Seventh Circuit to Examine Class Standing Issues Raised by LaRue Decision

In its LaRue decision (LaRue v. DeWolf, Boberg & Associates, 128 S. Ct. 1020, 42 EBC 2857 [2008]), the Supreme Court allowed individuals to sue ERISA plan fiduciaries to recover their personal losses from the plan. Before LaRue, losses could generally only be claimed on behalf of the plan itself, which could make restoring individual accounts tricky. But now that individuals can sue for recovery on their own behalf, how will class-action lawsuits be affected in situations where the breaches either have differential effects on individual losses or there is no loss to the plan as a whole? For instance, in a stock drop lawsuit, only some plan participants may have been damaged and some may even come out ahead (for instance, an individual who sells some or all of his or her stock when its price is artificially inflated who but stays in the plan).

The U.S. Court of Appeals for the Seventh Circuit is taking up this issue by consolidating four different lawsuits, one of which (Howell v. Motorola, No. 07-3837, consolidation order, 7th Cir., Aug. 17, 2009) involves allegations of fiduciary breaches over retaining Motorola stock in a 401(k) plan. Motorola and other defendants in the cases being consolidated argue that because individuals can now sue for recovery of losses to their own accounts, and because the individual circumstances of plan participants vary so widely, class certification is no longer appropriate.

If this argument ultimately succeeds, the ironic effect of LaRue may be that rather than making lawsuits against plan fiduciaries easier, it makes them harder, because few individual participants will have the resources to pursue this kind of litigation (indeed, LaRue himself has given up his case).