Nieto v. Ecker

• Citation: 845 F.2d 868
• Decision Date: 02 May 1988
• Docket Number: No. 87-5598,87-5598
• Parties: , 9 Employee Benefits Ca 2153 Al NIETO, Clarence Valdez, Adrian Munenmann, Lester Olivera and Joana L. Gonzales, Plaintiffs-Appellants, v. Louis ECKER, et al., Defendants, and Roger Frommer, Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 868

845 F.2d 868

56 USLW 2641, 9 Employee Benefits Ca 2153

Al NIETO, Clarence Valdez, Adrian Munenmann, Lester Olivera and Joana L. Gonzales, Plaintiffs-Appellants, v. Louis ECKER, et al., Defendants, and Roger Frommer, Defendant-Appellee.

No. 87-5598.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 5, 1987.

Decided May 2, 1988.

Paul M. Posner, Marina del Rey, Cal., for plaintiffs-appellants.

Julius Reich, Reich, Adell & Crost, P.C., Los Angeles, Cal., for defendant-appellee.

William W. Taylor, U.S. Dept. of Labor, for amicus.

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

Before TANG, WIGGINS and KOZINSKI, Circuit Judges.

KOZINSKI, Circuit Judge:

Defendant Roger Frommer is an attorney who rendered professional services to a group of employee retirement plans covered by the Employee Retirement Income Security Act of 1974, 29 U.S.C. Secs. 1001-1381 (1982) (ERISA or Act). Plaintiffs claim that he performed these services improperly or fraudulently. We consider whether Frommer may be sued under ERISA for these alleged misdeeds.

Facts

Plaintiffs are members of Operative Plasterers' and Cement Masons' Locals No. 341 and 627, labor unions affiliated with the Cement Masons' Negotiating Committee for Southern California (the Committee). The Committee, representing each of its constituent local unions, entered into agreements with various associations of employers in Southern California establishing health and welfare, pension, apprenticeship and vacation savings trust funds (the Funds) to be financed by mandatory employer contributions. The Funds are multiemployer plans subject to ERISA, and plaintiffs are, by virtue of their membership in Locals 341 and 627, participants in the Funds.

On August 11, 1986, plaintiffs brought suit in federal district court against numerous defendants, including the Funds, their trustees and Frommer, an attorney retained by the trustees to represent the Funds in collecting delinquent contributions from employers. Plaintiffs alleged that Frommer had repeatedly failed to prosecute lawsuits to collect delinquent contributions and had been paid attorney's fees for services that he did not render. The complaint included claims under ERISA and state fraud law, and prayed for relief in the form of restitution to the Funds, punitive damages and injunctive relief.

The district court dismissed the pendent state claim against Frommer, ¹ and also dismissed, with leave to amend, the ERISA claims against Frommer on the ground that no facts had been alleged to show that he was a fiduciary of the Funds. Plaintiffs filed an amended complaint alleging that Frommer "was a fiduciary in that he exercised authority and control respecting management or disposition of the [Funds'] assets...." Excerpt of Record at 73. The district court again dismissed the action as to Frommer, this time without leave to amend.

Discussion

The district court granted Frommer's motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. We review this determination de novo, taking all allegations of material fact as true and construing them in the light most favorable to plaintiffs. Western Reserve Oil & Gas Co. v. New, 765 F.2d 1428, 1430 (9th Cir.1985), cert. denied, 474 U.S. 1056, 106 S.Ct. 795, 88 L.Ed.2d 773 (1986).

I

Plaintiffs first argue that Frommer is a fiduciary of the Funds within the meaning of ERISA and is therefore subject to all the duties and liabilities imposed on fiduciaries by that statute. Under the Act, "a person is a fiduciary with respect to a plan to the extent (1) he ... exercises any authority or control respecting management or disposition of its assets...." ERISA Sec. 3(21)(A), 29 U.S.C. Sec. 1002(21)(A). Plaintiffs contend that Frommer falls within this definition because his control over the filing and prosecution of lawsuits constituted "control respecting ... disposition of [fund] assets" within the meaning of section 3(21)(A).

We resolved this issue in Yeseta v. Baima, 837 F.2d 380, 385 (9th Cir.1988). Relying on the applicable Department of Labor regulations, Yeseta held that an attorney 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." Id. (citing 29 C.F.R. Sec. 2509.75-5 (1986)). The complaint here did not allege that Frommer exercised any such authority over the Funds.

