General Fiduciary Breach Litigation

By: Ian Morrison and Abigail Cahak

The first (or second) question to ask in any ERISA breach of fiduciary duty case is whether the acts in question are even fiduciary acts.

On appeal in an ERISA “stock drop” case, the Second Circuit focused on that basic question, resulting in a clean win for the defendants.

Participants in the Morgan Stanley 401(k) and Employee Stock Ownership Plans (“Plans”) sued after the great recession caused the value of 2007 and 2008 contributions to the Plans in Morgan Stanley stock to crater, allegedly dropping in value from $2.2 billion to $675 million.  The participants sued alleging that the drop was the result of an imprudent investment because Morgan Stanley’s exposure to subprime and mortgage-backed securities had caused the value of the stock to drop.

On March 28, 2013, the U.S. District Court for the Southern District of New York dismissed the cases because, although the named defendants were de facto fiduciaries under ERISA, the plaintiffs had not alleged enough to overcome the so-called Moench presumption that employer stock investments in plans that require such investments are presumed prudent unless plaintiffs can show the plan sponsor’s impending collapse or other “dire” circumstances.

On appeal, the Second Circuit took a back to basics approach to the case.  In a May 29, 2014 opinion, the court ruled that the defendants were not fiduciaries at all, at least not for purposes of anything at issue in the case.  (Coulter v. Morgan Stanley & Co. Inc., No. 13-2504 (2d Cir. May 29, 2014).)  The Court held that establishing and funding the Plans were “settlor functions” not subject to challenge under ERISA’s fiduciary duty rules.  The Court said that the fact that the Plans were already in existence was irrelevant because at the time the decisions were made, the company stock was not an asset of the Plans. The Court cautioned that fiduciary status does not exist “simply because an employer’s business decision proves detrimental to a covered plan or its beneficiaries.”

With aspects of the Moench presumption subject to review by the Supreme Court, with a decision expected in Fifth Third Bancorp v. Dudenhoeffer later this month, the Court’s move may have been calculated to avoid any need for reconsideration in light of the high court’s ruling.  But the Third Circuit’s decision did rely on a view employee benefits practitioners have long held:  the act of plan funding (the amount as well as the nature of payment) is not a fiduciary act.  That’s not to say that funding a plan with employer stock is free of risk after the Second Circuit ruling, but Coulter certainly gives the defense another tool to fight back against stock drop claims.

By: Ada Dolph and James Goodfellow

The U.S. Department of Labor (“DOL”) continues to roll out regulations focused on plan fee disclosures.  Last week, the DOL published a proposed amendment to the 2012 final rule proposing to make mandatory a guide for covered service providers to include with their ERISA Section 408(b)(2) disclosures to plan fiduciaries.  In its Fact Sheet accompanying the proposed amendment, the DOL stated that since publication of the 2012 final rule which attached a guide as a “sample,” it has been reviewing service providers’ disclosures and plan fiduciaries’ experiences in receiving the disclosures as well as comments, and concludes that a required guide is warranted.  The DOL asserts that the proposed guide will assist plan fiduciaries in obtaining the information required to assist in evaluating the reasonableness of the compensation to be paid for plan services and potential conflicts of interest that may affect the performance of those services.  It characterizes its current renewed effort to require a guide as “provid[ing] clarity and specificity, while avoiding the uncertainty and burdens that . . . may accompany construction of a ‘summary’ of existing documents.” 

The proposed guide, akin to a table of contents, must specifically identify the document, page, section, or other specific locator, to enable the plan fiduciary to quickly and easily find the following information:

  • The description of the services to be provided;
  • The statement concerning services to be provided as a fiduciary and/or as a registered investment advisor;
  • The description of: all direct and indirect compensation, any compensation that will be paid among related parties, compensation for termination of the contract or arrangement, as well as compensation for record keeping services; and
  • The required investment disclosures for fiduciary services and recordkeeping and brokerage services, including annual operating expenses and ongoing expenses, or if applicable, total operating expenses. 

