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THE ERISA COMMITTEE

<nobr>Aug 24, 2005</nobr>

ERIC Member Alert: Third Circuit Court of Appeals Decision Favorably Cites Dissent in Milofsky v. American Airlines

August 23, 2005 - The Third Circuit Court of Appeals in In re Schering-Plough Corporation ERISA Litigation has ruled in favor of a limited subset of ERISA plan participants in their appeal from a Motion to Dismiss. The Third Circuit has held that a subgroup of plan participants may file a derivative action on behalf of an ERISA employee benefits plan under ERISA 502(a)(2) (29 USC 1132(a)(2)) for an alleged breach of fiduciary duty. A copy of the opinion is attached for your review.

In its decision, the court references the Fifth Circuit panel's decision in Milofsky v. American Airlines, in which a majority of the panel held that a subset of plan participants could not seek damages for losses to the plan under ERISA 409, and that losses are recoverable under 502(a)(2) only when the fiduciary duty breach is one owed to the plan itself and the recovery sought would benefit "the plan as a whole". Chief Judge King dissented from the opinion, concluding that the plaintiffs successfully alleged losses to the entire plan merely by praying that relief pass through the plan to individual accounts. The Fifth Circuit panel also relied on the Supreme Court's decision in Massachusetts Mutual Life Insurance Company v. Russell 473 U.S. 134 (1985), holding that standing can exist under 502(a)(2) only if all plan participants would benefit from the litigation. In contrast, Judge King determined that Russell only held that a single participant, seeking individual recovery for extra-contractual damages payable directly to her, could not proceed with her lawsuit under 502(a)(2), and that the majority's holding went beyond the holding of Russell. As a result of Judge King's dissent, a majority of the judges on the Fifth Circuit Court of Appeals voted to vacate the panel's decision and hear the Milofsky case en banc.

The Schering-Plough court agreed with Judge King's interpretation of Russell, and expressly declined to follow the majority's opinion in Milofsky. Consequently, the court ruled that the plaintiffs in Schering-Plough could seek money damages on behalf of the plan under 502(a)(2), notwithstanding the fact that only a subset of participants were affected by the alleged fiduciary breach.

As you know, ERIC is currently gauging member support for an amicus brief in Milofsky v. American Airlines. More information on the Milofsky case can be found at ERIC OnLine by clicking here. If you have not responded to the previous email, but would like to support the Milofsky amicus brief, please email Vanessa Scott at vscott@eric.org no later than 12:00pm on Wednesday, August 24, 2005.

Vanessa A. Scott, Legislative Counsel
The ERISA Industry Committee
1400 L Street, NW Suite 350
Washington, DC 20005
Tel: 202.789.1400 Fax 202.789.1120
http://www.eric.org

Text Files:

Third Circuit Court of Appeals Decision in Milofsky v. American Airlines


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