Alexander Acosta v. City National Corporation
922 F.3d 880
9th Cir.2019Background
- City National Corporation (and subsidiary CNB) sponsored and administered a 401(k) Plan; CNB served as trustee and recordkeeper from 2000 and was paid via mutual-fund "revenue sharing."
- From 2006–2011 revenue-sharing payments to CNB were automated; CNB did not keep contemporaneous records allocating employee time or direct expenses to the Plan.
- DOL investigated (2009) and sued (2015) alleging CNB engaged in prohibited self-dealing under ERISA § 406(b) by setting/approving its own recordkeeping fees and accepting revenue sharing.
- District court granted partial summary judgment for DOL on liability and later on damages, relying on an independent accounting (Evercore) showing gross revenue-sharing receipts and lost opportunity costs; court allowed some unopposed offsets but rejected additional offsets City National claimed.
- City National appealed liability (arguing § 408(c) reasonable-compensation exemption and statute-of-limitations), entitlement to additional offsets, and the calculation of prejudgment interest.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether fiduciary self-dealing can be shielded by § 408(c) "reasonable compensation" exemption | DOL: § 408(c) does not excuse self-dealing under § 406(b); fiduciary liability remains | City Nat'l: revenue-sharing was reasonable compensation for recordkeeping and thus exempt under § 408(c) | Exemption does not apply to self-dealing; liability affirmed |
| Timeliness of DOL's claim | DOL: claims timely given tolling agreements and discovery | City Nat'l: claims time-barred | Claims were timely; tolling agreements preserve DOL's claim |
| Entitlement to additional offsets (employee compensation, third-party fees, rebates, in-house fund revenue) | City Nat'l: offsets shown by expert estimates, committee minutes, spreadsheets, and trust statements reduce or eliminate loss | DOL: offsets not proven as actually incurred or are outside relevant period; burden on defendant to prove offsets | City Nat'l failed to prove offsets with reliable evidence; district court properly rejected additional offsets; DOL summary judgment on damages affirmed |
| Prejudgment interest calculation | DOL: interest should be applied to awarded damages | City Nat'l: interest should be calculated after offsets deducted | Court abused discretion by awarding interest on gross rather than net (after unopposed offsets); remanded for recalculation |
Key Cases Cited
- Barboza v. Cal. Ass'n of Prof. Firefighters, 799 F.3d 1257 (9th Cir. 2015) (reasonable-compensation exemption does not shield fiduciary self-dealing)
- Patelco Credit Union v. Sahni, 262 F.3d 897 (9th Cir. 2001) (broadly holding § 408(c) exemption inapplicable to fiduciary self-dealing)
- Kim v. Fujikawa, 871 F.2d 1427 (9th Cir. 1989) (loss from prohibited transaction is at least the entire cost of the transaction; doubts resolved against wrongdoer)
- Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (U.S. 1986) (summary judgment standard and burden of proof explanation)
- Landwehr v. DuPree, 72 F.3d 726 (9th Cir. 1995) (prejudgment interest in ERISA context is equitable and lies within court's discretion)