881 F.2d 626 (9th Cir. 1989), 88-15076, Call v. Sumitomo Bank of California

Docket Nº:88-15076.
Citation:881 F.2d 626
Party Name:Sterling CALL, Ralph Robinson and Edison Willers, as individuals; Sterling Call and Ralph Robinson as Plan Administrators of the Phase II Corporation Restated Profit Sharing Plan; and Sterling Call, Kenneth Friedman and Edison Willers as Plan Administrators of the California Etching Corporation Restated Profit Sharing Plan, Plaintiffs-Appellants, v
Case Date:July 26, 1989
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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881 F.2d 626 (9th Cir. 1989)

Sterling CALL, Ralph Robinson and Edison Willers, as

individuals; Sterling Call and Ralph Robinson as Plan

Administrators of the Phase II Corporation Restated Profit

Sharing Plan; and Sterling Call, Kenneth Friedman and

Edison Willers as Plan Administrators of the California

Etching Corporation Restated Profit Sharing Plan,



SUMITOMO BANK OF CALIFORNIA, a California corporation, Ray

W. Sherman, Jr., an individual, Khateeb A. Lateef,

an individual, and Lateef Management

Associates, a partnership,


No. 88-15076.

United States Court of Appeals, Ninth Circuit

July 26, 1989

Argued and Submitted June 27, 1989.

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Edward D. Burmeister, Baker & McKenzie, San Francisco, Cal., for plaintiffs-appellants.

Steven E. Schon, Howard, Rice, Nemerovski, Canady, Robertson & Falk, San Francisco, Cal., for defendants-appellees Lateef.

Jeffrey H. Lowenthal, Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, San Francisco, Cal., for defendant-appellee Sumitomo Bank of California.

Richard Mark, San Francisco, Cal., for defendant-appellee Ray W. Sherman, Jr.

Appeal from the United States District Court for the Northern District of California.

Before BROWNING, PREGERSON and THOMPSON, Circuit Judges.

PREGERSON, Circuit Judge:

Appellants brought this action in district court under the Employee Retirement Income Security Act, 29 U.S.C. Secs. 1001-1382 (1982) (ERISA or the Act). They alleged that appellees had breached fiduciary and other duties owed to two ERISA-regulated profit sharing plans of which appellants were administrators. The four appellants sought to recover as plan fiduciaries on behalf of the plans. In addition, the three appellants who were also plan participants sought to recover individually. After the district court granted appellees' motion to dismiss, appellants brought this appeal.

We must decide, first, whether ERISA plan fiduciaries who have, pursuant to a settlement with the Department of Labor,

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reimbursed money lost by two ERISA plans as the result of a breach of fiduciary duty may maintain an action for contribution from co-fiduciaries who did not participate in the DOL settlement. Second, we must decide whether fiduciaries who have reimbursed ERISA plans for losses resulting from a breach of fiduciary duty may maintain an action under ERISA against co-fiduciaries who did not reimburse the plans to require them to restore to the plans that amount of assets not recovered by the plans, even when the payments to the plans by the settling fiduciaries restored the balance of plan assets and liabilities which existed prior to the breaches. Third, we must determine whether the district court correctly dismissed appellants' ERISA claim of "non-fiduciary liability" against the escrow holder whose failure to record a trust deed contributed to a loss of plan assets.


According to appellants' complaint, in December of 1980 the Administrative Committees of the Phase II Corporation Restated Profit Sharing Plan and the California Etching Corporation Restated Profit Sharing Plan ("the plans") decided to invest plan funds in a residential real estate project. Initially, the plans each invested $100,000. They later invested another $30,000 apiece. While the Administrative Committees were making these investment decisions--a legedly on the advice of appellees Khateeb Lateef and Lateef Management Associates ("Lateef") 1--three of the appellants were participants in at least one of the plans. All four of the appellants were members of one or both of the plans' Administrative Committees. Thus, all appellants were fiduciaries for at least one of the plans.

As part of the real estate deal, appellee Sumitomo Bank, the trustee for the plans, and appellee Roy Sherman, the escrow holder, executed escrow instructions. These instructions provided that Sherman would deliver to Sumitomo a recorded deed of trust securing promissory notes that the plans had received in return for their investment. However, neither Sherman nor Sumitomo recorded the trust deed.

On June 4, 1984, the entity in which the plans had invested, Edwards Ridge, Ltd. ("ERL"), filed for reorganization under the Bankruptcy Act. In part because the plans were unsecured as a result of the failure to record the trust deed, the plans' investments were rendered worthless.

