UNITED STATES COURT OF APPEALS
Tenth Circuit
Byron White United States Courthouse
1823 Stout Street
Denver, Colorado 80294
(303) 844-3157
Patrick J. Fisher, Jr. Elisabeth A. Shumaker
Clerk Chief Deputy Clerk
March 9, 1998
TO: ALL RECIPIENTS OF THE CAPTIONED OPINION
RE: 96-4044, Steiner Corp. v. Johnson & Higgins
Originally filed on January 13, 1998.
Revised and refiled on March 9, 1998.
The published opinion in this appeal has been revised and refiled. Specifically,
section “III A” of the opinion has been revised and is different from the opinion filed on
January 13, 1998. Also, appended to the revised opinion is an order addressing the petition
for rehearing.
Please find a copy attached for your convenience.
Sincerely,
Patrick Fisher
Clerk
By:
Keith Nelson
Deputy Clerk
F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAR 9 1998
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
STEINER CORPORATION, a Nevada
corporation,
Plaintiff-Counter-Defendant-
Appellant,
and
CAROL S. MCCORMICK, Administrator
of the Steiner Corporation Retirement
Plan, and STEINER CORPORATION
RETIREMENT PLAN, No. 96-4044
Plaintiffs-Counter-Defendants,
v.
JOHNSON & HIGGINS OF
CALIFORNIA, a California corporation;
DONALD F. REEVES and ROY J.
BERTOLDO,
Defendants-Counter-Claimants-
Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF UTAH
(D.C. No. 88-CV-410)
Peter W. Billings, Jr. (Jay B. Bell, John E. S. Robson and James F. Wood with him on the
brief), of Fabian & Clendenin, Salt Lake City, Utah, for Plaintiff-Counter-Defendant-
Appellant.
Robert A. Lewis of McCutchen, Doyle, Brown & Enersen, San Francisco, California
(William Carpenter of McCutchen, Doyle, Brown & Enersen, San Francisco, California,
and David A. Greenwood of Van Cott, Bagley, Cornwell & McCarthy, Salt Lake City,
Utah, with him on the brief), for Defendants-Counter-Claimants-Appellees.
Before KELLY, HOLLOWAY and BRISCOE, Circuit Judges.
HOLLOWAY, Circuit Judge.
Plaintiff Steiner Corporation, along with others not parties to this appeal, brought
this action against defendants in 1988 for professional malpractice and breach of contract.
Defendant Johnson & Higgins (sometimes referred to herein as J & H) is the actuarial
firm which handled aspects of plaintiff’s employee retirement plan. Defendants Reeves
and Bertoldo were the individual members of Johnson & Higgins responsible for the
work on plaintiff Steiner’s matters.
After a bench trial, judgment was entered in favor of plaintiff on its claim that
defendant negligently redrafted a section of plaintiff’s plan, but plaintiff’s primary claim
for professional malpractice was rejected. Both sides appealed. We affirmed in part,
reversed in part, vacated in part and remanded. Steiner Corp. Retirement Plan v. Johnson
& Higgins, 31 F.3d 935 (10th Cir. 1994), cert. denied, 115 S. Ct. 732 (1995). In so doing
we directed that the merits of defendant Johnson & Higgins’ defenses of laches and
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contributory negligence, inter alia, be considered on remand because the district court’s
opinion before us then was silent as to these issues and they involved factual
determinations that we were unwilling or unable to make. Id. at 941.
On remand, in an unpublished Order on Remand of December 28, 1995, the
district court again ruled in defendants’ favor on plaintiff’s primary claim and entered
judgment in favor of defendants on their counterclaim for unpaid fees. Plaintiff appeals
the rejection of its malpractice claim against defendants, but has not appealed the
judgment in favor of defendants on the counterclaim.
I
Plaintiff’s appeal from the district court’s judgment focuses on the court’s holding
that plaintiff could not recover on its actuarial malpractice claim against the defendants
under Utah’s comparative negligence statute because plaintiff’s negligence was
comparatively greater than that of defendants. Order on Remand at 8. The following
summary is primarily based on the district court’s detailed findings of fact, made
following the bench trial which preceded the first appeal. Unpublished Findings of Fact
and Conclusions of Law of January 24, 1992. Neither party specifically takes issue with
any of these findings.
Plaintiff established an employee retirement plan (the Plan) in 1958. The Plan is
subject to ERISA, the Employee Retirement Income Security Act of 1974, Pub. L.
93-406, 29 U.S.C. §§ 1001, et seq., and is a “defined benefit plan” under the Internal
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Revenue Code. The feature of the Plan which is the focal point of this litigation is its
provision permitting a retiring employee to receive all of his or her benefits in a single,
lump sum payment as an alternative to the ordinary monthly payment of benefits.
Although the Plan provided that the lump sum benefit was to be calculated so as to make
it the actuarial equivalent of the monthly payment option, in fact this was never the case
prior to 1986. Instead, the formula developed for calculating the amount of the lump sum
benefit resulted in that option being more valuable than the monthly payment option, as is
described in more detail in our previous opinion. 31 F.3d at 937. The formula was
created by Mr. F. J. Kane, who was plaintiff’s chief financial officer until his retirement
in 1984. Kane knew that the lump sum payment was more valuable than the monthly
payment option.
Beginning in 1977, plaintiff retained defendant Johnson & Higgins as the actuary
for the Plan, an arrangement which continued until 1988. One of the services performed
by defendants was to prepare an annual actuarial statement for the Plan, as required by
ERISA. Each annual statement included a valuation of the Plan’s assets and liabilities
and a calculation of the permissible range of employer contributions needed to maintain
solvency of the Plan. Although historically most retirees had chosen the more valuable
lump sum distribution, defendants continued each year to prepare the valuation of the
Plan on the assumption that retirees would choose the monthly payments. Consequently,
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the Plan valuations substantially understated the value of the Plan’s liabilities and the
level of contributions needed to maintain solvency.
Over the years there had been discussions between defendants and representatives
of plaintiff about the fact that the formula used to compute the lump sum benefit resulted
in that being a more valuable option. As market interest rates rose, the difference in value
of the two options became greater. Defendants specifically recommended in 1977 and
1978 that plaintiff restructure the formula to employ a fluctuating, market-based interest
rate to calculate the lump sum benefit, and thereby eliminate the disparity in the value of
the two options. Mr. Kane, acting for plaintiff, did not follow this advice.
Kane retired in 1984 and Kevin Steiner replaced Kane on July 1, 1984, as
plaintiff’s chief financial officer. Unlike Kane, Mr. Steiner did not know that the lump
sum benefit was more valuable than the monthly payment option. Order on Remand at 3,
Aplt. App. at 80. Also in 1984 or 1985, plaintiff became aware that the Plan would have
to be amended by October 31, 1985, to comply with the Retirement Equity Act and other
laws and regulations. The most significant change in the governing law required for the
first time that
a single formula for calculating optional benefits be selected and written
into the Plan. This was a new requirement in federal pension law -- that the
factors used to determine