Why the Court embarks on this peculiar path is beyond me. It cannot even be explained by an eagerness to demonstrate — by blatant dictum, if necessary — that, by George, plan members misled by an SPD will be compensated.
CIGNA Corp. v. Amara, 2011 U.S. LEXIS 3540 (U.S. May 16, 2011), SCALIA , J. (concurring in judgment)
It was not long ago that the Supreme Court observed that “[p]eople make mistakes. Even administrators of ERISA plans”, in a sort of benevolent prodding to the plan administrator to try to get it right next time. See, Conkright v. Frommert, 130 S. Ct. 1640 (U.S. 2010). The Court was in a different state of temperament in CIGNA Corp. v. Amara.
Although Justice Scalia correctly observes that the commentary on equitable remedies likely exceeds what was required, the important point here is that Justice Breyer, dissenting in Great West, now pens the majority opinion on the scope of equitable remedies. So, as interesting as the opinion is in the present case, I believe a careful re-reading of the Great West dissent is also instructive.
The facts of the case, in an opinion authored by Justice Breyer, were carefully related in an exposition complete with examples. I am not really sure why the Court felt obliged to explain the workings of defined benefit plans and the cash balance plans that have frequently replaced them.
In a nutshell, the underlying facts are these:
The CIGNA pension plan defined a benefit payable at normal retirement age (65), with an option for early retirement at age 55. Without tedium of numerical examples predicated upon hypotheticals, it is easy to see that CIGNA changed the retirement picture for its employees when it replaced the pension plan with a cash balance plan. The cash balance plan transfered future investment risks to the participant, eliminated the early retirement option and featured a joint and survivor annuity over a single life annuity.
The district court found that CIGNA had not provided the required notice of the changes, and worse, had puffed up the supposed benefits of the new arrangement to the point of misleading the employees. While struggling with the proper remedy, the district court seemed to find the correct remedy under ERISA but found it in the wrong statutory provision.
District Court Error
Here’s what the district court did:
The District Court ordered relief in two steps.
Step 1: It ordered the terms of the plan reformed (so that they provided an “A plus B,” rather than a “greater of A or B” guarantee).
Step 2: It ordered the plan administrator (which it found to be CIGNA) to enforce the plan as reformed. One can fairly describe step 2 as consistent with § 502(a)(1)(B), for that provision grants a participant the right to bring a civil action to “recover benefits due . . . under the terms of his plan.” 29 U.S.C. § 1132(a)(1)(B). And step 2 orders recovery of the benefits provided by the “terms of [the] plan” as reformed.
Here’s where it erred:
But what about step 1?
Where does § 502(a)(1)(B) grant a court the power to change the terms of the plan as they previously existed? The statutory language speaks of “enforc[ing]” the “terms of the plan,” not of changing them. 29 U.S.C. § 1132(a)(1)(B) (emphasis added). The provision allows a court to look outside the plan’s written language in deciding what those terms are, i.e., what the language means. See UNUM Life Ins. Co. of America v. Ward, 526 U.S. 358, 377-379, 119 S. Ct. 1380, 143 L. Ed. 2d 462 (1999) (permitting the insurance terms of an ERISA-governed plan to be interpreted in light of state insurance rules). But we have found nothing suggesting that the provision authorizes a court to alter those terms, at least not in present circumstances, where that change, akin to the reform of a contract, seems less like the simple enforcement of a contract as written and more like an equitable remedy.
A Simple Solution
The Court found the solution in § 502(a)(3) –
If § 502(a)(1)(B) does not authorize entry of the relief here at issue, what about nearby § 502(a)(3)? That provision allows a participant, beneficiary, or fiduciary “to obtain other appropriate equitable relief ” to redress violations of (here relevant) parts of ERISA “or the terms of the plan.” 29 U.S.C. § 1132(a)(3).
– and, to the chagrin of Justices Scalia and Thomas, took this as an occasion to elaborate on what appropriate equitable relief might be. In an observation very important to appreciating the Court’s commentary, the opinion notes that:
The case before us concerns a suit by a beneficiary against a plan fiduciary (whom ERISA typically treats as a trustee) about the terms of a plan (which ERISA typically treats as a trust).
The Court distinguished Mertens, as follows:
Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U.S., at 262-263, 113 S. Ct. 2063, 124 L. Ed. 2d 161. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of the term “appropriate equitable relief ” in § 502(a)(3).
Types of Equitable Relief
So what remedies might qualify as equitable against a plan fiduciary?
The Court specifically identifies, over the course of several paragraphs, injunctions, equitable estoppel, reformation and surcharge. Surcharge?
In an excerpt soon to be much-quoted in ERISA litigation, the Court discussed how this remedy may result in a requirement to pay money:
[T]he District Court injunctions require the plan administrator to pay to already retired beneficiaries money owed them under the plan as reformed. But the fact that this relief takes the form of a money payment does not remove it from the category of traditionally equitable relief. . . .
The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary. See Second Restatement § 201; Adams 59; 4 Pomeroy § 1079; 2 Story §§ 1261, 1268.
Conclusion
CIGNA wanted the Court to review whether the district court’s orders were available under (a)(1)(B). The Court said no, but pointed to (a)(3) as an alternative. CIGNA also wanted the Court to examine the standard of harm. On this point, the Court took the view that the proper standard depended on the type of equitable relief sought. All in all, a mixed bag for CIGNA, but for the plan participants as well.
