Julie A. Su v. Leroy Johnson ( 2023 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
Nos. 22-2204 & 22-2205
JULIE A. SU, Acting Secretary of Labor,
United States Department of Labor,*
Plaintiff-Appellee,
v.
LEROY JOHNSON and
SHIRLEY T. SHERROD,
Defendants-Appellants.
____________________
Appeals from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 1:16-cv-04825 — Andrea R. Wood, Judge.
____________________
ARGUED APRIL 19, 2023 — DECIDED MAY 10, 2023
____________________
Before HAMILTON, BRENNAN, and KIRSCH, Circuit Judges.
HAMILTON, Circuit Judge. These appeals present questions
about enforcement of fiduciary duties of loyalty and prudence
* We have substituted the current Acting Secretary of Labor, United
States Department of Labor, for her predecessor, sued in an official capac-
ity. Fed. R. App. P. 43(c)(2)
2 Nos. 22-2204 & 22-2205
under the Employee Retirement Income Security Act of 1974,
better known as ERISA, 29 U.S.C. § 1001 et seq., as well as fi-
duciaries’ duties to comply with plan documents. Defendants
Shirley T. Sherrod and Leroy Johnson were fiduciaries of a re-
tirement plan that Sherrod had set up for herself and other
employees of her medical practice. The Secretary of Labor
brought this civil enforcement action alleging that both de-
fendants had breached their fiduciary duties under ERISA.
The district court granted summary judgment in favor of the
Secretary and entered a permanent injunction against defend-
ants removing them as fiduciaries. Walsh v. Sherrod, No. 16-cv-
04825, 2022 WL 971857 (N.D. Ill. Mar. 31, 2022). Both defend-
ants have appealed.
We affirm. The undisputed facts show that both defend-
ants breached their fiduciary duties of loyalty and prudence
under ERISA. Hundreds of thousands of dollars of plan assets
were used for defendant Sherrod’s personal benefit but were
accounted for as plan expenses or losses rather than as distri-
butions of retirement benefits to her. The permanent injunc-
tion was well within the scope of reasonable responses to the
breaches.
I. Facts for Summary Judgment & Procedural History
Defendant Sherrod owned and ran an ophthalmology
practice (Shirley T. Sherrod, M.D., P.C.) in Detroit, Michigan.
In 1987, she established a defined-benefit retirement plan for
the practice’s employees, including herself. She named herself
as trustee of the retirement plan, which is governed by ERISA.
In 2008, the employment of all employees other than Dr. Sher-
rod herself was terminated, and sometime around then, she
sold the practice to another physician. In April 2010, the plan
was amended to make Sherrod responsible for: (1) investing,
Nos. 22-2204 & 22-2205 3
managing, and controlling plan assets subject to the direction
of the employer (herself) or an investment manager; (2) pay-
ing benefits to participants at the direction of the administra-
tor; and (3) maintaining records of receipts and disburse-
ments to furnish to the employer or administrator.
The buyer of Dr. Sherrod’s practice later sued her in Mich-
igan state court for breach of contract and obtained a judg-
ment against her for $181,000. 1 Michael S. Sherman, D.O., P.C.
v. Shirley T. Sherrod, M.D., P.C., Nos. 299045, 299775, 308263,
2013 WL 2360189 (Mich. Ct. App. May 30, 2013). When that
judgment went unpaid, the Michigan court prohibited
“Shirley T. Sherrod, M.D., and Shirley T. Sherrod, M.D., P.C.,”
or anyone acting on their behalf “from directly or indirectly
selling, transferring, … or otherwise disposing of” any assets
“held or hereafter acquired by or becoming due to them.”
Around the same time, the buyer garnished Sherrod’s as-
sets at Merrill Lynch, where her personal and retirement ac-
counts, her company’s account, and the plan’s account were
kept. See Johnson v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
719 F.3d 601, 602 (7th Cir. 2013). Acting as a custodian of plan
assets, Merrill Lynch read the Michigan court’s order to re-
quire it to freeze all assets due to Sherrod, including distribu-
tions from the plan account. Id. at 603. But Merrill Lynch said
it was prepared to follow any instructions from the plan ad-
ministrator to make distributions to other plan participants.
Id.Sherrod appealed the money judgment against her. The
Michigan Court of Appeals allowed the appeal and a stay of
1 For simplicity’s sake, all dollar figures in this opinion are rounded
to the nearest hundred.
