January was a slow month for ERISA opinions following the busy holiday season. However, the First and Fourth Circuits issued a couple of opinions we thought were interesting. Notably, in Pressley, the Court ruled that beneficiaries and participants in South Carolina have three years - instead of one, as previously thought - to bring a cause of action for failure to respond to a request for information from an ERISA plan administrator. As always, please call or email us if you have questions about the summaries featured below.
Bunch v. W.R. Grace & Co., 2009 WL 211054 (1st Cir. Jan. 29, 2009): Plan participants brought ERISA action against plan fiduciary, alleging breach of fiduciary duty for imprudent sale of employer's stock. The plan, which offered participants 28 different funds in which to invest, including the Grace Stock Fund which invested in the employer's stock, was administered by the Investment and Benefits Committee ("IBC"). Beginning in the 1970's, Grace, which was a global manufacturer and supplier of catalysts and silica products, was defending against industry-wide asbestos-related personal injury claims. From 1999 to 2001, the market value of Grace stock fell from approximately $19 to $1.50 per share, and in 2001, Grace filed for reorganization under Chapter 11.
Due to concerns regarding potential conflicts of interest arising out of the reorganization, in 2003, IBC amended its plan, notified the participants and appointed an independent fiduciary, State Street, to manage the Grace Fund. State Street sought expert advice and legal counsel regarding Grace's financial prospects, and after considering numerous factors (only one of which was the market value of Grace stock), it recommended that the stock be sold. Before selling the stock, State Street notified Grace and the plan participants of its decision. Plaintiffs appear to allege fiduciary misconduct by Grace for failing to insert itself into State Street's decision making process and breach of fiduciary duty by State Street for not acting consistent with the "efficient market theory" in basing its valuation of the stock on factors other than the market price.
The district court agreed that "the market was the best indicator of the stock's present value," however, the applicable standard by which to measure State Street's conduct was "ERISA's prudent person standard," not the efficient market standard. The First Circuit agreed, explaining, "under ERISA, a fiduciary is required to act with 'the care, skill, prudence and diligence...that a prudent man acting in a like capacity and familiar with such matters would use.'" The Court expressly rejected the plan participants' argument that because a presumption of prudence is afforded fiduciaries when they decide to retain an employer's stock in falling markets, the sale of stock in that situation gives rise to a presumption of imprudence. Under the circumstances, the Court held that both Grace and State Street unquestionably met the prudent man standard and, thus, did not breach their fiduciary duties to the plan participants.
* It is no surprise that cases like this one are on the rise given the current market trends and fluctuations in the value of investment funds and profit sharing plans. It is also not surprising that courts are considering and weighing numerous factors and rejecting stringent standards in determining whether fiduciaries in the precarious position of managing these volatile funds have breached their duties to plan participants and beneficiaries.
Pressley v. Tupperware Long Term Disability Plan, The Prudential Ins. Co. of Am., 2009 WL 131132 (4th Cir. Jan. 21, 2009): Pressley,
a former employee of Tupperware, was a participant in Tupperware's long
term disability plan ("the Plan"). Prudential fully insured the Plan.
Pressley left work due to medical conditions and sought long term
disability benefits as well as certain information, including a copy of
the policy. Pressley was denied benefits and was not provided with the
information she requested. Thereafter, she filed an action against the
Plan, Tupperware and Prudential. The claim subject to this appeal was
pursuant to 29 U.S.C. Section 1132(c) for failure on the part of
Tupperware and Prudential to respond to a request for information.
Tupperware and Prudential filed a motion to dismiss on the grounds that
the claim was being time-barred. The South Carolina District Court
dismissed the Section 1132(c) claim finding that the state statute of
limitations period most closely corresponding to the claim was the
one-year period contained in S.C. Code Ann. 15-3-570 which applied to
statutory penalties given to "any person who will prosecute for it."
Pressley appealed, asserting that the applicable statute of
limitations was the three-year period contained in S.C. Code. Ann.
15-3-540 which applies to statutory penalties given to "the party
aggravated." The Fourth Circuit reversed and remanded finding that (1)
the authority the district court used to support its decision was
unpersuasive and (2) S.C. Code Ann. 15-3-540 was applicable because a
Section 1132(c) claim can be brought by a "participant or beneficiary"
which is the party aggravated. Further, the Court stated that based on
statutory construction, there was no reason to apply the more general
section of 15-3-570, "any person who will prosecute for it," when the
more specific section of 15-3-540, "the party aggravated," was
applicable to a claim by a participant or beneficiary under Section
*Pressley is significant in that it establishes that in
South Carolina, there is a three-year statute of limitations period for
participants to bring claims under Section 1132(c).
Abuse of Discretion
White v. Eaton Corp. Short Term Disability Plan, 2009 WL 136916 (4th Cir. Jan. 21, 2009) (unpublished opinion):
White, former employee of Eaton Corporation, received short term
disability for a period of time. However, his benefits were terminated
after the Plan determined he could return to work as a machinist.
White exhausted his administrative remedies and then filed this action
in the South Carolina District Court. The district court granted
summary judgment in favor of White finding that the Plan abused its
discretion. On appeal, the Fourth Circuit affirmed the district
court's grant of summary judgment in favor of White for the following
reasons: (1) the Plan relied upon an FCE that observed that he was not
able to perform his job's walking requirements but nevertheless
concluded that he could return to work as a machinist; (2) the Plan's
independent physicians relied on the FCE but did not note or account
for this discrepancy; (3) there were three different descriptions of
White's job requirements in the record and the Plan adopted the one
more favorable to it without explanation; and (4) the Plan failed to
address the medical evidence in White's favor -- that he underwent back
surgery, his MRI showed degeneration and his physician's affidavits
provided medical diagnoses and medications sufficient to constitute
objective findings under the terms of the plan.
*While White is an unpublished opinion, it is significant
in finding an abuse of discretion where the Plan relies on evidence
with internal inconsistencies and/or does not credit evidence favorable
to the participant without providing an explanation for either the
inconsistencies or why the evidence was discredited. We saw similar
concerns voiced by the Tenth Circuit in Brown v. Hartford Life Ins. Co.,
2008 WL 5102279 (reported in the last e-newsletter) where the Plan did
not explain how its decision was distinguished from the Social Security
Administration's decision. Claim reviewers need to be able to explain or distinguish the evidence in the record in reaching their decisions.