Another Ruling in the YRCW Stock-Drop Litigation

The U.S. District Court for the District of Kansas issued another ruling last Friday in In re YRC Worldwide Inc. ERISA Litigation, D. Kan., No. 2:09-cv-02593-JWL-JPO (April 15, 2011 ) that we recently reported on. Specifically, the District Court ruled that ERISA’s fiduciary safe harbor provision, Section 404(c), does not relieve fiduciaries of liability if they assemble an imprudent menu of plan investments. Section 404(c) provides a defense to a breach of fiduciary duty claim if the loss caused by the breach resulted from a plan participant's exercise of control over his or her investments. The plaintiffs in the case filed a motion to strike several of the defendants' asserted affirmative defenses. In their motion to strike the Section 404(c) defense, the plaintiffs cited to the U.S. Court of Appeals for the Seventh Circuit's recent decision in Howell v. Motorola Inc., 663 F.3d 552 (7th Cir. 2011), where the Seventh Circuit adopted the DOL’s view that Section 404(c) does not immunize plan fiduciaries that make imprudent investment selections. The YRC defendants attempted to downplay the significance of Howell by saying the Seventh Circuit's discussion of Section 404(c) was mere dicta. The defendants also argued that even if the Section 404(c) discussion in Howell was not dicta, it extended only to the “selection” of investment options, not the decision to continue offering an investment once it is selected. The District Court rejected the defendants’ arguments stating that (1) the Seventh Circuit's decision regarding Section 404(c) was not dicta and, (2) the Howell opinion “is in no way limited” to the selection of investment options. According to the District Court, “[t]he opinion expressly references the decision ‘to continue offering a particular investment vehicle'—allegations which are clearly encompassed in the Amended Complaint—and the rationale offered by the Seventh Circuit clearly applies to decisions from the initial selection decision to other decisions relating to the investment menu offered under the Plan.” The District Court also rejected the defendants' argument that the court should follow the lead of a minority of federal courts, including the U.S. Court of Appeals for the Fifth Circuit, that have declined to give effect to the DOL’s interpretation of Section 404(c). The District Court noted its belief that, if confronted with this issue, the U.S. Court of Appeals for the Tenth Circuit would conclude, like the Seventh Circuit, that Section 404(c) does not insulate a fiduciary from liability for assembling an imprudent investment menu.

Federal Court Grants Class Certification in YRC Worldwide "Stock-Drop" Litigation

The United States District Court for the District of Kansas has certified a class of approximately 17,000 YRC Worldwide Inc. (“YRCW”) employees who invested their retirement plan accounts in YRCW stock, and allegedly saw a decline in their accounts balances as the value of the shares plunged. See In re YRC Worldwide Inc. ERISA Litigation, D. Kan., No. 2:09-cv-02593-JWL-JPO (4/6/11). The class certification ruling comes approximately five months after the District court denied YRCW’s motion to dismiss the stock-drop lawsuit filed by employees who claimed the stock should have been taken out of YRCW’s 401(k) plan.

The decision is significant because it provides support for the minority view that the "Moench “presumption of prudence" discussed in our prior blog entries can be overcome at the pleading stage. As we have noted, the Moench presumption more frequently than not prevents plaintiffs from getting to the discovery phase of litigation – as plaintiffs typically cannot, or do not, allege enough facts in their complaint to show that they can rebut the presumption.

The YRCW case involved some interesting class-action stock-drop defense arguments. By way of background, the plaintiffs alleged that the fiduciaries YRCW’s 401(k) plan breached fiduciary duties under ERISA when they continued to invest in YRCW's stock even as the stock price plummeted. The plaintiffs alleged that YRCW’s stock dropped from a high of $25.96 per share in October 2007 to a low of 45 cents per share in March 2010. The fiduciary defendants offered several arguments as to why the court should not certify the lawsuit as a class action. One argument was that the typicality requirement for class certification could not be met in this stock-drop case, where there was no allegation that the fiduciaries failed to make “full disclosure” about YRCW’s financial struggles. [In most of the stock-drop cases, there are two allegations of wrongdoing on the part of ERISA fiduciaries. First, plaintiffs typically allege that plan fiduciaries breached their duty of prudence under Section 404(a) of ERISA by continuing to invest in company stock, even after the stock price spiraled downward. Second, plaintiffs frequently assert that the fiduciaries made misrepresentations or failed to disclose material information about the company's finances, and that had they known this information, the plaintiffs/participants which would have taken other action.] In the YRCW case, there was no allegation that YRCW had not made full disclosure to the participants about the performance YRWC, and the defendants argued that in the absence of a disclosure claim, class certification was inappropriate because the District would need to examine the prudence claim by looking at participants' individual investment choices. The District Court rejected this argument, stating that it could find no legal authority to support the YRCW fiduciaries' position. According to the District Court, “courts presented with both prudence claims and communications claims consistently treat those claims as entirely distinct such that the alleged misrepresentations or nondisclosures appear to have no bearing whatsoever on the prudence claim.”

