Briscoe v. Fine
ERISA – Fiduciary Duty of Third Party Administrator
Western District of Kentucky at Louisville
06a0130p.06
2006/04/13

RONALD LEE GILMAN, Circuit Judge. Five former employees of the M. Fine & Sons Manufacturing Co., Inc. (the Company) filed this putative class-action lawsuit against five of the Company’s former officers and directors (collectively, the Fines), as well as the third-party administrator of the Company’s healthcare plan, Preferred Health Plan, Inc. (PHP). The plaintiffs alleged that the defendants violated their fiduciary duties imposed by the Employment Retirement Income Security Act (ERISA) and committed various torts under Kentucky law.

Specifically, the plaintiffs maintain that the Fines and PHP (1) failed to disclose to the employees that the Company was in dire financial straits and was therefore unable to make the payments necessary to support the Company’s healthcare plan, and (2) failed to devise a means of assuring adequate financing for the plan. They also allege that PHP improperly allocated plan assets to itself after the plan ceased operation and PHP’s administration contract had terminated.

In granting summary judgment in favor of the defendants on the ERISA claims, the district court concluded that neither the Fines nor PHP were ERISA fiduciaries within the meaning of the statute. The district court also initially dismissed the plaintiffs’ pendent state-law claims with prejudice, but, after a motion for reconsideration, changed the dismissal to one without prejudice.

On appeal, the plaintiffs maintain their argument that the Fines and PHP were ERISA fiduciaries, and that they breached their duties during the months preceding the Company’s bankruptcy. Both the Fines and PHP, on the other hand, cross-appeal the district court’s decision to dismiss the plaintiffs’ pendent state-law claims without prejudice, as opposed to with prejudice, arguing that those claims are preempted by ERISA.

For the reasons set forth below, we (1) agree with the district court that the Fines were not ERISA fiduciaries, (2) conclude that the district court erred in ruling that PHP was not an ERISA fiduciary with respect to the assets of the Company’s healthcare plan over which PHP had control, and (3) hold that all but one of the plaintiffs’ state-law claims are preempted by ERISA. We therefore AFFIRM the grant of summary judgment in favor of the Fines; AFFIRM the dismissal of the plaintiffs’ state-law claims, but order that all but the one claiming that the Fines breached a duty by failing to disclose the overall financial condition of the Company be dismissed with prejudice; REVERSE the grant of summary judgment in favor of PHP; and REMAND the case for further proceedings consistent with this opinion.