ERISA-Third Circuit Holds That A Beneficiary’s Decision To Retire Is Not The Detrimental Reliance Needed To Establish A Claim For Breach Of Fiduciary Duty Under ERISA

In Shook v. Avaya Inc., No. 09-4043 (3rd Circuit 2010), Richard and Karen Shook, husband and wife, filed suit against Avaya Inc., Richard’s former employer, alleging a violation of ERISA. The Shooks contended that Avaya breached its fiduciary duty owed to them as participant and beneficiary under the Avaya Pension Plan, by sending them a series of misleading letters regarding Richard’s pension benefits. Based on Avaya’ s representation of the length of Richard’s service, the Shooks alleged that Richard calculated his expected pension benefit and the couple decided that Karen should retire from her job at a different company (Verizon). The District Court granted summary judgment against the Shooks, and they appealed. The Third Circuit Court affirmed that decision, finding that the Shooks’ decision that Karen should retire fails to constitute the detrimental reliance needed to establish a claim for breach of fiduciary duty under ERISA.

In analyzing the case, the Court stated that one element needed to establish a claim for breach of fiduciary duty under ERISA is that the plaintiff detrimentally relied on a misrepresentation or inadequate disclosure made by the fiduciary. The Court stated that detrimental reliance encompasses both an injury and reasonableness. To demonstrate sufficient reliance, the plaintiff must have taken some action as a result of the misrepresentation; the mere expectation of a continued benefit is not enough. This reliance may be based on an employee’s retirement decision, or on a decision to decline other employment opportunities, to forego the opportunity to purchase supplemental health insurance, or any other important financial decision pertaining to retirement.

However, in this case, the Shooks’ joint decision that Karen should retire from her position at Verizon does not constitute an important financial decision pertaining to retirement for these purposes. The decision must relate to the employee’s plan. The Shooks’ decision pertained to a non-employee, who was not a participant in the Avaya Pension Plan. This decision did not implicate Richard’s or Karen’s benefits under the Avaya Pension Plan or affect Richard’s retirement. Any reliance on the letters from Avaya is simply too attenuated to hold Avaya liable as a fiduciary. Further, the reliance in this case is not detrimental because the decision in question could not have been forseeable by Avaya. Thus, the Court found that the Shooks’ claim for breach of fiduciary duty fails.

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