Lehr et al v. Perri Electric, Inc., et al

Filing 56

MEMORANDUM, OPINION and ORDER signed by Senior Judge William B. Shubb on 4/9/19 GRANTING 40 Motion for Summary Judgment as to Frank M. Perri and Perri Electric, Inc. only. (Coll, A)

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UNITED STATES DISTRICT COURT

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EASTERN DISTRICT OF CALIFORNIA

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PAUL LEHR and COLLEEN LEHR,
Plaintiffs,

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No. 2:17-cv-1188 WBS AC

v.
FRANK M. PERRI; PERRI ELECTRIC,
INC., a California Corporation;
PERRI ELECTRIC INC. PROFIT
SHARING PLAN; PERRI ELECTRIC
INC. PROFIT SHARING TRUST FUND;
and DOES 1-50,

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MEMORANDUM & ORDER RE: MOTION
FOR SUMMARY JUDGMENT

Defendants.

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Plaintiffs Paul and Colleen Lehr brought this action

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against defendants Frank M. Perri (“Frank Jr.”), Perri Electric,

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Inc. (“Perri Electric”), Perri Electric Inc. Profit Sharing Plan,

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Perri Electric Inc. Profit Sharing Trust Fund,1 and Does 1-50,

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The court refers to the Profit Sharing Plan and the
Profit Sharing Trust Fund collectively as the Profit Sharing
Plans.
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alleging violations of the Employee Retirement Security Act of

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1974 (“ERISA”), 29 U.S.C. §§ § 1001 et seq.

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defendants Frank Jr.’s and Perri Electric’s Motion for Summary

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Judgment.

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I.

Before the court is

(Docket No. 40.)

Factual and Procedural Background

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On September 1, 1961, defendant Perri Electric

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established the Perri Electric, Inc. Profit Sharing Plan for the

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exclusive benefit of all eligible employees and their

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beneficiaries.

(Decl. of Carol Perri (“Carol Decl.”) Ex. J,

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Perri Electric, Inc. Profit Sharing Plan Summary Plan Description

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(Docket No. 45-7).)

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Perri Electric in 1977 and did so for approximately three

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decades.

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During her time at Perri Electric, Colleen was a trustee and

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participant in the Profit Sharing Plan.2

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Account Balance Statement (Docket No. 45-5).)

Plaintiff Colleen Lehr started working at

(See Decl. of Colleen Lehr ¶ 3 (Docket No. 49-4).)

(Carol Decl. Ex. H,

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In March 2007, Perri Electric discovered that Colleen

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had embezzled over one million dollars from the company and its

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Profit Sharing Plans.

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Decl.”) ¶ 3 (Docket No. 44).)

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Colleen’s employment on March 11, 2007 (Malysiak Decl. Ex. V,

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Colleen Lehr’s Resp. to Req. for Admis. Nos. 9 & 10 (Docket No.

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46-8)) and removed her as trustee of the Profit Sharing Plan

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later that year (Carol Decl. Ex. M, Resolution of Board of

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Directors (Docket No. 45-10)).

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(See Decl. of Frank M. Perri (“Frank Jr.
Perri Electric terminated

In 2009, Perri Electric filed a

Colleen never made any employee contributions to the
Profit Sharing Plan during the course of her employment. (Decl.
of Spencer T. Malysiak (“Malysiak Decl.”) Ex. Z, Colleen Lehr’s
Resp. to Special Interrog. No. 46 (Docket No. 46-12).)
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civil suit against Colleen in Sacramento Superior Court.

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2011, Colleen filed a voluntary petition for a Chapter 7

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bankruptcy in the Eastern District of California.

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Judicial Notice Ex. OO, Chapter 7 Pet. Case No. 11-40159 (Docket

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No. 48-11).)3

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Eastern District of California to making false statements in

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ERISA documents, in violation of 18 U.S.C. § 1027, and was

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ordered to pay Perri Electric $326,846 in restitution.

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Judicial Notice Exs. MM & LL, Plea Agreement & Judgment, Case No.

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In

(Req. for

On February 25, 2014, Colleen pled guilty in the

(Req. for

2:12-CR-0022 LKK (Docket Nos. 48-9 & 48-8).)

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In response to Colleen’s bankruptcy petition, Perri

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Electric filed an amended complaint in the bankruptcy case for an

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adversarial proceeding against Colleen and plaintiff Paul Lehr,

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Colleen’s husband.

