In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-2793
ALAN D. HALPERIN and EUGENE I. DAVIS,
Plaintiffs-Appellants,
v.
MARK R. RICHARDS, et al.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Eastern District of Wisconsin.
No. 1:19-cv-01561-WCG — William C. Griesbach, Judge.
____________________
ARGUED APRIL 15, 2021 — DECIDED JULY 28, 2021
____________________
Before KANNE, ROVNER, and HAMILTON, Circuit Judges.
HAMILTON, Circuit Judge. We consider in this case whether
the Employee Retirement Income Security Act (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. We hold that ERISA does not preempt the
plaintiffs’ claims against the company’s directors and officers.
2 No. 20-2793
ERISA expressly contemplates parallel corporate liability
against directors and officers who serve dual roles as both
corporate and ERISA fiduciaries. We also hold, however, that
ERISA preempts the plaintiffs’ claims against the former
ERISA trustee of the employee benefit plan and its non-
fiduciary contractor. 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).
I. Factual and Procedural Background
In reviewing a grant of a motion to dismiss under Federal
Rule of Civil Procedure 12(b)(6), we accept the plaintiffs’ factual allegations as true and draw all reasonable inferences in
their favor. Kolbe & Kolbe Health & Welfare Benefit Plan v. Medical College of Wisconsin, Inc., 657 F.3d 496, 502 (7th Cir. 2011).
According to the plaintiffs, Appvion, Inc. was in financial
freefall from 2012 to 2016 as revenues from its paper business
declined sharply. During those years, Appvion repeatedly
missed its financial projections, yet the defendants continued
to project unrealistic success when valuing the company’s
stock—which was wholly-owned by employees under an
ERISA-covered Employee Stock Ownership Plan (ESOP).
The plaintiffs assert that, while the corporate ship was
sinking, the defendants fraudulently inflated these stock valuations to line the pockets of directors and officers, whose pay
was tied to the ESOP valuations. Plaintiffs allege that the directors and officers carried out this scheme with knowing aid
from the ESOP trustee, Argent Trust Company (Argent), and
its independent appraiser, Stout Risius Ross, LLC (Stout),
who led the ESOP valuation process in coordination with the
directors and officers. The plaintiffs also allege that Appvion
No. 20-2793 3
directors provided unlawful dividends to its parent company,
Paperweight Development Corporation, by forgiving and reextending certain intercompany notes to it.
In October 2017, Appvion and its affiliates filed for
bankruptcy protection in the Bankruptcy Court for the
District of Delaware. See In re OLDAPCO, Inc., No. 17-12082
(MFW) (Bankr. D. Del.). Under Appvion’s liquidation plan,
Appvion’s bankruptcy creditors were given authority
through a liquidating trust to pursue certain corporation-law
claims on behalf of Appvion to recover losses from the
defendants’ alleged wrongs against the corporation. See
Halperin v. Richards, 2020 WL 5095308, at *1 (E.D. Wis. Aug. 28,
2020) (describing bankruptcy proceedings).
Plaintiffs here are Alan Halperin and Eugene Davis, cotrustees of the Appvion Liquidating Trust. They originally
filed this action in the Delaware bankruptcy court. The bankruptcy court transferred Counts I–VIII of the plaintiffs’ Revised Second Amended Complaint to the U.S. District Court
for the Eastern District of Wisconsin. Counts I–IV assert state-law claims against the director and officer defendants (Mark
Richards, Thomas Ferree, Tami Van Straten, Jeffrey Fletcher,
Kerry Arent, Stephen Carter, Terry Murphy, Andrew Reardon, Kathi Seifert, Mark Suwyn, Carl Laurino, and David
Roberts) for breaching their corporate fiduciary duties.
Counts V and VI allege that Argent and Stout aided and abetted those breaches. And Counts VII and VIII assert state-law
unlawful dividend claims against the directors and officers.
All defendants moved in the district court to dismiss all of
these claims on the theory that their roles in Appvion’s ESOP
valuations were governed by ERISA and that ERISA
preempted state corporation-law liability arising from the
4 No. 20-2793
ESOP valuation process. More specifically, the directors and
officers argue that, despite their dual roles as corporate and
ERISA fiduciaries, they acted exclusively in their ERISA roles
when carrying out the ESOP activity underlying the plaintiffs’
claims. See 29 U.S.C. § 1002(21)(A) (a corporate officer “is a
fiduciary with respect to a plan to the extent … he has any
discretionary authority or discretionary responsibility in the
administration of such plan”). Argent and Stout similarly argue that the claims against them “relate to” the plan,
29 U.S.C.
§ 1144(a), because they are based on the performance of their
ERISA duties in valuing the company stock owned by the
ESOP.
The district court agreed with defendants that ERISA
preempts all of plaintiffs’ claims. The court granted the defendants’ motion to dismiss Counts I–VIII with prejudice because they “are grounded in … ERISA-related duties … and
‘relate to’ the ESOP.” Halperin, 2020 WL 5095308, at *4. The
district court’s ERISA preemption finding is a matter of law
that we review de novo. Kolbe & Kolbe,
657 F.3d at 504.
II. Principles of ERISA Preemption
In enacting ERISA, Congress included two distinct and
powerful preemption provisions: complete preemption under ERISA § 502,
29 U.S.C. § 1132, and conflict preemption under ERISA § 514,
29 U.S.C. § 1144. The defendants assert that
the claims in this case are conflict-preempted under the latter
provision, which preempts “any and all State laws insofar as
they may now or hereafter relate to any employee benefit
plan” covered by ERISA.
The fundamental challenge in interpreting this preemption provision stems from its broad language: “If ‘relate to’
No. 20-2793 5
were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes pre-emption would never
run its course….” New York State Conf. of Blue Cross & Blue
Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995). But,
on the other hand, Congress clearly intended ERISA preemption to be broad. Congress chose “deliberately expansive” language, “conspicuous for its breadth.” California Div. of Labor
Standards Enf’t v. Dillingham Construction, N.A., Inc.,
519 U.S.
316, 324 (1997), quoting Morales v. Trans World Airlines, Inc.,
504 U.S. 374, 384 (1992).
Since the broad and vague statutory text offers little help
in drawing boundaries for ERISA conflict preemption, Travelers, 514 U.S. at 655, the Supreme Court “considers ERISA’s objectives ‘as a guide to the scope of the state law that Congress
understood would survive.’” Rutledge v. Pharmaceutical Care
Mgmt. Ass’n,
141 S. Ct. 474, 480 (2020), quoting Dillingham
Construction,
519 U.S. at 325. Congress’s objective in enacting
ERISA’s conflict preemption provision was “‘to ensure that
plans and plan sponsors would be subject to a uniform body
of benefits law,’ thereby ‘minimiz[ing] the administrative and
financial burden of complying with conflicting directives’ and
ensuring that plans do not have to tailor substantive benefits
to the particularities of multiple jurisdictions.”
