Class Action Status Denied in Case Against Plan Access Freeze

December 22, 2005 ( - US District Judge Phyllis Hamilton for the US District Court for the Northern District of California denied a plaintiff's motion for class certification in a case concerning the freezing of employees' access to their 401(k) accounts.

Hamilton ruled that to have standing to pursue a class action the former employee must have a “colorable claim to benefits.”   The court found that the former employee was not asserting a claim for benefits, but was seeking damages for losses allegedly sustained by plan participants when access to their accounts was frozen for a two-month period in 2001.

Hamilton further ruled that the plaintiff did not qualify as a participant since he had received a full distribution of his account balance.    T he court noted that some federal courts have in some cases found that individuals who were not plan participants at the time of filing an Employee Retirement Income Security Act (ERISA) claim had standing, but those cases involved situations where it would be inequitable to allow a fiduciary to personally profit from unlawful gains obtained via a breach of fiduciary duty.    In this case, there was no allegation that the employer personally profited from its fiduciary breach, Hamilton said.

Dale Ingle, a former employee of Emery Worldwide Airlines Inc, filed the lawsuit against Emery, its parent company, CNF, and the 401(k) plan’s fiduciaries claimingthey breached their fiduciary duties under the ERISA by unilaterally freezing access to participants’ accounts.   He filed a petition asking the court to certify the case as a class action that would include all persons who were participants in or beneficiaries of the plan between August 12, 2001, and October 16, 2001.

According to the court, on August 13, 2001, the Federal Aviation Administration ordered an immediate 60-day suspension of Emery’s operations, citing Emery’s violations of air safety regulations.   Emery notified plan participants that access to their plan accounts was frozen as of August 12, 2001, and they could not alter their investment mix to sell their CNF stock, withdraw funds from the plan, or access their account balances.   Participant access was restored on October 15, 2001.

The lawsuit alleged that the two-month freeze caused the value of participants’ accounts to drop significantly, in part because of a decline in the value of CNF stock, and in part because of the general decline in the markets after the September 11, 2001, terrorist attacks.   CNF announced on December 5, 2001, that Emery would permanently cease operations.   Ingle took full distribution of his plan account in January 2002.

The case is In re Administrative Committee ERISA Litigation, N.D. Cal., No. C 03-3302 PJH, unpublished 12/16/05.