The District Court also rejected the defendants’ argument that Section 404(c) of ERISA (which provides a defense to a breach of fiduciary duty claim if the loss caused by the breach resulted from a participant's exercise of control over his or her investments). The District Court also rejected the defendants’ argument that the Supreme Court’s 2008 LaRue decision brought an end to class certifications under Federal Rule of Civil Procedure 23(b)(1)(B) for ERISA fiduciary breach claims brought by defined contribution pension plan participants. [Many defendants in stock drop cases have argued that LaRue casts doubt on whether fiduciary breach claims brought under Section 502(a)(2) of ERISA are suitable for class action treatment given that the Supreme Court found in LaRue that individuals can bring their own claims.] According to the District Court, nothing in LaRue prevents class certification under Rule 23(b)(1)(B) of ERISA breach actions brought under ERISA Section 502(a)(2).

Coca-Cola and the Inconsistent Oral Promise

A participant in Coca-Cola Enterprises Inc.'s ("Coke") pension plan can continue with his claim alleging Coke calculated his benefits in a way that did not account for an oral agreement to not offset his Coke plan benefits with benefits he accrued while he was a union employee and participated in a retirement plan through the union. See Giordano v. Coca-Cola Enterprises Inc., E.D.N.Y., No. 08-0391 (WDW), 3/7/11. The case involved an "inconsistent oral promise" - a situation often confronted in ERISA benefit cases. The issue in such cases is whether courts should recognize oral agreements that conflict with the terms of written plan documents. In general, courts have found that oral promises cannot modify the terms of written ERISA plan documents.

By way of background, the participant began working for Coca-Cola Bottling Co. of New York (CCBCNY) in November 1971 and participated in the Soft Drink and Brewery Workers Union Local 812 retirement plan. He worked for CCBCNY as a union employee for nearly 26 years, until he was promoted to a nonunion position in March 1997. At that time, he ceased to accrue benefits under the union's plan and became a participant in CCBCNY's retirement plan for nonunion employees. CCBCNY's plan for nonunion employees stated that benefits were subject to a reduction for any benefit an employee was eligible to receive on account of participation in a union retirement agreement to which the company contributed. The participant argued that this provision did not apply to him because of an oral agreement negotiated prior to his accepting the nonunion position. Under that oral agreement, CCBCNY allegedly agreed to pay him benefits based on a hiring date of November 1971 with no offset of any union benefits. The participant also alleged he received benefit statements over the course of 10 years that confirmed this agreement. However, the statements included disclaimers that benefits would be calculated in accordance with plan documents.

In denying Coke's motion for summary judgment as to the participant's benefit claim under ERISA Section 502(a)(1)(B), the court noted that the U.S. Court of Appeals for the Second Circuit has held that oral promises generally are unenforceable under ERISA. However, the court said material issues of fact remained that prevented entering summary judgment for CCE on Giordano's benefit claim. However, the court noted there are exceptions for promissory or equitable estoppel where “extraordinary circumstances” are shown. Facts demonstrating extraordinary circumstances must go beyond a showing of reliance, harm, or injustice, the court said. The court said that regardless of whether the case involved promissory or equitable estoppel, the alleged oral agreement and the 10 years of statements that appeared to confirm the terms of the alleged agreement presented issues of material fact and inferred that they amounted to extraordinary circumstances, if proven. The court added that issues of fact remained regarding the discrepancy between the benefit estimates and the final benefit.

PBGC Proposal Links Timing of Guaranteed Benefits to Plan Shutdowns

The Pension Benefit Guaranty Corporation ("PBGC") released a proposed rule this morning that would amend PBGC's regulation on benefits payable in terminated single-employer plans by adding rules for phasing in PBGC-guaranteed pension benefits. The proposed amendments would implement Section 403 of the Pension Protection Act of 2006, which makes the phase-in period for guaranteed benefits contingent on the occurrence of an “unpredictable contingent event,” such as a plant shutdown. Under the proposed rule, PBGC-guaranteed benefits could begin no earlier than the date of a plant shutdown or other unpredictable contingent event. The public comment deadline for the proposed rule is May 10.

