Opinion ID: 482811
Heading Depth: 3
Heading Rank: 3

Heading: The Instruction With Regard to ERISA Fiduciaries

Text: 30 One of the Trustees' defenses to Krear's claim was that the Contracts were unenforceable under ERISA because Krear was an ERISA fiduciary, and its allegedly excessive fees violated the ERISA requirement that fiduciaries charge no more than reasonable compensation for their services. 29 U.S.C. Sec. 1108(b)(2) (1982). They also contended that Mozer was an ERISA fiduciary and thus was liable for having caused the Funds to agree to pay Krear excessive compensation. They asked the district court to instruct the jury that Krear and Mozer were ERISA fiduciaries of the Funds as a matter of law. The court declined and instead instructed the jury as follows: 31 I instruct you that as a matter of law, the Trustees were all fiduciaries of all three funds. You must consider whether the Trustees have proved, by a preponderance of the evidence, that Krear & Company, Grauso and/or Mozer were fiduciaries. 32 The court explained the requirements of ERISA, and continued: 33 The Trustees assert that one of the ways Krear & Company breached its fiduciary duty was by charging excessive fees. You must find that the Trustees have proved, by a preponderance of the evidence, that Krear & Company was, in fact, a fiduciary, and if so, that it breached its fiduciary duty to the funds.... 34 On appeal, the Trustees contend that this instruction was erroneous and that the court should have given the instruction they requested. We disagree because the evidence in the record did not establish that either Krear or Mozer was, as a matter of law, an ERISA fiduciary with respect to Krear's rate of compensation. ERISA defines a fiduciary as follows: 35 [A] person is a fiduciary with respect to a plan to the extent (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. 36 29 U.S.C. Sec. 1002(21)(A) (1982). Under this definition, a person may be an ERISA fiduciary with respect to certain matters but not others, for he has that status only to the extent that he has or exercises the described authority or responsibility. 37 When a person who has no relationship to an ERISA plan is negotiating a contract with that plan, he has no authority over or responsibility to the plan and presumably is unable to exercise any control over the trustees' decision whether or not, and on what terms, to enter into an agreement with him. Such a person is not an ERISA fiduciary with respect to the terms of the agreement for his compensation. See, e.g., Schulist v. Blue Cross, 717 F.2d 1127, 1131-32 (7th Cir.1983): 38 Before entering into the Contract which included the rates alleged to have provided it with unreasonable compensation, BC/BS [Blue Cross/Blue Shield] had no relationship to the Trust at all. 39 ... BC/BS had no control over what plan and what hospital service organization were chosen for the Trust. After the Contract was signed, BC/BS may have come into a fiduciary relationship to the Trust with respect to the processing of claims, the area over which BC/BS had discretionary authority.... As to the terms and conditions upon which it became a provider, therefore, BC/BS entered into an arm's length bargain presumably governed by competition in the marketplace.... BC/BS was not a fiduciary under ERISA with respect to ... its compensation.... 40 On the other hand, after a person has entered into an agreement with an ERISA-covered plan, the agreement may give it such control over factors that determine the actual amount of its compensation that the person thereby becomes an ERISA fiduciary with respect to that compensation. See Sixty-Five Security Plan v. Blue Cross & Blue Shield, 583 F.Supp. 380, 387-88 (S.D.N.Y.1984) (Blue Cross was a fiduciary with respect to its own compensation where its fees were based on a percentage of claims paid, and Blue Cross had complete discretion and control over what claims would be paid). 41 The district court's instructions to the jury were consistent with these principles. While Krear may have become an ERISA fiduciary at some point after entering into the Contracts, it plainly held no such status prior to the execution of the Contracts, for it had no relationship with the Funds and no authority or responsibility for the terms under which the Trustees would retain it. Thus, the court properly rejected the Trustees' request for an instruction that Krear had been an ERISA fiduciary with respect to its compensation as a matter of law. 42 Nor would it have been appropriate for the court to charge that Mozer, the Funds' attorney, was, as a matter of law, an ERISA fiduciary with respect to Krear's compensation. Although generally [a] lawyer's duty to his client is that of a fiduciary or trustee, Cinema 5, Ltd. v. Cinerama, Inc., 528 F.2d 1384, 1386 (2d Cir.1976), an attorney for an ERISA-governed fund is not necessarily a fiduciary for all purposes within the meaning of ERISA, a fact recognized in the Department of Labor's regulations promulgated under ERISA: 43 [A]n attorney, accountant, actuary or consultant who renders legal, accounting, actuarial or consulting services to an employee benefit plan ... [is not] a fiduciary to the plan solely by virtue of the rendering of such services, absent a showing that such consultant (a) exercises discretionary authority or discretionary control respecting the management of the plan, (b) exercises authority or control respecting management or disposition of the plan's assets, (c) renders investment advice for a fee, direct or indirect, with respect to the assets of the plan, or has any authority or responsibility to do so, or (d) has any discretionary authority or discretionary responsibility in the administration of the plan. 44 29 C.F.R. Sec. 2509.75-5 (1986). 45 In the present case, Mozer participated in negotiating the fee term of the contracts with Krear, but the record does not indicate that he had either the authority or the responsibility to determine what amount the Trustees were willing to pay. In light of the evidence of record, the district court did not err in refusing to rule that Mozer was a fiduciary as a matter of law and instead treating that question as one of fact for the jury.