Osberg v. Foot Locker, Inc.
862 F.3d 198
| 2d Cir. | 2017Background
- Foot Locker converted its defined-benefit pension to a cash-balance plan effective Jan. 1, 1996; the conversion formula produced initial account balances that for most employees were worth less than their accrued benefits under the old plan.
- The new plan included a “greater of” provision (greater of old-plan benefit or cash-balance account), producing a period of "wear-away" during which continued pay/interest credits did not increase a participant’s actual benefit.
- Foot Locker’s written communications (management letter, SPD, Highlights Memo, compensation statements) did not disclose wear-away and, the district court found, were designed to conceal it and to create the impression account balances reflected growing benefits.
- Class action by Osberg alleged violations of ERISA §§ 102 (SPD disclosure) and 404(a) (fiduciary duty); after remand and trial the district court found ERISA violations and ordered equitable reformation under § 502(a)(3) to reflect participants’ reasonable but mistaken expectations (an “A benefit” and a “B benefit”).
- On appeal Foot Locker did not contest liability but challenged aspects of the equitable remedy: that relief was applied to time‑barred claims, that class relief could be granted without individualized detrimental reliance, sufficiency of proof of mistake, and alleged overbroad calculation producing windfalls. The Second Circuit affirmed.
Issues
| Issue | Osberg (Plaintiff) Argument | Foot Locker (Defendant) Argument | Held |
|---|---|---|---|
| Accrual of §102 claims (constructive notice) | Participants lacked sufficient information at retirement/lump‑sum to discover wear‑away; statute didn’t start at payment | Lump‑sum payment showing a larger benefit than the account put participants on constructive notice so many claims are time‑barred | Court: Novella framework; lump sum did not supply readily discoverable notice given concealment and complexity; §102 claims not time‑barred on that basis |
| Accrual of §404(a) claims (§413 concealment exception) | Concealment by fiduciary delayed discovery; claims timely within 6 years of discovery | §413 requires showing fraudulent intent or common‑law fraud before applying concealment exception | Court: §413’s “concealment” imports the fraudulent‑concealment doctrine (equitable), not common‑law fraud; Foot Locker’s misrepresentations were self‑concealing so claims timely |
| Need for individualized detrimental reliance for class‑wide §404(a) reformation | Reformation requires no showing of detrimental reliance; equitable reformation looks to material misrepresentations and mistake | Plaintiffs must prove individual reliance/detriment before class relief | Court: Following Amara I, detrimental reliance is not required for reformation; class relief appropriate absent requirement of individualized reliance |
| Proof of mistake (prerequisite for reformation) | Mistake can be proven by class‑wide circumstantial evidence where defendants uniformly misrepresented and concealed | Defendant contends individualized evidence defeats clear & convincing proof of mistake for all class members | Court: District court’s findings (uniform concealment, witnesses’ ignorance, lack of complaints) support clear‑and‑convincing proof of class‑wide mistake; no clear error |
| Scope/formula for equitable relief (seniority enhancements/windfalls) | Remedy should reflect lesser wear‑away for some (seniority enhancements) and avoid windfalls | District court’s A+B approach gives some participants a cumulative effect that looks like a windfall | Court: Reformation is an equitable contract remedy; awarding promised seniority enhancements (B) plus corrected A was within district court discretion and not an abuse |
Key Cases Cited
- CIGNA Corp. v. Amara, 563 U.S. 421 (2011) (holding reformation may be available under ERISA §502(a)(3) and clarifying that detrimental reliance is not universally required for equitable relief)
- Amara v. CIGNA Corp., 775 F.3d 510 (2d Cir. 2014) (affirming standards for reformation under ERISA §502(a)(3) and discussing mistake and class‑wide relief)
- Novella v. Westchester Cty., 661 F.3d 128 (2d Cir. 2011) (adopting a reasonableness/discovery approach to accrual of ERISA miscalculation claims)
- Caputo v. Pfizer, Inc., 267 F.3d 181 (2d Cir. 2001) (interpreting §413’s discovery/"fraud or concealment" exception to toll limitations when fiduciary conduct conceals a breach)