I have discussed in many posts the idea that the plaintiffs’ class action bar has alighted on ERISA and breach of fiduciary duty claims as a preferable tactical alternative, in many cases, to proceeding under the securities laws. This approach was a particularly nice fit for stock drop cases, in which company stock held in employee benefit plans rendered ERISA, and its relatively – at least compared to the securities laws – more malleable breach of fiduciary duty doctrines, a viable approach to seeking recovery for precipitous declines in company stock prices. To date that tactic – which made sense as a legal and tactical theory in the abstract – has not really worked out all that well with regard to decline in the value of company stock holdings, because of the oft-discussed Moench doctrine, which provides a strong presumption in favor of plan fiduciaries when it comes to holding company stock.
This article here, however, discusses what has, at least in perfect hindsight, turned out to be an excellent example of taking a good idea – at least if you are a class action lawyer or a plan participant – a little too far, by choosing to proceed under ERISA in a large putative class action rather than under the securities laws, only to have the court subsequently conclude that ERISA cannot apply under the facts of the particular case, and that the participants should have gone forward under the securities laws in the first place. The case it discusses, Daniels-Hall v. National Education Association out of the Ninth Circuit, can be found here, and for the ERISA practitioner, it may be more significant for its detailed analysis of the government plan exemption in ERISA than for its conclusion that the plaintiffs had overreached by relying on ERISA rather than the securities law to proceed with their case. The issue of the choice of legal doctrine to pursue is one of tactics, and reasonable lawyers can disagree at the outset of a case as to which of many plausible lines of attack should be pursued; either way, over time, the current preference for ERISA over the securities laws as a matter of tactics will likely run its course. Debates over whether a particular plan is a government plan, however, will continue to pop up, and the Ninth Circuit’s decision provides a sound template for analyzing that issue.