Will the U.S. Supreme Court Open The Door to ‘Make Whole’ Relief For Litigants Under ERISA?
Healthcare Law Newsletter
Since Justice Ginsburg’s unsettling concurrence in Aetna v. Davila , 542 U.S. 200 (2004), the plaintiff’s bar has tirelessly sought to use her suggestion that the Court should reevaluate “make whole” relief under ERISA §502(a)(3)(B), 29 U.S.C. §1132(a)(3)(B), as a wedge to crack open the limitations on damages available under ERISA.
The Fourth Circuit Court of Appeals decision in LaRue v. DeWolff, Boberg & Associates, Inc., 450 F.3d 570, reh’g 458 F.3d 359 (4th Cir. 2006), now pending before the Supreme Court this term, has brought that possibility to the forefront. The issue lurking in the background is if the High Court expands the scope of equitable remedies under ERISA, it may inadvertently open the floodgates for claims under ERISA §502(a)(3) for plaintiffs to achieve results that are otherwise unavailable in an ERISA §502(a)(1)(B) benefits claim.
The issue presented in LaRue is whether an employee may be able to recover damages under ERISA §502(a)(3) resulting from the employer’s failure to effectuate a change in investment requested by the participant with respect to the employee’s defined contribution plan. The participant alleges that he lost $150,000 in value to his account as a result of the employer’s failure to carry out his change in investment requests, which he alleges is a violation of its fiduciary obligations. Plaintiff alleges that the remedy of “surcharge” (described as compelling the fiduciary to redress its breach) is available as “other appropriate equitable relief” under ERISA §502(a)(3)(B). The remedy of “surcharge” would disgorge the fiduciary of any profits gained as a result of the breach. The Supreme Court’s decisions in Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), and Mertens v. Hewitt Associates, 508 U.S. 248 (1993), suggest that such relief is not available. The solicitor general, however, filed a brief in which he argues that the “surcharge” remedy is appropriate equitable relief under ERISA’s civil enforcement scheme. Notably, the solicitor general also advanced the argument in Davila that “make whole” relief is an available remedy under ERISA.
The recent First Circuit Court of Appeals decision in Todisco v. Verizon Communications, Inc., __ F.3d __, 2007 WL 2231733 (1st Cir. 2007), highlights the concerns over a possible expansion of theories for recovery under ERISA §502(a)(3). Todisco involved the all too common problem of a participant relying to his detriment upon a plan fiduciary’s oral miscommunication regarding the terms of the plan. The participant had no recourse against the plan under ERISA §502(a)(1)(B) because the written plan was contrary to the oral misrepresentation alleged. In order to protect assets and promote consistent application and enforcement of employee welfare benefit plans, ERISA §502(a)(1)(B) does not permit claims based upon oral representations that are inconsistent with written plan terms. In Todisco, the spouse of the decedent sought supplemental life insurance benefits from her husband’s employer’s ERISA plan. A plan representative had advised the decedent that he could obtain supplemental life insurance without also providing a statement of health, but this representation turned out to be contrary to the written terms of the plan. After the decedent died, the spouse’s claim for supplemental life insurance benefits was denied because no statement of current health had been received by the plan. In affirming the district court’s denial of leave to add a claim under ERISA §502(a)(3), the First Circuit stated, “under Mertens and Great-West, [the spouse] plainly seeks legal relief: she seeks nothing less than the imposition of liability on [the administrator] in the form of compensatory monetary damages, because of [the administrator’s] failure to honor the oral representation made to her husband that he did not need to submit a statement of current health in order to obtain supplemental life insurance.” See also Amschwand v. Spherion Corp., __ F.3d ___, 2007 WL 3027072, (5th Cir. Oct. 18, 2007) (affirming dismissal of claim for life insurance benefits under ERISA 503(a)(3) based upon alleged misrepresentation regarding decedent’s eligibility to enroll in plan).
If the plaintiff in LaRue and the solicitor general are successful in convincing the Supreme Court to expand the remedies available under ERISA §502(a)(3)(B) beyond the equitable remedies enumerated by the Mertens court – injunction, mandamus and restitution – many more of these classic misrepresentation claims will be on the horizon, because it will provide an “end run” around the limited remedies provided by ERISA §502(a)(1)(B). Claims alleging that an administrator breached its fiduciary duty when it incorrectly informed its participants of the eligibility requirements of the plan; incorrectly informed its participants of the limitations on benefits; or that the plan denied benefits that the claimant understood were available under the plan may become actionable, whereas they are currently preempted according to the current state of ERISA preemption jurisprudence. Consequently, this is one case that will be followed closely because a decision in the plaintiff’s favor may open a veritable floodgate of ERISA claims based on such allegations.