Vaughn v. Bay Environmental Management, Inc.
Filed September 19, 2008
Cite as 05-17100

Former Employee still “participant” under ERISA

Jerry Vaughn and Theresa Travers (Vaughn) were former employees of Bay Environmental Management Inc. (Bay Environmental). During their employment, both took part in two types of ERISA retired government plan offered by the company, the Pension Plan and the Retirement Plan.

The Pension Plan was funded solely by the discretionary contributions of Bay International while the Retirement Plan was both a profit sharing component and a 401(k) component.

Also known as defined contribution plans, both plans were chosen by the trustees and investors advisors except for the 401(k) component of the Retirement Plan.

The trustees decided to terminate the plan when Republic Services, Inc. bought Richmond Sanitary Services, Inc. (RSS), of which Bay Environmental was an affiliate. Consequently, the trustees moved all nonparticipant-directed plan assets to money market funds.

Thereafter, the Plan participants were given a lump sum distribution of the value of their individual accounts.

On behalf of the plan holders, Vaughn filed a suit against the trustees and Bay Environmental for breached of fiduciary duties by imprudently investing the Plan’s assets.

After a failed mediation, Vaughn added FSC Corporation (FSC), as the Plan advisors and Jerrold N. Weinberg as defendants alleging that they failed to investigate before selecting the investment advisors or to monitor the Plan’s investment and investment advisors.

FSC filed a motion to dismiss for lack of subject matter. It argued that it was not a “participant” as defined under ERISA.

The district court dismissed the case on the ground that Vaughn was not a participant as he already received a lump sum distribution of his individual account. Consequently, he was not entitled to receive additional benefits under the plan.

On appeal, the United States Court of Appeal ruled that Vaughn had standing to sue.

Vaughn, as a former employee who received a full distribution of his account balance under a defined contribution pension plan was considered a plan participant under ERISA. Consequently, he could file a suit to recover losses for breach of a fiduciary duty.

The court further stated that employees have vested right over money not in account at time of distribution as long as they were entitled to it. Moreover, Vaughn’s claim for damages was ascertainable through expert testimony or other evidence regarding investment returns during relevant period as the amount of damages sought was the difference between the benefit received and what Vaughn retirement plan’s assets had been prudently invested.

Considering the above, the appeal court vacated the district court’s ruling and remanded the case for further proceedings.