Opinion
Case No. 2:00CV927K
December 5, 2003
MEMORANDUM DECISION AND ORDER
This matter is before the court on Plaintiffs David P. Coldesina, DDS, P.C., Employee Profit Sharing Plan and Trust (the "Plan") and David Coldesina's Motion for Partial Summary Judgment and Defendants Ted A. Madsen and Flexible Benefit Administrators, Inc.'s Cross-Motion for Summary Judgment. The court held a hearing on these motions on December 3, 2003. Plaintiffs were represented by Peter Stirba, and Defendants were represented by R. Brent Stephens. The court took the motions under advisement. The court has carefully considered all pleadings, memoranda, and other materials submitted by the parties. The court has further considered the law and facts relevant to the parties' motions. Now being fully advised, the court enters the following Order.
BACKGROUND
This case is brought by the Plan and Dr. Coldesina as a result of Gregg Simper's embezzlement of approximately $600,000 of Plan funds. Simper committed suicide and left a note admitting to the embezzlement. Coldesina and the Plan are attempting to recover the lost funds.In 1981, David Coldesina created the Plan and has been the Plan's Trustee since that time. In 1992, Dr. Coldesina began using his friend Gregg Simper for investment advice for the Plan. Simper was an agent of Kansas City Life Insurance Company and helped several clients with investments. However, Dr. Coldesina always maintained the ultimate decision-making authority for the Plan.
In 1992, Simper suggested that Dr. Coldesina use defendants Ted A. Madsen and Flexible Benefits Administrators, Inc. for administrative and accounting assistance. Madsen was responsible for preparing an annual Statement of Annual Summary for the Plan, an annual Certificate of Participation for each of the Plan's participants, and the Plan's Form 5500 tax return. Madsen also drafted promissory notes to participants who took loans from their accounts, created amortization schedules for the loan repayments, and distributed funds to participants upon termination. Madsen did not make the determinations as to whether participants were entitled to benefits or as to the amount of loans nor did he have authority to withdraw any assets from the Plan. Madsen also did not give any investment advice to the Plan or Coldesina.
After preparing the first year-end reports, Madsen commented to Simper that it was difficult to prepare the reports using Coldesina's general ledger, In order for Madsen to have an accurate record of the contributions made, Simper suggested that Coldesina make his contributions to the Plan by checks payable to FBA, FBA would then deposit the checks into its account and then forward the contributions to Simper for investment. Simper told Madsen that Coldesina had agreed to it. Coldesina then made checks payable to FBA. Coldesina testified in his deposition that it was his understanding that Madsen was required to forward funds to Simper for appropriate investment or handling for the benefit of the Plan. On some occasions, Madsen would send a check directly to an investment vehicle according to Simper's instruction or as a result of a note on a check from Coldesina.
Coldesina testified in his deposition that Madsen had no discretion over the handling and disposition of funds Coldesina paid into the FBA account. There is no contention that the funds were mishandled in any way while the funds were in FBA's account.
In preparing year-end summaries and tax returns, Simper would provide Madsen with handwritten sheets indicating where the Plan's assets were located and relevant figures. Madsen never asked Simper to provide him with supporting documentation as to the figures he provided. Madsen submitted yearly invoices to the Plan for "administrative fees."
DISCUSSION Motions for Summary Judgment
The parties have filed cross motions for summary judgment. Both motions deal with the same issue-whether Defendants are functional fiduciaries of the Plan pursuant to ERISA.
ERISA defines a fiduciary as follows:
A person is a fiduciary with respect to a plan to the extent (i) he exercised any discretionary authority or discretionary control respecting management of such plan or exercised any authority or control respecting management or disposition of its assets . . . or (iii) he has any discretionary authority or discretionary responsibility in the administration of such a plan.29 U.S.C. § 1002(21)(A). The parties both acknowledge that Defendants were not identified as fiduciaries in the Plan. However, a person can be a functional fiduciary of a Plan even if he or she is not designated as one in Plan documents. "To determine whether a person is a fiduciary, the court must look at the functions performed by the individual, not the title that individual holds." Houton v. Thompson, 764 F. Supp. 20, 22 (D. Conn. 1991) (citing Blatt v. Marchall Lassman, 812 F.2d 810, 812 (2d Cir. 1987)). "The performance of ministerial functions, including the preparation of reports required by government agencies, does not entail discretionary authority or responsibility within the meaning of 29 U.S.C. § 1002(21)(A)." Anoka Orthopaedic Assocs. v. Lechner, 910 F.2d 514, 517 (8th Cir. 1990). "Congress intended accountants, attorneys, and other outside consultants to be treated as plan fiduciaries only if they go beyond their normal roles and assume management or administrative responsibilities." Painters of Philadelphia Dist. Council No. 21 Welfare Fund v, Price Waterhouse, 879 F.2d 1146, 1150 (3d Cir. 1989).
Plaintiffs argue that even if Madsen did not have discretion as to the investment or disbursement of funds "any control over the disposition of plan money makes the person who has the control a fiduciary." IT Corp. v. General American Life Ins. Co., 107 F.3d 1415, 1421 (9th Cir. 1997). `The statutory qualifications, that control must be `discretionary' for it to establish fiduciary status, applies to the first and third phrases, management and administration but not to the second, assets." Id. "The right to write checks on plan funds is `authority or control respecting management or disposition of its assets/" Id. "The words of the ERISA statute, and its purpose of assuring that people who have practical control over an ERISA plan's money have fiduciary responsibility to the plan's beneficiaries, require that a person with authority to direct payment of a plan's money be deemed a fiduciary." Id.
