Seventeen years ago in Maddox v. University of Tennessee, 62 F.3d 843 (6th Cir. 1995), the Sixth Circuit got off on the wrong track with regard to the Americans With Disabilities Act (ADA) by adopting a "solely" because of causation standard imported from the Rehabilitation Act. This admittedly "wrong" decision was one of many erroneous judicially-imposed limits on the ADA that led Congress to amend the ADA in 2008 in order to correct a number of misguided decisions.
The Sixth Circuit finally got around to correcting its error in Lewis v. Humboldt Acquisition Corp, No 09-6381 (May 25, 2012)(en banc), where it ruled that the ADA's prohibition on discrimination "because of" an individual's disability required in ADA plaintiff to prove that the relevant discrimination would not have occurred "but for" the individual's disability.
ERISA fiduciaries owe a fiduciary duty to tell the truth to plan participants. This "duty to inform is a constant thread in the relationship between beneficiary and trustee; it entails not only a negative duty not to misinform, but also an affirmative duty to inform when the trustee knows that silence might be harmful." A fiduciary breaches his duty "by materially misleading plan participants, regardless of whether the fiduciary's statements or omissions were made negligently or intentionally."
Dudenhofer v. Fifth Third Bancorp presented yet another installment of the floundering mess caused by the foray in this case of Fifth Third Bancorp into the subprime lending field. The plaintiffs were employees and participants in Fifth Third's profit sharing plan. The participants can direct portions of their pay into the plan, and the bank matched up to 4% of those contributions, the matching contributions being invested initially in Fifth Third stock. But the subprime mess caused Fifth Third stock to decline 74% from July 2007 to September 2009 costing the plan tens of millions of dollars.
The plaintiffs sued claiming that the trustees' had breached their fiduciary duties. One cited example were false or incorrect statements made in filings with the SEC that were expressly incorporated into the Plan's summary plan description (SPD). The district court ruled that the SEC filings were not fiduciary communications.
The Sixth Circuit reversed and framed the issue as "whether the express incorporation of SEC filings into an ERISA-mandated SPD is a fiduciary communication." The SPD is "a document ERISA requires to be sent to plan participants to provide specified information about the plan [and] is unquestionably a fiduciary communication." Since ERISA plan participants must be told the truth, SEC filings that are incorporated into the SPD must likewise be truthful and accurate:
The SPD is a fiduciary communication to plan participants and selecting the information to convey trough the SPD is a fiduciary activity. Moreover, whether the fiduciary states information in the SPD itself or incorporates by reference another document containing that information is of no moment. To hold otherwise would authorize fiduciaries to convey misleading or patently untrue information through documents incorporated by reference, all while safely insulated from ERISA's governing reach. Such a result is inconsistent with the intent and stated purposes of ERISA -- to impose fiduciary duties 'which are the highest known to the law" -- and would create a loophole in ERISA large enough to devour all its protections.
ERISA is "a comprehensive statute designed to promote the interests of employees and their beneficiaries in employee benefit plans." And so the trustees and administrators of ERISA plans have fiduciary duties. The Sixth Circuit recently in Dudenhofer v. Fifth Third Bancorp described these duties as three parts:
A fiduciary owes a duty of loyalty "pursuant to which all decisions regarding an ERISA plan must be made with an eye single to the interests of the participants and beneficiaries."
ERISA imposes "an unwavering duty to act both as a prudent person would in a similar situation and with single-minded devotion to [the] plan participants and beneficiaries."
ERISA fiduciaries must act for the exclusive purpose of providing benefits to plan beneficiaries.
Corporate executives and other high-level corporate employees have fiduciary duties to the corporation. These duties require, among other things, that the interests of the corporation be foremost and put before those of the individual. But there are questions as to how far this duty extends. A recent case, Mazak Corporation v. William King, decided by the Sixth Circuit considered whether a corporate executive breached his fiduciary duty where he had an undisclosed interest in a noncompeting company.
William King was Mazak’s vice president and controller from 1990 to 2005. He was directed to explore options to establish a financing subsidiary that would provide financing for the sale of the company's equipment to customers. Toward that end Mazak and another company, United International, formed Mazak Financial Group, which between 1998 in 2003 successfully financed millions of dollars in Mazak equipment sales.
While he was still employed by Mazak, King acquired ownership interests in both United and a third company, which provided subcontractor services to Mazak. These ventures were very successful as King received $1,510,738 in distributions from United, profit-sharing contributions of $133,537 and distributions from the subcontractor totaling $204,346. One of King’s subordinates at Mazak, Timothy Fisher, received similar distributions from United.
After King left employment at Mazak the company learned of his interests in United and the subcontractor and sued him for fraud and breach of fiduciary duty among other things. The district court entered judgment in Mazak’s favor for $3,472,896, representing the total monies received by King and by Fisher from these other companies.
King appealed the judgment to the Sixth Circuit and argued that his fiduciary duty to Mazak did not require him to disclose his interests in United or the subcontractor since they were not competitors of Mazak’s. The court rejected this argument based on the following points:
under Kentucky law, when an employee "is aware of the conflict between his private interest in the corporate interests, he owes the duty of good faith and full disclosure of the circumstances to the corporation."
"If dual interests are to be served, the disclosure to be effective must lay bare the truth, without ambiguity or reservation, and all of its stark significance."
A corporate executive's failure to disclose the nature and extent of his involvement with an independent contractor violates his fiduciary duties
An employee who obtains a secret profit "will be required to account to his employer or principal for any benefit received by him in violation of his duty though it does not appear that the principal has suffered any actual loss by fraud or otherwise."
