U.S. v. Eriksen

• Decision Date: 23 May 2011
• Docket Number: Nos. 10–30056,10–30057.,s. 10–30056
• Citation: 639 F.3d 1138
• Parties: UNITED STATES of America, Plaintiff–Appellee,v.Raymond ERIKSEN, Defendant–Appellant.United States of America, Plaintiff–Appellee,v.Sigmund Eriksen, Defendant–Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

639 F.3d 1138

50 Employee Benefits Cas. 2193

11 Cal. Daily Op. Serv. 3048

2011 Daily Journal D.A.R. 3629

UNITED STATES of America, Plaintiff–Appellee,

v.Raymond ERIKSEN, Defendant–Appellant.United States of America, Plaintiff–Appellee,

v.Sigmund Eriksen, Defendant–Appellant.

Nos. 10–30056

10–30057.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Jan. 11, 2011.Filed March 9, 2011.As Amended on Denial of Rehearing May 23, 2011.

C. James Frush, Esq., Jack M. Lovejoy, Esq., Cable Langenbach Kinerk & Bauer LLP, Seattle, WA, and David Allen, Esq., Allen Hansen & Maybrown, Seattle, WA, for the defendants-appellants.Michael S. Morgan, Esq., Assistant United States Attorney, Western District of Washington, Seattle, WA, for the plaintiff-appellee.Appeals from the United States District Court for the Western District of Washington, John C. Coughenour, District Judge, Presiding. D.C. Nos. 2:08–cr–00404–JCC–1, 2:08–cr–00404–JCC–2.Before: SUSAN P. GRABER and MILAN D. SMITH, JR., Circuit Judges, and ROGER T. BENITEZ,^* District Judge.

ORDER

We hereby direct the Clerk of Court to strike Appellants' reply brief in support of their petition for rehearing (Docket No. 43).

The Opinion filed March 9, 2011, is amended as follows:

(1) In the paragraph which begins with the words, “On December 5, 2001, the Eriksens”, delete the following two sentences:

Thereafter, Braley memorialized the conversation in an email he transmitted to the Eriksens. That email reads, in part: “Apparently, for the past year and one half, they have failed to contribute to the 401(k) ... Plan after taking elective deferrals from employees.”

(2) Insert the following in place of the deleted sentences:

Thereafter, Braley memorialized the conversation in an email that reads, in part: “Apparently, for the past year and one half, they have failed to contribute to the 401(k) ... Plan after taking elective deferrals from employees.”

With the foregoing amendment, the panel has unanimously voted to deny Appellants' petition for panel rehearing. The petition for rehearing is DENIED.

No further petitions for rehearing or rehearing en banc will be entertained in this case.

OPINION

M. SMITH, Circuit Judge:

Defendants–Appellants Sigmund Eriksen and Raymond Eriksen appeal their convictions stemming from their misappropriation of employee 401(k) contributions to pay their company's operating expenses. Specifically, a jury convicted each Defendant of two counts of Embezzlement or Conversion of the Funds of an Employment Benefit Plan, in violation of 18 U.S.C. § 664, and one count of Making False or Misleading Statements in an Employee Retirement Income Security Act of 1974 (ERISA) Benefit Plan Document that Federal Law Requires to be Kept, in violation of 18 U.S.C. § 1027. Defendants claim that the district court erred in several ways. We address Defendants' principal assignments of error in this Opinion. We address Defendants' other claims of error in a contemporaneously filed Memorandum Disposition. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

I. Lunde Electric Company Pension Plan

Until 2005, when it ceased operations, Lunde Electric Company (Lunde Electric or the Company) of Seattle, Washington, was in the business of maritime electrical repair. Sigmund Eriksen (Sigmund) served as Lunde Electric's Chairman, and his son Raymond Eriksen (Raymond) was President and Chief Executive Officer.

Sigmund purchased Lunde Electric in 1975. In 1979, the Company established the Lunde Electric Co., Inc., Profit Sharing Plan (the Plan) to provide retirement benefits for its union employees. Sigmund and Raymond served as the Plan's trustees. Initially, Lunde Electric was the sole financial contributor to the Plan, and the Plan's assets were held in a brokerage account at a local bank (the Plan Account). From 1979 until the mid–1990s, Earl Sommerfeld served as the Plan's bookkeeper. In 1999, Earl's son, Brad Sommerfeld, assumed those responsibilities.

The Plan was amended in 1984 and 1991 (the 1991 Plan). The government and Defendants sharply disagree as to whether the Plan was subsequently amended. According to the government, the Plan was again amended in 1995 and then restated in 2002. Defendants contend that there is no evidence of either event.

