Alan Halperin v. Mark Richards

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

officers and others alleged to have inflated the company’s

stock value to conceal the company’s decline and to benefit

corporate insiders. We hold that ERISA does not preempt the

plaintiffs’ claims against the company’s directors and officers.

2 No. 20-2793

ERISA expressly contemplates parallel corporate liability

against directors and officers who serve dual roles as both

corporate and ERISA fiduciaries. We also hold, however, that

ERISA preempts the plaintiffs’ claims against the former

ERISA trustee of the employee benefit plan and its non-

fiduciary contractor. Corporation-law aiding and abetting

liability against these defendants would interfere with the

cornerstone of ERISA’s fiduciary duties—the exclusive

benefit 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 plaintiffs’ fac-

tual allegations as true and draw all reasonable inferences in

their favor. Kolbe & Kolbe Health & Welfare Benefit Plan v. Medi-

cal College of Wisconsin, Inc., 657 F.3d 496, 502 (7th Cir. 2011).

According to the plaintiffs, Appvion, Inc. was in financial

freefall from 2012 to 2016 as revenues from its paper business

declined sharply. During those years, Appvion repeatedly

missed its financial 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 plaintiffs assert that, while the corporate ship was

sinking, the defendants fraudulently inflated these stock val-

uations to line the pockets of directors and officers, whose pay

was tied to the ESOP valuations. Plaintiffs allege that the di-

rectors and officers 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 officers. The plaintiffs also allege that Appvion

No. 20-2793 3

directors provided unlawful dividends to its parent company,

Paperweight Development Corporation, by forgiving and re-

extending certain intercompany notes to it.

In October 2017, Appvion and its affiliates filed 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).

Plaintiffs here are Alan Halperin and Eugene Davis, co-

trustees of the Appvion Liquidating Trust. They originally

filed this action in the Delaware bankruptcy court. The bank-

ruptcy court transferred Counts I–VIII of the plaintiffs’ Re-

vised Second Amended Complaint to the U.S. District Court

for the Eastern District of Wisconsin. Counts I–IV assert state-

law claims against the director and officer defendants (Mark

Richards, Thomas Ferree, Tami Van Straten, Jeffrey Fletcher,

Kerry Arent, Stephen Carter, Terry Murphy, Andrew Rear-

don, Kathi Seifert, Mark Suwyn, Carl Laurino, and David

Roberts) for breaching their corporate fiduciary duties.

Counts V and VI allege that Argent and Stout aided and abet-

ted those breaches. And Counts VII and VIII assert state-law

unlawful dividend claims against the directors and officers.

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 specifically, the directors and

officers argue that, despite their dual roles as corporate and

ERISA fiduciaries, they acted exclusively in their ERISA roles

when carrying out the ESOP activity underlying the plaintiffs’

claims. See 29 U.S.C. § 1002(21)(A) (a corporate officer “is a

fiduciary 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 ar-

gue 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 plaintiffs’ claims. The court granted the de-

fendants’ motion to dismiss Counts I–VIII with prejudice be-

cause they “are grounded in … ERISA-related duties … and

‘relate to’ the ESOP.” Halperin, 2020 WL 5095308, at *4. The

district court’s ERISA preemption finding 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 un-

der ERISA § 502, 29 U.S.C. § 1132, and conflict preemption un-

der ERISA § 514, 29 U.S.C. § 1144. The defendants assert that

the claims in this case are conflict-preempted under the latter

provision, which preempts “any and all State laws insofar as

they may now or hereafter relate to any employee benefit

plan” covered by ERISA.

The fundamental challenge in interpreting this preemp-

tion provision stems from its broad language: “If ‘relate to’

No. 20-2793 5

were taken to extend to the furthest stretch of its indetermi-

nacy, 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 preemp-

tion to be broad. Congress chose “deliberately expansive” lan-

guage, “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 offers little help

in drawing boundaries for ERISA conflict preemption, Travel-

ers, 514 U.S. at 655, the Supreme Court “considers ERISA’s ob-

jectives ‘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 conflict preemption provision was “‘to ensure that

plans and plan sponsors would be subject to a uniform body

of benefits law,’ thereby ‘minimiz[ing] the administrative and

financial burden of complying with conflicting directives’ and

ensuring that plans do not have to tailor substantive benefits

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

specific benefits 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 benefit 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 Egelhoff v.

