Opinion
A03-0019 CV (RRB), (Docket No. 35).
January 25, 2005
REPORT AND RECOMMENDATION CALCO DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
The court has now before it a motion for summary judgment by the so called CALCO defendants: CALCO Inc., D. Bailey "Cal" Calvin Jr., and Diana Stewart. (Docket No. 35). The plaintiffs, Rick Gifford, John Grubich and Tom Healy, as fiduciaries for the benefits of the Alaska Public Utilities Insurance Trust (hereinafter APUIT) oppose said motion. (Docket No. 45; reply at docket No. 54 errata at 57). Defendant Caprice Simmons joined in the motion at docket No. 36. Oral argument was requested at docket No. 58 and was held on January 11, 2005. For the reasons that follow it is recommended that CALCO's motion for summary judgment be granted as to APUIT'S second, sixth, and eighth claims, and denied as to all other claims.
FACTS
This case brought under the Employee Retirement Income Security Act (ERISA) 29 U.S.C. 1054 et seq. APUIT is a trust providing health benefits to the employees of several Alaska public utilities. CALCO began a business relationship with APUIT in 1976, and in 1977 the two entered into an agreement for administrative services. By 1997 CALCO had assumed full control over APUIT's claims-processing and claims-paying functions. This consisted of CALCO providing: (1) claims payment services and (2) general trust administrative services. This included ruling on payment of claims, writing of claims checks, and the general day-to-day operations of the trust. The granting and denying of claims was handled in a two step process: (1) granting or denying claims in the first instance; and (2) ruling on appeals of any claims that may have been initially denied. The authority to render a final decision was with the APUIT's governing board of trustees — the General Committee — which considered appeals from CALCO's decisions.
In 1981 APUIT amended its founding document (Agreement and Declaration of Trust) created in 1966 to authorize the health plan administrator and its employees to participate in the plan and receive benefits thereunder by special agreement. The new trust agreement also required all participants (employers whose employees subscribe to the plan) to name a representative to serve on the General Committee. CALCO was a signatory to the amended agreement and became a plan participant with its employees submitting claims and receiving benefits. CALCO never named a representative to the General Committee. APUIT amended the trust again in 1995 by adopting a newly stated "Amended Agreement and Declaration of Trust". The new trust included the provisions regarding the administrator as a participants but instead of requiring participants to name a representative to the insurance trust committee, it provided that the committee would be composed of such representatives. CALCO was not a signatory to this new agreement. Its employees however continued to participate in and receive benefits from the plan.
Defendant Caprice Simmons had authority to rule on claims at the first level of the processing function and to write claims checks. Defendant Diana Stewart — CALCO's vice-president and accountant — possessed the power to grant and deny claims and authorize checks. Defendant Cal Calvin also had these authorities along with the authority to rule on the appealed claims that were denied at the first level.
As part of its administrative services CALCO, and specifically defendant Cal Calvin, also served as APUIT's insurance broker adviser. Calvin was compensated for his insurance related services by receiving a commission on the premiums that APUIT paid. Calvin recommended and received compensation for the insurance and bonding coverage that APUIT purchased.
CALCO handled the claims that APUIT would submit to its "stop loss" insurance carrier. There was a deadline for doing this at the end of every calendar year. For 2001 that deadline was January 2, 2002. That deadline was not met, and the claims remained uncovered. The plan's claims in 2001 meant that it would be entitled to reimbursement under its stop loss coverage, but because all claims were not funded and paid by January 2, 2002, they were not covered and APUIT suffered approximately $160,000 in damages. According to APUIT this was the fault of CALCO for failing to timely advise the trustees of the problem so that they could liquidate assets to fund the claims. According to CALCO none of the defendants were fiduciaries and they are not, therefore, liable for alleged mistakes regarding matters which only the trustees had authority over. Additionally, CALCO submits that if anything the fault lies with APUIT's investment broker.
In 2001 law enforcement authorities discovered that CALCO employee Caprice Simmons had embezzled some $129,000 in APUIT claims-payment funds. She accomplished this by using her claims processing authority, granting false claims to herself and Calvin. She processed the checks through various accounts for her own benefit. Simmons plead guilty in federal court to theft and embezzlement charges. The fidelity bond which Calvin had sold to APUIT did not cover CALCO employees. APUIT has not been able to collect the money from Simmons.
In this action APUIT brings claims against the defendants claiming the defendants, and each of them, breached their fiduciary duties to the plan and committed professional malpractice in and by failing without limitation to:
"(a) insure Defendants herein and/or APUIT Committee Members, as demanded by 29 U.S.C. § 1112 and/or in conformity with the requirements of 29 C.F.R. § 2580.412 et seq,
(b) define the scope of yearly audits of the plan,
(c) properly apply the terms of the plan to claims made against the plan,
(d) report possible, probable, or suspected acts of thefts to the Plaintiffs,
(e) remedy to the plan the consequences of dishonest acts and practices,
(f) remedy to the plan the consequences of Defendants' professional malpractice,
(g) Handle and process "stop loss" claims in accordance with the terms the plan and Defendants' duties,
(h) apply the terms of the plan to claims made against it so as to avoid overpayments to plan beneficiaries."
