The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge
This matter is before the court on (1) defendants California Association of Professional Firefighters ("CAPF"), California Administration Insurance Services, Inc. ("CAISI"), and Kenneth Blanton, Dennis Campanale, Gene Dangel, Brian Pinomaki, Charles Gluck, William Soqui, and James Floyd's (collectively "defendants") motion for summary judgment, pursuant to Federal Rule of Civil Procedure ("Rule") 56; (2) plaintiff David Barboza's ("plaintiff") cross-motion for summary judgment; (3) defendants' motion for sanctions pursuant to Rule 11; and (4) plaintiff's cross-motion for Rule 11 sanctions.*fn1 The court heard oral argument on the motions on December 3, 2010. Based upon the submissions of the parties and the arguments made by counsel, and for the reasons set forth below, (1) defendants' motion for summary judgment is GRANTED in part and DENIED in part; (2) plaintiff's motion for summary judgment is GRANTED in part and DENIED in part; (3) defendants' motion for sanctions is DENIED; and (4) plaintiff's motion for sanctions is DENIED.
Defendant CAPF is a non-profit mutual benefit corporation that sponsors the California Association of Professional Firefighters Long-Term Disability Plan (the "Plan"). (DUF ¶ 1.) Defendant CAISI administers the Plan and is responsible for making determinations regarding participants' disability and benefits. (DUF ¶ 3; PUF ¶ 4; Answer ¶ 6.) Individual Defendants Kenneth Blanton, Dennis Campanale, Gene Dangel, and Brian Pinomaki are Directors and Executive Board members of CAPF and are "fiduciaries" within the meaning of 29 U.S.C. §§ 1002(14) and (21). (Answer ¶¶ 7-9, 12.) Plaintiff alleges that defendants Charles Gluck and William Soqui are also Directors, Executive Board members, and fiduciaries of CAPF.*fn3 (Complaint ¶ 11, 13; Answer ¶¶ 11, 13.) Defendant James Floyd is the owner of defendant CAISI. (Answer ¶ 10.)
The Plan is an ERISA welfare benefit plan that receives its funding exclusively from Plan participants, as opposed to employers, and pays all benefits solely from Plan assets. (DUF ¶¶ 2, 4; PUF ¶ 5.) Participant contributions are deposited into a Wells Fargo Bank checking account (the "Account"). (PUF ¶ 20.) The signatories on the Account are officers of CAISI. (PUF ¶ 22.) In accordance with the administrative services agreement between CAPF and CAISI, CAISI pays benefit claims and Plan expenses by writing checks from the Account on behalf of CAPF. (Administrative Services Agreement § 3.2, Ex. 4 to Decl. of Geoffrey V. White in Support of Pl.'s Mot. for Summ. J.) CAISI also writes checks from the Account to remunerate CAISI for its fees and expenses. (PUF ¶ 25.) CAISI does not provide CAPF with invoices of its administrative expenses; however CAISI provides CAPF with quarterly financial statements that detail the Plan's fees and expenses. (PUF ¶ 26; 28.)
Beginning in 1994, CAPF agreed to pay CAISI an administrative services fee of $3.65 per Plan participant, per month. (DUF ¶¶ 33, 35; Decl. of Dennis Campanale ("Campanale") ¶ 7, filed July 30, 2010.) This fee remained steady until the parties agreed to raise it to $3.75 per Plan participant, per month, beginning in April of 2009. (DUF ¶ 33.)
CAPF and CAISI are not run by ERISA lawyers, actuaries, or accountants. (Decl. of Campanale ¶ 18.) Rather, CAPF and CAISI are controlled by active and retired firefighters. (Id.) As such, defendants assert that they consult with appropriate experts for advice on matters requiring specialized knowledge or experience. For example, defendants assert that when CAPF's Board of directors (the "Board") needed to decide whether CAPF was required to file Form 990 with the Internal Revenue Service ("IRS"), they relied on the advice of an accountant and legal counsel. (Id. ¶ 16.) CAPF has not filed Form 990 since 2002. (PUF ¶ 9.) Defendants also testify that they consulted with the United States Department of Labor ("DOL") and the California Department of Insurance ("DOI") to determine whether CAPF's corporate status could satisfy 29 U.S.C. § 1103's "held in trust" requirement. (Decl. of Chris Chediak ("Chediak") ¶ 3, filed July 30, 2010; Dep. of Richard Floyd, at 14-15.)
