Posted on: 5/23/2012
Peter E. Pederson, Hinshaw & Culberston
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It has long been settled law that plaintiffs have no right to a jury trial when they sue to recover benefits under § 502(a)(1)(B) of ERISA, 29 U.S.C. § 1132(a)(1)(B).
The statute itself does not provide for trial by jury. Berry v. Ciba-Geigy Corp., 761 F.2d 1003, 1007 (4th Cir. 1985). And the Seventh Amendment confers the right to a jury trial only in "suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized." Granfinanciera, SA v. Nordberg, 492 U.S. 33, 41 (1989).
A suit for benefits under ERISA seeks equitable relief, not legal relief. Matthews v. Sears Pension Plan, 144 F.3d 461, 468 (7th Cir. 1998). Consequently, plaintiffs suing for benefits under ERISA have no Seventh Amendment right to a jury trial. See, e.g., O'Hara v. Nat'l Union Fire Ins. Co. of Pittsburgh, 642 F.3d 110, 116 (2d Cir. 2011) ("[T]here is no right to a jury trial in a suit brought to recover ERISA benefits"); Eichorn v. AT & T Corp., 484 F.3d 644, 656 (3d Cir. 2007) (no right to a jury trial in actions under § 502(a)(1)(B) of ERISA); Reese v. CNH America LLC, 574 F.3d 315, 327 (6th Cir. 2009) ("the Seventh Amendment does not guarantee a jury trial in ERISA ... cases because the relief is equitable rather than legal").
In recent years, however, plaintiffs have argued that the case law rejecting the right to a jury trial under ERISA was tacitly overturned by the Supreme Court in Great-West Life and Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002) ("Great-West"). There, the Court held that "suits … seeking to compel the defendant to pay a sum of money" almost invariably seek legal relief, not equitable relief. Id. at 210.
Seizing on this language, plaintiffs have argued that any suit for benefits or monetary relief under ERISA is a suit for the "payment of a sum of money," a legal remedy, and the plaintiff is therefore entitled to a jury trial.
At least two courts have accepted this novel theory and held that plaintiffs sought a legal remedy when they sued under ERISA § 502(a)(2) to recover losses to a plan caused by a plan fiduciary's breach of duty. See Kirse v. McCullough, 2005 U.S. Dist. LEXIS 17023, *9 (W.D. Mo. May 12, 2005) (plaintiffs who sought to hold fiduciaries personally liable for excessive fees they paid to plan's service providers sought money damages and therefore were entitled to jury trial); Bona v. Barasch, 2003 WL 1395932, *33 (S.D. N.Y. 2003) (same) (Mukasey, J.).
This misreads Great-West, however, because that decision did not involve a claim for relief by a plan participant or suggest that the remedies afforded by ERISA are legal in nature. The statute's remedies necessarily are equitable, both because ERISA is a codification of principles developed in the law of trusts, and because the remedies it affords are designed to enforce fiduciary obligations.
Consequently, plan participants who seek relief under ERISA § 502(a) have no right to a jury trial under the Seventh Amendment, notwithstanding the Supreme Court's finding that the claim asserted in Great-West was legal in nature.
Seventh Amendment Principles
The Seventh Amendment provides that, "In suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved." U.S. Const. Amend. VII. The Supreme Court has held that "suits at common law" refers to "suits in which legal rights were to be ascertained," as opposed to suits to determine "equitable rights." Granfinanciera, 492 U.S. at 41; George v. Kraft Foods Global, Inc., 2008 WL 780629, at *1 (N.D. Ill. Mar. 20, 2008).
A two-step analysis governs whether an action involves legal rights or equitable rights for Seventh Amendment purposes. First, a court determines how the action compares with "18th-century actions brought in the courts of England [before] the merger of courts of law and equity." Granfinanciera, 492 U.S. at 42; Jetseck v. Prudential Life Ins. Co. of America, 2007 WL 3449031, *1 (N.D. Ill. 2007). Next, the court examines the remedy sought and determines whether it is legal or equitable in nature. In re Iron Workers Local 25 Pension Fund, 2011 WL 1256657, at *15 (E.D. Mich. Mar. 31, 2011) (citing Granfinanciera, 492 U.S. at 42).
Whether the remedy is equitable or legal is more important than the first step. Id. Both prongs of the Granfinanciera analysis indicate that a claim for relief under an ERISA plan is an equitable claim for which the Seventh Amendment provides no right to a jury trial.
An Action under ERISA Is Like An Equitable Action for Breach of Trust
The first prong of the Granfinanciera test counsels against recognizing a right to a jury trial in ERISA litigation. The ERISA provisions that govern fiduciary responsibilities "codify and make applicable to [ERISA] fiduciaries certain principles developed in the evolution of the law of trusts." George, 2008 WL 780629 at *2 (quoting Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989)).
