Chapman v. Klemick
| Decision Date | 12 October 1993 |
| Docket Number | Nos. 91-5854,92-4355,s. 91-5854 |
| Parties | Mannie CHAPMAN, Jimmie Erskine, Dorothy Reid, James L. Woodall, R.P. Vinall, and Diane L. Ragone, Plaintiffs-Appellees, v. Herman M. KLEMICK, Herman M. Klemick P.A., a Florida Professional Association, Defendants-Appellants; Mannie CHAPMAN, Jimmie Erskine, Dorothy Reid, James L. Woodall, R.P. Vinall, and Diane L. Ragone, Plaintiffs-Appellees, Cross-Appellants, v. Herman M. KLEMICK, Herman M. Klemick P.A., a Florida Professional Association, Defendants-Appellants, Cross-Appellees. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Phillip D. Parrish, Stephens, Lynn, Klein & McNicholas, Miami, FL, for defendants-appellants.
Mark J. Berkowitz, Alice Weisman, Sugarman & Susskind, P.A., Miami, FL, for plaintiffs-appellees.
Appeals from the United States District Court for the Southern District of Florida.
Before EDMONDSON and CARNES, Circuit Judges, and HILL, Senior Circuit Judge.
This case arises under the Employee Retirement Income Security Act of 1974, ("ERISA"), 29 U.S.C. Secs. 1001-1461. The issue presented is whether an attorney who represents a beneficiary of a trust fund in the beneficiary's separate personal injury action becomes a fiduciary under ERISA when, in settlement of his client's personal injury claim, the attorney receives funds to which the trust fund asserts subrogation rights. The district court held that the attorney became an ERISA fiduciary when he received such funds, and that he breached his fiduciary duty to the trust fund by disposing of those funds in a manner inconsistent with the subrogation agreement his client had signed. Because we do not think that ERISA's reach extends this far, we reverse. Our reversal of
the district court's decision imposing liability on Klemick renders the Trust Fund's cross appeal for an increase in the damages award moot.
The facts were stipulated by the parties in the district court. Chapman v. Klemick, 750 F.Supp. 520, 521-22 (S.D.Fla.1990). Briefly, Frank Wilson, Jr., a beneficiary of the Laborers Health and Welfare Trust Fund of South Florida ("Trust Fund") suffered personal injuries as a result of a motorcycle accident and retained the professional services of Herman Klemick, a lawyer, to assist him in recovering compensation from the tortfeasor's insurance carrier. Wilson incurred approximately $28,000.00 in medical expenses, which he sought to have the Trust Fund pay. Prior to releasing the funds, however, the Trust Fund requested that he sign a subrogation agreement stating that the Trust Fund would be reimbursed should he recover any compensation for his injuries by suit, settlement, or otherwise. After consulting Klemick by telephone, Wilson signed the agreement.
Following negotiations with the tortfeasor's insurance carrier, Klemick received a check for $25,000.00 made out jointly to him and Wilson. Klemick asked the Trust Fund to waive its right to subrogation, but the Trust Fund declined. Klemick stated to the Trust Fund that he would never recommend that his client voluntarily turn over all the settlement funds that he had recovered, and indicated that he had conceived of a plan by which, even if the Trust Fund sued Wilson and obtained a judgment against him for the amount of money recovered in the settlement, the Trust Fund would be frustrated in its attempts to collect.
A few days after his conversation with the Trust Fund, Klemick and Wilson endorsed the check. Klemick deposited the entire amount in the Herman M. Klemick, P.A. Trust Account, and made out a check to Wilson for $15,431.50. Klemick then paid himself $8,333.00 as his attorney's fee and applied the balance to offset costs.
Ten days later, the Trust Fund filed a complaint and application for a temporary restraining order to enjoin Wilson from spending the funds. In an emergency hearing on that application, Wilson informed the district court that he had already spent all of the money. The Trust Fund obtained a judgment against Wilson for the full amount of the settlement plus $21,659.00 in attorney's fees. See Pugh v. Wilson, 693 F.Supp. 1096 (S.D.Fla.1988). The validity of that judgment against Wilson is not at issue in this case, but Wilson's assets were insufficient to satisfy the judgment against him. The Trust Fund then sued Klemick, alleging that he had become an ERISA fiduciary because Wilson's insurance settlement became "Trust Fund assets" by operation of the subrogation agreement, and that Klemick had breached his fiduciary duty to the Trust Fund by retaining a portion of the settlement as his attorney's fee and allowing Wilson to spend his portion.
