:: Plaintiff’s Section 502(a)(3) Claim Prevails Over Varity-Based Defense

The Courts of Appeals disagree as to whether Varity prohibits a plaintiff from simultaneously pursuing equitable relief pursuant to Section 502(a)(3) and benefits due under the terms of the plan pursuant to Section 502(a)(1)(B).  The Third Circuit has not ruled on the issue, and district judges within the Third Circuit are split.

Trechak v. Seton Co. Supplemental Exec. Ret. Plan, 2010 U.S. Dist. LEXIS 124750 (E.D. Pa. Nov. 24, 2010)

This recent district court opinion addresses several recurring issues about available civil remedies under ERISA. The facts involve a “top hat” plan which is essentially a supplemental retirement benefit plan. The issues were presented in the context of a motion to dismiss.

The district court ultimately permitted the plaintiff to plead a claim for benefits under the terms of the plan (ERISA Section 502(a)(1)(B)) as well as equitable relief under ERISA Section 502(a)(3). The court noted a division in the Third Circuit among the district courts.

Before arriving at that analysis, however, the Court had to determine whether the plaintiff’s claim for equitable relief was preempted. The Court determined that it was not, stating:

Plaintiff has conceded that his unjust enrichment claim is preempted to the extent it is grounded in state law, as discussed above . . . However, Plaintiff contends that the claim survives as a claim for equitable relief under ERISA. Plaintiff clarified in his Response brief that Count Four was pled in the alternative as an ERISA claim for equitable relief pursuant to 29 U.S.C. § 1132(a)(3)(B) (”Section 502(a)(3)”).

In Nagy v. De Wese, 705 F. Supp. 2d 456 (E.D. Pa. 2010) (Yohn, J.), the plaintiff, whose benefit payments pursuant to an ERISA plan had ceased, clarified in his response to the defendant’s motion for judgment on the pleadings that his unjust enrichment claim was “more properly characterized as a demand for equitable relief” under Section 502(a)(3). Id. at 461. Judge Yohn held that the unjust enrichment claim, as pled in the alternative as a claim for equitable relief, was not preempted. Id.

Here, as in Nagy, Plaintiff has clarified that his unjust enrichment claim was pled in the alternative as a claim for equitable relief pursuant to Section 502(a)(3).

The Plaintiff’s next hurdle appeared in the frequently encountered defense that the equitable relief claim was unavailable because the Plaintiff had asserted a claim for benefits.

. . . the Court must determine whether Plaintiff can plead a Section 502(a)(3) claim simultaneously with his claim in Count One for wrongful denial of benefits under 29 U.S.C. § 1132(a)(1)(B) (”Section 502(a)(1)(B)”).

Since Varity Corp. v. Howe, 516 U.S. 489, 116 S. Ct. 1065, 134 L. Ed. 2d 130 (1996) held that Section 502(a)(3) is a “catchall” provision that “offer[s] appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy”, courts have often held that (a)(3) claims cannot be asserted where a claim for benefits has also been asserted.

The district court distinguished Varity, however, and permitted the (a)(3) claims to stand, at least at this stage of the proceedings, stating:

The Courts of Appeals disagree as to whether Varity prohibits a plaintiff from simultaneously pursuing equitable relief pursuant to Section 502(a)(3) and benefits due under the terms of the plan pursuant to Section 502(a)(1)(B).

The Third Circuit has not ruled on the issue, and district judges within the Third Circuit are split. For example, in Parente v. Bell Atlantic Pennsylvania, No. Civ. A. 99-5478, 2000 U.S. Dist. LEXIS 4851, 2000 WL 419981 (E.D. Pa. Apr. 18, 2000), Judge Reed held that “under Varity, a plaintiff is only precluded from seeking equitable relief under § 1132(a)(3) when a court determines that plaintiff will certainly receive or actually receives adequate relief for her injuries under § 1132(a)(1)(B) or some other ERISA section.” 2000 U.S. Dist. LEXIS 4851, [WL] at *3.

Judge Reed found that Fed. R. Civ. P. 8(e) specifically contemplated pleading in the alternative. Id. Therefore, Judge Reed reserved judgment on “the question of whether (and what kind of) equitable relief under § 1132(a)(3) is appropriate” until later in the litigation, when it could be determined “whether § 1132(a)(1)(B) will in fact provide the plaintiff adequate relief.” Id. (denying the motion to dismiss). See also Tannenbaum v. UNUM Life Ins. Co. of Am., No. Civ. A. 03-CV-1410, 2004 U.S. Dist. LEXIS 5664, 2004 WL 1084658, at *4 (E.D. Pa. Feb. 27, 2004) [*17] (Surrick, J.) (denying the motion to dismiss a claim for breach of fiduciary duty based on Section 502(a)(3) because “[a]t this stage, we cannot know whether Plaintiff will be able to prove his entitlement to benefits under § 1132(a)(1)(B)”).

