Since the Supreme Court’s decision in Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134 (1985), the courts have grappled with the issue of the extent to which equitable remedies are available under the Employee Retirement Income Security Act (“ERISA”). One of the most interesting and beneficial for plan participants is the issue of the equitable remedy of surcharge under ERISA. Recently, the Ninth Circuit withdrew an earlier decision regarding the availability of the equitable remedy of surcharge in ERISA, and issued a new ruling consistent with the holdings of other Circuit courts. The new ruling, Gabriel v. Alaska Electrical Pension Fund, 2014 DJDAR 16590 (9th Cir. 2014), is much more favorable to ERISA claimants and makes clear that surcharge, a form of equitable relief, is available to ERISA claimants under 29 U.S.C. section 1132(a)(3). Further, the Court also set forth the requirements that a claimant must meet to qualify for other forms of equitable relief, including equitable estoppel and reformation.
The specific facts of the Gabriel matter are unimportant, and ultimately the Ninth Circuit ruled that the district court was correct in holding that the plaintiff was not entitled to the payment of the pension funds that he sought because his rights to those funds never vested. The Ninth Circuit also remanded one aspect of the case to the District Court, but virtually instructed the lower court to deny that claim as well. However, the ruling is important because, by making the equitable remedy of surcharge available to ERISA claimants, the Ninth Circuit aligned itself with the Fourth, Fifth, Seventh and Eighth Circuits in expanding the rights of ERISA claimants.
In the ruling, the Ninth Circuit explained that in Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011), the United States Supreme Court made it clear that because ERISA section 1132(a)(3) allows a claimant to seek “appropriate equitable relief,” those remedies traditionally viewed as equitable were available.
Thus, for example, a claim of “appropriate equitable relief” may include “the reformation of the terms of the plan, in order to remedy the false or misleading information” provided by a plan fiduciary. The Ninth Circuit then explained:
A plaintiff may obtain reformation based on mistake in two circumstances: “if there is evidence that a mistake of fact or law affected the terms of [a trust] instrument and if there is evidence of the settlor’s true intent”; or (2) “if both parties [to a contract] were mistaken about the content or effect of the contract” and the contract must be reformed “to capture the terms upon which the parties had a meeting of the minds.” Skinner, 673 F.3d at 1166. Under a fraud theory, a plaintiff may obtain reformation when either (1) “[a trust] was procured by wrongful conduct, such as undue influence, duress, or fraud,” or (2) a “party’s assent [to a contract] was induced by the other party’s misrepresentations as to the terms or effect of the contract” and he “was justified in relying on the other party’s misrepresentations.” Id.
Next, the Ninth Circuit explained that equitable estoppel is another form of equitable relief available to ERISA claimants. Under the remedy of equitable estoppel, a fiduciary is held to what it promised and the claimant is entitled to the benefit consistent with that promise. However, in ERISA cases, enforcing equitable estoppel is not as simple as demonstrating that a promise for certain benefits were made; other conditions apply. For example, “a federal equitable estoppel claim in the ERISA context [cannot] contradict written plan provisions.”
Accordingly, a plaintiff may not bring an equitable estoppel claim that “would result in a payment of benefits that would be inconsistent with the written plan,” or would, as a practical matter, result in an amendment or modification of a plan, because such a result “would contradict the writing and amendment requirements of 29 U.S.C. §§ 1102(a)(1) and (b)(3).”
For the same reason, “oral agreements or modifications cannot be used to contradict or supersede the written terms of an ERISA plan.” (Citations omitted.)
In addition, the court explained that in order to meet the traditional equitable estoppel requirements, the ERISA claimant must also demonstrate “(1) extraordinary circumstances; (2) that the provisions of the plan at issue were ambiguous such that reasonable persons could disagree as to their meaning or effect; and (3) that the representations made about the plan were an interpretation of the plan, not an amendment or modification of the plan.” (Internal quotations and citations omitted.)
Finally, with respect to the equitable remedy of surcharge, an equitable remedy in which the claimant is placed in the position he or she would have been in but for the fiduciary’s breach of duty, the Ninth Court reversed its previous, now-withdrawn, decision and noted that Amara allows a claimant to obtain relief by surcharge. The Ninth Circuit explained that in order to prevail on a claim surcharge remedy, after Amara, the claimant is not required to show detrimental reliance, only that the plan or claim fiduciary breached its fiduciary duty owed to the injured claimant. In other words, all that is needed is harm and causation.
While the plaintiff in Gabriel may not ultimately obtain the benefits he was seeking, this was another plaintiff-friendly ruling from the Ninth Circuit.