Three former employees of Stiefel Laboratories – Palakovich, Teller, and Finnerty – sued for breach of fiduciary duty and securities fraud. Each of them previously had signed a general release of all claims against their employer when receiving either a bonus or severance benefits.
As framed by the federal district court, "The issue before the Court [was] whether the General Releases signed by Plaintiffs Palakovich, Teller, and Finnerty [were] enforceable to release the claims asserted by them in this case."
The court analyzed the enforceability of the releases signed by two of the plaintiffs, Palakovich and Teller, under the knowing and voluntary standard applied to releases of ERISA claims. As the court explained,
Courts in the Eleventh Circuit consider six factors in determining whether a release of federal statutory claims was knowing and voluntary: (1) the plaintiff’s education and business experience; (2) the amount of time the plaintiff had to consider the agreement before signing it; (3) the clarity of the agreement; (4) the plaintiff’s opportunity to consult with an attorney; (5) the employer’s encouragement or discouragement of consultation with an attorney; and (6) the consideration given in exchange for the waiver when compared with the benefits to which the employee was already entitled.
The court found that all six factors weighed in favor of enforcing the Palakovich and Teller releases.
Both Palakovich and Teller were educated, experienced business persons; they had 45 days to consider their respective releases and consult with an attorney; they were advised in writing to consult with an attorney and, in fact, were represented when they signed their respective releases; both releases were clear and unambiguous regarding the general nature of the release; both plaintiffs acknowledged in writing that they knowingly and voluntarily released all claims; and both plaintiffs received valuable consideration to which they were not otherwise entitled.
Palakovich and Teller argued that their releases were not enforceable (1) as a result of ERISA’s exculpation clause, (2) due to application of ERISA’s anti-alienation clause, and (3) because they were not separately negotiated or supported by separate consideration. The court rejected each of these arguments.
First, with respect to ERISA’s exculpation clause, 29 U.S.C. § 1110, neither release purported to affect future claims under ERISA. "Thus," the court said, "this argument [was] not relevant to any release in this case."
Second, regarding the argument that the releases should not be enforced due to ERISA’s anti-alienation clause, 29 U.S.C. § 1056 (d)(1), the court noted that this argument was precluded by Kennedy v. Plan Admin. for DuPont Savings & Investment Plan, 555 U.S. 285 (2009). "In Kennedy," the court said, "the Supreme Court held that ERISA’s anti-alienation provision does not apply to the waiver or release of rights to vested benefits under an ERISA-governed plan; rather, it prevents the transfer or assignment to a third party of an enforceable right against the ERISA plan for the payment of benefits to that third party."
Third, the court rejected the argument that ERISA releases must be separately negotiated or supported by separate consideration in order to be enforceable. Instead, the court noted that a "number of courts" have rejected those arguments and "have held that (1) a general release of all claims generally includes all ERISA claims, even if ERISA is not specifically mentioned; and (2) a release of ERISA claims which is included as part of a general release need not be separately bargained for or supported by separate consideration."
Moreover, the court was persuaded by the fact that Palakovich and Teller had not returned or tendered back the consideration they received for their releases, which in turn ratified the releases. Even if the plain language of the contracts had not required return of consideration, which each release expressly did, the court found that "general contract law provides that Plaintiffs’ failure to return all monies paid to them for the releases prevents them from attempting to invalidate the release agreements."
The third plaintiff, Finnerty, signed his general release before his claims for breach of fiduciary duty and securities fraud arose. As a result, the court held that Finnerty’s claims were not barred because "[t]he law is clear that general releases cannot bar breach of fiduciary duty claims that arise after the effective date of the release," and "by its terms, the Finnerty Release is not a defense to his securities fraud claims."
Click Here to view the full February 2012 Edition of the ERISA and Life Insurance News.