Acosta v. Brain
| Decision Date | 04 December 2018 |
| Docket Number | No. 16-56529, No. 16-56532,16-56529 |
| Parties | R. Alexander ACOSTA, Secretary of Labor, Plaintiff-Appellee, v. Scott BRAIN, Defendant-Appellant, and Melissa W. Cook ; Melissa W. Cook & Associates, PC, Defendants. R. Alexander Acosta, Secretary of Labor, Plaintiff-Appellee, v. Melissa W. Cook ; Melissa W. Cook & Associates, PC, Defendants-Appellants, and Scott Brain, Defendant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Melissa W. Cook (argued), Melissa W. Cook & Associates, San Diego, California; Peter Morris (argued) and L. Rachel Lerman, Barnes & Thornburg LLP, Los Angeles, California; Brian E. Casey, Barnes & Thornburg LLP, South Bend, Indiana; for Defendants-Appellants.
Blair L. Byrum (argued), Trial Attorney; Thomas Tso, Counsel for Appellate and Special Litigation; G. William Scott, Associate Solicitor, Plan Benefits Security; Nicholas C. Geale, Acting Solicitor of Labor; United States Department of Labor, Washington, D.C.; for Plaintiff-Appellee.
Before: MARY M. SCHROEDER and MILAN D. SMITH, JR., Circuit Judges, and GERSHWIN A. DRAIN,* District Judge.
OPINION
Defendant-Appellant Scott Brain, a former trustee of the Cement Masons Southern California Trust Funds (the Trust Funds), and Defendants-Appellants Melissa Cook and Melissa W. Cook & Associates, PC (collectively, the Cook Defendants), former counsel to the Trust Funds, appeal from the district court's entry of judgment against them in a civil enforcement action brought by Plaintiff-Appellee the Secretary of the Department of Labor (the Secretary). The action alleges violations of two sections of the Employee Retirement Income Security Act of 1974 (ERISA)—unlawful retaliation in violation of ERISA section 510, 29 U.S.C. § 1140, and breach of fiduciary duty in violation of ERISA section 404, 29 U.S.C. § 1104.
After conducting a bench trial, the district court concluded that Brain and the Cook Defendants violated ERISA sections 510 and 404. We have jurisdiction pursuant to 28 U.S.C. § 1291. We affirm the district court with respect to the ERISA section 510 claim, but reverse with respect to the ERISA section 404 claim, and vacate the district court's entry of a permanent injunction against Brain and the Cook Defendants.
The Trust Funds are five employee benefit trust funds established by Cement Masons Local 500, Cement Masons Local 600, and four employer contractor associations pursuant to collective bargaining agreements. Each of the Trust Funds has its own Board of Trustees. The Joint Board of Trustees (Joint Board), comprised of trustees for the five trusts, coordinates administration of the Trust Funds.
Brain was the business manager and financial secretary for the Cement Masons Local 600, a trustee for each of the Trust Funds, and a member of the Joint Board. Cook and her law firm served as counsel to the Trust Funds from August 2005 through May 2013.
The Trust Funds had an internal Audit and Collections Department (A&C Department) that was responsible for auditing employers and collecting overdue or otherwise unpaid employer contributions. Cheryle Robbins was the director of the A&C Department. The Trust Funds established a Joint Delinquency Committee (JDC), composed of trustees, to oversee the A&C Department, as well as the Cement Masons Southern California Administrative Corporation (Administrative Corporation) to employ A&C Department staff.
The Trust Funds hired Zenith American Solutions (Zenith), to provide third-party administrative services to the Trust Funds. Cory Rice was a Zenith employee who worked on the Trust Funds' matters. The Trust Funds' primary contact at Zenith was manager Bill Lee.
Beginning in as early as 2006, Robbins expressed to several trustees her concerns that Brain was interfering with the A&C Department's collection efforts. Robbins's concerns stemmed from several incidents over a number of years. For example, Brain allegedly told certain contractors who owed smaller contributions to the A&C Department to "fly under the radar," and he often interpreted certain agreements "in a manner that reduced the amount owed by covered contractors."
In March and April of 2011, the JDC began to consider hiring an outside firm to audit the A&C Department. On September 8, 2011, the JDC convened and voted to move forward with an external audit. The JDC asked Cook to prepare audit procedures and solicit bids from auditing firms. Kathryn Halford, the Trust Funds' collections counsel, and trustee David Allen, who had an accounting background, reviewed the audit procedures Cook drafted. Allen informed Cook and Halford of his concern that the proposed procedures violated Generally Accepted Accounting Procedures. The district court found that the audit procedures "appear[ed] to have been created in an effort to influence the outcome by increasing the likelihood of a finding that the A&C Department was not well run."
