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Lyms, Inc. v. Millimaki

United States District Court, Ninth Circuit

July 2, 2013

LYMS, INC.; WENDY YOUNGREN and CATHY MEANS, as Successor Trustees Of the LYMOS 401(K) Savings Plan, Plaintiffs,
v.
BRUCE MILLIMAKI and MICHAEL EGGERT, Former Trustees of the LYMOS 401(K) Savings Plan; GARY BERMAN, Individually, Defendants. AND RELATED CROSS-ACTION.

SUPPLEMENTAL MEMORANDUM DECISION

GONZALO P. CURIEL, District Judge.

INTRODUCTION

This matter came to trial before the Court on December 3 through 12, 2012. Plaintiffs are LYMS, Inc., Wendy Youngren and Cathy Means, ("Plaintiffs") as Trustees of the LYMOS 401(K) Savings Plan ("the Plan"). Plaintiffs brought this action against the Plaint's former trustees, Defendants and Counterclaimants Bruce Millimaki ("Millimaki") and Michael Eggert ("Eggert") and against Defendant Gary Berman ("Berman') as the third party administrator ("TPA") of the Plan. The issues have been tried and a Memorandum Decision was issued by the Court on March 19, 2013. (Dkt. No. 277, "Memorandum Decision.")

In the Memorandum Decision, the Court directed the parties to file briefs addressing the issue of joint and several liability as to Millimaki and Berman for damages related to the creation and submission of the Voluntary Compliance Program ("VCP") application to the Internal Revenue Service ("IRS"). (Id. at 29-30.) Defendants Millimaki, Eggert, and Berman submitted a brief arguing that under California law, Defendants Millimaki and Berman cannot be held jointly and severally liable, and request the damages be assessed according to the two defendants' proportional fault. (Dkt. No. 279, "Def. Brief.") Plaintiffs filed a separate brief, asserting that under ERISA and California common law, Defendants Millimaki and Berman may be held jointly and severally liable for the VCP-related damages. (Dkt. No. 278, "Pl. Brief.")

DISCUSSION

The sole remaining issue is whether liability among Defendants Millimaki and Berman for damages incurred in the VCP process may be joint and several. Following a seven-day trial, the Court found Millimaki and Eggert jointly breached their fiduciary duties. (Memorandum Decision at 17.) The Court further found Millimaki alone breached his fiduciary duties in his capacity as a functional administrator by approving Plan documents that misidentified the proper employer and allowing Linda Millimaki, his wife, to participate in the Plan in violation of the Plan. (Id. at 19-20.) The Court found Berman, as the third party plan administrator, negligent under California law for (1) maintaining incomplete records; (2) filing erroneous information returns with the IRS for most years; and (3) participating in questionable rollover transactions. (Id. at 23.)

In assessing damages, the Court concluded the Defendants caused some, but not all, of the alleged damages. (Id. at 25.) The Court separately assessed the costs associated with the creation and submission of the VCP application to the IRS. In so doing, the Court determined that of the four failures identified by the IRS, Millimaki, as functional administrator, caused two of the four failures, and Berman, as TPA, caused all four failures. (Id. at 26.) As such, Millimaki and Berman were found liable for the VCP-related damages, and Eggert was not liable for any of VCP-related damages. (Id.) The VCP-related damages for which Millimaki and Berman were found liable include $21, 186.70 in fees to Means & Associates, $375 to Thanasi Prevolos, Esq., $1, 300 compliance fee to the IRS, and $45, 557.00 in legal fees to Branton & Wilson. (Id. at 27-28.) The amount in damages related to the VCP-related fees alone totals $68, 418.70.

