A Simple Matter of Economics
The Texas management consultant whose name has been attached to a landmark U.S. Supreme Court ruling on participants’ legal rights to pursue fiduciary breach claims has no regrets.
Despite the momentous beginning, with his name now permanently attached to an important piece of ERISA case law, James LaRue said he ended court proceedings against former employer DeWolff, Boberg & Associates after considering how expensive such a full-scale legal battle was likely to be.
“It’s a simple matter of economics,” LaRue told PLANADVISER. “It was not going to be a good risk and return, so I withdrew the case. We were successful in changing the law and having the court look at our case and we were thankful for that.”
Case Progress
In an order signed last week by Chief U.S. District Judge David C. Norton of the U.S. District Court for the District of South Carolina, the court said LaRue “decided that it is not financially feasible to continue to pursue his claim.” Still, LaRue said, it was worth the sleepless nights to have the case go up to the nation’s highest court.
The Supreme Court ruling hinged on a procedural issue, whether a participant could bring suit on behalf of his individual account, rather than the “entire plan.”
The latter position had been the law of the land since the 1985 ruling in Massachusetts Mutual Life Ins. Co. v. Russell but, in the LaRue case, the Supreme Court’s majority held that that standard was in need of reconsideration in view of the changing “landscape” of retirement plans from defined benefit to defined contribution, and that, in this new environment, “fiduciary misconduct need not threaten the solvency of the entire plan to reduce benefits below the amount that participants would otherwise receive.”
With the procedural issue decided, the case was returned to a federal trial court to give LaRue an opportunity to prove the merits of his claims.
Little but Still Important
The LaRue finding became the basis of a series of related court cases in the following months.
LaRue originally went to court to regain $150,000 that he charged was lost from his 401(k) account because the plan administrators twice disregarded his order to move funds to different investment options and that those events constituted an Employee Retirement Income Security Act (ERISA) breach.
“I don’t regret it at all. I’m proud of what we did,” LaRue said in a phone interview. “The Supreme Court saw things from my point of view and [participants] were allowed access to the courts [for ERISA breach claims].”
The Supreme Court declaration that participants had a right to pursue individual claims could prove particularly significant in a down market for participants who allege potential fiduciary wrongdoing in connection with their losses, LaRue maintained. “My case was a little one,” he said, “but it was still important.”