Date: 02-21-2008

Case Style: LaRue v. DeWolff, Boberg & Associates, Inc., et al.

Case Number: 06–856

Judge: Stevens

Court: United States Supreme Court on appeal from the Second Circuit, Henrico County

Plaintiff's Attorney: Unknown

Defendant's Attorney: Unknown

Description: In Massachusetts Mut. Life Ins. Co. v. Russell, 473 U. S. 134 (1985), we held that a participant in a disability plan that paid a fixed level of benefits could not bring suit under §502(a)(2) of the Employee Retirement IncomeSecurity Act of 1974 (ERISA), 88 Stat. 891, 29 U. S. C.§1132(a)(2), to recover consequential damages arising from delay in the processing of her claim. In this case we con-sider whether that statutory provision authorizes a par-ticipant in a defined contribution pension plan to sue a fiduciary whose alleged misconduct impaired the value of plan assets in the participant's individual account.1 Rely-ing on our decision in Russell, the Court of Appeals for the Fourth Circuit held that §502(a)(2) "provides remedies only for entire plans, not for individuals. . . . Recovery under this subsection must ‘inure[ ] to the benefit of theplan as a whole,' not to particular persons with rights under the plan." 450 F. 3d 570, 572–573 (2006) (quoting Russell, 473 U. S., at 140). While language in our Russell opinion is consistent with that conclusion, the rationale for Russell's holding supports the opposite result in this case.

I

Petitioner filed this action in 2004 against his former employer, DeWolff, Boberg & Associates (DeWolff), and the ERISA-regulated 401(k) retirement savings planadministered by DeWolff (Plan). The Plan permits par-ticipants to direct the investment of their contributions in accordance with specified procedures and requirements.Petitioner alleged that in 2001 and 2002 he directed De-Wolff to make certain changes to the investments in his individual account, but DeWolff never carried out these directions. Petitioner claimed that this omission "de-pleted" his interest in the Plan by approximately$150,000, and amounted to a breach of fiduciary duty under ERISA. The complaint sought "‘make-whole' or other equitable relief as allowed by [§502(a)(3)]," as well as "such other and further relief as the court deems just and proper." Civil Action No. 2:04–1747–18 (D. S. C.), p. 4, 2Record, Doc. 1. Respondents filed a motion for judgment on the plead-ings, arguing that the complaint was essentially a claim for monetary relief that is not recoverable under §502(a)(3). Petitioner countered that he "d[id] not wish for the court to award him any money, but . . . simply want[ed] the plan to properly reflect that which would behis interest in the plan, but for the breach of fiduciaryduty." Reply to Defendants Motion to Dismiss, p. 7, 3 id., Doc. 17. The District Court concluded, however, that since respondents did not possess any disputed funds thatrightly belonged to petitioner, he was seeking damages rather than equitable relief available under §502(a)(3). Assuming, arguendo, that respondents had beached a fiduciary duty, the District Court nonetheless grantedtheir motion.

On appeal petitioner argued that he had a cognizable claim for relief under §§502(a)(2) and 502(a)(3) of ERISA.The Court of Appeals stated that petitioner had raised his§502(a)(2) argument for the first time on appeal, but nev-ertheless rejected it on the merits.

Section 502(a)(2) provides for suits to enforce the liabil-ity-creating provisions of §409, concerning breaches offiduciary duties that harm plans.2 The Court of Appeals cited language from our opinion in Russell suggesting thatthat these provisions "protect the entire plan, rather thanthe rights of an individual beneficiary." 473 U. S., at 142. It then characterized the remedy sought by petitioner as "personal" because he "desires recovery to be paid into his plan account, an instrument that exists specifically for hisbenefit," and concluded:

"We are therefore skeptical that plaintiff's individ-ual remedial interest can serve as a legitimate proxyfor the plan in its entirety, as [§502(a)(2)] requires. To be sure, the recovery plaintiff seeks could be seen as accruing to the plan in the narrow sense that itwould be paid into plaintiff's plan account, which is part of the plan. But such a view finds no license in the statutory text, and threatens to undermine the careful limitations Congress has placed on the scope of ERISA relief." 450 F. 3d, at 574.

The Court of Appeals also rejected petitioner's argumentthat the make-whole relief he sought was "equitable" within the meaning of §502(a)(3). Although our grant of certiorari, 551 U. S. ___ (2007), encompassed the §502(a)(3) issue, we do not address it because we concludethat the Court of Appeals misread §502(a)(2).

