Plasterer’s Local Union No. 96 Pension Plan v. Pepper, No. 10-1364

Decided: Dec. 1, 2011

Current Trustees of a retirement plan sued the Former Trustees for mismanaging Plan funds by failing to research alternative investment strategies or review the current strategy to ensure it was the best method to meet the needs of the Plan and its members. The Current Trustees put up an expert witness who testified that had the funds been invested a different way, the Plan could have netted nearly $500,000 more than it did in reality. The Former Trustees’ expert contended that the market is unpredictable and the strategy was reasonable given the Trustees’ goals. At the end of a three-day bench trial, the district judge granted judgment for the Current Trustees, observing that the Plan’s investment strategy had essentially been in place since 1991 with little or no effort to seek alternative investment approaches or diversification. Having determined liability, the judge then awarded damages based on the Current Trustees’ model but only using years 2003-2005 to accumulate losses.

The Fourth Circuit vacated. First, the court noted that a finding of breach of fiduciary duty also requires an independent showing that the alleged misconduct (e.g. failing to investigate alternative investment opportunities or diversify the portfolio) caused an actual loss to the Plan. Imprudent decisions that would have been made by prudent investors will not lead to personal liability for the Trustees. Next, if upon remand the district court once again finds liability, that court must reconsider and give reasons for its measure of damages as opposed to picking three years from 2003-2005 seemingly “out of the air.”

Finally, because the circuit court had vacated liability and damages, it necessarily vacated the award of attorneys’ fees. The court adopted a two-staged determination of attorneys’ fees. The court held that the decision as to whether the prevailing party is eligible for attorneys’ fees should be evaluated under the recent Supreme Court decision in Hardt v. Reliance Standard Life Ins. Co., 130 S. Ct. 2149 (2010) but that the decision whether to thereafter make an award should continue to use the five factors laid out in Quesinberry v. Life Ins. Co. of N. Am., 987 F. 2d 1017, 1029 (4th Cir. 2003) (en banc) (listing the factors as “(1) degree of opposing parties’ culpability or bad faith; (2) ability of opposing parties to satisfy an award of attorneys’ fees; (3) whether an award of attorneys’ fees against the opposing parties would deter other persons acting under similar circumstances; (4) whether the parties requesting attorneys’ fees sought to benefit all participants and beneficiaries of a plan or to resolve a significant legal question regarding ERISA itself; and (5) the relative merits of the parties’ positions.”).

Full Opinion

-C. Alexander Cable

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