August 01, 2016 Best of ABA Sections

LABOR AND EMPLOYMENT LAW: Equitable Estoppel in ERISA: Reviving a Dead Remedy

Jeffrey A. Herman

Equitable estoppel “operates to place the person entitled to its benefit in the same position he would have been in had the representations been true” (CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011)). It is a fundamental equitable remedy. With respect to the Employee Retirement Income Security Act of 1974 (ERISA), however, federal courts have manufactured four extra barriers to relief: (1) representations cannot contradict unambiguous written plan terms, (2) representations cannot be oral, (3) representations cannot be based on silence or omissions, and (4) there must be “extraordinary circumstances.” With these limitations, few, if any, ERISA plaintiffs qualify for relief, even though they could have qualified under traditional equitable estoppel principles. Without the protections of these limitations, fiduciaries would be subject to liability under equitable estoppel for written or oral misrepresentations—or even their silence—concerning plan enrollment, terms, coverage, and benefits, even when those representations contradict plan terms.

CIGNA v. Amara. In CIGNA, the trial court held a plan fiduciary to its representations, forcing it to provide benefits that contradicted the plan’s written terms. The U.S. Supreme Court found that such a remedy could be justified under any of three traditional forms of equitable relief, specifically including equitable estoppel. Thus, if there was any lingering doubt, the Court made clear that estoppel qualifies as “appropriate equitable relief” under ERISA. Although the Court did not specifically address the validity of lower courts’ limitations on equitable estoppel, it did provide a framework for evaluating them. The Court stated that limitations on equitable remedies under ERISA “must come from the law of equity” itself or from the “relevant substantive provisions of ERISA.” Post-CIGNA, however, most courts have continued to enforce the extra limitations on estoppel, typically without even discussing CIGNA’s impact or traditional equitable principles.

Courts of equity. Relying on the very same sources as the Supreme Court in CIGNA, it is clear that traditional courts of equity imposed none of the four limitations federal courts currently impose under ERISA. If those limitations are valid, they must be required by ERISA itself.

The ERISA provisions. Other than authorizing “appropriate equitable relief,” ERISA does not address equitable remedies. Rather, it appears federal courts have inappropriately borrowed the ERISA limitations from the Labor Management Relations Act (LMRA), a statute much more restrictive than ERISA.

The purpose of the LMRA is to prevent corruption between employers and unions. With this goal in mind, the LMRA imposes criminal liability on employers that give “any money or other thing of value” to (1) employee representatives, (2) labor organizations, or (3) any employee or union representative with the intention of influencing the activities of labor organizations. It is also illegal to accept such payments. The LMRA contains express exceptions to these broad prohibitions. One exception is for payments to union trust funds established to pay welfare or pension benefits. This exception applies only if “the detailed basis on which such payments are to be made is specified in a written agreement with the employer.” In other words, it is a federal crime under the LMRA for employers to provide benefits outside the scope of written union agreements. Consistent with a strict reading of the LMRA, federal courts have long held that estoppel is unavailable to contradict the written terms of a union pension plan. Courts applying ERISA have essentially borrowed the same limitation.

However, the LMRA is so different from ERISA that it can no longer be used to justify the estoppel limitations post-CIGNA. Unlike the LMRA, Congress created ERISA to protect employees, not to prevent corruption. ERISA does not criminalize the provision of benefits to participants in violation of plan terms. ERISA creates a fiduciary relationship between plan administrators and plan participants. And, most importantly, ERISA specifically authorizes appropriate equitable relief for ERISA violations, including breaches of fiduciary duties. Thus, none of the unique circumstances under the LMRA warranting imposition of restrictions on equitable relief exist under ERISA.

ERISA does state, however, somewhat similarly to the LMRA, that plans must be “established and maintained pursuant to a written instrument,” and ERISA authorizes many types of relief “under the terms of the plan,” including recovery of benefits, enforcement and clarification of participant rights, injunctive relief, and “appropriate equitable relief.” But even when relief is not available “under the terms of the plan,” ERISA expressly authorizes participants and beneficiaries to seek injunctive and equitable relief. In Varity Corp. v. Howe, 516 U.S. 489 (1996), the Supreme Court stated that 29 U.S.C. § 1132(a)(3) is a “catchall” provision that “acts as a safety net, offering appropriate equitable relief for injuries caused by violations that section 1132 does not elsewhere adequately remedy.” Under this remedial framework, it is difficult to discern a congressional intent to prohibit equitable remedies when relief is unavailable under the terms of the plan. Rather, the intent seems to be the exact opposite.

Imposing a limitation on equitable relief contrary to this statutory framework and Supreme Court precedent requires a very strict construction of section 1132(a). Yet courts commonly hold that remedial statutes must be construed liberally to provide relief to protected groups. Section 1132 is remedial in nature, and Congress intended that it protect participants and beneficiaries in employee benefit plans.

Courts have relied on ERISA’s writing requirement to preclude equitable estoppel claims based on oral misrepresentations of plan terms. This “estoppel as oral argument” rationale is popular but unpersuasive. First, it is a legal fiction. It equates estoppel claims based on oral representations with plan amendments. However, estoppel does not amend plan terms and, unlike plan amendments, only bars the plan fiduciary from enforcing a particular plan provision against a participant or beneficiary who was misled. Second, the “estoppel as oral amendment” argument relies on the faulty premise that relief cannot contradict unambiguous plan terms. However, ERISA authorizes equitable relief even when relief is unavailable “under the terms of the plan.” Third, under traditional trust law, which guides courts’ interpretation of ERISA, beneficiaries could sue trustees for breach of trust based on oral or written representations because there was no requirement that breaches be in writing. Similarly, ERISA describes fiduciary duties broadly, applying them to all forms of communications. And if plan fiduciaries and trustees can discharge their duties by oral communication, surely they can breach their duties the same way.

In addition to imposing fiduciary duties of loyalty, care, and prudence, ERISA mandates certain plan disclosures. Section 1132(a)(3) expressly grants plan participants and beneficiaries a cause of action to enforce or redress disclosure and fiduciary violations. Moreover, ERISA is expressly designed to protect employees by requiring plans to disclose important information to participants, by creating fiduciary duties, and by providing for ready access to federal remedies. Courts’ prohibition of estoppel claims based on fiduciaries’ failure to disclose important information undermines these objectives. Post-CIGNA, at least one court has refused to dismiss an estoppel claim based on a violation of mandatory disclosure requirements. In other contexts, courts have upheld estoppel claims based on silence where there is a statutory duty to speak.

ABA Section of Labor and Employment Law

This article is an abridged and edited version of one that originally appeared on page 129 of ABA Journal of Labor & Employment Law, Fall 2015 (31:1).

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Jeffrey A. Herman

Jeffrey A. Herman is an ERISA/employee benefits associate at Greensfelder, Hemker & Gale, P.C., in St. Louis, Missouri.