THE LEGAL STANDARD
Before addressing the merits of the instant motion, the court first sets forth the standard for granting a summary judgment motion. Rule 56(c) of the Federal Rules of Civil Procedure, provides in relevant part:The judgment sought shall be rendered forthwith if the pleadings, depositions answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.
In deciding a motion for summary judgment the court views the evidence and the inferences therefrom in the light most favorable to the non-moving party. Levin v. Knight, 780 F.2d 786, 787 (9th Cir. 1986). Three United States Supreme Court cases have clarified what a non-moving party must do to withstand a summary judgment motion. As explained by the Ninth Circuit in Cal. Arch. Bldg. Prod. v. Franciscan Ceramics Inc., 818 F.2d 1466, 1468 (9th Cir. 1987):
First, the Court has made clear that if the non-moving party will bear the burden of proof as to an element essential to its case, and that party fails to make a showing sufficient to establish a genuine dispute of fact with respect to the existence of that element, then summary judgment is appropriate. See Celotex Corp v. Catrett, [ 477 U.S. 317] 106 S. Ct. 2548, 2552-53, 91 L.Ed. 265 (1986). Second, to withstand a motion for summary judgment, the non-moving party must show that there are "genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., [ 477 U.S. 242] 105 S. Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) (emphasis added). Finally, if the factual context makes the non-moving party's claim implausible, that party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348, 1356; 89 L.Ed.2d 538 (1986).
Finally, a trial court can only consider admissible evidence in ruling on a motion for summary judgment. Orr v. Bank Of America, NT SA, 285 F.3d 764, 773 (9th Cir. 2002).
DISCUSSION
As a matter of law, the issues underlying this action break down into two categories: (1) Were CALCO and, or, the named individual defendants fiduciaries to APUIT under ERISA? (2) If CALCO and, or, the named individual defendants were fiduciaries, did they breach fiduciary duties owed to APUIT.
I WAS CALCO A FIDUCIARY TO APUIT?
The first issue hinges on ERISA's definition of a fiduciary. Under 29 U.S.C. § 1002(21)(A) a fiduciary under ERISA is defined as:
[A] person is a fiduciary with respect to a plan to the extent that (i) he exercises any discretionary authority or discretionary control respecting management or disposition of its assets, (ii) 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, or (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan. Such term includes any person designated under section 1105(c)(1)(B) of this title.
Section 1105(c)(1)(B) provides:
The instrument under which a plan is maintained may expressly provide for procedures. . . . (B) for named fiduciaries to designate persons other than name fiduciaries to carry out fiduciary responsibilities (other than trustee responsibilities) under the plan.
The primary issue then, is whether CALCO had or exercised "discretionary authority" or "responsibility" over plan assets or plan administration, or was an investment advisor for compensation. CALCO urges that its functions were purely ministerial, not discretionary. In support of this position CALCO relies on the Department Of Labor's (DOL's) regulations. Specifically, CALCO submits 29 C.F.R. § 2509.75-8 (D-2). There the DOL in a question-and-answer format lists 11 ministerial functions which do not make one a fiduciary, followed by a reiteration of the principle that a person who performs purely ministerial functions is not a fiduciary because such person does not have discretionary authority or discretionary control respecting management of the plan. True, CALCO performed the functions listed at § 2509.75-8 (D-2), and in and of themselves these functions could well have been "purely ministerial". But they were not carried out automatically in an vacuum, and CALCO's role was not purely ministerial. The DOL's "questions and answers" at § 2509.75-8 (D-2) do not resolve whether a plan administrator duties were discretionary or purely ministerial. IT Corp. v. General American Life Ins. Co., 107 F.3d 1415, 1420 (9th Cir. 1997).
CALCO's performance of the tasks listed at § 2509.75-8 were inherently coupled with discretionary authority and responsibility. This is obvious from CALCO's authority and responsibility to review and grant and deny claims. CALCO repeatedly makes the mantra like argument that all such "final authority" rested with the Trustees. This is true. But it does not vitiate CALCO's discretionary authority and responsibilities. What if, for example, a participant did not appeal to the trustees from CALCO's reviews and decisions regarding the denial of their claim? That would be the end of the story and the discretionary decision to deny a claim would have been CALCO's alone. Moreover, even in cases where such appeals were successfully taken to the Trustees, participants would find themselves without coverage during the time between CALCO's decisions and the review by the Trustees.
Furthermore, CALCO's recitation of § 2509.75-8(D-2) cannot be read in a vacuum. Additional guidance provided by § 2509.75-8(D-3). There, the DOL states:
A: Some offices or positions of an employee benefit plan by their very nature require persons who hold them to perform one or more of the functions described in section 3(21)(A) of the Act. For example, a plan administrator or a trustee of a plan must, be (sic) the very nature of his position, "discretionary authority or responsibility to in the "administration" of the plan within the meaning of section 3(21)(A)(iii) of the Act. Persons who hold such positions will therefore be fiduciaries.