4 Nos. 22-2204 & 22-2205
the judgment on the condition that Sherrod either appear for
a creditor’s examination or post a $250,000 cash or surety
bond. Sherrod chose to post the bond. Walsh, 2022 WL 971857,
at *2. In November 2011, she signed an affidavit directing
Merrill Lynch to make two distributions from the Plan: one
for $250,000 to secure the bond and another for $3,000 to cover
costs associated with filing the bond. Her affidavit also “con-
firmed that the requested distributions did not exceed her in-
dividual interest” in the Plan. Id. Merrill Lynch made those
requested payments from plan assets to cover the bond, ap-
parently with the blessing of the Michigan court.
In May 2012, Sherrod appointed Johnson as plan adminis-
trator. In that role, Johnson’s “primary responsibility” was “to
administer the Plan for the exclusive benefit” of plan partici-
pants and “in accordance with [plan] terms.” Toward that
end, Johnson was “to maintain all necessary records for the
administration of the Plan,” as well as “a record of all actions
taken … and other data that may be necessary for proper ad-
ministration of the Plan.” He was also “responsible for sup-
plying all information and reports to the Internal Revenue
Service, Department of Labor, Participants, Beneficiaries and
others as required by law” and for authorizing and directing
the trustee “with respect to all discretionary or otherwise di-
rected disbursements from the Trust.” After Johnson became
plan administrator, Sherrod filed a required form with the De-
partment of Labor reporting no benefit distributions and no
expenses in 2011, but reporting a $246,300 “loss” to the plan.
The Michigan court eventually lifted the freeze on Sher-
rod’s assets. She then started directing payments to herself
out of plan funds. Sherrod had reached retirement age under
the plan in 2011, but many of the payments to her were treated
Nos. 22-2204 & 22-2205 5
as plan expenses rather than as distributions of her retirement
benefits. In addition to the $250,000 bond payment that she
had directed in 2011, Sherrod pulled at least $50,000 from the
plan in 2013, $286,900 in 2014, $120,000 in 2015, $196,400 in
2016, and $173,800 in 2017. In 2014, Sherrod and Johnson re-
ported $57,000 in benefit distributions and $142,000 in ex-
penses. In 2015, $59,000 in distributions and $40,000 in ex-
penses. In 2016, $62,500 in distributions and $133,900 in ex-
penses. In 2017, about $69,700 in distributions and $104,100 in
expenses. The plan account had been closed to deposits since
2008, and no deposits were made into the plan from 2014 to
2017.
Under ERISA section 502(a)(2), codified as 29 U.S.C.
§ 1132(a)(2), the Secretary of Labor brought this civil enforce-
ment action against Sherrod and Johnson in April 2016, while
Sherrod was still making payments to herself and Johnson
was plan administrator. The Secretary’s complaint alleged
both past and ongoing violations of defendants’ fiduciary du-
ties. The complaint asked the court to remove Sherrod and
Johnson from their positions of trust, to enjoin them perma-
nently from serving as fiduciaries for ERISA-covered plans,
and to appoint an independent fiduciary to administer and
terminate the plan.
Defendants filed their answer raising three affirmative de-
fenses, including ERISA’s statute of limitations, alleging that
any failure to administer benefits for terminated employees
according to the plan occurred no later than the sale of Sher-
rod’s practice in 2008. About four months later, in December
2016, defendants sought leave to amend their answer to elab-
orate on the statute of limitations defense with respect to
claims concerning the use of plan assets to post a bond in the
6 Nos. 22-2204 & 22-2205
Michigan lawsuit against Sherrod. The proposed amendment
would have alleged that the Secretary had actual knowledge
in 2012 that plan assets had been used for that purpose. The
district court (the late Judge Milton I. Shadur) denied the mo-
tion. Although the district court said it rejected the Secretary’s
argument that the amendment would be futile, the court
noted that defendants had been dilatory and that the amend-
ment lacked evidentiary support.
The case was later assigned to Judge Wood, and the Secre-
tary moved for summary judgment. The district court found
no genuine dispute of fact material to whether Johnson and
Sherrod had repeatedly violated their duties of care and loy-
alty and their duty to administer according to plan docu-
ments. Walsh, 2022 WL 971857, at *4–9. Because these viola-
tions had harmed the plan, the court granted summary judg-
ment for the Secretary, id. at *7, *9, as well as all requested
injunctive relief.
