By Pension and Benefits Editorial Staff
The Seventh Amendment does not require a jury trial in the case of a group of former employees who seek a money award on behalf of a retirement plan for the plan fiduciaries’ alleged breaches of fiduciary duty under ERISA Sec. 409, the U.S. District Court in Massachusetts has ruled. Any money award the employees might recover would be in the form of an equitable surcharge, not legal damages.
Fiduciary breach allegations. Former employees alleged that Fidelity breached its fiduciary duty in managing the Fidelity Retirement Savings Plan. Among other remedies, the former employees asked that Fidelity restore to the plan the losses suffered by the plan as a consequence of Fidelity’s alleged breach of fiduciary duty. They noted that, because they are former employees, if they were to prevail in the case, they would immediately withdraw a proportional share of the loss award from the plan.
The employees filed a demand for a jury trial, which Fidelity moved to strike. The Seventh Amendment Jury Trial Clause in the Constitution guarantees a jury trial “in suits at common law, where the value in controversy shall exceed twenty dollars.”
Two factors must be weighed to determine whether a suit involves legal or equitable issues, the court explained. First, a court decides whether the case before it is analogous to common-law causes of action ordinarily decided by the law courts in late 18th century England. Second, a court must resolve whether the requested remedy is legal or equitable. If, on balance, both factors indicate the complaint presents only equitable issues, then no right to a jury trial exists.
Equity courts. The court first determined that, historically, claims for breach of fiduciary duty were held in the chancery, or equity, courts. ERISA fiduciary duty claims draw directly from trust law; Congress defined the scope of ERISA fiduciary duty using the common law of trusts. The court, therefore, construed the employees’ suit as most closely analogous to a trust beneficiary’s cause of action against a trustee for breach of fiduciary duty.
The court rebuffed the employees’ invocation of the “Immediate and Unconditional Payment Exception,” under which the historical law courts would hear fiduciary duty claims where the plaintiffs asserted a right to an immediate and unconditional payment from the trust. Examples included cases where the trustee refused to make required income payments from the trust corpus to the beneficiary.
In contrast to those examples, the court explained, the former employees’ claims do not depend on Fidelity’s failure to turn over a set amount of money but rather on an assertion that Fidelity’s breach of fiduciary rules caused the plan’s income to diminish. Further, notwithstanding the employees’ right to withdraw their funds from the plan on demand, recovery for a violation of ERISA Sec. 409 issues to the plan as a whole. So, should the employees prevail in their claim, a money award would go to the plan as a whole, with the employees’ share to be determined later. Thus, the employees do not allege a direct right to payment of a sum certain. Such a claim, historically, would have been heard in equity, not law.
Surcharge. Turning to the second factor, the court characterized the former employees’ request for a monetary remedy as one for surcharge, not damages. In CIGNA Corp. v. Amara, 563 U.S. 421 (2011), the Supreme Court described surcharge as a power possessed by the equity courts “to provide relief in the form of monetary ‘compensation’ for a loss resulting from a trustees’ breach of duty, or to prevent the trustees’ unjust enrichment.”
The court also rejected the employees’ contention that the language of ERISA Sec. 409 authorizes legal damages, rather than equitable surcharge. It, therefore, granted Fidelity’s motion to strike the jury demand. However, it also announced its intention to empanel a non-binding advisory jury under Federal Rule of Civil Procedure 39(c), explaining that “juries can calculate monetary relief even better than judges” and emphasizing that “citizen juries play a vital role in our democracy.”
Source: Moitoso v. FMR LLC (DC MA).
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