Other offices and positions should be examined to determine whether they involve the performance of any of the functions described in section 3(21)(A) of the Act. For example, a plan might designate as a "benefit supervisor" a plan employee whose sole function is to calculate the amount of benefits to which each plan participant is entitled in accordance with a mathematical formula contained in the written instrument pursuant to which the plan is maintained. The benefit supervisor, after calculating the benefits, would then inform the plan administrator of the results of his calculation, and the plan administrator would authorize the payment of the benefits to a particular plan participant. The benefit supervisor does not perform any of the functions described in section 3(21)(A) of the Act and is not therefore, a plan fiduciary. However, the plan might designate as a "benefit supervisor" a plan employee who has the "final authority" to authorize or disallow benefit payments in cases where a dispute exists as to the interpretation of plan provisions relating to eligibility for benefits. Under these circumstances, the benefit supervisor would be a fiduciary within the meaning of section 3(21)(A) of the Act.
In the instant case, the Final Authority did in fact rest with the Trustees. The plan itself provided the general committee with the authority to hire a plan administrator, and defined a fiduciary to the plan which essentially tracks the language of 29 U.S.C. § 1002(21)(A) supra. According to a plan summary published in 1994 the trustees were the "plan administrators" and sole fiduciaries of the plan. In 1997 the Claims Payment Administrative Agreement expressly stated that CALCO was not a fiduciary under ERISA with respect to the plan, and further expressly stated that it superseded any such prior agreements by the parties. Again, however, it matters not that there may or may not have been a formal declaration of CALCO's status as a fiduciary. A contract exonerating an ERISA fiduciary from fiduciary responsibilities is void as a matter of law, and a contract providing that a party is not a named fiduciary does not mean that it is not an unnamed fiduciary. IT Corp., 107 F.3d at 1418. What matters is what functions CALCO actually performed.
CALCO posits that it merely followed mathematical formulas in issuing benefits checks. But, as discussed above, CALCO had discretionary responsibilities and exercised discretionary authority. The fact that the Trustees had the "final authority" to grant or deny claims appealed from CALCO's reviews and decisions does not change the fact that CALCO and not the Trustees were in fact the plan administrators. CALCO's argument would have the court shift its focus from discretionary authority to final authority. While 29 C.F.R. § 2509.75-8(D-3) does refer to final authority of a "benefit supervisor", it is fairly read as doing so in the context of comparing it to a situation where such an employee would have a complete lack of discretionary authority. Critical to the analysis is § 2509.75-8(D-3)'s references to the performance of functions described in § 1002(21)(A). Indeed, it is the plain language of the Act itself that trumps the interpretive nuance of regulations. The plain language of § 1002(21)(A) also makes no provision for writing fiduciaries in or out of a plan. Rather, it is a functional performance test prescribed by the Act that governs here.
At oral argument CALCO listed off the duties which the plaintiffs — through their opposition brief — contend CALCO performed. In doing so, CALCO argued as to each one that either they were obviously ministerial or that there is simply no evidence in the record to support the notion that they involved discretionary authority or control. Most notable among these was the notion that determining whether a given treatment was covered (i.e., bone marrow transplant) or the existence of pre-existing conditions as part of the claims processing function, could be as automatic as merely checking a list of procedures covered under the plan or reviewing a claimants medical records (i.e., was an arm already broken). The notion that these two matters in particular are so simple as to require no plan interpretation does not withstand the light of the obvious. In the universe of medical possibilities not every treatment or pre-existing condition is so "cut-and-dry" that determining eligibility in relation to them is as simple as fitting a square peg in a square hole and a round peg in a round hole. It borders on being unfathomable that there were not occasions when thoughtful deliberation was exercised in interpreting the plan and applying it to claims. Regardless, and more important, the authority to engage in such interpretation and to exercise such discretion was vested in CALCO thereby satisfying the requirements of § 1102(21)(A)(iii).
Case law is consonant with the foregoing analysis. ERISA "defines `fiduciary' not in terms of formal trusteeship, but in functional terms of control and authority over the plan, see 29 U.S.C. § 1002(21)(A), thus expanding the universe of persons subject to fiduciary duties and to damages-under § 409." Mertens v. Hewitt Assoc., 508 U.S. 248, 262 (1993) (emphasis omitted). In a case cited by CALCO the Ninth Circuit teaches:
"A person who performs only ministerial services or administrative functions within a framework of policies, rule, and procedures established by others is not an ERISA fiduciary. To become a fiduciary, the person or entity must have control respecting the management of the plan or its assets, give investment advice for a fee, or have discretionary responsibility in the management of the plan."Ariz. State Carpenters Pension Trust v. Citibank, 125 F.3d 715, 722 (9th Cir. 1997). In that case Citibank was found to not be a fiduciary because it merely provided the trust fund with all information it was required to provide under an agreement, and then voluntarily provided additional information. The Ninth Circuit found that the activity was not discretionary but purely ministerial as contemplated in 29 C.F.R. § 2509.75-8. Id. In sharp contrast to Citibank, the case sub judice presents facts that show CALCO's functions were not purely ministerial; but rather involved discretionary authority and fall within the Ninth Circuit's well established rule that " 29 U.S.C. § 1002(21) requires a broad definition of fiduciary." Id.
