The Eleventh Circuit Court of Appeals in Gimeno v. NichMD, Inc. analyzed whether Section 1132(a)(3) of ERISA provides authorization for a beneficiary of a plan governed by ERISA to sue for ‘”appropriate equitable relief’” due to violations of the plan or relevant statute. Thus, the question presented to the court is whether “Section 1132(a)(3) create[s] a cause of action for an ERISA beneficiary to recover monetary benefits lost due to a fiduciary’s breach of fiduciary duty in the plan enrollment process[.]” The Court answers this question in the affirmative, stating that a court “may order typical forms of equitable relief under Section 1132(a)(3).”
This decision reverses that of the district court, which had held that “such a claim would be futile.” The basis for this reversal is the common practice of awarding “equitable surcharge” in cases where a fiduciary’s breach of duty caused a beneficiary to sustain losses. The facts of the case center around the plan holder, Justin Polga, and his spouse, Raniero Gimeno (“Plaintiff”). Polga was an M.D. and an employee of NCHMD, Inc., a subsidiary of NCH Healthcare System Inc. (“Defendants”). When initially hired by the Defendants, the HR department assisted Polga in filling out the relevant paperwork. Gimeno was listed as the primary beneficiary under the relevant plan (“Plan”) and NCH Healthcare the administrator. Polga decided to elect to pay for $350,000 in “supplemental life insurance coverage on top of $150,000 in employer-paid coverage.” In order to receive this coverage, it was required that Polga submit “an evidence of insurability form,” however this form was not provided in his enrollment paperwork nor did the HR department attempt to rectify the error. Therefore, Polga was never properly enrolled on the program according to the insurance company. Despite this fact, the Plan “deducted premiums corresponding to $500,000 in life insurance coverage from Polga’s paychecks.” Further, Polga was provided with benefits statements that included the $500,000 in coverage.
When Polga passed away, the Plaintiff filed a claim with the Plan’s insurance company for benefits as the named beneficiary. The claim was partially denied, as the company approved the claim for the amount of benefits excluding the supplemental amount. Subsequent to this denial, the Plaintiff filed suit to recover the supplemental benefits, alleging that “by failing to notify Polga of the need for the form and misleading him about the nature of his coverage, the defendants breached their fiduciary duty to administer the plan fairly and properly, to inform Polga of his rights and benefits, and to ensure that all application forms were correctly completed and submitted.” As a remedy, the Plaintiff also sought that the Defendants be required by order to pay the benefits that would have been received if not for the breach – “the unpaid $350,000.”
In response, the Defendants moved to dismiss the case “for failure to state a claim.” This argument was based on the Defendants’ belief that, unlike the insurance company, they “had no obligation to award the benefits at issue” and thus were the “improper defendants.” The Plaintiff replied with a motion to amend his complaint to only a cause for “appropriate equitable relief” under Section 1132(a)(3). The district court agreed with the Defendants, granting the motion to dismiss and denying the motion to amend. The Plaintiff timely appealed.
The Plaintiff argued that the district court’s decision to deny his motion to amend was incorrect as the relief sought is appropriate under Section 1132(a)(3). The Court of Appeals agreed. Section 1132(a)(3) delineates that a beneficiary may sue a plan for “appropriate equitable relief” upon a breach of the statute or the plan’s terms. Equitable relief applies to “’categories of relief that were typically available in equity’ before the fusion of courts of equity and courts of law.” Though courts do not typically allow monetary damages to be granted under Section 1132(a)(3), when equity demands monetary relief, it may be interpreted under ERISA. Under equitable principles, courts are permitted to award “restitution of ‘particular funds or property in the defendant’s possession.’” Further, when the remedy at issue stems from a relationship between a trustee and a beneficiary, “’[t]he trustee’s personal liability to make compensation for the loss occasioned by a breach of trust is a simple contract equitable debt.’” Therefore, “[t]his remedy – as between a trust beneficiary and a trust fiduciary – is ‘equitable in character and enforceable against [a] trustee in a court exercising equity powers.’” Supreme Court precedent supports the conclusion that equitable surcharge is an appropriate equitable remedy “between beneficiaries and fiduciaries.” The Court of Appeals furthered reasoned that every district court that has addressed the issue of equitable surcharge has followed the Supreme Court’s line of reasoning and considered monetary relief appropriate. Thus, the Court of Appeals rejects the Defendants’ arguments that Section 1132(a)(3) does not provide “a comparable remedy.”
The Court determined that both NCHMD and NCH Healthcare are fiduciaries; they provide that “[a]n entity is a fiduciary under ERISA if it ‘exercises any discretionary authority or discretionary control respecting management’ or ‘administration’ of the plan.” In order to prove that an entity is a fiduciary, a party may show evidence from the “plan document” but may also provide evidence from the “factual circumstances surrounding the administration of the plan, even if these factual circumstances contradict the designation in the plan document.” In the case at hand, NCHMD opines that it is not a fiduciary of the Plan because it was not listed as an administrator in the plan documents. However, the Court reasoned that since NCHMD’s HR department assisted Polga with the relevant paperwork at the time he enrolled in the Plan as well as provided him with a benefits summary, these circumstances provided adequate evidence to consider NCHMD a fiduciary. Therefore, the Court held that the Plaintiff may pursue a cause of action for lost benefits pursuant to Section 1132(a)(3).
The Court also rejects the Defendants’ argument that the Plaintiff sought to violate precedent by asserting claims under multiple sections of ERISA. It is concluded that since the Plaintiff “’must rely on’ Section 1132(a)(3) or he would have ‘no remedy at all’ … his claim may proceed under Section 1132(a)(3).” Thus, the Eleventh Circuit Court of Appeals reversed the district court’s ruling and remanded the case for the Plaintiff to properly bring a claim under 1132(a)(3) for breach of fiduciary duty.