The 3rd U.S. Circuit Court of Appeals has determined Jeffrey Perelman has no standing to sue his father, Raymond Perelman, under Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) because claims demanding a monetary equitable remedy require the plaintiff to allege an individualized financial harm traceable to the defendant’s alleged ERISA violations.

Jeffrey Perelman is a participant in the defined benefit (DB) plan of General Refractories Company (GRC). He alleges that his father, as trustee of the plan, breached his fiduciary duties by covertly investing plan assets in the corporate bonds of struggling companies owned and controlled by Jeffrey’s brother, Ronald Perelman. Jeffrey contends that these transactions were not properly reported; depleted plan assets; and increased the risk of default, such that his own defined benefits are in jeopardy.

Jeffrey seeks monetary relief under ERISA § 502(a)(3) in the form of restitution for plan losses and disgorgement of profits. He also demands injunctive relief, including removal of Raymond as trustee for the plan.

In August 2012, a District Court found that Jeffrey lacked constitutional standing to pursue restitution and disgorgement claims because he had failed to demonstrate an actual injury to himself, as opposed to the plan. In September 2012, Raymond executed a corporate resolution terminating himself as trustee and appointing Reliance Trust Company to that position. GRC also retained the services of an independent investment manager for the plan. Earlier in 2012, Raymond voluntarily contributed $270,446.42 to the plan’s trust. None of these actions included an admission of culpability or wrongdoing.

On appeal, the appellate court agreed with the district court that Jeffrey lacked standing to pursue his claims, and also found that although the lawsuit led to concessions from Raymond and the plan, Jeffrey was not entitled to an award of attorneys’ fees.

NEXT: The arguments.

Jeffrey contends he has standing to seek monetary equitable relief such as disgorgement or restitution under ERISA § 502(a)(3) because he did in fact suffer an increased risk of plan default with respect to his benefits, and insofar as he seeks relief on behalf of the plan, no showing of individual harm is necessary. 

He submitted expert testimony that the plan suffered a net diminution in assets of approximately $1.3 million as a result of Raymond’s investment of plan assets in Revlon, Inc. debt and that due to this diminution in assets, the plan’s risk of default increased dramatically. However, Jeffrey conceded that he has received all distributions under the plan to which he was entitled. 

In its opinion, the court noted that in the case of a defined benefit plan, the Supreme Court has established that diminution in plan assets, without more, is insufficient to establish actual injury to any particular participant. This stems from the fact that participants in such a plan are entitled only to a fixed periodic payment, and have no “claim to any particular asset that composes a part of the plan’s general asset pool.” 

The court found that as of January 1, 2013, the date of the plan’s most recent available actuarial report, the plan had assets of approximately $13.6 million, and under the current accounting methods as amended by the Moving Ahead for Progress in the 21st Century Act (MAP-21), the plan’s liabilities at that time were approximately $13.0 million, meaning that the plan’s assets exceeded its liabilities. However, Jeffrey alleged that, under the statutory valuation methods predating MAP-21, the plan’s liabilities on an ongoing plan basis were approximately $16 million—a ratio that left the plan only 85% funded. He argued that the dueling legitimacy of the two accounting approaches is a question of fact that must be resolved at trial. 

However, the court ruled that under a valuation method approved by Congress, the plan was appropriately funded, and Jeffrey’s allegation that the plan is nonetheless at risk of default is entirely speculative. 

As for Jeffrey’s argument that he need not prove an individualized injury insofar as he seeks monetary equitable remedies in a “derivative” or “representative” capacity on behalf of the plan, the court found its own case law provides no support for this theory, and other federal appellate courts have unanimously rejected it. 

Jeffrey suggested that if plan participants and beneficiaries lack standing to bring representative claims for monetary equitable relief, misconduct by plan fiduciaries will go unpunished. The court noted that the Secretary of Labor has standing to seek appropriate relief for fiduciary misconduct under ERISA Section 502(a)(2). 

The opinion in Perelman v. Perelman is here.