Thomas, Head & Greisen Employees Trust v. Buster, 92-36732

• Decision Date: 18 May 1994
• Docket Number: No. 92-36732,92-36732
• Citation: 24 F.3d 1114
• Parties: , 18 Employee Benefits Cas. 1293 THOMAS, HEAD & GREISEN EMPLOYEES TRUST; Ronald E. Greisen; Henry P. Head, Plaintiffs-Appellees, v. Jack BUSTER, Defendant-Appellant, and Terry D. Parks and Northern Financial, Defendants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1114

24 F.3d 1114

62 USLW 2772, 18 Employee Benefits Cas. 1293

THOMAS, HEAD & GREISEN EMPLOYEES TRUST; Ronald E. Greisen;

Henry P. Head, Plaintiffs-Appellees, v. Jack BUSTER, Defendant-Appellant, and Terry D. Parks and Northern Financial, Defendants.

No. 92-36732.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Nov. 4, 1993.

Decided May 18, 1994.

A. Lee Petersen, Law Offices of A. Lee Petersen, Anchorage, AK, for defendant-appellant.

Jean E. Kizer, Bliss Riordan, Anchorage, AK, for plaintiffs-appellees.

Appeal from the United States District Court for the District of Alaska.

Before: GOODWIN, HUG and FERGUSON, Circuit Judges.

Opinion by Judge HUG; Dissent by Judge FERGUSON.

HUG, Circuit Judge:

This appeal concerns the investment by an ERISA-regulated Employee Trust Fund in deed of trust notes secured by real property. The Trust purchased various notes from Northern Financial, a general partnership comprised of Jack Buster and Terry Parks. Appellant Buster challenges the district court's determination that he served as a fiduciary to the Trust, and that he was liable to the Trust for breach of fiduciary duty for misrepresentations made with respect to the sale of deed of trust notes. We affirm.

I. BACKGROUND

Thomas, Head & Greisen Employees Trust ("Trust") is an employee trust fund subject to the Employee Retirement Income Security Act ("ERISA"). The Trust was established by Thomas, Head & Griesen, a professional corporation of certified public accountants. Jack Buster developed a business relationship with the trustees of the Trust, Henry Head and Ronald Greisen ("Trustees"), whereby Buster would locate and investigate deed of trust notes for investment by the Trust. Buster earned a commission from the sale of these notes.

In 1983, Buster joined Terry Parks and formed a general partnership, Northern Financial. Northern Financial continued to provide investment services to the Trust, and the Trust continued to purchase notes secured by deeds of trust. During 1986, the Trust purchased four such notes from Northern Financial, referred to as the Bergin, Kern, Falkenstein and Smith notes. Subsequent to the purchase, the Trust discovered that Northern Financial had made numerous misrepresentations with respect to each of those notes.

On February 24, 1989, the Trust filed suit in federal district court alleging losses in excess of $142,000 on the Bergin, Kern and Falkenstein notes. The Smith note was not a subject of the litigation because Buster admitted the misrepresentations and guaranteed the Trust a 20 percent return on its investment. Although the suit alleged numerous statutory violations, the case was tried primarily on the basis of a breach of fiduciary duty under ERISA. After a three-day bench trial, the district court ruled that Northern Financial and its partners were fiduciaries to the Trust under ERISA, and that they had breached their fiduciary duties. The court awarded damages in the amount of $142,745.71. Buster appealed. A companion appeal brought by co-defendant Terry Parks was dismissed by stipulation pursuant to Federal Rule of Appellate Procedure 42(b).

II. FIDUCIARY STATUS

The primary issue in this appeal concerns Buster's status as a fiduciary within the meaning of ERISA. Buster challenges the district court's finding that he was a fiduciary and its ultimate conclusion that he was liable for breach of fiduciary duty. The findings upon which Buster bases his appeal are essentially factual issues, and therefore the ERISA provides three ways in which one can acquire fiduciary status: (1) exercising discretionary authority or control over management of the plan or disposition of its assets; (2) rendering investment advice for a fee or other compensation; or (3) exercising discretionary authority in the administration of the plan. 29 U.S.C. Sec. 1002(21)(A) (1988). The district court determined that Buster fell within the second definition of fiduciary, which states that a person acquires such status if "he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so." 29 U.S.C. Sec. 1002(21)(A)(ii).

