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
Plaintiff, Appellee,
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.
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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
Plaintiff, Appellee,
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-