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Determine Debt Nondischargeable and Obj. to Dischargability Case

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No. 11-02749 (Docket No. 48-5).)

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judgment in favor of Perri Electric for $1,257,395 and held the

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amount to be non-dischargeable.

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KK, Am. J. Regarding Civil Minute Order Dated Sept. 27, 2013 Case

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No. 11-02749 (Docket No. 48-7).)

(Req. for Judicial Notice Ex. II, Compl. to

The bankruptcy court entered a

(Req. for Judicial Notice Ex.

The bankruptcy court itemized

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The court GRANTS moving defendants’ request that the
court take judicial notice of material from the related
bankruptcy and criminal proceedings to the extent the underlying
facts are undisputed. (See Docket Nos. 48-2, 48-5, 48-7, 48-8,
48-9 & 48-11.) Public records are proper subjects of judicial
notice. See, e.g., United States v. Black, 482 F.3d 1035, 1041
(9th Cir. 2007) (“[Courts] may take notice of proceedings in
other courts, both within and without the federal judicial
system, if those proceedings have a direct relation to matters at
issue.”); MGIC Indem. Corp. v. Weisman, 803 F.2d 500, 504 (9th
Cir. 1986) (finding that courts can take judicial notice of
pleadings and court orders that are matters of public record).
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the following the damages: $802,887 for unauthorized payments for

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personal use, $6,004 for avoidable bank charges, $78,668 for

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company receipts deposited into Colleen’s personal account,

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$42,995 for fraudulent charges on the company’s MasterCard, and

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$326,851 for unauthorized retirement and company profit sharing

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distributions.

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payable to Perri Electric.

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(Id.)

The order made these amounts directly
(See id.)

On August 25, 2015, Paul sent $326,000 on behalf of
Colleen’s estate to the bankruptcy trustee.

(See Decl. of Paul

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Lehr ¶ 5 (Docket No. 49-5); Frank Jr. Decl. Ex. C (Docket No. 44-

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2).)

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the amount of $326,846 to Perri Electric.

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C.)

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with a substantial portion going towards legal fees related to

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the adversarial proceedings.

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$326,000 went to the company’s Profit Sharing Plans.

On October 5, 2015, the bankruptcy trustee sent a check in
(Frank Jr. Decl. Ex.

Perri Electric used the funds for its own business expenses,

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(Frank Jr. Decl. ¶ 6.)

None of the
(See id.)

On January 27, 2017, plaintiffs sent a letter to

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defendant requesting they provide them with information about the

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Profit Sharing Plans as required by ERISA.

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Judicial Notice Ex. EE, Compl. ¶ 20 (Docket No. 48-1).)4

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Defendants did not respond to the request for information.

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response to defendants’ conduct, on June 07, 2017, plaintiffs

(See Req. for

In

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The court GRANTS moving defendants’ request that the
court take judicial notice of plaintiffs’ complaint filed in this
action. Documents previously filed with the court in the instant
litigation are subject to judicial notice. See Asdar Group v.
Pillsbury, Madison and Sutro, 99 F.3d 289, 290 n.1 (9th Cir.
1996) (taking judicial notice of undisputed facts contained in
complaint). All remaining Requests for Judicial Notice (Docket
No. 48) are DENIED as MOOT.
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filed the Complaint, alleging the following causes of action

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under ERISA against all defendants: (1) violation of duty of

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loyalty regarding concealment or misstatement of information; (2)

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violation of duty of loyalty regarding misapplication of funds

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paid to Perri Electric by the bankruptcy estate; (3) breach of

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duty to act in accordance with the documents and instruments

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governing the plan; and (4) breach of prohibition on transactions

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between fiduciary and a party in interest.

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July 27, 2017, defendants Frank Jr. and Perri Electric filed a

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motion to dismiss.

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on October 17, 2017.

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II.

On

move for summary judgment.

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(Docket No. 10.)

(Docket No. 1.)

(Docket No. 17.)

The court denied the motion
These same defendants now

Discussion
A.

Legal Standard

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Summary judgment is proper “if the movant shows that

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there is no genuine dispute as to any material fact and the

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movant is entitled to judgment as a matter of law.”

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P. 56(a).

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of the suit, and a genuine issue is one that could permit a

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reasonable jury to enter a verdict in the non-moving party’s

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favor.

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(1986).

Fed. R. Civ.

A material fact is one that could affect the outcome

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

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The party moving for summary judgment bears the initial

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burden of establishing the absence of a genuine issue of material

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fact and can satisfy this burden by presenting evidence that

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negates an essential element of the non-moving party’s case.

