In Rochow v. Life Ins. Co. of Am., 737 F.3d 415 (6th Cir. 2013), a panel of judges for the Sixth Circuit awarded an ERISA disability benefits claimant’s estate not only the amount of benefits that the participant was owed, but also a disgorgement award under ERISA § 502(a)(3). Dissenting, the Hon. David McKeague remarked that the Sixth Circuit panel took “an unprecedented and extraordinary step to expand the scope of ERISA coverage. The disgorgement of profits undermines ERISA's remedial scheme and grants the plaintiff an astonishing $3,797,867.92 windfall under the catchall provision in § 502(a)(3).” Id. at 431 (McKeague, J. dissenting).
Daniel Rochow (“Rochow”) was covered under a disability benefits program sponsored by his employer (where he was president of the company) and insured by the Life Insurance Company of America (“LINA”). The policy in question allowed an employee to receive payment of disability benefits upon providing “satisfactory proof” that “solely because of Injury or Sickness [the employee is] unable to perform all the material duties of [his or her] Regular Occupation or a Qualified Alternative[.]” Rochow, 737 F.3d at 417. The plaintiff began to experience short-term memory loss, sporadic chills and sweating, and stress at work. He was demoted but continued to have difficulties. As a result of his inability to perform his job, he was forced to resign, effective January 2002. In February 2002, he was diagnosed with a rare and severely debilitating brain infection. He filed a claim for long-term disability (“LTD”) benefits in December 2002. LINA denied his claim, stating that his employment ended before his disability began. Three rounds of administrative appeal followed, and LINA upheld its decision each time, after finding that the plaintiff failed to present any medical records to support his inability to work prior to the date when he was terminated. Id.
Rochow filed suit in the United States District Court for the Eastern District of Michigan. He put forth two claims under ERISA § 502(a)(3) – one to recover full benefits due from the failure to pay benefits in violation of the plan terms, and one to remedy the alleged breach of fiduciary duty under ERISA § 404(a). The district court ultimately found that LINA acted arbitrarily and capriciously in finding that Rochow was not disabled while he was still employed by the plan sponsor. LINA appealed, and a Sixth Circuit panel affirmed the district court’s decision. Id. at 418.
Rochow died in 2008, but the personal representatives of his estate (referred to herein as the “plaintiff”) continued to pursue recovery on Rochow’s behalf.
Following the Sixth Circuit appeal, the parties had numerous unresolved issues, including a dispute over whether the plaintiff was entitled to a disgorgement of profits. The plaintiff filed a motion seeking an equitable accounting and a request for disgorgement, asserting that Rochow’s estate was entitled to disgorgement of profits because LINA breached its fiduciary duties and that disgorgement was necessary to prevent LINA’s unjust enrichment resulting from profits it earned on the wrongfully retained benefits. The plaintiff provided an expert report, in which the expert determined that LINA used Rochow’s benefits to earn between 11% and 39% return annually, making approximately $2.8 million by retaining Rochow’s benefits. Plaintiff’s expert used a return on equity (“ROE”) metric to calculate LINA’s profits. In contrast, LINA’s expert opined that LINA realized profits of only $32,732 by withholding Rochow’s benefits. LINA’s expert arrived at that figure by treating the withheld benefits as though they were earning interest as part of LINA’s investment assets. The district court went on to award disgorgement to the plaintiff, using the metric created by the plaintiff’s expert and ordered LINA to pay disgorgement of $3,797,867.92. Id. at 418-20.
LINA again appealed to the Sixth Circuit, arguing that disgorgement was inappropriate because equitable relief under ERISA Section 502(a)(3) is available only where ERISA Section 502(a) does not otherwise provide an adequate remedy. Rochow, 737 F.3d at 423. The Sixth Circuit panel consisted of the Hon. Damon J. Keith, the Hon. David McKeague, and the Hon. Michael H. Watson. Judge Watson is a District Court Judge for the Southern District of Ohio, who sat by designation for this case. Judge Watson delivered the opinion of the Sixth Circuit panel, joined by Judge Keith. Judge McKeague dissented.
The majority of the Sixth Circuit panel held “that disgorgement is an appropriate equitable remedy under § 502(a)(3) and can provide a separate remedy on top of a benefit recovery.” Rochow, 737 F.3d at 426. The panel found that ERISA § 502(a)(1)(B) could not provide Rochow with the relief he sought because “Section 502(a)(1)(B) cannot provide the equitable redress of preventing LINA's unjust enrichment because it only allows a participant to ‘recover benefits due to him under the terms of the 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.’” Id. at 425 (quoting 29 U.S.C. § 1132(a)(1)(B)). The panel also opined that “disgorgement does not result in double compensation, nor does it represent punishment. An award of both actual damages and disgorgement does not offend the doctrine against double recovery.” Rochow, 737 F.3d at 425 (citation omitted). The majority then went on to affirm the district court’s use of the plaintiff’s ROE metric for determining the rate of return for disgorgement. Id. at 427-28.
Judge McKeague submitted a vehement dissent from the majority. Rochow, 737 F.3d at 431-35. He noted that, “[a]t its core, ERISA is a remedial statute. It does not seek to punish violators, but rather, attempts to place ‘the plaintiff in the position he or she would have occupied but for the defendant's wrongdoing.’” Id. at 431 (quoting Ford v. Uniroyal Pension Plan, 154 F.3d 613, 618 (6th Cir. 1998). Judge McKeague also opined that the plaintiff “was made whole when he was paid his disability benefits and attorney's fees. If not, an award of prejudgment interest certainly would have made him whole.” Id. He went on to state that “[a]llowing Rochow to recover disgorged profits, in addition to denied benefits, results in an improper repackaging of the benefits claims. Put differently, it results in a second recovery for the same injury. Such overcompensation contravenes ERISA's basic purpose.” Id.
On February 19, 2014, the case was set for rehearing en banc, and the panel’s decision was vacated. On March 7, 2014, the case was set for oral argument, which will occur on June 18, 2014. The decision on the rehearing en banc is highly anticipated because the initial panel decision was, as noted in Judge McKeague’s dissent, a striking contrast to the remedial purpose of ERISA’s civil enforcement provisions. The Supreme Court did draw focus to equitable remedies under ERISA in CIGNA v. Amara, 131 S.Ct. 1866, 1880 (2011), but the Sixth Circuit panel decision in Rochow went far afield of that decision, allowing a participant to recover not only the benefits that he was denied but to also recover a sizable “disgorgement” award from the plan administrator.