EFS, Inc. v. Regions Bank (McLemore)

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

File Name: 12a0172p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

X

-

JOHN C. MCLEMORE, Trustee,

-

Plaintiff-Appellant (10-5480),

-

-

Nos. 10-5480/5491

EFS, INC, et al.

Plaintiffs-Appellants (10-5491), ,>

-

-

-

v.

-

-

-

REGIONS BANK, as Successor in Interest by

Defendant-Appellee. -

Merger to AmSouth Bank,

N

Appeals from the United States District Court

for the Middle District of Tennessee at Nashville.

Nos. 08-00021; 08-01003—Aleta Arthur Trauger, District Judge.

Argued: March 1, 2012

Decided and Filed: June 8, 2012

Before: MERRITT and COOK, Circuit Judges; and COX, District Judge.*

_________________

COUNSEL

ARGUED: Robert M. Garfinkle, GARFINKLE, MCLEMORE & YOUNG, PLLC,

Nashville, Tennessee, H. Naill Falls, Jr., FALLS & VEACH, Nashville, Tennessee, for

Appellants. John R. Wingo, FROST BROWN TODD LLC, Nashville, Tennessee, for

Appellee. Leonard H. Gerson, UNITED STATES DEPARTMENT OF LABOR,

Washington, D.C., for Amicus Curiae. ON BRIEF: Robert M. Garfinkle, Phillip G.

Young, Jr., GARFINKLE, MCLEMORE & YOUNG, PLLC, Nashville, Tennessee, H.

Naill Falls Jr., FALLS & VEACH, Nashville, Tennessee, for Appellants. John R.

Wingo, FROST BROWN TODD LLC, Nashville, Tennessee, Matthew C.

Blickensderfer, FROST BROWN TODD LLC, Cincinnati, Ohio, for Appellee. Leonard

H. Gerson, UNITED STATES DEPARTMENT OF LABOR, Washington, D.C., for

Amicus Curiae.

*

The Honorable Sean F. Cox, United States District Judge for the Eastern District of Michigan,

sitting by designation.

1

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 2

COOK, J., delivered the opinion of the court, in which COX, D. J., joined.

MERRITT, J. (pp. 18–21), delivered a separate dissenting opinion.

_________________

OPINION

_________________

COOK, Circuit Judge. These consolidated appeals stem from the misconduct of

Barry Stokes, an investment advisor who purloined millions of dollars from the

employee-benefits plans that he managed. Stokes and his company, 1Point Solutions,

LLC (“1Point”), held the fiduciary accounts of the defrauded plans—along with Stokes’s

personal accounts—with Defendant-Appellant Regions Bank (“Regions”). Plaintiffs-

Appellants John McLemore, Stokes’s bankruptcy trustee (“the Trustee”), and several

former clients of 1Point (collectively, “EFS”) allege that Regions negligently or

knowingly allowed Stokes to steal from the fiduciary accounts held at Regions. The

Trustee sued Regions under the Employee Retirement Income Security Act (“ERISA”),

and both EFS and the Trustee brought state-law claims. In 2008, the district court

dismissed the Trustee’s ERISA claims. In 2010, the district court found that ERISA

preempted both plaintiffs’ state-law claims and granted judgment on the pleadings in

favor of Regions. The Trustee appeals the district court’s 2008 dismissal of its ERISA

claims, and both parties appeal the 2010 dismissal of their state-law claims. We

AFFIRM.

I.

Plaintiffs allege the following. Stokes served as the sole owner and operator of

1Point, which managed various employee-benefits plans and 401(k) retirement plans as

a third-party administrator (“TPA”). 1Point also acted as TPA for a number of flexible-

spending accounts, health-savings accounts, dependent-care accounts, and various other

“cafeteria plans,” all of which allow employees to set aside pre-tax income for qualifying

purposes. ERISA governed the majority of the plans that 1Point serviced.

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 3

From the outset, Stokes operated 1Point unlike an ordinary TPA. TPAs generally

provide record-keeping services and assist in transferring money, but do not themselves

handle money or securities. Stokes, however, directed clients to send funds to accounts

at Regions that he had opened in 1Point’s name. The accounts, which Stokes and 1Point

controlled, held substantial funds: in the accounts at Regions, plaintiffs estimate that

1Point’s 401(k) Plan clients deposited over $5.7 million and 1Point’s Cafeteria Plan

clients deposited $45 million.

Regions advised Stokes and 1Point to structure their accounts in a way that

facilitated Stokes’s fraud. Initially, 1Point intended to establish accounts for each client

under the client’s tax identification number. But to circumvent burdensome “know your

customer” rules, which require banks to verify the identities of their customers, Regions

insisted that 1Point open the accounts in its own name and simply provide them titles

referencing the account’s corresponding client. In this manner, 1Point opened over 58

accounts with Regions—bearing account names such as “1Point FSA Metro Government

Account”—in which it held client funds. Because the accounts bore 1Point’s name,

Stokes—owner and operator of 1Point—was able to transfer money among and out of

the accounts, a capability that later allowed him to embezzle customer funds.