Other provisions of the proposed rule concern format, and the frequency with which updates to this information would be required to be provided (e.g., annually or as changes occur).  Written comments to the proposed rule must be received by the DOL before June 10, 2014.

By Kathleen Cahill Slaught and Justin T. Curley[1]

In Sereboff v. Mid Atlantic Medical Services, Inc., 547 U.S. 356 (2006), the U.S. Supreme Court held that an ERISA plan could recover settlement proceeds from a beneficiary under the terms of the plan rather than under an equitable lien theory requiring “strict tracing” of the settlement funds into the beneficiary’s possession.  Previously, other courts, including the Ninth Circuit, read the Supreme Court’s earlier holding in Great-West v. Knudson, 534 U.S. 204 (2002), to bar ERISA plans from recovering money previously paid out to plan participants who subsequently recovered from the third parties who had caused their injuries.  The Supreme Court in Sereboff however held that the ERISA plan at issue could request reimbursement of the benefits paid as a result of the accident pursuant to a reimbursement provision in the plan.

The Sereboff decision contrasts with Knudson which concluded that, because the lawsuit recovery was paid to various entities other than the beneficiary (including a special needs trust), the kind of relief that Great-West sought from the beneficiary was not traceable and therefore unavailable.  This “strict tracing” rule from Knudson effectively shut out ERISA plans from recovering from beneficiaries where the settlement monies were dispersed.

While Sereboff did not explicitly overrule Knudson, the Sereboff decision effectively overruled most of Knudson, in that post-Sereboff a plan administrator or ERISA fiduciary can recover money from a beneficiary to enforce the terms of the plan even without being able to strictly trace identifiable funds into the beneficiary’s possession.

A cascade of circuit courts—the First, Second, Third, Sixth, Seventh and Eighth Circuits—have interpreted Sereboff to hold that a fiduciary can assert an equitable lien even if the funds at issue cannot be strictly traced.  But the Ninth Circuit stands apart; in Bilyeu v. Morgan Stanley Long Term Disability Plan, 683 F. 3d 1083 (2012), the Ninth Circuit held that a fiduciary must be able to strictly trace the funds into the beneficiary’s possession.  Last year the U.S. Supreme Court declined to review Bilyeu and resolve the circuit split regarding strict tracing.  In addition, the Second Circuit has recently disagreed with the Ninth Circuit’s holding in BilyeuSee Thurber v. Aetna Life Ins. Co., 712 F.3d 654, 664 (2d Cir. 2013).

Thus, for most of the country, if an ERISA plan’s terms allow for reimbursement from a beneficiary, the likely outcome in most cases will be that the recovery will be permitted, even if the funds cannot be strictly traced.  However, ERISA plan sponsors and insurers in the Ninth Circuit must be prepared to face a higher hurdle when attempting to recover funds from a beneficiary.  Attorneys should carefully review the terms of the relevant ERISA plan documents to ensure that the plan actually allows the recovery sought by the ERISA plan sponsor and insurer.


[1] Hardly Strictly Bluegrass is an annual free music festival held in San Francisco’s Golden Gate Park.

By: Ronald J. Kramer

When it comes to monetary damages, usually a plaintiff must show some type of harm to recover.  That apparently is not the case, however, when seeking plan reformation as a remedy for an alleged failure to disclose certain information.

In Osberg v. Foot Locker, Case No. 13-187-cv (2d Cir. Feb. 13, 2014) (summary order), plaintiff filed suit on behalf of himself and a class of participants over a defined benefit plan that had been converted to a cash balance plan.  Plaintiff alleged defendants had violated ERISA by: (i) issuing false and misleading SPDs in violation of ERISA Section 102(a) disclosure requirements; (ii) breaching fiduciary duties in violation of ERISA Section 404(a) by making such materially false statements; and (iii) failing to provide proper notice as required by ERISA Section 204(h) that the cash balance plan would reduce benefit accruals.  Plaintiff sought monetary damages under an equitable surcharge theory, and sought the equitable reformation of the plan document.  The district court granted summary judgment in favor of defendants, and the plaintiff appealed.

