California Decision Expands Actuary's Potential Liability Based On Aiding And Abetting Theory

The recently published California decision in Nasrawi v. Buck Consultants LLC, issued by the Court of Appeal, Sixth District, has the potential to expand an actuarial firm's liability well beyond its current limits under California law.1

In Nasrawi, the appellate court reversed a trial court order which sustained a demurrer filed by defendants Buck Consultants and one of its actuaries, which sought the dismissal of an "aiding and abetting breach of fiduciary duty" claim against them. The plaintiffs in the case were beneficiaries of the Stanislaus County Employees Retirement Association, the administrator of the County's public employee retirement system (the "Association"). The Court of Appeal ruled that the plaintiffs' fifth amended complaint adequately alleged a claim against Buck for "aiding and abetting" various breaches of fiduciary duty allegedly owed to plaintiffs by the Association itself.

The Nasrawi plaintiffs alleged in their lawsuit that the Association breached its fiduciary duties to plaintiffs by failing to sue Buck for actuarial malpractice in connection with an actuarial valuation prepared for the Association. The Court of Appeal affirmed the dismissal of the plaintiffs' claim against the Association. However, it ruled that the Nasrawi plaintiffs' aiding and abetting allegations against Buck could nonetheless proceed, because they were based on different fiduciary duty breaches alleged against the Association in a separate lawsuit. The fiduciary duty breaches asserted against the Association in that separate lawsuit included: (1) using an imprudent rate of return assumption of 8.16%; (2) adopting a schedule of negative amortization of the pension plan's unfunded liability for earned benefits; (3) intentionally managing the pension fund so that it was always less than 90% funded in order to avoid employer contributions; (4) using pension fund assets to substitute for the County's employer contributions; and (5) transferring assets from non-valuation reserves to valuation reserves. Plaintiffs alleged that Buck knew about the Association's conduct and concealed it by way of omissions and by affirmative misrepresentations that the Association's practices were actuarially sound.

The appellate court identified the following California requirements for pleading an aiding and abetting claim under these circumstances. Specifically, it held that the plaintiffs were required to allege that: (1) the Association's alleged schemes to...