Guardian Life Ins. Co. of America v. Bank of America, N.A. (In re Nighthawk Oilfield Servs. Ltd.)

Decision Date23 March 2012
Docket NumberCIVIL ACTION NO. H-11-0079
PartiesIn re: NIGHTHAWK OILFIELD SERVICES LTD., et al., Debtors. THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Plaintiff, v. BANK OF AMERICA, N.A., MARK H. FISHER, and TONY EARLE, Defendants.
CourtU.S. Bankruptcy Court — Southern District of Texas

BANKRUPTCY NO. 0 9-34992

(Jointly Administered)

Chapter 7

MEMORANDUM OPINION AND ORDER

This is an ERISA action concerning premiums allegedly collected from employees, held in the employer's general bank account, and seized by the bank in satisfaction of a loan. Pending before the court are cross-motions for summary judgment submitted by the Guardian Life Insurance Company of America ("Guardian") under Docket Entry No. 401 and Bank of America, N.A. ("BANA") under Docket Entry No. 39.2 Both parties have also submitted responses.3 For the reasons explained below, the court will deny Guardian's MSJ and grant BANA's MSJ.

I. Factual and Procedural Background

Guardian alleges the following facts: Guardian provided insurance to employees of Richey Oilfield Construction, LLC ("Richey Oilfield") in 2008 and 2009 under the ERISA-governed Guardian Group Plan No. 437130 ("Plan").4 Guardian was an ERISA fiduciary of the Plan.5 In June of 2009 Richey Oilfield withheld $72,787.54 from the wages of Richey Oilfield employees in order to satisfy the premium for the Plan and deposited this amount in its account at BANA.6 Richey Oilfield did not pay the June 2009 premium due to the Plan because its check to Guardian was returned for insufficient funds.7 BANA had a security interest in RicheyOilfield's bank account at BANA and in connection with this security interest BANA regularly "swept" that bank account, including "all funds of Richey Oilfield Construction during the pay periods in June 2009 prior to the filing of the above-captioned bankruptcy proceedings."8

BANA's view of the case is typified in the following excerpt from its Response:

Lacking any solvent defendant against whom it can prosecute its claim for breach of an insurance contract, Guardian seeks to hold BANA liable merely because BANA automatically swept funds in [Richey Oilfield's] bank account. BANA's bare possession of these funds (which it obtained in accordance with its loan agreements with [Richey Oilfield]) is insufficient to hold BANA liable as a fiduciary of [the Plan].9

Guardian's view of the case can be gleaned from an excerpt from its own Response:

At its core, this is a simple case about BOA's failure to pay to Guardian funds withheld from the wages of the employees of [Richey Oilfield] in June 2009 to pay for medical, dental, and other insurance provided by Guardian under an ERISA employee welfare benefit plan sponsored by [Richey Oilfield]. BOA came into possession of the employee funds, which were ERISA trust funds immediately at the moment the funds were withheld from the employee paychecks and notwithstanding the fact that they were placed in [Richey Oilfield's] bank account, when BOA "swept" [Richey Oilfield's] account to satisfy [Richey Oilfield's] secured corporate indebtedness to BOA.10
II. Guardian's Causes of Action and Remedies Sought

In its First Amended Complaint, Guardian alleges two counts against BANA.11 In Count 1, titled "DECLARATORY RELIEF AS TO ALL DEFENDANTS," Guardian asks the court for a declaration that

BOA, Fisher and Earle violated ERISA by breaching their fiduciary duties in relation to assets of the Guardian Plan under 29 U.S.C. §§ 1104(a)(1) and 1132(a).12

Guardian also seeks the following remedy:

Guardian seeks a declaration that BOA, Fisher and Earle have liability under ERISA in this case which arises not only due to their status as ERISA fiduciaries but also because BOA obtained plan assets by means of a 'prohibited transaction' as defined under ERISA. This is a suit for appropriate equitable relief under the statute to obtain redress. 29 U.S.C. § 1132(a)(3); Harris Trust & Savings Bank v. Salomon Smith Barney, 530 U.S. 238, 253 (2000). Under 29 U.S.C. § 1106, Defendants, both as 'fiduciaries' and 'parties in interest,' are subject to liability for engaging in prohibited transactions respecting the Guardian Plan.13

Guardian asks for a declaration that BANA breached its fiduciary duty, rendering it "personally liable to make good any losses to the Guardian Plan resulting from such breach,"14 and a declaration that BANA is liable under ERISA for engaging in a transaction that violates 29 U.S.C. § 1106(a)(1).15 Finally, Guardian identifies the relief it seeks as "judgment for damages and equitable reliefagainst Defendants on account of their violations of ERISA, in at least the amount of the Contributions, plus prejudgment interest, and attorneys' fees."16