A. The 1995 Amendment and 2002 Restatement

According to the government, Article IV of the Plan, titled “Contribution and Allocation,” was amended in 1995 to add a 401(k) feature (the 1995 Amendment). The 1995 Amendment replaced contributions made exclusively by the Company with a system whereby Plan investors—called “Participants”—contributed a percentage of their paychecks—called “elective deferrals”—into the Plan. Lunde would then “match” fifty percent of each Participant's elective deferral with an employer contribution. Funds in the Plan Account were pooled and administered by the Eriksens.

According to the government, when the Eriksens added the 401(k) feature, they did not redraft the 1991 Plan; instead, only Article IV of the 1991 Plan was amended. As evidence of this change, the government introduced two versions of the 1991 Plan. In the first version, which the government proffered as the original 1991 Plan, Article IV refers only to discretionary “Employer's Contribution[s]”: “For each Plan Year, the Employer shall contribute to the Plan such amount as shall be determined by the Employer.” However, in the second document, Article IV sets forth procedures for a “Participant's Salary Reduction Election.” Article 4.2 of that document provides, inter alia, that “[e]ach Participant may elect to defer his Compensation which would have been received in the Plan Year, but for the deferral election, by up to 10 [percent].” In addition to the documentary evidence, the government presented testimony that the Plan was amended in 1995. For instance, the Plan's stockbroker testified that new “trust certification papers” were filed with the Plan's brokerage firm in 1995.

On January 1, 2002, the Plan was restated and a new document titled “Lunde Electric Company, Inc. 401(k) Profit Sharing Plan” became operative (the 2002 Restatement). Although the date of the Plan's effectiveness was not written in one space provided in the document, several documents signed and dated by Sigmund and Raymond contained information about the 2002 Restatement's effective date. These included a “Consent to Corporate Authorization,” which “RESOLVED that the form amended 401(k) Profit Sharing Plan and Trust effective January 1, 2002, presented to this meeting is hereby approved and adopted.” Additionally, the 2002 Restatement included a “Supplemental Participation Agreement” dated January 1, 2002, and signed by Raymond as “Participating Employer” and by both Raymond and Sigmund as Trustees. This document also referred to a 401(k) plan.

B. Missing Remittances to the Plan Account

In 1999, Lunde Electric began experiencing financial difficulties and was unable to pay its operating expenses with revenues. The government alleged that, as a result of these financial problems, the Eriksens caused the Company to stop remitting elective deferrals to the Plan.

Brad Sommerfeld regularly reviewed the Trust's brokerage statements as part of his responsibilities as Plan accountant. Those statements reflected deposits into and withdrawals from the Plan Account. Sommerfeld noticed that regular deposits into the Plan Account were no longer made after October 1999. Indeed, the only deposit made to the Plan Account for the 2000 Plan Year was for $10,000, on December 27, 2000. Although money continued to be withheld from Participants' paychecks, no deposits were made into the Plan Account in 2001, in 2002, or from January through March 2003.

From 1999 to 2002, Lunde Electric employed three different bookkeepers—Cynthia Halcomb (mid–1990s to 1999), Brad Mansker (May 2000 to December 2000), and Toni Wunsch (December 2000 to 2003). Both Halcomb and Mansker testified that they would meet with the Eriksens on a regular basis to decide which bills to pay. According to Mansker, within a few months of his starting work at the Company, he learned that elective deferrals were not being remitted to the Plan. Mansker testified that he raised the issue of the outstanding liability on several occasions, but that the Eriksens did not direct the Company to make payments to the Plan during his tenure. Moreover, starting in 1999, employees' elective deferrals were shown as “Receivables” on the Plan's balance sheet and reflected as a liability on Lunde Electric's books. From 1999 to December 2002, the Plan Account's Receivables grew from $35,156.62 to $97,374.68. By 2003, the Receivables had increased to $103,606; from 1999 to 2003, the Receivables ballooned from 1.47% of the Plan's assets to 15.01%.

On December 5, 2001, the Eriksens participated in a conference call with attorney Ronald Braley. Defendants asked Braley about the consequences of not funding 401(k) trust accounts. Braley informed the Eriksens that they could be personally liable as fiduciaries and, in his own words, informed them “that while the Department of Labor usually does not take a keen interest in plans with fewer than 100, if an employee knew about it and complained to the Department of Labor, that an investigation may open up and they would have a more serious issue.” During the conference call, Braley emphasized that the Eriksens had to pay the unfunded liability “as soon as possible.” Thereafter, Braley memorialized the conversation in an email that reads, in part: “Apparently, for the past year and one half, they have failed to contribute to the 401(k) ... Plan after taking elective deferrals from employees.”

On May 2, 2002, Brad Sommerfeld wrote to bookkeeper Toni Wunsch concerning the Company's accounting:

As you know the Company is significantly behind in depositing its 401K contributions. This is a huge problem because most of the money comes from employees' paychecks and the Officers of the...