Although we have never addressed the question of derivative standing for ERISA benefits, our sister circuits have consistently recognized such standing when based on the valid assignment of ERISA health and welfare benefits by participants and beneficiaries. . . .

Thus, it may be that in the proper case assignees other than health care providers have derivative standing under ERISA. We need not here resolve that question, because this is clearly not such a case.

Brown v. Sikora and Associates, Inc., Slip Copy, 2008 WL 1751934 (C.A.4 (S.C.)) (April 16, 2002)

In this recent opinion, the Fourth Circuit considered the issue of derivative standing in the context of an ERISA claim for benefits action. The underlying facts and the district court opinion were discussed here.

The Fourth Circuit affirmed the district court, holding that the assignments presumably taken by the original PEO defendant (Sikora) in a claims for benefit case through settlement were insufficient to create ERISA standing in a subsequent claim by the PEO against third parties (Fidelity Group) allegedly responsible for the defalcation in benefit funding.

When assignees of ERISA benefits have been found to have derivative standing, they could have sued the actual ERISA participants, who would then have clearly had standing to sue for the unpaid ERISA benefits. Thus permitting derivative standing in these cases would further the purposes of ERISA “to protect the interests of participants in employee benefit plans and their beneficiaries.” Marks v. Watters, 322 F.3d 316, 322 (4th Cir.2003). In the case at hand, Sikora could never have sued the actual participants Brown and Abernathy to recover their ERISA benefits; thus, allowing Sikora derivative standing does nothing to further the purposes of the statute because it offers no benefits for the ERISA participants.

Moreover, examination of Sikora’s amended complaint makes clear that, unlike the typical party permitted derivative standing, Sikora has claimed derivative standing not out of any concern with the participants’ unpaid ERISA benefits, but in order to obtain federal subject matter jurisdiction over Sikora’s independent state-law claims against Storey. In its amended complaint, Sikora seeks a declaration that Storey is the alter ego of Fidelity and thus “personally liable for the acts and omissions of Fidelity,” particularly a $3,733,693.41 default judgment entered in favor of Sikora against Fidelity in a related ERISA suit. Without expressing any opinion regarding the validity of these claims, we do not believe that they should be smuggled into federal court under the jurisdictional guise of Brown and Abernathy’s assignment of ERISA benefits.

The validity of assignments under ERISA cannot be assumed. Challenges to ERISA standing via defects in assignment of claims remains one of the more effective tools of defendants in ERISA cases.

Note: As discussed in my earlier post, the case had a number of procedural turns which ultimately contributed to the plaintiff’s undoing. For example:

In the alternative, Sikora argues that it possesses standing for its ERISA claims as a fiduciary under the ERISA plan. But, as the district court correctly noted, Sikora repeatedly asserted in its pleadings that it was not a fiduciary of the plan. “The general rule is that ‘a party is bound by the admissions of his pleadings.’ “ Lucas v. Burnley, 879 F.2d 1240, 1242 (4th Cir.1989) (quoting Best Canvas Prods. & Supplies v. Ploof Truck Lines, 713 F.2d 618, 621 (11th Cir.1983)). Sikora presents no compelling legal argument why this rule should now be abandoned, and we decline to do so.

More On Assignment Issue – In distinguishing this case from provider cases the Court stated:

. . . an employee organization who pays claims on behalf of the plan cannot later bill the participant or beneficiary. The participant or beneficiary would not be forced to bring suit against the plan. Allowing an assignment to an employee organization, thus, would only create a new class of parties, not determined by Congress as necessary to further the statute’s purposes, that could bring suit under ERISA. . . . Accordingly, the Court concludes that Sikora, an employee organization, may not bring this action as an assignee of participants and beneficiaries of the plan.