By Pension and Benefits Editorial Staff
Fiduciary breach and prohibited transaction claims brought by plan participants under ERISA were equitable in nature and thus, not entitled to a jury trial under the Seventh Amendment, according to a federal trial court in Massachusetts. The fact that the participants sought compensatory damages, holding the fiduciaries personally liable for the alleged losses to the plan, did not, the court explained, convert a traditional equitable action into a legal claim warranting a jury trial.
Jury trial demand for fiduciary breach claims. Participants in a 401(k) plan maintained by the Massachusetts Institute of Technology (MIT), brought suit against plan fiduciaries, alleging that “instead of leveraging the plan’s bargaining power to benefit participants, the fiduciaries allowed a conflicted third party to dictate plan decisions.” According to the participants, the fiduciaries permitted a MIT donor, that also served as the plan’s recordkeeper and primary investment provider, Fidelity Investments, “to put hundreds of its proprietary investment funds in the plan” and “to collect unreasonable and excessive fees” at the expense of the participants’ retirement savings. The participants’ complaint specifically alleged ERISA causes of action for: (1) unreasonable investment management fees and performance losses, (2) unreasonable administrative fees, (3) prohibited transactions between the plan and a party in interest, and (4) the fiduciaries’ failure to adequately monitor those to whom it delegated fiduciary responsibility.
The participants further sought to hold the fiduciaries personally liable to make good to the plan all losses resulting from the alleged breach of duty and restore to the plan any profits made through the fiduciaries’ use of plan assets. Maintaining that they were seeking the legal remedy of compensatory damages, the participants also demanded a jury trial.
The fiduciaries filed a motion to strike the demand for a jury trial. According to the fiduciaries, the participants’ ERISA claims and requested remedy were equitable in nature, and thus, did not warrant a jury trial.
Jury trial limited to legal claims. In dismissing the participants’ demand for a jury trial, the court first noted that the “great weight of authority” holds that no right to a jury trial applies to actions under ERISA for breach of fiduciary duty. Citing appellate cases from the First, Second, Fourth, Fifth, Sixth, Tenth, and Eleventh Circuits, as well as lower court cases from the First Circuit, the court noted that the majority of jurisdictions to address the issue have found no right to a jury trial for claims alleging a breach of fiduciary duties, generally reasoning that such claims were equitable in nature.
The participants averred that because they sought to hold the fiduciaries personally liable to make good to the plan all losses resulting from each breach of fiduciary duty (i.e., compensatory and money damages), the nature of their claim was legal rather than equitable. The court, however, explained that the mere request of a money remedy does not require that an action be viewed as legal, rather than equitable in nature, especially in light of ERISA’s roots in trust law in which a plan fiduciary was viewed as being in a trustee relationship to the plan.
The participants’ argument relied heavily on a recent case in which a trial court in the Second Circuit held that a make-whole remedy is not equitable when the action seeks to hold the defendants personally liable (Cunningham v. Cornell University, DC NY (2018), 2018 WL 4279466). However, in disregarding Cunningham, the Massachusetts court reasoned that when a trustee commits an intentional breach or falls below the required standard of care, it is equity that seeks to place the beneficiaries at least in the position that they would have been in had there not been a breach of trust. Thus, claims under ERISA for the recovery of benefits allegedly due and for breach of fiduciary duty are not analogous, the court stressed, to legal actions for breach of contract, but to actions by a beneficiary against a trustee under the law of trusts.
As the participants’ action to remedy the alleged violations by the plan fiduciaries of their ERISA duties was equitable in nature, the participants had no right under the Seventh Amendment, to a jury trial of their claims. Accordingly, the fiduciaries’ motion to strike the demand for a jury trial was granted.
SOURCE: Tracey v. Massachusetts Institute of Technology (DC Mass).
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