Egelhoff, 532 U.S. 141, 148 (2001) (preempting Washington

benefits rule that would create state-by-state differences 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 benefits—integration—that is permitted by federal

law”). But direct conflict is not always needed to show

preemption. Some state laws that run parallel to or in har-

mony 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 fired 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 benefits).

III. Director and Officer Defendants

Applying these principles to the claims against the

directors and officers, we find that the plaintiffs’ claims are

not preempted because ERISA contemplates parallel state-

law liability against directors and officers serving dual roles

as both corporate and ERISA fiduciaries. Section 408(c)(3) of

ERISA explicitly allows corporate insiders to serve as ERISA

fiduciaries. 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

benefit” rule in 29 U.S.C. § 1104(a)(1)(A)(i). See Daniel R.

Fischel & John H. Langbein, ERISA’s Fundamental

Contradiction: The Exclusive Benefit 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 beneficiaries of

ERISA plans. Id. at 1126. If dual-hat fiduciaries were not

allowed, employers that established ERISA plans would be

“assuming financial liabilities without effective controls,” and

“Employers tend not to write blank checks.” Id. at 1127.

8 No. 20-2793

Allowing directors and officers to participate in plan decision-

making as ERISA fiduciaries therefore supports employers’

incentives to form ERISA plans—something Congress clearly

desired. Unsurprisingly, however, these dual roles also

produce conflicts 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 officers 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 fiduciary and its contractor, whose actions

should be governed by an undiluted exclusive-benefit 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 officers. Beyond the Fifth Cir-

cuit’s decision in Sommers Drug Stores Co. Employee Profit Shar-

ing 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 officers.

In Sommers Drug Stores, for example, the Fifth Circuit as-

sessed whether ERISA preempted a common-law breach of

No. 20-2793 9

fiduciary duty claim brought by an employee profit sharing

trust (which was both a minority shareholder and ERISA

plan) against the company president (a dual-hat corporate

and ERISA fiduciary). 793 F.2d at 1468. The trust brought fi-

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 Cir-

cuit’s reasoning focused on the shareholder-director relation-

ship, which imposed special duties wholly independent from

any parallel ERISA duties:

The state common law of fiduciary 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 direc-

tor arise solely from his status as shareholder.

That in a case such as ours the director happens

also to be a plan fiduciary and the shareholder a

benefit plan has nothing to do with the duty

owed by the director to the shareholder. The

state law and ERISA duties are parallel but in-

dependent: as director, the individual owes a

duty, defined by state law, to the corporation’s

shareholders, including the plan; as fiduciary,

the individual owes a duty, defined by ERISA,

to the plan and its beneficiaries.

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 allega-

tions of breach of fiduciary duty … were not preempted be-

cause they ‘derive from the counterclaim defendants’ obliga-

tions and responsibilities as officers of the corporation under

state corporate law, rather than their relationship to the …

plans as beneficiaries.’”), 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 Invest-

ments, 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 prin-

ciples do not apply when, as is the case here, the cause of ac-

tion for breach of fiduciary duty is against a corporate officer

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 plaintiffs,

as minority shareholders … and Ramsey and Curran, as …

officers[] 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-

fied 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 fiduciaries. However, … all the

claims against these defendants are based on independent le-

gal duties owed in their roles as corporate fiduciaries….”); In

re Dehon, Inc., 334 B.R. 55, 68 (Bankr. D. Mass. 2005) (relying

on Sommers Drug Stores and finding 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 officers “[s]imply because events

precipitating [them] occurred in the general context of an em-

ployee benefit plan,” Richmond, 792 F. Supp. at 459, would

contravene ERISA’s core purpose to prevent misuse of plan

assets by enabling directors and officers to defraud sharehold-

ers 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 officers and directors … from allega-

tions of self-dealing by the corporate entity to which they

have defined 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 per-

mit corporate directors and officers to defraud with impunity

corporate shareholders and creditors….”).

