Steiner Corp. v. Johnson & Higgins of California

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