Between 2002 and 2006, Stokes stole large sums from these accounts. In

furtherance of his criminal scheme, he (1) transferred money from client accounts to his

account at Regions, (2) withdrew hundreds of thousands of dollars from the 1Point

401(k) account in the form of cashier’s checks, (3) used client accounts to fund 1Point’s

operating expenses, and (4) transferred money between customer accounts to pay

overdraft fees and conceal his theft. Stokes briefly moved the 1Point accounts to Fifth

Third Bank in 2006, but the bank soon closed the accounts for improper activity.

Regions failed to exercise the same vigilance.

For the most part, Regions behaved like an ordinary depositary bank. It

facilitated 1Point’s withdrawals and transfers, received over $50 million in deposits for

plan accounts, and held plan assets. Regions also collected fees and analysis charges

from 1Point’s accounts, totaling more than $500,000 over the course of 1Point and

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 4

Regions’ relationship. As a depositary bank, Regions was subject to various

regulations—including provisions of the Bank Secrecy Act, 31 U.S.C. §§ 3513 et

seq.—aimed at preventing money laundering. Among other things, these regulations

required Regions to report large currency transactions, file suspicious-activity reports,

verify the identities of those opening accounts, and maintain automated computer

monitoring of accounts.

Regions failed to comply with these regulations. In 2004, the U.S. Financial

Crimes Enforcement Network assessed a $10 million fine against Regions and its

predecessor, AmSouth Bank, for their failure (1) to report suspicious activity in a timely

manner, (2) to develop an anti-money laundering program and implement anti-money

laundering policies, and (3) to respond to circumstances in which account holders used

Regions bank accounts to further schemes involving embezzlement and fraud. Pointing

to these failures in monitoring accounts and Stokes’s unusual account activity, plaintiffs

allege that Regions “knew or should have known” about Stokes’s misconduct.

In 2006, Stokes and 1Point filed for bankruptcy protection, and plaintiffs then

discovered Stokes’s theft. In August 2007, the Trustee filed this case against Regions

in bankruptcy court on behalf of the victimized plans for which he assumed fiduciary

status on behalf of Stokes and 1Point. In February 2008, the district court withdrew the

reference of the Trustee’s case to the bankruptcy court.

The Trustee accuses Regions of failing to take action in the face of Stokes’s

obvious criminal scheme. He alleges that 1Point’s transactions “triggered red flags” that

should have apprised Regions of its duty to investigate the transactions. In his

complaint, the Trustee points to a number of irregularities that alerted Regions to

Stokes’s theft—for example, commingling customer accounts and small, “odd dollar”

withdrawals from customer accounts. Based on these irregularities, the Trustee argues,

Regions “knew or should have known” about the misuse of the funds in 1Point’s

accounts. The Trustee’s original complaint asserted ERISA claims against Regions, both

in its capacity as a fiduciary and as a nonfiduciary, as well as state-law claims based on

negligence and aiding and abetting.

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 5

Regions moved to dismiss these claims under Federal Rule of Civil Procedure

12(b)(6). The district court granted the motion in part, finding that only the Trustee’s

negligence claims survived Regions’ motion. The court (1) found that ERISA provided

the Trustee standing to sue on behalf of the defrauded plans, but that (2) Regions failed

to qualify as an ERISA fiduciary; (3) dismissed the nonfiduciary claims against Regions;

(4) found that ERISA preempted the Trustee’s state-law claim that Regions aided and

abetted Stokes’s and 1Point’s breach of fiduciary duty; and (5) allowed the Trustee’s

state-law negligence claim to proceed.

A month after the court’s ruling, a number of 1Point’s former clients, including

EFS, Inc., brought suit against Regions. EFS’s factual allegations mirrored the

Trustee’s, and the district court consolidated the two lawsuits into one action. After the

consolidation, both EFS and the Trustee amended their complaints to include

recklessness, unjust enrichment, and violation of the Tennessee Consumer Protection

Act (“TCPA”). In addition, EFS brought several aiding-and-abetting claims.

Following plaintiffs’ amendments, Regions moved to dismiss the claims under

Federal Rule of Civil Procedure 12(c). The district court granted the motion, finding that

ERISA preempted the Trustee’s remaining state-law claims against Regions. For the

same reason, the court dismissed all of EFS’s claims against Regions, except several

brought by plaintiffs suing on behalf of non-ERISA plans.

II.

On appeal, the Trustee challenges the district court’s 2008 dismissal of its ERISA

claims under Federal Rule of Civil Procedure 12(b)(6); and both parties challenge the

district court’s 2010 grant of Regions’ motion for judgment on the pleadings dismissing

their state-law claims under Federal Rule of Civil Procedure 12(c). We address these

decisions in turn.

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 6

A. Whether the District Court Properly Dismissed the Trustee’s ERISA Claims

The Trustee first challenges the district court’s 2008 dismissal of his ERISA

claims, arguing that the court erred in holding that Regions fails to qualify as an ERISA

fiduciary. Regions agrees with the court’s conclusion on this point and offers an

alternate ground for affirming the court’s judgment: the Trustee lacked standing to

pursue claims on behalf of the defrauded plans. We review a dismissal under 12(b)(6)

de novo, construing the Trustee’s complaint in the light most favorable to him and

accepting the complaint’s factual allegations as true. See Carrier Corp. v. Outokumpu

Oyj, 673 F.3d 430, 444 (6th Cir. 2012).

