Smith v. Provident Bank

• Decision Date: 18 March 1999
• Docket Number: D,No. 97-4151,I--II,97-4151
• Parties: 22 Employee Benefits Cas. 2681, Pens. Plan Guide (CCH) P 23954F Jane L. SMITH, Executrix of the Estate of Robert Louis Stauter; Emergency Professional Services, Inc., Employees' Profit Sharing Trust and Plan; Emergency Professional Services, Inc., Employees' Money Purchase Pension Trust and Plan, Plaintiffs-Appellants, v. PROVIDENT BANK; Cowen & Company; Ray Rossman, Sr.; Ray Rossman, Jr.; James Cambron; Star Bank; Catholic Diocese of Cleveland; John Doeefendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 609

170 F.3d 609

22 Employee Benefits Cas. 2681,

Pens. Plan Guide (CCH) P 23954F

Jane L. SMITH, Executrix of the Estate of Robert Louis Stauter; Emergency Professional Services, Inc., Employees' Profit Sharing Trust and Plan; Emergency Professional Services, Inc., Employees' Money Purchase Pension Trust and Plan, Plaintiffs-Appellants, v. PROVIDENT BANK; Cowen & Company; Ray Rossman, Sr.; Ray Rossman, Jr.; James Cambron; Star Bank Catholic Diocese of Cleveland; John Doe I--III, Defendants-Appellees.

No. 97-4151.

United States Court of Appeals Sixth Circuit.

Argued Oct. 28, 1998.

Decided March 18, 1999.

Martin F. White (argued and briefed), James J. Crisan (briefed), Warren, OH, for Plaintiffs-Appellants.

Deborah DeLong (briefed), Thompson, Hine & Flory, Cincinnati, OH, for Provident Bank and James Cambron.

Arthur M. Kaufman (briefed), Hahn, Loeser & Parks, Cleveland, OH, for Cowen & Company.

Timothy L. McGarry (briefed), Jeffrey L. Nischwitz (argued and briefed), Nischwitz, Pembridge & Chriszt Co., Cleveland, OH, for Ray Rossman, Sr and Ray Rossman, Jr.

Deborah S. Brenneman (briefed), Thompson, Hine & Flory, Cincinnati, OH, Timothy L. McGarry, Jeffrey L. Nischwitz, Nischwitz, Pembridge & Chriszt Co., Cleveland, OH, for Star Bank.

Edward J. Maher (briefed), Edward J. Maher Co., Cleveland, OH, Deborah S. Brenneman, Thompson, Hine & Flory, Cincinnati, OH, for Catholic Diocese of Cleveland.

Before: GUY, DAUGHTREY, and MOORE, Circuit Judges.

MOORE, J., delivered the opinion of the court, in which DAUGHTREY, J., joined. GUY, J. (p. 617), delivered a separate opinion concurring in part and dissenting in part.

MOORE, Circuit Judge.

The plaintiffs in this case filed an ERISA action in federal court and two years later filed an action in state court making essentially the same allegations but seeking relief under state law. The latter case was removed and consolidated with the original federal suit, and the district court dismissed or granted summary judgment on all of the state-law claims, holding that they were preempted by ERISA. The parties then settled the ERISA claims, and the district court entered a consent judgment subject to the plaintiffs' reservation of their right to appeal the rulings on their state-law claims. We AFFIRM the district court's holding that plaintiff Stauter's claims are preempted but REVERSE with respect to some of the claims asserted by the other plaintiffs. We therefore REMAND this case for further proceedings.

I. BACKGROUND

The plaintiffs are Robert Stauter ¹ and two benefits plans in which he participates as an employee of Emergency Professional Services, Inc. ("EPS"). The Plans--the EPS Employees' Profit Sharing Trust and Plan and the EPS Employees' Money Purchase Pension Trust and Plan--are governed by ERISA. Through the plans, Stauter has an account that was managed by Provident Bank as trustee. On October 11, 1990, Stauter instructed Provident to purchase 1,000 shares of stock in Ameritrust Bank for his account. The purchase was executed by Cowen & Company for a price of $10,870, including the cost of the shares and a commission.

As of the close of business on April 30, 1991, Provident was removed as trustee for the Plans and was replaced by Society Bank. Provident transferred the assets held in Stauter's account to Society on or about June 7, 1991. Stauter later discovered, among several other errors, that the Ameritrust shares were missing from his account. In lieu of the shares, Provident had transferred $10,550 (the purchase price less dividends Stauter had received), even though by mid-May the value of the shares had risen to more than $16,000.

Stauter then embarked on a long and frustrating campaign to have this error acknowledged and corrected. While Provident eventually recognized its error, there then arose a dispute over the proper compensation, as the value of the shares continued to rise steadily. Eventually in 1993, Stauter and the Plans filed suit in federal court against Provident, Cowen, and unknown "John Does." The complaint alleged that Provident had breached its fiduciary duty as the trustee of an ERISA plan, sought to clarify Stauter's rights and recover benefits due under an ERISA plan, asserted common law claims against Cowen for breach of fiduciary duty and negligence, and asserted common law claims against all defendants for conversion.

