ERISA – 6th Circuit: Reversing Decades of Precedent — Court Orders Disgorgement of Profits in Long Term Disability Case

by Lane Powell PC - ERISA Law Blog
Contact

Wow—You need to know what happened last week in the Sixth Circuit:

Disgorgement of profits as a remedy in an ERISA long term disability case?

Rochow v. LINA, __ F.3d __, 2013 WL 6333440 (6th Cir. December 6, 2013)(In a 2-1 decision, Court concludes disgorgement of unjust enrichment ($3.8m) is an appropriate equitable remedy under ERISA in a long term disability case).

It’s not over, however.  As an outsider looking in, one can expect that petitions for en banc review likely will follow.

FACTS:  Rochow filed a long term disability claim. He appealed the denial three times. Rochow then filed suit  and the District Court concluded LINA abused its discretion when it denied benefits. LINA appealed, and the Sixth Circuit affirmed and remanded.

Then, Plaintiff filed a “motion seeking an equitable accounting and a request for disgorgement.” Plaintiff claimed disgorgement of profits was appropriate because LINA breached fiduciary duties and that disgorgement was necessary to prevent LINA’s unjust enrichment resulting from profits it earned on wrongfully retained benefits. Plaintiff presented an “expert” who opined on a calculation of unjust enrichment damages.

LINA argued, among other things, that disgorgement is inappropriate because equitable relief under Section 502(a)(3) is available only when Section 502(a) fails to provide an adequate remedy.

The District Court ordered disgorgement of $3.8 million.

ISSUE: Is disgorgement an appropriate equitable relief in a long term disability claim?  YES

6th Circuit Rationale (with Dissent):

  1. “Nothing in ERISA itself or Varity [Corporation v. Howe, 516 U.S. 489 (1996)] limits this Court to allowing remedies under Section 503(a)(3) that focus on plaintiff’s injuries.” Op. at 15.
  2. “[T]he remedy of disgorgement of profits under Section 502(a)(3) was recognized by the Eighth Circuit….  Accordingly, we hold that disgorgement is an appropriate remedy under Section 502(a)(3) and can provide a separate remedy on top of a benefit recovery.”  Op. at 16.
  3. “Disgorgement does not result in double compensation….”  Op. at 15.
  4. There is a long discussion on how an expert calculates “unjust enrichment” for purposes of disgorgement of profits.  Op. at 18-23.
  5. DISSENT:
  • The decision “undermines ERISA’s remedial scheme and grants an astonishing $3,797,867.92 windfall under the catchall provision in Section 502(a)(3).”  Op. at 25.
  • “Both the Supreme Court and this Circuit have interpreted ERISA to prevent such double recoveries.”  Op. at 26.
  • “The majority’s ruling works a fundamental change in the interplay between Section 502(a)(1)(B) and Section 502(a)(3).  This is not authorized by Supreme Court precedent.”  Op. at 26.
  • “Plaintiff was made whole when he was paid his disability benefits and attorney’s fees.” Op. at 25.

Key Take Aways:

  1. There are lots of problems with this split decision.  The decision makes no sense when viewing the historical precedent on availability of equitable relief under ERISA. Besides that, denying a benefit should not be viewed, on its own, as a breach of fiduciary duty.  But that is what this majority seems to allow.
  2. Look for the Plaintiff’s bar to grab this case and add another cause of action for disgorgement.

Written by:

Lane Powell PC - ERISA Law Blog
Contact
more
less

Lane Powell PC - ERISA Law Blog on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!