                court's findings cannot be set aside unless they are "clearly erroneous."   Fed.R.Civ.P. 52(a).  "If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently."  Service Employees Int'l Union v. Fair Political Practices Comm'n, 955 F.2d 1312, 1317 n. 7 (9th Cir.)  (quoting Anderson v. Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 1511-12, 84 L.Ed.2d 518 (1985)) (internal quotations omitted), cert. denied, --- U.S. ----, 112 S.Ct. 3056, 120 L.Ed.2d 922 (1992)
                

The Department of Labor issued regulations that further define "rendering investment advice" within the meaning of ERISA. The relevant provision states:

(c) Investment advice. (1) A person shall be deemed to be rendering "investment advice" to an employee benefit plan, within the meaning of [29 U.S.C. Sec. 1002(21)(A)(ii) ] only if:

(i) Such person renders advice to the plan as to the value of securities or other property, or makes recommendation as to the advisability of investing in, purchasing, or selling securities or other property; and

(ii) Such person either directly or indirectly....

....

(B) Renders any advice ... on a regular basis to the plan pursuant to a mutual agreement, arrangement or understanding, written or otherwise, between such person and the plan ... that such services will serve as a primary basis for investment decisions with respect to plan assets, and that such person will render individualized investment advice to the plan based on the particular needs of the plan regarding such matters as, among other things, investment policies or strategy, overall portfolio composition, or diversification of plan investments.

29 C.F.R. Sec. 2510.3-21(c)(1) (1992).

Courts have recognized that an investment advisor to an ERISA Trust may be deemed a fiduciary of the Trust. See Schetter v. Prudential-Bache Securities Inc., 695 F.Supp. 1077, 1083 (E.D.Cal.1988); Stanton v. Shearson Lehman/American Express, Inc., 631 F.Supp. 100, 103-104 (N.D.Ga.1986). Moreover, the definition of fiduciary under ERISA should be liberally construed. See Consolidated Beef Indus. Inc. v. New York Life Ins. Co., 949 F.2d 960, 964 (8th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1670, 118 L.Ed.2d 390 (1992).

The district court made factual findings to support its conclusion that Buster was a fiduciary within the meaning of ERISA. Specifically, the court found that: (1) Buster provided individualized investment advice; (2) the advice was given pursuant to a mutual understanding; (3) the advice was provided on a regular basis; (4) the advice pertained to the value of the property or consisted of recommendations as to the advisability of investing in certain property; and (5) the advice was rendered for a fee. All five factors are necessary to support a finding of fiduciary status. 29 U.S.C. Sec. 1002(21)(A) (fee); 29 C.F.R. Sec. 2510.3-21(c)(1)(i) (value of property, advisability of investing in property); 29 C.F.R. Sec. 2510.3-21(c)(1)(ii)(B) (regular basis, mutual agreement, individualized advice). Buster challenges each of these findings.

A. Individualized Investment Advice

Buster asserts that no evidence exists to support the district court's finding that he provided individualized investment advice. Rather, he argues that he was merely selling a product to the Trust. We disagree.

Regulations interpreting ERISA provide that a person may attain fiduciary status by rendering individualized investment advice "based on the particular needs of the plan regarding such matters as, among other things, investment policies or strategy, overall portfolio composition, or diversification of plan investments." 29 C.F.R. Sec. 2510.3-21(c)(1)(B). The evidence presented at trial established that Buster engaged in regular meetings with the Trustees, during which they discussed investment strategies, the need for diversification, and the criteria used by Buster to determine which investments were suitable for the Trust.

Buster was providing investment advice to sophisticated customers, but this does not affect the finding that he was rendering individualized investment advice nonetheless. Moreover, Buster's assertion that he was unable to provide individualized investment advice because he had not been given the investment portfolio or trust documents similarly lacks merit. The relationship of the parties, which developed over the course of nine years, coupled with the evidence of regular meetings between Buster and the Trustees to discuss investment strategy, provided Buster with sufficient information about the Trust to enable him to render individualized investment advice.

Buster's reliance on Farm King Supply, Inc. v. Edward D. Jones & Co., 884 F.2d 288 (7th Cir.1989), is misplaced. In Farm King, the court concluded that the brokerage firm was not a fiduciary to an ERISA plan because it had not agreed to render "individualized investment advice" upon which the Plan would rely as a primary basis for investment decisions. The court specifically found that the alleged fiduciary's recommendations as to investments did not amount to advice as to investment strategy, overall portfolio composition or diversification of assets. Id. at 294. Rather, the brokerage firm in Farm King acted only as a sales broker, and its activities consisted of individualized solicitations designed to obtain business from a lucrative customer. Id.

An inference from Farm King, which suggests that a fiduciary must review an entire portfolio in order to give "individualized investment advice [ ] based on the...