Northern Trust Loses Attempt to Transfer Blame to Pension Boards

February 28, 2012 ( – A federal district court dismissed a claim by Northern Trust Company that pension funds’ boards are responsible for losses incurred from participating in Northern Trust’s securities lending program.

The Louisiana Firefighters’ Retirement System, Public School Teachers’ Pension & Retirement Fund of Chicago, the Board of Trustees of the Pontiac Police & Fire Retirement System and the Board of Trustees of the City of Pontiac General Employees Retirement System, on behalf of themselves and all others similarly situated, brought a class action complaint against Northern Trust Investments and the Northern Trust Company alleging breach of fiduciary duties and breach of contract related to their investment in the securities lending program.  

Northern Trust filed its own complaint for equitable and implied indemnification; and/or contribution against the third-party defendants who are the boards of trustees of the individual plaintiff retirement funds. Northern Trust alleged that it was the boards that chose to participate in the securities lending program, selected their own investment guidelines, knew precisely how defendants were implementing the guidelines and made the affirmative decision to “stay the course.”   

U.S. District Judge Robert W. Gettleman of the U.S. District Court for the Northern District of Illinois ruled that Northern Trust’s theory that if the pension funds have been harmed at all, it is by the boards’ actions, not by theirs, is a defense, not a third-party claim.  

In addition, Gettleman found there is no statute or agreement that could create a joint obligation by the boards and Northern Trust to the pension funds. Any duty the boards may owe to plaintiffs arises from their positions as trustees. Any duty owed by defendants comes from their contractual agreements and their position as investment managers.   

The boards pointed out, rather than suggesting a joint obligation by the boards and defendants to the funds, the agreements signed by Northern Trust contain indemnification clauses requiring it to indemnify the plans from any losses caused by Northern Trust’s failure to make a reasoned determination of the quality and suitability of collateral investment; or its failure otherwise to perform its duties and responsibilities. Thus, there is no joint obligation owed to plaintiffs by the boards and Northern Trust, the court concluded.  

The case is Firefighters’ Retirement System v. Northern Trust, 02/23/2012 Case: 1:09-cv-07203.  

The Northern District of California made a similar ruling in a case against Union Bank (see “Case Sensitive: Blame Gains“).