Ruocco v. Bateman, Eichler, Hill, Richards, Inc.

• Decision Date: 18 May 1990
• Docket Number: No. 88-6655,88-6655
• Citation: 903 F.2d 1232
• Parties: , 12 Employee Benefits Ca 1557 John D. RUOCCO, on behalf of himself and as the representative of a class of persons similarly situated, Plaintiff-Appellee, v. BATEMAN, EICHLER, HILL, RICHARDS, INCORPORATED, John R. Bolin, Theodore Prush, Defendants-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1232

903 F.2d 1232

58 USLW 2736, 12 Employee Benefits Ca 1557

John D. RUOCCO, on behalf of himself and as the representative of a class of persons similarly situated, Plaintiff-Appellee, v. BATEMAN, EICHLER, HILL, RICHARDS, INCORPORATED, John R Bolin, Theodore Prush, Defendants-Appellants.

No. 88-6655.

United States Court of Appeals Ninth Circuit.

Argued and Submitted March 6, 1990.

Decided May 18, 1990.

Craig B. Jorgensen, Jon L. Rewinski, Louis W. Karlin, Kindel & Anderson, Los Angeles, Cal., for defendants-appellants.

J. Michael Hennigan, Richard M. Callahan, Jr., Hennigan & Mercer, Los Angeles, Cal., for plaintiff-appellee.

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

Before THOMPSON and TROTT, Circuit Judges, and MARSH, District Judge. ^*

MARSH, District Judge:

This action involves claims by John Ruocco, on behalf of himself and current and former Bateman, Eichler, Hill, Richards, Inc., et al., ("BEHR") employees who participated in BEHR's long-term disability plan between January 1, 1982 and December 30, 1984. The plaintiff class claims that BEHR violated its fiduciary duties, the Employee Retirement Income and Security Act ("ERISA"), 29 U.S.C. Secs. 1001-1461 (1982 & Supp. V 1987), section 8315 of the California Commercial Code, and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961-1968 (1982 & Supp. V 1987), when it failed to distribute to the plan participants a surplus dividend received from BEHR's disability insurance carrier. BEHR appeals the district court's grant of partial summary judgment to Ruocco on the non-RICO causes of action awarding to Ruocco $629,423.31 minus administrative costs, and attorney's fees. We affirm the district court's decision with respect to defendant BEHR but reverse the decision holding defendants Bolin and Prush personally liable.

I.

BEHR is a stock brokerage and financial consulting firm with its principal place of business in Los Angeles, California. At all relevant times, John R. Bolin was BEHR's president, chief executive officer and chairman of the board of directors. Theodore W. Prush was BEHR's executive vice president, chief financial officer and a member of the board of directors.

From 1968 to 1986, BEHR offered its employees group long term disability insurance through Union Mutual Insurance Company ("Union Mutual"). The Union Mutual policy was paid for by the employees participating in the plan. BEHR deducted premiums from the pay of participating employees and transmitted these premiums to Union Mutual. While BEHR paid premiums itself from time to time in order to prevent a lapse in coverage, the amount of premiums paid by BEHR was minimal. BEHR paid all administrative costs for the plan. Ruocco, an employee of BEHR until August 1986, elected the long term disability coverage provided by Union Mutual.

The Union Mutual policy provided:

When proof is received that an insured employee is totally disabled as a result of sickness or injury and requires the regular attendance of a legally qualified physician, the Insurance Company will pay a monthly benefit to the insured employee after completion of the elimination period.

The policy defined "employee" as "a full-time employee, individual, proprietor, or partner who is regularly working at least 30 hours per week during the regular work week of the employer." The policy also provided that

[a]ll insurance provided under this Policy for an insured employee will cease at 12:00 midnight on the earliest of the following occurrences: ... (2) On the date On September 24, 1986, Union Mutual notified BEHR that it intended to convert from a mutual insurance company to a wholly-owned subsidiary of a publicly-owned stock corporation called UNUM. Under Maine law, where Union Mutual was incorporated, such conversion could take place only upon distribution to each policyholder of a pro rata share of the retained surplus which the converting company had acquired while it was operating as a mutual company. Union Mutual determined the BEHR surplus by considering the premiums paid between January 1, 1982 and December 31, 1984. Union Mutual notified BEHR that the returned surplus would take the form of shares of UNUM stock and warrants to purchase additional shares of UNUM stock. The warrants had to be exercised between September 26 and October 28, 1986.

that the insured employee ceases to be in a class of employees eligible for insurance.

In October 1986, the Executive Committee of BEHR decided to exercise the warrants and paid $609,336 to buy 25,755 shares of UNUM stock. These shares were sold by BEHR in November 1986 for $712,249.30 thereby generating a profit of $104,913.30. In November 1986, BEHR also received the straight distribution of UNUM shares which BEHR sold on November 6, 1988 for $524,510.01. In total, BEHR received $629,423.31 from the profit on the sale of shares purchased on the warrants and the sale of the distributed shares.

