Editor’s Note: This is the first part of a two part series on the topic of ERISA fiduciary liability claims. In this issue, the attorney representing a trustee in such an action provides an overview of prosecuting such claims. In Part Two, the trustee himself authors an article regarding the initial steps to be taken by trustees including identifying employee benefit plans and potential causes of action. The use of bankruptcy estate funds to pay for ERISA plan administration and trustee compensation will also be examined.
With the advent of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)1 , not only must bankruptcy trustees familiarize themselves with the obligations of the ERISA plan administrator, they must also acquire some base-level understanding of fiduciary liability under ERISA, as they are now responsible for investigating and prosecuting such claims on behalf of the plan or its participants. With that in mind, the goal of this article is to help trustees put on their “litigator’s hat” as they sift through the wreckage of a post-bankruptcy ERISA plan so that they can better (1) identify potential causes of action, (2) identify potential defendants, and (3) navigate the procedural minefields that can encumber their pursuit of such claims.
A General Overview of ERISA’s Civil Enforcement Scheme
ERISA’s civil enforcement scheme, 29 U.S.C. §1132, is specific as to who may bring a civil cause of action under ERISA and the types of claims that those persons may bring. In addition to allowing a plan participant or beneficiary to assert civil claims to recover plan benefits and enforce contractual rights under the terms of the plan, ERISA also permits a “participant, beneficiary, or fiduciary” to bring a civil action (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” 29 U.S.C. §1132(a)(3)
Not only are bankruptcy trustees in their capacity as plan administrators authorized to pursue such claims, in some circumstances they may be required to pursue claims to fulfill their fiduciary obligations to plan participants and beneficiaries. As one bankruptcy court recently noted:
[A] strong argument can be made that under ERISA, a plan administrator does have a fiduciary duty to pursue valuable claims that the ERISA Plan has against other persons. See generally Harris v. Koenig, 602 F. Supp.2d 39, 54-55, 65 n.26 (D.D.C. 2009) (noting, among other things, that “[t]he duties of loyalty and prudence mandated in Section 404(a) of ERISA [29 U.S.C. § 1104(a)] include the ‘duty to take reasonable steps to realize on claims held in trust.’”) (citation omitted). Such an argument is even stronger in a case like this one, where it appears that the only ERISA plan fiduciaries other than the plan administrator are the very targets of the Plan’s claims, who obviously cannot be expected to pursue such claims for the Plan.
In re Trans-Industries, Inc., 419 B.R. 21, 39 (Bankr. E.D. Mich. 2009).3 It follows that bankruptcy trustees who have been thrust in the role of ERISA plan administrator should take a pro-active approach to investigating and pursing possible claims instead of relying on other participants or fiduciaries to do so. This is especially true when the former fiduciaries or participants have caused injury to the plan through their malfeasance, self-dealing or other proscribed conduct under ERISA.
Who Can Be Sued? The Expanding Universe of Potential ERISA Defendants
The pool of potential defendants in an ERISA fiduciary liability case is larger than most practitioners realize. Determining fiduciary status is a mixed question of law and fact. Reich v. Linecaster, 55 F.3d 1034, 1044 (5th Cir. 1995). While typically plan fiduciaries are expressly appointed in the plan documents4 , someone who holds no formal position with respect to a plan may nonetheless rise to the level of a fiduciary by exercising de facto control over a fiduciary function.5 “Fiduciary status under ERISA is to be construed liberally, consistent with ERISA’s policies and objectives,” and is defined “‘in functional terms of control and authority over the plan, … thus expanding the universe of persons subject to fiduciary duties – and to damages –under §409(a).’” Arizona State Carpenters Pension Trust Fund v. Citibank (Arizona), 125 F.3d 715, 720 (9th Cir. 1997); Concha v. London, 62 F.3d 1493, 1501-02 (9th Cir. 1995) (“there need not be an express delegation of fiduciary duty in the Plan instrument itself for persons performing duties of a fiduciary nature to be considered fiduciaries”).
Thus, it is important to determine at the outset anyone who may have exercised discretionary authority either in terms of managing the plan or the plan’s assets. In addition to the pre-petition fiduciaries of the plan, the list of potential defendants includes former plan administrators, plan trustees, third party administrators, and non-fiduciary officers, managers, or directors that happened to exercise discretion over the plan or the plan’s assets. Briscoe v. Fine, 444 F.3d 478, 488 (6th Cir. 2006) (“any person or entity that exercises control over the assets of an ERISA-covered plan, including third-party administrators, acquires fiduciary status with regard to the control of these assets.”).