Kim v. Fujikawa
| Decision Date | 29 March 1989 |
| Docket Number | 88-2509 and 87-2922,PECA-IBEW,Nos. 87-1801,87-1931,s. 87-1801 |
| Citation | 871 F.2d 1427 |
| Parties | , 13 Fed.R.Serv.3d 198, 10 Employee Benefits Ca 2382 Rodney KIM, Plaintiff/Counterclaim-Defendant/Appellee/Cross-Appellant, and Pacific Electrical Contractors Association, Counterclaim-Defendant/Appellee, v. Thomas FUJIKAWA; Galo Kimura; Paul Sialana; Tadashi Narimatsu, Defendants/Counterclaimants/Appellants/Cross- Appellees. Rodney KIM, Plaintiff/Counterclaim-Defendant/Appellee, v. Thomas FUJIKAWA, Defendant/Counterclaimant/Appellant, and Thomas FUJIKAWA, Third-Party Plaintiff/Appellant, v. Rodney KIM, as Trustee of allFunds, et al., Third-Party Defendants/Appellees. Rodney KIM, Plaintiff/Counterclaim-Defendant/Appellee, and Pacific Electrical Contractors Association, Counterclaim-Defendant/Appellee, v. Thomas FUJIKAWA; Galo Kimura; Paul Sialana; Tadashi Narimatsu, Defendants/Counterclaimants/Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
T. Anthony Gill, Gill, Park, Park & Kim, Honolulu, Hawaii, for defendants/third-party-plaintiff/appellants.
Jeffery S. Harris, Torkildson, Katz, Jossem, Fonseca & Moore, Honolulu, Hawaii, for plaintiff/third-party-defendants/appellees.
Appeal from the United States District Court for the District of Hawaii.
Before NELSON, O'SCANNLAIN and TROTT, Circuit Judges.
These cases, consolidated for purposes of appeal, involve several issues arising from actions against a fiduciary of employee benefit plans who violated the prohibited transaction provisions of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. Sec. 1001, et seq., by transferring assets for the benefit of, and to, parties in interest. Since each appeal involves facts and issues peculiar to it, the appeals are addressed separately. The additional facts necessary for each appeal are added where appropriate.
Rodney Kim is Executive Secretary of the Pacific Electrical Contractors Association Kim is the employer representative on the Ad Office committee and Thomas Fujikawa, the Business Manager and Financial Secretary of the Union, is the Union representative on the committee. Tadashi Narimatsu, Galo Kimura, and Paul Sialana ("the outer island representatives") perform services for the Funds on Hawaii, Maui, and Kauai, respectively.
("PECA"), a multi-employer collective bargaining representative. On January 14, 1985, PECA and the International Brotherhood of Electrical Workers Local No. 1186 ("the Union") entered into a collective bargaining agreement which required employers to contribute to the Annuity, Health and Welfare, Pension, Training, Vacation, Supplementary Unemployment Benefit and Prepaid Legal Funds ("the Funds"). The agreement also established an administrative office ("Ad Office") maintained by representatives of the employers and the Union to provide administrative services to the Funds. This office is managed by a two-person committee, one member of which is selected by the Union and the other member of which is selected by the employers. The agreement requires the operating expenses of the Ad Office to be prorated among the various Funds that utilize its services. The Funds pay all the expenses of the Ad Office.
In September 1984, during a limited strike, Kim was informed that the outer island representatives were in charge of the strike on the outer islands. Kim was aware that the outer island representatives were providing some services to the Funds but believed that they were Union employees. He immediately sought to clarify the employment status of the outer island representatives, stating that if they were employees of the Ad Office, they should not perform any Union-related work. Kim attempted to secure the employment records of the outer island representatives. Specifically, he requested time, travel, activity, and pay records. After these efforts were unsuccessful, Kim brought an action pursuant to 29 U.S.C. Sec. 1132(a) against Fujikawa, Kimura, Sialana, and Narimatsu on September 26, 1985. He alleged that the employment of the outer island representatives by the Ad Office was a prohibited transaction under the provisions of ERISA, 29 U.S.C. Sec. 1001, et seq., and sought to hold Fujikawa and the outer island representatives liable for all payments made to the representatives. A counterclaim was filed by Fujikawa on October 16, 1985.
