Unpublished Disposition, 889 F.2d 1096 (9th Cir. 1989)

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U.S. Court of Appeals for the Ninth Circuit - 889 F.2d 1096 (9th Cir. 1989)

SUNSET SCAVENGER CO., a California corporation; EnvirocalInc., a California corporation; Bayshore Salvage Co., aCalifornia corporation; the Envirocal Retirement Plan, andLivio Cristanelli, Louis Lercari, and Richard Berghella, asTrustees of and Participants in the Envirocal RetirementPlan, Plaintiffs-Appellants, Cross-Appellees,v.TRANSAMERICA OCCIDENTAL LIFE INSURANCE COMPANY, acorporation, Defendant-Appellee, Cross-Appellant.

Nos. 88-2620, 88-2694 and 88-2950.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 26, 1989.Decided Nov. 20, 1989.

Before TANG, REINHARDT and WIGGINS, Circuit Judges.



Plaintiff, Sunset Scavenger Company, appeals from the judgment following jury trial and the district court's denial of its motion for judgment notwithstanding the verdict or alternatively for a new trial. Defendant, Transamerica Occidental Life Insurance Company, appeals from the denial of its application for attorneys' fees under Sec. 502(g) (1) of ERISA. We affirm the district court's denial of these motions for the same reasons stated in its Memorandum and Order Denying Judgment N.O.V. and New Trial and the reasons stated at the hearing on attorneys' fees.

(1) Sunset's appeal from the final judgment

We reject Sunset's argument that Judge Orrick's refusal to review denial of summary judgment was fundamental error. Judge Vukain's order denying summary judgment on Sunset's contract interpretation is not reveiwable. The denial decided nothing but a need for trial and trial has occurred. Loricchio v. Legal Services, Corp., 833 F.2d 1352, 1358 (9th Cir. 1987).

There was a jury trial pursuant to Sunset's demand. The jury answered special verdicts that involved technicalities not easily subject to interpretation as a matter of law. Under California Civil Code Sec. 1645 "Technical words ... are to be interpreted as usually understood by persons in the profession or business to which they relate, unless clearly used in a different sense." Interpretation of the annuity contract required understanding of its technical provisions through expert testimony. Miller v. Los Angeles County Flood Control Dist., 8 Cal. 3d 689, 702 (1973), accord Truman v. Vargas, 80 Cal. Rptr. 373, 376-77; 275 Cal. App. 2d 976, 980-82 (1969), see also Shad v. Dean Witter, 799 F.2d 525, 530 (9th Cir. 1986).

The interpretation of the annuity contract turned upon credibility determinations, i.e., expert testimony. Therefore, interpretation was not a judicial function under California law because the annuity contract could not be properly interpreted without consideration of extrinsic evidence. Parsons v. Bristol Development Co., 62 Cal. 2d 861, 865; 402 P.2d 839, 842 (1965) (solely a judicial function to interpret a written instrument unless the interpretation turns upon the credibility of extrinsic evidence); accord, Garcia v. Truck Insurance Exchange, 36 Cal. 3d 426, 439; 682 P.2d 1100, 1106 (1984).

We find no fundamental error in the court's submission of the contract at issue to the jury for its consideration.

(2) Sunset's Appeal from the order denying judgment N.O.V. Standard of Review

We review the denial of a motion for judgment notwithstanding the verdict viewing the evidence and inferences in a light most favorable to the nonmoving party. The credibility of witnesses is not considered. The evidence must support only one reasonable conclusion, which is contrary to the verdict. Otherwise the verdict must stand. Peterson v. Kennedy, 771 F.2d 1244, 1252 (9th Cir. 1985), cert. denied, 106 S. Ct. 1642 (1986); Davis v. Partenreederei M.S. Normannia, 657 F.2d 1048, 1051 (9th Cir. 1981).

Breach of Contract Claim: J.N.O.V. Denied

Judge Orrick ruled that there was substantial evidence supporting the jury's verdict that Transamerica did not breach Section 2.2 (Deposit Fund should receive a guaranteed rate of interest or higher) and Section 3.1 (first-in-first-out) of the annuity contract. Sunset argues that Judge Orrick merely held "that Transamerica performed according to Transamerica's own theory of what the contract required it to do."

Sunset also argues that the court improperly relied on the expert testimony of Transamerica's witness Donald Grubbs. Grubbs opined that Sunset's interpretation of Section 3.1 would lead to the absurd result of crediting the Deposit Fund with more than it earned in periods of rising interest rates and vice-versa. Sunset rejects the absurdity defense.

Transamerica responds that Sunset fatally failed to challenge Grubbs' opinion disagreeing with Sunset's interpretation of the contract. In Franklin Supply Co. v. Tolmar, 454 F.2d 1059, 1071 (9th Cir. 1972), we held that when "there [is] no expert testimony to the contrary"

Under such circumstances where the answer is one requiring evidence from a professional and that evidence is received, not contradicted and no reason appears to doubt the credibility of the witness or the accuracy or inherent probability of the opinion, the facts should be deemed admitted.