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Celotex Corp. v. Catrett, 477 U.S. 317, 322–23 (1986).

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Alternatively, the movant can demonstrate that the non-moving
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party cannot provide evidence to support an essential element

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upon which it will bear the burden of proof at trial.

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inferences drawn from the underlying facts must, however, be

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viewed in the light most favorable to the party opposing the

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motion.

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U.S. 574, 587 (1986).

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B.

Id.

Any

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475

Statutory Standing
To establish standing under ERISA, a former employee

such as Colleen must make a “colorable claim” that she is a plan

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participant.

See Leeson v. Transam. Disability Income Plan, 671

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F.3d 969, 977 (9th Cir. 2012) (citing 29 U.S.C. § 1132(a)(1)(B));

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see also 29 U.S.C. § 1132(a)(3).

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“any employee or former employee of an employer . . . who is or

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may become eligible to receive a benefit of any type from an

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employee benefit plan which covers employees of such employer.”

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29 U.S.C. § 1002(7).

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purposes of ERISA if the claimant has (1) “a reasonable

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expectation of returning to covered employment” or (2) “a

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colorable claim to vested benefits.”

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v. Bruch, 489 U.S. 101, 103 (1989).

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participant at the time they file their complaint to have

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standing under ERISA.

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Cir. 1997).

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status and thus her statutory standing.

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Standard Life Ins. Co., 141 F.3d 1038, 1040 (11th Cir. 1998) (“A

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plaintiff . . . bears the burden of proving [her] entitlement to

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contractual benefits.”); see also Leeson, 671 F.3d at 971

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(holding that participant status is a substantive element of a

An ERISA plan participant is

A claimant is a participant for the

Firestone Tire & Rubber Co.
A plaintiff must be a

See Crotty v. Cook, 121 F.3d 541, 547 (9th

Colleen bears the burden of proving her participant

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See Horton v. Reliance

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plaintiff’s claim).

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Colleen maintains that she has a colorable claim to

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vested benefits.

Colleen asserts that her interest in the Profit

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Sharing Plans was $79,040.855 in 2007, which was the last time

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she had access to plan information.

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she embezzled $326,851 from Perri Electric’s Profit Sharing

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Distributions, she contends that she reimbursed the Profit

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Sharing Plans for any losses when the bankruptcy trustee tendered

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the $326,846 check to Perri Electric.6

While Colleen concedes that

Colleen asserts that her

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claim to benefits, and thus her standing, revested upon that

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payment.

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under ERISA, the court must first determine whether Frank Jr. and

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Perri Electric had any obligation to remit the payment from

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Colleen’s bankruptcy estate to the Profit Sharing Plans.

In order to ascertain whether Colleen has standing

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1.

The Application of the Restitution Amount

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Plaintiffs maintain that they made this payment to

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Perri Electric to satisfy the restitution order in the criminal

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proceeding.

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Sharing Plans because the amount of restitution is based directly

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on losses suffered by the plan.

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They argue that this money belongs to the Profit

The court discerns no mandate, however, in either the

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criminal case or the bankruptcy proceeding that required that

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this initial payment to Perri Electric be remitted to the Profit

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Even though moving defendants dispute the validity of
this figure, the court assumes, without deciding, that this
figure is accurate for the purposes of this motion.
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Plaintiffs do not claim that they have paid back the
rest of the money Colleen owes Perri Electric under the judgment
in the bankruptcy case.
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Sharing Plans.

Notably, the restitution order in the criminal

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case and the payee line on the check make the money payable to

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Perri Electric, not the Profit Sharing Plans.

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Judicial Notice Ex. FF, Order Granting Mot. to Approve Compromise

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and Authorize Interim Distribution Case No. 11-02749 ¶¶ 7-8

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(Docket No. 48-2).)

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based on losses suffered by the Profit Sharing Plans, plaintiffs

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concede that Colleen misappropriated $930,549 from Perri Electric

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in addition to the money she took from the Profit Sharing Plans,

(See Req. for

Even though the amount of restitution may be

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and that she has an obligation to pay back that money as well.

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(See Req. for Judicial Notice Ex. KK, Am. J. Regarding Civil

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Minute Order Dated Sept. 27, 2013 Case No. 11-02749.)

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Accordingly, the court cannot conclude, based on the orders in

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the bankruptcy and criminal cases, that it was improper for Perri

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Electric to use this initial distribution to satisfy Colleen’s

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separate obligation to repay the company.

