AGC Amicus Brief Argues Against Hindsight-Based Fiduciary Duty Lawsuits

On September 23, 2024, AGC of America filed an amicus brief with the U.S. Court of Appeals for the Ninth Circuit arguing against the adoption of a lower pleading standard for lawsuits claiming breach of fiduciary duty by trustees of employee benefit plans. The Signatory Wall and Ceiling Contractors Alliance (SWACCA) joined AGC on the brief.

The case, Johnson et al. v. Carpenters of Western Washington Board of Trustees, et al., was brought by participants in two multiemployer retirement plans, the Carpenters Individual Account Pension Plan of Western Washington and the Carpenters Retirement Plan of Western Washington. They claim that the plans' board of trustees - which includes members and staff of AGC of Washington -and its investment advisor breached their fiduciary duty under the Employee Retirement Income Security Act (ERISA). The claim is based on the theory that the defendants acted per se imprudently by making risky investments. The case was initially dismissed in district court, but the circuit court overturned the dismissal and remanded for further proceedings. The defendants are now seeking a rehearing by the circuit court.

The Ninth Circuit's decision allows plaintiffs to legally challenge a plan's investments without having to show either (1) flaws in the trustees' decision-making process or (2) the investment underperformed a meaningful benchmark demonstrating circumstantial evidence of an imprudent process. This differs from every other circuit that has considered the issue and opens up a new avenue for plaintiffs to sue benefit fund trustees based on outcome rather than process.

AGC's brief urges the court to grant the petition for rehearing. The brief argues that the lower pleading standard conflicts with ERISA's mandate for portfolio diversification and with Department of Labor regulations. It explains that a standard that allows lawsuits to challenge a plan's investments without meaningful comparisons or evidence of flawed decision-making would open the floodgates to meritless litigation against plans and trustees, leading fiduciaries to make overly conservative decisions at the expense of plans' financial well-being and negatively affecting participants' and beneficiaries' interests. Such a standard would also discourage individuals from volunteering to serve as trustees and threaten plans' ability to maintain institutional knowledge and steady management.

"The prospective, process-focused standard of prudence that has emerged over decades strikes a careful balance between preserving beneficiaries' right to state claims when trustees fail to fulfill their fiduciary obligations, while recognizing that fiduciaries face a daunting task, and that the prudence of investment decisions is not always reflected by their outcomes," AGC and SWACCA state in the brief.

AGC's involvement in the case was made possible by donations to the association's Construction Advocacy Fund. To learn more about the fund and to make a contribution in support of AGC's advocacy efforts, visit constructionadvocacyfund.agc.org.

AGC will report on significant developments in this case as they arise.

For more info, contact Denise Gold, Vice President, Corporate & Labor Legal Affairs, at [email protected] or (703) 837-5326.