'Equitable relief' claims under ERISA Section 502(a)(3).

This article examines the development and application of ERISA Section 502(a)(3) in the context of claims between employee benefit plans and plan participants or beneficiaries. The proper application of this provision has proven yet another example of ERISA's uneven development. A view of common fact patterns invoking ERISA Section 502(a)(3) provides at once an example of the lack of uniformity in its application as well as the most efficient explanation of its reach and limitations. In the first instance, ERISA Section 502(a)(3) will be evaluated in the context of plan claims against beneficiaries. These situations most frequently arise in the context of (1) plan reimbursement claims based upon subrogatton and reimbursement provisions and (2) plan claims of overpayment of benefits. Second, this article will evaluate cases on a reversal of the fact pattern; i.e., situations in which the plan beneficiaries advance claims against the plan or plan fiduciaries under ERISA Section 503(a)(3).

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Though the federal judiciary frequently divides on issues arising under the Employee Retirement Income Security Act of 1974 (ERISA), the courts routinely characterize ERISA as a part of a "comprehensive and reticulated statute." (1) In many instances, courts offer this characterization of ERISA as justification for a narrow reading of ERISA's civil remedy provisions. According to this rationale, the intricacies of the statute justify an inference that ERISA's "carefully crafted and detailed enforcement scheme" was intended to be exclusive. In application of the statute, however, courts and practioners alike find the statute and its judicial interpretations to be more of a compass than a map. (2)

OVERVIEW OF ERISA SECTION 502(a)(3)

The switchboard of remedial provisions under ERISA Section 502(a) (29 U.S.C. Section 1132(a)), (3) has been the subject of numerous United States Supreme Court decisions. The lower courts have often struggled to balance the remedial purpose of the statute with the Supreme Court's textualist approach to its interpretation. This tension is well exhibited in the recent caselaw applying ERISA Section 502(a)(3). For any relief other than a claim for benefits or a request for plan information, a plan participant must turn to ERISA Section 502(a)(3) for individualized relief (as opposed to relief for the plan as a whole). Conversely, ERISA Section 502(a)(3) also provides the foundation for plan claims for reimbursement against participants and beneficiaries where, for example, there has been an overpayment of benefits.

ERISA Section 502(a)(3) authorizes an action by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of Subchapter I (Protection of Employee Benefit Rights) or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan (emphasis added). One of the most important current controversies in ERISA jurisprudence, requiring the attention of two Supreme Court cases within the last five years, surrounds the scope and meaning of "other appropriate equitable relief" under this provision.

The recent Supreme Court decision in Sereboff v. Mid Atlantic Medical Services, Inc., (4) writes yet another chapter in the unfolding saga of what relief is available as equitable relief. Decided May 15, 2006, Sereboff refined the notion of equitable relief permissible under ERISA Section 502(a)(3) in the context of a health plan reimbursement claim against a plan beneficiary. Given the several prior Supreme Court cases bearing on the meaning of this provision, however, a historical approach is necessary to place the analysis in context.

HISTORICAL REVIEW OF THE SUPREME COURT'S INTERPRETATION OF ERISA SECTION 502(a)

ERISA Section 502(a) made its important Supreme Court debut in Mutual Life Insurance Co. v. Russell. (5) In Russell, the Court took a "plain meaning" interpretation of ERISA Section 502(a), on the view that the statute was a comprehensive and integrated civil enforcement scheme requiring little amplification by the judiciary. This holding would have a dramatic impact on the future interpretation of ERISA's civil remedies.

As noted by one commentator:

 
   [S]ection 502(a)--and more generally the entire civil remedial 
   scheme of ERISA--is neither systematic nor complete. It is both 
   redundant and full of holes. Yet despite these obvious 
   characteristics, the Supreme Court flatly stated, in Massachusetts 
   Mutual Life Insurance Co. v. Russell, that section 502(a) forms 
   a comprehensive "enforcement scheme," which was "carefully 
   integrated" and "crafted with ... evident care." Regrettably, lower 
   courts have treated this doubtful characterization as dogma. They 
   routinely state, for example, that "civil actions under ERISA are 
   limited only to those parties and actions Congress specifically 
   enumerated in section 502" as if there were no body of claims 
   under the common law of plans. (6) 

In Russell, the Supreme Court determined that ERISA Section 502(a)(2) did not authorize extracontractual damages. (7) The Court stated that: "[s]ignificantly, the statutory provision explicitly authorizing a beneficiary to bring an action to enforce his rights under the plan [section] 502(a)(1)(B) ... says nothing about the recovery of extracontractual damages ..."