The defendants rely on two cases finding 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 offer little support for the directors

and officers’ defense here. McLemore held ERISA preempted

an entirely different sort of claim. The McLemore plaintiffs

asserted state-law damages claims against Regions Bank “for

knowingly permitting [ERISA fiduciaries] to breach their

fiduciary duties” under ERISA. 682 F.3d at 426. The Sixth

Circuit held such claims were preempted because the

plaintiffs were ERISA “participant[s], beneficiar[ies], or

fiduciar[ies]” who could bring these same claims under

ERISA. Such plaintiffs 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 plaintiffs’ claims in McLemore sought

to enforce ERISA duties, not corporation-law duties. And,

unlike McLemore, the plaintiffs 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, plaintiffs’

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 affecting

and involving ERISA plans and their trustees, are not pre-

empted.” Mackey, 486 U.S. at 833. As a result, the defendants

are left without any firm precedent supporting the position

that ERISA preempts corporation-law claims against dual-hat

directors and officers.

B. Analysis

Turning to this case, we agree with the results reached in

most of the above cases, that ERISA did not preempt the

plaintiffs’ claims against the director and officer defendants.

But our reasons differ 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 officers’

corporation-law and ERISA duties both prohibit the

fraudulent conduct alleged by the plaintiffs 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 find most important is that ERISA is written to invite,

and certainly to tolerate, these specific parallel and independent

duties—the directors and officers’ fiduciary duties to the

corporation.

1. Alternative Remedies

We can first quickly dispel any notion that the plaintiffs

are attempting to circumvent ERISA’s exclusive remedial

scheme. These plaintiffs have no rights under ERISA as a

“participant, beneficiary, or fiduciary.” 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 under-

mined if ERISA-plan participants and beneficiaries were free to

obtain remedies under state law that Congress rejected in

ERISA”) (emphasis added). Unlike plaintiffs covered by

ERISA, these non-ERISA plaintiffs “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. North-

brook 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 first prong of the Supreme Court’s test for

preemption is whether the plaintiff “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

conflict 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 conflict 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 plaintiffs’ claims because the plaintiffs cannot

sue under ERISA. That weighs against the presence of an al-

ternative remedies problem here.

2. The Exclusive Benefit Rule

The alternative remedies issue, however, only begins our

inquiry. ERISA would still preempt the plaintiffs’ claims if

they “‘govern[] … a central matter of plan administration’ or

‘interfere[] with nationally uniform plan administration.’” Go-

beille, 577 U.S. at 320, quoting Egelhoff, 532 U.S. at 148. We must

therefore analyze whether and to what extent the plaintiffs’

parallel state-law fiduciary duty claims interfere with how

Congress intended ERISA’s fiduciary duties to operate.

Section 404 of ERISA imposes an exclusive duty of loyalty

on fiduciaries to act solely in the interest of ERISA beneficiar-

ies. Subject to certain qualifications, “a fiduciary shall dis-

charge 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 beneficiaries and … for the exclusive pur-

pose of … providing benefits to participants and their benefi-

ciaries.” 29 U.S.C. § 1104(a)(1)(A)(i) (emphases added). This is

known as the “exclusive benefit” rule. A related provision

provides another formulation of the rule: “the assets of a plan

shall never inure to the benefit of any employer and shall be held

for the exclusive purposes of providing benefits to participants in

the plan and their beneficiaries….” 29 U.S.C. § 1103(c)(1) (em-

phases added). In addition, 29 U.S.C. § 1106 provides a list of

“prohibited transactions” and implements the exclusive ben-

efit rule by prohibiting various types of self-dealing and other

conflicts of interest.

ERISA’s exclusive benefit 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 benefit plan shall be held

in trust”). Congress intended courts to “apply rules and rem-

edies similar to those under traditional trust law to govern the

conduct of fiduciaries.” H.R. Rep. No. 93-1280, at 295 (1974)

(Conf. Rep.). By importing the trust form and its duty of loy-

alty into benefit 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 em-

ployee pensions, notoriously exemplified by Studebaker’s de-

fault on its pension plan in 1963 and the severe corruption un-

covered in the Teamsters union through Senate investiga-

tions. See John H. Langbein, What ERISA Means by “Equitable”:

