<nobr>Feb 20, 2008</nobr>

Supreme Court Rules in LaRue that Participant in a DC Plan Can Recover If He Can Show That a Fiduciary Breach Harmed His Account

Support for Position Advocated by ERIC in Amicus Brief

The Supreme Court ruled yesterday in LaRue v. DeWolff, Boberg & Associates (Feb. 20, 2008) that a participant in a defined contribution plan may proceed under ERISA with his suit against a plan administrator who, the participant alleged, had failed to follow the participant's investment directions. The Justices issued three separate opinions. The opinion of the Court was delivered by Justice Stevens. Two concurring opinions were also filed -- one by Chief Justice Roberts (joined by Justice Kennedy) and another by Justice Thomas (joined by Justice Scalia). Chief Justice Roberts' concurring opinion referred, directly and positively, to the amicus brief that ERIC filed in LaRue.

LaRue claimed that the plan administrator (his employer) had caused his account balance to be "depleted" by failing to carry out his investment directions and that the administrator had breached its fiduciary duty under ERISA. Because the district court granted the defendants' motion to dismiss the case, and the court of appeals affirmed the district court's decision, LaRue's allegations have not been proved, and the Supreme Court decided the case on the assumption that the plan administrator had breached its fiduciary obligations and that the breach adversely affected LaRue's account balance. The case now goes back to the lower courts where LaRue may be required to prove what he has alleged.

The district court and the court of appeals held that LaRue could not recover under section 502(a)(2) of ERISA because that section provides remedies only for the plan, not for individual participants. The lower courts relied on the Supreme Court's 1985 decision in Massachusetts Mut. Life Ins. Co. v. Russell, which held that section 502(a)(2) provides remedies only for entire plans, not for individuals. In LaRue, however, the Supreme Court distinguished Russell on the ground that Russell had received all of the benefits to which she was entitled under the terms of the plan and had sought consequential damages caused by a delay in processing her benefit claim. By contrast, LaRue involved alleged mismanagement of the assets of a defined contribution plan, and the Court held that section 502(a)(2) provides a remedy when a fiduciary breach damages the value of plan assets that are allocated to a participants individual account.

In its amicus brief, ERIC argued that LaRue's claim was actually a claim under section 502(a)(1)(B) of ERISA, which allows a participant "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." Chief Justice Roberts observed that it was "difficult to imagine a more accurate description of LaRue's claim," and that since section 502(a)(1)(B) applied, it was not clear that LaRue could bring his claim under section 502(a)(2) as well.

The Chief Justice identified a number of the important consequences (which ERIC's amicus brief had identified) of requiring a suit to be brought under section 502(a)(1)(B): the need to exhaust administrative remedies before filing suit under section 502(a)(1)(B) and the Firestone doctrine (if a plan grants the plan administrator discretion in making benefit decisions, the courts must generally review the administrator's decision only for abuse of discretion).

The Chief Justice observed that this argument had been made only in ERIC's amicus brief and that because the parties had not raised the issue, the courts below had not considered it, and the Supreme Court's ruling was reached without considering the application of section 502(a)(1)(B). He concluded that he "saw nothing in today's opinion precluding the lower courts, on remand, if they determine that the argument is properly before them, from considering the contention that LaRue's claim may proceed only under section 502(a)(1)(B). In any event, other courts in other cases remain free to consider what we have not -- what effect the availability of relief under section 502(a)(1)(B) may have on a plan participant's ability to proceed under section 502(a)(2)."

Meanwhile, the Supreme Court's decision makes unnecessary the need for Congress to act on legislation to address a perceived lack of remedies under ERISA, which could have opened up Title I of ERISA to a host of pension and healthcare coverage remedies.

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Websites:

LaRue v. DeWolff, Boberg & Associates, U.S., No. 06-856

LaRue v. DeWolff Broberg & Assoc., U.S. Sup. Ct. Oral Argument transcript, 11-26-07

ERIC Amicus Brief

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