D.C. Court Denies Motion to Compel Arbitration in MTV "Real World" Litigation

The United States District Court for the District of Columbia ruled today that a woman who appeared on an episode of MTV's "The Real World" may maintain her lawsuit in federal court and will not have to arbitrate her claims based on video footing the Defendants allegedly obtained without the Plaintiff's authorization while she was intoxicated. Although not an employment or benefits case, we think the case worth mentioning here as it involves the arbitrability of disputes in general, an issue that frequently arises in the employment law context (it is also worth mentioning because our firm represents the plaintiff in the case).

By way of background, the Plaintiff brought suit in the Superior Court of the District of Columbia alleging invasion of privacy, intentional infliction of emotional distress, and negligent infliction of emotional distress against Defendants Viacom, Inc., MTV Networks, and Bunim-Murray Productions, based on her allegedly unauthorized appearance on MTV's "The Real World" reality television show. Specifically, the Plaintiff alleged in Counts I and II of her Complaint, that Defendants invaded her privacy by portraying her in a false light and by disclosing private facts about her without her consent. In Count III, she alleged that Defendants intentionally caused her emotional distress by airing the episodes and outtakes and by continuing to disseminate the footage after she notified Defendants that the footage had caused her severe emotional distress. Lastly, in Count IV, the Plaintiff claimed that the Defendants negligently caused her emotional distress by airing the footage. With regards to Counts III and IV, the Plaintiff emphasized that Defendants knew or should have known that she was particularly susceptible to emotional distress because she stated in part of the footage Defendants obtained and aired on MTV's networks that she suffered from anxiety.

On May 12, 2010, the Defendants removed the action to the United States District Court for the District of Columbia pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. The Defendants then filed a Motion to Compel Arbitration, or in the Alternative, to Stay the Litigation. The Defendants argued that, prior to Defendants obtaining any video footage of Plaintiff, the Plaintiff had signed a release authorizing Defendants to use any video footage taken while Plaintiff was in the Real World house and that the Plaintiff agreed in the release to submit any disputes arising under the release to arbitration. The Defendants argued that the Federal Arbitration Act dictates that the dispute had to be decided in arbitration and not in federal court. The Plaintiff countered that the FAA also dictates that certain issues must be decided by the courts. The Plaintiff noted that Section 4 of the FAA, which was at issue in the case, provides that “[i]f the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof.” The Plaintiff argued that her intoxication placed the “making of the arbitration agreement” at issue and therefore the enforceability of the agreement was for the Court to decide (not surprisingly, the Defendants argued, on the other hand, that the case law compelled the conclusion that the intoxication challenge should be decided by the arbitrator in the first instance).

Ultimately, the Court agreed with the Plaintiff. The Court noted that the Plaintiff challenged the making of the Arbitration Agreement on the grounds of intoxication and that under relevant law, voluntary intoxication is a type of mental capacity defense that permits an individual to avoid a contract if she was so intoxicated at the time of formation that she could not understand the terms and conditions of the agreement. The Court concluded that because this mental capacity defense went to the formation, or the “making” of the Arbitration Agreement, under § 4 of the FAA it must be decided by this Court. Consequently, the Court denied Defendants’ Motion to Compel Arbitration.

Finally, the Court noted that the Defendants also sought, through their motion to compel and stay, summary judgment on Plaintiff’s intoxication defense, arguing that Plaintiff cannot bear her burden of proof. The Court noted that the had offered evidence suggesting that she was inebriated when she signed the Agreement and that the issue of whether Plaintiff was so intoxicated on the night of September 11, 2009, that she was incapable of understanding the terms of the Arbitration Agreement was thus a genuine issue of material fact is in dispute. Consequently, the Court concluded that summary judgment is not appropriate.

Stay tuned for more about this case.

Supreme Court Expands Retaliation Protection

The United States Supreme Court recently expanded the scope of protection from retaliation under Title VII of the Civil Rights Act of 1964 (“Title VII”) to cover associational retaliation. In Thompson v. North American Stainless, LP, __ U.S. __, 131 S. Ct. 863 (January 24, 2011), the Court ruled that in certain situations, Title VII allows an employee who has not personally previously engaged in protected activity to bring a retaliation claim against an employer who has taken action an adverse employment action against that individual.

By way of background, Thompson and his fiancée were both employed by North American Stainless (“NAS”). NAS fired Thompson shortly after (approximately three weeks) Thompson’s fiancée filed an EEOC sex discrimination charge against NAS. Thompson then filed his own EEOC charge under Title VII’s anti-retaliation provision, claiming that NAS fired him in retaliation for his fiancée’s protected activity. Thompson subsequently filed a lawsuit in federal district court. The district court granted summary judgment to NAS, finding that Title VII does not allow for third-party retaliation claims. On appeal, the United States Court of Appeals for the Sixth Circuit held that Thompson did not have a cause of action under Title VII because he had not personally engaged in statutorily protected activity, such as filing an EEOC charge.

