:: First Circuit Rejects Lack Of Standing Defense To Former Participant Claims

The appellants contend that they are entitled to bring suit on behalf of the Plan 4 because they are “participants” within the statutory definition. Section 3(7) of ERISA, 29 U.S.C. § 1002(7), defines “participant” to include “any . . . former employee . . . who is or may become eligible to receive a benefit of any type from an employee benefit plan.” The Supreme Court has interpreted this provision to include a former employee who has “a colorable claim that . . . she will prevail in a suit for benefits.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989) . . .

The appellees concede that this is the applicable definition of “participant,” but they contend that the appellants have not stated a claim for “benefits.” Rather, they maintain that the relief sought is “damages” and that plaintiffs thus fall outside the scope of the Firestone definition of participant.

Keri Evans v. Akers, 2008 U.S. App. LEXIS 15300 (1st Cir. Mass. July 18, 2008)

This First Circuit Court of Appeals decision provides a concise summary of the law bearing on the lack of standing defense in the post-LaRue setting. On a somewhat complex set of facts, suffice it to say that certain former employees who had received lump-sum distributions of the entire balance in their employer’s defined contribution plan alleged fiduciary breaches that diminished the value of their accounts.

They sought relief under ERISA § 502(a)(2) which provides that “[a] civil action may be brought by the Secretary [of Labor], or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title.”

Section 1109, in turn, specifies the following remedies for breaches of the fiduciaries’ duties:

[(1)] mak[ing] good to such plan any losses to the plan resulting from each such breach, . . . [(2)] . . . restor[ing] to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and [(3)] . . . such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary.

The defendants argued that the plaintiffs, in effect, were seeking legal damages, not plan benefits. The district court agreed.
On appeal, however, the First Circuit rejected the defendants’ position stating:

[The Defendants] maintain that the relief sought is “damages” and that plaintiffs thus fall outside the scope of the Firestone definition of participant.

The Third, Sixth, and Seventh Circuits have each recently rejected this very argument. See Bridges v. Am. Elec. Power Co., Inc., 498 F.3d 442, 445 (6th Cir. 2007) (adopting the Seventh Circuit’s analysis); Graden, 496 F.3d at 299 (”[W]e cannot endorse the distinction . . . between benefits and damages.”); Harzewski v. Guidant Corp., 489 F.3d 799, 804, 807 (7th Cir. 2007) (rejecting view of courts that have “strain[ed] to distinguish between ‘benefits’ and ‘damages’”). We fully agree with their analyses and rely on their thoughtful discussions in explaining our own reasoning.

Citing LaRue v. DeWolff, Boberg & Assocs., Inc., 128 S. Ct. 1020, 1023 n.1 (2008), the First Circuit noted that a defined contribution plan “promises the participant the value of an individual account at retirement.”

Thus,

the full “benefit” to which the participant is entitled by a defined contribution plan is “the value of [her] account unencumbered by any fiduciary impropriety.” Graden, 496 F.3d at 297. Put differently, the “benefit” in a defined contribution plan is equal to “whatever is in the retirement account when the employee retires or whatever would have been there had the plan honored the employee’s entitlement, which includes an entitlement to prudent management.” Harzewski, 489 F.3d at 804-05 (emphasis in original).

Plaintiffs’ claim fits within this understanding of the statutory language.

Note: The Court found its holding consistent with prior First Circuit precedent as well, observing

Our conclusion that the appellants have standing to sue as “participants” under ERISA § 502(a)(2) is also supported by our previous cases considering ERISA standing. In Vartanian v. Monsanto Co., 14 F.3d 697 (1st Cir. 1994), we observed that “Congress intended the federal courts to construe [ERISA’s] jurisdictional requirements broadly in order to facilitate enforcement of its remedial provisions.” Id. at 702.

Advantage of (a)(2) Suit – The advantage of an (a)(2) suit over an (a)(1)(B) claim for benefits is succinctly described in this excerpt:

In the context of a defined contribution plan, where all of the plan’s money is allocable to plan participants’ individual accounts, a plaintiff has good reason to bring his claims for additional benefits as § 502(a)(2) claims:

Using a § [502](a)(1)(B) suit to force the plan to use money already allocated to others’ accounts to make good on [the plaintiff’s] loss would present a host of difficulties with which few sensible plaintiffs would want to contend. Indeed, it may be that ERISA’s fiduciary obligations prevent plans from paying judgments out of funds allocable to other participants, in which case the plan, though liable, would be judgment proof. Thus, for most plaintiffs the sensible route is to use § [502](a)(2) to get the money in the first instance from a solvent party liable to make good on the loss, not from the plan itself.

Graden, 496 F.3d at 301.

Bringing the suit under § 502(a)(2) does not “change the underlying nature” of the plaintiffs’ claim as one for benefits. It simply provides an avenue for restoring those benefits to the plan coffers so that they may then be allocated to those who were harmed by the fiduciary breach. Id.; see also LaRue, 128 S. Ct. at 1026 (holding that § 502(a)(2) “authorize[s] recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account”).

Constitutional Standing – The court summarily dispatched the suggestion that the plaintiffs lacked constitutional standing:

. . . appellees argue that the requirements for constitutional standing are not met here. They claim that the harm suffered by Evans and Whipps is unlikely to be redressed because any relief ordered would be awarded to the Plan rather than to the plaintiffs individually. Therefore, the Plan fiduciaries could decide to allocate the recovery only to the accounts of current employees or to pay current and future Plan expenses, leaving Evans and Whipps without a remedy.

DOL Position – The Secretary of Labor filed a brief supporting the appellants’ position on the standing issue.

We doubt that such a decision would be consistent with the fiduciaries’ duty to act in the interest of participants