On June 29, 1987, Ruocco filed this action, claiming that BEHR's decision to retain the UNUM distribution violated ERISA, California Commercial Code section 8315, and various provisions of RICO. The district court dismissed the RICO claims, but granted summary judgment to Ruocco on both the ERISA and California Commercial Code section 8315 claims. The court found that the BEHR long term disability plan was an "employee welfare benefit plan" as defined by ERISA, 29 U.S.C. Sec. 1002(1), that defendants were "fiduciaries" of the Plan, that Ruocco was a "participant" in the plan, and that the surplus dividend constituted an "asset of the plan" pursuant to 29 U.S.C. section 1101. While the court found that defendants did not breach their fiduciary duty to the plaintiff class, the court held that defendants' decision to keep the UNUM distribution was "arbitrary and capricious." The court found that the balance of equities weighed in favor of the plan participants because "the premiums for the plan were paid for by the participants" and because "the funds would not inure to the benefit of the participants of the plan" if distributed to the defendants. The district court also found that the sale of the UNUM stock constituted a wrongful transfer of securities, in violation of California Commercial Code section 8315. Finally, the court ruled that plaintiffs were entitled to attorney's fees under ERISA pursuant to 29 U.S.C. section 1132(g)(1).

On September 6, 1988, BEHR petitioned this court for permission to pursue an immediate interlocutory appeal. The court granted this petition on December 2, 1988.

II.

A grant of summary judgement is reviewed de novo. Kruso v. International Tel. & Tel. Corp., 872 F.2d 1416, 1421 (9th Cir.1989); State Farm Fire & Casualty Co. v. Martin, 872 F.2d 319, 320 (9th Cir.1989). The appellate court's review is governed by the same standard used by the trial court under Fed.R.Civ.P. 56(c). Darring v. Kincheloe, 783 F.2d 874, 876 (9th Cir.1986). The appellate court must determine, viewing the evidence in the light most favorable to the nonmoving party, whether there are any genuine issues of material facts and whether the district court correctly applied the relevant substantive law. Tzung v. State Farm Fire & Casualty Co., 873 F.2d 1338, 1339-40 (9th Cir.1989); Judie v. Hamilton, 872 F.2d 919, 920 (9th Cir.1989).

Issues dealing with the interpretation and application of ERISA provisions as well as preemption under ERISA are also subject to de novo review. Admiral Packing Co. v. Robert F. Kennedy Farm Workers

Medical Plan, 874 F.2d 683, 684 (9th Cir.1989); Chase v. Trustees of W. Conf. of Teamsters Pension Trust Fund, 753 F.2d 744, 746 (9th Cir.1985); Trustees of Amalg. Ins. Fund v. Geltman Indus., Inc., 784 F.2d 926, 929 (9th Cir.), cert. denied, 479 U.S. 822, 107 S.Ct. 90, 93 L.Ed.2d 42 (1986).

III.

BEHR asserts error on nine grounds.

1. Lack of Jurisdiction

BEHR argues that the district court erred because it lacked jurisdiction over plaintiff's ERISA claim. BEHR argues that Ruocco was not a "participant" of a welfare benefit plan as defined by ERISA because Ruocco received all the benefits he was entitled to under the disability benefit plan and was no longer employed by BEHR at the time the Union Mutual surplus was distributed.

ERISA defines participant as "any employee or former employee of an employer ... who is or may become eligible to receive a benefit of any type from an employee benefit plan." 29 U.S.C. Sec. 1002(7). The Supreme Court has interpreted ERISA's definition of participant as including both "employees in or reasonably expected to be in, currently covered employment," Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 109 S.Ct. 948, 957-58, 103 L.Ed.2d 80 (1989) (quoting Saladino v. ILGWU Nat'l Retirement Fund, 754 F.2d 473, 476 (2d Cir.1985)), or "former employees who 'have a reasonable expectation of returning to covered employment' or who have 'a colorable claim' to vested benefits." Firestone, 109 S.Ct. at 957-58 (quoting Kuntz v. Reese, 785 F.2d 1410, 1411 (9th Cir.), cert. denied, 479 U.S. 916, 107 S.Ct. 318, 93 L.Ed.2d 291 (1986)).

Applying the Firestone test to this case, we find that Ruocco presents "a colorable claim" of entitlement to the Union Mutual surplus based on his status as a former plan participant who contributed financially to the plan. This claim to entitlement is not altered by Ruocco's termination of employment with BEHR.

2. California Insurance Code Section 10270.65

BEHR argues that the district court erred because under California Insurance Code section 10270.65, BEHR was entitled to retain the Union Mutual surplus.

Section 10270.65 provides:

If hereafter any dividend is paid or any premium refunded under any policy of group disability insurance heretofore or hereafter issued, the excess, if any, of the aggregate dividends or premium refunds under such policy over the aggregate expenditures for insurance under...