Peabody v. Davis

In the

United States Court of Appeals
For the Seventh Circuit

Nos. 09-3428, 09-3452, 09-3497,
10-1851, 10-2079 & 10-2091

JONATHAN F. P EABODY,
Plaintiff-Appellee,
Cross-Appellant,
v.

A NDREW A. D AVIS, et al.,
Defendants-Appellants,
Cross-Appellees.

Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 05 CV 05026—David H. Coar, Judge.

A RGUED N OVEMBER 2, 2010—D ECIDED A PRIL 12, 2011

Before C UDAHY, F LAUM, and K ANNE, Circuit Judges.
C UDAHY, Circuit Judge. In this case, the Rock Island
Corporation, its subsidiary, its Employee Retirement
Income Security Act (ERISA) plan and the plan’s
trustees, Andrew Davis and Robyn Kole, all defendants,
appeal from the district court’s judgment that they
breached their fiduciary duty in managing the Plan.
2 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

Plaintiff John F. Peabody cross-appeals from the finding
that he lacked standing to recover from the Plan’s insur-
ers. For the reasons that follow, we affirm the finding
of liability, affirm the court’s finding that Peabody
lacks standing to sue the insurance defendants and
remand for reconsideration of damages.

I. Facts and Procedural History
A. Background
This case arises from Peabody’s employment with
Rock Island Corporation (RIC), through which he
became a participant in the company’s ERISA Plan.1 RIC
was a securities firm based in Chicago, and had a sub-
sidiary, Rock Island Securities (RIS). RIC was a
closely-held corporation with several dozen share-
holders, and RIS, its subsidiary, was the sponsor of the
corporation’s ERISA Plan. Defendants Davis and Kole
were the corporation’s co-founders. They served as corpo-
rate officers of RIC and as trustees and fiduciaries of
RIS’s ERISA Plan.
Peabody joined RIC in 1998 as a vice president for
“strategic technology and arbitrage.” In 1999, Peabody
first invested in the ERISA Plan. He did so because
making the investment allowed him to receive his 1999
bonus, as he desired, in cash instead of stock. Specifically,
Peabody and the RIC management agreed that if he

1
The Plan is an employee benefit plan within the meaning
of ERISA § 3(3), and a defined contribution plan within the
meaning of § 3(34).
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 3

rolled over his external IRA into RIC’s Plan, he could
receive a cash bonus instead of receiving RIC stock con-
sistent with the company’s ordinary practice. There-
fore, Peabody rolled over outside investments totaling
$167,819, of which $166,000 was used to purchase shares
of RIC stock. In return, he received a 1999 cash bonus
of more than $212,000. This left Peabody’s account 98%
invested in RIC stock, while the next greatest concentra-
tion in any other employee’s account was approxi-
mately 5%.
Because RIC was a closely-held corporation, there was
no market to indicate the value of the company’s stock;
instead, valuation of the RIC stock required an analysis
of the company’s financial data. Davis and Kole issued
valuation statements for the stock periodically. When
Peabody initially purchased company stock in the 1999
rollover transaction, it was priced at $2,000 per share.
In April of 2000, there was a ten-to-one stock split. In
December of 2000, the RIC stock was valued at $757 per
share by an outside financial analyst. In 2001 Peabody
purchased five additional RIC shares at a value of $500
per share. A benefit statement in December of 2001 valued
the stock at $625 per share. A 2004 statement valued it
at $550 per share.
Peabody’s employment with RIC ended in January of
2004. When he requested his benefits under the Plan, the
company responded by giving him several choices: he
could redeem his 835 RIC shares immediately for $215
per share, redeem them in 2005 for $300 per share or
redeem them in 2007 for $400 per share. Not satisfied
with any of these options, in April of 2004, Peabody
4 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

entered into a loan agreement with RIC. Specifically, RIC
agreed to purchase all of his RIC stock, in consideration
of RIC’s agreeing to pay Peabody $350 per share in one
year. The total amount of the loan was $292,250 plus
interest. This transaction was in effect the transforma-
tion of Peabody’s equity interest in RIC, provided by
the stock, into a creditor’s interest, provided by the
loan. When the time came for payment on the loan, RIC
informed Peabody that it would be unable to pay. On
March 18, 2005 Peabody formally demanded the distribu-
tion to him of his Plan benefit and was told that the
loan proceeds could not be repaid. Sometime in 2005,
RIC went out of business.2
From 1997 to 2003, the Plan maintained a commercial
crime policy for which insurance defendant Liberty
Mutual is now responsible.3 From February 22, 2003 to
2006, the Plan held commercial crime coverage pro-
vided by insurance defendant Hanover Insurance Com-
pany. Both these policies insured the Plan against em-
ployee dishonesty.
On August 31, 2005, Peabody filed a 27-count complaint.
He alleged multiple theories of fiduciary breach against

