Lehr et al v. Perri Electric, Inc., et al, No. 2:2017cv01188 - Document 56 (E.D. Cal. 2019)
Court Description: MEMORANDUM, OPINION and ORDER signed by Senior Judge William B. Shubb on 4/9/19 GRANTING 40 Motion for Summary Judgment as to Frank M. Perri and Perri Electric, Inc. only. (Coll, A)
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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 EASTERN DISTRICT OF CALIFORNIA 10 ----oo0oo---- 11 12 PAUL LEHR and COLLEEN LEHR, Plaintiffs, 13 14 15 16 17 No. 2:17-cv-1188 WBS AC v. FRANK M. PERRI; PERRI ELECTRIC, INC., a California Corporation; PERRI ELECTRIC INC. PROFIT SHARING PLAN; PERRI ELECTRIC INC. PROFIT SHARING TRUST FUND; and DOES 1-50, 18 MEMORANDUM & ORDER RE: MOTION FOR SUMMARY JUDGMENT Defendants. 19 20 ----oo0oo---- 21 22 Plaintiffs Paul and Colleen Lehr brought this action 23 against defendants Frank M. Perri (“Frank Jr.”), Perri Electric, 24 Inc. (“Perri Electric”), Perri Electric Inc. Profit Sharing Plan, 25 Perri Electric Inc. Profit Sharing Trust Fund,1 and Does 1-50, 26 27 28 The court refers to the Profit Sharing Plan and the Profit Sharing Trust Fund collectively as the Profit Sharing Plans. 1 1 1 alleging violations of the Employee Retirement Security Act of 2 1974 (“ERISA”), 29 U.S.C. §§ § 1001 et seq. 3 defendants Frank Jr.’s and Perri Electric’s Motion for Summary 4 Judgment. 5 I. Before the court is (Docket No. 40.) Factual and Procedural Background 6 On September 1, 1961, defendant Perri Electric 7 established the Perri Electric, Inc. Profit Sharing Plan for the 8 exclusive benefit of all eligible employees and their 9 beneficiaries. (Decl. of Carol Perri (“Carol Decl.”) Ex. J, 10 Perri Electric, Inc. Profit Sharing Plan Summary Plan Description 11 (Docket No. 45-7).) 12 Perri Electric in 1977 and did so for approximately three 13 decades. 14 During her time at Perri Electric, Colleen was a trustee and 15 participant in the Profit Sharing Plan.2 16 Account Balance Statement (Docket No. 45-5).) Plaintiff Colleen Lehr started working at (See Decl. of Colleen Lehr ¶ 3 (Docket No. 49-4).) (Carol Decl. Ex. H, 17 In March 2007, Perri Electric discovered that Colleen 18 had embezzled over one million dollars from the company and its 19 Profit Sharing Plans. 20 Decl.”) ¶ 3 (Docket No. 44).) 21 Colleen’s employment on March 11, 2007 (Malysiak Decl. Ex. V, 22 Colleen Lehr’s Resp. to Req. for Admis. Nos. 9 & 10 (Docket No. 23 46-8)) and removed her as trustee of the Profit Sharing Plan 24 later that year (Carol Decl. Ex. M, Resolution of Board of 25 Directors (Docket No. 45-10)). 26 27 28 (See Decl. of Frank M. Perri (“Frank Jr. Perri Electric terminated In 2009, Perri Electric filed a Colleen never made any employee contributions to the Profit Sharing Plan during the course of her employment. (Decl. of Spencer T. Malysiak (“Malysiak Decl.”) Ex. Z, Colleen Lehr’s Resp. to Special Interrog. No. 46 (Docket No. 46-12).) 2 2 1 civil suit against Colleen in Sacramento Superior Court. 2 2011, Colleen filed a voluntary petition for a Chapter 7 3 bankruptcy in the Eastern District of California. 4 Judicial Notice Ex. OO, Chapter 7 Pet. Case No. 11-40159 (Docket 5 No. 48-11).)3 6 Eastern District of California to making false statements in 7 ERISA documents, in violation of 18 U.S.C. § 1027, and was 8 ordered to pay Perri Electric $326,846 in restitution. 9 Judicial Notice Exs. MM & LL, Plea Agreement & Judgment, Case No. 10 In (Req. for On February 25, 2014, Colleen pled guilty in the (Req. for 2:12-CR-0022 LKK (Docket Nos. 48-9 & 48-8).) 11 In response to Colleen’s bankruptcy petition, Perri 12 Electric filed an amended complaint in the bankruptcy case for an 13 adversarial proceeding against Colleen and plaintiff Paul Lehr, 14 Colleen’s husband. 15 Determine Debt Nondischargeable and Obj. to Dischargability Case 16 No. 11-02749 (Docket No. 48-5).) 17 judgment in favor of Perri Electric for $1,257,395 and held the 18 amount to be non-dischargeable. 