THE SUPREME COURT RESTORES EQUITY

TO THE LAW OF EMPLOYEE BENEFITS IN CIGNA v. AMARA

United States Supreme Court May 16, 2011

On May 16, 2011, the Supreme Court released an opinion CIGNA v. Amara, Case No. 09-804, 563 U.S. __, 2011 WL 1832824 (2011).  In an 8-0 decision, the Supreme Court announces a major change in the ERISA landscape. The high court ruled that pension plan fiduciaries could be held liable for make-whole relief for the harm they had caused employees in failing to comply with their duties in administering a pension plan. The Court cast aside 18 years of contrary law.

This decision is a giant step in the right direction making pension plans, and all other ERISA plans, more equitable, a purpose expressly set forth by Congress in the 1974 law, the Employee Retirement Income Security Act of 1974. ERISA governs employee benefits for all private sector employees in the United States. That law impacts approximately 150 million Americans.

A 1993 Supreme Court decision, Mertens v. Hewitt Associates, 508 U.S. 248 (1993), prevented lower courts from awarding monetary relief under ERISA. The Supreme Court steadfastly held that only equitable relief could be granted under ERISA. The type of equitable relief allowed was very limited. On May 16, 2011 that change when the Supreme Court broadened the scope of equitable relief by adopting long recognized traditional equitable remedies. The Supreme Court distinguished Mertens noting that that case focused on a claim seeking compensatory legal damages against a non-fiduciary private firm that provided a pension trustee with actuarial services. The Supreme Court stated in CIGNA v. Amara that Mertens did not apply to a lawsuit by a beneficiary against an ERISA fiduciary about the terms of an ERISA plan.

In CIGNA v Amara the trial court as affirmed by the Second Circuit Court of Appeals found for the employees concluding that they had been misled by CIGNA and awarded relief under Section 502(a)(1)(B) of ERISA, 29 U.S.C. §1132(a)(1)(B) . CIGNA appealed, arguing that the lower courts could not grant relief under that section of ERISA. The Supreme Court agreed, but pointed to a different section of ERISA, Section 502(a)(3), 29 U.S.C. §1132(a)(3), as an alternative basis to consider granting relief to the 25,000 employees mislead by CIGNA.

The CIGNA retirement plan provided one benefit for employees retiring at 65, and a somewhat lesser benefit for those choosing to retire at 55. In the late 1990s, CIGNA changed the retirement plan that had been based on years of services and salary with a new cash balance plan using a markedly different formula. The cash-balance plan transferred future investment risks to the future retirees, eliminated the early retirement option at age 55, and added a joint and survivor annuity over a single life annuity. These were significant changes that had a real monetary impact on employees.

The trial court determined that CIGNA had not provided proper notice to employees required under the ERISA statute, and worse, had represented that the new cash-balance plan was better than the old retirement plan. While struggling with the proper remedy, the trial court seemed to find the correct remedy under ERISA but found it in the wrong statutory provision.

The Supreme Court reversed the trial court and Second Circuit. In a 8-0 decision (Justice Sotomayor recused herself) written by Justice Breyer, the Court held that summaries of the plan were not part of the documents that formed rights and obligations between ERISA plans and their participants and beneficiaries. Consequently, the section of ERISA that allows plan participants to bring a claim to recover benefits or enforce rights under the terms of the plan, §502(a)(1)(B), 29 U.S.C. §1132(a)(1)(B) was not available to the employees. But the opinion did not end there.

The Supreme Court, however, was troubled by CIGNA’s representations. It remanded the case to the trial court for further proceedings, and made clear that whether the erroneous information provided to the employees occurred by mistake or by design of CIGNA may well provide money damages to the participants under traditional equitable remedies.

This decision significantly expands the power and substance of the remedies available under ERISA §502(a)(3) 29 U.S.C. §1132(a)(3). The language of the decision affirms that where there is a violation of the terms of an ERISA plan or the requirements of the ERISA statute for which no remedy exists elsewhere in the statute, as in Amara, that equity will provide a remedy. Slip Op., p. 18. The majority opinion (which was joined by Chief Justice Roberts and Justices Kennedy, Ginsburg, Alito and Kagan) goes on to state that the scope of remedies available at equity is broad and includes both affirmative and negative injunctions, mandamus, and restitution. The majority emphasize both the flexibility of equity and the need to tailor the appropriate remedy to redress injury based on the facts of the specific case before the court.

Under Amara, the Court makes clear that providing false or misleading information, whether occurring by fraud or mistake, may form the basis for reforming a contract in equity in a manner very similar to what the district court attempted to do. The Court went on to state that other aspects of the trial court’s order also resembled traditional equitable concepts of estoppel and surcharge. Surcharge is an exclusively equitable remedy and involves a monetary award against a trustee who violates any fiduciary duty. Slip Op., p. 19. The Court specifically states that make-whole relief is available to trust beneficiaries against a breaching trustee under appropriate circumstances. Slip Op., p. 20.

The Supreme Court said the lower courts would need to look to traditional equitable remedies writing, “Hence, any requirement of harm must come from the law of equity.” Slip Op., p. 21. Reviewing that body of law, the Court stated that detrimental reliance, the standard of harm CIGNA urged the Court to adopt, was not uniformly applicable in equity. Detrimental reliance must be proven by a party invoking estoppel. But neither surcharge nor contract reformation require such a level of proof. Equity’s “flexible approach belies a strict requirement of ‘detrimental reliance.'” Id.

Justice Scalia, joined by Justice Thomas, concurred in the decision but wrote to state that anything in the opinion beyond reversing the lower courts’ erroneous use of §502(a)(1)(B), 29 U.S.C. §1132(a)(1)(B) was unnecessary dicta.

Overall this decision helps enforce Congresses paramount goal of protecting employee benefits. When the lower courts begin implementing the guidance from the Supreme Court, wronged employees should be able to achieve better relief than ever allowed in the past under the narrow confines of ERISA.

Jonathan M. Feigenbaum

Boston, Massachusetts

www.erisaattorneys.com

Jonathan@erisaattorneys.com