Opinion ID: 532526
Heading Depth: 2
Heading Rank: 3

Heading: Damages Under Section 1109

Text: 23 Section 1109 provides that a fiduciary who has breached a duty owed to a plan is liable for any losses to the plan resulting from each such breach. In this case, the District Court concluded that the measure of the damages caused by investing more than 50% of the Fund's assets in equities was the difference between the earnings of the Fund as invested and what the earnings would have been if the 50% limit had been observed and the assets had been invested in non-equity securities instead. The Court then interpreted our opinion in Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir.1985), as permitting an averaging technique. In essence, since it is impossible to know after the fact which stocks GCI would have sold to comply with the 50% guideline, the Court assumed that at the end of each reporting period GCI would have liquidated an equal proportion of each stock held, sufficient to reduce the total stock holdings to 50% of the Fund's assets (with all holdings valued at cost). 2 The Court then assumed that the money generated by reinvesting the proceeds from the sale of the excess shares would have earned a rate of return equal to that of the non-equity securities held by the Fund during this time period. 24 Defendants raise several objections to this method of calculating damages. First, they suggest that even if they breached a duty, there were no losses to the plan because the sum of the Fund's assets and the cash withdrawn to meet Fund obligations increased during their tenure. This argument ignores our opinion in Donovan v. Bierwirth, supra, where we said that an appropriate remedy in cases of breach of fiduciary duty is the restoration of the trust beneficiaries to the position they would have occupied but for the breach of trust. 754 F.2d at 1056. If, but for the breach, the Fund would have earned even more than it actually earned, there is a loss for which the breaching fiduciary is liable. 25 Next, defendants argue that the District Court's averaging technique is incorrect. They maintain that the Court must look at specific investment decisions and determine whether the Fund lost any money as a result of those particular decisions. Under this method, the trial judge would have to determine which purchase or refusal to sell caused the portfolio to exceed the 50% limit. This would give GCI an opportunity to show that the decisions that resulted in excess equity generally were associated with successful stocks. Hence, absent the breach, the portfolio would have contained a greater percentage of less successful stocks and would not have performed as well as the District Court presumed, using its averaging technique. 26 Although Donovan did not encounter this precise contention, the District Court correctly interpreted that decision not to require inquiries into specific investment decisions. Where, as in this case, the breach arises from a pattern of investment rather than from investment in a particular stock, courts will rarely be able to determine, with any degree of certainty, which stock the investment manager would have sold or declined to buy had he complied with investment guidelines. Drawing upon the common law of trusts in Donovan, we said that the District Court should presume that, but for the breach, the funds would have been invested in the most profitable of the alternatives and that the errant fiduciary bears the burden of proving that the fund would have earned less than this amount. See id. at 1056. In Donovan, we did not discuss how the fiduciary could meet this burden, other than to say that uncertainties in fixing damages will generally be resolved against the wrongdoer. See id. There may be cases in which a defendant comes forward with particularly reliable evidence that, had the funds not been improperly invested, they would have been put into a particular alternative investment. In such cases, it may be inappropriate to decide by summary judgment that the funds in question would have yielded a return equal to the average rate of the rest of the portfolio. In this case, however, the affidavits of Grace and of defendant's expert did not assert any such particular facts. The latter contains only a general assertion that 90-day U.S. Treasury bills would have been a more appropriate alternative investment. Since the defendants did not show that, at trial, they would be able to overcome the presumption we articulated in Donovan, the District Court correctly found no issue of fact as to the method of liquidating stock to reach the 50% limit or with respect to the alternative investment vehicle.