The court removed defendants as plan fiduciaries and
permanently enjoined them from serving or acting as
fiduciaries or service providers with respect to any employee
benefit plans subject to ERISA. The court also appointed an
independent fiduciary to terminate the plan and to issue
distributions to eligible participants and beneficiaries. The
fiduciary was given the power to review and allocate
appropriately all previous distributions and transactions for
the plan, including the 2011 bond payment and all payments
to Sherrod and her attorneys, and all other payments or
withdrawals from the plan that were not paid directly to a
Nos. 22-2204 & 22-2205 7
participant other than Sherrod from 2013 to present. Both
defendants have appealed. 2
II. Analysis
A. Legal Standard
We review de novo a district court’s grant of summary
judgment, giving defendants, as the non-moving parties in
this case, the benefit of conflicting evidence and drawing rea-
sonable inferences in defendants’ favor. Kenseth v. Dean Health
Plan, Inc., 610 F.3d 452, 462 (7th Cir. 2010). To prevail on a
claim for breach of fiduciary duty under ERISA, the plaintiff
must prove: (1) that the defendant is a plan fiduciary; (2) that
the defendant breached his or her fiduciary duty; and (3) that
the breach resulted in harm to the plaintiff. Id. at 464. Defend-
ants agree that they were plan fiduciaries, and the undisputed
facts show both breach and harm.
B. Breaches of the Duty to Follow Plan Documents
To a degree unusual in the law, ERISA focuses on follow-
ing written plan documents, regardless of other evidence.
ERISA requires fiduciaries to “discharge [their] duties … in
accordance with the documents and instruments governing
the plan.” 29 U.S.C. § 1104(a)(1)(D). As relevant here, the plan
required Sherrod to pay benefits “at the direction of the Ad-
ministrator,” and to “maintain records of receipts and dis-
bursements.” Johnson was required “to authorize and direct”
2 We asked at oral argument why the Secretary has not yet pursued
any restitutionary relief against defendants under 29 U.S.C. § 1109. The
answer may be that, in reviewing and allocating previous distributions
and transactions, the independent fiduciary may be able to take further
action affecting Sherrod’s personal benefits. Regardless, the district court’s
permanent injunction is appealable under 28 U.S.C. § 1292(a).
8 Nos. 22-2204 & 22-2205
Sherrod “with respect to all discretionary or otherwise di-
rected disbursements” and to maintain records “of all actions
taken.”
Defendants do not dispute that Sherrod often acted at her
own direction and not “at the direction of the Administrator,”
unilaterally withdrawing funds from the plan without con-
sulting Johnson. Accordingly, there is also no dispute that
Johnson did not “authorize and direct” those payments as re-
quired by the plan. In effect, Sherrod gave herself the keys to
the bank vault, and Johnson let her use them. On these undis-
puted facts, defendants violated their duty to act “in accord-
ance with the documents and instruments governing” the
plan. 29 U.S.C. § 1104(a)(1)(D). 3
Johnson’s attempts to avoid this conclusion are not per-
suasive. He says that he prudently hired an actuary to prepare
annual reports, that he and Sherrod “met frequently to dis-
cuss the Plan’s bills and to try to minimize expenses,” that he
never “attempted to conceal” Sherrod’s conduct, and that he
“found her to be an honest person” who could be taken “at
her word.” None of these points creates a genuine dispute on
3 The Secretary also alleged that defendants failed to maintain records
properly as required by the plan. Sherrod argues that she could not have
violated ERISA on this basis because “ERISA does not … mandate any
specific recordkeeping arrangement at all.” See Divane v. Northwestern
Univ., 953 F.3d 980, 990 (7th Cir. 2020), vacated on other grounds by
Hughes v. Northwestern Univ., 142 S. Ct. 737, 740 (2022). That is true, but the
plan still required some kind of recordkeeping. We need not reach the
recordkeeping question, however. Sherrod’s failure to seek Johnson’s au-
thorization and direction and Johnson’s concomitant failure to fulfil his
responsibilities are sufficient to demonstrate breaches of § 1104(a)(1)(D).
Nos. 22-2204 & 22-2205 9
the core issue—whether Johnson failed to “authorize and di-
rect” Sherrod’s withdrawals.
For her part, Sherrod argues that she was required to fol-
low Johnson’s direction only when he gave it, so she could not
have violated plan documents by acting on her own. But such
an understanding is contrary to the plan’s language (the
“Trustee will” make distributions “as directed by the Admin-
istrator”) and would render all but meaningless the adminis-
trator’s fiduciary role.
