U.S. 9th Circuit Court of Appeals Reports

SHAVER v. OPERATING ENGINEERS LOCAL 428, 01-16922 (9th Cir. 2003)

WILLIAM SHAVER; WILLIAM DERESCHUK, Plaintiffs-Appellants, v. OPERATING

ENGINEERS LOCAL 428 PENSION TRUST FUND, a trust; RAYMOND FRANK CISNE; DAVID

MARTIN; MERLE LANGFELDT; THOMAS ROYDEN; ROBERT J. JOHNSTON; DENNIS TEEL, in

their capacity as Trustees thereof; and DAVID WICK, in his capacity as

Administrator thereof, Defendants-Appellees.

No. 01-16922.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted November 7, 2002 -- San Francisco, California.

Filed June 18, 2003.

Francis G. Fanning, Tempe, Arizona, for the plaintiffs-appellants.

Keith F. Overholt, David B. Earl, Jennings, Strouss & Salmon,

P.L.C., Phoenix, Arizona, for the defendants-appellees.

Appeal from the United States District Court for the District of

Arizona Paul G. Rosenblatt, District Judge, Presiding. D.C. No.

CV-00-01832-PGR.

Before: Betty B. Fletcher, Richard S. Arnold,[fn*] and Johnnie B.

Rawlinson, Circuit Judges.

[fn*] The Honorable Richard S. Arnold, Senior United States Circuit Judge

for the Eighth Circuit, sitting by designation.

Opinion by Judge Arnold; Dissent by Judge Rawlinson.

OPINION

ARNOLD, Circuit Judge:

The Operating Engineers Union, Local 428, has an ERISA pension fund for

its members' benefit. The plaintiffs, William Shaver and William

Dereschuk, a participant and beneficiary of the plan, respectively, had

concerns about the management of the fund. Eventually, they filed a

two-count complaint against the trustees and administrator of the ERISA

benefit plan, the defendants. The plaintiffs claimed that the defendants

failed to turn over, pursuant to statutory requirements, certain

financial records of the fund, and violated their fiduciary duty by not

turning over those records and by neglecting to keep accurate records of

the fund's operation. The District Court dismissed all the appellants'

claims when it granted the appellees' 12(b)(6) motion to dismiss for

failure to state a claim upon which relief can be granted. This appeal is

from that decision.

We agree with the District Court that the detailed records of

expenditures sought by the appellants were not "instruments" under

29 U.S.C. § 1024(b)(4), and thus were not subject to the statute's

disclosure requirements. In our view, however, it was premature for the

District Court to dismiss the breach-of-fiduciary-duty claim for

neglecting to keep adequate records. The plaintiffs sought injunctive

relief, and their failure to plead that a loss occurred is not fatal to

that claim. Therefore, we affirm in part, reverse in part, and remand the

case to the District Court for proceedings consistent with this opinion.

The Operating Engineers Local 428 Pension Trust Fund is a

multi-employer pension trust fund. Six trustees are responsible for the

fund. Three of the trustees are appointed by Operating Engineers Local

428, and three are appointed by the Arizona Chapter of the Associated

General Contractors of America Corporation, whose members make

contributions to the fund on behalf of their employees. The trustees are

named fiduciaries, according to 29 U.S.C. § 1102(a)(2), and are

responsible for administering the fund. They are all defendants in this

suit along with the third-party administrator of the fund, American

Benefit Plan Administrators, Inc.

Schedule C, form 5500, promulgated by the Internal Revenue Service,

allows the trustees to aggregate, rather than itemize, certain fund

expenses on Line 1 of Part 1 of the form, which the trustees must submit

to the IRS. Those expenses must be less than $5,000, individually, to be

listed en bloc on Line 1. Over a decade, the trustees listed more than

$1.6 million in expenses of the fund this way. For two years, Messrs.

Shaver and Dereschuk requested more specific information on how the money

being listed on Line 1 was being spent. The trustees declined to provide

this information.

Messrs. Shaver and Dereschuk then filed this suit against the trustees

in September of 2000. They alleged that the financial records were

"instruments under which the plan is established and operated,"

29 U.S.C. § 1024(b)(4), and that, therefore, the trustees had a legal

duty to turn over the requested information. They also accused the

trustees of violating their fiduciary duty by failing to turn over the

requested information and by failing to keep thorough records.

The defendants filed a 12(b)(6) motion to dismiss. The plaintiffs tried

to supplement their response to the trustees' motion by filing a number

of documents to support their breach-of-fiduciary-duty claim. During oral

arguments, the District Court granted a motion to strike the supplemental

material because the plaintiffs had not sought permission from the

District Court to file it. Counsel for the plaintiffs then indicated, in

a somewhat conditional fashion, that they would move to amend the

complaint to include the more detailed allegations contained in the

supplemental material. No such motion was ever filed.