The Second Circuit Court of Appeals upheld the summary judgment as to the Section 204(h) claim, because the remedy plaintiff sought, the invalidation of portions of the plan amendment, was not achievable.  The only available remedy for such a purported violation was the complete invalidation of the plan amendment.

Regarding the disclosure claims, the district court had held plaintiff’s Section 102(a) claim time-barred, and had found he had failed to raise a genuine issue of material fact entitling him to surcharge and contract reformation on either his Section 102(a) or Section 404(a) claims.  The Second Circuit sidestepped the limitations issue given the Section 404(a) claim admittedly was timely, and instead addressed whether the district court properly found plaintiff had failed to raise a genuine issue of material fact with respect to his demand for “appropriate equitable relief” — specifically, surcharge or reformation — under ERISA Section 502(a)(3).  There, the district court had found plaintiff had failed to raise a genuine issue of material fact as to whether he suffered the type of “actual harm” necessary to obtain the equitable relief of reformation and surcharge.  On that issue the Second Circuit found that the district court erroneously applied an “actual harm” requirement.  Citing to CIGNA Corp. v. Amara, 131 S. Ct. 1866, 1881 (2011), wherein the Supreme Court determined that any requirement of harm must come from the law of equity, the Second Circuit found that equity does not demand  a showing of “actual harm” to obtain contract reformation.

Defendants argued that the district court’s decision should nevertheless be affirmed because plaintiff, as a former employee, lacked standing to pursue reformation.  Defendants basically read Amara to limit monetary relief to surcharge claims, and claimed that absent a viable surcharge claim the only beneficiaries with standing to pursue reformation  would be persons who could prospectively benefit from a modification of plan terms — something that would not include former employees.  The Court rejected that as well, finding such an interpretation supported neither by Amara nor equity.

The Court left it for the district court to decide in the first instance whether plaintiff could otherwise satisfy the basic requirements for plan reformation.  Moreover, while the Court upheld the dismissal of the surcharge claim as moot given its finding that plaintiff could obtain a full recovery via his reformation claim, the court did not foreclose the plaintiff from seeking to reinstate his surcharge claims if his reformation claim later failed.

The Second Circuit has made it clear that ERISA plaintiffs bringing equitable claims and seeking as a remedy plan reformation need not show actual harm — and yet nevertheless may still be entitled to some form of monetary relief.  How this will work in practice remains to be seen.

By: Mark Casciari and Annette Kim

In Killian v. Concert Health Plan, No. 11-1112 (7th Cir. Nov. 7, 2013), the Seventh Circuit en banc reversed the judgment of the district court, holding plaintiff-appellant, James Killian, may pursue a claim for breach of fiduciary duty against his deceased wife’s health care plan.  Mr. Killian brought the claim on behalf of himself and his wife’s estate to challenge an administrative failure to advise that his wife’s treatment was out of the Plan’s network.

On the back and front of Mrs. Killian’s health insurance card were several toll-free numbers for participants to call to confirm whether a provider or procedure was covered under the Plan.  When Mr. Killian called those numbers, he was told by a customer service representative that there was no information on the hospital where Mrs. Killian was preparing to undergo surgery, but to “go ahead with whatever had to be done.”  The representative never told Mr. Killian whether the services were in-network or out-of-network or whether there would be any limits to coverage.  Mr. Killian took this as authorization for the procedure, and his wife underwent the surgery.  She unfortunately died shortly thereafter, leaving behind an $80,000 bill for procedures obtained through an out-of-network provider.

Mr. Killian brought suit against the Plan alleging breach of fiduciary duty (for failing to provide an accurate summary plan description, and for failing to inform him, or ensure that the call center to give the correct information, that the provider was out-of-network), seeking benefits under the Plan terms and statutory damages.

