Carson Friend Collene Friend Brad Friend Trav Friend Carson Lighting, Inc. Carson Lighting, Defined Benefit Pension Plan v. Sanwa Bank California

Does a bank violate federal law when it serves, at the same time, as trustee of a pension plan and creditor of a company whose stock is held as a plan trust asset?

*468 I

Carson Friend was the sole trustee of the Carson Lighting, Inc. Profit Sharing and Pension Plans (“Plans”) until 1990. He was the sole beneficiary of the profit sharing provisions. He and his family were the beneficiaries of the pension provisions.

For at least ten years, until 1991, the Plans invested $796,000 in unsecured promissory notes issued by Supreme Finance, Inc. (“Supreme”), a corporation that financed the purchase of used cars. During this time, Sanwa Bank California (“Sanwa”) extended a secured line of credit to Supreme worth $3 million. All other debts owed by Supreme were subordinated to Sanwa’s line of credit. In 1987, Supreme began to experience financial problems, and in 1990 it agreed with Sanwa to deposit all its receivables with San-wa. Sanwa would keep $8,000 in principal plus interest each week and return the excess to Supreme.

In 1990, Friend asked his banker at Sanwa for help administering the Plans and in due course a representative of Sanwa’s trust department contacted him. Friend…

35 F.3d 466 63 USLW 2216 , 18 Employee Benefits Cas. 2057 Carson FRIEND; Collene Friend; Brad Friend; Trav Friend; Carson Lighting, Inc.; Carson Lighting, Defined Benefit Pension Plan, Plaintiffs-Appellants, v. SANWA BANK CALIFORNIA, Defendant-Appellee. No. 92-55641. United States Court of Appeals, Ninth Circuit. Argued and Submitted March 9, 1994. Decided Sept. 13, 1994. Aaron P. Morris, Good, Wildman, Hegness & Walley, Newport Beach, CA, for plaintiffs-appellants. Angel Gomez, III, and Anthony J. Oncidi, Hill, Wynne, Troop & Meisinger, Los Angeles, CA, for defendant-appellee. Appeal from the United States District Court for the Central District of California. Before: PREGERSON, O'SCANNLAIN, and FERNANDEZ, Circuit Judges. O'SCANNLAIN, Circuit Judge: 1 Does a bank violate federal law when it serves, at the same time, as trustee of a pension plan and creditor of a company whose stock is held as a plan trust asset?I 2 Carson Friend was the sole trustee of the Carson Lighting, Inc. Profit Sharing and Pension Plans ("Plans") until 1990. He was the sole beneficiary of the profit sharing provisions. He and his family were the beneficiaries of the pension provisions. 3 For at…

concurring:

I agree with the majority opinion that there has been no violation of the fiduciary duties under ERISA. Nonetheless, I write separately because I am troubled by Sanwa’s dual status as trustee and creditor (with priority over the pension and profit sharing plans). The problem is that the debt owed by Supreme to Sanwa has priority over the plans’ claim; and there are only enough assets in Supreme to pay Sanwa. This dual loyalties problem will arise whenever a secured creditor becomes trustee to a plan that *471 holds a claim which is subordinated to the creditor/trustee’s claim.

I would prefer to resolve this ease by focusing on the ERISA requirements for establishing an employee benefit plan. 1 An employee benefit plan must be established by a written instrument that provides for one or more “named fiduciaries.” 29 U.S.C. § 1102 (1); § 1102(2) (defining a named fiduciary as “a fiduciary who is named in the plan instrument”). Furthermore, “all assets of an employee benefit plan shall be held in trust by one or more trustees. Such trustee or trustees shall be either named in the trust instrument or in the plan instrument ... or appointed by a person who is a named fidu-…