Halperin v. Richards, No. 20-2793 (7th Cir. 2021)
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While Appvion was in financial distress, 2012-2016, the defendants allegedly fraudulently inflated stock valuations to enrich the directors and officers, whose pay was tied to the valuations of its ERISA-covered Employee Stock Ownership Plan (ESOP). They allegedly carried out this scheme with knowing aid from the ESOP trustee, Argent, and its independent appraiser, Stout. Appvion directors allegedly provided unlawful dividends to its parent company by forgiving intercompany notes. Appvion filed for bankruptcy protection. Appvion’s bankruptcy creditors were given authority to pursue certain corporation-law claims on behalf of Appvion to recover losses from the defendants’ alleged wrongs against the corporation; they brought state law claims against the directors and officers for breaching their corporate fiduciary duties; alleged that Argent and Stout aided and abetted those breaches, and asserted state-law unlawful dividend claims. The defendants argued that their roles in Appvion’s ESOP valuations were governed by the Employee Retirement Income Security Act (ERISA), which preempted state corporation-law liability and that, despite their dual roles as corporate and ERISA fiduciaries, they acted exclusively under ERISA when carrying out ESOP activities, 29 U.S.C. 1002(21)(A). The district court agreed and dismissed.
The Seventh Circuit reversed in part. ERISA does not preempt the claims against directors and officers. ERISA expressly contemplates parallel corporate liability against those who serve dual roles as both corporate and ERISA fiduciaries. ERISA preempts the claims against Argent and Stout. Corporation-law aiding and abetting liability against these defendants would interfere with the cornerstone of ERISA’s fiduciary duties—Section 404's exclusive benefit rule.
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In the United States Court of Appeals For the Seventh Circuit ____________________ No. 20-2793 ALAN D. HALPERIN and EUGENE I. DAVIS, Plaintiffs-Appellants, v. MARK R. RICHARDS, et al., Defendants-Appellees. ____________________ Appeal from the United States District Court for the Eastern District of Wisconsin. No. 1:19-cv-01561-WCG — William C. Griesbach, Judge. ____________________ ARGUED APRIL 15, 2021 — DECIDED JULY 28, 2021 ____________________ Before KANNE, ROVNER, and HAMILTON, Circuit Judges. HAMILTON, Circuit Judge. We consider in this case whether the Employee Retirement Income Security Act (ERISA) preempts certain state-law claims brought by bankruptcy creditors on behalf of a company against its directors and o cers and others alleged to have in ated the company’s stock value to conceal the company’s decline and to bene t corporate insiders. We hold that ERISA does not preempt the plainti s’ claims against the company’s directors and o cers. 2 No. 20-2793 ERISA expressly contemplates parallel corporate liability against directors and o cers who serve dual roles as both corporate and ERISA duciaries. We also hold, however, that ERISA preempts the plainti s’ claims against the former ERISA trustee of the employee bene t plan and its non duciary contractor. Corporation-law aiding and abetting liability against these defendants would interfere with the cornerstone of ERISA’s duciary duties—the exclusive bene t rule in Section 404, 29 U.S.C. § 1104(a)(1)(A). I. Factual and Procedural Background In reviewing a grant of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), we accept the plainti s’ factual allegations as true and draw all reasonable inferences in their favor. Kolbe & Kolbe Health & Welfare Bene t Plan v. Medical College of Wisconsin, Inc., 657 F.3d 496, 502 (7th Cir. 2011). According to the plainti s, Appvion, Inc. was in nancial freefall from 2012 to 2016 as revenues from its paper business declined sharply. During those years, Appvion repeatedly missed its nancial projections, yet the defendants continued to project unrealistic success when valuing the company’s stock—which was wholly-owned by employees under an ERISA-covered Employee Stock Ownership Plan (ESOP). The plainti s assert that, while the corporate ship was sinking, the defendants fraudulently in ated these stock valuations to line the pockets of directors and o cers, whose pay was tied to the ESOP valuations. Plainti s allege that the directors and o cers carried out this scheme with knowing aid from the ESOP trustee, Argent Trust Company (Argent), and its independent appraiser, Stout Risius Ross, LLC (Stout), who led the ESOP valuation process in coordination with the directors and o cers. The plainti s also allege that Appvion No. 20-2793 3 directors provided unlawful dividends to its parent company, Paperweight Development Corporation, by forgiving and reextending certain intercompany notes to it. In October 2017, Appvion and its a liates led for bankruptcy protection in the Bankruptcy Court for the District of Delaware. See In re OLDAPCO, Inc., No. 17-12082 (MFW) (Bankr. D. Del.). Under Appvion’s liquidation plan, Appvion’s bankruptcy creditors were given authority through a liquidating trust to pursue certain corporation-law claims on behalf of Appvion to recover losses from the defendants’ alleged wrongs against the corporation. See Halperin v. Richards, 2020 WL 5095308, at *1 (E.D. Wis. Aug. 28, 2020) (describing bankruptcy proceedings). Plainti s here are Alan Halperin and Eugene Davis, cotrustees of the Appvion Liquidating Trust. They originally led this action in the Delaware bankruptcy court. The bankruptcy court transferred Counts I–VIII of the plainti s’ Revised Second Amended Complaint to the U.S. District Court for the Eastern District of Wisconsin. Counts I–IV assert statelaw claims against the director and o cer defendants (Mark Richards, Thomas Ferree, Tami Van Straten, Je rey Fletcher, Kerry Arent, Stephen Carter, Terry Murphy, Andrew Reardon, Kathi Seifert, Mark Suwyn, Carl Laurino, and David Roberts) for breaching their corporate duciary duties. Counts V and VI allege that Argent and Stout aided and abetted those breaches. And Counts VII and VIII assert state-law unlawful dividend claims against the directors and o cers. All defendants moved in the district court to dismiss all of these claims on the theory that their roles in Appvion’s ESOP valuations were governed by ERISA and that ERISA preempted state corporation-law liability arising from the 4 No. 20-2793 ESOP valuation process. More speci cally, the directors and o cers argue that, despite their dual roles as corporate and ERISA duciaries, they acted exclusively in their ERISA roles when carrying out the ESOP activity underlying the plainti s’ claims. See 29 U.S.C. § 1002(21)(A) (a corporate o cer “is a duciary with respect to a plan to the extent … he has any discretionary authority or discretionary responsibility in the administration of such plan”). Argent and Stout similarly argue that the claims against them “relate to” the plan, 29 U.S.C. § 1144(a), because they are based on the performance of their ERISA duties in valuing the company stock owned by the ESOP. The district court agreed with defendants that ERISA preempts all of plainti s’ claims. The court granted the defendants’ motion to dismiss Counts I–VIII with prejudice because they “are grounded in … ERISA-related duties … and ‘relate to’ the ESOP.” Halperin, 2020 WL 5095308, at *4. The district court’s ERISA preemption nding is a matter of law that we review de novo. Kolbe & Kolbe, 657 F.3d at 504. II. Principles of ERISA Preemption In enacting ERISA, Congress included two distinct and