Ames v. Ames, C-8024

• Decision Date: 12 July 1989
• Docket Number: No. C-8024,C-8024
• Citation: 776 S.W.2d 154
• Parties: Roger Michael AMES and Heights State Bank, Petitioners, v. R.E. AMES and R.G. Ames, Respondents.
• Court: Texas Supreme Court

Page 154

776 S.W.2d 154

Roger Michael AMES and Heights State Bank, Petitioners, v. R.E. AMES and R.G. Ames, Respondents.

No. C-8024.

Supreme Court of Texas.

July 12, 1989.

Rehearing Denied Oct. 4, 1989.

David L. Peden, James P. Wallace, W. Charles Campbell, Kenneth G. Norman, Austin, J. Hoke Peacock II, Beaumont, for petitioners.

Arthur R. Almquist, Kurt M. Andreason, Beaumont, for respondents.

MAUZY, Justice.

This case involves a suit for conversion of profit-sharing funds brought by beneficiaries of an employee benefits plan against the trustee and a third-party bank. After the plan was terminated, R.E. and R.G. Ames, employee members of a profit-sharing plan at Threaded Steel Products Company (Threaded Steel), sued the sole trustee of the plan, Roger Michael Ames (Mike) and Heights State Bank, now known as NBC Bank, Houston-N.A., claiming the two wrongfully converted their benefits from the plan. After a jury trial, the trial court rendered a judgment against Mike, awarding actual and punitive damages. ¹ A take-nothing judgment was rendered against Heights State Bank. The court of appeals affirmed and reformed the trial court judgment in part and awarded R.E. and R.G. an additional five percent penalty

                because it concluded that the appeal was brought for delay and without sufficient cause.  757 S.W.2d 468.   Further, the court of appeals reversed and remanded the cause of action against Heights State Bank.  We modify the court of appeals' judgment to eliminate the five percent penalty and in all other respects affirm the judgment
                

THE FACTS

Threaded Steel was a family owned corporation whose officers and shareholders included three brothers, R.E., R.G., and Mike Ames. Mike was the chairman and chief executive officer at all times pertinent to this controversy. He was also the sole trustee of the company's pension and profit-sharing plan which commenced in the early 1970's. The plan had been organized pursuant to the Employee Retirement Income Security Act (ERISA), 29 U.S.C. §§ 1001-1461 (1985). The administrator of the plan was Southwestern Life Insurance Company (Southwestern Life), who is not a party to this lawsuit.

In September 1982, Mike Ames, on behalf of Threaded Steel, applied for a loan in the amount of $180,000 from Heights State Bank. The loan was declined because of the questionable financial condition of Threaded Steel. The company had suffered financial losses from 1977 through 1981.

In November 1982, steps were taken to terminate the profit-sharing plan because Threaded Steel was unable financially to contribute to the plan. Mike, as trustee, received a check in the amount of $424,888.35 from Southwestern Life which represented all of the profit-sharing trust fund. Mike deposited these funds at Heights State Bank in the following manner:

(1) $254,646.72 in a checking account styled R.E., R.G., R.L., and R.M. Ames, with Mike as the trustee and signor.

(2) $156,500 in a certificate of deposit (CD) in the name of the profit-sharing plan.

(3) $13,741.63 in a checking account in the name of the profit-sharing plan.

Without his brothers' knowledge or consent, Mike drew a check in the amount of $254,000 against the Ames brothers' account ((1) above) payable to Interfirst Bank of Beaumont (Interfirst). The legend on the check stated "CD for R.E., R.G., R.M., R.L. ² portion of TSP (Threaded Steel Products) Profit Share Plan." It is these funds which are the subject of this controversy. Upon termination of the plan, the remainder of the funds were disbursed to the other plan beneficiaries, all of whom were nonmembers of the Ames family.

After the transfer was made to Interfirst, $157,895.02 was transferred back by wire to Heights State Bank. ³ This money, plus an additional sum borrowed from Heights State Bank, was used to purchase a CD in the amount of $254,000. This CD was later pledged as collateral for commercial loans from Heights State Bank to Threaded Steel. Threaded Steel failed to repay the loans when they became due, consequently, the bank offset the CD against the amounts owing.

R.E. and R.G. brought suit in state district court against Mike and Heights State Bank alleging breach of fiduciary duty and conversion of their profit-sharing funds. The case was submitted to the jury under a state common law conversion theory. The jury found that Mike had converted the funds but failed to find that the CD in question contained any profit-sharing plan monies belonging to R.E. or R.G. The trial court rendered a judgment for R.E. and R.G. against Mike and rendered a take-nothing judgment against the bank. The court of appeals affirmed the judgment as to R.E. and R.G. but reversed and remanded

the take-nothing judgment against the bank to the trial court. Both Mike and the bank filed applications for writ of error before this court.