454 F.2d at 1071 (citations omitted).

Sunset did not present expert testimony at trial. Its witness, Barry Homer, a partner in the firm representing Sunset, admitted that he had not reviewed any records in forming his conclusions about how Transamerica performed under the annuity contract. His testimony was based on second hand statements of Transamerica employees. Therefore, the jury's verdict should not be disturbed and the district court's order denying J.N.O.V. on the contract claim is affirmed.

(3) J.N.O.V. Denial on Sunset's Remaining Three Claims: Breach of Common Law and ERISA Fiduciary Duties and Federal Securities Fraud

Judge Orrick held that the remaining claims failed insofar as they depended upon the breach of contract claim. Sunset argues that this conclusion is "a glaring error in the law" because whether or not Transamerica performed the contract, it was still required to adhere to the disclosure and candor requirements imposed at common law and by ERISA. But Judge Orrick found "substantial evidence that defendant fully disclosed expenses and profits in total amount in its annual reports to plaintiffs." These disclosures "were sufficient under the materiality standards of Rule 10b-5, ERISA, and the common law to support the jury's verdict." We agree.

Judge Orrick also analyzed Sunset's allegations in support of its remaining claims which did not depend on their breach of contract claims: (1) risk charges; (2) secret, excessive profits; (3) illegal interest earnings; and (4) illegal expenses. Judge Orrick reasoned that although Sunset presented evidence supporting these four claims, there was nevertheless substantial evidence supporting the jury's verdict.1 

Sunset argues that Transamerica was absolutely prohibited from self dealing and therefore the court erred in concluding that the four additional claims were not material. Materiality is however a question of fact for the jury. They might have concluded that even if Sunset's claims were true, it did not matter given the Deposit Fund's growth during Transamerica's administration from $500,000 to $10 Million excluding contributions.

(4) New Trial Motion Denied

We also adopt the district court's reasoning in denying Sunset's motion for a new trial. We agree that there was substantial evidence to support the jury's verdict. The verdict was also not clearly contrary to the weight of the evidence.

The following facts detract from the credibility of plaintiffs' witnesses and enhance that of defendant's witnesses: (1) defense witnesses based their testimony on their personal review of actual records of what was done in the administration of the Deposit Fund; (2) Sunset did not call a single witness who had reviewed the relevant records; (3) Sunset's witness, Barry Homer, is a partner in the law firm representing Sunset; (4) his testimony about allegedly improper administration of the Deposit Fund was based on the admissions of a Transamerica employee who had not reviewed the relevant records but only had second hand knowledge.

As the denial of a motion for new trial is reviewed for an abuse of discretion, Robins v. Harum, 773 F.2d 1004, 1006 (9th Cir. 1985), this court cannot reverse "unless it has a definite and firm conviction" that Judge Orrick committed a clear error of judgment. Fjelstad v. Honda, 762 F.2d 1334, 1337 (9th Cir. 1985).

Sunset failed to show that the jury's verdict was clearly contrary to the weight of evidence. Therefore, the order denying motion for new trial is affirmed.

(5) Jury Instructions

We review the jury instructions in their entirety. The question is whether the district court adequately instructed the jury on each element of the various claims to ensure it fully understood the issues. Los Angeles Memorial Coliseum Comm. v. National Football Leagues, 726 F.2d 1381, 1398 (9th Cir.), cert. denied, 469 U.S. 990 (1984).

Sunset objects to the following jury instruction:

ERISA expressly states that defendant was entitled, as a fiduciary under ERISA, to receive reasonable compensation for services rendered or for the reimbursement of expenses properly or actually incurred, in the performance of its duties with respect to the plan, but no compensation or expenses outside of those that are authorized by ERISA.

Sunset argues that "the trial court failed to advise the jury that secret or undisclosed payments by an ERISA fiduciary to itself, even if modest or reasonable in amount, are forbidden." Sunset claims that this omission "drained the meaning of the immediately preceding instruction" which provided:

The defendant was prohibited as a fiduciary under ERISA from dealing with the assets of the plan in its own interest or for its own account.

Sunset's authority for the proposition that undisclosed payments are forbidden is the following passage from Scott on Trusts, Sec. 170.25, p. 436 (4th ed. 1987): "When [a trustee] acts without the consent of the beneficiaries, the transaction will be set aside even though it was otherwise fair and reasonable." Sunset argues that this universal common law rule is codified in ERISA at 29 U.S.C. § 1106(b).

