In McLemore v. Regions Bank , a divided Sixth Circuit panel upheld dismissal of claims against Regions Bank related to defrauded ERISA plans. In this opinion, by Judge Cook, the Court first confronted the dismissal of the bankruptcy trustee’s ERISA claims, and then turned to evaluate whether state law claims were preempted by ERISA.
On the question of the ERISA claims, the Court found that the bankruptcy trustee, acting as an ERISA fiduciary, did have standing to sue under ERISA. Regions Bank then countered and argued that in pari delicto and unclean hands barred the trustee’s claim based on the conduct of the underlying debtors. Interestingly, the Court rejected this argument, notwithstanding prior Sixth Circuit precedent on in pari delicto in somewhat similar circumstances, but the Court did so because it drew a distinction between a regular bankruptcy trustee and a trustee suing as an ERISA fiduciary. In the latter scenario, because any recovery would inure to the plan’s benefit rather than to the benefit of the creditor of the bankruptcy estate, the Court held that the trustee stood in the shoes of the plans rather than the criminal debtors. Nevertheless, despite reaching this conclusion, the Court found the ERISA claims failed because Regions Bank did not qualify as a “fiduciary” to the plans.
The Court then turned to the question of preemption. The trustee brought claims for negligence, unjust enrichment, and violations of the Tennessee Consumer Protection Act, all largely based on a similar set of factual allegations. The Sixth Circuit pointed to Supreme Court precedent construing the preemptive scope of ERISA broadly and held that all of these claims were preempted, precluding any recovery by the trustee.
In dissent, Judge Merritt quipped, “The law on ERISA preemption is in a state of disarray, to say the least.” He criticized the ERISA preemption provision as “so broad and so lacking in specific meaning and application that we act basically as a common law court in creating its meaning in individual cases,” and which in this case operated to leave the plaintiff without any remedy.
