Second Court of Appeals Win for State Street Bank in $200 Million Chrysler “Top Hat Plan” Class Action

By and on December 7, 2016

“Top hat plans” have many attractive features, but a new court decision is a reminder that top hat plan participants have limited protections under ERISA – and that assets held in a rabbi trust are not protected from the claims of creditors upon the employer’s bankruptcy or insolvency.

Our client, State Street Bank and Trust Company, served as the trustee of a top hat plan providing special retirement benefits for active and retired senior executives at Chrysler Automotive. When Chrysler was facing bankruptcy in 2008, $200 million in funds from the rabbi trust were used for company operations. Some 400 retired executives (including former chairman Lee Iacocca) were left with nothing in their accounts. After getting no relief in the Chrysler reorganization proceedings, the retirees filed a complaint against State Street and Chrysler’s parent company Daimler A.G. After considerable skirmishing in state and federal court, a federal judge ruled that the plaintiffs could not pursue state law claims of fraud and breach of trust about an ERISA benefits plan (because those claims were preempted by ERISA)  – and that any breach of fiduciary duty claims under ERISA would be futile as the top hat plan did not protect retiree accounts in a bankruptcy. Those rulings were affirmed by the Sixth Circuit Court of Appeals.

Back in district court, the plaintiffs filed expanded ERISA claims about the rabbi trust and a new age discrimination claim, all of which were dismissed. In a second appeal, the Sixth Circuit Court of Appeals has ruled (again) that plaintiffs have no viable ERISA claims because the plan and trust operated as described in plan documents and ruled that the age discrimination claims were filed too late. In short, all of the claims have been defeated on pleading and procedural grounds without a trial on what happened during the Chrysler collapse.

This is the latest in a string of court victories for our trustee clients in class actions filed in Detroit and New York about auto industry benefit plans that were wiped out in the 2008 financial crisis, including those at Delphi Automotive, General Motors and now Chrysler litigation partner Bill Boies led the defense and argued for State Street on appeal; associate Jen Aronoff wrote much of the appeal brief. Employee Benefits partner Andrew Liazos provided insights and arguments about the top hat plan and rabbi trust.

Andrew Liazos
Andrew C. Liazos is the global chair of McDermott’s Benefits & Compensation Practice Group and has practiced at McDermott for over 25 years. Andrew focuses his practice on compensation and benefit matters, including related securities, M&A, IPO, private equity, international and litigation matters. Clients range from Fortune 500 companies to compensation committees to individual executives in employment and severance negotiations. Read Andrew Liazos' full bio.

Wilber H. Boies, PC
Wilber (Bill) Boies focuses his practice on business dispute counseling and business litigation throughout the country. Bill leads a pro bono program that advises national legal aid organizations, Interest on Lawyers’ Trust Accounts (IOLTA) programs and bar foundations about obtaining cy pres awards from the undistributed residue of class action settlement funds and frequently submits amicus briefs opposing appeals by serial objectors who argue for the elimination of cy pres awards in class action settlements. Read Bill Boies' full bio.




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