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Fourth Circuit affirms denial of equitable relief
By Heather Mehta on June 11, 2018 at 10:10 AM

Man holding an empty walletIn an unpublished opinion, the U.S. Court of Appeals for the Fourth Circuit found a lower court did not err when awarding no relief for a breach of fiduciary duty. (Pender v. Bank of America Corp., No. 17-1485, June 5, 2018.) Although Bank of America violated the Employee Retirement Income Security Act of 1974 (ERISA), the court found that it did not profit from its actions and, therefore, awarding damages would not be appropriate equitable relief.

The case stems from a 1998 decision to offer 401(k) participants the option of moving their account balances into its cash balance defined benefit plan to be commingled with that fund. Bank of America believed it could obtain a higher return for participants than they could on their own. As part of the offer, Bank of America guaranteed that the participants’ balances would not fall below the amount they were at the time of transfer. Participants and beneficiaries transferred $2 billion as a result of the offer.

In 2005, the IRS concluded that the transfer violated ERISA’s anti-cutback provision because the assets no longer had their “separate account feature.” Three years later, Bank of America paid the IRS a $10 million penalty, set up a special purpose 401(k) plan to receive the transferred accounts, and made additional payments to certain participants’ accounts.

Simultaneously, participants filed a class action lawsuit, alleging a variety of equitable and statutory claims. All of the plaintiffs’ other claims were dismissed or not part of the appeal.

Plaintiffs argued to the lower court and on appeal that because their money was improperly commingled with other money, they should receive a proportionate share of the whole of the profits Bank of America made on the combined assets. Bank of America argued that relief was inappropriate because it did not profit. Bank of America closely tracked participants’ notational accounts and used a different investment strategy for their accounts than it did for the pension assets. Although the pension assets performed well, the participants’ investments underperformed.

Both courts rejected the plaintiffs’ argument that the district court was required to reward proportionate-share-of-the-whole relief. ERISA requires equitable relief to be “appropriate” and thus does not mandate a remedy. The Fourth Circuit also found that the district court did not clearly err when accepting factual evidence that Bank of America did not profit.

After 13 years of litigation and three trips to the Fourth Circuit, the plaintiffs were left empty-handed despite the IRS and district courts finding that Bank of America violated ERISA. By choosing to file an unpublished opinion and stressing that the opinion only applied to the facts of this case, the Fourth Circuit signaled that it did not necessarily agree with the lower court but was constrained by its standard of review. Judge Keenan, who dissented, did not feel so constrained and stated that the lower court abused its discretion. She agreed that the lower court was not mandated to award a proportionate share of Bank of American’s profits but disagreed with the opinion that Bank of America did not profit. She found that awarding a share of the profits would have been appropriate.

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