United States: The ERISA Litigation Newsletter - November 2014

EDITOR'S OVERVIEW

As it is well known, in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), the U.S. Supreme Court identified several forms of appropriate equitable relief that may be available under Section 502(a)(3) of ERISA. Many articles have been written about Amara and it implications. Our article this month discusses a developing division among the lower courts on whether surcharge is available to plaintiffs seeking monetary recovery for personal loss as opposed to a loss to the plan.

As always, be sure to review the section on Rulings, Filings, and Settlements of Interest including, recent case law on age discrimination claims and venue selection clauses, as well as IRS guidance on flexible spending accounts.

View From Proskauer: The Availability of Surcharge as Relief for Individual ERISA Fiduciary Breach Claims1

By Aaron Feuer

Three years ago, the U.S. Supreme Court identified three forms of appropriate equitable relief — reformation, equitable estoppel and surcharge — that are available under Section 502(a)(3) of the Employee Retirement Income Security Act (''ERISA''). See Cigna Corp. v. Amara, 131 S. Ct. 1866, 50 EBC 2569, 2011 BL 128629 (2011).
This article focuses on the availability of surcharge and, in particular, a division among the lower courts on whether surcharge is available to plaintiffs seeking monetary recovery for personal loss as opposed to a loss to the plan.

The Evolution of Appropriate Equitable Relief

Section 502(a)(3) of ERISA generally authorizes a participant, beneficiary or fiduciary to sue for ''appropriate equitable relief.''¹ Prior to Amara, the lower courts interpreted the Supreme Court's ruling in Mertens v. Hewitt Assocs., 508 U.S. 248, 16 EBC 2169 (1993) as precluding the recovery of any monetary relief under Section 502(a)(3) because monetary relief was not considered to be equitable relief. Thus, a participant seeking to recover monetary relief from a plan under ERISA typically had to show he was entitled to those benefits under the terms of the plan pursuant to Section 502(a)(1)(B) of ERISA, or was entitled to derivate relief by suing on behalf of the plan pursuant to Section 502(a)(2) of ERISA.

In Amara, the Supreme Court ruled that monetary relief is available under Section 502(a)(3). Since Amara, the lowers courts have determined that a participant can employ at least two theories to recover for personal losses resulting from a fiduciary breach: First, a participant can seek to have a court reform the plan, i.e., rewrite the plan's terms to accord with the parties' understanding in the event of mutual mistake or fraud. The participant could then recover under the terms of the reformed plan. See Johnson v. Meriter Health Servs. Emp. Ret. Plan,702 F.3d 364, 369, 54 EBC 1865, 2012 BL 316792 (7th Cir. 2012). Second, a participant can seek to recover under equitable estoppel, which, under certain conditions, ''operates to place the person entitled to its benefit in the same position he would have been in had the representations been true.'' Amara, 508 U.S. at 1880. The lower courts do not, however, appear to be in agreement on whether a plaintiff can seek monetary recovery for personal loss via surcharge, which generally allows for monetary recovery for a loss resulting from a fiduciary breach.

A Narrow Reading of Surcharge

While some courts have endorsed a broad view of surcharge and allowed a plaintiff to seek monetary re- covery for personal loss flowing from a fiduciary breach, the Ninth Circuit concluded that surcharge only applies in cases involving loss to, or unjust enrichment at the expense of, the plan. See Gabriel v. Alaska Elect. Pension Fund,
No. 12-35458, 58 EBC 1633, 2014 BL 158469 (9th Cir. 2014). In that case, participant Gabriel, who had been receiving pension benefits, sued the fund when it discontinued the benefits after realizing that Gabriel had never vested. The fund had sent Gabriel two letters in 1979 informing him that he had failed to fulfill the plan's vesting requirements and was thus in- eligible for a pension benefit. Nevertheless, eighteen years later in 1997, after Gabriel applied for a pension, the fund began paying him a pension benefit. The fund did not realize its mistake until 2004, when it stopped paying benefits to Gabriel. Gabriel claimed that he det- rimentally relied upon the fund's failure in 1997 to in- form him he was ineligible to for a pension benefit by failing to complete the plan's service requirement and, as a result, he was entitled to all three forms of equitable relief under Section 502(a)(3).

