Guest Article

(From the November 19, 2007 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Courts Continue to Take a Narrow View of the Scope of Relief Under ERISA §502(a)(3)

The scope of relief available under ERISA § 502(a)(3) has been the subject of much litigation over the last several years. Since 1993, the Supreme Court has addressed the issue three times, each time concluding the provision authorizes only relief "typically available in equity." However, all of those cases involved claims against non-fiduciaries, and the two most recent cases were actions by ERISA health plans to enforce reimbursement clauses against participants. The Fifth Circuit Court of Appeals has just taken up the same issue in a slightly different context; in Amschwand v. ___________, No. 06-20346 (5th Cir., October 18, 2007), a beneficiary was suing a plan fiduciary for life insurance proceeds. But in spite of the sympathetic facts, the court -- in keeping with precedent -- denied the claim because it was not equitable in nature.

Overview of ERISA § 502(a)(3)

According to ERISA § 502(a)(3), a participant or beneficiary may bring a civil action " ... (A) to enjoin any act or practice which violates any provision of this title or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this title or the terms of the plan." The Supreme Court has ruled the phrase "other appropriate equitable relief" refers only to those types of relief "typically available in equity." Examples of equitable remedies include injunctions, restitution, and other orders designed to maintain (or restore) a status quo. Legal remedies, by comparison, generally include monetary awards designed to compensate -- or "make whole" -- an aggrieved party. However, the line of distinction between legal and equitable remedies is not always clear, and equitable remedies involving money can look a lot like legal remedies.

The difference between legal and equitable remedies was very important years ago, when courts of law and courts of equity were separate entities. Then, plaintiffs frequently lost their claims simply because they picked the wrong court. This is no longer the case today as courts are empowered to provide both legal and equitable relief. As a result, the distinction between the two is even less clear now than before.

Nonetheless, a number of federal statutes continue to draw the distinction between legal and equitable remedies for certain purposes. ERISA § 502(a) outlines nine different causes of action available under the statute. Four of those causes of action use the term "appropriate equitable relief," while the other five different actions permit relief such as benefits due, enforcement of various provisions and "other appropriate relief."

Prior Supreme Court Decisions

The Supreme Court first addressed the scope of remedies available under ERISA § 502(a)(3) in Mertens v. ___________, 508 U.S. 248 (1993). A group of pension plan participants initiated that suit against the plan's actuary (who was not a fiduciary) for using the wrong actuarial assumptions, which resulted in the plan being terminated with unfunded liabilities. The participants sued to recover the difference between the benefits that would have been provided to them under the plan's terms and the benefits being paid to them by the PBGC. The Supreme Court ruled the participants were seeking a remedy that was not "typically available in equity," and thus not available under ERISA § 502(a)(3).

The more recent Supreme Court cases dealing with this issue -- ___________ v. Knudson, 534 U.S. 204 (2002) and Sereboff v. ___________, 547 U.S. 356 (2006) -- involved ERISA group health plans trying to recover from participants. At issue in both cases were the plans' reimbursement clauses, which generally require participants who receive benefits on account of sickness or injury caused by a third party to reimburse the plan if they later recover damages from that third party. In each case the Supreme Court affirmed that ERISA § 502(a)(3) permits equitable remedies only.

Why Is the Amschwand Decision So Significant?

With so much Supreme Court precedent, the Fifth Circuit's decision in Amschwand should hardly be surprising. However, the decision is noteworthy for a couple of reasons. The first is that, like Mertens (a 5-4 decision), the facts in Amschwand are very favorable to the beneficiary. Essentially, she was denied the proceeds from her husband's life insurance policy due to what appears to have been an administrative error. Making matters worse is the fact she and her husband repeatedly sought -- and were given -- assurance his coverage was valid and in effect. Faced with facts like these, courts sometimes will look for ways to find in favor of the plaintiff no matter how well-established the contrary precedent. But the Fifth Circuit Court of Appeals did not go that route.

Second, there is a key distinction between Amschwand and all three Supreme Court decisions. That is, the defendants in Mertens, Knudson, and Sereboff all were nonfiduciaries (and, as noted, in the latter two cases the defendants were plan participants), but the defendant in Amschwand was an ERISA fiduciary -- the plan administrator. However, the Fifth Circuit ruled the defendant's status as a fiduciary or nonfiduciary was not relevant to the scope of relief available under ERISA § 502(a)(3). The Fifth Circuit cited three other courts of appeal to support that conclusion, and did not reference any contrary holdings.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2007, Deloitte.