TRUSTEES OF NYS NURSES ASS'N v. WHITE OAK GLOBAL

102 F.4th 572

The TRUSTEES OF the NEW YORK STATE NURSES ASSOCIATION PENSION PLAN, Petitioner-Appellee, v. WHITE OAK GLOBAL ADVISORS, LLC, Respondent-Appellant.^*

Docket No. 22-1783

August Term, 2023

United States Court of Appeals, Second Circuit

Argued: October 25, 2023

Decided: May 21, 2024

Appeal from the United States District Court for the Southern District of NewYork (Kaplan, J.)

C. William Phillips, Covington & Burling LLP, New York, NY (Jonathan M. Sperling, Covington & Burling LLP, New York, NY; Robert Newman, Covington & Burling LLP, Washington DC, on the briefs), for Petitioner-Appellee Trustees of the New York State Nurses Association Pension Plan.

Eamon Joyce, Sidley Austin LLP, New York, NY (James O. Heyworth, Tyler J. Domino, Sidley Austin LLP, New York, NY; Carter G. Phillips, Sidley Austin LLP, Washington DC; Thomas K. Cauley, Jr., Steven E. Sexton, Rebecca M. Lewis, Sidley Austin LLP, Chicago, IL, on the briefs), for Respondent-Appellant White Oak Global Advisors, LLC.

Before: Lynch and Park, Circuit Judges, and Clarke,^† District Judge.

Gerard E. Lynch, Circuit Judge:

Respondent-Appellant White Oak Global Advisors, LLC ("White Oak") appeals from a judgment of the United States District Court for the Southern District of New York (Lewis A. Kaplan, J.), entered in favor of Petitioner-Appellee Trustees ("Trustees") of the New York State Nurses Association Pension Plan ("NYSNAPP" or "Plan") on their petition to confirm an arbitral award. The award, which resolved several claims brought by the Trustees against White Oak under the Employee Retirement Income Security Act ("ERISA"), was rendered pursuant to an arbitration clause contained in the investment management agreement by which White Oak assumed its ERISA fiduciary relationship to the Plan.

At the time that the Trustees filed their petition, this circuit used the "look through" approach to determine subject matter jurisdiction over petitions under sections 9-11 of the Federal Arbitration Act ("FAA") to confirm, vacate, or modify an arbitration award. Under that approach, if the arbitration resolved federal claims, then the district court could exercise federal question jurisdiction over the petition. But shortly after the district court entered judgment for the Trustees, the Supreme Court determined that the "look through" approach applicable to FAA § 4 petitions to compel arbitration did not extend to FAA §§ 9-11 petitions to confirm, vacate, or modify the resulting awards. Badgerow v. Walters, 596 U.S. 1, 5, 142 S.Ct. 1310, 212 L.Ed.2d 355 (2022). Rather, a jurisdictional basis independent of the FAA must appear on "the face of the application itself." Id. at 9, 142 S.Ct. 1310. Seizing this opportunity, White Oak argues on appeal, as it did before the district court, that the judgment must be vacated for lack of jurisdiction.

White Oak's eleventh-hour jurisdictional attack on the judgment fails. This particular petition raises an independent jurisdictional basis because it is cognizable under ERISA § 502(a)(3), which permits, inter alia, plan fiduciaries to sue in federal court for "appropriate equitable relief" to enforce the "terms of the plan" or another fiduciary's duty to act "in accordance with the documents and instruments governing the plan." 29 U.S.C. §§ 1104(a)(1)(D); 1132(a)(3). The arbitration agreement, contained in the contract by which White Oak assumed fiduciary duties to the Plan, is a plan document or term, and a fiduciary-duty suit brought by a fiduciary against a co-fiduciary to enforce the terms of a plan document seeks relief traditionally available in equity. We therefore agree with the district court that it possessed jurisdiction to confirm the award.

White Oak further challenges the district court's judgment on the merits, arguing that the court erroneously interpreted the award and improperly required it to pay the Trustees' fees and costs. As explained below, we find that the award unambiguously granted disgorgement of prejudgment interest and the so-called "Day One" fees, but that the award of profits is too ambiguous to enforce and must be remanded to the arbitrator for clarification. Finally, we agree with White Oak that the district court exceeded its discretion in ordering White Oak to pay the Trustees' attorneys' fees and costs for the entirety of the confirmation proceeding, as the court failed to make sufficiently specific findings, tailored to White Oak's conduct, to support that award.

Accordingly, we AFFIRM the district court's judgment as to the disgorgement of prejudgment interest on assets and the "Day One" fees, VACATE the judgment as to the disgorgement of White Oak's profits and payment of the Plan's attorneys' fees and costs during the court's proceedings, and REMAND for further proceedings consistent with this opinion.