Plaintiffs urge the Court to impose joint and several liability against Millimaki and Berman for all of the VCP-related damages. (Pl. Brief at 2.) Plaintiffs argue ERISA does not contain any statutory provisions addressing the conditions for imposition of joint and several liability upon a defendant liable for breach of fiduciary duty under ERISA, such as Millimaki, and another defendant liable for common law negligence, such as Berman, where both defendants wrongful acts caused the same injury. (Id.) Plaintiffs assert that other courts have found defendants, both fiduciaries and non-fiduciaries, may be held liable for damages. ( Id., citing Schalffler v. McDowell, 1985 WL 177515 *3, 6 Empl. Ben. Cases 2485 (W.D. Pa. 1985)). As the Court has found Millimaki and Berman responsible for the primary problems that drove the decision to pursue a VCP application, Plaintiffs argue it follows both defendants were proximate causes of and substantial contributing factors to the VCP-related damages. (Id. at 5.) Finally, Plaintiffs assert the VCP damages are not practically divisible in any rational manner between the Defendants, and any distinction among the types of deficiencies in the plan does not render the injury divisible because the same work would have been done to prepare the VCP application. (Id.)

Defendants argue Millimaki and Berman cannot be held jointly and severally liable for the VCP-related damages. (Def. Brief at 3.) The Court found Berman liable under California law, and as ERISA does not preempt California law, Berman's liability and apportionment of damages should also be assessed under California law. (Id. at 3-5.) Pursuant to Cal. Civ. Code § 1431.1, Defendants argue liability must be apportioned between Millimaki and Berman in relation to their degree of fault. (Id.) As the Court found Millimaki breached his fiduciary duties under ERISA, his liability cannot be joint and several with Berman who was not found to be a fiduciary under the Plan. (Id. at 6.) As such, Berman cannot be held jointly and severally liable as a co-fiduciary. (Id. at 8.) Moreover, Defendants contend joint and several liability is inequitable where Millimaki as the fiduciary was liable for two of the four failures identified by the IRS and Berman was responsible for all four. (Id. at 9.) As such, liability for the VCP-related damages should be apportioned to Millimaki and Berman in proportion to their relative degree of fault. (Id.)

For the reasons below, the Court concludes that Defendants Millimaki and Berman may be held jointly and severally liable for the VCP-related damages.

A. No ERISA Preemption

"ERISA is a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." Shaw v. Delta Air Lines, Inc. 463 U.S. 85 , 90(1983). As set forth in 29 U.S.C. §1144(a), ERISA, section 514(a) provides, absent certain exceptions not applicable here, that "the provisions of this subchapter... shall supersede any and all State laws insofar as they may now or hereafter relate to [such] employee benefit plan...." 29 U.S.C. § 1144(a) (italics added). "A law relates to' an employee benefit plan, in the normal sense of the phrase, if it has a connection with or reference to such a plan." Shaw , 463 U.S. at 96-97. "Under this broad common-sense meaning, ' a state law may relate to' a benefit plan, and thereby be pre-empted, even if the law is not specifically designed to affect such plans, or the effect is only indirect." Ingersoll-Rand Co. v. Mclendon , 498 U.S. 133, 139 (1990)(citing Pilot Life Ins. Co. v. Dedeaux , 481 U.S. 41, 52, 54 (1987)). Pre-emption is also not precluded simply because a state law is consistent with ERISA's substantive requirements. Id . (internal citations omitted). The Supreme Court has recognized limitations to ERISA's preemption clause. Only state laws that relate to benefit plans are pre-empted. Id . (citing Fort Halifax Packing Co. v. Coyne , 482 U.S. 1, 23 (1987). Moreover, the ERISA preemption clause does not apply to "generally applicable [state] statute[s] that make[] no reference to, or indeed function [] irrespective of an ERISA plan." Id.

Under ERISA, "a fiduciary with respect to a plan shall be liable for a breach of fiduciary responsibility of another fiduciary with respect to the same plan under specific circumstances." 29 U.S.C § 1105(a). Courts have interpreted this provision to mean where ERISA liability is established against two or more defendants, liability will be joint and several. Katsaros v. Cody , 568 F.Supp. 360 (E.D. N.Y. 1983), aff'd, 744 F.2d 270 (2d Cir. 1984). ERISA is silent as to whether co-liability may exist between a defendant who has breached his ERISA fiduciary duties and a defendant who was negligent under state law in performing his duties as a third party administrator.

Here, neither party asserts that the common law principles which apply to the apportionment of liability and damages to tortfeasors "relate to" an ERISA benefit plan. Indeed, common law principles as articulated by the California courts and legislature make no reference to ERISA plans. As such, ERISA does not preempt California state law on the issue of common law negligence and apportionment of damages. Accordingly, the Court ...


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