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

Decision Date27 September 1996
Docket NumberNo. 94-16316,94-16316
Citation96 F.3d 1310
Parties, 20 Employee Benefits Cas. 2012, 96 Cal. Daily Op. Serv. 7230, 96 Daily Journal D.A.R. 11,884, Pens. Plan Guide (CCH) P 23926S ARIZONA STATE CARPENTERS PENSION TRUST FUND, et al., Plaintiffs-Appellants, v. CITIBANK (ARIZONA), an Arizona banking corporation, Defendant-Appellee.
CourtU.S. Court of Appeals — Ninth Circuit

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

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

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 exercised jurisdiction pursuant to 29 U.S.C. § 1132(e)(1) and (f) and 28 U.S.C. § 1367. We have jurisdiction over Citibank's timely appeal under 28 U.S.C. 1291. Concluding that Citibank was not an ERISA fiduciary, and that ERISA preempted appellants' state law claims against Citibank, we affirm. Citibank's request for attorney's fees and costs on appeal is granted.

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 and, by tracking the information provided over time, the Trustees had available within those reports the information necessary to ascertain any delinquencies. Citibank also provided the same information, including printouts in a format which pertained to delinquencies, to the investment counsel and to the Trust Funds' auditors.

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, 41-42, 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. of America, 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 .... 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 manager or managers have been appointed under section 1102(c)(3) of this title, then, notwithstanding subsections (a)(2) and (3) and subsection (b) of this section, no trustee shall be liable for the acts or omissions of such investment manager or managers, or be under an obligation to invest or otherwise manage any asset of the plan which is subject to the management of such investment manager.

ERISA § 405(d), 29 U.S.C. § 1105(d).

2. Other Fiduciaries

ERISA § 3(21), 29 U.S.C. § 1002(21), requires a broad definition of fiduciary. Credit Managers Ass'n v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617, 625 (9th Cir.1987). A...

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