Opinion ID: 4707273
Heading Depth: 3
Heading Rank: 4

Heading: Preemption Implications

Text: These cases inform our preemption holding as to the directors and oﬃcers in this case. Congress explicitly departed from the common law to allow directors and oﬃcers to serve as ERISA ﬁduciaries despite their dual loyalties. These permissible dual loyalties weigh in favor of allowing parallel corporation-law liability against the directors and oﬃcers in this case. If parallel liability were preempted, the directors and oﬃcers would in eﬀect cease to be corporate ﬁduciaries when carrying out their ERISA ﬁduciary roles. That result would contravene § 408(c)(3)’s mandate that ERISA not be construed to prevent corporate ﬁduciaries from also serving as ERISA ﬁduciaries. Preempting the plaintiﬀs’ corporation-law claims against the directors and oﬃcers would also thwart ERISA’s purpose to protect plan assets from misuse. The third-party bankruptcy creditors in this case cannot sue under ERISA. So, assuming the plaintiﬀs’ allegations are true, completely foreclosing their state-law claims could leave them without recourse for a fraudulent ESOP valuation that enabled insiders No. 20-2793 23 to loot the company as it was sinking toward bankruptcy. Congress enacted ERISA in response to Senate investigations into “widespread looting of plan funds through sweetheart deals, kickbacks, and … cronyism,” especially within the Teamsters union. Langbein, 103 Colum. L. Rev. at 1324. It would be odd if ERISA operated to shield similar fraudulent activity in this case. “ERISA was not intended as a device to permit corporate directors and oﬃcers to defraud with impunity corporate shareholders and creditors.” Smith, 421 A.2d at 1114. Preempting all of plaintiﬀs’ claims could also frustrate congressional intent by discouraging ESOP formation. It could be rational for creditors to demand higher interest rates or more security for loans to ESOP-owned companies to account for the risk that directors and oﬃcers might abuse the corporation without any recourse for creditors under corporation law. In the healthcare arena, courts have relied on a similar concern in refusing to preempt negligent misrepresentation claims by third-party hospitals against ERISA plan insurers. See Lordmann, 32 F.3d at 1533, citing Memorial Hospital Sys., 904 F.2d at 246 (“If ERISA preempts [hospitals’] potential causes of action for misrepresentation, health care providers can no longer rely as freely and must either deny care or raise fees…. In that event, the employees whom Congress sought to protect would ﬁnd medical treatment more diﬃcult to obtain.”). Finally, allowing plaintiﬀs to pursue their claims under corporation law against the directors and oﬃcers should not disrupt national uniformity in plan administration. The familiar “internal aﬀairs” doctrine is a conﬂict of laws principle that recognizes that only one state should have authority to 24 No. 20-2793 regulate a corporation’s internal aﬀairs, including ﬁduciary duties of directors and oﬃcers. See LaPlant v. Northwestern Mutual Life Ins. Co., 701 F.3d 1137, 1139 (7th Cir. 2012), citing Edgar v. MITE Corp., 457 U.S. 624, 645 (1982); Treco, Inc. v. Land of Lincoln Sav. & Loan, 749 F.3d 374, 377 (7th Cir. 1984); Restatement (Second) of Conﬂict of Laws § 302, cmts. a & e (1971). Our holding as to the directors and oﬃcers is limited to the plaintiﬀs’ particular claims in this case, which would impose corporate liability that runs parallel to, not in conﬂict with, ERISA’s ﬁduciary duties. By that we mean that the directors and oﬃcers’ corporation-law and ERISA duties both prohibit the fraudulent conduct alleged by plaintiﬀs. ERISA expressly contemplates such parallel liability for dual-hat directors and oﬃcers. We agree with the Fifth Circuit’s prediction in Sommers Drug Stores that a director’s state-law and ERISA duties will often run parallel, so that duties to shareholders require the same conduct as the duties to ERISA beneﬁciaries. See Sommers Drug Stores, 793 F.2d at 1468. In cases like this one, where shareholders and beneﬁciaries are both suing the directors and oﬃcers for the same conduct, if shareholders can recover then ERISA beneﬁciaries likely can as well. ERISA’s trust duty “imposes a standard of care at least as high as that imposed by the director-shareholder duty.” Id. at 1468–69; see also Wohl, 20 U. Dayton L. Rev. at 78 n.139 (when dual-hat directors and oﬃcers face “questions from the corporation’s shareholders,” they “will ﬁnd at least some protection by virtue of the business judgment rule”). If a dualhat director or oﬃcer’s duties irreconcilably conﬂict, however, the director or oﬃcer “might have to resign one position or No. 20-2793 25 the other,” Sommers Drug Stores, 793 F.2d at 1469. And if he or she does not, ERISA’s federal duties will trump conﬂicting corporation-law duties. Here, the plaintiﬀs are pursuing parallel corporation-law claims against dual-hat directors and oﬃcers, so ERISA does not preempt those claims.