2
RIC’s decline is apparently primarily attributable to a 2000
SEC rulemaking that required all U.S. public exchanges to
allow stocks to be traded at values measured in terms of
pennies instead of fractional dollars. The change, termed
“decimalization,” diminished the profit margins yielded by
commissions on trades.
3
The policy was issued initially by Liberty’s predecessor,
Peerless Insurance Company.
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 5

the Plan defendants, and also argued that he was
entitled to recover damages from the insurance defen-
dants. In September 2006, he notified the insurance de-
fendants of a potential claim against them under the
dishonesty bonds. In October, he named them as defen-
dants in an amended complaint.

B. Procedural History
The district court conducted a bench trial in July 2007
and in September 2009 issued a memorandum opinion
holding Davis, Kole and RIS liable to Peabody. Initially,
the court rejected Peabody’s argument that the defen-
dants violated the Plan terms or breached their fiduciary
duties by allowing the initial rollover transaction—Pea-
body had “arguably” waived any such argument by
agreeing to the transaction. Along the same lines, the
court held that the defendants had not violated their
duty to diversify the Plan assets, reasoning that
Peabody had “knowing[ly] and voluntar[ily]” waived
this claim at the time of the rollover transaction. But
the court held that the defendants violated their
fiduciary duty of prudence by maintaining the invest-
ment in RIC stock throughout RIC’s decline, and also by
failing to distribute Peabody’s Plan benefit. The court
found fiduciary breaches under several additional
theories not material here.
As to the loan-for-stock transaction, the district court
ruled that Davis (but not Kole) had breached his
fiduciary duty by offering only a loan in payment for the
6 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

RIC stock and further, that this exchange constituted a
“prohibited transaction” under ERISA § 406(a)(1)(B).
The district court rejected Peabody’s argument that the
parent company, RIC, was liable, stating: “RIC is not a
fiduciary of the Plan and all claims against it in the
instant action are disregarded.”
As to the insurance defendants, the district court con-
cluded that Peabody lacked standing to press a claim
on behalf of the Plan. The court reasoned that Peabody
could not sustain his claim under § 502(a)(1)(B) or
§ 502(a)(2) because the insurers were not proper defen-
dants. The court rejected Peabody’s argument that he
could recover in equity under § 502(a)(3) because he
sought money damages, not equitable relief.
The district court struck Peabody’s expert witness on
RIC stock valuation because of Peabody’s noncompliance
with discovery rules. But the court nevertheless awarded
damages. Although Peabody had not offered evidence
of damages as to each theory of liability, the court deter-
mined that there was evidence with respect to the
breach of the duty of prudence between 2001 and 2003,
based on the relatively rapid decline in profitability of
RIC in that period. Therefore, the court calculated
damages on the basis of that breach. The court accepted
that the value of Peabody’s shares was at least $500 in
2001, because this was the price at which the Plan pur-
chased five RIC shares for Peabody’s account in 2001.
Consequently, the court calculated Peabody’s damages
based on his ownership of 835 shares, arriving at a
figure of $417,500. The court added prejudgment in-
terest to arrive at a total figure of $506,601.82.
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 7

Peabody filed a post-judgment motion under Fed. R.
Civ. P. 59(e), requesting that the court reconsider its
denial of Peabody’s claim for distribution of his benefits,
under ERISA § 502(a)(1)(B) (count XXII), and also that the
district court retain jurisdiction of the case. Beyond the
Rule 59(e) motion, Peabody requested two additional
forms of post-judgment relief significant here. First, he
asked that the trustees be removed, and second, he re-
quested that the court order the defendants to disclose
certain historical Plan information. The court denied
each of these requests. Peabody and the defendants
both timely appealed.

