-
USCA1 Opinion
UNITED STATES COURT OF APPEALS UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT FOR THE FIRST CIRCUIT
_________________________
No. 97-1666
JAMES J. BEDDALL, ET AL.,
Plaintiffs, Appellants,
v.
STATE STREET BANK AND TRUST COMPANY,
Defendant, Appellee.
_________________________
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark L. Wolf, U.S. District Judge] ___________________
_________________________
Before
Selya, Circuit Judge, _____________
Coffin, Senior Circuit Judge, ____________________
and Shadur,* Senior District Judge. _____________________
_________________________
James S. Ray, with whom William G. Bell, Barry Klickstein, ____________ _______________ ________________
and Abrams, Roberts, Klickstein & Levy were on brief, for _____________________________________
appellants.
Henry C. Dinger, with whom Henry C. Dinger, P.C., Dori C. ________________ _____________________ _______
Gouin, and Goodwin, Procter & Hoar LLP were on brief, for _____ ______________________________
appellee.
_________________________
February 27, 1998
_________________________
__________
*Of the Northern District of Illinois, sitting by designation.
SELYA, Circuit Judge. A cadre of former pilots for SELYA, Circuit Judge. ______________
Eastern Airlines, Inc. (Eastern) brought an action under the
Employee Retirement Income Security Act (ERISA), 29 U.S.C. 1001
et seq. (1994), against the trustee of the failed air carrier's __ ____
retirement plan. The district court dismissed the suit after
reviewing the trust agreement and concluding that the trustee was
not subject to ERISA liability as a fiduciary or co-fiduciary in
respect to the harms alleged. The plaintiffs appeal. We affirm.
I. BACKGROUND I. BACKGROUND
We draw the facts from the plaintiffs' complaint and
the trust agreement. In 1958, Eastern and the union representing
its pilots established a defined contribution retirement plan
(the Plan) designed to provide retirees with a range of pension
options. Almost a quarter-century later, the Plan's
administrative committee (the TAC) retained State Street Bank and
Trust Company (the Bank) to hold the Plan's assets in trust,
manage them as directed, and periodically report their value (so
that the TAC, inter alia, could effectuate the Plan by _____ ____
calculating annuity and lump-sum retirement benefits). The
parties spelled out the Bank's duties and obligations qua trustee ___
in a trust agreement (the Agreement).
As time went by, the Plan invested heavily in real
estate. In reporting the value of these investments, the Bank
relied on information obtained from Hawthorne Associates, Inc.
(Hawthorne), the Plan's principal investment manager, in the form
of periodic appraisals prepared by Blake, a consultant engaged by
2
Hawthorne. Despite a subsequent decline in the real estate
market, Blake assigned consistently high valuations to the Plan's
properties and the Bank parroted those valuations in its reports
to the TAC.
In the summer of 1991, the Bank expressed concern anent
the figures supplied by Hawthorne. Eventually, it hired
Spaulding & Slye (S&S), an independent appraisal firm, to review
Blake's handiwork. Upon encountering difficulty in gaining
access to the necessary information, the Bank wrote to Hawthorne
stating that:
Our appraiser is prepared to begin his review
on Monday, October 7. If he is not permitted
to begin his review by Friday, October 11 on
the basis of full access to the documents, we
believe that we have no recourse but to seek
the advice of the Department of Labor as to
our concerns about Hawthorne's instructing us
to continue to report the real estate at
values supplied by Hawthorne as investment
manager.
In short order, Hawthorne relented and an unencumbered review
proceeded.
S&S thereafter issued a report that criticized Blake's
valuations and recommended that new appraisals be secured from a
new appraiser. The Bank submitted the S&S report to the TAC on
November 8, 1991. One week later, the Bank wrote to the TAC's
attorney expressing concern that, according to S&S, "many of the
appraisals are incomplete and/or suffer from methodological
flaws." The Bank declared that it was "unwilling to continue to
carry these valuations on its books without qualification in
light of the[se] concerns." Within a matter of weeks, Hawthorne
3
informed the Bank that it had lowered the appraised values of
certain properties. The Bank accepted the new figures without
further investigation.
The TAC eventually retained an independent appraiser to
assess the Plan's real estate holdings. This exercise culminated
in a substantial reduction of the reported values. At that
point, it became evident that Blake's exaggerated valuations had
skewed the Plan's finances: because inflated appraisal figures
had been carried on the Plan's books for nearly a decade,
retiring pilots who opted for lump-sum retirement benefits during
that period received a windfall, whereas the remaining Plan
participants were left holding an unduly depleted bag.