The Seventh Circuit relied on Kenseth v. Dean Health Plan, Inc., 610 F.3d 452 (7th Cir. 2010), stating that, once a beneficiary has requested information and the fiduciary is aware of the beneficiary’s situation, the ERISA fiduciary has an “obligation to convey complete and accurate information material to the beneficiary’s circumstance, even if that requires conveying information about which the beneficiary did not specifically inquire.”  (Emphasis in original.)

Controlling were the facts that Mr. Killian: (1) was concerned about whether the providers were in-network; (2) had called the numbers on Mrs. Killian’s insurance card that said should be used to determine coverage; (3) had conveyed to the Plan representative that he was seeking this information; (4) was told by the representative to “go ahead with whatever had to be done”; and (5) interpreted the representative’s instruction to “go ahead” as authorization to do so.

So now what in the continuing saga of ERISA remedies for oral statements by plan administrators?  The Seventh Circuit has spoken that ERISA fiduciaries must take affirmative steps to disclose negative coverage information, even if such information is not specifically requested or inquired by the beneficiary — otherwise, the fiduciaries may be liable for consequential damages.

By: Mark Casciari and Chris Busey

Anyone who can spell ERISA knows the difference between defined benefit (DB) and defined contribution retirement plans. This distinction was again at the forefront of a recent U.S. district court decision.  

In Palmason v. Weyerhauser Co., No. 11-0695 (W.D. Wash. Aug. 23, 2013), plaintiffs were participants in the defendant-employer’s defined benefit pension plan. They alleged that the plan adopted an alternative investment strategy that resulted in a loss of $2.4 billion in plan assets in 2008. Plaintiffs sought both legal relief, in the form of money, and equitable relief, in the form of injunctions.

Judge Robert S. Lasnik held that the plaintiffs did not have standing to pursue their claims for money damages.

Plaintiffs were required to show a concrete and particularized injury that was not merely speculative in order to have a right to the money damages they demanded. This means that they must have shown that the alleged breaches “created an appreciable risk that the defined benefits would not be paid.” The court concluded that plaintiffs failed to meet their burden.  The court said, after considering expert testimony, that the plan was underfunded by at most 1.5%, and that the alleged fiduciary breach “posed no threat to [plaintiffs’] present or future benefit payments.”  

Plaintiffs’ demands for equitable relief were another story. The court held that the plaintiffs had standing to bring equitable claims against the plan fiduciaries because trust law allows an equitable remedy even where the beneficiary has suffered no personal loss or injury. A “bare allegation of breach of fiduciary duty” alone does not confer standing for equitable claims, but plaintiffs did more than make a “bare” allegation  — they alleged that defendants failed to diversify the plan’s investments as required by ERISA.   The plaintiffs sought only injunctive relief to remedy their equitable claims, and did not allege, for example, that the fiduciaries used plan assets to profit personally.  The case thus did not address the scope of monetary equitable relief.

This case is important because it limits standing to seek money damages in the DB context to those cases where the plan is severely underfunded, in the absence of allegations that plan fiduciaries unlawfully removed or profited from plan investments for personal gain.

By:  Mark Casciari and Violet Borowski

If a participant never received notice of a plan’s termination and suffered injury as a result, is the ERISA statue of repose nonetheless a time-bar to the litigation?

On August 29, 2013, in a decision on which Seyfarth Shaw served as appellate counsel for one of the defendants, the Court of Appeals for the Seventh Circuit answered YES.   

In Laskin v. Siegel, Nos. 12-3041 & 12-3153, 2013 WL 4577123 (Aug. 29, 2013 7th Cir.), the plaintiffs alleged a fiduciary breach when their ERISA pension plan was terminated without the distribution of their accrued benefits.  Plaintiffs alleged that they never received notice of the termination.  They sued 17.5 years after the termination.

The district court granted summary judgment in favor of the defendants, holding the claims time barred by ERISA’s six-year statute of repose in 29 U.S.C. § 1113.

