The recent Seventh Circuit decision in Halperin v. Richards provides a reminder to ERISA fiduciaries who are also corporate officers (frequently referred to as “dual-hat officers”) that they can be held liable under both ERISA and state tort law for the same underlying acts.
When paper company Appvion Inc. filed for bankruptcy in 2017, the liquidation plan granted Appvion’s creditors the right to pursue state law tort claims against former Appvion executives. Halperin v. Richards concerned state law claims raised by certain creditors against former Appvion executives alleging that the executives fraudulently inflated the value of Appvion stock in the years leading up to the bankruptcy.
The executives countered by arguing that ERISA preempted the state law claims because at all relevant times, Appvion’s employee stock ownership plan (“ESOP”) owned 100% of Appvion’s stock. The executives argued that because the ESOP owned all Appvion stock and ERISA governs the duties of ESOP fiduciaries, ERISA preempted state law duties owed to shareholders and state law causes of action for breaching those duties.
The Court disagreed and ruled that “ERISA expressly contemplates such parallel liability for dual-hat directors and officers,” reasoning that ERISA § 408(c)(3), which permits individuals who are corporate officers (and therefore, owe a duty of loyalty to the corporation) to serve as ERISA fiduciaries, does not prohibit state law claims “which would impose corporate liability that runs parallel to, not in conflict with, ERISA’s fiduciary duties… the directors and officers’ corporation-law and ERISA duties both prohibit the fraudulent conduct alleged by [creditors].”
The key takeaway from this case is that ERISA fiduciaries who are also corporate officers or directors must remain cognizant of their obligations under both ERISA and state law. The duties imposed by ERISA on dual-hat fiduciaries will not necessarily create a preemption shield relieving them of their obligations under state law.