II. Applicable Law
Three distinct causes of action are central to the
present case: an action on behalf of the Plan against Plan
fiduciaries for breach of fiduciary duty under § 502(a)(2);
an action by a Plan participant against the Plan to
receive his or her benefits under § 502(a)(1)(B); and an
action for other equitable relief under § 502(a)(3).
The action for fiduciary breach occupies the bulk of our
attention. Section 502(a)(2) of ERISA allows an action
against a fiduciary for a breach of the fiduciary duties
set forth in § 404. Those duties include managing invest-
ments “with the care, skill, prudence, and diligence
under the circumstances then prevailing,” § 404(a)(1)(B),
and “diversifying the investments of the plan so as to
minimize the risk of large losses, unless under the circum-
stances it is clearly prudent not to do so,” § 404(a)(1)(C).
However, certain plans termed “eligible individual
8 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

account plans” are exempted from the diversification
requirement by § 404(a)(2).
The default rule has long been that § 502(a)(2) authorizes
recovery only on behalf of an entire plan, and not in
favor of an individual participant. See, e.g. Plumb v. Fluid
Pump Serv., 124 F.3d 849, 863 (7th Cir. 1997). However, a
participant in a defined contribution plan may bring a
§ 502(a)(2) action for breach of fiduciary duty as to an
individual account. LaRue v. DeWolff, Boberg & Assocs.,
Inc., 552 U.S. 248, 256 (2008) (“Whether a fiduciary
breach diminishes plan assets payable to all par-
ticipants . . . or only to persons tied to particular
individual accounts, it creates the kind of harms that
concerned the draftsmen of [ERISA].”). To prevail under
§ 502(a)(2), the plaintiff must show a breach of fiduciary
duty, and its causation of an injury. See Kamler v. H/N
Telecomm. Servs., 305 F.3d 672, 681 (7th Cir. 2004).
The remedy in an action for breach of fiduciary duty
is for the fiduciary to “make good” the loss to the plan.
ERISA § 409; see Plumb, 124 F.3d at 863 n.13; Donovan v.
Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985) (holding that
“the measure of loss applicable under ERISA . . . requires
a comparison of what the Plan actually earned . . . with
what the Plan would have earned [but for the fiduciary
breach].”). The method of calculating damages is re-
viewed de novo; the calculations pursuant to the method
are reviewed for clear error. See Rexam Beverage Can Co.
v. Bolger, 620 F.3d 718, 727 (7th Cir. 2010).
In contrast to § 502(a)(2), § 502(a)(1)(B) expressly pro-
vides for an individual to have standing to recover
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 9

benefits under the terms of an ERISA plan. Unsurprisingly,
the remedy in a successful action for plan benefits is
to receive the accrued benefits. § 502(a)(1)(B); see Mass.
Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 146-47 (1985).
The third cause of action is § 502(a)(3), which is the
mechanism through which Peabody attempts to recover
from the third-party insurance defendants. That section
allows for the recovery of “other appropriate equitable
relief,” including potentially recovery from non-fiduciaries,
see Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc.,
530 U.S. 238, 246-49 (2000), but only to the extent that
such relief is not available under the two sections
discussed earlier, see Varity Corp. v. Howe, 516 U.S. 489,
515 (1996). Additional law is reviewed below, as needed.

III. Main Defendants
We first address issues relating to defendants other
than the insurers. The first issue is liability.

A. Liability
It has escaped attention thus far in this litigation that
the RIC Savings Plan was an Eligible Individual Account
Plan (EIAP) within the meaning of ERISA § 407(d)(3),4 and
consequently exempted by statute from the § 404(a)(1)(C)

4
This is so because the Plan is an individual account plan
and specifically a savings plan, see § 407(d)(3)(A)(i), and the
basic plan document explicitly provides for the Plan to hold
qualifying employer securities, see § 407(d)(3)(B).
10 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

diversification duty with respect to employer securities.
See § 404(a)(2); Kirschbaum v. Reliant Energy, 526 F.3d
243, 249 (5th Cir. 2008) (applying the EIAP exemption to
savings plan similar to the one at issue, and rejecting a
diversification-based claim).5 The exemption from the
duty to diversify reflects a congressional judgment that
the benefits of broadening employee ownership out-
weigh the greatly increased risks of an undiversified
investment. See Summers v. State St. Bank & Trust Co., 453
F.3d 404, 409-10 (7th Cir. 2006). That calculation may
have been more plausible at the time ERISA was enacted
than it is today, because in 1974 the prevailing form of
retirement plan was the defined benefit pension for
which the duty to diversify is fully applicable, while
today defined contribution plans (which enjoy the em-
ployer stock exemption from the duty to diversify) pre-
dominate. See Susan Stabile, Paternalism Isn’t Always a
Dirty Word: Can the Law Better Protect Defined Contribution
Plan Participants?, 5 Empl. Rts. & Employ. Pol’y J. 491, 492
(2001).
In any event, while the express duty to diversify is
inapplicable to EIAPs investing in employer securities,

