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. It's a big fat black mark against the US that they radicalized a lot of these Afghan jihadis in the 80s to fight the soviets and then when they predictably got around to biting the hand that fed them, the US had to invade their homelands, install a bunch of corrupt drug kingpins and kleptocrats, take these guys and torture the hell out of them. Why for example did the US have to sodomize them? Dubya said "they hate us for our freedoms!" Here, try some of that freedom whether you like it or not!!! Now they got even more reasons to hate us-- lets just keep bombing the crap out of their populations, installing more puppet regimes, arming one faction against another, etc etc etc.... the US is becoming a monster. No wonder they hate us. Here's my modest recommendation. How about we follow "Just War" theory in the future. St Augustine had it right. How about we treat these obvious prisoners of war according to the Geneva convention instead of torturing them in sadistic and perverted ways.

  2. As usual, John is "spot-on." The subtle but poignant points he makes are numerous and warrant reflection by mediators and users. Oh but were it so simple.

  3. ACLU. Way to step up against the police state. I see a lot of things from the ACLU I don't like but this one is a gold star in its column.... instead of fighting it the authorities should apologize and back off.

  4. Duncan, It's called the RIGHT OF ASSOCIATION and in the old days people believed it did apply to contracts and employment. Then along came title vii.....that aside, I believe that I am free to work or not work for whomever I like regardless: I don't need a law to tell me I'm free. The day I really am compelled to ignore all the facts of social reality in my associations and I blithely go along with it, I'll be a slave of the state. That day is not today......... in the meantime this proposed bill would probably be violative of 18 usc sec 1981 that prohibits discrimination in contracts... a law violated regularly because who could ever really expect to enforce it along the millions of contracts made in the marketplace daily? Some of these so-called civil rights laws are unenforceable and unjust Utopian Social Engineering. Forcing people to love each other will never work.

  5. I am the father of a sweet little one-year-old named girl, who happens to have Down Syndrome. To anyone who reads this who may be considering the decision to terminate, please know that your child will absolutely light up your life as my daughter has the lives of everyone around her. There is no part of me that condones abortion of a child on the basis that he/she has or might have Down Syndrome. From an intellectual standpoint, however, I question the enforceability of this potential law. As it stands now, the bill reads in relevant part as follows: "A person may not intentionally perform or attempt to perform an abortion . . . if the person knows that the pregnant woman is seeking the abortion solely because the fetus has been diagnosed with Down syndrome or a potential diagnosis of Down syndrome." It includes similarly worded provisions abortion on "any other disability" or based on sex selection. It goes so far as to make the medical provider at least potentially liable for wrongful death. First, how does a medical provider "know" that "the pregnant woman is seeking the abortion SOLELY" because of anything? What if the woman says she just doesn't want the baby - not because of the diagnosis - she just doesn't want him/her? Further, how can the doctor be liable for wrongful death, when a Child Wrongful Death claim belongs to the parents? Is there any circumstance in which the mother's comparative fault will not exceed the doctor's alleged comparative fault, thereby barring the claim? If the State wants to discourage women from aborting their children because of a Down Syndrome diagnosis, I'm all for that. Purporting to ban it with an unenforceable law, however, is not the way to effectuate this policy.

ADVERTISEMENT