In the

United States Court of Appeals

For the Seventh Circuit

Nos. 09-3428, 09-3452, 09-3497,

10-1851, 10-2079 & 10-2091

JONATHAN F. PEABODY,

Plaintiff-Appellee,

Cross-Appellant,

v.

ANDREW A. DAVIS, et al.,

Defendants-Appellants,

Cross-Appellees.

Appeals from the United States District Court 

for the Northern District of Illinois, Eastern Division.

No. 05 CV 05026—David H. Coar, Judge.

ARGUED NOVEMBER 2, 2010—DECIDED APRIL 12, 2011

Before CUDAHY, FLAUM, and KANNE, Circuit Judges.

CUDAHY, Circuit Judge. In this case, the Rock Island

Corporation, its subsidiary, its Employee Retirement

Income Security Act (ERISA) plan and the plan’s

trustees, Andrew Davis and Robyn Kole, all defendants,

appeal from the district court’s judgment that they

breached their fiduciary duty in managing the Plan.
2 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

The Plan is an employee benefit plan within the meaning 1

of ERISA § 3(3), and a defined contribution plan within the

meaning of § 3(34).

Plaintiff John F. Peabody cross-appeals from the finding

that he lacked standing to recover from the Plan’s insurers. For the reasons that follow, we affirm the finding

of liability, affirm the court’s finding that Peabody

lacks standing to sue the insurance defendants and

remand for reconsideration of damages.

I. Facts and Procedural History

A. Background

This case arises from Peabody’s employment with

Rock Island Corporation (RIC), through which he

became a participant in the company’s ERISA Plan. RIC 1

was a securities firm based in Chicago, and had a subsidiary, Rock Island Securities (RIS). RIC was a

closely-held corporation with several dozen shareholders, and RIS, its subsidiary, was the sponsor of the

corporation’s ERISA Plan. Defendants Davis and Kole

were the corporation’s co-founders. They served as corporate officers of RIC and as trustees and fiduciaries of

RIS’s ERISA Plan.

Peabody joined RIC in 1998 as a vice president for

“strategic technology and arbitrage.” In 1999, Peabody

first invested in the ERISA Plan. He did so because

making the investment allowed him to receive his 1999

bonus, as he desired, in cash instead of stock. Specifically,

Peabody and the RIC management agreed that if he
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 3

rolled over his external IRA into RIC’s Plan, he could

receive a cash bonus instead of receiving RIC stock consistent with the company’s ordinary practice. Therefore, Peabody rolled over outside investments totaling

$167,819, of which $166,000 was used to purchase shares

of RIC stock. In return, he received a 1999 cash bonus

of more than $212,000. This left Peabody’s account 98%

invested in RIC stock, while the next greatest concentration in any other employee’s account was approximately 5%.

Because RIC was a closely-held corporation, there was

no market to indicate the value of the company’s stock;

instead, valuation of the RIC stock required an analysis

of the company’s financial data. Davis and Kole issued

valuation statements for the stock periodically. When

Peabody initially purchased company stock in the 1999

rollover transaction, it was priced at $2,000 per share.

In April of 2000, there was a ten-to-one stock split. In

December of 2000, the RIC stock was valued at $757 per

share by an outside financial analyst. In 2001 Peabody

purchased five additional RIC shares at a value of $500

per share. A benefit statement in December of 2001 valued

the stock at $625 per share. A 2004 statement valued it

at $550 per share.

Peabody’s employment with RIC ended in January of

2004. When he requested his benefits under the Plan, the

company responded by giving him several choices: he

could redeem his 835 RIC shares immediately for $215

per share, redeem them in 2005 for $300 per share or

redeem them in 2007 for $400 per share. Not satisfied

with any of these options, in April of 2004, Peabody
4 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

RIC’s decline is apparently primarily attributable to a 2000 2

SEC rulemaking that required all U.S. public exchanges to

allow stocks to be traded at values measured in terms of

pennies instead of fractional dollars. The change, termed

“decimalization,” diminished the profit margins yielded by

commissions on trades.