5
Although much of the precedent discussing the diversifica-
tion exemption for EIAPs focuses on a particular type of
EIAP called an Employee Stock Option Plan (ESOP) which is
expressly designed to invest in employer securities, the statute
unambiguously exempts all EIAPs from the duty to diversify,
including savings plans like the one at issue. § 404(a)(2);
see Wright v. Oregon Metallurgical Corp., 360 F.3d 1090, 1094
(9th Cir. 2004).
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 11

the full ERISA duty of prudence nevertheless applies. See
Armstrong v. LaSalle Bank Nat’l Ass’n, 446 F.3d 728, 732
(7th Cir. 2006) (stating that plans with no diversifica-
tion duty “demand[] an even more watchful eye, diversifi-
cation not being in the picture to buffer the risk to the
beneficiaries should the company encounter adversity.”).
Some courts, beginning with the Third Circuit in Moench
v. Robertson, 62 F.3d 553, 571 (3d Cir. 1995), have
reconciled the residual duty of prudence with the
absence of an express diversification duty by providing
that for an EIAP or ESOP,6 there is a presumption that
investing in employer stock is prudent. See Quan v. Com-
puter Sciences Corp., 623 F.3d 870, 881 (9th Cir. 2010)
(adopting Moench in the 9th Circuit); see also Summers, 453
F.3d at 410 (citing Moench with approval, although not
expressly adopting it).
We need not grapple with the extent of Moench’s force
as to EIAPs in this circuit, because even if the Moench
presumption of prudence applied we would agree with
the district court that Davis and Kole breached their
duty of prudence as to Peabody. We note at the outset

6
It is unclear whether this “Moench” presumption should apply
to all EIAPs, or only to ESOPs (which exist for the express
purpose of investing in company stock). Compare Wright, 360
F.3d at 1098 n.3 (indicating that the Moench reasoning would
apply equally to EIAPs and ESOPs) with In re Schering-Plough
Corp. ERISA Litig., 420 F.3d 231, 238 (3d Cir. 2005) (holding
that the Moench presumption of prudence does not apply to
EIAPs that are only permitted, but not required, to invest
in employer securities).
12 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

that the RIC Plan did not affirmatively require or en-
courage investment in employer securities—indeed, other
than Peabody, apparently only Davis and Kole held RIC
stock in their Plan accounts, and so far as the record
indicates, they held RIC in their Plan accounts at a
much lower concentration and absolute value than Pea-
body. In other words, divestment from RIC stock would
not have required any deviation from the Plan terms nor
would it have been unusual in the context of RIC, so the
barriers to divestment were low compared to many
other EIAP plans. See Quan, 623 F.3d at 883 (“A guiding
principle . . . is that the burden to rebut the [Moench]
presumption varies directly with the strength of a
plan’s requirement that fiduciaries invest in employer
stock.”); Kirschbaum, 526 F.3d at 255 (“[Moench] clearly
implies that a plan participant would bear an even
heavier burden of showing a fiduciary duty breach
where the plan utterly compelled investment in company
stock.”); cf. In re Schering-Plough, 420 F.3d at 238
(“Because the Savings Plan in this case was not an
ESOP [and did not require, but merely allowed for, the
provision of company stock as an investment option], the
Moench decision does not [apply].”).
We agree with the district court that a prudent investor
would not have remained so heavily invested in RIC’s
stock as the company’s fortunes declined precipitously
over a five-year period for reasons that foretold further
and continuing declines. In particular, Davis testified
that RIC income came from commissions, and that the
SEC’s decimalization rule “crushed” RIC’s profit
margins, such that by 2003 or 2004 profit margins had
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 13

