Acosta v. Saakvitne
355 F. Supp. 3d 908
D. Haw.2019Background
- Secretary of Labor sued six defendants alleging ERISA violations based on a December 14, 2012 ESOP purchase: trustee Nicholas Saakvitne, his law firm, Bowers and Kubota (company owners/directors), Bowers + Kubota Consulting, Inc. (the Company), and the ESOP.
- Complaint alleges the ESOP paid $40 million for Company stock based on flawed valuations from Libra Valuation, which applied an improper 30% control premium and used unreasonable revenue projections.
- Bowers and Kubota (owners and sole directors) allegedly provided inflated projections, communicated a $40M valuation to Saakvitne, participated in negotiations, and failed to monitor the trustee.
- Secretary pleaded ERISA claims: fiduciary breach (29 U.S.C. § 1104), co‑fiduciary liability (§ 1105), prohibited transactions (§ 1106), knowing participation (§ 1132(a)(3)), and voiding indemnification clauses (§ 1110).
- Defendants moved to dismiss: the Company argued Rule 19 joinder was improper; Bowers and Kubota argued the complaint failed to plead fiduciary status, monitoring/co‑fiduciary liability, and knowing participation. The court denied both motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Company was properly joined under Rule 19 | Company is necessary to afford complete relief and to effect injunctive/modificatory relief to ESOP documents and administration | Company argued no allegations/relief directed at it and that it holds no protectable interest making joinder unnecessary or infeasible | Company was properly joined under Rule 19(a)(1)(A); joinder feasible; consent‑decree alternative insufficient without proposal |
| Whether Bowers and Kubota were ERISA fiduciaries for the 2012 ESOP transaction | They exercised control as owners/directors, appointed trustee, influenced valuation and sale, and thus had functional fiduciary status | Defendants said fiduciary allegations relate only to pre‑sale conduct; appointment of trustee divested them of duties; no specific breach alleged | Complaint plausibly alleges they exercised discretionary authority/control over plan management and assets, so fiduciary status adequately pleaded |
| Whether they breached duty to monitor and have co‑fiduciary liability for trustee’s breach | They failed to monitor trustee, provided flawed information, and enabled the overvalued sale; therefore liable under §§ 1104 and 1105 | Defendants argued monitoring duty didn’t apply or required only post‑appointment review; lacking specialized knowledge, they couldn’t have known valuations were wrong | Allegations that they enabled, knew of, or should have known about defective valuations and failed to remedy support monitoring and co‑fiduciary claims (including § 1105(a)(2)) |
| Whether nonfiduciary knowing‑participation and improper indemnification claims survive | Secretary pleaded facts showing actual or constructive knowledge of unlawfulness and that indemnification clauses purporting to relieve fiduciaries are void under § 1110 | Defendants contended absence of fiduciary status defeats indemnification claims and that selling at a non‑nominal price implies good‑faith seller protection | Nonfiduciary knowing‑participation adequately pleaded from surrounding circumstances; indemnification claim survives because fiduciary status is plausibly alleged |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (pleading must state a claim plausible on its face)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard requires factual content permitting reasonable inference of liability)
- EEOC v. Peabody W. Coal Co., 400 F.3d 774 (Ninth Circuit summary of Rule 19 joinder analysis)
- EEOC v. Peabody W. Coal Co., 610 F.3d 1070 (res judicata / ancillary effect rationale for Rule 19 joinder)
- CIGNA Corp. v. Amara, 563 U.S. 421 (equitable relief under ERISA § 1132(a)(3) can include contract reformation)
- Johnson v. Couturier, 572 F.3d 1067 (ERISA fiduciary status construed functionally and liberally)
- Mertens v. Hewitt Assocs., 508 U.S. 248 (definition and limits of ERISA fiduciary duties)
- Harris Tr. & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (nonfiduciary "knowing participation" standard requires actual or constructive knowledge)
- Acosta v. Pacific Enterprises, 950 F.2d 611 (Ninth Circuit ERISA precedent referenced regarding plan/party joinder)
- Solis v. Webb, 931 F. Supp. 2d 936 (ESOP plan can be necessary party; appointing/monitoring trustee duties and relief affecting plan administration)