Since the Supreme Court’s CIGNA v. Amara decision, courts have grappled with the scope of the permissible forms of equitable relief under ERISA, including the surcharge remedy, the sole focus of today’s blog.  Surcharge is generally a type of monetary relief awarded to remedy a fiduciary breach.  In June, the Ninth Circuit sharply limited the scope of surcharge.  See Gabriel v. Alaska Elec. Pension Fund, 12-25458 (6/6/14).  Recently, however, there was a slight change of heart, and the Ninth Circuit replaced that June decision with one that potentially opens the door to surcharge, to be addressed on remand.  Id. (12/16/14).

Gabriel involves a pension plan participant who received benefits for several years, even though he knew he never met the plan’s vesting requirements.  After the error was discovered, his benefits were terminated.  He sued for benefit denial and equitable relief, seeking remedies including surcharge.  He claimed that he was entitled to surcharge in the form of the benefits he would have received had he been credited with the hours erroneously reflected in the fund’s records when he applied for benefits.

Before the Ninth Circuit, plaintiff claimed that under Fourth Circuit authority surcharge could provide make-whole relief, even if it came at the expense of the plan.  The court disagreed, observing that the Fourth Circuit decision and similar decisions in other circuits did not define the scope of surcharge.  Further, those decisions involved remand to district courts to determine the availability of surcharge in the first instance.  The court ruled that under prior circuit precedent, surcharge was recoverable only to remedy unjust enrichment and to restore plan losses.  It further ruled that plaintiff wasn’t entitled to surcharge because there was no unjust enrichment, and also because the remedy he sought would not “restore the trust estate, but rather would wrongfully deplete it by paying him benefits” he wasn’t entitled to.

This June decision was met with criticism.  The plaintiff sought a full panel review.  A few district courts judges within the Ninth Circuit also declined to follow it, noting that due to the pending rehearing petition, the ruling was not yet final.

In its recently issued amended ruling, the Ninth Circuit explained that because the district court concluded the plaintiff wasn’t entitled to monetary relief, it didn’t consider whether plaintiff was entitled to surcharge.  The court noted that under Amara, the proper approach is to vacate the judgment and remand to the district court.  “Consistent with” sister circuits, the court did just that.

In a concurring opinion that surely won’t be overlooked in any remand proceedings, Chief Judge Kozinski expressed “serious[] doubt” that plaintiff could recover surcharge.  He was skeptical of the plaintiff’s ability to prove required elements of harm and causation, because the sole harm he alleged arose out of his “unreasonable” reliance “on the Fund’s misrepresentations.”  Judge Kozinski “couldn’t imagine [that surcharge] extends to a reliance claim where the plaintiff was apprised of the true facts.”  He noted that a contrary conclusion would make bad policy, by imposing a form of “strict reliance for every mistake that’s claimed to be relied on, even if the reliance was unreasonable.”

On our reading of the case, we think that this plaintiff probably isn’t a poster child for a surcharge award. Saty tuned...