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Former Employee’s Release Agreement Bars ERISA Claim Against ESOP Fiduciary

A recent summary-judgment decision explains how individual releases can bar the individual from pursuing ERISA fiduciary-breach claims on behalf of the plan. A plan, employer or fiduciary that wants to ensure a release that includes ERISA claims on behalf of a plan should consider language that addresses the court’s areas of inquiry in the case, which are outlined here.

IN DEPTH


A recent summary-judgment decision explains how individual releases can bar the individual from pursuing ERISA fiduciary-breach claims on behalf of the plan. Innis v. Bankers Trust Co. of South Dakota, No. 4:16-cv-00650-RGE-SBJ, United States District Court for the Southern District of Iowa (April 30, 2019).

ERISA claims for breach of fiduciary duty technically must be brought as claims for losses to the ERISA plan itself. See 29 U.S.C. 1132(a)(2). This is because ERISA imposes liability on fiduciaries for losses to the plan, not losses to individual participants or beneficiaries. Although individual litigants must show they suffered a loss in order to have standing to bring the claim on behalf of the plan, the plan is the nominal plaintiff. This means that the plaintiff must show that any recovery to the plan will flow through to her individual account; otherwise, the individual plaintiff lacks standing to sue for losses to the plan.

In Innis v. Bankers Trust Co. of South Dakota, the court entered summary judgment against the plaintiff because her release barred claims against the ESOP trustee relating to the ESOP’s purchase of stock. The plaintiff, Innis, worked at Telligen, Inc. for 18 years. When her employment was terminated, Innis signed a severance agreement and received severance pay and job-transition services. After discovery, Bankers Trust filed for summary judgment, arguing that the release was knowing and voluntary, and broad enough to include the ERISA claims she brought on behalf of the plan.

Before addressing the merits, the court considered what to do with a declaration Innis submitted with summary-judgment papers that differed from answers she gave in her deposition and discovery responses. A party seeking to avoid summary judgment is not allowed to submit a declaration that contradicts deposition testimony; in other words, a party cannot “manufacture an issue of fact or credibility” by contradicting earlier testimony with a declaration or affidavit. During her deposition, Innis testified she did not recall a meeting to discuss her termination or receiving and signing the severance agreement. Yet in a declaration submitted with her summary-judgment papers, she described the meeting, what she was told and that she felt she had to sign the severance during that meeting. Innis’s declaration also stated that she had health conditions that may have affected her recollection. But Innis’ deposition testimony and discovery responses were inconsistent with her declaration, because in her deposition, she testified she could not recall the meeting or the severance papers, and she did not disclose her health condition as potentially affecting her recollection. The court disregarded the declaration statements that conflicted with her deposition testimony.

The court then determined that Innis entered into the severance agreement knowingly and voluntarily. Based on the totality of the circumstances, the court analyzed Innis’s education and work experience, breadth and clarity of the release’s language, amount of time Innis had to consider before signing and revoke it after signing (45 days and 7 days, respectively), her awareness of the ESOP transaction and that Bankers Trust was involved when she signed the release, the release’s language stating that she discussed it with a lawyer, and that she received $16,580.76 plus career services in exchange for the release. This was knowing and voluntary.

The court also concluded that the release was broad enough to include ERISA claims against the ESOP trustee for losses to the plan. The release encompassed claims against Telligen and its owners, members, stockholders, affiliates and all persons acting on behalf of, by, through, under or in concert with any of them, and included all claims arising under federal law. Bankers Trust was released because it acted on behalf of owners and stockholders; the owners and stockholders included the plan and its participants, who owned stock as a result of the ESOP transaction. The release was also broad enough to cover ERISA claims even though “ERISA” was not mentioned specifically. A claim for fiduciary breach is included in the general language encompassing all claims under federal law, of any nature, arising from the employment relationship.

Note that although the release did not release the Plan’s claims, Innis released her ability to bring those claims under ERISA 502(a)(2). Innis had not taken any steps to satisfy the court that she could act in a representative capacity of the plan. She took no steps to obtain class certification or satisfy some other procedural requirement in order to represent the plan. In her individual capacity, she released her claims and could not maintain her action.

Takeaways

The Innis release language had some potential gray areas that the court resolved in Bankers Trust’s favor. A plan, employer or fiduciary that wants to ensure a release that includes ERISA claims on behalf of a plan should consider language that addresses the court’s areas of inquiry in the Inniscase: (1) language stating very clearly that it includes lawsuits for damages in an individual capacity or on behalf of another person or entity; and (2) language stating very clearly that the released parties include trustees, fiduciaries and others affiliated with plans; and (3) language stating very clearly that the employee is knowingly and voluntarily entering into the agreement and receiving payment/services in exchange, and that the employee has time to seek counsel and revoke the signature.

© 2019 McDermott Will & Emery

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About this Author

Partner

Rick Pearl focuses his practice on litigation involving the Employee Retirement Income Security Act of 1974 (ERISA). He represents companies, their benefits committees, plan administrators, fiduciaries, and service providers in complex, class-action litigation and Department of Labor lawsuits, audits, and investigations.  His particular expertise is with actions for breach of fiduciary duty and prohibited transactions.

His litigation experience includes high-profile 401(k)/403(b) lawsuits alleging excessive fees and imprudent investment options...

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J. Christian Nemeth, McDermott Will, business torts lawyer, aviation matters attorney
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J. Christian (Chris) Nemeth provides legal counsel on complex commercial litigation, including contract disputes, shareholder derivative actions, financial and banking matters, business torts, aviation matters, insurance cases, white-collar criminal matters and health care litigation.

Chris represents clients in courts at the state and federal levels across the country, and has successfully tried cases involving a wide range of matters. He also arbitrates cases in domestic and international forums.

Chris has extensive appellate experience as well. He has successfully appealed cases to the Seventh, Ninth and Tenth Circuits and to the Illinois Court of Appeals.

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