The Ninth Circuit concluded in a split decision that not one of these forms of equitable relief was available to Gabriel. Equitable estoppel was unavailable because the fund's alleged misrepresentation that Gabriel was entitled to benefits did not constitute an interpretation of ambiguous plan language. Reformation was unavailable because Gabriel failed to demonstrate any mistake affecting the plan or that the plan was procured through fraud. Finally, the majority concluded that surcharge was unavailable because Amara permitted such relief only in circumstances involving a fiduciary breach re- sulting in either: (i) a loss to the trust estate, or (ii) profit at the expense of the trust. Here, Gabriel sought unpaid benefits to which he was admittedly unentitled under the terms of the plan and that would ''wrongfully deplete'' the trust estate.

In a dissenting opinion, Judge Berzon disagreed that Amara limited the availability of surcharge and stated that, in her view, Gabriel ''may be entitled to an equi- table remedy similar to surcharge.'' In her view, Amara only required that the defendant's role as fiduciary renders it analogous to a trustee and that the relief sought resembles forms of traditional equitable relief, ''not whether the precise requirements for obtaining such relief under the common law of trusts are met.''

A Broad Reading of Surcharge

The Seventh Circuit, unlike the Ninth Circuit, adopted a broader reading of surcharge in Kenseth v. Dean Health Plan, Inc., 722 F.3d 869, 56 EBC 2901, 2013 BL 155855 (7th Cir. 2013). When Kenseth experienced complications from a surgical procedure performed years earlier, her doctor advised her to undergo an additional surgery to remedy the problem. Prior to the surgery, Kenseth contacted the plan and she was advised that the surgery would be covered. One day after she underwent surgery, however, the plan determined that the procedure was not covered and Kenseth was left to pay more than $75,000 in medical bills. The Seventh Circuit held that Kenseth could, upon proof of a breach and causation, recover money damages under Section 502(a)(3).

The Fourth, Fifth, and Eighth Circuits also appear to have at least considered the possibility that surcharge may have a broader application than in cases involving a loss to the trust or unjust enrichment of the fiduciaries at the trust's expense. The Fifth Circuit remanded for a determination of whether surcharge was available where a plan participant alleged that he commenced early retirement after being assured that he would receive lifetime retiree medical benefits and then the plan subsequently terminated coverage because it determined the participants' benefits were based upon a mistaken computation of his service. See Gearlds v. Entergy Servs., Inc.,709 F.3d 448, 55 EBC 2688 (5th Cir. 2013). The Fourth Circuit similarly remanded for consideration of whether surcharge was appropriate where an employee-participant was denied life insurance benefits payable under a policy covering her daughter because the policy only covered eligible dependents under age 24 and her daughter died at age 25. See McCravy v. Metropolitan Life Insurance Co., 690 F.3d 176, 53 EBC 2605, 2012 BL 166368 (4th Cir. 2012). And the Eighth Circuit remanded for determination whether surcharge was available to a plaintiff denied life insurance benefits based upon the alleged failure to provide required paperwork at the time of enrollment. See Silva v. Metro. Life Ins. Co., 2014 BL 218916 (8th Cir. 2014). In Gabriel, the Court found Kenseth, McCravy, and Gearlds unpersuasive because, in its view, they were merely correcting the district courts' ''erroneous interpretations of Mertens as precluding recovery of any monetary relief, and thus were not specifically opining on the availability of surcharge relief.''

Proskauer's Perspective

The question of whether surcharge under Section 502(a)(3) should be limited to when a plan either experiences a loss or a fiduciary is unjustly enriched, or broadly available as a ''make-whole'' remedy whenever a participant suffers a loss, has large implications. A narrow reading ought to significantly limit the circumstances under which a participant can seek monetary relief. A broad reading very well could open the flood gates to various types of fiduciary breach claims a plaintiff can pursue on his or her own behalf. Only time will tell whether the division in the circuits will deepen on this issue and whether the Supreme Court finds it necessary to resolve it.

RULINGS, FILINGS, AND SETTLEMENTS OF INTEREST

Eighth Circuit Says That Considerations Of Health Care Cost Savings Could Be Proxy For Age In ADEA Suits

  • The Eighth Circuit recently concluded that an employer may violate the ADEA by terminating an older employee in order to reduce its health care premiums. Tramp v. Associated Underwriters, Inc., 2014 WL 4977396 (8th Cir. 2014). Plaintiff Marjorie Tramp brought claims of discrimination and retaliation under the ADEA, arguing that Defendant Associated Underwriters, Inc. terminated her to reduce its health care costs and in retaliation for her refusal to rely on Medicare benefits in lieu of employer-sponsored benefits. In support of her claims, Tramp produced evidence showing that: (i) while negotiating insurance premiums, the Defendant repeatedly asked whether having younger employees would reduce its rates; and (ii) Tramp began receiving formal reprimands and was eventually terminated after she declined Defendant's request to rely on Medicare rather than the company's insurance plan. Defendant argued that her firing was part of a reduction-in-force and based on her poor performance.

