Order
The Court has considered Plaintiff Secretary of Labor Thomas E. Perez’s [hereafter “the Secretary”] motion for partial summary judgment, together with the moving and opposing papers.
The Secretary claims that City National Corporation, various City'National subsidiaries, and various individual employees, acting as fiduciaries, engaged in self-dealing when City National Corporation, or its subsidiaries, received compensation from the City National Corporation Profit Sharing Plan [hereafter “the Plan”] when they were only entitled'to reimbursement for limited, verifiable direct еxpenses pursuant to the Employee Retirement Income Securities Act of 1974 [“ERISA”]. 29 U.S.C. §§ 1001-1191c.
The Secretary moves for partial summary judgment against City National Corporation, City National Bank, аnd the Plan’s Benefit Committee members Ma-rianna Lamutt, Christopher Carey, Michael Cahill, Michael Nunnelee, Richard Byrd, Vernon Kozlen, and Kate Dwyer [collectively hereafter “City National”] on the following ERISA claims: (1) Violation of the fiduciary requirements to act prudently and for the exclusive purpose of providing benefits to Plan participants and beneficiaries, pursuant to 29 U.S.C. §§ 1104(a)(1)(A) and (B); (2) Violation of ERISA’s fiduciary requirements to not en
The Secretаry’s claims relate to City National’s administration of the Plan from 2006 through 2012, and are subject to a six-year statute of limitations. 29 U.S.C. § 1113(1). The parties signed annual tolling agreements starting in 2011, and ending in 2015. Accordingly, the Secretary’s claims are not barred by the statute of limitations.
In a motion for summary judgment, when the moving party has the burden of proof at trial, as the Secretary has here, the moving party has thе initial burden of establishing a prima facie case. See Celotex Corp. v. Catrett,
ERISA requires that City National, as fiduciaries, must act “for thе exclusive purpose of providing benefits to participants and beneficiaries; and defraying reasonable expenses of administering the plan.” 29 U.S.C. § 1104(a)(1)(A). ERISA fiduciaries are, also, rеquired to act “with the care, skill, prudence, and diligence under the circumstances, then prevailing, that a prudent [person] 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.” 29 U.S.C. § 1104(a)(1)(B).
The Secretary provided evidence, in the form of deposition testimony from named defendants and оther City National employees, that City National did not act for the exclusive benefit of Plan participants or defray reasonable expenses, in violation of 29 U.S.C. § 1104(a)(1)(A). City National admitted that it received compensation from the Plan in a mostly automated process without tracking direct expenses or knowing how much direct expenses were required for the Plаn’s operation, such that City National could not ensure that it was receiving reimbursement for no more than direct expenses. Moreover, City National’s' failure to track direct expеnses, acceptance of fees from the Plan without any review or independent investigation into the reasonableness of those fees, and the failure to reimburse the Plan upon discovery of the unreasonably high fees establishes that City National failed to act with the care, skill, prudence, and diligence under the circumstances of a prudent person, thereby violating 29 U.S.C. § 1104(a)(1)(B).
Accordingly, the Secretary has satisfied his initial burden of establishing a prima facie case that City National breached its fiduciary duties pursuant to 29 U.S.C. §§ 1104(a)(1)(A) and (B). Therefore, the burden shifts to City National to introduce evidence sufficient to raise a triable issue.
' To establish that City National did not breach its fiduciary duties imposed by 29 U.S.C. §§ 1104(a)(1)(A) and (B), City National introduced evidence that SunGard, an. outside vendor, would have provided Plan administrative services at a greater cost than charged by City National. However, City National contacted only one potential vendor, SunGard. The ERISA fiduciary duties are the “highest known to the law,”,and to enforce them, the Court must focus on a fiduciary’s thoroughness of the investigation of its options to insure that it acted in the best interests of the plan bеneficiaries, Howard v. Shay,
ERISA, also, prohibits plan fiduciaries from engaging in self-dealing. 29 U.S.C. §§ 1106(b)(1) and (2). The Secretary asserts that City National engaged in self-dealing by charging high fees to the Plan and failing to keep records of direct expenses that City National actually incurred in servicing the Plan.
ERISA provides that a fiduciary “shall not deal with the assets of the plan in his own interest or for his own account.” 29 U.S.C. § 1106(b)(1). The term “assets of the plan” must be read broadly in favor of a functional approach, which requires the Court to determinе “whether the item in question may be used to the benefit of the fiduciary at the expense of plan participants and beneficiaries.” Acosta v. Pacific Enters.,
ERISA, further, provides that a fiduсiary shall not, in an individual or in any other capacity, act in any transaction involving the Plan on behalf of a party whose interests are adverse to the interests of the Plan or the interests of its participants or beneficiaries. 29 U.S.C. § 1106(b)(2). The' Secretary did not provide any records that identified with specificity the direct expenses actually incurred by City National. However, thе Secretary provided deposition testimony from City National that in 2008, its compensation from the Plan exceeded its direct' expenses, which were recorded in City National’s “Direct Cоst Analysis.” However, the Direct Cost Analysis that City National created was based on estimates and averages, rather than evidence of direct expenses actually incurred. This evidenсe establishes that the Plan’s fiduciaries were acting on behalf of City National, rather than Plan beneficiaries, thereby violating 29 U.S.C. § 1106(b)(2). Therefore, the Secretary has established :a prima facie casе that City National violated 29 U.S.C. §§ 1106(b)(1) and (2). Accordingly, the burden shifts to City National to produce evidence sufficient to raise a triable issue.
City National argues that the Secretary did not establish a prima facie case that it did not engage in the alleged prohibited self-dealing because (1) the Secretary did not provide evidence of direct expenses, (2) City National was entitled to “reasonable compensation” for administering the Plan, pursuant to 29 U.S.C. § 1108(c)(2), and (3) even if City National was charging the Plan high fees, the provision of services to the Plan exceeded City National’s revenue from Plan administration.
Further, the City National defendants are all jointly and severally liable by virtue of their relationship with one another, and that each Defendаnt enabled the others to commit their fiduciary breaches. 29 U.S.C. § 1105(a) and § 1109(a).
Accordingly,
It is Ordered that the Secretary’s motion for partial summary judgment be, and hereby is, Granted.
It is further Ordered that City National, with the assistance of an independent fiduciary, perform an accounting of the all of the compensation it received, in the form of mutual fund revenue for the Plan, plus lost opportunity cost.
It is further Ordered that the parties shall appear for a status conference at 10:00 am, Monday, April 11, 2016, to discuss whether the Secretary intends to proceed to trial on the remaining claims and defendants in light of this Order.