C. Breaches of the Duties of Care & Loyalty
“ERISA’s duty of loyalty is the ‘highest known to the
law.’” Halperin v. Richards, 7 F.4th 534, 546 (7th Cir. 2021),
quoting Donovan v. Bierwirth, 680 F.2d 263, 272 n.8 (2d Cir.
1982). The duty “protects beneficiaries by barring any conflict
of interest that might put the fiduciary in a position to engage
in self-serving behavior at the expense of beneficiaries.” Id.ERISA’s primary command to fiduciaries, in section 404, is
therefore to “discharge [their] duties … solely in the interest
of the participants and beneficiaries and … for the exclusive
purpose of … providing benefits to participants and their ben-
eficiaries.” 29 U.S.C. § 1104(a)(1)(A)(i). Fiduciary self-dealing
is therefore prohibited “[e]xcept as provided in section 1108
of this title.” 29 U.S.C. § 1106(a)(1)(D) (fiduciary “shall not
cause the plan to engage in a transaction, if he knows or
should know that such transaction constitutes a direct or in-
direct … transfer to, or use by or for the benefit of a party in
interest,” including the fiduciary, 29 U.S.C. § 1002(14)(A), “of
any assets of the plan”); Leigh v. Engle, 727 F.2d 113, 123 (7th
Cir. 1984) (§ 1106 “prohibits transactions where those dealing
with the plan may have conflicting interests which could lead
to self-dealing”).
10 Nos. 22-2204 & 22-2205
1. The Bond Payment
In the district court, Sherrod did not dispute that she used
plan funds to make the bond payment in her state-court
appeal. She argued there that the payment was a reasonable
expense authorized by the plan. Walsh, 2022 WL 971857, at *5.
On appeal, Sherrod did not make this “reasonable litigation
expense” argument until her reply brief, so that argument is
waived. See Foster v. PNC Bank, N.A., 52 F.4th 315, 319 n.2 (7th
Cir. 2022) (arguments not addressed in opening brief on
appeal are waived).
Instead, Sherrod argues on appeal that she paid the plan
back for the bond payment. But the only evidence of payment
she offers is a 2014 letter from Johnson’s attorneys to a bond
agency asking that the bond payment be returned to the plan.
The suggestion that a request for payment should be sufficient
proof that the requested payment was actually made seems to
invite the court to enter unknown legal territory. If a quarter
of a million dollars had actually been paid back into the plan,
we would expect that the plan fiduciaries would have at least
some record of the payment.
More fundamental, though, even if Sherrod had actually
later reimbursed the plan for that quarter of a million dollars
she had taken for her personal purposes and charged as a plan
expense, that would not be a defense on the merits of the
breach of fiduciary duty. Drawing on plan funds to obtain a
bond in litigation that had little or nothing to do with the plan
was itself a violation of Sherrod’s fiduciary duties. An embez-
zler does not avoid criminal liability by returning the stolen
money, whether the theft has been discovered yet or not. Sim-
ilarly here, Sherrod could not absolve herself of her fiduciary
Nos. 22-2204 & 22-2205 11
breach by returning the funds three years after they were
wrongfully taken from the plan.
Johnson raises a separate point regarding the bond pay-
ment. The district court wrote that Johnson, who was sup-
posed to be overseeing the plan’s funds, breached his fiduci-
ary duties “by allowing Dr. Sherrod to make such a with-
drawal on her own initiative.” Walsh, 2022 WL 971857, at *6.
That statement was not accurate. The record shows that Sher-
rod directed Merrill Lynch to make the bond payment in No-
vember 2011, but Johnson did not become plan administrator
until May 2012. Johnson makes much of this factual error, but
it was harmless.
Although Johnson was not plan administrator at the time
of the bond payment, once he did become administrator, he
became “responsible for supplying all information and re-
ports” to the Department of Labor. While Johnson was plan
administrator, defendants reported no benefit distributions
and no expenses for 2011—the year of the bond payment.
They did report a $246,300 “loss” to the Plan. It is therefore
not decisive that Johnson was not plan administrator at the
time of the improper bond payment.
Nor does it matter that Johnson hired an actuary to pre-
pare the forms filed with the Department of Labor and did
not, himself, sign the 2011 form reporting the bond payment
as a “loss.” As plan administrator, Johnson was responsible
for the reporting, both under plan documents and under
ERISA. See 29 U.S.C. § 1021(b) (“Duty of disclosure and re-
porting”).
