On June 5, 2017, in a split decision to be published, the U.S. Court of Appeals for the Tenth Circuit held that the plaintiff bears the burden on each element of its Employee Retirement Income Security Act of 1974 (“ERISA”) claim for breach of fiduciary duty, including causation and damages. Pioneer Centres Holding Co. Emp. Stock Ownership Plan & Trust v. Alerus Fin., N.A., Case No. 15-1227 (10th Cir. June 5, 2017). The Tenth Circuit affirmed a trial court’s decision that had bypassed the issue of whether the plan fiduciary had breached its duty.
Background
The Pioneer Centres Holding Company Employee Stock Ownership Plan & Trust (the “Plan” or “ESOP”) sued Alerus Financial, N.A. (“Alerus”) for breach of fiduciary duty in connection with the failure of a potential employee-stock purchase transaction. The transaction would have allowed the ESOP to become the 100% owner of Pioneer Centres Holding Company (“Pioneer”)—an owner and operator of car dealerships.
The Plan hired Alerus as an independent transactional trustee. Alerus’s job was to determine whether, and on what terms, the Plan should purchase Pioneer’s main stockholder’s interest. The transaction hit a roadblock because Pioneer’s dealership agreement with Land Rover required Land Rover’s approval of any changes in ownership and management. Land Rover said it would not approve any transaction that gave the ESOP 100% ownership, and Alerus failed in its attempt to persuade Land Rover to change its mind. Therefore, Alerus never sent transaction documents to Land Rover, and Pioneer sold its assets to an unaffiliated third party instead (for more than $10 million above what the Plan would have offered for Pioneer’s stock).
Tenth Circuit Decision
In an opinion authored by Judge Carolyn B. McHugh and joined by Judge Gregory A. Phillips, the Tenth Circuit recognized that the plain language of section 409(a) of ERISA, 29 U.S.C. § 1109(a), establishes liability for losses “resulting from” a breach. The statute, however, is silent as to who bears the burden of proving a resulting loss. The Tenth Circuit, relying upon the default rule that a plaintiff bears the burden to prove its claim, rejected the “burden-shifting” framework that has been adopted by the Fourth,1 Fifth,2 and Eighth3 Circuit Courts of Appeal.
Those courts have looked to a framework found in the common law of trusts, which requires that once an ERISA plaintiff has proven a breach and a prima facie case of loss...
