Solis v. Clark Consulting v. Malkani, et al.,
No. 09-1383(L) (4th Cir. Mar. 16, 2011)
S. Thomas & Robert W. Shaw
A recent decision of the U.S. Court of Appeals for the
Fourth Circuit has confirmed the breadth of the district court's equitable
powers over a retirement benefit plan when enforcing fiduciary duties and
providing "appropriate relief" for fiduciary breach. In Solis v. Clark
Consulting v. Malkani, et al., No. 09-1383(L) (4th Cir. Mar. 16,
2011), the Fourth Circuit affirmed the district court's grant of authority for
the substitute fiduciary to terminate a pension plan.
The case began as an enforcement action by the Secretary
of Labor under ERISA's Section 502(a) (29 U.S.C. § 1132(a)). The
Secretary commenced the action in 2000 against Information Systems and Networks
Corporation and its corporate president (collectively "ISN"). ISN was the
sponsor and plan administrator of a defined contribution pension and profit
sharing plan ("the Plan"), and the action was instituted on behalf of the
Plan's beneficiaries. The Secretary successfully argued that ISN had violated
its fiduciary duty to administer the Plan properly, including violations of the
duties of loyalty and care.
The district court ordered that ISN be removed as the
Plan's administrative fiduciary and asked the Secretary to name a substitute
fiduciary. The Secretary initially selected Clark Consulting in 2003;
after Clark Consulting withdrew, the Secretary selected Nicholas Saakvitne in
2009. Both substitute fiduciaries were offered to the district court for
approval, which the district court granted.
Each of the substitute fiduciaries encountered ongoing
difficulties in enforcing the district court's order for ISN to pay the fees of
the substitute fiduciary. The Plan eventually became "almost completely
dormant"; the court found that "only seven of the original 309 participants
remain[ed] active." Upon request, the district court granted the
substitute fiduciary the authority to terminate the Plan. ISN appealed.
The Fourth Circuit held that the "broad equitable powers"
that ERISA gave to district courts "necessarily include the power to order the
termination of a plan." Under ERISA's 29 U.S.C., § 1132(a), the court, in
cases initiated by the Secretary of Labor, was granted the authority to provide
"appropriate relief" to a plan for injuries caused by fiduciary breach.
The Fourth Circuit found the power of termination granted in this case to
be appropriate "in light of the deteriorating state of the pension plan."
Among other issues on appeal, ISN contested the district
court's delegation of the termination power on the ground that 29 U.S.C. § 1341
provided the exclusive method for terminating the Plan. Section 1341
pertains to termination of single employer defined benefit plans. The
Fourth Circuit rejected that argument, noting that Section 1341 did not apply
to the defined contribution plan in Solis, and saying further that, if
Section 1341 had applied, Section 1341(b) would permit a fiduciary to terminate
a plan so long as proper procedures were followed.
Solis therefore confirms the broad
remedial powers of a district court under ERISA. Where fiduciary duties
are breached, a civil action under ERISA can result, as in Solis, in the
substitution of the plan administrator and appropriate equitable relief, even
plan termination. Notably, the Fourth Circuit's decision originally was
unpublished, but was published subsequently at the request of the Secretary of
Labor. The Secretary's request for publication suggests that the
Secretary has a broad view of the remedial provisions of ERISA.
For more information about this topic, please
contact the authors or any member of the Williams Mullen ERISA
This newsletter contains general, condensed summaries of actual legal matters,
statutes and opinions for information purposes. It is not meant to be and
should not be construed as legal advice. Readers with particular needs on
specific issues should retain the services of competent counsel. For more
information, please visit our website at www.williamsmullen.com
or contact Mark S. Thomas, 919.981.4025 or firstname.lastname@example.org. For mailing list inquiries,
please contact Julie Layne at email@example.com or 804.420.6311.