On June 24 we reported that the Supreme Court had granted certiorari in an important ERISA case, LaRue v. DeWolff Boberg, Case No. 06-856, on June 18. James LaRue is a former employee of DeWolff, Boberg & Associates, Inc. who was a participant in the company's 401(k) plan. He alleged that the plan fiduciary had failed to invest the money in his account as directed, resulting in losses to his individual account (and consequently to the plan). But it turns out that in July 2006, while his ERISA claims to recover such losses to his individual account due to the fiduciary breach were pending in the 4th Circuit, he withdrew the entire remaining $119,000 from his account.
On July 23, 2007, over a month after the Supreme Court granted cert., Defendant's counsel moved to dismiss the case as moot, arguing that he only recently learned of these facts and that LaRue's withdrawal of all funds from his 401(k) account means he is no longer a plan participant, and thus has "no legally cognizable interest in the outcome of the case." But the motion suggests that, even if the fact LaRue is no longer a plan participant renders the two questions presented moot, the Court may wish to consider a slightly different question on which the lower courts are also divided: can a former plan participant in an ERISA plan sue for damages measured by the lost value of his account? The motion to dismiss the writ, filed by Crowell & Moring, can be found here. Lyle Denniston's post for Scotusblog regarding the motion is here.
LaRue's counsel, Peter Stris and Jean-Claude Andre, have fired back in an opposition filed with the Court on Thursday, August 2. They argue that the statutory definition of "participant" set forth in Section 3(7) of ERISA, 29 U.S.C. 1002(7), expressly includes a "former employee . . . who is or may become eligible to receive a benefit of any type" from an ERISA plan. Plaintiff's counsel correctly point out that the Court has held this definition to include any "former employee" who has "a colorable claim that . . . he or she will prevail in a suit for benefits." Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117-18 (1989). They note that while "participant" is a defined term, "former participant" is nowhere defined in ERISA. Finally, they argue it is a false syllogism to equate a zero balance in an ERISA account with the loss of "eligibility" to receive further benefits, and maintain that LaRue's withdrawal of his funds over which there was no dispute does not mean he no longer has a personal stake or legally-cognizable interest in the outcome of the litigation. Lyle Denniston covered petitioner's response in Scotusblog here.
I wish to emphasize another point raised in petitioner's opposition to the motion to dismiss. Respondent's position -- that a former employee whose 401(k) account has been partially depleted through fiduciary breach must leave his remaining funds with the breaching fiduciary in order to continuing litigating to recover the monies already lost -- has been explicitly rejected by the United States Department of Labor and by every court of appeals to have addressed the issue. See Graden v. Conexant Systems Inc., No. 06-2337, 2007 WL 2177170 (3rd Cir. 7-31-2007); Harzewski v. Guidant Corp., 489 F.3d 799 (7th Cir. 6-5-2007).
It seems clear the Solicitor General's office will wish to weigh in on this topic since the SG urged the Court to grant cert. and rule on the Section 502(a)(2) and 502(a)(3) questions presented in part because they recur so frequently in so many cases. The Court will take up the motion to dismiss at its "long conference" on September 24, 2007.