Hamilton v. Carell

Decision Date31 January 2001
Docket NumberNo. 99-6171,99-6171
Parties(6th Cir.2001) Michael Hamilton, Independent Fiduciary, SCIW Health & Welfare Trust Fund; Southern Council of Industrial Workers Health & Welfare Trust Fund, Plaintiffs-Appellants, v. James W. Carell; Achiever Corporation; J.W. Carell Administrators, Inc., & J.W. Carell Administrators & Consultants, Inc.; Diversified Health Management, Inc., Defendants-Appellees. Argued:
CourtU.S. Court of Appeals — Sixth Circuit

Appeal from the United States District Court for the Middle District of Tennessee at Nashville. No. 96-00802

Thomas A. Higgins, District Judge.

[Copyrighted Material Omitted]

David M. Cook, Cincinnati, Ohio, for Appellants.

James G. Thomas, NEAL & HARWELL, Nashville, Tennessee, for Appellees.

Before: MARTIN, Chief Judge; COLE, Circuit Judge; NUGENT, District Judge. *

OPINION

R. GUY COLE, JR., Circuit Judge.

Plaintiffs-Appellants Michael Hamilton and the Southern Council of Industrial Workers Health and Welfare Trust Fund appeal the district court's judgment entered following a bench trial in favor of Defendants-Appellees James W. Carell and various corporations owned, operated, and controlled by Carell, including Diversified Health Management, Inc. ("DHM"). This action stems from the purchase and handling of certain investments by P. Steven Beard, who was employed as Comptroller of DHM but who also performed investment services for the trust fund. Plaintiffs originally filed suit against numerous defendants, most of whom have been dismissed, claiming joint and several liability for breaches of fiduciary duties arising under Title I of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §1001 (1994) et seq. On appeal, Plaintiffs assign error to the district court's judgment as follows: (1) the district court clearly erred in finding that Carell was not a fiduciary to the trust during the applicable time period; (2) the district court erred in failing to hold DHM liable for Beard's actions under the doctrine of respondeat superior; and (3) even if respondeat superior liability cannot attach to DHM, the district court erred in declining to ignore the corporate form so as to find the "Carell corporations" liable as a single entity under the doctrine of respondeat superior. For the reasons that follow, we AFFIRM the judgment of the district court.

BACKGROUND

Plaintiff Southern Council of Industrial Workers Health and Welfare Trust Fund is a joint union-employer Taft-Hartley trust fund within the meaning of ERISA, 29 U.S.C. § 1002. Plaintiff Michael Hamilton is an independent fiduciary of the trust fund and was engaged to investigate the investment of trust fund assets in derivative collateralized mortgage obligations ("CMOs") between August 30, 1993, and April 28, 1994. The trust fund's "Statement of Investment Principles" provides that investments are to be made in secure instruments only and that "investments of a speculative nature are not to be made regardless of possible return." It is undisputed that the CMOs at issue here were not suitable investments for the trust fund.

Although the trust fund has had a number of third-party administrators, up until September 30, 1994, each has been a corporation related, at some point in time, to Defendant James A. Carell. Carell owned, operated, and controlled Defendants Achiever Corporation ("Achiever"), J. W. Carell Administrators & Consultants, Inc. ("JWCA&C"), and DHM. Carell also owned and operated North America Administrators ("NAA"), an original defendant with whom Plaintiffs settled, and J. W. Carell Administrators, Inc. ("JWCA"), a company never named in Plaintiff's complaint. 1 Until January 1, 1992, JWCA&C was the third-party administrator for the trust fund; thereafter, JWCA took over as the third-party administrator and remained so until it merged with NAA, effective October 1, 1993. Thereafter, NAA became the third-party administrator of the trust fund and remained so for the duration of the investment period in question. Thus, because we are looking at the investment period between August 30, 1993, and April 28, 1994, the trust fund's third-party administrators during that period were JWCA (from August 30, 1993, to October 1, 1993) and its successor in interest, NAA (from October 1, 1993, to April28, 1994). 2

