Acosta v. California Pacific Bank

FILED
NOT FOR PUBLICATION
DEC 15 2017
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

R. ALEXANDER ACOSTA, Secretary of No. 16-17055
the United States Department of Labor,
D.C. No. 3:13-cv-03792-JD
Plaintiff-Appellee,

v. MEMORANDUM*

CALIFORNIA PACIFIC BANK; et al.,

Defendants-Appellants.

Appeal from the United States District Court
for the Northern District of California
James Donato, District Judge, Presiding

Argued and Submitted December 6, 2017
San Francisco, California

Before: M. SMITH and IKUTA, Circuit Judges, and MCAULIFFE,** District
Judge.

California Pacific Bank, Richard Chi, Akila Chen, Kent Chen, and William

Mo (referred to collectively as “trustees” and individually by name, as appropriate)

*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The Honorable Steven J. McAuliffe, United States District Judge for
the District of New Hampshire, sitting by designation.
appeal the district court’s order granting summary judgment to the Department of

Labor on two claims, and its order entering judgment in favor of the Department

after a bench trial on a third claim. We have jurisdiction under 28 U.S.C. § 1291.

The trustees failed to pay the participants in the Bank’s employee stock

ownership plan (Plan) in cash within one year after the date of termination of the

Plan, as required by ¶ 10.4 of the Plan document. Therefore, the district court did

not err in ruling there was no genuine issue of material fact that the trustees

breached their obligation to act in accordance with plan instruments, in violation of

29 U.S.C. § 1104(a)(1)(D). The trustees’ argument that we should defer to their

interpretation of other sections of the Plan as allowing them to distribute bank

shares in lieu of cash is meritless, as none of those sections govern plan

termination. Finally, we reject the trustees’ claim that it was impossible for them

to pay participants in cash because the Department interfered with the Bank’s

ability to obtain the FDIC’s permission to repurchase the Bank shares. Cf.

Taylor-Edwards Warehouse & Transfer Co., of Spokane v. Burlington N., Inc., 715

F.2d 1330, 1336 (9th Cir. 1983). Nothing stopped the trustees from obtaining cash

by liquidating plan assets in some other way; indeed, some of the assets were

liquidated through sales to individual officers of the Bank. Alternatively, the

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trustees could have delayed termination of the Plan until they had obtained the

FDIC’s approval for the Bank’s repurchase of the shares.

The district court did not err in determining there was no genuine issue of

material fact that the trustees diverted a Plan asset to the Bank, a prohibited

transaction under 29 U.S.C. § 1106(a), in violation of their fiduciary duties. See 29

U.S.C. § 1104(a)(1). There is no dispute that the Plan collected $132,506 by

liquidating a Plan asset, and the trustees transferred $81,407.18 of that amount to

the Bank. The trustees argue that because the Plan asset at issue was a dividend on

stocks owned by the Plan, the Bank was entitled to a pro rata share of the dividend

when it subsequently purchased the stocks. We reject this argument, because the

trustees point to no agreement between the Bank and the Plan allowing the Bank to

take Plan property under these circumstances.

We also reject the trustees’ argument that transferring $69,745.93 of the

Plan’s deposit account was a mistake of fact “involv[ing] arithmetical or clerical

errors made by the employer/contributor.” British Motor Car Distribs., Ltd. v. S.

F. Auto. Indus. Welfare Fund, 882 F.2d 371, 375 (9th Cir. 1989). The trustees

have not identified a contribution that was made due to an arithmetical or clerical

error, nor identified a contribution that exceeded its stated purpose.

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 We also reject the arguments of Akila Chen, Kent Chen, and William Mo

that they are not liable for breach of fiduciary duties. These trustees do not dispute

that they are fiduciaries of the Plan, and there is nothing in the Plan document that

releases them from their duties of prudence and loyalty, or from the duty to comply

with Plan documents. See 29 U.S.C. § 1105. Nor did the district court err in

concluding that William Mo had not resigned as a trustee; among other evidence in

the record, he signed the resolution to terminate the Plan in his capacity as a

trustee.

The district court abused its discretion in declining to apply the prejudgment

interest rate identified in 28 U.S.C. § 1961, and instead applying the higher rate of

interest identified in 26 U.S.C. § 6621 without making any factual findings that the

higher rate of interest would serve to compensate the participants. See Dishman v.

UNUM Life Ins. Co. of Am., 269 F.3d 974, 988 (9th Cir. 2001). We vacate the

award of prejudgment interest and remand for the district court to apply a

compensatory interest rate. The parties shall bear their own cost on appeal.

AFFIRMED in part, VACATED in part, and REMANDED.

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