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CIGNA Corp. v. Amara: New ERISA Litigation Authority from the U.S. Supreme Court

May 20, 2011

In a new opinion that contains something for plans and participants alike, the U.S. Supreme Court has held that language in a summary plan description ("SPD") does not qualify as plan language, and that plan participants and beneficiaries therefore cannot directly sue to enforce language in an SPD that conflicts with plan language. At the same time, the Court approves potentially expansive remedies under ERISA § 502(a)(3), that statute's "catch all" remedial provision, to address breaches by plan fiduciaries. Perhaps most surprisingly, the Court expressly approved use of the equitable remedy of "surcharge," which would provide for monetary compensation to address breach of fiduciary duties or to prevent unjust enrichment.

Factual Background
The Amara case arose out of the 1998 conversion of CIGNA's pension plan from an annuity-based defined benefit plan to a cash balance plan. Prior to the conversion, CIGNA's plan offered benefits in the form of an annuity calculated on the basis of a formula considering preretirement salary and length of service. After the conversion to a cash balance plan, benefits were expressed in terms of an initial notional account balance, to which annual employer contributions would be made. Upon retirement, a participant would receive an amount equal to his or her account balance, in the form of a lump sum or an annuity.

As part of the rollout of the new plan, CIGNA issued newsletters and other summaries describing some of the changes and asserting that the changes were beneficial to plan participants and beneficiaries. The summaries stated that the new plan would provide an "overall improvement" in retirement benefits, that the initial deposit would represent the "full value" of previously earned benefits, and that the company would not realize cost savings from the conversion.

A group of participants challenged the conversion, principally on the basis that CIGNA did not provide sufficient notice of the changes as required by § 204(h) (requiring written notice of an adverse change in the plan) and §§ 102(a) and 104(b) (requiring plan administrators to provide SPDs and summaries of material modifications to a plan). The participants alleged that the summaries were inadequate and misleading in that they suggested the conversion to a cash balance plan would enhance, rather than reduce, their benefits. The plaintiffs also alleged that those materials were deliberately false in that the new plan eliminated an early retirement option, made a downward adjustment in the initial balance due to the fact that the new benefit form included a death benefit (something the Court felt not all participants would want), and shifted interest rate risk from the plan to the participant.

The district court found that CIGNA's materials were in fact false and misleading, adopting many of the plaintiff's arguments. The court then turned to the issue of the appropriate remedy. Initially, it determined that relief was appropriate even in the absence of proof that a participant was actually harmed by the inadequate notice, deciding that it could award relief based on a presumption that the violation caused "likely harm" to participants. Then, relying upon § 502(a)(1)(B), the court reformed CIGNA's plan to conform to its view of the changes disclosed in the summaries, and issued several injunctions ordering benefits to be paid pursuant to the reformed plan. The U.S. Court of Appeals for the Second Circuit summarily affirmed the district court's rulings.

The U.S. Supreme Court granted CIGNA's petition for certiorari, identifying the issue to be resolved as whether the participants could recover based solely on a showing of "likely harm" from the company's notice failures. Its opinion, however, goes well beyond resolving this issue and contains a broader discussion of the relief available under ERISA's remedial scheme. The unanimous opinion (with Justice Sotomayor not participating) vacated the district court decision. Although the opinion contains many aspects noteworthy to ERISA practitioners, there are three main issues worth discussing. First, the Court stated that a summary plan description is not part of the plan language itself. Second, the Court found § 502(a)(1)(B) provides no authority for the reformation of plan language. Finally, the Court stated that, under certain circumstances, § 502(a)(3) allows for specific equitable remedies that a district court can tailor to address specific wrongs proven against a plan fiduciary.

A Summary Plan Description is Not Part of the Plan
The first major holding of the Amara decision is that terms and provisions included in a summary plan description are not part of the plan itself. The plaintiffs had alleged that relief was available to it under § 502(a)(1)(B) because they were simply attempting to enforce the terms disclosed in plan summaries, which they contend formed part of the plan itself.

The Court rejected this argument, advanced by the plaintiffs as well as the U.S. Solicitor General. In its opinion, the Court noted that the ERISA statute consistently distinguished between an SPD on the one hand, and the plan document on the other. The Court clarified the role each plays in relation to participants, stating that the SPD is intended to contain communications "about the plan" and does not "constitute terms of the plan" for purposes of providing relief.

