Gregory Johnson v. Clair Couturier, Jr.

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GREGORY JOHNSON; WILLIAM 

RODWELL; EDWARD RANGEL; KELLY

MORRELL,

Plaintiffs-Appellees,

and

DARLEEN STANTON,

Plaintiff,

ROORDA PIQUET & BESSEE, INC.,

Non-party appearing witness,

Witness,

v.

CLAIR R. COUTURIER, JR., No. 08-17369

Defendant,

DAVID R. JOHANSON; NOLL  D.C. No.

2:05-cv-02046-

MANUFACTURING COMPANY RRB-GGH

EMPLOYEE STOCK OWNERSHIP

PLAN AND TRUST; PENSCO, INC.;

JOHANSON BERENSON LLP; THE

EMPLOYEE OWNERSHIP HOLDING

CORPORATION, Employee Stock

Ownership Plan; N & NW

MANUFACTURING HOLDING

COMPANY, INC.; NOLL

MANUFACTURING COMPANY,

Defendants,

and

ROBERT E. EDDY,

Defendant-Appellant.



9695

9696 JOHNSON v. COUTURIER

GREGORY JOHNSON; WILLIAM 

RODWELL; EDWARD RANGEL; KELLY

MORRELL,

Plaintiffs-Appellees,

and

DARLEEN STANTON,

Plaintiff,

ROORDA PIQUET & BESSEE, INC.,

Non-party appearing witness,

Witness,

v.

CLAIR R. COUTURIER, JR., No. 08-17373

Defendant,

ROBERT E. EDDY; NOLL  D.C. No.

2:05-cv-02046-

MANUFACTURING COMPANY RRB-GGH

EMPLOYEE STOCK OWNERSHIP

PLAN AND TRUST; PENSCO, INC.;

JOHANSON BERENSON LLP; THE

EMPLOYEE OWNERSHIP HOLDING

CORPORATION, Employee Stock

Ownership Plan; N & NW

MANUFACTURING HOLDING

COMPANY, INC.; NOLL

MANUFACTURING COMPANY,

Defendants,

and

DAVID R. JOHANSON,

Defendant-Appellant.



JOHNSON v. COUTURIER 9697

GREGORY JOHNSON; WILLIAM 

RODWELL; EDWARD RANGEL; KELLY

MORRELL,

Plaintiffs-Appellees,

and

DARLEEN STANTON,

Plaintiff,

ROORDA PIQUET & BESSEE, INC.,

Non-party appearing witness,

Witness,

v.

No. 08-17375

CLAIR R. COUTURIER, JR.,

Defendant-Appellant,  D.C. No.

2:05-cv-02046-

and RRB-GGH

ROBERT E. EDDY; DAVID R.

JOHANSON; NOLL MANUFACTURING

COMPANY EMPLOYEE STOCK

OWNERSHIP PLAN AND TRUST;

PENSCO, INC.; JOHANSON BERENSON

LLP; THE EMPLOYEE OWNERSHIP

HOLDING CORPORATION, Employee

Stock Ownership Plan; N & NW

MANUFACTURING HOLDING

COMPANY, INC.; NOLL

MANUFACTURING COMPANY,

Defendants.



9698 JOHNSON v. COUTURIER

GREGORY JOHNSON; WILLIAM 

RODWELL; EDWARD RANGEL; KELLY

MORRELL,

Plaintiffs-Appellees,

and

DARLEEN STANTON,

Plaintiff,

ROORDA PIQUET & BESSEE, INC.,

Non-party appearing witness,

Witness,

v. No. 08-17631

CLAIR R. COUTURIER, JR., D.C. No.

Defendant-Appellant,  2:05-cv-02046-

and RRB-GGH

ROBERT E. EDDY; DAVID R. OPINION

JOHANSON; NOLL MANUFACTURING

COMPANY EMPLOYEE STOCK

OWNERSHIP PLAN AND TRUST;

PENSCO, INC.; JOHANSON BERENSON

LLP; THE EMPLOYEE OWNERSHIP

HOLDING CORPORATION, Employee

Stock Ownership Plan; N & NW

MANUFACTURING HOLDING

COMPANY, INC.; NOLL

MANUFACTURING COMPANY,

Defendants.



Appeal from the United States District Court

for the Eastern District of California

Ralph R. Beistline, District Judge, Presiding

Argued and Submitted

May 7, 2009—San Francisco, California

JOHNSON v. COUTURIER 9699

Filed July 27, 2009

Before: Procter Hug, Jr., Michael Daly Hawkins, and

Richard C. Tallman, Circuit Judges.

Opinion by Judge Tallman

JOHNSON v. COUTURIER 9703

COUNSEL

Theodore M. Becker (argued), Thomas M. Peterson, Joseph

E. Floren, and Elizabeth A. Frohlich, Morgan, Lewis & Bock-

ius LLP, for appellant Clair R. Couturier, Jr.

Christopher J. Rillo, Lars C. Golumbic, and Dipal A. Shah,

Groom Law Group Chartered, for appellant David R. Johan-

son.

Gary D. Greenwald (argued), Ron Kilgard, and Gary A.

Gotto, Keller Rohrback, PLC, and Terence J. Devine, Devine,

Markovits & Snyder, LLP, for the appellees.

Carol A. De Deo, Deputy Solicitor of Labor, Timothy D.

Hauser, Associate Solicitor, Plan Benefits Security Division,

Elizabeth Hopkins (argued), Counsel for Appellate and Spe-

cial Litigation, and Robyn M. Swanson, Trial Attorney, U.S.

Department of Labor, for the Secretary of Labor as amicus

curiae supporting appellees.

OPINION

TALLMAN, Circuit Judge:

In his capacity as president of Noll Manufacturing Com-

pany (“Noll”) and its successors, Clair R. Couturier, Jr.,

together with his fellow directors, diverted almost $35 million

9704 JOHNSON v. COUTURIER

of corporate assets—at least a third of the corporation’s value,

even in Couturier’s own estimation—to his own possession

through the buyout of deferred compensation agreements.

Plaintiffs, all of whom are participants in Noll’s employee

stock ownership plan (“ESOP”), filed suit against Couturier

and two other directors alleging, inter alia, breach of fidu-

ciary duties under the Employee Retirement Income Security

Act of 1974 (“ERISA”). This case requires us to consider

whether the district court abused its discretion when it

enjoined advancement of defense costs and froze Couturier’s

assets. We conclude that the district court did not abuse its

discretion, but remand to allow the district court, in the first

instance, to set the terms and conditions of a surety bond suf-

ficient to secure Couturier and the other defendants against

any harm that might wrongfully befall them as a result of the

issuance of each injunction.

I

A

Noll, a closely held corporation founded in 1942, manufac-

tured and sold galvanized sheet metal products. Through

restructuring, Noll was succeeded first by N&NW Holding

Company (“N&NW”) in 2001, and then by The Employee

Ownership Holding Company (“TEOHC”) in 2004.