Sherrod and Johnson therefore both violated their fiduci-
ary duties with respect to the bond payment—Sherrod in
12 Nos. 22-2204 & 22-2205
directing the payment and Johnson in falsely reporting it as a
loss. And even if we thought that Johnson had a potentially
viable defense based on his limited role in the payment for the
bond, the rest of his breaches of fiduciary duty would still, as
discussed below, call for the remedies the district court or-
dered.
2. Distributions After the Freeze Was Lifted
Once the Michigan court in May 2013 lifted the freeze on
Sherrod’s assets, including plan distributions to her, Sherrod
began directing payments to herself out of plan assets. From
2013 to 2017, Sherrod withdrew close to $825,000 from the
Plan in 123 transactions.
In the district court, Sherrod argued that many of those
payments were reimbursements for necessary and reasonable
plan expenses, that she was entitled to any benefits she did
receive as a plan participant, and that the Secretary bore the
burden of establishing any violations. Walsh, 2022 WL 971857,
at *7. The district court agreed that the burden was on the
Secretary but found that the undisputed evidence showed
that Sherrod had directed hundreds of thousands of dollars
to be paid to herself out of plan funds. That was sufficient,
said the district court, to prove that Sherrod had “put her own
interests above those of Plan participants and beneficiaries in
violation of § 404(a)(1)(A)” and had violated § 406(a)(1)(D)’s
prohibition on self-dealing. Id., citing ERISA sections codified
as 29 U.S.C. §§ 1104 & 1106. In the district court’s view, by
establishing such self-dealing, the Secretary had shifted the
burden back to the defendants to show that the transactions
were “actually permissible under ERISA.” Id., citing Allen v.
GreatBanc Trust Co., 835 F.3d 670, 676 (7th Cir. 2016).
Nos. 22-2204 & 22-2205 13
On appeal, Sherrod has abandoned several arguments she
made in the district court. She no longer argues that some of
the payments were made to reimburse her for plan legal ex-
penses she had covered out of her own funds. Nor does she
argue that some of the payments went to plan expenses and
to other plan beneficiaries.
Instead, Sherrod argues that any allegations of violations
after plan year 2014 should be disregarded on the theory that
“the particularized allegations” of the Secretary’s complaint
were limited to plan years 2012 to 2014. But the Secretary’s
2016 complaint alleged continuing violations from “January
1, 2015 to the present.” That was sufficient to put defendants
on notice that ongoing violations were part of the case. Even
if we were to accept this argument, it would not help Sherrod.
She has not argued, let alone raised a dispute of fact, in this
appeal that the payments from 2012 to 2014 were proper.
Those payments alone are enough to establish violations of
ERISA sections 404(a)(1)(A) and 406(a)(1)(D), codified in 29
U.S.C. §§ 1104 & 1106.
Still, both Sherrod and Johnson argue that the burden is
on the Secretary to prove violations and not on them to show
that payments were permissible. We disagree. Section 406(a)
applies broad prohibitions on payments to fiduciaries subject
to section 408. In the most relevant portion, section 406(a) pro-
vides: “Except as provided in section [408]: (1) A fiduciary
with respect to a plan shall not cause the plan to engage in a
transaction, if he knows or should know that such transaction
constitutes a direct or indirect … (D) transfer to, or use by or
for the benefit of a party in interest, of any assets of the plan
….” In turn, section 408(b) enumerates categories and condi-
tions for transactions exempted from the prohibitions of
14 Nos. 22-2204 & 22-2205
section 406. Further, section 408(c) provides that section 406
shall not be construed to prohibit a fiduciary from receiving
benefits she may be entitled to as a plan participant or benefi-
ciary or reasonable compensation for services rendered to the
plan. 29 U.S.C. § 1108(c). As we said in Allen, though, “an
ERISA plaintiff need not plead the absence of exemptions to
prohibited transactions. It is the defendant who bears the bur-
den of proving” that a section 408 exemption applies. 835 F.3d
at 676. A fiduciary seeking the protection of section 408 has
the burden of pleading and ultimately proving that an excep-
tion applies to a transaction otherwise prohibited by section
406. The district court correctly shifted the burden to defend-
ants.
