In Halperin v. Richards, No. 20-2793, __F.4th__, 2021 WL 3184305 (7th Cir. July 28, 2021), the Seventh Circuit considered whether ERISA “preempts certain state-law claims brought by bankruptcy creditors on behalf of a company against its directors and officers and others alleged to have inflated the company’s stock value to conceal the company’s decline and to benefit corporate insiders.” Here, the plaintiffs, who are co-trustees of the Appvion Liquidating Trust, alleged that defendants, the director and officers of Appvion, Inc., the ESOP trustee, Argent Trust Company, and its independent appraiser, Stout Risius Ross, projected unrealistic success when valuing Appvion stock which was wholly owned by employees in the ESOP. Plaintiffs brought suit in Delaware bankruptcy court against the director and officers for breaching their corporate fiduciary duties and against Argent and Stout for aiding and abetting those breaches.
In the district court, all defendants moved to dismiss the claims on the basis that their roles in Appvion’s ESOP valuations were governed by ERISA and ERISA preempted state corporation-law liability arising from the ESOP valuation process. The district court agreed and granted defendants’ motion to dismiss, finding that the claims are grounded in ERISA-related duties and relate to the ESOP. The Seventh Circuit reversed in part. It held “that ERISA does not preempt the plaintiffs’ claims against the company’s directors and officers because ERISA expressly contemplates parallel corporate liability against directors and officers who serve dual roles as both corporate and ERISA fiduciaries.” ERISA Section 408(c)(3) allows corporate insiders to serve as ERISA fiduciaries. 29 U.S.C. § 1108(c)(3). The court noted the limited precedent in this area but that the Fifth Circuit and several district courts have held that ERISA does not preempt corporation-law claims against dual-hat directors and officers. First, under Aetna Health Inc. v. Davila, the plaintiff’s claims would not be preempted because they cannot sue under ERISA since bankruptcy creditors are not participants, beneficiaries, or fiduciaries. Second, the plaintiff’s parallel state-law fiduciary duty claims do not interfere with how Congress intended ERISA’s fiduciary duties to operate. “[W]hen it comes to corporate directors and officers, ERISA tolerates some measure of dual loyalty.” ERISA expressly contemplates parallel liability for dual-hat directors and officers where the claims impose corporate liability that is not in conflict with ERISA’s fiduciary duties. “By that we mean that the directors and officers’ corporation-law and ERISA duties both prohibit the fraudulent conduct alleged by plaintiffs.”
With respect to the claims against Argent and Stout, however, the court held that ERISA preempts the plaintiffs’ claims. “Corporation-law aiding and abetting liability against these defendants would interfere with the cornerstone of ERISA’s fiduciary duties—the exclusive benefit rule in Section 404, 29 U.S.C. § 1104(a)(1)(A).” Argent is a “single-hat” ERISA fiduciary with no state-law duty of loyalty to the corporation. It must act solely in the interest of ERISA plan beneficiaries. “The prospect of aiding and abetting liability in this case simply creates too great a risk that single-hat ERISA fiduciaries like Argent would be forced to worry about whether directors and officers were complying with separate corporation-law duties. This would interfere with the single-minded focus on the plan and its beneficiaries that ERISA’s exclusive benefit rule prescribes for fiduciaries like Argent.” The court also found that ERISA’s exclusive benefit rule protects Stout as a non-fiduciary under ERISA. Stout has liability under ERISA for knowingly aiding an ERISA fiduciary’s breach. The obligations imposed on Stout under ERISA preempts the plaintiffs’ attempt to impose additional duties on Stout based on aiding and abetting liability to the corporation. Further, because ERISA does not authorize suits for damages against non-fiduciaries, “it would be odd if the corporation could obtain remedies against Stout that could not be sought by the Secretary of Labor on behalf of similarly injured beneficiaries.” It would incentivize non-fiduciaries to be more attentive to the corporation than to beneficiaries and undermine ERISA’s purpose of ensuring that fiduciaries and their contractors focus on the interest of plan beneficiaries.
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