Id., quoting
Ingersoll-Rand Co. v. McClendon,
498 U.S. 133, 142 (1990).
Guided by that objective, the Supreme Court has written
that a law “relates to” an ERISA plan “if it has a connection
with or reference to such a plan.” Shaw v. Delta Air Lines, Inc.,
463 U.S. 85, 96–97 (1983) (state law requiring plans to pay
specific benefits was not enforceable against ERISA plans).
This generally encompasses two categories of state laws.
Gobeille v. Liberty Mut. Ins. Co.,
577 U.S. 312, 319 (2016). First,
6 No. 20-2793
“[w]here a State’s law acts immediately and exclusively upon
ERISA plans … or where the existence of ERISA plans is
essential to the law’s operation …, that ‘reference’ will result
in pre-emption.”
Id. at 319–20, quoting Dillingham
Construction,
519 U.S. at 325; see, e.g., Mackey v. Lanier
Collection Agency & Serv., Inc.,
486 U.S. 825, 829 (1988) (“The
Georgia statute at issue here expressly refers to—indeed,
solely applies to—ERISA employee benefit plans.”). Second,
ERISA preempts a state statute or claim that, while not facially
tied to ERISA, “‘governs … a central matter of plan
administration’ or ‘interferes with nationally uniform plan
administration.’” Gobeille,
577 U.S. at 320, quoting Egelhoff v.
Egelhoff,
532 U.S. 141, 148 (2001) (preempting Washington
benefits rule that would create state-by-state differences in
plan administration).
State laws that directly prohibit something ERISA permits,
and vice versa, fall into this second category. See, e.g., Alessi
v. Raybestos-Manhattan, Inc., 451 U.S. 504, 524 (1981) (state law
preempted “because it eliminates one method for calculating
pension benefits—integration—that is permitted by federal
law”). But direct conflict is not always needed to show
preemption. Some state laws that run parallel to or in harmony with ERISA’s requirements are nonetheless preempted.
Gobeille,
577 U.S. at 323 (“even parallel[] regulations from
multiple jurisdictions could create wasteful administrative
costs and threaten to subject plans to wide-ranging liability”).
Some parallel state rules, however, are not preempted. See
Rutledge,
141 S. Ct. at 480 (“ERISA does not pre-empt state rate
regulations that merely increase costs or alter incentives for
ERISA plans without forcing plans to adopt any particular
scheme of substantive coverage.”), citing Travelers,
514 U.S. at
668. Relevant here, this second category of laws interfering
No. 20-2793 7
with ERISA also includes state-law causes of action seeking
“alternative enforcement mechanisms” as an end run around
ERISA’s more limited remedial scheme. Travelers,
514 U.S. at
658, citing Ingersoll-Rand,
498 U.S. at 145 (ERISA preempted
state-law claim for wrongful discharge based on employee’s
allegation that employer fired him to avoid making pension
contributions); see also Pilot Life Ins. Co. v. Dedeaux,
481 U.S.
41, 54 (1987) (ERISA preempted state-law claims for breach of
contract and tort for alleged improper processing of claims for
plan benefits).
III. Director and Officer Defendants
Applying these principles to the claims against the
directors and officers, we find that the plaintiffs’ claims are
not preempted because ERISA contemplates parallel state-law liability against directors and officers serving dual roles
as both corporate and ERISA fiduciaries. Section 408(c)(3) of
ERISA explicitly allows corporate insiders to serve as ERISA
fiduciaries. 29 U.S.C. § 1108(c)(3). This allowance has been
called ERISA’s “fundamental contradiction” because of the
tension it creates with both the traditional duty of loyalty at
the heart of the common law of trusts and ERISA’s “exclusive
benefit” rule in
29 U.S.C. § 1104(a)(1)(A)(i). See Daniel R.
Fischel & John H. Langbein, ERISA’s Fundamental
Contradiction: The Exclusive Benefit Rule,
55 U. Chi. L. Rev. 1105
(1988). Professors Fischel and Langbein defended this
“fundamental contradiction” as necessary given employers’
and employees’ dual roles as both settlors and beneficiaries of
ERISA plans.
Id. at 1126. If dual-hat fiduciaries were not
allowed, employers that established ERISA plans would be
“assuming financial liabilities without effective controls,” and
“Employers tend not to write blank checks.”
Id. at 1127.
8 No. 20-2793
Allowing directors and officers to participate in plan decisionmaking as ERISA fiduciaries therefore supports employers’
incentives to form ERISA plans—something Congress clearly
desired. Unsurprisingly, however, these dual roles also
produce conflicts of interest that have for decades challenged
ERISA plans and courts trying to implement ERISA faithfully
in an array of contexts.
ERISA expressly allows corporate insiders to have dual
corporate and ERISA obligations. Whatever complications
those dual roles may entail, we are persuaded that ERISA
should not be interpreted to preempt parallel state-law
liability against the directors and officers in this case. Our
reasoning does not extend to preemption of the aiding and
abetting claims against Argent and Stout because those claims
seek, in essence, to impose the complicating dual roles on a
single-role ERISA fiduciary and its contractor, whose actions
should be governed by an undiluted exclusive-benefit rule
under ERISA.
A. Limited Precedent
There is little circuit-level precedent assessing whether
and to what extent ERISA preempts corporation-law claims
against dual-hat directors and officers. Beyond the Fifth Circuit’s decision in Sommers Drug Stores Co. Employee Profit Sharing Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456 (5th Cir.
1986), there seems to be only a handful of district court cases
that squarely address the problem. Most of these cases hold
that ERISA does not preempt corporation-law claims against
dual-hat directors and officers.
In Sommers Drug Stores, for example, the Fifth Circuit assessed whether ERISA preempted a common-law breach of
No. 20-2793 9
fiduciary duty claim brought by an employee profit sharing
trust (which was both a minority shareholder and ERISA
plan) against the company president (a dual-hat corporate
and ERISA fiduciary).
793 F.2d at 1468. The trust brought fi-
duciary duty claims under both state common law and
ERISA. The district court held that ERISA preempted the
state-law claims, but the Fifth Circuit reversed. The Fifth Circuit’s reasoning focused on the shareholder-director relationship, which imposed special duties wholly independent from
any parallel ERISA duties:
The state common law of fiduciary duty that the
Trust seeks to invoke in this case centers upon
the relation between corporate director and
shareholder. The director’s duty arises from his
status as director; the law imposes the duty
upon him in that capacity only. Similarly, the
shareholder’s rights against the corporate director arise solely from his status as shareholder.
That in a case such as ours the director happens
also to be a plan fiduciary and the shareholder a
benefit plan has nothing to do with the duty
owed by the director to the shareholder. The
state law and ERISA duties are parallel but independent: as director, the individual owes a
duty, defined by state law, to the corporation’s
shareholders, including the plan; as fiduciary,
the individual owes a duty, defined by ERISA,
to the plan and its beneficiaries.
Id. at 1468.
Sommers Drug Stores’s “parallel but independent” duties
theory has been followed in other cases. See In re Ullico Inc.