Defendants did not carry that burden. They produced 70
pages of “postal money orders, invoices, and communications
with counsel regarding attorneys’ fees,” but they failed to of-
fer “an accounting of these documents” or to match them up
with Sherrod’s withdrawals from the plan. Walsh, 2022 WL
971857, at *8. It is neither the district court’s nor this Court’s
job to piece together an argument for Sherrod and Johnson.
Id., citing Estate of Moreland v. Dieter, 395 F.3d 747, 759 (7th Cir.
2005) (“We will not scour a record to locate evidence support-
ing a party’s legal argument.”).
D. Harm to the Plan
Once it is established that fiduciaries have breached their
duties, the plaintiff must show harm to the plan. See Kenseth,
610 F.3d at 464. Defendants argue that the district court erred
when—in spite of the 2014 letter from Johnson’s attorney ask-
ing that the payment be returned to the plan—the court in-
ferred that there was “no indication in the record … that the
Plan ever received” those funds and concluded that the bond
Nos. 22-2204 & 22-2205 15
payment was therefore a loss to the plan. Walsh, 2022 WL
971857, at *7 & n.6. The district court’s treatment of that issue
was exactly right. Also, undisputed evidence shows that the
plan suffered harm from at least a significant portion of the
more than 100 subsequent payments Sherrod made to herself
from plan assets from 2012 to 2017.
E. Denial of Motions to Amend
Both defendants argue on appeal that the district court
abused its discretion by denying defendants leave to amend
their original answer to add a statute of limitations defense.
Federal Rule of Civil Procedure 15(a)(2) provides that courts
“should freely give leave” to amend “when justice so re-
quires,” but “a district court may deny leave to amend for un-
due delay, bad faith, dilatory motive, prejudice, or futility.”
General Electric Capital Corp. v. Lease Resolution Corp., 128 F.3d
1074, 1085 (7th Cir. 1997).
The presumptive limitation period for violations of ERISA
is six years from the date of the last action constituting part of
the breach or violation. Fish v. GreatBanc Trust Co., 749 F.3d
671, 674 (7th Cir. 2014); 29 U.S.C. § 1113(1). The period is
shortened to just three years from the time the plaintiff gained
“actual knowledge of the breach or violation.” Fish, 749 F.3d at
674, quoting 29 U.S.C. § 1113(2) (emphasis added).
Four months after they filed their answer, defendants
sought leave to amend to add an affirmative defense
regarding the bond transaction in 2011 based on ERISA’s
three-year limitations period. They claimed that two
documents they had discovered in their own files suggested
that the Secretary’s claims with respect to the bond payment
were time-barred. The documents showed nothing of the sort.
16 Nos. 22-2204 & 22-2205
One was a fax from the plan’s lawyer to the Department of
Labor, dated December 20, 2012, notifying the Department
that Johnson had succeeded Sherrod as plan administrator
and that a notice of appeal had been filed in a federal case
brought by Sherrod and Johnson against Merrill Lynch. See
Johnson v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 12-cv-
2545, 2012 WL 5989345 (N.D. Ill. Nov. 28, 2012). The second
document was an email from Sherrod to the Department of
Labor, dated August 10, 2012, asking about the alienation of
plan assets by the Michigan state court.
In March 2017, District Judge Shadur denied the motion,
finding that defendants had been dilatory in pursuing the
amendment and had, regardless, put forth no evidence that
could meet the statute’s “actual knowledge” requirement.
Aside from questions of law, which we review de novo, our
review of a district court’s denial of leave to amend is for an
abuse of discretion. Gandhi v. Sitara Capital Mgmt., LLC, 721
F.3d 865, 868 (7th Cir. 2013). We find no abuse of discretion in
the district court’s decision.
First, the district court did not err by finding that defend-
ants had been dilatory in pursuing this affirmative defense.
The supposedly new documents had been in defendants’ pos-
session from the start, so an affirmative defense based on
them “could have been pled at any time after the filing of the
initial complaint.” See Continental Bank, N.A. v. Meyer, 10 F.3d
1293, 1298 (7th Cir. 1993) (affirming denial of amendment
where facts “must have been known to defendants”).
More important, though, the documents defendants relied
upon fell far short of hinting, let alone proving, that the Sec-
retary actually learned of the defendants’ violations. The
three-year statute of limitations applies only when the
Nos. 22-2204 & 22-2205 17
plaintiff has actual knowledge of a violation, not when the
plaintiff arguably should have known of a violation.