Any error in instruction was harmless. There was substantial evidence that Transamerica fully disclosed expenses and profits in total amount in its annual report to Sunset. Moreover, the court's common law fiduciary duty instruction provided that Transamerica could not obtain any advantage over Sunset by the slightest concealment, and Transamerica had a duty to communicate all material facts. Therefore the court did in effect instruct the jury on secret payments.

Sunset also challenges the court's instruction that Transamerica's fiduciary duties arose after entering into the annuity contract. Sunset argues that the fiduciary relationship began when Transamerica made the contract proposal, or Transamerica had a duty to at least correct any misstatement. However, the court instructed the jury that Transamerica was obliged to apprise Sunset of all material facts. This instruction covered any alleged misrepresentations. In any event, the court need not incorporate every proposition of law suggested by counsel. Los Angeles Mem. Coliseum Comm., 726 F.2d at 1398.

Reviewing the instructions in their entirety, the court amply instructed the jurors on the elements of the case so that they fully understood the issues.

(6) ERISA Attorneys' Fees

Standard of Review

Since 29 U.S.C. § 1132(g) (1975) commits the allowance of fees to the district court's discretion; the denial of such fee application is reviewed for an abuse of discretion. An abuse of discretion is found only when there is a definite conviction that the court made a clear error in judgment in its conclusion upon weighing relevant factors. Hummell v. Rykoff, 634 F.2d 446, 452 (9th Cir. 1980) (citations omitted).

The following factors apply to the exercise of discretion under Sec. 1132(g):

(1) the degree of the opposing parties' culpability or bad faith;

(2) the ability of the opposing parties to satisfy an award of fees.

(3) whether an award of fees against the opposing parties would deter others from acting under similar circumstances;

(4) whether the parties requesting fees sought to benefit all participants and beneficiaries of an ERISA plan or to resolve a significant legal question regarding ERISA; and

(5) the relative merits of the parties' positions.

Id. at 453 (citation omitted).

Transamerica claims the district court misapplied the first factor (the degree of the opposing parties' culpability or bad faith) because the court characterized that factor as the most important of the five and stated that "the shifting of fees in an ERISA case is reserved for cases of frivolous or malicious litigation." Such characterization violates this court's holding in Carpenters Southern Cal. Admin. Corp. v. Russel, 726 F.2d 1410, 1415-16 (9th Cir. 1984).

Transamerica's argument is specious. In Carpenters Southern this court rejected a standard allowing fees to defendants only where the action was frivolous, unreasonable, or without foundation. Such a standard "impermissibly narrows the scope of the statute." We opined that " [n]o one of the Hummell factors ... is necessarily decisive, and some may not be pertinent in a given case." Id. at 1416.

A review of Judge Orrick's reasoning reveals that he expressly considered all the relevant factors. Although the court did state that bad faith was the most important factor, it did not rely on that first factor exclusively. Similarly, although the court perhaps erred in stating "that the shifting of fees in ERISA is reserved for cases of frivolous or malicious litigation", it nonetheless applied all relevant factors and therefore did not violate the principle of Carpenters Southern.

Transamerica's also argues that the court erroneously held that the fourth Hummell factor (resolution of significant legal question) weighed against Transamerica because it lost two of the three pretrial motions on the ERISA count. However, the court did not rule against Transamerica on the fourth factor because it lost its arguments, the court ruled against Transamerica on the fourth factor because the ERISA issues in this case are common.

Finally, Transamerica contends that the court abused its discretion in applying the standards because (1) Sunset had no expert; (2) first-in-first out would hurt plan participants when interest rates fell; and (3) plaintiff's proof was poor because no witness reviewed the records. This argument ignores the court's conclusion that there was conflicting evidence on every claim including damaging admissions by Transamerican employees.

A review of the transcript shows that Judge Orrick judiciously exercised his discretion, and therefore his denial of the application for attorneys fees is affirmed.

We need not address Transamerica's appeal from Judge Vukasin's summary judgment order given our affirmance of the judgment following trial.



This disposition is not appropriate for publication and may not be cited to or by the courts of this circuit except as provided by 9th Cir.R. 36-3


The court found that the following supported the jury's verdict:

(1) Sunset's Deposit Fund grew from approximately $500,000 to about $1 Million under Transamerica's administration excluding plaintiff's contributions.

(2) The Deposit Fund was credited with at least the guaranteed interest rate in every year, and that the total of the four expenses and profit items of which plaintiff complained totaled only $80,000. (Sunset claims $211,006)

(3) The items of profit and expenses deducted from the Deposit Fund were legitimate and reasonable under ERISA and the common law for a fiduciary administering a trust fund.

(4) Risk charges are commonly deducted on such contracts.

(5) Sunset not Transamerica earned interest on the use of monies set aside for expenses.

(6) An $820.50 overpayment was not kept by Transamerica.

(7) Transamerica fully disclosed expenses and profits in its annual report to the plaintiffs.