10 No. 20-
2793
Litig., 605 F. Supp. 2d 210, 222 (D.D.C. 2009) (“[T]he allegations of breach of fiduciary duty … were not preempted because they ‘derive from the counterclaim defendants’ obligations and responsibilities as officers of the corporation under
state corporate law, rather than their relationship to the …
plans as beneficiaries.’”), quoting Carabillo v. ULLICO, Inc.,
357
F. Supp. 2d 249, 259 n.7 (D.D.C. 2004), in turn citing Sommers
Drug Stores,
793 F.2d at 1470; Crabtree v. Central Florida Investments, Inc. Deferred Comp. Plan,
2012 WL 6523584, at *2 (M.D.
Fla. Oct. 3, 2012), report and recommendation approved,
2012
WL 6523078 (M.D. Fla. Dec. 14, 2012) (“The preemption principles do not apply when, as is the case here, the cause of action for breach of fiduciary duty is against a corporate officer
for duties owed to the corporation.”); Richmond v. American
Sys. Corp.,
792 F. Supp. 449, 458–59 (E.D. Va. 1992) (same: “The
state corporate laws … regulate relations between plaintiffs,
as minority shareholders … and Ramsey and Curran, as …
officers[] and directors. The relations … function irrespective
of [ERISA plan] administration.”); In re Antioch Co.,
456 B.R.
791, 839 (Bankr. S.D. Ohio 2011), report and recommendation
adopted,
2011 WL 3664564 (S.D. Ohio Aug. 12, 2011), modi-
fied on reconsideration sub nom. Antioch Co. Litig. Trust v.
Morgan,
2012 WL 6738676 (S.D. Ohio Dec. 31, 2012), (“[A]ll
three defendants were ESOP fiduciaries. However, … all the
claims against these defendants are based on independent legal duties owed in their roles as corporate fiduciaries….”); In
re Dehon, Inc.,
334 B.R. 55, 68 (Bankr. D. Mass. 2005) (relying
on Sommers Drug Stores and finding no preemption: “the
claims are brought by a third party to enforce rights held by
the corporation against directors of that corporation for their
acts as corporate directors”); see also Housman v. Albright, 368
No. 20-2793
11
Ill. App. 3d 214, 223,
857 N.E.2d 724, 733 (2006) (same), citing
Sommers Drug Stores,
793 F.2d at 1465.
Some courts have further noted that preempting state
claims against directors and officers “[s]imply because events
precipitating [them] occurred in the general context of an employee benefit plan,” Richmond, 792 F. Supp. at 459, would
contravene ERISA’s core purpose to prevent misuse of plan
assets by enabling directors and officers to defraud shareholders and creditors whenever they don their ERISA hats. See In
re Antioch, 456 B.R. at 841–42 (preemption “would do nothing
more than immunize officers and directors … from allegations of self-dealing by the corporate entity to which they
have defined independent legal obligations”); see also Smith
v. Crowder Jr. Co.,
280 Pa. Super. 626, 639,
421 A.2d 1107, 1114
(Pa. Super. 1980) (“ERISA was not intended as a device to permit corporate directors and officers to defraud with impunity
corporate shareholders and creditors….”).
The defendants rely on two cases finding that ERISA did
preempt certain state corporation-law claims: McLemore v.
Regions Bank, 682 F.3d 414, 425 (6th Cir. 2012), and AT & T v.
Empire Blue Cross/Blue Shield,
1994 WL 16057794, at *27 (D.N.J.
July 19, 1994). These cases offer little support for the directors
and officers’ defense here. McLemore held ERISA preempted
an entirely different sort of claim. The McLemore plaintiffs
asserted state-law damages claims against Regions Bank “for
knowingly permitting [ERISA fiduciaries] to breach their
fiduciary duties” under ERISA.
682 F.3d at 426. The Sixth
Circuit held such claims were preempted because the
plaintiffs were ERISA “participant[s], beneficiar[ies], or
fiduciar[ies]” who could bring these same claims under
ERISA. Such plaintiffs were seeking an “alternative
12 No. 20-2793
enforcement mechanism” under state law, which ERISA § 514
prohibits. Id. (internal quotation omitted). So, unlike in
Sommers Drug Stores, the plaintiffs’ claims in McLemore sought
to enforce ERISA duties, not corporation-law duties. And,
unlike McLemore, the plaintiffs here—bankruptcy creditors
suing on behalf of the corporation—have no corollary cause
of action under ERISA that they could invoke.
The AT & T case is also unhelpful because it rested on a
faulty premise that ERISA preempts any state claim arising
from conduct that occurs in the context of plan
administration. AT & T held that since “ERISA at least
arguably governs the alleged misconduct at issue, plaintiffs’
state law claims predicated upon that same alleged conduct
are preempted.” 1994 WL 16057794 at *27. The Supreme Court
has rejected such a broad rule, clarifying that “lawsuits
against ERISA plans for run-of-the-mill state-law claims such
as unpaid rent, failure to pay creditors, or even torts
committed by an ERISA plan …, although obviously affecting
and involving ERISA plans and their trustees, are not pre-empted.” Mackey,
486 U.S. at 833. As a result, the defendants
are left without any firm precedent supporting the position
that ERISA preempts corporation-law claims against dual-hat
directors and officers.
B. Analysis
Turning to this case, we agree with the results reached in
most of the above cases, that ERISA did not preempt the
plaintiffs’ claims against the director and officer defendants.
But our reasons differ somewhat from the “parallel but
independent” duties theory employed by other courts. We
agree with Sommers Drug Stores that the duties must be
parallel; state law cannot be allowed to require an act that
No. 20-2793 13
ERISA forbids. So, here, the fact that the directors and officers’
corporation-law and ERISA duties both prohibit the
fraudulent conduct alleged by the plaintiffs is crucial. But,
unlike Sommers Drug Stores, we do not lean heavily on the fact
that the defendants’ corporation-law duties have
independent state-law grounds. Virtually all state-law causes
of action derive from independent state-law duties. Rather,
what we find most important is that ERISA is written to invite,
and certainly to tolerate, these specific parallel and independent
duties—the directors and officers’ fiduciary duties to the
corporation.
1. Alternative Remedies
We can first quickly dispel any notion that the plaintiffs
are attempting to circumvent ERISA’s exclusive remedial
scheme. These plaintiffs have no rights under ERISA as a
“participant, beneficiary, or fiduciary.” 29 U.S.C. § 1132(a)(3).
