Constitutional Law

The Supreme Court Strands Beneficiaries of Retirement and Health Benefit Plans

by Harper Jean Tobin and Simon Lazarus, attorneys with the National Senior Citizens Law Center

At the end of a week of widely noted blockbuster rulings, the Supreme Court on June 27 quietly refused to correct one of its most widely condemned areas of jurisprudence — what the late Third Circuit Chief Judge Edward Becker called the Court’s “unjust and tangled regime” interpreting remedies available under the Employee Retirement Income Security Act (ERISA). ERISA was enacted in 1974 to protect the over 130 million workers and family members covered by employer-sponsored retirement and health benefit plans.

By refusing to grant certiorari in Amschwand v. Spherion, the Court declined to revisit decisions that bar monetary compensation to “make whole” beneficiaries who are illegally denied pension benefits, life insurance proceeds, and medical treatment.

The Facts
Melissa Amschwand, a widow, was denied $400,000 in life insurance benefits due under her late husband’s employer-sponsored benefit plan on the basis of a technicality. Her husband's employer had never informed him of the requirement, refused to give him the life insurance plan documents that would have revealed it, and repeatedly assured him he was covered when the company switched insurers to Aetna from another insurance company. These failures constituted clear violations of ERISA.

The Fifth Circuit Court of Appeals nevertheless concluded that the Supreme Court’s prohibition of monetary relief required denial of the widow’s claim. A concurring judge wrote that the circumstances of the case “scream out” for change in the Supreme Court’s rules. But the Court has now turned what would appear to be a definitive deaf ear to that and numerous other similar pleas for reform.

About ERISA
ERISA expressly enables individuals wrongly denied employee benefits to go to court to seek “appropriate equitable relief.” Yet in Mertens v. Hewitt Associates, a 1993 decision by Justice Antonin Scalia, the Court held 5-4 that “equitable relief” under the 1974 law means relief “typically available” in equity courts before the 1930s. Further, Mertens held that monetary compensation for loss was not a “typically equitable” remedy during that time-period.

Both of Scalia’s assertions have been repeatedly disputed by prominent judges and scholars, in particular Yale trust law expert John Langbein, in What ERISA means by “Equitable”: the Supreme Court’s Trail of Errors in Russell, Mertens, and Great-West. These critics have amassed compelling evidence that Congress intended to incorporate common-law trust remedial principles into ERISA and that these principles empowered courts to award all forms of relief, including monetary relief, necessary to make trust beneficiaries whole when they suffer losses from illegal misconduct by trustees or other fiduciaries.

Rights Without Real Remedies
For employees and their families, the upshot of Justice Scalia’s cramped interpretation was to erase the words “appropriate equitable relief” from the law, because the only relief available is an injunction – infeasible or irrelevant in virtually all real-world instances of illegal conduct by benefit plan administrators. If, for example, a lawsuit is brought after, say,a wrongful denial of medical care leads to life-altering complications, there is no claim under ERISA.

To make matters worse, the Court subsequently held that ERISA preempts state law claims for redress of unlawful conduct by employers, insurers, or others administering employee benefit plans. The result is that for most victims of ERISA violations, the law created legal rights literally without any remedy at all. In a 2004 opinion, Justices Ginsburg and Breyer called for the lawmakers or the Court itself to fix this injustice.

Ginsburg and Breyer pointed to a solution suggested by the Bush Administration. The Court’s 1993 decision arguably applied only to suits against a non-fiduciary (there, a pension plan’s actuary, rather than its administrator). The Administration argued awarding damages against the fiduciary itself would fit within the Court’s established, if questionable, definition of “equitable relief.” But since that issue was not before the Court in 2004, it was not addressed.

Fading Hopes for Redress  
Of the ten federal circuits to address the question so far, only one has embraced the Administration’s fiduciary theory. Nevertheless, many lawyers watching Amschwand thought a Supreme Court grant likely. The Solicitor General, at the Court’s request, filed a brief restating its fiduciary-relief theory and decrying the injustice visited by the denial of compensatory relief. Two justices had previously and publicly urged their colleagues to reexamine this issue and favored the SG’s theory explicitly. And Amschwand squarely presented the question in the context of simple and compelling facts.

Having rebuffed Ms. Amschwand, the Court is unlikely to revisit ERISA remedies for plan beneficiaries anytime soon. Nearly every circuit has now addressed the issue, making it unlikely there will be many more auspicious vehicles for reconsideration. Simply put, it seems that hopes for a judicial solution to injustice under ERISA are over. Congress tried but narrowly failed to fix the law in 2001.

One clear way for the next President and Congress to enhance Americans’ retirement and health security will be to fix the hash that Justice Scalia and his colleagues have made of what was supposed to be a landmark legal safeguard for workers and families.

Full post as published by ACS Blog on July 03, 2008 (boomark / email).