Schafer v. Multiband Corp.
1:12-cv-13152
E.D. Mich.Feb 20, 2013Background
- Plaintiffs Bernard Schafer and Henry Block founded Michigan Microtech, Inc. in 1985; they later acquired interests in DirecTECH and joined its board.
- In 2003, DirecTECH and the Plaintiffs executed indemnification agreements for directors, excluding deliberate wrongful acts or gross negligence.
- In 2004, Microtech executed identical indemnification provisions in favor of Plaintiffs as directors of Microtech.
- In 2004, Microtech formed ESOP/ESOT; Plaintiffs named trustees and were indemnified, subject to similar limitations.
- In 2005, the Holding Company formed via a merger of four entities; Plaintiffs became Holding Company directors and ESOP/ESOT trustees with the same indemnity protections, and the Holding Company later formed an ESOP/ESOT.
- In 2007–2009, Multiband Corp. purchased the Holding Company; inducement and master assignment agreements included indemnification and assumed liabilities for Plaintiffs.
- In 2011, the Department of Labor settled with Plaintiffs, with Plaintiffs paying portions of the settlement; arbitration followed in 2011 with three issues submitted for summary disposition.
- In October 2012, the arbitrator concluded indemnity agreements were void under ERISA § 410(a).
- In February 2013, the district court granted the motion to vacate the arbitration decision, holding the arbitrator manifestly disregarded controlling federal law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether indemnity agreements are permissible under ERISA §410(a) and (b). | Schafer argues indemnities are allowed because §410 permits transfer of liability via indemnity akin to insurance. | Multiband contends indemnities are void as against public policy under §410(a). | Indemnities are not categorically void; the issue is governed by controlling precedent (vacated for other reasons). |
| Did the arbitrator manifestly disregard controlling federal law in holding indemnities void? | Plaintiffs claim the arbitrator ignored clear authority allowing indemnity. | Defendant asserts the arbitrator reasonably interpreted the statute. | Yes, the arbitrator manifestly disregarded controlling law; vacatur granted. |
| Should the arbitration award be vacated or otherwise corrected? | Vacatur is appropriate due to manifest disregard and misapplication of law. | Award should stand if based on reasonable interpretation. | The award is vacated; the arbitrator’s decision is nullified. |
Key Cases Cited
- Pfahler v. Nat’l Latex Prods. Co., 517 F.3d 816 (6th Cir. 2007) (supports indemnification under ERISA §410 when not exculpatory of liability)
- Packer Eng’g, Inc. v. Kratville, 965 F.2d 174 (7th Cir. 1992) (ERISA indemnification not categorically prohibited; related comment by Easterbrook)
- Hall St. Assocs. v. Mattel, Inc., 552 U.S. 576 (S. Ct. 2008) (exclusive statutory grounds for vacatur; manifest disregard remains possible)
- Coffee Beanery, Ltd. v. WW, L.L.C., 300 F. App’x 415 (6th Cir. 2008) (manifest disregard of the law survives Hall Street in Sixth Circuit)
- Wilko v. Swan, 346 U.S. 427 (Supreme Court 1953) (early recognition of non-statutory grounds for review)