LaRue v. DeWolff, Boberg & Associates, Inc., et. al., - U.S. -, 128 S. Ct. 1020, 169 L.Ed.2d. 847 (2008) – decided February 20, 2008 – United States Supreme Court – Robert E. Hoskins

“Supreme Court building on the early morning before the

I represented Mr. LaRue in this case which was originally filed in the United States District Court for the District of South Carolina, but which went all the way to the U.S. Supreme Court.  Certainly, I am not objective, but I do have some definite thoughts on the decision.

When I originally drafted the complaint in this case I did so carefully to specifically set forth the exact relief that LaRue sought. I have always been very careful about choosing cases where I assert a breach of fiduciary duty claim. In the past, I have refused to file several cases where I felt the plan participant did not have a procedurally perfect case. In my opinion, LaRue had every right fact in his case based upon my interpretation of then prevailing law. At the time he came to me, he was still a participant in the plan with a significant interest in the plan. He had written documentation that demonstrated that he had requested an investment change, but the change had not occurred. Certainly, the defendant has its story as to why the change did not occur, but it is undisputed that the change which LaRue requested did not occur. In drafting the complaint, I attempted to stress what I thought were important procedural points. In the District Court, LaRue alleged that DBA is “the plan administrator of the subject plan and is responsible for the plan’s workings and administrative details. . . . (and) a fiduciary of the subject plan for the aforementioned purposes.” LaRue alleged that DBA “failed to invest Plaintiff’s money as directed and as a direct and proximate result, the Plaintiff’s interest in the plan has been depleted . . .” As a result, LaRue requested “that the court (1) award Plaintiff make whole or (2) other equitable relief as allowed by 29 U.S.C. § 1132(a)(3)”. LaRue did not specify under which provision of ERISA’s remedial section he requested “make whole” relief. LaRue also requested “such other and further relief as the court deems just and proper” and “framed” his relevant cause of action as requesting relief pursuant to “ERISA 29 U.S.C.S. § 1104, § 1132(a)(3) and other portions of ERISA 29 U.S.C.S. § 1001 et. seq.” (Click here to view the whole complaint as filed in the District Court.)

In my brief in opposition to the defendant’s motion to dismiss LaRue’s case, I also tried to clearly set forth the relief LaRue sought. In responding to defendant’s motion to dismiss in the District Court, LaRue plead that he wanted the court to “award Plaintiff “make whole” or other equitable relief as allowed by ERISA 29 U.S.C.S. § 1132(a)(3).” In his brief to the District Court, LaRue never cited the text of ERISA 29 U.S.C.S. § 1132(a)(1)(B), (a)(2) or (a)(3). Instead, LaRue specifically stated, as clearly as he could, exactly what he wanted which is that the court “. . . simply put him in the position he would have been in the plan in which he still participates, but for the breach of fiduciary duty.” Even though LaRue did not specifically cite to the text of either § 1132(a)(1)(B), (a)(2) or (a)(3), he did directly quote to 29 U.S.C. § 1109 in asserting his entitlement to “make whole” relief. In his brief to the District Court, LaRue cited to the unpublished decision in Shade v. Pan Handle, 1996 U.S. App. LEXIS 16703 (4th Cir. 1996) which he described as being legally “exactly on-point”. (Click here to see the Shade decision) In so doing, LaRue quoted the text of 29 U.S.C. § 1109(a) that “a fiduciary that breaches the fiduciary duties owed by a plan participant is personally liable “to make good to such plan any losses to the plan resulting from each such breach . . . and shall be subject to such other equitable and remedial relief as the court may deem appropriate.”

Although I had filed several other cases like LaRue’s in my career, all of the other cases were settled prior to the court deciding any motion to dismiss. When I went to argue LaRue’s cause before the District Court, I did not expect that the case would be dismissed on a Rule 12(c) motion. Obviously, my expectation was wrong and the case was dismissed on the defendant’s motion. (Click here to see the District Court’s order.)

