Opinion ID: 3191566
Heading Depth: 2
Heading Rank: 3

Heading: Denial of defense costs

Text: Appellant next contends that the District Court fundamentally erred and violated indemnification provisions set forth in the governing documents by denying him the advancement of defense costs. (Appellant’s Br. 27–28). On September 16, 2013, the Court ordered that the trusts were barred from advancing defense costs to Koresko. (App. 1455). Koresko maintains this violates indemnification provisions in the governing documents. The Master Trust Agreements for the REAL VEBA Trust and SEWBPT provide indemnification for legal fees and expenses, “in advance, unless it is alleged and until it is conclusively determined that such Claims arise from the Trustee’s own negligence or willful breach of its obligations specifically undertaken pursuant to this Agreement.” (Id. at 1120, 1136). Although the Secretary argues that the partial grant of summary judgment and subsequent bench trial “conclusively determined” that the claims arose from Koresko’s breach of fiduciary duties, we do not rely on this basis to affirm this part of the District Court’s order. (Appellee’s Br. 37); (App. 1120, 1136). We agree with the District Court that this indemnification provision, or Koresko’s reliance on this provision to seek plan assets for advancement costs, is in violation of ERISA. The statute provides that “any provision in an agreement or instrument which F.2d 1155, 1162 (3d Cir. 1990) (explaining that employers do not have “unfettered discretion to amend or terminate plans at will”). In distinguishing Delgrosso v. Spang & Co., 769 F.2d at 935–36, a case in which we held that a company breached its fiduciary duty by failing to administer a plan pursuant to the governing documents, we noted in Hozier that “the particular amendment at issue in Delgrosso was invalid under the terms of the unamended plan’s governing documents.” Hozier, 908 F.2d at 1161 n.6. Appellant’s reliance on Hozier for the proposition that he could decide at any time to terminate an ERISA plan is therefore unwarranted. 23 purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy.” 29 U.S.C. § 1110(a). The Department of Labor has interpreted this statute to render[] void any arrangement for indemnification of a fiduciary of an employee benefit plan by the plan. Such an arrangement would have the same result as an exculpatory clause, in that it would, in effect, relieve the fiduciary of responsibility and liability to the plan by abrogating the plan's right to recovery from the fiduciary for breaches of fiduciary obligations. 29 C.F.R. § 2509.75-4 (interpretive bulletin). Indemnification provisions are allowed if they “merely permit another party to satisfy any liability incurred by the fiduciary,” such as liability insurance. Id. Plan indemnification provisions that allow the plan to indemnify a fiduciary are considered void. See Johnson v. Couturier, 572 F.3d 1067, 1079–80 (9th Cir. 2009) (“Thus, ‘[i]f an ERISA fiduciary writes words in an instrument exonerating itself of fiduciary responsibility, the words, even if agreed upon, are generally without effect.’”) (alteration in original) (quoting IT Corp., 107 F.3d at 1418); Perelman v. Perelman, 919 F. Supp. 2d 512, 523 (E.D. Pa. 2013) (explaining that the indemnification provision does not violate ERISA because “it permits the Trustee to seek indemnification only from the employer and does not permit indemnification by the Plan”). Appellant urges this Court to follow Harris v. GreatBanc Trust Co., No. EDCV12-1648-R (DTBx), 2013 WL 1136558 (C.D. Cal. Mar. 15, 2013). In Harris, the court found an indemnification agreement valid under ERISA because it expressly prohibited indemnification if a court entered a final judgment from which no appeal could be taken finding breach of fiduciary duties. Id. at . Appellant argues the same 24 result as in Harris should apply here, because the Master Trust Agreement provides for indemnification “unless it is alleged and until it is conclusively determined that such Claims arise from the Trustee’s own negligence or willful breach of its obligations specifically undertaken pursuant to this Agreement.” (Appellant’s Br. 29–30) (citing App. 1120, 1136). Thus, Appellant argues that the indemnification provision complies with ERISA because it similarly does not allow for indemnification if Appellant is found to have violated fiduciary duties. In addition to not being binding authority, the indemnification provision in Harris is distinguishable. In Harris, the provision required Sierra Aluminum, the sponsor of an employee stock ownership plan, to indemnify GreatBanc, the trustee of the plan. 2013 WL 1136558, at . This did not violate ERISA because, as discussed above, per guidance from the Department of Labor, indemnification provisions that “merely permit another party to satisfy any liability incurred by the fiduciary” are permissible. 29 C.F.R. § 2509.75-4. The Department of Labor allows a trustee to seek indemnification from another party, as long as the indemnification does not come from the plan itself. Unlike in Harris, in this case, Koresko was seeking advancement costs from the plans themselves, not another party. This would effectively “abrogate[e] the plan's right to recovery from the fiduciary for breaches of fiduciary obligations.” Id. Although Koresko could have relied on liability insurance or indemnification through another party, he could not rely on plan assets to front his legal costs. We agree with the District Court order denying Koresko from relying on plan assets to cover his litigation costs as a proper interpretation of 29 U.S.C. § 1110 and 29 C.F.R. § 2509.75-4. 25