The policy was issued initially by Liberty’s predecessor, 3

Peerless Insurance Company.

entered into a loan agreement with RIC. Specifically, RIC

agreed to purchase all of his RIC stock, in consideration

of RIC’s agreeing to pay Peabody $350 per share in one

year. The total amount of the loan was $292,250 plus

interest. This transaction was in effect the transformation of Peabody’s equity interest in RIC, provided by

the stock, into a creditor’s interest, provided by the

loan. When the time came for payment on the loan, RIC

informed Peabody that it would be unable to pay. On

March 18, 2005 Peabody formally demanded the distribution to him of his Plan benefit and was told that the

loan proceeds could not be repaid. Sometime in 2005,

RIC went out of business.2

From 1997 to 2003, the Plan maintained a commercial

crime policy for which insurance defendant Liberty

Mutual is now responsible. From February 22, 2003 to 3

2006, the Plan held commercial crime coverage provided by insurance defendant Hanover Insurance Company. Both these policies insured the Plan against employee dishonesty.

On August 31, 2005, Peabody filed a 27-count complaint.

He alleged multiple theories of fiduciary breach against
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 5

the Plan defendants, and also argued that he was

entitled to recover damages from the insurance defendants. In September 2006, he notified the insurance defendants of a potential claim against them under the

dishonesty bonds. In October, he named them as defendants in an amended complaint.

B. Procedural History

The district court conducted a bench trial in July 2007

and in September 2009 issued a memorandum opinion

holding Davis, Kole and RIS liable to Peabody. Initially,

the court rejected Peabody’s argument that the defendants violated the Plan terms or breached their fiduciary

duties by allowing the initial rollover transaction—Peabody had “arguably” waived any such argument by

agreeing to the transaction. Along the same lines, the

court held that the defendants had not violated their

duty to diversify the Plan assets, reasoning that

Peabody had “knowing[ly] and voluntar[ily]” waived

this claim at the time of the rollover transaction. But

the court held that the defendants violated their

fiduciary duty of prudence by maintaining the investment in RIC stock throughout RIC’s decline, and also by

failing to distribute Peabody’s Plan benefit. The court

found fiduciary breaches under several additional

theories not material here.

As to the loan-for-stock transaction, the district court

ruled that Davis (but not Kole) had breached his

fiduciary duty by offering only a loan in payment for the
6 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

RIC stock and further, that this exchange constituted a

“prohibited transaction” under ERISA § 406(a)(1)(B).

The district court rejected Peabody’s argument that the

parent company, RIC, was liable, stating: “RIC is not a

fiduciary of the Plan and all claims against it in the

instant action are disregarded.”

As to the insurance defendants, the district court concluded that Peabody lacked standing to press a claim

on behalf of the Plan. The court reasoned that Peabody

could not sustain his claim under § 502(a)(1)(B) or

§ 502(a)(2) because the insurers were not proper defendants. The court rejected Peabody’s argument that he

could recover in equity under § 502(a)(3) because he

sought money damages, not equitable relief.

The district court struck Peabody’s expert witness on

RIC stock valuation because of Peabody’s noncompliance

with discovery rules. But the court nevertheless awarded

damages. Although Peabody had not offered evidence

of damages as to each theory of liability, the court determined that there was evidence with respect to the

breach of the duty of prudence between 2001 and 2003,

based on the relatively rapid decline in profitability of

RIC in that period. Therefore, the court calculated

damages on the basis of that breach. The court accepted

that the value of Peabody’s shares was at least $500 in

2001, because this was the price at which the Plan purchased five RIC shares for Peabody’s account in 2001.

Consequently, the court calculated Peabody’s damages

based on his ownership of 835 shares, arriving at a

figure of $417,500. The court added prejudgment interest to arrive at a total figure of $506,601.82.
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 7

Peabody filed a post-judgment motion under Fed. R.

Civ. P. 59(e), requesting that the court reconsider its

denial of Peabody’s claim for distribution of his benefits,

under ERISA § 502(a)(1)(B) (count XXII), and also that the

district court retain jurisdiction of the case. Beyond the

Rule 59(e) motion, Peabody requested two additional

forms of post-judgment relief significant here. First, he

asked that the trustees be removed, and second, he requested that the court order the defendants to disclose

certain historical Plan information. The court denied

each of these requests. Peabody and the defendants

both timely appealed.

