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.
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.
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.