Case law, albeit from other circuits, also supports the position that the Trustees having final authority to grant or deny benefits does not result in a diminution of the fiduciary status of those with intermediate discretionary authority. In Amer. Fed. Of Unions v. Equitable Life Assur. Soc., 841 F.2d 658, 663 (5th Cir. 1988) the court held:
CALCO's reply brief provides no Ninth Circuit authority to the contrary, and the cases relied upon by APUIT are congruous with the discussion supra of 29 U.S.C. § 1002(21)(A) and 29 C.F.R. § 2509.75-8 (D-3).
. . . . the district court correctly held that Holden became a fiduciary only after he was appointed administrator of the Fund. Under the terms of the contract making him Fund administrator, Holden was empowered to investigate, process, resolve, and pay claims to eligible members of the Fund, to create a trust in Fund's account to facilitate disbursements of health benefits and to maintain a check register accounting for disbursements. Holden's authority to grant or deny claims, to manage and disburse fund assets and to maintain claims files clearly qualifies as discretionary control respecting management of a plan or its assets within the meaning of § 1002(21)(A). Holden's fiduciary status was not diminished by the trustees' final authority to grant or deny claims and approve investments. The term fiduciary includes those to whom some discretionary authority has been delegated.
(Citations omitted). Like those of the plan administrator in IT Corp., the decisions about claims in this case would have involved interpretation and judgment, not just typing a treatment code number and treatment provider information onto a computer screen for generation of a payment check. IT Corp., 107 F.3d at 1420. Moreover, the Ninth Circuit has expressly rejected the argument that such judgments by plan administrators are purely ministerial when they are made within the framework of policies, interpretations, rules, practices and procedures that are made by the client. Id. Furthermore, the fact that CALCO had check writing authority in and of itself constitutes control over plan assets made CALCO a fiduciary because the second part of § 1002(21)(A)(i) does not require that such authority or control be "discretionary". Id. at 1421.
CALCO's most creative argument is made in its reply brief. There, CALCO asserts that a "functional fiduciary" is only a fiduciary with respect to fiduciary activities he has actually undertaken. CALCO posits that APUIT seeks too broad a sweep in claiming breaches of fiduciaries duties which are not directly linked to activities arising out of such duties. For example, CALCO submits that Calvin and Stewart cannot be responsible for Simmon's embezzlement. At oral argument CALCO skillfully argued that § 1002(21)(A) plainly states that "a person is a fiduciary with respect to a plan to the extent " he performed a given activity. This is true so far as it goes to the "performance" of an activity. But this argument misses the mark since § 1002(21)(A) does not necessarily require the performance of any activity. Section 1002(21)(A)(i), sub-parts (ii) and (iii) only require that the prescribed responsibilities and authorities therein are vested in one in order for him to attain fiduciary status.
Notably, CALCO's reply incorporates by reference its opposition to APUIT's motion for summary judgment at docket No. 50. The summary judgment motions presently before the court are intertwined and, most efficiently, a good deal of incorporation by reference has occurred between them.
The cases CALCO relies on here also fall short of the mark. First, Tower Loan Of Mississippi v. Hospital Benefits, 200 F. Supp.2d 642 (S.D. Miss. 2001) found that the plaintiff's claim was not preempted by ERISA since it did not challenge the defendant's conduct with regard to the fiduciary duty that may have been created as a result of having "authority or control respecting management or disposition of assets". Rather, the plaintiff's claim in tower was directed at ministerial functions. Id. at 646-647. Secondly, CALCO lionizes, and apparently misreads, the case of Srein v. Frankford Trust Co., 323 F.3d 214, 221 (3rd Cir. 2003) and Maniace v. Commerce Bank Of Kansas City, 40 F.3d 264, (8th Cir. 1994) upon which Srein relies. When those cases state "[f]iduciary status under ERSIA is not an all or nothing concept . . . [A] court must ask whether a person is a fiduciary with respect to the particular activity in question", they are referring to an area(s) of the plan to which one is a fiduciary, not whether a particular activity is linked to an alleged breach of fiduciary duty. As Maniace notes in citing to American Fed'n of Unions Local 102 v. Equitable Life Assurance Society, 841 F.2d 658, 662 (5th Cir. 1988) "[a] person is a fiduciary only with respect to those portions of a plan over which he exercises discretionary authority or control. Maniace, 40 F.3d at 267. This is distinguished from CALCO's position that as functional fiduciaries they were only responsible for the specific tasks they had actively undertaken. For example, at oral argument CALCO urged that Mr. Calvin and Ms. Stewart could not be fiduciaries with respect to the check writing activities of Ms. Simmons. But as the cases CALCO relies on show, it is not a specific task that must be undertaken, but rather activity