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June 8 — Bank of America Corp. workers challenging a $3 billion transfer from the company's 401(k) plan to its cash balance pension plan will have another chance to make their case, the U.S. Court of Appeals for the Fourth Circuit ruled.
The long-running suit—first filed in 2005—accuses the company of violating the Employee Retirement Income Security Act by depriving workers of the “separate account” feature of their 401(k) plan. The workers sought to recover the difference between the investment earnings they would have received in the 401(k) plan and the earnings that Bank of America credited them with following the transfer of assets to the company's cash balance plan.
In 2013, the U.S. District Court for the Western District of North Carolina ruled for Bank of America on this claim, finding that the bank's closing agreement with the Internal Revenue Service and subsequent action to restore the separate account feature deprived the workers of standing to assert this claim.
The Fourth Circuit reversed this decision in a June 8 opinion by Judge James A. Wynn Jr.
According to Wynn, the workers had standing under ERISA because they sought appropriate equitable relief for a violation of ERISA's anti-cutback rule, which prohibits plan amendments that reduce accrued benefits.
In so ruling, the court adopted an expanded reading of ERISA's equitable remedies provision, which has been the subject of much debate since the U.S. Supreme Court's 2011 decision affirming the right of ERISA litigants to seek “appropriate equitable relief.”
According to the Fourth Circuit, the workers' requested relief—the difference between the money Bank of America made off their plan investments and the amount of money they were actually credited with—qualified as “the hornbook definition of an accounting for profits,” which the court found to be a permissible equitable remedy under ERISA.
The court also found that the workers had standing under the U.S. Constitution, despite Bank of America's argument that they never suffered a financial injury.
In particular, the Fourth Circuit said it was “blackletter law that a plaintiff seeking an accounting for profits need not suffer a financial loss.”
“Requiring a financial loss for disgorgement claims would effectively ensure that wrongdoers could profit from their unlawful acts as long as the wronged party suffers no financial loss,” the court said.
Here, the Fourth Circuit said that the workers suffered an injury sufficient to establish constitutional standing. That injury could be measured as the difference between the profit Bank of America earned off their investments and the amount the workers actually received from the bank, the court concluded.
The Fourth Circuit also disagreed with the district court's conclusion that Bank of America's subsequent corrective measures rendered the workers' claims moot.
In particular, the district court found that the bank's closing agreement with the IRS—in which the company addressed the agency's findings of statutory violations by reinstating the workers' separate accounts—resolved the workers' dispute with Bank of America and meant that their legal claims were no longer viable.
The Fourth Circuit disagreed, saying that the workers accused the bank of retaining profits off of their investments, even after it restored the separate account feature and paid a $10 million fine to the IRS.
Unless and until Bank of America showed that it retained no profits, the workers' claims were live and viable, the Fourth Circuit concluded.
Finally, the court found that the workers' lawsuit wasn't untimely under North Carolina's 10-year limitations period for equitable actions seeking a constructive trust.
Judges Barbara Milano Keenan and Henry F. Floyd joined in the decision.
The workers were represented by Thomas D. Garlitz of Thomas D. Garlitz PLLC, Charlotte, N.C., and Eli Gottesdiener of Gottesdiener Law Firm PLLC, Brooklyn, N.Y. Bank of America was represented by Irving M. Brenner of McGuireWoods LLP, Charlotte, N.C., and David R. Carpenter, Michelle B. Goodman, Chris K. Meyer, Carter G. Phillips and Anna E. Rea of Sidley Austin LLP, Los Angeles, Chicago and Washington.
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