The case came before the district court on cross-motions for summary judgment. The district court granted the Trust Fund's motion and denied Klemick's, finding Klemick liable for breach of fiduciary duty under ERISA. Klemick has appealed to this Court. We review the district court's grant of summary judgment de novo. Useden v. Acker, 947 F.2d 1563, 1572 (11th Cir.1991), cert. denied --- U.S. ----, 113 S.Ct. 2927, 124 L.Ed.2d 678 (1993).
We look first to the statutory definition of "fiduciary" under ERISA. 29 U.S.C. Sec. 1002(21)(A) provides in pertinent part:
[A] person is a fiduciary with respect to a plan to the extent (i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of such plan, or has any authority or responsibility to do so, or (iii) he has any discretionary authority or discretionary The district court held that the subrogation agreement rendered the settlement proceeds "Trust Fund assets," and that Klemick had exercised control over those assets, therefore, Klemick was a fiduciary of the Trust Fund. The court said: "[W]hen Klemick decided how to allocate the monies from the settlement check ... he exerted what is obviously 'any ... discretionary control respecting ... disposition of [Trust Fund] assets.' " Chapman, 750 F.Supp. at 522-23. We must decide whether the district court's conclusion that Klemick was a fiduciary is correct.
responsibility in the administration of such plan.
As an initial matter, we are not persuaded that the $25,000.00 received by Wilson in settlement of his tort claim constituted "Trust Fund assets." At the time Klemick disbursed those funds, what the Trust Fund had by virtue of its agreement with Wilson was a contractual "claim" for reimbursement of the $28,000.00 in medical expenses it had paid on behalf of Wilson. That did not automatically convert the $25,000.00 settlement which Klemick disbursed into assets of the Trust Fund. Nonetheless, we need not rely solely on the characterization of those funds for our conclusion, because a functional analysis of Klemick's status also leads to the conclusion that he was not acting as a fiduciary of the Trust Fund for purposes of ERISA. See Useden v. Acker, 947 F.2d 1563, 1577 (11th Cir.1991) (), cert. denied, --- U.S. ----, 113 S.Ct. 2927, 124 L.Ed.2d 678 (1993).
We are aware of no case in which a lawyer for an ERISA plan beneficiary, as opposed to a lawyer for an ERISA plan, has been alleged to be an ERISA fiduciary. The closest authority we find for guidance is Useden v. Acker, which we decided after the district court entered summary judgment in this case. In Useden, a trust fund sought to impose fiduciary liability on a bank which had acted upon collateral pledged by the fund when the fund failed to perform under a loan agreement with the bank. The fund also sought to impose fiduciary liability on a law firm that had rendered legal and business advice to the fund's managers. We found that neither was an ERISA fiduciary.
The trust fund in Useden argued that the bank became a fiduciary under Sec. 1002(21)(A) when it exercised "discretionary authority or discretionary control" over trust fund assets. We held that the bank was not a fiduciary within the meaning of ERISA, observing that "the discretionary role needed to support fiduciary status must amount to more than a theoretical contrivance." Useden, 947 F.2d at 1574. The terms of the loan agreement, which were typical of arm's length commercial loan agreements, did not confer fiduciary status on the bank: "An entity which assumes discretionary authority or control over plan assets will not be considered a fiduciary if that discretion is sufficiently limited by a pre-existing framework of policies, practices and procedures," such as rules governing when a bank may act on collateral in the event of non-performance on a commercial loan. Id. at 1575. Furthermore, we noted that the bank's "duty to its own shareholders and depositors" could conflict with a fiduciary duty to an ERISA plan borrower, "subjecting lenders to irreconcilable obligations and in so doing make it difficult or...
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