Federal court argues for right to jury to pursue ERISA claims

This article was initially published in the Chicago Daily Law Bulletin on November 8, 2018.

By Mark D. DeBofsky

Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari P.C. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at [email protected].

While it's generally accepted that Employee Retirement Income Security Act benefit claimants are not entitled to jury trials, rarely does anyone question the reason why.

A recent ruling from a federal court in New York, Cunningham v. Cornell University, 2018 WL 4279466 (S.D. N.Y., Sept. 6, 2018), convincingly explains why jury trials should be permitted for claims under ERISA and should reopen the issue. Although Cunningham involved a claim for breach of fiduciary duty in relation to excessive investment fees imposed on participants in retirement plans, rather than a benefit claim, the court's expansive discussion of the right to trial by jury is instructive in relation to all ERISA cases.

The court framed the discussion by citing the Seventh Amendment to the U.S. Constitution, which provides in relevant part: "In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved."

The court then referenced Supreme Court precedent, Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 564 (1990), holding that "where 'legal rights,' as distinguished from 'equitable rights,' are asserted, a party has the right to a jury trial." To distinguish between legal and equitable rights, Tull v. United States, 481 U.S. 412, 417 (1987) teaches, "the court must examine both the nature of the action and of the remedy sought."

Tull further instructs, "First, we compare the statutory action to 18th century actions brought in the courts of England prior to the merger of the courts of law and equity. Second, we examine the remedy sought and determine whether it is legal or equitable in nature. Id. at 417-18 (internal citations omitted)."

A subsequent ruling, Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 42 (1989), established: "The second of the two inquiries is more important than the first."

Although the claims brought in Cunningham sought to remedy fiduciary breaches which are typically thought of as equitable in nature, the court's analysis of the relief sought led to a different conclusion. The plaintiffs' request that the defendants reimburse the plans for the losses due to a fiduciary breach sought a monetary judgment.

The court thus turned to Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204, 213-14 (2002), where the Supreme Court distinguished between equitable restitution, where specific funds or property in the possession of defendant is sought, and legal restitution for compensatory damages. The court observed, "Dictum in Great-West suggested that a claim against a defendant for payment of monies that the defendant never personally possessed was a legal claim, not an equitable one."

Subsequent to the Supreme Court's ruling, the 2nd U.S. Circuit Court of Appeals, in Pereira v. Farace, 413 F.3d 330, 338 (2d Cir. 2005), interpreted Great-West as standing for the proposition that "for restitution to lie in equity, the action generally must seek not to impose personal liability on the defendant, but to restore to the plaintiff particular funds or property in the defendant's possession." Id. at 340 (emphasis added in Pereira) (quoting Great-West, 534 U.S. at 214). Thus, while the 2nd Circuit deemed a breach of fiduciary duty claim equitable in nature, it found the relief sought - monetary damages - was legal in nature.

"On appeal," the court held, "defendants challenge the court's characterization of the relief as equitable. They emphasize that, because they never possessed the funds in question and thus were not unjustly enriched, the remedy sought against them cannot be considered equitable. Rather, according to defendants, the remedy sought was legal and thus they were entitled to a jury trial. We agree." Id. at 339.

Following that ruling, the court in Cunningham pointed out "the funds that the beneficiaries in this action seek from defendants are not funds that the defendants ever possessed but, at most, losses to the beneficiaries or plans caused by alleged acts of imprudence."

That did not end the discussion, however. The court was required to address CIGNA Corp. v. Amara, 563 U.S. 421, 439 (2011), where the Supreme Court found a type of monetary damage remedy for breach of fiduciary duty, "surcharge," could be considered equitable relief. However, in claims brought by plaintiffs seeking to recover benefits due under the terms of an employee benefit plan, the relief sought is quintessentially legal in nature.

Employee benefit plans such as those that provide reimbursement for medical expenses or monthly payments in the event of disability are contractual in nature. And the remedy sought is the payment of money specified by the terms of the benefit plans. Indeed, most ERISA claims are entirely distinct from restitution claims where recovery of specific funds or property is sought and the measure of damages is the unlawful gain obtained by the defendant rather than the loss to the plaintiff.

Thus, the rationale of the Cunningham decision makes a compelling case for jury trials in employee benefit cases. The justification generally used to deny jury trials is the assertion that ERISA claims, regardless of the statutory section under when they are brought, are equitable in nature.

However, the claims themselves are contractual and the remedy sought is always a legal remedy - monetary damages to compensate for losses suffered by the plaintiff. Were it not for ERISA, the identical claims, if brought either in state or federal court, would unquestionably be actions for breach of contract that juries hear and decide every day.

One of the best cases arguing in favor of the right to trial by jury in ERISA cases and explaining why such claims are legal, rather than equitable in nature, is Stamps v. Michigan Teamsters Joint Council No. 43, 431 F.Supp. 745 (E.D. Mich. 1977), which convincingly explains why ERISA cases should be actions triable to a jury.

It is high time for the federal courts to revisit this issue and re-evaluate the rationale for denying jury trials in typical ERISA benefit cases.

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