Blogging Employee Benefits

March 2, 2006

En Banc 5th Reopens ERISA Fiduciary Lawsuit

Filed under: Fiduciary, Litigation — Fuguerre @ 10:00 pm

Rehearing en banc a district court dismissal previously affirmed by the appellate court, the 5th Circuit Court of Appeals has vacated and remanded the dismissal, reopening a class action ERISA fiduciary breach lawsuit. [Milofsky v. American Airlines Inc., CA5, 03-11087]

When their former employer was acquired, employees were notified of blackout periods that would occur during transfer of their defined contribution plan account balances to their new employer’s 401(k) plan. The employees allege that the company and its benefits consultant, which sent the notices, violated fiduciary duties by misrepresenting how and when the accounts would be transferred. The employees also allege that failure to effect the transfers in a timely and prudent manner caused losses in account values, and request that damages be allocated among individual accounts proportionately to losses arising from the alleged breach.

The district court dismissed the lawsuit, finding that the employees lacked standing to sue under ERISA §502(a)(2) to recover losses under §409 unless all plan participants would benefit from the litigation. The court also ruled that the employees had failed to exhaust administrative remedies. Finally, the district court found that the employees had not alleged specific facts that would establish the benefits consultant as an ERISA fiduciary. Reviewing the district court decision de novo, a divided 3-judge panel of the 5th Circuit originally affirmed dismissal. [CA5, 03-11087, 3/16/2005] The appellate court subsequently vacated that decision and granted en banc review of the case.

The full appellate court’s new decision is brief, almost too brief. “Measured by the principles of notice pleading and the standards controlling dismissal under FED. R. CIV. P. 12(b)(6), the district court erred in dismissing these claims,” the court stated without elaboration, essentially allowing a §502(a)(2) claim to be brought by a subset of plan participants. The full appellate court then as briefly disagreed with the district court’s characterization of the action as “disguised benefit claims requiring exhaustion of administrative remedies,” rather asserted fiduciary breach claims that could be litigated.

Although not directly addressed, the decision appears to also reactivate the claim against the benefits consultant.

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