Court Opinion

ID: 196530
Source: CourtListenerOpinion
Date Created: 2011-02-07 03:08:09+00
Date Added: 2024-06-11T09:43:08.495006
License: Public Domain

UNITED STATES COURT OF APPEALS
                            UNITED STATES COURT OF APPEALS
                    FOR THE FIRST CIRCUIT
                                FOR THE FIRST CIRCUIT
                                         

No. 95-1363

                     ARTHUR T. COTTRILL,

                    Plaintiff, Appellant,

                              v.

          SPARROW, JOHNSON & URSILLO, INC., ET AL.,

                    Defendants, Appellees.
                                         

No. 95-1434

                     ARTHUR T. COTTRILL,

                     Plaintiff, Appellee,

                              v.

          SPARROW, JOHNSON & URSILLO, INC., ET AL.,

                   Defendants, Appellants.

                                         

        APPEALS FROM THE UNITED STATES DISTRICT COURT

               FOR THE DISTRICT OF RHODE ISLAND

         [Hon. Ernest C. Torres, U.S. District Judge]
                                                                

                                        

                            Before

                    Torruella, Chief Judge,
                                                      

                Aldrich, Senior Circuit Judge,
                                                         

                  and Selya, Circuit Judge.
                                                      
                                         

                                         

Jeffrey S. Brenner and Corrente, Brill  & Kusinitz, Ltd. on  brief
                                                                    
for Arthur T. Cottrill.
Edward C. Roy, Jr. and Roy & Cook on brief for  Sparrow, Johnson &
                                             
Ursillo, Inc., et al.

                                         

                       January 23, 1996
                                         

          ALDRICH, Senior Circuit Judge.   Arthur T. Cottrill
                                                   

(Cottrill)  sued  several  defendants:  Sparrow,   Johnson  &

Ursillo, Inc. (SJU), a Rhode Island accounting firm with whom

he was  employed as  a certified public  accountant; Sparrow,

Johnson &  Ursillo, Inc. Profit  Sharing Plan and  Trust (SJU

Plan,  or Plan), and Steven J.  Ursillo (Ursillo), an officer

and stockholder of  SJU and  a "named Trustee"  of SJU  Plan.

Cottrill  sought,  inter  alia,1  pursuant  to  the  Employee
                                          

Retirement Income  Security Act,  29 U.S.C.    1001  et seq.,
                                                                       

(ERISA), to vacate revocation  by the Plan of  his beneficial

interest  of $18,775.52.  Ursillo, in his capacity as trustee

of  the  SJU  Plan, counterclaimed,  alleging  that Cottrill,

acting  in  a  fiduciary relationship,  was  responsible  for

losing an investment  of $130,000 of Plan's  assets, and thus

owed it full recompense.

          A magistrate  judge,  in a  detailed  opinion,  had

recommended ruling in Cottrill's favor on motions for summary

judgment, but  the district  court, after conducting  a bench

trial,  held that Cottrill was a fiduciary of the Plan within

the meaning of ERISA,  29 U.S.C.   1002(21)(A), and therefore

was  responsible  to Plan  for the  loss.   It  dismissed the

counterclaim, however,  for failure  to prove damages.   Both

sides  appeal.  We reverse  and remand for  entry of judgment

                    
                                

1.  Two  further counts  have been  dropped,  as a  result of
which SJU is no longer a party.

                             -3-

for Cottrill on his complaint, and  affirm, on other grounds,

dismissal of the Plan's counterclaim.

          In  December of  1988, $130,000  of the  SJU Plan's

assets were  invested, through  a partnership known  as North

Main Street Associates One, in  which Cottrill was a partner,

in  a  group  of  second  mortgages  held  by First  Security

Mortgage  Company.     Cottrill   effected  the   SJU  Plan's

investment, as authorized by Ursillo, a named  trustee of the

Plan.   Unhappily  Cottrill obtained  no promissory  note or,

seemingly, any other documentation  of the investment.  First

Security  paid interest  to North  Main for  a while,  but by

December of 1990, the assets had apparently disappeared.2

          Because  both the  claim and  counterclaim turn  on

whether Cottrill was a fiduciary with respect to the $130,000

investment  at issue, we focus solely on the grounds given to

support  the  court's  conclusion.    The  court  found  that

Cottrill was a fiduciary because he exercised "both effective

and  actual authority  and  control over  the management  and

disposition of  the $130,000,"  which brought him  within the

definition of a  fiduciary under ERISA as one  who "exercises

any authority or control respecting management or disposition

                    
                                

2.  Perhaps  the mortgages  simply  became  worthless --  the
record is  silent.  In  any event, the  court found that  the
investment was lost.