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Plaintiffs next claim that, by not remitting this

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payment to the Profit Sharing Plans, defendants breached their

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fiduciary duties--including a duty to act solely in the interest

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of the plan participants and beneficiaries.

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Jr. also insists that he is not a fiduciary of the plan, moving

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defendants maintain that they were not acting as fiduciaries when

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they used this payment to satisfy Perri Electric’s business

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expenses.

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Even though Frank

ERISA defines a fiduciary “not in terms of formal

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trusteeship, but in functional terms of control and authority

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over the plan.”

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(1993).

Mertens v. Hewitt Assocs., 508 U.S. 248, 262

Fiduciary status is not an all-or-nothing concept and
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applies only when a party is performing a fiduciary duty.

See

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Depot, Inc. v. Caring for Montanans, Inc., 915 F.3d 643, 654 (9th

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Cir. 2019) (citations omitted).

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fiduciaries may also act in other capacities, even capacities

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that conflict with their fiduciary duties.

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Graphic Commc’ns Int’l Union Upper Midwest Local 1M Health &

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Welfare Plan v. Bjorkedal, 516 F.3d 719, 732 (8th Cir. 2008); see

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also Depot, Inc., 915 F.3d at 654 (“[A party] may be a fiduciary

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with respect to some actions but not others.”).

Parties that formally serve as

See Trs. of the

“ERISA does

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require, however, that the fiduciary with two hats wear only one

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at a time, and wear the fiduciary hat when making fiduciary

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decisions.”

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Accordingly, “the threshold question” is whether moving

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defendants “perform[ed] a fiduciary function” when they used the

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disputed funds for Perri Electric’s business expenses.

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Santomenno v. Transam. Life Ins. Co., 883 F.3d 833, 840 (9th Cir.

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2018) (citation omitted).

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fiduciary function in the relevant factual circumstances is a

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legal question that the court can resolve on summary judgment.

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See Varity Corp. v. Howe, 516 U.S. 489, 492 (1996).

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Pegram v. Herdrich, 530 U.S. 211, 225 (2000).

See

Whether an entity performed a

The Tenth Circuit’s decision in Holdeman v. Devine, 474

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F.3d 770 (10th Cir. 2007) is instructive on this point.

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Holdeman, plaintiffs brought a class action against the chief

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executive officer of a company, alleging that he breached his

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fiduciary duties when he failed to allocate proper funding to the

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employees’ medical benefit plan.

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challenged, in part, defendant’s decision to distribute

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substantial amounts of the company’s money to its principals

See id. at 774-75.

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In

Plaintiffs

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instead of the plan.

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that it was “clear that [defendant] was acting in his capacity as

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CEO . . . and not in his capacity as plan fiduciary” when he

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decided how to allocate the company’s funds.

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affirmed the district court’s conclusion that defendant did not

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breach any fiduciary duty to the plan because he could make

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allocation-of-funding decisions only in his role as CEO of the

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company.

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See id. at 780.

The Tenth Circuit held

Id.

The panel

Id.
The facts of this case compel a similar conclusion.

It

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is undisputed that the check issued by Colleen’s bankruptcy

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trustee made the funds directly payable to Perri Electric.

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Frank Jr. Decl. Ex. C.)

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company, only in his role as president of Perri Electric did

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Frank Jr. have the authority to use these funds to cover Perri

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Electric’s business expenses.

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Jr. did not have any authority, in his alleged role as plan

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fiduciary, to make any decisions regarding the company’s

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allocation of its assets.

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court to assume that these funds became assets of the Profit

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Sharing Plans upon payment.

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relevant and undisputed evidence counsels against such a

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conclusion.

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control over assets of the company and not assets of the plan, he

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acted in a corporate capacity in deciding to use this money to

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satisfy Colleen’s monetary obligations to the company.

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Accordingly, moving defendants did not breach a fiduciary duty in

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refusing to remit Colleen’s payment to the Profit Sharing Plans.

(See

Because the money then belonged to the

Indeed, like in Holdeman, Frank

Plaintiffs’ arguments require the

As explained above, however, all

Because Frank Jr. was exercising discretionary

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2.

Status of Colleen’s Benefits

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Given the above conclusion, defendants argue that

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Colleen cannot establish participant status, and thus standing,

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because the amount she owes the Profit Sharing Plans, $326,851,

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exceeds the amount she claims in vested benefits, $79,040.85.