They are not asserting state-law claims as an end run around
their more limited federal remedies. See Pilot Life,
481 U.S. at
54 (ERISA’s “policy choices … would be completely undermined if ERISA-plan participants and beneficiaries were free to
obtain remedies under state law that Congress rejected in
ERISA”) (emphasis added). Unlike plaintiffs covered by
ERISA, these non-ERISA plaintiffs “were not parties to the
ERISA ‘bargain’”; they did not “g[i]ve up state law causes of
action” to “receive[] federal causes of action under ERISA in
exchange.” Lordmann Enters., Inc. v. Equicor, Inc.,
32 F.3d 1529,
1533–34 (11th Cir. 1994), quoting Memorial Hosp. Sys. v. Northbrook Life Ins. Co.,
904 F.2d 236, 249 (5th Cir. 1990). 1
1 We need not decide whether ERISA would preempt similar
corporation-law claims brought by ERISA beneficiaries, participants, or
14 No. 20-2793
This is why, under the related ERISA doctrine of complete
preemption—which addresses state-law causes of action
more often—the first prong of the Supreme Court’s test for
preemption is whether the plaintiff “at some point in time,
could have brought his claim under ERISA….” Aetna Health
Inc. v. Davila, 542 U.S. 200, 210 (2004). This case arises under
conflict preemption rather than complete preemption. But
“given the similar underlying policy considerations,” Davila’s
test is useful in assessing the similar question of alternative
remedies under conflict preemption. Franciscan Skemp
Healthcare, Inc. v. Cent. States Joint Board Health & Welfare Trust
Fund,
538 F.3d 594, 600 n.3 (7th Cir. 2008). Here, Davila would
not preempt the plaintiffs’ claims because the plaintiffs cannot
sue under ERISA. That weighs against the presence of an alternative remedies problem here.
2. The Exclusive Benefit Rule
The alternative remedies issue, however, only begins our
inquiry. ERISA would still preempt the plaintiffs’ claims if
they “‘govern[] … a central matter of plan administration’ or
‘interfere[] with nationally uniform plan administration.’” Gobeille, 577 U.S. at 320, quoting Egelhoff,
532 U.S. at 148. We must
therefore analyze whether and to what extent the plaintiffs’
parallel state-law fiduciary duty claims interfere with how
Congress intended ERISA’s fiduciary duties to operate.
Section 404 of ERISA imposes an exclusive duty of loyalty
on fiduciaries to act solely in the interest of ERISA beneficiaries. Subject to certain qualifications, “a fiduciary shall discharge his duties with respect to a plan solely in the interest of
fiduciaries who can sue Appvion’s directors and officers under ERISA for
the same conduct.
No. 20-2793 15
the participants and beneficiaries and … for the exclusive purpose of … providing benefits to participants and their benefi-
ciaries.” 29 U.S.C. § 1104(a)(1)(A)(i) (emphases added). This is
known as the “exclusive benefit” rule. A related provision
provides another formulation of the rule: “the assets of a plan
shall never inure to the benefit of any employer and shall be held
for the exclusive purposes of providing benefits to participants in
the plan and their beneficiaries….”
29 U.S.C. § 1103(c)(1) (emphases added). In addition,
29 U.S.C. § 1106 provides a list of
“prohibited transactions” and implements the exclusive benefit rule by prohibiting various types of self-dealing and other
conflicts of interest.
ERISA’s exclusive benefit rule derives from “one of the
most fundamental and distinctive principles of trust law, the
duty of loyalty.” Langbein & Fischel, 55 U. Chi. L. Rev. at
1108. ERISA is built on a trust-law model. See 29 U.S.C.
§ 1103(a) (“all assets of an employee benefit plan shall be held
in trust”). Congress intended courts to “apply rules and remedies similar to those under traditional trust law to govern the
conduct of fiduciaries.” H.R. Rep. No. 93-1280, at 295 (1974)
(Conf. Rep.). By importing the trust form and its duty of loyalty into benefit plans, ERISA drew from a familiar legal
framework to protect plans from the kind of internal misuse
that motivated ERISA’s enactment. Congress enacted ERISA
in response to widespread concern over the misuse of employee pensions, notoriously exemplified by Studebaker’s default on its pension plan in 1963 and the severe corruption uncovered in the Teamsters union through Senate investigations. See John H. Langbein, What ERISA Means by “Equitable”:
The Supreme Court’s Trail of Error in Russell, Mertens, and GreatWest,
103 Colum. L. Rev. 1317, 1322–24 (2003).
16 No. 20-2793
ERISA’s duty of loyalty is the “highest known to the law.”
Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982). A
fiduciary of a trust has “a duty to the beneficiary to administer
the trust solely in the interest of the beneficiary.” Restatement
(Second) of Trusts § 170(1) (1959). The reason for such a strict
and exclusive duty of loyalty stems from the unique trust relationship, where a third party is entrusted with a settlor’s
property to be used for the beneficiary. Under this arrangement, “neither the transferor nor the beneficiaries are well situated to monitor closely the actions of the trustee.” Langbein
& Fischel, 55 U. Chi. L. Rev. at 1114.
With such power comes responsibility. The duty of loyalty
steps in as a forceful substitute for direct monitoring. It protects beneficiaries by barring any conflict of interest that
might put the fiduciary in a position to engage in self-serving
behavior at the expense of beneficiaries. The rule is designed
to deter misbehavior by establishing an “irrebuttable presumption of wrongdoing whenever the trustee engages in
conflict tainted transactions.” Id. at 1114–15. This is strong
medicine—so strong that a “trustee who deals with trust
property for his own account is not allowed a defense even
when the transaction was … harmless to the beneficiaries,”
and even if it actually “benefit[s] both” the beneficiary and
trustee. Id. at 1115.
These common-law trust principles apply equally to
ERISA’s duty of loyalty, embodied in the exclusive benefit
rule. Good faith is not a defense. Leigh v. Engle, 727 F.2d 113,
124 (7th Cir. 1984). And “ERISA clearly contemplates actions
against fiduciaries who profit by using trust assets, even
where the plan beneficiaries do not suffer direct financial
loss.”
Id. at 122. As
29 U.S.C. § 1104(a)(1)(A)(i) commands,
No. 20-2793 17
ERISA fiduciaries must always act with an “eye single to the
interests of the participants and beneficiaries.”
Id. at 123, quoting Donovan v. Bierwirth,
680 F.2d at 271.
Given the formidable backdrop of ERISA’s exclusive benefit rule, we are skeptical of any state-law attempt to saddle
ERISA fiduciaries with other distracting and potentially con-
flicting duties to the corporate employer. Nevertheless, when
it comes to corporate directors and officers, ERISA tolerates
some measure of dual loyalty.
3. Exception for Dual-Hat Directors and Officers
Despite the exclusive benefit rule, ERISA § 408(c)(3) explicitly allows corporate insiders—who already have fiduciary duties under corporation law—to serve as ERISA fiduciaries. Section 408(c)(3) states that ERISA’s “prohibited transactions” rules shall not “be construed to prohibit any fiduciary from … serving as a fiduciary in addition to being an of-
ficer, employee, agent, or other representative of a party in interest.” 29 U.S.C. § 1108(c)(3). ERISA defines “party in interest” to include corporate employers and other plan sponsors.
29 U.S.C. § 1002(14). Moreover, ERISA invites conflicts of interest within ESOPs like the plan in this case. ERISA’s prohibited transaction rules ordinarily forbid deals between plans
and other interested parties such as large stockholders, see
29
U.S.C. § 1106(a)(1)(E) & (a)(2), but ERISA specifically allows
such deals for ESOPs, see
29 U.S.C. § 1107(b)(1) & (d)(3)(A)(ii).
By “expressly contemplat[ing] fiduciaries with dual loyalties,” § 408(c)(3) takes “an unorthodox departure from the
common law” that is in obvious tension with ERISA’s exclusive benefit rule. Donovan v. Bierwirth, 538 F. Supp. 463, 468
(E.D.N.Y. 1981), aff’d as modified,
680 F.2d 263 (2d Cir. 1982).
18 No. 20-2793
As noted, scholars have defended this “fundamental contradiction” as necessary to encourage employers to establish
benefit plans. Without dual-hat fiduciaries, employers that establish ERISA plans would be “assuming financial liabilities
without effective controls.” Langbein & Fischel, 55 U. Chi. L.