powerful preemption provisions: complete preemption under ERISA § 502, 29 U.S.C. § 1132, and con ict preemption under ERISA § 514, 29 U.S.C. § 1144. The defendants assert that the claims in this case are con ict-preempted under the latter provision, which preempts “any and all State laws insofar as they may now or hereafter relate to any employee bene t plan” covered by ERISA. The fundamental challenge in interpreting this preemption provision stems from its broad language: “If ‘relate to’ No. 20-2793 5 were taken to extend to the furthest stretch of its indeterminacy, then for all practical purposes pre-emption would never run its course….” New York State Conf. of Blue Cross & Blue Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 655 (1995). But, on the other hand, Congress clearly intended ERISA preemption to be broad. Congress chose “deliberately expansive” language, “conspicuous for its breadth.” California Div. of Labor Standards Enf’t v. Dillingham Construction, N.A., Inc., 519 U.S. 316, 324 (1997), quoting Morales v. Trans World Airlines, Inc., 504 U.S. 374, 384 (1992). Since the broad and vague statutory text o ers little help in drawing boundaries for ERISA con ict preemption, Travelers, 514 U.S. at 655, the Supreme Court “considers ERISA’s objectives ‘as a guide to the scope of the state law that Congress understood would survive.’” Rutledge v. Pharmaceutical Care Mgmt. Ass’n, 141 S. Ct. 474, 480 (2020), quoting Dillingham Construction, 519 U.S. at 325. Congress’s objective in enacting ERISA’s con ict preemption provision was “‘to ensure that plans and plan sponsors would be subject to a uniform body of bene ts law,’ thereby ‘minimiz[ing] the administrative and nancial burden of complying with con icting directives’ and ensuring that plans do not have to tailor substantive bene ts to the particularities of multiple jurisdictions.” Id., quoting Ingersoll-Rand Co. v. McClendon, 498 U.S. 133, 142 (1990). Guided by that objective, the Supreme Court has written that a law “relates to” an ERISA plan “if it has a connection with or reference to such a plan.” Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96–97 (1983) (state law requiring plans to pay speci c bene ts was not enforceable against ERISA plans). This generally encompasses two categories of state laws. Gobeille v. Liberty Mut. Ins. Co., 577 U.S. 312, 319 (2016). First, 6 No. 20-2793 “[w]here a State’s law acts immediately and exclusively upon ERISA plans … or where the existence of ERISA plans is essential to the law’s operation …, that ‘reference’ will result in pre-emption.” Id. at 319–20, quoting Dillingham Construction, 519 U.S. at 325; see, e.g., Mackey v. Lanier Collection Agency & Serv., Inc., 486 U.S. 825, 829 (1988) (“The Georgia statute at issue here expressly refers to—indeed, solely applies to—ERISA employee bene t plans.”). Second, ERISA preempts a state statute or claim that, while not facially tied to ERISA, “‘governs … a central matter of plan administration’ or ‘interferes with nationally uniform plan administration.’” Gobeille, 577 U.S. at 320, quoting Egelho v. Egelho , 532 U.S. 141, 148 (2001) (preempting Washington bene ts rule that would create state-by-state di erences in plan administration). State laws that directly prohibit something ERISA permits, and vice versa, fall into this second category. See, e.g., Alessi v. Raybestos-Manhattan, Inc., 451 U.S. 504, 524 (1981) (state law preempted “because it eliminates one method for calculating pension bene ts—integration—that is permitted by federal law”). But direct con ict is not always needed to show preemption. Some state laws that run parallel to or in harmony with ERISA’s requirements are nonetheless preempted. Gobeille, 577 U.S. at 323 (“even parallel[] regulations from multiple jurisdictions could create wasteful administrative costs and threaten to subject plans to wide-ranging liability”). Some parallel state rules, however, are not preempted. See Rutledge, 141 S. Ct. at 480 (“ERISA does not pre-empt state rate regulations that merely increase costs or alter incentives for ERISA plans without forcing plans to adopt any particular scheme of substantive coverage.”), citing Travelers, 514 U.S. at 668. Relevant here, this second category of laws interfering No. 20-2793 7 with ERISA also includes state-law causes of action seeking “alternative enforcement mechanisms” as an end run around ERISA’s more limited remedial scheme. Travelers, 514 U.S. at 658, citing Ingersoll-Rand, 498 U.S. at 145 (ERISA preempted state-law claim for wrongful discharge based on employee’s allegation that employer red him to avoid making pension contributions); see also Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (ERISA preempted state-law claims for breach of contract and tort for alleged improper processing of claims for plan bene ts). III. Director and O cer Defendants Applying these principles to the claims against the directors and o cers, we nd that the plainti s’ claims are not preempted because ERISA contemplates parallel statelaw liability against directors and o cers serving dual roles as both corporate and ERISA duciaries. Section 408(c)(3) of ERISA explicitly allows corporate insiders to serve as ERISA duciaries. 29 U.S.C. § 1108(c)(3). This allowance has been called ERISA’s “fundamental contradiction” because of the tension it creates with both the traditional duty of loyalty at the heart of the common law of trusts and ERISA’s “exclusive bene t” rule in 29 U.S.C. § 1104(a)(1)(A)(i). See Daniel R. Fischel & John H. Langbein, ERISA’s Fundamental Contradiction: The Exclusive Bene t Rule, 55 U. Chi. L. Rev. 1105 (1988). Professors Fischel and Langbein defended this “fundamental contradiction” as necessary given employers’ and employees’ dual roles as both settlors and bene ciaries of ERISA plans. Id. at 1126. If dual-hat duciaries were not allowed, employers that established ERISA plans would be “assuming nancial liabilities without e ective controls,” and “Employers tend not to write blank checks.” Id. at 1127. 8 No. 20-2793 Allowing directors and o cers to participate in plan decisionmaking as ERISA duciaries therefore supports employers’ incentives to form ERISA plans—something Congress clearly desired. Unsurprisingly, however, these dual roles also produce con icts of interest that have for decades challenged ERISA plans and courts trying to implement ERISA faithfully in an array of contexts. ERISA expressly allows corporate insiders to have dual corporate and ERISA obligations. Whatever complications those dual roles may entail, we are persuaded that ERISA should not be interpreted to preempt parallel state-law liability against the directors and o cers in this case. Our reasoning does not extend to preemption of the aiding and abetting claims against Argent and Stout because those claims seek, in essence, to impose the complicating dual roles on a single-role ERISA duciary and its contractor, whose actions should be governed by an undiluted exclusive-bene t rule under ERISA. A. Limited Precedent There is little circuit-level precedent assessing whether and to what extent ERISA preempts corporation-law claims against dual-hat directors and o cers. Beyond the Fifth Circuit’s decision in Sommers Drug Stores Co. Employee Pro t Sharing Trust v. Corrigan Enterprises, Inc., 793 F.2d 1456 (5th Cir. 1986), there seems to be only a handful of district court cases that squarely address the problem. Most of these cases hold that ERISA does not preempt corporation-law claims against dual-hat directors and o cers. In Sommers Drug Stores, for example, the Fifth Circuit assessed whether ERISA preempted a common-law breach of No. 20-2793 9 duciary duty claim brought by an employee pro t sharing trust (which was both a minority shareholder and ERISA plan) against the company president (a dual-hat corporate and ERISA duciary). 