In its written opinion issued after the hearing, the District Court

noted that 29 U.S.C. § 1024 has traditionally been construed

narrowly, and that the language of the statute seemed to limit disclosure

to a narrow class of documents: those specifying the terms and conditions

of the plan. The District Court determined that the records sought did

not fall into that category of documents, and dismissed the claim for

failure to state a claim upon which relief can be granted.

Plaintiffs' second count alleged a breach of fiduciary duty for failure

to disclose the disputed records and also for failing to keep adequate

records. The District Court reasoned that since there was no legal

obligation to turn over the records, the trustees' failure to do so could

not be a breach of fiduciary duty. Further, the Court observed that the

plaintiffs had failed to allege any loss. The Court dismissed this count

as well. Appeal to this Court followed.

II.

Generally, on a 12(b)(6) motion, the District Court should consider

only the pleadings. Lee v. City of Los Angeles, 250 F.3d 668, 688-89 (9th

Cir. 2001). Plaintiffs' proffered supplemental material merely

substantiated their claims that the trustees failed to keep thorough

records and failed to turn over a detailed list of their expenditures

incurred in managing the fund. At that point, the material was

superfluous because the non-moving party does not have to substantiate

its allegations; the Court presumes everything it claims is true anyway.

Thus, the District Court properly declined to review the extra material

at this stage in the lawsuit.

Plaintiffs also object to the failure of the District Court to rule on

what they characterize as a motion to amend their complaint. It is not

clear that an effective motion was ever made. In any event, the motion to

dismiss was not a responsive pleading within the meaning of Fed.R.Civ.P.

15(a). Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995). Thus, at

the time of the hearing, the appellants still had an absolute right to

amend their complaint, see Fed.R.Civ.P. 15(a), but neglected to do so.

Their failure to amend constituted a waiver of that right.

The appellants' oral motion for leave to amend does not help them

because they failed to obtain a ruling from the District Court on that

motion. This Court has no ruling by the District Court to review. In any

event, no harm was caused by appellants' failure to obtain a ruling

because the breach of fiduciary duty claim should have survived, amended

or not, and the claims resulting from the failure to disclose would not

have survived, regardless of how the appellants reworded their

complaint.

III.

This Court reviews the District Court's dismissal for failure to state

a claim de novo. Chappel v. Laboratory Corp. of Am., 232 F.3d 719, 723

(9th Cir. 2000). The District Court's dismissal hinged on its

interpretation of an ERISA provision, and we review interpretations of

statutes de novo. See United States v. Gomez-Rodriguez, 77 F.3d 1150,

1152 (9th Cir. 1996). With respect to the statute before us, we have

already declined to interpret it to require general disclosure. Hughes

Salaried Retirees Action Committee v. Administrator of the Hughes

Non-Bargaining Retirement Plan, 72 F.3d 686, 691 (9th Cir. 1995) (en

banc). The question remains how narrowly we interpret the statute.

Appellants argue that Section 1024(b)(4) of ERISA mandates that the

trustees reveal records that explain, in detail, expenditures that the

government allows to be aggregated on forms that are submitted to the IRS

and to the Department of Labor. The appellants contend that these records

are the "other instruments" mentioned by the statute:

The administrator shall, upon written request of any

participant or beneficiary, furnish a copy of the

latest updated summary, plan description, and the

latest annual report, any terminal report, the

bargaining agreement, trust agreement, contract or

other instruments under which the plan is established

or operated.

29 U.S.C. § 1024(b)(4) (emphasis added). We agree with the District

Court. Barring indicia to the contrary, the broad term, "other

instruments," should be limited to the class of objects that specifically

precedes it. See Allinder v. Inter-City Products Corp., 152 F.3d 544, 549

(6th Cir. 1998) (applying the interpretive principle of ejusdem generis

to the term "other instruments" in Section 1024(b)(4)).

The statute mentions only legal documents that describe the terms of

the plan, its financial status, and other documents that restrict or

govern the plan's operation. The records that Messrs. Shaver and

Dereschuk seek, itemized lists of expenditures, at most relate only to

the manner in which the plan is operated. Every expense the plan incurs

falls under that broad definition, and the practical result of adopting

such an interpretation would be to force the plan administrators to turn

over every receipt they have any time a participant or beneficiary

requests that the administrators do so. We continue to believe that

"instruments" refers to ". . . documents that provide individual

participants with information about the plan and benefits." Hughes, 72

F.3d at 690. The records sought by the appellants in the case clearly do

not fall into that category and the District Court was correct in

concluding that 29 U.S.C. § 1024(b)(4) does not compel these

documents' disclosure.

IV.

The plaintiffs also brought a claim for breach of a fiduciary duty.

