Arizona State Carpenters Pension Trust Fund v. Citibank (Arizona)

• Decision Date: 08 September 1997
• Docket Number: No. 94-16316,94-16316
• Citation: 125 F.3d 715
• Parties: 21 Employee Benefits Cas. 1657, 97 Cal. Daily Op. Serv. 7191, 97 Daily Journal D.A.R. 11,688, Pens. Plan Guide (CCH) P 23937G ARIZONA STATE CARPENTERS PENSION TRUST FUND, a Trust; James R. McDonald, Jr.; and Mark Minter, Plaintiffs-Appellants, v. CITIBANK, (ARIZONA), an Arizona banking corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 715

125 F.3d 715

21 Employee Benefits Cas. 1657, 97 Cal. Daily

Op. Serv. 7191,

97 Daily Journal D.A.R. 11,688,

Pens. Plan Guide (CCH) P 23937G

ARIZONA STATE CARPENTERS PENSION TRUST FUND, a Trust; James

R. McDonald, Jr.; and Mark Minter, Plaintiffs-Appellants, v. CITIBANK, (ARIZONA), an Arizona banking corporation,

Defendant-Appellee.

No. 94-16316.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 7, 1995.

Decided Sept. 8, 1997.

Gerald Barrett, Ward, Keenan & Barrett, Phoenix, Arizona; Barry E. Hinkle, Van Bourg, Weinberg, Roger & Rosenfeld, San Francisco, California; Keith Overholt, Michael V. Perry, Glenn Hotchkiss, Shimmel, Hill, Bishop & Gruender, P.C., Phoenix, Arizona; Charles T. Stegall, Lee, Stegall, & Katz, P.C., Phoenix, Arizona, for plaintiffs-appellants.

Daniel Cracchiolo, Daryl Manhart, Ralph D. Harris, David M. Villadolid, Burch & Cracchiolo, P.A., Phoenix, Arizona, for defendant-appellee.

Stacey E. Elias, Trial Attorney, United States Department of Labor, Office of the Solicitor, Plan Benefits Security Division, Washington, DC, amicus curiae.

Appeal from the United States District Court for the District of Arizona; Robert C. Broomfield, District Judge, Presiding. D.C. No. CV-91-00958-SMM

Before: WALLACE and THOMPSON, Circuit Judges, and SEDWICK, ^* District Judge.

SEDWICK, District Judge:

The Arizona State Carpenters Pension Trust Fund and two other multi-employee pension trust funds (collectively referred to as "Trust Funds") and their respective trustees ("Trustees") appeal the district court's partial summary judgment and dismissal of their action against Citibank (Arizona) ("Citibank"), brought pursuant to the Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et. seq. ("ERISA") and state law, alleging that Citibank breached its custodial agreement by failing to notify the trustees of defaults on payments for investments made by the Trust Funds' investment managers.

The district court granted Citibank's partial summary judgment motion on the appellants' ERISA claims. The district court determined Citibank was not a fiduciary under ERISA. The district court also granted Citibank's motion to dismiss, determining ERISA preempted the appellants' state law claims. The district court then dismissed the appellants' entire action.

We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm the district court's grant of partial summary judgment on the ERISA claims. We, however, conclude the district court erred in its determination that ERISA preempted the state law claims. We also deny Citibank's request for attorneys' fees and costs on appeal. Thus, we affirm in part, reverse in part, and remand the action to the district court so that the district court can decide whether to dismiss the state law claims without prejudice, allowing the appellants to file those claims in state court, if they elect to do so.

I. BACKGROUND

A. Facts

Each Trust Fund is a Taft-Hartley trust fund, formed and operated pursuant to 29 U.S.C. § 186, and an employee benefit plan within the meaning of ERISA § 3(3), 29 U.S.C. § 1002(3). Each Trustee is a "named fiduciary" as that term is used in ERISA § 402(a), 29 U.S.C. § 1102(a).

From its acquisition of the assets and assumption of the liabilities of Great Western Bank through December 31, 1987, Citibank served as a depository and custodial agent for the Trust Funds. Citibank or its predecessors entered into "Custodial Agency Agreements" ("Agreements") with the Trust Funds. The Agreements, which the parties have stipulated are "plan documents" within the meaning of ERISA, required Citibank to perform the following services:

(a) Receive trust fund monies, and pay out trust fund monies as directed by the trustees or their agent.

(b) Receive and hold trust fund investments (and income from investments) for disposition as directed by the trustees or their agent.

(c) Invest and reinvest trust fund monies as directed by the trustees or their agents.

(d) Furnish regular reports listing (1) daily deposits of employer contributions to the trust funds, (2) the trust fund assets in the custodian bank's custody, (3) cash receipts and disbursements summaries, (4) summaries of sales or exchanges of trust fund assets, and (5) accruals of income to the trust funds.

