ERISA & Employee Benefits Litigation Blog

Rochow Revisited: No Multi-Million Dollar Disgorgement Award

Posted in Plan Administration Litigation

By, Amanda Sonneborn and James Goodfellow

Following up on a post we wrote back in January 2014, the Sixth Circuit en banc reversed its prior decision affirming an award of disgorgement as an equitable remedy for an insurer’s allegedly improper failure to pay benefits.  By way of reminder, the issue before the Court was whether the plaintiff was entitled to recover unpaid benefits under ERISA § 502(a)(1)(B) and equitable relief in the form of disgorgement of profits earned on the unpaid benefits under ERISA § 502(a)(3), both of which were based on the insurer’s arbitrary and capricious denial of long-term disability benefits. On en banc review, the Sixth Circuit concluded that to allow the plaintiff to recover unpaid benefits under ERISA § 502(a)(1)(B) and disgorged profits under ERISA § 502(a)(3), absent a showing that the remedy available under § 502(a)(1)(B) was inadequate, resulted in an impermissible duplicative recovery and thus was contrary to clear Supreme Court and Sixth Circuit precedent.

The Sixth Circuit cited to the Supreme Court’s decision in Varity Corp. v. Howe, 516 U.S. 489 (1996), and stated that § 502(a)(3) claims function as a “safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy.” The Sixth Circuit continued that the Supreme Court in Varity “limited this expansion of ERISA coverage” because “where Congress elsewhere provided adequate relief for a beneficiary’s injury, there will likely be no need for further equitable relief, in which case such relief normally would not be appropriate.” Thus, the problem with the initial panel decision, as well as the district court’s opinion, was that it focused not on whether the plaintiff was made whole by receiving relief available under § 502(a)(1)(B), but rather on whether the insurer wrongfully gained something by way of its conduct. The Sixth Circuit stated that there was “no showing that the benefits recovered by [the plaintiff], plus the attorney’s fee awarded, plus the prejudgment interest that may be awarded on remand, are inadequate to make [the plaintiff] whole.” As such, there was “no trigger for further equitable relief under Varity.”

The Sixth Circuit also noted that equitable relief only is available where the claim is based on an injury that is separate and distinct form the denial of benefits. The Court found that in Rochow the claim for benefits and the claim for equitable relief were premised upon the denial of benefits.

This case is a big win for insurers and plan administrators. It sets a clear line prohibiting duplicative recovery and provides guidance as to what constitutes “separate and distinct” injuries that would give rise to equitable relief. In addition, it makes clear that equitable relief is available only when relief available elsewhere in ERISA is insufficient, thus reinforcing the usual reading of Varity that § 502(a)(3) is a catch-all provision, and not one that provides relief in conjunction with § 502(a)(1)(B). Finally, it eliminates as a remedy recovery that could have made ordinary benefits decisions prohibitively expensive.

Supreme Court Vacates Seventh Circuit Ruling on Contraceptives

Posted in Uncategorized

By Ben Conley, Sam Schwartz-Fenwick and Amanda Sonneborn

The Obama administration’s Affordable Care Act experienced a potential setback on Monday when the Supreme Court vacated a Seventh Circuit ruling denying a preliminary injunction requested by the University of Notre Dame against the Affordable Care Act’s contraceptive mandate. The Court remanded the matter to the Seventh Circuit for reconsideration in light of the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., 134 S.Ct. 2751 (2014).

As a non-profit faith-based institution, the University of Notre Dame could seek an exemption from the ACA’s free contraceptive mandate.  To obtain this exemption, however, the University would be required to submit to HHS a one-page form requesting the accommodation.  Upon receipt and verification of this notice, HHS arranges for employees of the non-profit faith-based institute to obtain cost-free contraceptive coverage elsewhere (through an insurer or a third-party health plan administrator).

The University objected to filling out the notice, as it deemed the notice obligation to be effectively the same as offering the contraceptives. The University claims that this violates the University’s fundamental religious beliefs. The University sought a preliminary injunction.  The U.S. District Court for the Northern District of Indiana denied the injunction request in January of 2014, and the Seventh Circuit Court of Appeals affirmed the decision in February of 2014.

Since that time, the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc., 134 S.Ct. 2751 (2014) created a new, narrow exemption from the contraceptive mandate for certain privately held, for-profit organizations.  (The Supreme Court’s decision in Hobby Lobby did not create an exemption to the alternative to the contraceptive mandate — the HHS notification requirement — for such organizations.)  Even so, the Supreme Court’s remand will require the Seventh Circuit to reconsider its previous injunction denial in light of the Hobby Lobby decision.  The ensuing ruling will be significant for employers and plan sponsors, to the extent it provides insight into how broadly lower courts are willing to allow a claim of religious freedom to exempt entities (non-profit or otherwise) from generally applicable laws.

