:: Restoration Of ERISA Plan For Retirees Appropriate Equitable Relief Following Misrepresentations
In the present case, after concluding that Unisys breached its fiduciary duty to twelve of the plaintiffs, the Magistrate Judge recommended that Unisys be ordered to provide retiree medical benefits to the prevailing plaintiffs under a reconstituted medical plan and that the benefit plan be reformed to remove Unisys’ right to reduce or terminate the benefits.
The rationale for the first part of this remedy was that “[b]ecause the plan in which the Prevailing Plaintiffs participated no longer exists, and they were promised that the plan would provide medical coverage at no cost at age sixty-five,” it would be appropriate equitable relief to issue “a decree ordering Defendant to restore the Burroughs Plan as it existed at the time each Prevailing Plaintiff retired, or that Defendant create a new medical plan with identical provisions as the Burroughs Plan.”
Unisys Corp. Retiree Med. Benefits Erisa Litig. v. Unisys Corp., 2009 U.S. App. LEXIS 19769 (3d Cir. Pa. Sept. 2, 2009)
Controversies over post-retirement benefits often yield some of the most detailed analysis of fidiciary obligations in the welfare benefit plan context. The stakes are significant enough to warrant diligent prosecution of the opposing sides of the dispute. This recent opinion in the protracted Unisys litigation is certainly an example. The prior history of this litigation is extensive, but not necessary to appreciate the key points of the opinion.
Breach of Fidicary Duty
The Third Circuit appeal followed a holding that twelve of the fourteen plaintiffs had proven that Unisys breached its fiduciary duty to them as a result of the company’s affirmative misrepresentations and inadequate disclosure of certain information about the retirees’ medical benefits plan. The magistrate judge recommended that the District Court enter an equitable decree restoring the Burroughs Medical Plan for the twelve retirees and reforming the plan to preclude any right to terminate or modify their benefits.
The District Court adopted the Magistrate Judge’s recommendation to restore the Burroughs Medical Plan, but instead of ordering the reformation of the plan, it enjoined Unisys from amending or terminating the plan as to the twelve retirees, thus requiring Unisys to continue to pay the premiums for their medical coverage. The District Court also denied the plaintiffs’ request for monetary damages under a claim for restitution.
Fiduciary Duty
The Third Circuit observed that:
“when a fiduciary speaks, it must speak truthfully, and when it communicates with plan participants and beneficiaries it must convey complete and accurate information that is material to their circumstance.”
Thus, a breach of fiduciary duty claim may be premised on either a misrepresentation or an omission. To establish such a breach, a plaintiff must demonstrate that:
(1) the defendant was “acting in a fiduciary capacity”;
(2) the defendant made “affirmative misrepresentations or failed to adequately inform plan participants and beneficiaries”;
(3) the misrepresentation or inadequate disclosure was material; and
(4) the plaintiff detrimentally relied on the misrepresentation or inadequate disclosure.
Misrepresentations And Omissions
In this case, the Court agreed that Unisys was guilty of both misrepresentations and omissions:
In addition to finding that Unisys misrepresented information, the Magistrate Judge also found that Unisys failed to adequately disclose benefits information because:
[a] representation to the effect that the benefits would cost $ 20 per month for the retiree and then be provided at no cost for the rest of retirement or the retiree’s life does not convey complete information if [Unisys] retains the right to change or terminate those benefits at any time.”
Summarizing the issue, the Third Circuit stated that:
The essence of the plaintiffs’ breach of fiduciary duty claims . . . is “that Unisys (1) misrepresented that their retiree medical benefits were vested and could not change despite clauses in certain plan documents reserving the right to modify or terminate those benefits, and (2) failed adequately to advise them of that reserved right.”
The Court noted that an employer “acts as a fiduciary when explaining plan benefits and business decisions about plan benefits to its employees.”
“Half-Truth”
In the Court’s view, the message that Unisys communicated to its employees in the course of counseling them about retirement was “at best a half-truth because there was no mention of Unisys’ right to amend or terminate the plan at any point in the future.”
In essence, by failing to qualify its statements, Unisys placed a period where it should have placed a comma in the course of explaining retiree medical benefits to these plaintiffs and, in doing so, misrepresented the cost and duration of the benefits.