II. Applicable Law

Three distinct causes of action are central to the

present case: an action on behalf of the Plan against Plan

fiduciaries for breach of fiduciary duty under § 502(a)(2);

an action by a Plan participant against the Plan to

receive his or her benefits under § 502(a)(1)(B); and an

action for other equitable relief under § 502(a)(3).

The action for fiduciary breach occupies the bulk of our

attention. Section 502(a)(2) of ERISA allows an action

against a fiduciary for a breach of the fiduciary duties

set forth in § 404. Those duties include managing investments “with the care, skill, prudence, and diligence

under the circumstances then prevailing,” § 404(a)(1)(B),

and “diversifying the investments of the plan so as to

minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so,” § 404(a)(1)(C).

However, certain plans termed “eligible individual
8 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

account plans” are exempted from the diversification

requirement by § 404(a)(2).

The default rule has long been that § 502(a)(2) authorizes

recovery only on behalf of an entire plan, and not in

favor of an individual participant. See, e.g. Plumb v. Fluid

Pump Serv., 124 F.3d 849, 863 (7th Cir. 1997). However, a

participant in a defined contribution plan may bring a

§ 502(a)(2) action for breach of fiduciary duty as to an

individual account. LaRue v. DeWolff, Boberg & Assocs.,

Inc., 552 U.S. 248, 256 (2008) (“Whether a fiduciary

breach diminishes plan assets payable to all participants . . . or only to persons tied to particular

individual accounts, it creates the kind of harms that

concerned the draftsmen of [ERISA].”). To prevail under

§ 502(a)(2), the plaintiff must show a breach of fiduciary

duty, and its causation of an injury. See Kamler v. H/N

Telecomm. Servs., 305 F.3d 672, 681 (7th Cir. 2004).

The remedy in an action for breach of fiduciary duty

is for the fiduciary to “make good” the loss to the plan.

ERISA § 409; see Plumb, 124 F.3d at 863 n.13; Donovan v.

Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985) (holding that

“the measure of loss applicable under ERISA . . . requires

a comparison of what the Plan actually earned . . . with

what the Plan would have earned [but for the fiduciary

breach].”). The method of calculating damages is reviewed de novo; the calculations pursuant to the method

are reviewed for clear error. See Rexam Beverage Can Co.

v. Bolger, 620 F.3d 718, 727 (7th Cir. 2010).

In contrast to § 502(a)(2), § 502(a)(1)(B) expressly provides for an individual to have standing to recover
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 9

This is so because the Plan is an individual account plan 4

and specifically a savings plan, see § 407(d)(3)(A)(i), and the

basic plan document explicitly provides for the Plan to hold

qualifying employer securities, see § 407(d)(3)(B).

benefits under the terms of an ERISA plan. Unsurprisingly,

the remedy in a successful action for plan benefits is

to receive the accrued benefits. § 502(a)(1)(B); see Mass.

Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146-47 (1985).

The third cause of action is § 502(a)(3), which is the

mechanism through which Peabody attempts to recover

from the third-party insurance defendants. That section

allows for the recovery of “other appropriate equitable

relief,” including potentially recovery from non-fiduciaries,

see Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc.,

530 U.S. 238, 246-49 (2000), but only to the extent that

such relief is not available under the two sections

discussed earlier, see Varity Corp. v. Howe, 516 U.S. 489,

515 (1996). Additional law is reviewed below, as needed.

III. Main Defendants

We first address issues relating to defendants other

than the insurers. The first issue is liability.

A. Liability

It has escaped attention thus far in this litigation that

the RIC Savings Plan was an Eligible Individual Account

Plan (EIAP) within the meaning of ERISA § 407(d)(3), and 4

consequently exempted by statute from the § 404(a)(1)(C)
10 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

Although much of the precedent discussing the diversifica- 5

tion exemption for EIAPs focuses on a particular type of

EIAP called an Employee Stock Option Plan (ESOP) which is

expressly designed to invest in employer securities, the statute

unambiguously exempts all EIAPs from the duty to diversify,

including savings plans like the one at issue. § 404(a)(2);

see Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1094

(9th Cir. 2004).

diversification duty with respect to employer securities.