Ninth Circuit Concludes Beneficiary Designation Form Not a Plan Document and Telephone Call Changed A Beneficiary

Posted in Plan Administration Litigation

By: Ada Dolph and Jim Goodfellow

In Becker v. Mays-Williams, No. No. 13–35069 (9th Cir. Jan. 28, 2015), the Ninth Circuit was confronted with the issue of determining whether decedent Asa Williams, a long-time participant in his employer’s ERISA governed retirement savings plans, effectively changed his beneficiary designation from his ex-wife to his son from an earlier marriage. The Court concluded that to resolve the question, it would have to address a matter of first impression for the Ninth Circuit — whether beneficiary designation forms are plan documents.

Telephone call logs documented that after divorcing his ex-wife in 2006, the decedent had called each of the plans to instruct them to designate his son instead of his ex-wife as beneficiary. The decedent was sent and received beneficiary designation forms requesting that he confirm his selection of his son as beneficiary, but he did not return them. Following his death in 2011, both the ex-wife and the son filed competing claims for benefits. Before making any payment, the plans’ fiduciary filed an action interpleading the two parties and seeking a determination as to the proper beneficiary. The ex-wife moved for summary judgment, arguing that because the decedent failed to fill out and return the beneficiary designation forms, he did not designate his son as his beneficiary. The district court agreed, concluding that the beneficiary designation forms constituted plan documents that needed to be signed in order to change the beneficiary. The son appealed to the Ninth Circuit, which reversed.

To determine whether the beneficiary form constituted a “plan document” that dictated the beneficiary, the Ninth Circuit drew on its case law interpreting ERISA § 1024(b)(4), which governs which documents must be produced by plan administrators upon the request of a participant or beneficiary. ERISA §1024(b)(4) identifies specific documents that must be provided, such as the plan and summary plan description, and also requires that plan administrators provide “other instruments under which the plan is established or operated.” The Ninth Circuit has interpreted this catch-all category as including only those documents that “elucidate exactly where the participant stands with respect to the plan–what benefits [the participant] may be entitled to, what circumstances may preclude [the participant] from obtaining benefits, and what procedures [the participant] must follow to obtain benefits.” The Ninth Circuit noted that circuit precedent rejected a broader interpretation that included “all documents that are critical to the operation of the plan.” The Court reasoned that because the beneficiary designation forms provide no information as to where a participant stands with respect to the plan, but instead simply confirm the participant’s attempt to change the beneficiary, they are not plan documents that would govern an administrator’s award of benefits. (Interestingly, the Court made no mention of Cigna Corp. v. Amara, 131 S. Ct. 1866 (2011) in which the Supreme Court made a distinction between what constitutes the governing plan and other documents — such as a summary plan description — which contain only statements “about the plan”).

The ex-wife attempted to argue that the plan fiduciary had exercised its discretion — to which the Court should defer — to require participants to sign and return beneficiary designation forms, pointing to the forms’ language that in order to “finalize” and “validate” the beneficiary designation, the forms must be returned. The son argued that there was no indication that the third party administrator had such discretion, and there was also no evidence that the plan administrator actually required participants to return the forms to finalize a beneficiary designation. For its part, the Ninth Circuit concluded that even if there was discretion, the plans’ fiduciary failed to exercise it by instead filing an interpleader action. Accordingly, the Ninth Circuit concluded that the claim would be reviewed under a de novo standard of review.

The Ninth Circuit then evaluated de novo whether the decedent complied with plan documents to change his designation from his ex-wife to his son. The Court noted that the plan documents did not require non-married participants to make their designations in writing. Indeed, the summary plan descriptions invited non-married participants to change beneficiary designations by telephone or by visiting a website. Because the evidence indicated that the decedent had called to change his beneficiary, and the plan documents did not preclude him from changing his beneficiary by telephone, decedent substantially complied with the plan documents to effect the change in beneficiary from his ex-wife to his son.

Other Ninth Circuit opinions faced with sorting governing plan documents from other documents have relied upon Amara for guidance. See, e.g., Skinner v. Northrop Grumman Ret. Plan B, 673 F.3d 1162 (9th Cir. 2012); Opdoerp v. Wells Fargo & Co. Long Term Disability Plan, 500 F. App’x 575 (9th Cir. 2012). Here, the Ninth Circuit appears to have applied a broader definition of “plan document” to include summary plan descriptions and trust agreements, but nonetheless concluded that the definition did not go so far as to include a beneficiary form.