The Seventh Circuit affirmed.  The Court found the last act or omission in this case occurred in 1991 when the plan was terminated, and that plaintiffs did not sue six years thereafter. 

Plaintiffs said that they learned that they would not be receiving a payout under the plan until September 2008, and that the three-year limitation period in the statute should apply.  But 29 U.S.C. § 1113 requires that the earlier of the two dates be used, so, the Court said, the limitations period still expired in 1997. 

Plaintiffs argued as well that the Court should grant an exception due to the defendants’ fraudulent concealment.  The ERISA limitations statute allows the commencement of an action six years after the plaintiff actually learned of the breach in the instance of fraud or concealment.  The Court rejected this argument because plaintiffs offered no evidence that fraud or concealment actually occurred. 

There was evidence that the defendants failed to send Summary Plan Descriptions to the plaintiffs (and, as noted, did not inform them of the plan’s dissolution).  But the Court said that concealment requires evidence that a defendant took affirmative steps to hide the violation itself.  The Court said that plaintiffs did not produce any evidence that the ERISA violations involved some “trick or contrivance intended to exclude suspicion and prevent injury.”

So, if an employer commits a fiduciary breach and engages in no cover-up, but the plaintiff waits more than six years to sue, is the breach nonetheless a non-event under the law?  The answer is YES.  ERISA is a carefully calibrated statute and is intended to offer plan sponsors incentives to establish plans voluntarily, and one incentive is a very favorable statute of repose for fiduciary breaches.

By: Ron Kramer and Chris Busey

Fiduciaries who breach their duties may pay the consequences far longer than they may think, for they may not even be able to escape liability through personal bankruptcy.  In Raso v. Fahey (In re Fahey), No. 11-1118 (June 11, 2013), the U.S Bankruptcy Court for the District of Massachusetts became the first court to apply the new defalcation guidelines laid down by the Supreme Court in Bullock v. BankChampaign, NA, 133 S. Ct. 1754 (2013), to an ERISA fiduciary, finding that a debtor who breached his fiduciary duties with regard to contributions to his company’s multiemployer funds could not discharge his fiduciary liability in bankruptcy because he had engaged in “defalcation.”

James Fahey served as president, treasurer and sole shareholder of  Zani Tile Co.  Zani, through its union contract, contributed on behalf of employees to various multiemployer funds.  When business faltered, Zani stopped contributing even though it continued making other payments, including payments on a loan personally secured by Fahey and payments to Fahey himself.  The funds obtained a judgment for the unpaid contributions against both Zani and Fahey.

Fahey filed for Chapter 7 bankruptcy in January 2011.  In April 2011, the funds filed a complaint seeking to establish the non-dischargeability of all unpaid funds owed to the plans pursuant to the Bankruptcy Code § 523(a)(4), the defalcation exception.  Under this exception a plaintiff must establish:  (1) an express or technical trust existed; (2) the debtor acted as a fiduciary; and (3) the debt arises from a defalcation.  Initially, the court found that a technical trust existed, but rejected the idea that Fahey could become a fiduciary to a fund for Zani having missed contribution payments. 

The funds appealed and the U.S. Bankruptcy Appellate Panel for the First Circuit reversed in November 2012.  Under the funds’ definition of assets, contributions were “assets” as soon as they were due and owing.  By exercising discretion over those “assets,” Fahey acted as an ERISA fiduciary and breached his fiduciary duties when he chose to have Zani pay obligations owed himself over the funds.  The Panel also held, despite acknowledging a court split, that ERISA fiduciaries were, by definition, §523(a)(4) fiduciaries.  Moreover, even if an ERISA fiduciary did not per se satisfy § 523(a)(4), the Panel nevertheless held Fahey’s functional control and authority over the plan met the fiduciary requirement.  The First Circuit remanded the case back to the bankruptcy court to determine if the final element, defalcation, was satisfied.

