Business Law

Halperin v. Richards (7th Cir.)

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The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, CD CA, ret.), analyzing a recent decision of interest:

The Seventh Circuit Court of Appeals (the Circuit) recently ruled that ERISA does not preempt claims by bankruptcy creditors on behalf of a debtor against directors and officers who were alleged to have inflated the company’s stock value to conceal the company’s economic decline and benefit the insiders. ERISA’s express provision for those officers and directors to serve dual fiduciary roles legislates against automatic preemption. Halperin v Richards, 2021 WL 3184305 (7th Cir. July 28, 2021).

To view the opinion, click here.


Appvion, Inc., in the paper business, suffered adverse economic consequences from 2012 to 2016. In October 2017, Appvion and affiliates filed a chapter 11 proceeding in Delaware. Under the liquidating plan, the bankruptcy creditors were given authority through a liquidating trust to pursue certain corporation-law claims on behalf of the debtor to recover losses from former officers and directors for alleged wrongs against the corporation, including breach of fiduciary duty claims. The liquidating trust’s complaint, filed in bankruptcy court but transferred to the district court, alleged that the officer and director defendants projected unrealistic success when valuing the company’s stock, which was wholly-owned by employees under an ERISA-covered Employee Stock Ownership Plan (ESOP). The defendants’ pay was tied to the inflated ESOP valuations. The complaint also sought relief against the ESOP trustee, Argent Trust Company (Argent), and its independent appraiser, Stout Risius Ross, LLC (Stout), for aiding and abetting the officers and directors in breaching their duties.

The defendants moved to dismiss all claims, asserting that their roles in Appvion’s ESOP valuations were governed by ERISA, which preempted state corporation-law liability arising from the valuation process. The officers and directors claimed that, despite their dual roles as corporate and ERISA fiduciaries, they acted exclusively in their ERISA roles when doing the valuations. Argent and Stout argued similarly that they were being sued solely for performing their ERISA duties and preemption also applied as to them. The district court agreed with all defendants and dismissed the action based on preemption.

Plaintiffs appealed to the Circuit, which reversed as to the officers and directors but affirmed as to Argent and Stout.


The Circuit recognized that ERISA has two distinct preemption provisions: complete preemption and conflict preemption. In play here is conflict preemption which preempts “any and all State laws insofar as they may now or hereafter relate to any employee benefit plan” covered by ERISA. Because of the ambiguity introduced by the term “related to,” the Circuit first looked at Congress’s objective in enacting ERISA’s conflict preemption provision, which was “to ensure that plans and plan sponsors would be subject to a uniform body of benefits law” in order that such plans would not need to tailor substantive benefits to the demands of multiple jurisdictions. It recognized that ERISA enforcement prevented application of state laws which either were essentially based on the existence of ERISA plans for their operation or which purported to govern a central matter of plan administration such that they would interfere with nationally uniform plan administration.

However, when these principles were applied to the claims against the officers and directors, the Circuit opined “we find that the plaintiffs’ claims are not preempted because ERISA contemplates parallel state-law liability against directors and officers serving dual roles as both corporate and ERISA fiduciaries. Section 408(c)(3) of ERISA explicitly allows corporate insiders to serve as ERISA fiduciaries.” The Circuit reasoned that since ERISA expressly allows this dual role, it should not be interpreted to preempt parallel state-law liability against the officers and directors in the Appvion case.

Critical factors informed this decision. The plaintiffs here were not beneficiaries of the ESOP, who would have exclusive remedies under ERISA. Instead, they were liquidating trustees with authority to assert claims of the corporate debtor against the insiders. They had no direct ERISA remedy for the alleged breaches of duty. The Circuit noted that some cases interpreting the extent of preemption had ruled that it should not be used to immunize corporate directors and officers who defrauded corporate shareholders and creditors; the Circuit joined that outlook. In addition, although ERISA would preempt if the state law claims dealt with a central mater of plan administration, the allegations here that the insiders inflated the ESOP valuation to increase their own pay did not affect plan administration at all.

The Circuit concluded that because section 408(c)(3) explicitly allows corporate insiders, with fiduciary duties under corporate law, to also serve as ERISA fiduciaries, Congress must have contemplated separate liabilities could arise from the two different fiduciary duties. Therefore, it could not have intended to disallow all state law claims against them.

The Circuit saw the roles of Argent and Stout differently, however. They were “single-hat” fiduciaries who did not owe parallel duties to the corporation. Therefore, extending any state-law based liability to them, even on an aiding and abetting theory, “simply creates too great a risk that single-hat ERISA fiduciaries like Argent would be forced to worry about whether directors and officers were complying with separate corporation-law duties. This would interfere with the single-minded focus on the plan and its beneficiaries that ERISA’s exclusive benefit rule prescribes for fiduciaries like Argent.” The Circuit affirmed dismissal of the claims against them.

Author’s Comments

The most important aspect of this decision for me, and the one which reinforces why it makes sense, is that the liquidating trustees had no direct rights to sue these allegedly derelict fiduciaries under ERISA. It is hard to contemplate a federal law preempting state laws where the federal law provides no remedies for the plaintiffs. This decision, if followed in other circuits, would expand rights of liquidating trusts against insiders where ERISA matters are in play. They may not hide behind ERISA preemption if their breach of fiduciary duties has harmed the corporate debtor as opposed to ERISA plan participants.

This submission was authored by the Hon. Meredith Jury (U.S. Bankruptcy Judge, CD CA, ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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