
USCA1 Opinion

	




                            UNITED STATES COURT OF APPEALS                            UNITED STATES COURT OF APPEALS                                FOR THE FIRST CIRCUIT                                FOR THE FIRST CIRCUIT                                 ____________________        No. 95-1363                                 ARTHUR T. COTTRILL,                                Plaintiff, Appellant,                                          v.                      SPARROW, JOHNSON & URSILLO, INC., ET AL.,                                Defendants, Appellees.                                _____________________        No. 95-1434                                 ARTHUR T. COTTRILL,                                 Plaintiff, Appellee,                                          v.                      SPARROW, JOHNSON & URSILLO, INC., ET AL.,                               Defendants, Appellants.                                 ____________________                    APPEALS FROM THE UNITED STATES DISTRICT COURT                           FOR THE DISTRICT OF RHODE ISLAND                     [Hon. Ernest C. Torres, U.S. District Judge]                                             ___________________                                ____________________                                        Before                                Torruella, Chief Judge,                                           ___________                            Aldrich, Senior Circuit Judge,                                     ____________________                              and Selya, Circuit Judge.                                         _____________                                 ____________________                                 ____________________            Jeffrey S. Brenner and Corrente, Brill  & Kusinitz, Ltd. on  brief            __________________     _________________________________        for Arthur T. Cottrill.            Edward C. Roy, Jr. and Roy & Cook on brief for  Sparrow, Johnson &            __________________     __________        Ursillo, Inc., et al.                                 ____________________                                   January 23, 1996                                 ____________________                      ALDRICH, Senior Circuit Judge.   Arthur T. Cottrill                               ____________________            (Cottrill)  sued  several  defendants:  Sparrow,   Johnson  &            Ursillo, Inc. (SJU), a Rhode Island accounting firm with whom            he was  employed as  a certified public  accountant; Sparrow,            Johnson &  Ursillo, Inc. Profit  Sharing Plan and  Trust (SJU            Plan,  or Plan), and Steven J.  Ursillo (Ursillo), an officer            and stockholder of  SJU and  a "named Trustee"  of SJU  Plan.            Cottrill  sought,  inter  alia,1  pursuant  to  the  Employee                               _____  ____            Retirement Income  Security Act,  29 U.S.C.    1001  et seq.,                                                                 __ ___            (ERISA), to vacate revocation  by the Plan of  his beneficial            interest  of $18,775.52.  Ursillo, in his capacity as trustee            of  the  SJU  Plan, counterclaimed,  alleging  that Cottrill,            acting  in  a  fiduciary relationship,  was  responsible  for            losing an investment  of $130,000 of Plan's  assets, and thus            owed it full recompense.                      A magistrate  judge,  in a  detailed  opinion,  had            recommended ruling in Cottrill's favor on motions for summary            judgment, but  the district  court, after conducting  a bench            trial,  held that Cottrill was a fiduciary of the Plan within            the meaning of ERISA,  29 U.S.C.   1002(21)(A), and therefore            was  responsible  to Plan  for the  loss.   It  dismissed the            counterclaim, however,  for failure  to prove damages.   Both            sides  appeal.  We reverse  and remand for  entry of judgment                                            ____________________            1.  Two  further counts  have been  dropped,  as a  result of            which SJU is no longer a party.                                         -3-            for Cottrill on his complaint, and  affirm, on other grounds,            dismissal of the Plan's counterclaim.                      In  December of  1988, $130,000  of the  SJU Plan's            assets were  invested, through  a partnership known  as North            Main Street Associates One, in  which Cottrill was a partner,            in  a  group  of  second  mortgages  held  by First  Security            Mortgage  Company.     Cottrill   effected  the   SJU  Plan's            investment, as authorized by Ursillo, a named  trustee of the            Plan.   Unhappily  Cottrill obtained  no promissory  note or,            seemingly, any other documentation  of the investment.  First            Security  paid interest  to North  Main for  a while,  but by            December of 1990, the assets had apparently disappeared.2                      Because  both the  claim and  counterclaim turn  on            whether Cottrill was a fiduciary with respect to the $130,000            investment  at issue, we focus solely on the grounds given to            support  the  court's  conclusion.    The  court  found  that            Cottrill was a fiduciary because he exercised "both effective            and  actual authority  and  control over  the management  and            disposition of  the $130,000,"  which brought him  within the            definition of a  fiduciary under ERISA as one  who "exercises            any authority or control respecting management or disposition                                            ____________________            2.  Perhaps  the mortgages  simply  became  worthless --  the            record is  silent.  In  any event, the  court found that  the            investment was lost.                                         -4-            of  [a plan's]  assets."   29 U.S.C.    1002(21)(A)(i).3   It            based  this conclusion  on a  number of  subsidiary findings,            including  that Cottrill  was  a "principal"  of  SJU, and  a            participant  in  the SJU  profit-sharing  Plan;  that he  had            recommended  the  investment  to  Ursillo,   specifically  by            reporting  that he  had  looked into  it  and the  investment            looked good; that he  had assumed responsibility for managing            the  investment and  obtaining documentation,  disbursing the            $130,000   to  the  mortgagee   and  collecting   the  income            generated; that he was  a partner in North Main,  the vehicle            for  making the investment, and listed himself on its account            record as the partner in charge of the investment.                      