II. THE ENSUING LITIGATION II. THE ENSUING LITIGATION
Eastern filed for bankruptcy in 1989. In due course,
several quondam pilots brought an action in a Florida federal
court against the Plan, its sponsors, the TAC, and sundry other
parties (not including the Bank). The plaintiffs' complaint
invoked ERISA and alleged myriad breaches of fiduciary duty in
connection with the investment of the Plan's assets. See Beddall ___ _______
v. Eastern Air Lines, C.A. No. 91-1865-CIV (S.D. Fla.) (Beddall _________________ _______
I). The Florida court transferred the case to Massachusetts. _
See 28 U.S.C. 1404(a). ___
The Beddall I plaintiffs moved to amend the complaint _________
to add the Bank as a defendant. As a precaution, they also
initiated a separate suit against the Bank in the Massachusetts
federal court (Beddall II). The complaint in the latter suit __________
4
charged that the Bank violated ERISA's fiduciary provisions by
its failure to ensure that the Plan's holdings were valued
appropriately.
Judge Wolf eventually approved a class action
settlement in Beddall I, see Beddall v. Eastern Airlines Variable _________ ___ _______ _________________________
Benefit Retirement Plan for Pilots, No. 93-12074 (D. Mass. Nov. ___________________________________
7, 1996) (order approving final settlement),1 and the plaintiffs
withdrew the pending motion to amend. The Bank then moved to
dismiss Beddall II for failure to state a claim. See Fed. R. __________ ___
Civ. P. 12(b)(6). The district court granted the motion. See ___
Beddall II, 1996 WL 74218 (D. Mass. Feb. 14, 1996). Judge Wolf __________
concluded that, because the Agreement absolved the Bank of any
fiduciary responsibility for the alleged overvaluation of the
Plan's real properties once the TAC engaged Hawthorne as the
investment manager in respect to those assets, the complaint
failed to state an actionable ERISA claim for breach of fiduciary
duty. See id. at *1-*2. Then, citing ERISA 405(d), 29 U.S.C. ___ ___
1105(d), the judge determined that, even if the Bank knew or
should have known of Hawthorne's indiscretions, co-fiduciary
liability did not attach in the absence of an allegation that the
Bank had participated actively in, or concealed, the breach. See ___
id. at *2. This appeal ensued. ___
III. STANDARD OF REVIEW III. STANDARD OF REVIEW
____________________
1Under the settlement, the named defendants paid the Plan
more than $10,000,000. As a condition of the settlement, Judge
Wolf precluded the Bank from impleading any of the settling
defendants in the instant action.
5
We afford de novo review to a district court's
resolution of a motion to dismiss. See Garita Hotel Ltd. ___ ___________________
Partnership v. Ponce Fed. Bank, 958 F.2d 15, 17 (1st Cir. 1992). ___________ _______________
Like the court below we must accept as true the factual
allegations of the complaint, construe all reasonable inferences
therefrom in favor of the plaintiffs, and determine whether the
complaint, so read, limns facts sufficient to justify recovery on
any cognizable theory of the case. See Dartmouth Review v. ___ ________________
Dartmouth College, 889 F.2d 13, 16 (1st Cir. 1989). _________________
This is familiar lore. Here, however, there is an odd
twist: the court below scrutinized not only the complaint but
also the Agreement and it is undisputed that the plaintiffs
neither appended the latter document to the complaint nor
incorporated it therein by an explicit reference. In this
posture of the case, the lower court's consideration of the
Agreement gives us pause.
We think that this situation calls for a practical,
commonsense approach one that does not elevate form over
substance. The complaint discusses the Agreement at considerable
length. And, although it states conclusorily that "State Street
is a fiduciary of the Plan," it then proceeds to summarize the
parts of the Agreement that, in the plaintiffs' view, justify
this characterization. The Bank responded to these allegations
by filing a Rule 12(b)(6) motion and appending to it a copy of
the Agreement. The plaintiffs neither challenged the
authenticity of the Agreement nor moved to strike it from the
6
record.
Under these circumstances, the Agreement was properly
before the court. When, as now, a complaint's factual
allegations are expressly linked to and admittedly dependent
upon a document (the authenticity of which is not challenged),
that document effectively merges into the pleadings and the trial
court can review it in deciding a motion to dismiss under Rule
12(b)(6). See Fudge v. Penthouse Int'l, Ltd., 840 F.2d 1012, ___ _____ ______________________
1015 (1st Cir. 1988); see also Branch v. Tunnell, 14 F.3d 449, ___ ____ ______ _______
454 (9th Cir. 1994) ("[D]ocuments whose contents are alleged in a
complaint and whose authenticity no party questions, but which
are not physically attached to the pleading, may be considered in
ruling on a Rule 12(b)(6) motion to dismiss."); 2 James Wm. Moore
et al., Moore's Federal Practice 12.34[2] (3d ed. 1997) __________________________
(explaining that courts may consider "[u]ndisputed documents
alleged or referenced in the complaint" in deciding a motion to
dismiss); see generally Fed. R. Civ. P. 10(c) (stating that "[a] ___ _________
copy of any written instrument which is an exhibit to a pleading
is a part thereof"). Accordingly, we conclude that the district
court had the authority to consider the Agreement if it chose to
do so.
