Third Circuit Establishes Framework for Evaluating Class Representative Releases in ERISA §502(a)(2) Actions

Third Circuit Establishes Framework for Evaluating Class Representative Releases in ERISA §502(a)(2) Actions

Introduction

The case In re SCHERING PLOUGH CORPORATION ERISA LITIGATION addressed pivotal issues concerning the enforceability of individual releases in the context of class action lawsuits under the Employee Retirement Income Security Act of 1974 (ERISA). Michele Wendel, a former Schering-Plough employee, sought to represent a class of Plan participants in a §502(a)(2) breach-of-fiduciary-duty claim. Central to the dispute was whether Wendel's prior release and covenant not to sue the company could affect her eligibility to serve as a class representative and the consequent certification of the class under Federal Rule of Civil Procedure 23.

Summary of the Judgment

The United States Court of Appeals for the Third Circuit vacated the District Court's order certifying a class action and remanded the case for further proceedings. The District Court had initially found that Wendel's signed release violated ERISA §410(a), rendering it void, thereby permitting class certification. However, the Third Circuit disagreed with this interpretation, holding that §410(a) does not apply to individual releases settling specific disputes. Furthermore, the Court emphasized the necessity of a rigorous analysis under Rule 23, particularly concerning typicality and adequacy of the class representative when releases are involved.

Analysis

Precedents Cited

The judgment references several key cases to support its reasoning:

  • LEAVITT v. NORTHWESTERN BELL TELEPHONE CO. - Clarified that ERISA §410(a) applies only to instruments that alter fiduciary duties, not individual releases.
  • Baker v. Kingsley - An unreported opinion where §410(a) was inappropriately applied to invalidate an individual release.
  • LaRue v. De-Wolff, Boberg Associates, Inc. - The Supreme Court held that §502(a)(2) claims are available for breach of fiduciary duties in defined contribution plans.
  • BOWLES v. READE, Johnson v. Couturier, and others - Affirmed that individual releases do not bar §502(a)(2) claims brought on behalf of the Plan.

Legal Reasoning

The Third Circuit meticulously dissected the applicability of ERISA §410(a) to individual releases. It determined that §410(a) targets agreements that attempt to alter the fiduciary's statutory obligations, not those that settle individual disputes without altering overarching duties. Consequently, Wendel's release does not void her §502(a)(2) claims. However, the Court underscored that class certification under Rule 23 demands a thorough examination of typicality and adequacy, especially when the class representative has a separate contractual agreement like a release or covenant not to sue.

Impact

This decision establishes a clearer framework for evaluating the role of class representatives in ERISA §502(a)(2) actions, particularly concerning signed releases. Future litigations will require courts to perform a more detailed analysis of the class representative's status, ensuring that their interests align with those of the entire class and that no unique defenses jeopardize the class's integrity. This enhances the protection for class members and ensures the fairness and efficiency of class action proceedings.

Complex Concepts Simplified

ERISA §410(a)

ERISA §410(a) prohibits any agreement that attempts to relieve a fiduciary from their legal obligations under ERISA. However, in this case, the Court clarified that it does not apply to individual releases that settle specific disputes without changing the fiduciary's broader duties.

Rule 23 Typicality and Adequacy

Under Federal Rule of Civil Procedure 23, a class representative must have claims typical of the class's claims and must be adequate to represent the class's interests. If the class representative has unique circumstances (like a release), this could affect their ability to fairly represent the class.

Conclusion

The Third Circuit's decision in In re SCHERING PLOUGH CORPORATION ERISA LITIGATION underscores the importance of ensuring that class representatives are free from conflicts that could undermine their role. By vacating the class certification and remanding the case, the Court emphasized the necessity for courts to engage in comprehensive analyses of typicality and adequacy, especially when individual releases are present. This ruling fortifies the procedural safeguards essential for the integrity and effectiveness of class action litigation under ERISA §502(a)(2).

Case Details

Year: 2009
Court: United States Court of Appeals, Third Circuit.

Judge(s)

Marjorie O. Rendell

Attorney(S)

Eric C. Bosset, Esq., [Argued], Covington Burling, Washington, DC, Douglas S. Eakeley, Esq., Lowenstein Sandler, Roseland, NJ, for Appellant Schering Plough Defendants. Kent A. Mason, Esq., Davis Harman, Washington, DC, for Amicus-Appellant American Benefits Council. Katherine B. Bernstein, Esq., Edward W. Ciolko, Esq., Peter H. LeVan, Jr., Esq., [Argued], Joseph H. Meltzer, Esq., Barroway, Topaz, Kessler, Meltzer Check, Radnor, PA, Joseph J. DePalma, Esq., Jennifer Sarnelli, Esq., Lite, DePalma, Greenberg Rivas, Newark, NJ, Susan D. Pontoriero, Esq., Sea Girt, NJ, for Appellees Michele Wendel, Adrian Fields, Jingdong Zhu, on behalf of himself and All others similarly situated. Elizabeth Hopkins, Esq., [Argued], U.S. Department of Labor, Washington, DC, for Amicus Appellee Secretary of Labor. Jay E. Sushelsky, Esq., American Association of Retired Persons, Washington, DC, for Amicus Appellee American Association of Retired Persons. Agnieszka Fryszman, Esq., Cohen Milstein, Sellers Toll, Washington, DC, for Amicus Appellee Pension Rights Center.

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