                             -4-

of  [a plan's]  assets."   29 U.S.C.    1002(21)(A)(i).3   It

based  this conclusion  on a  number of  subsidiary findings,

including  that Cottrill  was  a "principal"  of  SJU, and  a

participant  in  the SJU  profit-sharing  Plan;  that he  had

recommended  the  investment  to  Ursillo,   specifically  by

reporting  that he  had  looked into  it  and the  investment

looked good; that he  had assumed responsibility for managing

the  investment and  obtaining documentation,  disbursing the

$130,000   to  the  mortgagee   and  collecting   the  income

generated; that he was  a partner in North Main,  the vehicle

for  making the investment, and listed himself on its account

record as the partner in charge of the investment.

          None  of these subsidiary findings, however, singly

or  collectively, amount  to "authority  or control  over the
                                                                     

management  or disposition" of the funds in question.  On the

contrary, this was twice contradicted by Ursillo himself, who

stated that he, as a Plan trustee, authorized the investment.

          The  court's reference to Cottrill as a "principal"

of  SJU overlooks  the  undisputed testimony  that this  was,

                    
                                

3.        The statue reads, in relevant part:

          [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 . . . .

29 U.S.C.   1002(21)(A).

                             -5-

literally,  a  "letterhead" title  for  client  purposes, but

quite  aside from that, SJU  itself did not  manage the Plan.

As a  "participant" in the Plan  Cottrill had no powers.   It

did not  amount to  "authority  over the  management" of  the

assets for Cottrill, with no power to invest, to recommend an

investment to Ursillo as sound; nor were powers  conferred on

him  as a gratuitous advisor4  by the trustee's accepting his

opinion.   Schloegel v.  Boswell, 994  F.2d 266,  271-72 (5th
                                            

Cir.), cert. denied,     U.S.    , 114 S.Ct. 440, 126 L.Ed.2d
                               

374 (1993)  ("[m]ere influence over  the trustee's investment

decisions . . .  is not effective control over  plan assets,"

where  ultimate  decision-making  authority rests  elsewhere)

(citing cases).   The court  made no finding,  nor could  the

record  support  one,  that  authority or  control  was  ever

delegated or "relinquished" to Cottrill in authorizing him to

execute  the management and  disposition decision of Ursillo.

See id. at 271-72.
                   

          The   court's  finding  that  North  Main  was  the

"vehicle" for the investment  was exactly correct, but  it is

the  driver, not  the vehicle,  that chooses  the route.   In

collecting and disbursing money due, Cottrill (by North Main)

was simply  a conduit, performing a  ministerial act directed

by Ursillo.  Under ERISA, "the existence of discretion [is] a

                    
                                

4.  No claim has been  made, nor is there any  evidence, that
Cottrill  was at  any time  a specially  paid advisor  to the
Plan.  Compare 29 U.S.C.   1002(21)(A)(ii). 
                          

                             -6-

sine qua non of  fiduciary duty."  Pohl v.  National Benefits
                                                                         

Consultants, Inc., 956  F.2d 126, 129 (7th Cir.  1992) (where
                             

plan  administrator function  was  clerical, mechanical,  and

ministerial,   it   was  not   discretionary).     Cottrill's

mechanical duty  to  acquire "documentation"  evidencing  the

mortgage assignments and  securing the authorized transaction

between First Security and the Plan entailed no discretionary

involvement in management of the assets.

          So  much for  management.   We turn to  the further

language  of  subsection  (i),  concerning  exercise  of "any

authority or  control  respecting .  .  . disposition  of  [a

plan's] assets."  29 U.S.C.   1002(21)(A)(i).  True, Cottrill

exercised physical control when  he forwarded the $130,000 to

First  Security.   Did this  constitute "disposition"  of the

assets?  The  meaning of disposition  is to be judged  by its

companion words.   Again,  these indicate that  the fiduciary

exercise authority or control, i.e., discretion and judgment,

over the disposition, not simply perform a transfer specified

by the trustee --  a purely administrative act.   See Sommers
                                                                         

Drug  Stores v.  Corrigan Enterprises,  Inc., 793  F.2d 1456,
                                                        

1460  (5th Cir. 1986), cert. denied, 479 U.S. 1034, and cert.
                                                                         

denied,  479  U.S. 1089  (1987)  (defendants  could be  found
                  

fiduciaries with  respect to  sale of  trust's stock  only if
                                                                      

they controlled trustees' decision  to sell; such control not

inferable from defendants' power to appoint trustees).

                             -7-

          In sum, there was no possible basis for the court's

conclusion that Cottrill  was a fiduciary.  Absent  any other

basis for assigning him personal  liability for the loss, his

funds in the Plan should not have been offset against it.  We

conclude  there was  no  issue as  to  any material  fact  to

preclude  judgment in  favor  of Cottrill.    We reverse  and

remand for entry of judgment in his favor on the complaint.

          A word about the counterclaim.  The court found for

Cottrill on the ground that, given his $18,775.52 interest in

the Plan was  offset against  the loss, and  the balance  had

been satisfied by Ursillo,  there had been no showing  of any

damages suffered by the Plan.   More to the point, in view of

what  we have already held, there was no valid demand against

Cottrill in the first place.   On this latter basis we affirm

the judgment dismissing the counterclaim.

                             -8-