The Long-Awaited Death of Yard-Man

Posted in Retiree Health Care Litigation

By Ron Kramer and Chris Busey

The Supreme Court today put an end to the so-called Yard-Man inference that has plagued many employers with collective bargaining agreements that provide retiree health benefits to employees. Under the Yard-Man inference, a court would infer that negotiated retiree benefits were intended to continue for the retirees’ lives.

In M&G Polymers USA, LLC. v. Tackett, the Supreme Court rejected this inference and over three decades of Sixth Circuit precedent. In the matter before the Court, retirees and their former union brought suit against M&G Polymers for requiring retirees to begin contributing for their health benefits. Retirees claimed that an expired collective bargaining agreement entered into between M&G and their former union vested them with contribution-free retiree benefits for the lives of retirees, their spouses and their dependents. They pointed to a clause stating that certain retirees “will receive a full Company contribution toward the cost of [health care] benefits.” Retirees claimed that the modification of this vested benefit violated Section 301 of the Labor Management Relations Act of 1947 (“LMRA”) and Section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (“ERISA”).

After the District Court dismissed the complaint for failure to state a claim, the Sixth Circuit Court of Appeals reversed. The appellate court relied on International Union, United Auto, Aerospace, & Agricultural Implement Workers of America v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983) in remanding the case. The District Court held a bench trial and interpreted the Sixth Circuit’s opinion in the original appeal as conclusively determining that the retirees’ health benefits had vested under the terms of the contract. On the second appeal, the Sixth Circuit stated that the District Court erred in finding their original opinion conclusive, but stated that the lower court was correct in “presum[ing]” that “in the absence of extrinsic evidence to the contrary, the agreements indicated an intent to vest lifetime contribution-free benefits.”

Justice Thomas delivered the opinion of the Court and dismantled the Yard-Man presumption. In Yard-Man, the Sixth Circuit professed to apply traditional rules for contract interpretation in finding that retiree medical benefits — under very similar circumstances as in Tackett — had vested. In Yard-Man, the Sixth Circuit first found that the bargaining agreement was ambiguous as to duration because the contract provided that the employer “will provide” benefits.  It then found an intent for retiree medical benefits  to vest because the contract contained termination provisions for terminating active employee benefits and a retiree’s spouse and dependent’s benefits under certain circumstances, but no termination provisions for the retiree health benefits at issue. From this the Sixth Circuit inferred an intent to vest retiree benefits. The Sixth Circuit also employed the “illusory promise” doctrine and stated that a reading of the contract terminating retiree benefits with the expiration of the contract would prove illusory for a subset of employees. The Sixth Circuit then turned to “the context of labor negotiations,” reasoning that, since benefits of employees who already retired are a permissive subject of collective bargaining, “it is unlikely that such benefits . . . would be left to the contingencies of future negotiations.” Last but not least, the Sixth Circuit rejected the applicability of the general contractual durational clause, concluding that the contextual clues outweighed any contrary implications derived from a routine durational clause.

The Supreme Court found that the Yard-Man inference violates ordinary contract principles “by placing a thumb on the scale in favor of vested retiree benefits in all collective bargaining agreements.” Instead, as in traditional contract interpretation, ascertaining the intention of the parties should be paramount. The Court noted that the Sixth Circuit’s post-Yard-Man opinions have only expanded on this faulty reasoning, noting that the appellate court’s requirement that a contract contain a specific durational clause for retiree health care benefits to prevent vesting “distort[s] the text of the agreement and conflict[s] with the principle of contract law that the written agreement is presumed to encompass the whole agreement of the parties.”

In rejecting Yard-Man, the Court claimed the Sixth Circuit’s assessment of the likely behavior of the bargaining parties was not based on any record evidence, but instead from the court’s suppositions about the intentions of the parties. The Court found that “too speculative and too far removed from the context of any particular contract to be useful in discerning the parties’ intention.” While a court may use custom and usages in an industry to determine the meaning of a contract, those customs and usages must be proven, and are limited to the industry in which they are proven.

The Court also noted the Sixth Circuit’s misapplication of the “illusory promise” doctrine, which it used to invalidate provisions that may not ever affect certain employees. While a promise that is “partly” illusory may not benefit all employees covered by a bargaining agreement, those that it does benefit still provides consideration and makes the contract enforceable.

Lastly, the Court found that the Sixth Circuit failed to consider the traditional principle that courts should not construe ambiguous writings to create lifetime promises, and that contract obligations will cease in the ordinary course, upon termination of the bargaining agreement. The Court found that when a contract is silent as to the duration of retiree benefits, “a court may not infer that the parties intended for those benefits to vest for life.” The Court remanded the case to the Sixth Circuit to decide under ordinary contract principles.