19 KK, Am. J. Regarding Civil Minute Order Dated Sept. 27, 2013 Case 20 No. 11-02749 (Docket No. 48-7).) (Req. for Judicial Notice Ex. II, Compl. to The bankruptcy court entered a (Req. for Judicial Notice Ex. The bankruptcy court itemized 21 22 23 24 25 26 27 28 The court GRANTS moving defendants’ request that the court take judicial notice of material from the related bankruptcy and criminal proceedings to the extent the underlying facts are undisputed. (See Docket Nos. 48-2, 48-5, 48-7, 48-8, 48-9 & 48-11.) Public records are proper subjects of judicial notice. See, e.g., United States v. Black, 482 F.3d 1035, 1041 (9th Cir. 2007) (“[Courts] may take notice of proceedings in other courts, both within and without the federal judicial system, if those proceedings have a direct relation to matters at issue.”); MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th Cir. 1986) (finding that courts can take judicial notice of pleadings and court orders that are matters of public record). 3 3 1 the following the damages: $802,887 for unauthorized payments for 2 personal use, $6,004 for avoidable bank charges, $78,668 for 3 company receipts deposited into Colleen’s personal account, 4 $42,995 for fraudulent charges on the company’s MasterCard, and 5 $326,851 for unauthorized retirement and company profit sharing 6 distributions. 7 payable to Perri Electric. 8 9 (Id.) The order made these amounts directly (See id.) On August 25, 2015, Paul sent $326,000 on behalf of Colleen’s estate to the bankruptcy trustee. (See Decl. of Paul 10 Lehr ¶ 5 (Docket No. 49-5); Frank Jr. Decl. Ex. C (Docket No. 44- 11 2).) 12 the amount of $326,846 to Perri Electric. 13 C.) 14 with a substantial portion going towards legal fees related to 15 the adversarial proceedings. 16 $326,000 went to the company’s Profit Sharing Plans. On October 5, 2015, the bankruptcy trustee sent a check in (Frank Jr. Decl. Ex. Perri Electric used the funds for its own business expenses, 17 (Frank Jr. Decl. ¶ 6.) None of the (See id.) On January 27, 2017, plaintiffs sent a letter to 18 defendant requesting they provide them with information about the 19 Profit Sharing Plans as required by ERISA. 20 Judicial Notice Ex. EE, Compl. ¶ 20 (Docket No. 48-1).)4 21 Defendants did not respond to the request for information. 22 response to defendants’ conduct, on June 07, 2017, plaintiffs (See Req. for In 23 24 25 26 27 28 The court GRANTS moving defendants’ request that the court take judicial notice of plaintiffs’ complaint filed in this action. Documents previously filed with the court in the instant litigation are subject to judicial notice. See Asdar Group v. Pillsbury, Madison and Sutro, 99 F.3d 289, 290 n.1 (9th Cir. 1996) (taking judicial notice of undisputed facts contained in complaint). All remaining Requests for Judicial Notice (Docket No. 48) are DENIED as MOOT. 4 4 1 filed the Complaint, alleging the following causes of action 2 under ERISA against all defendants: (1) violation of duty of 3 loyalty regarding concealment or misstatement of information; (2) 4 violation of duty of loyalty regarding misapplication of funds 5 paid to Perri Electric by the bankruptcy estate; (3) breach of 6 duty to act in accordance with the documents and instruments 7 governing the plan; and (4) breach of prohibition on transactions 8 between fiduciary and a party in interest. 9 July 27, 2017, defendants Frank Jr. and Perri Electric filed a 10 motion to dismiss. 11 on October 17, 2017. 12 move for summary judgment. 13 II. 14 (Docket No. 10.) (Docket No. 17.) (Docket No. 1.) On The court denied the motion These same defendants now Discussion A. Legal Standard 15 Summary judgment is proper “if the movant shows that 16 there is no genuine dispute as to any material fact and the 17 movant is entitled to judgment as a matter of law.” 18 P. 56(a). 19 of the suit, and a genuine issue is one that could permit a 20 reasonable jury to enter a verdict in the non-moving party’s 21 favor. 22 (1986). Fed. R. Civ. A material fact is one that could affect the outcome Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 23 The party moving for summary judgment bears the initial 24 burden of establishing the absence of a genuine issue of material 25 fact and can satisfy this burden by presenting evidence that 26 negates an essential element of the non-moving party’s case. 27 Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986). 28 Alternatively, the movant can demonstrate that the non-moving 5 1 party cannot provide evidence to support an essential element 2 upon which it will bear the burden of proof at trial. 3 inferences drawn from the underlying facts must, however, be 4 viewed in the light most favorable to the party opposing the 5 motion. 6 U.S. 574, 587 (1986). 