April 21 --The U.S. Court of Appeals for the Fifth Circuit declined to join several sister circuits that have applied deferential judicial review to plan fiduciaries accused of violating plan terms.
Despite finding no fiduciary breach in a plan trustee's decision to pay legal fees with plan assets, the court rejected the trustee's argument that his actions were entitled to deferential judicial review under Firestone Tire & Rubber Co. v. Bruch, 498 U.S. 101, 10 EBC 1873 (1989). In a footnote, the court explained that Firestone applied only to benefit denials and didn't govern suits for fiduciary breach.
This issue--the extent to which Firestone deference applies outside of the context of benefit denials--has split the circuits and may be headed for the U.S. Supreme Court. In March, the high court asked the U.S. solicitor general to file a brief in a case presenting this issue, a move often seen as an indication that the court is considering granting review (Tibble v. Edison Int'l, U.S., No. 13-550, invitation to file brief 3/24/14 (57 PBD, 3/25/14; 41 BPR 727, 4/1/14)).
The Fifth Circuit announced its ruling April 18 in an unpublished, per curiam opinion. In so doing, the court aligned itself with the U.S. Court of Appeals for the Second Circuit, which has declined to extend Firestone in similar contexts. Other circuit decisions have reached the opposite conclusion, including recent rulings of the Eighth and Ninth circuits.
In the 1989 Firestone decision, the Supreme Court held that claims for denied benefits are subject to de novo judicial review, unless the plan confers discretionary authority on the plan administrator, in which case the claims are to be reviewed for an abuse of discretion.
Some circuit courts have extended this ruling beyond the context of benefit denial claims and applied deferential judicial review to claims for fiduciary breach.
In the Tibble case, which has been appealed to the Supreme Court, the U.S. Court of Appeals for the Ninth Circuit held that Section 401(k) plan fiduciaries' interpretation of plan terms was entitled to abuse-of-discretion review for purposes of participants' fiduciary breach claims (150 PBD, 8/5/13; 56 PBD, 3/22/13; 40 BPR 1914, 8/6/13; 40 BPR 772, 3/26/13; 56 EBC 1245).
Other circuits, including the Third, Sixth, Seventh and Eighth, have taken a similar approach. In a widely-anticipated decision handed down in March, the Eighth Circuit ruled that Firestone deference governed fiduciary breach claims against ABBInc. (54 PBD, 3/20/14; 41 BPR 684, 3/25/14).
Taking the opposite view, the Second Circuit has declined to apply the arbitrary-and-capricious standard beyond the benefit denial context (John Blair Commc'ns, Inc. Profit Sharing Plan v. Telemundo Grp., Inc. Profit Sharing Plan, 25 F.3d 360 (2d Cir. 1994)).
The Tibble appellants specifically ask the Supreme Court to decide whether Firestone deference applies to fiduciary breach claims involving allegations that fiduciaries breached plan terms.
The instant case involved claims by the widow of Robert Chastant, a dentist whose dental practice sponsored several Employee Retirement Income Security Act-governed plans. After Chastant was murdered in December 2010, his widow and sole beneficiary, Laurie Futral, filed a lawsuit seeking benefits under the plans.
The plan trustee alleged that Futral was involved in her husband's death and asserted Louisiana's Slayer Statute--which prohibits a person from financially benefiting from the murder of another--as a defense to her suit. A jury found that Futral didn't participate in her husband's murder, and she received the benefits due under the plans.
Futral then filed a second suit alleging that the trustee breached his ERISA fiduciary duties by using more than $80,000 in plan assets to pay the attorneys' fees he expended in defending her initial suit. The U.S. District Court for the Western District of Louisiana ruled in favor of the trustee and awarded him additional attorneys' fees related to the second suit.
On appeal, the trustee argued that his decision to pay attorneys' fees from plan assets was entitled to deferential judicial review under the U.S. Supreme Court's decision in Firestone.
The court disposed of this argument in a footnote. It found that Firestone applied only to claims for denied benefits under ERISA Section 502(a)(1)(B).
“Because this is a suit for a breach of fiduciary duty rather than a suit for denial of benefits, Firestone does not apply and the proper standard of review is de novo,” the court concluded.
Applying de novo review, the court found that the trustee's actions didn't constitute fiduciary breach.
According to the court, Futral provided “no authority” to support her fiduciary breach claim, instead relying on the trustee's “dual roles” as plan trustee and executor of her late husband's will as evidence of a conflict of interest.
The court rejected this approach, saying that “having dual roles, without more, is not a breach of fiduciary duty.”
Moreover, the court said that the trustee confronted a “serious question” about Futral's eligibility for benefits under Louisiana law. By using plan funds to defend against a suit “seeking to compel disbursement to a potentially ineligible beneficiary,” the trustee validly discharged his ERISA duties, the court concluded.
Despite affirming the district court's award of summary judgment, the Fifth Circuit reversed its decision to award the trustee additional attorneys' fees, explaining that there was “no basis” for this additional award.
Judges Edith H. Jones, Jerry E. Smith and Priscilla Owen joined in the decision.
Futral was represented by Steven G. Durio and Daniel J. Phillips of Durio, McGoffin, Stagg & Ackermann, Lafayette, La. The trustee was represented by James L. Daniels, Lafayette, La., and Julie S. Kammer of Staines & Eppling APLC, Metairie, La.
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