Monday, November 26, 2007

FIrst Thoughts on SCOTUS Oral Argument for LaRue

The transcript of the oral argument in LaRue v. DeWolff, Boberg & Assoc. was released this afternoon. Some initial impressions:

  • Justices Roberts and Scalia would require participants to apply for benefits to the plan and be denied full payment (or any payment) before they could sue a fiduciary for a breach of ERISA's fiduciary requirements. Justices Roberts and Scalia would overturn 30 years of ERISA law that requires exhaustion of administrative remedies only for Section 502(a)(1)(B) claims (i.e. suits against the plan for denied benefit claims). The two Justices seem to propose that the exhaustion requirement also applies to Section 502(a)(2)/409(a) claims (i.e. suits against fiduciaries to restore losses to the plan as a whole). Why? Because 502(a)(1)(b) comes before 502(a)(2)! But the two sections are in the disjunctive and it would require the Court to read into ERISA a step-by-step requirement that does not exist.

  • Justices Scalia and Roberts suggested that if a participant establishes a benefit due under Section 502(a)(1)(B), and the plan cannot pay, the plan then should sue the trustee for mismanagement. But under ERISA, a plan is not one of the named parties that are authorized to file a lawsuit. Under ERISA only the Secretary of Labor, or a participant, beneficiary, or another fiduciary can sue a fiduciary for a breach of any of ERISA's fiduciary duties. To quote Justice Roberts in an exchange with DeWolff's counsel:
If there is a suit under (a)(1(B) for a breach of the plan by a fiduciary do you agree that the plan, if it's liable, could then sue the fiduciary? . . . [W]ould that be a feasible result under the statute?
DeWolff's counsel answered "yes" but clearly the answer is "no" and Justice Roberts did not challenge the answer (nor did any other Justice).

  • The issue of what remedies are available to individuals against breaching fiduciaries under Section 502(a)(3) was addressed mostly in passing. It is possible that the Court's decision would not even answer that important issue if it concludes that LaRue does have a claim under Section 502(a)(2).
The Workplace Prof Blog has more details of the argument here.

Thursday, January 25, 2007

Langbecker v. EDS Update: Fifth Circuit Decides that EDS is AOK

The recent 5th circuit ruling vacating class certification is a big win for EDS and imposes significant obstacles for the plaintiffs on remand. The 57 page decision can be boiled down to the following:

  1. ERISA plan fiduciaries do have plan wide responsibilities for 401(k) plans. So participants can sue on behalf of the entire plan under 502(a)(2) for plan wide relief even if the damages are ultimately allocated on an individualized basis.

  2. BUT, section 404(c) applies as well. ERISA 404(c) immunizes a 401(k) plan fiduciary for any losses caused by a breach if the loss results from the participant's exercise of control.

  3. 404(c) applies even though a fiduciary selected an investment for the plan, or chose to keep the investment as an option. Participants still have control over their own investments, even if the menu is limited by the fiduciary.

  4. The Fifth Circuit is very skeptical that the case is appropriate for class status because of the 404(c) defense, which would appear to apply on an participant by participant basis, as well as damage issues, which depend upon each participant's particular set of investment decisions.