Ninth Circuit Opines on Equitable Remedies under ERISA after the Supreme Court’s Amara Decision
By Clarissa A. Kang, Trucker Huss, APC, San Francisco, CA
The U.S. Ninth Circuit Court of Appeals has clarified two forms of equitable relief – “reformation” and “surcharge” – that may be available under the Employee Retirement Income Security Act of 1974 (“ERISA”).1 In Skinner v. Northrop Grumman Retirement Plan B, the Ninth Circuit held that participants in a retirement plan were not entitled to reformation of the plan to be consistent with a summary plan description (“SPD”), and that the plan administrative committee could not be held liable for surcharge, which essentially is disgorgement of any benefits it received by allegedly failing to provide an accurate SPD.2 While the case involves a retirement plan, the court’s clarification of equitable relief under ERISA section 502(a)(3)3 is applicable to all ERISA plans, including health and welfare plans, because section 502(a)(3) provides the possibility of equitable relief for claims arising from ERISA-governed benefits. Moreover, all ERISA plans are required to have an SPD that is an accurate and complete summary of the plan, and situations involving potential conflict between an SPD and a plan may arise for any ERISA plan.
The court in Skinner considered the availability of reformation and surcharge in light of the U.S. Supreme Court’s recent decision in CIGNA Corp. v. Amara.4 In Amara, the Supreme Court suggested that reformation and surcharge might be appropriate forms of equitable relief under ERISA section 502(a)(3) in a lawsuit by a participant against a plan fiduciary about the terms of a plan.5 This suggestion sparked much debate about the possible broadening of the form of equitable relief available under ERISA section 502(a)(3). Skinner begins to clarify this discussion.6
Plaintiffs Claimed that the SPDs Allegedly Failed to Disclose an Offset Used in the Benefit Calculation
The plaintiffs in Skinner were Northrop Grumman retirees who previously worked at Litton Industries. Litton was acquired by Northrop in 2001, and Litton’s pension plan was consolidated into the Northrop plan and transitioned to a cash balance formula effective July 1, 2003. The Northrop plan provided for a “transition benefit” for participants who had participated in the Litton plan. The transition benefit was meant to provide, for a five-year period starting July 1, 2003, benefit accruals constituting the greater of an approximation of what participants would have received under the Litton plan or what they would earn under the new cash balance formula.7
The Litton Plan
Under the Litton plan, the calculation of the employer-provided portion of the benefit was a two-part formula that included, in part, an offset that reduced the annual pension amount payable to a retiree. The 1988 and 1998 SPDs for the Litton plan explained this formula, including the offset.8
The Northrop Plan
The Northrop plan’s “transition benefit” was comprised of (A) + [the greater of (B) or (C)] + (D). In this formula, Part B approximated the benefits the participant would have earned under the Litton plan from July 1, 2003 to June 30, 2008, and Part C was the amount the participant earned under the cash balance formula in the same period. The Skinner plaintiffs challenged the calculation of Part B.
The Northrop plan document provided that Part B would be reduced by an offset that was essentially the same offset that applied under the historic Litton plan formula.9
Summary Plan Descriptions and the Summary of Material Modification
The 2003 and 2005 Northrop SPDs10 did not explicitly explain that the Part B benefit calculation would be reduced by the offset, although they directed participants back to the historical Litton SPD for “specific rules and provisions.”11 It was not until December 2005 that a summary of material modifications (“SMM”) explicitly stated that the offset would apply.12
Before they retired, the plaintiffs were aware that their benefits would be reduced by the offset. They had received preliminary and final pension calculations that explained that the Part B transition benefit included an offset. They had received the Litton SPDs which the Northrop SPDs incorporated by reference. Both plaintiffs met with the Northrop Benefits Center before they retired to discuss their claim that, because the Northrop SPDs did not disclose any offset, the offset was improper and should not be applied.13
District Court Grants Summary Judgment for the Plan
The plaintiffs filed a complaint in the U.S. District Court for the Central District of California seeking numerous claims for relief, all premised on the theory that the 2003 and 2005 Northrop SPDs serve as the governing plan documents because they allegedly conflicted with the plan document.14
In March 2008, the district court granted the defendants’ motion for summary judgment. It reasoned that the historical Litton SPDs explained the offset and were incorporated into the Northrop SPDs.15
Prior Appeal and Remand
The plaintiffs appealed and in May 2009, the Ninth Circuit reversed and remanded, holding that although the 1988 Litton SPD was clear, the 1998 Litton SPD did not notify the plaintiffs that the offset would apply to them, because it described the offset as applying only to a particular subset of participants that did not include the plaintiffs.16 The Ninth Circuit concluded that an ambiguity existed between the 1998 Litton SPD and the Northrop plan document.17 On remand, the district court granted summary judgment again in favor of the Northrop plan and its administrative committee.18
Amara Impacts the Second Appeal
During its second appeal, filed by plaintiffs in February 2010, the Skinner case was stayed pending the Supreme Court’s determination of Amara.19 Amara held that SPDs provide communication “about the plan” but do not constitute plan terms enforceable under ERISA section 502(a)(1)(B).20 Amara, thus, foreclosed the Skinner plaintiffs’ principal theory: that the terms of the SPD could be enforced as part of the plan. Following Amara, the plaintiffs focused on equitable remedies.