793 F.2d at 1468. The trust brought duciary duty claims under both state common law and ERISA. The district court held that ERISA preempted the state-law claims, but the Fifth Circuit reversed. The Fifth Circuit’s reasoning focused on the shareholder-director relationship, which imposed special duties wholly independent from any parallel ERISA duties: The state common law of duciary duty that the Trust seeks to invoke in this case centers upon the relation between corporate director and shareholder. The director’s duty arises from his status as director; the law imposes the duty upon him in that capacity only. Similarly, the shareholder’s rights against the corporate director arise solely from his status as shareholder. That in a case such as ours the director happens also to be a plan duciary and the shareholder a bene t plan has nothing to do with the duty owed by the director to the shareholder. The state law and ERISA duties are parallel but independent: as director, the individual owes a duty, de ned by state law, to the corporation’s shareholders, including the plan; as duciary, the individual owes a duty, de ned by ERISA, to the plan and its bene ciaries. Id. at 1468. Sommers Drug Stores’s “parallel but independent” duties theory has been followed in other cases. See In re Ullico Inc. 10 No. 20-2793 Litig., 605 F. Supp. 2d 210, 222 (D.D.C. 2009) (“[T]he allegations of breach of duciary duty … were not preempted because they ‘derive from the counterclaim defendants’ obligations and responsibilities as o cers of the corporation under state corporate law, rather than their relationship to the … plans as bene ciaries.’”), quoting Carabillo v. ULLICO, Inc., 357 F. Supp. 2d 249, 259 n.7 (D.D.C. 2004), in turn citing Sommers Drug Stores, 793 F.2d at 1470; Crabtree v. Central Florida Investments, Inc. Deferred Comp. Plan, 2012 WL 6523584, at *2 (M.D. Fla. Oct. 3, 2012), report and recommendation approved, 2012 WL 6523078 (M.D. Fla. Dec. 14, 2012) (“The preemption principles do not apply when, as is the case here, the cause of action for breach of duciary duty is against a corporate o cer for duties owed to the corporation.”); Richmond v. American Sys. Corp., 792 F. Supp. 449, 458–59 (E.D. Va. 1992) (same: “The state corporate laws … regulate relations between plainti s, as minority shareholders … and Ramsey and Curran, as … o cers[] and directors. The relations … function irrespective of [ERISA plan] administration.”); In re Antioch Co., 456 B.R. 791, 839 (Bankr. S.D. Ohio 2011), report and recommendation adopted, 2011 WL 3664564 (S.D. Ohio Aug. 12, 2011), modi ed on reconsideration sub nom. Antioch Co. Litig. Trust v. Morgan, 2012 WL 6738676 (S.D. Ohio Dec. 31, 2012), (“[A]ll three defendants were ESOP duciaries. However, … all the claims against these defendants are based on independent legal duties owed in their roles as corporate duciaries….”); In re Dehon, Inc., 334 B.R. 55, 68 (Bankr. D. Mass. 2005) (relying on Sommers Drug Stores and nding no preemption: “the claims are brought by a third party to enforce rights held by the corporation against directors of that corporation for their acts as corporate directors”); see also Housman v. Albright, 368 No. 20-2793 11 Ill. App. 3d 214, 223, 857 N.E.2d 724, 733 (2006) (same), citing Sommers Drug Stores, 793 F.2d at 1465. Some courts have further noted that preempting state claims against directors and o cers “[s]imply because events precipitating [them] occurred in the general context of an employee bene t plan,” Richmond, 792 F. Supp. at 459, would contravene ERISA’s core purpose to prevent misuse of plan assets by enabling directors and o cers to defraud shareholders and creditors whenever they don their ERISA hats. See In re Antioch, 456 B.R. at 841–42 (preemption “would do nothing more than immunize o cers and directors … from allegations of self-dealing by the corporate entity to which they have de ned independent legal obligations”); see also Smith v. Crowder Jr. Co., 280 Pa. Super. 626, 639, 421 A.2d 1107, 1114 (Pa. Super. 1980) (“ERISA was not intended as a device to permit corporate directors and o cers to defraud with impunity corporate shareholders and creditors….”). The defendants rely on two cases nding that ERISA did preempt certain state corporation-law claims: McLemore v. Regions Bank, 682 F.3d 414, 425 (6th Cir. 2012), and AT & T v. Empire Blue Cross/Blue Shield, 1994 WL 16057794, at *27 (D.N.J. July 19, 1994). These cases o er little support for the directors and o cers’ defense here. McLemore held ERISA preempted an entirely di erent sort of claim. The McLemore plainti s asserted state-law damages claims against Regions Bank “for knowingly permitting [ERISA duciaries] to breach their duciary duties” under ERISA. 682 F.3d at 426. The Sixth Circuit held such claims were preempted because the plainti s were ERISA “participant[s], bene ciar[ies], or duciar[ies]” who could bring these same claims under ERISA. Such plainti s were seeking an “alternative 12 No. 20-2793 enforcement mechanism” under state law, which ERISA § 514 prohibits. Id. (internal quotation omitted). So, unlike in Sommers Drug Stores, the plainti s’ claims in McLemore sought to enforce ERISA duties, not corporation-law duties. And, unlike McLemore, the plainti s here—bankruptcy creditors suing on behalf of the corporation—have no corollary cause of action under ERISA that they could invoke. The AT & T case is also unhelpful because it rested on a faulty premise that ERISA preempts any state claim arising from conduct that occurs in the context of plan administration. AT & T held that since “ERISA at least arguably governs the alleged misconduct at issue, plainti s’ state law claims predicated upon that same alleged conduct are preempted.” 1994 WL 16057794 at *27. The Supreme Court has rejected such a broad rule, clarifying that “lawsuits against ERISA plans for run-of-the-mill state-law claims such as unpaid rent, failure to pay creditors, or even torts committed by an ERISA plan …, although obviously a ecting and involving ERISA plans and their trustees, are not preempted.” Mackey, 486 U.S. at 833. As a result, the defendants are left without any rm precedent supporting the position that ERISA preempts corporation-law claims against dual-hat directors and o cers. B. Analysis Turning to this case, we agree with the results reached in most of the above cases, that ERISA did not preempt the plainti s’ claims against the director and o cer defendants. But our reasons di er somewhat from the “parallel but independent” duties theory employed by other courts. We agree with Sommers Drug Stores that the duties must be parallel; state law cannot be allowed to require an act that No. 20-2793 13 ERISA forbids. So, here, the fact that the directors and o cers’ corporation-law and ERISA duties both prohibit the fraudulent conduct alleged by the plainti s is crucial. But, unlike Sommers Drug Stores, we do not lean heavily on the fact that the defendants’ corporation-law duties have independent state-law grounds. Virtually all state-law causes of action derive from independent state-law duties. Rather, what we nd most important is that ERISA is written to invite, and certainly to tolerate, these speci c parallel and independent duties—the directors and o cers’ duciary duties to the corporation. 