Acosta v. California Pacific Bank
706 F. App'x 429
| 9th Cir. | 2017Background
- California Pacific Bank maintained an employee stock ownership plan (Plan) overseen by trustees (California Pacific Bank, Richard Chi, Akila Chen, Kent Chen, William Mo).
- ¶10.4 of the Plan required payment to participants in cash within one year after Plan termination.
- Trustees terminated the Plan but failed to pay participants in cash within one year; instead they transferred bank shares and other assets and routed funds to the Bank.
- The Plan liquidated assets and collected $132,506; $81,407.18 of that was transferred to the Bank and $69,745.93 came from the Plan’s deposit account.
- The Department of Labor sued for breaches of fiduciary duties and prohibited transactions under ERISA; the district court granted summary judgment on two claims and entered judgment after a bench trial on a third.
- The Ninth Circuit affirmed liability on the ERISA claims but vacated and remanded the prejudgment interest award for application of a compensatory rate.
Issues
| Issue | Plaintiff's Argument (DOL) | Defendant's Argument (Trustees) | Held |
|---|---|---|---|
| Whether trustees breached duty by not paying participants cash within one year of Plan termination | Plan requires cash distribution within one year; trustees failed to comply | Other Plan provisions allegedly allowed distribution of bank shares instead of cash | Affirmed — trustees breached §1104(a)(1)(D); termination provision controls and other sections do not authorize noncash distributions |
| Whether trustees engaged in a prohibited transaction by diverting Plan assets to the Bank | Trustees transferred Plan liquidation proceeds and deposit funds to the Bank, constituting a prohibited transaction under §1106(a) | Transfers were allowed because amounts were dividends or clerical mistakes or the Bank had entitlement when later purchasing stock | Affirmed — transfers were improper; no agreement or clerical-error basis justified the diversion |
| Whether individual trustees (Akila Chen, Kent Chen, William Mo) are personally liable | DOL: individual trustees remain fiduciaries and are liable for Plan breaches | Trustees contend they are not liable; Mo claims he resigned as trustee | Affirmed — trustees are fiduciaries, no release in Plan; Mo remained a trustee when he signed termination resolution |
| Whether district court applied proper prejudgment interest rate | DOL presumably supported higher tax-rate interest (26 U.S.C. §6621) | Trustees argued for compensatory rate under 28 U.S.C. §1961; district court used higher tax rate without findings | Vacated and remanded — district court abused discretion by applying higher rate without findings; must apply compensatory rate with appropriate factual findings |
Key Cases Cited
- Taylor-Edwards Warehouse & Transfer Co. v. Burlington N., Inc., 715 F.2d 1330 (9th Cir. 1983) (discusses interference and impossibility defenses)
- British Motor Car Distribs., Ltd. v. S. F. Auto. Indus. Welfare Fund, 882 F.2d 371 (9th Cir. 1989) (defines clerical/arithmetic error defense to fiduciary liability)
- Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974 (9th Cir. 2001) (prejudgment interest must be compensatory and requires findings when deviating from statutory rate)