United States v. 2007-01-17 | 04-56982 | TRUSTEES SOUTHERN CALIFORNIA VMIDDLETON | precedential |…

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
 TRUSTEES OF THE SOUTHERN
CALIFORNIA BAKERY DRIVERS
SECURITY FUND; DIRK GEERSEN,
Plaintiffs-Appellants, No. 04-56982
v. D.C. No.
 RICK MIDDLETON; BOB DOSS; RONN CV-03-05550-ER
ENGLISH; PERRI NEWELL; SOUTH
BAY TEAMSTERS AND EMPLOYERS
HEALTH AND WELFARE AND
RELATED BENEFITS TRUST FUND,
Defendants-Appellees. 
 TRUSTEES OF THE SOUTHERN
CALIFORNIA BAKERY DRIVERS
SECURITY FUND; DIRK GEERSEN,
Plaintiffs-Appellants, No. 05-55192
v. D.C. No.
 RICK MIDDLETON; BOB DOSS; RONN CV-03-05550-ER
ENGLISH; PERRI NEWELL; SOUTH OPINION
BAY TEAMSTERS AND EMPLOYERS
HEALTH AND WELFARE AND
RELATED BENEFITS TRUST FUND,
Defendants-Appellees. 
Appeal from the United States District Court
for the Central District of California
Edward Rafeedie, District Judge, Presiding
Argued and Submitted
November 14, 2006—Pasadena, California
791

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Filed January 18, 2007
Before: Stephen Reinhardt and Jay S. Bybee, Circuit Judges,
and Larry A. Burns,* District Judge.
Opinion by Judge Bybee
*The Honorable Larry A. Burns, United States District Judge for the
Southern District of California, sitting by designation.
792 TRUSTEES OF THE SO. CAL. BAKERY DRIVERS v. MIDDLETON

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COUNSEL
J. David Sackman, Reich, Adell, Crost & Cvitan, Los Ange-
les, California, for the plaintiffs-appellants.
Michael A. Vanic, Reish Luftman Reicher & Cohen, Los
Angeles, California, for the defendants-appellees.
OPINION
BYBEE, Circuit Judge:
Plaintiffs-Appellants, Trustees of the Southern California
Bakery Drivers Security Fund and Dirk Geersen (“Bakery
Drivers”), appeal the district court’s summary judgment in
favor of Defendants-Appellees, Rick Middleton and South
Bay Teamsters and Employers Health and Welfare and
Related Benefits Trust Fund (“South Bay Teamsters”) on
claims of breach of fiduciary duty under the Employee Retire-
ment Income Security Act (“ERISA”), 29 U.S.C. § 1001 et
seq., and breach of collective bargaining agreements under the
Labor Management Relations Act (“LMRA”), 29 U.S.C.
§ 301 et seq., and the district court’s award of attorneys’ fees
to South Bay Teamsters.
I
This case involves a dispute between the trustees of two
employee benefit plans over an agreement in which one plan
was to provide certain benefits to plan participants of the
other plan. On August 1, 1987, Bakery Drivers contracted
with South Bay Teamsters for certain death, accidental death,
and dismemberment benefits. In a Trust-to-Trust agreement,
Bakery Drivers contracted to pay $5.50 per month for each
active fund participant to South Bay Teamsters in exchange
for death and related benefits amounting to $10,000 in the
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event of death and $5,000 or $10,000 in the event of qualify-
ing dismemberment.1 After a series of Trust-to-Trust agree-
ments continuing the relationship, the parties terminated their
agreement as of May 31, 2001. Bakery Drivers allege that
over the course of the contract, plan participants paid a total
of $2,753,642.00 to South Bay Teamsters, while the total
amount of claims paid to plan participants was $770,768.19
and administrative expenses totaled $220,304.92.
On January 10, 2002, Bakery Drivers sent South Bay
Teamsters a letter requesting the surplus funds paid by plan
participants—namely, the $1,762,568.89 difference between
the amounts paid-in less benefits received and administrative
expenses. South Bay Teamsters refused the request on May
31, 2002. Bakery Drivers filed a complaint in district court
alleging that South Bay Teamsters had breached the fiduciary
duties owed under ERISA by failing to use surplus funds for
the exclusive benefit of plan participants. See 29 U.S.C.
