Courts Disagree over Jury Trial Right in ERISA Fiduciary Cases

by Goodwin
Contact

Two recent federal district court decisions have come to opposite conclusions in addressing the question whether there is a right to jury trial with respect to fiduciary breach claims brought under ERISA Section 502(a)(2).  That statutory provision authorizes actions for “appropriate relief” under ERISA Section 409(a), which in turn provides that a breaching plan fiduciary “shall be personally liable to make good to [the] plan any losses to the plan resulting from each . . . breach, and to restore to [the] plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary.”  As discussed more fully below, the court in Hellman v. Cataldo, No 4:12-CV-02177 (E.D. Mo. August 20, 2013) found that there is a right to jury trial with respect to a Section 502(a)(2) claim, while the court in Bauer-Ramazani v. TIAA-CREF, No. 1:09-CV-190 (D. Vt. Nov. 27, 2013) held that there is no such right.

The Hellman Court’s Analysis

In Hellman, a participant in a defined contribution plan sued plan fiduciaries in a putative class action under ERISA Section 502(a)(2), alleging that the fiduciaries breached their duty of prudence by continuing to offer stock of the sponsoring employer as an investment option under the plan.  The plaintiff sought (among other things) an order compelling the defendants to make the plan whole for losses resulting from their breaches.  The plaintiff demanded trial by jury and the defendants moved to strike that demand.

In ruling on the motion, the court began its analysis by noting that the Seventh Amendment to the U.S. Constitution guarantees the right to jury trial in civil cases “only [in] lawsuits in which legal rights are adjudicated, and not to actions in which only equitable rights and remedies are decided.”  The court observed that, under Supreme Court authority, the determination whether a claim involves a legal right or an equitable right turns on a two-pronged analysis:  (i) whether the claim is analogous to 18th-century actions at law or claims in equity in England before the merger of the law and equity courts; and (ii) whether the remedy sought is legal or equitable.  See Granfinanciera v. Nordberg, 492 U.S. 33 (1989).

With respect to the first prong, the Hellman court concluded that claims for breach of fiduciary duty were traditionally within the jurisdiction of courts of equity, which would support a conclusion that there is no right to jury trial with regard to Section 502(a)(2) claims.  However, with respect to the second prong – which the court identified as the “weightier prong” of the analysis – the court found that the complaint requested legal relief, and on that basis concluded that the plaintiffs were entitled to a jury trial.

In addressing the second prong, the Hellman court relied on the Supreme Court’s decision in Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), which involved a claim under ERISA Section 502(a)(3) by an ERISA health plan for reimbursement from a plan beneficiary who had received medical benefits from the plan following an accident and who subsequently obtained recovery for her injuries from a third-party tortfeasor. In this regard, Section 502(a)(3) authorizes actions for “appropriate equitable relief” to redress violations of ERISA or to enforce plan terms.   Great-West held that the remedy sought in that case did not constitute “equitable relief” available under Section 502(a)(3), because a “judgment imposing merely personal liability upon a defendant to pay a sum of money” in return for “some benefit that defendant had received from him” constituted legal (not equitable) relief.

In the view of the Hellman court, the Great-West analysis led to the conclusion that the remedy requested by the plaintiff in Hellman – i.e., monetary compensation for losses resulting from his plan’s continued, imprudent investment in employer stock – constituted legal relief, because the plaintiff sought to hold the defendants liable for monetary damages for their fiduciary breach.  Because the “more important prong” of the test indicated the case sought to adjudicate legal (rather than equitable) rights, the court held that the plaintiff was entitled to jury trial on his Section 502(a)(2) claim and denied the defendants’ motion to strike.

The Bauer-Ramazani Court’s Analysis

In Bauer-Ramazani participants in a defined contribution plan sued a plan service provider under Section 502(a)(2), alleging that the defendant had breached the fiduciary duty of loyalty by delaying investment transfers directed by the participants and retaining the investment returns earned during the delay.  The plaintiffs sought “restitution of the value of the investment gains on their accounts” from the date they contended the investment transfers should have been made to the date of the actual transfer.  The plaintiffs demanded a jury trial and the defendants moved to strike.  The Bauer-Ramazani court applied the same two-prong test as the Hellman court, but reached a different result.  With respect to the first prong, Bauer-Ramazani concluded (like Hellman) that ERISA fiduciary claims are equitable (as opposed to legal) in nature, which indicates no right to jury trial.

With regard to the second prong, the plaintiffs contended that, under Great-West, the remedy they requested should be considered legal relief, since they sought to impose on the defendant a personal obligation to pay money to the plan based on the earnings it had received on delayed transfers. The Bauer-Ramazani court rejected this argument, noting that, subsequent to Great-West, the Supreme Court had decided CIGNA Corp. v. Amara, 131 S.Ct. 1866 (2011), which clarified further the meaning of “equitable relief” under ERISA Section 502(a)(3).  Unlike Great-West, the CIGNA case involved claims against fiduciaries, and the Supreme Court explained that monetary remedies requiring breaching fiduciaries to make the plan whole or to disgorge profits constitute “equitable relief” because they are analogous to remedies available traditionally in equity courts against trustees who had breached fiduciary duties. Because the claims in Bauer-Ramazani were for breach of fiduciary duty, the court determined that the relief requested was equitable under CIGNA, and granted the defendant’s motion to strike the plaintiffs’ jury demand.

Conclusion

Hellman is an example of a case decided after Great-West that relied on the Supreme Court’s analysis in that case (dealing with the scope of “equitable relief” under ERISA Section 502(a)(3)) to conclude that types of make-whole and disgorgement monetary relief authorized by ERISA 409(a) are legal remedies, and therefore that plaintiffs are entitled to a jury trial with respect to claims enforcing Section 409(a) in actions under Section 502(a)(2). See, e.g., Bona v. Barash, No. 01 Civ. 2289 (S.D.N.Y. March 18, 2003).

Even before the Supreme Court’s decision in CIGNA, there were cases that rejected the argument that Great-West’s analysis of Section 502(a)(3) claims against a beneficiary requires the recognition of a jury trial right for claims against fiduciaries under Section 502(a)(2). See, e.g., George v. Kraft Foods Global Inc., Nos. 07 C1713, 07 C1954 (N.D.Il. March 20, 2008). After CIGNA, the Hellman analysis is even more questionable, as the Bauer-Ramazani court determined. Notably, cases like Hellman – which rely on Great-West even after CIGNA to find a jury trial right for Section 502(a)(2) claims – do not discuss, or cite, CIGNA. See also Healthcare Strategies, Inc. v. ING Life Ins. Co., No. 3:11-ev-282 (D. Conn. Jan. 19, 2012).

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Written by:

Goodwin
Contact
more
less

Goodwin 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.
Custom Email Digest
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.