Oct 24, 2017
I was out of town yesterday and didn’t find out about the Supreme Court’s decision in LaRue v. DeWolff, Boberg & Associates, Inc., ___ U.S. ___, 2008 U.S. LEXIS 2014, until rather late yesterday evening. You can read the decision here courtesy of ScotusBlog.
LaRue has been eagerly anticipated and I’ve posted about it before. The decision reaches the result ERISA’s language calls for but gets there via a torturous and erroneous analytical process. The principal decision, written by Justice Stevens and joined by Justices Breyer, Ginsburg, Souter and Alito, reverses the Fourth Circuit’s dismissal of James LaRue’s case. The majority holds that 29 U.S.C. §1132(a)(2) provides a remedy for LaRue after his ERISA plan administrator’s failure to follow LaRue’s instructions on how to invest his money resulted in a loss of $150,000 to LaRue. However, in so ruling, the Court fails to recognize that 29 U.S.C. §1132(a)(2), and 29 U.S.C. §1109, which outlines the underlying predicate breach of fiduciary duty, by their unambiguous, express terms, address only losses to an ERISA plan itself. In this case, LaRue individually experienced a loss. The pension plan in which he participated did not lose a nickel through the negligent fiduciary's actions. It was LaRue and only LaRue who was damaged as a result of the fiduciary’s breach.
The Court’s error in analysis was to follow the district and Court of Appeals decisions in the case in ruling that LaRue had no ability to recover his loss under 29 U.S.C. §1132(a)(3). That is the section of ERISA that provides participants and beneficiaries with the right to obtain "appropriate equitable relief" where a plan fiduciary violates ERISA and the result is a loss to the plan participant. The lower courts and the Supreme Court reject the argument that §1132(a)(3) applies to LaRue's case. As a result, the Supreme Court is left trying to shoehorn compensation for LaRue’s losses into a remedial provision of ERISA that simply doesn’t apply to his facts.
ERISA is poorly drafted in many respects. It is complex and convoluted. It is inconsistent in how it uses defined terms and concepts of law. But one way in which it is relatively straightforward on its face is in outlining the remedies it provides to plan participants and beneficiaries. For violation of the terms of the ERISA plan, 29 U.S.C. §1132(a)(1)(B) provides them with the right to recover benefits and enforce rights. Where a violation of ERISA’s fiduciary duties lead to a loss to the ERISA plan itself, 29 U.S.C. §1132(a)(2) and 29 U.S.C. §1109 provide that the breaching fiduciary shall be personally liable for those losses. Where there is a violation of ERISA’s statutory requirements or terms of the plan, 29 U.S.C. §1132(a)(3) allows "appropriate equitable relief" for participants, beneficiaries or fiduciaries.
LaRue’s facts clearly fall within the last remedy category. The Court should have reconciled itself to being in the briar patch of what constitutes "appropriate equitable relief." That is thorny ground on which the Supreme Court and Courts of Appeal across the country have gotten increasingly entangled. The Supreme Court was willing to provide a clear path for plan fiduciaries to obtain money from plan participants and beneficiaries under the guise of "appropriate equitable relief" in Sereboff v. MAMSI, 547 U.S. 356 (2006). At the same time, dozens of district and Court of Appeals cases cite Mertens v. Hewitt Associates, 508 U.S. 248 (1993), and Great-West Life & Cas. Ins. v. Knudson, 534 U.S. 204 (2002), to shut the door on any ability of participants and beneficiaries to recover monetary damages above and beyond plan benefits from fiduciaries or ERISA plans who have violated ERISA. LaRue provided an opportunity to clear that thorny ground and the Court refused the invitation. The result is to make analytical hash of the 29 U.S.C. §1132(a)(2).
Great for James LaRue because the Court provides him with relief. What about for everyone else? ERISA practitioners have now been instructed to run up the §1132(a)(2) path to pursue remedies for individuals who have suffered a loss resulting from a fiduciary’s breach. It is an open question whether the opinion provides a monetary remedy for violations of fiduciary duty outside the narrow factual setting of a defined contribution pension plan. Will individuals who have losses resulting from violations of ERISA and who are participants and beneficiaries of health, life and disability benefit plans gain any remedies as a result of this decision? I’m skeptical.
Tortured analysis, even by the Supreme Court, is par for the course when it comes to ERISA. The Court fails, again, to provide accurate and clear direction regarding this important federal statute.
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