Nasrawi v. Buck Consultants LLC
231 Cal. App. 4th 328, 2014 Cal. App. LEXIS 1009, 179 Cal. Rptr. 3d 813 (2014)
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Rule of Law:
A third party may be liable for aiding and abetting a trustee's breach of fiduciary duty even if the third party owes no independent duty to the trust beneficiaries. A viable aiding and abetting claim does not depend on the success of a separate claim against the trustee in the same lawsuit, especially when the claim against the trustee is dismissed on procedural grounds like governmental immunity.
Facts:
- The Stanislaus County Employees Retirement Association (the Association) administers a pension trust fund for retired public employees, including Dennis Nasrawi, Michael O’Neal, and Rhonda Biesemeier.
- The Association hired Buck Consultants LLC (Buck) and its employee, Harold Loeb, to provide actuarial services for the pension fund.
- The Association allegedly engaged in several practices to deliberately underfund the pension, such as using an imprudent actuarial rate of return and adopting a schedule of negative amortization.
- Buck and Loeb were aware of the Association's underfunding practices and allegedly concealed them by verifying their actuarial soundness and making false representations at public meetings between 2005 and 2009.
- Separately, in a 2007 actuarial valuation, Buck and Loeb negligently used inappropriate assumptions, causing the County's annual employer contribution to be understated by $40 million.
- The Association discovered the potential malpractice but, instead of suing, entered into a tolling agreement with Buck on July 6, 2009, which paused the statute of limitations but did not initiate litigation.
Procedural Posture:
- Plaintiffs Nasrawi, O'Neal, and Biesemeier filed suit against Buck and Loeb in Stanislaus County Superior Court (a state trial court).
- Defendants removed the case to federal district court, where plaintiffs amended their complaint twice.
- The federal district court remanded the case back to state court.
- The case was transferred to Santa Clara County Superior Court, which sustained a demurrer to plaintiffs' second amended complaint, finding they lacked standing.
- Plaintiffs filed a fifth amended complaint, asserting a breach of fiduciary duty against the Association and an aiding and abetting claim against Buck and Loeb.
- The trial court sustained demurrers filed by all defendants without leave to amend, resulting in a judgment of dismissal.
- Plaintiffs, as appellants, appealed the judgment of dismissal to the California Court of Appeal, Sixth Appellate District.
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Issue:
Can trust beneficiaries state a claim against a third party for aiding and abetting a trustee’s breach of fiduciary duty, even when a separate claim against the trustee in the same action is dismissed due to governmental immunity?
Opinions:
Majority - Premo, J.
Yes. A claim against a third party for aiding and abetting a trustee's breach of fiduciary duty can proceed independently and is not contingent on the success of a separate claim against the trustee, particularly when the latter is barred by governmental immunity. The court affirmed the dismissal of the claim against the Association but reversed the dismissal of the aiding and abetting claim against Buck and Loeb. The claim against the Association failed for two reasons: 1) Plaintiffs did not comply with the Government Claims Act, as their suit was for monetary damages and did not fall under the narrow exception for claims of benefits under a pension system. 2) The Association was protected by governmental immunity under Government Code section 820.2 because the decision whether to pursue litigation against Buck and Loeb was a discretionary act involving policy-level judgment, balancing risks, costs, and benefits. However, the trial court erred in concluding that the failure of this claim against the Association was fatal to the aiding and abetting claim against Buck and Loeb. The aiding and abetting claim was predicated on a different underlying breach: the Association's deliberate underfunding of the pension, not its failure to sue. Plaintiffs properly alleged the elements of aiding and abetting: (1) the Association's underfunding schemes breached its fiduciary duties, (2) Buck and Loeb knew of the breach, (3) they provided substantial assistance by concealing it and misrepresenting the fund's health, and (4) this caused harm. A defendant can be liable for aiding and abetting a breach of fiduciary duty even if they owe no independent duty to the plaintiff.
Analysis:
This case clarifies the distinction between primary liability for a breach of fiduciary duty and secondary liability for aiding and abetting such a breach. It establishes that trust beneficiaries can directly sue third-party professionals, like actuaries or accountants, for knowingly assisting a trustee in breaching its duties. The decision is significant because it prevents non-fiduciary third parties from using a public entity trustee's governmental immunity as a shield for their own tortious conduct. This ruling ensures that beneficiaries have a path to recourse against accomplices, even when procedural bars prevent a successful suit against the primary fiduciary.
