DoL: Bankruptcy-Appointed Trustee Can Bring ERISA Action

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).