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.

The Court of Appeals for the Sixth Circuit recently held that when a claim is brought under ERISA § 502(a)(2), individual arbitration agreements signed by employees do not apply. The rationale behind this decision is that claims brought under § 502(a)(2) are brought by the Plan, not by the individual employees who had signed the agreements.

The Plan at issue in this case is the “Partner’s Plan” (Plan), a “defined contribution” plan sponsored by one of the Defendants, Cintas. Defined contribution plans offer participants the opportunity to select investment options from a “menu” chosen by the plan’s sponsor (in this case, Cintas). Individual accounts are created for each participant, their value determined by the amount they have contributed, fees associated with management of the plan, and the market performance of the investment options selected.

ERISA requires fiduciaries to fulfill certain duties to plan participants, the two at issue in this case being the duty of loyalty and the duty of prudence. The duty of loyalty requires that plans be managed “for the best interests of its participants and beneficiaries,” while the duty of prudence requires that plans be managed “with the care and skill of a prudent person acting under like circumstances.” The Plaintiffs in this case allege that these duties were breached when the Defendants only offered opportunities to invest in “actively managed funds” and when excessive recordkeeping fees were charged to participants. The Plaintiffs brought action against Cintas, as well as its Investment Policy Committee and Board of Directors. These entities within the company are responsible for administering and appointing members to investment committees. The suit is putative class action encompassing all participants in the Plan and their beneficiaries during the relevant class period.

The issue on appeal is whether individual employment agreements signed by employees who participated in the Plan delineating that all claims be settled through arbitration are applicable to the claim of breach of fiduciary duty under ERISA. Due to these agreements, the Defendants moved to stay proceedings in federal court and compel arbitration. The district court denied the motions, stating that the fact that the Plaintiffs had signed individual arbitration agreements was irrelevant, as the action was brought on behalf of the Plan and any agreements signed by individual employees were inapplicable.

The Defendants argued that the arbitration agreements related to “all rights and claims relating to their employment” which includes claims arising under ERISA. Further, they argue that the “right” to assert the claims “belong[s]” to the individual plaintiffs, and thus claims are subject to the arbitration agreement consented to by the employees. However, the Plaintiffs countered that the claims of breach of fiduciary duty belong to the Plan itself, which was not subject to arbitration as it had not consented. The Court is careful to add that it is generally settled that ERISA claims are arbitrable, but state that the issue in this case is not whether ERISA claims can be arbitrated, but rather if the claims must be arbitrated as subject to the employee arbitration agreement.

The Court concludes that the Plaintiffs are correct in their assertion that the claims at issue belong to the Plan and not to the participants themselves, and thus the arbitration clause does not apply. § 502(a)(2) states that actions may be “brought in a representative capacity on behalf of the plan as a whole.” The Court relies on precedent set in Mass. Mut. Life Ins. Co. v. Russel, 473 U.S. 134 (1985). Russel provides that, “the ‘plan’ [is] [the] victim of any fiduciary breach and the recipient of any relief,” when considering the structure of defined-benefit plans. Mass. Mut. Life Ins. Co. v. Russel, 473 U.S. 134, 254-55, (1985). This context changes slightly when considering defined-contribution plans, though the Court still notes that, “although § 502(a)(2) does not provide a remedy for individual injuries distinct from plan injuries, that provision does authorize recovery for fiduciary breaches that impair the value of plan assets in a participant’s individual account.” Id. at 256. Further, in LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008), the Court established that, “§ 502(a)(2) authorizes suits on behalf of a defined-contribution plan even if the harm is inherently individualized.” Hawkins v. Cintas Corp., 2022 U.S. App. LEXIS 11377 at 11.

The Court next recognizes the failures of the Defendants arguments, mainly that in responding to case law presented by the Plaintiffs, they fail to offer a definition of the word “rights” as it applies to the language in the arbitration agreement and the right of the plan participants to bring a claim under § 502(a)(2). The Defendants proffer that since the agreements include “all of Employee’s rights or claims arising under [ERISA],” the claims at issue in this case are precluded from litigation by the agreement. The Court rejects this argument, stating that despite the inclusion of language relating to ERISA in the agreements, they are not “fundamentally different” than the arbitration agreements in cases used in support of the Plaintiffs’ arguments. Further, the Defendants did not provide an alternative definition of “rights,” nor did they provide case law interpreting the word. The Defendants also offered no explanation as to the possibility of arbitration being used to assert such a “right.”

The Court concludes that based on precedent, if an injury is considered a plan injury rather than an injury sustained by one person’s account, the claim is not considered to be sought for individual relief and thus is not bound by arbitration agreements. According to the Court, the claims at issue in this case relate to the Plan as a whole, and thus the Plaintiffs are not precluded from pursuing the claims in court by the arbitration agreements. Therefore, the Court of Appeals affirmed the district court decision and ruled in favor of the Plaintiffs.

Recently, the Boston Children’s Hospital asked a judge in federal court to dismiss a case brought by former employees that alleged the charging of “exorbitant” fees relating to the management of ERISA retirement plans. The Hospital argues that fees associated with the plans were not exorbitant and no damage was sustained by plan members under the class, thus the case against them should be dismissed. The Hospital additionally argues that there was no requirement for them to pick the lowest possible costs for administration of their ERISA plans. Further, they argue that the plaintiffs in the class at issue were not deeply invested in the plans that are involved.

The Plaintiffs (former employees of the Hospital) in the class allege that the Hospital’s fiduciary duties under ERISA were breached when they overcharged participants for fees relating to recordkeeping. Further, the Plaintiffs allege that the Hospital encouraged participants to invest in funds that were more expensive than others and underperformed compared to their counterparts. The case was originally brought by four former employees of the Hospital, with the class now encompassing compensation for 18,580 employees. The Plaintiffs state that while participants in similar plans were required to pay between $23 to $42 per year in recordkeeping fees, participants in the Hospital’s plans at issue paid $73. The large size of the plan, according to the Plaintiffs, would have enabled them to negotiate for lower fees if the Hospital had been proactive about ensuring the performance of their duties to the participants.

The Hospital counters in their motion to dismiss that, “ERISA does not require Children’s to select the least expensive or best performing investment, and Plaintiff’s cannot plausibly allege a breach merely by pointing to alternative target date funds that have some similarities and that purportedly cost a bit less or performed a bit better.” Further, the Hospital alleges that the Plaintiffs are essentially attempting to make arguments that are directly opposed, stating that there are no comparable plans that are both less expensive and perform better than that those at issue in the case. Regarding the plans exemplified by the Plaintiffs as less expensive, the Hospital states that the cheaper plans did not perform as well as those chosen by the Defendant. The plans argued by the Plaintiffs to be comparable also had different payment structures and provided different services to participants, according to the Hospital.

The Defendant states that even if the allegations against their management of the plan were accurate, the Plaintiffs in the case have no cause of action for plans in which they did not specifically invest. The Hospital argues that this results in the named Plaintiffs having no claim for relief, therefore the suit should be dismissed.

Lastly, the Hospital argues that the amount of recordkeeping fees alleged in the case relate to 2020 prices, when none of the named Plaintiffs were involved in payment of plan fees.

The question is now posed to the Court of whether the arguments brought by the Defendant should result in dismissal of the case. Courts have recently held that classes of plaintiffs in similar situations are entitled to certification and a chance to litigate their claims. The facts of this case regarding the level of participation the Plaintiffs actually engaged in by paying excess fees may change this result. However, courts have made it apparent that when plaintiffs have paid excess fees under ERISA plans, they are entitled to appropriate legal recourse.