David Tullis v. UMB Bank, N.A.David Tullis v. UMB Bank, N.A.
Case Information
*1 Before: MARTIN, SUHRHEINRICH, and KETHLEDGE, Circuit Judges.
KETHLEDGE, Circuit Judge. Doctors David Tullis and Michael Mack both lost substantial
amounts of money from their pension accounts because their investment advisor, Bill Davis, was a
crook. UMB Bank was the trustee of thоse accounts. The doctors allege that UMB knew that Davis
was a fraud years before that information became public, and assert that UMB violated its fiduciary
duties under the Employee Retirement Income Security Act by not telling them so. UMB responds
that it did not know about Davis’s fraud any sooner than the doctors did, and that it falls within
ERISA’s safe-harbor provision for participant-controlled accounts (
The basic problem for the doctors (and the United States as amicus) is that this is a Rule 56 appeаl rather than a 12(b)(6) one. And that means they must do more than cite the allegations in their complaint to prevail. For the most part, cites to the complaint are all we have here. Those are not enough to create a genuine issue of material fact, so we affirm.
I.
The doctors both worked at the Toledo Clinic, which had a 401(k) pension plan for its employees. Each of the doctors had their own аccount within that plan, and each selected Davis as his investment advisor in the early 1980s. UMB became the Trustee of the Clinic’s pension plan in 1989.
The doctors chose to have individually directed accounts. These accounts allowed them to choose which assets they invested in, with no limitations on the types of assets they could pick. To purchase an asset, the doctors would sign a directive telling UMB what to do. These forms expressly disclaimed UMB’s liability for the transaction. For directives to purchase loans, the forms instructed UMB not to monitor the loans or investigate whether the transactions were somehow illegal. For directives purchasing assets that were not publicly traded, the forms directed UMB to use the asset’s cost basis rather than its market value (since there was none available) for accounting purposes. UMB provided the doctors with a monthly summary listing their transactions and current holdings. These statements again made clear that certain assets were listed at cost, not market value.
The doctors allowed Davis to make most of their investment decisions for them. Under his direction, they invested in various non-public securities. In spring 2003, a federal district court ordered Davis’s company, Continental Capital, to cease operatiоns. It turned out that Davis had been *3 defrauding the doctors and that many of the assets in their accounts were worthless. Tullis suffered over $500,000 in losses, Mack close to $1 million.
Since Davis was uncollectible, the doctors eventually sued UMB, alleging that it breached
its fiduciary duties in various ways. The plan itself declined to join the suit. UMB moved to dismiss
for lack of standing. The district court granted the motion, but we reversed on appeal.
See Tullis
v. UMB Bank, N.A.
,
This appeal followed.
II.
We review de novo the district court’s grant of summary judgment, drawing all reasonable
factual inferencеs in favor of the nonmoving party.
Dowling v. Cleveland Clinic Found.
, 593 F.3d
472, 476 (6th Cir. 2010). We review for an abuse of discretion the district court’s allowance of an
affirmative defense that allegedly was not raised in a timely manner.
Mickowski v. Visi-Trak
Worldwide, LLC
,
A.
The doctors first argue that UMB failеd to plead the safe-harbor defense in its answer,
thereby waiving it. It is true that UMB’s answer did not cite the statutory provision that creates the
defense. But UMB did more generally plead that “Plaintiffs by their execution of seрarate
*4
investment directives and their designation of agent, are barred and estopped from any claims for
loss or damage against this answering Defendant.” Answer at ¶ 45. The district court thought that
statement was enоugh to give the doctors notice of the safe-harbor defense and a chance to rebut it.
We agree:
The doctors next argue that
In the case of a pension plan which provides for individual аccounts and permits a participant or beneficiary to exercise control over the assets in his account, if a participant or beneficiary exercises control over the assеts in his account (as determined under regulations of the Secretary [of Labor]) . . . no person who is otherwise a fiduciary shall be liable under this part for any loss, or by reason of any breach, which results from such participant’s or beneficiary’s exercise of control.
There are several prerequisites to receiving safe harbor under this section. The doctors
concede that all of them are met herе except one. The exception is the requirement that a participant
exercise “independent control in fact with respect to the investment of assets in his individual
account.”
The doctors contend that UMB knew Davis was a crook well before that fact became public
knowledge in 2003. In support, they point to UMB’s involvement in two lawsuits filed by other plan
participants against Davis. The first lawsuit was filed by Dr. Joseph Roche. The doctors cite two
confidential settlement agreements involving UMB and Davis that allegedly arose from that suit.
But that evidencе is not part of the record in this appeal. The district court granted UMB’s motion
for summary judgment on September 21, 2009. The doctors first presented these agreements to the
district court in a motion for reconsideration of summary judgment on October 12, 2009. The
doctors filed their notice of appeal four days later, which was before the court ruled on that motion.
The notice of appeal referred only to the original summary-judgment order. The court eventually
denied the motion for reconsideration on January 19, 2010. Under
The doctors next rely on a suit filed by Dr. and Mrs. Nicholas Lopez in 1999, which named
UMB as a co-plaintiff. The fact of that lawsuit was public knowledge, however, so UMB was not
required to tell the doctors about it. And there is nothing else in the record before us as to what
happened in that suit. The doctors’ complaint in this case alleges that, in the Lopеz suit, UMB
pursued various claims against Davis based upon his fraudulent behavior. But the doctors cannot
*6
merely rely on the allegations in their complaint to defeat summary judgment.
The doctors’ only other evidence suggesting that UMB was aware of Davis’s fraud is a deposition comment by Larry Rudawsky, UMB’s former benefits counsеl. Rudawsky’s tenure as UMB’s counsel lasted from 2002 to 2004. He testified that “at some point” it became obvious that Davis had “acted improperly” in connection with Lopez’s account. But Rudawsky never said when that point was, what Davis’s improper actions were, or whether there was any reason to suspect that Davis was also defrauding other participants. Rudawsky’s testimony thus provides no basis for a jury to find that UMB knew about Davis’s fraud before it became publicly known in 2003.
The doctors have failed, therefore, to create a genuine issue as to whether UMB concealed
material non-public facts regarding Davis’s fraud. And the doctors do not contend that they were
subject to improper influence or legally incompetent. Consequently, the doctors exercised
“independent control in fact” over their accounts,
see
The Secretary of Labor argues as amicus, however, that
The reality is that the doctors chose Davis as their advisor, gave him a blank check to invest
their money, and then directed UMB to value their investments at cost, without investigation. Those
decisions caused the doctors’ losses. UMB’s conduct falls within the
B.
The doctors also argue that the district court erred in granting summary judgment to UMB
as to its counterclaim for the costs of this suit. The trust agreement and numerous other plan
documents plainly state, however, that the doctors must indemnify UMB for those costs. And
ERISA itself allows indemnification provisions as long as they “do nоt relieve a fiduciary of
responsibility or liability.”
Pfahler v. Nat’l Latex Prods. Co.
,
We agree with the district court’s resolution of the doctors’ remaining arguments. The court’s judgment is affirmed.