Employee’s Lawsuit Release Could Imperil Class-Action Status
December 22, 2009
(PLANSPONSOR.com) – A former employee's signed release of legal claims against her employer may
interfere with her ability to represent fellow members of a class-action
stock drop lawsuit, a federal appellate court has ruled.
With that decision, the 3rd U.S. Circuit Court of
Appeals overturned a ruling by U.S. District Judge Katharine S. Hayden of the
U.S. District Court for the District of New Jersey that the legal release
signed by plaintiff Michele Wendel was rendered void under
Section 410 of the Employee Retirement Income Security Act (ERISA). Hayden
ruled Wendel could represent other Schering-Plough Stock Fund participants and
certified the case as a class action (see Schering-Plough Stock Drop Case Gets Class Action Status).
The ERISA section
involved provides that “any provision in an agreement or instrument which
purports to relieve a fiduciary from responsibility or liability for any
responsibility, obligation, or duty under this part shall be void as against
public policy.”
In writing for the
appellate court, Circuit
Judge Marjorie O. Rendell asserted that Section
410 does not apply to individual legal releases such as the one Wendel signed
when she left Schering-Plough., but only to agreements changing a fiduciary’s
ERISA responsibilities. So, Rendell contended, Section 410 did not make
Wendel’s release void.
However, the 3rd Circuit panel asserted, Wendel might
not be the best person for lead plaintiff role since the employer could have specific
legal defenses that could be asserted against her that may not similarly apply
to other participants. The 3rd Circuit panel ordered Hayden to
reconsider the issue of whether Wendel was qualified to represent the class
using a more “rigorous analysis” of federal class certification rules.
Rendell also contended that Hayden was wrong when Hayden ruled
Wendel could not bring a fiduciary breach claim on behalf of the plan under
ERISA Section 502(a)(2) because of her promise not to sue Schering-Plough.
The case involves a stock drop suit against drugmaker
Schering-Plough Corp., alleging the company kept company stock in its
retirement savings plan after it was no longer prudent to do so.
The heart of the allegations against the drugmaker concerned the
company’s efforts to get Food and Drug Administration approval of a new allergy
drug, Clarinex. The employees charged the efforts to get approval of Clarinex
were hampered because of Schering-Plough's failure to comply with FDA
regulations regarding good manufacturing practices.
During this time, Schering-Plough stock dropped from approximately
$60 per share to below $20 per share, according to the lawsuit.
The 3rd Circuit decision is available here.
Fred Schneyer
editors@plansponsor.com