Citywide Bank of Denver v. Herman, CIV.A. 94-B-2965.

• Decision Date: 29 September 1997
• Docket Number: No. CIV.A. 94-B-2965.,CIV.A. 94-B-2965.
• Citation: 978 F.Supp. 966
• Parties: CITYWIDE BANK OF DENVER, Plaintiff, v. Alexis M. HERMAN, Secretary, United States Department of Labor; United States Department of Labor; United States Department of Labor, Pension and Welfare Benefits Administration, Defendants.
• Court: U.S. District Court — District of Colorado

978 F.Supp. 966

CITYWIDE BANK OF DENVER, Plaintiff, v. Alexis M. HERMAN, Secretary, United States Department of Labor; United States Department of Labor; United States Department of Labor, Pension and Welfare Benefits Administration, Defendants.

No. CIV.A. 94-B-2965.

United States District Court, D. Colorado.

September 29, 1997.

COPYRIGHT MATERIAL OMITTED

I. Thomas Beiging, Hugo Teufel, III, Gerard J. Wyrsch, McKenna & Cuneo, Denver, CO, for Plaintiff.

Alexander Fernandez, U.S. Dept. of Labor, Washington, DC, Ann M. Noble, Assoc. Regional Solicitor, U.S. Dept. of Labor, Denver, CO, for Defendants.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

In this case arising under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001 et seq. (ERISA), defendants, Alexis M. Herman, Secretary, United States Department of Labor (Secretary); United States Department of Labor (DOL); and United States Department of Labor, Pension and Welfare Benefits Administration (PWBA) (collectively, defendants) and plaintiff, Citywide Bank of Denver (Citywide) filed motions for summary judgment pursuant to Fed.R.Civ.P. 56 on plaintiff's claims for declaratory and injunctive relief. After consideration of the motions, briefs and oral arguments, I will grant Citywide's motion for summary judgment on claim one and deny defendants' motion. I will deny as moot, plaintiff's motion for summary judgment on claim two.

I.

The following facts are undisputed. In 1976, plaintiff Citywide, a commercial bank in Denver, Colorado, established the Citywide Bank of Denver Profit-Sharing Plan (Plan) pursuant to ERISA. Fiduciaries of the Plan included Charles Sillstrop (Sillstrop), since deceased, Jean Warren, and the Bank. On November 20, 1992, Sillstrop invested $137,169.32 of the Plan's money in Certificate of Deposit No. 3195 (CD 1) issued by Citywide. In December, 1992, Richard Kennedy was appointed co-trustee to take over from Sillstrop who resigned as a result of illness. On January 1, 1993, the Trustee invested $247,174.62 of the Plan's funds in Certificate of Deposit No. 3206 (CD 2) issued by Citywide.

It is undisputed that effective December 19, 1992, changes in the Federal Deposit Insurance Corporation (FDIC) regulations allowed only $100,000 per plan of FDIC insurance on employee benefit plans' investments in undercapitalized FDIC insured banks. The parties contest whether, as a matter of law, Citywide was undercapitalized on January 1, 1993, the date of the purchase of CD 2.

In a letter dated February 5, 1993, defendant PWBA notified Citywide, through its counsel, that "after December 19, 1992, the Plan's holding of deposits in Citywide Bank of Denver in excess of the $100,000 insured by the FDIC would be a violation of ERISA." Pltf's. MSJ Ex. F p. 6. In this letter, PWBA suggested, inter alia, that "[i]f the Plan holds greater than $100,000 in deposits with Citywide Bank of Denver, that amount should be reduced to no higher than $100,000, so as to be covered by FDIC insurance." Id. The February 5, 1993 letter also stated:

[I]f the Plan fiduciaries take the corrective action suggested above and in my previous letter, the Department will take no further action with regard to these issues either by bringing a law suit or ... by furnishing information concerning the substance of our investigation to third parties. However, ERISA section 502(l) requires the Secretary of Labor to assess a civil penalty against a fiduciary who breaches a fiduciary responsibility under ... part 4 of Title I of ERISA. The penalty under section 502(l) is equal to 20 percent of the "applicable recovery amount", a term which means any amount recovered from a fiduciary or other person with respect to a breach or violation either pursuant to a settlement agreement with the Secretary or ordered by a court to be paid in a judicial proceeding instituted by the Secretary. Further you should understand that the Department is speaking only for itself and only with regard to the issues discussed above; the Department has no authority to restrain any third party or any other governmental agency from taking any action it may deem appropriate.

Ex. F, p. 8. The letter also stated:

We hope this letter will be helpful to the Plan fiduciaries in the execution of their fiduciary duties, and that, in respect to the specific matters discussed, they will promptly take appropriate corrective action. Please advise me, in writing, ... what action the Plan fiduciaries intend to take to correct the violations described above and in my previous letter.

Id. p. 9.