1. Standing

We begin with the question whether the Trustee has standing to sue on behalf of

the defrauded plans. Regions contends that he does not, because the Trustee never

served as a fiduciary to the plan beneficiaries and because the doctrines of in pari delicto

and unclean hands bar suit. We reject both arguments, and find that the Trustee enjoys

standing to pursue his ERISA claims against Regions.

Citing In re Cannon, 277 F.3d 838 (6th Cir. 2002), Regions argues that the

Trustee cannot recover funds for the benefit of plan participants. The general rule is that

a bankruptcy trustee can bring any suit that the debtor could have pursued. Cannon

carves out an exception to this rule, however, holding that a bankruptcy trustee lacks

standing to bring a cause of action that does not belong to the debtor’s estate. See id. at

856; cf. Begier v. IRS, 496 U.S. 53, 59 (1990) (“[B]ecause the debtor does not own an

equitable interest in property he holds in trust for another, that interest is not ‘property

of the estate.’” (quoting 11 U.S.C. § 541(d))). Likewise, Regions submits, the Trustee

lacks standing to bring ERISA claims on behalf of the plans because the damages sought

would benefit only the ERISA beneficiaries—not 1Point’s estate. See 29 U.S.C.

§ 1109(a) (“Any person who is a fiduciary with respect to a plan who breaches any of

the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter

shall be personally liable to make good to such plan . . . .” (emphasis added)).

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 7

But this argument ignores the unique role of a trustee acting as an ERISA

fiduciary. The Trustee brings this suit in his role as an ERISA fiduciary, rather than his

role as a trustee to the debtor’s estate. This distinguishes the Trustee’s situation from

that of the bankruptcy trustee in Cannon. In Cannon, the assets that the debtor held in

trust did not form part of the debtor’s estate; for that reason, Cannon’s bankruptcy

trustee lacked statutory authority to pursue claims that benefitted the trust beneficiaries.

By contrast, the Trustee, acting as an ERISA fiduciary, holds such statutory

authority—not because the ERISA plans represent part of the debtor’s estate (they do

not, because the plan assets are held in trust), but because, by virtue of the Trustee’s

control over ERISA-plan funds, ERISA confers the Trustee with additional duties and

powers. See 29 U.S.C. § 1002(21)(A) (“[A] person is a fiduciary with respect to a plan

to the extent . . . he exercises . . . any authority or control respecting management or

disposition of its assets . . . .”). ERISA not only permits—but requires—a fiduciary to

remedy the known wrongs of a cofiduciary. See 29 U.S.C. § 1105(a)(3) (imposing

liability on fiduciaries for failure to exercise reasonable efforts to remedy known

breaches of other fiduciaries); id. § 1132(a)(2) (permitting fiduciaries to bring a civil

action under ERISA).

The Trustee’s complaint easily establishes his ERISA-fiduciary status. Under

ERISA, “a person is a fiduciary with respect to a plan to the extent (i) he exercises any

discretionary authority or discretionary control respecting management of such plan or

exercises any authority or control respecting management or disposition of its assets.”

29 U.S.C. § 1002(21)(A)(i) (emphases added). Regions does not dispute that 1Point

served as a TPA for the plans at issue, or that Stokes and 1Point, as plan administrators,

wielded control of the plan assets deposited with Regions. Further, the Trustee pleads

that he acts as “successor fiduciary” for each of the ERISA plans for which 1Point or

Stokes acted as fiduciaries; that he exercises discretionary control over assets belonging

to the ERISA plans; that as fiduciary he must “make reasonable efforts” to remedy

known breaches of other fiduciaries; and that he brings the claim under 29 U.S.C.

§ 1132(a)(2), a provision that permits “a participant, beneficiary or fiduciary” to bring

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 8

a civil action for ERISA violations. Accepting these allegations, the Trustee falls within

ERISA’s definition of “fiduciary.” See 29 U.S.C. § 1002(21)(A).

The fact that the Trustee no longer controls the stolen assets does not disturb this

conclusion. Seizing on 29 U.S.C. § 1002(21)(A), Regions contends that even if the

Trustee served as an ERISA fiduciary, he occupied fiduciary status only “to the extent”

that he exercised control over plan assets. Regions argues that the Trustee cannot

control the funds that 1Point misappropriated, and concludes on that basis that the

Trustee fails to qualify as a fiduciary with respect to those funds. At bottom, this

argument amounts to a claim that the victim of a theft has no right to his stolen property

because he no longer possesses the property. We reject that conclusion, and find that the

Trustee remains a fiduciary with respect to the victimized plans because he has

sufficiently pleaded his authority to manage or dispose of all assets belonging to the

plans, notwithstanding his lack of control over the particular funds that Stokes stole from

plan accounts.

Regions’ remaining two arguments fare no better. First, Regions contends that

the district court, rather than the Trustee, controls the ERISA plans’ assets—a fact that

the Trustee disputes. Because we accept the Trustee’s factual allegations as true, this

argument fails. See Carrier Corp., 673 F.3d at 444.

