Mertens v. Hewitt Associates

Decision Date04 November 1991
Docket NumberNo. 90-16272,90-16272
Citation948 F.2d 607
Parties, 14 Employee Benefits Cas. 1973 William J. MERTENS; Alex W. Bandrowski; James A. Clarke; Russell Franz, Plaintiffs-Appellants, v. HEWITT ASSOCIATES, an Illinois Partnership; Kaiser Steel Retirement Plan; Pension Benefit Guaranty Corporation, as statutory trustee of the Kaiser Steel Retirement Plan, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Alfred H. Sigman, Sigman & Lewis, Oakland, Cal., for plaintiffs-appellants.

Steven H. Frankel, Sonnenschein, Nath & Rosenthal, Chicago, Ill., for defendants-appellees.

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

Before NORRIS and THOMPSON, Circuit Judges, and KING, District Judge. *

DAVID R. THOMPSON, Circuit Judge:

Plaintiffs, former employees of Kaiser Steel Corporation ("Kaiser") and participants in its ERISA qualified pension plan, brought this action against the plan's actuary, Hewitt Associates ("Hewitt"), for ERISA-based and pendent state claims. The district court dismissed all of the plaintiffs' claims and entered judgment in favor of Hewitt. We affirm the district court's dismissal of the ERISA-based claims, but reverse its dismissal of the pendent state law claim.


On a motion to dismiss, all material allegations in the complaint must be taken as true and construed in the light most favorable to the plaintiff. Call v. Sumitomo Bank, 881 F.2d 626, 630 (9th Cir.1989). With this in mind, we state the following facts as alleged by the plaintiffs and take these facts as true for the purpose of deciding this appeal.

According to the plaintiffs, Kaiser hired Hewitt to perform actuarial work for its ERISA plan. Early in 1980, Kaiser restructured its business operations and virtually eliminated its steel-making operations. As a result, the number of employees retiring from the company who were entitled to early retirement benefits under the plan increased significantly, as did the plan's funding costs.

The actuarial assumptions Hewitt had developed previously for the plan did not reflect the increased costs, and Hewitt did not change its assumptions to reflect the increase. Rather, Hewitt delegated the responsibility for selecting actuarial assumptions to Kaiser.

According to the plaintiffs, Hewitt's conduct was improper. Had Hewitt employed proper actuarial assumptions, Kaiser would have had to make substantially higher contributions to the plan. Hewitt failed to disclose this funding inadequacy in any certificate or other writing which it prepared on behalf of the plan. As a consequence of Hewitt's acts and omissions, Kaiser failed to fund the plan adequately, and the plan's assets became insufficient to satisfy benefit commitments, including the commitment to pay the plaintiffs their fully vested pensions.

The plaintiffs further alleged that at the same time Hewitt was performing services for the plan, it was also providing actuarial services to Kaiser. Hewitt did not want to jeopardize this lucrative professional relationship. Hewitt failed to disclose to plan administrators its relationship with Kaiser and the potential conflict that the relationship created.

In October 1986, 1 the Pension Benefit Guaranty Corporation ("PBGC") determined that the plan was underfunded and incapable of paying its liabilities, including the pension benefits owed to the plaintiffs. As a result of the underfunding, the PBGC terminated the plan and began paying the plaintiffs and other plan participants substantially reduced benefits. For example, one plaintiff's monthly check was reduced from $2,016 to $521. Other plaintiffs suffered comparable reductions.

The plaintiffs' complaint alleged three causes of action: a cause of action based on ERISA for "breach of professional duties to the plan;" a cause of action based on ERISA for "unlawful party-in-interest transactions;" and a professional malpractice claim under California law. The PBGC answered and filed a cross-claim in which it asserted that any recovery by the plaintiffs should be paid to it.

Hewitt filed a motion to dismiss the plaintiffs' complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). It argued that the entire complaint was barred by the statute of limitations and also that the ERISA claims were insufficient as a matter of law.

In their response to the motion, the plaintiffs asserted that their first claim actually stated three independent claims under ERISA: a claim for breach of fiduciary duty; a claim for knowing participation in a breach of fiduciary duty; and a claim for non-fiduciary breach of actuarial duties. They stood by their remaining claims.