In a concurrence written by Justice Ginsberg and joined by Justices Breyer, Sotomayor, and Kagan, Justice Ginsberg rejected M&G Polymers’ assertion in its brief that “clear and express” language was necessary to vest retiree health benefits. Justice Ginsberg noted that post contract obligations may not only be derived from express contract terms, but implied terms as well.  Justice Ginsberg urged the Sixth Circuit on remand to examine the entire agreement to determine whether benefits vested. In particular, she urged the Sixth Circuit to consider two clauses that she believed relevant as to the parties’ intent to vest retiree medical benefits. She pointed to the clause that purportedly ties health care to lifetime pension benefits and to the structure of the survivor clause, which provides benefits to spouses beyond the death of the retiree.

The death of Yard-Man is welcome news for employers who have collective bargaining agreements with retiree medical benefit provisions. But the decision leaves open many questions as to whether and when contracts will be found to be ambiguous as to the duration of retiree benefits. Nor did the Court address tests applied by other Circuit Courts of Appeal. For example, the Seventh Circuit has a presumption that retiree health benefits expire along with the labor agreement granting those benefits unless the contract unambiguously vests retiree benefits or the contract is genuinely ambiguous. Bidlack v. Wheelabrator, 993 F.2d 603, 606-07 (7th Cir. 1993) (en banc). There may be a lot more litigation over whether contracts are ambiguous and, if so, when retiree benefits vest under ordinary principles of contract law before the full impact of Tackett is known.

Regardless, the Sixth Circuit has long been the least employer friendly when it comes to determining whether retiree medical benefits have vested. With the end of Yard-Man, employers with operations in the Sixth Circuit — and those who have no operations within the Circuit yet made decisions based on the possibility of a retiree nonetheless bringing suit there — should revisit their collective bargaining agreements and analyze them anew in light of this decision.

If The Supreme Court Legalizes Same-Sex Marriage, What Next?

Posted in Plan Administration Litigation, Uncategorized

By: Sam Schwartz-Fenwick, Kylie Byron and Amanda Sonneborn

On Friday, January 16, 2015, the Supreme Court agreed to hear four cases from the Sixth Circuit concerning whether under the Fourteenth Amendment a state can permissibly ban same-sex marriage.  The Court previously side-stepped this issue in its 2013 decision in United States v. Windsor.  In Windsor, the Court found that under the due process clause of the Fifth Amendment the Federal government must extend the Federal rights and benefits of marriage to legally married same-sex couples.   Windsor, however, did not address the underlying question of whether states are required to recognize and/or solemnize same-sex marriage.

Subsequent to Windsor, over 40 courts at the state and Federal level have struck down state bans on same-sex marriage, holding that such bans violate the Fourteenth Amendment.  These decisions have caused the number of states that permit same-sex marriage to rise from eleven at Windsor’s issuance to thirty-six.  A large part of this increase was due to the Supreme Court’s decision on October 6, 2014 not to grant certiorari to the decisions of the Fourth, Seventh, and Tenth Circuit Courts striking down state marriage bans.  By not granting certiorari in October, the stays expired on the Circuit Court decisions, and same-sex marriage was legalized in eleven states.

In granting certiorari on the instant petition, the Court set briefing and argument on two issues. First, whether the Fourteenth Amendment requires a state to license a marriage between two people of the same sex; and second, whether the Fourteenth Amendment requires a state to recognize a same-sex marriage legally licensed in a different state.

Should the Court find that the Fourteenth Amendment requires states to license same-sex marriages, the fourteen remaining same-sex marriage bans will be nullified.  Employers operating in those states would need to conform certain employment policies (such as FMLA leave) to cover same-sex spouses in the manner that employers in the majority of states have had to in the wake of Windsor.

A ruling striking down marriage bans would also create a unique situation: all states would be required to permit same-sex marriage, but employers in the majority of states could still fire an employee for being gay or for being in a same-sex marriage.  Employees, emboldened by a ruling that legalizes same-sex marriage and frustrated by a Congress that has not expressly outlawed LGBT discrimination, are likely to increasingly use the Court to argue that LGBT discrimination is a form of sex discrimination, and is thus barred under Title VII.  The EEOC and the Obama administration already take this position.  Whether courts will be receptive to such a reading of the law, remains an open question.  However, language in a Supreme Court decision finding that LGBT individuals are a protected class under the Fourteenth Amendment, may give such an argument more persuasive effect.  An additional outcome of a legalization of same-sex marriage is that opponents of same-sex marriage will work to pass state legislation that allows individuals (including employers) to make decisions based on their religious faith.  Such laws, which are premised on the Supreme Court’s decision in Burwell v. Hobby Lobby, 573 U.S. ____ (2014), and on the Religious Freedom Restoration Act (“RFRA”), will allow employers to argue that they can lawfully deny benefits to same-sex spouses (such as spousal health benefits under an ERISA plan) even in the face of an expansive reading of Title VII.  In the Hobby Lobby ruling, the Court made a point of noting that a closely held corporation’s religious beliefs could not be used to justify race discrimination.  However, the Court did not address whether an employer’s religion rights can justify denying benefits to LGBT individuals.  The answer to this question will only be decided by clarifying Federal legislation or by a subsequent Supreme Court decision.