See § 404(a)(2); Kirschbaum v. Reliant Energy, 526 F.3d

243, 249 (5th Cir. 2008) (applying the EIAP exemption to

savings plan similar to the one at issue, and rejecting a

diversification-based claim). The exemption from the 5

duty to diversify reflects a congressional judgment that

the benefits of broadening employee ownership outweigh the greatly increased risks of an undiversified

investment. See Summers v. State St. Bank & Trust Co., 453

F.3d 404, 409-10 (7th Cir. 2006). That calculation may

have been more plausible at the time ERISA was enacted

than it is today, because in 1974 the prevailing form of

retirement plan was the defined benefit pension for

which the duty to diversify is fully applicable, while

today defined contribution plans (which enjoy the employer stock exemption from the duty to diversify) predominate. See Susan Stabile, Paternalism Isn’t Always a

Dirty Word: Can the Law Better Protect Defined Contribution

Plan Participants?, 5 Empl. Rts. & Employ. Pol’y J. 491, 492

(2001).

In any event, while the express duty to diversify is

inapplicable to EIAPs investing in employer securities,
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 11

It is unclear whether this “Moench” presumption should apply 6

to all EIAPs, or only to ESOPs (which exist for the express

purpose of investing in company stock). Compare Wright, 360

F.3d at 1098 n.3 (indicating that the Moench reasoning would

apply equally to EIAPs and ESOPs) with In re Schering-Plough

Corp. ERISA Litig., 420 F.3d 231, 238 (3d Cir. 2005) (holding

that the Moench presumption of prudence does not apply to

EIAPs that are only permitted, but not required, to invest

in employer securities).

the full ERISA duty of prudence nevertheless applies. See

Armstrong v. LaSalle Bank Nat’l Ass’n, 446 F.3d 728, 732

(7th Cir. 2006) (stating that plans with no diversification duty “demand[] an even more watchful eye, diversification not being in the picture to buffer the risk to the

beneficiaries should the company encounter adversity.”).

Some courts, beginning with the Third Circuit in Moench

v. Robertson, 62 F.3d 553, 571 (3d Cir. 1995), have

reconciled the residual duty of prudence with the

absence of an express diversification duty by providing

that for an EIAP or ESOP, there is a presumption that 6

investing in employer stock is prudent. See Quan v. Computer Sciences Corp., 623 F.3d 870, 881 (9th Cir. 2010)

(adopting Moench in the 9th Circuit); see also Summers, 453

F.3d at 410 (citing Moench with approval, although not

expressly adopting it).

We need not grapple with the extent of Moench’s force

as to EIAPs in this circuit, because even if the Moench

presumption of prudence applied we would agree with

the district court that Davis and Kole breached their

duty of prudence as to Peabody. We note at the outset
12 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

that the RIC Plan did not affirmatively require or encourage investment in employer securities—indeed, other

than Peabody, apparently only Davis and Kole held RIC

stock in their Plan accounts, and so far as the record

indicates, they held RIC in their Plan accounts at a

much lower concentration and absolute value than Peabody. In other words, divestment from RIC stock would

not have required any deviation from the Plan terms nor

would it have been unusual in the context of RIC, so the

barriers to divestment were low compared to many

other EIAP plans. See Quan, 623 F.3d at 883 (“A guiding

principle . . . is that the burden to rebut the [Moench]

presumption varies directly with the strength of a

plan’s requirement that fiduciaries invest in employer

stock.”); Kirschbaum, 526 F.3d at 255 (“[Moench] clearly

implies that a plan participant would bear an even

heavier burden of showing a fiduciary duty breach

where the plan utterly compelled investment in company

stock.”); cf. In re Schering-Plough, 420 F.3d at 238

(“Because the Savings Plan in this case was not an

ESOP [and did not require, but merely allowed for, the

provision of company stock as an investment option], the

Moench decision does not [apply].”).

We agree with the district court that a prudent investor

would not have remained so heavily invested in RIC’s

stock as the company’s fortunes declined precipitously

over a five-year period for reasons that foretold further

and continuing declines. In particular, Davis testified

that RIC income came from commissions, and that the

SEC’s decimalization rule “crushed” RIC’s profit

margins, such that by 2003 or 2004 profit margins had
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 13

We emphasize the narrowness of our reasoning in this 7

respect. Most business failures are not so foreseeable, and a

severe decline in company stock value does not, without

considerably more, create a duty to divest from company

stock. See Kirschbaum, 526 F.3d at 256 n.12 (describing facts

found insufficient to rebut the presumption of prudence of

investments in company stock, including the “ill-fated

(continued...)

declined by 70-80%. He further testified that this effect

was being felt, beginning in 2000, in commission-based

firms like RIC across the country. Kole likewise acknowledged that by 2003 and 2004, RIC was “going downhill.”