On October 13, 2011, the JDC decided on two finalists to perform the audit, Bond Beebe and Hemming Morse, and scheduled the firms to present at a JDC meeting on November 18, 2011.
By October 2011, or "very shortly thereafter," the "close, personal relationship" between Brain and Cook became romantic. They misled other trustees about their relationship during this time, and Cook failed to disclose the relationship. They communicated extensively with each other, exchanging "a substantial amount of flirtatious comments," and staying in constant contact during the events described below.
On October 11, 2011, Robbins and Rice met with Allen to discuss Brain's purported misconduct. At the time, Allen shared Robbins's concerns and wanted Brain removed. Allen proposed drafting a letter to the president of the Operative Plasterers' and Cement Masons International Association (OPCMIA or International Union), because the OPCMIA could remove Brain from his position as Local 600 Business Manager, which would result in Brain losing his position as trustee. Subsequently, Rice sent Allen an email describing Brain's alleged misconduct for use in the letter to the OPCMIA. In his email, Rice alleged that Brain acted "to reduce amounts owed to Fund" and "advise[d] contractor[s] how to handle audit[s]," and he expressed "concerns about our own trust attorney," referring to Cook.
On October 14, 2011, DOL investigator Matt Chandler contacted Robbins and informed her that he was conducting a criminal investigation of Brain. Robbins was not the initial whistleblower to the DOL. Rather, Chandler's call was the result of a complaint made by Thomas Mora, the OPCMIA vice president, at some point between March and May of 2011. Mora had concerns about Brain's conduct based on conversations with Robbins, Halford, and two trustees. Robbins reported Chandler's call to Halford and Allen, who in turn informed Cook on October 26, 2011.
After learning about Robbins's contact with the DOL, Cook and Brain called a special Joint Board meeting into session. Cook stated that the meeting's purpose was to discuss whether to outsource the A&C Department's work, but the district court found that Cook and Brain actually intended to remove Robbins.
Leading up to the special Joint Board meeting, Cook and Allen exchanged several text messages and phone calls about Robbins, and they discussed outsourcing the A&C Department's work to Zenith.
Although Allen had participated in the earlier effort to report Brain's alleged misconduct to the OPCMIA, Allen distanced himself from Robbins after he learned about her contact with the DOL.
On November 11, 2011, Cook told Allen that she believed a special Joint Board meeting should take place immediately after the JDC meeting scheduled for November 18, 2011, and stressed that the meeting must occur before outsourcing the A&C Department's work to Zenith. Allen then scheduled the meeting.
The district court found that in the few days prior to the meeting, "Brain and Cook were ‘firing up’ their allies for the actions that would be taken in response to Robbins'[s] contacts with the DOL, not for a more pedestrian discussion about a potential change to the performance of the functions of the A&C Department." They wanted to "line up their votes at the meeting for the positions that they planned to advance," and even jokingly referred to their scheme as "[r]evisionist history."
At some point between November 14, 2011 and November 18, 2011, Robbins asked Chandler to issue a DOL subpoena for the Trust Funds' records, because both Cook and her personal counsel had instructed Robbins not to provide any records voluntarily to the DOL. She urged Chandler to move quickly because she feared she would lose her position.
On November 17, 2011, Robbins received a DOL subpoena and forwarded it to Cook and Halford, telling them that it concerned an investigation of Brain, not of the Trust Funds. Cook reacted furiously to the subpoena and began planning with associate counsel to "put [Robbins] on paid admin leave asap [sic]," stating that she "want[ed] [Robbins] out of there," but "without violating erisa [sic]." Cook's associate suggested "put[ting] [Robbins] on paid admin [sic] leave" because Robbins and the DOL may not be able to obtain "damages or equitable relief." Cook's associate concluded, "I think she should be put on paid leave to at least prevent her from taking out documents," and recommended that the trustees "proceed with the independent audit" of the A&C Department and thereafter "dissolve" the Administrative Corporation and outsource the A&C Department's work.
The scheduled JDC meeting took place on November 18, 2011. The JDC selected Bond Beebe to perform an audit of the A&C Department.
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