Court Rejects Bank’s Efforts to Lay Blame on Pension Fund

June 24, 2011 ( – For the second time, Union Bank’s attempt to throw liability for its allegedly imprudent investments back onto the pension fund suing the bank has been rejected.

U.S. District Judge Susan Illston of the U.S. District Court for the Northern District of California said Union Bank’s second complaint is still attempting to shift the responsibility for its actions onto the Board of Trustees of the California Winery Workers’ Pension Trust Fund. The bank complains that the Trustees failed to monitor Union Bank, failed to object to the allocation methodology Union Bank was using, and failed to notify Union Bank or “other outside investment managers or agents” that they believed the Bank violated the investment guidelines for the plan.   

Illston agreed with the court’s previous ruling, using 9th U.S. Circuit Court of Appeals precedent, that these are not “facts that the individual trustees engaged in conduct separate and apart from the conduct of Union Bank that caused a loss to the Fund.”   

The pension fund filed a lawsuit claiming Union Bank violated its fiduciary duties under the Employee Retirement Income Security Act (ERISA) and violated the Corporate Co-Trustee Agreement and Securities Lending Agreement by engaging in investment activities which involved inappropriate risk, led to inappropriate losses and were in direct violation of the terms and conditions of the Agreements.   

Specifically, the Board alleges that Union Bank breached its fiduciary duties under ERISA with respect to two investments – a Lehman Brothers bond and $5 million in Asset Backed Securities, the Higher Education Series 2004-1 A10 bond. The Board asserts that both investments were imprudent and exceeded the 5% per issuer concentration limit set by the Agreements, and that the Lehman Bond also exceeded the aggregate portfolio concentration limit of 25% for Corporate Obligations.   

In response, Union Bank filed a counter-claim against the Board and a Third-Party Complaint against the Trustees individually, asserting that the Board as well as the individual Trustees violated their fiduciary duties to the fund by failing to adequately monitor and review Union’s Bank investments. Union Bank also sought to hold the Board liable for indemnification or contribution under ERISA and the Agreements, asserting that the Board and Trustees failed to complain to Union Bank about the method by which the bank calculated and applied the portfolio concentration limits. Union Bank claimed its method for calculating the portfolio limits was fully disclosed to the Board, yet the Board failed to notify the bank of its position until the fund had suffered losses on the bonds.  

The court dismissed that complaint, but allowed it to file an amended one.    

The case is California Winery Workers Pension Trust Fund v. Union Bank N.A., N.D. Cal., No. 3:10-cv-02240-SI.