A ruling allowing states to ban same-sex marriage but requiring them to recognize legal marriages performed elsewhere would avoid many of these issues as it would be limited to the principle of comity (recognizing contracts performed in other states) under the Constitution’s Full Faith and Credit Clause. Such a narrow holding, would allow same-sex couples in all 50 states to obtain a marriage license recognized by the state and Federal government, so long as the marriage took place in a jurisdiction that recognized the union.  This outcome would create certain difficulties for employers as they would be required to examine the wedding licenses of their same-sex employees to ensure that the marriage took place in a state where the marriage was legal.  However, such a burden is likely de minimis, given that most employers already require proof of marriage before extending spousal benefits to an employee’s spouse.  Of course, such a ruling would also reverse the gains of the marriage equality movement.  Same-sex marriage bans would remain Constitutional, thereby allowing marriage bans to be revived in a majority of states (the fourteen states with in-effect bans, plus all states in which Courts have invalidated same-sex marriage bans post-Windsor).  Such an outcome would be a setback from those arguing for increased rights for LGBT individuals (including LGBT employees).

An even more crushing blow to the LGBT rights movement would occur if the Court found that the Constitution does not require states to license or recognize same-sex marriages.  Such an outcome would keep in effect the marriage bans in fourteen states, and allow over 20 states to argue that their marriage bans, which were struck down by lower courts, should be given full effect on a prospective basis.  Such a ruling would have ripple effects beyond the same-sex marriage context.  Just as pro-LGBT language from the Supreme Court will likely have an impact on lower court jurisprudence regarding issues surrounding LGBT individuals (including employment and employee benefit discrimination), so too would less positive or negative language from the Supreme Court make lower courts more wary of issuing rulings that increase LGBT rights.

Stay tuned as Seyfarth continues to post updates regarding this rapidly evolving area of the law.

Eleventh Annual Workplace Class Action Report Webinar: Looking Back At Key Developments Of 2014 And What Lies Ahead In 2015

Posted in Uncategorized

By Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Back by popular demand, our Annual Workplace Class Action Litigation Report Webinar is on Thursday, January 22, 2015. Click here to register and attend. It’s free!

Workplace class action litigation continues to accelerate, grow, and pose extraordinary risks for employers. Skilled plaintiffs’ lawyers are continually developing new theories and approaches to complex employment litigation. Hence, the events of the past year in the workplace class action world demonstrate that the array of bet-the-company litigation issues that businesses face are continuing to widen and undergo significant change. At the same time, governmental enforcement litigation pursued by the U.S. Equal Employment Commission and the U.S. Department of Labor manifests the aggressive “push-the-envelope” agenda of two activist agencies, and regulatory oversight of workplace issues continues to be a priority. All of these factors combine to challenge businesses to integrate their litigation and risk mitigation strategies to navigate these exposures.

Our readers have given us wide-ranging feedback since the launch of the 11th Annual Report earlier this month. We are pleased with the positive press we received from commentators, including Forbes, Law 360, BNA Class Action Reporter, Corporate Counsel Magazine, and SHRM (click here, here, here, and here to read more.)

For an interactive analysis of 2014 decisions and emerging trends, please join us for our annual webinar offered in conjunction with the publication of our 11th Annual Workplace Class Action Report. The Report’s author, partner Gerald L. Maatman, Jr., along with partners Lorie Almon and Ian Morrison, chairs of our wage & hour and ERISA class action groups, will cover a changed national landscape in workplace class action litigation.

