Fiduciary Cannot Recoup Legal Costs after Failed Participant Suit, Court Says

>US District Court Judge Michael Mihm of the Central District of Illinois ruled that US Trust Co, a trustee of marketing firm Foster & Gallagher’s employee stock ownership plan (ESOP), cannot recoup almost $160,000 in legal fees incurred due to a participant lawsuit. Mihm stated that although he found no fiduciary breach in the case regarding US Trust’s approval of the creation of an ESOP, the firm could not recover legal fees, for it would have a “chilling effect” on participants in other Employee Retirement Income Security Act (ERISA) plans from bringing forth legal challenges.

>The original lawsuit revolved around US Trust’s approval of an ESOP for Foster & Gallagher, and whether they were liable for losses incurred to the participants after a subsidiary of the company came under multiple investigations regarding a sweepstakes promotion. Mihm ruled in February that US Trust had not breached its ERISA fiduciary duty by undertaking such an approval, citing the company’s extensive due diligence.

>Following the decision by Mihm, US Trust filed a bill of costs that sought to recoup $157,782 in legal fess incurred.

“Given these circumstances, it is not difficult to see that an award of the substantial costs sought in this case would likely have a chilling effect on participants in other ERISA plans who reasonably believe that they have meritorious claims and deter them from bringing challenges where the defendants’ liability is not a foregone conclusion because they would be reluctant to risk the imposition of attorney’s fees and costs; such an effect would not be in the public interest,” Mihm asserted in his decision.  

>The ruling is available at www.ilcd.uscourts.gov/search/Mihm/Keach%2010804.pdf .