Kyle Railways, Inc. v. Pacific Admin. Services, Inc.

Decision Date09 April 1993
Docket NumberNo. 91-16391,91-16391
Citation990 F.2d 513
Parties16 Employee Benefits Cas. 2032 KYLE RAILWAYS, INC., Plaintiff-Appellant, v. PACIFIC ADMINISTRATION SERVICES, INC.; Adjustco, Inc., Successor in Interest to Pacific Administration Services, Inc.; Guarantee Mutual Life Company; National Benefit Resources Group Services, Inc., Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Bradley A. Silva, Lang, Richert & Patch, Fresno, CA, for plaintiff-appellant.

Richard E. McGreevy, Leach, McGreevy & Eliassen, San Francisco, CA, for defendant-appellee Pacific Admin. Services.

Glenn E. Westreich, Rosenblum, Parish & Isaacs, San Francisco, CA, for defendant-appellee Guarantee Mut. Life Co.

David J. Garthe and Bruce Winkleman, Boornazian, Jensen & Garthe, Oakland, CA, for defendant-appellee National Ben. Resources Group.

Appeal from the United States District Court for the Northern District of California.

Before FARRIS, POOLE, and WIGGINS, Circuit Judges.

WIGGINS, Circuit Judge:

Kyle Railway, Inc. ("Kyle") sued Pacific Administration Services, and its successor in interest Adjustco, Inc., ("Pacific"); Guarantee Mutual Life Company ("Guarantee"); and National Benefit Resources Group Services, Inc. ("National") for damages arising out of a denial of benefits by Guarantee on an aggregate excess loss insurance policy. The district court dismissed all of Kyle's claims against each defendant. Kyle appeals. We affirm.


Kyle provided its employees with a self-insured Comprehensive Health Plan ("the Plan"). Kyle contracted with Pacific to act as a third-party administrator for the Plan. Kyle also purchased an aggregate excess loss insurance policy from Guarantee to protect itself from catastrophic losses. Under the policy, Guarantee was to reimburse Kyle for claims paid by Kyle under the Plan that exceeded the excess loss insurance policy deductible.

On Kyle's behalf, Pacific submitted a claim to National, Guarantee's agent, for reimbursement of claims paid by Kyle that were in excess of the policy's deductible. National conducted an audit of the payments that Pacific had made under the Plan and concluded that Pacific had incorrectly paid claims by: (1) paying claims not covered under the Plan; (2) double paying some claims submitted to the Plan; and (3) failing to pay some claims on a timely basis as required by the Plan and the excess loss insurance policy. National denied Kyle's claim because these improperly paid claims could not be used to determine whether Kyle had met the policy deductible.

Kyle sued in district court. Kyle's Second Amended Complaint alleged that Pacific, Guarantee, and National violated their fiduciary duties under the Employee Retirement Income Security Act ("ERISA") and that Pacific and Guarantee were unjustly enriched as a result of nonfiduciary misconduct. Pacific sued Guarantee and National for indemnification. The district court granted Pacific's motion to dismiss each of Kyle's claims against it. The district court also relieved Guarantee and National of any liability by granting partial summary judgment regarding Kyle's fiduciary duty claims and dismissing Kyle's nonfiduciary misconduct claims. Pacific's suit for indemnification was dismissed as moot.



We review de novo the district court's dismissal of Kyle's fiduciary and

                nonfiduciary misconduct claims against Pacific.   See Oscar v. University Students Co-Operative Ass'n, 965 F.2d 783, 785 (9th Cir.)  (en banc), cert. denied, --- U.S. ----, 113 S.Ct. 655, 121 L.Ed.2d 581 (1992).   Our review is based on the contents of the complaint, the allegations of which we accept as true and construe in the light most favorable to the plaintiff.   See Love v. United States, 915 F.2d 1242, 1245 (9th Cir.1989)

A. The District Court did not Err in Concluding that Pacific was not Liable as a Fiduciary to Kyle Under ERISA.

Kyle asserts that the district court's definition of an ERISA fiduciary was far too narrow and should have included Pacific. However, 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); Gelardi v. Pertec Computer Corp., 761 F.2d 1323, 1324-25 (9th Cir.1985) (per curiam). ERISA defines a fiduciary as anyone who exercises discretionary authority or control respecting the management or administration of an employee benefit plan. 1

Kyle asserted before the district court, and continues to assert on appeal, two bases for its argument that Pacific was an ERISA fiduciary. First, Kyle claims that the Administrative Services Agreement ("Agreement") between Kyle and Pacific gives Pacific sufficient discretion over the Plan to make Pacific a fiduciary. Second, Kyle claims that regardless of the Agreement, Pacific actually exercised discretion and control over Plan assets. We reject both arguments.