Approximately two years later, the United States Department of Labor (DOL) concluded an investigation of these events and determined that the plans' fiduciaries had violated their duties under ERISA in their initial participation and subsequent handling of the real estate investment. The DOL demanded that the plans' fiduciaries restore to the plans the money lost as a result of these breaches of fiduciary duty.

In response, appellants entered into a settlement with the DOL. Under the terms of the settlement, 2 appellants and the DOL calculated the full amount lost by the plans as $384,106, which consisted of the original $260,000 invested plus $124,106 in imputed earnings thereon. Pursuant to the settlement, appellants deposited $252,029 into the plans. The settlement provided that none of the money appellants deposited into the plans would inure to appellants' own accounts in the plans. In addition, appellants agreed to forfeit their claims against the plans in the amount of $132,077. 3 Appellants' deposit of $252,029 plus

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their forfeiture of $132,077 from their own accounts into the plans meant that the plans recovered the amount of the loss established by the DOL settlement: $252,029 + $132,077 = $384,106. 4

According to appellants, following the settlement the plans' total assets were diminished from their pre-breach level (taking account of imputed interest) in the amount of $132,077. According to appellees, however, the liabilities of the plans were decreased in that same amount, due to appellants' forfeiture of claims against the plans; thus, following the settlement, the plans' balance of assets and liabilities remained unchanged from their pre-breach status. These different conceptualizations of the financial status of the plans following the settlement form the crux of one of the issues in dispute between the parties.

After reimbursing the plans, appellants brought the present action against appellees Lateef, Sumitomo Bank, and Sherman. Asserting that ERISA Sec. 502(a), 29 U.S.C. Sec. 1132(a), authorized them to bring suit, appellants contended that appellees were at least equally culpable for the loss to the plans and should therefore bear part of that loss. Appellants' first cause of action was for breach of fiduciary duty under ERISA. Suing on behalf of the plans as fiduciaries and, on the part of three of the appellants, as plan participants, appellants in their first cause of action sought, pursuant to Sec. 409(a) of ERISA, 29 U.S.C. Sec. 1109(a), to require all of the appellees "to make good to the Plans the full amount lost, $384,106, less the $252,029 reimbursed to the Plans by Plaintiffs, for a balance of $132,077." Complaint for Breach of Fiduciary Duty and Contribution ("Complaint"), CR 100 at 16. 5

In their second cause of action, asserted by appellants in their capacity as fiduciaries, appellants sought contribution from all of the appellees in "an amount to be determined at the time of trial." Appellants based this claim on ERISA Sec. 409(a), 29 U.S.C. Sec. 1109(a).

Appellants' third cause of action, asserted on behalf of the plans by appellants in their capacity as fiduciaries and, on the part of three of them, as plan participants, sought "equitable relief" from Sherman for "non-fiduciary liability under ERISA." The theory underlying this claim was that Sherman had "knowingly participated in the breach of trust by Sumitomo in failing to ensure that the first deed was properly recorded." Complaint at 17. Therefore, appellants asserted, Sherman was "subject

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to non-fiduciary, third-party liability for violations of trust law" under ERISA Secs. 502(a)(3) and (a)(5), 29 U.S.C. Secs. 1132(a)(3) and (a)(5). 6 Complaint at 18. 7

Appellees moved to dismiss the action for failure to state a claim upon which relief could be granted. Fed.R.Civ.P. 12(b)(6). On June 28, 1988, the district court granted the motion. Call v. Sumitomo Bank, 689 F.Supp. 1014 (N.D.Cal.1988). The court held, first, that appellants could not recover on their breach of fiduciary duty claim because their settlement with DOL made the plans whole, i.e., "put the plans in the same position they would have occupied absent the breach." Id. at 1016. The court concluded that "any claim on behalf of the plans for losses incurred by virtue of the failed real estate investment must fall, since the plans are not entitled to any further recovery." Id.

Second, the court rejected appellants' claim for contribution. Despite the "plausib[ility]" of appellants' contention that appellees had breached their fiduciary duties in connection with the real estate transaction, id., the court could find no indication that ERISA authorized an action for contribution from co-fiduciaries. Id. at 1019-20. Nor could the court discern a congressional intent that the courts imply such a right of action from ERISA. Id. at 1021. The court therefore held that no right of co-fiduciary contribution is available under ERISA. Id. at 1022.

Last, the court dismissed appellants' claim against Sherman, the escrow holder. The court based this decision on the reasoning it used in resolving the first two claims: the claim against Sherman, if asserted on behalf of the plans, "fails because the plan[s] ha[ve] been fully compensated." Id. Likewise, "[i]f [the claim] is...

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