:: ERISA Fiduciary Breach Based Upon Misrepresentation Claim Survives Where Equitable Estoppel Claim Fails

On February 27, 2008, I dismissed Plaintiffs’ claims that Defendants were contractually barred and equitably estopped from reducing the minimum life insurance benefit. I concluded that “as a matter of law, the Plan unambiguously reserves Qwest’s right to amend the Plan including reducing the amount of life insurance benefits for retired employees.”  

Plaintiffs filed a second amended complaint on April 3, 2008.  The current motion to dismiss followed.

Kerber v. Qwest Group Life Ins. Plan, 2009 U.S. Dist. LEXIS 24078 (D. Colo. Mar. 25, 2009)

This case arises out of a diminuation of insurance coverage promised to eligible retirees under a group benefit plan.  The plan contained a reservation of the right to amend the plan and the Court previously dismissed a claim based upon equitable estoppel.

So the question before the Court in the present context is this:  Can a claim of breach of fiduciary duty for misrepresentation survive where a claim for equitable estoppel did not?   The answer, at least at the motion to dismiss stage of the case, is that it can.

The Mispresentation Claim

Claim 2  of the amended complaint alleged breach of fiduciary duty for material  misrepresentations under ERISA § 404(A)(1), 29 U.S.C. § 1132(a)(1).

Plaintiffs allege that Defendants, through various communications sent to Pre-1991 Retirees, falsely represented to these retirees that the pre-amendment benefits would be maintained and never reduced. (SAC PP 82-87.) Accordingly, they seek “appropriate equitable relief.” Id. Defendants move for dismissal of this claim for failure to allege any actionable misrepresentations, materiality of the misrepresentations, or detrimental reliance on the misrepresentations.

The defendants countered that the plaintiffs were “repackaging” their unsuccessful estoppel claim.

The Fiduciary Obligation

The district court framed the issue in these terms, citing an unpublished Tenth Circuit case as persuasive authority:

“‘[A] fiduciary has a legal duty to disclose to the beneficiary only those material facts, known to the fiduciary but unknown to the beneficiary, which the beneficiary must know for its own protection.’” Horn v. Cendant Operations, Inc., 69 Fed. Appx. 421, 427 (10th Cir. July 3, 2003) (unpublished) 8 (quoting Glaziers & Glassworkers Union Local No.252 Annuity Fund v. Newbridge Sec., Inc., 93 F.3d 1171, 1182 (3d Cir. 1996)).

Observing that the Tenth Circuit has not articulated a test for analyzing a breach of fiduciary duty claim for misrepresentations, the Court turned to the Third Circuit opinion on Daniels v. Thams & Betts Corp.:

 The Third Circuit, however, adheres to a clear test which has been used in this district:

[T]o make out a breach of fiduciary duty claim [under ERISA], a plaintiff must establish each of the following elements: (1) the defendant’s status as an ERISA fiduciary acting as a fiduciary; (2) a misrepresentation on the part of the defendant; (3) the materiality of that misrepresentation; and (4) detrimental reliance by the plaintiff on the misrepresentation.

Daniels v. Thomas & Betts Corp., 263 F.3d 66, 73 (3d Cir. 2001); see Owen v. Regence Bluecross Blueshield of Utah, 388 F.Supp.2d 1318, 1333 (D. Utah 2005) (applying the test from Daniels) (citing Burstein v. Ret. Account Plan for Employees of Allegheny Health Educ. & Research Found., 334 F.3d 365, 384 (3d Cir. 2003) (adhering to the Daniels test)).

And thus:

“A fiduciary’s misrepresentation or failure to disclose is material ‘if there is a substantial likelihood that it would mislead a reasonable employee in making an adequately informed . . . decision.’” Horn, 69 Fed. Appx. At 427 (quoting Jordan v. Fed. Express Corp., 116 F.3d 1005, 1015 (3d Cir. 1997) (alteration in original). Furthermore, “[w]here the SPD incorrectly described benefits in the plan, to secure relief, the claimant must show some significant reliance upon, or possible prejudice flowing from, the faulty plan description.” Chiles v. Ceridian Corp., 95 F.3d 1505, 1519 (10th Cir. 1996).

No Requirement Of Intentional Conduct

The Court concluded that the previous ruling foreclosing an equitable estoppel claim did not preclude the plaintiff’s misrepresentation claim. In so ruling, the Court observed that “unlike an ERISA equitable estoppel claim, a breach of fiduciary duty claim does not require that the misrepresentation be intentional.”

The Court noted that the allegations were material, stating:

With respect to materiality, I conclude that Plaintiffs have alleged sufficient facts to survive a motion to dismiss. Plaintiffs allege that the statement in the 2001 to 2004 Confirmation Statements that “The Company . . . reserves the right to amend, suspend, or discontinue [the Plan] at any time, except for those who retired before 1991″ constitutes a material misrepresentation. I conclude that it is plausible that this statement may constitute a statement that creates “substantial likelihood that it would mislead a reasonable employee in making an adequately informed . . . decision.’”

Finally, the Complaint adequately alleged detrimental reliance.

The Court found the allegation of irrevocable harm to estate planning based upon the assumption of insurance coverage sufficient for this purpose. For example, paragraph 33 of the SAC states that “[c]ountless PLAN participants are unable to adjust their estate planning to address a sudden loss of PLAN benefits.”