Although they performed some services for the Funds, such as answering participant inquiries, the outer island representatives in fact were substantially engaged in a wide range of Union-related activities. They maintained Union referral procedures and out-of-work registers. They checked job sites of nonunion contractors for compliance with proper building permits and made all arrangements for quarterly and special Union membership meetings. In addition, they made safety inspections, organized nonunion employees, and monitored job sites for nonunion work.
The Ad Office paid the salary and expenses incurred by the outer island representatives, including expenses for office supplies, travel and auto expenses, phone bills, and insurance. It also reimbursed Narimatsu and Kimura for their office rental payments. The Union did not reimburse the Ad Office for any of these expenses. The outer island representatives did not maintain records to determine which expenses related to services performed for the benefit of the Union and which were for the benefit of the Funds.
After a bench trial, the district court in an opinion filed March 3, 1987, found that the payments made to the outer island representatives violated the prohibited transaction provisions of section 406(a)(1)(C) and (D) of ERISA, 29 U.S.C. Sec. 1106(a)(1)(C) and (D). Pursuant to section 409(a) of ERISA, 29 U.S.C. Sec. 1109(a), the district court assessed the total cost of the outer island representative system to Fujikawa, less reimbursement made by the Union. The outer island representatives were enjoined
from further employment by the Ad Office but were not held liable to Kim. Finally, the court dismissed the counterclaim against Kim in which he was alleged to have breached his fiduciary duties. An appeal and cross-appeal were taken from the judgment. 1
Fujikawa does not appeal the district court's holding that the outer island representative system violated the prohibited transaction provisions of ERISA. 3 He contends, however, that the district court erred in holding him personally liable for the entire cost of the prohibited transaction, i.e., the outer island representative system, while simultaneously recognizing that at least some portion of the transaction benefited the Funds.
Liability for breaching fiduciary responsibility is judicially assessed pursuant to section 409(a) of ERISA, which provides in pertinent part:
Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.
29 U.S.C. Sec. 1109(a). Neither section 409(a) nor any other section of ERISA discloses the methods which are to be used in measuring the "losses" for which breaching fiduciaries are to be held liable. Indeed, "ERISA does not define 'loss' as that term is used in section 409." Donovan v. Bierwirth, 754 F.2d 1049, 1052 (2d Cir.1985).
Fujikawa argues that because some "non-neglible portion" of the work performed by the outer island representatives benefited the Funds, that portion should not be considered a "loss[ ] to the [Funds] resulting from ... such breach." Thus, he requests that this court "vacate the monetary judgment," and "remand the matter for further proceedings to determine the proportion of the cost of the outer island representative system which was in fact a loss to the Funds." We reject this argument.
In determining the amount that a breaching fiduciary must restore to the Funds as a result of a prohibited transaction As the district court noted, "the outer island representatives have not maintained records to determine what expenses are used for the benefit of the Union." The record also indicates that the outer island representatives did not keep adequate records of their time and that the Ad Office did not audit or verify those records that were kept. Under these circumstances, we conclude that the defendants did not present sufficient evidence to allow the district court to apportion the payments made. 4 The district court was therefore correct in assessing against Fujikawa the entire cost of the prohibited transaction, less reimbursements made by the Union.
the court "should resolve doubts in favor of the plaintiffs." Leigh v. Engle, 727 F.2d 113, 138-39 (7th Cir.1984). "This course [would] avoid the ... unfair result[ ] of ... depriving the plaintiffs of any recovery simply because the defendants have made it difficult to disentangle" the prohibited transaction. Id. at 139. See also Bierwirth, 754 F.2d at 1056 ("This is nothing more than application of the principle that, once a breach of trust is established, uncertainties in fixing damages will be resolved against the wrongdoer"). We adopt this principle in this case and place squarely on the breaching fiduciary the burden of demonstrating what portion of the activities of the outer island representatives benefited the Funds. This is a burden Fujikawa failed to meet
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