Rev. at 1127. The effect of adhering strictly to the common-law rule would likely be a lower rate of plan formation. Id.
ERISA’s necessary accommodation for dual-hat directors
and officers has produced messy conflicts of interest that
courts and commentators have long recognized and struggled
to resolve. See generally Laurence B. Wohl, Fiduciary Duties
Under ERISA: A Tale of Multiple Loyalties, 20 U. Dayton L. Rev.
43 (1994). Courts “are faced with the problem of reconciling
the overwhelming requirements of common-law trustee
singlemindedness with the ERISA permission for dual
loyalties.”
Id. at 58. Courts “must develop a tolerance for the
resulting conflicts such dual roles undoubtedly will cause.”
Id. The Supreme Court itself has noted this problem, writing
that “the analogy between ERISA fiduciary and common law
trustee becomes problematic … because the trustee at
common law characteristically wears only his fiduciary hat
when he takes action to affect a beneficiary, whereas the
trustee under ERISA may wear different hats.” Pegram v.
Herdrich,
530 U.S. 211, 225 (2000).
Accordingly, since the 1980s, courts have recognized and
tried to harmonize directors and officers’ dual loyalties under
ERISA. In Donovan v. Bierwirth, for example, the Secretary of
Labor sued dual-hat trustees of an ERISA plan for breaching
their duty of loyalty to beneficiaries by using plan assets to
purchase company stock at an inflated price to fend off an outside takeover bid. 538 F. Supp. at 465–68. The district court
No. 20-2793 19
first noted that, because ERISA “abrogated the traditional
common law rule” and “clearly contemplates … fiduciaries
with dual loyalties,” the trustees “did not commit per se violations of ERISA either by their failure to abstain from the investment decision … or by the mere acquisition of [company]
stock.” Id. at 469–70.
Nevertheless, the court held that “when a fiduciary has
dual loyalties, his independent investigation into the basis for
an investment decision which presents a potential conflict of
interests must be both intensive and scrupulous” to ensure
that the conflict is not influencing the decision. Id. at 470, discussing 29 U.S.C. § 1104(a)(1)(B) (ERISA duty of prudence).
Applying that standard, the court found that the trustees
failed to exercise such care by not recognizing and taking
steps to neutralize their inherent conflict—such as, at the very
least, consulting independent counsel.
Id. at 473.
The Second Circuit affirmed, clarifying that dual-hat directors and officers must do everything possible to “avoid
placing themselves” in a decision presenting an actual con-
flict, and if faced with such a conflict must inform themselves
and act to neutralize it, perhaps by temporarily resigning as
trustees. Donovan v. Bierwirth, 680 F.2d at 271–72. But unlike
at common law, the court acknowledged, “officers of a corporation … do not violate their duties as trustees by taking action which, after careful and impartial investigation, they reasonably conclude best to promote the interests of participants
and beneficiaries simply because it incidentally benefits the
corporation or, indeed, themselves.” Id at 271.
In this circuit, we used a similar approach to reconcile
ERISA’s exclusive benefit rule with its allowance for dual-hat
directors and officers in Leigh v. Engle, 727 F.2d 113 (7th Cir.
20 No. 20-2793
1984). Dual-hat directors and officers invested ERISA trust assets in companies that were targets of directors and officers’
hostile takeover attempts. We said that “plan trustees who are
also officers of either the ‘target’ or the ‘raider’ could be seen
as having a significant ‘interest’ of their own in the outcome
of the contest.”
Id. at 127. We invoked the Donovan v. Bierwirth
method of addressing directors and officers’ dual loyalties
and held that the directors and officers violated ERISA’s fiduciary requirements:
Where the potential for conflicts is substantial,
it may be virtually impossible for fiduciaries to
discharge their duties with an “eye single” to
the interests of the beneficiaries, and the fiduciaries may need to step aside, at least temporarily, from the management of assets where they
face potentially conflicting interests. … Where it
might be possible to question the fiduciaries’
loyalty, they are obliged at a minimum to engage in an intensive and scrupulous independent investigation of their options to insure that
they act in the best interests of the plan benefi-
ciaries. In the case before us, we believe there is
an additional factor which weighs heavily in
evaluating the loyalty of the fiduciaries. Here
the control efforts lasted for several months, and
in the case of Hickory, for over a year. The Reliable Trust held its shares involved in the control
contests throughout these periods, and, as we
discuss below, the trust’s use of its assets at all
relevant times tracked the best interests of the
Engle [corporate insiders’] group in the control
contest. We believe that the extent and duration
No. 20-2793 21
of these actions congruent with the interests of
another party are also relevant for courts in deciding whether plan fiduciaries were acting
solely in the interests of plan beneficiaries.
Id. at 125–26, citing Donovan v. Bierwirth,
680 F.2d at 272; see
also Newton v. Van Otterloo,
756 F. Supp. 1121, 1127–30 (N.D.
Ind. 1991) (applying Leigh’s “three-pronged approach”); Danaher Corp. v. Chicago Pneumatic Tool Co.,
635 F. Supp. 246, 250
(S.D.N.Y. 1986) (doubting “the appropriateness of [a] chief executive officer continuing in his position of ESOP trustee during [a] takeover attempt” that was favored by current benefi-
ciaries at the expense of potential future beneficiaries).
These cases illustrate how courts have adapted ERISA’s fi-
duciary rules to account for the exception allowing for dual-hat director and officer fiduciaries. Courts have even applied
these adapted fiduciary rules in cases involving ESOP valuations much like the one at issue in this case. In Donovan v. Cunningham, for example, the Fifth Circuit applied Donovan v.
Bierwirth’s approach in a case where an ESOP trustee who was
also a corporate officer participated in the valuation of corporate stock for an ESOP purchase. 716 F.2d 1455 (5th Cir. 1983).
The court recognized that “the stringent prophylactic rules of
the common law cannot be incorporated reflexively under”
ERISA,
id. at 1466–67, but that ERISA’s exception allowing
ESOPs to purchase employer stock for “adequate consideration” must still be interpreted to imply an exacting duty of
prudence for dual-hat fiduciaries with potential conflicts of
interest.
Id. at 1467 & n.27.
The Fifth Circuit reaffirmed this principle in a case where
dual-hat directors and officers were involved in an ESOP’s
purchase of company stock at an inflated price. Perez v.