1. Alternative Remedies We can rst quickly dispel any notion that the plainti s are attempting to circumvent ERISA’s exclusive remedial scheme. These plainti s have no rights under ERISA as a “participant, bene ciary, or duciary.” 29 U.S.C. § 1132(a)(3). They are not asserting state-law claims as an end run around their more limited federal remedies. See Pilot Life, 481 U.S. at 54 (ERISA’s “policy choices … would be completely undermined if ERISA-plan participants and bene ciaries were free to obtain remedies under state law that Congress rejected in ERISA”) (emphasis added). Unlike plainti s covered by ERISA, these non-ERISA plainti s “were not parties to the ERISA ‘bargain’”; they did not “g[i]ve up state law causes of action” to “receive[] federal causes of action under ERISA in exchange.” Lordmann Enters., Inc. v. Equicor, Inc., 32 F.3d 1529, 1533–34 (11th Cir. 1994), quoting Memorial Hosp. Sys. v. Northbrook Life Ins. Co., 904 F.2d 236, 249 (5th Cir. 1990). 1 1 We need not decide whether ERISA would preempt similar corporation-law claims brought by ERISA beneficiaries, participants, or 14 No. 20-2793 This is why, under the related ERISA doctrine of complete preemption—which addresses state-law causes of action more often—the rst prong of the Supreme Court’s test for preemption is whether the plainti “at some point in time, could have brought his claim under ERISA….” Aetna Health Inc. v. Davila, 542 U.S. 200, 210 (2004). This case arises under con ict preemption rather than complete preemption. But “given the similar underlying policy considerations,” Davila’s test is useful in assessing the similar question of alternative remedies under con ict preemption. Franciscan Skemp Healthcare, Inc. v. Cent. States Joint Board Health & Welfare Trust Fund, 538 F.3d 594, 600 n.3 (7th Cir. 2008). Here, Davila would not preempt the plainti s’ claims because the plainti s cannot sue under ERISA. That weighs against the presence of an alternative remedies problem here. 2. The Exclusive Bene t Rule The alternative remedies issue, however, only begins our inquiry. ERISA would still preempt the plainti s’ claims if they “‘govern[] … a central matter of plan administration’ or ‘interfere[] with nationally uniform plan administration.’” Gobeille, 577 U.S. at 320, quoting Egelho , 532 U.S. at 148. We must therefore analyze whether and to what extent the plainti s’ parallel state-law duciary duty claims interfere with how Congress intended ERISA’s duciary duties to operate. Section 404 of ERISA imposes an exclusive duty of loyalty on duciaries to act solely in the interest of ERISA bene ciaries. Subject to certain quali cations, “a duciary shall discharge his duties with respect to a plan solely in the interest of fiduciaries who can sue Appvion’s directors and officers under ERISA for the same conduct. No. 20-2793 15 the participants and bene ciaries and … for the exclusive purpose of … providing bene ts to participants and their bene ciaries.” 29 U.S.C. § 1104(a)(1)(A)(i) (emphases added). This is known as the “exclusive bene t” rule. A related provision provides another formulation of the rule: “the assets of a plan shall never inure to the bene t of any employer and shall be held for the exclusive purposes of providing bene ts to participants in the plan and their bene ciaries….” 29 U.S.C. § 1103(c)(1) (emphases added). In addition, 29 U.S.C. § 1106 provides a list of “prohibited transactions” and implements the exclusive bene t rule by prohibiting various types of self-dealing and other con icts of interest. ERISA’s exclusive bene t rule derives from “one of the most fundamental and distinctive principles of trust law, the duty of loyalty.” Langbein & Fischel, 55 U. Chi. L. Rev. at 1108. ERISA is built on a trust-law model. See 29 U.S.C. § 1103(a) (“all assets of an employee bene t plan shall be held in trust”). Congress intended courts to “apply rules and remedies similar to those under traditional trust law to govern the conduct of duciaries.” H.R. Rep. No. 93-1280, at 295 (1974) (Conf. Rep.). By importing the trust form and its duty of loyalty into bene t plans, ERISA drew from a familiar legal framework to protect plans from the kind of internal misuse that motivated ERISA’s enactment. Congress enacted ERISA in response to widespread concern over the misuse of employee pensions, notoriously exempli ed by Studebaker’s default on its pension plan in 1963 and the severe corruption uncovered in the Teamsters union through Senate investigations. See John H. Langbein, What ERISA Means by “Equitable”: The Supreme Court’s Trail of Error in Russell, Mertens, and GreatWest, 103 Colum. L. Rev. 1317, 1322–24 (2003). 16 No. 20-2793 ERISA’s duty of loyalty is the “highest known to the law.” Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir. 1982). A duciary of a trust has “a duty to the bene ciary to administer the trust solely in the interest of the bene ciary.” Restatement (Second) of Trusts § 170(1) (1959). The reason for such a strict and exclusive duty of loyalty stems from the unique trust relationship, where a third party is entrusted with a settlor’s property to be used for the bene ciary. Under this arrangement, “neither the transferor nor the bene ciaries are well situated to monitor closely the actions of the trustee.” Langbein & Fischel, 55 U. Chi. L. Rev. at 1114. With such power comes responsibility. The duty of loyalty steps in as a forceful substitute for direct monitoring. It protects bene ciaries by barring any con ict of interest that might put the duciary in a position to engage in self-serving behavior at the expense of bene ciaries. The rule is designed to deter misbehavior by establishing an “irrebuttable presumption of wrongdoing whenever the trustee engages in con ict tainted transactions.” Id. at 1114–15. This is strong medicine—so strong that a “trustee who deals with trust property for his own account is not allowed a defense even when the transaction was … harmless to the bene ciaries,” and even if it actually “bene t[s] both” the bene ciary and trustee. Id. at 1115. These common-law trust principles apply equally to ERISA’s duty of loyalty, embodied in the exclusive bene t rule. Good faith is not a defense. Leigh v. Engle, 727 F.2d 113, 124 (7th Cir. 1984). And “ERISA clearly contemplates actions against duciaries who pro t by using trust assets, even where the plan bene ciaries do not su er direct nancial loss.” Id. at 122. As 29 U.S.C. § 1104(a)(1)(A)(i) commands, No. 20-2793 17 ERISA duciaries must always act with an “eye single to the interests of the participants and bene ciaries.” Id. at 123, quoting Donovan v. Bierwirth, 680 F.2d at 271. Given the formidable backdrop of ERISA’s exclusive bene t rule, we are skeptical of any state-law attempt to saddle ERISA duciaries with other distracting and potentially con icting duties to the corporate employer. Nevertheless, when it comes to corporate directors and o cers, ERISA tolerates some measure of dual loyalty. 3. Exception for Dual-Hat Directors and O cers Despite the exclusive bene t rule, ERISA § 408(c)(3) explicitly allows corporate insiders—who already have duciary duties under corporation law—to serve as ERISA duciaries. Section 408(c)(3) states that ERISA’s “prohibited transactions” rules shall not “be construed to prohibit any duciary from … serving as a duciary in addition to being an of cer, employee, agent, or other representative of a party in interest.” 29 U.S.C. § 1108(c)(3). ERISA de nes “party in interest” to include corporate employers and other plan sponsors. 