This conclusion makes eminent sense. A district
court's central task in evaluating a motion to dismiss is to
determine whether the complaint alleges facts sufficient to state
a cause of action. In conducting that tamisage, the court need
not accept a complaint's "bald assertions" or "unsupportable
7
conclusions." Chongris v. Board of Appeals, 811 F.2d 36, 37 (1st ________ ________________
Cir. 1987). While a plaintiff only is obliged to make provable
allegations, the court's inquiry into the viability of those
allegations should not be hamstrung simply because the plaintiff
fails to append to the complaint the very document upon which by __
her own admission the allegations rest. Any other approach would ___ ___ _________
seriously hinder recourse to Rule 12 motions, as a plaintiff
could thwart the consideration of a critical document merely by
omitting it from the complaint. We doubt that the drafters of
the Civil Rules, who envisioned Rule 12(b)(6) motions as a swift,
uncomplicated way to weed out plainly unmeritorious cases, would
have countenanced such a result.
To their credit, the plaintiffs tacitly concede that
the lower court had the prerogative to review the Agreement
notwithstanding its omission from the complaint. They asseverate
instead that the court should not have done so without also
enabling them to submit other evidence (and, thereby, convert the
motion before the court into one for summary judgment). We
reject that asseveration and hold that consideration of the
Agreement did not in itself compel the court to treat the motion
before it as one for summary judgment.2 See Fed. R. Civ. P. ___
____________________
2There is a certain irony to the plaintiffs' criticism of
the district court's course of action. Although the conversion
of the plaintiffs' motion would have enabled them to submit
evidence regarding the Bank's fiduciary responsibilities, the act
of conversion also would have imported the summary judgment
standard into the case and raised the bar for the plaintiffs.
See Fed. R. Civ. P. 12(b). By eschewing conversion, the district ___
court ensured that the plaintiffs' complaint would be subjected
to the less demanding scrutiny associated with motions to
8
12(b). We offer three reasons in support of this ruling. First,
the Agreement's centrality to the plaintiffs' contentions, as
limned in their complaint, makes it in effect part of the
pleadings, and, thus, differentiates its evaluation in
conjunction with a motion to dismiss from the assessment of
traditional extrinsic evidence. See Venture Assocs. Corp. v. ___ ______________________
Zenith Data Sys. Corp., 987 F.2d 429, 431 (7th Cir. 1993) ________________________
("Documents that a defendant attaches to a motion to dismiss are
considered a part of the pleadings if they are referred to in the
plaintiff's complaint and are central to her claim."). Second,
and relatedly, the complaint predicates the plaintiffs' claims
regarding the existence of the Bank's ostensible fiduciary duties
solely on the Agreement, not on external events. Lastly, the
conversion of a Rule 12(b)(6) motion into a Rule 56 motion is a
matter quintessentially within the purview of the district
court's sound discretion. See Garita Hotel, 958 F.2d at 18. ___ ____________
IV. ANALYSIS IV. ANALYSIS
We begin our treatment of the merits by examining the
pertinent portions of ERISA's statutory scheme. We then turn to
the plaintiffs' triad of claims: (1) that the complaint states a
cause of action for fiduciary liability by reason of the Bank's
discretionary authority over the Plan's real estate holdings; (2)
that the complaint states a claim for fiduciary liability arising
out of the Bank's conduct, including its role in respect to the
Plan's Short Term Investment Fund (the STIF); and (3) that the
____________________
dismiss.
9
complaint states a claim against the Bank for co-fiduciary
liability.
A. The Statutory Scheme. A. The Statutory Scheme. ____________________
ERISA's fiduciary duty provisions not only describe who
is a "fiduciary" or "co-fiduciary," but also what activities
constitute a breach of fiduciary duty. In the first instance,
the statute reserves fiduciary liability for "named fiduciaries,"
defined either as those individuals listed as fiduciaries in the
plan documents or those who are otherwise identified as
fiduciaries pursuant to a plan-specified procedure. 29 U.S.C.
1102(a)(2). But the statute also extends fiduciary liability to
functional fiduciaries persons who act as fiduciaries (though
not explicitly denominated as such) by performing at least one of
several enumerated functions with respect to a plan. In this
wise, the statute instructs that
a person is a fiduciary with respect to a
plan to the extent (i) he exercises any
discretionary authority or discretionary
control respecting management of such plan or
exercises any authority or control respecting
management or disposition of its assets, (ii)
he renders investment advice for a fee or
other compensation, direct or indirect, with
respect to any moneys or other property of
such plan, or has any authority or
responsibility to do so, or (iii) he has any
discretionary authority or discretionary
responsibility in the administration of such
plan.