Noll’s founder, who died in 1980, established the ESOP in

1977 to give the company’s employees an opportunity to

share in its success. His will reflects an intent that the ESOP

own the entire company. However, for reasons we cannot dis-

cern from the record, the ESOP did not acquire full ownership

of Noll until 2001.

Clair R. Couturier, Jr., became President of Noll in 1999.

Noll’s Board of Directors designated Couturier the sole

trustee for the ESOP as of April 24, 2001. Attorney David R.

Johanson, who had previously represented the ESOP in con-

JOHNSON v. COUTURIER 9705

nection with its leveraged purchase of all remaining Noll

stock, was appointed a Noll director on June 20, 2001, joining

Couturier and Noll’s general counsel on the Board. However,

after the transfer of ownership to N&NW later that year, Cou-

turier and Johanson remained as the sole directors.

This litigation traces its genesis to the sizeable deferred

compensation awarded to Couturier during his tenure as presi-

dent of Noll and its successors. Prior to 2001, retired Noll

executives were entitled to continue receiving 75 percent of

their base salary, with an adjustment made every three years,

under a Compensation Continuation Agreement (“CCA”). In

2001, however, Johanson drafted three documents that tied

deferred executive compensation to company value: (1) an

Equity Incentive Plan (“EIP”) establishing an incentive stock

option plan for key management personnel; (2) an Incentive

Stock Option Agreement (“ISO”) granting Couturier 80,000

shares at a strike price of $34;1 and (3) a Value Enhancement

Incentive Plan (“VEIP”) creating additional synthetic equity.

At the time these plans were enacted, one director reportedly

opined that this “is not too good” for the ESOP; they were

nonetheless approved by the Board on June 13, 2001.2

After the reorganization of Noll under N&NW, Johanson

and Couturier, remaining as the sole directors, orchestrated

additional incentive agreements in February 2002. The 2002

EIP allowed for issuance of up to 110,000 shares, with no

more than 93,500 shares being awarded to a single grantee.

The 2002 ISO again granted to Couturier 80,000 shares at a

strike price of $34 per share. The 2002 VEIP created addi-

tional synthetic equity for Couturier. Couturier and Johanson

1

The effect of the 2001 ISO is unclear; the governing EIP allowed for

issuance of only 50,000 shares, with a grant to any single employee not

exceeding 25,000 shares.

2

Although the board minutes reflect that all three directors, including

Couturier, voted to approve these compensation programs, one director

later claimed that he had abstained from the vote.

9706 JOHNSON v. COUTURIER

also increased Couturier’s monthly CCA stipend by about 33

percent and enacted a Supplemental Executive Retirement

Plan providing additional deferred compensation.3

The advent of 2003 heralded further expansion of Couturi-

er’s compensation. That year, Couturier and Johanson

approved a retroactive annual cash bonus to Couturier equal-

ing ten percent of the dollar amount of external debt repaid on

certain loans. Some of these loans were refinanced later that

same year. N&NW then purchased a $5.5 million home (“the

Palm Desert home”) and a $325,000 private golf club mem-

bership in Palm Desert, California, for Couturier’s personal

use.

After unsuccessful negotiations with Alliance Holdings,

Inc. for the acquisition of N&NW—during which the value of

Couturier’s interest in the company became a point of

contention—Couturier and Johanson appointed Couturier’s

financial advisor, Robert E. Eddy, as Special Trustee to the

ESOP. Eddy’s role was to evaluate proposed transactions

involving N&NW and the ESOP, including monetization of

Couturier’s financial interest in N&NW. Couturier and Johan-

son ultimately opted to merge N&NW into TEOHC, which

Johanson had incorporated in Delaware on December 15,

2003. As the incorporator, Johanson appointed himself, Cou-

turier, Eddy, and accountant James Roorda as directors. Pur-

suant to a new plan, the ESOP was now to be administered

by Trustees appointed by the TEOHC Board of Directors; the

Board members appointed themselves as Trustees.

3

Benefits Consultants, Inc. provided a contemporaneous opinion finding

that the CCA, ISO, and VEIP did not constitute an unreasonable level of

compensation, but specifically did not render an opinion as to whether

adopting these agreements was consistent with ERISA fiduciary duties.

Moss Adams Advisory Services (“Moss Adams”) provided a contempora-

neous opinion concluding that the 2002 ISO was fair to the ESOP from

a financial point of view.

JOHNSON v. COUTURIER 9707

On July 20, 2004, pursuant to the merger transaction, Cou-

turier received over $26 million in cash, title to the Palm

Desert home, a Bentley automobile valued at $200,000, and

various other benefits in exchange for his deferred compensa-

tion interests. The parties value this buyout package at $34.8

million.4 Accordingly, Couturier’s overall compensation

package equals about 65 percent of TEOHC’s assets as of

June 2004, and about 80 percent of N&NW’s assets as of each

of the prior two years. The package also exceeded by more

than two-fold N&NW’s 2002 stock market value.

B

On October 11, 2005, several former and current Noll

employees (collectively, “Plaintiffs”), all of whom are ESOP

participants, filed suit against Couturier, Johanson, and Eddy

(collectively, “Defendants”) in the United States District

Court for the Eastern District of California. Claiming that

Couturier was vastly overcompensated, Plaintiffs’ amended

complaint seeks relief from Defendants’ alleged breach of

fiduciary duties in their capacities as ERISA fiduciaries and

corporate directors. Under ERISA, Plaintiffs seek: (1) to hold

Defendants jointly and severally liable for all ESOP losses

related to their misconduct; (2) creation of a constructive trust

for disgorgement of Defendants’ wrongful profit; and (3)

removal of Eddy as ESOP Trustee. Plaintiffs also seek to hold

Couturier and Johanson jointly and severally liable for losses

suffered by Noll and N&NW because of directorial miscon-

duct, and all three Defendants jointly and severally liable for

losses suffered by TEOHC because of directorial misconduct.

Finally, Plaintiffs also accuse Johanson and his law firm of

4

Moss Adams issued a qualified opinion that the merger transaction was

fair to the ESOP from a financial and economic perspective. It specifically

excluded any consideration of the fairness of Couturier’s compensation

package. The latter issue was separately analyzed by The California

Appraisal Institute, which concluded that Couturier’s buyout package did

not exceed “adequate consideration” under ERISA.

9708 JOHNSON v. COUTURIER

professional negligence, and on this basis seek to hold them

jointly and severally liable for losses suffered by Noll,

N&NW, and TEOHC.

C

The Defendant directors, officers, and trustees entered into

multiple and largely identical indemnification agreements

with Noll and its successors between 2001 and 2005. These

agreements generally indemnify Defendants for any liabilities

incurred in their service as directors—and, in the case of Cou-

turier and Eddy, in their service as ESOP trustees—so long as

any such liability did not involve “deliberate wrongful acts”

or “gross negligence.”5 The agreements are governed by Cali-

fornia law “to the extent not preempted by federal law”; Cou-

turier’s trustee indemnification further specifies that it is

“[s]ubject to the relevant provisions of [ERISA].”