Materiality
As the Magistrate Judge determined, “a reasonable fiduciary would have foreseen that its conduct towards each Trial Plaintiff would result in important decision making on his or her part based on a mistaken belief that each possessed guaranteed lifetime benefits.”
Reliance
The Magistrate Judge concluded that twelve of them demonstrated that they reasonably relied on Unisys’ misrepresentations and inadequate disclosures to their detriment except for two plaintiffs, one of whom was involuntarily terminated and the other who took a severance package.
Injunctive Relief Appropriate . . .
Unisys argued that both components of the injunction ordered by the District Court — (1) reinstating the Burroughs Medical Plan for the twelve plaintiffs and (2) enjoining Unisys from making any changes to the plan exceeded the scope of ERISA’s statutory remedial provisions.
The Court disagreed, stating:
The injunction is designed to remedy Unisys’ violation of its fiduciary duty to the plaintiffs for actions it took in its fiduciary capacity, and the specific equitable relief provision of ERISA, which applies in this case, trumps the application of the general principle that ERISA does not regulate settlor activity.
But No Monetary Damages
On the other hand, the plaintiffs’ claim for additional expenses fell short. The Court stated that:
While we do not doubt that the plaintiffs have incurred additional expenses as a result of Unisys’ termination of the Burroughs Medical Plan, compensation for these expenses does not come within ERISA’s authorization of “appropriate equitable relief” and therefore is not available as a remedy for Unisys’ breach of fiduciary duty.
And, in broader explanation, the Court observes:
Although “some forms of equitable relief-such as constructive trusts, equitable liens, or accounting for the profits derived from wrongly held property – include the payment of money . . ., these forms of relief are available in limited circumstances.” Eichorn v. AT&T Corp., 484 F.3d 644, 655 n.6 (3d Cir. 2007). Thus, for the plaintiffs, the question here is not whether disgorgement of profits or accounting for profits is an equitable remedy, but rather whether the plaintiffs have demonstrated that their claims for relief meet the requirements for applying this type of remedy.
We agree with the District Court that the plaintiffs cannot recover under this theory without first identifying the profit generating property or money wrongly held by Unisys. See Great-West, 534 U.S. at 214 n.2. Because the plaintiffs are unable to identify “money or property . . . belonging in good conscience” to them and clearly “trace[able] to particular funds or property in the defendant’s possession,” see id. at 213, they cannot recover profits from Unisys as a form of equitable relief. Consequently, the District Court properly denied the plaintiffs’ request for retroactive monetary damages.
Note: Some time back I wrote about “beach erosion” on the ERISA waterfront. The Pell opinion, relied upon in the Unysis case, remains a stand out. From that earlier post:
#2 Equitable or promissory estoppel - These cases are something of a hybrid. Errors in quoting benefits have lead to an incorporation of estoppel principles in ERISA cases in several circuits. Whether part of the federal common law of ERISA or based on state law, however, the end result is a broader array of remedies for the ERISA claimant. On this trend, the most recent decision is the far-reaching decision by the Third Circuit, Pell v. E.I Dupont.
And see, :: Assessing The Value Of A Promise – A Primer On ERISA Estoppel Claims
Injunctions – Legal v. Equitable - The Third Circuit had more to say about “equitable” injunctive relief:
In the context of a successful equitable estoppel claim under ERISA, we have previously stated that “the main question in assessing injunctions such as the one before us is whether the injunction constitutes a permissible equitable remedy or an impermissible legal one.” Pell, 539 F.3d at 306. In Pell, we explained why the injunction was an equitable remedy and not a legal one:
“Injunctions are legal remedies if they ‘compel the payment of money past due under a contract, or specific performance of a past due monetary obligation, [a remedy that] was not typically available in equity.’ The injunction imposed by the District Court in this case is forward-looking and entitles [the beneficiary] to an amount of money that cannot be calculated with specificity (since it is unknown how long he will survive and be entitled to benefits.) Therefore, the injunction is an equitable remedy that is permissible under ERISA.”
See also – :: ERISA Fiduciary Breach Based Upon Misrepresentation Claim Survives Where Equitable Estoppel Claim Fails; :: “Instatement” In LTD Plan Appropriate Remedy Where Employer Fails To Enroll Employee