When the case was dismissed, I knew immediately that we would pursue an appeal to the United States Court of Appeals for the Fourth Circuit and we did file the notice of appeal on July 11, 2005. Throughout the course of the pendency of LaRue’s claim and since the issuance of the Supreme Court’s decision on February 20, 2008, there has been a lot of discussion in various circles about whether LaRue should be entitled to pursue relief under 29 U.S.C. § 1132(a)(2), 29 U.S.C. § 1132(a)(3), or, in light of Chief Justice Roberts’ concurring opinion, now 29 U.S.C. § 1132(a)(1)(B). I have always felt that LaRue was entitled to “make whole relief” pursuant to 29 U.S.C. § 1132(a)(2) and that is why I plead in the complaint that he was entitled to “make whole” relief and why I cited 29 U.S.C. § 1109 in the brief in the District Court. Mr. LaRue has always and only sought for his interest in the plan to be made whole. I did plead, in the alternative, an entitlement to relief for LaRue under 29 U.S.C. § 1132(a)(3), but that request was a “fall back” to the “make whole” argument. When the Fourth Circuit decided the case in its initial opinion, it held that LaRue may have waived the (a)(2) argument. That inference crushed me because I truly did draft the complaint very specifically to ask for the very relief that the court was inferring that I may have waived. In any event, the Fourth Circuit did provide a definitive opinion on both relevant provisions of § 1132 including (a)(2). The court held that LaRue was not entitled to relief under either section. (Click here to view the Fourth Circuit’s initial published opinion.)

After the initial Fourth Circuit opinion came out (and the court referenced that I had waived an argument), I was definitely at the low point in the case. At that point, an attorney by the name of Elizabeth Hopkins with the Department of Labor contacted me about the decision and advised that the US Department of Labor would join the case on LaRue’s behalf. I had decided to file a motion to reconsider the Fourth Circuit’s decision and for the Department of Labor to also file such a motion was a boost. Having the DOL side with my cause was a first for me. We filed our respective motions and the court, in another published decision, again denied LaRue relief under either provision of ERISA. (Click here to see the Fourth Circuit’s published decision denying the petition for rehearing.)

After the Fourth Circuit’s opinion denying the petition for rehearing, I made up my mind that I would prepare and file a petition for writ of certiorari to the United States Supreme Court, for what that was worth. I was, obviously, very reserved in my hopes that the court might grant the petition. I had petitioned the court a couple of times in the several years prior to no avail. (See Colucci v. Agfa Corporation Severance Pay Plan, 431 F.3d 170 (4th Cir. 2005), click here, and Physicians Multispecialty Group v. Horton Homes, 371 F.3d 1291 (11th Cir. 2004), click here, discussed elsewhere in this site.) But, I was committed to that course nonetheless. Fortunately, after I had drafted the petition and was still very much “massaging it”, I received a call from Peter Stris of the Whittier Law School. Peter offered his assistance and I gladly accepted. Peter had experience with the Supreme Court that I did not. I knew Peter had handled Sereboff v. Mid-Atlantic Medical Services, Inc., 126 S. Ct. 1869; 164 L.Ed.2d 612 (2006), (click here to see the SCOTUS Wiki entry for that case). Given that I had never been successful in getting a petition for cert granted and given that I was unfamiliar with the process thereafter if the petition was granted, I gladly made the decision that the client would be best served with Peter as lead counsel at the Supreme Court. I stayed actively involved in the case and did attend the oral argument with Peter. However, our success at the Supreme Court level is due, in large part, to Peter. I could not more highly recommend Peter as an advocate before the Supreme Court. Working with Peter was truly a pleasure.

Once the petition was granted, everything from that point forward was a new experience for me. It is truly “mind boggling” to me how much work goes into handling an appeal at that level. I, personally, have handled at least thirty cases at the Federal Circuit Court of Appeal level and many others at the State Appellate level. The amount of effort necessary to properly handle a claim at other levels “pales” in comparison to the Supreme Court. Because of the experience of handling the LaRue case, I have a great deal of respect for any attorney who regularly handles cases before the US Supreme Court.

On more of a “human” note, it is interesting that as a lawyer you, personally, want to make it to the highest level and you are happy, to say the least, when that occurs. However, there is a negative side to it. After the petition was granted and during the briefs, I felt as if I became the target, to some extent, for why my client should not prevail. For instance, it was difficult for me to have an amicus brief filed by a party who was not ever involved at any time in the lower courts asserting that I had not plead my client’s cause of action correctly. However, such is the nature of the “beast”. You think getting a case before the US Supreme Court case is something you want and you are ecstatic when it happens, but there is definitely some unpleasantness that occurs at that level which usually would not occur at a lower court level.