CAPF's bylaws also require the Board to hire professionals for certain tasks. For instance, the bylaws require that the Plan's benefit reserves undergo annual actuarial review to ensure that CAPF's funds are properly managed. (PUF ¶ 41.) Defendants assert that they complied with this requirement by hiring actuaries J. Paul Dorris and his partner Ken Vance to perform this task. (Decl. of Campanale ¶ 5.) However, these actuaries "closed their doors" for a period beginning in 2006 and ending in 2009, resulting in an "interruption" in actuarial review of CAPF's funds between June 21, 2006 and July 2, 2009. (Dep. of Gene Dangel ("Dangel"), at 114-116; Dep. of Richard Floyd, at 97-98.)
Plaintiff was a participant in the Plan. (Answer ¶ 14.) On approximately May 31, 2006, plaintiff applied to the Plan for long-term disability benefits. (Answer ¶ 15.) CAISI initially denied plaintiff's application in a letter dated May 18, 2007. (Id.) After receiving additional medical evidence, CAISI heard, and granted, plaintiff's appeal. (Id.) The parties dispute whether plaintiff has received all of the benefits that he is entitled to under the Plan. This dispute was the subject of a separate action before this court. (Id.) This action was dismissed without prejudice for failure to exhaust administrative remedies.*fn4
In the present action, plaintiff brings suit against defendants, the Plan, the Plan Administrator (CAISI), and the individual board members of CAPF and CAISI, alleging numerous breaches of fiduciary duties under Part 4 of Title I of ERISA. (Compl., filed Oct. 28, 2008, ¶ 5.) Plaintiff alleges that defendants breached their fiduciary duties by: (1) failing to distribute a Summary Annual Report ("SAR") to plan participants*fn5 ; (2) unlawfully refusing to file Form 990 with the IRS; (3) unlawfully failing to hold Plan assets in trust; (4) engaging in unlawful self-dealing and prohibited transactions by coming to an agreement that allows CAISI to use fees and expenses; (5) engaging in prohibited transactions by renewing the administrative services agreement between CAPF and CAISI, including authorizing an administrative services fee increase, agreeing to an unreasonably lengthy term, and including an indemnity clause; and (6) failing to obtain actuarial review as required by Plan bylaws.*fn6 (Id.)
Based on these alleged breaches, plaintiff seeks injunctive relief to compel defendants to distribute the SAR and to file Form 990. Additionally, plaintiff requests that the court appoint an independent Trustee/Receiver to remedy defendants' alleged breaches and to conduct an accounting of the Plan. (Complaint, at 7.)
The Federal Rules of Civil Procedure provide for summary judgment where "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). The evidence must be viewed in the light most favorable to the nonmoving party. See Lopez v. Smith, 203 F.3d 1122, 1131 (9th Cir. 2000) (en banc).
The moving party bears the initial burden of demonstrating the absence of a genuine issue of fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). If the moving party fails to meet this burden, "the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial." Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102-03 (9th Cir. 2000). However, if the nonmoving party has the burden of proof at trial, the moving party only needs to show "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325.
Once the moving party has met its burden of proof, the nonmoving party must produce evidence on which a reasonable trier of fact could find in its favor viewing the record as a whole in light of the evidentiary burden the law places on that party. See Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir. 1995). The nonmoving party cannot simply rest on its allegations without any significant probative evidence tending to support the complaint. See Nissan Fire & Marine, 210 F.3d at 1107. Instead, the nonmoving party must cite to "particular parts of materials in the record," or show that moving party's cited materials "do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed. R. Civ. P. 56(c)(1).
Pursuant to Fed. R. Civ. P. 11(b), when an attorney presents a pleading or motion to the court, the attorney certifies that, after reasonable inquiry, to the best of his or her knowledge, information, and belief:
(1) it is not being presented for any improper purpose, such as to harass, cause unnecessary delay, or needlessly increase the cost of litigation; (2) the claims, defenses, and other legal contentions are warranted by existing law or by a non-frivolous argument for extending, modifying, or reversing existing law or for establishing new law; (3) the factual contentions have evidentiary support.