7 8 9 B. Id. Any Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 Statutory Standing To establish standing under ERISA, a former employee such as Colleen must make a “colorable claim” that she is a plan 10 participant. See Leeson v. Transam. Disability Income Plan, 671 11 F.3d 969, 977 (9th Cir. 2012) (citing 29 U.S.C. § 1132(a)(1)(B)); 12 see also 29 U.S.C. § 1132(a)(3). 13 “any employee or former employee of an employer . . . who is or 14 may become eligible to receive a benefit of any type from an 15 employee benefit plan which covers employees of such employer.” 16 29 U.S.C. § 1002(7). 17 purposes of ERISA if the claimant has (1) “a reasonable 18 expectation of returning to covered employment” or (2) “a 19 colorable claim to vested benefits.” 20 v. Bruch, 489 U.S. 101, 103 (1989). 21 participant at the time they file their complaint to have 22 standing under ERISA. 23 Cir. 1997). 24 status and thus her statutory standing. 25 Standard Life Ins. Co., 141 F.3d 1038, 1040 (11th Cir. 1998) (“A 26 plaintiff . . . bears the burden of proving [her] entitlement to 27 contractual benefits.”); see also Leeson, 671 F.3d at 971 28 (holding that participant status is a substantive element of a An ERISA plan participant is A claimant is a participant for the Firestone Tire & Rubber Co. A plaintiff must be a See Crotty v. Cook, 121 F.3d 541, 547 (9th Colleen bears the burden of proving her participant 6 See Horton v. Reliance 1 plaintiff’s claim). 2 Colleen maintains that she has a colorable claim to 3 vested benefits. Colleen asserts that her interest in the Profit 4 Sharing Plans was $79,040.855 in 2007, which was the last time 5 she had access to plan information. 6 she embezzled $326,851 from Perri Electric’s Profit Sharing 7 Distributions, she contends that she reimbursed the Profit 8 Sharing Plans for any losses when the bankruptcy trustee tendered 9 the $326,846 check to Perri Electric.6 While Colleen concedes that Colleen asserts that her 10 claim to benefits, and thus her standing, revested upon that 11 payment. 12 under ERISA, the court must first determine whether Frank Jr. and 13 Perri Electric had any obligation to remit the payment from 14 Colleen’s bankruptcy estate to the Profit Sharing Plans. In order to ascertain whether Colleen has standing 15 1. The Application of the Restitution Amount 16 Plaintiffs maintain that they made this payment to 17 Perri Electric to satisfy the restitution order in the criminal 18 proceeding. 19 Sharing Plans because the amount of restitution is based directly 20 on losses suffered by the plan. 21 They argue that this money belongs to the Profit The court discerns no mandate, however, in either the 22 criminal case or the bankruptcy proceeding that required that 23 this initial payment to Perri Electric be remitted to the Profit 24 25 26 27 28 Even though moving defendants dispute the validity of this figure, the court assumes, without deciding, that this figure is accurate for the purposes of this motion. 5 Plaintiffs do not claim that they have paid back the rest of the money Colleen owes Perri Electric under the judgment in the bankruptcy case. 7 6 1 Sharing Plans. Notably, the restitution order in the criminal 2 case and the payee line on the check make the money payable to 3 Perri Electric, not the Profit Sharing Plans. 4 Judicial Notice Ex. FF, Order Granting Mot. to Approve Compromise 5 and Authorize Interim Distribution Case No. 11-02749 ¶¶ 7-8 6 (Docket No. 48-2).) 7 based on losses suffered by the Profit Sharing Plans, plaintiffs 8 concede that Colleen misappropriated $930,549 from Perri Electric 9 in addition to the money she took from the Profit Sharing Plans, (See Req. for Even though the amount of restitution may be 10 and that she has an obligation to pay back that money as well. 11 (See Req. for Judicial Notice Ex. KK, Am. J. Regarding Civil 12 Minute Order Dated Sept. 27, 2013 Case No. 11-02749.) 13 Accordingly, the court cannot conclude, based on the orders in 14 the bankruptcy and criminal cases, that it was improper for Perri 15 Electric to use this initial distribution to satisfy Colleen’s 16 separate obligation to repay the company. 17 Plaintiffs next claim that, by not remitting this 18 payment to the Profit Sharing Plans, defendants breached their 19 fiduciary duties--including a duty to act solely in the interest 20 of the plan participants and beneficiaries. 