Of the equitable remedies discussed in Amara as potentially available under ERISA section 502(a)(3) (estoppel, reformation, and surcharge), the Skinner plaintiffs only argued reformation and surcharge, not estoppel, as they did not rely on the allegedly inaccurate SPD.21
Plaintiffs Not Entitled to Reformation
The Skinner plaintiffs argued that the Ninth Circuit should reform the plan document to be consistent with the 2003 SPD. The Ninth Circuit analogized plan documents to contracts and trust instruments, holding that under contract and trust theories, reformation was available only in cases of mistake or fraud.22
The Ninth Circuit held that the plaintiffs could not prevail on the grounds of mistake because they presented no evidence that the plan terms failed to reflect the drafter’s true intent.23 In the absence of evidence of authorship of the 2003 SPD or that the SPD reflected any intent other than to create an accurate summary of the plan, the court determined that it could not reasonably hold that the plan document contained a mistake.
The Ninth Circuit held that plaintiffs could not prevail on the grounds of fraud because they presented no evidence that the plan contained terms that were induced by fraud, duress, or undue influence. They provided no evidence that Northrop materially misled employees, and they conceded that they did not rely on any misleading information.24
Plaintiffs Not Entitled to Surcharge
The Ninth Circuit also held that surcharge was not available.25 In Amara, the Supreme Court recognized that, upon proof of actual harm and causation, courts could award surcharge as monetary compensation for a loss resulting from a breach of duty or to prevent unjust enrichment.26 The Skinner court considered two surcharge theories:
- the administrative committee allegedly breached its fiduciary duty by failing to enforce the 2003 SPD instead of the plan; and
- the administrative committee allegedly breached its statutory duty to provide participants with an accurate and comprehensive SPD in accordance with ERISA section 102.
The court rejected the first alleged breach, finding no duty to enforce the SPD because, under Amara, the terms of an SPD are not the terms of the plan.27 On the second alleged breach, the court held that surcharge would be proper if the committee was unjustly enriched or caused actual harm.28
Looking to the Restatement of Trusts, the Ninth Circuit stated that a fiduciary that is unjustly enriched by breaching its duty must return the benefit to the beneficiary. However, there was no evidence that the administrative committee gained any benefit by failing to provide an accurate SPD.29
On the actual harm basis, the court again looked to the Restatement for the tenet that a fiduciary that breaches its duty can be liable for loss of value to the trust but for the breach. Noting that the plaintiffs did not rely on the inaccurate SPD, the court held that there was no actual harm to justify surcharge. The Ninth Circuit stated that, if they agreed with the plaintiffs that the harm of being deprived of an accurate SPD was compensable, they would be “render[ing] the advisory committee strictly liable for every mistake in summary documents.” The court affirmed.30
Skinner is an important decision, as it is the first appellate decision after Amara that directly comments on the elements of reformation and surcharge under ERISA section 502(a)(3). Such equitable relief is applicable to retirement, health, and welfare plans alike. According to the Ninth Circuit, reformation requires evidence that the plan contains terms that fail to reflect the drafter’s true intent or that were induced by fraud, duress, or undue influence.31 Mere inconsistency between an SPD and a plan document are not enough for a court to reform a plan to be consistent with an SPD. As for surcharge, plaintiffs must establish that there was a breach of a duty for which the fiduciary either gained a benefit or caused a compensable harm. While Amara suggested a broadening of equitable remedies under ERISA section 502(a)(3), Skinner clarifies that reformation and surcharge arising from an allegedly inaccurate SPD may be difficult for participants to obtain.
29 U.S.C. § 1001, et seq.
|2||Skinner v. Northrop Grumman Retirement Plan B, 673 F.3d 1162, 1165 (9th Cir. 2012).|
29 U.S.C. § 1132(a)(3).
Id. at 1878-81 (discussing reformation and surcharge as remedies traditionally available in courts of equity and recognizing ERISA section 502(a)(3) as invoking the equitable powers of federal district court).
Skinner, 673 F.3d at 1166-7.
Skinner v. Northrop Grumman Retirement Plan B, 2010 WL 67906 at 1 (C.D. Cal 2010).
Id. at 5.
Id. at 2.
These were the first two SPDs issued after the amended Northrop plan became effective on July 1, 2003, and the SPDs that were in existence for the amended Northrop plan before Plaintiff Skinner retired on May 31, 2005 and Plaintiff Stratton retired on July 31, 2006.
Id. at 3-4.
|14||Skinner v. Northrop Grumman Pension Plan, et.al., No. CV 07-3923 JFW (JTLx), Doc.109 (C.D. Cal. March 10, 2008) (seeking relief for benefits under ERISA section 502(a)(1)(B), retroactive reduction of benefits under ERISA section 204(g), failure to provide a timely SPD or SMM announcing changes to the plan, breach of fiduciary duty, and reduction of the rate of future benefit accrual without providing an ERISA section 204(h) notice).|
Skinner, 2010 WL 67906 at 5-6.
Id. at 11.
Skinner, 673 F.3d at 1165.
|20||Amara, 131 S. Ct. at 1878.|
|21||Id. at 1165-6 (plaintiffs conceded that they presented no evidence of reliance on the allegedly inaccurate SPD).|
|22||Id. at 1166.|
|24||Id. at 1166-7 (distinguishing Amara, where the Supreme Court suggested that reformation may be available on remand where the district court had already found that the plan sponsor-employer had intentionally misled its employees).|
|25||Id. at 1167.|
|26||Amara, 131 S. Ct. at 1878.|
|27||Skinner , 673 F.3d at 1167.|
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