29 U.S.C. 1002(21)(A).
The key determinant of whether a person qualifies as a
functional fiduciary is whether that person exercises
discretionary authority in respect to, or meaningful control
10
over, an ERISA plan, its administration, or its assets (such as
by rendering investment advice). See O'Toole v. Arlington Trust ___ _______ _______________
Co., 681 F.2d 94, 96 (1st Cir. 1982); see also 29 C.F.R. ___ ___ ____
2509.75-8, at 571 (1986). We make two points that inform the
application of this rule. First, the mere exercise of physical
control or the performance of mechanical administrative tasks
generally is insufficient to confer fiduciary status. See ___
Cottrill v. Sparrow, Johnson & Ursillo, Inc., 74 F.3d 20, 21-22 ________ _________________________________
(1st Cir. 1996); Concha v. London, 62 F.3d 1493, 1502 (9th Cir. ______ ______
1995), cert. dismissed, 116 S. Ct. 1710 (1996). Second, _____ _________
fiduciary status is not an all or nothing proposition; the
statutory language indicates that a person is a plan fiduciary
only "to the extent" that he possesses or exercises the requisite
discretion and control. 29 U.S.C. 1002(21)(A). Because one's
fiduciary responsibility under ERISA is directly and solely
attributable to his possession or exercise of discretionary
authority, fiduciary liability arises in specific increments
correlated to the vesting or performance of particular fiduciary
functions in service of the plan, not in broad, general terms.
See Maniace v. Commerce Bank, 40 F.3d 264, 267 (8th Cir. 1994); ___ _______ ______________
Brandt v. Grounds, 687 F.2d 895, 897 (7th Cir. 1982); NARDA, Inc. ______ _______ ___________
v. Rhode Island Hosp. Trust Nat'l Bank, 744 F. Supp. 685, 690 (D. ___________________________________
Md. 1990).
An ERISA fiduciary, properly identified, must employ
within the defined domain "the care, skill, prudence, and
diligence under the circumstances then prevailing that a prudent
11
man acting in a like capacity and familiar with such matters
would use." 29 U.S.C. 1104(a)(1)(B). The fiduciary should act
"solely in the interest of the participants and beneficiaries,"
and his overarching purpose should be to "provid[e] benefits to
the participants and their beneficiaries" and to "defray[]
reasonable expenses of administering the plan." Id. ___
1104(a)(1). A fiduciary who fails to fulfill these
responsibilities is "personally liable to make good to [the] plan
any losses to the plan resulting from . . . such breach." Id. ___
1109(a).
Co-fiduciary liability is a shorthand rubric under
which one ERISA fiduciary may be liable for the failings of
another fiduciary. Co-fiduciary liability inheres if a fiduciary
knowingly participates in or conceals another fiduciary's breach,
enables such other to commit a breach, or learns about such a
breach and fails to make reasonable efforts to remedy it. See ___
id. 1105(a). In some circumstances, co-fiduciary liability is ___
subject to a special set of rules. This is true, for example,
where the putative co-fiduciary is a trustee and the breach is at
the hands of a plan-appointed investment manager. See id. ___ ___
1105(d)(1) (stating generally that a trustee shall only be liable
for a money manager's violation if the former participates in or
acts to conceal the breach).
B. The Bank's Status. B. The Bank's Status. _________________
The starting point for reasoned analysis of the Bank's
fiduciary status is the Agreement. In support of their assertion
12
that the Bank bears fiduciary responsibility for Hawthorne's
misvaluation of the real estate investments, the plaintiffs
direct our attention to three sections of the Agreement, which we
set out in pertinent part:
Section 3. Investment of the Fund. The __________
Trustee [the Bank] shall cause all principal
and income at any time forming a part of the
fund to be invested as a single fund, . . .
in such property as the Trustee may deem
proper and appropriate . . . .
Section 4. Duties and Powers of the Trustee. _________
The Trustee [the Bank] shall have the duties,
powers and responsibilities with respect to
the Fund, in addition to and not in
modification or limitation of the authority
provided by law and this Agreement:
(a) to manage, control and operate
the Fund and to prepare and submit
to the Committee [the TAC] and
Eastern, and otherwise as required
by applicable law, all financial
information, including periodic
valuation of the Fund, as required
by law, the Plan and this
Agreement;
. . .
(c) to invest and reinvest the
Fund, as provided in Section 3 of
this Agreement;
. . . .
