Alert June 26, 2014

Ninth Circuit Holds that Monetary “Make-Whole” Relief Is Not Available Absent Loss to Plan or Unjust Enrichment for Defendant under ERISA Section 502(a)(3)


A Ninth Circuit panel recognized that reformation, equitable estoppel and surcharge were among the “appropriate equitable relief” potentially available under Section 502(a)(3) of ERISA (following dictum in CIGNA Corp. v. Amara), although the majority held that none was available to the plaintiff under the facts. Judge Berzon dissented as to the scope of a surcharge (“make-whole”) remedy and stated that the majority has misinterpreted Amara and created a conflict with post-Amara decisions in other circuits by limiting monetary relief under Section 502(a)(3) to situations where the plan suffered a loss or the defendant was unjustly enriched.

In Gabriel v. Alaska Elec. Pension Fund, No. 12-35458 (9th Cir. June 6, 2014), the U.S. Court of Appeals for the Ninth Circuit followed the Supreme Court’s dictum in CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011) regarding the types of equitable remedies available under ERISA Section 502(a)(3) in cases brought against breaching plan fiduciaries. (For more information on these cases, please see “Supreme Court Expounds on ERISA's Remedial Provisions,” from Goodwin Procter’s June 2011 ELU, as well as “Fourth Circuit Follows Cigna v. Amara Dictum Expanding the Scope of Relief Under ERISA’s Catch-All Provision,” from the October 2012 ELU.)

The litigation arose from a pension plan’s mistaken determination that the plaintiff was entitled to benefits. When the mistake was discovered and benefit payments terminated, the plaintiff sued under ERISA to have his benefits restored, among other relief. The district court granted summary judgment for the defendants for a number of reasons, including that part of the relief sought (compensatory damages in the form of benefits) was not appropriate equitable relief allowed under ERISA Section 502(a)(3).

On appeal, the Ninth Circuit affirmed, with one panel member dissenting. The court began its analysis with the premise that the equitable relief available under ERISA Section 502(a)(3) includes remedies “traditionally” or “typically” available in equity, as informed by trust law. Citing dictum in Amara, which espoused a more expansive reading of the types of equitable relief available under Section 502(a)(3) than some lower courts had previously allowed, the court stated that reformation, equitable estoppel, and surcharge may be appropriate equitable remedies for breach of fiduciary duty claims.

The court ruled that reformation was not available to the plaintiff because he did not show that the plan’s mistaken determination that he was eligible for benefits was the result of fraud or a mistake in the plan document. The court held that, for equitable estoppel to apply, an ERISA plaintiff must demonstrate that the defendant’s representation related to an ambiguous term in the plan susceptible to multiple interpretations. The court agreed with the defendants that the plaintiff could not meet that standard because the plan was unambiguous that he was not entitled to any benefits.

The panel was divided, however, over the scope of surcharge and the implication of Amara. The majority viewed this type of monetary relief as available in equity only when there is a loss to the trust estate or the defendant was unjustly enriched. The majority affirmed summary judgment for the defendants because the plaintiff was not seeking to recoup for the plan losses it incurred from the defendants’ alleged breaches, and the plaintiff was not arguing that any of the defendants were unjustly enriched by those claimed violations of duty.

In her dissent, Judge Berzon contended that equity courts had broad powers to grant appropriate remedies, including make-whole monetary relief for breach of fiduciary duty, regardless of any loss to the trust estate or unjust enrichment. The dissent argued that the panel created a conflict with the post-Amara decisions by the Fourth, Fifth and Seventh Circuits which, according to Judge Berzon, recognized broad make-whole relief for fiduciary breaches under Section 502(a)(3) even absent loss to the plan or unjust enrichment.