What Does Amara CIGNA-fy?

Is CIGNA v. Amara (50 EBC 2569), the recent ERISA case from the U.S. Supreme Court, a major development? Notwithstanding the lack of surprise in the final result, the Court's rationale looks to be extremely important.

In Amara, an employer replaced a traditional defined benefit pension plan with a cash balance plan. For existing participants affected by the conversion, the employer implemented a benefit formula that amounted to the greater of A and B, where A was the old benefit and B was the new.

The district court found that the new plan's SPD was misleading, even intentionally so, and that a 204(h) notice relating to the prospective reduction in the old plan's benefits was insufficient.  The district court's approach was to replace the plan's greater-of formula with an A-plus-B formula. The decision was crafted as granting a 502(a)(1)(B) claim for benefits, based on the court's view of the appropriate manner in which the plan's provisions should be implemented on these facts. The district court held that it could proceed to do so because the employer's actions had caused the participants "likely harm."

The district court expressly declined to explore the possibility of equitable relief under 502(a)(3), in that it granted the plaintiff's claim for benefits under 502(a)(1)(B). In declining to explore equitable relief, the district court specifically noted concern about an inability to confer an adequate remedy under the equitable-relief provisions, in light of Supreme Court precedent that it perceived as narrowing the scope of available remedies, in particular by making monetary relief unavailable.

The Second Circuit summarily affirmed and, in what would turn out to be an interesting approach, the Supreme Court granted cert. specifically on the question of whether the "likely harm" standard was the correct one.  I'm not sure I saw the case as a big one, but the Court's approach turns out to have broad significance.

Why is Amara so significant? From a results perspective, the case provides for a potential remedy for an inadequate SPD, which is a result that the lower courts had conferred time and time again. Is it so important that the rationale for that result shifted?

I think it is, and indeed think that Amara is a game-changer.  In an area in which ERISA has been viewed by some as a perversely pro-employer statute in some respects, in part because of the apparent inability in some cases to provide for remedies for what seem like evident wrongs, the statute may have shifted in one fell swoop towards being a quite flexible mechanism for the crafting of fair results by the courts.

Why? I think the new path starts with the Supreme Court's rejection with ease of the DOL's assertion that the terms of the SPD may be enforced as plan terms. Using a textual analysis, and barely evidencing a long line of lower-court decisions effectively enforcing SPD terms as plan terms where doing so is pro-participant, the Court held that SPD terms are not plan terms, and do not themselves support a claim for benefits under 502(a)(1)(B). So far, it looks pretty bad for the participants.

But that's far from the end of the story. The Supreme Court then proceeds to pick up where the district court left off, and consider whether equitable relief under 502(a)(3) might be available.  The Court discusses three potentially available equitable remedies: reformation, equitable estoppel and surcharge.

The discussion of reformation has some interesting elements. In some respects, the Court seems to approach reformation as an essentially self-contained cause of action and remedy, which might leave a reformation-based claim under 502(a)(3). On the other hand, the Court cites with approval authority which notes that "equity often considered reformation a 'preparatory step' that 'establishes the real contract.'”  I think it remains to be seen the interaction between benefits claims and equitable relief will ultimately shake out, but, for present purposes, the fact that Amara identifies detrimental reliance as a predicate to being entitled to reformation would seem to put this aspect of the case at least somewhat into the background.

The Court then touches upon equitable estoppel as a potential basis on which to get relief. Here, the Court does not seem to break much new ground, focusing on the historical approach in courts of equity.

 Critically, the Court next turns to the remedy of surcharge. Much like it did with the contention that SPD terms of plan terms, the Court easily adopts a position that had been the subject of years of rejection in the lower courts. In particular, the Court states that surcharge is an available remedy under ERISA, with hardly a nod to decision after decision in the lower courts that hold that monetary relief is unavailable as an equitable remedy.  The DOL had been asserting for years, in circuit after circuit, that surcharge, a traditional equitable remedy, was available as an equitable remedy under ERISA, and was close to running out of circuits to continue pounding its drum. Indeed, one of the few remaining circuits yet to reject the DOL's view joined the naysayer chorus in the McCravy decision, ironically issued just when Amara came down. And here, in Amara, the Court takes this step in a case where the issue wasn't even briefed, leading Justice Scalia to remark in his concurrence that it was "beyond" him that the Court embarked down this path.

 What path did the Court take in Amara regarding surcharge? It reviewed its own precedent which clearly focused on historical notions of equitable relief. It observed that surcharge is such a notion. Voila - ipso facto, without a whole lot more, surcharge is available under ERISA.

 So why all the confusion leading up to this juncture, one might ask? Well, in Amara there's an almost passing reference to Mertens in which the Court notes that Mertens involved a non-fiduciary defendant, whereas in Amara the defendant was a plan administrator in a fiduciary capacity, analogous to a trustee against whom the remedy of surcharge was traditionally available. A collective "aaaah" of realization may well pass over readers of this portion of the opinion . . . and over the virtually uniform collection of circuit-court judges that did not seem to have picked up on this point. To the DOL's credit, they never gave up tilting at this windmill, regardless of how often, and how consistently, the winds blew the other way.

 This aspect of Amara is where the rubber really hits the road. First and foremost, where the defendant is analogous to a trustee, monetary relief through surcharge is not per se unavailable. And, as a related matter, detrimental reliance need not be shown; rather, a showing of harm is enough. (In this regard, it's worth noting that the Court arguably seems to indicate that the harm bar is quite low, even crediting the possibility that one employee who has read the SPD might confer misinformation on a second employee who hasn't so much as seen the SPD, thus resulting in harm to the second employee.

 Some thought that in the tragic Amschwand case the Court might go down the road it took in Amara. In Amschwand, the Court went as far as asking the DOL for an amicus brief. While it's not entirely clear that the Amschwand plaintiff would have gotten full benefits as a result of Amara, at least she wouldn't have been out of court from the get-go regarding that possibility. (I think that, after Kennedy and MetLife, courts may be reticent to drive up risks and costs to plan sponsors, possibly even giving rise to questions about the efficacy of an employer's (particularly a small employer's) having employee benefit plans. But Amara would seem to indicate that, at a minimum, in the appropriate case surcharge and therefore monetary relief is in the remedies toolkit.)  One might wonder whether the DOL's Amschwand brief of several years ago continued to tug at some of the members of the Court as they reflected on Amara.

I'm not saying that I think that Amara will result in a wave of new litigation. I think that people have tended to sue for evident wrongs like the ones allegedly at issue in Amara, even where the courts and their development of the law have made the claims of participants into uphill fights. (Around the edges, a potential plaintiff or class-action lawyer may have been discouraged where a similar claim or supporting rationale had been squarely rejected, and, in those cases, Amara may lead to some increase in the number of cases brought.)

 I think that Amara's primary impact will be in leading to more flexible and intuitive remedies and recoveries, as opposed to triggering a palpable increase in the amount of litigation. Courts now would seem to have the broad discretion to fashion appropriate equitable relief to redress an ERISA violation - not a wholly surprising result given that ERISA provides for . . . um . . . "appropriate equitable relief." The courts' perceived inability up until now to confer adequate remedies for actionable wrongs has resulted in the vilification of what is fundamentally a right-minded statute. To the extent that we are moving beyond that state of affairs, Amara may CIGNA-fy a real and valuable step forward.