The Supreme Court’s Trail of Error in Russell, Mertens, and Great-

West, 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

fiduciary of a trust has “a duty to the beneficiary to administer

the trust solely in the interest of the beneficiary.” Restatement

(Second) of Trusts § 170(1) (1959). The reason for such a strict

and exclusive duty of loyalty stems from the unique trust re-

lationship, where a third party is entrusted with a settlor’s

property to be used for the beneficiary. Under this arrange-

ment, “neither the transferor nor the beneficiaries are well sit-

uated 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 pro-

tects beneficiaries by barring any conflict of interest that

might put the fiduciary in a position to engage in self-serving

behavior at the expense of beneficiaries. The rule is designed

to deter misbehavior by establishing an “irrebuttable pre-

sumption of wrongdoing whenever the trustee engages in

conflict 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 beneficiaries,”

and even if it actually “benefit[s] both” the beneficiary and

trustee. Id. at 1115.

These common-law trust principles apply equally to

ERISA’s duty of loyalty, embodied in the exclusive benefit

rule. Good faith is not a defense. Leigh v. Engle, 727 F.2d 113,

124 (7th Cir. 1984). And “ERISA clearly contemplates actions

against fiduciaries who profit by using trust assets, even

where the plan beneficiaries do not suffer direct financial

loss.” Id. at 122. As 29 U.S.C. § 1104(a)(1)(A)(i) commands,

No. 20-2793 17

ERISA fiduciaries must always act with an “eye single to the

interests of the participants and beneficiaries.” Id. at 123, quot-

ing Donovan v. Bierwirth, 680 F.2d at 271.

Given the formidable backdrop of ERISA’s exclusive ben-

efit rule, we are skeptical of any state-law attempt to saddle

ERISA fiduciaries with other distracting and potentially con-

flicting duties to the corporate employer. Nevertheless, when

it comes to corporate directors and officers, ERISA tolerates

some measure of dual loyalty.

3. Exception for Dual-Hat Directors and Officers

Despite the exclusive benefit rule, ERISA § 408(c)(3) ex-

plicitly allows corporate insiders—who already have fiduci-

ary duties under corporation law—to serve as ERISA fiduci-

aries. Section 408(c)(3) states that ERISA’s “prohibited trans-

actions” rules shall not “be construed to prohibit any fiduci-

ary from … serving as a fiduciary in addition to being an of-

ficer, employee, agent, or other representative of a party in in-

terest.” 29 U.S.C. § 1108(c)(3). ERISA defines “party in inter-

est” to include corporate employers and other plan sponsors.

29 U.S.C. § 1002(14). Moreover, ERISA invites conflicts of in-

terest within ESOPs like the plan in this case. ERISA’s prohib-

ited 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 specifically allows

such deals for ESOPs, see 29 U.S.C. § 1107(b)(1) & (d)(3)(A)(ii).

By “expressly contemplat[ing] fiduciaries with dual loyal-

ties,” § 408(c)(3) takes “an unorthodox departure from the

common law” that is in obvious tension with ERISA’s exclu-

sive benefit rule. Donovan v. Bierwirth, 538 F. Supp. 463, 468

(E.D.N.Y. 1981), aff’d as modified, 680 F.2d 263 (2d Cir. 1982).

18 No. 20-2793

As noted, scholars have defended this “fundamental contra-

diction” as necessary to encourage employers to establish

benefit plans. Without dual-hat fiduciaries, employers that es-

tablish ERISA plans would be “assuming financial liabilities

without effective controls.” Langbein & Fischel, 55 U. Chi. L.

Rev. at 1127. The effect of adhering strictly to the common-

law rule would likely be a lower rate of plan formation. Id.

ERISA’s necessary accommodation for dual-hat directors

and officers has produced messy conflicts 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 conflicts such dual roles undoubtedly will cause.”

Id. The Supreme Court itself has noted this problem, writing

that “the analogy between ERISA fiduciary and common law

trustee becomes problematic … because the trustee at

common law characteristically wears only his fiduciary hat

when he takes action to affect a beneficiary, whereas the

trustee under ERISA may wear different hats.” Pegram v.

Herdrich, 530 U.S. 211, 225 (2000).

Accordingly, since the 1980s, courts have recognized and

tried to harmonize directors and officers’ 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 beneficiaries by using plan assets to

purchase company stock at an inflated price to fend off an out-

side takeover bid. 538 F. Supp. at 465–68. The district court

No. 20-2793 19

first noted that, because ERISA “abrogated the traditional

common law rule” and “clearly contemplates … fiduciaries

with dual loyalties,” the trustees “did not commit per se vio-

lations of ERISA either by their failure to abstain from the in-

vestment decision … or by the mere acquisition of [company]

stock.” Id. at 469–70.

