The US Court of Appeals for the District of Columbia Circuit rejected broker Brittian Day’s claim that the Department of Labor (DoL) could not accuse him of an Employee Retirement Income Security Act (ERISA) fiduciary breach because he did not qualify for that designation.
The DoL sued Day over accusations that Day misappropriated hundreds of thousands of dollars from the employee plans by funneling the client checks into his corporate account instead of using the money to buy legitimate policies. According to the court, Day sent invoices to the plans for various insurance policies, the plans paid the bills by sending checks to Day, and Day provided the plans with fake insurance policies.
A federal judge in the US District Court for the District of Columbia ruled in favor of the DoL and ordered Day to pay almost $1 million in damages. On appeal, Day argued he could not be held liable for breach of his fiduciary duties.
In affirming the district court decision, the appeals court noted that ERISA defines fiduciaries as any person who “exercises any discretionary authority or discretionary control respecting management of such plan” or who “exercises any authority or control respecting management or disposition of its assets.”
Appellate judges noted that their decision would not extend fiduciary status to every person who exercises mere possession or custody over plan assets. “Day was far more than a mere custodian; he was a broker who solicited, accepted, and then pilfered the plans’ assets by reneging on his promise to purchase insurance for the plans’ members,” the court said.
The decision in Chao v. Day, D.C. Cir., No. 05-5050, 1/24/06 is here .