Opinion ID: 4707273
Heading Depth: 2
Heading Rank: 1

Heading: Limited Precedent

Text: There is little circuit-level precedent assessing whether and to what extent ERISA preempts corporation-law claims against dual-hat directors and oﬃcers. Beyond the Fifth Circuit’s decision in Sommers Drug Stores Co. Employee Proﬁt Sharing Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456 (5th Cir. 1986), there seems to be only a handful of district court cases that squarely address the problem. Most of these cases hold that ERISA does not preempt corporation-law claims against dual-hat directors and oﬃcers. In Sommers Drug Stores, for example, the Fifth Circuit assessed whether ERISA preempted a common-law breach of No. 20-2793 9 ﬁduciary duty claim brought by an employee proﬁt sharing trust (which was both a minority shareholder and ERISA plan) against the company president (a dual-hat corporate and ERISA ﬁduciary). 793 F.2d at 1468. The trust brought ﬁ- duciary duty claims under both state common law and ERISA. The district court held that ERISA preempted the state-law claims, but the Fifth Circuit reversed. The Fifth Circuit’s reasoning focused on the shareholder-director relationship, which imposed special duties wholly independent from any parallel ERISA duties: The state common law of ﬁduciary duty that the Trust seeks to invoke in this case centers upon the relation between corporate director and shareholder. The director’s duty arises from his status as director; the law imposes the duty upon him in that capacity only. Similarly, the shareholder’s rights against the corporate director arise solely from his status as shareholder. That in a case such as ours the director happens also to be a plan ﬁduciary and the shareholder a beneﬁt plan has nothing to do with the duty owed by the director to the shareholder. The state law and ERISA duties are parallel but in- dependent: as director, the individual owes a duty, deﬁned by state law, to the corporation’s shareholders, including the plan; as ﬁduciary, the individual owes a duty, deﬁned by ERISA, to the plan and its beneﬁciaries. Id. at 1468. Sommers Drug Stores’s “parallel but independent” duties theory has been followed in other cases. See In re Ullico Inc. 10 No. 20-2793 Litig., 605 F. Supp. 2d 210, 222 (D.D.C. 2009) (“[T]he allegations of breach of ﬁduciary duty … were not preempted because they ‘derive from the counterclaim defendants’ obligations and responsibilities as oﬃcers of the corporation under state corporate law, rather than their relationship to the … plans as beneﬁciaries.’”), quoting Carabillo v. ULLICO, Inc., 357 F. Supp. 2d 249, 259 n.7 (D.D.C. 2004), in turn citing Sommers Drug Stores, 793 F.2d at 1470; Crabtree v. Central Florida Investments, Inc. Deferred Comp. Plan, 2012 WL 6523584, at  (M.D. Fla. Oct. 3, 2012), report and recommendation approved, 2012 WL 6523078 (M.D. Fla. Dec. 14, 2012) (“The preemption principles do not apply when, as is the case here, the cause of action for breach of ﬁduciary duty is against a corporate oﬃcer for duties owed to the corporation.”); Richmond v. American Sys. Corp., 792 F. Supp. 449, 458–59 (E.D. Va. 1992) (same: “The state corporate laws … regulate relations between plaintiﬀs, as minority shareholders … and Ramsey and Curran, as … oﬃcers[] and directors. The relations … function irrespective of [ERISA plan] administration.”); In re Antioch Co., 456 B.R. 791, 839 (Bankr. S.D. Ohio 2011), report and recommendation adopted, 2011 WL 3664564 (S.D. Ohio Aug. 12, 2011), modiﬁed on reconsideration sub nom. Antioch Co. Litig. Trust v. Morgan, 2012 WL 6738676 (S.D. Ohio Dec. 31, 2012), (“[A]ll three defendants were ESOP ﬁduciaries. However, … all the claims against these defendants are based on independent legal duties owed in their roles as corporate ﬁduciaries….”); In re Dehon, Inc., 334 B.R. 55, 68 (Bankr. D. Mass. 2005) (relying on Sommers Drug Stores and ﬁnding no preemption: “the claims are brought by a third party to enforce rights held by the corporation against directors of that corporation for their acts as corporate directors”); see also Housman v. Albright, 368 No. 20-2793 11 Ill. App. 3d 214, 223, 857 N.E.2d 724, 733 (2006) (same), citing Sommers Drug Stores, 793 F.2d at 1465. Some courts have further noted that preempting state claims against directors and oﬃcers “[s]imply because events precipitating [them] occurred in the general context of an employee beneﬁt plan,” Richmond, 792 F. Supp. at 459, would contravene ERISA’s core purpose to prevent misuse of plan assets by enabling directors and oﬃcers to defraud shareholders and creditors whenever they don their ERISA hats. See In re Antioch, 456 B.R. at 841–42 (preemption “would do nothing more than immunize oﬃcers and directors … from allegations of self-dealing by the corporate entity to which they have deﬁned independent legal obligations”); see also Smith v. Crowder Jr. Co., 280 Pa. Super. 626, 639, 421 A.2d 1107, 1114 (Pa. Super. 1980) (“ERISA was not intended as a device to permit corporate directors and oﬃcers to defraud with impunity corporate shareholders and creditors….”). The defendants rely on two cases ﬁnding that ERISA did preempt certain state corporation-law claims: McLemore v. Regions Bank, 682 F.3d 414, 425 (6th Cir. 2012), and AT & T v. Empire Blue Cross/Blue Shield, 1994 WL 16057794, at  (D.N.J. July 19, 1994). These cases oﬀer little support for the directors and oﬃcers’ defense here. McLemore held ERISA preempted an entirely diﬀerent sort of claim. The McLemore plaintiﬀs asserted state-law damages claims against Regions Bank “for knowingly permitting [ERISA ﬁduciaries] to breach their ﬁduciary duties” under ERISA. 682 F.3d at 426. The Sixth Circuit held such claims were preempted because the plaintiﬀs were ERISA “participant[s], beneﬁciar[ies], or ﬁduciar[ies]” who could bring these same claims under ERISA. Such plaintiﬀs were seeking an “alternative 12 No. 20-2793 enforcement mechanism” under state law, which ERISA § 514 prohibits. Id. (internal quotation omitted). So, unlike in Sommers Drug Stores, the plaintiﬀs’ claims in McLemore sought to enforce ERISA duties, not corporation-law duties. And, unlike McLemore, the plaintiﬀs here—bankruptcy creditors suing on behalf of the corporation—have no corollary cause of action under ERISA that they could invoke. The AT & T case is also unhelpful because it rested on a faulty premise that ERISA preempts any state claim arising from conduct that occurs in the context of plan administration. AT & T held that since “ERISA at least arguably governs the alleged misconduct at issue, plaintiﬀs’ state law claims predicated upon that same alleged conduct are preempted.” 1994 WL 16057794 at . The Supreme Court has rejected such a broad rule, clarifying that “lawsuits against ERISA plans for run-of-the-mill state-law claims such as unpaid rent, failure to pay creditors, or even torts committed by an ERISA plan …, although obviously aﬀecting and involving ERISA plans and their trustees, are not preempted.” Mackey, 486 U.S. at 833. As a result, the defendants are left without any ﬁrm precedent supporting the position that ERISA preempts corporation-law claims against dual-hat directors and oﬃcers.