At issue here are provisions within the indemnification

agreements requiring TEOHC to advance defense costs. Seek-

ing advancement as promised in the indemnification agree-

ments, each Defendant has executed an undertaking to repay

TEOHC for “any expenses paid by it on my behalf in advance

of the final disposition of the [instant] suit[ ], if it shall ulti-

mately be determined that I am not entitled to be indemnified

by the Company” under Delaware law.

5

Seven of the ten indemnification agreements covering Couturier,

Johanson, and Eddy condition indemnification on an absence of “deliber-

ate wrongful acts” and “gross negligence” on the part of the indemnitee.

However, the agreement indemnifying Couturier as a trustee excepts from

coverage losses resulting from his “grossly negligent and/or intentional

misconduct.” One of the two agreements indemnifying Eddy as a trustee

also excepts from coverage losses resulting from his “grossly reckless

and/or intentional misconduct,” while the other excepts from coverage

losses resulting from his “negligent, grossly reckless and/or intentional

misconduct.” Because our ensuing analysis is identical regardless of which

subset of these five exceptions applies, we refer to the ten agreements as

indemnifying Defendants so long as any such liability did not involve

deliberate wrongful acts or gross negligence.

JOHNSON v. COUTURIER 9709

After learning that Johanson and Eddy had asserted a claim

for advancement of defense costs against TEOHC in a related

commercial arbitration proceeding conducted before the

American Arbitration Association (“AAA”), Plaintiffs and the

Department of Labor (“DOL”) sought to intervene. The arbi-

trator declined to allow intervention, finding that “determina-

tion of the contract interpretation questions presented here

would not be aided by input from these third parties,” and

ordered TEOHC to advance Johanson’s and Eddy’s defense

costs. After Plaintiffs obtained an Order To Show Cause why

the advancement should not be enjoined, the district court on

September 26, 2008, found that Plaintiffs were not bound by

the AAA decision and had met their burden justifying issu-

ance of a preliminary injunction prohibiting the advancement

of defense costs. Couturier, Johanson, and Eddy all timely

appealed this injunction.6

On October 24, 2008, the district court also granted a sec-

ond preliminary injunction: (1) preventing Couturier from

“transferring, secreting, assigning, pledging, mortgaging, or

hypothecating” the assets he received as part of the 2004 buy-

out package without prior court approval; and (2) ordering an

accounting of these assets within 20 days. However, the court

limited this injunction to allow Couturier “to cover normal

living expenses and legal fees.” Couturier timely appealed

this second preliminary injunction.

D

A subsidiary of Gibraltar Industries, Inc. purchased

TEOHC’s assets on April 10, 2007, for almost $61 million.

Approximately $15.8 million of the sale proceeds remained

for distribution to the ESOP after payment of bank debt, exec-

utive compensation, closing costs, and escrow. Consulting

Fiduciaries, Inc., the current ESOP trustee, distributed $5 mil-

6

On January 20, 2009, we denied Defendants’ emergency motion for a

stay.

9710 JOHNSON v. COUTURIER

lion to the participants in January 2008. The balance of funds

has been withheld, at least partly in escrow, to allow TEOHC

to pay for its own legal expenses once directors’ and officers’

liability (“D&O”) insurance coverage is exhausted and to sat-

isfy the indemnification agreements with Defendants.

II

Defendants collectively make three separate arguments to

avoid invalidation of these agreements under ERISA: (1) that

they are not ERISA fiduciaries; (2) that the setting of execu-

tive compensation is a business decision not subject to

ERISA; and (3) that whether TEOHC is obligated to advance

their defense costs is purely a matter of state contract law. We

consider and reject each argument in turn.

A

[1] Congress enacted ERISA to establish “minimum stan-

dards . . . assuring the equitable character of [benefit] plans

and their financial soundness.” 29 U.S.C. § 1001(a). To

accomplish this goal, ERISA requires that plan assets be held

in trust for the exclusive benefit of plan participants and their

beneficiaries. Id. § 1103. Moreover, “authority to control and

manage the operation and administration of the plan” must be

vested in one or more named fiduciaries. Id. § 1102(a). In

order “to protect . . . the interests of participants in employee

benefit plans and their beneficiaries,” ERISA also imposes

“standards of conduct, responsibility, and obligation for fidu-

ciaries of employee benefit plans.” Id. § 1001(b). These stan-

dards include duties of loyalty and care, id. § 1104(a)(1), as

well as a prohibition on self-dealing, id. § 1106(b)(1).

[2] An ESOP is a type of ERISA plan “designed to invest

primarily in” the stock of the employer who created it. Id.

§ 1107(d)(6)(A). “Congress expressly intended that the ESOP

would be both an employee retirement benefit plan and a

technique of corporate finance that would encourage

JOHNSON v. COUTURIER 9711

employee ownership.” Edgar v. Avaya, Inc., 503 F.3d 340,

346 (3d Cir. 2007) (quotation omitted). Although the creation

of ESOPs necessitated their exemption from certain ERISA

requirements, such as asset diversification, the core fiduciary

duties of loyalty and care as well as the prohibition against

self-dealing7 remain in effect. Id.

[3] We construe ERISA fiduciary status “liberally, consis-

tent with ERISA’s policies and objectives.” Ariz. State Car-

penters Pension Trust Fund v. Citibank, (Ariz.), 125 F.3d 715,

720 (9th Cir. 1997). ERISA “defines ‘fiduciary’ not in terms

of formal trusteeship, but in functional terms of control and

authority over the plan.” Mertens v. Hewitt Assocs., 508 U.S.

248, 262 (1993). Thus, ERISA—and ESOP—fiduciaries

include not only those specifically named in the employee

benefit plan, 29 U.S.C. § 1102(a), but also any individual who

“exercises any discretionary authority or discretionary control

respecting management of such plan or exercises any author-

ity or control respecting management or disposition of its

assets,” 29 U.S.C. § 1002(21)(A)(i). We have accordingly

recognized that where members of an employer’s board of

directors have responsibility for the appointment and removal

of ERISA trustees, those directors are themselves subject to

ERISA fiduciary duties, albeit only with respect to trustee

selection and retention.8 Batchelor v. Oak Hill Med. Group,

870 F.2d 1446, 1448- 49 (9th Cir. 1989).

7

The prohibition against self-dealing is, however, curtailed in order to

allow plan acquisition of employer stock. 29 U.S.C. § 1108(e).

8

In reaching this conclusion, we have relied on an interpretive bulletin

issued by the DOL in 1975, which provides:

Q: In the case of a plan established and maintained by an

employer, are members of the board of directors of the employer

fiduciaries with respect to the plan?

