Editor: Please describe your practice as it relates to ERISA matters.
Shapiro: Proskauer's ERISA Litigation practice consists of approximately 20 lawyers; 12 of those lawyers reside in the New Orleans office. However, no matter where located, our focus on defending ERISA litigation takes us all over the country. At least 90 percent of the work done in the New Orleans office is the defense of these extraordinarily large complex ERISA class actions pending elsewhere. In fact, right now we are working on active matters in Arkansas, Arizona, California, Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Massachusetts, Michigan, North Carolina, Ohio, Oregon, Pennsylvania, Texas, and Virginia. I travel at least every other week and typically every week.
Editor: Why is ERISA litigation such an active practice area, and what are some of the significant issues for employers and counsel that arise within it?
Shapiro: Even after the financial crisis, there is still upwards of $3.5 trillion invested in ERISA pension plans; it's the largest single source of private capital in the United States. The people who administer these plans are usually employees of their corporations and they are assigned the duty of being ERISA fiduciaries. Under ERISA law, they have a heightened fiduciary responsibility to the participants and beneficiaries of these retirement plans to manage the plan's assets and generally operate the plans pursuant to the plan document. Even though these personnel have corporate job positions, when they assume ERISA fiduciary responsibilities, at that point they have to take off their corporate hats and focus on the interest of the participants. These fiduciary duties are very different than those of corporate fiduciaries, and much more nuanced, complicated and difficult.
ERISA is a less mature body of law; ERISA only came into effect on January 1, 1975. Even after more than 30 years it still presents many unanswered questions, which makes for a fascinating and challenging practice and one dramatically different from securities litigation.
Editor: I note that you participated on the amicus brief filed by the ERISA Industry Committee and the American Benefits Council with the Supreme Court in Conkright v. Frommert . Could you please tell our readers about that and other significant recent ERISA cases?
Shapiro: In Conkright , there had been a series of decisions adverse to the defendant and the issue is how and by whom the remedy for that liability should be determined. The Second Circuit affirmed a district court ruling where the court rejected and paid no attention to the remedy that the plan administrator recommended; instead the court created its own remedy. The district court said that because the plan administrator was not making the remedy decision in the context of a benefit claim determination, its recommendation was not entitled to any weight, deference or discretion. We believe that's flat out wrong and hope the Supreme Court will reject that reasoning. Plan administrators make many decisions every day in running and administering the plans; many, if not most, of those decisions do not come up in the context of an ordinary benefit claim. Our position is that these decisions are nevertheless entitled to deference and discretion; the district court should not have substituted its own judgment and imposed a remedy that the plan administrator did not recommend. This is an important point for plan administrators universally. ABC and ERIC's amicus brief has been filed, and oral argument will occur this term.
The big Second Circuit case in this area now is Amara v. CIGNA , a significant cash balance decision. In this case, a Connecticut district court determined that information provided in summary plan descriptions and elsewhere about the impact of the cash balance plan was not accurate. This is certainly a plaintiff-friendly case and we're currently defending a number of cash balance cases, two in the Second Circuit, so we're keeping an eye on that one.
Another recent and significant Second Circuit case is Ladouceur v. Credit Lyonnais . This case basically says that if the language of the pension plan is unambiguous, then the pension plan controls despite any alleged oral misrepresentations. This is a very good result for defendants in the Second Circuit. Cases like this that give precedence to the writings of the pension plan documents are very helpful for the defense bar in rebutting misrepresentation claims made by ERISA class plaintiffs. Ladouceur just came out of the Second Circuit on September 30.
Editor: Have class actions become a significant force in ERISA litigation?
Shapiro: What has really changed in the ERISA arena in the last ten years is the emergence of class action plaintiffs' firms targeting ERISA plans and creating more ERISA class action litigation than existed throughout the first half of my career. During the first 15 or so years of my career, class actions were fewer and more far between. The change since then has been dramatic. Individual cases are still being filed, but the class actions are really robust. Plaintiff's lawyers have figured out that there is a lot of money in these ERISA plans and they are very adept at using the Internet to find and attract plaintiffs and develop class actions via electronic communications.
Editor: Has the volume of ERISA class actions increased further with the financial crisis?