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In Parker v. Bain, 68 F.3d 1131 (9th Cir. 1995), the

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Ninth Circuit affirmed the district court’s holding that a

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plaintiff lacked standing under ERISA where he breached his

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fiduciary duty to the plan by embezzling funds in excess of his

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claimed account balance.

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Circuit held that the district court correctly concluded that the

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plaintiff was a de facto fiduciary of the plan when he directed

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employees of the company to transfer assets of the plan to a

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general operating account.

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fiduciary duty to the plan because they were clearly contrary to

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the interests of plan participants and beneficiaries.

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1140 (citing 29 U.S.C. §§ 1104(a)(1)(A) & 1106(b)(2)).

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the panel concluded that the district court properly set off

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plaintiff’s interest in the plan against the damages resulting

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from the breach.

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amount the plan owes the plaintiff, the plaintiff cannot bring a

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claim as a participant and thus lacks statutory standing.

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id. at 1141.

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Id.

See id. at 1139.

Id.

First, the Ninth

Plaintiff’s actions breached his

See id. at
Second,

Where the amount embezzled exceeds the

See

Parker controls the court’s analysis in this case.

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First, plaintiffs cannot and do not dispute that Colleen acted as

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a de facto fiduciary when she misappropriated $326,851 from the

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plan and that such misappropriation constitutes a breach of her
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fiduciary duty to the plan.

See also Cent. States, Se. & Sw.

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Areas Pension Fund v. Cent. Transp., Inc., 472 U.S. 559, 571

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(1985) (observing that fiduciaries have a duty to ensure that “a

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plan receives all funds to which it is entitled”).

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consistent with ERISA, the court can set off the money Colleen

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owes to the plan against the money owed to her by the plan.7

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Even though defendants did not plead set off as an affirmative

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defense, the bankruptcy judge already ordered Colleen to pay

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$326,851 in damages for money she took from the company’s Profit

Second,

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Sharing Distributions.

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Regarding Civil Minute Order Dated Sept. 27, 2013 Case No. 11-

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02749.)

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benefits in 2007.

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that shows that her vested benefits at the time of filing this

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complaint exceed the amount she embezzled from the plan.

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Horton, 141 F.3d at 1040 (placing the burden on the plaintiff to

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prove their entitlement to benefits).

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(Req. for Judicial Notice Ex. KK, Am. J.

This amount dwarfs what she claims she had in vested
Colleen provides the court with no evidence

See

Consistent with Parker, the court finds that the money

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Colleen owes the plan exceeds any money the plan may owe her.

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Accordingly, Colleen has no colorable claim to benefits and, as a

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result, cannot bring a claim as a participant8 in the plan

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Plaintiff argues that 29 U.S.C. 1056(d)(4) prohibits
this court from offsetting Colleen’s benefits from the amount she
owes the Profit Sharing Plan. To the contrary, in Parker, the
Ninth Circuit concluded that ERISA’s antialienation provision
does not prevent a company from withholding benefits from a
participant it believes to have wronged the plan. 68 F.3d at
1140 (citing Coar v. Kazimir, 990 F.2d 1413, 1419 (3d Cir.
1993)).
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Plaintiffs contend that the judgment Perri Electric has
against Colleen is irrelevant because the present action is
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against moving defendants for the breach of fiduciary duty.

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court will thus grant summary judgment for moving defendants on

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the grounds that plaintiffs9 lack statutory standing under

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ERISA.10

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The

IT IS THEREFORE ORDERED that Frank M. Perri’s and Perri

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Electric, Inc.’s Motion for Summary Judgment (Docket No. 40) be,

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and the same hereby is, GRANTED as to these defendants only.11

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Dated:

April 9, 2019

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brought on behalf of the plan participants, not just Colleen.
Plaintiffs’ argument fails because they have not joined any other
plaintiffs and did not move for class certification.
Plaintiffs concede that Paul’s standing, as Colleen’s
spouse and beneficiary, is entirely dependent upon Colleen’s
status as a participant. Accordingly, because the court holds
that Colleen does not have standing under ERISA, Paul also does
not have standing to bring any of these claims.
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Because the court concludes that plaintiffs do not have
standing under ERISA, it does not address the other grounds put
forth in moving defendants’ motion for summary judgment.
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Although defense counsel has implied elsewhere in the
docket that he also represents the Profit Sharing Plans (see
Docket Nos. 9, 10 & 11), he clarified at oral argument that he
represents only Frank Jr. and Perri Electric.
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