A: Members of the board of directors of an employer which

maintains an employee benefit plan will be fiduciaries only to the

extent that they have responsibility for the functions described in

[29 U.S.C. § 1002(21)(A)]. For example, the board of directors

9712 JOHNSON v. COUTURIER

[4] Because all three Defendants served as ESOP trustees,

each was an ERISA fiduciary subject to the duties of loyalty

and care and to the prohibition against self-dealing. Couturier

served as the sole Trustee of the Noll ESOP beginning on

April 24, 2001. Eddy was appointed Special Trustee to the

ESOP in 2003. After Noll merged into TEOHC in 2004, all

three Defendants were appointed to the ESOP Board of Trust-

ees.

Johanson argues, without any citation to the record, that he

served on the TEOHC ESOP Board of Trustees for only one

day, and thus never had the opportunity to take any actions

that would subject him to ERISA fiduciary duties. Be that as

it may, Johanson, together with Couturier and Eddy, also

served on the TEOHC Board of Directors. The TEOHC ESOP

Plan specified that it was to “be administered by a Board of

Trustees composed of individuals who will be appointed by

the unanimous action of the Board [of] Directors” of

TEOHC. (Emphasis added.) The Plan further vested the

power of trustee removal in the TEOHC Board of Directors.

Thus, as the de facto decision makers of closely held and

related entities, all three defendants—including Johanson—

also served as ERISA fiduciaries with respect to appointment

and removal of ESOP trustees. See Batchelor, 870 F.2d at

1448- 49; 29 C.F.R. § 2509.75-8(D-4).

B

ERISA confers upon federal district courts exclusive juris-

diction over any civil action brought by a plan participant or

may be responsible for the selection and retention of plan fidu-

ciaries. In such a case, members of the board of directors exercise

“discretionary authority or discretionary control respecting man-

agement of such plan” and are, therefore, fiduciaries with respect

to the plan. However, their responsibility, and, consequently,

their liability, is limited to the selection and retention of fidu-

ciaries . . . .

29 C.F.R. § 2509.75-8(D-4).

JOHNSON v. COUTURIER 9713

beneficiary for equitable relief from a trustee’s breach of fidu-

ciary duty. 29 U.S.C. § 1132(a), (e). Johanson argues, how-

ever, that the district court lacked subject matter jurisdiction

over the instant case because the actions challenged by

Plaintiffs—actions that resulted in the allegedly excessive

compensation of Couturier—are business decisions not sub-

ject to ERISA.

[5] Decisions relating to corporate salaries generally do not

fall within ERISA’s purview. But where plan assets include

the employer’s stock, the value of those assets depends on the

employer’s equity. Employee compensation levels are, of

course, one of the many business expenditures reducing the

value of the overall equity of any company. On the other

hand, “[v]irtually all of an employer’s significant business

decisions affect the value of its stock, and therefore the bene-

fits that ESOP plan participants will ultimately receive.” Mar-

tin v. Feilen, 965 F.2d 660, 666 (8th Cir. 1992). Taken to its

logical conclusion, therefore, this line of thinking would, in

the case of an ESOP, extend the application of ERISA to a

corporation’s annual expenditures on office supplies—clearly

an absurd result. The Eighth Circuit has on this basis limited

an ERISA fiduciary’s duties “to transactions that involve

investing the ESOP’s assets or administering the plan.” Id.

Setting executive compensation levels does not obviously fall

into either category. See Eckelkamp v. Beste, 201 F. Supp. 2d

1012, 1023 (E.D. Mo. 2002) (holding that a corporate director

is not acting as an ESOP fiduciary in setting compensation

levels).

[6] Nonetheless, we conclude that applying ERISA to the

instant case does not risk encompassing within its confines

any and all day-to-day corporate decisions shielded by the

business judgment rule. Where, as here, an ESOP fiduciary

also serves as a corporate director or officer, imposing ERISA

duties on business decisions from which that individual could

directly profit does not to us seem an unworkable rule. To the

contrary, our holding merely comports with congressional

9714 JOHNSON v. COUTURIER

intent in establishing ERISA fiduciary duties as “the highest

known to the law.” Howard v. Shay, 100 F.3d 1484, 1488 (9th

Cir. 1996) (quotation omitted). To hold otherwise would pro-

tect from ERISA liability obvious self-dealing, as Plaintiffs

allege occurred here, to the detriment of the plan beneficia-

ries.

C

Defendants argue that whether TEOHC is obligated to

advance their defense costs is purely a matter of state contract

law, and that ERISA simply does not apply. ERISA preemp-

tion is a question of law that we review de novo. Elliot v. For-

tis Benefits Ins. Co., 337 F.3d 1138, 1141 (9th Cir. 2003).

[7] ERISA contains a broad preemption clause, such that

with only limited exceptions it “supersede[s] any and all State

laws insofar as they may now or hereafter relate to any

employee benefit plan.” 29 U.S.C. § 1144(a). As in Boggs v.

Boggs, we “can begin, and in this case end, the analysis by

simply asking if state law conflicts with the provisions of

ERISA or operates to frustrate its objects.” 520 U.S. 833, 841

(1997); see also Branco v. UFCW-N. Cal. Employers Joint

Pension Plan, 279 F.3d 1154, 1157, 1160 (9th Cir. 2002)

(holding that ERISA’s surviving spouse annuity preempts a

testamentary transfer).

[8] Defendants’ indemnification agreements specify that

they are governed by California law. California allows

advancement of defense costs “upon receipt of an undertaking

by or on behalf of the agent to repay that amount if it shall

be determined ultimately that the agent is not entitled to be

indemnified as authorized in this section.”9 Cal. Corp. Code

§ 317(f). Couturier, Johanson, and Eddy all submitted the req-

9

Defendants’ undertakings specify that they are governed by Delaware

law, which similarly establishes that advancement is permissible upon

receipt of an undertaking. Del. Code Ann. tit. 8, § 145(e).

JOHNSON v. COUTURIER 9715

uisite undertakings, thus apparently rendering advancement of

their defense costs enforceable under state law.

[9] However, Defendants’ indemnification agreements pro-

vide complete indemnity so long as the challenged acts or

omissions do not involve deliberate wrongful acts or gross

negligence. ERISA, by contrast, requires that a fiduciary act

“with the care, skill, prudence, and diligence under the cir-

cumstances then prevailing that a prudent man acting in a like

capacity and familiar with such matters would use in the con-

duct of an enterprise of a like character and with like aims.”

29 U.S.C. § 1104(a)(1)(B). The indemnification agreements

thus effectively limit Defendants’ liability under ERISA

because, so long as they do not engage in deliberate wrongful

acts or gross negligence, Defendants will be indemnified—

even if they violated the ERISA “prudent man” standard of

care. Accordingly, application of state law in the instant case

conflicts with ERISA and is preempted. See Boggs, 520 U.S.

at 844 (“In the face of [a] direct clash between state law and

the provisions and objectives of ERISA, the state law cannot

stand.”).