Nevertheless, the court held that “when a fiduciary has

dual loyalties, his independent investigation into the basis for

an investment decision which presents a potential conflict of

interests must be both intensive and scrupulous” to ensure

that the conflict is not influencing the decision. Id. at 470, dis-

cussing 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 conflict—such as, at the very

least, consulting independent counsel. Id. at 473.

The Second Circuit affirmed, clarifying that dual-hat di-

rectors and officers must do everything possible to “avoid

placing themselves” in a decision presenting an actual con-

flict, and if faced with such a conflict 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, “officers of a corpo-

ration … do not violate their duties as trustees by taking ac-

tion which, after careful and impartial investigation, they rea-

sonably conclude best to promote the interests of participants

and beneficiaries simply because it incidentally benefits the

corporation or, indeed, themselves.” Id at 271.

In this circuit, we used a similar approach to reconcile

ERISA’s exclusive benefit rule with its allowance for dual-hat

directors and officers in Leigh v. Engle, 727 F.2d 113 (7th Cir.

20 No. 20-2793

1984). Dual-hat directors and officers invested ERISA trust as-

sets in companies that were targets of directors and officers’

hostile takeover attempts. We said that “plan trustees who are

also officers of either the ‘target’ or the ‘raider’ could be seen

as having a significant ‘interest’ of their own in the outcome

of the contest.” Id. at 127. We invoked the Donovan v. Bierwirth

method of addressing directors and officers’ dual loyalties

and held that the directors and officers violated ERISA’s fidu-

ciary requirements:

Where the potential for conflicts is substantial,

it may be virtually impossible for fiduciaries to

discharge their duties with an “eye single” to

the interests of the beneficiaries, and the fiduci-

aries may need to step aside, at least temporar-

ily, from the management of assets where they

face potentially conflicting interests. … Where it

might be possible to question the fiduciaries’

loyalty, they are obliged at a minimum to en-

gage in an intensive and scrupulous independ-

ent investigation of their options to insure that

they act in the best interests of the plan benefi-

ciaries. In the case before us, we believe there is

an additional factor which weighs heavily in

evaluating the loyalty of the fiduciaries. Here

the control efforts lasted for several months, and

in the case of Hickory, for over a year. The Reli-

able 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 de-

ciding whether plan fiduciaries were acting

solely in the interests of plan beneficiaries.

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”); Dan-

aher Corp. v. Chicago Pneumatic Tool Co., 635 F. Supp. 246, 250

(S.D.N.Y. 1986) (doubting “the appropriateness of [a] chief ex-

ecutive officer continuing in his position of ESOP trustee dur-

ing [a] takeover attempt” that was favored by current benefi-

ciaries at the expense of potential future beneficiaries).

These cases illustrate how courts have adapted ERISA’s fi-

duciary rules to account for the exception allowing for dual-

hat director and officer fiduciaries. Courts have even applied

these adapted fiduciary rules in cases involving ESOP valua-

tions much like the one at issue in this case. In Donovan v. Cun-

ningham, for example, the Fifth Circuit applied Donovan v.

Bierwirth’s approach in a case where an ESOP trustee who was

also a corporate officer participated in the valuation of corpo-

rate 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 reflexively under”

ERISA, id. at 1466–67, but that ERISA’s exception allowing

ESOPs to purchase employer stock for “adequate considera-

tion” must still be interpreted to imply an exacting duty of

prudence for dual-hat fiduciaries with potential conflicts of

interest. Id. at 1467 & n.27.

The Fifth Circuit reaffirmed this principle in a case where

dual-hat directors and officers were involved in an ESOP’s

purchase of company stock at an inflated 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 val-

uation process so as to avoid a conflict of interest. Their breach

of the duty of loyalty turns on their failure to place the inter-

ests of participants and beneficiaries first”; to prove ESOP

purchase was “prudent”, “care must be taken to avoid any

identified conflicts 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 fiduciaries vio-

lated 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 officers in this case. Congress explicitly

departed from the common law to allow directors and officers

to serve as ERISA fiduciaries despite their dual loyalties.

