ILNews

COA: Trust not bound by ISTA employment arbitration clause

Back to TopCommentsE-mailPrintBookmark and Share

The Indiana Court of Appeals has ruled that two former leaders in the Indiana State Teachers Association who served as trustees for a legally separate insurance trust can’t force the trust’s governing board to adhere to arbitration clauses outlined in their ISTA employment contracts.

An appellate ruling came today in Warren L. Williams, et al. v. David Orentlicher, et al., No. 49A02-1003-PL-249, a case that raised questions about the overlap in employment contracts and common law fiduciary duties when the lines are blurred by someone functioning as an employee when performing those separate trustee tasks.

The case involves Warren L. Williams, the ISTA’s executive director from 1984 until his resignation in May 2009, and Robert Frankel, the labor organization’s deputy executive director from 2002 until his resignation in April 2009. With their ISTA positions, both also held ex officio roles with the ISTA Insurance Trust. The trust was created in 1985 as a common law trust legally separate from the ISTA and designed to provide insurance programs for Indiana school corporations to adopt as benefit plans for their employees. Williams served as a trustee and devoted about 20 percent of his total work time to the trust, while Frankel was the trust director and spent about 40 percent of his time on that activity.

Both renewed their ISTA employment contracts in July 2008, and while neither mentioned the trust, their responsibilities included anything the board of directors might define from time to time. Each contract contained an arbitration clause stipulating that “any issue arising regarding the performance of any obligation under the terms of this Agreement” would go through arbitration.

The two resigned in spring 2009, and that summer the trustees filed a complaint against Williams and Frankel and others who were alleged to have breached their fiduciary duties to the trust and conspired to place a bulk of the trust’s assets in alternative investments and private placements without board approval. As a result of this alleged malfeasance, the trustees said the trust could not function as a funding vehicle for medical insurance programs and long-term disability insurance and that left about 650 claimants without assistance for an estimated $34 million in benefits.

Williams and Frankel filed a motion to compel for arbitration on claims the ISTA had denied them compensation and benefits, and the trust responded that its case was separate from any employment contract arbitration issue because the pair was being sued in their capacities as trust officials, not their ISTA leadership positions. Marion Superior Judge Robyn Moberly denied the motion and later denied their motion to stay the trial court proceedings pending appeal. The Court of Appeals also denied that request in July.

The appellate court affirmed Judge Moberly’s findings and held that the trust is not a party to the employment contracts and that’s what is at issue when it comes to the motion to compel arbitration.

Citing a handful of federal precedents from across the country, the majority of Judge Edward Najam and Chief Judge John Baker determined that the legal duties that Williams and Frankel allegedly breached flowed to the trust as a matter of Indiana law and didn’t fall within the express terms of their employment contracts with the ISTA. Neither action is dependent upon the other, they ruled.

Judge Najam also pointed out that counsel for Williams and Frankel didn’t contend during oral arguments that the trust is an “alter ego of the ISTA” when the appellate court asked about that, and so the “close relationship theory” doesn’t apply here.

“As such, the Trust is not estopped from disclaiming the arbitration clauses, even if the Trust is a third party beneficiary to the contracts,” Judge Edward Najam wrote for the majority, which Chief Judge John Baker joined. “And the ‘close relationship’ between the Trust and the ISTA is not, on these facts, legally sufficient to compel the Trust to arbitrate its claims against Williams and Frankel.”

Judge James Kirsch dissented in a separate opinion, saying he’d reverse and order the trial court to grant the motion because Williams’ and Frankel’s respective ISTA responsibilities were an integral foundation for what they did as ex officio members for the trust.

“The affairs of the Indiana State Teachers Association included those of the Trust,” he wrote. “As defined by the ISTA Board of Trustees, the duties of the positions that Williams and Frankel held with ISTA required them to carry out their duties with the Trust. Having received the benefits of such agreements, the Trust should not now be able to disavow the arbitration provisions contained therein. It should be bound to the arbitration provisions of such agreements, to the same extent that ISTA itself is bound.”

Judge Kirsch cited TWH, Inc. v. Binford, 898 N.E. 2d 451 (Ind. Ct. App. 2008), where the appellate court, with Judge Najam authoring, held that a third party beneficiary of a contract containing an enforceable arbitration provision is bound by such provision even though the beneficiary was not a signatory to the agreement.

But the majority declined to “expand” the Binford rule as it says Judge Kirsch advocates, saying that the Trust here is not asserting a contract nor disavowing an employment contract provision. Instead, this is a common law claim against Williams and Frankel independent of the pair’s employment contracts with the ISTA and any issues arising from that.
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. "Am I bugging you? I don't mean to bug ya." If what I wrote below is too much social philosophy for Indiana attorneys, just take ten this vacay to watch The Lego Movie with kiddies and sing along where appropriate: https://www.youtube.com/watch?v=etzMjoH0rJw

  2. I've got some free speech to share here about who is at work via the cat's paw of the ACLU stamping out Christian observances.... 2 Thessalonians chap 2: "And we also thank God continually because, when you received the word of God, which you heard from us, you accepted it not as a human word, but as it actually is, the word of God, which is indeed at work in you who believe. For you, brothers and sisters, became imitators of God’s churches in Judea, which are in Christ Jesus: You suffered from your own people the same things those churches suffered from the Jews who killed the Lord Jesus and the prophets and also drove us out. They displease God and are hostile to everyone in their effort to keep us from speaking to the Gentiles so that they may be saved. In this way they always heap up their sins to the limit. The wrath of God has come upon them at last."

  3. Did someone not tell people who have access to the Chevy Volts that it has a gas engine and will run just like a normal car? The batteries give the Volt approximately a 40 mile range, but after that the gas engine will propel the vehicle either directly through the transmission like any other car, or gas engine recharges the batteries depending on the conditions.

  4. Catholic, Lutheran, even the Baptists nuzzling the wolf! http://www.judicialwatch.org/press-room/press-releases/judicial-watch-documents-reveal-obama-hhs-paid-baptist-children-family-services-182129786-four-months-housing-illegal-alien-children/ YET where is the Progressivist outcry? Silent. I wonder why?

  5. Thank you, Honorable Ladies, and thank you, TIL, for this interesting interview. The most interesting question was the last one, which drew the least response. Could it be that NFP stamps are a threat to the very foundation of our common law American legal tradition, a throwback to the continental system that facilitated differing standards of justice? A throwback to Star Chamber’s protection of the landed gentry? If TIL ever again interviews this same panel, I would recommend inviting one known for voicing socio-legal dissent for the masses, maybe Welch, maybe Ogden, maybe our own John Smith? As demographics shift and our social cohesion precipitously drops, a consistent judicial core will become more and more important so that Justice and Equal Protection and Due Process are yet guiding stars. If those stars fall from our collective social horizon (and can they be seen even now through the haze of NFP opinions?) then what glue other than more NFP decisions and TRO’s and executive orders -- all backed by more and more lethally armed praetorians – will prop up our government institutions? And if and when we do arrive at such an end … will any then dare call that tyranny? Or will the cost of such dissent be too high to justify?

ADVERTISEMENT