III

With these principles in mind, we turn to an evaluation of

the district court’s decision to enjoin advancement of defense

costs. “A plaintiff seeking a preliminary injunction must

establish [1] that he is likely to succeed on the merits, [2] that

he is likely to suffer irreparable harm in the absence of pre-

liminary relief, [3] that the balance of equities tips in his

favor, and [4] that an injunction is in the public interest.” Win-

ter v. Natural Res. Defense Council, Inc., 129 S. Ct. 365, 374

(2008). “We review the grant or denial of a preliminary

injunction for abuse of discretion.” Am. Trucking Ass’ns v.

City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009).

This review is “limited and deferential,” and it does not

extend to the underlying merits of the case. Id. (quoting Lands

Council v. Martin, 479 F.3d 636, 639 (9th Cir. 2007)). A dis-

9716 JOHNSON v. COUTURIER

trict court “necessarily abuses its discretion when it bases its

decision on an erroneous legal standard or on clearly errone-

ous findings of fact.” Id. (quoting Lands Council, 479 F.3d at

639). But “[a]s long as the district court got the law right, it

will not be reversed simply because the appellate court would

have arrived at a different result if it had applied the law to

the facts of the case.” Id. (quoting Wildwest Inst. v. Bull, 472

F.3d 587, 590 (9th Cir. 2006)) (alteration in original).

IV

We conclude that the district court did not abuse its discre-

tion in preliminarily enjoining TEOHC from advancing

Defendants’ defense costs. Plaintiffs established all four ele-

ments of the governing standard, and Defendants have failed

to demonstrate that the district court based its decision either

on an erroneous legal standard or on clearly erroneous find-

ings of fact.

A

1

[10] Plaintiffs have established that they are likely to suc-

ceed in proving that Defendants breached their fiduciary

duties under ERISA. Plaintiffs allege that Defendants

breached these obligations by engaging in a series of transac-

tions that improperly diverted much of the equity in TEOHC

(and thus in the ESOP) to Couturier. Plaintiffs claim that by

engaging in these transactions, Defendants impermissibly

placed Couturier’s financial interests ahead of the ESOP. The

district court correctly compared the size of Couturier’s $34.8

million buyout package with the company’s overall value, and

properly noted its concern that this comparison by itself con-

stitutes strong evidence that Defendants breached their fidu-

ciary duties under ERISA. Couturier’s buyout package of

$34.8 million equaled nearly 65 percent of the company’s

JOHNSON v. COUTURIER 9717

total assets as of June 2004, and exceeded by more than two-

fold N&NW’s 2002 value.

[11] In 2003, Moss Adams Advisory Services (“Moss

Adams”) recommended that Couturier be given no more than

between $6 million and $9 million, the value of the deferred

compensation agreements which N&NW carried on its books

at that time. The record reveals that the Moss Adams fair-

ness/valuation team was clearly uncomfortable with the pack-

age proposed by Couturier and Johanson, and refused to opine

on the fairness of what ultimately became a $34.8 million

package. On January 21, 2004, Moss Adams qualified its

opinion to specifically exclude the “issues of whether the

executive compensation for various executives and related

packages represent ‘reasonable’ compensation,” deferring to

others the resolution of these matters. At least at this stage in

the proceedings, it is difficult to understand how an ERISA

fiduciary exercising the requisite care, and acting exclusively

in the ESOP’s interest, could have acquiesced to a buyout

package for Couturier that apparently exceeded the fair mar-

ket value by some $25 million. As trustees, Defendants

should have opposed the buyout package. And as directors

with authority over the selection and retention of trustees,

Defendants should have recognized that Couturier was hope-

lessly mired in a clear conflict of interest involving such bla-

tant self-dealing and sought his removal as an ESOP trustee.

[12] Because Plaintiffs are likely to succeed in proving that

Defendants breached their ERISA duties, they are also likely

to succeed in proving that Defendants are not entitled to

indemnification, nor to advancement of defense costs,

because section 410(a) of ERISA renders the governing

agreements void. Section 410(a) specifies that “any provision

in an agreement or instrument which purports to relieve a

fiduciary from responsibility or liability for any responsibility,

obligation, or duty under this part shall be void as against

public policy.” 29 U.S.C. § 1110(a). Thus, “[i]f an ERISA

fiduciary writes words in an instrument exonerating itself of

9718 JOHNSON v. COUTURIER

fiduciary responsibility, the words, even if agreed upon, are

generally without effect.” IT Corp. v. Gen. Am. Life Ins. Co.,

107 F.3d 1415, 1418 (9th Cir. 1997).

Admittedly, ERISA does not bar the purchase of liability

insurance by a plan, fiduciary, or employer. 29 U.S.C.

§ 1110(b). The DOL has therefore interpreted section 410 to

permit indemnification of fiduciaries so long as the agreement

“do[es] not relieve a fiduciary of responsibility or liability”

under ERISA. 29 C.F.R. § 2509.75-4. In other words, an

indemnification provision is valid if it “merely permit[s]

another party to satisfy any liability incurred by the fiduciary

in the same manner as insurance.” Id. This DOL exemption

does not, however, extend to indemnification of a fiduciary by

the ERISA plan itself. Id. (“The Department of Labor inter-

prets section 410(a) as rendering void any arrangement for

indemnification of a fiduciary of an employee benefit plan by

the plan.”). The DOL has explained that “[s]uch an arrange-

ment would have the same result as an exculpatory clause, in

that it would, in effect, relieve the fiduciary of responsibility

and liability to the plan by abrogating the plan’s right to

recovery from the fiduciary for breaches of fiduciary obliga-

tions.” Id.

The indemnification agreements and associated advance-

ment provisions at issue here clearly “purport[ ] to relieve”

Defendants from their fiduciary responsibilities under ERISA.

ERISA requires that a fiduciary discharge its duties “with the

care, skill, prudence, and diligence under the circumstances

then prevailing that a prudent man acting in a like capacity

and familiar with such matters would use in the conduct of an

enterprise of a like character and with like aims.” 29 U.S.C.

§ 1104(a)(1)(B). The indemnification agreements, by contrast,

indemnify Defendants so long as the liability for which cover-

age is sought did not involve any deliberate wrongful acts or

gross negligence. Nor do the signed undertakings provide the

ESOP with any recourse should Defendants be found to have

violated only their fiduciary duties under ERISA. Conse-

JOHNSON v. COUTURIER 9719

quently, because Plaintiffs have shown probable success on

the merits of their ERISA claims, they have also shown that

section 410(a) likely renders void the indemnification agree-

ments and advancement provisions therein.

Defendants nonetheless argue that section 410(a) does not

apply because advancement would be made from corporate,

not plan, assets. See 29 C.F.R. § 2510.3-101(h)(3) (establish-

ing that corporate assets are not plan assets where the plan is

an ESOP). But given that TEOHC’s plan of liquidation pro-

vides for payment of all remaining equity to ESOP partici-

pants as shareholders, this is not a case where, in accordance

with 29 C.F.R. § 2509.75-4, the indemnification agreement

“merely permit[s] another party [other than the plan] to satisfy

any liability incurred by the fiduciary.” To the contrary, any

proceeds taken from TEOHC’s remaining funds to pay Defen-

dants’ defense costs will, dollar for dollar, reduce the funds

available for distribution to ESOP participants. In other

words, advancement is here tantamount to asking ESOP par-

ticipants to pay for Defendants’ defense costs, with no recov-

ery possible or at least highly unlikely— even if Defendants

breached their fiduciary duties to the ESOP—so long as

Defendants did not engage in deliberate wrongful acts or

gross negligence. Such a result is impermissible under section

410(a).

Finally, because the agreement indemnifying Couturier as

a trustee specifies that it is “[s]ubject to the relevant provi-

sions of [ERISA],” Couturier argues that his right to advance-

ment is not void under section 410(a). This assertion

overlooks two key points. First, the remaining three agree-

ments indemnifying Couturier as a director contain no such

limitation, even though in his capacity as director Couturier

was subject to ERISA fiduciary duties with respect to

appointment and retention of ESOP trustees. Second, as we

explain above, Plaintiffs are likely to succeed in proving that

Couturier did in fact breach his ERISA obligations, thus also

9720 JOHNSON v. COUTURIER

rendering this particular indemnification agreement unen-

forceable.

2

[13] The Supreme Court recently clarified that preliminary

injunctive relief is available only if plaintiffs “demonstrate

that irreparable injury is likely in the absence of an injunc-

tion.” Winter, 129 S. Ct. at 375. In so doing, the Court

rejected the Ninth Circuit’s “possibility of irreparable harm”

test, noting that “[i]ssuing a preliminary injunction based only

on a possibility of irreparable harm is inconsistent with our

characterization of injunctive relief as an extraordinary rem-

edy that may only be awarded upon a clear showing that the

plaintiff is entitled to such relief.” Id. at 375- 76. Defendants

allege that the district court failed to apply the requisite “like-

lihood of harm” standard and relied instead on a possibility of

harm. We disagree.

[14] The district court correctly found that Plaintiffs will

likely succeed in proving that Defendants breached their fidu-

ciary duties under ERISA. The district court therefore also

correctly found that Plaintiffs will likely succeed in proving

that the indemnification agreements are void under section

410(a) of ERISA because they exculpate Defendants from

their fiduciary obligations. Consequently, there is more than

a possibility that Defendants will be required to reimburse

TEOHC for any advanced defense costs—there is at least a

likelihood.

[15] Similarly, there is a likelihood that Defendants will not

have the resources to reimburse TEOHC if defense costs are

advanced. Plaintiffs are not required to submit detailed finan-

cial statements in support of this assertion. Rather, it is

enough that Couturier himself alleged that Defendants even

now would not be able to pay their legal bills without

advancement of funds. Moreover, Defendants have already

expended the $5 million in D&O insurance coverage previ-

JOHNSON v. COUTURIER 9721

ously available to defend this suit, are represented by multiple

attorneys raising a vigorous defense, and are facing a potential

judgment in the tens of millions of dollars if found to have

breached their fiduciary duties. Nor have Defendants submit-

ted any financial data demonstrating that they will be able to

reimburse TEOHC if a judgment is rendered against them.

Thus, the district court did not abuse its discretion in finding

that Plaintiffs established a likelihood of irreparable harm if

injunctive relief were denied.

3

[16] The balance of equities tips in Plaintiffs’ favor. Admit-

tedly, if the preliminary injunction is upheld, Defendants will

be forced either: (1) to find a way to pay for their own defense

and seek recovery after trial; (2) to find attorneys willing to

accept the risk of payment after trial; (3) to continue litigation

without representation; or (4) to settle. We recognize that

these options are accompanied by real and difficult conse-

quences for each Defendant. Nonetheless, any such conse-

quences are outweighed by the potential hardship to Plaintiffs

if advanced defense costs are not reimbursed.

[17] If, as is likely, Defendants are found to have violated

their fiduciary obligations under ERISA, section 410(a) ren-

ders their indemnification agreements void and they are not

entitled to advancement of defense costs. Even if that were

not the case, Plaintiffs are willing to place the potential

defense costs in escrow; if they do so, Defendants will ulti-

mately be able to recover their costs if so entitled. By con-

trast, as explained above, recovery by Plaintiffs of any

advanced defense costs seems remote, a result that would

leave ESOP participants without the benefits whose security

ERISA strives above all else to protect.

4

[18] “In exercising their sound discretion, courts of equity

should pay particular regard for the public consequences in

9722 JOHNSON v. COUTURIER

employing the extraordinary remedy of injunction.” Winter,

129 S. Ct. at 376- 77 (quoting Weinberger v. Romero-

Barcelo, 456 U.S. 305, 312 (1982)). Defendants invoke the

public interest in ensuring that talented individuals remain

willing to serve as corporate directors and officers. But this

concern, while significant, is far outweighed by the interests

that ERISA protects. In enacting ERISA, Congress noted:

that the continued well-being and security of mil-

lions of employees and their dependents are directly

affected by these plans; that they are affected with a

national public interest; that they have become an

important factor affecting the stability of employ-

ment and the successful development of industrial

relations; . . . that despite the enormous growth in

such plans many employees with long years of

employment are losing anticipated retirement bene-

fits owing to the lack of vesting provisions in such

plans; that owing to the inadequacy of current mini-

mum standards, the soundness and stability of plans

with respect to adequate funds to pay promised bene-

fits may be endangered; that owing to the termina-

tion of plans before requisite funds have been

accumulated, employees and their beneficiaries have

been deprived of anticipated benefits; and that it is

therefore desirable in the interests of employees and

their beneficiaries, for the protection of the revenue

of the United States, and to provide for the free flow

of commerce, that minimum standards be provided

assuring the equitable character of such plans and

their financial soundness.

29 U.S.C. § 1001(a). In order for ERISA “to promote the

interests of employees and their beneficiaries in employee

benefit plans,” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 90

(1983), Congress chose to hold plan fiduciaries to a high

standard—in fact, “the highest known to the law.” Howard,

100 F.3d at 1488 (quotation omitted). Congress also chose to

JOHNSON v. COUTURIER 9723

render void any agreement that would exculpate a fiduciary

from responsibility for a breach of that standard. 29 U.S.C.

§ 1110(a). Accordingly, the public interest here favors

upholding the preliminary injunction barring advancement of

defense costs by TEOHC.

B

We also reject the numerous additional arguments through

which Defendants attempt to invalidate this preliminary

injunction. Defendants attack the preliminary injunction as

based on insufficient evidence, as failing to give due defer-

ence to the arbitration order, as improper under Supreme

Court precedent, as impermissibly granting relief of a differ-

ent character than any judgment that might finally issue, and

as improperly imposing a constructive trust. None of these

arguments has merit.

1

[19] Defendants first allege that the district court failed to

rely on “credible and admissible” evidence in granting the

preliminary injunction. See, e.g., Am. Passage Media Corp. v.

Cass Commc’ns, Inc., 750 F.2d 1470, 1473 (9th Cir. 1985)

(finding an insufficient showing of irreparable harm in part

because submitted “affidavits [from plaintiff ’s own execu-

tives] are conclusory and without sufficient support in facts”).

They object in particular to the district court’s reliance on the

interested declaration of Plaintiffs’ counsel and unverified cli-

ent complaints.

A district court may, however, consider hearsay in deciding

whether to issue a preliminary injunction. Republic of the

Philippines v. Marcos, 862 F.2d 1355, 1363 (9th Cir. 1988)

(en banc); see also Flynt Distrib. Co. v. Harvey, 734 F.2d

1389, 1394 (9th Cir. 1984) (“The trial court may give even

inadmissible evidence some weight, when to do so serves the

purpose of preventing irreparable harm before trial.”). More-

9724 JOHNSON v. COUTURIER

over, the district court in the instant case relied not only on

the challenged evidence but also on “the many exhibits, affi-

davits, declarations and factual allegations which have been

submitted . . . by all parties . . . throughout the course of this

litigation.”10 The district court thus did not abuse its discretion

on this basis.

2

[20] Defendants argue that the preliminary injunction can-

not be reconciled with the arbitrator’s finding that TEOHC is

contractually obligated to advance defense costs. In particular,

they cite the strong federal policy in favor of arbitration, as

well as the statutory provision that limits the venue where a

party may seek to enforce or vacate an arbitral award to the

district court where the arbitration occurred (here, the North-

ern District of California). However, the district court cor-

rectly found that Plaintiffs are not bound by the

indemnification agreements or the arbitral decision, being a

party to neither. As we noted in IT Corp. v. General American

Life Insurance Co., “a fiduciary’s contract with an employer

cannot get it off the hook with the employees who participate

in the ERISA plan. They did not sign a contract exonerating

the fiduciary.” 107 F.3d at 1418. Similarly, the Federal Arbi-

tration Act “does not require parties to arbitrate when they

have not agreed to do so.” EEOC v. Waffle House, Inc., 534

U.S. 279, 293 (2002) (quotation omitted). Moreover, Defen-

dants have not asserted any alternative contract or agency

principles which may bind a nonsignatory to an arbitration

agreement. See Comer v. Micor, Inc., 436 F.3d 1098, 1101

(9th Cir. 2006).

10

Notably, this evidence includes an admission by Couturier that

between 2001 and 2004, he became “entitled . . . to receive between 33%

to 40% of the value of N&NW.” It seems untenable that ERISA fidu-

ciaries acting in an ESOP’s best interests would, first, determine their own

compensation and, second, award such a large percentage of the company,

and indirectly of the ESOP’s assets, to one individual.

JOHNSON v. COUTURIER 9725

3

[21] Defendants next argue that the preliminary injunction

is improper under Grupo Mexicano de Desarrollo, S.A. v.

Alliance Bond Fund, Inc., in which the Supreme Court held

that the district court lacked authority “to issue a preliminary

injunction preventing the defendant from transferring assets in

which no lien or equitable interest is claimed.” 527 U.S. 308,

310, 333 (1999). However, by its very terms, the holding of

Grupo Mexicano is limited to cases in which only monetary

damages are sought. The Supreme Court expressly stated that

a preliminary injunction barring asset transfer is available

where the suit seeks equitable relief. Id. at 324- 25 (distin-

guishing Deckert v. Independence Shares Corp., 311 U.S. 282

(1940)); see also Rubin v. Pringle (In re Focus Media Inc.),

387 F.3d 1077, 1085 (9th Cir. 2004) (“Grupo Mexicano thus

exempts from its proscription against preliminary injunctions

freezing assets[,] cases involving bankruptcy and fraudulent

conveyances, and cases in which equitable relief is sought.”).

Plaintiffs here seek equitable relief pursuant to section 409(a),

29 U.S.C. § 1109(a), and section 502(a)(3), 29 U.S.C.

§ 1132(a)(3), of ERISA. Accordingly, the preliminary injunc-

tion barring advancement of defense costs by TEOHC is not

improper under Grupo Mexicano.

4

[22] Relying on De Beers Consolidated Mines, Ltd. v.

United States, 325 U.S. 212 (1945), Defendants also assert

that a preliminary injunction may only grant relief of the same

character as the judgment that may finally issue. Because the

injunction here prevents advancement of TEOHC assets but

Plaintiffs ultimately seek to recover funds held by Couturier,

Defendants argue that the preliminary injunction is impermis-

sible due to its difference in character from the final relief

sought. But in De Beers, the district court’s only power under

antitrust law was to restrain future anticompetitive action—it

was without jurisdiction to enter a monetary judgment at any

9726 JOHNSON v. COUTURIER

stage of the proceedings. 325 U.S. at 219- 20; see also Hilao

v. Estate of Marcos (In re Estate of Marcos, Human Rights

Litig.), 25 F.3d 1467, 1478 (9th Cir. 1994) (“The preliminary

injunction was inappropriate [in De Beers] not because the

plaintiff was seeking money damages . . . the injunction was

inappropriate precisely because the plaintiff could not recover

any money damages.” (quotation omitted) (alteration in origi-

nal)).

Here, by contrast, the district court has jurisdiction under

ERISA to impose a constructive trust over any assets in

Defendants’ possession it concludes rightfully belong to the

ESOP. 29 U.S.C. § 1109(a); see also Amalgamated Clothing

& Textile Workers Union, AFL-CIO v. Murdock, 861 F.2d

1406, 1412 & n.10 (9th Cir. 1988). Furthermore, if TEOHC

is allowed to advance funds to Couturier, Plaintiffs will

undoubtedly seek their recovery also as part of the final judg-

ment. As this is not a case where the preliminary injunction

“deals with a matter lying wholly outside the issues in the

suit,” De Beers, 325 U.S. at 220, Defendants’ argument fails.

5

[23] Finally, Johanson argues that Plaintiffs cannot estab-

lish his liability under ERISA because they cannot identify

specific funds or property in his possession over which they

seek to impose a constructive trust. Be that as it may, in addi-

tion to imposing a constructive trust, Plaintiffs seek also to

hold Johanson jointly and severally liable for all ESOP losses

related to Defendants’ misconduct. Accordingly, this argu-

ment, too, lacks merit.

V

In granting the second preliminary injunction freezing Cou-

turier’s assets and requiring an accounting, the district court

applied an alternative analytical framework and found “that

there are serious questions on the merits and the balance of

JOHNSON v. COUTURIER 9727

hardship tips sharply in favor of plaintiff.” In this respect,

Couturier challenges only the district court’s failure to con-

sider the element of irreparable harm. Although the validity

of the district court’s approach is questionable post-Winters,

we conclude that the district court did not abuse its discretion.

The court’s analysis implicitly supports a likelihood of irrepa-

rable harm to Plaintiffs in the absence of injunctive relief.

[24] A party seeking an asset freeze must show a likelihood

of dissipation of the claimed assets, or other inability to

recover monetary damages, if relief is not granted.11 See, e.g.,

Conn. Gen. Life Ins. Co. v. New Images of Beverly Hills, 321

F.3d 878, 881 (9th Cir. 2003). As already explained, Plaintiffs

have established that they are likely to succeed in proving that

Couturier impermissibly awarded himself tens of millions of

dollars in compensation—in Couturier’s own words, “33% to

40% of the value” of the company’s stock—in contravention

of the highest fiduciary duties known to the law.12 Thus, in the

mere five years that he served as CEO, Couturier somehow

convinced his fellow directors and trustees to consent to

11

This standard was previously rejected by the Ninth Circuit in FSLIC

v. Sahni, 868 F.2d 1096, 1097 (9th Cir. 1989) (“The district court held that

‘[b]ecause an asset freeze is such a drastic provisional remedy, this court

is of the opinion that likelihood of dissipation of assets is a prerequisite.’

We believe it was error to require this more stringent standard. So long as

the district court continued to believe that FSLIC was likely to succeed on

the merits, the court should only have required FSLIC to show a possibil-

ity of dissipation of assets.” (citation omitted) (alteration in original)).

However, because Winters requires a likelihood of irreparable harm, this

aspect of the Sahni decision is overruled.

12

Couturier claims that comparison of the first and second preliminary

injunction orders reveals that the district court altered its assessment of the

strength of Plaintiffs’ ERISA claims. Specifically, the district court spoke

of a “likelihood” of success on the merits when it issued the first injunc-

tion, but only of a “fair chance” of success when it issued the second

injunction. In freezing Couturier’s assets, however, the district court spe-

cifically relied on its first order in finding that Plaintiffs have “at least a

‘fair chance of success on the merits.’ ” Thus, the court did not change its

assessment, but merely tailored its language to the standard it employed.

9728 JOHNSON v. COUTURIER

diverting nearly $35 million from the ESOP into his personal

bank account. Such an individual is presumably more than

capable of placing assets in his personal possession beyond

the reach of a judgment. Accordingly, Couturier’s own prior

conduct establishes a likelihood that in the absence of an asset

freeze and accounting, Plaintiffs will not be able to recover

the improperly diverted funds and will thus be irreparably

harmed. See, e.g., In re Focus Media Inc., 387 F.3d at 1086

(finding “the specter of irreparable harm” in part because of

“evidence in the record that in the past [the defendant] made

away with [the bankrupt company’s] funds”); Conn. Gen.,

321 F.3d at 881 (concluding that the district court did not

clearly err in finding a likelihood of dissipation given the

defendants’ “history of fraudulent intra-family transfers, their

refusal to disclose asset information in defiance of court order

and their convenient divorce settlement”); FTC v. Affordable

Media, LLC, 179 F.3d 1228, 1236- 37 (9th Cir. 1999) (con-

cluding that the district court did not clearly err in finding a

likelihood of dissipation “[g]iven the [defendants’] history of

spiriting their commissions away to a Cook Islands trust”).

[25] Couturier argues also that the district court erroneously

found that he would not be harmed by an asset freeze. The

district court in fact concluded that a narrowly tailored asset

freeze would prejudice Couturier less than a denial of relief

would prejudice Plaintiffs. In that context, the court found

that any prejudice to Couturier would be substantially miti-

gated by limiting the injunction to permit Couturier “to cover

normal living expenses and legal fees” and by allowing Cou-

turier to petition the court at any time for consent to an asset

transfer or disposal. Given that the freeze on Couturier’s

assets is limited to those in which Plaintiffs have an equitable

interest and does not extend to normal living expenses and

legal fees, the district court correctly balanced the relative

hardships. See Marcos, 862 F.2d at 1362 (finding no hardship

where an asset freeze does not extend to normal living

expenses and legal fees).

JOHNSON v. COUTURIER 9729

Nor does Couturier’s “the-sky-is-falling” resort to De Beers

have any merit. Couturier would have us believe that “[n]o

relief of this character has been thought justified in the long

history of equity jurisprudence.” De Beers, 325 U.S. at 223.

But as discussed above, the district court in De Beers lacked

authority to enter a monetary judgment, thus rendering an

asset freeze to ensure compliance with any final injunctive

relief impermissible. Id. at 219- 20. In fact, the Supreme

Court expressly differentiated the situation where an injunc-

tion freezes “a fund or property which would have been the

subject of the provisions of any final decree.” Id. at 220. De

Beers is thus inapposite here. See generally Hilao, 25 F.3d at

1477- 78.

VI

Federal Rule of Civil Procedure 65(c) permits a court to

grant preliminary injunctive relief “only if the movant gives

security in an amount that the court considers proper to pay

the costs and damages sustained by any party found to have

been wrongfully enjoined or restrained.” Despite the seem-

ingly mandatory language, “Rule 65(c) invests the district

court ‘with discretion as to the amount of security required,

if any.’ ” Jorgensen v. Cassiday, 320 F.3d 906, 919 (9th Cir.

2003) (quoting Barahona-Gomez v. Reno, 167 F.3d 1228,

1237 (9th Cir. 1999)). In particular, “[t]he district court may

dispense with the filing of a bond when it concludes there is

no realistic likelihood of harm to the defendant from enjoin-

ing his or her conduct.” Id. We review for abuse of discretion

a district court’s determination as to the amount and appropri-

ateness of the security required by Rule 65(c). Barahona-

Gomez, 167 F.3d at 1237.

[26] The district court ordered Plaintiffs to post $5000 as

security for each temporary restraining order preceding the

corresponding preliminary injunction. Although Plaintiffs

have since stated that these cash bonds remain with the Clerk

of Court as security for the preliminary injunctions, the dis-

9730 JOHNSON v. COUTURIER

trict court did not itself address the sufficiency of the bond

amounts except in the context of issuing the temporary

restraining orders. We remand the question of bond suffi-

ciency to the district court, which should set the terms and

conditions of a surety bond for each preliminary injunction.

The court may wish to take into account Plaintiffs’ offer to

place in escrow potential defense costs, an offer which if

accepted would itself ensure that Defendants’ expenses will

be reimbursed if either preliminary injunction is ultimately

found to have been granted in error.

VII

We conclude that ERISA establishes federal subject matter

jurisdiction over this case and that state law governing

advancement of defense costs is here preempted as its appli-

cation would conflict with ERISA. We further conclude that

the district court did not abuse its discretion in preliminarily

enjoining TEOHC from advancing defense costs, nor in freez-

ing Couturier’s assets and requiring an accounting. Finally,

because it did not consider the question in the first instance,

we remand the question of bond sufficiency to the district

court.

Costs on appeal are awarded to Plaintiffs-Appellees.

AFFIRMED but REMANDED with instructions.