On February 11, 1993, the same day it received the PWBA's letter, Citywide redeemed the CD in question (No. 3195), purchased a Citywide Bank CD (No. 3217) for $100,000 and transferred the balance of the funds to Colorado State Bank, custodian of the Plan assets. Pltf. S.J.Brief p. 4; Def. Cross-motion for S.J. Ex.D, p. 1; Ex. F, p. 1. The balance of the cash from the sale of the CDs was used to purchase "SEI Government Portfolio shares." Def. Cross-motion for S.J. Ex. F, p. 1.

In a letter dated October 14, 1993 to Citywide, the PWBA assessed a civil penalty pursuant to § 502(l) stating in part:

[T]his office has concluded its investigation of the Plan and the activities of Citywide Bank of Denver as a Plan fiduciary. Based on the facts gathered during that investigation we concluded that, as fiduciaries, Citywide Bank of Denver, Charles Sillstrop, and Jean Warren violated their fiduciary obligations to the Plan and violated several provisions of ERISA. The specific actions taken which violate ERISA were detailed in my previous letters.

* * * * * *

Since you have taken the agreed-upon corrective action with respect to the specific violations detailed in the letters of October 30, 1992, February 5, 1993, and March 31, 1993, the Department will take no further action with respect to these matters, except the imposition of the civil penalty as required by ERISA section 502(l).

Def. Cross-motion for S.J. Ex. F, pp. 1-2.

Initially, defendants assessed a civil penalty against Citywide in the amount of $57,341.37. Based on further information supplied by Citywide to defendants about the purchase date of CD No. 1, the penalty was recomputed and lowered to $49,907.51. The revised penalty amount is not in dispute.

In a letter dated November 17, 1993, counsel for Citywide requested a conference with the PWBA to discuss the assessed penalty contending, inter alia, that because there was no monetary loss from the CD "exchange", 1) there were no funds recovered from a fiduciary against which a penalty could be assessed, 2) there was no settlement agreement or court order, and that 3) the Plan's investment in excess of $100,000 in Citywide CDs did not violate ERISA.

Citywide then sent a letter to PWBA on its letterhead dated December 27, 1993 and signed by W.D. Edwards, Citywide Executive Vice President, stating, in pertinent part:

This letter will serve as our petition to waive or reduce the penalty which has been assessed by the Secretary under the provisions of ERISA Regulation 2570.85. This petition is not to be construed as a waiver of any other rights available to Citywide Bank of Denver.

Based upon prior conversations with Mr. Sillstrop and Mrs. Warren prior to Mr. Sillstrop's death, they were aware that the bank could not accept brokered deposits, but were of the opinion that the profit sharing plan deposit was not considered a brokered deposit. They did not realize that the pass-through coverage afforded to profit sharing plans was not available in our bank after December 19, 1992, due to the Cease and Desist Order. This good faith misunderstanding of the law is understandable in light of the complexity of the law and its recent application to the then existing circumstance that Citywide Bank found itself in. Def. Cross-motion for S.J. Ex. J, p. 1 (12/27/93 letter).

This letter was supplemented by Citywide counsel's January 6, 1994 letter in which was enclosed a copy of CD No. 1 showing a purchase date of November 20, 1992, before the effective date of the relevant FDIC regulations. Def. Cross-motion for S.J. Ex. L, p. 2.

On September 27, 1994, the PWBA notified Citywide that it had made a final determination not to grant its petition to waive or reduce the assessed penalty. Def. Cross-motion for S.J. Ex. K, p. 1. However, in a letter dated November 3, 1994, the PWBA informed Citywide that it had reduced the civil penalty assessed from $57,341.37 to $49,907.51 based on the following:

On February 12, 1993 Citywide paid the Plan $138,420.74 to redeem Citywide Certificate of Deposit (CD) No. 3195, $100,000 of which was reinvested in Citywide CDs. A 20% penalty of $7,684.14 was assessed under ERISA Section 502(l) on the $38,420.74 difference between the $138,420.74 payment from Citywide to the Plan to redeem CD No. 3195 and the $100,000 reinvested in CD No. 3217.

A January 6, 1993 letter to this office from Bruce Muir included a copy of CD No. 3195 which was purchased on November 20, 1992. Since $137,169.32 was invested on CD No. 3195 on November 20, 1992, prior to the changes in the FDIC regulations which took effect on December 19, 1992, the penalty on CD No. 3195 will be reduced to $250.28 or 20% of the $1,251.42 of interest rolled into CD No. 3195 after December 19, 1992. This reduces the total penalty assessed against Citywide from $57,341.37 to $49,907.51

Def. Cross-motion for S.J. Ex. N, p. 2; see also id. at p. 4. This action followed on December 30, 1994.

II. SUMMARY JUDGMENT STANDARD

The very purpose of a summary judgment motion is to assess whether trial is necessary. White v. York Int'l Corp., 45 F.3d 357, 360 (10th Cir.1995). Fed.R.Civ.P. 56 provides that summary judgment shall be granted if the pleadings, depositions, answers to interrogatories, admissions, or affidavits show that there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law....