Court Opinion

ID: 4543439
Source: CourtListenerOpinion
Date Created: 2020-06-23 20:00:34.754276+00
Date Added: 2024-06-11T12:46:53.966257
License: Public Domain

NOT FOR PUBLICATION                           FILED
                    UNITED STATES COURT OF APPEALS                        JUN 23 2020
                                                                     MOLLY C. DWYER, CLERK
                                                                       U.S. COURT OF APPEALS
                           FOR THE NINTH CIRCUIT

CHEAP EASY ONLINE TRAFFIC                       Nos. 19-55055
SCHOOL; et al.,
                                                D.C. No.
                Plaintiffs-Appellants,          3:16-cv-02644-WQH-MSB

 v.
                                                MEMORANDUM*
PETER L. HUNTTING & CO., INC.; et al.

                Defendants-Appellees.

CHEAP EASY ONLINE TRAFFIC                       No.   19-55653
SCHOOL; et al.,
                                                D.C. No.
                Plaintiffs-Appellees,           3:16-cv-02644-WQH-MSB

 v.

PETER L. HUNTTING & CO., INC.;
ESTATE OF PETER L. HUNTTING,

                Defendants-Appellants,

and

SMI PENSIONS; et al.,

                Defendants.

      *
             This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
                                                                         Page 2 of 6

CHEAP EASY ONLINE TRAFFIC                       No.   19-55654
SCHOOL; et al.,
                                                D.C. No.
                Plaintiffs-Appellees,           3:16-cv-02644-WQH-MSB

 v.

SMI PENSIONS; et al.,

                Defendants-Appellants,

and

PETER L. HUNTTING & CO., INC.; et al.,

                Defendants.

                   Appeal from the United States District Court
                     for the Southern District of California
                   William Q. Hayes, District Judge, Presiding

                        Argued and Submitted June 3, 2020
                              Pasadena, California

Before: RAWLINSON and N.R. SMITH, Circuit Judges, and KORMAN,**
District Judge.

      Marla Keller and her husband, Borna Mozafari, own and manage two online

traffic schools, the Cheap Easy Online Traffic School and Easy Online Traffic

School (collectively “Plaintiffs”), and are trustees of the schools’ retirement plans

(“Plans”). Plaintiffs sued Peter Huntting, William Sheffler, Sheffler Consulting

      **
             The Honorable Edward R. Korman, United States District Judge for the
Eastern District of New York, sitting by designation.
                                                                           Page 3 of 6

Actuaries Inc., and SMI Pensions (collectively “Defendants”), third-party

administrators who provided services related to the Plans. Plaintiffs alleged

Defendants breached their duties under the Employee Retirement Security Income

Act (“ERISA”), and also alleged state law professional negligence and breach of

contract claims. The district court granted Defendants’ summary judgment motion,

holding that Plaintiffs’ ERISA claim failed at the threshold because Defendants were

not fiduciaries, and declined to exercise supplemental jurisdiction over the state law

claims. The district court also denied defendants’ motions for counsel fees and costs.

These cross-appeals followed. We have jurisdiction under 28 U.S.C. § 1291, and we

affirm.

      1. Plaintiffs’ ERISA claims against Defendants turn on whether they acted as

fiduciaries “when taking the actions subject to complaint.” Pegram v. Herdrich, 530

U.S. 211, 226 (2000). The parties entered into Engagement Agreements stating that

Defendants were not fiduciaries. However, whether one is a fiduciary, turns on the

activity in question, rather than the title of the person or entity. CSA 401(K) Plan v.

Pension Prof’ls, Inc., 195F.3d 1135, 1138 (9th Cir. 1999). Under ERISA, discretion

is the sine qua non of fiduciary status and duty, and fiduciary status requires the

actual exercise of discretionary authority. 29 U.S.C. § 1002(21)(A); Depot, Inc. v.

Caring for Montanans, Inc., 915 F.3d 643, 656–57 (9th Cir. 2019); IT Corp. v. Gen.

