Former employee could pursue monetary relief via reformation of SPDs distributed when DB plan was converted to cash balance plan

A former employee could pursue monetary relief via reformation of allegedly false and misleading summary plan descriptions (SPDs) that he contended only summarized part of a new formula for calculating benefits and did not inform participants that the new formula effectively reduced the rate of future benefit accruals when the employer converted its defined benefit plan to a cash balance plan, according to the U.S. Court of Appeals in New York City (CA-2).

A participant brought suit against his former employer and the employer’s retirement plan, alleging that the employer violated ERISA when the employer converted its defined benefit plan to a cash balance plan. He claimed that the employer (1) issued false and misleading SPDs in violation of ERISA’s disclosure requirements under ERISA Sec. 102(a); and (2) breached fiduciary duties in making the materially false and misleading statements and omissions under ERISA Sec. 404(a)).

The district court awarded summary judgment to the employer and the plan for the two claims. The participant appealed. The appellate court reviewed the dismissal and summary judgment award de novo.

Disclosure claims

The participant argued that the district court erred in holding his ERISA Sec. 102(a) claim was time-barred, and in finding that he failed to raise a genuine issue of material fact entitling him to surcharge and contract reformation on either his ERISA Sec. 102(a) or ERISA Sec. 404(a) claim. The court responded that it did not have to conclusively decide whether the participant’s ERISA Sec. 102(a) claim was subject to a three- or six-year statute of limitations to resolve his appeal because the participant sought the same relief under ERISA Sec. 404(a) as under ERISA Sec. 102(a) and because it was undisputed that the ERISA Sec. 404(a) claim was timely.

The court explained that a district court was required to determine what equitable remedy was appropriate and whether a plaintiff had established the requisite level of harm as a result of a violation. The standard of harm that a plaintiff had to show depended on which equitable remedy the plaintiff was seeking. In this case, the district court concluded that the participant’s disclosure claims failed to raise an issue of fact as to whether he suffered the type of “actual harm” necessary to obtain the equitable relief of reformation and surcharge.

As to the remedy of reformation, the appellate court agreed with the participant that the district court erroneously applied an “actual harm” requirement. The appellate court explained that in order to obtain contract reformation, the law of equity does not demand a showing of actual harm. The court also noted that the employer did not attempt to defend the award of summary judgment on the participant’s reformation claim on “actual harm” grounds. Instead, the employer relied on alternative grounds: (1) as a former employee, the participant could not pursue reformation; and (2) the participant could not show fraud or mutual mistake entitling him to reformation.

As to the employer’s contention that as a former employee, the participant could not pursue reformation, the appellate court disagreed with the employer. According to the court, the employer construed the U.S. Supreme Court’s decision in CIGNA Corp. v. Amara to hold that monetary relief was only available in ERISA cases through surcharge, and, therefore, absent a viable surcharge claim, the only beneficiaries with standing to pursue reformation were those who could prospectively benefit from a modification of plan terms, which did not include former employees. The court stated that this interpretation was not supported by either Amara or equity.

As to the contention that the participant could not satisfy the other requirements for obtaining contract reformation, the appellate court ruled that it would leave that determination for the district court to address on remand. Because reformation of the plan would provide the participant the total relief he sought, the appellate court found that there was no need to decide whether he would also be entitled to recovery under surcharge. Therefore, the appellate court affirmed the district court’s dismissal of the surcharge claim as moot. However, the appellate court did not foreclose the participant from seeking reinstatement of his surcharge claim in the district court or pursuing that claim in a future appeal if the district court determined that reformation was not available. Therefore, the judgment of the district court was affirmed in part, and vacated and remanded in part.

Source: Osberg v. Foot Locker, Inc. (CA-2).

Visit our News Library to read more news stories.