Q: Can Fourth Circuit plaintiffs be granted “surcharge” as a remedy for breach of fiduciary duty under ERISA?

A: Not anymore. In a divided-panel opinion issued Tuesday, September 12, in Rose v. PSA Airlines, Inc., 2023 WL 5839282, — F.4th — (2023), the Fourth Circuit narrowed the scope of remedies available to plaintiffs in ERISA breach of fiduciary duty claims in this circuit. In short, the Fourth Circuit held that “surcharge” is not an available remedy. Instead, monetary recovery under 502(a)(3) is only available when a plaintiff points to specific funds that the plaintiff rightfully owned but that the defendant possesses as a result of unjust enrichment. This is a reversal of prior Fourth Circuit decisions, which had previously authorized recovery of surcharge as a form of “appropriate equitable relief” under § 502(a)(3).

Background and the Court’s Ruling

In this case, the estate of a formerly insured employee sued the plan administrator, claiming that the deceased was wrongfully denied a heart transplant, which caused the employee’s death. The estate brought a 502(a)(3) claim, which sought the monetary cost of the surgery that the deceased was allegedly wrongly denied; the plaintiff characterized this type of recovery as a form of equitable relief available under ERISA. The appellate court disagreed.

A majority of the Fourth Circuit panel interpreted the relevant history of U.S. Supreme Court decisions and held that § 502(a)(3) permitted recovery only with respect to equitable remedies that were typically available when the courts of law and equity had concurrent jurisdiction. Historically, the Supreme Court implicitly rejected remedies that were available in the “exclusive jurisdiction” of the courts of equity, including those remedies under the law of trusts. However, CIGNA Corp. v. Amara, 563 U.S. 421 (2011) muddied the waters by suggesting that “surcharge” may be available as a form or relief, despite it being a remedy of exclusive, not concurrent, equity jurisdiction. Indeed, the Fourth Circuit had previously relied upon Amara to permit surcharge claims under §502(a)(3). See, e.g., Peters v. Aetna, Inc., 2 F.4th 199, 216 (4th Cir. 2021) (The Supreme Court has recognized surcharge as a form of ‘appropriate equitable relief’ available under § 502(a)(3)). However, the Rose court justified this break with Fourth Circuit precedent by noting that in Montanile v. Bd. Of Trs., 577 U.S. 136 (2016), the Supreme Court acknowledged Amara’s reference to the potential availability of surcharge was merely dicta and the Court did not otherwise cite to Amara in that case. Rose understood this as a signal that “Amara‘s approach is antithetical to a proper § 502(a)(3) analysis.” Rose, 2023 WL 5839282 at *11.

The Rose court held that “[a] plaintiff can recover money under § 502(a)(3) only if a court of equity could have awarded it in a concurrent-jurisdiction case, and a court of equity could award money when a plaintiff pointed to specific funds that he rightfully owned but that the defendant possessed as a result of unjust enrichment.” Id. at *8.

The ruling came down from a divided panel, with Judge Heytens dissenting and accusing the majority of impermissibly reversing Fourth Circuit precedent. Given that the facts of the case are deeply sympathetic for the plaintiff and involve questions of reversing prior decisions of the Fourth Circuit, there may a rehearing en banc. However, in the meantime, this provides a much clearer rule in this circuit regarding the scope of permissible recovery under § 502(a)(3).

Key Takeaways for Employers and Plan Administrators

• Surcharge is no longer an available remedy in Fourth Circuit ERISA breach of fiduciary duty cases. Rose should be cited where a plaintiff seeks such relief.
• Instead, breach of fiduciary duty claims under § 502(a)(3) require that a plaintiff can point to specific funds that the plaintiff rightfully owns, but that the defendant possesses as a result of unjust enrichment. The claim cannot seek monies that would come out of the general assets of the defendant.