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COA: Trust not bound by ISTA employment arbitration clause

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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.
 

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  1. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

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  3. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  4. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  5. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

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