Plaintiffs contend, nevertheless, that Frommer effectively exercised such authority because the employer contributions he failed to collect were plan assets under his discretionary control. By failing to collect those contributions, the argument runs, Frommer dissipated those assets. This argument proves far too much. Under this rationale anyone performing services for an ERISA plan--be it an attorney, an accountant, a security guard or a janitor-- would be rendered a fiduciary insofar as he exercised some control over trust assets and through negligence or dishonesty jeopardized those assets. We find no basis for expanding the meaning of fiduciary in this fashion, and Yeseta effectively precludes such an expansion. The district court correctly ruled that Frommer was not a fiduciary under ERISA.

II

A. Plaintiffs contend that, even if Frommer is not a fiduciary, he may still be held liable under ERISA section 409(a) as one who conspired and acted with fiduciaries in the breach of their fiduciary duties. That section provides:

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....

29 U.S.C. Sec. 1109(a) (emphasis added). Under ERISA section 502(a)(2), suits for relief under section 409 may be brought "by the Secretary [of Labor], or by a participant, beneficiary or fiduciary...." 29 U.S.C. Sec. 1132(a)(2).

The plain language of section 409(a) limits its coverage to fiduciaries, and nothing in the statute provides any support for holding others liable under that section. Several courts have nevertheless held that section 409(a) imposes liability on non-fiduciaries insofar as they abetted fiduciaries in their breaches of duty. See, e.g., Brock v. Hendershott, 840 F.2d 339, 342 (6th Cir.1988); Lowen v. Tower Asset Management, Inc., 829 F.2d 1209, 1220-21 (2d Cir.1987); Thornton v. Evans, 692 F.2d 1064, 1078 (7th Cir.1982); Donovan v. Daugherty, 550 F.Supp. 390, 410-11 (S.D.Ala.1982); see also Fink v. National Sav. & Trust Co., 772 F.2d 951, 958 (D.C.Cir.1985) (dicta). These courts uncritically adopted the reasoning of the seminal case in this area, Freund v. Marshall & Ilsley Bank, 485 F.Supp. 629, 641-42 (W.D.Wis.1979). We have carefully considered Freund 's rationale and conclude that it provides no basis for departing from the plain meaning of the statute.

Freund started with the proposition that, in enacting the fiduciary duty provisions of ERISA, "the intent of Congress was to federalize the common law of trusts" and apply it to ERISA plans. 485 F.Supp. at 635. The court then reasoned: "In view of the expressed Congressional intent in enacting ERISA 'to make applicable the law of trusts,' the court is fully empowered to award the relief available in traditional trust law against non-fiduciaries who knowingly participate ... in a breach of trust." Id. at 641-42. As the only support for this proposition, Freund cites a floor statement by Senator Williams, one of the Act's sponsors, proclaiming that the goals of the fiduciary liability provisions were "to make applicable the law of trusts; ... to establish uniform fiduciary standards to prevent transactions which dissipate or endanger plan assets, and to provide effective remedies for breaches of trust." Id. at 635 (quoting 120 Cong.Rec. 29,932 (1974), reprinted in 1974 U.S.Code Cong. & Admin.News 4639, 5177, 5186) (emphasis added).

Senator Williams' rather nebulous statement hardly justifies engrafting the complete body of state trust law into ERISA. As courts of limited jurisdiction, our power to adjudicate claims is limited to that granted by Congress, and such grants are not to be lightly inferred. See General Atomic Co. v. United Nuclear Corp., 655 F.2d 968, 968-69 (9th Cir.1981) (federal courts are "presumed to lack jurisdiction in a particular case unless the contrary affirmatively appears"), cert. denied, 455 U.S. 948, 102 S.Ct. 1449, 71 L.Ed.2d 662 (1982); see also Victory Carriers, Inc. v. Law, 404 U.S. 202, 212, 92 S.Ct. 418, 425, 30 L.Ed.2d 383 (1971). Plaintiffs' lawsuit against Frommer is essentially an attorney malpractice suit under state tort law. Absent an explicit directive from Congress, we may not recast it as a federal cause of action merely because Frommer's clients happened to be plans covered by ERISA.

In any event, Freund and the cases following it have built very much on very little. As we read Senator Williams' statement, it merely directs the courts to rely on state law principles in adjudicating claims otherwise within the scope of the Act. Read in this fashion, the floor statement fully accords with the statute's language and purpose; it provides no support for the incorporation of state law causes of actions as a supplement to the explicit provisions of ERISA. ²

Amicus the Secretary of Labor argues that we have already recognized ERISA's incorporation of the common law of trusts, citing Donovan v. Mazzola, 716 F.2d 1226, 1231 (9th Cir.1983), cert. denied, 464 U.S. 1040, 104 S.Ct. 704, 79 L.Ed.2d 169 (1984), and Terpinas v. Seafarer's Int'l Union, 722...