LaRue v. DeWolff, Boberg & Assoc. Inc., No. 06-856 (Feb. 20, 2008)

In December we wrote about how the Supreme Court started hearing arguments in the LaRue Case. The Supreme Court finally issued their ruling in LaRue v. DeWolff, Boberg & Assoc. Inc., No. 06-856 (Feb. 20, 2008) (PDF file).

The case asked whether a 401(k) participant can bring an ERISA Section 502(a)(2), 29 U.S.C. Section 1132(a)(2) – Civil enforcement - Persons empowered to bring a civil action fiduciary breach claim. Justices' ERISA Ruling Puts Firms on Spot summarizes the case:

"In this case, James LaRue had sued his former employer — management consultancy DeWolff, Boberg & Associates — after he lost $150,000 in his 401(k) plan. He claimed that DeWolff failed to respond to his two requests to make investment changes to his account. As a result, his interest in the plan "depleted" by thousands of dollars. He subsequently accused the firm of breaching its fiduciary duty, but his case was denied by two lower courts."

Ruling Allows Workers to Sue On 401(k) Losses discusses how the Supreme Court upheld the right to sue because pension law "does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant's individual account." The ruling sends the case back to the lower courts.

502(a)(1)(B) Denial of Benefit Claim Instead of a 502(a)(2) Fiduciary Breach Claim?

Ruling Allows Workers to Sue On 401(k) Losses also discusses how a minority opinion might help combat similar cases in the future:

"But employers may find solace in a minority opinion by Chief Justice John Roberts, which, while concurring with the majority, appeared to offer companies a roadmap for combating similar cases in the future…. In that opinion, Chief Justice Roberts, joined by Justice Anthony Kennedy, discussed a defense that Mr. LaRue's employer hadn't raised: that the case should have been brought under a different provision of federal pension law. Under that provision, pension-law experts say, cases can be harder to win, in part because participants must exhaust administrative remedies before suing, and because plan trustees are generally given broader discretionary leeway to make decisions on the plan's behalf"

UPDATE: This article discusses how Court precedent "bars claims that are essentially benefits claims from being recast as fiduciary breach claims."

Reflections on the LaRue Decision provides ten reflections, including thoughts on the above-mentioned opinion of considering the claim under ERISA Section 502(a)(1)(B), 29 U.S.C. Section 1132(a)(1)(B) – Civil enforcement - Persons empowered to bring a civil action instead of ERISA Section 502(a)(2), 29 U.S.C. Section 1132(a)(2) – Civil enforcement - Persons empowered to bring a civil action:

"I could not agree less with the concurrence written by Chief Justice Roberts, and joined by everybody's favorite swing vote, Justice Kennedy, that this case is really not a fiduciary breach case under 502(a)(2), but rather a denial of benefit case under 502(a)(1)(B), subject to exhaustion and Firestone discretion. I think it is interesting that Justice Scalia did not join Roberts opinion since he asked most of the questions in the oral argument about (a)(1)(B) alternative, but it seems clear that he and Thomas believed this was a fiduciary case and not a benefits case being mischievously recast."

Is LaRue a Plan Participant?

U.S. Supreme Delivers Decision in LaRue on Recovery for Fiduciary Breaches discusses the reference to the Russell case, the above-mentioned minority opinion, and who is considered a plan participant (including a reference to Harzewski v. Guidant Corp):

"6 After our grant of certiorari respondents filed a motion to dismiss the writ, contending that the case is moot because petitioner is no longer a participant in the Plan. While his withdrawal of funds from the Plan may have relevance to the proceedings on remand, we denied their motion because the case is not moot. A plan "participant," as defined by §3(7) of ERISA, 29 U. S. C. §1002(7), may include a former employee with a colorable claim for benefits. See, e.g., Harzewski v. Guidant Corp., 489 F. 3d 799 (CA7 2007)."

Immediate Concerns and Recommendations

U.S. Supreme Delivers Decision in LaRue on Recovery for Fiduciary Breaches also mentions the immediate concerns raised by LaRue:

"More immediate concerns raised by LaRue are what type of plan language changes will be needed to accommodate the decision, including changes to Summary Plan Descriptions (SPDs) and administrative forms."