Other significant developments to be addressed include:

  • The increasing focus of the U.S. Equal Employment Opportunity Commission on high-stakes, big-impact litigation
  • A continuing rising tide of Wage & Hour class actions and collective actions
  • Transformative decisions regarding the Class Action Fairness Act
  • The decreasing settlement values in all areas but ERISA litigation and what it means for employers
  • The profound impact of the decisions In Wal-Mart And Comcast Corp. on Rule 23 case law developments

The date and time of the webinar is Thursday, January 22, 2015:

1:00 p.m. to 2:00 p.m. Eastern Time

12:00 p.m. to 1:00 p.m. Central Time

11:00 a.m. to 12:00 p.m. Mountain Time

10:00 a.m. to 11:00 a.m. Pacific Time

Speakers: Lorie Almon, Gerald L. Maatman, Jr., and Ian Morrison

Ninth Circuit Softens Its Position On Surcharge–But Defers Its Scope For Another Day

Posted in General Fiduciary Breach Litigation

By Kathleen Cahill Slaught and Michelle Scannell

Since the Supreme Court’s CIGNA v. Amara decision, courts have grappled with the scope of the permissible forms of equitable relief under ERISA, including the surcharge remedy, the sole focus of today’s blog.  Surcharge is generally a type of monetary relief awarded to remedy a fiduciary breach.  In June, the Ninth Circuit sharply limited the scope of surcharge.  See Gabriel v. Alaska Elec. Pension Fund, 12-25458 (6/6/14).  Recently, however, there was a slight change of heart, and the Ninth Circuit replaced that June decision with one that potentially opens the door to surcharge, to be addressed on remand.  Id. (12/16/14).

Gabriel involves a pension plan participant who received benefits for several years, even though he knew he never met the plan’s vesting requirements.  After the error was discovered, his benefits were terminated.  He sued for benefit denial and equitable relief, seeking remedies including surcharge.  He claimed that he was entitled to surcharge in the form of the benefits he would have received had he been credited with the hours erroneously reflected in the fund’s records when he applied for benefits.

Before the Ninth Circuit, plaintiff claimed that under Fourth Circuit authority surcharge could provide make-whole relief, even if it came at the expense of the plan.  The court disagreed, observing that the Fourth Circuit decision and similar decisions in other circuits did not define the scope of surcharge.  Further, those decisions involved remand to district courts to determine the availability of surcharge in the first instance.  The court ruled that under prior circuit precedent, surcharge was recoverable only to remedy unjust enrichment and to restore plan losses.  It further ruled that plaintiff wasn’t entitled to surcharge because there was no unjust enrichment, and also because the remedy he sought would not “restore the trust estate, but rather would wrongfully deplete it by paying him benefits” he wasn’t entitled to.

This June decision was met with criticism.  The plaintiff sought a full panel review.  A few district courts judges within the Ninth Circuit also declined to follow it, noting that due to the pending rehearing petition, the ruling was not yet final.

In its recently issued amended ruling, the Ninth Circuit explained that because the district court concluded the plaintiff wasn’t entitled to monetary relief, it didn’t consider whether plaintiff was entitled to surcharge.  The court noted that under Amara, the proper approach is to vacate the judgment and remand to the district court.  “Consistent with” sister circuits, the court did just that.

In a concurring opinion that surely won’t be overlooked in any remand proceedings, Chief Judge Kozinski expressed “serious[] doubt” that plaintiff could recover surcharge.  He was skeptical of the plaintiff’s ability to prove required elements of harm and causation, because the sole harm he alleged arose out of his “unreasonable” reliance “on the Fund’s misrepresentations.”  Judge Kozinski “couldn’t imagine [that surcharge] extends to a reliance claim where the plaintiff was apprised of the true facts.”  He noted that a contrary conclusion would make bad policy, by imposing a form of “strict reliance for every mistake that’s claimed to be relied on, even if the reliance was unreasonable.”

On our reading of the case, we think that this plaintiff probably isn’t a poster child for a surcharge award.  Stay tuned…

Update on the Multiemployer Pension Reform Act of 2014

Posted in Uncategorized

On December 11th, we reported on the proposed Multiemployer Pension Reform Act of 2014 (MPRA).

We can now report that President Obama enacted this legislation on Tuesday, December 16th as part of the $1.1 trillion spending bill for 2015.  The final MPRA is identical in substance to the draft legislation that we reported on earlier (click here for the final 57-page version of the MPRA ).

On January 14, 2015, Seyfarth ERISA litigation and benefits attorneys will provide an overview of the MPRA, and what it means for employers.

