MORGAN, LEWIS &
BOCKIUS LLP
ATTORNEYS AT LAW
SAN FR AN C I SC O
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NORTH STAR TRUST CO.’S REPLY TO PLAINTIFFS’ OPPOSITION TO MOTION FOR SUMMARY JUDGMENT
CASE NO. C06-07339 CW
MORGAN, LEWIS & BOCKIUS LLP
Nicole A. Diller (State Bar No. 154842)
Donald P. Sullivan (State Bar No. 191080)
Andrew C. Sullivan (State Bar. No. 226902)
One Market, Spear Street Tower
San Francisco, California 94105
Telephone: (415) 442-1000
Facsimile: (415) 442-1001
Attorneys for North Star Trust Company
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
THOMAS FERNANDEZ, LORA SMITH,
and TOSHA THOMAS,
Plaintiffs,
vs.
K-M INDUSTRIES HOLDING CO., INC.;
K-M INDUSTRIES HOLDING CO., INC.
ESOP PLAN COMMITTEE; WILLIAM
E. AND DESIREE B. MOORE
REVOCABLE TRUST; TRUSTEES OF
THE WILLIAM E. AND DESIREE B.
MOORE REVOCABLE TRUST;
ADMINISTRATOR OF THE ESTATE OF
WILLIAM E. MOORE, DECEASED; CIG
ESOP PLAN COMMITTEE; and NORTH
STAR TRUST COMPANY,
Defendants.
Case No. C06-07339 CW
NORTH STAR TRUST COMPANY’S
SEPARATE MEMORANDUM IN REPLY
TO PLAINTIFFS’ OPPOSITION TO
MOTION FOR SUMMARY JUDGMENT
RE STATUTE OF LIMITATIONS
PURSUANT TO THIS COURT’S JULY 2,
2008 ORDER
Date: July 31, 2008
Time: 2:00 p.m.
Dept.: Courtroom 2, 4th Floor
Judge: Hon. Claudia Wilken
Case 4:06-cv-07339-CW Document 208 Filed 07/17/2008 Page 1 of 3
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1 NORTH STAR TRUST CO.’S REPLY TO PLAINTIFFS’ OPPOSITION TO MOTION FOR SUMMARY JUDGMENT
20763111v1
I. THE COMPLAINT’S REFERENCE TO ERISA SECTION 405 CANNOT
REASONABLY BE READ TO PERTAIN TO NORTH STAR
Plaintiffs’ Opposition contends that the Second Amended Complaint (“SAC”) asserts a
claim against North Star under ERISA Section 405(a)(3), 29 U.S.C. § 1105(a)(3). Opp., p. 46. In
addition to the reasons stated in the Combined Reply, the SAC’s reference to Section 405 failed
to put North Star on notice of a separate claim against it because ERISA Section 409(b), 29
U.S.C. § 1109(b), precludes assertion of such claim against North Star as a matter of law.
ERISA Section 405(a)(3) relates to liability for breach by a co-fiduciary, providing liability where
one fiduciary “has knowledge of a breach by such other fiduciary, unless he makes reasonable
efforts under the circumstances to remedy the breach.” 29 U.S.C. § 1105(a)(3). That section
does not apply to North Star, who Plaintiffs admit serves as a successor fiduciary, not a co-
fiduciary. Rather, ERISA Section 409(b) governs North Star’s liability this situation. It states:
§ 409. Liability for breach of fiduciary duty.
(b) No fiduciary shall be liable with respect to a breach of
fiduciary duty under this subchapter if such breach was
committed before he became a fiduciary or after he ceased to be a
fiduciary.
29 U.S.C. § 1109(b) (emphasis added); Steinman v. Hicks, 252 F.Supp.2d 746, 755 (C.D. Ill.
2003) (granting summary judgment to defendants on ground that they could not be held liable for
a breach of fiduciary duty that occurred before they became fiduciaries); see also Brugos v.
Nannenga, 2005 WL 1528370, at *3 (N.D. Ind. June 24, 2005) (“Because 29 U.S.C. § 1109(b)
expressly precludes any liability for breaches that occurred prior to a fiduciary’s appointment, it is
beyond doubt that Mr. Bohlen and Mr. Novak cannot prove a set of facts that would entitle them
to relief on their claims against Post-Purchase Trustees”).
The district court for the District of Columbia recently considered the interplay between
ERISA Sections 405(a) and 409(b). Stephens v. U.S. Airways Group, 2008 WL 2103426 (D.D.C.
