Court Holds Administrator Liable for Relationship with Known Embezzler

June 26, 2006 ( - The 2nd US Circuit Court of Appeals has ruled that a health fund administrator breached her fiduciary duties by continuing the fund's relationship with someone who previously embezzled $475,517 in employer contributions from the fund.

In doing so the court refused to overturn an injunction that restricted health fund administrator Sandra Briand from serving as a plan fiduciary under the Employee Retirement Income Security Act (ERISA).

The appeals court held that Briand knew when she became administrator that Clarke Lasky had embezzled money from the fund and made an agreement with Joseph Merino, the former administrator of the fund and Briand’s husband, to repay the diverted funds. The court said that Briand only ended Lasky’s relationship with the fund after he had embezzled an additional $177,271.

The US District Court for the Eastern District of New York held that Briand and Merino breached their fiduciary duties as defined by ERISA, and held they were together liable for $352,271 in losses to the International Brotherhood of Industrial Workers Health and Welfare Fund.

Briand and Merino appealed the lower court’s decision, claiming that it was wrong in its finding that they breached their fiduciary duties. And Briand argued that even if the fiduciary duties were breached, it did not result in losses to the funds.

The appeals court  opinion in Chao v. Merino said that even though Briand took swift action after Lasky again embezzled money, she had an obligation to take “precautionary steps to limit Lasky’s ability to embezzle from the fund” when she became a fiduciary in 1994. The court said that Briand “knew that Lasky had on three earlier occasions wrongfully withheld employer contributions from a benefit fund” and “that Lasky could not be trusted.”

The appeals court also said that under ERISA, a fiduciary that breaches his or her responsibilities “shall be personally liable to make good to such plan any losses to the plan resulting from each such breach.” The district court held Briand liable for the $177,271 embezzled after her appointment as administrator.