After noting that the precise definition of defalcation “has long confounded courts,” the court discussed the new standard stated in Bullock.  There, the Supreme Court found that the term “defalcation” should be treated similarly to “fraud.”  The Supreme Court declared that “where the conduct at issue does not involve bad faith, moral turpitude, or other immoral conduct, the term requires an intentional wrong.”  The Supreme Court included as “intentional” not only conduct that the fiduciary knew was improper, however, but gross recklessness similar to that under the Model Penal Code.  Culpability can be found where a fiduciary “consciously disregards (or is willfully blind to) a substantial and unjustifiable risk” that his conduct will violate a fiduciary duty.  The Supreme Court further acknowledged that the First Circuit already interpreted defalcation similarly, referencing a case that the bankruptcy court expressly noted had held that defalcation may be presumed from a breach of the duty of loyalty.

With this in mind the court found that Fahey’s conduct constituted defalcation.  Fahey knew of the remaining unpaid obligations to the funds, but instead “prioritized the payment of corporate expenses that were beneficial to him.”  Fahey’s liability for his fiduciary breach could not be discharged in bankruptcy.

Bullock has been heralded for providing increased protection to fiduciaries, given that only liability for fiduciary breaches involving actual knowledge of wrongdoing or gross recklessness will not be subject to discharge in bankruptcy.  In re Fahey, however, is a stark warning to ERISA fiduciaries that Bullock is not a silver bullet.  Many fiduciary breaches, such as a breach of the duty of loyalty, still will be considered defalcation such that the fiduciaries will not be able to escape that liability through a bankruptcy filing.  How broadly Bullock will be applied in other ERISA fiduciary breach situations remains to be seen.

In re Fahey also serves as a reminder to anyone, whether the owner of a company or a corporate officer who may exercise discretionary control over whether to pay multiemployer fund contributions, that they may be found to be acting as fiduciaries and thus be personally liable for missed contribution payments.

By: Amanda Sonneborn, Meg Troy and Sam Schwartz-Fenwick

On June 13, 2013, the Seventh Circuit held that the Supreme Court’s decision CIGNA Corp. v. Amara authorized an ERISA plaintiff seeking equitable relief under ERISA § 502(a)(3) to receive money damages in a fiduciary breach action.  In Kenseth v. Dean Health Plan, Inc., Case No. 11-1560, the Seventh Circuit concluded that if Kenseth could demonstrate a breach of fiduciary duty and demonstrate that the breach caused her damages, she could seek an appropriate equitable remedy that included money damages.  The Court remanded the case for further proceedings.

Kenseth alleged that her HMO breached its fiduciary duties by denying payment for a gastric banding procedure. She alleged that the plan’s customer call center told her the procedure would be covered when, in fact, the procedure was not covered. Kenseth only discovered that the procedure was not covered after she had already undergone the procedure. 

The lower court ultimately granted summary judgment in favor of the plan, concluding that Kenseth’s “request for defendant to ‘hold her harmless for the cost of her surgery and treatment’ [was] a thinly disguised request for compensatory damages that may not be awarded.”  Thus, the lower court found that Kenseth could not be awarded the relief she requested even if she proved that there was a breach of fiduciary duty.

The Seventh Circuit disagreed.  By largely adopting the position of the Department of Labor, as it advocated in amicus briefing, the Court explained that Amara clarified that “equitable relief may come in the form of money damages when the defendant is a trustee in breach of a fiduciary duty.”  Under Amara, “[m]onetary compensation is not automatically considered ‘legal’ rather than ‘equitable.’” Rather, “[t]he identity of the defendant as a fiduciary, the breach of a fiduciary duty, and the nature of the harm are important in characterizing the relief.”  Accordingly, the Court concluded that Kenseth could seek make-whole money damages as an equitable remedy under § 502(a)(3) if she demonstrated that she suffered a breach of fiduciary duty and that the breach caused her damages.  The Seventh Circuit also held that to succeed on an equitable claim, a plaintiff need not show detrimental reliance, unless the type of equitable relief sought—such as surcharge, reformation, or estoppel—required a showing.  The Seventh Circuit then remanded the case to the district court to determine the appropriate relief and to determine whether surcharge or some other equitable remedy was appropriate under the circumstances.