§ 1104(a)(1)(A). It also alleged that South Bay Teamsters had
breached the collective bargaining agreements by failing to
use the contributions for the purposes enumerated in the col-
lective bargaining agreements in violation of the LMRA. See
29 U.S.C. §§ 186(c)(5), 1103(c)(1).2
The district court granted summary judgment for South Bay
Teamsters on Bakery Drivers’ claims. As to the breach of the
ERISA fiduciary duty claim, the court found that South Bay
Teamsters qualified under ERISA’s insurer exemption. The
1Prior to August 1, 1987, death benefits payable to Bakery Drivers’ plan
participants were obtained through the purchase of a group insurance pol-
icy with an insurance carrier.
2Bakery Drivers’ original complaint included an additional claim that
South Bay Teamsters violated the “exclusive benefit rule” of 29 U.S.C.
§ 1104(a)(1)(A), for failing to use surplus funds for the exclusive benefit
of the intended beneficiaries. The district court granted summary judgment
for South Bay Teamsters on this claim because Bakery Drivers could not
establish standing as co-fiduciaries or participants. Bakery Drivers’ subse-
quent complaint omitted this claim, but reserved the right to appeal.
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district court explained that while “ERISA generally imposes
a fiduciary duty on managers of ‘plan assets[,]’ ” it “contains
an exception for a ‘guaranteed benefit policy.’ ” Such poli-
cies, the district court explained, “provid[e] for benefits the
amount of which is guaranteed by the insurer.” The court con-
cluded that the plan at issue was a guarantee benefit policy.
The court rejected Bakery Drivers’ argument that South Bay
Teamsters did not qualify as an “insurer.” According to the
district court, “[t]he argument that [South Bay Teamsters is]
not an insurance company . . . is covered by the broad defini-
tion that is contained in the law.” The district court found that
—in this case—South Bay Teamsters acted like an “insurer.”
Moreover, the district court reasoned that the parties did not
explicitly provide that paid-in premiums not used to pay bene-
fits should be refunded to plan participants and the parties’
agreement could not be read to require such a refund. The dis-
trict court did not explain its reasoning for granting summary
judgment as to Bakery Drivers’ second claim.
The district court also granted South Bay Teamsters’
motion for attorneys’ fees. The district court discussed the
five factors for considering whether fees should be awarded
under ERISA. See 29 U.S.C.A. § 1132(g); Hummell v. S.E.
Rykoff & Co., 634 F.2d 446 (9th Cir. 1980). The court found
that two of the five Hummell factors “weigh[ed] strongly in
favor of awarding fees”—first, Bakery Drivers acted in bad
faith by pursuing unsupported assertions, adopting inconsis-
tent positions, rescinding its earlier acknowledgment that the
arrangement resembled a standard insurance purchase, and
misrepresenting material facts and, second, the relative merits
favored South Bay Teamsters because Bakery Drivers pur-
sued a meritless position. Also in its analysis, the district court
explained that it had granted summary judgments on Appel-
lant’s breach of collective bargaining agreements claim
because “[t]he Trust-to-Trust agreements simply do not con-
tain any provision incorporating [Bakery Drivers’ collective
bargaining agreements].” This appeal followed.
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II
We review a district court’s grant of summary judgment de
novo. See Metro. Life Ins. Co. v. Parker, 436 F.3d 1109, 1113
(9th Cir. 2006). Because we conclude that South Bay Team-
sters does not qualify as an ERISA exempt “insurer” under 29
U.S.C. § 1101(b)(2) and that South Bay Teamsters breached
its ERISA fiduciary duty to the participants in the Bakery
Drivers Security Fund, we reverse the district court’s order
granting summary judgment on Bakery Drivers’ breach of the
ERISA fiduciary duty claim.
[1] Under ERISA, a person is a fiduciary with respect to an
ERISA-qualified plan to the extent he “exercises any author-
ity or control respecting management or disposition of its
assets.” See 29 § U.S.C. 1002(21)(A). ERISA, however, pro-
vides for a limitation on the fiduciary duty of insurers issuing
certain kinds of policies or contracts: “[T]he assets [of a plan
to which a guaranteed benefit policy is issued by an insurer]
shall be deemed to include such policy” but do not “include
any assets of such insurer.” 29 U.S.C. § 1101(b)(2). ERISA
defines “guaranteed benefit policy” as benefits in an “amount
. . . guaranteed by [an] insurer.” 29 U.S.C. § 1101(b)(2)(B).