The Agreements did not require Citibank to provide advice with respect to the Trust Funds' investments. In fact, the Agreements specifically limited Citibank's responsibilities and authority as follows: Citibank was not responsible for the adequacy of employers' contributions and was not obligated to enforce the payment thereof. Citibank had no duty to recommend, select or approve investments or otherwise to furnish advice with respect thereto. In acting upon any written authorization of the Trustees, Citibank was not required to ascertain whether a majority of the Trustees approved such action or whether such action was appropriately taken. Citibank was not responsible for monies or property paid or delivered to any person or company upon the written authorization of the Trustees. Citibank had no duty to prepare income tax returns and no power or duty to determine the rights or benefits of anyone claiming an interest under the Agreements or in the Trust Funds. The Agreements identified both a fund administrator and an investment counsel or manager. The Trustees delegated to each some authority to give directions to Citibank. The Trust Funds' investment manager gave written directions to Citibank to disburse monies to fund all the Trust Funds' investments.

Citibank provided the reports specified, but also provided reports to the investment counsel and to the Trust Funds' auditors in a format that pertained to delinquencies. In 1988, the Trustees, through sources other than Citibank, discovered that the Trust Funds had sustained substantial financial losses because the investment manager had provided imprudent investment advice. The Trustees terminated the investment manager and initiated an action in federal court, pursuant to 29 U.S.C. § 1132(a), against the investment manager to recover losses.

On June 14, 1991, appellants filed the present action against Citibank. An amended complaint filed on August 26, 1991, alleges breach of the custodial agreement through Citibank's failure to notify the Trustees of defaults on interest and principal payments on investments the investment manager made on behalf of the Trust Funds. The first eight counts in the amended complaint are based on ERISA, and the remaining five counts are state law claims based on breach of the custodial agreement, breach of common law fiduciary obligations, breach of the implied covenant of good faith and fair dealing, negligence, and common law fraud.

Appellants moved for partial summary judgment on the first three counts of the amended complaint, on the grounds that the suit is a federal cause of action under ERISA, that Citibank is an ERISA fiduciary, and that Citibank breached its agreement with appellants by failing to inform the Trustees of the Trust Fund delinquencies. Citibank initially filed a cross-motion for summary judgment and two motions to dismiss under the doctrines of abstention and preemption. Later, Citibank conceded that ERISA applies, arguing instead that Citibank was not an ERISA fiduciary, that Citibank did not breach its agreement with appellants regarding notification of delinquencies, and that ERISA preempts appellants' state law claims.

On February 23, 1994, the district court issued an order holding that ERISA governed the action, but that Citibank was not an ERISA fiduciary. The court denied appellants' motion for partial summary judgment and granted Citibank's cross-motion for partial summary judgment and motion to dismiss. ¹ Appellants moved for reconsideration, and the Secretary of Labor moved for leave to file an amicus brief in support thereof, but the court denied both motions. On July 1, 1994, the court entered a judgment of dismissal as to the entire amended complaint.

B. Statutory Scheme

1. Named and Delegated Fiduciaries

"In enacting ERISA, Congress set out to protect participants in employee benefit plans by establishing standards of conduct, responsibility, and obligations for fiduciaries of employee benefit plans, and by providing for appropriate remedies." Yeseta v. Baima, 837 F.2d 380, 383 (9th Cir.1988) (citing Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 43, 107 S.Ct. 1549, 1550, 95 L.Ed.2d 39 (1987)).

ERISA permits suits for breach of fiduciary duty only against ERISA defined fiduciaries. Gibson v. Prudential Ins. Co., 915 F.2d 414, 417 (9th Cir.1990). Although responsibility originally is vested with the "named fiduciary," ERISA § 402(a), 29 U.S.C. § 1102(a), the named fiduciary may allocate fiduciary responsibility and designate others to carry out fiduciary responsibilities. ERISA § 405, 29 U.S.C. § 1105. Under 29 U.S.C. § 1105(c)(1)(B), "[t]he instrument under which a plan is maintained may expressly provide for procedures maintained may expressly provide for procedures ... for named fiduciaries to designate persons other than named fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the plan."

ERISA § 405(c)(3), 29 U.S.C. § 1105(c)(3) defines ERISA § 405(c)(1)(B)'s use of the term "trustee responsibility" as "responsibility ... to manage or control the assets of the plan." Generally, if an ERISA plan expressly provides for a procedure allocating fiduciary responsibilities to persons other than named fiduciaries under the plan, the named fiduciary is not liable for an act or omission of such person in carrying out such responsibility. ERISA § 405(c)(2), 29 U.S.C. § 1105(c)(2).

A named fiduciary also may delegate responsibility for making investment decisions to an investment manager. See ERISA § § 3(38), 402(c)(3) and 405(b); 29 U.S.C. §§ 1002(38), 1102(c)(3), and 1105(b).

If an investment...