ARTICLE
18 October 2021

ERISA Fiduciary Breach Litigation Can Involve Complicated Damages Analyses

SS
Seyfarth Shaw LLP

Contributor

With more than 900 lawyers across 18 offices, Seyfarth Shaw LLP provides advisory, litigation, and transactional legal services to clients worldwide. Our high-caliber legal representation and advanced delivery capabilities allow us to take on our clients’ unique challenges and opportunities-no matter the scale or complexity. Whether navigating complex litigation, negotiating transformational deals, or advising on cross-border projects, our attorneys achieve exceptional legal outcomes. Our drive for excellence leads us to seek out better ways to work with our clients and each other. We have been first-to-market on many legal service delivery innovations-and we continue to break new ground with our clients every day. This long history of excellence and innovation has created a culture with a sense of purpose and belonging for all. In turn, our culture drives our commitment to the growth of our clients, the diversity of our people, and the resilience of our workforce.
Seyfarth Synopsis: If an ERISA plaintiff establishes a fiduciary breach, expect the computation of damages to be a complicated process that may enhance damages through judgment.
United States Employment and HR

Seyfarth Synopsis: If an ERISA plaintiff establishes a fiduciary breach, expect the computation of damages to be a complicated process that may enhance damages through judgment. And a court judgment in complicated cases can take years to issue. This is the lesson from a recent decision of the Court of Appeals for the Second Circuit.

Browe v. CTC Corporation, 2021 WL 4449878 (2d Cir. 9/29/21) is a complex ERISA case, both procedurally and substantively. This article focuses on the portion of the ruling that relates to the calculation of fiduciary breach damages. This is because the computation of ERISA fiduciary breach damages is central to successful discovery and settlement negotiations.

In Browe, former employees and officers of a defunct corporation asserted ERISA claims against the corporation and its former CEO for mismanagement of the firm's deferred compensation plan. The controversy arose from a decision to terminate the Plan and use its funds to pay business operating expenses. The district court found in favor of plaintiffs and awarded damages based on the projected account balances as of Plan termination, after rejecting plaintiffs' assertion that ERISA required restoration of Plan losses through judgment.

The Second Circuit overturned the restoration award. It found that the Plan was improperly terminated — so it was not terminated at all. The Court then held that ERISA required that the award "return the participants to the position they would have occupied" but for this fiduciary breach. This included all losses, including unrealized gains, through the date of judgment. It remanded the case back to the district court for recalculation of award to capture losses through the date of judgment.

Citing to Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985), the Court instructed that the award be based on the assumption that Plan funds were prudently invested, with the caveat that if several investment strategies were equally plausible, the district court should presume that the funds would have been invested in the most profitable of various options. The Court added that uncertainties in fixing damages must be resolved against the breaching fiduciary.

Damage Computation Takeaway – By computing damages for a fiduciary breach through judgment, the Court is advising fiduciary breach litigants that there will be a battle of the experts in determining what investment likely "would have happened." If a fiduciary breach case survives a motion to dismiss, expect complicated and expensive expert damage discovery that serve to inflate settlement demands.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More