regarding a more general area of plan administration responsibility and authority. This analysis applies to APUIT's claim that CALCO failed to perform adequate audits to safeguard against embezzlement. It also applies to APUIT's claims concerning the failure to liquidate assets and the stop loss insurance, and the failure to procure an appropriate fidelity bond. Where plan administrator's services include conferring with trustees on insurance matters they may be functional fiduciaries. Reich v. Lancaster, 55 F.3d 1034, 1047 (5ht Cir. 1995). At the very least, it is a question of fact as to what responsibility CALCO had regarding these areas of plan administration. As with the questions of adequate auditing, and they involve alleged acts of omission, thereby punctuating the point that general and not specific activities undertaken determine fiduciary status. The agreement between APUIT and CALCO included such a lengthy list of services, including informing the trustees of legislation and "compliance requirements" (arguably ERISA requirements), that it cannot be concluded that CALCO's general fiduciary duty did not include a duty to define the "scope of the audit". CALCO's contentions that the accounting firm used is to blame for the auditing and that the insurance company involved is to blame for inadequate bonding, and the trustees' investment advisor was responsible for the stop loss insurance mistakes, go to the factually dependant question of whether CALCO's status as fiduciary included specific related duties and if so if they were breached. They do not go to the question of whether CALCO was a fiduciary to the plan, and are therefore discussed below (at II) regarding breach of duties. The remaining claims regarding proper plan administration are covered by the previously discussed fiduciary status of the defendants. The parties' other arguments are pertinent to whether alleged actions or inactions constituted breaches of duties arising under their fiduciary status. These conclusions are buttressed by the analysis of § 1002(21)(A) supra; that being that merely being vested with such authority makes one a fiduciary to the plan. Thus, the CALCO defendants were fiduciaries under the plan, as was Ms. Simmons.
The other cases CALCO relies generally relate to the principle that merely being employed by an organization does not make one liable for fiduciary breaches by other employees. ( See e.g., In Re Cantrell, 329 f.3d 1127 n. 6 (9th Cir. 2003). This point is not pertinent to the question of whether one is a fiduciary. Rather it is properly discussed in the context of whether one has breached a fiduciary duty. ( See II below).
The court rejects APUIT's contention CALCO was a trustee because it was a plan participant. APUIT posits that because the plan provided that each participant designate a delegate to the General Committee CALCO was therefore a functional trustee. The fact is that CALCO never appointed such a delegate. APUIT cannot have it both ways. The fact that CALCO never functioned as a fiduciary as a general committee member means that it was not a fiduciary, because the test is whether one functioned as a fiduciary, not formal trusteeship. Furthermore, CALCO's participation in the plan was by virtue of the plan's allowance for a special agreement for the plan administrator to participate in the plan. Therefore, whether the plan is fairly read as having contemplated that the plan administrator designate a delegate to the general committee is questionable. Regardless, even if CALCO could have designated a delegate to the general committee, this would not vest it with any authority over the plan, and this bootstrap argument is without merit.
II DID THE CALCO DEFENDANTS BREACH THEIR FIDUCIARY DUTIES?
The foregoing does not establish that CALCO breached any fiduciary duties. Rather it makes the threshold conclusion that the CALCO defendants were fiduciaries with regard to plan administration generally. The Court now segues into linking alleged specific fiduciary duties with alleged fiduciary breaches, and determining whether summary judgment can be granted on APUIT's claims. Summary judgment can be granted only as to APUIT's claim that CALCO breached its fiduciary duty by failing to define the scope of the audit of the plan.The standard of care for ERISA fiduciaries is set forth at 29 U.S.C. § 1104(a)(1)(B):
(a) Prudent man standard of care
(1). . . . a fiduciary shall discharge his duties with respect to the plan solely in the interest of the participants and beneficiaries and —
(B) with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims,
The court thus applies this standard to each of APUIT's claims to decide whether CALCO breached its fiduciary duties through negligence. The court addresses the claims in order.
In the case of Ms. Simmons it was not negligence but an intentional act — embezzlement — that constituted the breach of fiduciary duty. Simmons joinder in the motion does not include any contesting of the fact that she committed the embezzlement in question. This, coupled with the fact that the court could take judicial notice of her conviction, makes the embezzlement and her breach of fiduciary duty factual and legal certainties. Presumably, Ms. Simmons joinder in CALCO's motion was to test the question of her fiduciary status.
(1) APUIT's claim regarding failure to be bonded.
