:: Insurance Broker Malpractice Claims Avoid ERISA Preemption Defenses

efendants argue that certain allegations in the complaint fall within the ambit of section 502(a) of ERISA because plaintiffs, as plan participants, allege the broker defendants breached their fiduciary duties by failing to properly administer the ESOP. . . .  Defendants’ arguments focus on a line that appears in paragraphs 131, 136, 141 and 149, alleging respectively breach of contract, breach of the covenant of good faith, negligence, and breach of fiduciary duty, to the effect that the broker defendants “fail[ed] to administer the ESOP and related profit sharing plan.”

Defendant Langlois also argues that “misrepresentations as to the tax consequences of an ERISA plan are governed by ERISA’s civil enforcement scheme and, therefore, are completely preempted.”

Trelease v. Metro. Life Ins. Co., 2008 U.S. Dist. LEXIS 66400 (D.N.J. Aug. 29, 2008)

The district court in Trelease reached the correct conclusion that, notwithstanding specific reference to ERISA in the state law complaint, the gravamen of the plaintiffs’ complaint did not invoke ERISA’s civil remedies and, therefore, averted preemption.  In essence, the case argued by the plaintiffs amounted to no more than a state law malpractice claim against their insurance professionals.

The Facts

The court was confronted with a complex set of facts that could have easily confused the central issue of ERISA preemption.

First, the complaint was “lengthy” and the transactions were complex.  The complaint described “a complex program which defendants allegedly sold to plaintiffs with promises of retirement and tax savings . . .”

Second, though the plaintiffs sued the defendants in state court, alleging state law causes of action such as breach of contract, breach of the duty of good faith, negligence and so forth, the plaintiffs also alleged breach of fiduciary duty,misrepresentation of federal tax treatment and, most troubling:

that the broker defendants “fail[ed] to administer the ESOP and related profit sharing plan . . [and] “misrepresentations as to the tax consequences of an ERISA plan . . .

Metropolitan Life Insurance Company with the consent of the other defendants, removed to federal court pursuant to 28 U.S.C. § 1441(a), whereupon the plaintiffs moved to remand the lawsuit to state court.

No “Magic Talisman”

The court did not accept the references to federal law as indicative of the true nature of the plaintiffs’ complaint.  The term “ERISA”, opined the court, cannot be used as a magic talisman to automatically invoke federal jurisdiction.

Having invoked instead the tired old bromide about talismanic words, the court proceeds to error.  The judge observes:

Defendants fail to show plaintiffs’ claims fall within section 502(a). Defendants’ argument that plaintiffs are plan participants is belied by a specific allegation in the complaint which states “Trelease and Weisensee signed a Trust agreement for the ESOP, designating themselves as Trustees, with the power to hold, administer, and invest the trust fund . . . .” There is nothing in the complaint to suggest either Trelease or Weisensee are participants or beneficiaries of the ESOP.

In fact, the plaintiffs may well have been participants in the ESOP and likely were.  That the plaintiffs were trustees does not mean that they could not be beneficiaries as well and the failure to allege a fact hardly makes its contrary true.

No Fiduciary Status

Despite the foregoing digressions, the court managed to stay on track by acquiring another basis for its decision in its findings as to the defendants’ status.  The defendants were not, in the view of the court, ERISA fiduciaries:

The complaint also does not indicate that any defendant was acting as a fiduciary for the ESOP. Plaintiffs allege that “[t]he Broker Defendants undertook to participate in the administration of the ESOP and to keep books and records in connection therewith.” (Compl. P 51.)

A fiduciary must have some discretionary authority or control over the management or administration of the plan. 29 U.S.C. § 1002(21)(A)(i)-(iii). See also Wachtel v. Health Net, Inc., 482 F.3d 225, 229 (3d Cir. 2007). Performing ministerial tasks such as record keeping does  not qualify someone as a fiduciary under ERISA. Confer v. Custom Eng’g Co., 952 F.2d 34, 39 (3d Cir. 1991) (”Since discretionary authority, responsibility or control is a prerequisite to fiduciary status, it follows that persons who perform purely ministerial tasks, such as claims processing and calculation, cannot be fiduciaries because they do not have discretionary roles.”). Defendants have not shown what discretionary authority Kelly, Curran, or CKA have over the plan, and the complaint does not indicate they have any such control.

That is solid ground that will support a remand.  And so the court concluded:

The previous analysis has shown plaintiffs are not plan beneficiaries and defendants are not fiduciaries as defined by ERISA. The Court holds that defendants have failed to show plaintiffs’ claims are subject to complete preemption pursuant to section 502(a).

Note: The district court found the correct conclusion by a comparative methodology.  If the plaintiffs weren’t participants and the defendants weren’t fiduciaries, then the case must not be an ERISA case. That approach can work, but it is a slender reed to lean on. Fiduciary status can come and go, and may exist with respect to the same defendant in some roles while not present in others. A firmer basis for the court’s holding would be that the actions complained of were garden variety negligence claims falling outside of the traditional benefit adjudication paradigm. (See Custer cite below)
Defendant Group – The caption gives a better idea of the composition of the defendant group than the citation:

METROPOLITAN LIFE INSURANCE CO., LEX BYERS, IFL CAPITAL GROUP, INC., JOSEPH LANGLOIS, CHRISTOPHER CURRAN individually and d/b/a CURRAN KELLY INSURANCE ASSOCIATES, JACK KELLY, individually and d/b/a CURRAN KELLY INSURANCE ASSOCIATES, CURRAN KELLY INSURANCE ASSOCIATES, TEMPLE H. DRUMMOND AND TEMPLE H. DRUMMOND d/b/a DRUMMOND & ASSOCIATES, Defendants

Best Malpractice/Preemption Case – I practice in the Fourth Circuit and may appear biased, but I believe Custer v. Sweeney, 89 F.3d 1156, 1167 (4th Cir.1996) represents one of the finest examples of reasoning on the malpractice issue in the ERISA context