I've blogged before about the federal judiciary's unjustified double standard when interpreting the scope of "appropriate equitable relief" under ERISA Sec. 502(a)(3), 29 U.S.C. Sec. 1132(a)(3). Fiduciaries seeking recovery of money from plan participants and beneficiaries as "appropriate equitable relief" under this section of ERISA have found many courts providing them pretty much all they want. But participants and beneficiaries are pretty much shut out. The most recent example of the last point is the decision by the U.S. Court of Appeals in the Fifth Circuit in Amschwand v. Spherion Corp., ___ F.3d ___, 2007 U.S. App. LEXIS 24435 (5th Cir. 2007). The gist of the facts in the case is that while Thomas Amschwand was on medical leave battling cancer, his employer modified the terms of the group's health insurance. Amschwand's co-employees were included in the new plan but for some reason, his employer failed to include Amschwand. As a result, he lost the right to receive significant life insurance benefits. After Amschwand passed away, his widow sued his employer and the ERISA plan. She said that the only reason she lost life insurance coverage was due to the error of the plan administrator in not including her husband on the rolls of the new plan. For purposes of the case, the Fifth Circuit assumed those allegations were true. Roy Harmon has an excellent summary of more of the details of the case here at his Health Plan Law blog. The trial court agreed with the employer that Amschwand's widow's request for the life insurance money was not "appropriate equitable relief" allowed under ERISA. The Fifth Circuit affirmed on appeal. Discussing various Supreme Court and other Circuit cases, the court concluded that plan participants recovering money from fiduciaries who undisputedly violate their fiduciary duties is simply not permitted under ERISA. In a concurring opinion, Judge Benavides writes "[t]he facts . . . scream out for a remedy . . .. Regrettably, under existing law it is not available." Yet, as I wrote about here, just a couple of months ago, the U.S. Court of Appeals for the Eighth Circuit, had no problem with allowing an ERISA plan fiduciary to take from a catastrophically injured plan participant over $400,000 that had been set aside in a trust for her future medical needs. That was "appropriate equitable relief" for Wal-Mart in the Admin. Committee of Wal-Mart v. Schank case according to the court. The disparity between the remedies the federal judiciary provides under the same "appropriate equitable relief" section of ERISA, as illustrated by Amschwand and Schank, is not something I'm slanting or exaggerating to push my own agenda. The fact is that the federal judiciary, in part due to the lead of the Supreme Court, provides much greater latitude to ERISA fiduciaries to recover money from plan participants and beneficiaries than vice versa. Schank and Amschwand are not outliers. They are excellent illustrations of a larger pattern. To make matters worse, fiduciaries are recovering money under the guise of equitable relief based on nothing more than the terms of the ERISA plan documents. At the same time participants and beneficiaries are denied the ability to recover money for breaches of fiduciary duty. So here is what we are left with: violations of fiduciary duty by the trustee of a trust that directly result in loss of money to a beneficiary of the trust go unremedied while those same fiduciaries have the ability to obtain money from trust beneficiaries based on non-negotiated, boilerplate legalese. These cases demonstrate poor legal analysis and establish terrible public policy. This is an especially damnable result because it is well established that the duty ERISA fiduciaries owe to plan participants and beneficiaries is the highest known to the law. It's a sorry state of legal affairs we find ourselves in with regard to remedies under ERISA; a situation where black is white and down is up. It doesn't reflect well on the courts interpreting the statute.
Brian: Thanks for the compliment. I agree that damages would not be equitable relief. However, if the insurer in the Callery case was bound by the contract terms to pay the claim, it would not have been damages. Unfortunately, by the contract's terms, the spouse could not purchase insurance on a former husband. The damages were the premiums, not the benefits, so the case was decided correctly, in my opinion. The insurer did not breach a legal duty. Neither did Star Buffet realize an ill-gotten gain. It seems to me that Ms. Callery could have received an ill-gotten gain, if the insurer had paid the proceeds. Yes, the administrator was negligent in forwarding the premiums to the insurer, and should have discussed potential conversion options instead. But, if any damages were to be collected, it would seem to be due from the administrator, not the insurer. Don Levit
by Don Levit November 17, 2008 at 01:47 PM
Man Don, you have a good eye. It's an excellent question. In other words, I hear you asking whether the plaintiff in Amschwand simply named the wrong defendant. If she had named Aetna, would the result be different? I doubt it. If you look at the court's discussion of ERISA's remedies immediately following your quoted language, on p. 10 of the slip opinion, you can see the court makes clear that the nature of the remedy sought by Amschwand, recovery of money damages, that the court believes falls outside the scope of "appropriate equitable relief." The court's reliance on Callery, a case out of the Tenth Circuit in which I represented the unsuccessful claimant, suggests the result would be the same even if the insurer had been named as a defendant. In Callery, a case with very similar facts, we got shut out despite naming the life insurer as a defendant.
by Brian S. King November 17, 2008 at 01:47 PM
Brian: Thanks for providing this case. In the opinion, it stated that "A defendant's posession of the disputed res is central to a remedy, conceived not to assuage a plaintiff's loss but to eliminate a defendant's gain." If the defendant was Aetna, instead of his employer, might the result have been different? Don Levit
by Don Levit November 17, 2008 at 01:47 PM
I appreciate this good analysis, Brian. Thank you. I ran across a federal court opinion out of Florida the other day -- United Health Group Inc. v. Dowdy, 2007 WL 3202473, (Oct. 29, 2007 -- and this case permits the ERISA plan to undertake discovery against a beneficiary in order to allow the Plan the opportunity to make its case for reimbursement. Considering the position taken by ERISA Plans which is that there should be no discovery in actions against an administrator (and how the courts have generally upheld this position of not permitting discovery), I thought about the double standard being seen in the discovery arena, too.
by Roger Baron November 17, 2008 at 01:47 PM
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