Second, Regions faults the Trustee for failing to specify which plans deposited

their funds at Regions. But at this stage, the Trustee’s pleadings need only “contain

sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its

face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation and citation

omitted). For the purposes of pleading standing, we find it sufficient that the Trustee

describes the allegedly victimized plans, avers that he acts as successor fiduciary “for

each of the plans,” and explains the legal basis for his fiduciary relationship:

“exercis[ing] discretionary control over assets of plans subject to ERISA.”

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 9

2. Whether the Doctrines of In Pari Delicto and Unclean Hands Bar the Trustee’s

Claims

Regions further argues that the equitable doctrines of in pari delicto and unclean

hands—two doctrines that prevent culpable plaintiffs from bringing suit—bar the

Trustee’s claims. See, e.g., Pinter v. Dahl, 486 U.S. 622, 632 (1988). These defenses

may have barred the claims of Stokes and 1Point, had those two brought the claims

themselves. Because the Trustee steps into the shoes of Stokes and 1Point, Regions

argues, the doctrines should bar his claims as well.

Again, Regions misunderstands the Trustee’s role. The Trustee sues as an

ERISA fiduciary representing the plans’ interests, rather than as a bankruptcy trustee

suing to enlarge the debtor’s estate. Any funds that the Trustee recovers as an ERISA

fiduciary inure to the ERISA plans’ benefit, rather than to the benefit of the estate’s

creditors. For the purposes of the Trustee’s ERISA claim, therefore, he “steps into the

shoes” of the plans, rather than those of the criminal debtors. Though the doctrines may

bar suit where a bankruptcy trustee seeks to enlarge the estate of a wrongdoing debtor,

this case presents a different scenario: the Trustee’s claims exist between the victims of

the wrongdoing the plans and an alleged wrongdoer (Regions).

A review of the equitable purposes behind these defenses bolsters our conclusion

that they do not apply. As to equitable doctrines, courts limit the application of in pari

delicto and unclean hands to the equitable purposes that they serve. See Bateman

Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 306-07 (1985). As the Bateman

Eichler Court observed, the common-law doctrine of in pari delicto serves the dual

purposes of (1) preventing courts from wasting their resources “mediating disputes

among wrongdoers” and (2) “deterring illegality.” 472 U.S. at 306.

Applying the doctrine here serves neither purpose. First, all concede that the

ERISA plans are innocent of any wrongdoing. Second, any recovery would benefit only

the defrauded plans, such that barring the claims serves no deterring function. See

29 U.S.C. § 1104(a)(1) (requiring an ERISA fiduciary to discharge duties “with respect

to a plan” for the exclusive purpose of providing benefits to plan participants and

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 10

beneficiaries). Third, because the Trustee brings the ERISA claim in his capacity as an

ERISA fiduciary, rather than as a bankruptcy trustee, he shares no blame for the debtor’s

wrongdoings unless he fails to “make[] reasonable efforts under the circumstances to

remedy” any known breaches of duty. See 29 U.S.C. § 1105(a)(3); see also id. § 1109(b)

(“No fiduciary shall be liable with respect to a breach of fiduciary duty under this

subchapter if such breach was committed before he became a fiduciary or after he ceased

to be a fiduciary.”). Accordingly, we find that the Trustee has standing to bring an

ERISA claim on behalf of the plans described in his complaint.

3. Whether Regions Bank Qualifies as an ERISA Fiduciary

Next, the Trustee challenges the district court’s conclusion that Regions did not

serve as a fiduciary to the victim plans. This question stands paramount, because ERISA

permits a plaintiff to obtain equitable relief and recover damages from fiduciaries who

breach their duties. See 29 U.S.C. §§ 1109, 1132(a)(2). Against nonfiduciaries,

however, only “appropriate equitable relief” is available. See 29 U.S.C. § 1132(a)(3).

Because, as the district court found, the Trustee seeks only damages, the fate of his

ERISA claims turns on whether Regions qualifies as a fiduciary.

We review a district court’s determination regarding ERISA-fiduciary status de

novo. Hamilton v. Carell, 243 F.3d 992, 997 (6th Cir. 2001); Briscoe v. Fine, 444 F.3d

478, 486 (6th Cir. 2006). Where the parties do not dispute the underlying facts, “a

party’s status as an ERISA fiduciary is purely a question of law.” Hamilton, 243 F.3d

at 997. Discerning no factual dispute, we reject the Trustee’s claim that the district

court’s ruling was premature.

We begin with ERISA’s description of those who qualify as fiduciaries:

[A] person is a fiduciary with respect to a plan to the extent (i) he

exercises any discretionary authority or discretionary control respecting

management of such plan or exercises any authority or control respecting

management or disposition of its assets . . . .

29 U.S.C. § 1002(21)(A). In the Trustee’s view, Regions qualified as a fiduciary by

exerting “authority or control respecting management of [plan] assets.” Id.