These permissible dual loyalties weigh in favor of allowing

parallel corporation-law liability against the directors and

officers in this case. If parallel liability were preempted, the

directors and officers would in effect cease to be corporate

fiduciaries when carrying out their ERISA fiduciary roles.

That result would contravene § 408(c)(3)’s mandate that

ERISA not be construed to prevent corporate fiduciaries from

also serving as ERISA fiduciaries.

Preempting the plaintiffs’ corporation-law claims against

the directors and officers would also thwart ERISA’s purpose

to protect plan assets from misuse. The third-party bank-

ruptcy creditors in this case cannot sue under ERISA. So, as-

suming the plaintiffs’ allegations are true, completely fore-

closing their state-law claims could leave them without re-

course 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 officers to defraud with impu-

nity corporate shareholders and creditors.” Smith, 421 A.2d at

1114.

Preempting all of plaintiffs’ 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 ac-

count for the risk that directors and officers might abuse the

corporation without any recourse for creditors under corpo-

ration law. In the healthcare arena, courts have relied on a

similar concern in refusing to preempt negligent misrepresen-

tation claims by third-party hospitals against ERISA plan in-

surers. 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 find medical treatment more difficult to ob-

tain.”).

Finally, allowing plaintiffs to pursue their claims under

corporation law against the directors and officers should not

disrupt national uniformity in plan administration. The famil-

iar “internal affairs” doctrine is a conflict of laws principle

that recognizes that only one state should have authority to

24 No. 20-2793

regulate a corporation’s internal affairs, including fiduciary

duties of directors and officers. 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); Re-

statement (Second) of Conflict of Laws § 302, cmts. a & e

(1971).

Our holding as to the directors and officers is limited to

the plaintiffs’ particular claims in this case, which would

impose corporate liability that runs parallel to, not in conflict

with, ERISA’s fiduciary duties. By that we mean that the

directors and officers’ corporation-law and ERISA duties both

prohibit the fraudulent conduct alleged by plaintiffs. ERISA

expressly contemplates such parallel liability for dual-hat

directors and officers.

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 beneficiaries. See

Sommers Drug Stores, 793 F.2d at 1468. In cases like this one,

where shareholders and beneficiaries are both suing the

directors and officers for the same conduct, if shareholders

can recover then ERISA beneficiaries 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 officers face “questions from the

corporation’s shareholders,” they “will find at least some

protection by virtue of the business judgment rule”). If a dual-

hat director or officer’s duties irreconcilably conflict, however,

the director or officer “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 conflicting

corporation-law duties. Here, the plaintiffs are pursuing

parallel corporation-law claims against dual-hat directors and

officers, so ERISA does not preempt those claims.

IV. Argent Trust Company

The plaintiffs’ Count V aiding and abetting claims against

Argent Trust Company (Argent) are a different matter. These

claims are preempted because ERISA does not permit states

to dilute the exclusive benefit rule further, beyond its narrow

exception for dual-hat directors and officers.

Unlike the directors and officers, Argent is a “single-hat”

ERISA fiduciary. It has no state-law duty of loyalty to the

corporation. Still, the plaintiffs seek to extend corporation-law

liability to Argent through an aiding and abetting theory.2

Aiding and abetting a breach of a fiduciary duty is a well-

established 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 fiduciary to be alert to the

fiduciary’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 par-

ties 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 en-

courages 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 officers’ 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 inter-

est of beneficiaries. Unlike with dual-hat directors and offic-

ers, ERISA does not contemplate single-hat fiduciaries 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

fiduciaries like Argent would be forced to worry about

whether directors and officers were complying with separate

corporation-law duties. This would interfere with the single-

minded focus on the plan and its beneficiaries that ERISA’s

exclusive benefit rule prescribes for fiduciaries like Argent. In

particular, the conflicts of interest that plague dual-hat

directors and officers would suddenly infect single-hat

entities, as well. Imagine, for example, an ERISA fiduciary

worrying whether it would be aiding a breach of fiduciary

duty simply by convincing a dual-hat director or officer to

approve a plan decision that favors beneficiaries at the

expense of company profits.