None  of these subsidiary findings, however, singly            or  collectively, amount  to "authority  or control  over the                                          ___________________________            management  or disposition" of the funds in question.  On the            contrary, this was twice contradicted by Ursillo himself, who            stated that he, as a Plan trustee, authorized the investment.                      The  court's reference to Cottrill as a "principal"            of  SJU overlooks  the  undisputed testimony  that this  was,                                            ____________________            3.        The statue reads, in relevant part:                      [A] person is a fiduciary with respect to a plan to                      the  extent  (i)  he  exercises  any  discretionary                      authority   or  discretionary   control  respecting                      management of  such plan or exercises any authority                      or  control respecting management or disposition of                      its assets . . . .            29 U.S.C.   1002(21)(A).                                         -5-            literally,  a  "letterhead" title  for  client  purposes, but            quite  aside from that, SJU  itself did not  manage the Plan.            As a  "participant" in the Plan  Cottrill had no powers.   It            did not  amount to  "authority  over the  management" of  the            assets for Cottrill, with no power to invest, to recommend an            investment to Ursillo as sound; nor were powers  conferred on            him  as a gratuitous advisor4  by the trustee's accepting his            opinion.   Schloegel v.  Boswell, 994  F.2d 266,  271-72 (5th                       _________     _______            Cir.), cert. denied, ___ U.S. ___, 114 S.Ct. 440, 126 L.Ed.2d                   ____________            374 (1993)  ("[m]ere influence over  the trustee's investment            decisions . . .  is not effective control over  plan assets,"            where  ultimate  decision-making  authority rests  elsewhere)            (citing cases).   The court  made no finding,  nor could  the            record  support  one,  that  authority or  control  was  ever            delegated or "relinquished" to Cottrill in authorizing him to            execute  the management and  disposition decision of Ursillo.            See id. at 271-72.            ___ ___                      The   court's  finding  that  North  Main  was  the            "vehicle" for the investment  was exactly correct, but  it is            the  driver, not  the vehicle,  that chooses  the route.   In            collecting and disbursing money due, Cottrill (by North Main)            was simply  a conduit, performing a  ministerial act directed            by Ursillo.  Under ERISA, "the existence of discretion [is] a                                            ____________________            4.  No claim has been  made, nor is there any  evidence, that            Cottrill  was at  any time  a specially  paid advisor  to the            Plan.  Compare 29 U.S.C.   1002(21)(A)(ii).                    _______                                         -6-            sine qua non of  fiduciary duty."  Pohl v.  National Benefits                                               ____     _________________            Consultants, Inc., 956  F.2d 126, 129 (7th Cir.  1992) (where            _________________            plan  administrator function  was  clerical, mechanical,  and            ministerial,   it   was  not   discretionary).     Cottrill's            mechanical duty  to  acquire "documentation"  evidencing  the            mortgage assignments and  securing the authorized transaction            between First Security and the Plan entailed no discretionary            involvement in management of the assets.                      So  much for  management.   We turn to  the further            language  of  subsection  (i),  concerning  exercise  of "any            authority or  control  respecting .  .  . disposition  of  [a            plan's] assets."  29 U.S.C.   1002(21)(A)(i).  True, Cottrill            exercised physical control when  he forwarded the $130,000 to            First  Security.   Did this  constitute "disposition"  of the            assets?  The  meaning of disposition  is to be judged  by its            companion words.   Again,  these indicate that  the fiduciary            exercise authority or control, i.e., discretion and judgment,            over the disposition, not simply perform a transfer specified            by the trustee --  a purely administrative act.   See Sommers                                                              ___ _______            Drug  Stores v.  Corrigan Enterprises,  Inc., 793  F.2d 1456,            ____________     ___________________________            1460  (5th Cir. 1986), cert. denied, 479 U.S. 1034, and cert.                                   ____________                     _____            denied,  479  U.S. 1089  (1987)  (defendants  could be  found            ______            fiduciaries with  respect to  sale of  trust's stock  only if                                                                  ____            they controlled trustees' decision  to sell; such control not            inferable from defendants' power to appoint trustees).                                         -7-                      In sum, there was no possible basis for the court's            conclusion that Cottrill  was a fiduciary.  Absent  any other            basis for assigning him personal  liability for the loss, his            funds in the Plan should not have been offset against it.  We            conclude  there was  no  issue as  to  any material  fact  to            preclude  judgment in  favor  of Cottrill.    We reverse  and            remand for entry of judgment in his favor on the complaint.                      A word about the counterclaim.  The court found for            Cottrill on the ground that, given his $18,775.52 interest in            the Plan was  offset against  the loss, and  the balance  had            been satisfied by Ursillo,  there had been no showing  of any            damages suffered by the Plan.   More to the point, in view of            what  we have already held, there was no valid demand against            Cottrill in the first place.   On this latter basis we affirm            the judgment dismissing the counterclaim.                                         -8-
