Perez v. City National Corp., 176 F. Supp. 3d 945

Background

Secretary of Labor sued City National Corporation, subsidiaries, and Benefit Committee members for ERISA breaches in administering the City National Profit Sharing Plan from 2006–2012; claims are timely due to tolling agreements.
Secretary moved for partial summary judgment on: breach of fiduciary duties of prudence and exclusive purpose (29 U.S.C. § 1104(a)(1)(A),(B)); prohibited transactions/self-dealing (29 U.S.C. § 1106(b)(1),(2)); and co‑fiduciary/joint liability (29 U.S.C. §§ 1105(a), 1109(a)).
Evidence showed City National received automated compensation from the Plan, failed to track contemporaneous direct expenses, accepted fees without independent review, and did not reimburse the Plan after discovering excessive fees.
City National relied on a single outside vendor (SunGard) comparison and produced a Direct Cost Analysis based on estimates and averages rather than contemporaneous time or expense records.
The Secretary presented testimony that (1) City National selected mutual funds that generated revenue sharing benefiting City National, and (2) in at least one year City National’s compensation exceeded its recorded direct expenses.
Court found the Secretary met his initial burden on the asserted ERISA claims; City National failed to raise a triable issue and defendants are jointly and severally liable. Court granted partial summary judgment and ordered City National, with an independent fiduciary, to account for all compensation received (including mutual fund revenue and lost opportunity cost).

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether fiduciaries breached duty of prudence and exclusive purpose (§ 1104)	City National accepted Plan compensation without tracking direct expenses, failed to review fee reasonableness, and did not reimburse excessive fees.	City National argued its fees were reasonable and that outside vendor (SunGard) would have charged more.	Court: Secretary established prima facie breach; City National failed to show triable issue—prudent fiduciary would have done more investigation.
Whether fiduciaries engaged in prohibited transactions/self‑dealing (§ 1106(b)(1))	City National selected revenue‑sharing mutual funds and contracted with its subsidiary to administer the Plan, benefiting itself at participants’ expense.	City National relied on its entitlement to reasonable compensation and comparison to SunGard.	Court: Self‑dealing established; contractual right to determine "reasonable fee" did not cure conflict; § 1108(c)(2) reasonable‑compensation exemption inapplicable to self‑dealing.
Whether fiduciaries acted on behalf of adverse party (§ 1106(b)(2))	Testimony and flawed Direct Cost Analysis show compensation exceeded direct costs and was based on estimates, indicating actions for City National’s benefit.	City National contended lack of specific direct‑expense records and claimed services exceeded revenue.	Court: Secretary met prima facie burden; City National’s estimates insufficient to raise triable issue—evidence supports acting for City National rather than plan beneficiaries.
Whether defendants are jointly and severally liable (co‑fiduciary liability)	Each defendant enabled or participated in breaches; thus co‑fiduciary and statutory liability applies.	Defendants argued their positions and procedures, but produced no triable‑issue evidence.	Court: Held defendants jointly and severally liable under §§ 1105(a) and 1109(a); partial summary judgment granted and accounting ordered.

Key Cases Cited

Celotex Corp. v. Catrett, 477 U.S. 317 (summary judgment burden of proof framework)
Howard v. Shay, 100 F.3d 1484 (9th Cir. 1996) (prudence requires thorough investigation of alternatives)
Acosta v. Pacific Enters., 950 F.2d 611 (9th Cir. 1991) (functional approach to "plan assets" favors broad reading)
Patelco Credit Union v. Sahni, 262 F.3d 897 (9th Cir. 2001) (reasonable‑compensation statutory exemptions do not excuse fiduciary self‑dealing)