Cigna Corp. v. Amara Revisited

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  • 1. CIGNA Corp. v. Amara Revisited: The Ongoing Fallout From this Landmark Case and Its Progeny
  • 2. Presented by: Deidre A. Grossman Littler Mendelson, P.C. Evan Miller Jones Day James P. McElligott Jr McGuire Woods Thomas G. Moukawsher Moukawsher & Walsh LLC Mark D. Spencer McAfee & Taft
  • 3. CIGNA Corp. v. Amara 131 S. Ct. 1866 (2011)  The Supreme Court Opinion: – Summary Plan Description (SPD) is not a plan document – ERISA 502(a)(1)(B) v. 502(a)(3) – Equitable relief under 502(a)(3)  Implications for ERISA communication claims  Implications for monetary relief  Post-Amara Rulings
  • 4. Amara’s Pro-Plaintiff Implications  Cabins Mertens’ limitations on monetary relief to non-fiduciaries – Major change: lower courts had consistently applied Mertens to claims against fiduciaries – Not dicta. Even if dicta, it is Supreme Court dicta – What is Amara’s impact, if any, on ERISA 510 claims?  What is surcharge trust law remedy? – Punishment of errant trustees. – Benefits otherwise had “but for” breach (e.g., failure to provide application for benefits) seem to fit comfortably within trust law remedies – Is relief beyond this “extracontractual” or not typically equitable? (e.g., misinformed had benefits did not have)
  • 5. Amara’s Implications for ERISA Communication Claims & Class Actions  Reformation – is some form of reliance or causation and harm required to justify reformatory remedy? – Not needed? – Individualized or group? – Distinction between intentional/fraudulent or merely negligent misrepresentation? – See following Wal-Mart discussion on “common answers”  Actual harm from “loss of a right protected by ERISA” – What is harm, causation, and remedy in relation to this? – See majority’s discussion of loss of being informed of negative changes through workplace discussion
  • 6. Amara’s Pro-Defendant Implications  Does Amara negate “implied in law” remedies under ERISA 502(a)(1)(B)? – Are statutory violation claims limited to ERISA 502(a)(3)? – Must equitable requirements also be complied with? – Is ERISA’s “two-step” (reform under ERISA 502(a)(3)/enforce under 502(a)(1)(B)) dead or alive? – Impact on fiduciary insurance and/or taxes if remedies are construed to be non-plan relief?  Does Amara’s actual harm and causation requirements limit class actions for 502(a)(3) claims?
  • 7. Amara v. CIGNA –Remand  Court awarded under 502(a)(3): – 204(h) notice – Reformation to eliminate undisclosed benefit reduction – CIGNA enjoined and ordered to enforce reformed plan – Interest
  • 8. Amara v. CIGNA - Remand  Key holdings: – Surcharge, reformation and estoppel are remedies generally available under 502 (a)(3) even if relief is a monetary payment – Reformation can be awarded under contract or trust case law
  • 9. Amara key holdings (cont.) Reformation is appropriate here on the grounds of unilateral mistake paired with “fraud” or “similarly inequitable conduct”. • Mistake is measure by comparing actual terms to reasonable expectations – “Actual harm” is only relevant to surcharge – Surcharge can be awarded on “make-whole” or “unjust enrichment” grounds
  • 10. Amara key holdings (cont.) -Surcharge is not confined to losses to the trust - “Actual harm” means the loss caused by the breach - For make whole surcharge Plaintiffs must show a breach and a “related loss” - If shown, defendant must show “loss would have occurred in the absence of a breach of duty” - For unjust enrichment surcharge but for breach would not have obtained savings. - Reformation adequate here, surcharge not needed.