Although these developments were public, no one was

better positioned to know of RIC’s prospects and the

future of its stock value than Davis and Kole, who cofounded the company and set the share value. These

facts are consistent with circumstances under which

sister courts would find it imprudent to continue an

investment in company stock. See Quan, 623 F.3d at 882

(explaining that to demonstrate imprudence, a plaintiff

must show circumstances that “ ‘clearly implicate [] the

company’s viability as an ongoing concern’ or show ‘a

precipitous decline in the employer’s stock . . . combined

with evidence that the company is on the brink of collapse

or is undergoing serious mismanagement.”) (citing

Wright, 360 F.3d at 1099 n.5). In short, a widely-known

and permanent change in the regulatory environment

had undermined RIC’s core business model, and consequently the company stock became an imprudent investment.7
14 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

(...continued) 7

merger, reverse stock split, and seventy-five percent drop in

stock price” in Wright; the “company-wide financial woes

and eighty percent drop in stock price” in Kuper v. Iovenko, 66

F.3d 1447, 1451, 1459 (6th Cir. 1995); and the “accounting

violations, restated revenues for three years, and seventy-five

percent drop in stock price” in In re McKesson HBOC, Inc. ERISA

Litig., 391 F. Supp. 2d 812, 830-33 (N.D. Cal. 2005)).

29 U.S.C. § 1104 provides as follows: 8

(c) Control over assets by participant or beneficiary.

(1) (A) In the case of a pension plan which provides for

individual accounts and permits a participant or beneficiary

to exercise control over assets in his account, if a participant

or beneficiary exercises control over the assets in his

account (as determined under regulations of the Secretary)—

(continued...)

The issue of waiver or consent by Peabody with respect

to the non-diversified RIC stock investment (another

branch of the fiduciary duty question) is close. The

district court held that Peabody had “arguably waived” his

claim that the defendants had breached their fiduciary

duty by agreeing to the RIC stock investment initially,

and by never requesting that the fiduciaries reduce this

investment. This arguable waiver is effectively the same

as a defense that the fiduciary is not liable if a participant

has exercised control over the account. This defense

is available under limited circumstances which are not

clearly applicable here. Specifically, ERISA § 404(c)

frees fiduciaries from responsibility for Plan losses attributable to the participant’s investment decisions, but 8
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 15

(...continued) 8

* * *

(ii) no person who is otherwise a fiduciary shall be liable . . .

for any loss[.]

Generally, the Plan must inform participants that it is a 9

§ 404(c) plan, and it must offer a certain array of investment

options. See Meinhardt v. Unisys Corp., 74 F.3d 420, 444 n.21

(3d Cir. 1996).

only for certain types of accounts prescribed by the

statute and by Department of Labor regulations. See

ERISA § 404(c); 29 C.F.R. § 2550.404c-1 ; see also LaRue, 552

9

U.S. at 256 (stating that § 404(c) “would serve no real

purpose if . . . fiduciaries never had any liability for losses

in an individual account.”). Moreover, whether a participant exercises control under § 404(c) “stems from a plan’s

specific provisions, not from elements . . . which may

arguably amount to control in connection with a single

transaction.” See Meinhardt, 74 F.3d at 446. Fiduciaries

bear the burden of the § 404(c) defense. Id.

We have explained that when a plan is noncompliant

with § 404(c), fiduciaries are denied the statutory safe

harbor. However, it does not necessarily follow that any

delegation of investment discretion to plan participants

violates ERISA. Rather, “the plan trustee, when delegating

decision-making authority to plan participants, must

be evaluated to see if [such delegations] violate the

trustee’s fiduciary duty.” Jenkins v. Yager, 444 F.3d 916, 924
16 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

But see In re Enron Corp. Sec. Derivative & ERISA Litigation, 284 10

F. Supp. 2d 511, 578 (S.D. Tex. 2003) (“If a plan does not qualify

as a § 404(c), the fiduciaries retain liability for all investment

decisions made, including decisions by the Plan participants.”).