declined by 70-80%. He further testified that this effect
was being felt, beginning in 2000, in commission-based
firms like RIC across the country. Kole likewise acknowl-
edged that by 2003 and 2004, RIC was “going downhill.”
Although these developments were public, no one was
better positioned to know of RIC’s prospects and the
future of its stock value than Davis and Kole, who co-
founded the company and set the share value. These
facts are consistent with circumstances under which
sister courts would find it imprudent to continue an
investment in company stock. See Quan, 623 F.3d at 882
(explaining that to demonstrate imprudence, a plaintiff
must show circumstances that “ ‘clearly implicate [] the
company’s viability as an ongoing concern’ or show ‘a
precipitous decline in the employer’s stock . . . combined
with evidence that the company is on the brink of collapse
or is undergoing serious mismanagement.”) (citing
Wright, 360 F.3d at 1099 n.5). In short, a widely-known
and permanent change in the regulatory environment
had undermined RIC’s core business model, and conse-
quently the company stock became an imprudent in-
vestment.7

7
We emphasize the narrowness of our reasoning in this
respect. Most business failures are not so foreseeable, and a
severe decline in company stock value does not, without
considerably more, create a duty to divest from company
stock. See Kirschbaum, 526 F.3d at 256 n.12 (describing facts
found insufficient to rebut the presumption of prudence of
investments in company stock, including the “ill-fated
(continued...)
14 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

The issue of waiver or consent by Peabody with respect
to the non-diversified RIC stock investment (another
branch of the fiduciary duty question) is close. The
district court held that Peabody had “arguably waived” his
claim that the defendants had breached their fiduciary
duty by agreeing to the RIC stock investment initially,
and by never requesting that the fiduciaries reduce this
investment. This arguable waiver is effectively the same
as a defense that the fiduciary is not liable if a participant
has exercised control over the account. This defense
is available under limited circumstances which are not
clearly applicable here. Specifically, ERISA § 404(c)
frees fiduciaries from responsibility for Plan losses at-
tributable to the participant’s investment decisions,8 but

7
(...continued)
merger, reverse stock split, and seventy-five percent drop in
stock price” in Wright; the “company-wide financial woes
and eighty percent drop in stock price” in Kuper v. Iovenko, 66
F.3d 1447, 1451, 1459 (6th Cir. 1995); and the “accounting
violations, restated revenues for three years, and seventy-five
percent drop in stock price” in In re McKesson HBOC, Inc. ERISA
Litig., 391 F. Supp. 2d 812, 830-33 (N.D. Cal. 2005)).
8
29 U.S.C. § 1104 provides as follows:
(c) Control over assets by participant or beneficiary.
(1) (A) In the case of a pension plan which provides for
individual accounts and permits a participant or beneficiary
to exercise control over assets in his account, if a participant
or beneficiary exercises control over the assets in his
account (as determined under regulations of the Secre-
tary)—
(continued...)
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 15

only for certain types of accounts prescribed by the
statute and by Department of Labor regulations. See
ERISA § 404(c); 29 C.F.R. § 2550.404c-1 9 ; see also LaRue, 552
U.S. at 256 (stating that § 404(c) “would serve no real
purpose if . . . fiduciaries never had any liability for losses
in an individual account.”). Moreover, whether a partici-
pant exercises control under § 404(c) “stems from a plan’s
specific provisions, not from elements . . . which may
arguably amount to control in connection with a single
transaction.” See Meinhardt, 74 F.3d at 446. Fiduciaries
bear the burden of the § 404(c) defense. Id.
We have explained that when a plan is noncompliant
with § 404(c), fiduciaries are denied the statutory safe
harbor. However, it does not necessarily follow that any
delegation of investment discretion to plan participants
violates ERISA. Rather, “the plan trustee, when delegating
decision-making authority to plan participants, must
be evaluated to see if [such delegations] violate the
trustee’s fiduciary duty.” Jenkins v. Yager, 444 F.3d 916, 924

8
(...continued)
* * *
(ii) no person who is otherwise a fiduciary shall be liable . . .
for any loss[.]
9
Generally, the Plan must inform participants that it is a
§ 404(c) plan, and it must offer a certain array of investment
options. See Meinhardt v. Unisys Corp., 74 F.3d 420, 444 n.21
(3d Cir. 1996).
16 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

