Opinion analysis: CIGNA v. Amara

On Monday, the Court issued its decision in CIGNA Corp. v. Amara (No. 09-804), holding that Section 502(a)(1)(B) of the Employee Retirement Income Security Act of 1974 (ERISA) does not authorize relief for misrepresentations made in a pension plan summary, known as a summary plan description (SPD).

 

            This case arose out of a 1998 change to the structure of CIGNA’s pension plan.  Prior to 1998, CIGNA provided retiring employees with a defined-benefit annuity that was “calculated on the basis of preretirement salary and length of service”; after 1998, retiring employees received a lump-sum cash payment that was “calculated on the basis of a defined annual contribution from CIGNA as increased by compound interest.”  Various features of the new plan meant that some employees in fact received fewer benefits than they would have under the pre-1998 defined-benefit system.  CIGNA did not explain these features in its descriptions of the new plan; to the contrary, it told employees that the new plan provided “an overall improvement in retirement benefits” and guaranteed that retiring employees would receive at least as much as the benefits to which they were entitled as of January 1, 1998.  

 

When CIGNA employees (respondents before the Court) filed a class action on behalf of 25,000 beneficiaries of the CIGNA pension plan, the district court concluded that CIGNA’s descriptions of the new plan violated various disclosure requirements imposed by ERISA.  It then granted relief by reforming CIGNA’s plan and requiring the company to provide benefits in accord with the plan as reformed.  In so doing, it relied on Section 502(a)(1)(B) of ERISA, which authorizes suit by a plan participant or beneficiary “to recover benefits due to him under the terms of the 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.”  The district court did not require the class members to show that they had each suffered individual injuries as a result of the changes in the plan; rather, it concluded, the evidence created a presumption of “likely harm” to the class members, which CIGNA had failed to rebut.  On appeal, the Second Circuit summarily affirmed the district court’s decision.

 

            CIGNA filed a petition for certiorari, which the Court granted on June 28, 2010.  Although the question presented by the case was whether the employees could recover based solely on a showing of “likely harm” from the company’s violations of ERISA’s notice provisions, yesterday the Court instead vacated the decision below and remanded the case on the ground that the ERISA provision on which the district court relied (Section 502(a)(1)(B)) did not authorize the court to reform CIGNA’s pension plan.  In an opinion by Justice Breyer, the Court explained that Section 502(a)(1)(B) only authorizes relief to enforce the terms of an existing plan; it does not permit a court to rewrite a plan to conform to the representations made in an SPD.  The Court rejected the argument – advanced by the Solicitor General – that the terms of the SPD are themselves part of the plan which the SPD is intended to summarize, concluding that statements in an SPD are merely communications “about the plan” and do not “constitute the terms of the plan for purposes of § 502(a)(1)(B).”

 

            Although it concluded that Section 502(a)(1)(B) did not authorize the relief granted by the district court, the Court continued on to explain that relief would be authorized by Section 502(a)(3), which allows a plan beneficiary “to obtain other appropriate equitable relief” for violations of ERISA.  The phrase “appropriate equitable relief” refers to categories of relief that were “typically available” in equity courts before the merger of law and equity; here, the Court observed, the relief employed by the district court resembled traditional equitable remedies such as reformation of contract, estoppel, and surcharge.

 

            Turning to the question of what harm must be shown to justify relief, the Court reasoned that because the ERISA notice provisions do not identify a standard, the standard must come from the law of equity, which does not have a general standard of harm requirement.  The standard will therefore depend on the kind of equitable relief sought – an analysis that the Court left for the district court “to conduct . . . in the first instance.”  The Court rejected CIGNA’s argument that plan beneficiaries must always show detrimental reliance to obtain relief for violations of the notice provisions, but it also emphasized that the class members were required to make some showing of actual harm.

 

            Justice Scalia, joined by Justice Thomas, concurred in the judgment only.  Although he agreed with the majority that Section 502(a)(1)(B) did not authorize the remedy fashioned by the district court, he believed that this holding was sufficient to dispose of the case and that the remainder of the majority’s opinion was therefore dicta.  Justice Sotomayor took no part in the consideration or decision of the case.