<nobr>Dec 11, 2007</nobr>

Recent Court Rulings on Remedies Increase Chances Congress May Act

Maybe it is a coincidence, but several recent cases finding that employees have no remedy under the Employee Retirement Income Security Act have been highlighted in the press, bringing increased attention to the issue, and thus, the increased scrutiny of Congress. The final determinant of whether Congress decides to act on legislation to address a perceived lack of remedies under ERISA could depend on how the Supreme Court rules in LaRue v. DeWolff Boberg & Assoc., Inc.

LaRue involves whether an individual defined contribution plan participant can sue under ERISA to recover alleged individual losses rather than plan-wide damages. The Supreme Court heard oral arguments on November 26 and an opinion is expected by June 2008 (for recent coverage on LaRue, refer to the December 3 ERIC Executive Report). Regardless of the outcome, the Court's decision will have enormous significance for employers.

If LaRue wins, the Supreme Court's decision could open the way for lawsuits, remedies, and penalties that current case law does not allow. On the other hand, if the employer wins based on the fiduciary breach analysis, the plaintiffs' bar and its allies will claim there is an unintended "gap" in the law that must be remedied by Congress and congressional staff is already preparing for legislation in 2008. In addition, it is possible if not likely that, once Title I of ERISA is on the table, a bill would not be limited to the impact of LaRue. Thus, a host of pension and health care coverage remedies may be on the table in 2008.

Below are summaries of some of the recent cases that involved a lack of remedy.

Eichorn v. AT&T Corp.

The U.S. Supreme Court announced December 3 that it would not review a federal appeals court ruling that a group of former AT&T Corp. employees had no remedy under ERISA for the company's alleged interference with their pension benefits.

A three judge panel of the U.S. Court of Appeals for the Third Circuit last May ruled that ERISA section 502(a)(3) provides the only remedies for AT&T's alleged violation of ERISA section 510. The panel found, however, that back pay and other remedies sought by the former employees were not "equitable" under section 502(a)(3), leaving the employees with no remedy for the section 510 violation.

The case arises from AT&T's decision in 1995 to approve a plan that placed restrictions on the ability of employees at its subsidiary Paradyne Corp. to transfer to other divisions of AT&T. As part of a reorganization and later sell off, the Paradyne employees were prevented from seeking employment at any division of AT&T under an eight-month no-hire agreement, which had the effect of canceling the employees' accrued pension benefits under AT&T's pension plans. AT&T's plans entitled participants to "bridging rights" only if they left the company and returned within six months.

The lawsuit was originally dismissed by the U.S. District Court for the District of New Jersey, but the Third Circuit in 2001 revived the employees section 510 claim after finding that material issues of fact existed as to whether the cancellation of the employees' bridging rights was the motivating factor behind the no-hire agreement.

The district court had ruled that the employees had no remedy under ERISA section 502(a)(1)(B), which allows plan participants to recover benefits due under the terms of the plan. The court reasoned that ERISA section 510 is intended to prohibit interference with the rights of plan participants, while section 502(a)(1)(B) provides a remedy for the assertion of a contract right under an employee benefit plan. The court also ruled that the employees were not entitled to damages in the form of back pay under ERISA section 502(a)(3) as a remedy for AT&T's violation of section 510, noting that back pay is not an equitable remedy and is not available under section 502(a)(3). The appeals court ultimately agreed with the district court ruling that the employees had no remedy under section 502(a)(1)(B) or section 502(a)(3).

Mitchell v. Emeritus Management LLC

The U.S. District Court for the District of Maine ruled November 29 that the widow of a deceased life insurance plan beneficiary is not entitled to an award of plan benefits as a remedy for her employer's failure to provide her with documents she needed to convert her group life insurance coverage to an individual policy. Remarking that he was constrained by precedent, Judge D. Brock Hornby found that the relief requested by the widow was unavailable under ERISA section 502(a)(3).

"ERISA limits the remedies available to plan participants, a well-known and frequently noted reality that Congress has failed to alter. If the factual allegations in [the widow's] First Amended Complaint are true, this case provides still another illustration of a deserving plaintiff denied a remedy -- a plaintiff who apparently did everything reasonably to be expected of an employee, where fault (intentional or not) appears to lie with the employer. But I follow the law as it has been interpreted by the Supreme Court and the First Circuit," Hornby said.

The case stems from an employee who tried to convert her dependent life insurance coverage for her husband to an individual plan after leaving the employer to take care of her husband. Because she did not receive the requested documents to convert the plan within a 31-day conversion period of her employment termination, the plan administrator denied her claims for benefits following her husband's death.

The district court found that the payment of life insurance benefits would not qualify as equitable relief and thus was not available under section 502(a)(3). The court also said that section 502(a)(1)(B) did not apply because that provision of ERISA allows for the payment of benefits only if they are due under the terms of the plan. Despite the employer failing to give the requested forms on a timely basis, the plan was clear that the employee had only 31 days to convert the life insurance, the court reasoned.

Hobbs v. Baker Hughes Oilfield Operations Inc.

The U.S. District Court for the Southern District of Texas ruled November 28 that a life insurance plan sponsor did not breach its fiduciary duties when it accidentally sent conversion forms to a plan participant's former place of employment instead of to his residence, causing the participant to miss the deadline for completing such forms. Judge John Rainey found that Baker Hughes' failure to send life insurance conversion forms to the correct address was based on a clerical oversight and did not rise to the level of a fiduciary breach under ERISA.

Several months after terminating his employment, the former employee (David Hobbs) died unexpectedly. His widow and children subsequently requested from Baker Hughes payment of life insurance benefits, but were denied because Hobbs had failed to convert his coverage within 31 days of ending his employment. Hobbs' widow and children then sued Baker Hughes, arguing that they were entitled to benefits under ERISA section 502(a)(1)(B). They also argued that Baker Hughes breached its fiduciary duties by sending the forms to the wrong address and asked as a remedy that Hobbs be reinstated into the plan and pay benefits to the widow and children.

The district court found that the section 502(a)(1)(B) claim failed because the provision allows for plan participants and beneficiaries to recover benefits due under the terms of the plan, and the plan directed that the coverage ended at the time of employment termination unless converted to an individual coverage.

The court noted that when Hobbs ended his employment with Baker Hughes, he was provided with a summary plan description that detailed the steps he needed to take to convert his group life insurance coverage to an individual policy. The court also found that, while the employer sent the forms to his former work address instead of to his residential address as requested, the employee never inquired about his right to convert his coverage to an individual policy.


Text Files:

Third Circuit Ruling in Eichorn v. AT&T Corp.

Mitchell v. Emeritus Management LLC

Hobbs v. Baker Hughes Oilfield Operations Inc.

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