Opinion ID: 2999002
Heading Depth: 3
Heading Rank: 2

Heading: Profit-Sharing Funds

Text: Next, we turn to Ms. Jenkins’ claim that Mr. Yager violated his fiduciary duty to the plan by his failure to make a prudent, reasonable investigation of the profit-sharing investments and by failing to monitor those investments.8 Ms. Jenkins relies on Mr. Yager’s deposition testimony to support her claim, where the following exchange occurred: Q: With respect to the [profit-sharing] contribution that is made in any given year, what percentages of those—of that contribution goes into each of these four funds? A: I have no knowledge of how that’s—I don’t recall how that is made. .... Q: Do you know? Is [the distribution among the funds] equal? Is it 25 percent to each of ‘em, or— A: No, I don’t know how that’s—don’t recall how that is split up. 8 Though the district court did not address Ms. Jenkins’ claim that Mr. Yager and Mid America breached their fiduciary duties with regard to the profit-sharing funds, Ms. Jenkins did argue that such a breach had been committed in her motion for summary judgment. See R.25 at 7-8, 14. Ms. Jenkins renews her argument in her appellate brief, see Appellant’s Br. at 22-23, as well as in her reply brief, see Appellant’s Reply Br. at 12. No. 04-4258 19 Q: Do you know what documents there might be to show how those are split up? A: No. Not aware of anything. R.25, Ex.7 at 107-08. Mr. Yager further testified that he did not recall considering or making any changes as to how the profit-sharing money was invested since 1991. Id. at 112. When asked who would know how the money is to be invested, Mr. Yager replied that it would be a “Dwight [Erskine]/McGladrey-type situation” and that Mr. Erskine would have the information on how the profit-sharing money was allocated amongst the four different funds. Id. at 110-12. However, Mr. Erskine testified that it was his understanding that Mr. Yager made the decisions as to how profit-sharing contributions would be invested amongst the four funds. R.26, Ex.5 at 42. From the record, it is unclear exactly how the profitsharing contribution was allocated across the four funds. Mr. Erskine testified that he believed that the Capital World Fund was given a larger share of the contribution in order to “get a little more of the international element into the plan.” Id. at 44-45. The annual reports in the record for the profit-sharing funds support Mr. Erskine’s recollection of profit-sharing investments.9 9 In 2000, the profit-sharing fund made purchases of $9,468.26 in the American Mutual Fund, $45,813.56 in the Growth Fund, $19,801.96 in the Euro-Pacific Growth Fund, and $82,281.09 in the Capital World Fund. R.25, Ex.4 at 5. In 2001, the profit-sharing fund made purchases of $6,777.16 in the American Mutual Fund, $536.30 in the Growth Fund, $3,796.81 in the Euro-Pacific Growth Fund, and $16,843.28 in the Capital World Fund. R.25, Ex.5 at 5. In 2002, the profit-sharing fund made purchases of $4,771.68 in (continued...) 20 No. 04-4258 Unlike the situation with the 401(k) funds, Mr. Yager, as trustee, retained all responsibility to “invest, manage, and control the [p]lan assets.” R.25, Ex.8 at 87. A trustee is required to use due care and diligence when investing plan funds, meaning that he or she must “employ[] the appropriate methods to investigate the merits of the investment and to structure the investment.” Eyler v. C.I.R., 88 F.3d 445, 454 (7th Cir. 1996) (citing Katsaros v. Cody, 744 F.2d 270, 279 (2d Cir. 1984)); see also Chao v. Hall Holding Co., Inc., 285 F.3d 415, 426 (6th Cir. 2002) (citing cases); In re Unisys, 74 F.3d at 434. Viewing Mr. Yager’s deposition statements in the light most favorable to Ms. Jenkins, it appears that Mr. Yager did not explore the merits of investing the profitsharing money, nor did he select what proportion of the money to invest in each of the four funds each year, even though he was investing new money into the funds annually during this time period.10 If Mr. Yager delegated the investment decision-making to Mr. Erskine or to RSM 9 (...continued) the American Mutual Fund, $2,457.69 in the Growth Fund, $2,460.52 in the Euro-Pacific Growth Fund, and $15,911.75 in the Capital World Fund. R.25, Ex.6 at 3. 10 See Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 919 (8th Cir. 1994) (stating that deposition testimony “suggesting that the trustees did very little to evaluate the propriety” of their actions with regard to plan assets could support a judgment at trial for the plaintiffs); but see DeBruyne v. Equitable Life Assurance Soc. of the United States, 920 F.2d 457, 465 (7th Cir. 1990) (holding that plaintiff’s evidence that an investment lost money, coupled with an expert’s opinion that a typical funds manager would not have acted as the fiduciary had acted, was not sufficient to rebut the fiduciary’s assertion at summary judgment that its investment strategies were prudent). No. 04-4258 21 McGladrey, Inc., as was indicated by his deposition testimony, he was not fulfilling his trustee duty of care and prudence by not making an independent investigation as to the propriety of the profit-sharing investments. The trustee may “take into consideration the advice of qualified others, as long as he exercises his own judgment.” In re Unisys, 74 F.3d at 434. We have stated that the “degree to which a fiduciary makes an independent inquiry [before acting] is crucial.” Eyler, 88 F.3d at 456 (holding that the fiduciary’s reliance on the opinion of attorneys and a financial advisor was not sufficient to show that the fiduciary “exercised [its] own judgment” before completing an employee stock ownership plan transaction). Therefore, it appears that there are material issues of fact remaining as to whether or not Mr. Yager invested the profit-sharing contributions with the care and diligence that is required of a fiduciary under ERISA. Finally, we consider the third prong, which is harm to the plaintiff. There also appears also to be a genuine issue of fact as to whether Mr. Yager and Mid America’s alleged breaches harmed Ms. Jenkins. According to the plan’s annual reports, the profit-sharing fund suffered a loss of $165,818.47 in 2000, $98,055.82 in 2001 and $148,119.68 in 2002. R.25, Ex.4 at 5; R.25, Ex.5 at 5; R.25, Ex.6 at 3. Ms. Jenkins’ account also suffered a loss, reflected in her individual plan statements; the profit-sharing portion of her account lost $151.68 in 2000, $1,282.38 in 2001 and $2,637.61 in 2002. R.25, Ex.10 at 8-10. Given that the profit-sharing funds in the plan experienced losses, it is possible that Mr. Yager’s alleged breach of his fiduciary obligation caused these losses. For example, Mr. Yager continued to invest a proportionally larger amount of the profit-sharing money into the Capital World Fund in 2000 and 2001, even though it was losing money while the American Mutual Fund was 22 No. 04-4258 not. R.25, Ex.6 at 3; R.25, Ex.5 at 5. Had he been monitoring the investments adequately, he might not have made such a choice. It is difficult to tell from the limited record what impact his alleged neglect had on the profit-sharing funds; however, viewing the facts in the light most favorable to Ms. Jenkins, it does appear that there is at least a genuine issue as to whether or not his breach caused the losses to the plan. See Roth v. Sawyer-Cleator Lumber Co., 16 F.3d 915, 919 (8th Cir. 1994) (stating that the causal connection between breach and loss “is a fact-intensive inquiry” that might not be susceptible to summary judgment in some cases). Given these remaining issues of material fact, we therefore reverse the district court’s grant of summary judgment as to Ms. Jenkins’ claim that Mr. Yager and Mid America violated their fiduciary duty to carefully invest and monitor the profit-sharing funds.