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 11

Attempting to demonstrate Regions’ fiduciary status, the Trustee marshals a

number of allegations from his complaint purportedly describing Regions’ “authority or

control” over the ERISA-plan accounts. The allegations fall into five categories: that

Regions (1) knew that 1Point’s accounts held plan assets; (2) should have recognized

that 1Point managed these accounts differently than typical third-party administrators

of employee-benefits plans; (3) failed to comply with banking regulations that would

have uncovered Stokes’s scheme; (4) advised 1Point to structure its accounts in a way

that circumvented “know your customer” rules; and (5) withdrew over $500,000 in “fees

and analysis charges” from the plan funds.

The first three allegations miss the mark. Section 1002(21)(A)(i) directs us to

focus on the extent of Regions’ control over plan assets, rather than on what Regions

knew or should have known. And though the Trustee claims that Regions “exercised

authority or control over the management or disposition of funds in its custody,” the

factual allegations of his complaint fail to support that conclusion. In general, the

complaint alleges that Regions maintained accounts for 1Point, received deposits to

those accounts, and permitted Stokes and 1Point to transfer and withdraw money from

these accounts. Stokes and 1Point maintained the accounts and directed all account

activity. Regions merely held the funds on deposit. Custody of plan assets alone cannot

establish control sufficient to confer fiduciary status. See, e.g., Briscoe, 444 F.3d at 494

(“Our reading of ERISA’s statutory definition will not extend fiduciary status to every

person who exercises mere possession, or custody over the plans’ assets.” (internal

quotation marks and citation omitted)); Chao v. Day, 436 F.3d 234, 237 (D.C. Cir.

2006).

The same goes for Regions’ advising 1Point and Stokes as to how it ought to

structure the banking aspects of its business. As with mere custody, advising on account

structuring offers no foothold for labeling Regions a fiduciary. All control of the

accounts remained with 1Point and Stokes.

That leaves the proposition that Regions’ withdrawal of about a half million

dollars in fees from 1Point plan accounts demonstrates control over plan assets. For

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 12

support, the Trustee points to our decisions in Briscoe and Smith v. Provident Bank,

170 F.3d 609 (6th Cir. 1999), cases where we found ERISA-fiduciary status applicable

to a plan custodian exerting unilateral control over plan assets. In Briscoe, the TPA of

a company’s healthcare plan canceled its contract after financial difficulties rendered the

company unable to support the plan. 444 F.3d at 484. Upon terminating its relationship

with the company, the TPA wrote a check remitting the balance of the funds in the plan’s

account to the company—but retained for itself an “administrative fee” of several

thousand dollars. Id. at 484, 490. The court held that the “unilateral disposition of funds

held in an account over which it exerted control ma[de] [the TPA] a fiduciary to the

extent that it exercised such control upon the termination of its relationship.” Id. at

490; see also Briscoe v. Preferred Health Plan, Inc., 578 F.3d 481, 485-87 (6th Cir.

2009) (limiting the defendant’s liability in Briscoe to funds over which it exercised

control after terminating its agreement with the plaintiff). Similarly, in Smith a bank

transferred stock from the account of an ERISA plan without authorization after the

plaintiff removed the bank as trustee. 170 F.3d at 612-13.

Neither case supports the Trustee’s position here because both address the

control of plan assets after termination of the contractual relationship with the plans.

Here, the Trustee alleges only that “[Regions] regularly withdrew its fees and analysis

charges from the trust funds it held.” Nothing suggests that Regions did anything other

than collect contractually owed fees. Unlike the Briscoe plaintiff, the Trustee does not

allege that Regions unilaterally exercised any power to pay itself fees. Elsewhere in his

complaint, the Trustee challenges the amount of the fees as “unreasonable” and argues

that the fees constitute unjust enrichment because Regions received them as

compensation for its complicity in Stokes’s fraud. Neither contention undermines the

conclusion that Regions collected only routine fees authorized by its depositary

agreement with 1Point.

The Trustee fails to proffer—nor have we found—any case extending fiduciary

status to a bank under these circumstances. Construing the allegations in the light most

favorable to the Trustee, Regions’ withdrawal of routine contractual fees constitutes no

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 13

more an exercise of control than any other account holder’s request effectuated by a

depositary bank. Such transactions amount to “control respecting management or

disposition of [plan] assets,” 29 U.S.C. § 1002(21)(A), in only the hollowest sense of

“control.” See Pipefitters Local 636 v. Blue Cross & Blue Shield of Mich., 213 F. App’x

473, 477 (6th Cir. 2007) (holding that in order to overcome a motion to dismiss, a

plaintiff must allege that the defendant “exercised any authority or control over plan

assets, and that it performed more than a mere ministerial or contractually compelled

function in assessing [a] subsidy fee”); Seaway Food Town, Inc. v. Medical Mut. of

Ohio, 347 F.3d 610, 619 (6th Cir. 2003). We reject the Trustee’s argument that Regions’

collection of fees rendered it subject to liability as an ERISA fiduciary.

B. Whether the District Court Properly Dismissed Plaintiffs’ State-Law Claims

Both the Trustee and EFS appeal the district court’s dismissal of their state-law

claims against Regions, which alleged (1) negligence and recklessness, (2) unjust

enrichment, and (3) violation of Tennessee’s Consumer Protection Act.

