Acosta v. City National Corporation, No. 17-55421 (9th Cir. 2019)
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The DOL brought suit under the Employee Retirement Income Security Act (ERISA) for breach of fiduciary duties and self-dealing by City National in administering City National's employee profit-sharing plan. The Ninth Circuit affirmed the district court's order as to liability and held that City National engaged in prohibited self-dealing under section 406(b) of ERISA by setting and approving its own fees from Plan assets for serving as its own recordkeeper. Furthermore, such conduct was not exempt under section 408(c)(2) as reasonable compensation for services provided by a fiduciary such as recordkeeping services.
In regard to damages, the panel affirmed in part and reversed in part, holding that the loss associated with a prohibited transaction is at least the entire cost of the prohibited transaction. In cases where the fiduciary has engaged in self-dealing, the panel has previously held that the "entire cost" of the transaction is the total amount of the illegal compensation that the fiduciary paid itself. Therefore, the district court correctly determined that the expenses were City National's burden to prove and any doubts related to damages should be resolved in the DOL's favor. In this case, no reasonable jury could find in favor of City National given the paucity of the evidence demonstrating that the additional offsets represent expenses actually incurred by CNB in servicing the Plan.
Court Description: Employee Retirement Income Security Act The panel (1) affirmed the district court’s order granting partial summary judgment in favor of the Secretary of Labor and holding City National Corporation and other defendants liable for self-dealing under ERISA; and (2) affirmed in part and reversed in part the district court’s order granting summary judgment as to damages. City National Corporation maintained a defined- contribution 401(k) employee profit-sharing plan and served as the Plan’s sponsor, administrator, and one of its fiduciaries. City National Bank, a subsidiary of City National Corporation, was the Plan’s trustee and recordkeeper as well as another of its trustees. For its services as recordkeeper, City National Bank was compensated by sharing a portion of mutual funds’ fees charged to the Plan, and it did not maintain a system for
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