- The Fourth Circuit weighed in on the complex area of equitable relief under ERISA § 502(a)(3), holding that recovery under an unjust enrichment theory may provide claimants with an alternate path to monetary relief under the statute.
- The Fourth Circuit departed from the reasoning in CIGNA Corp v. Amara, a 2011 Supreme Court case, holding that plaintiffs seeking monetary relief on a personal, rather than proprietary basis cannot recover under § 502(a)(3).
The United States Court of Appeals recently shed light on when—and under what conditions—a plaintiff may seek a monetary recovery under § 502(a)(3) of the Employee Retirement Income Security Act (ERISA).1 Section 502(a)(3) authorizes courts to award only “equitable relief.”2 Over the years, federal courts, including the United States Supreme Court, have been concerned with delineating exactly what relief is “equitable” under § 502(a)(3)’s terms. In previous articles, we discussed the Ninth Circuit’s initial 2014 decision that equitable surcharge, a form of equitable relief, was unavailable to a plaintiff as a § 502(3)(a) remedy, and the Ninth Circuit’s subsequent withdrawal of that decision, reversing course and declining to reach the merits of plaintiff’s equitable surcharge theory.3 In Rose v. PSA Airlines Inc., the Fourth Circuit examined equitable relief in the form of unjust enrichment. Employers should take note of the decision because although the Fourth Circuit departed from Supreme Court precedent, making it more difficult for plaintiffs seeking monetary relief under § 502(a)(3) to recover, it also created the possibility for those same plaintiffs to recover money damages under an unjust enrichment theory. Essentially, the Fourth Circuit closed one door and opened another, in the context of equitable relief under § 502 (a)(3).
Background
Plaintiff, as administrator of her deceased son’s estate, sued the administrators of her son’s health plan (the Plan), asserting that Defendants wrongfully denied her benefits under ERISA § 502(a)(1)(B) or, alternatively, for breach of fiduciary duty under § 502(a)(3). Plaintiff claimed that her son was wrongfully denied surgery prior to his death and sought, among other relief, the monetary cost of the surgery. Defendants moved to dismiss both claims under Rule 12(b)(6), and the district court granted the motion. Plaintiff appealed.
On appeal, the Fourth Circuit affirmed dismissal of the § 502(a)(1)(B) claim. However, the court vacated the dismissal of the § 502(a)(3) claim, explaining that the district court failed to consider whether Plaintiff “plausibly alleged facts that would support relief ‘typically’ available in equity.” Ultimately, the Fourth Circuit remanded for the district court to decide whether Plaintiff could potentially recover on an unjust enrichment theory, including whether an alleged unjust gain could be traced to identified funds in the Defendants’ possession or to traceable items Defendants purchased with the funds.
Equitable Relief Generally and Unjust Enrichment under § 502(3)(A)
After a lengthy, scholarly discussion of the history of equitable relief and its sometimes-nuanced distinction from legal remedies, the Fourth Circuit focused on exclusive- and concurrent-jurisdiction cases in equity. As the Fourth Circuit explained, exclusive-jurisdiction cases in equity are those where the remedies sought could only be recognized in courts of equity, one example being breach of trust cases. Concurrent-jurisdiction cases, by contrast, can be brought in either equity courts or courts of law, for example breach of contract cases where both legal and equitable remedies, like unjust enrichment, are available. Courts of equity acting in exclusive jurisdiction can generally provide broader remedies than courts acting with concurrent jurisdiction. An example would be equity courts’ awarding “surcharge” – an equitable remedy that ultimately provides plaintiff with a monetary recovery.
With this background in mind, the Fourth Circuit posed the question: “[b]ecause courts of equity could provide a remedy that looked like money damages in breach-of trust cases, does that mean that such a remedy is ‘equitable relief’ under ERISA?” To answer that question, the Fourth Circuit looked to Supreme Court precedent regarding equitable relief under § 502(a)(3).
The court explained that the Supreme Court has made clear that for remedies to be “equitable,” those remedies must have been “typically available in equity,” meaning that “the relief must have been traditionally available in concurrent-jurisdiction cases.” The Fourth Circuit first discussed the seminal case of Mertens v. Hewitt Associates, where the Supreme Court first announced the “typically available in equity” requirement.
In Mertens, the Supreme Court reasoned that that typically available equitable remedies under ERISA were not those available in specialized cases, like the surcharge available in trust law cases, as surcharge was “purely legal” and usually “beyond the scope” of an equity court’s authority.4 The Fourth Circuit then pivoted to a discussion of Great-West Life & Annuity Insurance Co. v. Knudson, a Supreme Court case decided nearly a decade after Mertens.5
In Great-West, the Supreme Court discussed the concept of equitable restitution, where a plaintiff can recover money “where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant’s possession.”6 Great-West also delineated that not all forms of restitution are necessarily equitable, and that the distinction depends on whether the plaintiff is seeking to “impose personal liability on the defendant,” or seeking restoration of “particular funds or property in the defendant’s possession.” The Fourth Circuit characterized the rule as “restitutionary relief imposed to remedy unjust enrichment must be proprietary, not personal,” in other words, the funds must pass the traceability bar.