ERISA provides that every fiduciary and person who handles an employee benefit plan's funds be bonded. 29 U.S.C. § 1112(a). "Such bond shall provide protection to the plan against loss by reason of acts of fraud or dishonesty on the part of the plan official, directly or through connivance with others." Id. It is beyond cavil that the failure of a responsible party to secure the requisite bonding violated the prudent man standard of care. At oral argument CALCO argued that the § 1112(a) cannot be read as imposing a strict liability requirement for a failure to so procure a bond as it does not prescribe who is responsible for securing such bonding. This is a specious argument. Section 1112(a) mandates bonding for fiduciaries. As established supra CALCO was a fiduciary. It is disingenuous to suggest that the plan administrator's fiduciary duties did not include compliance with ERISA's bonding requirements. The fact that § 2.21 of the Trust Agreement also made the General Committee responsible for securing proper fidelity bonding does not subtract from CALCO's duty. Section 2.21 also provided that the General Committed procure through the plan administrator bonding for persons authorized to "handle, deal with or draw upon the moneys in the trust fund. Moreover, at § 4.2 the Trust Agreement provided that at the option of the General Committee the administrator to give a bond insuring the administrator's faithful performance. There is evidence in the record that CALCO understood it had — and undertook — the duty to secure such a bond. Ms. Stewart's evidences that she and other CALCO representatives informed APUIT's insurance broker of the need to meet ERISA bonding requirements and cover the actions of CALCO. The affidavit of Trustee Rick Gifford states that it was the job of CALCO to secure fidelity bonds to protect APUIT assets. If the Trustees were also responsible for securing bonding then it is arguably a matter of comparative negligence. At the very least there is a question of fact in this regard.
CALCO also attempts to shift responsibility on APUIT's insurance broker, arguing that it had a right to rely on it to provide the appropriate bonding. At oral argument CALCO suggested that APUIT should have sued the insurance broker, not CALCO. First, this instant motion is neither for joinder of a party needed for just adjudication under Fed.R.Civ.P. 19(a), nor one seeking dismissal on the grounds of failure to join an indispensable party under Fed.R.Civ.P. 12(h)(2). Secondly, CALCO's reliance on Gudenau Co. v. Sweeney Ins., Inc., 736 P.2d 763, 767 (Alaska 1987) for the proposition that "[t]he insured is entitled to rely on his broker's professional skill and representations when interpreting the scope of insurance coverage" is misplaced. Notably, while CALCO is mistaken for the reason posited by APUIT (that CALCO was not a lay person, but rather a fiduciary subject to a "prudent fiduciary" standard), there is another distinction that should be made between the governing law of ERISA and that of Gudenau. Gudenau is concerned with a lay person's reading of an insurance policy. In so far as that is concerned CALCO is correct in asserting that it could look to APUIT's broker for proper understanding of coverage. But, this does not address the standard of care of an ERISA fiduciary. ERISA's "prudent man" standard includes the requirement that a fiduciary act as one would who was "familiar with such matters". 29 U.S.C. § 1104(a)(1)(B). Ergo, CALCO was held to a higher standard of knowledge. Furthermore, the use of independent advisers is not a complete defense to an imprudence claim — Howard v. Shay, 100 F.3d 1484, 1489 (9th Cir. 1996) — and following an experts advice does not immunize an ERISA fiduciary. Donovan v. Mazzola, 716 F.2d 1226, 1234 (9th Cir. 1983). Where an ERISA fiduciary does not have sufficient knowledge to make him "familiar with such matters", he is obligated to take adequate and reasonable investigative steps to safeguard the beneficiaries' interests. In Re Unisys Savings Plan Litigation 173 F.3d 145, 150-153 (3d Cir. 1999); See generally, James F. Jorden, Waldemar J. Pflepsen, Jr., Stephan H. Goldberg, Handbook On Erisa Litigation § 3.03[A]. Whether this happened in the case sub judice is a question of material fact in dispute which must be resolved by the trier of fact. The contention that the insurance broker rather than, or in addition to, CALCO was negligent regarding bonding only highlights the fact that there is a genuine issue of material fact in dispute; thereby making summary judgment inappropriate.
(2). APUIT's claim for failure to properly define the scope of the audit.
APUIT contends that the list of services expressly provided by CALCO made it responsible for defining the scope of audits of the plan to protect against illegality and to insure compliance with ERISA's bonding requirements. Contrary to APUIT's position, the actual understanding of what these services entailed is not apparent from the "four corners" of the contract between it and CALCO. Additionally, at two different places the contract provided specific tasks for CALCO to perform in relation to auditing. These tasks did not involve control or direction of the auditing process. Rather, they were aimed at cooperating with auditors (e.g., pulling claims, answering questions, and providing documents). This, however, does not mean that such an understanding existed beyond the "four corners" of the contract. That is to say that actual practices coupled with other parol evidence might show that CALCO did have a duty to define the scope of the audit. But APUIT has not presented such evidence, and the court is not persuaded by APUIT's argument that CALCO was contractually obligated to define the scope of the audit.
Specifically the services contracted for between APUIT and CALCO are found at APUIT's Appendix A and are summarized by APUIT as: counselor, advisor, executive, informant, claims-processor, collection agent, broker, negotiator, coordinator, record-keeper, anlayst, spokesman, respondent, correspondent, reporter, bookkeeper, and educator.