Such conflicts of interest are challenging enough when

they affect only the directors and officers. They can paralyze

efficient plan administration. “[W]ith the strict common-law

standard of not holding conflicting offices removed by ERISA,

it is very difficult for an ERISA fiduciary to be assured of a

benign assessment by third parties of the motivational factors

underlying the fiduciary’s act.” Wohl, 20 U. Dayton L. Rev. at

No. 20-2793 27

48–49. As a result, “the fiduciary 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 com-

panies. 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 fiduciaries

may outweigh the usual … costs. It is for this reason, we sus-

pect, that the contested plan administration cases so often

arise when the incentives of the long term relationship” be-

tween employer and employees “are attenuated”).

Such conflicts of interest are exactly what ERISA’s exclu-

sive benefit rule is meant to prevent. So while ERISA explicitly

tolerates some conflicts among directors and officers, both the

text and purpose of ERISA’s exclusive benefit rule make clear

that courts should resist any further dilution through state-

law aiding and abetting claims that would effectively force a

second hat onto single-hat ERISA fiduciaries. 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 ad-

ministrator, 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 beneficiaries, participants, and

fiduciaries can sue Argent under ERISA for knowingly aiding

the directors and officers’ alleged breaches of their ERISA

28 No. 20-2793

duties. See 29 U.S.C. § 1105(a)(1) (“a fiduciary … shall be

liable for a breach of fiduciary responsibility of another

fiduciary … if he participates knowingly in, or knowingly

undertakes to conceal, an act or omission of such other

fiduciary, knowing such act or omission is a breach”). As with

the directors and officers, then, state-law liability against

Argent would run parallel to Argent’s ERISA liability. But,

again, the key difference is that the exclusive benefit rule

preempts such parallel state-law liability outside the narrow

and unavoidable exception for dual-hat directors and officers.

Indeed, the preeminence of ERISA’s exclusive benefit 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 fiduciaries. See

Mackey, 486 U.S. at 833. In Mackey, the Supreme Court

recognized that claims for ordinary torts allegedly committed

by ERISA fiduciaries 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 affecting and involving

ERISA plans and their trustees, are not pre-empted by ERISA

§ 514(a).”).

Accordingly, courts have permitted many tort claims

against ERISA fiduciaries even when the tortious conduct oc-

curred 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 misrepresenta-

tion 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) (beneficiary could pursue invasion

No. 20-2793 29

of privacy tort against ERISA plan insurer for actions taken to

investigate benefits claim); Lane v. Goren, 743 F.2d 1337, 1340

(9th Cir. 1984) (beneficiary could pursue state-law race and

age discrimination claims against ERISA fiduciaries).

In those and other “run-of-the-mill” cases, however, the

plaintiffs were either (1) beneficiaries who suffered 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

beneficiaries in Dishman and Lane thus did not risk distracting

fiduciaries from their single-minded focus on beneficiaries.

And in Franciscan Skemp and Mackey, because liability flowed

to third parties, there was no risk of dividing single-hat

fiduciaries’ allegiance between the beneficiary and her

corporate employer—the foremost entity that ERISA

fiduciaries are not supposed to serve.

Here, however, the injured plaintiff is the corporate em-

ployer. Parallel state-law liability would foster just the sort of

dual loyalty that the exclusive benefit rule prohibits. The

plaintiffs in this case are bankruptcy creditors, not the corpo-

ration itself, but they are suing on behalf of the corporate em-

ployer 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 fiduciaries new state-law duties to the

corporate employer. Such liability is fundamentally at odds

with the text and purpose of ERISA’s exclusive benefit rule

and is therefore preempted.

30 No. 20-2793

V. Stout Risius Ross

The preemptive force of ERISA’s exclusive benefit rule

also protects the Stout Risius Ross defendants (Stout) from

corporate aiding and abetting liability even though Stout is

not a fiduciary under ERISA. Like Argent, Stout is not a dual-

hat director or officer for whom ERISA contemplates parallel

corporate liability. Argent hired Stout for its expertise in aid-

ing the ESOP valuation process. In this role, Stout owed no

fiduciary duties to the corporation or to ERISA beneficiaries.