(7th Cir. 2006).10 In other words, where § 404(c) does not
apply, ERISA fiduciaries can be liable for allowing par-
ticipants to select company stock as an investment if it
is manifestly imprudent to allow them to do so. See gen-
erally Rogers v. Baxter Int’l Inc., 521 F.3d 702, 705-06 (7th
Cir. 2008) (discussing the possibility that the plaintiffs
could prevail on remand by showing that the artificially
high price of the company’s stock created a “duty under
ERISA . . . to prevent participants from investing” in it).
The defendants here have made no effort to show that
the Plan complied with ERISA § 404(c), and consequently
the question becomes whether carrying out the rollover
transaction and subsequently allowing Peabody to
remain invested exclusively in RIC stock during the
company’s decline was consistent with the defendants’
fiduciary duty. As noted, the defendants have not
justified their failure to divest from RIC stock. Therefore,
the fact that Peabody agreed to the RIC investment at
the outset did not free the defendants from the exercise
of their fiduciary duty. Hence, we affirm the district
court’s finding of breach of the duty of prudence.
Finally, as an alternative theory of liability, Peabody has
argued that the defendants and the sponsor company,
RIC, violated ERISA with the loan-for-stock transaction.
Peabody is technically correct in his argument, but his

10
But see In re Enron Corp. Sec. Derivative & ERISA Litigation, 284
F. Supp. 2d 511, 578 (S.D. Tex. 2003) (“If a plan does not qualify
as a § 404(c), the fiduciaries retain liability for all investment
decisions made, including decisions by the Plan participants.”).
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 17

success is of no benefit to him. Under ERISA § 406(a)(1)(B),
it is a “prohibited transaction” for fiduciaries to loan Plan
money to a “party in interest.” The company employing
the Plan participant—here RIC—is a “party in interest”
pursuant to ERISA § 3(14)(C). Thus, there has been a
violation of § 406 even though there has been no injury
to the plan. See, e.g., Keach v. U.S. Trust Co., 419 F.3d 626,
635 (7th Cir. 2005). ERISA provides EIAPs with certain
exemptions from the prohibition on § 406 transactions,
see § 408(e), but the defendants have not argued how
they might apply here, and any such argument has been
waived. See Elmore v. Cone Mills Corp., 23 F.3d 855, 864
(4th Cir. 1994) (en banc) (placing the burden of proof
for the § 408(e) exemption on the defendant). Neverthe-
less, it seems clear that no losses were attributable
directly to the loan-for-stock transaction; rather, it
appears that this transaction consisted of the exchange
of worthless stock for a worthless loan. Although there
has been a violation of ERISA § 406(a)(1)(B), there
are not damages to Peabody from a substitution of debt
for equity.11

11
This loan-for-stock transaction is also of arguable significance
in that it may affect the liability of RIC. As noted, RIC is the
parent company of RIS, the Plan sponsor. The district court
rejected summarily the notion that RIC could be liable to
Peabody, observing simply that RIC was not a Plan fiduciary.
However, a non-fiduciary may become liable for restitution
if it engages in a § 406 prohibited transaction with the Plan,
under § 502(a)(3). See Harris Trust & Sav. Bank, 530 U.S. at 253
(continued...)
18 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

B. Calculation of Damages Requires Remand
As previously indicated, the district court’s method of
calculating damages was erroneous. The remedy in an
action for breach of fiduciary duties under § 502(a)(2) is
for the fiduciary to make good the loss to the Plan. See
Plumb, 124 F.3d at 863 n.13. But here, the $500 per share
basis on which damages were based was tied only to a
single, plausible valuation somewhere in the period of
imprudency. Neither the $500 per share figure nor the
$417,500 pre-interest total are solidly tied to the breach
of fiduciary duty.
We understand the district court’s predicament: Pea-
body’s account was arguably mismanaged in several
overlapping ways during the five years when the assets
in his account disappeared. And the value of the account
representing RIC shares during this period was quite
elusive. The key questions are when did the fiduciary
breach occur, and what was the resultant loss. See
Martin v. Feilen, 965 F.2d 660, 671-72 (8th Cir. 1992).
On remand, we believe the district court should proceed
on the theory that the defendants were required to divest

