Articles Tagged with litigation

Why Do I Have to File a Lawsuit?

When an ERISA long-term disability appeal gets denied, the next step is, potentially, to file a lawsuit in federal district court. Some clients already know that they would like to settle their case and ask, why can’t we just negotiate a lump sum settlement with the insurance carrier? Why do I have to file a lawsuit? In short, while plaintiffs’ attorneys would likely be amenable to negotiating informally, insurers generally refuse to come to the table until a formal complaint has been filed. The weight of a formal lawsuit perhaps creates more real incentive and pressure for the insurer to settle, and the process is well established and well understood. Having already filed suit, one benefit of going through the court process for a plaintiff is that, in the event a settlement can’t be reached, there is the possibility of taking the case to trial within a shorter timeline –the complaint has already been filed, a judge has been assigned, and certain deadlines have already been put on the court calendar. The desirability of accepting a lump sum settlement varies from case to case.

What Does a Win at Trial Look Like?

In an intensely litigated ESOP case involving 14 counts of ERISA violations, on April 22, 2019, Judge Staton, District Judge, Central District of California, certified a class of ESOP participants. The certification came after the court denied Defendants’ motions to dismiss all 14 counts. The case, as a whole, has many interesting legal issues, however, most interesting is the continued litigation of whether indemnification agreements for breaches of fiduciary duty are void.

As background, ERISA § 410 categorically voids indemnification agreements and states, in part “any provision in an agreement…which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty…shall be void as against public policy.” However, Department of Labor regulations have interpreted this to permit employer indemnification but not plan indemnification. (29 CFR 2509.75-4). The regulations also permit indemnification agreements so long as it does not relieve a fiduciary of responsibility or liability.

In 2009, we heard the first case in the 9th circuit that interpreted ERISA § 410 and its regulations, giving some clarity on the validity of indemnification agreements. In Johnson v. Couturier, 52 F.3d 1067 (9th Cir. July 27, 2009) the ESOP participants alleged defendants breached their fiduciary duties by allowing the company to pay excessive compensation to an officer who was a fiduciary to the plan. The company in Johnson was 100% ESOP owned and was in the process of liquidation. The indemnity agreement between officer-fiduciary and plan sponsor (company) provided indemnity unless due to gross negligence or deliberate wrongful acts. Despite the indemnity being paid from corporate assets, which would typically be permitted under DOL regulations, here, because the company was liquidating, the Court held that payment of indemnification by the company would reduce, dollar-for-dollar, the liquidating distribution from the plan – essentially paid by ESOP.

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