Law 360: 11th Circuit Revives ERISA Case Against Home Depot

A federal appeals court has reversed a lower court’s dismissal of a proposed class action brought by former Home Depot employees who alleged the home improvement retailer violated its fiduciary duty by allowing its retirement plan to invest in company stock while corporate officials were backdating stock options.

The U.S. Court of Appeals for the Eleventh Circuit ruled Thursday that the district court erred when it dismissed the former employees’ suit with prejudice, but agreed with its ruling that the former workers failed to exhaust their administrative remedies.

Former employees lodged a suit on behalf of all plan participants alleging that Home Depot and its officials broke their fiduciary duty of overseeing the company’s defined contribution retirement plan under the Employee Retirement Income Security Act.

They also claimed that since June 2001 their benefit payments were less than they should have been because officials let the plan invest in Home Depot stock at the same time as officials were allegedly backdating options, which artificially boosted the stock’s value.

The U.S. District Court for the Northern District of Georgia tossed the suit with prejudice for lack of subject-matter jurisdiction, holding that the complaint sought damages, not benefits, and that the former employees did not qualify as “participants,” who could sue for a breach of duty.

The district court determined alternatively that the former workers did not take advantage of all possible administrative remedies.

On Thursday, the Eleventh Circuit found that the district court should not have thrown out the complaint due to lack of jurisdiction.

“Because the former employees’ argument for participant status is plausible, the district court had subject-matter jurisdiction. Whether the former employees qualify as participants involves the merits of the appeal,” Judge William H. Pryor Jr. said.

The appeals court also agreed with the plaintiffs’ argument that they qualify as plan participants because, under ERISA, their complaint asserts a claim for benefits instead of damages. It added that a participant or beneficiary of a plan can bring a breach of fiduciary duty claim.

Basing its holding on opinions from other circuit courts, the Eleventh Circuit said the complaint was not seeking damages because it is limited to the difference between the benefits received and the benefits that would have been received if officials had allegedly fulfilled their obligations.

“Because their complaint is for benefits, not damages, the former employees qualify as participants,” Judge Pryor said.

However, the appeals court disagreed that it would have been futile for former employees to exhaust their administrative remedies.

“The former employees allege that the same parties who breached their fiduciary duty would have been the decision makers in the administrative proceeding, but the futility exception protects participants who are denied meaningful access to administrative procedures, not those whose claims would be heard by an interested party,” Judge Pryor said.

The appeals court said on remand, the district court still needed to rule on the former employees’ bid for a stay as an alternative to a dismissal without prejudice to allow them to seek administrative remedies.

Attorneys representing the plaintiffs and Home Depot were not available for comment.

The plaintiffs are represented in this matter by Harwood Feffer, Greenfield Millican PC, Scott + Scott LLP and Gainey & McKenna. Home Depot Inc. is represented by King & Spalding.

The case is Raymond A. Lanfear et al. v. Home Depot Inc. et al., case number 07-14362, in the U.S. Court of Appeals for the Eleventh Circuit.