Sixth Circuit Blog

Is LaRue Moot After All?

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.

Supreme Court Denies Review of Age Discrimination Claim Against Cash-Balance Pension Plan

On January 16, 2007, the Supreme Court denied cert. in Cooper v. IBM Personal Pension Plan, Case No. 06-760, a case challenging cash-balance pension plans (as they existed before the law was changed last August) as being discriminatory to older workers, leaving intact the Seventh Circuit's decision rejecting such claims on behalf of 250,000 present and former IBM employees.

Lyle Denniston has this post at Scotusblog on the Court's action in Cooper.  We will follow up in the near future with a more comprehensive summary of the current status of actions in the Sixth Circuit and other circuits around the country claiming that cash-balance pension plans violate the age discrimination prohibitions of ERISA.  Please stay tuned.

Supreme Court Grants Cert. in Key ERISA Case

On Monday, June 18, the Supreme Court granted certiorari in LaRue v. DeWolff Boberg & Associates, Case No. 06-856, for the October 2007 term.  Responding to a CVSG (call for the views of the Solicitor General) from the Court in late February, the Solicitor General filed an amicus brief on May 22 (available here) urging the Court to grant cert. on both questions presented for review:

1.  Does Section 502(a)(2) of ERISA permit a plan participant to bring an action to recover losses caused by a fiduciary's breach but which are attributable only to his (defined contribution plan) account and not to the entire plan?

2.  Does Section 502(a)(3) of ERISA permit a plan participant to bring an action for monetary "make-whole" relief (known in equity as a surcharge) to compensate for losses directly caused by a fiduciary breach?

With respect to the first question, Section 1109 of ERISA specifies that a fiduciary "shall be personally liable to make good to such plan any losses to the plan from each such breach."  Section 502(a)(2), 15 U.S.C. 1132(a)(2), provides that a participant may bring a civil action "for appropriate relief under Section 1109."

In LaRue, the fiduciary failed to invest the petitioner's money in a 401(k) plan as he had directed, resulting in losses to his account.  The question thus boils down to, are losses to one participant's account actionable under Section 502(a)(2) as "losses to the plan" even though it affects only his one account, and not the plan as a whole or any other account within the plan?

 

The Fourth Circuit affirmed the dismissal of petitioner's claim, holding that since he seeks recovery for a loss suffered by him alone, the court was "skeptical that plaintiff's individual remedial interest can serve as a legitimate proxy for the plan in its entirety" as Section 502(a)(2) requires.

This ruling creates a conflict with every other court to have addressed the issue -- the Third, Fifth, Sixth and Seventh Circuits.  The Sixth Circuit case is Kuper v. Iovenko, 66 F.3d 1447 (6th Cir. 1995).  In Kuper, the court allowed a participant to sue under Section 502(a)(2) to recover losses to a defined contribution plan that were caused by fiduciary breaches even though the recovered losses were allocated only to the plaintiff's individual account and not to all accounts in the plan as a whole.

Regarding the second question, Section 502(a)(3) of ERISA authorizes a civil action by a plan participant, beneficiary or fiduciary to enjoin or to "obtain other appropriate equitable relief to redress" violations of ERISA or the terms of the plan.  In Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993), the Court held that the term "appropriate equitable relief" means "those categories of relief typically available in equity . . . but not compensatory damages."

 

Apparently, the Second and Seventh Circuits have held that Section 502(a)(3) authorizes participants to recover direct monetary losses caused by a fiduciary breach, but the Fourth, Sixth, Eighth and Ninth Circuits have held it does not.  The Sixth Circuit case is Helfrich v. PNC Bank, Kentucky, Inc., 267 F.3d 477 (6th Cir. 2001).

So, the issue is whether "make-whole" monetary relief against a fiduciary for losses caused by his breaches is authorized by Section 502(a)(3) because such relief was generally and typically available in equity -- as a "surcharge" against the fiduciary.  The import of LaRue is that a growing majority of the circuits are holding it is not authorized because such monetary relief was not available as an "equitable" remedy.

The Section 502(a)(2) issue is of considerable importance.  The Government's position is that Section 502(a)(2), along with Section 409, authorizes a plan participant to sue to recover for the plan (on the theory that recovery on behalf of an individual account will ultimately benefit the plan as a whole) any "losses to the plan" resulting from a breach of fiduciary duty.  I concur.

 

I am less convinced that the Section 502(a)(3) argument is meritorious.  The Sixth Circuit's decision in Helfrich may well be correct.  However, the United States argues that LaRue's suit seeks equitable relief because "both [his] claim, breach of fiduciary duty, and the relief he seeks, surcharge of the trustee for the losses resulting from the breach, were typically -- indeed, exclusively -- equitable in the days of the divided bench."

Since ERISA was enacted to remedy "misuse and mismanagement of plan assets by plan administrators," the United States urged the Court to grant cert. "to clarify that ERISA provides monetary remedies to recompense plans and participants who have been harmed by fiduciary breaches."

Counsel for petitioners are Jean-Claude Andre, the incredibly successful advocate who won the consolidated PLRA-exhaustion cases, Jones v. Bock (Case No. 05-7058) and Williams v. Overton (Case No. 05-7142), and the case establishing the right of parents to advocate for their disabled children under the IDEA, Winkelman v. Parma City School District (Case No. 05-983), during the October 2006 term, reversing the 6th Circuit in all three cases, and Professor Peter K. Stris of Whittier Law School.  Further information can be obtained from the petition for certiorari, BIO and reply brief.

Scotusblog has had two posts on the case located here and here.  Stephen Rosenberg of The McCormack Firm has this post on LaRue in his Boston ERISA & Insurance Litigation Blog.  Professor Paul M. Secunda of WorkplaceProfBlog has two posts on the case here and here.