Section 502(a)(1)(B) Does Not Authorize a Court to Re-Write the Terms of a Plan
In a holding that should not surprise anyone, the Court held that § 502(a)(1)(B) does not authorize a court to reform, or otherwise alter, the terms of a benefit plan. The Court noted that that provision, which allows a participant or beneficiary to bring suit "to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan," speaks of enforcing the terms of the plan, not of changing them.

Speaking about § 502(a)(1)(B), the Court stated: "[W]e have found nothing suggesting that the provision authorizes a court to alter those terms, at least not in present circumstances, where that change, akin to the reform of a contract, seems less like the simple enforcement of a contract as written and more like an equitable remedy." Accordingly, if the plaintiffs were to have remedies for the notice violations found by the district court, the remedy would have to be found elsewhere in ERISA's remedial scheme.

Court Identifies Remedies Available to Participants under Section 502(a)(3) in Some Circumstances
After rejecting the district court's purported remedy under § 502(a)(1)(B), the Court went on to address whether its injunctions and other orders might be permissible under § 502(a)(3). That section authorizes participants and beneficiaries to "obtain other appropriate equitable relief" to redress ERISA violations or violations of the terms of a plan.

The Court began by repeating its past holdings that the phrase "other appropriate equitable relief" refers to categories of relief that "were typically available in equity." Then, the Court noted that this case was a claim by a participant against a plan fiduciary (who is like a trustee) about the terms of a plan (which ERISA treats as a trust). Looking to ancient precedent regarding equitable remedies available against a trustee who has been found to have violated duties regarding the trust, the Court found that several remedies might be permissible under ERISA in appropriate circumstances.

First, the Court found that the district court's injunctions were "obviously" within the category of permissible relief that would be appropriate in equity. The Court went on, however, to state that reformation of the language of an ERISA plan could also be an appropriate remedy under § 502(a)(3) because reformation was a traditional power of an equity court, often used to prevent fraud. The Court also stated that the district court's order resembled estoppel, "a traditional equitable remedy" designed to hold parties to their promises.

Perhaps most significantly, the Court also stated that under certain circumstances, an order requiring the payment of money - or the equitable remedy of "surcharge" - might be appropriate. The Court stated:

But the fact that this relief takes the form of a money payment does not remove it from the category of traditionally equitable relief. Equity courts possessed the power to provide relief in the form of monetary "compensation" for a loss resulting from a trustee breach of duty, or to prevent the trustee's unjust enrichment.

Because equity permitted the remedy of surcharge, the Court held, a court could award that remedy in appropriate cases under § 502(a)(3), particularly to address breaches of duties by ERISA fiduciaries.

The Court cautioned, however, that courts must carefully craft remedies under § 502(a)(3) to address the particular injury found in a given case. In the Amara appeal, the Court stated that it was unable to determine which equitable remedy the district court intended to apply, so it vacated the district court's opinion and remanded the case for further proceedings on that issue.

Finally, the Court returned to the issue of whether relief could be awarded based merely on "likely harm" to participants. The Court held that whether actual harm was required as a prerequisite to relief depends upon the particular equitable principles being applied. The Court noted that some equitable remedies, such as reformation of a contract based on fraud or imposition of surcharge to remedy a breach of duty by a trustee, did not typically require a showing of detrimental reliance. Turning to the allegations of false and misleading communications by the CIGNA plan, the Court stated that all plaintiff participants need show was "actual" harm and causation, and need not show that any given participant actually relied on CIGNA's SPD or other materials to his or her detriment.

The Court's express approval of reformation, estoppel and (most of all) surcharge as appropriate equitable remedies in some cases will undoubtedly lead to more litigation about what remedies are permissible under
§ 502(a)(3). Some members of the ERISA plaintiffs' bar have already described the Amara decision as a great victory for plaintiff participants.

The Court's decision in Amara contains elements that will please both plan sponsors as well as participants. Plan sponsors will appreciate the Court's rulings that the relief available under § 502(a)(1)(B) is narrow, and that a participant cannot necessarily rely on language contained in an SPD and sue to specifically enforce that language.

Participants and beneficiaries, however, will benefit from the expanded equitable remedies the Court suggested might be appropriate under § 502(a)(3) to address proven fiduciary breaches. The Court's holding that an order awarding monetary compensation, in particular, is likely to gain attention by both legal commentators and the ERISA plaintiffs' bar.

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