News & Information

 

FEATURED PRODUCT

Pension and Employee Benefits: Code, ERISA, & Regulations
This series provides an authoritative and comprehensive reference to the full text of benefits-related provisions of the Internal Revenue Code, the full text of ERISA, and related proposed and final regulations, as well as the official IRS and DOL preambles, and Committee Reports.

Learn More »

CCH® PENSION — 03/01/10

Release signed by named plaintiff casts doubt on "typicality" and "adequacy" of her fiduciary breach claim

A release of claims signed by the named representative of a class action alleging breach of fiduciary duty casts doubt on the representative's ability to meet the "typicality" and "adequacy" requirements necessary for class certification, the U.S. Court of Appeals in Philadelphia (CA-3) has ruled in In re Schering Plough Corporation ERISA Litigation (CA-3). Thus, the court vacated the class, and ordered the district court to conduct a "rigorous analysis" into the effect of the release on the plaintiff's ability to represent the class.

Release of claims

In return for receipt of an "enhanced" severance package, a former employee signed a release of claims against her employer and a covenant not to sue. Nevertheless, she eventually agreed to be the sole named plaintiff in a proposed class action suit against the employer's defined contribution savings plan. The class action alleged that the employer and various employer officers breached their fiduciary duty under ERISA, in part by engaging in malfeasance which, according to the plaintiff, caused the value of company stock --a key asset of the plan --to plummet.

The federal district court certified the class. It held that the release was void as against public policy under ERISA §410(a) and thus had no effect on the plaintiff's ability to represent the class. The employer appealed the class certification.

Release not void

The appellate court first held that ERISA §410(a) did not void the release. That section applies only to instruments that try to alter a fiduciary's statutory duties, not to an agreement that merely settles an individual dispute. Further, an individual release has no effect on an individual's ability to bring a claim on behalf of an ERISA plan under ERISA §502(a)(2).

Class certification

However, the release does potentially impair the named plaintiff's ability to meet the "typicality" and "adequacy" requirements for class certification found in Rule 23(a) of the Federal Rules of Civil Procedure. (The "numerosity" and "commonality" prongs are not at issue.)

One factor in assessing both typicality and adequacy is to determine whether the class representative is vulnerable to a defense strategy that is both inapplicable to many members of the class and likely to become a major focus of the litigation. The release does offer potential defensive strategies for the employer. Does the covenant not to sue bar her from filing suit? Does she have a monetary stake in the outcome? On remand, the district court must delve into these aspects of her representation of the class.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

Visit our News Library to read more news stories.