Opinion ID: 578328
Heading Depth: 2
Heading Rank: 1

Heading: Fiduciaries under ERISA

Text: 6 A person is a fiduciary with respect to an ERISA plan 7 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. 8 29 U.S.C. § 1002(21)(A) (1988). The trustees concede subsection three is inapplicable to this case because Bayliss was not granted discretionary authority. However, they claim that Bayliss qualifies as a fiduciary under both subsection one and subsection two. Mindful that [t]he term fiduciary is to be broadly construed, Consolidated Beef Indus. v. New York Life Insurance Co., 949 F.2d 960, 963 (8th Cir. 1991), we examine the law pertaining to these two subsections before discussing the propriety of the district court's entry of summary judgment.
9 There is a clear difference between the language contained in subsections one and three. Subsection one imposes fiduciary status on those who exercise discretionary authority, regardless of whether such authority was ever granted. Subsection three describes those individuals who have actually been granted discretionary authority, regardless of whether such authority is ever exercised. This interpretation, though sufficiently supported by the statute's language, is further supported by Congress' intent. See H.R.Rep. No. 93-533, 93rd Cong., 2d Sess. 11, reprinted in 1974 U.S.C.C.A.N. 4639, 4649 (a fiduciary is a person who exercises any power of control ... or who has authority or responsibility to do so.) (emphasis added); H.R.Rep. No. 1280, 93rd Cong. 2d Sess., reprinted in 1974 U.S.C.C.A.N. 5038, 5103. Finally, we note this interpretation is consistent with Congress' desire that ERISA protect the interests of participants in employee benefit plans and their beneficiaries, 29 U.S.C. § 1001(b) (1988), because it imposes fiduciary status upon those who act like fiduciaries as well as those who actually are fiduciaries. Cf. Blatt v. Marshall & Lassman, 812 F.2d 810, 812-13 (2d Cir.1987) ([W]hether or not an individual or entity in an ERISA fiduciary must be determined by focusing on the function performed, rather than the title held.); Lieb v. Merril Lynch, Pierce, Fenner & Smith, 461 F.Supp. 951, 954 (E.D.Mich.1978) (When the broker has usurped actual control over a technically non-discretionary account, ... the broker owes his customer the same fiduciary duties as he would have had the account been discretionary from the moment of its creation.). Thus, the absence of any grant of authority to Bayliss does not automatically preclude a finding that he is a fiduciary; Bayliss can be found to be a fiduciary if, as described by subsection one of the definition, he exercised discretionary control over the pension plans. 3
10 Department of Labor regulations define the term investment advice as used in subsection two of the definition thusly: 11 A person shall be deemed to be rendering investment advice to an employee benefit plan, ... only if:(i) Such person renders advice to the plan as to the value of securities or other property, or makes recommendation as to the advisability of investing in, purchasing, or selling securities or other property; and 12 (ii) Such person either directly or indirectly ...-- 13 (A) Has discretionary authority or control, whether or not pursuant to agreement, arrangement or understanding, with respect to purchasing or selling securities or other property for the plan; or 14 (B) Renders any advice ... on a regular basis to the plan pursuant to a mutual agreement, arrangement or understanding, written or otherwise, between such person and the plan or a fiduciary with respect to the plan, that such services will serve as a primary basis for investment decisions with respect to plan assets, and that such person will render individualized investment advice to the plan based on the particular needs of the plan.... 15 29 C.F.R. 2510.3-21(c). 16 At issue in this case is the meaning of parts (ii)(A) and (ii)(B). Part (ii)(A) describes a person who has discretion with respect to an ERISA plan, even if such discretion did not arise from an agreement, arrangement or understanding. Thus, part (ii)(A) essentially describes all people described by part one of § 1002(21)(A) (people exercising discretionary authority) and part three of § 1002(21)(A) (people who have been granted discretionary authority). 4 17 Part (ii)(B) is to be applied by first determining whether under the regulation there existed a mutual agreement or understanding between the parties that [the broker's] advice would be the primary basis for the Plan's investment decisions. Farm King Supply, Inc. v. Edward D. Jones & Co., 884 F.2d 288, 293 (7th Cir.1989). We agree with the Seventh Circuit that this issue is comparable to the corresponding 'meeting of the minds' component of contract cases. Whether a meeting of minds exists is an issue for the trier of fact. Id. at 293 n. 6. 5 18 These regulations were adopted to insure brokers are not given fiduciary status without their knowledge. See id. at 292-93 (citing 40 Fed.Reg. at 50843); Pension Fund--Local 701 v. Omni Funding Group, 731 F.Supp. 161, 165 (D.N.J.1990). Our interpretation of these regulations is consistent with this goal. A person who usurps authority over a plan's assets and makes decisions about the use or disposition of those assets should know they are acting as a fiduciary. Similarly, a broker necessarily has reason to know that his advice is being used as a primary basis for investment decisions with respect to plan assets if the facts demonstrate a meeting of the minds as contemplated by part (ii)(B) exists, thus it is proper to impose fiduciary status upon such a broker.
