MIMMS v PRICEWATERHOUSE COOPERS, LLP, (S.D. N.Y. February. 16, 2012)
In Mimms, a participant in an employee benefit plan (the plan) subject to ERISA brought a malpractice claim against PricewaterhouseCoopers (PwC) derivatively on behalf of the plan. The plan, which held shares of AIG common stock, “suffered substantial loss[es] … result[ing] in a depletion of anticipated retirement income for the Plan’s participants.” Specifically, the plan’s assets sustained substantial losses in 2008 “[w]hen AIG’s stock declined in value … ”
PwC was the outside auditor for the plan and “audited AIG’s financial statements for fiscal year 2007.” After the plan’s investment in AIG stock declined in value, the plaintiff sent a letter to the plan demanding that it file suit against PwC for professional malpractice. The plan evaluated the potential merits of the claim and ultimately chose not to bring a lawsuit against PwC. Subsequently, the plaintiff filed a malpractice claim against PwC derivatively on the plan’s behalf. PwC, in the response to the malpractice claim, filed a motion to dismiss on the ground that plaintiff lacked standing to assert the claim on the plan’s behalf under ERISA.
The court, in evaluating PwCs’ motion to dismiss, initially noted the limited scope of remedies available to a participant in an employee benefit plan under ERISA.
In particular, ERISA contains six civil enforcement provisions which, in part, establish the instances where a plan participant has standing “to file civil suits derivatively for particular relief … ” In addition to these six civil enforcement mechanisms, “federal courts have recognized additional means of enforcement based on principles developed in the law of trusts.” However, a malpractice claim founded on state law, brought derivatively on the plan’s behalf, fell outside the scope of ERISA’s civil enforcement provisions. Similarly, the other means of enforcement recognized by federal courts failed to provide plaintiff with standing because the court had previously found that the plan acted appropriately in choosing not to assert a malpractice claim against PwC. Accordingly, the court held that “[n]either the statute nor the common law of ERISA provides a right of action whereby [the] [p]laintiff can bring a derivative suit. … [and, as a result, she] lacks standing to pursue her derivative claims against [PwC].”
Impact: The court’s opinion in Mimms is noteworthy for two important reason. First, the court recognized that a participant in an employee benefit plan has a limited ability to assert state law claims against third parties, including claims for malpractice, derivatively on the employee benefit plan’s behalf. This limitation is important given that many participants in employee benefit plans may be seeking to recoup some of losses that were incurred during the recent economic downturn by, among other things, pursuing professional malpractice claims. Second, PwC was able to obtain a favorable court decision by proffering an argument that may sometimes be overlooked. The issue of standing is sometimes an afterthought despite the fact that a plaintiff must satisfy this requirement in order to bring a lawsuit. In short, it is an issue that should be carefully evaluated and particularly in the context of claims brought against the backdrop of ERISA.