However, the undisputed facts show that Madsen had no control over the disposition of Plan funds or the authority to direct the payment of Plan funds. Madsen acted only with instruction from Simper or Coldesina. The IT Corp. explained that "[a]uthority over a plan's money is not the same thing as being a depository of the money." Id. 1422. Madsen's trust account, in this case, was nothing more than a repository created for accounting purposes. Madsen did not obtain any control or authority over the funds as a result of merely having the funds in the account until he was instructed where to put them.
Under IT Corp., the ability to write checks is irrelevant unless these Defendants had the concomitant discretion to choose the payee, Madsen wrote checks transferring the funds, but he did not have a general authority to write checks without instruction from someone else. The checks Madsen wrote for loans and disbursements were written only after receiving instruction to do so. Furthermore, although there may have been some possibility for Madsen to make errors in his handling of the funds, the "power to err . . . is not the kind of discretionary authority which turns an administrator into a fiduciary." Id. at 1421.
Plaintiffs further argue that Defendants were also fiduciaries by virtue of the discretionary responsibility they had in the Plan's administration. In determining whether an individual has discretionary responsibility in the administration of a plan, courts look to whether the individual has the "power to make any decisions as to plan policy, interpretation, practices or procedures." IT Corp., 107 F.3d at 1420. "A person who performs purely ministerial functions . . . within a framework of policies, interpretations, rules, practices, and procedures made by other persons'" does not have discretionary responsibilities over plan administration. See id. at 1419 (quoting 29 C.F.R. § 2509.75-8, at D-2).
Plaintiffs claim that Madsen was the Plan Administrator and was a fiduciary automatically. However, Madsen was never identified as such in any documentation and the court must look at the functions he performed, rather than the title Plaintiffs employ, to determine whether Madsen was a fiduciary. Plaintiffs argue that between 1993 and 1999, Defendants submitted invoices to the Plan containing charges for "administrative fees." This fact does not demonstrate that Madsen exercised control or authority regarding plan policies or interpretation. Administrative fees could just as easily be a reference to fees for ministerial functions.
Plaintiffs further argue that Madsen determined the amount of Plan assets that should be allocated to plan participants when he distributed funds for loans and made distributions to Plan participants who had been terminated. In Yeseta v. Baima, 837 F.2d 380 (9th Cir. 1988), the court held that an employee who exercised authority over a profit sharing plan by withdrawing funds from the plan and giving it to a participant in the form of a loan was a fiduciary who could be held liable under ERISA. Id. at 385-86.
However, in this case, the record is clear that Madsen did not determine a participant's eligibility for benefits, he received instructions as to a participant's ability to receive a loan, and he did not determine the amount of such loan. As to payouts to terminated employees, there is nothing in the record that suggests Madsen did anything but write a check for the amount of the participant's account. Madsen did not have discretionary authority as to the amounts or policies with respect to payouts. Madsen's actions with respect to the loans and payouts were merely ministerial
In addition, Plaintiffs contend that there were no preestablished policies, rules, practices or procedures that governed the manner in which Madsen was to perform his administrative duties. Plaintiffs argue that Madsen was acting solely at the direction of Simper and because there is no evidence of any documents or agreement that show that Madsen was ever instructed to rely on Simper's representations regarding Plan administration, Madsen's decision to rely on Simper's instructions was purely discretionary. However, Coldesina testified that Madsen was required to send payments to Simper. Coldesina also participated in the process by sending checks to FBA after Simper instructed Madsen how the process would occur. None of this evidence suggests that Madsen alone made the decision to rely on Simper.
Finally, Plaintiffs contend that Madsen never received any direction from them that he should calculate the value of the Plan's assets based solely on Simper's handwritten and oral representations. The parties dispute whether Madsen was instructed to verify or audit Simper's figures. Nevertheless, it is clear that the calculation of plan assets for year-end summaries and tax returns is within an accountants typical duties and such a ministerial function does not demonstrate the exercise of control respecting management of the Plan. Yeseta, 837 F.2d at 385. Similarly, the manner in which Madsen chose to perform this function does not demonstrate any control of Plan management. Although Plaintiffs complaint may have been the basis for their common law negligence or malpractice claims, it does not support a finding that Defendants were functional fiduciaries.
The record is clear that Madsen and FBA never agreed to undertake or assume any responsibility for the Plan other than to perform work typical of an accountant. Madsen did not exercise any discretion over the handling of funds paid into FBA's account nor did he have control over the disposition of Plan assets. Defendants did not assume de facto control over fiduciary functions. Therefore, the court concludes that Defendants are not functional fiduciaries under ERISA. Because this was the sole remaining issue in the case, Plaintiffs' case is dismissed.
III. CONCLUSION
For the reasons stated above, Plaintiffs' Motion for Partial Summary Judgment is DENIED and Defendants' Cross-Motion for Summary Judgment is GRANTED. Accordingly, this case is dismissed in its entirety, each party shall bear his or its own costs.