December 10, 2010
--- In his second attempt to bring suit against a custodian used by a
rogue plan administrator, bankruptcy-appointed trustee John C. McLemore
is again getting support from the U.S. Department of Labor. ---
Addressing Regions Bank’s attempt to curtail McLemore's
Employee Retirement Income Security Act standing (ERISA) based on a
prior court decision that a trustee seeking to exercise powers and
fulfill obligations exclusively under the Bankruptcy Code may take
action only for the benefit of the bankruptcy estate rather than for the
debtor's former clients, the DoL said in an Amicus Brief. The prior
court case did not involve a trustee exercising standing and authority
under another federal statute such as ERISA.
“The clear and unambiguous language of section 502(a) of
ERISA, 29 U.S.C. § 1132(a), the provision which grants standing to an
ERISA fiduciary to commence an action, contains no such limitation,” the
brief says. “Congress has chosen to broadly define who may be a
fiduciary in order to maximize the protections afforded under ERISA.
Thus, to exclude certain ERISA fiduciaries from their duties, based
solely upon their status as bankruptcy trustees, would contravene the
plain meaning of the statute and defeat the intent of Congress to
protect the interests of participants in employee benefit plans.”
In addition, the DoL said Regions attempt to bar the suit
by McLemore by use of the in pari delicto defense - an unclean hands
doctrine that, where applicable, bars wrongdoers from obtaining
recoveries in actions for wrongs for which they have been the
perpetrators - is equally unavailing. According to the agency’s Brief,
its application in this type of case would be contrary to ERISA, which
generally requires fiduciaries to act with complete loyalty and prudence
towards plan participants, unqualifiedly confers standing on them to
bring suits for fiduciary breach, and specifically directs successor
fiduciaries to seek to remedy a prior or co-fiduciary's breach of
fiduciary duty.
The DoL noted that in its previous decision, the district
court concluded that it particularly makes no sense to impose an in pari
delicto bar on McLemore as he has committed no wrong, but is seeking to
correct a wrong. Moreover, he is suing Regions not on behalf of the
debtors or the debtors' estates, but in a representative capacity as a
fiduciary of the ERISA plans, to recover losses to those plans for the
benefit of plan participants who were the victims of the debtors'
wrongdoings.
In its first decision, the district court dismissed
multiple ERISA claims for relief brought by McLemore against Regions and
Mid-Atlantic Capital Corp, a registered broker-dealer used by 1Point
Solutions, on the grounds that neither of the defendants was an ERISA
fiduciary. McLemore is appealing that decision.
1Point Solutions, a Nashville-area benefits management
firm faced multiple client lawsuits alleging the loss of funds in
employee benefit programs the firm was running. Former 1Point CEO Barry
Stokes pled guilty to 29 counts of embezzlement of retirement funds, in
addition to several counts of wire fraud, mail fraud, money laundering,
and criminal contempt (see Rogue Plan Administrator to Get 14 Years Under Plea Deal).
The Amicus Brief is here.
Rebecca Moore