A General Counsel's Guide To Confronting The Prospects Of Stock Drop And Other ERISA Litigation

Monday, May 4, 2009 - 01:00

Editor: Myron, please tell us about your career at Proskauer and your present practice.

Rumeld: Apart from a one-year clerkship for a federal district court judge in the Eastern District of New York, I have spent my entire legal career at Proskauer. Early in my career the leaders of Proskauer's Labor & Employment department suggested that I concentrate in ERISA litigation, as they correctly foresaw the need for expertise in that rapidly growing area. As a result, I became the first so-called "ERISA litigator" in the firm and my practice has been primarily or exclusively devoted to ERISA litigation for nearly a quarter century now. Eventually, I was surrounded by a small group of lawyers who similarly concentrated in this field. The group grew exponentially in 2004 with the acquisition of an office in New Orleans that practices almost exclusively in ERISA litigation and is led by Howard Shapiro, who co-chairs the ERISA Litigation group with me. We now number about 25 attorneys, located in New York, New Orleans and Newark.

Editor: What are the relative advantages of having a small group dedicated specifically to ERISA litigation, as opposed to a general employment litigation practice or a general litigation practice?

Rumeld: ERISA litigation is a technical area, requiring both a strong substantive law background and knowledge of the procedural issues unique to that type of litigation. Having a specially dedicated group enables us to be at the "head of the class" on both fronts. We not only handle all types of ERISA litigation, but we follow other cases in the field on a regular basis and publish extensively on them. For example, I am one of the co-chairs of the treatise Employee Benefits Law published by BNA. Many of my colleagues in the group are also very active in writing and speaking on ERISA litigation issues. As a result of our intensive concentration in this narrow field, we come up with novel arguments and strategies in our cases that general employment or securities law practitioners would not consider, even after researching extensively the particular substantive issues presented in the case.

Another advantage of having a specialized group is the ability to tap into professionals, such as actuaries, economists and other experts, to help handle the defense of an ERISA litigation. This is especially true for class actions, which predominate in our practice.

Also, we know our adversaries in this area very well. We see them in ERISA litigations as well as at conferences where we sometimes share speaking engagements.

Editor: Do you find a small specialized group may lack the resources to handle a large class-action litigation?

Rumeld: Our 25 lawyers constitute a fairly sizeable group - able to weather the ebbs and flows of our practice. Also, we work within the structure of Proskauer's sizeable and nationally renowned Labor & Employment Department, which consists of many other lawyers with considerable experience in ERISA or ERISA litigation, and on whose talents we can depend when needed.

Editor: To what extent is your familiarity with opposing counsel an advantage to your firm relative to other firms?

Rumeld: It is a big advantage. It enables us to more readily reach accommodations with respect to the scope of discovery, briefing schedules, and the like. The class actions and complex cases are expensive enough, so we need to avoid fighting over nonessential matters.

The bigger potential advantage, though, stems from the fact that most cases, if they're not dismissed in the early stages, either settle or go through some form of mediation. When you know your adversaries, you usually have a better sense of the right time to initiate discussions about settlement without giving away any leverage - assuming of course that a settlement strategy is in your client's interests. This is particularly true for the complex, class action-type cases. In these cases we generally see the same law firms and have a good sense of how they assess the strengths and weaknesses of their own cases. They, conversely, have respect for our firm and know what the risks are in proceeding.

Editor: Please tell us about specific types of cases that have been most prevalent in your practice in the last couple of years?

Rumeld: Because we have a large number of clients who consult with us on a regular basis for ERISA matters, our ERISA litigation practice tends to be much more diverse than those of our competitors. Nevertheless, for us, like other firms, the "hottest" cases in the last few years are the "stock drop" cases - cases arising from the investment by 401k plan participants in the stock of the corporate plan sponsor, when the value of the stock declines.

Editor: I guess Enron was a classic case.

