Tullis v UMB Bank

[J Simmons]

On 8/11/2009, federal district judge David Katz entered an interesting ruling that I thought I would briefly mention. UMB Bank runs a master trust. The Toledo Clinic has a QRP that uses the master trust. The plan and trust documents permit individual direction of investment by plan participants in any investment permitted by law. The plan and trust documents also permit them to appoint anyone as the investment manager and delegate thereto investment direction authority over the participant's plan account. Two MDs, Tullis and Mack, participated in the QRP appointed Wm Davis as their investment manager.

It turns out that Davis began instructing trades that were causing losses, were benefiting Davis personally, and otherwise fraudulent and inappropriate.

UMB Bank, as trustee, learned about this mischief by Davis and brought suit. In the meantime, UMB continued taking instructions from Davis re the plan accounts of Drs Tullis and Mack as held in the master trust.

Judge Katz granted summary judgment to UMB Bank, finding:

1-ERISA 404c provided UMB Bank a defense because it is a directed trustee and Drs Tullis and Mack each had a reasonable opportunity to give investment instruction and had the opportunity to obtain sufficient into to make informed investment decisions. The appointing documents signed by Tullis and Mack spelled out that they understood that it was their sole responsibility to establish, monitor and police limitations and restrictions they each desired regarding the assts which the agent (Davis) was thereby authorized to manage and direct.

2-UMB Bank had not participated in a prohibited transaction by implementing a directive from Davis that benefited Davis. Judge Katz wrote UMB Bank "simply did not cause the plan to engage in those transactions. As Plaintiffs' agent, Mr Davis caused the plan to engage in transaction used for the benefit of a party-in-interest, Mr Davis himself."

3-To the doctors' argument that UMB Bank had a duty to provide a fair and accurate value the assets and that failing to do that caused the doctors their losses, Judge Katz again appealed to ERISA 404© and the provision that a fiduciary shall not be liable for any breach resulting from the beneficiary's exercise of independent control.

4-As for the doctors' claim that UMB Bank had gathered non-public info about the investments during UMB Bank's litigation against Davis but then not turned that info over to the doctors, Judge Katz noted that the only prior cases where courts have found a plan fiduciary had an affirmative duty to disclose and was liable for omitting to do so involved some inquiry initiated by the participant. Since the doctors had never made an inquiry of UMB Bank, UMB Bank had no affirmative duty to disclose the non-public information it learned from its lawsuit against Davis.

[Guest Rajeev]

J Simmons,

Very interesting reading... thanks for bringing it onto the Board...

Do you happen to have the District Court and Docket Number?

Thanks

[J Simmons]

J Simmons,

Very interesting reading... thanks for bringing it onto the Board...

Do you happen to have the District Court and Docket Number?

Thanks

ND Ohio #06-CV-7029

[Guest Mark.Abramson]

11a0333n_06.pdf[Thought it would be helpful to update the post with the Sixth Circuit's decision in this matter.