Opinion ID: 757564
Heading Depth: 3
Heading Rank: 1

Heading: Breach of duty by seeking to enforce the Massachusetts Injunction

Text: 40 None of the cases cited by Russell directly holds that ERISA fiduciary responsibilities prevent a fiduciary from enforcing a non-compete agreement against a former employee. Its closest case is Glaziers and Glassworkers Union Local No. 252 Annuity Fund v. Newbridge Securities, Inc., 93 F.3d 1171 (3d Cir.1996). In Glaziers, the defendant brokerage firm Janney Montgomery Scott, Inc. (Janney) discovered that Michael Lloyd, one of its brokers, might have altered the date on a cashier's check to make it appear he had made timely payment of a nearly $10,000 debt. Consequently, Janney forced Lloyd to resign. Janney then filed a complete report of the incident to the National Association of Securities Dealers. The administrators of the plaintiff pension plans whose assets Lloyd serviced, however, were not informed of Lloyd's potential dishonesty. Janney kept the matter from the administrators because there was no uncontroverted proof that Lloyd had committed the suspected alteration. The pension plans followed Lloyd when he left Janney, and ultimately had over $2 million of their funds embezzled by Lloyd. The plans sued Janney for breaching its ERISA fiduciary duties when it failed to inform them of the reasons for Lloyd's termination. The panel in Glaziers reversed the district court's grant of summary judgment to Janney because, viewed in the light most favorable to the plaintiffs, Lloyd's apparently fraudulent conduct could have been a material fact which Janney had a fiduciary duty to disclose. 41 Russell reads Glaziers for the proposition that Janney violated its fiduciary duties when it did not volunteer the reason for Lloyd's termination out of fear of a potential defamation suit. Russell argues Wellington similarly breached its fiduciary duties when it chose to enforce the Massachusetts injunction for its own business reasons even though enforcement conflicts with Russell's interests. Russell's position suggests that any decision made by a fiduciary needs to be done for the exclusive benefit of the ERISA beneficiary. Glaziers expressly disavowed such a position when it stated [w]e do not, of course, hold that one who may have attained a fiduciary status thereby has an obligation to disclose all details of its personnel decisions that may somehow impact upon the course of dealings with a beneficiary/client. Id. at 1182. 42 Such a limitation on the scope of a fiduciary's duties follows the statutory language of § 404. This section states that fiduciary responsibilities only arise when the fiduciary discharge[s] his duties with respect to a plan. 29 U.S.C. § 1104(1) (emphasis added). Cases hold that a decision which is strictly a corporate management business decision ... impose[s] no fiduciary duties. Payonk v. HMW Industries, Inc., 883 F.2d 221, 224-25 (3d Cir.1989). See also Haberern v. Kaupp Vascular Surgeons Ltd. Defined Benefit Pension Plan, 24 F.3d 1491, 1497 (3d Cir.1994) (the critical question is whether [the defendants] were acting in their management capacity when they reduced [plaintiff's] salary.... If they were, then they breached no duty under ERISA for, as they contend, ERISA does not impose fiduciary duties on employers acting in their management capacity.); Hlinka v. Bethlehem Steel Corp., 863 F.2d 279, 286 (3d Cir.1988) (finding defendant had no fiduciary duty because [i]t can hardly be disputed that the initiation of these programs was a business decision rather than a fiduciary decision.). 43 Russell tries to avoid the implication of the business decision exception by arguing it is applied only when the fiduciary is an employer. In those circumstances it argues courts invoke the two hats metaphor to distinguish between when a company acts as employer (thus, wearing a non-fiduciary hat), and when it acts in a fiduciary capacity (wearing a fiduciary hat). Since Wellington is not an employer, Russell believes the business decision exception is inapplicable. 44 We reject this contention. No authority supports Russell's position that an employer is relieved of its ERISA obligations when it acts strictly in a business capacity but other fiduciaries are not similarly relieved. Section 404 simply states a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participant. It does not create different or extra duties for those fiduciaries who are not employers. Section 404 exempts any fiduciary from the obligations when it is not acting with respect to a plan. A fiduciary who acts in a strictly business capacity is not acting with respect to a plan. 45 Was Wellington's decision to seek enforcement of the non-compete agreement taken strictly for internal business reasons? While the District Court made no findings as to this issue, the record strongly suggests it was an internal business matter. Wellington's non-compete agreement has been in effect for years prior to the present dispute. It governs Wellington partners whether or not they conduct business with an ERISA entity. The non-compete agreement is an integral part of Wellington's corporate structure because it enables the firm to have a separate department devoted exclusively to recruiting clients without the risk that these clients will be stolen by departing partners. The non-compete agreement has been used as part of Wellington's leverage to reach amicable arrangements with prior departing partners. 4 Any Russell client having an ERISA plan serviced by the prior departing partners would have been unaffected by the non-compete agreement. It is only because Schneider disavowed any effect of the noncompete agreement upon him that Wellington has been forced to protect its interests. Part of the final (appealable) judgment of the Massachusetts case means Russell will no longer have the investment advisor of its choice. Such an impact on an ERISA plan is far more attenuated than any of a number of employer decisions leading to the termination of a plan which have been held to be strictly business decisions. See Payonk, 883 F.2d at 225 n. 5 (and cases cited therein). Thus, Wellington made a business decision when it chose to enforce the non-compete agreement.