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Plan Participant May Be Able to Claim Benefits

Plan Participant May Be Able to Claim Benefits

ERISA and Life Insurance News
(October 17, 2011)

ERISA’s civil enforcement provisions set forth the exclusive causes of actions and remedies available under ERISA.

Plan participants and beneficiaries may bring actions “to recover benefits due [them] under the terms of the plan, to enforce rights under the terms of the plan, or to clarify [their] rights to future benefits under the terms of the plan.” ERISA, § 502(a)(1)(B).

Actions alleging breach of fiduciary duties, actions to enjoin violations of ERISA or of the plan, actions for other equitable relief for such violations, and actions for violations of ERISA’s reporting requirements, may be brought by participants, beneficiaries, fiduciaries, and the Secretary of Labor. ERISA, §§ 502 (a)(2)-(a)(5).

The plaintiffs in Del Rosario v. King & Prince Seafood Corp., 2006 U.S. Dist. LEXIS 76777, *4 (S.D. Ga. Mar. 7, 2006), sought “recovery of benefits they believe they are owed” under their former employer’s Employee Stock Ownership Plan, relying on § 502(a)(1)(B) of ERISA. They also alleged breach of fiduciary duty under § 502(a)(3).

The defendants moved to dismiss the breach of fiduciary duty claim based on well-settled Eleventh Circuit precedent holding that an ERISA claimant who seeks the kind of relief available under § 502(a)(1)(B) – “to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan” – may not also pursue a breach of fiduciary duty action under § 502(a)(3). See Katz v. Comprehensive Plan of Group Ins., 197 F.3d 1084, 1089-90 (11th Cir. 1999) (upholding district court’s conclusion “that an ERISA plaintiff with an adequate remedy under § [502](a)(1)(B), cannot alternatively plead and proceed under § [502](a)(3).”).

Varity Corp. v. Howe

This precedent stemmed from the United States Supreme Court’s decision in Varity Corp. v. Howe, 516 U.S. 489 (1996). In Varity, “[a]n employer, which was also the administrator of its employees’ welfare benefit plan, combined several of the unprofitable divisions of a subsidiary corporation into a new corporate entity” and convinced a number of employees to transfer their benefits to a plan offered by the new entity, which the employer knew “was insolvent from its inception.” When the new entity went into receivership, the employees lost their non-pension benefits.

A group of employees sued in federal court in an attempt to recover the benefits they could have gotten under the old plan if they had not transferred to the plan offered by the new entity. The district court, the court of appeals, and the Supreme Court agreed (a) that the employer was acting in its capacity as an ERISA fiduciary when it deliberately deceived the employees; (b) that such deception was a violation of the fiduciary obligations imposed by ERISA; and (c) that ERISA § 502(a)(3) authorized the plan participants to seek individualized relief for the harm they suffered, specifically reinstatement in the old plan.

In deciding Varity, the Supreme Court characterized § 502(a)(3) as a “catchall” provision, which affords relief to plan participants for injuries caused by violations for which § 502(a) does not elsewhere provide an adequate remedy. 516 U.S. at 512.

The Court further explained that when ERISA furnishes an adequate remedy, “there will likely be no need for further equitable relief, in which case such relief normally would not be ‘appropriate.’” Id. at 514.

Courts subsequently reasoned that “[t]he Supreme Court clearly limited the applicability of ... § [502](a)(3) to beneficiaries who may not avail themselves of ... § [502]’s other remedies.” Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 615 (6th Cir. 1998).

Eleventh Circuit Applies Varity

In the wake of Varity, the Eleventh Circuit consistently held that ERISA plan participants who could avail themselves of potential remedies authorized by § 502(a)(1)(B) could not additionally pursue equitable relief under § 502(a)(3). See, e.g., Ogden v. Blue Bell Creameries U.S.A., Inc., 348 F.3d 1284 (11th Cir. 2003) (§ 502(a)(3) claim not allowed); Katz, 197 F.3d at 1089 (claim under § 502(a)(3) not permitted); Harrison v. Digital Health Plan, 183 F.3d 1235, 1237 n.1 (11th Cir. 1999) (§ 502(a)(3) claim properly dismissed as “duplicative” of claim under 502(a)(1)(B)).

Otherwise, the courts reasoned, “ERISA claimants [could] simply characterize a denial of benefits as a breach of fiduciary duty, a result which the Supreme Court expressly rejected.” Wilkins, 150 F.3d at 615. Nor did the ultimate viability of a claim for benefits under § 502(a)(1)(B) determine whether the claimant could maintain an alternate claim under § 502(a)(3). In Ogden, 348 F.3d at 1288, for example, the court held that the plaintiffs “had no cause of action under Section 502(a)(3) because Congress provided them with an adequate remedy elsewhere in the ERISA statutory framework.” This was true even though the plaintiffs’ claim for benefits was barred by res judicata. Id.

