Cottrill v. Sparrow, Johnson & Ursillo, Inc.

• Decision Date: 23 January 1996
• Docket Number: Nos. 95-1363,95-1434,s. 95-1363
• Citation: 74 F.3d 20
• Parties: Pens. Plan Guide P 23917O Arthur T. COTTRILL, Plaintiff, Appellant, v. SPARROW, JOHNSON & URSILLO, INC., et al., Defendants, Appellees. Arthur T. COTTRILL, Plaintiff, Appellee, v. SPARROW, JOHNSON & URSILLO, INC., et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 20

74 F.3d 20

Pens. Plan Guide P 23917O

Arthur T. COTTRILL, Plaintiff, Appellant, v. SPARROW, JOHNSON & URSILLO, INC., et al., Defendants, Appellees.

Arthur T. COTTRILL, Plaintiff, Appellee, v. SPARROW, JOHNSON & URSILLO, INC., et al., Defendants, Appellants.

Nos. 95-1363, 95-1434.

United States Court of Appeals First Circuit.

Submitted Dec. 7, 1995.

Decided Jan. 23, 1996.

Jeffrey S. Brenner and Corrente, Brill & Kusinitz, Ltd. on brief, Providence, RI, for Arthur T. Cottrill.

Edward C. Roy, Jr. and Roy & Cook on brief, Providence, RI, for Sparrow, Johnson & Ursillo, Inc., et al.

Before TORRUELLA, Chief Judge, ALDRICH, Senior Circuit Judge, and SELYA, Circuit Judge.

BAILEY ALDRICH, Senior Circuit Judge.

Arthur T. Cottrill (Cottrill) sued several defendants: Sparrow, Johnson & Ursillo, Inc. (SJU), a Rhode Island accounting firm with whom he was employed as a certified public accountant; Sparrow, Johnson & Ursillo, Inc. Profit Sharing Plan and Trust (SJU Plan, or Plan), and Steven J. Ursillo (Ursillo), an officer and stockholder of SJU and a "named Trustee" of SJU Plan. Cottrill sought, inter alia, ¹ pursuant to the Employee Retirement Income Security Act, 29 U.S.C. Secs. 1001 et seq., (ERISA), to vacate revocation by the Plan of his beneficial interest of $18,775.52. Ursillo, in his capacity as trustee of the SJU Plan, counterclaimed, alleging that Cottrill, acting in a fiduciary relationship, was responsible for losing an investment of $130,000 of Plan's assets, and thus owed it full recompense.

A magistrate judge, in a detailed opinion, had recommended ruling in Cottrill's favor on motions for summary judgment, but the district court, after conducting a bench trial, held that Cottrill was a fiduciary of the Plan within the meaning of ERISA, 29 U.S.C. Sec. 1002(21)(A), and therefore was responsible to Plan for the loss. It dismissed the counterclaim, however, for failure to prove damages. Both sides appeal. We reverse and remand for entry of judgment for Cottrill on his complaint, and affirm, on other grounds, dismissal of the Plan's counterclaim.

In December of 1988, $130,000 of the SJU Plan's assets were invested, through a partnership known as North Main Street Associates One, in which Cottrill was a partner, in a group of second mortgages held by First Security Mortgage Company. Cottrill effected the SJU Plan's investment, as authorized by Ursillo, a named trustee of the Plan. Unhappily Cottrill obtained no promissory note or, seemingly, any other documentation of the investment. First Security paid interest to North Main for a while, but by December of 1990, the assets had apparently disappeared. ²

Because both the claim and counterclaim turn on whether Cottrill was a fiduciary with respect to the $130,000 investment at issue, we focus solely on the grounds given to support the court's conclusion. The court found that Cottrill was a fiduciary because he exercised "both effective and actual authority and control over the management and disposition of the $130,000," which brought him within the definition of a fiduciary under ERISA as one who "exercises any authority or control respecting management or disposition of [a plan's] assets." 29 U.S.C. Sec. 1002(21)(A)(i). ³ It based this conclusion on a number of subsidiary findings, including that Cottrill was a "principal" of SJU, and a participant in the SJU profit-sharing Plan; that he had recommended the investment to Ursillo, specifically by reporting that he had looked into it and the investment looked good; that he had assumed responsibility for managing the investment and obtaining documentation, disbursing the $130,000 to the mortgagee and collecting the income generated; that he was a partner in North Main, the vehicle for making the investment, and listed himself on its account record as the partner in charge of the investment.

None of these subsidiary findings, however, singly or collectively, amount to "authority or control over the management or disposition" of the funds in question. On the contrary, this was twice contradicted by Ursillo himself, who stated that he, as a Plan trustee, authorized the investment.

The court's reference to Cottrill as a "principal" of SJU overlooks the undisputed testimony that this was, literally, a "letterhead" title for client purposes, but quite aside from that, SJU itself did not manage the Plan. As a "participant" in the Plan Cottrill had no powers. It did not amount to "authority over the management" of the assets for Cottrill, with no power to invest, to recommend an investment to Ursillo as sound; nor were powers conferred on him as a gratuitous advisor ⁴ by the trustee's accepting his opinion. Schloegel v. Boswell, 994 F.2d 266, 271-72 (5th Cir.), cert. denied, --- U.S. ----, 114 S.Ct. 440, 126 L.Ed.2d 374 (1993) ("[m]ere influence over the trustee's investment decisions ... is not effective control over plan assets," where ultimate decision-making authority rests elsewhere) (citing cases). The court made no finding, nor could the record support one, that authority or control was ever delegated or "relinquished" to Cottrill in authorizing him to execute the management and disposition decision of Ursillo. See id. at 271-72.

The court's finding that North Main was the "vehicle" for the investment was exactly...