The scope of remedies available under Employee Retirement Income Security Act due to an employer or plan administrator’s breach of fiduciary duty is undergoing a dramatic transformation in the wake of a recent Supreme Court ruling. The most recent example is Gearlds v. Entergy Services Inc., 2013 U.S.App.LEXIS 3831 (5th Cir. Feb. 19, 2013). That decision involved Aaron Gearlds Jr., who was employed by Entergy Services Inc. from 1976 until 1994 when he became disabled and began collecting long-term disability benefits.

The disability benefit payments were terminated, however, in 2002 when Gearlds was no longer deemed disabled. Nonetheless, Gearlds remained an employee of Entergy until 2005. At that time, Gearlds accepted an offer that he take early retirement at age 55 and he began receiving a reduced pension and ongoing comprehensive health, dental and vision benefits.

Problems arose in 2010 when Entergy ceased providing medical benefits to Gearlds, claiming he was not eligible for benefits on account of the termination of the long-term disability benefits. Entergy maintained it was unaware of the disability benefit termination until 2010 and notified Gearlds that because it had just learned he was not receiving long-term disability payments between 2002 and 2005, he lacked sufficient service credit to maintain eligibility to receive health benefits.

Gearlds complained, pointing out that he had waived medical coverage under his wife’s retirement plan when she retired from her employment based on Entergy’s assurances of his own continuing coverage. When the parties were unable to resolve the matter, Gearlds filed suit, asserting that Entergy breached the fiduciary duty it owed to him under ERISA by negligently inducing him to take early retirement and forego medical coverage under his wife’s health plan.

Although the district court dismissed the suit for failure to state a claim, based on a recent Supreme Court decision, CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), the appellate court reinstated the case.

Prior to Amara, the lower federal courts had ruled that “make whole” relief was not available for misrepresentations that prevented employee benefit plan participants from receiving promised benefits. However, Amara has changed the landscape in its ruling that “an award of make-whole relief” in the form of surcharge was within the scope of “appropriate equitable relief” for purposes of Section 502(a)(3). (29 U.S.C. Section 1132(a)(3)) Id. at 1880.

Amara described the “surcharge” remedy as an equitable remedy that enabled courts to provide “compensation” for a breach of trust or to prevent unjust enrichment. Id. Gearlds argued that Amara permitted him to proceed with a claim seeking reinstatement of his health insurance coverage based on his detrimental reliance upon Entergy’s promises of lifetime health insurance.

Entergy responded by maintaining that the surcharge remedy discussed in Amara was mere dictum and not binding on the court of appeals. However, the 5th U.S. Circuit Court of Appeals pronounced that even if the discussion of the surcharge remedy inAmara were dictum, it is entitled to “serious consideration.” (citing McCravy v. Metro. Life Ins. Co., 690 F.3d 176, 180 (4th Cir. 2012) (holding that Amara’s surcharge remedy was available to a victim of a misrepresentation relating to life insurance coverage); Reich v. Continental Cas. Co., 33 F.3d 754, 757 (7th Cir. 1994) (holding that the Supreme Court’s “recent dictum provides the best, though not infallible, guide to what the law is”) (other citations omitted)).

Based on that conclusion, the 5th Circuit overruled its earlier decision in Amschwand v. Spherion Corp., 505 F.3d 342, 343 (5th Cir. 2007), which had rejected a similar claim, finding that ERISA’s breach of fiduciary duty provision authorizing “appropriate equitable relief” encompassed the availability of monetary relief to remedy harms resulting from misrepresentations reasonably relied upon.

Although the court acknowledged that Gearlds did not plead or argue “surcharge,” the court determined that the allegations of his complaint nevertheless clearly encompassed such relief.

Therefore, the court of appeals reversed the dismissal and remanded the matter for further proceedings to determine whether Gearlds is able to prevail on the merits.

The court sidestepped the issue, though, of whether Gearlds is also able to recover under a theory of equitable estoppel since it determined that full relief was available under the surcharge doctrine. However, the court left open the door for the district court to consider that theory as well.

Rulings such as the 5th Circuit’s decision in Gearlds and the 4th Circuit’s ruling in McCravy have solidified the discussion in Amara that removed a void in ERISA remedies barring the victims of employer misrepresentations from seeking recompense.

The full scope of the surcharge remedy, and the circumstances that trigger the availability of surcharge, have yet to be fleshed out by the courts and await future court rulings. Stay tuned.

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