29 U.S.C. § 1002(14). Moreover, ERISA invites con icts of interest within ESOPs like the plan in this case. ERISA’s prohibited transaction rules ordinarily forbid deals between plans and other interested parties such as large stockholders, see 29 U.S.C. § 1106(a)(1)(E) & (a)(2), but ERISA speci cally allows such deals for ESOPs, see 29 U.S.C. § 1107(b)(1) & (d)(3)(A)(ii). By “expressly contemplat[ing] duciaries with dual loyalties,” § 408(c)(3) takes “an unorthodox departure from the common law” that is in obvious tension with ERISA’s exclusive bene t rule. Donovan v. Bierwirth, 538 F. Supp. 463, 468 (E.D.N.Y. 1981), a ’d as modi ed, 680 F.2d 263 (2d Cir. 1982). 18 No. 20-2793 As noted, scholars have defended this “fundamental contradiction” as necessary to encourage employers to establish bene t plans. Without dual-hat duciaries, employers that establish ERISA plans would be “assuming nancial liabilities without e ective controls.” Langbein & Fischel, 55 U. Chi. L. Rev. at 1127. The e ect of adhering strictly to the commonlaw rule would likely be a lower rate of plan formation. Id. ERISA’s necessary accommodation for dual-hat directors and o cers has produced messy con icts of interest that courts and commentators have long recognized and struggled to resolve. See generally Laurence B. Wohl, Fiduciary Duties Under ERISA: A Tale of Multiple Loyalties, 20 U. Dayton L. Rev. 43 (1994). Courts “are faced with the problem of reconciling the overwhelming requirements of common-law trustee singlemindedness with the ERISA permission for dual loyalties.” Id. at 58. Courts “must develop a tolerance for the resulting con icts such dual roles undoubtedly will cause.” Id. The Supreme Court itself has noted this problem, writing that “the analogy between ERISA duciary and common law trustee becomes problematic … because the trustee at common law characteristically wears only his duciary hat when he takes action to a ect a bene ciary, whereas the trustee under ERISA may wear di erent hats.” Pegram v. Herdrich, 530 U.S. 211, 225 (2000). Accordingly, since the 1980s, courts have recognized and tried to harmonize directors and o cers’ dual loyalties under ERISA. In Donovan v. Bierwirth, for example, the Secretary of Labor sued dual-hat trustees of an ERISA plan for breaching their duty of loyalty to bene ciaries by using plan assets to purchase company stock at an in ated price to fend o an outside takeover bid. 538 F. Supp. at 465–68. The district court No. 20-2793 19 rst noted that, because ERISA “abrogated the traditional common law rule” and “clearly contemplates … duciaries with dual loyalties,” the trustees “did not commit per se violations of ERISA either by their failure to abstain from the investment decision … or by the mere acquisition of [company] stock.” Id. at 469–70. Nevertheless, the court held that “when a duciary has dual loyalties, his independent investigation into the basis for an investment decision which presents a potential con ict of interests must be both intensive and scrupulous” to ensure that the con ict is not in uencing the decision. Id. at 470, discussing 29 U.S.C. § 1104(a)(1)(B) (ERISA duty of prudence). Applying that standard, the court found that the trustees failed to exercise such care by not recognizing and taking steps to neutralize their inherent con ict—such as, at the very least, consulting independent counsel. Id. at 473. The Second Circuit a rmed, clarifying that dual-hat directors and o cers must do everything possible to “avoid placing themselves” in a decision presenting an actual con ict, and if faced with such a con ict must inform themselves and act to neutralize it, perhaps by temporarily resigning as trustees. Donovan v. Bierwirth, 680 F.2d at 271–72. But unlike at common law, the court acknowledged, “o cers of a corporation … do not violate their duties as trustees by taking action which, after careful and impartial investigation, they reasonably conclude best to promote the interests of participants and bene ciaries simply because it incidentally bene ts the corporation or, indeed, themselves.” Id at 271. In this circuit, we used a similar approach to reconcile ERISA’s exclusive bene t rule with its allowance for dual-hat directors and o cers in Leigh v. Engle, 727 F.2d 113 (7th Cir. 20 No. 20-2793 1984). Dual-hat directors and o cers invested ERISA trust assets in companies that were targets of directors and o cers’ hostile takeover attempts. We said that “plan trustees who are also o cers of either the ‘target’ or the ‘raider’ could be seen as having a signi cant ‘interest’ of their own in the outcome of the contest.” Id. at 127. We invoked the Donovan v. Bierwirth method of addressing directors and o cers’ dual loyalties and held that the directors and o cers violated ERISA’s duciary requirements: Where the potential for con icts is substantial, it may be virtually impossible for duciaries to discharge their duties with an “eye single” to the interests of the bene ciaries, and the duciaries may need to step aside, at least temporarily, from the management of assets where they face potentially con icting interests. … Where it might be possible to question the duciaries’ loyalty, they are obliged at a minimum to engage in an intensive and scrupulous independent investigation of their options to insure that they act in the best interests of the plan bene ciaries. In the case before us, we believe there is an additional factor which weighs heavily in evaluating the loyalty of the duciaries. Here the control e orts lasted for several months, and in the case of Hickory, for over a year. The Reliable Trust held its shares involved in the control contests throughout these periods, and, as we discuss below, the trust’s use of its assets at all relevant times tracked the best interests of the Engle [corporate insiders’] group in the control contest. We believe that the extent and duration No. 20-2793 21 of these actions congruent with the interests of another party are also relevant for courts in deciding whether plan duciaries were acting solely in the interests of plan bene ciaries. Id. at 125–26, citing Donovan v. Bierwirth, 680 F.2d at 272; see also Newton v. Van Otterloo, 756 F. Supp. 1121, 1127–30 (N.D. Ind. 1991) (applying Leigh’s “three-pronged approach”); Danaher Corp. v. Chicago Pneumatic Tool Co., 635 F. Supp. 246, 250 (S.D.N.Y. 1986) (doubting “the appropriateness of [a] chief executive o cer continuing in his position of ESOP trustee during [a] takeover attempt” that was favored by current bene ciaries at the expense of potential future bene ciaries). These cases illustrate how courts have adapted ERISA’s duciary rules to account for the exception allowing for dualhat director and o cer duciaries. Courts have even applied these adapted duciary rules in cases involving ESOP valuations much like the one at issue in this case. In Donovan v. Cunningham, for example, the Fifth Circuit applied Donovan v. Bierwirth’s approach in a case where an ESOP trustee who was also a corporate o cer participated in the valuation of corporate stock for an ESOP purchase. 716 F.2d 1455 (5th Cir. 1983). The court recognized that “the stringent prophylactic rules of the common law cannot be incorporated re exively under” ERISA, id. at 1466–67, but that ERISA’s exception allowing ESOPs to purchase employer stock for “adequate consideration” must still be interpreted to imply an exacting duty of prudence for dual-hat duciaries with potential con icts of interest. Id. at 1467 & n.27. The Fifth Circuit rea rmed this principle in a case where dual-hat directors and o cers were involved in an ESOP’s purchase of company stock at an in ated price. Perez v. 22 No. 20-2793 Bruister, 823 F.3d 250, 262–63 (5th Cir. 2016) (“The trustees did not separate Bruister’s personal interests from Donnelly’s valuation process so as to avoid a con ict of interest. Their breach of the duty of loyalty turns on their failure to place the interests of participants and bene ciaries rst”; to prove ESOP purchase was “prudent”, “care must be taken to avoid any identi ed con icts of interest”); see also Howard v. Shay, 100 F.3d 1484, 1488–89 (9th Cir. 1996) (citing Donovan v. Bierwirth and Leigh v. Engle and holding that dual-hat duciaries violated their ERISA duties of care and loyalty when ESOP sold undervalued shares back to the dual-hat company president). 