In the course of discovery, the plaintiffs learned the following additional information. On the same day that Stauter had instructed Provident to purchase 1,000 shares of Ameritrust stock for his account, the Catholic Diocese of Cleveland issued an identical instruction for its account. Provident and Cowen, however, executed only Stauter's request. When the Diocese's account was later transferred to Star Bank, officials there noticed that the shares were missing. Provident "corrected" this error by taking the shares out of Stauter's account and giving them to Star in exchange for $10,870. It then credited Stauter's account for $10,550, the amount he had paid for the shares less dividends that he had received since the purchase date. Provident performed this "correction" on May 13, 1991, after it had been removed as trustee for Stauter's Plans.

Armed with this new information, the plaintiffs filed suit in 1995 in state court, alleging state statutory and common law claims against the defendants. ² The defendants removed. The district court held that it had removal jurisdiction by virtue of ERISA preemption and consolidated the new case with the 1993 case already in federal court. It then dismissed or granted summary judgment on the state-law claims asserted in both complaints and struck the plaintiffs' demand for a jury trial and their request for punitive and extra-contractual damages. The court, however, denied Provident's motion for summary judgment on the ERISA claims. The parties then agreed to the entry of a consent judgment in favor of the plaintiffs against Provident, in which the plaintiffs reserved their right to appeal the ruling that their state-law claims are preempted.

We hold that Stauter's fiduciary duty claim against Provident is entirely displaced by 29 U.S.C. § 1132. We conclude that removal was therefore proper and gave the district court supplemental jurisdiction over the other claims. See 28 U.S.C. §§ 1367, 1441(a). We also affirm the district court's holding that ERISA preempts Stauter's claims under Ohio statutory and common law. See 29 U.S.C. § 1144(a). Although ERISA also preempts the fiduciary duty claims brought by the Plans, ERISA does not preempt the Plans' claims against parties who were not ERISA fiduciaries. We therefore reverse the district court's decision in some respects and remand for proceedings consistent with this opinion.

II. CLAIMS BROUGHT BY STAUTER

A. BREACH OF FIDUCIARY DUTY

Common law breach of fiduciary duty claims are clearly preempted by ERISA. See Perry v. P*I*E Nationwide, Inc., 872 F.2d 157, 161 (6th Cir.1989), cert. denied, 493 U.S. 1093, 110 S.Ct. 1166, 107 L.Ed.2d 1068 (1990). Stauter argues that his claim is not preempted because Provident was no longer an ERISA fiduciary when it wrongly removed the shares from his account. This argument fails for two reasons.

First, it is the nature of the claim--breach of fiduciary duty--that determines whether ERISA applies, not whether the claim will succeed. See Tolton v. American Biodyne, Inc., 48 F.3d 937, 943 (6th Cir.1995). In enacting ERISA and broadly preempting state law, Congress intended to standardize the administration of employee benefit plans, including the duties and liabilities of fiduciaries. It is not a valid argument against preemption to say that the state seeks to impose greater obligations than Congress did.

Second, Provident was an ERISA fiduciary as long as it exercised control over plan assets. Stauter argues that as of May 1, 1991, Provident retained no discretionary authority over the plan and was charged only with the "ministerial" task of transferring the assets to Society. However, the definition of a fiduciary under ERISA is a functional one, is intended to be broader than the common law definition, and does not turn on formal designations such as who is the trustee. See Brock v. Hendershott, 840 F.2d 339, 342 (6th Cir.1988) (describing breadth of fiduciary status under ERISA); Custer v. Pan American Life Ins. Co., 12 F.3d 410, 418 n. 3 (4th Cir.1993) (stating that ERISA definition of fiduciary is "broader than the common law concept of a trustee"). It includes anyone who "exercises any discretionary authority or discretionary control respecting management of [the] plan or exercises any authority or control respecting management or disposition of its assets." 29 U.S.C. § 1002(21)(A)(i) (emphasis added). Because Provident controlled Plan assets, it is liable under ERISA as a fiduciary. See Blatt v. Marshall & Lassman, 812 F.2d 810, 813 (2d Cir.1987); see also Hendershott, 840 F.2d at 342.

The fiduciary duty claims against Cowen--the brokerage company that handled the stock purchase--and Cambron--the Provident employee who managed Stauter's account--are preempted for the same reasons. To the extent that Provident delegated duties and powers to Cowen and Cambron, they personally could become ERISA fiduciaries and be liable under § 1132(a)(2). See Donovan v. Mercer, 747 F.2d 304, 309 (5th Cir.1984). If Cowen and Cambron do not meet ERISA's definition of a fiduciary, neither can be liable for breach of fiduciary duty with respect to management of an ERISA plan.

While the fiduciary duty claims asserted in the 1995 complaint are preempted, the mere availability of a federal preemption defense to a state-law claim does not, in general, confer federal subject-matter jurisdiction. The Supreme Court has held that in the special context of claims to recover ERISA benefits under § 1132(a)(1)(B), purported state-law claims are not only preempted by ERISA but entirely displaced,...