The U.S. Supreme Court held in CIGNA Corp. v. Amara, 563 U.S. 421 (2011), that a summary plan description (SPD) is not enforceable as a plan document. The Sixth Circuit holds, though, that a court has equitable power to order a benefit plan reformed to agree with the language of the SPD, and that it is not necessary to find fraud by the employer to do so.
Pearce v. Chrysler Grp. LLC Pension Plan, No. 17-1431 (6th Cir. June 20, 2018): Plaintiff Pearce, a participant in Chrysler's retirement plan, claimed that he "earned an early retirement supplement, called '30-and-Out benefits,'" in reliance on an SPD provided by Chrysler. The SPD declared that "[y]ou do not need to be actively employed at retirement to be eligible for a supplement," but "you must retire and begin receiving pension benefits within five years of your last day of work for the Company in order to receive any supplements for which you are eligible." The plan instrument - though not the SPD - had an exclusion for employees who were terminated.
Pearce qualified for a buyout offer from the company in 2008 (then facing insolvency) but, believing that he had a right to the "30-and-out" benefit, he declined the offer. He was then fired. The plan administrator later relied on the plan exclusion to deny the benefit: "Benefit Express informed Pearce that, because he had been terminated prior to his retirement, under the Plan's terms he was ineligible for the 30-and-Out benefits." After exhausting his appeals through the plan, he filed an action to collect his benefit.
While Pearce's original theory was that the SPD should prevail over the contradictory plan provision, the Amara case knocked the wind out of that theory. So the plaintiff "moved for leave to amend his complaint to add a request for equitable relief under ERISA § 502(a)(3)." The district court originally denied the motion for leave and granted summary judgment, though the Sixth Circuit (in a non-precedential decision) remanded the case for further development based on the theory for equitable relief under ERISA § 502(a)(3). Nevertheless, on remand the district court declined to award that relief or equitable estoppel.
The Sixth Circuit reverses in part. It first raises the interesting question of whether reformation under ERISA is governed by contract- or trust-law principles, though it concludes that since both parties agreed to contract law in the district court, it would accept that characterization for the purposes of this case.
It then rejects, as legally incorrect, the district court's conclusion "that Pearce needed to prove Chrysler's intent to deceive in order to demonstrate either fraud or inequitable conduct." Because "[f]raud has a broader meaning in equity [than at law] and intention to defraud or to misrepresent is not a necessary element" (quoting SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 193 (1963)), the district was required to give a more searching analysis to determine whether (1) Chrysler violated a "legal or equitable duty, trust, or confidence" and (2) whether Chrysler was unduly benefitted or the plaintiff injured by such a violation. The panel notes that Chrysler had the "legal duty under ERISA § 102 to include the exclusion clause for vested terminated participants in the SPD, which duty it breached."
To the extent that reformation required a showing of fraud or inequitable conduct, such a finding could be supported by "constructive fraud," where there is: "(1) an information asymmetry, such that the defendant is the only one who knows the true facts and the plaintiff cannot ascertain the true facts; (2) the defendant misrepresents the benefits to which the plaintiff is entitled; and (3) the plaintiff investigated her benefits and drew a reasonable conclusion about them on the basis of the defendant's misrepresentations, even when the documents the plaintiff relied upon contained a disclaimer that the plan would govern in the event of a conflict."
The panel rejects Chrysler's alternative argument that "any evidence of fraud or inequitable conduct is irrelevant to the drafting of the Plan, and thus the Plan cannot be reformed." The panel holds that circumstances in this case, where the employee lacked immediate access to the plan itself, did not support Chrysler's analysis:
"Here, Pearce did not have access to the Plan document and Chrysler, which had the advantage in the information asymmetry, consistently and repeatedly directed Pearce to the SPD. Thus, the basis of his mutual agreement with Chrysler was the SPD. DOBBS 3d, supra, § 9.4(1) (stating that reformation reforms the document to "reflect the true agreement of the parties"). Further, the SPD misleadingly omitted the exclusion for vested terminated participants, and Pearce relied upon the SPD to his detriment. Moreover, as the Plan's representative admitted, nobody expects Plan participants to read the Plan document or to understand it. R. 89-7 (Bante Dep. at 29) (Page ID #3166) ('The Plan Document is a log [sic] and complex legal document that is not intended for normal human beings to read.')."
On Pearce's equitable estoppel theory, the panel affirms summary judgment against the plaintiff, holding that "the plan provisions were unambiguous and the plaintiffs were able to calculate their own benefits based on the plan document."