The ERISA Litigation Newsletter - October 2013

Editor's Overview

This month we return to the age-old question - "What makes someone a fiduciary?" As Nicole Eichberger explains, the Seventh Circuit reminded us that the meaning of a "functional fiduciary" depends on exercise/conduct in relation to the claims at issue. Thus, close examination of fiduciary breach allegations at each stage of a dispute can become a key defensive tool in dismissing or limiting the claims alleged and the discovery related thereto.

As always, be sure to review the Rulings, Filings, and Settlement of Interest where we discuss the DOL's "Place of Celebration" rule, proposed legislation on executive compensation, bankruptcy discharge of ERISA withdrawal liability, and a common law slayer rule.

Leimkuehler v. Am. United Life Ins. Co.: Revisiting Functional Fiduciary Status *

Contributed by Nicole Eichberger

Unless an individual or entity is a named fiduciary under ERISA, a plaintiff must show that the defendant is a "functional fiduciary" under ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A) in order to sustain a fiduciary claim. In Pegram v. Herdrich, 530 U.S. 211 (2000), the Supreme Court stated that fiduciary status is dependent upon the answer to the question: "whether [the] person was acting as a fiduciary (that is, was performing a fiduciary function) when taking the action subject to the complaint." The analysis of, and answer to, this question have become key issues with respect to current fee and ESOP litigations. Recently, the Seventh Circuit revisited this threshold question in Leimkuehler v. Am. United Life. Ins. Co., 713 F.3d 905 (2013), and, following the Pegram Court, held that functional fiduciary status relies on the defendant's conduct in relation to the claims at issue in the complaint.

ERISA Fiduciary Status

Under ERISA, an individual or entity may be an ERISA fiduciary in one of two circumstances. First, fiduciary status may be conferred by being named in the plan instruments. ERISA § 405(c)(1)(B), 29 U.S.C. § 1105(c)(1)(B). Alternatively, if fiduciary status is not conferred in name, an individual or entity may be a "functional fiduciary" under ERISA § 3(21)(A) to the extent: "(i) he exercises any discretionary authority or discretionary control respecting management of such plan or exercises any authority or control respecting management or disposition of its assets, (ii) he renders investment advice for a few or other compensation ..., (iii) he has any discretionary authority or discretionary responsibility in the administration of such plan." The Seventh Circuit recently addressed when, and to what extent, an individual is an ERISA functional fiduciary in Leimkuehler.

Leimkuehler: Factual & Procedural Background

The trustee of the Leimkueler, Inc. Profit Sharing Plan (the "Plan") filed a breach of fiduciary duty class action suit against American United Life Insurance Company ("AUL"), which provided various services to the Plan, but was not a named fiduciary under the plan documents. AUL's services included the provision and use of a group variable annuity contract, enabling participants to invest in mutual funds. The structure of the contract was such that the...