In 2004, a district court in New Jersey held that certain plaintiffs could not recover damages for defendants' alleged breaches of fiduciary duty because such recovery was really for individual participants rather than the plan. In re Schering-Plough Corp. ERISA…

In 2004, a district court in New Jersey held that certain plaintiffs could not recover damages for defendants’ alleged breaches of fiduciary duty because such recovery was really for individual participants rather than the plan. In re Schering-Plough Corp. ERISA Litig., 2004 WL 1774760 at 6 (D.N.J. June 28, 2004). The Third Circuit has now reversed and remanded the case in a landmark decision which you can access here. The opinion written by Third Circuit Judge Alarcon states the issue and holding as follows:

We must decide in this matter whether, under the Employee Retirement Income Security Act of 1974 (“ERISA”), the District Court erred in ruling that former employees, who were participants in a defined contribution plan, may not prosecute a derivative action on behalf of an employees’ savings plan to recover losses sustained by the savings plan because of alleged breaches of fiduciary duty. We conclude that the Plaintiffs may seek money damages on behalf of the fund, notwithstanding the fact the alleged fiduciary violations affected only a subset of the saving plan’s participants.

The defendants in the case had sought to rely on the Milofsky case, but the court distinguished Milofsky from the case at hand:

In a letter to this Court filed pursuant to Rule 28(j) of the Federal Rules of Appellate Procedure, the Defendants cited a recent decision of the Fifth Circuit, Milofsky v. American Airlines, Inc., 404 F.3d 338 (5th Cir. 2005) reh’g en banc granted, No. 03-11087, 2005 U.S. App. LEXIS 15122, (5th Cir. July 19, 2005) in support of their argument that a participant lacks standing to bring an action on behalf of an individual account pension plan if he or she does not seek plan-wide relief. . . The facts in Milofsky are clearly distinguishable from those in the matter sub judice. In Milofsky, the plaintiffs alleged that the value of their investments in the BEX plan decreased because of the failure of the defendants to transfer the funds to the American Eagle 401(k) plan. Id. at 351. Thus, this alleged loss occurred prior to the transfer of the BEX plan participants’ investments to the American Eagle 401(k) plan. In Milofsky, the plaintiffs sought damages on behalf of the BEX plan members, and did not seek to restore assets of the American Eagle 401(k) fund. Here, the Plaintiffs seek damages from the fiduciaries for their violation of their duty to a subclass which had transferred its funds to the trustee of the Savings Fund.

The DOL had filed an amicus brief in the case which you can access here. DOL had argued in the case that a breach of fiduciary duty did not need to harm the entire plan to give rise to liability under § 1109 and that holding so would have the effect of insulating fiduciaries who breach their duty so long as the breach did not harm all of a plan’s participants. The DOL went on to note that “[s]uch a result clearly would contravene ERISA’s imposition of a fiduciary duty that has been characterized as ‘the highest known to law.'”

Update: More on the case from Law.com here.

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