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
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Building social-media presence is inevitable for Law Firms. These tips are very useful to strengthen social media presence. Thank you for sharing this. NirwanLawCorp.com.

  2. Mr. Levin says that the BMV engaged in misconduct--that the BMV (or, rather, someone in the BMV) knew Indiana motorists were being overcharged fees but did nothing to correct the situation. Such misconduct, whether engaged in by one individual or by a group, is called theft (defined as knowingly or intentionally exerting unauthorized control over the property of another person with the intent to deprive the other person of the property's value or use). Theft is a crime in Indiana (as it still is in most of the civilized world). One wonders, then, why there have been no criminal prosecutions of BMV officials for this theft? Government misconduct doesn't occur in a vacuum. An individual who works for or oversees a government agency is responsible for the misconduct. In this instance, somebody (or somebodies) with the BMV, at some time, knew Indiana motorists were being overcharged. What's more, this person (or these people), even after having the error of their ways pointed out to them, did nothing to fix the problem. Instead, the overcharges continued. Thus, the taxpayers of Indiana are also on the hook for the millions of dollars in attorneys fees (for both sides; the BMV didn't see fit to avail itself of the services of a lawyer employed by the state government) that had to be spent in order to finally convince the BMV that stealing money from Indiana motorists was a bad thing. Given that the BMV official(s) responsible for this crime continued their misconduct, covered it up, and never did anything until the agency reached an agreeable settlement, it seems the statute of limitations for prosecuting these folks has not yet run. I hope our Attorney General is paying attention to this fiasco and is seriously considering prosecution. Indiana, the state that works . . . for thieves.

  3. I'm glad that attorney Carl Hayes, who represented the BMV in this case, is able to say that his client "is pleased to have resolved the issue". Everyone makes mistakes, even bureaucratic behemoths like Indiana's BMV. So to some extent we need to be forgiving of such mistakes. But when those mistakes are going to cost Indiana taxpayers millions of dollars to rectify (because neither plaintiff's counsel nor Mr. Hayes gave freely of their services, and the BMV, being a state-funded agency, relies on taxpayer dollars to pay these attorneys their fees), the agency doesn't have a right to feel "pleased to have resolved the issue". One is left wondering why the BMV feels so pleased with this resolution? The magnitude of the agency's overcharges might suggest to some that, perhaps, these errors were more than mere oversight. Could this be why the agency is so "pleased" with this resolution? Will Indiana motorists ever be assured that the culture of incompetence (if not worse) that the BMV seems to have fostered is no longer the status quo? Or will even more "overcharges" and lawsuits result? It's fairly obvious who is really "pleased to have resolved the issue", and it's not Indiana's taxpayers who are on the hook for the legal fees generated in these cases.

  4. We are a Finance Industry Company professionals with over 15 Years Experience and a focus on providing Bank Guarantee and Standby Letter of Credit from some of the World Top 25 Prime Banks primarily from Barclays, Deutsche Bank, HSBC,Credit Suisse e.t.c. FEATURES: Amounts from $1 million to 5 Billion+ Euro’s or US Dollars Great Attorney Trust Account Protection Delivered via MT760, MT799 and MT103 Swift with Full Bank Responsibility Brokers Always Protected Purchase Instrument of BG/SBLC : 32%+2% Min Face Value cut = EUR/USD 1M-5B Lease Instrument of BG/SBLC : 4%+2% Min Face Value cut = EUR/USD 1M-5B Interested Agents/Brokers, Investors and Individual proposing international project funding should contact us for directives.We will be glad to share our working procedures with you upon request. We Facilitate Bank instruments SBLC for Lease and Purchase. Whether you are a new startup, medium or large establishment that needs a financial solution to fund/get your project off the ground or business looking for extra capital to expand your operation,our company renders credible and trusted bank guarantee provider who are willing to fund and give financing solutions that suits your specific business needs. We help you secure and issue sblc and bank guarantee for your trade, projects and investment from top AA rated world Banks like HSBC, Barclays, Dutch Ing Bank, Llyods e.t.c because that’s the best and safest strategy for our clients.e.t.c DESCRIPTION OF INSTRUMENTS 1. Instrument: Funds backed Bank Guarantee(BG) ICC-600 2. Currency : USD/EURO 3. Age of Issue: Fresh Cut 4. Term: One year and One day 5. Contract Amount: United State Dollars/Euros (Buyers Face Value) 6. Price : Buy:32%+1, Lease: 4%+2 7. Subsequent tranches: To be mutually agreed between both parties 8. Issuing Bank: Top RATED world banks like HSBC, Barclays, ING Dutch Bank, Llyods e.t.c 9. Delivery Term: Pre advise MT199 or MT799 first. Followed By SWIFT MT760 10. Payment Term: MT799 & Settlement via MT103 11. Hard Copy: By Bank Bonded Courier Interested Agents,Brokers, Investors and Individual proposing international project funding should contact us for directives.We will be glad to share our working procedures with you upon request. Name:Richardson McAnthony Contact Mail : intertekfinance@gmail.com

  5. Affordable Loan Offer (ericloanfinance@hotmail.com) NEED A LOAN?Sometime i really wanna help those in a financial problems.i was wondering why some people talks about inability to get a loan from a bank/company. have you guys ever try Eric Benson lending service.it cost dollars to loan from their company. my aunty from USA,just got a home loan from Eric Benson Lending banking card service.and they gave her a loan of 8,000,000 USD. they give out loan from 100,000 USD - 100,000,000 USD. try it yourself and testimony. have a great day as you try.Kiss & Hug. Contact E-mail: ericloanfinance@hotmail.com

ADVERTISEMENT