22 No. 20-2793
Bruister,
823 F.3d 250, 262–63 (5th Cir. 2016) (“The trustees did
not separate Bruister’s personal interests from Donnelly’s valuation process so as to avoid a conflict of interest. Their breach
of the duty of loyalty turns on their failure to place the interests of participants and beneficiaries first”; to prove ESOP
purchase was “prudent”, “care must be taken to avoid any
identified conflicts of interest”); see also Howard v. Shay,
100
F.3d 1484, 1488–89 (9th Cir. 1996) (citing Donovan v. Bierwirth
and Leigh v. Engle and holding that dual-hat fiduciaries violated their ERISA duties of care and loyalty when ESOP sold
undervalued shares back to the dual-hat company president).
4. Preemption Implications
These cases inform our preemption holding as to the
directors and officers in this case. Congress explicitly
departed from the common law to allow directors and officers
to serve as ERISA fiduciaries despite their dual loyalties.
These permissible dual loyalties weigh in favor of allowing
parallel corporation-law liability against the directors and
officers in this case. If parallel liability were preempted, the
directors and officers would in effect cease to be corporate
fiduciaries when carrying out their ERISA fiduciary roles.
That result would contravene § 408(c)(3)’s mandate that
ERISA not be construed to prevent corporate fiduciaries from
also serving as ERISA fiduciaries.
Preempting the plaintiffs’ corporation-law claims against
the directors and officers would also thwart ERISA’s purpose
to protect plan assets from misuse. The third-party bankruptcy creditors in this case cannot sue under ERISA. So, assuming the plaintiffs’ allegations are true, completely foreclosing their state-law claims could leave them without recourse for a fraudulent ESOP valuation that enabled insiders
No. 20-2793 23
to loot the company as it was sinking toward bankruptcy.
Congress enacted ERISA in response to Senate investigations
into “widespread looting of plan funds through sweetheart
deals, kickbacks, and … cronyism,” especially within the
Teamsters union. Langbein, 103 Colum. L. Rev. at 1324. It
would be odd if ERISA operated to shield similar fraudulent
activity in this case. “ERISA was not intended as a device to
permit corporate directors and officers to defraud with impunity corporate shareholders and creditors.” Smith, 421 A.2d at
1114.
Preempting all of plaintiffs’ claims could also frustrate
congressional intent by discouraging ESOP formation. It
could be rational for creditors to demand higher interest rates
or more security for loans to ESOP-owned companies to account for the risk that directors and officers might abuse the
corporation without any recourse for creditors under corporation law. In the healthcare arena, courts have relied on a
similar concern in refusing to preempt negligent misrepresentation claims by third-party hospitals against ERISA plan insurers. See Lordmann, 32 F.3d at 1533, citing Memorial Hospital
Sys.,
904 F.2d at 246 (“If ERISA preempts [hospitals’] potential
causes of action for misrepresentation, health care providers
can no longer rely as freely and must either deny care or raise
fees…. In that event, the employees whom Congress sought
to protect would find medical treatment more difficult to obtain.”).
Finally, allowing plaintiffs to pursue their claims under
corporation law against the directors and officers should not
disrupt national uniformity in plan administration. The familiar “internal affairs” doctrine is a conflict of laws principle
that recognizes that only one state should have authority to
24 No. 20-2793
regulate a corporation’s internal affairs, including fiduciary
duties of directors and officers. See LaPlant v. Northwestern
Mutual Life Ins. Co., 701 F.3d 1137, 1139 (7th Cir. 2012), citing
Edgar v. MITE Corp.,
457 U.S. 624, 645 (1982); Treco, Inc. v. Land
of Lincoln Sav. & Loan,
749 F.3d 374, 377 (7th Cir. 1984); Restatement (Second) of Conflict of Laws § 302, cmts. a & e
(1971).
Our holding as to the directors and officers is limited to
the plaintiffs’ particular claims in this case, which would
impose corporate liability that runs parallel to, 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. ERISA
expressly contemplates such parallel liability for dual-hat
directors and officers.
We agree with the Fifth Circuit’s prediction in Sommers
Drug Stores that a director’s state-law and ERISA duties will
often run parallel, so that duties to shareholders require the
same conduct as the duties to ERISA beneficiaries. See
Sommers Drug Stores, 793 F.2d at 1468. In cases like this one,
where shareholders and beneficiaries are both suing the
directors and officers for the same conduct, if shareholders
can recover then ERISA beneficiaries likely can as well.
ERISA’s trust duty “imposes a standard of care at least as high
as that imposed by the director-shareholder duty.”
Id. at
1468–69; see also Wohl, 20 U. Dayton L. Rev. at 78 n.139 (when
dual-hat directors and officers face “questions from the
corporation’s shareholders,” they “will find at least some
protection by virtue of the business judgment rule”). If a dual-hat director or officer’s duties irreconcilably conflict, however,
the director or officer “might have to resign one position or
No. 20-2793 25
the other,” Sommers Drug Stores,
793 F.2d at 1469. And if he or
she does not, ERISA’s federal duties will trump conflicting
corporation-law duties. Here, the plaintiffs are pursuing
parallel corporation-law claims against dual-hat directors and
officers, so ERISA does not preempt those claims.
IV. Argent Trust Company
The plaintiffs’ Count V aiding and abetting claims against
Argent Trust Company (Argent) are a different matter. These
claims are preempted because ERISA does not permit states
to dilute the exclusive benefit rule further, beyond its narrow
exception for dual-hat directors and officers.
Unlike the directors and officers, Argent is a “single-hat”
ERISA fiduciary. It has no state-law duty of loyalty to the
corporation. Still, the plaintiffs seek to extend corporation-law
liability to Argent through an aiding and abetting theory.2
Aiding and abetting a breach of a fiduciary duty is a wellestablished tort. See Restatement of Torts (Second) § 874, cmt.
c (1979). Yet it is expansive in that it requires any third party
working with a corporate fiduciary to be alert to the
fiduciary’s special duties and to avoid knowingly giving aid
to a breach. In this respect, aiding and abetting claims use
2 The parties dispute whether Wisconsin or Delaware law applies. We
need not resolve that question because both states impose liability on parties who knowingly aid and abet a corporate fiduciary’s breach of duty.
See Burbank Grease Servs., LLC v. Sokolowski, 294 Wis. 2d 274, 304,
717
N.W.2d 781, 796 (2006) (“If a duty of loyalty exists, and a third party encourages and profits from a breach of the duty of loyalty, a claim for aiding
and abetting the breach will lie.”); Gotham Partners, L.P. v. Hallwood Realty
Partners, L.P.,
817 A.2d 160, 172 (Del. 2002) (stating elements of a claim for
aiding and abetting a breach of fiduciary duty under Delaware law).
26 No. 20-2793
directors and officers’ corporation-law duties as a foundation
for a wider layer of tort liability reaching third parties.
States are usually within their rights to impose aiding and
abetting liability on third parties. However, ERISA preempts
such liability when it comes to third parties like Argent who
are subject to exclusive federal duties to act solely in the interest of beneficiaries. Unlike with dual-hat directors and offic-
ers, ERISA does not contemplate single-hat fiduciaries owing
any parallel duties to the corporation—even a limited duty
not to aid and abet breaches against the corporation.
