ERISA-Third Circuit Rules That A Plaintiff’s Release Is Not Void Under ERISA As Being Against Public Policy, And Does Not Bar The Plaintiff From Bringing a Lawsuit Under ERISA

In In Re: Schering Plough Corporation ERISA Litigation, No. 08-4814 (3rd Cir. 2009), the plaintiff, Michele Wendell, is a former employee of Schering-Plough Corporation (“Schering-Plough”) who participated in the Schering-Plough Corporation Employees’ Savings Plan (the “Plan”). She brought a class action against Schering-Plough and certain of its officers and directors under section 502(a)(2) of ERISA, claiming that breaches of fiduciary duty had occurred in the offering and management of the Plan, for example, causing a decline in the value of the Plan’s company stock fund. One issue faced by the Court was whether a release, consisting of a general release and covenant not to sue, the plaintiff had signed in connection with her separation from Schering-Plough violated ERISA and was therefore void, so that the plaintiff could sue and maintain the class action.

As to the release, the first question is whether section 410(a) of ERISA renders the release, including the covenant not to sue, void as against public policy. Section 410(a) of ERISA provides that “any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part shall be void as against public policy.” The Court concluded that section 410 applies only to instruments that purport to alter a fiduciary’s statutory duties and responsibilities, whereas an individual release or covenant not to sue merely settles an individual dispute without altering a fiduciary’s statutory duties and responsibilities. Therefore, the plaintiff’s release is valid.

The second question is whether the valid release bars the plaintiff from being able to bring a suit under section 502(a)(2) of ERISA. The Court said that claims brought under section 502(a)(2) are, by their nature, plan claims. The vast majority of the courts have concluded that an individual release has no effect on an individual’s ability to bring a claim on behalf of a plan under section 502(a)(2). As such, the Court concluded that the plaintiff’s valid release does not prevent the plaintiff from bringing this suit.

However, the existence of the release, among other matters, caused the Court to question as to whether the plaintiff could maintain a class action. The Court remanded the case back to the district court to decide that issue.

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