Section 5. Records, Accounting and Valuation _________
of the Assets of Fund. The Trustee [the
Bank] shall keep accurate accounts of all
investments, receipts and disbursements and
other transactions hereunder regarding the
Fund. . . .
Following the close of each month the
Trustee shall provide the Committee [the TAC]
and Eastern and such others as they shall
direct from time to time with a monthly
report of the assets held in the Fund as of
the close of said month . . . .
. . . .
Except as otherwise provided in this
Section, the assets of the Trust at any
13
monthly or annual valuation date shall be
valued at market value as of such date . . .
. Real property . . . shall be valued at
market value on the valuation dates on the
basis of information obtained from qualified,
available sources such as dealers, bankers,
brokers, or appraisers dealing or familiar
with the type of investment involved, or on
the basis of reference to the market value of
similar investments; and the Trustee may rely
on an appraisal of real property made by an
independent appraiser deemed competent by the
Trustee, within two years prior to the
valuation date as of which such value is
being determined.
We also deem relevant to the Bank's status as regards real estate
investments another section of the Agreement that the plaintiffs
tend to downplay. We reprint that provision in pertinent part:
Section 6. Appointment of Investment ___________
Manager. The Committee [the TAC] . . . may
direct the Trustee [the Bank] in writing to
segregate all or a portion of the Fund,
including without limitation, all or a
portion of such investments as may be
initially transferred to the Trustee in
accordance with this Agreement, into one or
more separate accounts to be known as
"Investment Manager Accounts." . . . The
Committee shall promptly thereafter appoint
for each Investment Manager Account an
Investment Manager . . . and shall give
written notice of such appointment to the
Trustee. . . .
. . . .
It shall be the responsibility of the
Committee to vest each Investment Manager
with the authority necessary to discharge its
duties hereunder and to properly direct each
Investment Manager to perform such accounting
and valuation functions and such other duties
as shall be necessary to enable the Trustee
to fully perform hereunder.
The Trustee shall follow the directions
of each Investment Manager with respect to
the Investment Manager Account forming part
of the Fund; provided that all such
directions be in writing, signed by an
officer, or partner, of such Investment
14
Manager. . . . The Trustee shall have no
obligation to act pursuant to any directions
from any Investment Manager unless and until
it receives such directions in a form
satisfactory to it.
The Trustee shall have no responsibility
for supervising any Investment Manager. The
Trustee shall be under no obligation to
invest or otherwise to manage any asset of
the Fund which is subject to the management
of any Investment Manager. The Trustee shall
be under no obligation to review or to make
inquiries as to any action or direction of
any Investment Manager taken as provided
herein or as to any failure to give
directions, nor to review or value the assets
held in any Investment Manager Account, nor
to make any suggestions to the Investment
Manager or Committee or Eastern with respect
to the investment and reinvestment of, or
disposal of investments in, any Investment
Manager Account . . . . The Trustee shall
not be liable for any act or omission of any
Investment Manager, except as provided in
Section 405(a) of ERISA [29 U.S.C. 1105(a)].
In the case of any purchase or sale of
real property by any Investment Manager, the
Trustee shall have the right to request, as a
condition to its executing any documents or
paying over any assets of the Fund in
connection with such transaction, that it
receive a certified appraisal of the value of
such property . . . .
The plaintiffs read these provisions, in the aggregate,
as conferring upon the Bank sufficient authority to make it a
fiduciary in regard to the Plan's real estate investments. We do
not agree. The quoted text authorizes the Bank mainly to perform
administrative and ministerial functions in respect to those
investments which, like real estate, are held within a so-called
Investment Manager Account. Without more, mechanical
administrative responsibilities (such as retaining the assets and
keeping a record of their value) are insufficient to ground a
15
claim of fiduciary status. See O'Toole, 681 F.2d at 96 ___ _______
(concluding that a bank's duties "as the depository for the funds
do not include the discretionary, advisory activities described
by the [ERISA] statute"); Pension Fund Mid Jersey Trucking _____________________________________
Indus. Local 701 v. Omni Funding Group, 731 F. Supp. 161, 174- ___________________ __________________
75 (D.N.J. 1990) (similar).