19 In reviewing the district court's entry of summary judgment, we apply the same standard as applied by the district court. Kegel v. Runnels, 793 F.2d 924, 926 (8th Cir.1986). In so doing, we must view the facts in the light most favorable to the opposing party and must give that party the benefit of all reasonable inferences to be drawn from the facts. Id. Our independent review of the record convinces us that summary judgment was inappropriate in this case. 20 As to the trustees' claim that Bayliss exercised discretionary control within the meaning of § 1002(21)(A)(i), the record is more than sufficient to withstand the appellees' motion for summary judgment. Among the trustees, Fogarty was Bayliss' principal contact. Fogarty could not recall Bayliss ever seeking permission to trade CDs and did not know that the CDs were being sold prior to maturity. Fogarty's testimony about the CDs was further supported by the trustees' intent that the CDs, as bond substitutes, represent stable and secure investments, by Bayliss' discussion of CD yields in terms of yield at maturity, and by the trustees' reliance on Bayliss to describe the accounts' status due to their inability to understand the monthly reports. 21 Bayliss' deposition reveals that he tried to get permission prior to, or shortly after, purchasing or selling the plans' investments. 6 Fogarty confirmed this claim insofar as the sale of stocks was concerned, and conceded that this pattern of practice may have given Bayliss inferred control over the stocks. However, this concession does not contradict Fogarty's testimony regarding the CDs, and Bayliss' deposition answers do not specifically address the CDs. In sum, the record in the light most favorable to the trustees supports the view that though Bayliss obtained permission to trade stocks, he did not obtain permission to trade CDs. 7 22 As to the trustees' assertion that Bayliss rendered investment advice within the meaning of § 1002(21)(A)(i) and the corresponding regulation, the district court correctly determined that Bayliss rendered advice as described in subsection (c)(1)(i) of the regulation. Olson, slip op. 9. Based on our discussion in the above paragraph, we conclude the record supports the trustees' assertion that Bayliss had discretionary control within the meaning of subsection (c)(1)(ii)(A) of the regulation. We also conclude a favorable reading of the record supports the trustees' position that the parties had an understanding that Bayliss' advice was to be a primary basis for investment decisions. The trustees initially contacted Bayliss because they wanted advice from someone more familiar with the market. The trustees told Bayliss they wanted 80% of the plans' assets invested in bonds or bond-type instruments, but did not specifically mention CDs; it was Bayliss who first suggested that CDs would satisfy the trustees interests in a safe, steady investment. Once the accounts were open, Bayliss initiated calls to the trustees and informed them there were certain stocks he thought they should purchase or sell on behalf of the plans. 23 The district court rejected the trustees' arguments because there was no proof of an actual agreement. The court also rejected the trustees claimed reliance on Bayliss' expertise in the market because [t]he trustees were sophisticated individuals with extensive business responsibilities. Olson, slip op. at 9. However, this weighing of the evidence is inappropriate when ruling on a motion for summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513, 91 L.Ed.2d 202 (1986). We believe the record demonstrates that Bayliss and the trustees had an understanding that Bayliss' investment advice would serve as the primary basis for investment decisions as described by subsection (c)(ii)(B) to a degree sufficient to prevent entry of summary judgment against the trustees. 8