These claims rest on a common set of allegations. Both plaintiffs allege that

Regions violated a “duty to monitor the accounts of 1Point.” They also accuse Regions

of violating its duty of reasonable care by failing to comply with various banking

regulations, arguing that proper compliance with these regulations would have

uncovered Stokes’s fraud.

Plaintiffs also accuse Regions of acting with greater culpability than mere

negligence. Both EFS and the Trustee allege that Regions knew that Stokes withdrew

money from fiduciary accounts for his personal benefit and nevertheless permitted the

illegal withdrawals. EFS’s complaint goes even further, alleging that Regions

“knowingly assisted 1Point Solutions in retaining clients it was defrauding.”

In dismissing plaintiffs’ state-law claims, the district court found that

Tennessee’s Uniform Fiduciaries Act (“UFA”) limited plaintiffs’ claims to allegations

of knowing or bad-faith conduct and that ERISA preempted any allegation that survived

the UFA’s bar. On appeal, plaintiffs challenge only the court’s conclusion regarding

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 14

ERISA preemption. We review de novo a district court’s grant of judgment on the

pleadings under Rule 12(c), as well as a court’s conclusion that a federal statute

preempts a state-law claim. See Penny/Ohlmann/Nieman, Inc. v. Miami Valley Pension

Corp. (PONI), 399 F.3d 692, 697 (6th Cir. 2005); Nester v. Allegiance Healthcare Corp.,

315 F.3d 610, 613 (6th Cir. 2003).

The UFA shields depositary banks from liability arising from the actions of a

fiduciary depositor, unless the bank acts with “actual knowledge” of a breach or

“knowledge of such facts that its action . . . amounts to bad faith.” Tenn. Code Ann.

§§ 35-2-107, -109; see C-Wood Lumber Co. v. Wayne Cnty. Bank, 233 S.W.3d 263, 274

(Tenn. Ct. App. 2007). A claim that Regions acted in “bad faith,” then, turns on

showing that it knew facts strongly suggesting that 1Point and Stokes breached their

fiduciary duties. See C-Wood Lumber, 233 S.W.3d at 284 (construing “bad faith” to

mean “acting dishonestly”). After finding that the UFA displaced plaintiffs’ negligence

claims, the district court held that only plaintiffs’ allegations of “knowing” or “bad faith”

conduct survived. Plaintiffs do not quarrel with this conclusion.

What survives the UFA, ERISA preempts. Because ERISA provides a remedy

against nonfiduciaries who knowingly participate in a fiduciary’s violation of ERISA,

see 29 U.S.C. § 1132(a)(3), the district court found that ERISA preempted any

allegations of “knowing” or “bad faith” conduct that escaped the UFA’s bar. We agree.

ERISA preempts “any and all State laws insofar as they may now or hereafter

relate to any employee benefit plan” governed by ERISA. 29 U.S.C § 1144(a). “Both

the Supreme Court and this court have emphasized the broad scope of ERISA’s

‘expansive pre-emption provision[ ].’” Briscoe, 444 F.3d at 497 (alteration in original)

(quoting Aetna Health, Inc. v. Davila, 542 U.S. 200, 208 (2004)); see also Cromwell v.

Equicor-Equitable HCA Corp., 944 F.2d 1272, 1276 (6th Cir. 1991) (noting “that

virtually all state law claims relating to an employee benefit plan are preempted by

ERISA”).

To guide courts in determining whether a claim “relates to” a benefit plan, the

Sixth Circuit has identified three classes of state-law claims subject to ERISA

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 15

preemption: claims based on “state laws that (1) mandate employee benefit structures

or their administration; (2) provide alternative enforcement mechanisms; or (3) bind

employers or plan administrators to particular choices or preclude uniform

administrative practice, thereby functioning as a regulation of an ERISA plan itself.”

Briscoe, 444 F.3d at 497 (quoting PONI, 399 F.3d at 698). Plaintiffs’ state-law claims

fall within the second category.

Again, Briscoe guides our reasoning. In Briscoe, the court held that ERISA

preempted state-law claims of fraud, misrepresentation, and concealment based on a

nonfiduciary defendant’s alleged failure to disclose a healthcare plan’s financial

condition. 444 F.3d at 498. The court reasoned that “[a]ny duty to disclose the financial

condition of the plan that [the defendants] might have owed to the plan beneficiaries

arose not out of an independent source of law, but out of the existence and nature of the

plan itself.” Id. at 499. Accordingly, the court determined that the claims served as an

“alternative enforcement mechanism” and concluded that ERISA preempted the claims.

Id. at 500 (quoting PONI, 399 F.3d at 698).

ERISA forecloses plaintiffs’ state-law claims for the same reason. As the

defendant’s liability did in Briscoe, Regions’ liability turns on the existence of the plans

and the substance of ERISA. Key to our conclusion is the district court’s unchallenged

determination that the UFA bars plaintiffs’ claims to the extent that they rest on mere

negligence. What remains of plaintiffs’ claims are allegations that Regions (1) acted

with knowledge of Stokes’s and 1Point’s breach of fiduciary duty or (2) acted in bad

faith because it knew facts obviously suggestive of their breach. Proving these

allegations depends on a showing that Stokes and 1Point breached their fiduciary duty

and requires an examination of Regions’ knowledge of the breach. Like the claims in

Briscoe, these claims do not arise from an independent legal duty; rather, they derive

from the ERISA violations committed by Stokes and 1Point. By seeking to impose

liability on Regions for knowingly permitting Stokes and 1Point to breach their fiduciary

duties, plaintiffs’ state-law claims seek an “alternative enforcement mechanism” for the

legal duties imposed under ERISA.