The upshot is that we can agree with CIGNA only to a limited extent. We believe that, to obtain relief by surcharge for violations of §§ 102(a) and 104(b), a plan participant or beneficiary must show that the violation injured him or her. But to do so, he or she need only show harm and causation. Although it is not always necessary to meet the more rigorous standard implicit in the words “detrimental reliance,” actual harm must be shown.
We are not asked to reassess the evidence. And we are not asked about the other prerequisites for relief. We are asked about the standard of prejudice. And we conclude that the standard of prejudice must be borrowed from equitable principles, as modified by the obligations and injuries identified by ERISA itself. Information-related circumstances, violations, and injuries are potentially too various in nature to insist that harm must always meet that more vigorous “detrimental harm” standard when equity imposed no such strict requirement.
Note: The Second Circuit’s batting average is not too spiffy these days. The Second Circuit’s assessment of the district court’s opinion, noted by the Court, is somewhat amusing:
The parties cross-appealed the District Court’s judgment. The Court of Appeals for the Second Circuit issued a brief summary order, rejecting all their claims, and affirming “the judgment of the district court for substantially the reasons stated” in the District Court’s “well-reasoned and scholarly opinions.” 348 Fed. Appx. 627 (2009). The parties filed cross-petitions for writs of certiorari in this Court. We granted the request in CIGNA’s petition to consider whether a showing of ”likely harm” is sufficient to entitle plan participants to recover benefits based on faulty disclosures.
Equitable Remedies – The entire excerpt discussing equitable remedies reads as follows:
First, what the District Court did here may be regarded as the reformation of the terms of the plan, in order to remedy the false or misleading information CIGNA provided. The power to reform contracts (as contrasted with the power to enforce contracts as written) is a traditional power of an equity court, not a court of law, and was used to prevent fraud. See Baltzer v. Raleigh & Augusta R. Co., 115 U.S. 634, 645, 6 S. Ct. 216, 29 L. Ed. 505 (1885) (”[I]t is well settled that equity would reform the contract, and enforce it, as reformed, if the mistake or fraud were shown”); Hearne v. Marine Ins. Co., 87 U.S. 488, 20 Wall. 488, 490, 22 L. Ed. 395 (1874) (”The reformation of written contracts for fraud or mistake is an ordinary head of equity jurisdiction”); Bradford v. Union Bank of Tenn., 54 U.S. 57, 13 How. 57, 66, 14 L. Ed. 49 (1852); J. Eaton, Handbook of Equity Jurisprudence § 306, p. 618 (1901) (hereinafter Eaton) (courts of common law could only void or enforce, but not reform, a contract); 4 Pomeroy § 1375, at 1000 (reformation “chiefly occasioned by fraud or mistake,” which were themselves [*35] concerns of equity courts); 1 Story §§ 152-154; see also 4 Pomeroy § 1375, at 999 (equity often considered reformation a “preparatory step” that “establishes the real contract”).
Second, the District Court’s remedy essentially held CIGNA to what it had promised, namely, that the new plan would not take from its employees benefits they had already accrued. This aspect of the remedy resembles estoppel, a traditional equitable remedy. See, e.g., E. Merwin, Principles of Equity and Equity Pleading § 910 (H. Merwin ed. 1895); 3 Pomeroy § 804. Equitable estoppel “operates to place the person entitled to its benefit in the same position he would have been in had the representations been true.” Eaton § 62, at 176. And, as Justice Story long ago pointed out, equitable estoppel “forms a very essential element in . . . fair dealing, and rebuke of all fraudulent misrepresentation, which it is the boast of courts of equity constantly to promote.” 2 Story § 1533, at 776.
Third, the District Court injunctions require the plan administrator to pay to already retired beneficiaries money owed them under the plan as reformed. But the fact that this relief takes the form of a money payment does not remove it from the category of traditionally equitable relief. Equity courts possessed the power to provide relief in the form of monetary “compensation” for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment. Restatement (Third) of Trusts § 95, and Comment a (Tent. Draft No. 5, Mar. 2, 2009) (hereinafter Third Restatement); Eaton §§ 211-212, at 440. Indeed, prior to the merger of law and equity this kind of monetary remedy against a trustee, sometimes called a “surcharge,” was “exclusively equitable.” Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 464, 59 S. Ct. 275, 83 L. Ed. 285 (1939); Third Restatement § 95, and Comment a; G. Bogert & G. Bogert, Trusts and Trustees § 862 (rev. 2d ed. 1995) (hereinafter Bogert); 4 Scott & Ascher §§ 24.2, 24.9, at 1659-1660, 1686; Second Restatement § 197; see also Manhattan Bank of Memphis v. Walker, 130 U.S. 267, 271, 9 S. Ct. 519, 32 L. Ed. 959 (1889) (”The suit is plainly one of equitable cognizance, the bill being filed to charge the defendant, as a trustee, for a breach of trust”); 1 J. Perry, A Treatise on the Law of Trusts and Trustees § 17, p. 13 (2d ed. 1874) (common-law attempts “to punish trustees for a breach of trust in damages, . . . w[ere] [*37] soon abandoned”).
The surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary. See Second Restatement § 201; Adams 59; 4 Pomeroy § 1079; 2 Story §§ 1261, 1268. Thus, insofar as an award of make-whole relief is concerned, the fact that the defendant in this case, unlike the defendant in Mertens, is analogous to a trustee makes a critical difference. See 508 U.S., at 262-263, 113 S. Ct. 2063, 124 L. Ed. 2d 161. In sum, contrary to the District Court’s fears, the types of remedies the court entered here fall within the scope of the term “appropriate equitable relief ” in § 502(a)(3).