(7th Cir. 2006). In other words, where § 404(c) does not 10

apply, ERISA fiduciaries can be liable for allowing participants to select company stock as an investment if it

is manifestly imprudent to allow them to do so. See generally Rogers v. Baxter Int’l Inc., 521 F.3d 702, 705-06 (7th

Cir. 2008) (discussing the possibility that the plaintiffs

could prevail on remand by showing that the artificially

high price of the company’s stock created a “duty under

ERISA . . . to prevent participants from investing” in it).

The defendants here have made no effort to show that

the Plan complied with ERISA § 404(c), and consequently

the question becomes whether carrying out the rollover

transaction and subsequently allowing Peabody to

remain invested exclusively in RIC stock during the

company’s decline was consistent with the defendants’

fiduciary duty. As noted, the defendants have not

justified their failure to divest from RIC stock. Therefore,

the fact that Peabody agreed to the RIC investment at

the outset did not free the defendants from the exercise

of their fiduciary duty. Hence, we affirm the district

court’s finding of breach of the duty of prudence.

Finally, as an alternative theory of liability, Peabody has

argued that the defendants and the sponsor company,

RIC, violated ERISA with the loan-for-stock transaction.

Peabody is technically correct in his argument, but his
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 17

 This loan-for-stock transaction is also of arguable significance 11

in that it may affect the liability of RIC. As noted, RIC is the

parent company of RIS, the Plan sponsor. The district court

rejected summarily the notion that RIC could be liable to

Peabody, observing simply that RIC was not a Plan fiduciary.

However, a non-fiduciary may become liable for restitution

if it engages in a § 406 prohibited transaction with the Plan,

under § 502(a)(3). See Harris Trust & Sav. Bank, 530 U.S. at 253

(continued...)

success is of no benefit to him. Under ERISA § 406(a)(1)(B),

it is a “prohibited transaction” for fiduciaries to loan Plan

money to a “party in interest.” The company employing

the Plan participant—here RIC—is a “party in interest”

pursuant to ERISA § 3(14)(C). Thus, there has been a

violation of § 406 even though there has been no injury

to the plan. See, e.g., Keach v. U.S. Trust Co., 419 F.3d 626,

635 (7th Cir. 2005). ERISA provides EIAPs with certain

exemptions from the prohibition on § 406 transactions,

see § 408(e), but the defendants have not argued how

they might apply here, and any such argument has been

waived. See Elmore v. Cone Mills Corp., 23 F.3d 855, 864

(4th Cir. 1994) (en banc) (placing the burden of proof

for the § 408(e) exemption on the defendant). Nevertheless, it seems clear that no losses were attributable

directly to the loan-for-stock transaction; rather, it

appears that this transaction consisted of the exchange

of worthless stock for a worthless loan. Although there

has been a violation of ERISA § 406(a)(1)(B), there

are not damages to Peabody from a substitution of debt

for equity.11
18 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

(...continued) 11

(“[A]n action for restitution against a transferee of tainted plan

assets satisfies the ‘appropriateness’ criterion in § 502(a)(3).

Such relief is also ‘equitable’ in nature.”). Peabody did not cite

§ 502(a)(3), but he did claim RIC was liable as the counterparty in a prohibited loan transaction under the theory

of Harris Trust. See id. at 245 n.2. However, as we have

indicated, there are no evident damages to Peabody flowing

from the loan.

B. Calculation of Damages Requires Remand

As previously indicated, the district court’s method of

calculating damages was erroneous. The remedy in an

action for breach of fiduciary duties under § 502(a)(2) is

for the fiduciary to make good the loss to the Plan. See

Plumb, 124 F.3d at 863 n.13. But here, the $500 per share

basis on which damages were based was tied only to a

single, plausible valuation somewhere in the period of

imprudency. Neither the $500 per share figure nor the

$417,500 pre-interest total are solidly tied to the breach

of fiduciary duty.

