LaRue v. DeWolff – Caution for Employers

February 5th, 2008

Recently, the Supreme Court heard oral arguments in LaRue v. DeWolff (450 F.3d 570 (4th Cir 2006)) on appeal from the Fourth Circuit.  This case focuses on 2 key issues with respect to remedies under ERISA – specifically, when, if ever, individuals or sub-categories of plan participants can recover Section 502(a)(2) damages and what equitable relief is available to participants under Section 502(a)(3).  Depending on the Supreme Court’s decision, employers may have reason to fear as this decision could expand the remedies available to plan participants under ERISA.

The Facts:  James LaRue, participant in his employer’s qualified 401(k) plan, issued instructions to the plan’s administrator (DeWolff) regarding changes to his 401(k) investment selections.  DeWolff did not carry out LaRue’s instructions, resulting in “losses” of approximately $150,000 to LaRue’s 401(k) plan.  LaRue brought suit against DeWolff alleging a breach of fiduciary duty under ERISA, seeking restitutionary relief under 502(a)(3).  The district court dismissed and LaRue appealed to the Fourth Circuit.  During this appeal, LaRue raised the issue of a claim against DeWolff under 502(a)(2), as well as the 502(a)(3) action.

The Fourth Circuit’s Decision:  The Fourth Circuit affirmed the district court’s dismissal.  With regard to the 502(a)(2) claim, the Court followed holding in Massachusetts Mutual Life Insurance Co. v. Russell (43 U.S. 134 (1985)) that rejects recovery under 502(a)(2) unless the recovery is “to the benefit of the plan as a whole”, not just for a participant or a subset of participants of the plan.  With regard to the 502(a)(3) claim, the court rejected LaRue’s equitable relief argument, deciding that “appropriate equitable relief” as used in 502(a)(3) should be interpreted as restitution at equity, which would require the defendant be wrongfully holding assets.  The court reasoned that LaRue’s claim alleged a failure to generate wealth against DeWolff, not wrongfully withheld assets; therefore, equitable restitution does not apply.  LaRue petitioned for and received a rehearing by the Fourth Circuit on the 502(a)(2) claim, and the Fourth Circuit re-confirmed its original decision that LaRue could not properly pursue a 502(a)(2) claim.  LaRue appealed the decisions to the Supreme Court.

The Future?:  The Supreme Court decision is not expected until late spring/summer of 2008, but employers and plan sponsors should keep watch.  Depending on their decision and the wording used in the opinion, this case could lead to an expansion under ERISA of the individuals who are allowed to bring a cause of action and whether the “equitable” relief available under ERISA allows for monetary damages to be paid to participants.

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