Court Opinion

ID: 2963895
Source: CourtListenerOpinion
Date Created: 2015-09-21 21:16:58.7451+00
Date Added: 2024-06-11T08:37:25.032475
License: Public Domain

USCA1 Opinion

	

                            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-