11
(...continued)
(“[A]n action for restitution against a transferee of tainted plan
assets satisfies the ‘appropriateness’ criterion in § 502(a)(3).
Such relief is also ‘equitable’ in nature.”). Peabody did not cite
§ 502(a)(3), but he did claim RIC was liable as the counter-
party in a prohibited loan transaction under the theory
of Harris Trust. See id. at 245 n.2. However, as we have
indicated, there are no evident damages to Peabody flowing
from the loan.
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 19

from RIC as the profitability of the company declined
sharply. The value of Peabody’s initial investment
($167,819) will play an obvious part in these calculations,
and at a later date the use of average values may be
appropriate.12 We think that for purposes of calculating
damages perhaps an assumption that at least a quarter
to a third of the original RIC stock could be left in the
account when it was converted to a loan, without an
imprudence violation, is reasonable. In other words,
because of the uncertainties involved, prudence did not
require that the account be totally drained of the
arguably imprudent RIC stock investment immediately,
even though that investment eventually became worth-
less. This is not to say that there was a general duty to

12
We do not require that the district court on remand may not
use the RIC stock valuations in calculating damages, but we
note that the use of these valuations resulted in a surprisingly
large award in view of Peabody’s original investment of
$167,819. It is easy to see how this happened: Peabody pur-
chased shares at $2,000 in February of 2000; in April, 2000, there
was a ten-to-one stock split (producing, one would imagine,
a share value of $200); but in April of 2001 Peabody purchased
post-split stock for his account at $500 per share. In other
words, within the fourteen months after Peabody first
purchased RIC stock, the supposed value of RIC stock had
increased by 250%. The district court implicitly accepted this
extraordinary statistic, and indeed, based its award on the
April, 2001 transaction valuing RIC stock at $500. Con-
sequently, the district court’s award boils down to a multi-
plication of Peabody’s original investment by 2.5.
20 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

“diversify” Peabody’s holdings, since that is foreclosed
by the statute. Rather, there was a prudential duty to
reduce exposure to company stock in an orderly way, as
company profitability abruptly and openly dropped. Cf.
Steinman v. Hicks, 352 F.3d 1101, 1106 (7th Cir. 2003)
(recognizing that under certain circumstances an ESOP
trustee may have a duty to sell company stock, that
might “become a duty to diversify, even though failure
to diversify an ESOP’s assets is not imprudence per se.”).
A final note on Peabody’s remedy is in order. On
appeal Peabody has argued, as he did in the district court,
that he should be entitled to “distribution of his Plan
benefits,” under § 502(a)(1)(B) and count XXII of his
complaint. As discussed above, the district court
formally denied this claim as duplicative of the court’s
award under § 502(a)(2). But in addressing Peabody’s
post-judgment motion to amend, the district court indi-
cated that it did want to grant this relief, at least insofar
as it intended that the damages would be paid into Pea-
body’s ERISA account and then would be immediately
available to him with the tax rollover benefits preserved.
The court stated:
Peabody requests that the Court rule explicitly on
his benefit claim to ensure that all damages are trans-
ferred to him as distributable benefits in his Plan
account, as soon as practicable. Peabody seeks to
preserve rollover eligibility with the funds, with
attendant tax benefits. In its original judgment, the
Court ordered Davis and Kole to restore the damages
amount to [Peabody’s] account under 29 U.S.C. § 1109.
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 21

An alteration of the court’s decision . . . is unnecessary
to accomplish the ends sought by Peabody.
* * *
If . . . Peabody is primarily concerned that Davis and
Kole will prevent him from timely accessing his Plan
assets, the Court simply needs to clarify that upon
prompt payment into Peabody’s account, the damages
shall be made available for immediate distribution[.]
We do not disturb the district court’s ruling. Since the
Supreme Court sanctioned individual claims under
§ 502(a)(2) in LaRue in 2008, the relationship between
that subsection and the traditional mechanism of individ-
ual relief, § 502(a)(1)(B), has been muddied. See LaRue,
552 U.S. at 257-59 (Roberts, C.J., concurring); Howell v.
Motorola, Inc., No. 07-3837, 2011 U.S. App. LEXIS 1193, at
*16-17 (7th Cir. Jan. 21, 2011). We see little benefit to
exploring this legal frontier given that, when the defen-
dants comply with the district court’s order in the
manner the court prescribed, all of Peabody’s tax-related
concerns should be allayed. Peabody is entitled to have
his damages distributed with the tax features preserved,
but this court need not credit multiple theories of relief
to accomplish it. See Graden v. Conexant Sys. Inc., 496 F.3d
291, 301 (3d Cir. 2007) (stating that an action under
§ 502(a)(2) is “the sensible route” for a benefits claim
under the circumstances, because it would allow the
plaintiffs “to get the money in the first instance from
a solvent party liable to make good on the loss, not
from the plan itself.”).
22 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