21 Jr. also insists that he is not a fiduciary of the plan, moving 22 defendants maintain that they were not acting as fiduciaries when 23 they used this payment to satisfy Perri Electric’s business 24 expenses. 25 Even though Frank ERISA defines a fiduciary “not in terms of formal 26 trusteeship, but in functional terms of control and authority 27 over the plan.” 28 (1993). Mertens v. Hewitt Assocs., 508 U.S. 248, 262 Fiduciary status is not an all-or-nothing concept and 8 1 applies only when a party is performing a fiduciary duty. See 2 Depot, Inc. v. Caring for Montanans, Inc., 915 F.3d 643, 654 (9th 3 Cir. 2019) (citations omitted). 4 fiduciaries may also act in other capacities, even capacities 5 that conflict with their fiduciary duties. 6 Graphic Commc’ns Int’l Union Upper Midwest Local 1M Health & 7 Welfare Plan v. Bjorkedal, 516 F.3d 719, 732 (8th Cir. 2008); see 8 also Depot, Inc., 915 F.3d at 654 (“[A party] may be a fiduciary 9 with respect to some actions but not others.”). Parties that formally serve as See Trs. of the “ERISA does 10 require, however, that the fiduciary with two hats wear only one 11 at a time, and wear the fiduciary hat when making fiduciary 12 decisions.” 13 Accordingly, “the threshold question” is whether moving 14 defendants “perform[ed] a fiduciary function” when they used the 15 disputed funds for Perri Electric’s business expenses. 16 Santomenno v. Transam. Life Ins. Co., 883 F.3d 833, 840 (9th Cir. 17 2018) (citation omitted). 18 fiduciary function in the relevant factual circumstances is a 19 legal question that the court can resolve on summary judgment. 20 See Varity Corp. v. Howe, 516 U.S. 489, 492 (1996). 21 Pegram v. Herdrich, 530 U.S. 211, 225 (2000). See Whether an entity performed a The Tenth Circuit’s decision in Holdeman v. Devine, 474 22 F.3d 770 (10th Cir. 2007) is instructive on this point. 23 Holdeman, plaintiffs brought a class action against the chief 24 executive officer of a company, alleging that he breached his 25 fiduciary duties when he failed to allocate proper funding to the 26 employees’ medical benefit plan. 27 challenged, in part, defendant’s decision to distribute 28 substantial amounts of the company’s money to its principals See id. at 774-75. 9 In Plaintiffs 1 instead of the plan. 2 that it was “clear that [defendant] was acting in his capacity as 3 CEO . . . and not in his capacity as plan fiduciary” when he 4 decided how to allocate the company’s funds. 5 affirmed the district court’s conclusion that defendant did not 6 breach any fiduciary duty to the plan because he could make 7 allocation-of-funding decisions only in his role as CEO of the 8 company. 9 See id. at 780. The Tenth Circuit held Id. The panel Id. The facts of this case compel a similar conclusion. It 10 is undisputed that the check issued by Colleen’s bankruptcy 11 trustee made the funds directly payable to Perri Electric. 12 Frank Jr. Decl. Ex. C.) 13 company, only in his role as president of Perri Electric did 14 Frank Jr. have the authority to use these funds to cover Perri 15 Electric’s business expenses. 16 Jr. did not have any authority, in his alleged role as plan 17 fiduciary, to make any decisions regarding the company’s 18 allocation of its assets. 19 court to assume that these funds became assets of the Profit 20 Sharing Plans upon payment. 21 relevant and undisputed evidence counsels against such a 22 conclusion. 23 control over assets of the company and not assets of the plan, he 24 acted in a corporate capacity in deciding to use this money to 25 satisfy Colleen’s monetary obligations to the company. 26 Accordingly, moving defendants did not breach a fiduciary duty in 27 refusing to remit Colleen’s payment to the Profit Sharing Plans. (See Because the money then belonged to the Indeed, like in Holdeman, Frank Plaintiffs’ arguments require the As explained above, however, all Because Frank Jr. was exercising discretionary 28 10 1 2 2. Status of Colleen’s Benefits 3 Given the above conclusion, defendants argue that 4 Colleen cannot establish participant status, and thus standing, 5 because the amount she owes the Profit Sharing Plans, $326,851, 6 exceeds the amount she claims in vested benefits, $79,040.85. 7 In Parker v. Bain, 68 F.3d 1131 (9th Cir. 1995), the 8 Ninth Circuit affirmed the district court’s holding that a 9 plaintiff lacked standing under ERISA where he breached his 10 fiduciary duty to the plan by embezzling funds in excess of his 11 claimed account balance. 