## Facts

- LTV Corporation announced a tender offer for Grumman Corporation shares at $45 per share, causing Grumman’s market price to rise sharply from pre-offer levels.
- The Grumman Corporation Pension Plan held about 525,000 Grumman shares when the tender offer began.
- Plan trustees were also high-ranking Grumman officers, creating a conflict between corporate anti-takeover interests and ERISA fiduciary duties.
- The trustees declined to tender the Plan’s existing shares and used Plan assets to buy about 1,158,000 additional Grumman shares on the open market at prices influenced by the tender offer.
- The additional purchases were found to have been made to help defeat the tender offer rather than to advance the Plan’s interests.
- Months later, the trustees sold the purchased shares (and some previously held shares) at a higher price, producing an accounting profit on the stock position.
- In prior proceedings, courts had already determined the trustees breached ERISA duties of loyalty and prudence; the remaining dispute concerned the proper remedy and calculation of “loss” to the Plan.
- After a joint trial of two ERISA actions, the district court found no compensable loss because the stock was ultimately sold at a profit; the Secretary of Labor and a Plan participant appealed.

## Issues

1. Under ERISA § 409(a), whether a plan suffers a compensable “loss” from a fiduciary breach when the challenged investment later yields an absolute profit.
2. What measure of loss applies: whether damages must reflect the difference between the Plan’s actual results and what the Plan would have earned had the assets been invested prudently absent the breach.
3. Whether, and to what extent, fiduciaries bear the burden to show that an alternative prudent investment would not have produced better results.

## Decision

- The Second Circuit reversed the district court’s “no loss” determination and remanded for further findings.
- The court held the district court used an incorrect loss measure by treating later profit on the tainted investment as dispositive.
- The court directed the district court to determine what the Plan would have earned if the funds used for the improper Grumman purchases had been invested in other Plan assets during a reasonable evaluation period.
- The court indicated the fiduciaries should bear the burden of showing that the Plan would not have done better with an alternative prudent investment.

## Legal Principles

- ERISA § 409(a) remedies are designed to make the plan whole by restoring it to the position it would have occupied absent the breach.
- “Loss” from a fiduciary breach is generally measured by comparing (1) the plan’s actual performance after the challenged transaction with (2) the plan’s hypothetical performance under a prudent, conflict-free alternative (“but-for” benchmark).
- An absolute profit on the challenged transaction does not bar recovery if the plan would have earned more under a prudent alternative during the relevant period.
- Where fiduciary misconduct creates uncertainty about the plan’s but-for performance, the risk of that uncertainty may be placed on the breaching fiduciaries.
- Damages should be assessed over a reasonable time frame to avoid open-ended liability based on indefinite future market movements.

## Conclusion

The court required ERISA loss to be computed by a but-for comparison to prudent alternative investments, rejecting the view that a later profit automatically eliminates damages, and remanded for calculation of the Plan’s opportunity-cost loss over a reasonable period.


Donovan v. Bierwirth, 754 F.2d 1049 (2d Cir. 1985)