September 28, 2021

Volume XI, Number 271

Advertisement

September 27, 2021

Subscribe to Latest Legal News and Analysis

Disgorgement Claims Continue To Confound Courts in ERISA Class Actions

Courts continue to be split over the availability of disgorgement and “accounting for profits” in ERISA class actions involving in-house investment plans. On March 3, 2017, in Brotherston v. Putnam Investments, LLC, No. 1:15-cv-13825-WGY (D. Mass. March 3, 2017), the court declined to resolve the dispute at the summary judgment stage, allowing the certified class of employees to move forward with their claim that the company should be forced to disgorge profits earned from defendant’s in-house 401k plan.  Previously, the court denied defendant’s motion to dismiss this claim.

This decision is in contrast to recent decisions in other courts. In Urakhchin v. Allianz Asset Management of America LP, 2016 U.S. Dist. LEXIS 104244 (C.D. Cal. Aug. 5, 2016), plaintiffs brought claims against fiduciary and non-fiduciary defendants involved in the plan under Section 502(a)(3) 29 U.S.C. §1132(a)(3). The court granted the non-fiduciary defendant’s motion to dismiss plaintiffs’ disgorgement claim, finding that the plaintiffs failed to allege that any of the money sought to be disgorged could be traced to particular funds in those defendants’ possession.

Relying in part on the Urakchin decision, the court in Moreno v. Deutsche Bank Americas Holding Corp., 2016 U.S. Dist. LEXIS 142601 (S.D.N.Y. Oct. 13, 2016), likewise held that plaintiffs could not state a claim for disgorgement and accounting of funds against the defendants, which included both fiduciary defendants and defendants whom the court determined Plaintiff had not sufficiently pled as fiduciaries.  The Moreno plaintiffs asserted that they were only seeking “an accounting of profits” under 29 U.S.C. section 1132(a)(3) and that therefore the traceability requirement did not apply.  The court held, however, that because the complaint failed to limit the request for equitable relief to an accounting, and the plaintiffs did not allege facts to meet the traceability requirement, the claim should be dismissed.

More recently, in Wildman v. American Century Services, LLC, 2017 U.S. Dist. LEXIS 31700 (W.D. Mo. Feb. 27, 2017), the court held that plaintiffs had sufficiently met the traceability requirement by alleging that the payments in question were “traceable to specific transactions that have been taken on specific dates.”  The court noted that the complaint alleged that the non-fiduciary defendant employer, American Century, had actual or constructive knowledge of the circumstances that rendered the transactions unlawful.  Accordingly, the plaintiffs were allowed to proceed with their disgorgement claim against both fiduciary and non-fiduciary defendants.

The upshot is that in some of these cases, the reason for the dismissal appears to turn on fiduciary status. In the Urakhchin and Moreno cases, the claims were asserted by non-fiduciary parties alone.  As the Urakhchin court explained, accounting and disgorgement claims are claims for equitable relief, but claims seeking these remedies against non-fiduciary parties are generally considered legal (i.e., not equitable) claims.  As a result, the court required tracing.

On the other hand, in both the Wildman and Putnam cases, the disgorgement claims were asserted against fiduciary and non-fiduciary parties (in Putnam, Plaintiff argued that all defendants were fiduciaries, but the employer/plan sponsor defendant and its CEO are disputing that claim in their pending motion for summary judgment), but the courts do not appear to have drawn distinctions based on fiduciary status.

Jackson Lewis P.C. © 2021National Law Review, Volume VII, Number 80
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

René E. Thorne, Jackson Lewis, Employment Litigation, ERISA Attorney"
Office Managing Principal and Office Litigation Manager

René E. Thorne is Office Managing Principal of the New Orleans, Louisiana, office of Jackson Lewis P.C. Her practice covers the full range of employee benefit litigation matters, including representation of employers, plans, plan fiduciaries, and trustees.

In that regard, she has handled numerous ERISA class actions for clients such as Nortel Networks, Target, Krispy Kreme Doughnuts, Owens Healthcare, United Airlines ESOP Committee, Dunbar Armored, United Companies, Benefits Administration Corporation, and Beverly Enterprises. Ms. Thorne also has handled...

504-208-1755
Amber Gardina-Quintanilla, Jackson Lewis, Handbook Drafting Lawyer, Policy Compliance Attorney
Associate

Amber Gardina-Quintanilla is an Associate in the San Diego, California, office of Jackson Lewis P.C. Her practice focuses on employment litigation, including preventive advice and counsel.

Ms. Gardina-Quintanilla advises and represents employers in a broad range of employment law matters, including those involving discrimination and harassment, wage and hour, wrongful termination, and retaliation claims. She also assists employers in drafting handbooks and policies to comply with current laws.

...
619-573-4923
Advertisement
Advertisement
Advertisement