BACKGROUND

I. The Dispute

The NYSNAPP is an ERISA multi-employer retirement benefit fund that serves the members of the New York State Nurses Association. The Plan is governed by its Trustees and employs an internal investment department, headed by a Chief Investment Officer ("CIO"). From at least 2013 to 2016, the Plan's CIO was Russell Niemie. As permitted by ERISA, the Plan contracts with external investment managers to manage its assets.

In 2013, Niemie identified White Oak as a potential investment manager for a portion of the Plan's assets. The Trustees accepted Niemie's recommendation and signed a two-year investment management agreement (the "IMA") with White Oak, effective December 31, 2013. App'x 142. White Oak agreed to act as the Plan's investment manager and to comply with its fiduciary duties to the Plan under ERISA. In return, the IMA gave White Oak "sole and exclusive investment discretion and management" over the Plan's $80,000,000 investment with White Oak, which included the authority to commit those assets to White Oak's proprietary investment funds. S.App'x 4-5. However, the IMA provided that, in doing so, White Oak was not permitted to violate the terms of the IMA or waive its statutory duties under ERISA.

As set forth in the IMA, the Plan agreed to compensate White Oak through two sets of fees. First, White Oak would be paid an annualized "management fee," calculated at 1.35% of the Plan's initial investment, to reimburse White Oak for its investment services. Second, White Oak would collect "carried interest fees" based on the performance of its investments on behalf of the Plan — if White Oak achieved greater than a 7.5% return on the Plan's investment in a given year, then it would retain a percentage of the profits in excess of that amount. The IMA further provided that White Oak could not collect any other fees from the Plan without advance written approval from the Trustees.

The parties wisely anticipated that their relationship might not remain amicable, and included contractual provisions to deal with that possibility. The IMA permitted White Oak to unilaterally terminate the agreement, so long as it gave the Plan ninety days prior written notice. However, in the event of such termination, the Plan retained the option to extend the IMA until the earlier of six months or the Plan's appointment of a successor investment manager. By contrast, the IMA permitted the Plan to terminate the agreement "at any time ... without penalty." App'x 176. In the event of a termination by either party, the IMA required White Oak to return, within thirty days of the termination date, "all books, records, accounts, cash, securities, ... and all other property" of the Plan to its control. Id. at 175.

Finally, the IMA contained a dispute resolution provision, wherein the Plan and White Oak agreed that, "[a]ny dispute arising under this Agreement shall be resolved by arbitration." Id. at 182.

During the period in which the IMA was effective, White Oak invested the Plan's assets into its proprietary "feeder funds"¹ — the Pinnacle Feeder Fund I, L.P. (the "Pinnacle Feeder Fund") and the Summit Fund, L.P. (the "Summit Fund," and together with the Pinnacle Feeder Fund, the "Feeder Funds"). White Oak unilaterally drafted both the limited partnership agreements ("LPA") creating the terms of the Feeder Funds and the subscription agreements governing the Plan's investment in those Funds, and White Oak signed those documents on behalf of the Plan. Those documents, which were not separately consented to by the Plan, contained two provisions contrary to the IMA that are relevant to this appeal.

First, as the arbitrator later determined, the Feeder Fund subscription agreements provided that the Plan's investment in the Funds could not be "cancel[ed], terminate[d,] or revoke[d]." S.App'x 26. Likewise, the Pinnacle Feeder Fund's LPA prohibited the Plan's "voluntar[y] withdraw[al]" from that Fund, nor was the Plan's interest in the Fund "redeemable or repurchasable." App'x 218. White Oak further bound the Plan's assets to its control through the Pinnacle Feeder Fund's contracts with its master fund. Just as the Plan could not voluntarily withdraw from the Pinnacle Feeder Fund, that Fund could not voluntarily withdraw from its master fund, nor would its interest in the master fund be redeemable or repurchaseable. Although the Summit Fund's LPA permitted voluntary withdrawal from the Summit Fund, whereupon White Oak would pay the withdrawing partner the value of its interest in the Fund, White Oak reserved the right to unilaterally provide that payment through a promissory note of its own making and to set that note's interest rate and maturity date.

Second, although the IMA limited White Oak's fees to its specifically defined management fees and carried interest fees, the Pinnacle Feeder Fund's subscription agreement obligated the Plan to pay "Day One" fees to the master fund. The Day One fees were retroactive, in that White Oak charged the Pinnacle Feeder Fund for management fees as if the Plan had participated in the master fund from the latter's first day of existence, which was...