  • 11.  Claimed that Foot Locker did not adequately explain the impact of transitioning from a DB to a cash balance plan (i.e., did not explain “wear away”) (ERISA 404(a));  Harm alleged: had employees received an adequate explanation, they would have rebelled and management would have either maintained the status quo or implemented a better plan (i.e., employees would have been better off financially);  Relief sought: Surcharge against trustees and reformation of the Plan;  Holding: Summary Judgment for Foot Locker;  Reasoning: Alleged harm is entirely speculative (no evidence that plaintiff would have selected another option) and no evidence that any conceivable harm was caused by Foot Locker (no evidence that management would have refused to implement transition or implemented a not-yet designed plan more favorable to plaintiff). Osberg v. Foot Locker, Inc. (S.D.N.Y. Dec. 2012)
  • 12. Tomlinson v. El Paso Corp. (10th Cir. 2011)  Tomlinson v. El Paso Corp. (10th Cir. 2011) – Plaintiffs claimed SPD was inadequate – did not include information about “wear-away” and reductions – Evidence showed that plaintiffs did not read SPD – Post-Amara, reliance need not turn on reading the SPD (can be based on Amara’s water cooler theory) – But SPD was not faulty under Section 102 – wear-away need not have been disclosed in SPD because wear-away is a “consequence of the change in plan terms,” not “a new eligibility requirement” – Absent evidence of deceit or failure to communicate “manner of conversion to cash balance accounts,” SPD that does not disclose wear-away will not be invalidated. Claim dismissed
  • 13. Skinner v. Northrop Grumman Ret. Plan B (9th Cir. 2012)  Skinner v. Northrop Grumman Ret. Plan B (9th Cir. 2012) – SPD failed to explain benefit offset contained in the plan – Record showed that plaintiffs did not rely on SPD – Plaintiffs pursued reformation and surcharge, but not estoppel (no reliance)
  • 14. Skinner v. Northrop Grumman Ret. Plan B (9th Cir. 2012)  Reformation of plan to conform to SPD – claim dismissed – No mistake – no evidence that plan did not reflect true intent – No fraud – no misleading statement or reliance (distinguished Amara)  Surcharge – claim dismissed – No duty on the plan’s administrative committee to enforce SPD over plan – Committee did not gain benefit from allegedly inaccurate SPD (no unjust enrichment) – Deprivation of statutory right to compliant SPD held insufficient to justify surcharge remedy absent reliance (no actual harm)
  • 15. McCravy v. MetLife (4th Cir. 2012)  McCravy v. MetLife (4th Cir. 2012)  Participant paid (and insurance company accepted) premiums for dependent life insurance after dependent was no longer eligible (age 25). She sued when daughter died and claim for insurance was denied  Fourth Circuit dismissed claims for policy proceeds; only relief was refund of premiums  Fourth Circuit granted rehearing in light of Amara
  • 16. McCravy v. MetLife (4th Cir. 2012)  Surcharge (if applicable) would allow recovery of full proceeds – monetary loss caused by fiduciary breach  Estoppel (if applicable) would preclude fiduciary from enforcing 30 day period for policy conversion and allow recovery of full proceeds  Case remanded to determine if there was a fiduciary breach and whether surcharge and estoppel are available remedies given circumstances of the case
  • 17. Killian v. Concert Health Plan (7th Cir. 2012)  Killian v. Concert Health Plan (7th Cir. 2012)  Participant received treatment from facility outside network and brought claims (benefit and fiduciary breach) to recover expenses  Fiduciary breach claim based on: (i) failure to distribute a valid SPD; (ii) failure to disclose during phone calls that facility was outside network  Court notes that Amara changed the landscape of ERISA remedies – active concealment, bad faith, and/or detrimental reliance not always required
  • 18. Killian v. Concert Health Plan (7th Cir. 2012)  But court avoids addressing relief issue because it finds no fiduciary breaches occurred  Absence of a valid SPD did not cause harm because participant would have sought treatment from out-of- network facility regardless of the breach  No duty to disclose, including because no inquiry and fiduciary was unaware of participant’s predicament from calls  Decision vacated and rehearing en banc granted, but maybe just on duty to disclose issue
  • 19. Kenseth v. Dean Health Plans, Inc. (7th Cir., under submission)  Plaintiff alleges that health plan told her it would cover surgery to correct complications of previous surgery for obesity  Claim denied post-surgery under exclusion for obesity- related medical expenses  Pre-Amara, district court held that 502(a)(3) did not authorize monetary relief  On appeal post-Amara, plaintiff and Sec. of Labor argue that plaintiff can elect between surcharge remedy (cost of surgery), or disgorgement of amounts paid by plan to its affiliated doctors
  • 20. U.S. Airways, Inc. v. McCutchen (3d Cir. 2011)  U.S. Airways, Inc. v. McCutchen (3d Cir. 2011)  Plan paid for $66k in medical expenses  Participant received settlement of $110k  Paid attorney first, leaving less than $66k  Plan contained clause requiring reimbursement from “any monies recovered from third parties” and precluding any negotiations that would undermine subrogation  Plan sued Participant for $66k  Language created equitable lien by agreement
  • 21. U.S. Airways, Inc. v. McCutchen (3d Cir. 2011)  Defenses to “appropriate equitable relief” (make whole, common fund, unjust enrichment, equitable reformation)  Third Circuit relied on equitable principles discussed in Amara to reform the plan under inapposite circumstances  Plan would be unjustly enriched because it would receive full recovery without contributing toward attorney’s fees or exercising subrogation rights  Participant would receive less than he would have had he not commenced a lawsuit  Plan terms are not “inviolable” where equity so requires
  • 22. U.S. Airways, Inc. v. McCutchen (3d Cir. 2011)  Accord CGI Tech. & Solutions Inc. v. Rose (9th Cir. 2012)  Certiorari granted in McCutchen
  • 23. Gearlds v. Entergy Services (S.D. Miss. 2012)  Gearlds v. Entergy Services (S.D. Miss May 14, 2012): – Plaintiff overpaid health and pension benefits because misclassified as disabled – Plaintiff claims harmed because passed on coverage on his wife’s health plan offered by her employer since thought he was covered under his employer’s plan – District court dismisses: money for lost coverage not equitable relief under ERISA 502(a)(3), and no showing of “extraordinary circumstances” to warrant equitable estoppel  On appeal to Fifth Circuit.  U.S. DOL filed brief as amicus - Does surcharge extend beyond harm from loss of benefits?
