In Guididas, plaintiffs were participants of the Community National Bank Corporation (“CNBC”) Employee Stock Ownership Plan (the “Plan”). Plaintiffs claimed that the defendants, who were directors and officers of CNBC and, therefore, fiduciaries of the Plan, did not act solely in the interests of the participants and beneficiaries of the Plan, and did not exercise the required skill, care, prudence and diligence in administering the Plan and the Plan’s assets from January 2005 to the present. Specifically, plaintiffs claimed that defendants failed to disclose the riskiness of investing in company stock.
Defendants answered and also filed a counterclaim against three of the named Plaintiffs (Mattes, Burger, and Bartlett), all three of whom had served as members of the Plan’s Administrative Committee (the “Committee”). Defendants alleged that the Committee was a “named fiduciary” under the Plan, and a “fiduciary” under ERISA, and, as members of the Committee during the putative class period, these three plaintiffs were also co-fiduciaries under ERISA. As co-fiduciaries under the Plan, the Defendants sought contribution and indemnification from these three plaintiffs/ counter-defendants. The three plaintiffs/ counter-defendants argued that, even if they are fiduciaries under the Plan, there is no cause of action for contribution or indemnification from co-fiduciaries under ERISA.
District Judge James Moody of the United States District Court for the Middle District of Florida recognized that neither the Supreme Court nor the Eleventh Circuit has opined on whether an ERISA fiduciary has the right to seek contribution and indemnity from another fiduciary. Indeed, other Circuit and district courts are split on the issue, and it is, therefore, quite an unsettled area of the law.
Judge Moody first recognized that there is no statutory right to contribution and indemnification under Sections 502 or 409 of ERISA, and therefore, the statute itself cannot form a basis for the defendants’ claim for contribution and indemnification. However, Judge Moody then looked to federal common law. Noting that federal courts are authorized by Congress to develop a federal common law under ERISA, such federal common law should be guided by the principles of trust law. Citing the Second Circuit’s opinion in Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12 (2d Cir. 1991), the Court noted that “traditional trust law indisputably provides for a right of contribution among defaulting fiduciaries.” (Op. at 7.) Although the Eleventh Circuit has never explicitly addressed the central issue here, Judge Moody noted that the Eleventh Circuit had favorably cited to Chemung in Useden v. Acker, 947 F.2d 1563 (11th Cir. 1991) and, therefore, “appear[ed] to have endorsed Chemung’s conclusion as well.” (Op. at 9.)
Judge Moody also noted that policy considerations weighed heavily in favor of allowing a fiduciary to seek contribution and indemnification from co-fiduciaries. Specifically, Judge Moody noted that “[f]ull responsibility should not depend on the fortuity of which fiduciary a plaintiff elects to sue.” (Op. at 10.) Even more importantly, “defaulting fiduciaries who are also plan participants should not be allowed to benefit from their own wrong by suing their co-fiduciaries first, as in the instant case.” (Op. at 10-11.) He concluded that if contribution is not allowed, jointly-liable ERISA fiduciaries may escape responsibility by “simply beating their co-fiduciaries to the courthouse steps.” (Op. at 11.)
In so holding, Judge Moody acknowledged that some Circuit courts have found there is no right to contribution under ERISA because “Congress could not have inadvertently omitted a right to contribution under ERISA because of its detailed remedial scheme” citing Travelers Cas. & Sur. Co. of Am. V. Iada Servs., Inc., 497 F.3d 862 (8th Cir. 2007), and Kim v. Fujikawa, 871 F.2d 1427 (9th Cir. 1989). Judge Moody disagreed with the reasoning on those cases on the basis that Congress has clearly spoken that ERISA’s purpose is to protect plan participants and beneficiaries. (Op. at 10.) He further opined that the right to seek contribution and indemnity is not equivalent to a statutorily-enumerated cause of action already detailed in ERISA. Rather, contribution and indemnification are equitable remedies, not legal causes of action, and therefore, recognition of the right to seek these remedies does not encroach on Congress’ sphere of power to fashion statutory causes of action. (Op. at 10.)
Accordingly, this opinion may have framed up a split of authority on this issue – one that may eventually need clarification from the Supreme Court.