Although CALCO was apparently not responsible for defining the scope of the audit, it was responsible for informing APUIT on a host of matters under the heading of "Legislation", and specifically to "Inform Trustees Of Compliance Requirements". At footnote 55 of its opposition brief APUIT states: "Preumably, ERISA is included among the `legislation' with which CALCO felt APUIT's compliance appropriate." Perhaps this is true. But a summary judgment motion cannot be defeated by presumptions. Moreover, assuming arguendo that CALCO was responsible for keeping APUIT apprised of ERISA's compliance requirements — which would seem likely under the circumstances — it apparently complied with that part of its contract. More important, CALCO met its fiduciary duty by cooperating with the auditors and ensuring that the audits occurred pursuant to 29 U.S.C. § 1023(a)(3)(A). What else was CALCO supposed to do? Section 1023(a)(3)(A) requires that the audit be carried out in accordance with general accounting practices. It was the auditor's job to define the scope of the audit. People hire professionals such as accountants and attorneys fully expecting that they will meet the requirements of a given professional undertaking. Nothing in CALCO's conduct regarding the audit constituted a breach of its fiduciary duty. Indeed, unlike CALCO's argument that the insurance broker's advice relieved it of duty to secure proper bonding, the court finds persuasive CALCO's argument that if APUIT has a valid claim regarding the scope of the audits it should be brought against its accountant, not CALCO. It is one thing not to have made investigation and sought independent advice regarding insurance coverage, it would be quite another thing to — somehow — second guess a qualified accountant. Thus, CALCO's motion for summary judgment should be granted as to APUIT's second claim.
(3) APUIT's claim that CALCO failed to properly apply plan terms to claims.
APUIT's claim that CALCO failed to properly apply the terms of the plan breaks down into two parts. First, that Ms. Simmons embezzlement was illegal under ERISA, the plan, and the agreement between CALCO and APUIT. There is no dispute that the conversion of funds was a violation of the terms of the plan. CALCO responds by relying on their position that they did not have fiduciary duty or liability regarding the actions of Ms. Simmons. As discussed supra CALCO was a fiduciary under the plan. CALCO submits that there was no negligent hire/retention of Ms. Simmons. The record supports this view. APUIT's claim, however, is failing to properly apply plan terms to certain claims. CALCO's casting this claim in terms of negligent hire/retention puts the claim in a semantic straightjacket. The court's reading of the claim — as put in context by the briefing — is that this is a claim for negligent supervision, not negligent hire/retention. The question of negligent supervision is insusceptible to summary judgment.
The second part of this claim alleges that either CALCO participants in the plan did not follow proper procedures for filing claims, or that CALCO's participation in the plan rendered it a plan participant thereby possessing the status of General Committee member which would make it a fiduciary. CALCO is correct that the first part of this argument is pure speculation. Indeed, the court fails to see how this argument would succeed even if it had the backing of evidentiary fact. The second part of the argument (regarding General Committee membership) has already been rejected at footnote 4 supra. For the aforementioned reasons, however, summary judgment should not be granted on this claim.
(4). APUIT's claim that CALCO failed to report acts of thefts.
APUIT claims that CALCO failed to report possible, probable, or suspected acts of thefts to APUIT. This claim of negligence is based on a theory that Mr. Calvin and Ms. Stewart failed to exercise appropriate oversight and review of Ms. Simmons' work. CALCO retorts that it did exercise appropriate care in reviewing abnormally large claims. Further, CALCO continues, the amount of money Ms. Simmons embezzled at any one time was small in comparison to the total amount of claims paid out during the period of the conversion of funds. There is nothing to be gained by grappling with details here. Suffice it to say that CALCO's positing that it could not have violated the "prudent man" standard of care if it had knowledge of Ms. Simmon's embezzlement reveals an incomplete reading of 29 U.S.C. § 1105(a). Section 1105(a)(2) provides for liability regarding co-fiduciaries if the "prudent man" standard of § 1104(a)(1) enables a co-fiduciary's breach. Under § 1105(a)(2) it is possible that CALCO was negligent in its supervision of Ms. Simmons without having knowledge of her illegal activities. The argument is specious because it ignores the possibility that one of those breaches could be negligent supervision. These are genuine issues of material fact that must be left to the trier of fact to decide. Ergo, CALCO should not be granted summary judgment on this claim.
CALCO's argument regarding vicarious liability and the doctrine of respondeat superior is misplaced. CALCO cites Alaska case authority for the doctrine. This is not a matter of state law theories of vicarious liability. Rather, the issue of liability among co-fiduciaries is completely governed by § 1105(a). Notably, it is not clear that § 1105(a) liability extends beyond CALCO as an entity to co-fiduciaries or between all other co-fiduciaries regarding some other claims. (e.g., can Ms. Stewart and Ms. Simmons be liable for Mr. Calvin's alleged negligence regarding insurance matters). Perhaps APUIT's motion filed at docket No. 66 requesting a ruling of law on joint and several liability will further flush out that question.
(5) APUIT's claim that CALCO failed to "remedy to the plan" the consequences of dishonest acts and practices.
