Articles Tagged with breach of fiduciary duty

When a plan participant is denied a retirement plan benefit, he is required under ERISA to ask the plan, usually through a plan administrator or other fiduciary, to review the denial before he can file a complaint in court. This is referred to as exhausting the plan’s administrative remedies. These administrative remedies and procedures that a plan participant must follow are laid out in the governing plan document and in the summary plan description. This process allows the plan administrator to reconsider its position with perhaps additional information, explanation or evidence. Once the participant gets to a “final” denial, he can then file a complaint in court. Typically, a claim is filed when a participant believes he is entitled to a benefit, or more of a benefit, and the plan tells him he is not. However, when a plan participant believes a fiduciary to the retirement plan has breached a fiduciary duty under ERISA, the question of whether a participant must exhaust the plan’s administrative remedies is unresolved and depends on the jurisdiction where the case is filed.

While the majority of courts of appeals and district courts have found no requirement to exhaust administrative remedies for breaches of fiduciary duty claims, there are two circuits that have ruled the opposite. In a fairly recent case, Fleming v. Rollins, Inc., No. 19-cv-5732 (N.D. Ga. Nov. 23, 2020), the Eleventh Circuit confirmed again its minority stance that exhaustion is required for breach of fiduciary duty claims. Citing Bickley v. Caremark RX, Inc., 461 F.3d 1325, 1328 (11th Cir. 2006). The Second Circuit, on the other hand, has not yet directly addressed the question; however, numerous circuit courts within the Second Circuit have routinely found no exhaustion requirement for breach of fiduciary duty claims.

To be sure, this is not deterring defense attorneys from bringing motions to dismiss on the basis of failure to exhaust. In the decision, Savage v. Sutherland Global Services, Inc., 2021 WL 726788 (W.D.N.Y., 2021) defendants argued exhaustion was required for statutory ERISA claims because the exhaustion requirement is specifically written into the plan document. The court was not impressed with the argument explaining “while plan fiduciaries may have expertise in interpreting the terms of the plan itself, statutory interpretation is the province of the judiciary.” Savage at 4, quoting De Pace v. Matsushita Elec. Corp. of America, 257 F.Supp.2d 543, 557 (E.D.N.Y. 2003).

Kantor & Kantor Partner Elizabeth Hopkins filed an Amicus Brief in the Supreme Court on September 18, 2019 for The Pension Rights Center in support of the petitioners in Thole v. U.S. Bank, N.A.  The case is about funding in defined benefit pension plans, constitutional standing, and when participants in these plans may sue to recover plan losses.

Please see the brief here: Thole v. U.S. Bank, N.A. Amicus Brief

For questions on the handling of your Pension benefits, please do not hesitate to contact Kantor & Kantor for a no-cost consultation at (800) 446-7529 or use our online contact form.

 

In an intensely litigated ESOP case involving 14 counts of ERISA violations, on April 22, 2019, Judge Staton, District Judge, Central District of California, certified a class of ESOP participants. The certification came after the court denied Defendants’ motions to dismiss all 14 counts. The case, as a whole, has many interesting legal issues, however, most interesting is the continued litigation of whether indemnification agreements for breaches of fiduciary duty are void.

As background, ERISA § 410 categorically voids indemnification agreements and states, in part “any provision in an agreement…which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty…shall be void as against public policy.” However, Department of Labor regulations have interpreted this to permit employer indemnification but not plan indemnification. (29 CFR 2509.75-4). The regulations also permit indemnification agreements so long as it does not relieve a fiduciary of responsibility or liability.

In 2009, we heard the first case in the 9th circuit that interpreted ERISA § 410 and its regulations, giving some clarity on the validity of indemnification agreements. In Johnson v. Couturier, 52 F.3d 1067 (9th Cir. July 27, 2009) the ESOP participants alleged defendants breached their fiduciary duties by allowing the company to pay excessive compensation to an officer who was a fiduciary to the plan. The company in Johnson was 100% ESOP owned and was in the process of liquidation. The indemnity agreement between officer-fiduciary and plan sponsor (company) provided indemnity unless due to gross negligence or deliberate wrongful acts. Despite the indemnity being paid from corporate assets, which would typically be permitted under DOL regulations, here, because the company was liquidating, the Court held that payment of indemnification by the company would reduce, dollar-for-dollar, the liquidating distribution from the plan – essentially paid by ESOP.

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