Malpractice action not preempted by ERISA.

The Colorado Court of Appeals, Division 5, ruled that a state-law action for malpractice is not preempted by the Employee Retirement Income Security Act (ERISA).

The case began when the plaintiff, LaVon Barrett; received a distribution from her family's corporate retirement plan after her husband's death and invested it in an individual retirement account managed by a financial planner, Donald Hall. The family corporation, Stan Barrett Inc., was then advised to create an ERISA-qualified plan by Craig Ciarlelli, who provided financial and tax planning services. Hall and Craig Hay, an accountant who provided services to the family and the corporation, knew about the plan.

The IRA funds were transferred to the plan and subsequently used to purchase a farm. Hall, Ciarlelli and Hay assured Barrett that this transfer would not create a tax liability. However, IRA regulations prohibit a tax-free transfer of this nature and Barrett was assessed additional taxes as a result. She then sued Hall, Hay and Ciarlelli for negligence in recommending the transfer. The defendants requested that the claim be dismissed on the basis that state-law negligence claims were preempted by federal legislation under ERISA. The district court acquiesed.

Barrett appealed and the appellate court reversed the district court, saying that ERISA only preempts state-law claims if the defendants assume plan management duties. It said that the tax liability created by the alleged negligence advice would have occurred notwithstanding the plan's qualification under ERISA and that the plaintiff's claims were the same as negligence claims arising from advice rendered in any other business context. (Barrett v. Hay, 893 P.2d 1372)