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. In
particular, the conflicts of interest that plague dual-hat
directors and officers would suddenly infect single-hat
entities, as well. Imagine, for example, an ERISA fiduciary
worrying whether it would be aiding a breach of fiduciary
duty simply by convincing a dual-hat director or officer to
approve a plan decision that favors beneficiaries at the
expense of company profits.
Such conflicts of interest are challenging enough when
they affect only the directors and officers. They can paralyze
efficient plan administration. “[W]ith the strict common-law
standard of not holding conflicting offices removed by ERISA,
it is very difficult for an ERISA fiduciary to be assured of a
benign assessment by third parties of the motivational factors
underlying the fiduciary’s act.” Wohl, 20 U. Dayton L. Rev. at
No. 20-2793 27
48–49. As a result, “the fiduciary may be reluctant to act” even
where no malfeasance is afoot. Id. at 49. These problems are
most likely to arise in cases like this one involving failing companies. Langbein & Fischel, 55 U. Chi. L. Rev. at 1132 (In cases
involving “plant closings or in corporate reorganizations …,
the gains from self-interested action by nonneutral fiduciaries
may outweigh the usual … costs. It is for this reason, we suspect, that the contested plan administration cases so often
arise when the incentives of the long term relationship” between employer and employees “are attenuated”).
Such conflicts of interest are exactly what ERISA’s exclusive benefit rule is meant to prevent. So while ERISA explicitly
tolerates some conflicts among directors and officers, both the
text and purpose of ERISA’s exclusive benefit rule make clear
that courts should resist any further dilution through state-law aiding and abetting claims that would effectively force a
second hat onto single-hat ERISA fiduciaries. Cf. UNUM Life
Ins. Co. of Am. v. Ward, 526 U.S. 358, 378–79 (1999) (ERISA
preempted state-law doctrine deeming employer an agent of
insurer; state-law rule would force the employer, “as plan administrator, to assume a role, with attendant legal duties and
consequences, that it has not undertaken voluntarily” under
ERISA).
We recognize that “aiding and abetting” liability against
Argent would impose liability only for intentionally
fraudulent conduct. It is therefore unlikely that the conduct
prohibited by state law—aiding a fraud—would be
something that Argent’s corollary ERISA duties require or
even allow. In fact, ERISA beneficiaries, participants, and
fiduciaries can sue Argent under ERISA for knowingly aiding
the directors and officers’ alleged breaches of their ERISA
28 No. 20-2793
duties. See
29 U.S.C. § 1105(a)(1) (“a fiduciary … shall be
liable for a breach of fiduciary responsibility of another
fiduciary … if he participates knowingly in, or knowingly
undertakes to conceal, an act or omission of such other
fiduciary, knowing such act or omission is a breach”). As with
the directors and officers, then, state-law liability against
Argent would run parallel to Argent’s ERISA liability. But,
again, the key difference is that the exclusive benefit rule
preempts such parallel state-law liability outside the narrow
and unavoidable exception for dual-hat directors and officers.
Indeed, the preeminence of ERISA’s exclusive benefit rule
is what distinguishes the aiding and abetting claims against
Argent from other non-preempted, “run-of-the-mill” tort
claims brought against single-hat ERISA fiduciaries. See
Mackey, 486 U.S. at 833. In Mackey, the Supreme Court
recognized that claims for ordinary torts allegedly committed
by ERISA fiduciaries are often not preempted.
Id. (“lawsuits
against ERISA plans for run-of-the-mill state-law claims such
as unpaid rent, failure to pay creditors, or even torts
committed by an ERISA plan—are relatively commonplace….
[T]hese suits, although obviously affecting and involving
ERISA plans and their trustees, are not pre-empted by ERISA
§ 514(a).”).
Accordingly, courts have permitted many tort claims
against ERISA fiduciaries even when the tortious conduct occurred in the context of plan activity. See Mackey, 486 U.S. at
833 n.8 (collecting cases); see also, e.g., Franciscan Skemp,
538
F.3d at 601 (third-party hospital’s negligent misrepresentation claim against ERISA plan insurer was not completely
preempted); Dishman v. UNUM Life Ins. Co. of Am.,
269 F.3d
974, 979–84 (9th Cir. 2001) (beneficiary could pursue invasion
No. 20-2793 29
of privacy tort against ERISA plan insurer for actions taken to
investigate benefits claim); Lane v. Goren,
743 F.2d 1337, 1340
(9th Cir. 1984) (beneficiary could pursue state-law race and
age discrimination claims against ERISA fiduciaries).
In those and other “run-of-the-mill” cases, however, the
plaintiffs were either (1) beneficiaries who suffered torts
unrelated to their ERISA rights, as in Dishman and Lane, or (2)
true third parties, such as the hospital in Franciscan Skemp or
the outside creditors in Mackey. State-law liability to the
beneficiaries in Dishman and Lane thus did not risk distracting
fiduciaries from their single-minded focus on beneficiaries.
And in Franciscan Skemp and Mackey, because liability flowed
to third parties, there was no risk of dividing single-hat
fiduciaries’ allegiance between the beneficiary and her
corporate employer—the foremost entity that ERISA
fiduciaries are not supposed to serve.
Here, however, the injured plaintiff is the corporate employer. Parallel state-law liability would foster just the sort of
dual loyalty that the exclusive benefit rule prohibits. The
plaintiffs in this case are bankruptcy creditors, not the corporation itself, but they are suing on behalf of the corporate employer for alleged breaches of duties owed to the corporation
before the bankruptcy. So, unlike in Mackey-type cases, the
aiding and abetting claims against Argent here would in fact
impose on single-hat fiduciaries new state-law duties to the
corporate employer. Such liability is fundamentally at odds
with the text and purpose of ERISA’s exclusive benefit rule
and is therefore preempted.
30 No. 20-2793
V. Stout Risius Ross
The preemptive force of ERISA’s exclusive benefit rule
also protects the Stout Risius Ross defendants (Stout) from
corporate aiding and abetting liability even though Stout is
not a fiduciary under ERISA. Like Argent, Stout is not a dual-hat director or officer for whom ERISA contemplates parallel
corporate liability. Argent hired Stout for its expertise in aiding the ESOP valuation process. In this role, Stout owed no
fiduciary duties to the corporation or to ERISA beneficiaries.
This means Stout is not subject to the exclusive benefit
rule. So at first glance, parallel non-fiduciary liability against
Stout under both ERISA and state law would seem not to con-
flict with the exclusive benefit rule. But upon closer inspection, Stout is situated more similarly to Argent than to the directors and officers when it comes to preemption. Three considerations point to this conclusion. First, to protect Argent’s
single-minded focus on beneficiaries, it is also necessary to
protect its contractor, Stout, whose involvement in the ESOP
valuation stemmed solely from Argent’s trustee duties. Second, given Stout’s role in the ESOP valuation process, parallel
state liability to the corporation would conflict with Stout’s
non-fiduciary obligations to beneficiaries when performing
core ERISA functions. Third, state-law liability for Stout could
lead to a damages remedy that would arguably conflict with
ERISA’s remedial limits on claims against non-fiduciaries. So,
while the question is a closer call, ERISA also preempts the
plaintiffs’ aiding and abetting claims against Stout.
