Unpublished Disposition, 862 F.2d 318 (9th Cir. 1987)

MEMORANDUM^* 

Patrick and Karen Townsend brought suit against the Southern California Rock Products and Ready Mixed Concrete Industries Employee Benefit Plan (the Plan) and a variety of alleged fiduciaries of the Plan: Towers, Perrin, Forster & Crosby; Trust Services of America, Inc.; American Insurance Administrators, Inc.; the Pension and Insurance Committee for the Industries; the union that negotiated the collective bargaining agreement governing the Plan, the International Union of Operating Engineers, Local 12, AFL-CIO; and counsel for the plan, Robert G. Wilson, his partner John P. Reitman, and their partnership, Wilson & Reitman. The district court gave judgment for the defendants. We affirm in part and reverse in part and remand.

FACTS

The Rock Products and Ready Mixed Concrete Employers of Southern California entered into an agreement with Local 12 of the International Union of Operating Engineers to establish an employee benefit plan pursuant to the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1001 et seq. Patrick Townsend, a member of Local 12, is an employee of the Blue Diamond Division of Sully and Miller Contracting Co., one of the employers.

On October 19, 1984 the fiduciary named by the Plan voted to adopt a new program governing mental health benefits called the Membership Aid Program (MAP), which was offered by Holman Consulting Corporation. MAP became effective on February 1, 1985. It reduced the total benefits that could be paid for mental health services in any one year.

Townsend's daughter was hospitalized in May 1985 for psychiatric care. In June 1985 Townsend was advised that he had reached the maximum benefit of $15,000 payable under the Membership Aid Program for the care of his daughter. He incurred expenses for her over the maximum and was not reimbursed by the Plan.

In September 1985 Townsend and his wife Karen brought suit in a California state court against the Plan itself and various other defendants alleging breach of fiduciary duty, conspiracy to defraud and breach of contract and violation of the California Insurance Code. Demurrers to all of these claims were sustained without leave to amend except as to the Insurance Code claim.

The Townsends filed the present action on December 18, 1986. On January 12, 1987, the defendants moved to dismiss. The Townsends amended their complaint. The defendants again moved to dismiss, for summary judgment in favor of Wilson, Reitman, and their partnership, and for sanctions against Fred L. Wright, counsel for the Townsends. These motions were heard on March 16, 1987. The district court granted the motion to dismiss, giving the Townsends leave to amend and directing them to say specifically how each defendant came within ERISA definition of a fiduciary and how they had violated their obligations. The district court granted the motion by the lawyer defendants for summary judgment and imposed sanctions of $3,000 under Fed. R. Civ. P. 11 against Wright.

Wright appealed the award of sanctions to this circuit. Wright also filed a motion asking the district court to reconsider the imposition of sanctions. The Townsends filed a Second Amended Complaint.

On June 22, 1987 the district court dismissed with prejudice the Townsends' claims. The district court also awarded further sanctions of $500 against Wright for his motion seeking reconsideration of an order after the district court had ceased to have jurisdiction of the matter. The Townsends and Wright appealed.

ANALYSIS

1. The Townsends begin by asserting that the judgment in favor of Wilson, Reitman and their firm was improper. The Townsends describe the judgment as a dismissal of their claim. In fact, it was summary judgment. The normal rules for review of summary judgment apply.

Was any material fact in dispute? No. No evidence was offered that Wilson, Reitman, or that their firm had advised the defendants to adopt MAP or that Wilson, Reitman, or that their firm were making more money from the Plan because of the change. In the absence of evidence on the part of the plaintiffs, the district court correctly gave judgment for these defendants.

On this appeal the Townsends seek to introduce a new issue, that of the propriety of Wilson representing the Plan and the alleged fiduciaries in the California state court. The issue was not raised at the trial and it is raised too late here to be considered.

2. The Second Amended Complaint asserted as a first cause of action that the Pension and Insurance Committee for the Industries, the administrator of the Plan, on the advice of Robert Wilson, had agreed to indemnify the defendant American Insurance Administrators, the company that paid benefits for the Plan; the defendant Holman Consulting Corporation, an insurer of Plan beneficiaries; Trust Services of America, a company collecting and investing Plan assets; and defendant Towers, Perrin, Forster & Crosby, a company giving investment advice to the Plan--this indemnification to be against any damages incurred because of the Townsends' action against them in the State of California based on allegations that these defendants had violated the California Insurance Code Sec. 7903(h) by their actions in regard to MAP. This cause of action evaporated when it was determined that there was no such indemnification agreement. The district court granted summary judgment for the defendants. No appeal was taken.

3. The third cause of action in the Second Amended Complaint alleged that the announcement of the changes by the Plan did describe the changes but did not explain how they limited the benefits for mental health counseling previously available. The district court dismissed this cause of action without leave to amend. The court noted that the complaint itself admitted that the Townsends had received exact notice of the new coverage.

The district court was correct. There was no breach of a fiduciary duty when the Townsends were accurately informed of the benefits for which they were currently eligible.

4. The fourth cause of action sought damages against the union for recommending MAP in breach of its duty of fair representation. The district court gave summary judgment for the union. At oral argument the Townsends abandoned the appeal.

5. The second cause of action in the Second Amended Complaint alleged that the adoption of MAP had reduced the benefits to Plan beneficiaries in order to equalize the treatment by the Plan of union members who were beneficiaries of the Plan and union members who were not beneficiaries of the Plan. The defendants were alleged to have carried out this amendment in violation of their fiduciary duties. It was further alleged that as a proximate result the Townsends lost benefits they would otherwise have had.

29 U.S.C. § 1104(a) (1) provides that a fiduciary shall discharge his duties with respect to a plan "solely in the interest of the participants and beneficiaries" and for two exclusive purposes: providing benefits to participants and their beneficiaries and covering the reasonable expenses of administration. An allegation that the Plan was administered by the fiduciary in the interest of non-Plan members of a union is an allegation of breach of fiduciary duty. The alleged breach caused damage to the plaintiffs. The allegations stated a cause of action. We reverse the district court's dismissal of this cause of action.

6. On this appeal the Townsends have argued that they should also have been given leave to amend their complaint to allege that the fiduciary failed to negotiate the change in benefits with the union as required by the collective bargaining agreement governing changes in the Plan. This allegation would have been inconsistent with the Townsends' pleading that the union had recommended and requested the change. Inconsistent pleading, however, is expressly permitted by Fed. R. Civ. P. 8(e) (2). Statements made in the pleading must still conform with the requirements of Rule 11. Id. However, if the pleader is able to comply with Rule 11, the pleader may adopt inconsistent approaches.

The question remains whether it was an abuse of discretion for the district court to deny leave to amend. Leave is to be granted freely "when justice so requires." Fed. R. Civ. P. Rule 15(a). At the same time, "repeated failure to cure deficiencies" is a ground for denying leave to amend. Foman v. Davis, 371 U.S. 178, 182 (1962); Keniston v. Roberts, 717 F.2d 1295, 1300 (9th Cir. 1983). In the present case where there had been one amendment made as a matter of right and one made by leave of the court, we think the court abused its discretion in not permitting the Townsends, if they properly could, to allege that the collective bargaining agreement had been violated.

A separate opinion with respect to the sanctions question will be issued in due course.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.