4. Preemption Implications These cases inform our preemption holding as to the directors and o cers in this case. Congress explicitly departed from the common law to allow directors and o cers to serve as ERISA duciaries despite their dual loyalties. These permissible dual loyalties weigh in favor of allowing parallel corporation-law liability against the directors and o cers in this case. If parallel liability were preempted, the directors and o cers would in e ect cease to be corporate duciaries when carrying out their ERISA duciary roles. That result would contravene § 408(c)(3)’s mandate that ERISA not be construed to prevent corporate duciaries from also serving as ERISA duciaries. Preempting the plainti s’ corporation-law claims against the directors and o cers would also thwart ERISA’s purpose to protect plan assets from misuse. The third-party bankruptcy creditors in this case cannot sue under ERISA. So, assuming the plainti s’ allegations are true, completely foreclosing their state-law claims could leave them without recourse for a fraudulent ESOP valuation that enabled insiders No. 20-2793 23 to loot the company as it was sinking toward bankruptcy. Congress enacted ERISA in response to Senate investigations into “widespread looting of plan funds through sweetheart deals, kickbacks, and … cronyism,” especially within the Teamsters union. Langbein, 103 Colum. L. Rev. at 1324. It would be odd if ERISA operated to shield similar fraudulent activity in this case. “ERISA was not intended as a device to permit corporate directors and o cers to defraud with impunity corporate shareholders and creditors.” Smith, 421 A.2d at 1114. Preempting all of plainti s’ claims could also frustrate congressional intent by discouraging ESOP formation. It could be rational for creditors to demand higher interest rates or more security for loans to ESOP-owned companies to account for the risk that directors and o cers might abuse the corporation without any recourse for creditors under corporation law. In the healthcare arena, courts have relied on a similar concern in refusing to preempt negligent misrepresentation claims by third-party hospitals against ERISA plan insurers. See Lordmann, 32 F.3d at 1533, citing Memorial Hospital Sys., 904 F.2d at 246 (“If ERISA preempts [hospitals’] potential causes of action for misrepresentation, health care providers can no longer rely as freely and must either deny care or raise fees…. In that event, the employees whom Congress sought to protect would nd medical treatment more di cult to obtain.”). Finally, allowing plainti s to pursue their claims under corporation law against the directors and o cers should not disrupt national uniformity in plan administration. The familiar “internal a airs” doctrine is a con ict of laws principle that recognizes that only one state should have authority to 24 No. 20-2793 regulate a corporation’s internal a airs, including duciary duties of directors and o cers. See LaPlant v. Northwestern Mutual Life Ins. Co., 701 F.3d 1137, 1139 (7th Cir. 2012), citing Edgar v. MITE Corp., 457 U.S. 624, 645 (1982); Treco, Inc. v. Land of Lincoln Sav. & Loan, 749 F.3d 374, 377 (7th Cir. 1984); Restatement (Second) of Con ict of Laws § 302, cmts. a & e (1971). Our holding as to the directors and o cers is limited to the plainti s’ particular claims in this case, which would impose corporate liability that runs parallel to, not in con ict with, ERISA’s duciary duties. By that we mean that the directors and o cers’ corporation-law and ERISA duties both prohibit the fraudulent conduct alleged by plainti s. ERISA expressly contemplates such parallel liability for dual-hat directors and o cers. We agree with the Fifth Circuit’s prediction in Sommers Drug Stores that a director’s state-law and ERISA duties will often run parallel, so that duties to shareholders require the same conduct as the duties to ERISA bene ciaries. See Sommers Drug Stores, 793 F.2d at 1468. In cases like this one, where shareholders and bene ciaries are both suing the directors and o cers for the same conduct, if shareholders can recover then ERISA bene ciaries likely can as well. ERISA’s trust duty “imposes a standard of care at least as high as that imposed by the director-shareholder duty.” Id. at 1468–69; see also Wohl, 20 U. Dayton L. Rev. at 78 n.139 (when dual-hat directors and o cers face “questions from the corporation’s shareholders,” they “will nd at least some protection by virtue of the business judgment rule”). If a dualhat director or o cer’s duties irreconcilably con ict, however, the director or o cer “might have to resign one position or No. 20-2793 25 the other,” Sommers Drug Stores, 793 F.2d at 1469. And if he or she does not, ERISA’s federal duties will trump con icting corporation-law duties. Here, the plainti s are pursuing parallel corporation-law claims against dual-hat directors and o cers, so ERISA does not preempt those claims. IV. Argent Trust Company The plainti s’ Count V aiding and abetting claims against Argent Trust Company (Argent) are a di erent matter. These claims are preempted because ERISA does not permit states to dilute the exclusive bene t rule further, beyond its narrow exception for dual-hat directors and o cers. Unlike the directors and o cers, Argent is a “single-hat” ERISA duciary. It has no state-law duty of loyalty to the corporation. Still, the plainti s seek to extend corporation-law liability to Argent through an aiding and abetting theory.2 Aiding and abetting a breach of a duciary duty is a wellestablished tort. See Restatement of Torts (Second) § 874, cmt. c (1979). Yet it is expansive in that it requires any third party working with a corporate duciary to be alert to the duciary’s special duties and to avoid knowingly giving aid to a breach. In this respect, aiding and abetting claims use 2 The parties dispute whether Wisconsin or Delaware law applies. We need not resolve that question because both states impose liability on parties who knowingly aid and abet a corporate fiduciary’s breach of duty. See Burbank Grease Servs., LLC v. Sokolowski, 294 Wis. 2d 274, 304, 717 N.W.2d 781, 796 (2006) (“If a duty of loyalty exists, and a third party encourages and profits from a breach of the duty of loyalty, a claim for aiding and abetting the breach will lie.”); Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 172 (Del. 2002) (stating elements of a claim for aiding and abetting a breach of fiduciary duty under Delaware law). 