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 16

In the absence of the UFA, we may have reached a different conclusion. ERISA

does not preempt garden-variety claims against nonfiduciaries providing professional

services to an ERISA plan based on breaches of professional responsibility. See, e.g.,

PONI, 399 F.3d at 703 (holding that a negligent misrepresentation claim against a “non-

fiduciary service provider” does not implicate ERISA, as it does not require a court to

evaluate whether the service provider violated the terms of an ERISA-governed plan).

But the UFA bars plaintiffs’ claims to the extent they rest on mere negligence, and the

remaining allegations stem from Stokes’s and 1Point’s ERISA-imposed duties, and not

from a legal duty independent of ERISA.

That ERISA provides its own, limited remedy against Regions for its alleged

conduct buttresses this conclusion. Under ERISA, a plan “participant, beneficiary, or

fiduciary” may seek an injunction against a nonfiduciary who knowingly participates in

a fiduciary’s violation of ERISA. See 29 U.S.C. § 1132(a)(3) (authorizing civil actions

for “appropriate equitable relief” to redress violations of ERISA Title I); Harris Trust

& Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 245 (2000) (holding that

§ 1132(a)(3) authorizes suits against nonfiduciaries). There is nevertheless powerful

incentive to recast a potential ERISA claim against a nonfiduciary as a state-law claim,

because ERISA holds only fiduciaries personally liable.

Plaintiffs’ unjust-enrichment claims exemplify such recasting. Previously, the

Trustee sought disgorgement of the bank fees—an equitable remedy—from Regions

under ERISA’s civil enforcement provision. See 29 U.S.C. § 1132(a)(3). The district

court dismissed the claim, finding that there were no “specifically identifiable” funds in

Regions’ possession, and that equitable relief was therefore unavailable. The claim then

reappeared in the Trustee’s amended complaints, transmogrified into a state-law claim

for unjust enrichment. Peering through the state-law disguise, the district court rejected

the claim as a “reframing of the previously dismissed ERISA claim.”

Against nonfiduciaries, ERISA confines plaintiffs to equitable relief. See

29 U.S.C. § 1132(a)(3). By styling their ERISA claim as a state-law claim, the plaintiffs

seek to hold Regions—a nonfiduciary—personally liable. The Supreme Court has

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 17

rejected such attempts to supplement the remedies available under ERISA: “[A]ny state-

law cause of action that duplicates, supplements or supplants the ERISA civil

enforcement remedy conflicts with the clear congressional intent to make the ERISA

remedy exclusive and is therefore pre-empted.” Aetna, 542 U.S. at 209.

Plaintiffs complain that this ruling leaves them without a remedy against

Regions. This might be true, but “the availability of a remedy under ERISA is not

relevant to the preemption analysis.” David P. Coldesina, D.D.S., P.C. v. Estate of

Simper, 407 F.3d 1126, 1139 (10th Cir. 2005). “As the Supreme Court recently

reiterated, ERISA’s remedial scheme evidences Congress’s policy choices and intent to

provide only the remedies it specified, and this court is not in a position to second-guess

Congress simply because the facts of a particular case might be sympathetic.” Id. (citing

Aetna, 542 U.S. at 209).

Because plaintiffs seek damages, there is simply no space between the UFA’s bar

and ERISA’s preemptive force through which their state-law claims can pass. To the

extent that plaintiffs’ claims stem from Regions’ negligence, the UFA bars them; to the

extent they arise from Regions’ knowledge of or bad-faith acquiescence in Stokes’

scheme, ERISA preempts them.

III.

For the above reasons, we AFFIRM the district court’s judgments.

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 18

____________

DISSENT

____________

MERRITT, Circuit Judge, dissenting. The law on ERISA preemption is in a state

of disarray, to say the least. See, e.g., New York State Conference of Blue Cross & Blue

Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995) (“prior attempt to construe

the phrase ‘relate to’ does not give us much help drawing the line”); California Div. of

Labor Standards Enforcement v. Dillingham, 519 U.S. 316, 335 (1997) (Scalia

concurring) (“applying the ‘relate to’ provision according to its terms was a project

doomed to failure . . . everything is related to everything else”); AETNA Health, Inc., v.

Davila, 542 U.S. 200, 222 (2004) (Ginsburg concurring) (“I join the rising judicial

chorus urging that Congress and [this] Court revisit what is an unjust and increasingly

tangled ERISA regime”); Langbein, “What ERISA Means By ‘Equitable,’” 103 Colum.

L. Rev. 1317 (2003). I find no similar cases preempting banking laws protecting from

loss the deposits of customers, including ERISA customers, or regulating bank fees

charged to such customers. To the contrary, the Ninth Circuit concluded that Arizona

common law was not preempted in an action against Citibank “as a service provider

offering nonfiduciary custodial services” to ERISA participants. Arizona State

Carpenters’ Pension Trust Fund v. Citibank, 125 F.3d 715, 723 (9th Cir. 1997).