Though Russell expressly reserved the question of "whether and to what extent extracontractual damages are available under 502(a)(3)," a similar conclusion was soon to follow regarding ERISA Section 502(a)(3) insofar as the provision pertained to non-fiduciaries. In Mertens v. Hewitt Associates, (8) the Supreme Court construed Section 502(a)(3) to authorize only "those categories of relief that were typically available in equity." Under the reasoning of Mertens, ERISA Section 502(a)(3) did not permit retirement plan beneficiaries to obtain compensatory damages from a plan actuary for calculations errors leading to the underfunding of a pension plan.

In reaching this decision, the Court held that "equitable relief" refers to those categories of relief that were typically available in equity, such as injunction, mandamus, and restitution--but not compensatory damages. Thus, Mertens provided the first step in the confinement of ERISA Section 503(a)(3) relief to historic equitable remedies. The question still remained--what exactly constituted equitable relief in this textualist interpretation of the term?

Two intervening cases provided significant additional guidance, but did not provide a final answer as to the type of relief that could be granted. In Varity v. Howe, (9) the Court permitted a claim for individualized relief under ERISA Section 502(a)(3) in the form of reinstatement of former employees into the fiduciary's employee benefit plan. The Court stated that the remedy "was consistent with the literal language of the statute, the Act's purposes, and pre-existing trust law."

The Court approached the question more closely in Harris Trust v. Solomon Smith Barney, (10) by holding that an action for restitution against a nonfiduciary constituted "appropriate equitable relief." The Court stated:

 
   [A]n action for restitution against a transferee of tainted plan 
   assets satisfies the "appropriate[ness]" criterion in 
   [section] 502(a)(3). Such relief is also "equitable" in nature. See 
   Mertens, 508 U.S., at 260 ("[T]he 'equitable relief' awardable under 
   [section] 502(a)(5) includes restitution of ill-gotten plan assets or 
   profits ..."); ibid. (explaining that, in light of the similarity of 
   language in [subsection] 502(a)(3) and (5), that language should be 
   deemed to have the same meaning in both subsections). 

Nevertheless, the ambit of ERISA Section 502(a)(3) "appropriate equitable relief" remained controversial. As the circuit courts reached differing conclusions, the issue eventually rose to the level of Supreme Court review.

In a pair of cases in the somewhat unlikely context of health plan subrogation, the Court provided what has become the touchstone for evaluating what remedies are available under ERISA Section 502(a)(3). First, in Great-West Life & Annuity Ins. Co. v. Knudson, (11) the Court applied its historical view of "appropriate equitable relief" to defeat the group health plan's claims for reimbursement. Second, in Sereboff v. Mid Atlantic Medical Services, Inc., the Court gave an object example of what relief would qualify as equitable by affirming a decision imposing a constructive trust on settlement proceeds. These two decisions merit closer review since they provide the backdrop for all current disputes between employee benefit plans and their participants or beneficiaries.

In Knudson, Great-West attempted to recover funds paid towards an accident from a plan beneficiary based upon a claim of restitution. Though the claim was styled as restitution, it had as its object the recovery of money damages. Inasmuch as the personal injury settlement funds were not in the possession of the defendant plan beneficiary, the Court held that Great-West's claim failed to meet the test of "appropriate equitable relief."

Quoting from Mertens, the Court stated:

 
   As we explained in Mertens, "'[e]quitable' relief must mean 
   something less than all relief." 508 U.S., at 258, n. 8. Thus, 
   in Mertens we rejected a reading of the statute that would 
   extend the relief obtainable under [section] 502(a)(3) to 
   whatever relief a court of equity is empowered to provide in 
   the particular case at issue (which could include legal remedies 
   that would otherwise be beyond the scope of the equity court's 
   authority). Such a reading, we said, would "limit the relief not 
   at all" and "render the modifier ['equitable'] superfluous." Id., 
   at 257-258. Instead, we held that the term "equitable relief" in 
   [section] 502(a)(3) must refer to "those categories of relief that 
   were typically available in equity ..." …