26 No. 20-2793 directors and o cers’ corporation-law duties as a foundation for a wider layer of tort liability reaching third parties. States are usually within their rights to impose aiding and abetting liability on third parties. However, ERISA preempts such liability when it comes to third parties like Argent who are subject to exclusive federal duties to act solely in the interest of bene ciaries. Unlike with dual-hat directors and o cers, ERISA does not contemplate single-hat duciaries owing any parallel duties to the corporation—even a limited duty not to aid and abet breaches against the corporation. The prospect of aiding and abetting liability in this case simply creates too great a risk that single-hat ERISA duciaries like Argent would be forced to worry about whether directors and o cers were complying with separate corporation-law duties. This would interfere with the singleminded focus on the plan and its bene ciaries that ERISA’s exclusive bene t rule prescribes for duciaries like Argent. In particular, the con icts of interest that plague dual-hat directors and o cers would suddenly infect single-hat entities, as well. Imagine, for example, an ERISA duciary worrying whether it would be aiding a breach of duciary duty simply by convincing a dual-hat director or o cer to approve a plan decision that favors bene ciaries at the expense of company pro ts. Such con icts of interest are challenging enough when they a ect only the directors and o cers. They can paralyze e cient plan administration. “[W]ith the strict common-law standard of not holding con icting o ces removed by ERISA, it is very di cult for an ERISA duciary to be assured of a benign assessment by third parties of the motivational factors underlying the duciary’s act.” Wohl, 20 U. Dayton L. Rev. at No. 20-2793 27 48–49. As a result, “the duciary may be reluctant to act” even where no malfeasance is afoot. Id. at 49. These problems are most likely to arise in cases like this one involving failing companies. Langbein & Fischel, 55 U. Chi. L. Rev. at 1132 (In cases involving “plant closings or in corporate reorganizations …, the gains from self-interested action by nonneutral duciaries may outweigh the usual … costs. It is for this reason, we suspect, that the contested plan administration cases so often arise when the incentives of the long term relationship” between employer and employees “are attenuated”). Such con icts of interest are exactly what ERISA’s exclusive bene t rule is meant to prevent. So while ERISA explicitly tolerates some con icts among directors and o cers, both the text and purpose of ERISA’s exclusive bene t rule make clear that courts should resist any further dilution through statelaw aiding and abetting claims that would e ectively force a second hat onto single-hat ERISA duciaries. Cf. UNUM Life Ins. Co. of Am. v. Ward, 526 U.S. 358, 378–79 (1999) (ERISA preempted state-law doctrine deeming employer an agent of insurer; state-law rule would force the employer, “as plan administrator, to assume a role, with attendant legal duties and consequences, that it has not undertaken voluntarily” under ERISA). We recognize that “aiding and abetting” liability against Argent would impose liability only for intentionally fraudulent conduct. It is therefore unlikely that the conduct prohibited by state law—aiding a fraud—would be something that Argent’s corollary ERISA duties require or even allow. In fact, ERISA bene ciaries, participants, and duciaries can sue Argent under ERISA for knowingly aiding the directors and o cers’ alleged breaches of their ERISA 28 No. 20-2793 duties. See 29 U.S.C. § 1105(a)(1) (“a duciary … shall be liable for a breach of duciary responsibility of another duciary … if he participates knowingly in, or knowingly undertakes to conceal, an act or omission of such other duciary, knowing such act or omission is a breach”). As with the directors and o cers, then, state-law liability against Argent would run parallel to Argent’s ERISA liability. But, again, the key di erence is that the exclusive bene t rule preempts such parallel state-law liability outside the narrow and unavoidable exception for dual-hat directors and o cers. Indeed, the preeminence of ERISA’s exclusive bene t rule is what distinguishes the aiding and abetting claims against Argent from other non-preempted, “run-of-the-mill” tort claims brought against single-hat ERISA duciaries. See Mackey, 486 U.S. at 833. In Mackey, the Supreme Court recognized that claims for ordinary torts allegedly committed by ERISA duciaries are often not preempted. Id. (“lawsuits against ERISA plans for run-of-the-mill state-law claims such as unpaid rent, failure to pay creditors, or even torts committed by an ERISA plan—are relatively commonplace…. [T]hese suits, although obviously a ecting and involving ERISA plans and their trustees, are not pre-empted by ERISA § 514(a).”). Accordingly, courts have permitted many tort claims against ERISA duciaries even when the tortious conduct occurred in the context of plan activity. See Mackey, 486 U.S. at 833 n.8 (collecting cases); see also, e.g., Franciscan Skemp, 538 F.3d at 601 (third-party hospital’s negligent misrepresentation claim against ERISA plan insurer was not completely preempted); Dishman v. UNUM Life Ins. Co. of Am., 269 F.3d 974, 979–84 (9th Cir. 2001) (bene ciary could pursue invasion No. 20-2793 29 of privacy tort against ERISA plan insurer for actions taken to investigate bene ts claim); Lane v. Goren, 743 F.2d 1337, 1340 (9th Cir. 1984) (bene ciary could pursue state-law race and age discrimination claims against ERISA duciaries). In those and other “run-of-the-mill” cases, however, the plainti s were either (1) bene ciaries who su ered torts unrelated to their ERISA rights, as in Dishman and Lane, or (2) true third parties, such as the hospital in Franciscan Skemp or the outside creditors in Mackey. State-law liability to the bene ciaries in Dishman and Lane thus did not risk distracting duciaries from their single-minded focus on bene ciaries. And in Franciscan Skemp and Mackey, because liability owed to third parties, there was no risk of dividing single-hat duciaries’ allegiance between the bene ciary and her corporate employer—the foremost entity that ERISA duciaries are not supposed to serve. Here, however, the injured plainti is the corporate employer. Parallel state-law liability would foster just the sort of dual loyalty that the exclusive bene t rule prohibits. The plainti s in this case are bankruptcy creditors, not the corporation itself, but they are suing on behalf of the corporate employer for alleged breaches of duties owed to the corporation before the bankruptcy. So, unlike in Mackey-type cases, the aiding and abetting claims against Argent here would in fact impose on single-hat duciaries new state-law duties to the corporate employer. Such liability is fundamentally at odds with the text and purpose of ERISA’s exclusive bene t rule and is therefore preempted. 30 No. 20-2793 V. Stout Risius Ross The preemptive force of ERISA’s exclusive bene t rule also protects the Stout Risius Ross defendants (Stout) from corporate aiding and abetting liability even though Stout is not a duciary under ERISA. Like Argent, Stout is not a dualhat director or o cer for whom ERISA contemplates parallel corporate liability. Argent hired Stout for its expertise in aiding the ESOP valuation process. In this role, Stout owed no duciary duties to the corporation or to ERISA bene ciaries. This means Stout is not subject to the exclusive bene t rule. So at rst glance, parallel non- duciary liability against Stout under both ERISA and state law would seem not to con ict with the exclusive bene t rule. But upon closer inspection, Stout is situated more similarly to Argent than to the directors and o cers when it comes to preemption. Three considerations point to this conclusion. First, to protect Argent’s single-minded focus on bene ciaries, it is also necessary to protect its contractor, Stout, whose involvement in the ESOP valuation stemmed solely from Argent’s trustee duties. Second, given Stout’s role in the ESOP valuation process, parallel state liability to the corporation would con ict with Stout’s non- duciary obligations to bene