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Thomas v. Bostwick

United States District Court, N.D. California

September 3, 2014



JOOSEPH C. SPERO, Magistrate Judge.


Plaintiff Richard Todd Thomas filed this action against Defendant James S. Bostwick under the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1132. Mr. Bostwick was trustee of certain profit sharing plans (the "Plans") set up by Mr. Thomas's former employer, James S. Bostwick, Professional Corporation (the "Corporation"). Mr. Thomas was terminated by the Corporation in 2005 due to Mr. Thomas's embezzlement of nearly twenty million dollars. After liquidation of the Plans in 2008 and 2009, Mr. Bostwick did not distribute any proceeds to Mr. Thomas. Mr. Bostwick instead transferred Mr. Thomas's share of the proceeds to the Corporation, which applied the proceeds against Mr. Thomas's substantial judgment debts. Mr. Thomas claims that Mr. Bostwick breached his fiduciary duties by contravening the Plan's anti-alienation provision. In response, Mr. Bostwick argues that ERISA does not permit Mr. Thomas to recover from Mr. Bostwick, and that Mr. Bostwick breached no duty because transferring the proceeds to the Corporation was permissible.

The parties have stipulated to the material facts of the case, waived their rights to present live testimony, and agreed to resolve the case via cross motions for judgment, which both have since filed.[1] The Court held a hearing on these motions on August 22, 2014, at 9:30 a.m. For the reasons stated below, Plaintiff's Motion for Judgment is GRANTED in part, and Defendant's Motion is DENIED.[2]


Between 1996 and 2005, Mr. Thomas was employed at the Corporation as an accountant. Joint Statement of Undisputed Facts ("JS") (Dkt. 51) ¶ 1. During that period the Corporation made contributions to the Plans for Mr. Thomas's benefit. Answer (Dkt. 30) ¶ 6; see JS ¶ 10. The Corporation terminated Mr. Thomas in 2005, and later obtained a $19, 837, 866 civil judgment against Mr. Thomas based on embezzlement. JS ¶ 3. There is also a criminal restitution order against Mr. Thomas in favor of the Corporation, in the amount of $8, 777, 725.18. JS ¶ 4.

The Corporation terminated the Plans in 2008 and 2009. JS ¶ 9. Under the terms of the Plans, this voluntary termination required "Distributable Benefits" to be held in trust until distributed to participants in the Plans. JS Ex. 2 ¶ 3.8.4. The Plans also provided that participants' and beneficiaries' rights under the Plans were inalienable, and that no funds would revert to the Corporation:

3.11.1 No Reversion to Employer. Except as specifically provided in the Plan, no part of the corpus or income of the Trust shall revert to the Employer or be used for, or diverted to purposes other than for the exclusive benefit of Participants and their Beneficiaries.
3.11.7 Inalienability. The right of any Participant or his Beneficiary in any distribution hereunder or to any separate Account shall not be subject to alienation, assignment or transfer, voluntarily or involuntarily, by operation of law or otherwise, except as may be expressly permitted herein. No participant shall assign, transfer, or dispose of such right nor shall any such right be subjected to attachment, execution, garnishment, sequestration, or other legal, equitable, or other process.

JS Ex. 2 at 91 (in relevant part). If a participant's employment is terminated at or later than his or her normal retirement age, or if the Plans are terminated, the participant's interest in the Plans is fully vested and nonforfeitable. JS Ex. 2 at 31 (¶¶ 2.4.2(a), (b), (e)). Under other circumstances, including termination of employment before normal retirement age, a participant's interest vests at a rate of 20% per year, starting after three years of service, and the vested portion is nonforfeitable. JS Ex. 1 at 17 (¶ E.3); JS Ex. 2 at 31-32 (¶¶ 2.4.2(f), (g)).

Mr. Bostwick, who was both the trustee of the Plans and president of the Corporation, asked Mr. Thomas to consent to the distribution of Mr. Thomas's share of the proceeds to the Corporation, but Mr. Thomas declined to so consent. JS ¶¶ 8, 19. The Corporation nevertheless received from the Plan three cashier's checks totaling $21, 631.79, which comprised the profit sharing benefits deposited to Mr. Thomas's individual accounts within the Plans. JS ¶¶ 10-11. The Corporation deposited these checks on January 26, 2010. JS ¶ 11. The Court is satisfied, based on Mr. Bostwick's dual roles and his personal request that Mr. Thomas consent, that Mr. Bostwick was at least aware of the transfer and capable of preventing it, if not actively involved.

Mr. Thomas filed for bankruptcy in the U.S. Bankruptcy Court for the Northern District of California on May 24, 2012. JS ¶¶ 17, 21. At some point after filing for bankruptcy, he learned that the Corporation had received the funds from his Plan accounts and credited them against his debts. JS ¶ 17 & Ex. 5 at 2 (Bankruptcy Court order noting the credit). The issues in this case first arose in an adversary proceeding as part of Mr. Thomas's bankruptcy adjudication, but the bankruptcy court ultimately declined to resolve them in an order issued May 22, 2013. JS ¶ 21 & Ex. 5.

Mr. Thomas filed his Complaint in this Court two weeks later. Dkt. 1. Mr. Bostwick moved to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure. Dkt. 19. The Court denied that motion, holding that Mr. Thomas's Complaint adequately stated a claim under ERISA. Thomas v. Bostwick, No. 13-cv-02544-JC, 2013 WL 5289952 (N.D. Cal. Sept. 19, 2013) (Dkt. 24). The Court has also previously quashed a Notice of Lien filed by the Corporation. Dkt. 83. The parties have now filed cross motions for judgment ...

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