NEW YORK, New York, October 1, 2012 – In a decision issued on April 16, 2012, the Third Circuit Court of Appeals ruled that claims filed under the Employee Retirement Income Security Act (“ERISA”) do not require a pre-suit demand on the retirement plan’s trustees or mandatory joinder of the trustees. The decision, which was issued in Santomenno v. John Hancock, et. al., a matter currently pending in the District Court of New Jersey and litigated by class action attorneys at Levy Konigsberg LLP (“LK”), along with Szaferman, Lakind, Blumstein & Blader, P.C, is an important decision for plaintiffs seeking to sue ERISA fiduciaries for breach of fiduciary duty for charging retirement plans excessive fees on annuity insurance contracts offered to the plan participants.
Santomenno v. John Hancock, et. al involves a nationwide shareholder derivative and class action lawsuit against John Hancock Life Insurance Co. (”John Hancock”) on behalf of participants and beneficiaries in an ERISA-covered 401(k) retirement plan sponsored by their employer. John Hancock administered group annuity contracts to the 401(k) plan sponsor. The Plaintiffs alleged, among other things, that certain investment fees charged by John Hancock, an ERISA fiduciary, are excessive under various provisions of ERISA. Plaintiffs alleged that, among other things, John Hancock breached its duties of prudence and loyalty and engaged in prohibited transactions in violation of various provisions of ERISA by charging and receiving excessive fees for sales and service of John Hancock and other funds and through its receipt of spurious administrative charges.
The shareholder derivative and class action complaint was filed in the U.S. District Court for the District of New Jersey on October 22, 2010. On May 23, 2011, the Court granted John Hancock’s motion to dismiss the ERISA claims based upon its conclusion that participants and beneficiaries cannot sue under ERISA section 502(a)(a) without first making a demand on the plan trustees to bring a fiduciary suit. Plaintiffs/Appellants filed an appeal with The United States Court of Appeals, Third Circuit on September 6, 2011. The Office of the Solicitor of the Department of Labor filed an amicus brief with the United States Court of Appeals for the Third Circuit on September 30, 2011, in which the Solicitor of Labor argued that the Employees Retirement Income Security Act (ERISA) 502(a)(2) does not require that 401(k) plan participants and beneficiaries to first make a demand upon plan trustees before bringing a suit for breach of fiduciary duty.
In vacating the District Court’s decision on April 16, 2012, the Third Circuit Court of Appeals ruled that a pre-suit demand upon the retirement plan’s trustees or joinder of the trustees in the lawsuit is not required for plan participant’s claims brought under Sections 502(a)(2) and (a)(3) of ERISA, which define the persons empowered to bring a civil action for relief against a fiduciary for ERISA violations. The Court held that the text of those two sub-sections is silent as to a pre-suit demand on trustees and/or mandatory joinder of trustees. The statutory text does not contain any pre-conditions on a plan participant or a beneficiary’s right to bring a civil action to remedy a fiduciary breach. The Third Circuit further noted that no Court of Appeals has found a pre-suit demand a requirement for civil actions brought under Sections 502(a)(2) and (a)(3).
Additionally, the Court held that Congress did not intend to impose procedural obstacles, such as a pre-suit demand or mandatory joinder of trustees, with respect to claims brought under Section 502(a). The Third Circuit also rejected the District Court’s reliance on the common law of trusts because the ERISA statutes unambiguously allows for plan participants and beneficiaries to bring suits against fiduciaries without a pre-suit demand or joinder of trustees. The Court held that the common law of trusts is not incorporated into ERISA.
Moshe Maimon, the lead plaintiffs’ attorney handling the shareholder derivative and class action suit at LK, estimate that there could be hundreds of plan participants and beneficiaries who have fallen victim of the defendants’ actions.