Seventh Circuit Court of Appeals Rejects Department of Labor’s Position on Standard of Review for Trustee’s Decisions

In a very important decision for ESOP trustees and other ERISA fiduciaries in a case involving an allegation of an erroneous valuation of employer securities held by an ESOP, the Seventh Circuit Court of Appeals has held that the standard of judicial review of the decisions of an ERISA trustee is deferential unless there is a conflict of interest. Armstrong v. LaSalle Bank National Association, Case No. 05-3417 (7th Cir. 2006). In so holding, the court rejected the Department of Labor’s contention that trustees’ decisions should be reviewed by courts de novo, rather than for an abuse of discretion. The plaintiffs had argued that the actions of an independent ESOP trustee, like the actions of an inside trustee, should be subjected to a de novo review with “strict scrutiny” by the courts.

The Secretary of Labor filed a brief as amicus curiae, urging the court not to apply an abuse-of-discretion standard of review in cases involving claims that a trustee has breached its fiduciary duty but where the trustee has no conflict of interest and has not engaged in self-dealing.

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