No Money Damages for Participants Challenging Alternative Pension Investments

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By Jacklyn Wille  


A group of participants challenging Weyerhaeuser Co.'s pension plan investment strategy can proceed with their claims for equitable relief, but they lack standing to seek monetary damages for an alleged $2.4 billion in plan losses, the U.S. District Court for the Western District of Washington ruled Aug. 23 (Palmason v. Weyerhaeuser Co., W.D. Wash., No. 2:11-cv-00695-RSL, 8/23/13).

The proposed class action alleged that plan fiduciaries' decision to invest more than 81 percent of plan assets in alternative investments such as hedge funds and private equity caused the plan to lose $2.4 billion in 2008 alone. The lawsuit presents relatively novel claims, given that most challenges to investment choices and strategies have taken place in the context of defined contribution plans, rather than defined benefit plans (81 PBD, 4/27/11; 38 BPR 871, 5/3/11).

Judge Robert S. Lasnik dismissed the participants' claims for legal relief on the grounds that they lacked standing to challenge the defined benefit plan's investment losses, because they could not show that the alleged misconduct caused them to suffer individual loss. However, Lasnik found that they had standing to seek equitable relief, because they alleged that they were deprived of specific statutory rights provided by the Employee Retirement Income Security Act.

Alternative Investments

Weyerhaeuser employee Michael Palmason alleged in his proposed class action that the defendants breached their ERISA fiduciary duties by causing or permitting the plan to invest more than 81 percent of its assets in alternative investments, including hedge funds, private equity investments and real estate funds.

The participants argued that the plan fiduciaries' decision to allocate such a large percentage of plan assets to alternative investments was adopted as part of a “portable alpha strategy.” According to the participants, the fiduciaries of Weyerhaeuser's plan miscalculated the risk and correlation of the targeted benchmark of the alternative investments chosen to generate the “alpha.” This miscalculation of risk caused the plan to lose $2.4 billion, or 41 percent of plan assets, in 2008, according to the complaint.

Morgan Stanley--which served as the plan's investment manager--moved to dismiss the participants' claims against it in September 2012, arguing that it was not responsible for the plan's investment strategy. The court denied the motion, explaining that the participants pleaded sufficient facts to state a claim for fiduciary breach against Morgan Stanley (84 PBD, 5/1/13; 40 BPR 1120, 5/7/13; 55 EBC 1895).

Challenge to Standing

In the instant ruling, the court considered Weyerhaeuser's motion to dismiss the participants' amended complaint, which sought both legal and equitable relief. Weyerhaeuser argued that the plaintiffs, as participants in a defined benefit pension plan, lacked standing to challenge the plan's investment strategy, because they could not demonstrate that they suffered any “concrete, particularized harm.”

Weyerhaeuser contended that because the benefits payable in a defined benefit plan are necessarily “defined,” the participants could not show that they were injured by any decrease in plan assets that may have resulted from the plan's investment practices. Further, any threat of plan default or termination was “purely speculative,” Weyerhaeuser alleged.

Morgan Stanley joined in the motion to dismiss.

Legal Relief Unavailable

The court agreed with Weyerhaeuser that the participants' lack of an individual injury prevented them from having standing to seek legal relief in the form of monetary damages. According to the court, the participants sought monetary relief on behalf of the plan itself, and not on behalf of the individual participants. Further, the participants “ha[ve] not cited, and the Court has not found, a case in which a beneficiary was permitted to pursue a claim for monetary damages despite the fact that any potential remedy would not inure to his or her benefit,” the court said.

In the alternate, the participants argued that they had standing because they had a “protectable interest in the assets of the plan, not just in the payments to which they are entitled under the plan.” The court said that this argument was foreclosed by the U.S. Supreme Court's ruling in Hughes Aircraft Co. v. Jacobson, 525 U.S. 432, 22 EBC 2265 (1999), which held that “no plan member has a claim to any particular asset that composes a part of the plan's general asset pool.”

The court concluded that the participants lacked standing to seek legal relief, explaining that “[a]bsent a personal stake in the relief requested, plaintiffs' status as a beneficiary of the plans' assets, standing alone, does not confer standing to sue.”

Equitable Claims Proceed

In addition to their claim for monetary daages, the participants sought equitable relief in the form of an injunction “against future use of the offending investment policy and/or an order removing the fiduciaries from their role.” Weyerhaeuser also challenged the participants' standing to seek equitable relief.

On that point, the court looked to recent decisions interpreting the U.S. Court of Appeals for the Ninth Circuit's ruling in Shaver v. Operating Engineers Local 428 Pension Trust Fund, 332 F.3d 1198 (9th Cir. 2003). According to the district court, that line of cases stands for the “rather broad proposition that as long as an ERISA plan participant is seeking only equitable relief compelling the trustee to perform its fiduciary duty and/or removing the trustee from its position, the participant has standing regardless of any loss.”

Rather than adopt this proposition, the district court elected to follow the Second Circuit's “more nuanced approach” in Kendall v. Emps. Ret. Plan of Avon Prods., 561 F.3d 112, 46 EBC 1582 (2d Cir. 2009) (56 PBD, 3/26/09; 36 BPR 775, 3/31/09). Under this approach, the district court explained that “[w]here the beneficiary has alleged the breach of a concrete right afforded by ERISA, such as the statutory disclosure or record-keeping requirements, the beneficiary need not show that he or she was specifically harmed, pecuniarily or otherwise, because the deprivation of a specific statutory right establishes general harm sufficient to confer standing.” Thus, the question becomes “whether the plaintiffs have simply alleged that defendants failed to comply with ERISA or whether they have identified some tangible statutory right of which they were deprived,” the district court concluded.

Given this, the district court found that the participants had standing to seek equitable relief under ERISA, because they alleged that the defendants violated ERISA's diversification and exclusive benefit requirements. “The deprivation of these statutory rights and protections gives rise to a sufficiently concrete and particularized injury to allow plaintiffs to seek injunctive relief, even if they cannot establish that pecuniary harm has occurred,” the court determined. This conclusion was consistent with Shaver, the district court said, because “to hold otherwise would leave the beneficiaries powerless to rein in the fiduciaries' allegedly imprudent behavior until after actual damage had been done.”

The participants were represented by Bruce Rinaldi, Karen L. Handorf, Michelle C. Yau and R. Joseph Barton of Cohen Milstein Sellers & Toll, Washington, and Derek W. Loeser, Ian J. Mensher, Lynn L. Sarko and Erin M. Riley of Keller Rohrback, Seattle.

Weyerhaeuser was represented by Charles K. Douthwaite of Weyerhaeuser Co., Federal Way, Wash.; Brian T. Ortelere, Charles C. Jackson, Jeremy P. Blumenfeld and Melissa D. Hill of Morgan Lewis, Philadelphia and New York; and Laurie L. Chyz, Louis D. Peterson, Michael J. Ewart and Michael R. Scott of Hillis Clark Martin & Peterson, Seattle.

Morgan Stanley was represented by Jonathan H. Singer, Theresa S. Gee and Shannon Barrett of O'Melveny & Myers, Washington; and Christopher B. Wells and Larry S. Gangnes of Lane Powell, Seattle.


The full text of the opinion is at

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