Plan Participant Who Withdrew All Assets from Retirement Plan Still has Standing to Sue for Breach of Fiduciary Duty

Recently, in Harris v. Amgen, Inc., ___ F.3d ___, 2009 WL 202758 (9th Cir. July 14, 2009), the Ninth Circuit Court of Appeals held that a former employee who withdrew his assets from an ERISA-governed retirement contribution plan still had standing to assert a breach of fiduciary claim against the plan fiduciaries, on the grounds that his retirement account might have been worth more at the time of the withdrawal had there been no breach of fiduciary duty.

Initially, Steve Harris, a former employee of Amgen, who withdrew his assets from his retirement account in July 2007, and Dennis Ramos, another former Amgen employee who still maintained assets in his retirement account, sued Amgen and several officers and directors for breach of fiduciary duty, alleging that the fiduciaries improperly allowed the plan to purchase and hold Amgen stock despite knowledge that the stock price was artificially inflated because of improper off-label drug marketing and sales. The district court dismissed Harris’ claims, finding that because he had withdrawn his assets from the Plan, he did not have standing to sue the Plan. The district court dismissed Ramos’ claims because he failed to identify the proper defendants. Both Harris and Ramos were denied leave to amend the complaint.

In order to bring a suit under ERISA, a plaintiff must have standing as a plan participant, defined as “an employee or former employee of an employer … who is or may become eligible to receive a benefit of any type from an employee benefit plan which covers employees of such employer.” 29 U.S.C. § 1002(7). In Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 117 (1989), the United States Supreme Court expanded the definition of plan participant to include “former employees who have … a colorable claim to vested benefits.” In reversing the dismissal of Harris’ claims, the Ninth Circuit found that even though he previously cashed out his plan account, he still had standing to assert a claim under ERISA Section 502(a)(2). Specifically, the Ninth Circuit observed that “when employees withdraw their funds from a benefit plan, but claim that they would have had more to withdraw absent breach of fiduciary duty by those managing the plan, it is not difficult to see a common sense loss of benefits in their plan caused by the alleged breach of fiduciary duty.” Accordingly, “former” plan participants still have standing to recover losses caused by an alleged breach of fiduciary duty. The Ninth Circuit further explained that it agreed with the First and Third Circuits “in holding that an ERISA plan participant who no longer has assets in the plan has statutory standing to assert a fiduciary claims under Section 502(a)(2), even when relief is available under Section 502(a)(1)(B).”

Finally, the Ninth Circuit ruled that both Harris and Ramos were improperly denied the right to amend their pleadings, as courts “should normally permit at least one amendment of a complex ERISA complaint that has failed to state a claim where, as here, the Plaintiffs might be expected to have less than complete information about the defendants’ organization and ERISA responsibilities, where there is no meaningful evidence of bad faith on the part of the plaintiffs, and where there is not significant prejudice to defendants.”

ERISA Authorizes a Participant to Sue for Misconduct when it Impairs Plan Assets in Participant's Individual Account

James LaRue  v. DeWolff, Boberg & Associates Inc., 128 S. Ct. 1020 (2008).

LaRuefiled an action under ERISA alleging that his employer (also the plan administrator) breached its fiduciary duty with regards to an ERISA-regulated 401(k) retirement savings plan by failing to follow his investment instructions.  Relying on the Supreme Court’s ruling in Massachusetts Mutual Life Insurance Co. v. Russell that a participant could not bring a suit to recover consequential damages resulting from the processing of a claim under a plan that paid a fixed level of benefits, the Fourth Circuit Court of Appeals affirmed the district court’s grant of summary judgment in favor of the plan on the grounds that § 502(a)(2) did not provide a remedy for LaRue’s “individual injury.”  The Supreme Court disagreed. 

In an opinion written by Justice Stevens, the Court held that “although § 502(a)(2)  does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of the plan assets in a participant’s individual account.”  The Court reasoned that in the context of defined contribution plans, the misconduct did not need to threaten the solvency of the entire plan in order for § 409 (which provides remedies for breach of fiduciary duty) to apply.  Rather, the legislative history and plain language of the statute authorizes a participant to enforce fiduciary obligations under ERISA, and the administrator’s failure to follow the LaRue’sinvestment instructions could qualify as a breach of those duties. 

Participant Cannot Sue on Behalf of the Plan Without an Attorney

Simon v. Hartford Life, Inc., 546 F.3d 661 (9th Cir. 2008).

Acting pro se, a plan participant filed suit on behalf of the group long-term disability plan, claiming breach of fiduciary duty under 29 U.S.C. Section 1109. The plan administrator filed a motion to dismiss on the ground that the participant must be represented by a licensed attorney in order to proceed with this claim. The district court granted the motion and dismissed the action without prejudice so that the participant could obtain counsel. The district court reasoned that because the plan is a separate entity, the participant was not entitled to bring a suit on the plan’s behalf. The participant appealed.

In upholding the district court’s order granting the motion to dismiss, the Court of Appeals ruled that, under ERISA and 29 U.S.C. Section 1132(a)(2), a participant is not authorized to pursue a claim in a representative capacity on behalf the plan without counsel. The Ninth Circuit explained that any judgment would have significant impact on the plan and the other beneficiaries, and those entities are entitled to representation by a licensed attorney. While, 28 U.S.C. Section 1654, states that “parties may plead and conduct their own cases personally or by counsel.” the court noted that the participant was not representing his own rights, but rather the rights and interests of the employee benefit plan. By proceeding pro se, the participant was improperly attempting to represent a party other than himself. Therefore, absent specific Congressional authorization, only one licensed to practice law may conduct proceedings in court for anyone other than themselves.

Read Judicial Opinion Here