To give the devil his due, we acknowledge that section
4, standing alone, might be construed as authorizing the Bank,
under some circumstances, to manage the Plan's real estate
investments in a manner that would render it a fiduciary with
regard to the valuation of those assets. Nevertheless, section 4
cannot be read in a vacuum. The TAC nominated Hawthorne as an
investment manager in respect to the Plan's real estate holdings,
and the plain language of section 6 of the Agreement leaves
little doubt but that the TAC thereby relieved the Bank of all
fiduciary responsibility regarding those investments. In terms,
section 6 shifts to an appointed investment manager all
discretion over affected assets and makes the investment manager
not the trustee responsible for "perform[ing] such accounting
and valuation functions and such other duties as shall be
necessary to enable the Trustee to fully perform." To cinch
matters, section 6 expressly absolves the trustee of
"responsibility for supervising any Investment Manager"; confirms
that the trustee is not obliged "to review or make inquiries as
to any action or direction of any Investment Manager," or "to
review or value the assets held in any Investment Manager
16
account." Further, it proclaims, with a single exception not
relevant to this discussion, that the trustee "shall not be
liable for any act or omission of any Investment Manager." These
stipulations strip any veneer of plausibility from the
plaintiffs' bald assertion that the Bank is a fiduciary subject
to liability for Hawthorne's overvaluation of the Plan's real
property.
In a last-ditch attempt to blunt the force of this
conclusion, the plaintiffs point to language that gives the
trustee the right to reject the investment manager's directions
in certain circumstances say, if those directions are not "in a
form satisfactory to it" and they argue that, as a result of
this "discretion" (to use plaintiffs' word), the Bank retains its
status as a fiduciary notwithstanding the other language
contained in section 6. This argument will not fly.
It is beyond cavil that when the TAC appoints an
investment manager for designated assets, the Agreement shifts
all significant discretion and control over those assets to the
investment manager and relegates the trustee to the role of an
administrative functionary. With section 6 velivolant, the
Bank's remaining powers are ministerial. They involve such
details as checking whether Hawthorne's instructions are in a
writing signed by an authorized person and issuing periodic
reports to the TAC anent the Fund's status. Although the Bank
arguably may refuse to follow instructions that are not in an
acceptable format, this negative discretion lies well within the
17
administrative sphere, and its existence does not transform the
Bank into a fiduciary vis- -vis the affected assets.3 See ___
Arizona State Carpenters Pension Trust Fund v. Citibank, 125 F.3d ___________________________________________ ________
715, 722 (9th Cir. 1997).
We need not paint the lily. The complaint acknowledges
that the TAC appointed Hawthorne to manage its real estate
investments. In that circumstance, the trust document, read as a
whole, divests the Bank of any and all management authority or
discretionary control over those assets. Whatever the Bank's
powers may have been in the absence of a duly appointed
investment manager, no fiduciary responsibility in regard to the
valuation of the Plan's real estate holdings survived the
appointment.
C. The Bank's Actions. C. The Bank's Actions. __________________
Charting a slightly different flight path, the
plaintiffs urge us to set the Agreement to one side and to deem
the Bank a fiduciary of the Plan's real estate investments by
virtue of its actions. They posit that, because the Bank was not
entirely passive it questioned Hawthorne's valuations, engaged
an independent appraiser to review Hawthorne's numbers, and
ultimately threatened to report Hawthorne's practices to the
____________________
3Similarly, the Bank's retention under section 6 of a right
to secure a certified appraisal of the real estate does not alter
the decisional calculus because the Bank has no such duty. ____
Indeed, section 6 explicitly provides that the Bank has no
obligation "to review or value the assets held in any Investment
Manager Account."
18
authorities it acted as a fiduciary and thus we should treat it
as one. We think not.
As a matter of policy and principle, ERISA does not
impose Good Samaritan liability. A financial institution cannot
be deemed to have volunteered itself as a fiduciary simply
because it undertakes reporting responsibilities that exceed its
official mandate. Imputing fiduciary status to those who
gratuitously assist a plan's administrators is undesirable in a
variety of ways, and ERISA's somewhat narrow fiduciary provisions
are designed to avoid such incremental costs. See generally ___ _________
Mertens v. Hewitt Assocs., 508 U.S. 248, 262-63 (1993). Viewed _______ _______________
against this backdrop, a rule that would dampen any incentive on
the part of depository institutions voluntarily to make relevant
information available to fund administrators and other interested
parties is counter-intuitive. Moreover, such a wrong-headed rule
"would also risk creating a climate in which depository
institutions would routinely increase their fees to account for
the risk that fiduciary liability might attach to nonfiduciary
work." Arizona State Carpenters, 125 F.3d at 722. ________________________
To the extent that the plaintiffs' fiduciary claim
derives from the Bank's activities with regard to Plan assets
apart from real estate, it fares no better. The plaintiffs argue
that because the Bank is a fiduciary with regard to the STIF, it
had a statutory responsibility to make a timely disclosure to the
Plan participants of its concerns about Hawthorne's real estate
valuations. We agree with the plaintiffs' premise clearly, the
19
Bank had some discretion with regard to investing cash in the
STIF but their conclusion does not necessarily follow.
Refined to bare essence, the question is whether an
ERISA fiduciary for one purpose has an obligation to disclose his
suspicions even when there is no nexus between his particular
fiduciary responsibilities and the perceived jeopardy. This is
an issue of first impression, certainly in this circuit, and
perhaps more broadly. Good arguments exist on both sides. On
the one hand, the obligations of an ERISA fiduciary, while
governed by federal law, are informed by the common law of
trusts. That law generally treats the communication of material
facts to the beneficiary as "the core of a fiduciary's
responsibility." Eddy v. Colonial Life Ins. Co., 919 F.2d 747, ____ ______________________
750 (D.C. Cir. 1990).4 On the other hand, it is settled that a
non-fiduciary's failure to communicate knowledge of a fiduciary's
breach does not "constitute culpable participation in a breach of
trust under ERISA." Painters of Philadelphia Dist. Council No. ___________________________________________
21 Welfare Fund v. Price Waterhouse, 879 F.2d 1146, 1153 n.9 (3d _______________ ________________
Cir. 1989).
____________________
4We note, however, that the Eddy court described ERISA's ____
fiduciary duty to disclose as the duty "not only to inform a
beneficiary of new and relevant information as it arises, but
also to advise him of circumstances that threaten interests
relevant to the relationship." Eddy, 919 F.2d at 750 (emphasis ______________________________ ____
supplied). Indeed, every case that the plaintiffs have cited in
support of an affirmative duty to disclose arises in a context
in which the plaintiff charges the defendant with withholding
information related (i.e., relevant) to the fiduciary's
association with the plan. See, e.g., Ream v. Frey, 107 F.3d ___ ____ ____ ____
147, 149-50 (3d Cir. 1997); Glaziers and Glassworkers Union Local _____________________________________
No. 252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171, 1175- ____________________ ____________________
77 (3d Cir. 1996).
20
Although this question is both close and interesting,
we need not answer it today. Apart from the co-fiduciary claim,
considered infra, the plaintiffs' complaint does not premise a _____
claim on the Bank's supposed obligation to inform Plan
participants of the suspected misvaluations. Instead, the
complaint predicates the plaintiffs' alternate claim of fiduciary
liability on the Bank's "willingness to accept Hawthorne's
instructions as to the values to be carried on [the Bank's]
books." According to the complaint, this gaffe "resulted in
those properties being carried on the [Bank's] books for many
years at values greatly in excess of their market values, which
in turn led to retiring pilots receiving millions more in lump
sum benefits than the benefits to which they were entitled."
Nowhere in the complaint (or in the plaintiffs' opposition to the
motion to dismiss, for that matter) do the plaintiffs make the
entirely distinct claim that the Bank breached a fiduciary
obligation under ERISA because it failed to notify Plan
participants of Hawthorne's erroneous appraisals.
That ends the matter. Afterthought theories even
cleverly constructed afterthought theories cannot be introduced
for the first time in an appellate venue through the simple
expedient of dressing them up to look like preexisting claims.
"If any principle is settled in this circuit, it is that, absent
the most extraordinary circumstances, legal theories not raised
squarely in the lower court cannot be broached for the first time
on appeal." Teamsters Local No. 59 v. Superline Transp. Co., 953 ______________________ _____________________
21
F.2d 17, 21 (1st Cir. 1992); accord McCoy v. M.I.T., 950 F.2d 13, ______ _____ ______
22 (1st Cir. 1991). Since there are no extraordinary
circumstances here when the plaintiffs sued, they had
experienced counsel, a good grasp of the facts (honed by the
rigors of Beddall I), and ample time to decide which arguments to _________
press that principle applies full bore.
D. Co-Fiduciary Liability. D. Co-Fiduciary Liability. ______________________
The plaintiffs' final approach centers around a claim
that the Bank is liable as a co-fiduciary. This claim comes
perilously close to suffering from the same procedural infirmity
that we have just identified. The complaint is not artfully
pleaded and no explicit co-fiduciary liability claim appears on
its face. Nevertheless, the plaintiffs argued a co-fiduciary
liability claim theory below and the district court addressed
it.5 So do we.
We need not linger long. The short of it is that the
plaintiffs' allegations, even if well-pleaded and assumed to be
true, do not establish a violation of ERISA's co-fiduciary
provisions. ERISA renders a fiduciary vulnerable to liability
for breaches committed by other fiduciaries in three situations:
(1) if he participates knowingly in, or
knowingly undertakes to conceal, an act or
omission of such other fiduciary, knowing
such act or omission is a breach;
____________________
5The lower court apparently cobbled the co-fiduciary claim
together from a liberal reading of the complaint. The complaint
does allege that the Bank is a fiduciary (an allegation that is
irrefutable with regard to the STIF), that it had some knowledge
of Hawthorne's improprieties, and that it failed to make
reasonable efforts to remedy the situation.
22
(2) if, by his failure to comply with . . .
the administration of his specific
responsibilities which give rise to his
status as a fiduciary, he has enabled such
other fiduciary to commit a breach; or
(3) if he has knowledge of a breach by such
other fiduciary, unless he makes reasonable
efforts under the circumstances to remedy the
breach.
29 U.S.C. 1105(a). Given their allegations, the plaintiffs'
claim must stand or fall on the third of these scenarios.6 We
think that it falls.
29 U.S.C. 1105(d) provides that a fiduciary (such as
the Bank) cannot be held responsible as a co-fiduciary on the
basis of acts described in section 1105(a)(2) or (3):
If an investment manager or managers have
been appointed . . . then, notwithstanding _______________
subsections (a)(2) and (3) . . ., no trustee ___________________________
shall be liable from the acts or omissions of
such investment manager or managers, or be
under an obligation to invest or otherwise
manage any asset of the plan which is subject
to the management of such investment manager.
29 U.S.C. 1105(d) (emphasis supplied). Given its literal
meaning, section 1105(d) defenestrates the plaintiffs' claim that
the Bank is subject to co-fiduciary liability in this instance.
The plaintiffs attempt to steer away from the obvious
conclusion and to ensure a soft landing by two stratagems.
First, they point to the exact language of section 6 of the
Agreement ("The Trustee shall not be liable for any act of
____________________
6Of course, the Bank argues that it did, indeed, take
reasonable steps to investigate Hawthorne's improprieties and put
an end to them. The potential issues relating to whether such
steps actually were taken and/or their sufficiency are not before
us, and we do not endeavor to decide those issues.
23
omission of the Investment Manager, except as provided in Section _____________________________
405(a) of ERISA [29 U.S.C. 1105(a)].") (emphasis supplied). ________________
This verbiage, they assert, evinces an intent to hold a fiduciary
liable for all the conduct described in section 1105(a), without
reference to the exculpatory provisions of section 1105(d). We
reject that assertion out of hand. The Agreement's reference to
29 U.S.C. 1105(a) can only be read as incorporating that
section to the extent that it would impart liability under the
statute. Cf. Chicago Bd. Options Exchange, Inc. v. Connecticut ___ ___________________________________ ___________
Gen. Life Ins. Co., 713 F.2d 254, 259 (7th Cir. 1983) (stating ___________________
that "although the parties may decide how much authority to vest
in any person, they may not decide how much [ERISA] liability
attaches to the exercise of that authority").
The plaintiffs' second attempt to avoid the clear
implication of section 1105(d) is disingenuous at best. They
speculate that Hawthorne may not be an "investment manager"
within the meaning of the statute. This suggestion contradicts
the premise on which the case has been argued up to this point
and is thus precluded. In the district court, the plaintiffs
repeatedly characterized Hawthorne as the Plan's "principal money
manager," and never contended otherwise during the hearing on the
motion to dismiss. The plaintiffs must have recognized that the
district court understood their representations to be an
admission that Hawthorne was an investment manager (at least for
the purpose of the pending Rule 12(b)(6) motion). Moreover, the
plaintiffs made no effort to correct the district court's
24
understanding by moving for reconsideration after Judge Wolf had
issued his decision. See, e.g., Vanhaaren v. State Farm Mut. ___ ____ _________ ________________
Auto. Ins. Co., 989 F.2d 1, 4-5 (1st Cir. 1993). We generally ______________
will not permit litigants to assert contradictory positions at
different stages of a lawsuit in order to advance their
interests. See Patriot Cinemas, Inc. v. General Cinema Corp., ___ _____________________ _____________________
834 F.2d 208, 211-12 (1st Cir. 1987); see also United States v. ___ ____ _____________
Levasseur, 846 F.2d 786, 792-93 (1st Cir. 1988) (stating the rule _________
but finding exceptional circumstances sufficient to warrant a
departure). In all events, even if the investment manager gambit
is not judicially estopped, it is surely waived inasmuch as it
makes its debut in this court.
V. CONCLUSION V. CONCLUSION
We need go no further. Because the trust agreement
(coupled with the TAC's appointment of Hawthorne) unambiguously
establishes that the Bank retained no discretionary authority
over the Plan's real estate investments, we hold that the
complaint fails to state an actionable claim against the Bank for
Hawthorne's overvaluation of those assets. By the same token,
the complaint fails to state an actionable claim for co-fiduciary
liability inasmuch as ERISA, specifically 29 U.S.C. 1105(d),
limits such liability to knowing participation or concealment
facts not alleged in this case. Hence, the district court
appropriately granted the Bank's motion to dismiss.
Affirmed. Affirmed. ________
25
Document Info
Docket Number： 97-1666
Filed Date： 3/2/1998
Precedential Status： Precedential
Modified Date： 9/21/2015