In a separate concurring opinion, Judge Manion, although he agreed that remand was appropriated in light of Amara, disagreed with the majority’s opinion that Amara entitled Kenseth to seek make-whole relief in the form of money damages.  Judge Manion found that Amara did not hold that money damages are an appropriate equitable remedy.

This decision demonstrates the evolving impact of the Amara decision.  Employers and plan sponsors should keep an eye to the courts to see if other courts follow suit and determine that similar claims based on miscommunications can give rise to monetary damage remedies.

By: Mark Casciari and Barbara Borowski

 Is a general release of “any and all” claims signed by a former employee in exchange for a severance package enforceable in an ERISA action for contested pension benefits? 

On May 23, 2013, the Court of Appeals for the Seventh Circuit answered YES, in a decision in which Seyfarth Shaw LLP was counsel of record for the defendant pension benefit plan.

In Hakim v. Accenture United States Pension Plan, Case No. 11-3438 (7th Cir, 2013 U.S. App. LEXIS 10475 (7th Cir. May 23, 2013), Mr. Hakim sought pension benefits claiming that he did not receive notice of a 1996 plan amendment that reduced his benefit accruals that complied with ERISA Section 204(h), 29 U.S.C. § 1054(h). 

  • In 2000, Hakim received a benefit statement that stated, among other things: “Because of your current employment classification, you are ineligible to participate in the Retirement Plan.” 
  • In 2003, Hakim was let go  as part of a reduction in force and signed a release in return for a severance package.  The release provided, in relevant part: “[Y]ou hereby forever release, waive, and discharge Accenture LLP, its . . . affiliates . . . from any and all claims of any nature whatsoever, known or unknown which you now have, or at any time may have had . . . .” 
  • In 2007, Hakim submitted a formal claim for additional pension benefits, arguing that the  notice of the 1996 amendment violated ERISA’s notice requirements. 
  • In April 2008, Hakim’s claim was denied by the Accenture ERISA Benefit Claims Committee.
  • In June 2008, Hakim sued. 

The district court granted summary judgment in favor of the plan, holding that Hakim knew or should have known about his claim when he signed the release, and thus waived his claim.

The Seventh Circuit affirmed.  The Court drew a distinction between entitlement claims, which it said are subject to ERISA’s anti-alienation provision, and contested claims, which it said fall outside the realm of the anti-alienation provision.  The Court defined a pension entitlement as a claim “for vested benefits to which a plaintiff is entitled under the terms of the pension plan itself;” whereas a contested claim is “a claim for additional benefits to which [a plaintiff] is not entitled under the terms of the Plan itself.”  The Court characterized Hakim’s claim as “contested” and not “entitled.” 

The Court next addressed the question of whether Hakim had actual or constructive notice of the claim at the time he signed the release in 2003.  The Court found that the 2000 benefit statement clearly repudiated his claim by advising him that he was no longer eligible to participate in the plan; the claim did not accrue when Hakim filed his claim for benefits in 2008.  Hakim thus knew or should have known about his claims before he signed the release. 

The Court then addressed whether Hakim knowingly and voluntarily signed the release.  The Court found that Hakim admitted during his deposition that he read the release, and signed it knowingly and voluntarily. 

This case is important because it may help ERISA defendants when confronted with a plaintiff, as an individual or on behalf of a class, who previously signed a release.  The decision also sheds light on when the 7th Circuit finds that a claim accrues.  Here, the Court found accrual upon receipt of a benefit statement, and not upon a formal claim and appeal denial.  This accrual holding will make it easier for defendants to prevail on statute of limitations defenses, which also turn on the date of the accrual of the claim.