Thomas v. Bostwick

RICHARD TODD THOMAS, Plaintiff, v. JAMES S. BOSTWICK, Defendant.

Case No. 13-cv-02544-JCS

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

September 3, 2014

ORDER GRANTING PLAINTIFF'S MOTION FOR JUDGMENT AND DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

Dkt. Nos. 56, 57

I. INTRODUCTION

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 havesince 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

II. BACKGROUND³

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 underERISA. 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 and stipulated that the action (except for Mr. Thomas's request for attorneys' fees) be resolved on those motions. Dkts. 53, 56, 57.

III. ANALYSIS

A. Legal Standard Under Rule 56 of the Federal Rules of Civil Procedure

Summary judgment on a claim or defense is appropriate "if 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). In order to prevail, a party moving for summary judgment must show the absence of a genuine issue of material fact with respect to an essential element of the non-moving party's claim, or to a defense on which the non-moving party will bear the burden of persuasion at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has made this showing, the burden then shifts to the party opposing summary judgment to designate "specific facts showing there is a genuine issue for trial." Id. "[T]he inquiry involved in a ruling on a motion for summary judgment . . . implicates the substantive evidentiary standard of proof that would apply at the trial on the merits." Anderson v. Liberty Lobby Inc., 477 U.S. 242, 252 (1986).

As discussed in footnote 1, supra, the Court determines that summary judgment is appropriate because the parties have stipulated to the material facts, see generally JS. To the exent that any issues of fact remain, the Court may alternatively resolve the case as a bench trial on the written record. See Stipulation and Order (Dkt. 53); Chevron, 224 F.3d at 1038 n.6.

B. Statutory Standing and Appropriate Relief

Mr. Thomas brings this claim under sections 502(a)(2) and 409 of ERISA. Pl.'s Reply (Dkt. 64) at 2 (citing 29 U.S.C. §§ 1132(a)(2); 1109). Although Mr. Thomas's Complaint broadly invokes section 502 as a whole, his papers presently before the Court do not pursue relief under the other subparts of that section.⁴ Mr. Thomas's Complaint is styled as an "action for moneydamages," Compl. ¶ 1, but it also seeks "such other and further relief, at law or in equity, to which Plaintiff may be justly entitled, id. ¶ IV.4. In his Reply, Mr. Thomas requests either (1) that the Court order Mr. Bostwick to deposit funds into the Plans (which Mr. Thomas acknowledges may not be feasible in light of the Plans' termination), or (2) a money judgment. Pl.'s Reply at 3-4.

Section 502(a)(2) permits a participant or beneficiary of an ERISA plan to bring a civil action "for appropriate relief" under section 409. 29 U.S.C. § 1132(a)(2). Section 409 provides that a plan fiduciary "shall be personally liable to make good to such plan any losses to the plan resulting from" a breach of his or her fiduciary duties. Id. § 1109. The statute also authorizes "such other equitable or remedial relief as the court may deem appropriate."⁵ Id. Courts have held that, in the case of a defined contribution plan, a participant may sue under section 502(a)(2) for losses to his or her individual account. LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248, 255-56 (2008).

In Massachusetts Mutual Life Insurance Co. v. Russell, the Supreme Court held that section 409 authorized only "remedies that would protect the entire plan, rather than . . . the rightsof an individual beneficiary." 473 U.S. 134, 141-44 (1985). The Court revisited that decision in LaRue to address whether the same rules apply to defined contribution plans as apply to defined benefit plans. 552 U.S. at 255-56. Defined contribution plans allocate funds to individual accounts, and each beneficiary is entitled only to the funds in his or her account. See id. In contrast, defined benefit plans pay each beneficiary a fixed amount that may be based on factors other than individual contributions, such as (in Russell) the size of an employee's salary. See id. at 255. Citing the purposes of ERISA, other sections of the statute, and the proliferation of defined contribution plans, the Court held in LaRue that, for claims related to defined contribution plans, sections 502(a)(2) and 409 "authorize recovery for fiduciary breaches that impair the value of plan...