Khan v. Board of Directors of Pentegra Defined Contribution Plan

Background

Imran Khan, Joan Bullock, and Pamela Joy Wood brought a putative class action against the Board of Directors of Pentegra Defined Contribution Plan, Pentegra Services Inc., and the individual defendants named in the opinion. They alleged breaches of fiduciary duties and prohibited transactions under the Employee Retirement Income Security Act, a federal law governing employee-benefit plans. The amended complaint asserted claims involving recordkeeping and administrative fees, prohibited transactions, investment-management fees, and failure to monitor fiduciaries. Plaintiffs later withdrew the investment-management-fee claim because discovery showed that the fees were encompassed by the recordkeeping and administrative-fee claim.

In an earlier order, the Court dismissed the loyalty-duty portions of the first and third claims but allowed the claims to proceed to the extent they alleged breaches of the duty of prudence. Plaintiffs demanded a jury trial. Defendants then moved under Federal Rule of Civil Procedure 39(a) to strike that demand.

Legal Standard

When a party properly demands a jury, the trial ordinarily must be before a jury unless the court determines that there is no federal right to a jury on some or all of the issues. Because ERISA does not specify whether these claims carry a jury right, the Court applied the Seventh Amendment analysis described in Granfinanciera, S.A. v. Nordberg. That analysis asks first whether the statutory claim resembles an action historically heard in courts of law or equity, and second—more importantly—whether the requested remedy is legal or equitable.

Analysis

The Court held that the first part of the test weighed against a jury because breach-of-fiduciary-duty claims derive from trust law and historically were heard in equity.

The Court reached a different conclusion concerning the requested remedies. Plaintiffs sought to require the defendants to personally make good to the Plan all losses caused by the alleged fiduciary breaches. Relying on Second Circuit precedent and decisions from other district courts in the circuit, the Court held that this request seeks money from the defendants’ assets generally rather than particular funds or property in their possession. It is therefore a legal remedy, not an equitable one, and the money-damages claims must be tried to a jury.

Plaintiffs also sought removal of fiduciaries, a surcharge, an accounting, reformation of the Plan, and other equitable or remedial relief. The Court held that these are traditional equitable remedies and do not require a jury. Because the same facts may relate to both the legal and equitable relief, the Court stated that it would first hold a jury trial on the legal money-damages claims, including common factual issues, and then hold a bench trial on the remaining issues.

Disposition

Judge Philip M. Halpern granted in part and denied in part Defendants’ motion to strike Plaintiffs’ jury demand. Plaintiffs’ money-damages claim and related common factual issues will be tried before a jury. The remaining issues will be tried before the Court. The Court also stated that the deadline for seeking summary judgment had expired because no party filed the required pre-motion letter within the specified time.