II

As the case comes to us we must assume that respon-dents breached fiduciary obligations defined in §409(a), and that those breaches had an adverse impact on thevalue of the plan assets in petitioner's individual account.Whether petitioner can prove those allegations andwhether respondents may have valid defenses to the claim are matters not before us.3 Although the record does not reveal the relative size of petitioner's account, the legal issue under §502(a)(2) is the same whether his accountincludes 1% or 99% of the total assets in the plan.As we explained in Russell, and in more detail in our later opinion in Varity Corp. v. Howe, 516 U. S. 489, 508– 512 (1996), §502(a) of ERISA identifies six types of civilactions that may be brought by various parties. The second, which is at issue in this case, authorizes the Secre-tary of Labor as well as plan participants, beneficiaries, and fiduciaries, to bring actions on behalf of a plan to recover for violations of the obligations defined in §409(a). The principal statutory duties imposed on fiduciaries by that section "relate to the proper management, admini-stration, and investment of fund assets," with an eyetoward ensuring that "the benefits authorized by the plan" are ultimately paid to participants and beneficiaries. Russell, 473 U. S., at 142; see also Varity, 516 U. S., at 511–512 (noting that §409's fiduciary obligations "relat[e] to the plan's financial integrity" and "reflec[t] a specialcongressional concern about plan asset management").The misconduct alleged by the petitioner in this case fallssquarely within that category.4

The misconduct alleged in Russell, by contrast, fell outside this category. The plaintiff in Russell received all of the benefits to which she was contractually entitled, butsought consequential damages arising from a delay in theprocessing of her claim. 473 U. S., at 136–137. In holdingthat §502(a)(2) does not provide a remedy for this type of injury, we stressed that the text of §409(a) characterizes the relevant fiduciary relationship as one "with respect toa plan," and repeatedly identifies the "plan" as the victimof any fiduciary breach and the recipient of any relief. See id., at 140. The legislative history likewise revealed that "the crucible of congressional concern was misuse and mismanagement of plan assets by plan administrators." Id., at 141, n. 8. Finally, our review of ERISA as a whole confirmed that §§502(a)(2) and 409 protect "the financial integrity of the plan," id., at 142, n. 9, whereas other provisions specifically address claims for benefits. See id., at 143–144 (discussing §§502(a)(1)(B) and 503). We there-fore concluded:

"A fair contextual reading of the statute makes itabundantly clear that its draftsmen were primarilyconcerned with the possible misuse of plan assets, andwith remedies that would protect the entire plan,rather than with the rights of an individual benefici-ary." Id., at 142.

Russell's emphasis on protecting the "entire plan" fromfiduciary misconduct reflects the former landscape ofemployee benefit plans. That landscape has changed. Defined contribution plans dominate the retirementplan scene today.5 In contrast, when ERISA was enacted, and when Russell was decided, "the [defined benefit] planwas the norm of American pension practice." J. Langbein, S. Stabile, & B. Wolk, Pension and Employee Benefit Law 58 (4th ed. 2006); see also Zelinsky, The Defined Contribu-tion Paradigm, 114 Yale L. J. 451, 471 (2004) (discussing the "significant reversal of historic patterns under whichthe traditional defined benefit plan was the dominant paradigm for the provision of retirement income"). Unlike the defined contribution plan in this case, the disabilityplan at issue in Russell did not have individual accounts; it paid a fixed benefit based on a percentage of the em-ployee's salary. See Russell v. Massachusetts Mut. Life Ins. Co., 722 F. 2d 482, 486 (CA9 1983).

The "entire plan" language in Russell speaks to theimpact of §409 on plans that pay defined benefits. Mis-conduct by the administrators of a defined benefit planwill not affect an individual's entitlement to a defined benefit unless it creates or enhances the risk of default bythe entire plan. It was that default risk that prompted Congress to require defined benefit plans (but not defined contribution plans) to satisfy complex minimum fundingrequirements, and to make premium payments to thePension Benefit Guaranty Corporation for plan termina-tion insurance. See Zelinsky, 114 Yale L. J., at 475–478.

For defined contribution plans, however, fiduciary mis-conduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participantswould otherwise receive. Whether a fiduciary breachdiminishes plan assets payable to all participants and beneficiaries, or only to persons tied to particular individ-ual accounts, it creates the kind of harms that concerned the draftsmen of §409. Consequently, our references to the "entire plan" in Russell, which accurately reflect theoperation of §409 in the defined benefit context, are beside the point in the defined contribution context.

Other sections of ERISA confirm that the "entire plan"language from Russell, which appears nowhere in §409 or §502(a)(2), does not apply to defined contribution plans.Most significant is §404(c), which exempts fiduciaries from liability for losses caused by participants' exercise of con-trol over assets in their individual accounts. See also 29 CFR §2550.404c–1 (2007). This provision would serve noreal purpose if, as respondents argue, fiduciaries never had any liability for losses in an individual account.

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http://www.supremecourtus.gov/opinions/07pdf/06-856.pdf

Outcome: We therefore hold 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 plan assetsin a participant’s individual account. Accordingly, the judgment of the Court of Appeals is vacated, and thecase is remanded for further proceedings consistent withthis opinion.6 It is so ordered.

Plaintiff's Experts: Unknown

Defendant's Experts: Unknown

Comments: None