Note: This case involves salaried (non Teamster) employees. Teamster YRC employees are in Teamster pension plans and are not affected by the falling price of YRC shares.
December 1, 2010: Former YRC Worldwide Inc. salaried employees are not entitled to a jury trial in their action alleging the fiduciaries of the company's pension plan breached their fiduciary duties by continuing to invest in YRC stock when its stock price plummeted, the U.S. District Court for the District of Kansas ruled Nov. 29 (In re YRC Worldwide Inc. ERISA Litigation, D. Kan., No. 09-2593, 11/29/10).
Granting YRC's motion to strike the former employees' jury demand, Judge John W. Lungstrum rejected the employees' argument that their claim for money damages to remedy the alleged breach was a legal claim because they did not seek “true restitution” in the case. In particular, the employees argued that under the language of the U.S. Supreme Court's decision in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 27 EBC 1065 (6 DLR AA-2, 1/9/02) they were not seeking equitable restitution because, even though they sought to force the defendants to restore to the plan's fund the amount that was lost, they were not seeking to disgorge from the defendants particular funds that the defendants removed from the plan.
In Knudson, the Supreme Court said that for restitution to lie in equity, the action must seek to restore to the plaintiff particular funds or property in the defendant's possession.
Disposing of the employees' argument, the court said it did not agree that Knudson overturned the “traditional” view that the employees' claims were equitable ones arising under trust law for purposes of the Seventh Amendment.
Drop in Stock Price
The putative class action alleged that the fiduciaries of YRC's defined contribution pension plan breached their fiduciary duties under the Employee Retirement Income Security Act when they continued to invest in YRC's stock as the stock price fell from a high of $25.96 per share in October 2007 to a low of 45 cents per share in March 2010. They sought relief under ERISA Sections 502(a)(2) and (a)(3), requesting actual damages to be paid to the plan to restore the loss in the value of the plan's assets that resulted from the alleged fiduciary breaches. The employees also sought other declaratory and equitable relief.
In an earlier decision in the case, the court adopted the “presumption of prudence” and said the employees set forth sufficient allegations that, if proven, could overcome the presumption; 50 EBC 1172. The court said the presumption of prudence could likely be rebutted given that YRC stock became virtually worthless during the class period.
In that decision, the court also dismissed the employees' claim that the plan's fiduciaries breached their duties by failing to disclose material information about the company to employees who invested in YRC stock.
Court Strikes Jury Demand
In the current decision, the court struck down the employees' request for a jury demand. Under the Seventh Amendment, plaintiffs are entitled to a jury trial when their claims and requested relief are legal rather than equitable in nature. The employees argued that in light of Knudson, they brought a legal claim—a claim for monetary relief for breach of fiduciary duty under ERISA Section 502(a)(2)—requiring a jury trial under the Seventh Amendment.
While a claim for money damages is traditionally a form of legal relief, damages are characterized as equitable when they are restitutionary or when a monetary award is incidental to or intertwined with injunctive relief. Among other things, the employees argued that Knudson affected the analysis as to the restitution exception.
The district court said that Knudson “hardly governs the present situation,” as Knudson did not involve ERISA Section 502(a)(2), a right to a jury trial under the Seventh Amendment, or a claim against a trustee or fiduciary that had breached its fiduciary duties to participants. The claim at issue in Knudson was more akin to a breach of contract action, whereas the YRC employees' claim was essentially a claim for a breach of trust arising from a fiduciary duty, the court added.
Even if the court accepted the employees' argument that Knudson created a new, narrower definition of equitable restitution, the court said it would still conclude that the employees' claim for monetary relief was equitable for purposes of applying the Seventh Amendment because it was incidental to or intertwined with their equitable claims.
The plaintiffs were represented by Edward W. Ciolko, Mark K. Gyandoh, Joseph H. Meltzer, Peter A. Muhic, and Julie Siebert-Johnson of Barroway Topaz Kessler Meltzer & Check in Radnor, Pa.; Gregory M. Egleston of Brooklyn, N.Y.; Stephen J. Fearon and Garry T. Stevens of Squitieri & Fearon in New York; Robert A. Izard of Izard Nobel in West Hartford, Conn.; and Patrick J. Kaine and Don R. Lolli of Dysart Taylor Lay Cotter & McMonigle in Kansas City, Mo.
The YRC defendants were represented by David M. Buffo and James D. Griffin of Husch Blackwell in Kansas City, Mo.; Charles C. Jackson of Morgan Lewis & Bockius in Chicago, Ellen L. Perlioni in the firm's Dallas office, and Christopher A. Weals in the firm's Washington, D.C., office.
By Meredith Z. Maresca for BNA Daily Labor Report