    The district court granted summary judgment in favor of Defendant. Relying on the Supreme Court's opinion in Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), the court found that, health care costs are not a proxy for age because the two are "analytically distinct," meaning that Defendant could take health care costs into account without considering age. The Eighth Circuit reversed, concluding that considerations of health care costs could be a proxy for age and, regardless of whether age and health care costs actually are analytically distinct, there was an issue of fact as to whether Defendant believed that they were not analytically distinct and terminated Tramp for age-related reasons. Further, as to the retaliation claim, the Court found that, though a gap between an employee's protected activity and the employer's adverse act usually weakens the presumption of retaliation, Defendant's ongoing reprimands leading up to Tramp's termination fill in that gap, allowing a reasonable jury to find that Tramp was terminated for refusing to decline employer-sponsored health care insurance.

Sixth Circuit Declines Deference to DOL and Enforces Venue Selection Clause

  • The Sixth Circuit recently held that a venue selection clause in an ERISA-governed pension plan was enforceable and, in so ruling, refused to give deference to the DOL's contrary position. See Smith v. AEGON Cos. Pension Plan, No. 14-0256, 2014 U.S. App. LEXIS 19668 (6th Cir. Oct. 14, 2014). Plaintiff brought suit against the corporate successor of his former employer, AEGON, in the U.S. District Court for the Western District of Kentucky, alleging that AEGON wrongfully eliminated his enhanced compensation benefits. The district court dismissed Plaintiff's complaint because plaintiff's pension plan contained a venue selection clause that stated that a participant shall only bring an action in the Federal District Court in Cedar Rapids, Iowa.

    On appeal, the DOL submitted an amicus brief arguing that venue selection clauses are incompatible with ERISA. A split panel of judges declined to afford deference to (what the majority labeled) the DOL's attempted "regulation by amicus." First, the majority concluded that the DOL had no more expertise than the Court when it came to determining whether federal statutes proscribe venue selection. Second, the majority noted that the DOL had never brought an enforcement action in connection with an ERISA-governed plan's venue selection clause, and it had never promulgated any regulation or interpretive guidance related to such clauses. Because of this, the majority found that the DOL's position in its amicus brief lacked the longevity and consistency necessary to be granted deference. Ultimately, the majority found that the DOL's "amicus brief in this case can only be characterized as . . . an expression of mood."

    The majority then (i) noted that most courts faced with this issue found that venue selection clauses in ERISA-governed plans were enforceable and (ii) explained that if Congress wanted to prohibit such clauses, it could have done so. Further, the majority stated that "[i]t is illogical to say that, under ERISA, a plan may preclude venue in federal court entirely [via an arbitration clause], but a plan may not channel venue to one particular federal court."

    Judge Clay (dissenting) took issue with the fact that the venue selection clause prevented Plaintiff from bringing suit anywhere but a court 500 miles away with which he had no connection. Judge Clay stated that such restrictions conflict with ERISA's broad venue provisions and "the strong public policy evinced by the statute"—i.e., to eliminate jurisdictional and procedural obstacles that may hamper enforcement of fiduciary responsibilities.

IRS Increases Maximum Employee Contribution to Health Care FSAs for 2015

  • The IRS announced yesterday that the maximum annual employee contribution to a health care flexible spending account plan is increasing by $50 to $2,550 for 2015 (up from the $2,500 limit that has applied since 2013).

    Employers that sponsor health care FSAs should take this increase into account in preparing for open enrollment, and may need to revise their employee communication materials, depending on whether the employer wishes to adopt the higher limit for 2015. If the open enrollment period has already begun, the employer may need to reach out to employees who have already made their elections.

    In addition, the employer's Section 125 Cafeteria Plan document may require an amendment, depending on the language in the document. For example, the Plan document may include language that automatically increases the maximum contribution when the IRS increases the limit (but the employer may not want to increase the maximum contribution at this time), or the language may not include an automatic increase (but the employer may wish to increase it for 2015).

Footnote

1. Originally published in Bloomberg, BNA.

The ERISA Litigation Newsletter - November 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions