10/17/2016. Fiduciary Case Studies You Can t Make This Stuff Up. Sheldon H. Smith Bryan Cave LLP Denver

Transcription

1 Fiduciary Case Studies You Can t Make This Stuff Up Sheldon H. Smith Bryan Cave LLP Denver 1

2 A Heartbreaker O Shea v. UPS Retirement Plan, et al (2016 WL ) Brian O Shea worked for UPS for 37 years He participated in the UPS retirement plan He was eligible to retire in 2009 and decided to retire at the end of December 2009 He spoke with his HR supervisor to discuss logistics for his retirement A Heartbreaker (Continued) He was advised that he could maximize his time on the payroll by taking 7 weeks of accrued vacation and personal time thus delaying his retirement date UPS s standard practice was to advise employees to take this pay before retiring HR supervisor was not aware that Mr. O Shea was terminally ill 2

3 A Heartbreaker (Continued) Mr. O Shea took the supervisor s advice and officially retired the following February 28 while choosing a SLA with a 10 year guarantee and named his 4 children as beneficiaries March 1 was his annuity starting date The plan required that the guarantee only applied if Mr. O Shea lived to the annuity starting date he didn t A Heartbreaker (Continued) A breach of fiduciary duty suit ensued when the children received nothing Even though Mr. O Shea was never made aware of the stay alive requirement, the retirement application made it clear that the distribution choice would be subject to the terms of the plan The First Circuit panel felt awful, but couldn t find a breach of fiduciary duty, calling the case a heartbreaker 3

4 A Touchy Breach Lisa Allen and Misty Dalton v. GreatBanc Trust Co. (2016 WL ) GreatBanc is the ESOP fiduciary for employees of Personal-Touch, a home health-care company A Touchy Breach (Continued) The bank facilitated a transaction where the ESOP purchased employer stock from shareholders with a loan from the company 4

5 A Touchy Breach (Continued) Sadly, the shares turned out to be worth much less than what was paid for them a shocker! A Touchy Breach (Continued) The plan participants ended up having to pay interest on the plan s loan Lisa and Misty sued the bank for fiduciary breach on the theory that it did not obtain a proper valuation of the stock The District Court dismissed the claim seemingly using Dudenhoeffer rationale, but the 7 th Circuit reversed and remanded 5

6 A Touchy Breach (Continued) The 7 th Circuit found that the plaintiffs could sustain their claim as long as they alleged facts sufficient to tell a plausible story No Dudenhoeffer hurdle here The case was remanded Moral No wonder banks don t want to deal with ESOPs Losers Weepers Chesemore, et al. v. Fenkell (2016 WL ) Mr. Fenkell was in the business of buying, holding and then selling ESOP owned companies He would merge the acquired company ESOP into his company s ESOP 6

7 Losers Weepers (Continued) He bought Trachte Building Systems, Inc., merged the ESOPs, and expected to flip the company in five years for a handsome profit Trachte s business flattened and Fenkell could not get an offer anywhere near his expectation Losers Weepers (Continued) Using a new ESOP, he had it buy Trachte from his company for big bucks and a loan 7

8 Losers Weepers (Continued) The price was inflated and unsustainable another shocker! Employees sued Fenkell for breach of fiduciary duty Losers Weepers (Continued) Fenkell lost And the employees were awarded costs and fees 8

9 Losers Weepers (Continued) And he was ordered to indemnify the other fiduciaries ouch! And then he was held in contempt for failing to obey a court order Physician Scorned Not really a breach of fiduciary duty case, but I couldn t help myself W. A. Griffin, MD v. Habitat for Humanity International, Inc. (2016 WL ) This is one of many, many identical cases filed by Dr. Griffin after she was denied reimbursement by myriad self-funded health plans She always appeared pro se and each federal case involves less than $1,000 9

10 Physician Scorned (Continued) In this case, she sought $928 in unpaid bills and at least $64,000 in penalties Court: ERISA 502(a)(1) only provides the right to sue to participants, beneficiaries and the Secretary Physician Scorned (Continued) Dr. Griffin hit the books and discovered derivative standing However, the anti-assignment clause trumps derivative standing Dr. Griffin lost over and over Moral of the story hire an ERISA lawyer this stuff is difficult 10

11 Brain-dead Case Perez v. Brain (2016 BL ) Robbins worked for the union Trust Funds for almost 25 years She had not previously been disciplined Brain-dead Case (Continued) Funds attorney Cook and plan administrator Brain were in a close, personal relationship that became romantic during DOL examination time period Both Brain and Cook misled the trustees of the Trust Funds about the nature of their relationship during this time period 11

12 Brain-dead Case (Continued) Robbins contacted the DOL about Brain s improper conduct with plan assets The DOL sent its notice of examination A special Joint Board meeting was called in reaction to the DOL investigation Brain-dead Case (Continued) In the days before the meeting, Cook and Brain had several discussions with various trustees In those communications they urged these trustees to vote in support of the positions advanced by Cook and Brain on the issues that were to be addressed at the meeting 12

13 Brain-dead Case (Continued) After receiving the DOL subpoena, Cook was very angry with Robbins She wanted to put Robbins on paid administrative leave because of Robbins role in causing the DOL subpoena to be issued Cook knew that putting Robbins on paid administrative leave could be deemed a violation of the whistleblower protections under ERISA Brain-dead Case (Continued) Cook and Brain led the discussion at the Joint Board meeting regarding the DOL investigation Each contributed to creating an environment hostile to Robbins Cook stated that Robbins conduct was inappropriate Brain recused himself from the vote, but he remained in the meeting room The Court found that his continued presence was both coercive and inconsistent with his recusal 13

14 Brain-dead Case (Continued) The Board then voted to put Robbins on paid administrative leave for these reasons: Robbins had been presenting unsubstantiated charges against Brain for years Robbins was not doing a good job the audit would go more smoothly if Robbins were not present to keep other unions from learning what was happening Robbins might remove documents from the offices of the Trust Funds to protect plan participants to address problems at the Trust Funds caused by Robbins due to the chaos at the meeting it would be safer for Robbins to be away while the DOL investigated matters related to the Trust Funds Robbins should have informed Cook and the Joint Board when the DOL first contacted her Brain-dead Case (Continued) Court: Cook's actions and advice as counsel were both substantially affected by her relationship with Brain She did not act in the objective, detached manner that is expected of counsel When allegations about Brain s conduct were presented to Cook, she responded with an emotional approach rather than with an analytical one She did not act impartially, but instead continuously agreed with Brain's positions 14

15 Brain-dead Case (Continued) Decision: Brain had no brain Found to violate Robbins whistleblower rights and to have committed breaches of fiduciary duty No ruling here on the lawyer-girlfriend Moral Maybe you shouldn t hire a lawyer even though this stuff is complicated It s Other People s Money Case Mintjal v. Prof'l Benefit Tr., Ltd. (2016 BL ) Beginning in 1995, Plaintiffs employer participated in a MEWA plan & trust ( the PBT Trust ), which provided death and living benefits to employees of participating employers Plaintiffs David and Therese Mintjal were beneficiaries of the Trust between 1995 and

16 It s Other People s Money Case (Continued) Defendant Professional Benefit Trust, Ltd. ( PBT Ltd. ) was the trustee of the PBT Trust Defendant PBT Administration, LLC was the plan administrator Tracy Sunderlage was the CEO and Chairman of the PBT Trust It s Other People s Money Case (Continued) Plaintiffs alleged that Linda Sunderlage, Tracy's wife and business partner, also was a fiduciary as she exercised discretionary authority and had control over the management of assets of the Trust 16

17 It s Other People s Money Case (Continued) The assets of the PBT Trust, including contributions by participating employers, were held in a single pool The PBT Trust was terminated Plaintiffs moved for summary judgment as to various alleged breaches of fiduciary duties and prohibited transactions committed by multiple defendants including the Sunderlages It s Other People s Money Case (Continued) The alleged breaches (PTs mostly) occurred in connection with major events: (1) the unlawful termination of the PBT Trust providing inappropriate allocations of the remaining corpus (2) a $2.16 million administrative fee that Tracy Sunderlage awarded himself for administration of the PBT Trust 17

18 It s Other People s Money Case (Continued) The Court granted summary judgment in favor of Plaintiffs on the Sunderlages liability for breaches of their fiduciary duties with regard to the termination transactions the termination of the PBT Trust the award of the $2,163,000 administrative fee when the PBT Trust was terminated, and aiding and abetting the breaches of fiduciary duties by Tracy Sunderlage by third parties NOT COOL TO ENGAGE IN PTs Too Cute Case Helms v. Fishburn (2016 BL ) The Plan is a party to an Accumulated Retirement Account Group Annuity Contract with John Hancock Life Insurance Company ( Hancock ), a covered service provider to the Plan In February 2008, the Plan and Hancock entered into an Addendum to the contract which established the Plan Expense Reduction Account (the Account ) The Account received expense reduction credits which amounted to about $20,000 per year 18

19 Too Cute Case (Continued) The Plan had sole responsibility for determining the eligibility and reasonableness of any thirdparty expenses, and also for determining how the payments would be requested and paid-out To request a disbursement, a form was submitted requiring the signature of an authorized trustee, and directing Hancock to pay a specified amount to a specified payee No other documentation was necessary Too Cute Case (Continued) On July 21, 2010, Hancock received a form directing it to pay $2,180 to C.I. Consulting The form was signed by Defendant Fishburn Over the next few years, Hancock continued to receive forms with the same directions but with different amounts of payments requested 19

20 Too Cute Case (Continued) The total of all expenses requested and paid was $81,413 It was determined in July 2015 that C.I. Consulting was a fictitious name owned by Defendant Fishburn The Plan had never contracted with C.I. Consulting to perform any work Too Cute Case (Continued) Plaintiffs alleged that Fishburn, a party in interest, caused the Plan to engage in transactions which he knew or should have known constituted a direct or indirect furnishing of services between the Plan and a party-in-interest in violation of ERISA 20

21 Too Cute Case (Continued) Despite repeated requests for reimbursement to the Plan, Mr. Fishburn refused to pay back the $81,413, before the filing of this suit Too Cute Case (Continued) The plan sought payment in the amount of $81,413 plus costs, attorney's fees, interest, and any other legal or equitable relief as the court deemed appropriate Additionally, the plaintiffs wanted the defendant to reimburse them for the amount of any excise taxes that they might be required to pay 21

22 Too Cute Case (Continued) The court found that the Plan received the bulk of the remedy it was seeking But that the Plan did not receive all of it To support Congressional intent to protect participants the court required Fishburn to make the Plan whole by reimbursing the costs and attorney's fees the plan paid in bringing lawsuit, and the interest it did not receive on the money while it was gone from the Plan And to pay the excise taxes the plan might have to pay the case remained open to determine them later Too Cute Case (Continued) The plaintiffs filed a motion to strike the defendant's Offer of Judgment for $81,412 as reimbursement, and for payment of any excise taxes actually levied against the Plan He also offered to pay attorney's fees and costs not to exceed $9,000 Motion denied let s have a trial! 22

23 No, Not a Doctor Case! McLain and Gamer v. Poppell, et al (3:16-CV just filed in the US District Court for the Northern District of Florida) According to the compliant: Dr. Poppell s LLC sponsors a 401(k) plan Plaintiffs are former employees of the LLC and are plan participants No, Not a Doctor Case! (Continued) More allegations: The plan was terminated in October 2015 Dr. Poppell alone selected plan investments There was no participant direction of investments Dr. Poppell had no meaningful investment expertise Dr. Poppell rejected suggestions to retain an investment advisor 23

24 No, Not a Doctor Case! (Continued) More allegations Dr. Poppell failed to diversity the assets Dr. Poppell failed to monitor the assets Dr. Poppell invested plan assets in heavy concentration in one company a patent troll The investment was, at best speculative Dr. Poppell performed no due diligence The plan lost in excess of 50% of its investment No, Not a Doctor Case! (Continued) More allegations: The plaintiffs were discharged for complaining about Dr. Poppell s conduct The plaintiffs claim to be whistleblowers exercising their rights under ERISA Of course, you can t make this stuff up! Can you? 24

25 THANKS FOR YOUR ATTENTION 25