This means Stout is not subject to the exclusive benefit

rule. So at first glance, parallel non-fiduciary liability against

Stout under both ERISA and state law would seem not to con-

flict with the exclusive benefit rule. But upon closer inspec-

tion, Stout is situated more similarly to Argent than to the di-

rectors and officers when it comes to preemption. Three con-

siderations point to this conclusion. First, to protect Argent’s

single-minded focus on beneficiaries, it is also necessary to

protect its contractor, Stout, whose involvement in the ESOP

valuation stemmed solely from Argent’s trustee duties. Sec-

ond, given Stout’s role in the ESOP valuation process, parallel

state liability to the corporation would conflict with Stout’s

non-fiduciary obligations to beneficiaries when performing

core ERISA functions. Third, state-law liability for Stout could

lead to a damages remedy that would arguably conflict with

ERISA’s remedial limits on claims against non-fiduciaries. So,

while the question is a closer call, ERISA also preempts the

plaintiffs’ aiding and abetting claims against Stout.

In assessing the state-law claims against Stout, it is first

important to clarify that, although Stout is not a fiduciary un-

der ERISA, it still had federal-law obligations under ERISA

when serving as Argent’s contractor. Specifically, 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 fiduciary’s breach of its duties to beneficiaries. 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] partic-

ipat[es]’ in a fiduciary’s violation”), quoting 29 U.S.C.

§ 1132(l). Thus, under ERISA, Stout must concern itself with

Argent’s and the directors and officers’ fiduciary duties to

beneficiaries so as not to participate knowingly in a violation. 3

Because Stout incurs ERISA liability if it knowingly aids a

breach of fiduciary duty, Stout was acting in a limited single-

hat 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 officers’ 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). Nev-

ertheless, 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 plaintiffs’ attempt to impose addi-

tional duties on Stout based on aiding and abetting liability to

the corporation.

First, to ensure Argent’s single-minded focus as an ERISA

fiduciary, 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 corpo-

ration, 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 officers that

might be contrary to the corporation’s interests. Hence, to

protect Argent’s ability to act for the exclusive benefit of ben-

eficiaries, it becomes important also to prevent the expansion

of dual-hat loyalties to non-fiduciary contractors like Stout.

Otherwise, ERISA fiduciaries may not be able to confide fully

in non-fiduciary contractors to help perform core trustee du-

ties with an eye single to beneficiaries.

Second, and most simply, given Stout’s key role in the

ESOP valuation process, ERISA’s focus on protecting benefi-

ciaries weighs against permitting corporate aiding and abet-

ting liability against Stout. Like Argent, Stout is not locked

into the (potentially) conflicting dual roles that ERISA accepts

for directors and officers. So, as with Argent, there is no need

under ERISA to tolerate state laws that impose corporation-

law liability on non-fiduciary contractors who perform cen-

tral 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 Ar-

gent, then, when performing such core plan tasks, Stout’s fed-

eral ERISA obligations should not be muddled with distract-

ing and potentially conflicting state-law obligations to the cor-

poration. Such liability rules would affect 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., Egelhoff, 532 U.S. at 147 (state rule requiring admin-

istrators to pay benefits to beneficiaries chosen by state law

was not consistent with ERISA’s rule that benefits be paid to

those identified 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-fiduciaries. As

mentioned above, the Secretary of Labor can sue a non-

fiduciary like Stout under § 502(a)(5) for knowingly

participating in a breach of duty. Yet, like beneficiaries’

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-fiduciaries who knowingly participate in a fiduciary’s

breach of fiduciary 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-fiduciaries under § 502(l)

does not “establish[] the existence of a damages remedy”

against non-fiduciaries, 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 plaintiffs’ 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 beneficiaries.

That result could give non-fiduciaries like Stout incentives to

be more attentive to the corporation than to beneficiaries.

Such an effect would undermine ERISA’s purpose of ensuring

that ERISA fiduciaries and their contractors focus first and

foremost on the interests of plan beneficiaries—not the

corporation. For all these reasons, we find that ERISA also

preempts the plaintiffs’ state-law claims against Stout.

Conclusion

The exclusive benefit rule is a cornerstone of ERISA that

state law cannot dilute. While ERISA narrowly contemplates

parallel liability against the dual-hat director and officer de-

fendants, 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 officers and AFFIRM the dismissal of Counts V

and VI against Argent and Stout and REMAND the case for

further proceedings consistent with this opinion.