Beneficiary May Sue Trustees of One ERISA Plan for Fiduciary Breaches Causing Loss of Benefits under Another ERISA Plan

The U.S. District Court for the Southern District of New York, in DeRogatis v. Bd. of Trustees of the Cent. Pension Fund of the Int'l Union of Operating Engineers, has held that ERISA allows a plaintiff to sue the trustees of an ERISA welfare benefit plan for a fiduciary breach that caused her to lose benefits under another, related ERISA pension plan.

Background. The plaintiff is the surviving spouse of a union member who died from cancer. The union provides its members with both medical and pension benefits. Medical benefits are provided to union members through a Welfare Fund, and retirement benefits are provided through a separate Pension Plan. The two plans have no formal affiliation with each other, except that they both serve union members. From time to time, however, the Welfare Plan will provide advice to its members and beneficiaries related to benefits under the Pension Plan.

After the member's diagnosis but before his death, a Welfare Fund administrator explained to the plaintiff that if the union member filed for early retirement before his death, the plaintiff would receive a benefit under the Pension Plan of almost $300 more each month than if he died while still employed. Based on this representation, the member completed paperwork necessary to apply for early retirement. When the member was hospitalized for pneumonia, the plaintiff brought the completed early retirement paperwork to the Welfare Fund office for filing. However, before she submitted the paperwork, the Welfare Fund erroneously told the plaintiff that the couple would lose medical coverage if the member filed for early retirement.

Out of fear over losing medical coverage while the member was hospitalized and dying, the plaintiff did not submit the early retirement paperwork needed to maximize the pension benefits she would receive following his death. The member died two months later, and the plaintiff tried to submit his early retirement paperwork after his death. However, the Pension Plan ultimately decided that she was not eligible for the increased early retirement benefit.

In response, the plaintiff sued the Pension Plan and the Welfare Fund to obtain the increased benefit that she would have received if the member had submitted the early retirement paperwork. The plaintiff said that the Welfare Fund fiduciaries were liable because they had failed to provide "complete and accurate information to plan members" as required under ERISA. After reviewing the facts, the trial court dismissed the plaintiff's claims, and the plaintiff appealed to the Second Circuit Court of Appeals.

Second Circuit. On review, the Second Circuit affirmed the trial court's decision to dismiss the portion of the plaintiff's claim that related to the Pension Plan because she was not entitled to the increased pension benefit under the terms of the Pension Plan document. However, the Second Circuit found that there were genuine issues of material fact about whether the Welfare Plan was liable for breaches of fiduciary duty, including whether the trustees of the Welfare Fund were acting as fiduciaries when they provided the wrong advice, and if so, whether the trustees breached the applicable fiduciary duties by providing the wrong advice to the plaintiff. Accordingly, the Second Circuit remanded the matter to the trial court to further review the matter in this light.

Trial Court's Review on Remand. On remand, the Welfare Fund argued that there was no cash compensation relief under ERISA that was available to the plaintiff under these circumstances. The trial court responded by focusing its analysis on the availability of an "equitable surcharge" which would provide cash compensation to the plaintiff. First, it noted that under the Supreme Court's decision in Cigna v. Amara, a surcharge could be an appropriate remedy to compensate a beneficiary for a loss caused by a trustee's breach. To obtain a surcharge remedy for a misrepresentation made by a plan fiduciary, a plaintiff must show actual harm and causation. Here, the plaintiff had shown that she had relied to her detriment on misrepresentations made by the Welfare Fund; and if she had not received the wrong information, the plaintiff would have submitted the early retirement paperwork and received a larger pension following the decedent's death.

Based on these facts, the trial court determined that the plaintiff might be entitled to a surcharge under the theory of detrimental reliance. The trial court explained that Amara extended the surcharge remedy to a breach of trust committed by a fiduciary for any violation of fiduciary duty. Next, the trial court found that nothing in the Welfare Fund Trust Agreement prohibits the imposition of a surcharge on the Welfare Fund's trustees. The trial court noted that the Trust Agreement explicitly authorized the use of trust funds to indemnify its trustees.

Therefore, the court rejected the Welfare Fund's request to dismiss the lawsuit.