The plan at issue provided sickness, accident, life, and disability insurance benefits for employees of various non-profit agencies. The plan was somewhat unusual as its trust agreement effectively rendered fiduciary status to all of the participating agencies by providing that the agencies would administer the plan and that the plan’s trustees would act pursuant to the agencies’ direction. This is atypical of most multiemployer plans which do not generally render fiduciary status to participating employers.
Like most multiemployer plans, the plan required the participating agencies to make monthly contributions and provided that if any agency failed to do so, then upon the expiration of a 30-day grace period, the agency’s employees would cease to be covered by the plan. In the early 1990s, two of the defendant agencies had failed to keep up with their contribution obligations. However, the plan’s trustees permitted the agencies to continue their participation based on nothing more than a promise that the agencies would repay what they owed when they could.
In 1992, the plaintiff agency withdrew from the plan and requested the return of those plan reserves that were attributable to its past contributions. The plan’s trustees refused to refund this amount and, in 1993, the plaintiff agency commenced a class action to recover these amounts, which would be paid to its employees.
Over the next several years, the plan’s trustees depleted the plan’s reserves, including by writing off the amounts owed by the defendant agencies. In 2000, the plaintiff agency received a judgment against the plan, which, including attorneys’ fees, was in excess of $800,000. The plan left more than $700,000 of the judgment unsatisfied.
As a result of the plan’s inability to satisfy the prior judgment, the plaintiff agency filed suit against the defendant agencies alleging that they had breached their fiduciary duties by: (1) diverting the plaintiff agency’s reserves to pay the plan’s claims and expenses; (2) failing to ensure that contributions were adequate to fund the plan; and (3) failing to collect overdue contributions. The district court ruled in favor of the plaintiff agency on the latter two of these counts. The Second Circuit affirmed over objections that the plaintiff agency lacked standing and that the claims were untimely.
Of particular interest is the Second Circuit’s findings regarding standing. ERISA § 502(a)(2) provides standing to “a participant, beneficiary or fiduciary” to seek relief to recover amounts owed to a plan for a breach of fiduciary duty. There were two challenges raised with respect to the plaintiff agency’s standing.
First, the defendants argued that the plaintiff agency’s claims were not on behalf of the plan because its goal was only to have money paid to the plan so that it could be used to be paid to the plaintiff agency in satisfaction of the prior judgment. The court rejected this argument, finding that the plaintiff agency’s claim was that the plan’s trustees should have collected enough money to keep the plan solvent so that it could pay its expenses and that, as a result, it was “of no moment that recovery inuring to the Plan may ultimately benefit particular participants.”
Second, the plaintiff agency’s ability to bring this action was also challenged because it certainly was not a participant or beneficiary, and it had ceased to be a fiduciary since it withdrew from the plan in 1992. Thus, the plaintiff agency was no longer strictly within the category of those with standing to bring an action under ERISA § 502(a)(2). Nevertheless, the court held that the plaintiff agency had standing as a fiduciary because it “had a continuing interest in protecting the Plan assets,” so that it could have those assets refunded to it. The court distinguished its prior decision in Chemung Canal Trust Co. v. Sovran Bank/Maryland, 939 F.2d 12 (2d Cir. 1991), in which it held that a former fiduciary lacked standing because it no longer had an interest in protecting a plan. Because the court held that the plaintiff agency did still have such an interest, it maintained standing as a fiduciary.
The Second Circuit’s holdings regarding standing are likely to be the most significant from this decision. The court’s decision increases the possibility that a plaintiff may simply use a plan as a front to obtain benefits or other amounts claimed to be owed by a plan if the plan is unable to satisfy that payment. The decision provides that a claim for breach of fiduciary duty is brought on behalf of the plan even if the plan is required to immediately turn around and pay out any amounts recovered. Perhaps more importantly, the decision seemingly expands the category of persons who can bring an action for breach of fiduciary duty to include a former fiduciary, at least so long as the former fiduciary can show that it maintains an interest in protecting the plan.
The case is L.I. Head Start Child Development Services, Inc. v. Economic Opportunity Commission of Nassau County, Inc., Case No. 12-2082-cv (2d Cir. Mar. 13, 2013).