ERISA, which is short for the Employee Retirement Income Security Act of 1974, is nearing its fortieth birthday. Over the years, ERISA has inspired blogs, beauty pageants, and boredom. While delivering his annual speech to the Fourth Circuit in 2003, the late Chief Justice William Rehnquist casually remarked that he found the handful of ERISA cases that make it onto the high court's plenary docket each term to be particularly “dreary,” adding, “It’s duty, not choice.” See Tony Mauro, Courtside, Legal Times, July 14, 2003, at 11.
As the Act approaches forty, the steady trickle of unloved ERISA issues that remind the Court of its "duty" each term shows no signs of slowing. As a matter of fact, earlier this month Judge Ronald Gould of the Ninth Circuit identified a circuit split that may just be the next sleeper case of OT2011:
The Circuits have split on whether strict adherence to the terms of an ERISA plan that disclaims the application of traditional equitable defenses constitutes "appropriate equitable relief." Several circuits, and notably the Eleventh, Eighth, Seventh and Fifth Circuits, have stressed the primacy of an ERISA plan's express language, and have decided that in balancing the equities, simple contract interpretation that provides for full reimbursement per the plain terms of a plan that disclaims the application of traditional equitable defenses such as the make-whole doctrine and the common fund doctrine, constitutes "appropriate equitable relief" under § 502(a)(3). See, e.g., Zurich Am. Ins. Co. v. O'Hara, 604 F.3d 1232, 1238 (11th Cir. 2010) (stating that the application of "federal common law to override the Plan's controlling language, which expressly provides for reimbursement regardless of whether [the beneficiary] was made whole by his third-party recovery, would frustrate, rather than effectuate, ERISA's 'repeatedly emphasized purpose to protect contractually defined benefits.'"); Admin. Comm. of Wal-Mart Stores, Inc. Associates' Health & Welfare Plan v. Shank, 500 F.3d 834, 839 (8th Cir. 2007) (stating that "[n]othing in the statute suggests Congress intended that section 502(a)(3)'s limitation of the [plan's] recovery to "appropriate equitable relief" would upset these contractually-defined expectations [such as a make-whole rule disclaimer]. Indeed, ERISA's mandate that '[e]very employee benefit plan shall be established and maintained pursuant to a written instrument,' 29 U.S.C. § 1102(a)(1), establishes the primacy of the written plan"); Administrative Committee of Wal-Mart Stores, Inc. Assocs.' Health & Welfare Plan v. Varco, 338 F.3d 680, 691-92 (7th Cir. 2003) (stating that in an action under § 502(a)(3), "it is inappropriate to fashion a common law rule that would override the express terms of a private plan unless the overridden plan provision conflicts with statutory provisions or other policies underlying ERISA . . . . Those cases which have applied the federal common fund doctrine in the favor of individual ERISA participants have done so, correctly, only in the absence of controlling plan language"); Bombadier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough, 354 F.3d 348, 361 (5th Cir. 2003) (stating that "the Plan's terms not only give it the right to recover benefits 'to the extent of any and all' settlement payments, but explicitly state that the participant must bear the fees and costs associated with his tort action . . . neither the federal nor Texas common fund doctrine may be invoked to prevent or reduce the Plan's recovery of the funds that it advanced to [the beneficiary] up to the full amount of his recovery from the tortfeasor"); see also Wal-Mart Stores, Inc. Assocs.' Health and Welfare Plan v. Wells, 213 F.3d 398, 402 (7th Cir. 2000) (suggesting that in an action under § 502(a)(3), the parties to an ERISA plan could, by contract, alter the "background of common-sense understandings and legal principles [such as the common fund doctrine] that . . . operate as default rules to govern in the absence of a clear expression of the parties' intent that they not govern").
By contrast, only the Third Circuit, in US Airways v. McCutchen, has concluded "that Congress intended to limit the equitable relief available under § 502(a)(3) through the application of equitable defenses and principles that were typically available in equity" despite the negation of such defenses and principles in an ERISA plan. 663 F.3d at 676. McCutchen, who participated in an ERISA-governed employee welfare benefits plan, was injured in a car accident and the plan paid $66,866 in medical expenses on his behalf. Id. at 672. McCutchen recovered $110,000 from third parties, and the plan, based on a subrogation clause in the plan requiring full reimbursement, sought to recover the full $66,866 from McCutchen even though McCutchen's net recovery was less than that amount after paying a 40% contingency fee to his attorney. Id. at 673.
Like Rose here, McCutchen argued that notwithstanding the plan terms, it was unfair to grant the plan full reimbursement because he was not fully compensated for his injuries and the plan did not contribute to attorneys' fees and costs. Id. at 674. The Third Circuit agreed, finding no indication in ERISA or in the Supreme Court's jurisprudence that Congress intended to limit relief under § 502(a)(3) to "traditional equitable categories" yet not limit relief "by other equitable doctrines and defenses that were traditionally applicable to those categories." Id. at 676-79.
We agree with the Third Circuit that under § 502(a)(3), the district court, in granting "appropriate equitable relief," may consider traditional equitable defenses notwithstanding express terms disclaiming their application. Id. at 679 (stating that in equity, "contractual language was not as sacrosanct as it is normally considered to be when applying breach of contract principles at common law . . . [, and] equitable principles can apply even where no one has committed a wrong"). While a weighing of the equities, including the consideration of equitable defenses, might support that full reimbursement per the Plan's terms is "appropriate equitable relief," like the Third Circuit we disagree with the other circuits to the extent that they have held that § 502(a)(3) categorically excludes the application of traditional equitable defenses where the plan disclaims their application and requires reimbursement as set by the plan. Id. at 678. Congress in § 502(a)(3) empowered district courts to consider equitable principles in granting injunctive relief to a plan fiduciary against a plan beneficiary, and we will not read out of the statute the limitation that equitable relief be appropria
Cgi Techs. & Solutions v. Rose, No. 11-35127 (9th Cir. June 20, 2012).
