McLemore v. Regions Bank

Summarized by Dean Langdon , DelCotto Law Group PLLC
13 years 8 months ago

Citation:

File Name 12a0172p.06; Docket Nos. 10-5480/5491

Tag(s):

Ruling:

Affirming the rulings of the District Court for the Middle District of Tennessee, the Sixth Circuit Court of Appeals held that a depository bank with custody (but not control) of ERISA accounts was not a fiduciary under ERISA, and that ERISA preempted Tennessee state law claims brought by the ERISA fiduciary against the bank.

Procedural context:

The District Court for the Middle District of Tennessee withdrew the reference from the bankruptcy court and initially dismissed the trustee's ERISA claims in 2008, then dismissed Tennessee state law claims in 2010, finding that they were preempted by ERISA. The Sixth Circuit Court of Appeals affirmed both rulings.

Facts:

Barry Stokes and his company, 1Point Solutions,LLC, served as third-party administrator for various employee-benefit and 401(k) retirement plans. He established accounts for the various plans at Regions Bank, which insisted he title them all under some variation of 1Point's name, allowing for transfers and withdrawal from the accounts with little to no control. Stokes ultimately stole millions of dollars from his customers and in 2006 he and 1Point filed for bankruptcy. The bankruptcy trustee filed suit against Regions Bank in his capacity as an ERISA fiduciary rather than a bankruptcy trustee. The trustee alleged the Bank i) knew the accounts held plan assets; ii) should have known the accounts were handled differently than other third-party administrator accounts; iii) failed to comply with bank regulations that would have revealed Stokes' actions; iv) advised 1Point to structure accounts to avoid "know your customer" rules; and v) withdrew over $500,000 in fees and charges. The Sixth Circuit examined the issue of the trustee's standing and found he had standing as an ERISA fiduciary. However, the Sixth Circuit affirmed on the issue of the Bank's status as an ERISA fiduciary, holding that mere custody of plan assets, advising on the structure of accounts or withdrawal of fees did not give rise to status as an ERISA fiduciary. Accordingly, the Sixth Circuit affirmed the dismissal of the ERISA claims. Both the Trustee and several former 1Point clients sued the Bank claiming negligence and recklessness; unjust enrichment; and violation of the Tennessee Consumer Protection Act. The District Court dismissed these claims in 2010, finding that they were preempted by ERISA. The Sixth Circuit again affirmed, holding that the state law claims were "alternative enforcement mechanisms" which were preempted by ERISA. Judge Merritt dissented on the dismissal of the state law claims, noting that law of preemption under ERISA was "in a state of disarray," and that by extending preemption to shield the Bank, the Court was acting contrary to ERISA's goal of protecting participants. Judge Merritt also noted a Ninth Circuit decision which allowed state law claims to proceed against a bank serving only as custodian in Arizona State Carpenters' Pension Trust Fund v. Citibank, 125 F.3d. 715 (9th Cir. 1997).

Judge(s):

Merritt, Cook and Cox (District Judge); authored by Cook; dissent by Merritt

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