In assessing the state-law claims against Stout, it is first
important to clarify that, although Stout is not a fiduciary under ERISA, it still had federal-law obligations under ERISA
when serving as Argent’s contractor. Specifically, under
No. 20-2793 31
ERISA §§ 502(a)(5) & (l), 29 U.S.C. §§ 1132(a)(5) & (l), Stout
can be sued by the Secretary of Labor for knowingly aiding
an ERISA fiduciary’s breach of its duties to beneficiaries. See
Harris Tr. & Sav. Bank v. Salomon Smith Barney, Inc.,
530 U.S.
238, 248 (2000) (“the Secretary may bring a civil action under
§ 502(a)(5) against an ‘other person’ who ‘knowing[ly] participat[es]’ in a fiduciary’s violation”), quoting
29 U.S.C.
§ 1132(l). Thus, under ERISA, Stout must concern itself with
Argent’s and the directors and officers’ fiduciary duties to
beneficiaries so as not to participate knowingly in a violation. 3
Because Stout incurs ERISA liability if it knowingly aids a
breach of fiduciary duty, Stout was acting in a limited single-hat ERISA role when aiding the ESOP valuation process as
Argent’s contractor. Stout was obligated under ERISA to
avoid aiding Argent’s or the directors and officers’ alleged
3 While the Secretary’s cause of action against Stout suffices in this
case to illustrate Stout’s non-fiduciary obligations to beneficiaries under
ERISA, whether private parties could similarly sue Stout under § 502(a)(3)
for aiding a fiduciary’s breach of duty remains undecided in our circuit.
The logic of Harris suggests they can. Harris held that private parties could
sue non-fiduciaries under § 502(a)(3) for knowingly aiding a prohibited
transaction under § 406. 530 U.S. at 248–49. And Harris’s reasoning would
seem to extend equally to a § 404 fiduciary duty claim. See id. (allowing
§ 502(a)(3) claim because Congress intended beneficiaries’ cause of action
to match the Secretary’s cause of action under § 502(a)(5)). See also Daniels
v. Bursey, 313 F. Supp. 2d 790, 807–08 (N.D. Ill. 2004) (extending Harris’s
logic to a claim alleging participation in a breach of fiduciary duty). Nevertheless, even after Harris, some circuits have continued to hold that a
non-fiduciary’s participation in a breach of fiduciary duty is not actionable
under § 502(a)(3). See Renfro v. Unisys Corp.,
671 F.3d 314, 325 (3d Cir.
2011); Gerosa v. Savasta & Co.,
329 F.3d 317, 322–23 (2d Cir. 2003). We need
not and do not decide this issue here. See Gordon v. CIGNA Corp.,
890 F.3d
463, 477 n.2 (4th Cir. 2018) (flagging but not deciding this issue).
32 No. 20-2793
breaches. For three reasons, this obligation imposed on Stout
under ERISA preempts the plaintiffs’ attempt to impose additional duties on Stout based on aiding and abetting liability to
the corporation.
First, to ensure Argent’s single-minded focus as an ERISA
fiduciary, that single-minded focus must also extend to Stout,
whom Argent hired to help perform core trustee functions.
Stout’s involvement in this case stems solely from Argent’s
single-hat trustee duties. Argent hired Stout for its expertise
to help Argent with the ESOP valuation process. If state law
could burden Argent’s contractors with liability to the corporation, that would hinder Argent’s ability as trustee to hire
trusted experts whose thinking is not clouded with concerns
about recommending actions to directors and officers that
might be contrary to the corporation’s interests. Hence, to
protect Argent’s ability to act for the exclusive benefit of beneficiaries, it becomes important also to prevent the expansion
of dual-hat loyalties to non-fiduciary contractors like Stout.
Otherwise, ERISA fiduciaries may not be able to confide fully
in non-fiduciary contractors to help perform core trustee duties with an eye single to beneficiaries.
Second, and most simply, given Stout’s key role in the
ESOP valuation process, ERISA’s focus on protecting benefi-
ciaries weighs against permitting corporate aiding and abetting liability against Stout. Like Argent, Stout is not locked
into the (potentially) conflicting dual roles that ERISA accepts
for directors and officers. So, as with Argent, there is no need
under ERISA to tolerate state laws that impose corporation-law liability on non-fiduciary contractors who perform central ERISA functions such as ESOP valuations. Stout’s services
were central to plan administration—preparing the
No. 20-2793 33
independent valuation of the ESOP’s holdings. As with Argent, then, when performing such core plan tasks, Stout’s federal ERISA obligations should not be muddled with distracting and potentially conflicting state-law obligations to the corporation. Such liability rules would affect central matters of
plan administration in a manner not consistent with ERISA,
and would thus “relate to” an ERISA plan, 29 U.S.C. § 1114(a).
See, e.g., Egelhoff,
532 U.S. at 147 (state rule requiring administrators to pay benefits to beneficiaries chosen by state law
was not consistent with ERISA’s rule that benefits be paid to
those identified in plan documents).
Last, state-law liability against Stout could lead to a
damages remedy that is arguably in tension with ERISA’s
remedial limits on claims against non-fiduciaries. As
mentioned above, the Secretary of Labor can sue a non-
fiduciary like Stout under § 502(a)(5) for knowingly
participating in a breach of duty. Yet, like beneficiaries’
private cause of action under § 502(a)(3), the Secretary’s cause
of action under § 502(a)(5) is limited to “equitable relief.” As
a result, ERISA does not authorize suits for damages against
non-fiduciaries who knowingly participate in a fiduciary’s
breach of fiduciary duty. See Mertens v. Hewitt Assocs., 508 U.S.
248, 260–61 (1993) (explaining that even the Secretary’s ability
to assess civil penalties against non-fiduciaries under § 502(l)
does not “establish[] the existence of a damages remedy”
against non-fiduciaries, but rather counts as “equitable relief”
under § 502(a)(5)).
Mertens’s equitable limit on Stout’s potential ERISA
liability produces some additional tension in this case
between plaintiffs’ state-law damages claims against Stout
and ERISA’s remedial scheme. Although Mertens applies only
34 No. 20-2793
to ERISA claims, 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.
That result could give non-fiduciaries like Stout incentives to
be more attentive to the corporation than to beneficiaries.
Such an effect would undermine ERISA’s purpose of ensuring
that ERISA fiduciaries and their contractors focus first and
foremost on the interests of plan beneficiaries—not the
corporation. For all these reasons, we find that ERISA also
preempts the plaintiffs’ state-law claims against Stout.
Conclusion
The exclusive benefit rule is a cornerstone of ERISA that
state law cannot dilute. While ERISA narrowly contemplates
parallel liability against the dual-hat director and officer defendants, it preempts further aiding and abetting liability that
would impose additional duties on Argent and Stout beyond
their exclusive ERISA obligations. We therefore REVERSE the
dismissal of Counts I–IV and Counts VII and VIII against the
directors and officers and AFFIRM the dismissal of Counts V
and VI against Argent and Stout and REMAND the case for
further proceedings consistent with this opinion.