Courts have likened a claim for benefits under an ERISA plan to an action to compel the payment of benefits under the terms of a trust. Wardle v. Central States, Southeast and Southwest Areas Pension Fund, 627 F.2d 820, 829 (7th Cir. 1980); see also Sullivan v. LTV Aerospace & Def. Co., 82 F.3d 1251, 1259 (2d Cir. 1996); In re Vorpahl, 695 F.2d 318, 321 (8th Cir. 1982). "[T]he courts of equity had exclusive jurisdiction over virtually all actions by beneficiaries for breach of trust." Mertens v. Hewett Associates, 508 U.S. 248, 256 (1993); Evans v. Pearson Enters., Inc., 434 F.3d 839, 848-49 (6th Cir. 2006); see also Iron Workers Local 25, 2011 WL 1256657, at *15 (law of trusts was "an area within the exclusive jurisdiction of the courts of equity") (quoting Borst v. Chevron Corp., 36 F.3d 1308, 1324 (5th Cir. 1994)).
Because a claim for ERISA benefits resembles an action for breach of trust, and the latter action was within the exclusive jurisdiction of equity courts at common law, the first prong of the Granfinanciera test indicates that claimants seeking relief under ERISA have no Seventh Amendment right to a jury trial.
The Remedies under ERISA Are Equitable
ERISA § 502(a) authorizes plan participants and beneficiaries to bring suit for three different remedies. It provides that a civil action may be brought:
(1) by a participant or beneficiary— …
(B) to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan;
(2) by the Secretary, or by a participant, beneficiary or fiduciary for appropriate relief under section 1109 of this title;
(3) by a participant, beneficiary, or fiduciary
(A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or
(B) to obtain other appropriate equitable relief
(i) to redress such violations or
(ii) to enforce any provisions of this subchapter or the terms of the plan.
29 U.S.C. § 1132(a). The text of the statute and the case law demonstrate that each of these remedies is equitable in nature.
Suits for Benefits under § 502(a)(1)(B)
Section 502(a)(1)(B) allows for a suit to enforce a participant's rights under the plan, which amounts to injunctive relief, and a suit to clarify the participant's rights to future benefits, which amounts to a declaratory judgment. Both an injunction and a declaratory judgment are equitable remedies. Termini v. Life Ins. Co. of N. Am., 474 F.Supp.2d 775, 778 (E.D. Va. 2007) (claim for declaratory judgment regarding entitlement to benefits under § 502(a)(1)(B) was equitable); Walker v. Life Ins. Co. of N. Am., 2009 WL 561834, *2 n.2 (N.D. Ill. Mar. 2, 2009) (claims for injunctive and declaratory relief were equitable); Jetseck, 2007 WL 3449031 at *2; see also America's Money Line, Inc. v. Coleman, 360 F.3d 782, 786 (7th Cir. 2004) (referring to "the equitable remedies of an injunction or a declaratory judgment").
A participant's claim "to recover benefits due to him" under § 502(a)(1)(B) also seeks an equitable remedy. Any entity with discretionary authority over benefits determinations is a plan fiduciary under ERISA. Aetna Health Inc. v. Davila, 542 U.S. 200 (2004). Thus, an insurer with authority over benefit determinations is a fiduciary. Ruiz v. Continental Cas. Co., 400 F.3d 986, 990 (7th Cir. 2005).
Section 502(a)(1)(B) provides the remedy "for breaches of fiduciary duty with respect to the interpretation of plan documents and the payment of claims, … and one that runs directly to the injured beneficiary." Varity Corp. v. Howe, 516 U.S. 489, 512 (1996). "[A] benefit determination is part and parcel of the ordinary fiduciary responsibilities connected to the administration of a plan." Davila, 542 U.S. at 218; see also Ruiz, 400 F.3d at 990 ("A benefit determination under ERISA ... is generally a fiduciary act").
Damages at law are not obtainable in a claim for breach of fiduciary duty. Termini, 474 F.Supp.2d at 778. Claims challenging a fiduciary's performance of its fiduciary duties historically were matters resolved by courts of equity. George, 2008 WL 780629 at *3 (citing Abbot v. Lockheed Martin Group, 2007 WL 2316481, *6 (N.D. Ill. 2007)). The traditional rule is that virtually all remedies against a fiduciary are equitable in nature. Ellis v. Rycenga Homes, Inc., 2007 WL 1032367, at *2 (W.D. Mich. Apr. 2, 2007).
