Does ERISA Let Fiduciaries Seek Indemnification, Justices Ask

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By Jacklyn Wille

An employee stock ownership plan trustee who was ordered to pay more than $8 million in ERISA liability convinced the U.S. Supreme Court to take a closer look at his case ( Fenkell v. Alliance Holdings, Inc., U.S., No. 16-473, invitation to solicitor general filed 1/9/17 ).

The justices on Jan. 9 invited the solicitor general to file a brief expressing the government’s views on a petition filed by trustee David B. Fenkell, who was found liable for his role in a series of complex transactions between the ESOPs of Alliance Holdings Inc. and Trachte Building Systems Inc. Fenkell asked the justices to rule that the Employee Retirement Income Security Act doesn’t allow plan fiduciaries to sue other fiduciaries for indemnification or contribution.

Such an invitation to the solicitor general typically signals the justices’ interest in a particular topic and is thought to increase the likelihood that the court will ultimately hear the case.

In the past few years, the justices have typically followed the solicitor’s advice on ERISA issues. The court agreed to hear cases involving plan fees and employer stock after being advised to by the solicitor, and justices followed the solicitor’s advice to deny review in cases involving fiduciary standards and forum selection clauses.

Even so, a surprise is possible. In 2015, the court agreed to hear an ERISA preemption challenge to a state health claims database, despite the solicitor’s advice to wait until similar programs had received judicial scrutiny.

Circuit Split?

Fenkell’s petition raises a matter that has divided the federal appellate courts: whether ERISA permits a court to order one at-fault fiduciary to indemnify another at-fault fiduciary for its liability.

In this case, a judge ordered the trustees of Trachte’s ESOP to restore losses to the plan while simultaneously ordering Fenkell to indemnify those trustees for the payment. Indemnification was warranted, the judge said, because Fenkell was the “more culpable fiduciary” in the botched transaction.

The U.S. Court of Appeals for the Seventh Circuit affirmed this decision in 2016, relying on 32-year-old circuit precedent allowing actions for indemnification under ERISA. The Second Circuit agrees with this position, while the Eighth and Ninth circuits take the opposite view.

In opposing Fenkell’s petition for high court review, Alliance Holdings argued that this “mature” circuit split—in which three of the decisions are more than 25 years old—is largely irrelevant after the Supreme Court’s decision in CIGNA Corp. v. Amara, 563 U.S. 421 (2011). Alliance argued that Amara, which blessed the use of expanded equitable remedies in ERISA cases, specifically allows for an indemnification order against co-fiduciaries.

Fenkell is represented by Mayer Brown LLP. Alliance Holdings is represented by Morgan Lewis & Bockius LLP and Groom Law Group.

Both sets of attorneys declined Bloomberg BNA’s request for comment.

To contact the reporter on this story: Jacklyn Wille in Washington at jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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