Sitting at the counsel table during the oral argument at the LaRue case was definitely one of the high points of my career. (I would say that it is the high point, but it truly was not the single best or most satisfying moment of my career.)

Although I have learned, from the Circuit Court Appeal level, that often you cannot tell which way a court is going to rule based upon questions during oral argument (trust me, that is not always true as I have found out the hard way occasionally), I felt pretty good about our chances after the argument. Obviously, despite my optimism, it was a very pleasant surprise to receive the 9-0 decision that was issued on February 20, 2008. (Click here to see the Supreme Court’s decision.)

Needless to say, the US Supreme Court decision generated much media attention. (To view the article about the oral argument, click here. To view an article about the actual decision, click here.)

I find the following points in the Supreme Court opinion interesting.

1. Although I am very pleased about the majority’s opinion, I find the “bare bones” approach of Justices Thomas and Scalia compelling. It has always been my belief and certainly was my argument in the lower court that the plain language of 29 U.S.C. § 1109 dictates that LaRue can recover.

 

2. A lot of folks were extremely disappointed that the court did not address the (a)(3) argument. The court “passing” on the (a)(3) argument truly did not surprise me. We were firm that our primary argument was under § 1109 (and (a)(2)) and if the court ruled with us on that argument then there was no need to address the (a)(3) argument. I am quite content for that issue to have been left for another day. In my opinion, the only way the court could have legitimately addressed the (a)(3) argument was if it had ruled against us on our primary argument and that is not something that we wanted to or believed should happen. The (a)(2) argument is the more important argument in the “big picture” in my opinion and I am glad that the court could decide that issue by way of our case.

 

3. I was glad that the court included footnote 6 which states:

“After our grant of certiorari respondents filed a motion to dismiss the writ, contending that the case is moot because petitioner is no longer a participant in the Plan. While his withdrawal of funds from the Plan may have relevance to the proceedings on remand, we denied their motion because the case is not moot. A plan “participant,” as defined by § 3(7) of ERISA, 29 U.S.C. § 1002(7), may include a former employee with a colorable claim for benefits. See, e.g., Harzewski v. Guidant Corp., 489 F.3d 799 (CA7 2007).”.

 

I believe that that footnote will provide guidance to the circuit courts on the important issue of whether a participant who cashes out his or her interest in a plan retains standing to assert a claim under ERISA.

4. I was surprised with footnote 4 which states:

“The record does not reveal whether the alleged $150,000 injury represents a decline in the value of assets that DeWolff should have sold or an increase in the value of the assets that DeWolff should have purchased. Contrary to respondents’ argument, however, § 502(a)(2) encompasses appropriate claims for “lost profits.” See Brief for Respondents 12-13. Under the common law of trusts, which informs our interpretation of ERISA’s fiduciary duties, see Varity, 516 U.S., at 496-97, 116 S. Ct. 1065, 134 L.Ed.2d 130, trustees are “chargeable with . . . any profit which would have accrued to the trust estate if there had been no breach of trust,” including profits forgone because the trustee “fails to purchase specific property which it is his duty to purchase.” 1 Restatement (Second) Trusts § 205, and Comment i, § 211 (1957); see also 3 A. Scott, Law on Trusts §§ 205, 211 (3d ed. 1967).”.

 

LaRue never sought lost profits. To the contrary, LaRue sought to have the diminished value of his plan restored or “made whole”. LaRue never alleged any sort of entitlement to lost opportunity profits or some such recovery. It did surprise me that the court addressed lost profits in LaRue’s case because, like the (a)(3) issue, I do not believe it was necessary of a holding.