Equitable Remedies
The exclusively equitable remedies include actions to redress a breach of trust by payment into the trust of any loss resulting from the breach. Iron Workers Local 25 Pension Fund, 2011 WL 1256657, at *17. These actions are not considered actions for money damages, but rather are actions to surcharge the trustee for its breach of duty. Id. "A surcharge is an imposition of personal liability on a fiduciary for wilful or negligent misconduct in the administration of his fiduciary duty. Typically, surcharges are levied when trustees breach their fiduciary duties. In rarer instances, surcharges are assessed against individuals who hold positions of trust similar to a trustee." In re Iron Workers Local 25 Pension Fund, 2011 WL 1256657, at *17 (quoting F.J. Hanshaw Enters., Inc. v. Emerald River Dev., Inc., 244 F.3d 1128, 1142 (9th Cir. 2001)).
Thus, a claim under § 502(a)(1)(B) to recover benefits under an ERISA plan challenges an alleged breach of fiduciary duty (the denial of benefits). An order requiring a fiduciary to pay for wrongfully withheld benefits is equitable in nature. Consequently, there is no right to a jury trial under § 502(a)(1)(B). See Eichorn, 484 F.3d at 656; Wardle, 627 F.2d at 829 ("Congress' silence on the jury right issue reflects an intention that suits for pension benefits by disappointed applicants are equitable"); Graham v. Hartford Life & Acc. Ins. Co., 589 F.3d 1345, 1355 (10th Cir. 2009) (same); Vegter v. Canada Life Assur. Co., 311 Fed. Appx. 248, 249 (11th Cir. 2009) (same); Richardson v. Astellas U.S. LLC Employee Ben. Plan and Life Ins. Co. of N. Am., 610 F.Supp.2d 947, 951 (N.D. Ill. 2009) (same); Termini, 474 F.Supp.2d at 778 (same); Medina v. Triple-S Vida, Inc., 2011 WL 5838446, at *2 (D. P.R. Nov. 21, 2011) (same); McDonough v. Horizon Blue Cross Blue Shield of New Jersey, Inc., 2011 WL 4455994 (D.N.J. Sept. 23, 2011); Zuckerman v. United of Omaha Life Ins. Co., 2011 WL 2173629, at *6 (N.D. Ill. May 31, 2011) (same); Walker, 2009 WL 561834, at *2 n.2 (same); Jetseck, 2007 WL 3449031, at *2 (same).
Suits for Relief Under § 502(a)(2)
ERISA § 502(a)(2) authorizes suit "by a participant, beneficiary or fiduciary for appropriate relief under" ERISA § 409, 29 U.S.C. § 1109. Section 409, in turn, provides that any fiduciary who breaches any of the responsibilities placed upon fiduciaries "shall be personally liable to make good to such plan any losses to the plan resulting from each such breach, and to restore to such plan any profits of such fiduciary which have been made through use of assets of the plan by the fiduciary, and shall be subject to such other equitable or remedial relief as the court may deem appropriate, including removal of such fiduciary." 29 U.S.C. § 1109(a).
For the same reasons that a claim under § 502(a)(1)(B) seeks an equitable remedy, a claim under § 502(a)(2) seeks an equitable remedy. Sections 502(a)(2) and 409 are concerned with affording remedies for fiduciary misconduct. Legal relief is not obtainable in a claim for breach of fiduciary duty. Iron Workers Local 25 Pension Fund, 2011 WL 1256657, at *17; Termini, 474 F.Supp.2d at 778.
Virtually all remedies against a fiduciary are equitable in nature. Ellis, 2007 WL 1032367, at *2 (citing Restatement (Second) of Trusts §§ 197-98 (1959)). Consequently, the remedy provided by § 502(a)(3) is equitable in nature, and there is no a right to a jury trial in suits under this provision. Iron Workers Local 25 Pension Fund, 2011 WL 1256657, at *17; In re First Am. Corp. ERISA Litig., 2009 WL 536254 (C.D. Cal. Feb. 9, 2009); Graham v. Hartford Life & Acc. Ins. Co., 2008 WL 4826314, at *3 (N.D. Okla. Oct. 29, 2008); see also Fowler v. Aetna Life Ins. Co., 2008 WL 4911172, at *5 (N.D. Cal. Nov.13, 2008); George, 2008 WL 780629, at *2.
Suits for Relief Under § 502(a)(3)
Section 502(a)(3), by its terms, authorizes only equitable claims. It allows an ERISA party to sue for an injunction and "other appropriate equitable relief." The Supreme Court has held that the relief available under § 502(a)(3) is limited to "those categories of relief that were typically available in equity." Great-West, 534 U.S. 210 (quoting Mertens v. Hewitt Associates, 508 U.S. 248, 251 (1993)). This principle was recently reiterated by the Court in CIGNA Corp. v. Amara, 131 S. Ct. 1866, 1880 (2011). The text of § 502(a)(3) forecloses any argument that the remedy it authorizes is legal in nature.
In summary, none of the remedial provisions in § 502(a) affords a legal remedy under the second prong of Granfinanciera. Consequently, whichever provision is invoked, a participant or beneficiary who challenges a denial of benefits or alleged breach of fiduciary duty has no right to a jury trial under the Seventh Amendment.