We understand the district court’s predicament: Peabody’s account was arguably mismanaged in several

overlapping ways during the five years when the assets

in his account disappeared. And the value of the account

representing RIC shares during this period was quite

elusive. The key questions are when did the fiduciary

breach occur, and what was the resultant loss. See

Martin v. Feilen, 965 F.2d 660, 671-72 (8th Cir. 1992).

On remand, we believe the district court should proceed

on the theory that the defendants were required to divest
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 19

We do not require that the district court on remand may not 12

use the RIC stock valuations in calculating damages, but we

note that the use of these valuations resulted in a surprisingly

large award in view of Peabody’s original investment of

$167,819. It is easy to see how this happened: Peabody purchased shares at $2,000 in February of 2000; in April, 2000, there

was a ten-to-one stock split (producing, one would imagine,

a share value of $200); but in April of 2001 Peabody purchased

post-split stock for his account at $500 per share. In other

words, within the fourteen months after Peabody first

purchased RIC stock, the supposed value of RIC stock had

increased by 250%. The district court implicitly accepted this

extraordinary statistic, and indeed, based its award on the

April, 2001 transaction valuing RIC stock at $500. Consequently, the district court’s award boils down to a multiplication of Peabody’s original investment by 2.5.

from RIC as the profitability of the company declined

sharply. The value of Peabody’s initial investment

($167,819) will play an obvious part in these calculations,

and at a later date the use of average values may be

appropriate. We think that for purposes of calculating 12

damages perhaps an assumption that at least a quarter

to a third of the original RIC stock could be left in the

account when it was converted to a loan, without an

imprudence violation, is reasonable. In other words,

because of the uncertainties involved, prudence did not

require that the account be totally drained of the

arguably imprudent RIC stock investment immediately,

even though that investment eventually became worthless. This is not to say that there was a general duty to
20 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

“diversify” Peabody’s holdings, since that is foreclosed

by the statute. Rather, there was a prudential duty to

reduce exposure to company stock in an orderly way, as

company profitability abruptly and openly dropped. Cf.

Steinman v. Hicks, 352 F.3d 1101, 1106 (7th Cir. 2003)

(recognizing that under certain circumstances an ESOP

trustee may have a duty to sell company stock, that

might “become a duty to diversify, even though failure

to diversify an ESOP’s assets is not imprudence per se.”).

A final note on Peabody’s remedy is in order. On

appeal Peabody has argued, as he did in the district court,

that he should be entitled to “distribution of his Plan

benefits,” under § 502(a)(1)(B) and count XXII of his

complaint. As discussed above, the district court

formally denied this claim as duplicative of the court’s

award under § 502(a)(2). But in addressing Peabody’s

post-judgment motion to amend, the district court indicated that it did want to grant this relief, at least insofar

as it intended that the damages would be paid into Peabody’s ERISA account and then would be immediately

available to him with the tax rollover benefits preserved.

The court stated:

Peabody requests that the Court rule explicitly on

his benefit claim to ensure that all damages are transferred to him as distributable benefits in his Plan

account, as soon as practicable. Peabody seeks to

preserve rollover eligibility with the funds, with

attendant tax benefits. In its original judgment, the

Court ordered Davis and Kole to restore the damages

amount to [Peabody’s] account under 29 U.S.C. § 1109.
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 21

An alteration of the court’s decision . . . is unnecessary

to accomplish the ends sought by Peabody.

* * *

If . . . Peabody is primarily concerned that Davis and

Kole will prevent him from timely accessing his Plan

assets, the Court simply needs to clarify that upon

prompt payment into Peabody’s account, the damages

shall be made available for immediate distribution[.]

We do not disturb the district court’s ruling. Since the

Supreme Court sanctioned individual claims under

§ 502(a)(2) in LaRue in 2008, the relationship between

that subsection and the traditional mechanism of individual relief, § 502(a)(1)(B), has been muddied. See LaRue,

552 U.S. at 257-59 (Roberts, C.J., concurring); Howell v.

Motorola, Inc., No. 07-3837, 2011 U.S. App. LEXIS 1193, at

*16-17 (7th Cir. Jan. 21, 2011). We see little benefit to

exploring this legal frontier given that, when the defendants comply with the district court’s order in the

manner the court prescribed, all of Peabody’s tax-related

concerns should be allayed. Peabody is entitled to have

his damages distributed with the tax features preserved,

but this court need not credit multiple theories of relief

to accomplish it. See Graden v. Conexant Sys. Inc., 496 F.3d

291, 301 (3d Cir. 2007) (stating that an action under

§ 502(a)(2) is “the sensible route” for a benefits claim

under the circumstances, because it would allow the

plaintiffs “to get the money in the first instance from

a solvent party liable to make good on the loss, not

from the plan itself.”).
22 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

