Suits In The WorkPlace

Class Action Final Frontier--ERISA?

A recent ERISA decision out of the Southern District of Illinois may portend some real problems for benefit plans and their administrators.  Typically, ERISA cases are disposed of very quickly, either by a motion to dismiss or on summary judgment, usually in favor of the employer.  That's because ERISA has a variety of plan-friendly requirements that make it very difficult for an employee to challenge the actions of plan administrators.  The flipside of this equation is that because ERISA cases typically involve hundreds, and sometimes thousands, of employees, damages potential is much higher than it is in the average single-employee discrimination case.

 The potential for large class action-type litigation is now beginning to attract the attention of plaintiffs' law firms that have traditionally been focused on personal injury litigation, especially those in the class action, mass-tort area.  Having bankrupted some industries and forced others into federal legislative protection, these firms are beginning to turn their focus to other potential large class actions, and ERISA benefit plan litigation seems to be a likely target.  In fact, at least one firm is actively soliciting representative plaintiffs for litigation in the St. Louis area.  An example of this increased focus can be seen in the Southern District of Illinois, where several participants in a cash-balance pension plan sued claiming age discrimination.  Donaldson v. Pharmacia Pension Plan, S.D. Ill., No. 06-003-GPM. 

The plaintiff-participants sued as class representatives claiming the pension plan violated ERISA because it cut some contributions after an employee reached age 55, reduced actuarial value of annual credits to individual accounts based on increasing age of the individual participants, and failed to pay lump-sum benefits in an amount equal to the accrued benefit reduced to present value. 

The plan responded with a standard ERISA defense, namely that the participants failed to exhaust their administrative remedies before filing the suit, and because the plaintiffs asked for compensatory rather than equity remedies.  The court rejected the plan's motion--holding that the failure to exhaust administrative remedies argument was specious because the court believed that the administrative procedure would not have resolved the plaintiffs' outstanding issues.  In what can only be considered ominous language for the plan, the court noted that it would make statutory interpretations on a de novo basis "without deference to the opinions of the plan's administrators."  That's quite unusual, plan administrators are usually accorded substantial deference under an arbitrary and capricious standard with regard to their decisions, but in this case the court characterized the issues as legal ones which it can review without considering the plan's interpretation.

The plaintiffs' firm in this litigation has a lot of experience in mass tort class actions such as Dioxin, asbestos, Vioxx and pharmaceutical product litigation.  These kinds of cases have traditionally paid out large amounts to law firms willing to pursue them; it appears that ERISA plans may be the next target of opportunity.