In McLemore v. Regions Bank, Nos. 10-5480/5491 (6th Cir. 2012), the Court faced an appeal arising out of the misconduct of Barry Stokes, an investment advisor who stole millions of dollars from the employee-benefits plans that he managed. Stokes and his company, 1Point Solutions, LLC (“1Point”), held the fiduciary accounts of the defrauded plans at defendant Regions Bank (“Regions”). Plaintiffs John McLemore, Stokes’s bankruptcy trustee (“the Trustee”), and several former clients of 1Point (collectively, “EFS”) allege that Regions negligently or knowingly allowed Stokes to steal from the fiduciary accounts held at Regions. The Trustee sued Regions for damages under ERISA, and both EFS and the Trustee brought state-law claims of: (1) negligence and recklessness, (2) unjust enrichment, and (3) violation of Tennessee’s Consumer Protection Act. In 2008, the district court dismissed the Trustee’s ERISA claims. In 2010, the district court found that ERISA preempted both plaintiffs’ state-law claims and granted judgment on the pleadings in favor of Regions. The Trustee appeals the district court’s 2008 dismissal of its ERISA claims, and both parties appeal the 2010 dismissal of their state-law claims.
As to the dismissal of the ERISA claims, the Court found that Regions was not a fiduciary of the defrauded accounts, and therefore could not be liable to them for damages under ERISA. The issue in determining whether Regions was a fiduciary is whether Regions exerted any authority or control respecting management of plan assets, within the meaning of section 3(21)(A) of ERISA. The Court concluded that the plaintiff’s factual allegations failed to show that Regions exerted any such authority or control. It said that, in general, the complaint alleges that Regions maintained accounts for 1Point, received deposits to those accounts, withdrew funds from the accounts to collect its fees, and permitted Stokes and 1Point to transfer and withdraw money from these accounts. Stokes and 1Point maintained the accounts and directed all account activity. Regions merely held the funds on deposit and made withdrawals solely to collect its contractually owed fees. Custody of plan assets and collection of fees alone cannot establish control sufficient to confer fiduciary status.
As to the preemption of the state law claims by ERISA, the Court noted that state law (Tennessee’s Uniform Fiduciary Act) already barred plaintiffs’ claims, to the extent that the claims were based on negligence. As to the remainder of the state law claims, which were generally based on knowing conduct or bad faith, the Court said that Regions’ liability arises out of the existence of ERISA-covered plans and the substance of ERISA. The Court concluded that the plaintiffs’ state law claims are preempted by ERISA, since-even as applied to a nonfiduciary such as Regions- they would provide an alternate enforcement mechanism to ERISA. As such, the Court affirmed the district court’s dismissals of the plaintiffs’ ERISA and state law claims in the case.