The Pension Protection Act Blog

ERISA is a different statute, in a different title of the United States Code. Plaintiffs seek to use ERISA to recover for events that as a result of PSLRA could not support an action on behalf of shareholders at large.

- Judge Easterbrook

With the ink barely dry on the Supreme Court’s opinion in LaRue v. DeWolff, Boberg & Associates, the 7th Circuit has applied it in deciding Rogers v. Baxter International Inc., No. 06-3241 (CA7 April 2, 2008). In Rogers, the 7th Circuit affirms the district court’s denial of Baxter International’s motion to dismiss, and remands the case to the district court for further action.

Rogers is a participant in the defined contribution plan sponsored by Baxter International. The plan contains participant-directed investment accounts, with Baxter International stock as one of the investment options available to the participants. Rogers brought a lawsuit against Baxter International, alleging that the plan’s trustees, in their capacity as fiduciaries, violated ERISA section 409(a), 29 U.S.C. section 1109(a) because the trustees allowed participants to invest in Baxter International stock despite knowing that the stock was overpriced and therefore was a “bad deal”.

ERISA section 409(a), 29 U.S.C. section 1109(a) states:

“(a) Any person who is a fiduciary with respect to a plan who breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries by this subchapter shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary. A fiduciary may also be removed for a violation of section 1111 of this title.”

The 7th Circuit found that the holding in LaRue was dispositive of Baxter International’s claim that Roger’s lawsuit should be dismissed, stating LaRue’s holding as:

“that section 502(a)(2), and thus section 409(a), may be used by the beneficiary of a defined contribution account that suffers a loss, even though other participants are uninjured by the acts said to constitute a breach of fiduciary duty.”

The 7th Circuit contrasted the Supreme Court’s decision in Massachusetts Mutual Life Insurance Company v. Russell, 473 U.S. 134 (1985), which Baxter International relied upon for their motion to dismiss Roger’s lawsuit. In Russell, the Supreme Court held that participants in a defined benefit plan may use section 502(a)(2) only when the loss is incurred by the plan. Because the losses in the Baxter International defined contribution plan occurred in individual participant accounts containing Baxter International stock, and was not a loss incurred by the plan as an entity, Baxter International asked the district court to dismiss Roger’s lawsuit. In affirming the district court’s denial of Baxter International’s motion to dismiss, the 7th Circuit stated that:

All we hold today is that participants in defined-contribution plans may use section 502(a)(2), and thus section 409(a), to obtain relief if losses to an account are attributable to a pension plan fiduciary’s breach of a duty owed to the plan. Plaintiffs will need to establish that defendants knew the bad news in 2002 and 2004 and that, as a result, they had a duty under ERISA (which incorporates normal rules of trust law) to prevent participants from investing retirement funds in Baxter’s stock.

Technorati Tags: Pension Protection Act, LaRue, Baxter International, 502(a)(2), 409(a), 7th Circuit, PSLRA, defined contribution, ERISA

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