LaRue v. DeWolff, et al. on suing under ERISA

A unanimous Supreme Court decided that an individual who was a participant in her employer's 401(k) plan could bring a suit against his employer under the Employee Retirement and Income Security Act of 1974 alleging that the employer had failed to follow his directions for making changes to investments in his plan account, which allegedly led to losses of $150,000. The Court's decision does not express any opinion whether LaRue properly asked his employer to invest his funds. It simply held that under the facts alleged in his complaint, LaRue's claim was cognizable under the ERISA provision authorizing suits to enforce fiduciary obligations.

Even though the case was decided by a unanimous Court, Justice Thomas (followed by Justice Scalia) argued that he supported the Court's decision because the plain language of secs. 409 and 502 of ERISA allowed such a suit. Chief Justice Roberts (followed by Justice Kennedy) also concurred only in part and in the judgment.

Statement of the Case and Decision

Here is a nutshell statement of the case and its reasoning, from the syllabus of the decision.

"Petitioner, a participant in a defined contribution pension plan, alleged that the plan administrator's failure to follow petitioner's investment directions “depleted” his interest in the plan by approximately $150,000 and amounted to a breach of fiduciary duty under the Employee Retirement Income Security Act of 1974 (ERISA). The District Court granted respondents judgment on the pleadings, and the Fourth Circuit affirmed. Relying on Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 87 L.Ed.2d 96, the Circuit held that ERISA § 502(a)(2) provides remedies only for entire plans, not for individuals.
Held: Although § 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, it does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account. Section 502(a)(2) provides for suits to enforce the liability-creating provisions of § 409, concerning breaches of fiduciary duties that harm plans. The principal statutory duties imposed by § 409 relate to the proper management, administration, and investment of plan assets, with an eye toward ensuring that the benefits authorized by the plan are ultimately paid to plan participants. The misconduct that petitioner alleges falls squarely within that category, unlike the misconduct in Russell. There, the plaintiff received all of the benefits to which she was contractually entitled, but sought consequential damages arising from a delay in the processing of her claim. Russell's emphasis on protecting the “entire plan” reflects the fact that the disability plan in Russell, as well as the typical pension plan at that time, promised participants a fixed benefit. Misconduct by such a plan's administrators will not affect an individual's entitlement to a defined benefit unless it creates or enhances the risk of default by the entire plan. For defined contribution plans, however, fiduciary misconduct need not threaten the entire plan's solvency to reduce benefits below the amount that participants would otherwise receive. Whether a fiduciary breach diminishes plan assets payable to all participants or only to particular individuals, it creates the kind of harms that concerned § 409's draftsmen. Thus, Russell's “entire plan” references, which accurately reflect § 409's operation in the defined benefit context, are beside the point in the defined contribution context."

A Few More Comments

Section 502(a)(2) of ERISA provides for suits to enforce the liability-creating provisions of sec. 409. Sect. 409(a) provides:

"Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this title shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 411 of this Act.”

The Court decided that the allegations of LaRue's complaint stated a cause of action for breach of the "responsibilities, obligation, or duties imposed upon fiduciaries by this title." Thus, a suit could be brought. As the Court says, "Although the record does not reveal the relative size of petitioner's account, the legal issue under sec. 502(a)(2) is the same whether his account includes 1% or 99% of the total assets in the plan. Thus, the Court construed LaRue's action not as a desire for one person to collect damages from the plan but for the plan itself to be managed with financial integrity.

Sec. 502(a) of ERISA identifies six types of civil actions that may be brought by various parties. The second, at issue in this case, authorizes the Secretary of Labor as well as plan participants, beneficiaries and fiduciaries, to bring actions on behalf of a plan to recover for violations of the obligations defined in sec. 409(a), quoted above. The principal statutory duties imposed on fiduciaries by that section "relate to the proper management, administration, and investment of fund assets," with an eye toward ensuring that "the benefits authorized by the plan" are ultimately paid to participants and beneficiaries." The misconduct alleged by LaRue in this case falls "squarely into that category."

The Court then stated its holding:

"We therefore hold that although § 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account. Accordingly, the judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion."

Conclusion

At this stage of the case no money was awarded and no relief granted. The Court's decision merely reversed the lower courts and held that LaRue can bring his case on the basis of sec. 502(a)(2). But on remand this case may go away. Why? LaRue has left the employ of DeWolff and has taken his money with him. The Court says that his case is not moot, though the withdrawal of funds from the Plan "may have relevance to the proceedings on remand." We will see...

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