Topics to be addressed include:

  • Benefit reduction process for deeply troubled plans
  • New merger and partition rules
  • Disregard of surcharges and certain contribution increases in withdrawal liability payment schedules
  • New required plan disclosures
  • Withdrawal liability calculations post MPRA

Click here for a link to sign up for this important event.  If you have any questions about the upcoming webinar, please contact

A Potential Turning of the Tide: Eleventh Circuit Affirms Enforcement of Summary Plan Description Terms

Posted in Plan Administration Litigation

By: Ian H. Morrison and Christopher M. Busey

While the debate over Amara and its implications continues, the Eleventh Circuit gave welcome ammunition to ERISA plan administrators and fiduciaries in a recent opinion. In Board of Trustees of the National Elevator Industry Health Benefit Plan v. Montanile, No. 14-11678 (Nov. 25, 2014), the court held that a summary plan description constituted a written instrument that sets out enforceable terms of an ERISA employee welfare benefit plan. The court affirmed the District Court of Southern District Florida’s grant of summary judgment for the Plaintiff-Appellee Board of Trustees.

Robert Montanile participated in the National Elevator Industry Health Benefit Plan, a jointly administered health and welfare plan. He was hit by a drunk driver and recovered $500,000 in a lawsuit against that driver. The Plan’s Board of Trustees sued to recover payments it had made for Montanile’s treatment for injuries suffered in the crash under subrogation and reimbursement clauses that appeared only in the Plan’s summary plan description.

Montanile argued that the reimbursement and subrogation provisions were unenforceable because they were not set forth in the formal plan documents and that equity did not permit the Plan to recover.  The Eleventh Circuit court of appeals disagreed.

The Eleventh Circuit first addressed Montanile’s contention that recovery was unavailable under ERISA § 502(a)(3), which permits only equitable remedies. He argued that an equitable lien or constructive trust were unavailable because he’d spent or dissipated the money received from the settlement.  Relying on another recent Eleventh Circuit case — AirTran Airways, Inc., v. Elem, 767 F.3d 1192 (11th Cir. 2014) — the court found that, because the settlement funds were “specifically identifiable” prior to the dissipation, the Board’s equitable lien remained intact.

The court then addressed ERISA’s elephant in the room. Montanile argued, relying on Amara, that the subrogation provision could not be enforced because it appeared only in the SPD. The court first rejected the argument that a document could not be both a written instrument that set forth the plan’s terms, as required by ERISA § 3(a)(1), 29 U.S.C. § 1102(a)(1), and a summary plan description, as required by § 102, 29 U.S.C. § 1022. On this point, the court specifically distinguished Amara. It observed that Amara held only that an equitable remedy — there, reformation of a plan — was not permitted under ERISA § 502(a)(1)(B). The Supreme Court’s holding thus had no bearing on Montanile’s case, in which the Board of Trustees sought relief under § 502(a)(3). The court also confronted the oft-repeated proclamation that an SPD “suggests information about the plan” and is “not itself part of the plan.” Although Amara precludes enforcement of SPDs “where the terms of that summary conflict with the terms specified in other, governing plan documents,” the Eleventh Circuit noted that the Supreme Court only rejected the proposition that SPDs “necessarily may be enforced . . . as the terms of the plan itself.” This “leaves open the possibility that terms in those summaries may, at times, be enforced, even though they are not always enforceable.”

Thus, because in this case the SPD was a plan document, the court found it enforceable. In fact, the court noted that ignoring the SPD would lead to an absurd result as the plan documents alleged to constitute all governing plan documents by Montanile did not “specify the basis on which payments are made to and from the plan,” as required by ERISA § 402(b), 29 U.S.C. § 1102. Those provisions existed only in the SPD. Thus, under his interpretation, “there would be no governing document that specifies Plan participants’ rights or obligations regarding benefits.” Accordingly, the Eleventh Circuit held that the SPD contained enforceable terms of the plan and affirmed the grant of summary judgment for the plan’s Board of Trustees.

The implications for this opinion are still unclear. This opinion follows decisions from other circuits that have similarly enforced terms in summary plan descriptions. For example, the Eighth Circuit recently found a grant of discretion to a claims administrator contained only in the plan’s SPD to be valid. See Prezioso v. The Prudential Insurance Company of America, 748 F.3d 797 (8th Cir. 2014). The Eleventh Circuit’s decision supports a more nuanced and pragmatic reading of Amara—one advanced by plan fiduciaries and administrators since Amara. While several circuits have gone the other way on this issue or have yet to weigh in, this decision may suggest that another Supreme Court showdown over ERISA plan documents is in the offing.


Posted in Uncategorized, Withdrawal Liability

By: Ron Kramer

Don’t look now, but pension reform is back in play.  The proposed “Multiemployer Pension Reform Act of 2014” (“MPRA”), 161 pages long (click here), was recently introduced in the House Rules Committee by Representatives George Miller (D-CA) and Rep. John Kline (R-MN), and may be adopted before the end of the lame duck session this week as part of the spending deal to keep the government running.  The House Rules Committee claims the bill would permit trustees of severely underfunded plans to adjust vested benefits, enabling deeply troubled plans to survive without a federal bailout while protecting the most vulnerable employees and adjusting the premium structure to improve the health of the PBGC.