  • 24. State Law Trust Authority Cited by Amara  Reformation - Baltzer v. Raleigh & A. R. Co., 115 U.S. 634, 645 (U.S. 1885): “[E]quity would reform the contract, and enforce it, as reformed, if the mistake or fraud were shown. But the mistake must be clearly shown. If the proofs are doubtful and unsatisfactory, and if the mistake is not made entirely plain, equity will withhold relief. “ Reformation denied.  Estoppel - Merwin, Principles of Equity and Equity Pleading (1895)  Surcharge - Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 464 (1939). “[T]he court has the power to fix the compensation of the trustee, to require him to take over from the trust investments improperly made and to restore the amount expended for them to the trust estate, to surcharge him with losses incurred, to allow him his proper expenses, to find against him a balance due the estate, and to make the balance found due a lien upon his real estate.”
  • 25. Reformation  Contract reformation is a remedy for altering the terms of a writing that fails to express the agreement of the parties “owing to the fraud of one of the parties and mistake of the other.” 27 Williston on Contracts 69:55, p. 160 (4th ed. 2010). (Cited by Scalia)  “Reformation is an appropriate remedy when the evidence clearly and unequivocally shows that an instrument does not express the true intent or agreement of the parties." Boyles Bros. Drilling Co. v. Orion Indus., Ltd., 761 P.2d 278, 281 (Colo. 1988); Thomas Revocable Trust v. Inland Pac. , 2012 U.S. Dist. LEXIS 138615, 44-45 (D. Colo. Sept. 25, 2012)  Scalia in Amara, “Although in this case CIGNA wrote both the plan and the SPD, it did so in different capacities: as sponsor when writing the plan, and as administrator when preparing the SPD.” ERISA “carefully distinguishes these roles.”
  • 26. Equitable Estoppel  Equitable estoppel prevents one from doing an act differently than the manner in which another was induced by word or deed to expect. Kreutzer v. Vehicle Cnty Herald Co., 560 Pa. 600, 747 A.2d 358, 361 (Pa. 2000) (quoting Novelty Knitting Mills v. Siskind, 500 Pa. 432, 457 A.2d 502, 503 (Pa. 1983)). Reese v. Ford Motor Co., 2012 U.S. App. LEXIS 20341 (3d Cir. Sept. 28, 2012)  "Equitable estoppel is not an independent cause of action, but instead a doctrine that may assist a party by precluding the opposing party from asserting or denying the existence of a particular fact." Conagra, Inc. v. Farmers State Bank, 237 Mich. App. 109, 140-41, 602 N.W.2d 390 (1999); Presser v. Fannie Mae, 2012 U.S. Dist. LEXIS 102947 ( E.D. Mich. July 24, 2012)  "Parties seeking to invoke the doctrine of equitable estoppel must prove (1) that promises or inducements were made; (2) that they reasonably relied upon the promises; and (3) that they will be harmed if estoppel is not applied." Pollard v. Southdale Gardens, 698 N.W.2d 449, 454 (Minn. App. 2005) Schmidt Printing, Inc. v. Pitney Bowes, Inc., 2011 U.S. Dist. LEXIS 129552 (D. Minn. Aug. 29, 2011)
  • 27. Surcharge  In re Estate of Janes, 90 N.Y.2d 41 (N.Y. 1997): Executor failed to diversify the trust, which consisted of a large amount of one type of stock which lost one-third of its date-of-death value. Court approved surcharge of fiduciary for losses incurred by the estate for failure to diversify trust’s assets.  See also Matter of Hunter, 27 Misc. 3d 1205A (N.Y. Sur. Ct. 2010)  RESTATEMENT (SECOND) OF TRUSTS 205, comment (a): “the beneficiaries may surcharge the trustee for the amount necessary to compensate fully for the consequences of the breach.”  In these cases, surcharge seems to be poor cousin to ERISA 502(a)(2). Cf. Knieriem v. Group Health Plan, 434 F.3d 1058, 1064 (8th Cir. Mo. 2006) (cited in Scalia’s dissent).