It defines an “insurer” as “an insurance company, insurance
service, or insurance organization, qualified to do business in
a State.” 29 U.S.C. § 1101(b)(2)(A). In other words, an “in-
surer” who has issued a “guaranteed benefit policy” is a fidu-
ciary with respect to an ERISA plan, but only to the extent of
the funds pledged under the insurance policy or contract. See
29 U.S.C. § 1101(b)(2); see also John Hancock Mut. Life Ins.
Co. v. Harris Trust & Sav. Bank, 510 U.S. 86, 96 (1993).
South Bay Teamsters contends that because it offered a
guaranteed death benefit to members of the Bakery Drivers
Security Fund, it is liable to Bakery Drivers for the death ben-
efits alone, and not for any monies paid into the South Bay
Teamsters Trust Fund. South Bay Teamsters asserts that its
fiduciary duty is independent of the money paid in by South
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Bay Teamsters. According to South Bay Teamsters, it
assumed the risk that the monthly premiums would not cover
the death benefits it was obligated to pay out over the course
of the contract between the two funds. South Bay Teamsters
asserts that it, in turn, has no fiduciary responsibility to Bak-
ery Drivers for the monthly premiums it collected in excess
of the death benefits it paid and the administrative expenses
it incurred. For its part, Bakery Drivers claims that South Bay
Teamsters accepted no risk and that South Bay Teamsters
received all monies as a fiduciary for the participants in the
Bakery Drivers Security Fund.
[2] Despite the fact that South Bay Teamsters plainly pro-
vided insurance-like benefits, and likely accepted the risks it
describes, it does not qualify under ERISA’s insurer exemp-
tion. South Bay Teamsters is not an “insurer” because it is not
“an insurance company, insurance service, or insurance orga-
nization, qualified to do business in a State.” 29 U.S.C.
§ 1101(b)(2). Indeed, South Bay Teamsters does not purport
to constitute such an organization, and nothing in the record
indicates that it is “qualified to do business in a State.”
[3] Although the district court reasoned that South Bay
Teamsters’ provision of death and disability benefits in an
insurance-like scheme meant that it acted like an “insurer”
based on the benefits it offered, we reject such a broad read-
ing of the insurer exemption. The Supreme Court has stressed
strict adherence to ERISA’s text in interpreting its provisions,
explaining its inclination toward a “tight reading of exemp-
tions from comprehensive schemes of this kind.” John Han-
cock, 510 U.S. at 97. In particular, the Court has admonished
that “Congress has specifically instructed, by the words of
limitation it used, that we closely contain the guaranteed ben-
efit policy exclusion.” Id. Moreover, the policy behind the
exemption reflects ERISA’s historic deference to state insur-
ance law.3 It leaves the regulation of an insurer’s assets—and
3The McCarran-Ferguson Act requires that the business of insurance be
subject to state regulation and generally mandates that “[n]o Act of Con-
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assurance of the insurer’s solvency and ability to deliver
benefits—to the states. See Cate v. Blue Cross & Blue Shield
of Ala., 434 F. Supp. 1187, 1190 (N.D. Tenn. 1977). The
exemption applies to companies otherwise subject to state
insurance law, and consequently, it does not apply to compa-
nies outside the insurance industry. ERISA’s insurer exemp-
tion simply is not written—or envisioned—to cover
companies that offer insurance-like plans but who are not “in-
surer[s]” as strictly defined. As a result, we reject the district
court’s conclusion that South Bay Teamsters qualifies under
the insurer exemption.
[4] Instead, we conclude that South Bay Teamsters was an
ERISA fiduciary of the plan assets of Bakery Drivers, and
that it breached its fiduciary duties with respect to those
assets. South Bay Teamsters exercised “control respecting
management or disposition of [the Bakery Drivers Security
Fund] assets,” 29 U.S.C. § 1002(21)(A), by receiving pay-
ment or assets from Bakery Drivers that were contributed on
behalf of plan participants and then placing those assets into
its fund over which it had authority, inter alia, to write
checks. See IT Corp. v. Gen. Am. Life Ins. Co., 107 F.3d 1415,
1421 (9th Cir. 1997) (“The right to write checks on plan funds
is authority or control respecting management or disposition
of its assets.” (internal quotation marks omitted)). Moreover,
where, as here, the exclusion in § 1101(b)(2) is inapplicable,
all assets paid-in are treated as “plan assets” and an entity that
takes “actions in regard to their management and disposition
gress shall be construed to invalidate . . . any law enacted by any State for
the purpose of regulating the business of insurance . . . .” 15 U.S.C.