After agreeing to entertain Thompson’s petition for certiorari, the Supreme Court addressed two issues. First, did NAS’s firing of Thompson constitute unlawful retaliation? And second, did Thompson have standing to maintain a cause of action under Title VII? In addressing the first issue, the Court looked to its decision in Burlington N. & S. F. R. Co. v. White, 548 U.S. 52 (2006), where it held that Title VII’s anti-retaliation provision prohibits any action that “well might have dissuaded a reasonable worker from making or supporting a charge of discrimination.” Looking to the facts in Thompson’s case, the Court determined that it was “obvious that a reasonable worker might be dissuaded from engaging in protected activity if she knew that her fiancé would be fired.” Thus, Title VII’s anti-alienation provision covered Thompson’s firing.

In addressing the second, more difficult question, of whether Thompson had standing to bring an action against NAS under Title VII, the Court applied the “zone of interests” test set forth in Lujan v. National Wildlife Federation, 497 U.S. 871 (1992). Under that test, an individual has standing if he or she falls within “the zone of interests sought to be protected by the statutory provisions whose violation forms the legal basis for his complaint.” The Court held that Thompson fell within that zone because Title VII’s purpose is to protect employees from unlawful actions, and that hurting Thompson to punish his fiancée was such an unlawful act. Moreover, the Court found, Thompson was not an “accidental victim” or “collateral damage” in the case, “but to the contrary, injuring him was [NAS’s] means of harming [his fiancée].”

The Court declined to define the class of protected relationships entitled to coverage under Title VII’s anti-alienation provision, stating that “[w]e expect that firing a close family member will almost always meet the Burlington standard, and inflicting a milder reprisal on a mere acquaintance will almost never do so, but beyond that we are reluctant to generalize.” However, the Court emphasized that “the provision’s standard for judging harm must be objective” and not based on an individual’s subjective feelings.

Because the Supreme Court’s ruling in Thompson opens the door to “third party” or “associational” lawsuits against employers -- but does not provide precise guidance on what degree of action and what level of relationship will create potential liability -- employers must recognize the added risk of taking some action that may not only be viewed as retaliating against an employee engaging in protected activity, but also against others in some undefined level of relationship with that person. The Supreme Court has left it to the lower courts, at least for now, to define the class of protected relationships entitled to coverage.

b&e Partner Jason Ehrenberg to Teach Class on “Employment Law: Independent Contractors’ Rights”

Program Description
Avoid Classification Violations
The federal government has stepped up its enforcement of proper employee classification, and now misclassifying employees as independent contractors can mean hefty fines and back taxes for employers. Are you up to date on the legal definition of an employee versus independent contractor? Do you understand the independent contractor’s rights, as well as the employer’s wage/benefits advantage? Explore the fundamental legal issues of the new Independent Contractor Proper Classification Act and learn best practices for limiting employer liability in this strategic course. Register today!

* Determine how to properly classify workers as employees or independent contractors.
* Recognize the employer penalties associated with misclassifications.
* Understand the rights that independent contractors are entitled to.
* Learn best practices for limiting employer liability in regard to hiring independent contractors.

Who Should Attend
This timely course is designed for attorneys. It may also benefit in-house counsel, human resources directors and risk managers.

Course Content
* Independent Contractor or Employee?
* The Department of Labor’s “Misclassification Initiative”
* The Rights of Independent Contractors
* Independent Contractors and Benefits Issues
* Best Practices for Limiting Liability
* New Legislation
* Other Legal Questions Related to Independent Contractors

Agenda / Content Covered:
Session Time: 2:00 PM – 3:30 PM Eastern
Presenter: Jason H. Ehrenberg

* Independent Contractor or Employee?
* The Department of Labor’s “Misclassification Initiative”
* The Rights of Independent Contractors
* Independent Contractors and Benefits Issues
* Best Practices for Limiting Liability
* New Legislation
* Other Legal Questions Related to Independent Contractors


For more information and to register, cut and paste the following link into your web browser:

http://www.nbi-sems.com/SemTeleDetails.aspx/Employment-Law-Independent-Contractors-Rights/Teleconference/R-55904ER%7C?NavigationDataSource1=Rpp:25,Ro:50,Nrc:id-3-dynrank-disabled,Nra:pEventDate%2bpEventStartTime%2bStates%2bCredits%2bScope+of+Content%2bpLocationCity%2bpDescription%2bpProductId%2bpProductDescription%2bProductCode+%28HIDDEN%29%2bpAdditionalFormats%2bDivision,N:304