In Custer v. Sweeney, 89 F.3d 1156 (4th Cir. 1996), the United States Court of Appeals for the Fourth Circuit, in a case of first impression for the federal appeals courts, considered whether the Employee Retirement Income Secu-rity Act of 1974 ("ERISA") preempts state-law malpractice claims against a pension fund's attorneys.
Custer, a participant and trustee of the Sheet Metal Workers' National Pension Fund, sued the Fund's former counsel on behalf of the Fund for their role in the Fund's purchase of a lavish mansion and lease of a private air-plane. Custer's lawsuit, filed in the United States District Court for the Eastern District of Virginia, alleged that one of the attorneys was an ERISA fiduciary who breached his duties to the Fund, and that he, along with a host of other former Fund lawyers and law firms, committed malpractice in con-nection with the transactions.
The district court dismissed the ERISA claim. Without the ERISA claim securing jurisdiction in federal court, the state law-based malpractice claims were dismissed without prejudice on jurisdictional grounds. Custer appealed the dismissal of the ERISA claim, and the attorney cross-appealed, arguing that the district court should have dismissed the malpractice claims with prejudice as preempted by ERISA.
The Fourth Circuit affirmed the district court's decision in its entirety, affirming the dismissal of the ERISA claim against Sweeney, but also hold-ing, in a question of first impression, that ERISA did not preempt Custer's malpractice claims against Sweeney.
The Court of Appeals recognized that the preemptive scope of ERISA is wide, preempting all laws that "relate to" an ERISA plan, but stated that Congress did not intend to preempt traditional exercises of state law such as legal malpractice claims. Further, the court reasoned that permitting legal malpractice claims against plan counsel does not conflict with ERISA's policy of protecting plan participants, nor is its within the categories of laws that courts have held to be preempted.
The Custer decision permits ERISA qualified pension plans to hold their attorneys to the same standard of care as would any other client. An ERISA-qualified plan can sue its attorneys for malpractice under the applicable state law.
For more information, contact William W. Carrier at 410/752-9721.