C. Peabody’s Additional Requests for Relief

As discussed above, Peabody is aggrieved by the

district court’s denial of his requests for the removal of

Davis and Kole as trustees of the ERISA Plan; for the

district court to compel Davis and Kole to make certain

disclosures; and for the court to retain jurisdiction of

the case to ensure that Peabody’s judgment is satisfied.

The district court enjoyed discretion as to the removal

of trustees, see Katsaros v. Cody, 744 F.2d 270, 281 (2d Cir.

1984); Iron Workers Local #272 v. Bowen, 624 F.2d 1255,

1262 (5th Cir. 1980), and did not abuse its discretion

in declining to remove them. Peabody has been awarded

an enforceable judgment and has not supplied persuasive

reasons to believe that the defendants will dishonor

it. Lengthy and contentious litigation precedes the

issuance of many judgments, and does not, without

more, deprive the district court of its discretion to retain

or remove ERISA trustees. For much the same reasons,

we affirm the court’s denial of Peabody’s request for an

order that trustees make disclosures to effectuate the

judgment.

We need not opine on the district court’s decision to

reject Peabody’s request that the court retain jurisdiction. The district court was correct insofar as it observed

that it was without jurisdiction of the case once it was

appealed. See Marrese v. Am. Academy of Orthopaedic Surgeons, 470 U.S. 373, 378 (1985). Because the court’s sole

rationale for denying this request was its lack of jurisdiction while the case was on appeal, we do not know how

it would have ruled under different circumstances. We
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 23

express no opinion as to the proper outcome if the

issue arises again on remand.

IV. The Liability of the Insurer Defendants

We turn now to the matter of the liability of the insurance defendants under their dishonesty bonds issued to

the RIC Plan. The district court ruled that the plaintiffs

lacked standing under ERISA to sue the non-fiduciary

insurance defendants, and we agree.

Peabody concedes that the insurers are not proper

defendants under § 502(a)(1)(B) or § 502(a)(2), but argues

that his claim can prevail under § 502(a)(3), as “other

appropriate equitable relief.” Peabody’s argument under

§ 502(a)(3) fails because the relief he seeks, money

damages under the Plan’s insurance policy, cannot be

described as typically “equitable.” See Wal-Mart Stores,

Inc. Associates’ Health & Welfare Plan v. Wells, 213 F.3d 398,

401 (7th Cir. 2000) (“[T]he Supreme Court said . . . that

only typical equitable relief is available under

[ERISA.]”); Novak v. Andersen Corp., 962 F.2d 757, 760 (8th

Cir. 1992) (“[W]e find nothing in the statutory language

to persuade us to interpret ‘other appropriate equitable

relief’ to mean anything other than what it usually

means—declaratory or injunctive relief.”). Peabody’s

attempt to circumvent this problem by relying on the

equitable doctrine of adverse domination is unavailing.

Adverse domination “tolls the running of the statute of

limitations period where the entity is . . . dominated by

wrongdoers.” Resolution Trust Corp. v. Gallagher, 800

F. Supp. 595, 600 (N.D. Ill. 1992). Even assuming the
24 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

application of this doctrine were indicated (an argument that the district court convincingly rejected), it

would not change the nature of Peabody’s claim against

the insurers, or “cloak the litigant with standing” as

Peabody urges. Crediting Peabody’s theory would

extend the doctrine far beyond its purpose relating to

the timeliness of claims, and it would be particularly

inappropriate to so contort the doctrine to create an

ERISA remedy where none existed before. See Great-West

Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209 (2002)

(“We have . . . been especially reluctant to tamper with

[the] enforcement scheme embodied in [ERISA] by extending remedies not specifically authorized by its

text.”) (internal quotation omitted).

For the foregoing reasons, the judgment of the district

court is affirmed in part, reversed in part, and the case

is remanded for proceedings consistent with this opinion.

4-12-11