In its order granting the motion to dismiss, the district court determined that the ERISA claims were insufficient as a matter of law. The court also held that the pendent state claim was barred by the applicable California limitation period. It dismissed the PBGC's claim as derivative. The plaintiffs did not seek leave to amend their complaint, and this appeal followed. 2

A. Claim for Breach of Fiduciary Duty

An ERISA fiduciary includes anyone who exercises discretionary authority over the plan's management, anyone who exercises authority over the management of its assets, and anyone having discretionary authority or responsibility in the plan's administration. 29 U.S.C. § 1002(21)(A); 3 Credit Managers Ass'n v. Kennesaw Life & Accident Ins. Co., 809 F.2d 617, 625 (9th Cir.1987). A party "rendering professional services to a plan is not a fiduciary so long as he does not exercise any authority over the plan 'in a manner other than by usual professional functions.' " Nieto v. Ecker, 845 F.2d 868, 870 (9th Cir.1988), quoting Yeseta v. Baima, 837 F.2d 380, 385 (9th Cir.1988).

The district court held that the complaint failed to state a claim for breach of fiduciary duty because nothing in the complaint indicated that Hewitt had done anything other than render actuarial services to the plan. Further, nothing in the complaint indicated that Hewitt exercised control or authority over plan assets. Although the plaintiffs allege that Hewitt acted negligently, fraudulently, and reprehensibly as an actuary, no inference can be made from the complaint that Hewitt acted in any capacity other than as an actuary.

Although the courts have recognized the possibility that professional service providers can be liable as ERISA fiduciaries, they consistently have found attempts to assert liability on that basis unavailing. For example, the Nieto court affirmed the district court's dismissal of a claim against an attorney who allegedly rendered services to an ERISA plan in an improper and fraudulent manner. Because the complaint did not allege that the attorney had authority over plan assets, the court rejected the argument that he was an ERISA fiduciary, even though his dishonesty may have led to the dissipation of plan assets. 845 F.2d at 870-71; see also Pappas v. Buck Consultants, Inc., 923 F.2d 531, 535-38 (7th Cir.1991) (actuary was not fiduciary where there was no allegation that it had "actual decision-making power"); Yeseta v. Baima, 837 F.2d 380, 384-85 (9th Cir.1988) (attorney and accountant who did not exercise actual control over management of plan not fiduciaries); 29 C.F.R. § 2509, 75-5 (1990) (actuary not fiduciary solely by virtue of rendering services to plan).

In their brief, the plaintiffs rely primarily on Monson v. Century Mfg. Co., 739 F.2d 1293, 1303 (8th Cir.1984). In Monson, the court upheld a district court's finding of liability for breach of fiduciary duties against the general manager of a plan sponsor. The district court noted that the manager had worked on relevant amendments to the plan, had consulted on the plan's behalf with independent experts regarding plan investments, had authority to issue press releases on behalf of the plan, and was responsible for informing employees about the plan. Id.

Monson is easily distinguishable from this case. Unlike the general manager in Monson, Hewitt was an independent actuary, not part of the plan sponsor's control group. Also, unlike the facts in Monson, the plaintiffs' allegations do not indicate that Hewitt had any control over the plan's operation or administration.

We conclude the district court correctly held that the plaintiffs' allegations failed to state a claim for breach of fiduciary duty under ERISA.

B. Claim for Knowing Participation in Breach of Fiduciary Duty

The plaintiffs argue that even if Hewitt is not a fiduciary, it still may be liable under ERISA if it knowingly participated in another's breach of fiduciary duty.

ERISA provides that any person who is a fiduciary to a plan who breaches any duty imposed by the statute is personally liable to the plan. 29 U.S.C. § 1109(a). 4 ERISA's civil enforcement section provides that a civil action may be brought by the Secretary or by a plan participant, beneficiary, or fiduciary for relief under section 1109. 29 U.S.C. § 1132(a)(2). 5

In Nieto, we held that the plain language of section 1109(a) "limits its coverage to fiduciaries, and nothing in the statute provides any support for holding others liable under that section." 845 F.2d at 871. We rejected the argument that a non-fiduciary could be liable under this section for knowing participation in a breach of fiduciary duty. Id. 6

Plaintiffs contend that we can and should overrule Nieto because Congress' enactment of the Omnibus Budget Reconciliation Act of 1989 and its addition of a new enforcement provision to ERISA, 29 U.S.C. § 1132(l ), 7 clarified Congress' intent to permit suits for knowing participation in a breach of fiduciary duty. Section 1132(l) gives the Secretary of Labor the power to assess a civil penalty against fiduciaries or other persons in certain amounts based upon "any knowing participation" in such a breach of fiduciary duty....

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