Participants Suing Plan Fiduciaries Sued As Co-Fiduciaries

November 15, 2012 ( - Retirement plan fiduciaries found to have violated federal law claim some of the plaintiffs that sued them are also liable.

A federal district court agreed, in part, and moved forward some of the defendant’s claims.   

U.S. District Judge James S. Moody Jr. of the U.S. District Court for the Middle District of Florida granted the counter-defendants’ motion to dismiss based on a lack of a statutory right to contribution and indemnification. Moody noted that § 502(a)(3) of the Employee Retirement Income Security Act (ERISA) refers to equitable remedies for violations of ERISA or enforcement of a plan’s terms, not to the equitable remedies available to a breaching fiduciary against another fiduciary. He also pointed out that the Supreme Court previously held that, in order to recover for a violation of § 409 which makes fiduciaries “subject to such other equitable or remedial relief as the court may deem appropriate,” the relief must “inure to the benefit of the plan as a whole” and “Congress did not intend that section to authorize any relief except for the plan itself.”   

However, Moody denied the counter-defendants’ motion to dismiss based on lack of a federal common law right to contribution and indemnification. According to the court opinion, other circuit courts have found that Congress could not have inadvertently omitted a right to contribution under ERISA because of its detailed remedial scheme, but Moody disagreed.   

He noted that the Supreme Court has stated that traditional trust law principles are a “starting point for analysis of ERISA” and inform ERISA to the extent they are consistent “with the language of the statute, its structure, or its purposes.” Congress has made clear that ERISA’s purpose is to protect plan participants and beneficiaries; fiduciaries’ rights are not the purpose. “Thus, fear of intruding on Congress’ remedial scheme is not warranted given that allocation of fiduciary liability is not within the scope of ERISA nor is it inconsistent with its structure,” Moody concluded. 

In addition, Moody found, policy considerations weigh heavily in favor of allowing a fiduciary to seek contribution and indemnification from co-fiduciaries. Defaulting fiduciaries who are also plan participants should not be allowed to benefit from their own wrong by suing their co- fiduciaries first. “Furthermore, contribution rights do not diminish the recovery for the plan and its beneficiaries if the co-fiduciaries are sued in their individual capacities, not in their collective capacity as the plan itself,” he added.  

Moody concluded that rights to contribution and indemnity from co-fiduciaries under ERISA are properly permitted pursuant to federal common law based upon traditional trust law.   

A group of participants in Community National Bank Corporation’s employee stock ownership plan (ESOP) sued plan fiduciaries for breaching ERISA by failing to prudently manage the plan’s investments in company stock. In June, Moody ruled that the participants had stated a plausible claim for relief (see “Court Finds ERISA Violation from Following Terms of ESOP”).  

The defendants in that case filed a counter claim seeking contribution and indemnification against three of the plaintiffs alleging that because they had served on the plan’s administrative committee they were co-fiduciaries also liable for any alleged violations.  

The latest opinion in the case is here.