Blogging Employee Benefits

January 24, 2006

Fiduciary, Know Your Grammar

Filed under: Litigation — Fuguerre @ 7:38 pm

Because the disposition clause contains no “discretion” requirement, it is irrelevant whether [defendant] Day exercised “discretion” in his thievery.”

For a case brought before the Court of Appeals for the District of Columbia, one needed to understand the meaning and effect of the word “or.”

ERISA defines a fiduciary by stating –

    a person is a fiduciary with respect to a plan to the extent he [(a)] exercises any discretionary authority or discretionary control respecting management of such plan or [(b)] exercises any authority or control respecting management or disposition of its assets.

The appellate court’s quote of that definition italicizes the word “or,” the disjunctive connector which the court then pointedly distinguishes from the conjunctive “and,” complete with references to dictionary definition and canons of construction. Plus ERISA’s parallel repetition of “exercises” in each clause.

The defendant may not have been all that opposed to ERISA’s “or,” but that second “exercises” together with the plain construction of the definition killed his argument. Defendant apparently wanted to read ERISA as stating –

    a person is a fiduciary with respect to a plan to the extent he exercises any discretionary authority or discretionary control respecting [(a)] management of such plan or [(b)] management or disposition of its assets.

Except that’s not how the statute reads. Nor is that ERISA’s intent.

Defendant had hoped to avoid the fiduciary tag by characterizing himself as simply an insurance salesman under strict instructions to use plans’ funds that had been remitted to him solely to purchase insurance coverage for the plans’ members, with no discretion given to him as to that disposition. Not that he followed those strict instructions: he deposited the money in his own bank account and issued fake insurance policies. But presumably he felt he should have been tagged as an ERISA fiduciary only if the plan sponsor gave him discretion to steal the money, not if he took it upon himself to do so.

For what it’s worth, the appellate court agreed with the district court that discretion could not be read into the disposition clause of the fiduciary definition. Accordingly, the Labor Department was justified in bringing enforcement actions against the defendant for breach of fiduciary duty. [Chao v. Day, CADC, No. 05-5050, 1/24/06]

All that remains of today’s ERISA grammar lesson is to wonder if the court was playing with an alternative meaning of the word “discretion” in giving no comfort to the defendant’s indiscretion.

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