The HR Legal News Blog

Who is an ERISA Fiduciary?

Fifth Circuit Rules that Investment Advisor Representative is NOT a Fiduciary. Tiblier v. Dlabal, No. 13-50344 (5th Cir. 2014).
Read the case.


Dr. Eric Tiblier, a physician with a small medical practice, established a 401(k)/profit sharing plan and a cash balance plan. Tiblier entered into an Investment Management Agreement with CACH Capital Management, LLC that provided that CACH would serve as an “Advisor” with “limited discretionary authority” over the plans’ investments. The Agreement designated Dr. Paul Dlabal, a licensed broker and investment advisor, to serve as “Registered Representative.”

Based on Dlabal’s recommendation, the plans invested $100,000 in corporate bonds issued by Adageo Energy Partners, L.P., a start-up oil and gas company. Dlabal received a commission of approximately $2,500 from the third-party broker which CACH and Dlabal used to make the placement. This commission, which was disclosed to Tiblier, was the only compensation received by Dlabal in connection with the investment.

Within a year, Adageo ceased to make interest payments on the bonds. In January 2012, Tiblier and his wife, who served as trustees for the plans, brought suit against Dlabal and CACH on a variety of theories, including breach of fiduciary duty under ERISA.

The Fifth Circuit held that Dlabal was not a fiduciary within the meaning of ERISA for purposes of the Adageo transaction. Relying on Milofsky v. American Airlines, Inc., 404 F.3d 338, 341 (5th Cir. 2005), the court stated,

It is not enough for Plaintiffs to show that Dlabal acted in a general fiduciary capacity. Rather, Plaintiffs must establish that Dlabal acted as a fiduciary with regard to the specific transaction about which they complain: the Adageo Investment.

Fiduciary status is determined under Section 3(21) of ERISA. Section 3(21) provides that a person is a fiduciary to the extent he or she (i) exercises any discretionary authority or control of the management of the plan or disposition of its assets, (ii) renders investment advice for a fee or other compensation, direct or indirect, with respect to any plan assets or has any authority or responsibility to do so, or (iii) has any discretionary authority or responsibility in the administration of the plan.

The plan trustees were unable to show that Dlabal actually exercised discretionary authority or control over the decision to purchase the Adageo bonds. Instead, the trustees “repeatedly acknowledged that they, rather than Dlabal, made the ultimate decision to buy Adageo bonds.” While the Investment Management Agreement granted limited discretionary authority to CACH as the “Advisor” to the plans, this authority was not expressly granted to Dlabal in his capacity as “Investment Advisor Representative.”

The court also held that the plan trustees failed to show that Dlabal rendered investment advice for a fee from the plans. Although Dlabal received a commission paid by a third party, the plans did not pay him a fee for his investment advice.

Takeaway: Plan fiduciaries should carefully review the terms of their agreements with service providers. The key fact in Dlabal’s favor was the fact that the Investment Management Agreement to grant him discretionary authority over the terms of the plan.