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A recent 1st U.S. Circuit Court of Appeals decision allows former employees who have redeemed retirement accounts to sue the retirement plan administrators for alleged fiduciary breaches that diminished their account payout. The decision also opens the door for more Employee Retirement Income Security Act (ERISA) cases and echoes recent decisions from three other circuits. In the recent opinion, Circuit Judge Kermit V. Lipez ruled that the former employees of manufacturing company W.R. Grace & Co. were participants under the ERISA statute even though they had cashed in their retirement plans. Lipez also ruled that they had standing to bring a lawsuit against administrators of the W.R. Grace & Co. Savings and Investment Plan alleging that fiduciary duty breaches diminished their lump-sum distributions from a defined contribution plan. Evans v. Akers, No. 07-1140 (1st Cir.). The court also reversed the Massachusetts U.S. district court’s dismissal of the class action and remanded the case. “We perceive far greater risks to the ERISA framework that would flow from denying these plaintiffs standing to sue for breach of fiduciary duty,” Lipez wrote. “Such a result would draw arbitrary distinctions between current and former employees.” Joins three other circuits The decision follows decisions in the 3d, 6th and 7th circuits last year that opened the door to additional litigation in those circuits. Graden v. Conexant Sys. Inc., 496 F.3d 291 (3d Cir. 2007); Bridges v. American Electric Power Co. Inc., 498 F.3d 442 (6th Cir. 2007); Harzewski v. Guidant Corp., 489 F.3d 799 (7th Cir. 2007). “We fully agree with their analyses and rely on their thoughtful discussions in explaining our own reasoning,” Lipez wrote. The U.S. Department of Labor also weighed in with an amicus brief stating that if the courts held that the former employees had no right to sue it would “endanger employees’ retirement security, defeating the very purposes for which ERISA was enacted. “Nothing in ERISA compels such an arbitrary and illogical result,” stated the Labor Department’s brief. This 1st Circuit decision allowing former participants to sue fiduciaries, coupled with a recent U.S. Supreme Court decision allowing participants to sue fiduciaries for alleged plan losses, may prompt courts to find such plan losses legal in nature rather than equitable and allow jury trials in ERISA cases, said Diane M. Soubly, a senior counsel to the Boston office of Chicago-based Seyfarth Shaw who specializes in ERISA litigation. The Supreme Court case is LaRue v. DeWolff, Boberg & Assoc. Inc., 128 S. Ct. 1020, 1023 n.1 (2008). Although the ERISA statute doesn’t provide for jury trials, the U.S. Constitution protects a plaintiff’s right to a trial when there are legal damages at stake, Soubly said. “It will increases the costs of defending and resolving ERISA litigation cases,” she said. Soubly also noted that retirement plan participants who have already cashed out aren’t really suing the plan; they’re suing the fiduciaries of the plan, which puts those fiduciaries’ personal assets at risk. “It’s a lawsuit in search of a defendant with a deep pocket,” Soubly said. Attorneys at Schiffrin Barroway Topaz & Kessler of Radnor, Pa., and David Pastor of Boston-based Gilman and Pastor, who represented the plaintiffs in Evans v. Akers, did not return calls for comment. Defense attorneys at Washington-based Arent Fox, who represented various plan administrators in the case, declined to comment.

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