Oct 20, 2017
Earlier this month the U.S. Court of Appeals for the Third Circuit issued an important ERISA decision dealing with estoppel and the scope of equitable remedies under ERISA. I’ve complained at times in the past that too many federal Circuit and District courts view ERISA’s equitable remedies as a one way street. Plan fiduciaries chasing subrogation or overpayment claims have free rein to recover money from plan participants under the guise of "appropriate equitable relief." Yet those some courts often deny the participants any monetary recovery for violations of ERISA because recovery of money supposedly falls outside the scope of "appropriate equitable relief. The double standard is mind boggling. However, in Pell v. E.I. DuPont, __ F.3d __, 2008 U.S. App. LEXIS 16854, (3rd Cir. 2008), the Third Circuit sees through the charade and gets some justice done.
Melvyn Pell worked for several years for a company that was later acquired by DuPont. At the time of the acquisition DuPont told him he would get full pension benefits dating back to the time he started work for the purchased company. For a number of years he continued to work for his original employer, now a DuPont subsidiary. But then DuPont proposed that he transfer over to DuPont and work for it. Pell was concerned about whether all his years of service would transfer over completely. He was informed in a letter from a manager at DuPont that they would. So he decided to make the move. In addition, on a number of occasions he requested and received documentation from DuPont confirming that his years of service and his retirement benefits related back to his hire date with the first company.
Many years passed. In 2000, as Pell began to consider retiring, questions arose about his years of service and the amount of his pension benefits. First, DuPont told him start date was about 18 months later than Pell believed it was and that the earlier correspondence from DuPont was wrong. In addition, DuPont told Pell that, contrary to earlier conversations and letters, he would be getting a smaller amount of pension benefit.
Pell sued under the theory of equitable estoppel. Under that doctrine an ERISA claimant must show a material misrepresentation was made, that he reasonably, and to his detriment, relied on the misrepresentation and, finally, "extraordinary circumstances." The district court agreed that Pell had established a case for estoppel on the question of the amount of his retirement benefits but ruled in DuPont’s favor in not pushing back Pell’s date of initial service to the time he was hired. Both parties appealed.
The Third Circuit affirmed the ruling in Pell’s favor on the amount of his benefits but reversed the district court’s decision against Pell on the date from which his eligibility began. The court held that Pell had clearly established DuPont made a material misrepresentation to Pell about the amount and timing of his retirement. Relying on Third Circuit precedent, the court determined that the erroneous communications to Pell were significant.
As for reasonable, detrimental reliance, the court broke the issue down into its two separate components. First, the fact that the erroneous information given to Pell came from the company’s Director of Employee Compensation and Benefits was sufficient to cause Pell to reasonably believe the information was accurate and worthy of being relied on. This individual had apparent authority to speak on behalf of, and bind, DuPont. As for detrimental reliance, the letter was given to Pell immediately before he made his decision to transfer his employment to DuPont. He testified, without contradiction, that the letter was an important part of his reason for agreeing to the transfer.
As for the final component of the estoppel claim, extraordinary circumstances, the court reviewed other Third Circuit cases and found that the facts of Pell’s case qualified as extraordinary. While not all factors outlined in the case law and that could have existed to constitute "extraordinary circumstances" were present for Pell, the fact that the misstatements from DuPont had been repeated over a long period of time and dealt with an important matter involving a significant amount of money was sufficient to establish his claim.
The last portion of the court’s decision relates to remedies. The court rejected the argument presented by DuPont that Pell had no ability to collect money from the company. Relying on Great West v. Knudson, 534 U.S. 204 (2002), Sereboff v. MAMSI, 547 U.S. 356 (2006) and Third Circuit precedent, the court ruled that it was entirely proper for Pell to assert a claim for recovery of money so long as Pell went after a constructive trust against particular property in DuPont’s possession rather than imposing personal liability against the company or its officers. 29 U.S.C. §1003 requires that all assets of an ERISA plan shall be held in trust for the benefit of plan participants and beneficiaries. This section of the statute makes clear that Pell had the ability to identify specific funds traceable to DuPont’s plan that, in good conscience, belonged to him. In short, the Third Circuit gave Pell all the benefits to which he claimed he was entitled.
Pell is important for several reasons. First, successful equitable estoppel claims in ERISA cases are hard to come by. This decision makes clear that when the facts are right, this legal theory has legs. But perhaps more important is that 29 U.S.C. §1132(a)(3)’s "appropriate equitable relief" language allows for recovery of money by participants from ERISA plans to no less a degree than it allows fiduciaries to chase participants and beneficiaries for money arising from subrogation or overpayments.
In light of the Supreme Court’s refusal to grant certiorari in Amschwand v. Spherion, 505 F.3d 342 (5th Cir. 2007), it’s up to the Circuits to make clear that "appropriate equitable relief" is nothing less than a two way street. Pell shows the way it can be done.
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