On May 30, 1993, Carell suffered a devastating, life-threatening injury in a watercraft accident. It is undisputed that up until May 30, 1993, Carell had provided investment advice to trustees of the trust fund; he and employees under his direction and control managed the investment and assets of the trust fund on a day-to-day basis. One of those employees was Beard, who in the late 1980s, assumed certain investment responsibilities for JWCA&C, the third-party administrator of the trust fund at the time. Beard actually was employed as Comptroller of DHM, a Carell company in the business of managing home healthcare agencies, and remained so during all relevant times giving rise to this suit. DHM never was involved in making investments for the trust fund. As found by the district court, "Mr. Beard assumed investment responsibilities for the JWCA&C on behalf of the fund." The district court also recognized, "Individuals employed by a Carell corporation commonly provided services to other Carell corporations as well." Plaintiffs conceded this point in their motion for summary judgment, stating, "Carell employees commonly worked for several different Carell companies depending on what services were being provided." When asked by Plaintiffs' counsel whether he ever performed any work for JWCA, Beard testified that he "handled investments for the trust fund."

With regard to Carell's accident, Defendants point out that although the district court mentioned its occurrence, the district court failed to emphasize the magnitude of Carell's injuries, and such detail is necessary for purposes of understanding why Carell never resumed or attempted to resume his former role of managing trust fund assets after May 30, 1993. In short, Carell was at death's door for many months following his accident; he was in chronic pain and on extensive pain medication until October 1996, when he underwent surgery that allowed him to stop taking his pain medicine. For the three-and-a-half years following his accident, he was in a haze of drugs and does not remember "much of anything that happened."

Many of the key events at issue in this suit took place at the next regularly-scheduled trustee meeting following Carell's accident; this meeting took place on June 14, 1993. 3 Patsy Grooms, claims manager for JWCA, attended the trustee meeting in Carell's absence. Also at the meeting were trustees Ray White and Clovis Young, each of whom testified that at the time of the meeting, there was much uncertainty as to whether Carell would live or die. Grooms testified that the trustees asked her if she would handle the investments for the trust fund and that she said no, as she had no investment experience. She testified:

The trustees were very concerned about [trust fund investments] because it was an area where apparently Mr. Carell had had a very hands-on, day-to-day oversight of the investment on their behalf, and they expressed that concern. They indicated in the meeting, and I believe it's reflected in the minutes that they were going to form an investment committee that would consist of Mr. White and Mr. Young, and that they were going to-they advised me that they were going to be coming to our office, that they were going to review all of the investments in detail with Mr. Beard, and that they were going to assume responsibility for oversight of the investment for the Southern Council.

. . .

The trustees had accepted or had advised that they were going to be responsible for the investment from June forward . . . .

Grooms testified that she was certain that the investment committee would not limit its discretion to the investment of certain securities but would oversee all trust fund investments. Grooms also testified that it had been established at the meeting that either White or Young would contact Beard following the meeting to inform Beard of the committee's investment decisions. In August, Grooms learned from Beard that neither trustee had contacted him; she suggested that Beard contact the trustees and arrange for a meeting, which he did. Beard testified that he did in fact contact trustee Young in August 1993 at Grooms's behest and that Young told him to continue handling the investments as he always had. Thereafter, between August 30, 1993, and April 28, 1994, Beard purchased fourteen high-risk CMOs, later determined to have been inappropriate investments for the trust fund and to have caused the trust fund to sustain a substantial loss. This fact is not in dispute.

The minutes of the June 14 meeting corroborate Grooms's testimony:

Mr. White suggested that an investment committee be established and with no objection from the Trustees, he appointed Mr. Young to the committee along with himself. Mr. White and Mr. Young will meet or have a conference with Steve Beard of the Administrator's office to discuss a procedure for handling investments.

Trustees White and Young testified, however, that although they did in fact form an investment committee to manage and monitor trust fund investments, the investment committee was limited to the management of a single investment-the Kemper High-Yield Fund-which had nothing to do with the CMOs at issue here. Plaintiffs staunchly maintain this position so as to support their contention that there was no trustee-comprised investment committee formed to oversee the CMO investments; that Carell never relinquished authority and control over the purchase and handling of the CMOs; and that Carell never relinquished authority and control over the actions of Beard.

The district court did not find the...

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