APUIT claims that CALCO failed to make good on losses suffered as a result of Ms. Simmon's conversion of funds as required under 29 U.S.C. § 1109. CALCO submits that Ms. Simmon's is required to pay restitution for the embezzlement under her criminal conviction. They again submit that they are not liable as co-fiduciaries for her breaches of fiduciary duty. Again, CALCO's argument ignores the possibility of liability for negligent supervision under § 1105(a)(2). The court finds CALCO's argument that APUIT is seeking double recovery to be disingenuous. The fact that Ms. Simmons is obligated to pay restitution does not diminish APUIT's right to seek recovery of losses from other sources so long as that restitution has not been paid. CALCO's motion for summary judgment should be denied as to APUIT's fifth claim.
(6) APUIT's claim that CALCO failed to "remedy the plan" the consequences of professional malpractice.
APUIT claims that Mr. Calvin and Ms. Stewart did not use the requisite degree of skill and diligence [professional malpractice] in overseeing Ms. Simmons' claims work thereby making CALCO liable for losses under § 1104(a) and § 1105(a)(2). APUIT's briefing on this claim does not show that the so called "professional malpractice" is distinguishable from the foregoing discussion of negligent supervision. There has been no setting out of what special skills, learning, or undertaking associated with professional malpractice cases. CALCO's briefing states that Mr. Calvin, although experienced in health insurance, was never a licenced insurance professional. At oral argument CALCO emphasized that the plaintiffs have the burden of proof regarding their claims. This is true, and the failure of APUIT to distinguish this claim from the previous one leads the court to conclude that this claim is not only unsupported, but redundant. Therefore, summary judgement should be granted as to APUIT's sixth claim.
(7) APUIT's claim that CALCO failed to handle "stop loss" claims in accordance with the plan.
This claim requires a judgment that only the trier of fact can make. The primary genuine issue of material fact in dispute involves a question of timing. Specifically, did CALCO fail to give timely information to the trustees regarding the need to liquidate assets so that claims were funded and there would be stop loss coverage reimbursement? Or conversely, did CALCO timely provide timely information to the trustees, and did they (or APUIT's investment broker) fail to act quickly enough in liquidating assets? Such information was conveyed by Mr. Calvin. But there is a dispute as to what was specifically conveyed in a timely fashion, and whether critical information was not conveyed until December 21, 2001, too close to the stop loss deadline. Both sides have presented facts which could plausibly support either contention. Thus, summary judgment should not be granted as to APUIT's seventh claim.
(8) APUIT's claim that CALCO failed to apply the terms of the plan made against it so as to avoid overpayments to plan beneficiaries.
CALCO addressed this claim as part of its discussion of APUIT's more general claim that CALCO failed to properly apply the terms of the plan to claims made against the plan. CALCO submits that there is simply no evidence that overpayments were made. This is correct. Perhaps APUIT is laboring under the misapprehension that the briefing in opposition discussed at (3) supra (pages 24-25) sufficiently addresses this point. It does not. The notion that Ms. Simmon's embezzlement constituted overpayments is a specious argument. The conversion of funds is clearly distinguishable from any other sort of overpayments, and this claim is redundant. Summary judgment should be granted as to APUIT's eighth claim.
CONCLUSION
For the foregoing reasons it is hereby recommended that the CALCO defendants' motion for summary judgment at docket No. 35 be GRANTED in part and DENIED in part. The motion should be granted as to the plaintiffs' second, sixth and eighth claims. These claims are delineated in the plaintiffs' complaint as (b), (f) and (h) respectively. The motion should be denied as to all other claims. Because of the complexity of this motion the court will allow 10 (instead of the usual 5) pages for objections and responses as set forth below. Motions to file over-length objections and responses will be denied.
Pursuant to Federal Rule of Civil Procedure 72(b) and 28 U.S.C. § 636(b)(1), a party seeking to object to this proposed finding and recommendation shall file written objections with the Clerk of Court no later than the close of business on February 18, 2005, to object to a magistrate judge's findings of fact may be treated as a procedural default and waiver of the right to contest those findings on appeal.McCall v. Andrus, 628 F.2d 1185, 1187-1189 (9th Cir.), cert. denied, 450 U.S. 996 (1981). The Ninth Circuit concludes that a district court is not required to consider evidence introduced for the first time in a party's objection to a magistrate judge's recommendation United States v. Howell, 231 F.3d 615 (9th Cir. 2000). Objections and responses shall not exceed ten (10) pages in length, and shall not merely reargue positions presented in motion papers. Rather, objections and responses shall specifically designate the findings or recommendations objected to, the basis of the objection, and the points and authorities in support. Response(s) to the objections shall be filed on or before the close of business on February 28, 2005. The parties shall otherwise comply with provisions of Federal Rule Of Civil Procedure 72(b).
Reports and recommendations are not appealable orders. Any notice of appeal pursuant to Fed.R.App.P. 4(a)(1) should not be filed until entry of the district court's judgment. See Hilliard v. Kincheloe, 796 F.2d 308 (9th Cir. 1986).