C. Peabody’s Additional Requests for Relief
As discussed above, Peabody is aggrieved by the
district court’s denial of his requests for the removal of
Davis and Kole as trustees of the ERISA Plan; for the
district court to compel Davis and Kole to make certain
disclosures; and for the court to retain jurisdiction of
the case to ensure that Peabody’s judgment is satisfied.
The district court enjoyed discretion as to the removal
of trustees, see Katsaros v. Cody, 744 F.2d 270, 281 (2d Cir.
1984); Iron Workers Local #272 v. Bowen, 624 F.2d 1255,
1262 (5th Cir. 1980), and did not abuse its discretion
in declining to remove them. Peabody has been awarded
an enforceable judgment and has not supplied persuasive
reasons to believe that the defendants will dishonor
it. Lengthy and contentious litigation precedes the
issuance of many judgments, and does not, without
more, deprive the district court of its discretion to retain
or remove ERISA trustees. For much the same reasons,
we affirm the court’s denial of Peabody’s request for an
order that trustees make disclosures to effectuate the
judgment.
We need not opine on the district court’s decision to
reject Peabody’s request that the court retain jurisdic-
tion. The district court was correct insofar as it observed
that it was without jurisdiction of the case once it was
appealed. See Marrese v. Am. Academy of Orthopaedic Sur-
geons, 470 U.S. 373, 378 (1985). Because the court’s sole
rationale for denying this request was its lack of jurisdic-
tion while the case was on appeal, we do not know how
it would have ruled under different circumstances. We
Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al. 23

express no opinion as to the proper outcome if the
issue arises again on remand.

IV. The Liability of the Insurer Defendants
We turn now to the matter of the liability of the insur-
ance defendants under their dishonesty bonds issued to
the RIC Plan. The district court ruled that the plaintiffs
lacked standing under ERISA to sue the non-fiduciary
insurance defendants, and we agree.
Peabody concedes that the insurers are not proper
defendants under § 502(a)(1)(B) or § 502(a)(2), but argues
that his claim can prevail under § 502(a)(3), as “other
appropriate equitable relief.” Peabody’s argument under
§ 502(a)(3) fails because the relief he seeks, money
damages under the Plan’s insurance policy, cannot be
described as typically “equitable.” See Wal-Mart Stores,
Inc. Associates’ Health & Welfare Plan v. Wells, 213 F.3d 398,
401 (7th Cir. 2000) (“[T]he Supreme Court said . . . that
only typical equitable relief is available under
[ERISA.]”); Novak v. Andersen Corp., 962 F.2d 757, 760 (8th
Cir. 1992) (“[W]e find nothing in the statutory language
to persuade us to interpret ‘other appropriate equitable
relief’ to mean anything other than what it usually
means—declaratory or injunctive relief.”). Peabody’s
attempt to circumvent this problem by relying on the
equitable doctrine of adverse domination is unavailing.
Adverse domination “tolls the running of the statute of
limitations period where the entity is . . . dominated by
wrongdoers.” Resolution Trust Corp. v. Gallagher, 800
F. Supp. 595, 600 (N.D. Ill. 1992). Even assuming the
24 Nos. 09-3428, 09-3452, 09-3497, 10-1851, et al.

application of this doctrine were indicated (an argu-
ment that the district court convincingly rejected), it
would not change the nature of Peabody’s claim against
the insurers, or “cloak the litigant with standing” as
Peabody urges. Crediting Peabody’s theory would
extend the doctrine far beyond its purpose relating to
the timeliness of claims, and it would be particularly
inappropriate to so contort the doctrine to create an
ERISA remedy where none existed before. See Great-West
Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 209 (2002)
(“We have . . . been especially reluctant to tamper with
[the] enforcement scheme embodied in [ERISA] by ex-
tending remedies not specifically authorized by its
text.”) (internal quotation omitted).
For the foregoing reasons, the judgment of the district
court is affirmed in part, reversed in part, and the case
is remanded for proceedings consistent with this opinion.

4-12-11