Rumeld: Enron was an example of a case where the facts alleged were particularly bad for the defense. Such a case tends to encourage the judicial process to expand the reach of the law. After Enron there was a heightened awareness of the potential for ERISA stock drop claims to supplement the securities fraud claims and to bring monetary relief to plan participants independent of whatever recoveries were being obtained in the securities litigation. This, in turn, fueled additional cases of this type.

Editor: What would you say are the advantages of having a firm such as Proskauer handle this type of case, as opposed to a securities law firm, particularly if the latter is handling the securities litigation?

Rumeld: One needs to be mindful that while there may be a similarity between the two types of cases, in terms of the underlying facts giving rise to the claims, there also are some very significant differences in terms of what the claims are and what the defenses are. Whereas the securities litigation will typically concentrate on the events calling into question the financial disclosures made to the public, the ERISA case is properly focused on the deliberations at plan meetings relating to the plan's investment options. There is also an entirely different standard of care for fiduciaries of an ERISA fund than the standards applied in securities cases. To the extent that the ERISA claims and defenses and the strategies for handling them are unique, the client would be well served by having ERISA experts handle the ERISA components.

There are a couple of different models that can be applied to achieve this result. From our perspective, we think it usually is best for a firm like ours to take the lead in handling the ERISA litigation while consulting with the securities firm on matters that overlap with the securities case, and sharing resources with respect to overlapping discovery. Some clients prefer having their securities counsel play a leading role in both cases. Even those clients, however, should wish to retain an ERISA firm, at the very least to play a consulting role. Although there is always some additional cost in using two firms, there are much more substantial dividends down the road that will likely result from the more favorable outcome that ERISA litigation counsel can help to achieve.

Editor: Can you give me some examples of arguments that your firm has advanced in stock drop litigations that might not have been otherwise advanced if the case had not been handled by ERISA litigation specialists?

Rumeld: The EDS litigation in the Fifth Circuit, handled by my colleagues in New Orleans, is one example. It led to some significant rulings on the scope of relief and the availability of class actions in stock drop cases. We used the class certification proceedings as a vehicle to limit our client's exposure, both by challenging whether class certification was appropriate, and by doing so in a way that required the court to address the issue of what relief would be available sooner than might otherwise have been the case. Ultimately, the favorable rulings we obtained positioned our client to negotiate a settlement that was viewed to be substantially more favorable than would have been the case without the court's rulings.

A more recent example was a case I was personally involved in, Bausch & Lomb , which involved parallel securities and ERISA claims. Ultimately, Bausch & Lomb prevailed in getting both claims dismissed. The motions to dismiss filed in each case focused on the defenses unique to that case. With respect to the ERISA litigation, our papers focused on the fact that the underlying allegations of fraud pertained only to a small percentage of Bausch & Lomb's business, and thus did not put the business as a whole at risk. As a result, we argued successfully that plaintiffs could not rebut a "presumption of prudence" that applies in these types of cases.

Editor: Do you expect to see an increasing number of litigations by plaintiffs who consider themselves unjustly harmed in stock drop cases as a result of the falling stock market?

Rumeld: Certainly, the last few months have created a lot of opportunity for stock drop litigation, but there is also the opportunity for there to be some refinements in the law, as there was in Bausch & Lomb . We are now seeing some courts dismissing cases at the early stages if the company doesn't appear to have been financially threatened by the alleged improprieties. While in the short run the declining stock prices will likely lead to more lawsuits, the defense bar would hope that in the longer run fewer litigations will be commenced as the courts start putting some restraints on the types of cases that it allows to proceed.

Editor: What thoughts would you like to leave for general counsel confronting the need to retain counsel in ERISA litigations?

Rumeld: Prudence dictates that for a "big league" ERISA case, in-house counsel owes it to the client to have a discussion with two or three of the leading ERISA litigation firms, to hear how they would go about defending the case, how they would go about coordinating with plan counsel, and, if there is a parallel securities litigation, how they would go about coordinating with the securities counsel. With the benefit of this discussion, in-house counsel can then evaluate in an informed way whether the benefits of having ERISA litigation counsel outweigh the additional cost.

Please email the interviewee at mrumeld@proskauer.com with questions about this interview.