In Count II, titled "TURNOVER (DIRECTED TO BANK OF AMERICA)," Guardian states that it "seeks turnover of the Contributions from Bank of America or, alternatively, judgment for the amount of the Contributions, plus prejudgment interest, and attorneys' fees."17

In its briefing on the cross-motions for summary judgment Guardian at various points describes its causes of action as follows:

BOA is liable to Guardian as a matter of law for the $72,787 in employee contributions admittedly swept from Richey's bank account, and is a "party in interest" subject to liability and remedies under ERISA. Guardian is entitled to "appropriate equitable relief" under 29 U.S.C. § 1132(a), including restitution or imposition of a constructive trust over the employee trust funds.18
Since BOA is both a fiduciary and a "party in interest" who received a transfer of assets of the Guardian Plan, it has liability under 29 U.S.C. §§ 1109(a) and
1132(a)(3) to return or "make good" the sum of $72,787 to Guardian, which amount represents the June 2009 premium paid by Richey's employees to the Guardian Plan through paycheck deductions or withholdings.19

The court concludes that Guardian is asserting two claims against BANA: breach of fiduciary duty under 29 U.S.C. § 1109(a) andengaging in a prohibited transaction under 29 U.S.C. § 1106. The court further concludes that Guardian seeks monetary damages or equitable relief under 29 U.S.C. § 1132(a)(3), including restitution or a constructive trust.

III. Summary Judgment Standard

Summary judgment is appropriate if the movant establishes that there is no genuine dispute about any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). Disputes about material facts are "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 106 S. Ct. 2505, 2511 (1986). The Supreme Court has interpreted the plain language of Rule 56(c) to mandate the entry of summary judgment "after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 106 S. Ct. 2548, 2552 (1986). In reviewing the evidence "the court must draw all reasonable inferences in favor of the nonmoving party, and it may not make credibility determinations or weigh the evidence." Reeves v. Sanderson Plumbing Prods., Inc., 120 S. Ct. 2097, 2110 (2000).

IV. ERISA Fiduciary
A. Applicable Law

A person or entity becomes an ERISA fiduciary either by being named as a fiduciary in the written instruments that govern the plan or by exercising discretionary authority or control over the management, administration, or assets of a plan. Mertens v. Hewitt Associates, 113 S.Ct. 2063, 2066 (1993) (citing 29 U.S.C. § 1002(21)(A) and § 1102(a)). Persons who are not named as fiduciaries in plan documents but who exercise authority and control are nonetheless fiduciaries with respect to the plan:

[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets.

29 U.S.C. § 1002(21)(A). "[F]iduciary status is to be determined by looking at the actual authority or power demonstrated, as well as the formal title and duties of the party at issue." Landry v. Air Line Pilots Ass'n Int'l AFL-CIO, 901 F.2d 404, 418 (5th Cir. 1990). "The term 'fiduciary' is liberally construed in keeping with the remedial purpose of ERISA." Bannistor v. Ullman, 287 F.3d 394, 401 (5th Cir. 2002). The term "plan assets" has been understood by the Fifth Circuit to include "employee contributions to benefit plans which are withheld from employees' paychecks and for deposit into their benefit plans, even though the contributions have not actually been delivered to the benefit plan." Id. at 402(quoting United States v. Grizzle, 933 F.2d 943, 946 (11th Cir. 1991)). The issue of fiduciary status is a mixed question of law and fact. Reich v. Lancaster, 55 F.3d 1034, 1044 (5th Cir. 1995).

B. Arguments and Analysis

BANA argues that it is not a fiduciary of the Plan under ERISA because (1) BANA did not exercise control or authority over Plan assets, (2) there is no Fifth Circuit authority supporting the extension of fiduciary status to a bank that seizes plan assets, and (3) courts in other circuits "have consistently found that a bank that seizes plan assets does not become an ERISA fiduciary."20 Guardian argues that BANA exercised control sufficient to constitute it as an ERISA fiduciary by sweeping the funds from Richey Oilfield's bank account.21

While the Bannistor case involved a very similar set of facts, in Bannistor the Fifth Circuit expressly refused to decide whether the bank was a fiduciary under ERISA: "[W]e express no opinion on whether a lender like Gibraltar who refuses to fund ERISA plans when in possession of Debtor's assets is subject to fiduciary duties." Bannistor, 287 F.3d at 405 n.3. The Fifth Circuit did not need to...

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