The ERISA clause on preemption barring remedies that “relate to any employee

benefit plan” is 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. Therefore,

we should state the policies we are implementing and the congressional purpose behind

the statute that we are trying to serve. The policy on preemption found in many ERISA

cases emphasizes “the normal presumption against preemption” when we are dealing

with state “laws of general application,” De Buono v. NYSA-ILA Medical and Clinical

Services Fund, 520 U.S. 806, 811-14 (1997). Here we are dealing with common law

principles, equitable unjust enrichment principles, and a Tennessee statute of general

application.

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 19

The primary purpose of ERISA is to protect the individual who has a pension or

health plan from certain kinds of losses, i.e., “to increase the likelihood that participants

. . . will receive their full benefits.” 29 U.S.C. § 1001b(c). It is not to protect a

depository bank from general state laws concerning malfeasance in connection with the

bank’s handling of the bank accounts of participants. In this case, we have no idea

whether the bank is liable for misfeasance under state law. The case against the bank

has not been tried or the facts proved or the state law analyzed and applied. I dissent

because our court is using a doctrine of ERISA preemption not to protect the ERISA

participants but to shield the bank from any investigation of the claims against it. The

court has given the bank an immunity from general state law liability no matter what its

conduct, as though the bank has the status of a sovereign. Banks are important

institutions for our society and perform many valuable services, but they are not

sovereign and not entitled to be exempt from general laws.

Having found that Regions, acting only as a depository bank holding cash

deposits, does not meet the definition of an ERISA “fiduciary” under 29 U.S.C.

§ 1002(21)(A) — a decision with which I agree — the court then bars all state law

claims and appears to leave the plan participants without any legal remedy whatever,

common law or otherwise, when a depository bank causes a loss of ERISA participants’

deposits through reckless or willfully blind conduct or unjust enrichment.

The dismissals in both the Trustee’s and the participants’ cases were on the

pleadings under Fed. R. Civ. P. § 12(c) and based on the “doctrine of ERISA

preemption.” It may be that Regions is not liable for any misfeasance, but we should not

decide the case preemptively without even looking at the facts and law regarding the

bank’s possession and disposition of the participants’ deposits. We have bankruptcy and

supplementary jurisdiction of the Trustee’s claims, and diversity jurisdiction of the

investors’ claims, and therefore the normal duty to enforce state law.

Our court’s idea that state law remedies fail because they add or provide only “an

alternative enforcement mechanism” is strange, indeed, when the federal ERISA law

provides no “enforcement mechanism” whatever for damages against the misfeasance

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 20

of a depository bank that is not a fiduciary. There is nothing, no ERISA cause of action

for damages for the state claims to be “alternative” to. There is no ERISA purpose or

policy served by withdrawing the protection of state laws of general application. What

is the possible harm caused by the enforcement of state laws providing damages if a

bank recklessly allows its depositors’ money to be embezzled by a fiduciary?

Plaintiff’s unjust enrichment claim serves as a good example of the confusion

engendered by the preemption defense. We do not know whether the bank withdrew

$500,000 from the plaintiffs’ accounts properly or in cahoots with Stokes or in willful

blindness to his conduct. Should the bank have to restore some or all of the money

removed by the bank from the participants’ accounts? The general common law of

unjust enrichment goes back three centuries to the Chancery Court in 17th Century

England. The principles underlying unjust enrichment do not interfere with ERISA.

Tennessee ostensibly still goes by the old law of unjust enrichment explained by Lord

Mansfield in Moses v. MacFerlan, 2 Burr. 1005, 1012, 97 Eng. Rep. 676, 681 (K.B.

1760): “In one word, the gist of this kind of action is, that the defendant, upon the

circumstances of the case, is obliged by the ties of natural justice and equity to refund

the money.” I have no idea whether plaintiffs are entitled to restitution of the fees, or

some part of them, charged by the bank against their accounts because the record does

not reflect specifically what the facts are, nor has the Tennessee law as it applies in this

case been analyzed. But the bank is not entitled to prevail under the doctrine of ERISA

preemption without any analysis of Tennessee’s law of unjust enrichment. The fact that

§§ 1132(a) and (c) allows the Secretary of Labor to seek an injunction against violations

of a provision of ERISA should not preempt or displace the law of unjust enrichment

requiring a wrongdoer to restore benefits wrongfully obtained. If the defendant is

enriched as a result of a “known risk that the conduct in question violates” plaintiff’s

rights, the plaintiff may pursue an accounting. See RESTATEMENT (THIRD) OF

RESTITUTION § 51 (2011).

To foreclose unjust enrichment would leave those whom Congress intended to

protect worse off than before ERISA was enacted. ERISA does not require abrogation

Nos. 10-5480/5491 McLemore, et al. v. Regions Bank Page 21

of the law of unjust enrichment under these circumstances, and I would not adopt a

construction of preemption that perversely deprives the participants of rights they

previously possessed and that Congress intended to further protect when it federalized

the administration of pension and employee benefit plans in ERISA.