On December 20, 2012, Judge Janet Bond Arterton of the United States District Court for the District of Connecticut held that a class of 25,000 plaintiffs are entitled to benefits in addition to those provided by the terms of their cash balance benefit plan based on her reformation (rewriting) of the plan terms.
In Amara v. CIGNA Corp., No 3:01-cv-2361, 2012 U.S. Dist. LEXIS 180355 (D. Conn. Dec. 20, 2012), the district court considered whether reformation and surcharge were appropriate equitable remedies under ERISA Section 502(a)(3), following the Supreme Court’s 2011 remand in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011). The Supreme Court held that reformation and surcharge were not available remedies under ERISA Section 502(a)(1)(B), but suggested that, after remand, the district court might award such relief under Section 502(a)(3) as “appropriate equitable relief.”
As to reformation, the district court applied contract, and not trust, reformation standards, which allow a court to rewrite a plan based on one party’s fraud coupled with the other party’s mistake. The district court said that “CIGNA’s deficient notice led to its employees’ misunderstanding of the content of the contract” and its conduct “affirmatively misled and prevented employees from obtaining information that would have aided them in evaluating the distinctions between the old and new plans.”
The district court addressed Justice Scalia’s concurrence in Amara, suggesting that reformation would not be appropriate in this case since it would “alter the terms of a contract in response to a third party’s misrepresentations–not those of a party to the contract.” The district court said that Justice Scalia would not impute the inequitable conduct committed by CIGNA as plan administrator to CIGNA as employer-sponsor, thus vitiating the element of fault necessary to obtain reformation. But the district court disagreed, finding that distinction to be artificial because the same party acts as both sponsor and administrator.
As to surcharge, the district court said that CIGNA could theoretically be surcharged under either a make-whole theory or unjust-enrichment theory. Under the make-whole theory, the court applied a burden-shifting approach, requiring plaintiffs to prove that CIGNA breached its fiduciary duty and that they suffered a “related loss.” If plaintiffs meet this burden, CIGNA would be required to show that the plaintiffs would have suffered the loss despite its breach of fiduciary duty. The court said that plaintiffs met their burden simply because they received less from CIGNA than their claim to monetary relief equal to benefits under the predecessor and cash balance plans (referred to by the parties as “A+B” benefits). CIGNA did not meet its burden, the court said, thereby entitling the plaintiffs to surcharge under the make-whole theory. The court made no finding as to surcharge under the unjust enrichment theory. Ultimately, however, the court provided a remedy to the class based only on reformation, without any showing of individualized reliance and harm.
The Amara saga marches on now to the Court of Appeals for the Second Circuit. The district court itself expressed doubt about what the Second Circuit would do, by staying, sua sponte, “all of the remedies in [its] opinion” pending appeal.