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MCMORGAN & CO. v. FIRST CALIFORNIA MORTG. CO.

February 8, 1995

McMORGAN & COMPANY, as Investment Manager and a Fiduciary of the PENSION TRUST FUND FOR OPERATING ENGINEERS, CARPENTERS PENSION TRUST FUND FOR NORTHERN CALIFORNIA, NORTHERN NEVADA CARPENTERS PENSION TRUST FUND, SHEET METAL WORKERS OF NORTHERN CALIFORNIA PENSION TRUST FUND, CARPENTERS ANNUITY TRUST FUND FOR NORTHERN CALIFORNIA, BAY AREA PIPE TRADES PENSION TRUST FUND, CALIFORNIA IRONWORKERS FIELD PENSION TRUST FUND, NORTHERN CALIFORNIA PLASTERING INDUSTRY PENSION TRUST FUND, and PIPE TRADES DISTRICT COUNCIL NO. 36 PENSION TRUST FUND, Plaintiffs,
v.
FIRST CALIFORNIA MORTGAGE CO., a California corporation, Defendant.



The opinion of the court was delivered by: ORRICK

 Plaintiff McMorgan & Company's motion for summary adjudication and defendant First California Mortgage Company's motion to dismiss for lack of subject matter jurisdiction having come before the Court, and the Court having considered the briefs and oral argument, plaintiff's motion for summary adjudication is denied and defendant's motion to dismiss is denied.

 I.

 McMorgan & Company ("McMorgan") brings this suit on behalf of several pension trust funds ("Trust Funds") for which it is the investment manager. The Trust Funds are multiemployer plans under the Employee Retirement Income Security Act, 29 U.S.C. §§ 1001-1461 ("ERISA"). Defendant First California Mortgage Co. ("FCMC") performed real estate mortgage services for the Trust Funds in connection with multiple construction loans made to real estate developers. These loans were purchased by the Trust Funds from FCMC, pursuant to certain sale-servicing agreements ("Servicing Agreements").

 McMorgan alleges FCMC exercised discretionary control over the Trust Funds and was, therefore, a fiduciary under ERISA. It brings claims under ERISA against FCMC for eight construction loans that went into default. McMorgan alleges that FCMC's servicing of the construction loans was performed negligently and fraudulently because FCMC concealed from McMorgan the true facts and circumstances surrounding the construction activities of the projects. It further alleges that the servicing of the loans fell significantly below any reasonable standards of prudent loan servicing. McMorgan claims that the Trust Funds have been damaged in excess of $ 29,000,000.

 McMorgan brings its claims under several theories: (1) breach of fiduciary duty under ERISA; (2) accounting under ERISA; (3) breach of contract; (4) breach of implied covenant of good faith and fair dealing; (5) negligence; (6) breach of fiduciary duty as a broker; (7) accounting; and (8) declaratory relief.

 The two motions currently before the Court involve the same issue: Was FCMC a "fiduciary" under ERISA, 29 U.S.C. § 1002(21)(A)? FCMC argues that it was not, that ERISA claims cannot be made against it and, therefore, the action must be dismissed for lack of subject matter jurisdiction. McMorgan counters by asking the Court to determine on summary adjudication that FCMC acted as a fiduciary under ERISA, as a matter of law.

 In order to determine whether or not FCMC was a fiduciary, it is important to understand the full scope of the duties undertaken by FCMC. The Servicing Agreements provide the basis for evaluating the relationship between McMorgan and FCMC. They do not specifically designate FCMC as a fiduciary. McMorgan argues, however, that the duties as outlined in the Servicing Agreements confer this status. FCMC disputes this contention. Both parties agree that FCMC agreed to undertake the duties as outlined in the Servicing Agreements.

 The Servicing Agreements for the eight loans are similar in nature. Under the Servicing Agreements, FCMC agreed to undertake several duties, including: (1) receive and evaluate the borrower's requests for advances on the undisbursed portion of its construction loan; (2) not modify loan accounts so as to reallocate the loan or to change the total funds of any loan account without the prior written consent of the bank; (3) advise the bank when funds in addition to those in the loan account should be disbursed for the protection of the bank; (4) compare lien notice with final cost breakdown and advise the bank of discrepancies; (5) advise the bank when it determines that the undisbursed funds of the loan accounts will be insufficient to pay for costs of construction; and (6) advise the bank in the event of default. (See, e.g., First Am. Compl., filed June 9, 1994, Ex. A at 3-7.)

 FCMC argues that it performed the duties of a typical construction loan servicer and should not be converted into an ERISA fiduciary. FCMC emphasizes the fact that it never actually controlled any of the Trust Funds' assets, because any advance made to borrowers was made out of its own credit line, and it was only reimbursed once McMorgan approved the advance. FCMC alleges that the duties it performed pursuant to the Servicing Agreements were typical of mortgage servicing agreements that FCMC uses for its commercial loans. Further, FCMC argues that it was never asked to go beyond its servicing duties to act as a fiduciary for the Trust Funds.

 II.

 A.

 Rule 56(c) of the Federal Rules of Civil Procedure provides that a court may grant summary judgment "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law."

 The Supreme Court's 1986 "trilogy" of Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986), Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986), and Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), requires that a party seeking summary judgment identify evidence that shows the absence of a genuine issue of material fact. Once the moving party has made this showing, the nonmoving party must "designate 'specific facts showing that there is a genuine issue for trial.'" Celotex, 477 U.S. at 324 (quoting Fed. R. Civ. P. 56(e)). "When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Liberty Lobby, 477 U.S. at 249-50 (citations omitted).

 McMorgan argues that the Court may grant summary adjudication as to the issue of whether FCMC was a fiduciary under ERISA solely by examining the duties FCMC undertook when it signed the Servicing Agreements. It argues:

 
Summary adjudication must be granted because there is no dispute that FCMC entered into the written agreements upon which this motion is based. Any fair reading of the Servicing Agreements requires finding that FCMC had some fiduciary duties.

 (Pl.'s Reply to Def.'s Opp'n to Mot. for Summ. Adjudication of Issues, filed Aug. 16, 1994, at 2:1-4.) Thus, the Court must decide, as a matter of law, whether the duties undertaken by FCMC in the Servicing Agreements are sufficient to satisfy the ERISA fiduciary definition.

 At the heart of McMorgan's motion for summary adjudication is the question of who is a fiduciary under ERISA. Section 1002(21)(A) (1985) states in pertinent part:

 
[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 ...

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