Shapiro: What happens in many ERISA cases, and there's some parallel with securities cases as well, is that when a particular sector of the economy is struggling generally the value of the assets invested in an employer stock fund holding employer stock declines. In 401(k) plans particularly it is very common that there will be an employer stock fund. Of course, the most extreme example of an employer stock fund case was the Enron situation, but any number of industries have been under pressure during this past decade. Now, that pressure has found its way to the financial sector. Naturally, the plaintiffs' lawyers have started filing ERISA class actions directed at the plans maintained by these financial sector employers. What I can predict is that while you can never know ahead of time what industries are going to have economic issues in the next three years, you can be certain that employers in those industries will similarly be targeted by ERISA plaintiffs' counsel.
The other reason that financial institutions are being targeted is that some established various types of alternative investment portfolios for pension plans. So, when plan portfolios do not turn a profit, then plaintiff participants may sue the financial institution involved. And sometimes the plans themselves sue the financial institution that the plans claim recommended this financial structure for investment. So that's another reason why the financial industry now finds itself beset with ERISA litigation.
Editor: Has the Madoff fraud elicited litigation against fiduciaries of pension funds that invested with him?
Shapiro: Some pension plans were among the investor groups that participated in Madoff's investment portfolio. So, fiduciaries who made the decisions to invest in it may find themselves targeted by private plaintiffs.
Editor: But isn't that Monday morning quarterbacking?
Shapiro: It is very much Monday morning quarterbacking, and it is all about issues of procedural prudence. We know that the investment decision didn't turn out well, so the question is whether it was made through a prudent process. Plaintiffs will allege that the fund managers "knew or should have known," or that they didn't investigate the portfolio prudently or thoroughly enough. This litigation will be very complicated and with very high stakes.
Editor: A lot of innocent people are likely to be swept up in the backwater here.
Shapiro: It's just impossible to always get it right. Fiduciaries who are asked to manage assets are always put under a microscope and of course that makes their lives subject to scrutiny no matter what they do.The classic type of employer stock transaction claim that we defend on a class action basis is that "you should have sold the stock before it went down," but there are other ERISA class actions where the defendants are being attacked for selling employer stock held by the plan because post-transaction, the stock then went up in value. That is the kind of precarious situation that ERISA fiduciaries find themselves in, and why the prudence of the procedural things they do is so critical.
Editor: What has been the role of the U.S. Department of Labor with respect to ERISA cases and cases involving so-called Ponzi schemes?
Shapiro: Relying upon its general investigatory powers, the Department of Labor investigates plans and may bring litigation itself or cooperate with or intervene in litigation. I am currently adverse to the Department of Labor on behalf of four different clients. The Department of Labor is an advocacy group that views its position as defending the rights of plan participants throughout the United States, and it typically takes more aggressive roles and positions than private party plaintiffs. At the end of the day, lawyers who represent private parties want to get paid or derive a fee based on a settlement. This gives the private bar a different perspective than the Department of Labor, which views itself as having a policy-making responsibility position unencumbered by the practical economics of litigation. The Department of Labor stakes out policy positions, whether there is a high or a low prospect of return. These policy positions often are more important to the Department of Labor than the actual economic position. Thus, the Department of Labor may be a more difficult adversary because it's pursuing policy goals which may simply be impossible for defendants to agree to. So it is never a happy thing when the Department of Labor is involved in litigation against a company or a group of fiduciaries in the ERISA area.
Editor: Do you expect your practice to be affected by policies and other changes being advanced by the Obama administration?
Shapiro: I expect that health legislation will have some impact on ERISA litigation down the road, but no one knows yet exactly if or how health legislation will ultimately turn out. As a litigator, I will have to deal with litigation based on the end result of the legislative process, whatever that is.
To me, it is critical that judges understand that unless they read ERISA in a more defendant-friendly way there is a real possible impact with companies starting to curtail and do away with employee benefit plans. I'm sure the regulatory and litigation turmoil that impacted cash balance plans prior to 2006, at least in part, caused a number of major companies to announce in the 2004-2006 time frame that they were terminating their defined benefit plans and establishing defined contribution plans instead. I would like to see judges understand that what is going on in ERISA class action cases can negatively impact what employers are willing to do to provide benefits to employees. I think that point becomes more resonant in these difficult economic times. On the other hand, of course, we on the defense side can expect generally more plaintiff-friendly federal judges to be appointed during President Obama's tenure so that, too, will present a challenge in the ERISA world.