CEO Had no Obligation to Resign as Fiduciary of Health Plan

November 7, 2007 ( - The U.S. District Court for the District of Utah has determined that the CEO of a hotel and casino who also served in a fiduciary capacity to the company-sponsored employee health plan did not breach his fiduciary duties under the Employee Retirement Income Security Act (ERISA).

Specifically, according to its opinion, the court ruled that State Line & Silver Smith Casino CEO Michael W. Devine was not required by ERISA to have:

  • informed the beneficiaries that the plan was not a reliable source of health care benefits and that they might need to make alternative arrangements to obtain medical coverage;
  • resigned as the fiduciary and obtained the appointment of a person or entity who was free from a conflict of interest;
  • hired separate, outside counsel for the plan; and
  • considered, threatened, and/or sued State Line on behalf of the plan for unpaid contributions.

The court decided plaintiffs were not entitled to reopen discovery or to introduce additional evidence on these issues that were remanded back to the district court for further review by the 10 th U.S. Circuit Court of Appeals, and that the plaintiffs failed to prove with the evidence on record that Devine was liable for breach of fiduciary duty.

The case arose out of unpaid or underpaid medical claims incurred under a self-funded employee benefit plan maintained by State Line Hotel, Inc. and its related entities, which were the owners and operators of State Line Hotel and Silver Smith Casino in Wendover, Nevada.

Former employee Terrence D. Holdeman represented a class of plan participants who submitted medical claims to the plan for services provided between May 1, 1999 and December 8, 2001, and alleged violations of ERISA and the Racketeer Influenced and Corrupt Organizations Act (RICO).

The district court previously dismissed all RICO claims, certified the asserted ERISA claims as a class action, and ultimately granted summary judgment in favor of all defendants except Devine. A trial was held on September 6-8, 2005, and the court concluded that plaintiffs had failed to prove that Devine breached his fiduciary duties to the plan or the plan participants and entered judgment in favor of defendant Devine.

The court previously determined that Devine’s decisions regarding funding of the plan were not “fiduciary” decisions constituting a breach of fiduciary duty, but rather legitimate business decisions made in his role as CEO of State Line and therefore not regulated by ERISA.

These included Devine’s decisions to not prioritize funding of the plan at various times and to authorize distributions to the owners and charitable contributions at a time when the plan was underfunded.

In reviewing the remanded issues, the court rejected plaintiffs’ argument that since Devine made all decisions regarding the plan while wearing his “CEO hat” he never really appreciated that he had a conflict of interest detrimental to the plan and needed to find someone else to serve as fiduciary, the opinion said. The court said plaintiffs presented no evidence to the court that a prudent fiduciary would have resigned because of a conflict of interest, even if this fiduciary had “appreciated” the conflict.

The district court also determined plaintiffs presented no evidence at trial upon which the court could conclude that had Devine resigned, and an independent fiduciary been appointed, plaintiffs more likely than not would have fared better than they did with Devine as fiduciary.

The opinion in Holdeman v. Devine is  here .