The Fourth Circuit briefly cited Montanile v. Board of Trustees of National Elevator Industry Health Benefit Plan, the most recent High Court case to take up the equitable relief issue, explaining that it follows suit with Mertens and Great-West. Those cases, the Fourth Circuit said, teach two lessons: (1) interpreting “equitable relief” under ERISA § 502(a)(3) requires examining what relief was typically available in both exclusive and concurrent jurisdiction cases; and (2) a plaintiff alleging unjust enrichment under ERISA can only receive a financial remedy if that plaintiff “seeks specific funds that are wrongfully in the defendants possession and rightfully belong to her.”
The Fourth Circuit Transitions to Montanile’s Reasoning
The Fourth Circuit also addressed its past approach to equitable relief, citing the tension between CIGNA Corp. v. Amara and Montanile. In Amara, the Supreme Court departed from Mertens and Great-West, suggesting that it might be possible, under § 502(a)(3), for some plaintiffs to seek loss-based financial relief, because such relief was analogous to “surcharge,” a breach of trust remedy available under equity courts’ exclusive-jurisdiction. Montanile, decided after Amara, questioned the reasoning in Amara, labeling it as “not essential to resolving [the] case[.]”7
The Fourth Circuit explained that its prior approach was consistent with Amara’s, as it “currently allow[s] plaintiffs suing for breach of fiduciary duty to seek make-whole, compensatory relief under § 502(3)(a) on the logic that such relief was available for breach of trust.” However, the Fourth Circuit explained that it will no longer follow such an approach due to Montanile: “So, while our Circuit’s resort to trust law might have made sense in the immediate aftermath of Amara, it no longer does [. . .] Accordingly, we return to the same rule that applied at the Supreme Court, and in this Circuit, before Amara: Plaintiffs that seek ‘merely personal liability upon the defendants to pay a sum of money” ask for legal, not equitable, relief under § 502(3)(a).” In doing so, the Fourth Circuit abrogated its own precedent.
However, in line with Montanile, the Fourth Circuit explained that “plaintiffs that seek to strip away defendant’s unjust gains might have better luck,” as “their sought relief qualifies as ‘equitable,’ so long as the plaintiff can trace those unjust gains to ‘specifically identified funds that remain in the defendant’s possession or against traceable items that the defendant purchased with the funds.’”
The Fourth Circuit next turned to the instant case, highlighting that it agreed with the district court, insofar as “compensatory ‘make-whole’ monetary relief is unavailable under § 502(3)(a).” However, the court did point out that the district court failed to examine whether Plaintiff had “plausibly alleged facts that would entitle her to such relief by alleging (1) that a defendant was unjustly enriched by interfering with [her son’s] rights and (2) that the fruits of that unjust enrichment remain in the defendant’s possession or can be traced to other assets.” As such, the Fourth Circuit remanded the case to the district court to decide whether Plaintiff had met that burden for each Defendant.
Judge Heytens wrote separately, concurring in part and dissenting in part. Judge Heytens explained that he would hold differently and not impose the tracing requirement.” Instead, he explained that Plaintiff “need only plead and prove the defendant was a fiduciary and that any money sought represents ‘make-whole relief’ for a ‘violation of a duty imposed upon that fiduciary.” In sum, Judge Heytens was unconvinced that any justification existed to abrogate McCravy and Peters. He wrote that Amara and Montanile can be reconciled: Instead of rejecting Amara broadly as the majority believed, Montanile rejected Amara much more narrowly, only insofar as rejecting a party’s broad reading of Amara. Judge Heytens explained that instead, Montanile “emphasiz[ed] that Amara ‘reaffirmed’ the traditional equitable limitations covering a ‘lien or constructive trust’,” driving the Montanile court’s decision.
Judge Heytens also pointed out that the equitable remedy of surcharge was not available against just any defendant, as Amara noted. He highlighted that surcharge could only be available against a fiduciary, and that the defendant in Montanile was not a fiduciary, whereas the defendants in Great-West and Mertens were fiduciaries.
Conclusion
Given the complexities of Supreme Court precedent surrounding equitable relief under § 502(a)(3), the Fourth Circuit panel’s internal struggle mirrors the difficulty the federal courts in general have had in defining the contours of ERISA’s equitable relief. The majority made clear that Amara’s dicta does not settle the question, so the courts will need to continue to struggle with the process of defining equitable relief. The Fourth Circuit, with its approval of quantum meruit relief in some cases, may have expanded the types of monetary remedies available under ERISA.
Footnotes
1 Rose v. PSA Airlines, No. 21-2207, 2023 WL 5839282, at *1 (4th Cir. Sept. 12, 2023).
2 Employee Retirement Income Security Act, 29 U.S.C. § 1132(a)(3) (2018).
3 Darren E. Nadel & William Trachman, Ninth Circuit Uncharacteristically Takes the Lead in Limiting Plaintiffs’ Rights to Recover for Breach of Fiduciary Duty under ERISA, Littler (June 16, 2014); Nadel, Ninth Circuit Reverses Course in ERISA Case, Littler (Dec. 19, 2014).
4 Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993).
5 Rose, 2023 WL 5839282 at *8.
6 Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 213 (2002).
7 Montanile v. Bd. of Trs. of Nat. Elevator Industry Health Benefit Plan, 577 U.S. 136, 148 n.3 (2016).
