Court Opinion

ID: 9477559
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:26:11.138842+00
Date Added: 2024-06-11T17:45:56.346502
License: Public Domain

WIGGINS, Circuit Judge,
concurring.
Judge Kozinski correctly finds that Frommer should be potentially liable for various violations of ERISA. He finds that Frommer is a “party in interest” under ERISA section 3(14)(B), 29 U.S.C. § 1002(14)(B). ERISA plans may not engage in certain kinds of transactions with parties in interest. 29 U.S.C. § 1106. Preliminarily, I note that the plaintiffs never pled a “party in interest” cause of action. Also, neither party pursued this theory on appeal. I would reject it simply on these grounds.
Of greater significance, however, is Judge Kozinski’s rejection of Frommer’s liability under section 409(a) of ERISA. 29 U.S.C. § 1109(a). Every other case that has examined the issue has concluded that liability of non-fiduciaries as well as fiduciaries is reached by section 409. Brock v. Hendershott, 840 F.2d 339, 342 (6th Cir.1988); Lowen v. Tower Asset Management, Inc., 829 F.2d 1209, 1220-21 (2d Cir.1987); Fink v. National Sav. & Trust Co., 772 F.2d 951, 958 (D.C.Cir.1985); Thornton v. Evans, 692 F.2d 1064, 1078 (7th Cir.1982); Brock v. Gerace, 635 F.Supp. 563, 568 (D.N.J.1986); Donovan v. Schmoutey, 592 F.Supp. 1361, 1398-99 (D.Nev.1984); Donovan v. Bryans, 566 F.Supp. 1258, 1267 (E.D.Pa.1983); Donovan v. Daugherty, 550 F.Supp. 390, 410-11 (S.D.Ala.1982); Freund v. Marshall & Ilsley Bank, 485 F.Supp. 629, 642 (W.D.Wis.1979). These cases hold that if a non-fiduciary knowingly participates with a fiduciary in a breach of fiduciary trust then the non-fiduciary is likewise liable. The rationale behind these holdings is that ERISA federalized the common law of trusts, thus incorporating *875the basic trust principle imposing liability on third-party non-fiduciaries.
Judge Kozinski applies what he terms a “plain language” analysis to section 409(a). At 871. He notes that by its terms 409(a) refers only to the liability of “fiduciaries.” He argues, therefore, that resort to the legislative history of ERISA is inappropriate. However, 409(a) must not be read in isolation. It is simply one section among many that impose liability on those who violate the substantive provisions of the ERISA Act. Section 409(a) must be read in conjunction with the rest of the Act. For example, section 502(a)(3), 29 U.S.C. § 1132(a)(3), broadly allows a beneficiary of an ERISA plan to bring an action to redress any violation of the Act. By reading section 409(a) in isolation, Judge Kozinski ignores the clear requirement of the Act to provide the broadest possible remedies under ERISA to plan beneficiaries. Donovan v. Mazzola, 716 F.2d 1226, 1235 (9th Cir.1983), cert. denied, 464 U.S. 1040, 104 S.Ct. 704, 79 L.Ed.2d 169 (1984) (citing Freund).
Judge Kozinski also rejects Sen. Williams’ statement that Congress intended in ERISA “to make applicable the law of trusts; ... to establish uniform fiduciary standards to prevent transactions which dissipate or endanger plan assets, and to provide effective remedies for breaches of trust.” 1974 U.S.Code Cong. & Admin. News, pp. 4639, 5186, 93d Cong.2d Sess., 1974 (hereinafter “Leg.Hist.”). He notes that Freund, the seminal case finding that ERISA remedies include common law trust remedies, principally relies on this statement. Sen. Williams’ remarks, however, are not the only statements in the legislative record supporting the application of common law trust principles to ERISA. In Eaves v. Penn, 587 F.2d 453, 462 (10th Cir.1978) a pre-Freund case, the Tenth Circuit noted that various other Committee reports addressed in the original ERISA Bill demonstrate congressional intent to provide the broadest possible remedies under ERISA.
For example, the Senate Committee on Labor & Public Welfare in its “do pass” report, stated that the “fiduciary responsibility section, in essence, codifies and makes applicable to these fiduciaries certain principles developed in the evolution of law of trusts.” Leg.Hist. at 4865. The Report further states that the core principles of fiduciary conduct under the Act are adopted from existing trust law. Leg.Hist. at 4866. The House Report of the Education & Labor Committee also states that “[t]he principles of fiduciary conduct are adopted from existing trust law....” Leg. Hist, at 4651. Thus, support for the proposition that common law trust principles are incorporated into ERISA is found not only in a floor statement by a single senator but is amply supported by Committee reports and other legislative history.
The opinion reaches the right result in finding Attorney Frommer potentially liable under ERISA. However, Judge Kozin-ski creates a needless circuit conflict by rejecting his liability under 409(a). I would adopt the holdings of the numerous other circuits that have previously addressed the issue.
This circuit has also broadly held that “[i]n effectuating this provision [Section 409(a)], Congress intended the courts to draw on the principle of traditional trust law.” Mazzola, 716 F.2d at 1235 (citing Freund). Judge Kozinski attempts to dismiss Mazzola. He states that Mazzola “merely notes that Congress derived the Act’s provisions related to fiduciaries from the common law of trusts,” and does not stand for the proposition that the common law of trusts supplies a federal remedy where the statute itself does not seem to provide one. At 872. Judge Kozinski, however, misconstrues Mazzola. What Mazzola did find was that a proper 409(a) remedy, borrowed directly from the law of trusts, included the posting of a one million dollar bond to provide security to protect against losses to an ERISA plan. The district court had ordered the posting of the bond by the plan’s trustees until the balance on a bad loan made by the trustees was reduced to a certain figure. The court noted that though 409(a) did not by its terms provide for such a bond “[w]here there has been a breach of fiduciary duty, ERISA grants to the courts broad authority to fashion remedies for redressing the interests of participants and beneficiaries.” Mazzola, 716 F.2d at 1235 (citing Eaves v. *876Penn). The court looked directly to the law of trusts for the basis of the bond requirement.1 Mazzola is directly applicable to the case at bar. It found that section 409(a) remedies must be interpreted in light of the common law of trusts. In Mazzola, this circuit has already held that 409(a) incorporates common law trust remedies. Judge Kozinski’s opinion directly contradicts Mazzola and creates an intra-circuit conflict.2

. Mazzola also affirmed the appointment by the lower court, under 409(a), of an investment manager to assume control over the assets of the plan for ten years. The court noted that:
At common law, the court could completely remove a trustee if the court found that continuation as a trustee would harm the beneficiary's interests_ Under the broad remedial provision of ERISA courts have also found removal of fiduciaries to be an appropriate remedy upon findings of imprudence, divided loyalties, and prohibited transactions. See e.g., Freund.... Thus, in the present case where the trustees committed numerous ERISA violations, the district court acted well within its broad discretion in divesting the individual appellants of their investment functions as trustees of the Pension Fund.
Mazzola, 716 F.2d at 1238-39 (citations omitted).

. Judge Kozinski dismisses the import of Sen. Williams’ remarks that ERISA incorporates the common law of trusts. Mazzola cites Eaves for the proposition that Congress intended the courts to apply common law trust remedies. Eaves relied on Sen. Williams’ statement as well as other Committee reports as authority for rescinding a purchase-sale transaction by an ERISA plan and ordering lost profits be restored to the plan.