ERISA Rule for Fiduciary Breach Cases Overturned by 11th Circuit

The U.S. 11th Circuit Court of Appeals overturned a long-standing precedent requiring retirement plan participants to exhaust a plan’s internal claims procedures before filing ERISA fiduciary breach lawsuits.

In a court opinion issued Tuesday, the 11th Circuit brought ERISA litigation in Alabama, Florida and Georgia in line with the standards applied in most other federal circuits.

“They’re really pulling the 11th Circuit in line with every other circuit and saying, ‘If the claim here is that you’ve had a breach and not, ‘I didn’t get my benefits,’ then you don’t have to go through that process,” says Angela Stockbridge, a tax, employee benefits and executive compensation partner in law firm Falcon Rappaport & Berkman.

The decision came after the full court reheard Bolton v. Inland Fresh Seafood Corp. of America Inc., reversing a 2023 dismissal by the district court and changing the circuit’s approach to fiduciary-breach claims under ERISA.

“The ERISA statute has language in Section 1133 that says every plan’s got to have a claim-and-appeal procedure and implies that people need to use that claim-and-appeal procedure before they file suit,” says Ian Morrison, a labor and employment partner in the law firm Seyfarth Shaw LLP. “Courts have said for the last 50 years, ‘Based on that language and some related sort of policy reasons, people who are springing ERISA lawsuits, at least lawsuits for benefits, have to exhaust whatever administrative remedies there are in their plan.’”

However, Morrison says this understanding was followed by debate in the courts about whether that exhaustion requirement also applied to participants who were suing for a statutory violation, such as a breach of fiduciary duty.

“Over time, pretty much every court of appeals that reached that question decided that exhaustion was not required for those kinds of claims,” Morrison says.

The ruling brings the 11th Circuit into line with most other federal appellate courts, which have long held that participants alleging statutory ERISA violations, such as breaches of fiduciary duty, are not required to exhaust plan administrative remedies before filing suit.

The requirement in the 11th Circuit stemmed from a 1985 decision in Mason v. Continental Group, Inc., which established an administrative exhaustion requirement for certain ERISA claims.

Background

In November 2016, Inland Fresh Seafood Corp. used proceeds from a $92 million loan, guaranteed by Inland Fresh, to purchase all outstanding shares of the company’s common stock from four of the company’s officers and directors. Five former employees, acting on behalf of the plan’s 578 participants, sued, alleging that fiduciaries caused the plan to overpay for company stock based on inflated financial projections.

In 2023, the U.S. district court dismissed the complaint, holding that it was bound by Mason v. Continental Group Inc. and ruling that participants failed to exhaust internal administrative remedies.

An 11th Circuit three-judge panel then affirmed the dismissal of the case based solely on the precedent, but two of the panel’s three members wrote a concurring opinion that Mason was wrongly decided and should be overruled by the full court. The 11th Circuit therefore vacated the panel opinion and ordered a rehearing en banc—before all judges on the circuit.

Morrison says en banc courts are used rarely, in cases of potential mistakes or errors.

“After you get your panel decision, you can either ask for rehearing by the panel … or you can seek review by the entire court,” he says. “You can say, ‘Well, this issue is a really significant legal question, or there’s a disagreement with other circuits on this question and the whole court should look at it because we think the panel got it wrong.’ It’s a pretty heavy lift to get a court to take a case en banc.”

Taking the Bolton case back to the entire court is what the judges found most appropriate, which led to the final en banc court opinion.

“We do not take our decision to overrule Mason lightly. But our holding requiring administrative exhaustion in Mason was an atextual product of judicial creation based solely on policy reasons,” the court opinion stated.

What Overruling Really Means

For plan sponsors in Florida, Georgia and Alabama, the decision removes a procedural hurdle that previously could delay or prevent certain fiduciary-breach lawsuits from reaching court.

“It was better when you could make plaintiffs go through more hoops before they could file suit, and now that’s not the case,” says Morrison.

Stockbridge agreed that court opinion may lead to suits landing in courts more quickly, but the quality of cases may change.

“The quality of those lawsuits has to really be higher for those kinds of suits to survive, since we don’t have the ability for plan sponsors to rely on these procedural defenses,” she says.