Ninth Circuit: Embezzler of ERISA Plan Lacks Standing to Sue Former Employer for Allocation of Restitution Payments

Lehr v. Perri Electric, Inc., No. 19-17199, 2023 WL 21466 (9th Cir. Jan. 3, 2023) (Before: S.R. Thomas, Bennett, and Sung, Circuit Judges).

Colleen Lehr was a former participant in the Perri Electric, Inc. Profit Sharing Plan who was charged with embezzling money from the Plan. She was ordered to pay Perri Electric a total of $326,846, which was the amount she stole from the Plan. Appellants Colleen and Paul Lehr argued that Perri Electric should have applied the initial installment payment to the Plan and asserted a breach of fiduciary duty claim against Perri Electric. The district court granted summary judgment to the defendants on the basis that the Lehrs lacked statutory standing under ERISA. The Ninth Circuit affirmed.

The Ninth Circuit first found that the stipulated judgment in the bankruptcy adversary proceeding ordered the payment to be directed to Perri Electric. There was no mandate that the Trustee’s initial payment to Perri Electric be remitted to the Plan. The court explained that a debtor in bankruptcy cannot designate to which liability its payments will be allocated.

The court also found that Ms. Lehr, as a former Plan participant, did not have standing to assert a breach of fiduciary duty claim against the corporation because she has no colorable claim that she is a plan participant. Ms. Lehr’s standing is foreclosed by the court’s decision in Parker v. Bain, 68 F.3d 1131 (9th Cir. 1995), where the court held that a plaintiff lacks standing under ERISA where they breach their fiduciary duty to the plan by embezzling funds in excess of their claimed account balance.

Judge Bennett dissented on the basis that the Lehrs established a genuine dispute of material fact as to whether Ms. Lehr’s restitution payment constituted a Plan asset. A trier of fact could conclude that the purpose of the restitution payment was to remediate Ms. Lehr’s theft from the Plan. Judge Bennett argued that the majority’s “holding effectively deprives any Plan participant of a cause of action to challenge the defendants’ allocation of the Lehrs’ restitution payment. If the Lehrs’ restitution payment was not a Plan asset, defendants could not have violated any fiduciary duty in using the payment to cover business expenses. Because the relevant provisions of ERISA only create liability for violating fiduciary duties, innocent Plan participants are left with no recourse against defendants under the statute.” But Judge Bennett did agree that the Lehrs may lack statutory standing for other reasons and that the matter should be remanded for consideration of alternative standing arguments in the first instance.