If the plaintiff proceeds on both claims in the alternative, the defendant may properly reassert the argument that the plaintiff cannot recover under both ERISA sections at the summary judgment stage. Koert v. GE Grp. Life Assur. Co., No. Civ. A. 04-CIV-5745, 2005 U.S. Dist. LEXIS 14132, 2005 WL 1655888, at *3 (E.D. Pa. July 14, 2005) (Stengel, J.) (denying motion to dismiss and allowing plaintiff to proceed on claims for wrongful denial of benefits and breach of fiduciary duty simultaneously).

Note: For a contrary outcome, the Court noted the opinion in Cohen v. Prudential Ins. Co., Civ. A. No. 08-5319, 2009 U.S. Dist. LEXIS 71422, 2009 WL 2488911 (E.D. Pa. Aug. 12, 2009), where the judge ruled that held that the Plaintiff could “only permit the § (a)(3) claim to progress if the plaintiff can demonstrate that § (a)(1) (B) alone may not provide an adequate remedy.” 2010 U.S. Dist. LEXIS 32166, [WL] at *4; and see Miller v. Mellon Long Term Disability Plan, Civ. A. No. 09-1166, 2010 U.S. Dist. LEXIS 63167, 2010 WL 2595568, at *6 (W.D. Pa. June 25, 2010)

Other Circuits – The Court noted decisions in Katz v. Comprehensive Plan of Group Ins., 197 F.3d 1084, 1088 (11th Cir. 1999), Tolson v. Avondale Indus., Inc., 141 F.3d 604, 610 (5th Cir. 1998), Frommert v. Conkright, 433 F.3d 254, 270 (2d Cir. 2006) and Forsyth v. Humana, Inc., 114 F.3d 1467, 1475 (9th Cir. 1997) which align with the Cohen reasoning.

Claim Against Individuals – The Court held that a claim for equitable relief under Section 502(a)(3) may be pled against an individual defendant, citing Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 120 S. Ct. 2180, 147 L. Ed. 2d 187 (2000) (”502(a)(3) admits of no limit . . . on the universe of possible defendants.”)

Section 510 Claim – I am not a big fan of Section 510 theories, but when they are appropriate then they have a place.  It just seems they so often don’t.  In any event, the Defendants also moved to dismiss Plaintiff’s claim for interference with benefit rights, pursuant to Section 510.

The Court noted that:

A plaintiff must make a three-pronged showing to establish a prima facie case under section 510: “1. prohibited employer conduct; 2. taken for the purpose of interfering; 3. with the attainment of any right to which the employee may become entitled.” Dewitt v. Penn-Del Directory Corp., 106 F.3d 514, 522 (3d Cir. 1997) (quoting Gavalik v. Cont’l Can Co., 812 F.2d 834, 852 (3d Cir. 1987)).

. . .

In this case, Plaintiff does not allege that he was discharged, fined, suspended, expelled, or disciplined by his employer. Furthermore, Plaintiff has not pled facts that show unlawful discrimination within the employer-employee relationship, such as demotion or termination. Plaintiff’s allegations that Defendants decided to suspend payments owed him, improperly influenced the Plan Administrators, and sent him an unauthorized notice terminating his benefits all pertain to actions outside of the employer-employee relationship for purposes of Section 510. Id

Defendants also moved to dismiss Plaintiff’s claim for interference with benefit rights, pursuant to Section 510. Section 510 of ERISA states: It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan . . . for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan . . . The provisions of section 1132 of this title shall be applicable in the enforcement of this section. 29 U.S.C. § 1140. A plaintiff must make a three-pronged showing to establish a prima facie case under section 510: “1. prohibited employer conduct; 2. taken for the purpose of interfering; 3. with the attainment of any right to which the employee may become entitled.” Dewitt v. Penn-Del Directory Corp., 106 F.3d 514, 522 (3d Cir. 1997) (quoting Gavalik v. Cont’l Can Co., 812 F.2d 834, 852 (3d Cir. 1987)). Congress intended for Section 510 to protect beneficiaries from dismissal and adverse employment actions such as “termination  [*13] motivated by an employer’s desire to prevent a pension from vesting.” Ingersoll-Rand, 498 U.S. at 143. The Third Circuit interpreted “discriminate against,” the broadest term in Section 510, as being “limited to actions affecting the employer-employee relationship.” Haberern v. Kaupp Vascular Surgeons Ltd. Defined Benefit Pension Plan, 24 F.3d 1491, 1503 (3d Cir. 1994) (holding that amending the defined benefit plan to eliminate life insurance benefits for beneficiaries over a certain age, which affected only the plaintiff, did not constitute “discrimination” in the employer-employee relationship). In this case, Plaintiff does not allege that he was discharged, fined, suspended, expelled, or disciplined by his employer. Furthermore, Plaintiff has not pled facts that show unlawful discrimination within the employer-employee relationship, such as demotion or termination. Plaintiff’s allegations that Defendants decided to suspend payments owed him, improperly influenced the Plan Administrators, and sent him an unauthorized notice terminating his benefits all pertain to actions outside of the employer-employee relationship for purposes of Section 510. Id

Thus, the Court provides a kind of roadmap for what a Section 510 claim has to look like – if it can fit the facts.

(I uploaded this case on erisaboard.com)