This count contained two claims. The first was that the trustees violated

their fiduciary duty by failing to turn over the information as required

by 29 U.S.C. § 1024(b)(4). We have established that the trustees had

no such duty and therefore the District Court was correct in dismissing

this claim.

Appellants' second claim for breach of fiduciary duty is different.

Appellants asserted that the trustees had failed to keep adequate

records. Messrs. Shaver and Dereschuk alleged that ". . . aggregated

expenses on line one of Schedule C for some of the plan years could not

be itemized by the Defendants because no complete record of such expenses

had been maintained in such a form as would permit an itemized

accounting." Civil Complaint, p. 3. They asked for injunctive relief in

the form of either an order requiring that the trustees keep more

thorough records in the future or that the trustees be removed.

There is no question that the trustees are fiduciaries for the purposes

of ERISA. It is equally clear that Section 1023 of ERISA obligates the

trustees to prepare an annual report that must be made available to

participants. 29 U.S.C. § 1023(a)(1)(A). That report must include

"details of revenues and expenses and other changes aggregated by general

source and application." 29 U.S.C. § 1023(b)(2). Of importance to

this appeal is the trustees' duty to keep adequate records so that the

plan's reporting of those expenses can be verified if the need arises. See

29 U.S.C. § 1027 ("Every person subject to a requirement to file any

report . . . shall maintain records on the matters of which disclosure is

required which will provide in sufficient detail the necessary basic

information and data from which the documents thus required may be

verified . . ."); see also United States v. Sarault, 840 F.2d 1479,

1483-85 (9th Cir. 1988) (discussing why 29 U.S.C. § 1027 should be

construed as requiring a broad range of documents to be retained by the

trustee). The common law of trusts imposes a similar obligation. See

Restatement (Second) of Trusts § 172; see also Acosta v. Pac.

Enter., 950 F.2d 611, 618 (9th Cir. 1992) ("ERISA's legislative history

demonstrates that `Congress invoked the common law of trusts to define

the general scope of [a fiduciary's] authority and responsibility.' "),

citing Central States, Southeast & Southwest Areas Pension Fund v.

Central Transport, Inc., 472 U.S. 559, 570, 105 S.Ct. 2833, 2840, 86

L.Ed.2d 447 (1985)) (alteration in original).

Since this is a 12(b)(6) motion, we assume that all the facts well

pleaded in the complaint are true. Zimmerman v. City of Oakland,

255 F.3d 734, 737 (9th Cir. 2001). Therefore, we must assume that the

trustees failed to keep records sufficient to verify their annual

reports. A failure to keep those records would be a breach of both the

duty to keep records imposed by Section 1027 of ERISA and the common-law

fiduciary duty to keep records. The plaintiffs asked for injunctive

relief in the form of either removal of the trustees or an order

requiring them to keep better records. Either form of relief is permitted

under 29 U.S.C. § 1109(a). On these facts, removal of the trustees

might conceivably be warranted, because trustees may be removed for

imprudent, but not necessarily improper, conduct. See Dairy Fresh Corp.

v. Poole, 108 F. Supp.2d 1344, 1361 (S.D.Ala. 2000).

It is true that Messrs. Shaver and Dereschuk did not allege that any

loss occurred. That is not fatal to this aspect of their complaint,

however. See Ziegler v. Connecticut Gen. Life Ins. Co., 916 F.2d 548, 551

(9th Cir. 1990) ("Congress intended to make fiduciaries culpable for

certain ERISA violations even in the absence of actual injury to a plan

or participant.") The question of whether a fiduciary violated his

fiduciary duty is independent from the question of loss. See Rodrigues

v. Herman, 121 F.3d 1352, 1356 (9th Cir. 1997) (finding that the

defendant breached his fiduciary duty without discussing loss); Friend

v. Sanwa Bank of California, 35 F.3d 466, 469 (9th Cir. 1994) (noting

that defendant could have violated the fiduciary-duty provision of

ERISA, Section 1104(a)(1), but not be liable for the loss the plan

suffered).

Some cases say that there must be a loss to hold the fiduciary liable

for breach of his duty. See, e.g., Friend, 35 F.3d at 469 ("ERISA holds a

trustee liable for a breach of fiduciary duty only to the extent that

losses to the plan result from the breach.") The statement, in context,

however, refers to a case in which monetary relief was sought from the

trustee. Here, plaintiffs seek purely equitable relief, either to enjoin

future misconduct, or to have the trustees removed. Requiring a showing

of loss in such a case would be to say that the fiduciaries are free to

ignore their duties so long as they do no tangible harm, and that the

beneficiaries are powerless to rein in the fiduciaries' imprudent

behavior until some actual damage has been done. This result is not

supported by the language of ERISA, the common law, or common sense.

Therefore, we conclude that appellants' second claim, as it relates to

a breach of fiduciary duty for failing to keep adequate records, is

capable of surviving a 12(b)(6) motion -- a low standard. The

decision of the District Court is reversed on this issue and the case is

remanded for proceedings consistent with this opinion. In all other

respects the judgment of the District Court is affirmed.

AFFIRMED IN PART; REVERSED IN PART AND REMANDED.

RAWLINSON, Circuit Judge, Dissenting:

I respectfully dissent from that portion of the majority's opinion

reversing the district court's dismissal of Plaintiffs' breach of

fiduciary duty claim. I agree with the majority that "the trustees are

fiduciaries for the purposes of ERISA." However, I cannot join the

majority's foray into the common law of trusts to thrust an obligation

upon the fund that ERISA's comprehensive statutory scheme does not

countenance.

The majority cites generally to 29 U.S.C. § 1027 as the source of

the trustee's duty "to keep adequate records so that the books of the

plan can be checked if the need arises." Majority Opinion at 8106.

However, a careful reading of the text of the cited provision does not

support the majority's casual reliance on it.

29 U.S.C. § 1027 provides that:

Every person subject to a requirement to file any

report or to certify any information therefor under

this subchapter . . . shall maintain records on the

matters of which disclosure is required which will

provide in sufficient detail the necessary basic

information and data from which the documents thus

required may be verified . . .

A plain reading of this statute results in imposing upon the trustees an

obligation to maintain adequate records only on those matters of required

disclosure.

As the majority opinion acknowledges (Maj. Op. at 8104-05),

29 U.S.C. § 1024 outlines the reporting requirements for trustees.

The majority also concedes, as it must, that the documents sought by

Plaintiffs "were not subject to the statute's disclosure requirement."

Maj. Op. at 8101. The majority nevertheless plucks from thin air a

freestanding fiduciary duty outside the confines of the statutory

disclosure requirements. Although the majority opinion references

29 U.S.C. § 1027 as the source of the trustee's duty (Maj. Op. at

8106), its previous analysis of 29 U.S.C. § 1024 excludes the

requested documents from the retention requirements of

29 U.S.C. § 1027.

Section 1027 compels retention of only those records for which

disclosure is required. If the records sought were not subject to

disclosure under § 1024, the retention requirements of § 1027

never came into play. Scratch § 1027 as a legitimate base of

support for the majority's ruling.

The majority also cites United States v. Sarault, 840 F.2d 1479 (9th

Cir. 1988) to bolster its holding. Maj. Op. at 8106. However, Sarault is

easily disposed of because it involved "a document required to be kept by

. . . 18 U.S.C. § 1027," id. 1480 (emphasis added), unlike the

documents at issue in this case.

The majority provides an incomplete quote from Acosta v. Pac. Enter.,

950 F.2d 611, 618 (9th Cir. 1991), to validate its reliance upon the

common law of trusts. The majority quotes this language from Acosta:

"ERISA's legislative history demonstrates that `Congress invoked the

common law of trusts to define the scope of [a fiduciary's] authority and

responsibility.'" Maj. Op. at 8106. The majority conveniently omitted

this clarifying language:

However, common law trust duties regarding the

disclosure of information to beneficiaries may be read

into ERISA . . . only to the extent that they relate

to the provision of benefits or the defrayment of

expenses, and only insofar as they do not contradict

or supplant the existing reporting and disclosure

provisions. Thus, an ERISA fiduciary has an

affirmative duty to inform beneficiaries of

circumstances that threaten the funding of benefits,

and to provide an individual faced with termination of

plan coverage, upon request, "complete and correct

material information on [his] status and options[.]" A

fiduciary need not, however, adhere to stricter

deadlines for statutorily required reporting than

those provided in the statute. Id. at 618-19 (emphasis

added) (citations omitted).

The final sentence in this quoted passage reflects the holding

of Porto v. Armco, Inc., 825 F.2d 1274 (8th Cir. 1987). In Porto,

the Eighth Circuit expressly recognized that:

[a] plan administrator's duty to disclose information

to plan participants is another matter, dealt with

separately by ERISA [not the common law of trusts]

. . . [A]n administrator who complies with the statutory

standard for disclosure cannot be said to have

breached [its] fiduciary duty . . .

Id. at 1276. (emphasis added).

More recently, we have definitively, although briefly, confirmed the

distinction articulated by the Court in Porto. In Pension Trust Fund v.

Fed. Ins. Co., 307 F.3d 944, 950 (9th Cir. 2002), we distinguished the

broad definition of fiduciary duties under common law as opposed to the

limited scope of fiduciary duties under ERISA.

In light of ERISA's express explication of the trustee's disclosure

requirements and the corresponding inapplicability of common-law

obligations, I cannot join the majority's unwarranted expansion of

trustee liability. I would affirm the judgment of the district court in

its entirety.

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