Great-West Did Not Extend the Right to a Jury Trial to ERISA Cases
Plaintiffs seeking jury trials under ERISA argue that Great-West recasts the remedy under § 502(a)(1)(B) into a claim for legal relief, which entitles them to a jury trial under the second prong of Granfinanciera. Great-West, however, did not involve a participant or beneficiary who sought relief under § 502(a) of ERISA. Nor did the case mention jury trials under ERISA or the Seventh Amendment.
In Great-West the plaintiff was a plan fiduciary who sought to impose personal liability on a plan beneficiary for her contractual obligation to reimburse the plan for benefits she received after an auto collision. Great-West, 534 U.S. at 210. The reimbursement provision required beneficiaries to reimburse the plan for monies advanced for medical expenses if they later recovered money from a third party. 534 U.S. at 209. Knudson, the beneficiary, was injured in a car accident, and Great-West paid her medical expenses in accordance with the terms of the plan. After Knudson received a settlement from the third party who caused the accident, Great-West brought suit under § 502(a)(3), seeking reimbursement of the benefits she received.
Great-West tried to characterize its claim to recover the money as a claim for an injunction or equitable restitution, which could be asserted under § 1132(a)(3). The Court found, however, that Great-West could not state a claim for an injunction because "suits seeking to compel the defendant to pay a sum of money to the plaintiff are suits for 'money damages," and "money damages are … the classic form of legal relief." 534 U.S. at 211-12. Moreover, Great-West could not assert equitable restitution because it sought to impose personal liability on Knudson; it did not seek restore to itself "particular funds or property in the defendant's [Knudson's] possession." 534 U.S. at 213-14.
Great-West did not argue that Knudson was a fiduciary of the plan, that she had a fiduciary duty to repay the benefits, or that her retention of the settlement amounted to a breach of fiduciary duty. Great-West simply alleged that Knudson breached a contractual obligation under the plan terms to reimburse the plan out of her tort recovery. Because Great-West alleged a claim for legal relief only, it could not proceed under § 502(a)(3).
This holding does not suggest that plaintiffs seek a legal remedy when they sue under § 502(a)(1) or (a)(2) to obtain relief on account of an alleged breach of fiduciary duty. As stated, in an action for benefits under § 502(a)(1), and in an action to recover losses stemming from a breach of fiduciary duty under § 502(a)(2), the plaintiff seeks redress for purported fiduciary misconduct, and the remedy sought is therefore equitable.
The defective § 502(a)(3) claim asserted in Great-West differs markedly from the claims for relief that plan participants may assert under § 502(a)(1) and (a)(2). The claim in Great-West did not involve alleged fiduciary misconduct and the defendant was not a plan fiduciary. Given this, most courts have rightly concluded that Great-West did not alter the equitable nature of claims under § 502(a)(1) and (a)(2) or extend the right to a jury trial to plaintiffs suing under these provisions. See, e.g., Richardson, 610 F.Supp.2d at 951; Termini, 474 F.Supp.2d at 778; Iron Workers Local 25 Pension Fund, 2011 WL 1256657, at *16; Zuckerman, 2011 WL 2173629, at *6; In re YRC Worldwide, Inc. ERISA Litig., 2010 WL 4920919 (D. Kan. Nov. 29, 2010); Walker, 2009 WL 561834, at *2 n.2; George, 2008 WL 780629; Abbott v. Lockheed Martin Corp., 2007 WL 2316481, *2 (S.D. Ill. Aug. 13, 2007); Ellis, 2007 WL 1032367.
As noted above, ERISA has its origins in the law of trusts, and the remedies it affords are overwhelmingly equitable in nature. Consequently, the courts should reject the contention that "that the Supreme Court in Great-West intended, sub silentio, to overturn the many appeals court decisions holding that there is no right to a jury trial under § 502(a)." George, 2008 WL 780629, at *5.
Conclusion
The right to a jury trial under the Seventh Amendment does not extend to ERISA cases because the remedies afforded under the statute are designed to enforce fiduciary obligations and are equitable in character. The Supreme Court's decision in Great-West does not alter this conclusion. Great-West did not hold that a claim under § 502(a)(1) or (a)(2) seeks legal remedies. Nor did it mention the Seventh Amendment or jury trials under ERISA.
Given ERISA's roots in trust law and the equitable nature of the remedies it provides, courts should decline to read Great-West as overturning three decades of case law holding that ERISA litigants have no right to a jury trial.
Peter E. Pederson is a partner in the Chicago office of Hinshaw & Culbertson LLP. His practice is concentrated in the areas of ERISA litigation, commercial litigation, and class action defense. He has briefed and argued appeals in the First and Seventh Circuits, and litigated cases through judgment before district courts in the First, Seventh, Eighth, and Eleventh Circuits. He may be reached at ppederson@hinshawlaw.com.