Much of the draft legislation is based on recommendations previously issued by the National Coordinating Committee for Multiemployer Plans.  The bill is designed to make it easier for multiemployer pension plans to take steps to improve their health without necessarily placing significant additional financial burdens on participating employers or taxpayers.  Below are three key highlights of interest for employers:

1.  Ability of deeply troubled plans to reduce benefits before insolvency:  Key to the MPRA is the ability of critical and declining plans to reduce employee benefits now to avoid insolvency.  Currently, vested benefits can only be reduced under certain limited circumstances:  e.g., with “critical status” plans or when a plan is insolvent (and then they are reduced to PBGC guarantee minimums).  The MPRA provides for an extensive process for “critical and declining” plans — i.e., critical plans which are projected to become insolvent within 14 plan years (19 plan years if the plan has a ratio of inactive participants to active participants that exceeds 2 to 1 or if the unfunded percentage of the plan is less than 80 percent) — to seek approval to “suspend” benefits to no less than 110% of PBGC minimums (subject to certain exceptions to protect the most vulnerable retirees) to the extent needed to avoid insolvency.  The process for obtaining approval for reducing benefits is extensive (including the appointment of a retiree representative for larger plans to advocate for the retirees), and includes a mandated vote in favor by the participants.  That vote can be overridden, however, in the event the government determines that the plan is “systemically important,” i.e., the present value of projected financial assistance payments by the PBGC would exceed one billion dollars (indexed going forward) if suspensions are not implemented.

The ability to suspend benefits now, while painful for participants, may help many critical and declining funds in the long run to avoid insolvency or outright plan termination.  To the extent this will permit a fund to avoid insolvency, fund employers may be less likely to withdraw.  This change does not necessarily help employers interested in withdrawing from such plans, however, or employers that may experience a withdrawal for business reasons beyond their control.  Benefit suspensions are disregarded in withdrawal liability calculations unless the withdrawal occurs more than ten years after the effective date of a benefit suspension.

2.  Changes to mergers and partitions:  The MPRA significantly revises existing merger and partition rules.  The PBGC will be authorized to promote and facilitate plan mergers and may provide financial assistance (provided it has sufficient funds) in certain situations where one of the plans to be merged is in critical and declining status.  The PBGC’s ability to approve partitions to carve out the bad parts of a plan from the good parts also has been expanded.  Under the MPRA, in order for a partition to be approved:  (i) the plan must be in critical and declining status; (ii) all reasonable measures to avoid insolvency (including the imposition of the maximum allowable benefit suspensions) must have been taken; (iii) a partition would reduce the PBGC’s expected losses, and would be necessary to keep the plan solvent; (iv)  the PBGC can do it financially without hurting its ability to meet its other financial obligations; and (v) the PBGC’s costs are paid for exclusively from the fund for basic benefits guaranteed for multiemployer plans.  Only the minimum amount of the plan’s liabilities necessary for the plan to remain solvent will be permitted to be partitioned.

These changes also will help save critical and declining funds.  Employers seeking to withdraw within ten years after a partition will have their liability calculated with respect to both plans, thus ensuring exiting employers will not monetarily benefit from the partition.

3.  Employer relief on withdrawal liability payments:  Under current law, an employer’s withdrawal liability payment schedule is directly tied to its highest contribution rate in the past ten years.  The MPRA clarifies that surcharges imposed pursuant to the Pension Protection Act do not count towards that rate — an issue reported on earlier (click here) that is currently pending before the Third Circuit Court of Appeals.  Moreover, under the MPRA, contribution increases mandated by a rehabilitation or funding improvement plan also will be disregarded in certain circumstances.  These changes, at least for employers who withdraw after they take effect, will considerably reduce an employer’s annual withdrawal liability payments — and hence total spend when subject to the 20-year cap on payments.

Other changes include, but are not limited to:  giving plans the right to impose rehabilitation and funding improvement plan contribution increases based on the schedule option (preferred or default) previously adopted if the parties have not negotiated the increases within 180 days of the contract termination date; giving plans the ability to elect to be in critical status under certain conditions; expanding the rights of participants and employers to certain plan information; amending certain rules governing certain charity and nonprofit pension plans; adjusting premium payments to the PBGC, etc.

Will it pass both houses of Congress?  What will remain in the bill if passed?  What surprises lurk within the 161 pages?  How much will it help multiemployer plans?  Will it make employers reconsider entering or exiting multiemployer plans, especially those that are in endangered or critical plans?  Stay tuned.