The Second Circuit court of appeals held that a court can exercise its equitable powers to reform the terms of a cash balance retirement plan to provide greater benefits than stated in response to material misstatements made by the plan administrator, and that the plan sponsor would be correspondingly required to make payments on a class-wide basis consistent with the reformed plan.

Background

The long-running case of Amara v. Cigna, first filed in 2001, has again been the subject of appellate review. The case involves the conversion of a large defined benefit plan to a cash-balance plan, where a trial judge held that the plan administrator had made materially misleading statements to participants about the level of benefits they would receive under the new plan. The trial judge initially held that participants were entitled to benefits under ERISA Section 502(a)(1)(B) in an amount corresponding to what was represented by the defendant, rather than what was contained in the actual plan document. The Supreme Court disagreed that such relief was allowed under Section 502(a)(1)(B), and remanded the case for further proceedings, as described in our June 15, 2011 edition of the ERISA Litigation Update.

The Decision on Remand

On remand from the Supreme Court, the trial court held that the same remedy it had previously awarded under ERISA Section 502(a)(1)(B) – namely, so-called A+B relief, allowing the class additional sums over what had already been provided to assure them the full value of the accrued benefits under the since-terminated defined benefit plan at the time of its termination, plus benefits under the new cash balance plan – was similarly available under ERISA Section 502(a)(3). It also rejected defendants' motion to decertify a class and plaintiffs' request for different damages, in the form of reinstatement of the defined benefit plan. A panel of the Second Circuit Court of Appeals affirmed in full.

Class Certification

The Second Circuit panel began by addressing defendant's argument under Wal-Mart v. Dukes that certification was not proper under FRCP 23(a)(2). The panel held that defendant had not produced any evidence that any class member would be harmed by the relief awarded. Similarly, the panel held that, unlike in Dukes, where the 23(a)(2) class was ultimately seeking back pay, which was not merely “incidental” to the claim of reformation there, here, by contrast, plaintiffs sought to enjoin defendant from enforcing the plan as written, and any monetary relief flowing from such reformation in those circumstances was appropriately “incidental” to the injunctive relief sought. As such, the panel agreed with the district court that a 23(a)(2) class was proper.

Reformation as an Appropriate Remedy

The Second Circuit panel next rejected defendant's argument that plaintiffs had failed to establish the elements of reformation. After noting that ERISA plan documents are “similar to both trusts and contracts,” the panel applied contractual reformation law. The court explained that contractual reformation focuses on whether the party seeking reformation was deceived, not whether the plan is carried out according to the settlor’s intent. The panel also held that a showing of harm was not required under contractual reformation; instead, a plaintiff seeking reformation needs to show a mistake by plaintiff and fraudulent or inequitable conduct by the opposing party. The panel agreed that the facts at trial found by the district court established that defendant’s statements were “affirmatively and materially misleading” and thus the mistaken plaintiffs were entitled to this remedy.

Affording Discretion to District Court Award

Finally, the Second Circuit panel agreed that the district court properly did not award plaintiffs the expansive relief they sought – restatement of full benefits under the former pension plan. Rather, the panel agreed that the trial court had sufficient evidence for its awarding relief that would provide the class with amounts approximating the value they would have received had defendant's statements about the transition from a defined benefit to cash balance plan been accurate, and that the trial court need not act as though the defined benefit plan had never been terminated.