APPLICABILITY OF ERISA

Mike contends that under the provisions of ERISA the state court lacks subject matter jurisdiction. He asserts that even if the state court exercised concurrent jurisdiction, the action would be preempted by ERISA.

Subject matter jurisdiction over controversies involving profit-sharing plans under ERISA is provided for in 29 U.S.C. § 1132(e)(1) (1985), which reads:

Except for actions under subsection (a)(1)(B) of this section, the district courts of the United States shall have exclusive jurisdiction of civil actions under this subchapter brought by the Secretary or by a participant, beneficiary, or fiduciary. State courts of competent jurisdiction and district courts of the United States shall have concurrent jurisdiction of actions under subsection (a)(1)(B) of this section.

Subsection (a)(1)(B) provides that a civil action may be brought by a participant or beneficiary "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B) (1985).

The facts present a novel issue: whether the provisions of ERISA continue to control after a plan is terminated and funds are distributed to some beneficiaries but the funds of two other beneficiaries are converted by the plan trustee? It is undisputed in the record that the Threaded Steel employees profit-sharing plan had been terminated prior to the deposit of R.E.'s and R.G.'s benefits into a CD at Heights State Bank. Mike distributed plan benefits to other employees, but he did not distribute R.E.'s or R.G.'s benefits to them. Instead, he placed their plan benefits in a separate account bearing his name as trustee.

The funds, which the jury found that Mike had wrongfully converted to his own use, were distributed from the plan after its termination. When he failed to distribute the benefits owed his brothers, he breached the fiduciary duty owed them under state common law and not under ERISA. The provisions of ERISA no longer governed his actions. ⁴

The record shows that R.E. and R.G., as participants and beneficiaries of the plan, sought to recover benefits owed them under the plan. Their cause of action arose out of the failure or refusal of the trustee of a terminated plan to convey benefits, not the violation of fiduciary duty created by ERISA in the continuing administration of a retirement plan. Given these circumstances, the state court properly exercised jurisdiction.

Preemption under ERISA is governed by 29 U.S.C. § 1144(a) (1985) which reads:

Except as provided in subsection (b) of this section, the provisions of this subchapter and subchapter III of this chapter shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan described in section 1003(a) of this title and not exempt under section 1003(b) of this title. This section shall take effect on January 1, 1975.

The rationale for federal preemption of state remedies and causes of action covered by ERISA is so that trustees of plans will not be subject to the threat of conflicting and inconsistent federal and state regulations. Hoffman v. Chandler, 431 So.2d 499 (Ala.1983); Smith v. Crowder Jr. Co., 280 Pa.Super. 626, 421 A.2d 1107 (1980). Generally, ERISA preempts any state law which regulates the content or operation of the plan. Therefore, the question is whether R.E.'s and R.G.'s lawsuit "relates to" R.E. and R.G. sought to recover benefits due them under the plan after its termination. Their claims were directed at recovery of benefits under the terms of the plan and did not involve regulation of the plan. They instituted a lawsuit under Texas common law for recovery of their benefits which Mike had converted. Since the plan had terminated, we are not faced with interpreting the terms or conditions of the plan. Hence, the lawsuit did not "relate to" the employee benefit plan within the meaning of 29 U.S.C. § 1144(a) (1985).

the profit-sharing plan in such a way that it is an attempt to regulate areas explicitly governed by ERISA or whether it only indirectly relates to the plan so that it does not conflict with the purpose of ERISA. Shaw v. Westinghouse Elec. Corp., 276 Pa.Super. 220, 419 A.2d 175 (1980). Lukus v. Westinghouse Elec. Corp., 276 Pa.Super. 232, 419 A.2d 431 (1980).

Because we have concluded that ERISA does not apply and that if applicable the state court would have concurrent jurisdiction, we hold that the state court properly exercised jurisdiction over the action.

THE BANK'S APPLICATION

Heights State Bank contends that the court of appeals erred in holding that the jury's negative finding on the bank's liability issue was against the great weight and preponderance of the evidence. Briefly, the facts which pertain to the bank are as follows. Mike deposited profit-sharing funds in the bank, some of which were placed into an account styled R.E., R.G., R.L., and R.M. Ames, with Mike indicated as trustee. A check in the amount of $254,000 was then drawn against this account by Mike and transferred to...