12 Circuit held that the district court correctly concluded that the 13 plaintiff was a de facto fiduciary of the plan when he directed 14 employees of the company to transfer assets of the plan to a 15 general operating account. 16 fiduciary duty to the plan because they were clearly contrary to 17 the interests of plan participants and beneficiaries. 18 1140 (citing 29 U.S.C. §§ 1104(a)(1)(A) & 1106(b)(2)). 19 the panel concluded that the district court properly set off 20 plaintiff’s interest in the plan against the damages resulting 21 from the breach. 22 amount the plan owes the plaintiff, the plaintiff cannot bring a 23 claim as a participant and thus lacks statutory standing. 24 id. at 1141. 25 Id. See id. at 1139. Id. First, the Ninth Plaintiff’s actions breached his See id. at Second, Where the amount embezzled exceeds the See Parker controls the court’s analysis in this case. 26 First, plaintiffs cannot and do not dispute that Colleen acted as 27 a de facto fiduciary when she misappropriated $326,851 from the 28 plan and that such misappropriation constitutes a breach of her 11 1 fiduciary duty to the plan. See also Cent. States, Se. & Sw. 2 Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 571 3 (1985) (observing that fiduciaries have a duty to ensure that “a 4 plan receives all funds to which it is entitled”). 5 consistent with ERISA, the court can set off the money Colleen 6 owes to the plan against the money owed to her by the plan.7 7 Even though defendants did not plead set off as an affirmative 8 defense, the bankruptcy judge already ordered Colleen to pay 9 $326,851 in damages for money she took from the company’s Profit Second, 10 Sharing Distributions. 11 Regarding Civil Minute Order Dated Sept. 27, 2013 Case No. 11- 12 02749.) 13 benefits in 2007. 14 that shows that her vested benefits at the time of filing this 15 complaint exceed the amount she embezzled from the plan. 16 Horton, 141 F.3d at 1040 (placing the burden on the plaintiff to 17 prove their entitlement to benefits). 18 (Req. for Judicial Notice Ex. KK, Am. J. This amount dwarfs what she claims she had in vested Colleen provides the court with no evidence See Consistent with Parker, the court finds that the money 19 Colleen owes the plan exceeds any money the plan may owe her. 20 Accordingly, Colleen has no colorable claim to benefits and, as a 21 result, cannot bring a claim as a participant8 in the plan 22 23 24 25 26 27 28 Plaintiff argues that 29 U.S.C. 1056(d)(4) prohibits this court from offsetting Colleen’s benefits from the amount she owes the Profit Sharing Plan. To the contrary, in Parker, the Ninth Circuit concluded that ERISA’s antialienation provision does not prevent a company from withholding benefits from a participant it believes to have wronged the plan. 68 F.3d at 1140 (citing Coar v. Kazimir, 990 F.2d 1413, 1419 (3d Cir. 1993)). 7 Plaintiffs contend that the judgment Perri Electric has against Colleen is irrelevant because the present action is 12 8 1 against moving defendants for the breach of fiduciary duty. 2 court will thus grant summary judgment for moving defendants on 3 the grounds that plaintiffs9 lack statutory standing under 4 ERISA.10 5 The IT IS THEREFORE ORDERED that Frank M. Perri’s and Perri 6 Electric, Inc.’s Motion for Summary Judgment (Docket No. 40) be, 7 and the same hereby is, GRANTED as to these defendants only.11 8 Dated: April 9, 2019 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 brought on behalf of the plan participants, not just Colleen. Plaintiffs’ argument fails because they have not joined any other plaintiffs and did not move for class certification. Plaintiffs concede that Paul’s standing, as Colleen’s spouse and beneficiary, is entirely dependent upon Colleen’s status as a participant. Accordingly, because the court holds that Colleen does not have standing under ERISA, Paul also does not have standing to bring any of these claims. 9 Because the court concludes that plaintiffs do not have standing under ERISA, it does not address the other grounds put forth in moving defendants’ motion for summary judgment. 10 Although defense counsel has implied elsewhere in the docket that he also represents the Profit Sharing Plans (see Docket Nos. 9, 10 & 11), he clarified at oral argument that he represents only Frank Jr. and Perri Electric. 13 11
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