§ 1012(b). Although ERISA “supersede[s] any and all State laws insofar
as they may now or hereafter relate to any employee benefit plan,” 29
U.S.C. § 1144(a), to avoid conflict with the McCarran-Ferguson Act, a
savings clause provides that “nothing in this subchapter shall be construed
to exempt or relieve any person from any law of any State which regulates
insurance, banking, or securities,” 29 U.S.C. § 1144(b)(2)(A). See also
Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355, 364 (2002).
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must be judged against ERISA’s fiduciary standards.” John
Hancock, 510 U.S. at 106; see also 29 C.F.R. § 2510.3-
101(a), (j)(12). Finally, the agreements providing that “a plan
of death benefits is hereby established for [Bakery Drivers]
Security Fund participants” also created an ERISA plan,
whose summary plan descriptions characterized both Bakery
Drivers and South Bay Teamsters as “Trustees of the Plan.”
See 29 U.S.C. § 1102(a)(1). Nothing in the agreements or the
summary plan descriptions suggests that South Bay Teamsters
were authorized to use the plan assets for anything other than
“to fund the payment of death benefits to [Bakery Drivers]
Security Fund participants . . . .”
[5] Given that South Bay Teamsters had a fiduciary duty
over plan assets, we conclude that it breached its duties under
ERISA by failing to apply the surplus funds for the benefit of
Bakery Drivers Security Fund participants. See 29 U.S.C.
§ 1104(a)(1) (stating that “a fiduciary shall discharge his
duties with respect to a plan solely in the interest of the partic-
ipants and beneficiaries”). We hold that South Bay Teamsters
is liable to Bakery Drivers for breaching its fiduciary duties
under ERISA. Counsel for the participants has suggested that
certain remedies other than the return of the surplus funds
may be appropriate. Accordingly, we remand to the district
court so that it may determine the appropriate remedy.
III
[6] We affirm the grant of summary judgment as to Bakery
Drivers’ breach of the collective bargaining agreements claim.
The LMRA provides that breaches of collective bargaining
agreements are actionable in federal court. See 29 U.S.C.
§ 185(a). However, as the district court found, the parties’
Trust-to-Trust agreements did not contain any provision
incorporating Bakery Drivers’ collective bargaining agree-
ments. South Bay Teamsters was not bound by Bakery Driv-
ers’ collective bargaining agreements merely because it
agreed to provide benefits to Bakery Drivers’ plan partici-
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pants, and consequently, South Bay Teamsters has no duty
under those agreements.
IV
[7] Lastly, we reverse the district court’s award of attor-
neys’ fees to South Bay Teamsters pursuant to 29 U.S.C.
§ 1132(g)(1). We review such awards for abuse of discretion.
See Cline v. Indus. Maint. Eng’g & Contracting Co., 200 F.3d
1223, 1235-36 (9th Cir. 2000). To overturn an award of attor-
neys’ fees, “we must have ‘a definite and firm conviction that
the court below committed a clear error of judgment in the
conclusion it reached upon a weighing of the relevant fac-
tors.’ ” Estate of Shockley v. Alyeska Pipeline Serv. Co., 130
F.3d 403, 407-08 (9th Cir. 1997) (quoting Smith v. Jackson,
84 F.3d 1213, 1221 (9th Cir. 1996)). Here, the district court
found that Bakery Drivers acted in bad faith and in pursuit of
a meritless position and awarded attorneys’ fees on that basis.
In light of our reversal of summary judgment as to the ERISA
fiduciary duty claim, we find that the district court’s determi-
nation was clearly erroneous.
V
For the foregoing reasons, we reverse the district court’s
decision granting summary judgment as to the ERISA fidu-
ciary claim, affirm summary judgment as to the breach of col-
lective bargaining agreements claim, reverse the award of
attorneys’ fees to South Bay Teamsters, and remand to the
district court for further proceedings not inconsistent with this
opinion.
AFFIRMED in part; REVERSED in part;
REMANDED
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