  • 28. Proof of Loss in Surcharge  SunTrust Bank v. Farrar , 277 Va. 546, 675 S.E.2d 187 (2009) . Court reversed trial court’s surcharge award for beneficiaries who claimed that trustee failed to properly market trust property and allowed the property to become unproductive and a wasting asset. Beneficiaries had the burden of proving damages with reasonable certainty and could not rely on speculation and conjecture.  Note that this would be an ERISA 502(a)(2) if brought with respect to an ERISA plan.
  • 29. Israel v. Prudential Ins. Co., US Dist. Lexis 106107 (D.S.C. July 31, 2012)  Plaintiff’s wife was a dependent insured under Lockheed’s life insurance plan under which eligibility for coverage for a spouse ceased after divorce. Plaintiff’s wife died after they divorced. Plaintiff claimed that Lockheed’s benefits department, had told him that he could continue the life insurance coverage on his ex- wife. Lockheed continued to deduct premiums from Plaintiff’s paychecks for the life insurance coverage.  Court granted summary judgment to Lockheed on Plaintiff’s benefit claim under ERISA sec. 502(a)(1)(B), because plan’s terms did not provide coverage.  Court denied summary judgment on claim for equitable relief under ERISA sec. 502(a)(3) because of fact disputes.  Result: Discovery and trial.
  • 30. Strickland v. AT&T Umbrella Benefit Plan, 2012 US Dist. LEXIS 14145 (W.D. NC Sept. 30, 2012)  Plaintiff was a disabled participant of AT&T’s medical benefit plan. After becoming eligible for Medicare, he claimed that Blue Cross allegedly told him (contrary to Plan terms) that he needed to purchase Part A of Medicare, but not Part B. Blue Cross then denied payment of his medical bills in accordance with the terms of the plan.  Court permitted plaintiff’s claim for equitable relief under ERISA sec. 502(a)(3) to go forward for discovery and trial, citing Amara and McCravy.
  • 31. APPENDIX  Amara Background
  • 32. Amara Background  Claims: age discrimination, backloading, non- forfeiture, faulty SPD, deficient 204(h) notice, and breach of fiduciary duty  Allegations: participant communications failed to give proper notice of “greater of” formula, and caused participants to believe they would receive the frozen pension benefit PLUS the cash balance benefit (A + B)
  • 33. Amara Procedural History: District Court  Class of approximately 27,000 participants  Bench trial  Liability as to: 204(h) notice and SPDs – Failed to adequately disclose the “wear-away” phenomenon; participants believed A + B rather than “greater of” A or B – Court found CIGNA intentionally misled participants  Plaintiffs need not demonstrate individual harm flowing from deficient SPD; rather sufficient to show “likely harm”  CIGNA did not refute “likely harm” presumption
  • 34. Amara Procedural History: District Court  Remedy awarded: Each participant receives the benefit that the SPD suggested – the frozen traditional defined benefit plus his cash balance benefits (A + B)  Court awarded relief for the SPD violation under ERISA 502(a)(1)(B)  Court doubted that the relief awarded was permissible under ERISA 502(a)(3), citing Mertens and Great-West
  • 35. Amara Procedural History: Second Circuit  Summary Opinion Issued  Adopted District Court’s Opinion  Both Parties Sought Certiorari
  • 36. Amara Supreme Court Opinion  SPD is NOT binding contract – SPD is meant to be a summary of the plan, not the plan itself – Plan and SPD serve different roles, governed by different rules, and drafted by separate entities  Accordingly, no relief under ERISA 502(a)(1)(B): – Participant can bring an action to “enforce” not “change” the terms of the plan – Reformation of plan more like an equitable remedy under ERISA 502(a)(3)
  • 37. Amara Supreme Court Opinion  ERISA 502(a)(3) - “appropriate equitable relief”  Had generally been interpreted as precluding monetary relief under Mertens v. Hewitt Assoc., 508 U.S. 248 (1993)  Amara says Mertens precluded monetary relief against non-fiduciaries; looking to trust law, concluded appropriate equitable relief may include monetary relief against fiduciaries  Amara suggests various remedies may be appropriate under ERISA 502(a)(3): Estoppel; Surcharge; Reformation
  • 38. Amara Supreme Court Opinion  Elements of a valid claim/form of relief depend on nature of the claim. For example:  Equitable estoppel requires detrimental reliance  Reformation: To reflect mutual understanding of parties where “fraudulent suppression, omission, or insertions… materially” affected the substance of the contact, even if the complaining party was negligent in not realizing the mistake  Surcharge (monetary relief for fiduciary breach): Showing of actual harm by preponderance of the evidence. – Possible harm from loss of statutory right: Had SPD been sufficient, likely employees would have heard of negative change from workplace discussions
  • 39. Amara Supreme Court Opinion: Scalia/Thomas Concurrence  ERISA 204(h) most natural statutory basis for remedying failure to disclose impact of plan amendment  ERISA 502(a)(3) discussion: “purely dicta”  Remedy may be far different than what district court imposed
  • 40. Questions?