5. Finally, Chief Justice Roberts’ concurring opinion has led to much speculation. It seems that the popular conception is that Chief Justice Roberts, by suggesting that LaRue might be entitled to relief as a benefit claim under 29 U.S.C. § 1132(a)(1)(B), was providing a “road map” for plans and defense lawyers to more effectively deny claims in the future. I am not convinced that that was his intent at all. While at “first blush”, it might be easy to read his opinion as such, I do not think it “plays out” with a more thoughtful consideration. Those who would want stronger defense positions reckon that recasting breach of fiduciary duty claims as benefit claims gives the plan the advantage of an administrative review process and potentially a deferential standard of review. The problem with such reasoning is that the administrative review process is certainly not always defense friendly. As a plaintiff’s lawyer, I happen to be a big fan of the administrative review process and would have no problem handling breach of fiduciary duty claims on such a basis if forced to. Second, the deferential standard of review probably won’t exist in its current form a whole lot longer, in my opinion, and, some circuits already require exhaustion of administrative remedies for breach of fiduciary duty claims.[1] Subjecting fiduciary duty claims to the administrative review process might be good for plaintiffs as well as defendants. One of the great things about being a plaintiff’s attorney on an ERISA benefit claim is that there is usually no discovery and you get a very streamlined disposition. As a plaintiff’s lawyer, the last thing I want to get into is long, drawn out and costly litigation where there is a bunch of discovery and motions. As a plaintiff’s lawyer, I would be happy to handle a fiduciary claim as an administrative proceeding as long as I had forewarning that it was going to proceed like that so that I could handle the case appropriately from the outset. Although I very firmly believe that LaRue’s claim was properly plead as a breach of fiduciary duty claim, I do not believe that Chief Justice Roberts’ concurring opinion was intended to be either pro-plan or pro-participant. Instead, I merely view it as procedural suggestion. I believe that the claim was properly plead as a breach of fiduciary duty claim because that is the vehicle by which lost assets of the plan must be restored. Once those plan assets are restored then, and only then, could a participant like LaRue assert a benefit claim. Once the assets are back in the plan then they can be claimed by the participant. If the assets are not present in the plan then isn’t it premature to claim them? If one views Chief Justice Roberts’ concurring opinion through a plaintiff’s “lens” then there is a significant issue raised in my opinion. If Chief Justice Roberts is correct that claims like LaRue’s are really benefit claims and if, as the majority points out in footnote 4, a participant’s recovery might extend not only to losses to the plan, but also lost profits, then what does that mean for the future? Do ERISA plan participants asserting benefit claims pursuant to ERISA 29 U.S.C. § 1132(a)(1)(B) now have a legitimate claim for lost profits in addition to any benefits they have been denied? Certainly, I do not think so, but I very much believe that that issue will be raised in some benefit claim litigation in the very near future.

[1] See Smith v. Syndor, 184 F.3d 356 (4th Cir. 1999) holding that plan participants asserting a breach of fiduciary duty claim in the Fourth Circuit are not required to exhaust administrative remedies, but noting that the circuits are in “sharp disagreement”. The court stated:

“While the courts of appeals are in nearly unanimity that exhaustion of administrative remedies is required before a plaintiff can bring an ERISA action in federal court to recover benefits under a plan, see Fallick v. Nationwide Mut. Ins.Co., 162 F.3d 410, 418 & n.4 (6th Cir. 1998) (listing cases), they are in sharp disagreement as to whether a plaintiff must exhaust administrative remedies before bringing an action in federal court to assert a violation of an ERISA statutory provision, such as a claim for breach of fiduciary duty. Compare Lindemann v. Mobil Oil Corp., 79 F.3d 647, 649-50 (7th Cir. 1996) (holding that district court has discretion to require exhaustion for ERISA § 510 claim); Mason v. Continental Group, Inc., 763 F.2d 1219, 1226-27 (11th Cir. 1985) (holding that exhaustion is required for ERISA § 510 claim and claims for breach of fiduciary duties), with Chailland v. Brown & Root, Inc., 45 F.3d 947, 950-51 (5th Cir. 1995) (holding that exhaustion is not required for ERISA § 510 claim where plan is incapable of providing a remedy); Richards v. General Motors Corp., 991 F.2d 1227, 1235 (6th Cir. 1993) (holding that exhaustion is not required for ERISA § 510 claim); Horan, 947 F.2d at 1416 n.1 (“The exhaustion requirement applies to plaintiffs’ benefits claim, but does not apply to the plaintiffs’ fiduciary breach claim because this claim alleges a violation of the statute, ERISA, rather than the Plan.”); Held v. Manufacturers Hanover Leasing Corp., 912 F.2d 1197, 1204-05 (10th Cir. 1990) (holding that exhaustion is not required for ERISA § 510 claim); Molnar v. Wibbelt, 789 F.2d 244, 250 n.3 (3d Cir. 1986) (stating in dicta that exhaustion is not required for claim for breach of fiduciary duty).”