Court Rejects Revival of Company Stock Case Based on LaRue Ruling

May 15, 2008 ( - The U.S. District Court for the Middle District of Alabama rejected the attempt by an employee stock ownership plan (ESOP) participant to revive her fiduciary breach case based on the recent U.S. Supreme Court ruling that defined contribution plan participants can seek individual account damages in fiduciary breach suits.

In its opinion, the district court pointed out the case in the Supreme Court ruling in LaRue v. DeWolff (See Justices OK Individual ERISA Suits in Landmark Ruling ) differed from the case brought by ESOP participant Benita L. Cook as it concerned a plan in which participants were allowed to direct investment of their account holdings. In Cook’s case, the plan was an ESOP that maintained investments in employer stock, and there was no indication that participants could direct their investments otherwise, the court said.

“There is no allegation that Plaintiffs could make individual choices as to how the ESOP was funded or that Plaintiffs’ losses occurred based on [defendant’s] failure to adhere to Plaintiffs’ individual directives as to how their accounts (i.e., their proportional share of company stock) were to be maintained,” the court said in its opinion.

Senior United States District Judge Ira DeMent claimed in the opinion that Cook and the class of participants she represented in the case misunderstood why summary judgment was previously granted to the defendant. DeMent pointed out that the plaintiffs alleged breaches of fiduciary duties that negatively affected the value of the company stock, which not only affected their accounts, but the account of every ESOP participant, or the plan as a whole.

The district court ruled that when a system breach of fiduciary obligations affect the plan as a whole, recovery of damages to individual accounts is not an appropriate form of relief under the Employee Retirement Income Security Act (ERISA) Section 502(a)(2).

The court denied Cook’s motion to reconsider the case.

The opinion in Cook, v. Campbell is here .