The Agreement does not make Pacific a fiduciary over the Plan. The paragraphs of the Agreement upon which Kyle relies do not indicate that Pacific assumed any discretionary functions. On the contrary, these paragraphs detail functions that are merely ministerial. See 29 C.F.R. § 2509.75-8(D-2) (listing several "purely ministerial functions," the performance of which do not make an entity an ERISA fiduciary). Moreover, the Agreement expressly requires Pacific to refer all discretionary questions regarding the payment of claims to Kyle for final decision. The Agreement also clearly states that Kyle retains the full responsibility for all claims under the Plan.

Further, Pacific's actions in administrating the Plan do not make Pacific a fiduciary. Kyle claims that Pacific "exercised discretion not conferred by the Agreement" when it improperly and untimely paid claims. However, Pacific's alleged negligence in following the Plan does not change the fact that Pacific was still obligated to follow the Plan and that Kyle retained ultimate responsibility under p 6 of the Agreement for all claims made under the Plan. Moreover, third party administrators like Pacific are not fiduciaries under ERISA when they merely perform ministerial duties or process claims. See Gelardi, 761 F.2d at 1325 (citing 29 C.F.R. § 2509.75-8(d-2)); Gibson, 915 F.2d at 417. Accordingly, we affirm the district court's dismissal of Kyle's breach of fiduciary duty claims against Pacific.

B. The District Court did not Err in Concluding that Pacific was not Liable as a Nonfiduciary to Kyle Under ERISA.

Under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), equitable relief for nonfiduciary liability is available only where a "party in interest" has participated in "prohibited transactions." Call v. Sumitomo Bank, 881 F.2d 626, 635 (9th Cir.1989); Moreover, even if we were to recognize equitable relief for nonfiduciary misconduct, Kyle's claim for unjust enrichment by Pacific would fail because Pacific was not unjustly enriched. See Mertens v. Hewitt Assoc., 948 F.2d 607, 612 (9th Cir.1991), cert. granted, --- U.S. ----, 113 S.Ct. 49, 121 L.Ed.2d 19 (1992). Nothing in Kyle's Second Amended Complaint alleged that Pacific received anything other than the compensation it contracted for under the Agreement. In fact, on appeal Kyle only claims that Pacific mismanaged the payment of claims, not that Pacific retained Plan proceeds for itself. Accordingly, we affirm the district court's dismissal of Kyle's nonfiduciary duty claims against Pacific.

                Nieto v. Ecker, 845 F.2d 868, 873-74 & n. 7 (9th Cir.1988).   Even if we were to assume that Pacific was a "party in interest," there is no evidence that Pacific was engaged in a "prohibited transaction" under ERISA § 406(a)(1). 2  Therefore, the district court correctly concluded that ERISA § 502(a)(3) does not allow equitable relief for Kyle's nonfiduciary claims against Pacific.   See Call, 881 F.2d at 635;  Nieto, 845 F.2d at 874

The district court granted partial summary judgment for Guarantee and National regarding Kyle's fiduciary misconduct claims. Kyle appeals only the grant of partial summary judgment in favor of Guarantee. In addition, the district court dismissed Kyle's nonfiduciary misconduct claims against Guarantee and National. We review de novo grants of partial summary judgment and motions to dismiss. See T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 629 (9th Cir.1987); Oscar, 965 F.2d at 785.

A. The District Court did not Err by Determining that Guarantee was not Liable to Kyle as a Fiduciary Under ERISA.

Kyle asserts that Guarantee was in fact a fiduciary under ERISA because Guarantee "had discretionary authority to make final claims decision[s], and did in fact exercise control over Plan assets." Again, an ERISA fiduciary is anyone who exercises discretionary authority or control respecting the management or administration of an employee benefit plan. 29 U.S.C. § 1002(21)(A). Kyle's bald conclusion that Guarantee is an ERISA fiduciary is unsupported by the law and the facts.

The majority of courts that have considered the status of benefit plan insurers have found insurance companies not to be ERISA fiduciaries unless they are given the discretion to manage plan assets or to determine claims made against the plan. 3 We agree, but we do not narrowly interpret the phrase "discretion ... to determine claims" to apply only to the initial decision to grant or deny benefits. Where the Guarantee did not exercise sufficient discretion over claim payments or the Plan's assets to be considered an ERISA fiduciary. Guarantee, through National, audited the payments Pacific and Kyle made under the Plan for the sole purpose of determining whether the terms of the excess loss insurance policy had been met. Guarantee never processed, evaluated, or paid claims to participants of the Plan. Nor did it review denied claims....

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