permits such remedies against nonfiduciaries as well as against fiduciaries. Gibson v. Prudential Ins. Co. of America, 915 F.2d 414, 417 (9th Cir.1990); Nieto, 845 F.2d at 873. While Mertens prevents the Conchas from seeking damages, they are entitled to pursue their claim for restitution and other equitable relief against all the defendants, including the Brady and Jacobs Defendants.
53 The district court dismissed the Conchas' state law claims in Concha I, concluding that they were preempted by ERISA. We agree, but for an entirely different reason than that apparently relied on by the district court. Our affirmance is based on our holding that the Conchas have standing to contest the defendants' alleged violations of ERISA. See supra part II.B.1. Because they have standing, and because their claims relate to the administration of a plan covered by ERISA, we agree that the Conchas' state-law claims were preempted by ERISA and thus properly dismissed. 54 The provisions of ERISA supersede any and all state laws insofar as they may now, or hereafter, relate to any employee benefit plans.... 29 U.S.C. Sec. 1144(a). The scope of ERISA's preemption provision has been deemed deliberately expansive and conspicuous for its breadth. See Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41, 107 S.Ct. 1549, 95 L.Ed.2d 39 (1987); Gibson, 915 F.2d at 416-17 (9th Cir.1990). ERISA's preemption clause is not limited to state laws specifically designed to affect employee benefits plans, but extends to all claims that arise from the administration of such plans whether directly or indirectly. Gibson, 915 F.2d at 416; Ellenburg v. Brockway, Inc., 763 F.2d 1091, 1095 (9th Cir.1985). In this case, there is no dispute the Conchas' allegations arise from actions allegedly taken with respect to the administration of a covered plan. 55 Notwithstanding the remarkable legerdemain that has turned a statute designed to protect employees' pension rights into a law that strips them of most of the protection they previously enjoyed under state law, there are limits to the unusually broad preemptive sweep we have afforded ERISA. As the Conchas point out, the Act does not preempt the state-law claims of plaintiffs who are without standing to challenge ERISA violations. Harris v. Provident Life and Accident Ins. Co., 26 F.3d 930, 934 (9th Cir.1994); Curtis v. Nevada Bonding Corp., 53 F.3d 1023, 1026-27 (9th Cir.1995). If the plaintiff is not a participant, beneficiary, or fiduciary, then his state law claims fall outside ERISA's sphere and are not subject to preemption. The Meadows v. Employers Health Insurance, 47 F.3d 1006, 1009-10 (9th Cir.1995); Scott v. Gulf Oil Corp., 754 F.2d 1499, 1505-06 (9th Cir.1985); Freeman v. Jacques Orthopaedic and Joint Implant Surgery Medical Group, Inc., 721 F.2d 654, 655-56 (9th Cir.1983). Thus, if the defendants were correct in asserting that the Conchas lacked standing to bring their ERISA claims, the Conchas' state law claims would not be preempted. However, the defendants were in error. Because the Conchas do have standing to bring an action under ERISA, and because their claims arise from the administration of a covered plan, the district court's dismissal of their state law claims was proper.