ERISA Litigation - LaRue discusses the case and recommends that plans and their fiduciaries check with their counsel and consultants to get assistance with:

1. reviewing the plans' ERISA § 404(c) compliance (particularly because some plans may be only partially compliant);
   
2. reviewing the plans' procedures for discharging participant directions and ensuring that proper controls are in place to reduce the potential for error;
   
3. reviewing the adequacy of fiduciary liability insurance coverage;
   
4. reviewing the plans' investment policies and procedures designed to ensure that the plans' investments options are prudent;
   
5. reviewing service provider agreements to ensure an appropriate allocation of liability and indemnification rights;
   
6. considering provision of access for plan participants to investment advisers who can advise participants on investment in company stock; and,
   
7. analyzing (and documenting the analysis of) fees charged by service providers, including consultants and counsel, to the plans.

Updates:

• Revisiting the LaRue Takeaways
• Using ESOP Planning to React to Changing Times
• LaRue’s Impact on Fiduciary Risk: Number of Lawsuits, Stock Drop Litigation, and Plan Design Litigation
• More LaRue Background and Anaylsis
• LaRue – More Analysis and ESOP Implications
• More LaRue Action Items
• LaRue – An ESOP Perspective
• LaRue Impact on Fiduciaries and Sponsors

Related Links:

• What LaRue Wrought
• 7th Circuit Applies Supreme Court’s Decision in LaRue to Defined Contribution Overvalued Stock Lawsuit
• The Interaction of LaRue, Bruch, and MetLife v. Glenn
• Should We Rue LaRue?
• There's no such thing as a bullet-proof 401(k) plan
• Liability of Plan Fiduciaries under ERISA: LaRue v. DeWolff, Boberg & Associates
• Implications of the LaRue Decision for ESOPs
• Employee Benefits Law: Recent Supreme Court Case Should Prompt Review Of Fiduciary Practices
• Supreme Court Addresses the Remedies Available for Fiduciary Breach Under ERISA
• Supreme Court Holds that 401(k) Participants May Sue for Breach of Fiduciary Duty to Recover Losses in Individual Accounts
• Supreme Court Gives "Green Light" to ERISA Breach of Fiduciary Duty Claims Related to Individual 401(k) Participant Accounts
• Supreme Court Permits Employees to Sue Retirement Plan Fiduciaries for Losses to Individual Account Balances
• ESOPs Impacted by Landmark U.S. Supreme Court Case
• Supreme Court Expands Remedies Available for ERISA Fiduciary Breach Claims
• Supreme Court Ruling Enables §401(k) Plan Participants to Sue for Losses in Their Accounts Caused by Administrative Errors
• Supreme Court Expands Liability Exposure of Fiduciaries of Individual Account Plans
• Supreme Court Decision Authorizing Suits by Individual 401(k) Plan Participants Based on “Impaired Value” of Plan Accounts Confirms Yet Another Risk for Plan Fiduciaries
• Supreme Court Allows Individual 401(k) Plan Participants to Sue
• U.S. Supreme Court Allows 401(k) Plan Participant to Sue Plan Employer over Loss to Participant's Account
• Court Expands Liability for 401(k) Plan Fiduciaries
• ERISA Lawyers: Don't Expect Lawsuit Tsunami After LaRue Ruling
• Pressure to be fiduciaries intensifies - High-Court Ruling on 401(k) May Open Floodgates of Litigation
• 401(k) Plans Put on Notice As Investor's Suit Advances Supreme Court Opens New Front In 401(k) Suits
• IMHO: All for One - Looks Like James Larue Will Get His Day in Court, After All
• Individuals Had Standing to Sue Fiduciary for Breach of Duty to Recover 401(k) Losses
• Supreme Court Upholds Right To Sue 401(k) Administrators
• Supreme Court Rules Individual Retirement Plan Participants Can Sue Employers Over 401(k) Losses
• Supreme Court Rules Employees Can Sue Over 401(k) Plan Management Misconduct
• Court Rules 401(k) Participants Can Sue
• Supreme Court Vacates Fourth Circuit's Decision in LaRue
• Top Court Allows Suit Over 401(k)
• LaRue Wins! 502(a)(2) Again Viable for ERISA Participants
• Pension Rights Center's Statement on the Supreme Courts Decision in LaRue v. DeWolff
• Dark Victory for 401(k)
• Court Says 401(k) Participants Can Sue
• Legal Alert: Supreme Court Allows ERISA Relief for Individual Plan Accounts
• U.S. Supreme Court Says 401(k) Plan Participants Can Sue
• A victory for participants. A warning shot for plan sponsors
• Interpreting LaRue