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Significant U.S. Supreme Court ERISA Decision

Significant U.S. Supreme Court ERISA Decision

Our firm handles a significant number of ERISA claims for aggrieved employees and plan participants.  ERISA governs most employee benefit actions:  pensions, health plan claims, long-term disability insurance claims, and even employer-sponsored life insurance and accidental death and dismemberment insurance claims.

One of the aggravations of ERISA is the difficulty in making claims against the plan administrator for breaching his, her, or its fiduciary duties to the plan participants and beneficiaries.  Sometimes the people in charge of employee benefit plans do dishonest things, misrepresent important information to plan participants, make dumb investment decisions, or otherwise act inconsistently with their duty to further the interests of the plan participants.  This is a “breach of fiduciary duty.”  These breaches can literally cost employees hundreds of thousands, and sometimes millions of dollars in expected benefits.

ERISA (the Employee Retirement Income Security Act of 1974) has a provision allowing participants to sue for breaches of fiduciary duty  (29 USC 1132(a)(3)).  However, in the last twenty years, the U.S. Supreme Court has hampered the ability to obtain relief under this section.  Previously, the Court held that this part of the statute would only afford “equitable” relief.  Heretofore, this meant any type of relief other than getting the trial court to award a money judgment—which is a “legal remedy.”

All of this arcane discussion of “legal” versus “equitable” remedies was great reading for lawyers, but aggravating to clients. The net result in many cases was that the participant who had been wronged could prevail in proving the bad conduct but could not obtain an award of money.  A useless victory.

However, in May, the Supreme Court added a new “equitable” remedy against wrongdoing plan administrators and fiduciaries.  Per the Supreme Court, a trial court can now impose a “surcharge” as an equitable remedy to make a beneficiary or plan participant whole.  According to the Court, this is a legitimate “equitable remedy.”

I am no legal scholar.  But, to me, this looks much like an award of money to the participant—i.e., a money judgment.  Previously, this was not permitted.  In my mind, the Supreme Court took over twenty years to come to the obvious conclusion that there must be a remedy when a participant is harmed.  This usually will require money.  My only criticism is that the Court took decades and used convoluted legal reasoning to get to the right result, instead of simply holding that aggrieved participants should be entitled to a money judgment.

Regardless, at this point, it appears that fiduciary breach litigation is now on a stronger footing.  Aggrieved plan participants can now ostensibly ask for money and call it a “surcharge” for their harm.  This is a good thing.

 

Significant Verdict in Washington County

Significant Verdict in Washington County

Although not my case, I had the privilege of watching portions of the trial of McLaughlin v. American Electric Power in June, here in Marietta. The case reinforces why our civil justice system and juries are so important.

In 2007, there was a fatal explosion at the Muskingum River power plant north of Beverly, Ohio.  Ohio Power (a division of American Electric Power) operated the plant. One man died, and several more were seriously injured. The explosion was caused by escaping hydrogen.  As I learned during the trial, the turbines at power plants must be cooled, just like our car engines.  Hydrogen cooling is the preferred method. This requires storing large quantities of hydrogen at the facility

Of course, hydrogen can be dangerous—remember the Hindenberg. If it escapes and mixes with the outside air, it can explode. In the case of the Muskingum River plant, Ohio Power had an antiquated hydrogen storage system. The old vent pipes were made of copper (should not be). The vent pipes also multiple bends and turns. (Should not be—the vent pipes are supposed to move any excess gas up and into the atmosphere.)

Worse yet, the entire hydrogen storage system was kept underneath large “shed” roof directly next to portions of the plant where workers would be. This is extremely dangerous. It allows the hydrogen to pool underneath the roof instead of escaping into the sky. It is much the same as when the closed lid of your gas grill can allow propane to pool and then explode when you first start the grill.

The most egregious fact of the case was that Ohio Power knew of these dangers. In fact, the plaintiff’s lawyers obtained documents showing that Ohio Power had been warned very specifically that it needed to fix its hydrogen storage system—over a year before the explosion.  They didn’t.  Apparently, they did not want to spend the money. Even more amazing was that there had been other hydrogen explosions, caused by the same problems, at other Ohio Power plants during the few years before the Muskingum River plant explosion.

Normally, a worker cannot sue his or her employer for workplace injuries, even if the employer was negligent. Workers compensation benefits pay the bills.  But, in Ohio, an employee can sue if the employer is shown to have a “deliberate intent” to injure. Removal of safety guards is the typical example.

In this case, Mr. McLaughlin’s lawyers successfully persuaded the jury that Ohio Power’s complete indifference to its worker’s safety amounted to a “deliberate intent” to injure.

The jury awarded Mr. McLaughlin nearly $1.7 million.  Then, two days later, the jury also awarded punitive damages in the amount of $4 million.  (This was equivalent to four days of profit at the Muskingum River plant.) The media loves to print stories of “frivolous” lawsuits. However, there is often not much coverage when a jury rightfully punishes a person or company with exemplary (punitive) damages for malicious or callous conduct.

Indeed, before this case, Ohio Power only repaired its hydrogen storage systems after explosions. Perhaps now, because of a Washington County jury, Ohio Power will fix dangerous problems before people are injured or killed.
-Ethan Vessels