ciaries when performing core ERISA functions. Third, state-law liability for Stout could lead to a damages remedy that would arguably con ict with ERISA’s remedial limits on claims against non- duciaries. So, while the question is a closer call, ERISA also preempts the plainti s’ aiding and abetting claims against Stout. In assessing the state-law claims against Stout, it is rst important to clarify that, although Stout is not a duciary under ERISA, it still had federal-law obligations under ERISA when serving as Argent’s contractor. Speci cally, under No. 20-2793 31 ERISA §§ 502(a)(5) & (l), 29 U.S.C. §§ 1132(a)(5) & (l), Stout can be sued by the Secretary of Labor for knowingly aiding an ERISA duciary’s breach of its duties to bene ciaries. See Harris Tr. & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 248 (2000) (“the Secretary may bring a civil action under § 502(a)(5) against an ‘other person’ who ‘knowing[ly] participat[es]’ in a duciary’s violation”), quoting 29 U.S.C. § 1132(l). Thus, under ERISA, Stout must concern itself with Argent’s and the directors and o cers’ duciary duties to bene ciaries so as not to participate knowingly in a violation. 3 Because Stout incurs ERISA liability if it knowingly aids a breach of duciary duty, Stout was acting in a limited singlehat ERISA role when aiding the ESOP valuation process as Argent’s contractor. Stout was obligated under ERISA to avoid aiding Argent’s or the directors and o cers’ alleged 3 While the Secretary’s cause of action against Stout suffices in this case to illustrate Stout’s non-fiduciary obligations to beneficiaries under ERISA, whether private parties could similarly sue Stout under § 502(a)(3) for aiding a fiduciary’s breach of duty remains undecided in our circuit. The logic of Harris suggests they can. Harris held that private parties could sue non-fiduciaries under § 502(a)(3) for knowingly aiding a prohibited transaction under § 406. 530 U.S. at 248–49. And Harris’s reasoning would seem to extend equally to a § 404 fiduciary duty claim. See id. (allowing § 502(a)(3) claim because Congress intended beneficiaries’ cause of action to match the Secretary’s cause of action under § 502(a)(5)). See also Daniels v. Bursey, 313 F. Supp. 2d 790, 807–08 (N.D. Ill. 2004) (extending Harris’s logic to a claim alleging participation in a breach of fiduciary duty). Nevertheless, even after Harris, some circuits have continued to hold that a non-fiduciary’s participation in a breach of fiduciary duty is not actionable under § 502(a)(3). See Renfro v. Unisys Corp., 671 F.3d 314, 325 (3d Cir. 2011); Gerosa v. Savasta & Co., 329 F.3d 317, 322–23 (2d Cir. 2003). We need not and do not decide this issue here. See Gordon v. CIGNA Corp., 890 F.3d 463, 477 n.2 (4th Cir. 2018) (flagging but not deciding this issue). 32 No. 20-2793 breaches. For three reasons, this obligation imposed on Stout under ERISA preempts the plainti s’ attempt to impose additional duties on Stout based on aiding and abetting liability to the corporation. First, to ensure Argent’s single-minded focus as an ERISA duciary, that single-minded focus must also extend to Stout, whom Argent hired to help perform core trustee functions. Stout’s involvement in this case stems solely from Argent’s single-hat trustee duties. Argent hired Stout for its expertise to help Argent with the ESOP valuation process. If state law could burden Argent’s contractors with liability to the corporation, that would hinder Argent’s ability as trustee to hire trusted experts whose thinking is not clouded with concerns about recommending actions to directors and o cers that might be contrary to the corporation’s interests. Hence, to protect Argent’s ability to act for the exclusive bene t of bene ciaries, it becomes important also to prevent the expansion of dual-hat loyalties to non- duciary contractors like Stout. Otherwise, ERISA duciaries may not be able to con de fully in non- duciary contractors to help perform core trustee duties with an eye single to bene ciaries. Second, and most simply, given Stout’s key role in the ESOP valuation process, ERISA’s focus on protecting bene ciaries weighs against permitting corporate aiding and abetting liability against Stout. Like Argent, Stout is not locked into the (potentially) con icting dual roles that ERISA accepts for directors and o cers. So, as with Argent, there is no need under ERISA to tolerate state laws that impose corporationlaw liability on non- duciary contractors who perform central ERISA functions such as ESOP valuations. Stout’s services were central to plan administration—preparing the No. 20-2793 33 independent valuation of the ESOP’s holdings. As with Argent, then, when performing such core plan tasks, Stout’s federal ERISA obligations should not be muddled with distracting and potentially con icting state-law obligations to the corporation. Such liability rules would a ect central matters of plan administration in a manner not consistent with ERISA, and would thus “relate to” an ERISA plan, 29 U.S.C. § 1114(a). See, e.g., Egelho , 532 U.S. at 147 (state rule requiring administrators to pay bene ts to bene ciaries chosen by state law was not consistent with ERISA’s rule that bene ts be paid to those identi ed in plan documents). Last, state-law liability against Stout could lead to a damages remedy that is arguably in tension with ERISA’s remedial limits on claims against non- duciaries. As mentioned above, the Secretary of Labor can sue a non duciary like Stout under § 502(a)(5) for knowingly participating in a breach of duty. Yet, like bene ciaries’ private cause of action under § 502(a)(3), the Secretary’s cause of action under § 502(a)(5) is limited to “equitable relief.” As a result, ERISA does not authorize suits for damages against non- duciaries who knowingly participate in a duciary’s breach of duciary duty. See Mertens v. Hewitt Assocs., 508 U.S. 248, 260–61 (1993) (explaining that even the Secretary’s ability to assess civil penalties against non- duciaries under § 502(l) does not “establish[] the existence of a damages remedy” against non- duciaries, but rather counts as “equitable relief” under § 502(a)(5)). Mertens’s equitable limit on Stout’s potential ERISA liability produces some additional tension in this case between plainti s’ state-law damages claims against Stout and ERISA’s remedial scheme. Although Mertens applies only 34 No. 20-2793 to ERISA claims, it would be odd if the corporation could obtain remedies against Stout that could not be sought by the Secretary of Labor on behalf of similarly injured bene ciaries. That result could give non- duciaries like Stout incentives to be more attentive to the corporation than to bene ciaries. Such an e ect would undermine ERISA’s purpose of ensuring that ERISA duciaries and their contractors focus rst and foremost on the interests of plan bene ciaries—not the corporation. For all these reasons, we nd that ERISA also preempts the plainti s’ state-law claims against Stout. Conclusion The exclusive bene t rule is a cornerstone of ERISA that state law cannot dilute. While ERISA narrowly contemplates parallel liability against the dual-hat director and o cer defendants, it preempts further aiding and abetting liability that would impose additional duties on Argent and Stout beyond their exclusive ERISA obligations. We therefore REVERSE the dismissal of Counts I–IV and Counts VII and VIII against the directors and o cers and AFFIRM the dismissal of Counts V and VI against Argent and Stout and REMAND the case for further proceedings consistent with this opinion.
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