Defendants’ theory seems to be that the Secretary should
have realized that Sherrod had breached her fiduciary duties
by posting the bond with plan assets because (a) the fax re-
ferred to the federal lawsuit between defendants and Merrill
Lynch, and (b) if the Secretary had investigated and obtained
documents filed in that suit, then the Secretary would or
could or should have known of her breach. The August 2012
email, defendants argued, likewise should have put the Sec-
retary on notice because a letter attached to that email de-
scribed how Sherrod had signed an affidavit stating that plan
assets would be used to post the bond.
We agree with the district court that defendants’ effort to
“cobble together” from these two documents a showing of ac-
tual knowledge that would trigger the three-year statute of
limitations did not warrant a late amendment of the answer,
or at least the district court did not abuse its discretion in
denying the amendment. The passing references in these doc-
uments to the lawsuits did not give the Secretary actual notice
of defendants’ self-dealing and neglect. At best, those docu-
ments might have prompted the Secretary “to engage in active
outside research” that might have revealed Sherrod’s breach
of her fiduciary duties. That theory would have been a stretch
to establish constructive (“should have known”) knowledge.
It certainly falls far short of actual knowledge.
The district court accurately explained that defendants
were trying to apply the concept of inquiry notice to “the far
more demanding ‘actual knowledge’ test under ERISA.” The
court’s analysis was prescient. Three years after the district
court denied defendants’ motion to amend, the Supreme
18 Nos. 22-2204 & 22-2205
Court heard a case where the plaintiff had received far more
explicit disclosures of the ERISA breaches, not just indications
that might warrant an investigation. The Court held that, to
meet ERISA’s actual knowledge requirement, there must be
“more than evidence of disclosure alone.” Intel Corp. Inv. Pol-
icy Comm. v. Sulyma, 140 S. Ct. 768, 774–75, 777 (2020). Rather,
“the plaintiff must in fact have become aware” of the dis-
closed information showing the violation. Id. In reaching this
holding, the Court addressed some of the same circuit deci-
sions that the district court did here.4
In sum, even if defendants’ supposedly newly discovered
documents had actually disclosed a violation, which they did
not, there is no evidence or reason to think that the Secretary
was “in fact … aware” of that disclosure. In the wake of Intel,
establishing actual knowledge on such paltry evidence would
be impossible, and it is now clear that any amendment would
have been futile. The denial of leave to amend was not a re-
versible error.
F. Injunctive Relief
Finally, both defendants argue that even if we agree with
the district court on the merits, the court granted excessive
equitable relief. We review a district court’s grant of injunctive
relief for an abuse of discretion. Harrell ex rel. NLRB v. Ameri-
can Red Cross, 714 F.3d 553, 556 (7th Cir. 2013).
While Johnson asks that we reverse the judgment of the
district court and remand for a trial, he makes no specific ar-
gument that the district court abused its discretion in granting
4See Intel, 140 S. Ct. at 775 n.3, citing, e.g., Caputo v. Pfizer, Inc., 267
F.3d 181 (2d Cir. 2001), and Gluck v. Unisys Corp., 960 F.2d 1168 (3d Cir.
1992).
Nos. 22-2204 & 22-2205 19
the relief that it did. For her part, Sherrod argues that she
should not have been removed as plan trustee. She says that
she faced extraordinary circumstances, that the plan’s assets
were enmeshed in a state lawsuit, that she “reached out to the
Secretary for help,” that she used the services of experts and
even “made efforts to secure the return of the bond funds.” In
other words, Sherrod argues that, at the time she made the
bond payment, she thought she was doing “everything rea-
sonable to protect” the plan from the Michigan litigation.
Even if we give Sherrod the benefit of her assertions of
good faith, since the district court imposed the injunction
based on a summary judgment decision, good faith is not a
defense for one breach of a fiduciary duty, let alone the re-
peated breaches shown here. See Halperin, 7 F.4th at 546, cit-
ing Leigh, 727 F.2d at 124. In any event, the undisputed facts
show that a significant portion of Sherrod’s many later pay-
ments to Sherrod herself from plan assets from 2012 to 2017
were prohibited self-dealing. As with harm to the plan, those
payments, taken alone, amply support the district court’s de-
cision to remove defendants as fiduciaries and to prohibit
them from again serving in such positions of trust. Given the
gravity and frequency of defendants’ breaches of their fiduci-
ary duties, they are fortunate that the relief against them has
thus far been relatively modest. The district court’s grant of
summary judgment and its permanent injunction are
AFFIRMED.