Similarly, in Hembree v. Provident Life & Acc. Ins. Co., 127 F. Supp. 2d 1265, 1273 (N.D. Ga. 2000), the plaintiff could not pursue a claim for breach of fiduciary duty because he had an adequate remedy under § 502(a)(1)(B), even though that claim was barred by the contractual limitations period.

Clarification in Jones v. American General

The Eleventh Circuit subsequently clarified that a district court should consider “whether the allegations supporting the Section 502(a)(3) claim were also sufficient to state a cause of action under Section 502(a)(1)(B), regardless of the relief sought and irrespective of the [claimant’s] allegations supporting [his] other claims.” Jones v. American Gen. Life & Acc. Ins. Co., 370 F.3d 1065, 1073-74 (11th Cir. 2004) (district court should not have dismissed § 502(a)(3) claim “because participants in an ERISA-governed plan that rely to their detriment on a fiduciary’s misrepresentations of the plan’s terms may state a claim for ‘appropriate equitable relief’ if they have no adequate remedy elsewhere in ERISA’s statutory framework”).

In other words, “the proper question is not whether a plaintiff could be awarded benefits under § [502](a)(1)(B) for a violation of § [502](a)(3), but rather whether the facts alleged under § [502](a)(3) also support a claim under § [502](a)(1)(B).” Nolte v. BellSouth Corp., 2007 WL 120842, *5 (N.D. Ga. Jan. 11, 2007) (citing Jones).

Based on the holding in Jones, the district court in Del Rosario held that “if the allegations of misconduct are sufficient to state a claim for benefits under § 502(a)(1)(B), and Defendants concede that they are, then [plaintiff is] precluded from asserting these same allegations of misconduct through a breach of fiduciary duty claim under § 502(a)(3).” 2006 U.S. Dist. LEXIS 76777, *32 (S.D. Ga. Mar. 7, 2006).

The district court certified a class action with respect to the § 502(a)(1)(B) claims for benefits, but ultimately those claims were unsuccessful. The plaintiffs appealed to the Eleventh Circuit.

CIGNA Corp. v. Amara

In the meantime, the Supreme Court decided CIGNA Corp. v. Amara, 131 S. Ct. 1866 (May 16, 2011). In Amara, the employer’s pension plan provided a retiring employee with an annuity based on preretirement salary and length of service, but the employer changed the plan and replaced that annuity with a cash balance based on a defined annual contribution from the employer, increased by compound interest.

The district court held that the employer’s disclosures to its employees regarding changes to the plan violated its fiduciary obligations, and ordered two-step relief under ERISA § 502(a)(1)(B) – first, that the plan be reformed, and second, that the plan be enforced as reformed. The Second Circuit summarily affirmed “the judgment of the district court for substantially the reasons stated” by the district court. 131 S.Ct. at 1876.

The Supreme Court held, however, that § 502(a)(1)(B) did not provide the district court with authority to reform the plan at issue in Amara. The section that does provide that authority, according to the Court, is § 502(a)(3). Apparently, the district court did not think that section was available as a vehicle for the remedy it considered appropriate based on its conclusion that certain opinions from the Court had “narrowed the application of the term ‘appropriate equitable relief.’” Id. at 1878.

The Court found that concern “misplaced,” and explained in detail why all the relief provided by the district court in Amara was actually equitable or “resembles forms of traditional equitable relief”:

(a) “affirmative and negative injunctions obviously fall within this category” of equitable relief;

(b) reformation of the plan terms is consistent with “[t]he power to reform contracts (as contrasted with the power to enforce contracts as written) [which] is a traditional power of an equity court, not a court of law, and was used to prevent fraud;”

(c) holding the employer to what it had promised resembled the traditional equitable remedy of estoppel; and

(d) injunctions requiring money payments under the plan resembled the “exclusively equitable” “monetary remedy against a trustee, sometimes called a ‘surcharge,’” which is imposed for violating fiduciary duties. Id. at 1878-80.

The Supreme Court concluded:

We have premised our discussion ... on the need for the District Court to revisit its determination of an appropriate remedy for the violations of ERISA it identified. Whether or not the general principles we have discussed above are properly applicable in this case is for it or the Court of Appeals to determine in the first instance. Because the District Court has not determined if an appropriate remedy may be imposed under § 502(a)(3), we must vacate the judgment below and remand this case for further proceedings consistent with this opinion.

Id. at 1882.

The Eleventh Circuit considered Del Rosario a little over a month after the Amara case was decided. 2011 U.S. App. LEXIS 13204 (11th Cir. June 28, 2011). The court affirmed the district court’s rejection of the plaintiffs’ § 502(a)(1)(B) claims, but remanded in part to the district court “for reconsideration of the issue of whether a remedy exists under ERISA § 502(a)(3) ... in light of the Supreme Court’s decision in ... Amara ....”

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