>Instead, the US 10 th Circuit Court of Appeals ruled that the accountant was a fiduciary under the Employee Retirement Income Security Act (ERISA) because he had control of the disbursement of assets under his arrangement with the plan run by a Salt Lake City dentist.
>The appellate court split on their rulings about two preemption issues under the Employee Retirement Income Security Act (ERISA). First, the court found that ERISA did not preempt the plan’s charges made under Utah law that the advisor’s employer negligently supervised the advisor and was liable for the advisor’s actions that resulted in the plan losing approximately $600,000. However, in the second matter, the appeals court found that ERISA did preempt the plan’s state law claim seeking to hold the advisor’s employer vicariously liable for the advisor’s actions.
“Regardless of who the accountant defendants dealt with, they were hired by the plan, not [the advisor], and were entrusted with the plan’s money, not [the advisor’s]. They simply cannot avoid this fact by asserting that the devil made them do it,” Circuit Judge Paul Kelly Jr. wrote for the three-judge appellate panel.
>According to the court, dentist David Coldesina established a profit-sharing plan for his dental practice in the early 1980s. In 1992, Coldesina appointed his personal friend, Gregg Simper, as the plan’s investment advisor. Simper worked as a licensed broker-dealer for Sunset Financial Services Inc., an affiliate of Kansas City Life Insurance Co., and operated his own company, Greystone Marketing Inc.
>Simper advised Coldesina to hire Ted Madsen, the owner of Flexible Benefits Administrators, as the plan’s accountant and administrator. Madsen prepared the plan’s tax returns and other documents concerning participants’ accounts and benefits and was involved in making disbursements to participants and tracking plan loans to ensure repayment, according to the ruling.
>According to the court, plan sponsor Coldesina wrote checks from the plan payable to Flexible Benefits and then accountant Madsen would deposit the checks into his business account. The court noted that Madsen had little contact with Coldesina and interacted almost exclusively with Simper.
>When the arrangement with Flexible Benefits began, Madsen would remit plan funds payable to Kansas City Life for Kansas City Life’s insurance products. This arrangement changed when, at the direction of Simper, Madsen began writing checks on behalf of the plan payable to Simper’s company, Greystone Marketing. The court noted that plan sponsor Coldesina never authorized writing plan checks payable to Simper or Greystone Marketing.
>Coldesina contacted Simper in 1999, asking Simper to redirect the plan’s assets to other investments. Simper agreed to accommodate Coldesina’s request, but on the day he was supposed to change the investments, Simper committed suicide, according to the court. The court noted that Simper left a suicide note explaining he had stolen over $600,000 from the plan.
>The case before the appeals panel was originally filed as a lawsuit against Simper’s estate, Kansas City Life, Sunset Financial, Greystone Marketing, Madsen, and Flexible Benefits.
>A federal judge in the US District Court for the District of Utah threw out the ERISA claims against the accountant defendants after deciding they were not ERISA fiduciaries. As for the claims against Kansas City Life and Sunset Financial, the district court found that Simper’s status as an ERISA fiduciary triggered ERISA preemption.
ERISA Preemption Issues
>On appeal, the 10 th Circuit reversed the district court’s conclusion that Madsen and Flexible Benefits were not ERISA fiduciaries, but also reversed the district court’s conclusion that the plan’s state law negligent supervision claims were preempted by ERISA.
>But the appeals court agreed with the district court that the plan’s vicarious liability claim against Kansas City Life and Sunset Financial was preempted by ERISA. “ The direct action supporting vicarious liability is an ERISA claim for breach of fiduciary duty asserted against Mr. Simper’s estate. Obviously this claim regulates the relationship between plan entities, which means the derivative claim also depends on the regulation of a plan entity relationship, thus triggering ERISA conflict preemption,” the appeals court said.
>The opinion in David P. Coldesina D.D.S., P.C. Employee Profit Sharing Plan and Trust v. Estate of Simper, 10th Cir., No. 04-4006, 5/19/05 is here .