May 20, 2008). In Stephens, the plaintiffs brought an action against the Pension Benefits
Guarantee Corporation (“PBGC”) for failure to remedy the fiduciary breaches of its predecessor
fiduciary, U.S. Airways. The PBGC moved for summary judgment on the ground that ERISA
Case 4:06-cv-07339-CW Document 208 Filed 07/17/2008 Page 2 of 3
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2 NORTH STAR TRUST CO.’S REPLY TO PLAINTIFFS’ OPPOSITION TO MOTION FOR SUMMARY JUDGMENT
20763111v1
Section 409(b) prevents it from being held liable for the breaches of its predecessor. Like the
Plaintiffs in the instant case, the Stephens plaintiffs argued that they were not seeking to hold the
PBGC liable for the alleged breaches of U.S. Airways, but were instead seeking to hold the
PBGC liable for failing to remedy U.S. Airways’ alleged breaches. The district court rejected the
argument and granted summary judgment to the PBGC. Id. at *5. Reasoning that Congress must
have intended to give both Sections 405(a)(3) and 409(b) meaning, the court held that Section
405(a)(3) applies to situations in which two or more fiduciaries are serving as fiduciaries at the
same time (i.e., co-fiduciaries), while Section 409(b) applies to the liability of a successor
fiduciary. Id. Because the PBGC served as a successor fiduciary to U.S. Airways, not as its co-
fiduciary, ERISA Section 409(b) precluded holding the PBGC liable for “a past but unremedied
breach” by U.S. Airways. Id. at *6. 1
Plaintiffs admit that North Star was not a fiduciary of the ESOP at the time of the 1998
and 1999 transactions. Opp., p. 46:2-6. Because Plaintiffs’ purported claim under ERISA
Section 405(a)(3) contravenes ERISA’s provisions governing liability of successor trustees, the
SAC failed to put North Star on notice of the claim discussed in Plaintiff’s Opposition
memorandum. Accordingly, the Court should grant judgment for North Star.
II. CONCLUSION
For the reasons discussed above, North Star Trust Company respectfully requests the
Court grant its motion and enter judgment for North Star.
Dated: July 17, 2008 MORGAN, LEWIS & BOCKIUS LLP
By: /S/ Nicole A. Diller
Nicole A. Diller
Donald P. Sullivan
Attorneys for North Star Trust Company
DB2/20763111.1
1 Plaintiffs citation to Silverman v. Mutual Benefit Life Ins. Co., 138 F.3d 98 (2d Cir. 1998), does not
change this conclusion. Silverman did not consider ERISA Section 409(b) at all in reaching its
conclusion, relying instead on the Restatement (Second) of Trusts § 223(2). Reliance on trust law to
determine an issue of ERISA interpretation is inappropriate where that law conflicts with the plain
language of ERISA. United States v. Lanier, 520 U.S. 259, 267 n. 6 (1997); Reves v. Ernst & Young, 507
U.S. 170, 177 (1993); Consumer Product Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980).
Case 4:06-cv-07339-CW Document 208 Filed 07/17/2008 Page 3 of 3
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Declaration ISO Combined Reply to Plaintiffs’ Opp. to Defendants’ Motion for Summary Judgment
CASE NO. C06-07339 CW
MORGAN, LEWIS & BOCKIUS LLP
Nicole A. Diller (State Bar No. 154842)
Donald P. Sullivan (State Bar No. 191080)
Andrew C. Sullivan (State Bar. No. 226902)
One Market, Spear Street Tower
San Francisco, California 94105
Telephone: (415) 442-1000
Facsimile: (415) 442-1001
Attorneys for North Star Trust Company
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
THOMAS FERNANDEZ, LORA SMITH,
and TOSHA THOMAS
Plaintiffs,
vs.
K-M INDUSTRIES HOLDING CO., INC.;
K-M INDUSTRIES HOLDING CO., INC.
ESOP PLAN COMMITTEE; WILLIAM
E. AND DESIREE B. MOORE
REVOCABLE TRUST; TRUSTEES OF
THE WILLIAM E. AND DESIREE B.
MOORE REVOCABLE TRUST;
ADMINISTRATOR OF THE ESTATE OF
WILLIAM E. MOORE, DECEASED; CIG
ESOP PLAN COMMITTEE; and NORTH
STAR TRUST COMPANY,
Defendants.
Case No. C06-07339 CW
DECLARATION OF DONALD P.
SULLIVAN IN SUPPORT OF NORTH
STAR TRUST COMPANY’S REPLY TO
PLAINTIFFS’ OPPOSITION TO
DEFENDANTS’ MOTION FOR
SUMMARY JUDGMENT
Date: July 31, 2008
Time: 2:00 p.m.
Dept.: Courtroom 2, 4th Floor
Judge: Hon. Claudia Wilken
Case 4:06-cv-07339-CW Document 208-2 Filed 07/17/2008 Page 1 of 2
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Declaration ISO Combined Reply to Plaintiffs’ Opp. to Defendants’ Motion for Summary Judgment
CASE NO. C06-07339 CW
1
I, Donald P. Sullivan, declare and state as follows:
1. I am an attorney with the law firm of Morgan, Lewis & Bockius LLP (“Morgan
Lewis”), attorneys of record for Defendant North Star Trust Company (“North Star”). I am
licensed to practice law in the State of California and have been admitted to practice in the
Northern District of California. Except as otherwise indicated, I have direct and personal
knowledge of the facts set forth in this Declaration and, if called and sworn as a witness, I would
competently testify to these facts.
2. On May 22, 2008 at approximately 4:30 p.m., Nicole A. Diller and I participated
in a telephonic meet and confer session with Daniel M. Feinberg, counsel for Plaintiffs in the
instant action, regarding an outstanding discovery issue. Following the discussion regarding the
discovery issue, Mr. Feinberg briefly discussed the holding in the Ninth Circuit’s opinion
Landwehr v. DuPree, 72 F.3d 726 (9th Cir. 1995). The discussion of the Landwehr case did not
last more than three to four minutes.
Dated: July 17, 2008
Respectfully submitted,
/S/ Donald P. Sullivan
DB2/20768972.1
Case 4:06-cv-07339-CW Document 208-2 Filed 07/17/2008 Page 2 of 2