Am. Life Ins. Co., 107 F.3d 1415, 1420 (9th Cir. 1997).
                                                                          Page 4 of 6

      Third-party administrators are not fiduciaries when they “perform their usual

professional functions in rendering legal, accounting, actuarial, or consulting

services to an employee benefit plan.” CSA 401(K), 195 F.3d at 1139. Indeed, the

Department of Labor has explained that such services constitute strictly ministerial

conduct that cannot give rise to fiduciary liability. See 29 C.F.R. § 2509.75–8.

Plaintiffs allege Defendants’ activities went beyond ordinary, advisory services

when Defendants: (1) told Plaintiffs how much to contribute annually to the Plans;

(2) amended the benefit formula for one of the Plans in 2009 and 2010 without

consulting Plaintiffs; (3) decided that Plaintiffs’ defined benefit plans should be

terminated and rolled over into a profit-sharing plan after Defendants’ advice caused

the plans to be overfunded by almost $2 million. Plaintiffs’ claims are without merit.

      Plaintiffs essentially assert that Defendants gave them bad advice, but such

claims of malfeasance sound in common-law negligence or malpractice, not

ERISA’s fiduciary obligations. The record shows that Defendants advised Plaintiffs

on the permissible contribution ranges for their retirement plans. However, Plaintiffs

retained their final, independent judgment on how much to contribute, so these

recommendations could not have constituted discretionary administration of the

Plans. 29 U.S.C. § 1002(21)(A). Plaintiffs also allege that Defendants improperly

amended one of their pension plans in 2010. While Defendants prepared certain tax

forms reflecting a necessary plan amendment, Plaintiffs executed those forms, and
                                                                           Page 5 of 6

maintained sole authority to make changes to the plan. Likewise, Plaintiffs’

allegation that Defendants forced Plaintiffs to terminate and roll over one of their

profit-sharing plans fails at the threshold because Defendants never gave Plaintiffs

a directive, and never deprived Plaintiffs of their discretion or final decision-making

authority. Accordingly, Defendants’ actions do not make them functional

fiduciaries.

      2. Turning to Defendants’ appeal, we review the denial of fees and costs for

an abuse of discretion, and reversal is warranted if the judge below “made a clear

error of judgment in its conclusion upon weighing relevant factors.” Hummell v. S.

E. Rykoff & Co., 634 F.2d 446, 452 (9th Cir. 1980). Attorneys’ fees are awarded at

the court’s discretion under Section 502(g)(1) of ERISA. 29 U.S.C § 1132(g)(1).

Once the moving party shows that they have achieved “some degree of success on

the merits,” Hardt v. Reliance Standard Life Ins. Co., 560 U.S. 242, 255 (2010), the

court turns to the multi-factor Hummell test, weighing: (1) the opposing parties’

culpability or bad faith; (2) the opposing parties’ ability to pay; (3) whether a fees

award would deter others from acting under similar circumstances; (4) whether the

moving parties sought to benefit all beneficiaries of an ERISA plan or to resolve a

significant legal question regarding ERISA; and (5) the relative merits of the parties’

positions. Hummell, 634 F.2d at 453.

      After a review of the relevant law, including Hummel, the district court denied
                                                                            Page 6 of 6

Defendants’ motion for fees and costs in a six-page opinion. On appeal, Defendants

argue Plaintiffs should have known that they did not have a viable ERISA claim

against Defendants, and that the judge should have found that the first, third, and

fifth Hummel factors counseled in favor of granting Defendants fees and costs. We

disagree. The district court correctly observed that Plaintiffs’ failure to prevail on

the merits did not demonstrate culpability or bad faith, and that an award would serve

no deterrent purpose. At most, the fifth factor was wrongly determined to be neutral.

But that factor alone did not tilt the balance, and there was no clear error of judgment

in concluding that this case did not warrant an award of fees or costs.

      AFFIRMED.