"Rule 11 is an extraordinary remedy, one to be exercised with extreme caution." Conn v Borjorquez, 967 F.2d 1418 (9th Cir. 1992). Rule 11 "must be read in light of concerns that it will . . . chill vigorous advocacy." Cooter & Gell v. Hartmax Corp., 496 U.S. 384, 405 (1990).
I. Cross-Motions for Summary Judgment
The statutory framework for breach of fiduciary duty claims brought by plan beneficiaries under ERISA implicate sections 404, 409, and 502, of ERISA, 29 U.S.C. §§ 1104, 1109, and 1132. See Quan v. Computer Sciences Corp., 623 F.3d 870, 878 (9th Cir. 2010).
29 U.S.C. § 1104 requires plan fiduciaries to act on behalf of the plan as a prudent person would. Specifically, 29 U.S.C. § 1104(a)(1)(A) imposes a duty upon a plan fiduciary to, "discharge his duties with respect to a plan solely in the interest of the participants and their beneficiaries and . . . for the exclusive purpose of: providing benefits to participants and their beneficiaries; and defraying reasonable expenses of administering the plan." See Friend v. Sanwa Bank California, 35 F.3d 466, 468 (9th Cir. 1994). Further, "a fiduciary must discharge these duties with the care, skill, prudence, and diligence under the circumstances then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims." 29 U.S.C. § 1104(a)(1)(B). In evaluating fiduciaries' compliance with the prudent person standard, a court's task is to consider whether individual fiduciaries appropriately investigated the merits of each disputed transaction at the time that the fiduciaries were engaging in the transaction. See Donovan v. Mazzola, 716 F.2d 1226 (9th Cir. 1983); see also Wright v. Oregon Metallurgical Corp. 360 F.3d 1090, 1097 (9th Cir. 2004).
29 U.S.C. § 1109 imposes liability upon a plan fiduciary for breach of fiduciary duty. 29 U.S.C. § 1109(a); see Quan, 623 F.3d at 878. A fiduciary can only be held personally liable for a breach of fiduciary duty to the extent that losses to the plan result from the breach. 29 U.S.C. s 1109(a); see Sanwa Bank California, at 468 (citing Brandt v. Grounds, 687 F.2d 895, 898 (7th Cir. 1982) (stating that the language of 29 U.S.C. § 1109(a) "clearly indicates that a causal connection is required between the breach of fiduciary duty and the losses incurred by the plan.")). However, loss causation is not required in an action for breach of fiduciary duty seeking injunctive relief. See Shaver v. Operating Eng'r Local 428 Pension Trust Fund, 332 F.3d 1198, 1203 (9th Cir. 2003) ("Indeed, the Ninth Circuit has rejected the argument that there must be a loss to the plan in order to bring an action for breach of fiduciary duty seeking injunctive relief.") Such a requirement would leave a plan's beneficiaries "powerless to rein in the fiduciaries' imprudent behavior until some actual damage has been done." Id.
Finally, 29 U.S.C. § 1132 provides for civil enforcement, stating, in pertinent part, that a civil action for breach of fiduciary duty may be brought "by a participant or beneficiary . . . to recover benefits due to him under the terms of his plan [or] to enforce his rights under the terms of the plan." 29 U.S.C. § 1132(a)(2). "To establish an action for equitable relief under . . . 29 U.S.C. § 1132(a)(3), the defendant must be an ERISA fiduciary acting in its fiduciary capacity, and must violate ERISA-imposed fiduciary obligations." Ford v. MCI Communications Corp. Health and Welfare Plan, 399 F.3d 1076, 1083 (9th Cir. 2005) (quoting Mathews v. Chevron Corp., 362 F.3d 1172, 1178 (9th Cir. 2004)).
Plaintiff alleges that defendants breached their fiduciary duties by failing to provide Plan participants with a Summary Annual Report ("SAR"). Plaintiffs assert that defendants are required to do so because 29 C.F.R. 2520.104b-10 requires administrators of an employee welfare plan to provide Plan participants with a SAR. Defendants contend that the Plan did not have to comply with the SAR ...