Lead Opinion
Oрinion by Judge GOULD; Concurrence by Judge SCHROEDER; Dissent by Chief District Judge BEISTLINE.
OPINION
Rhonda Rose (“Rose”) appeals the district court’s grant of partial summary judgment in favor of CGI Technologies and Solutions, Inc. (“CGI”) in its action seeking “appropriate equitable relief’ under § 502(a)(3) of the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. § 1001, et seq. CGI appeals the district court’s grant of partial summary judgment in favor of Rose’s counsel and co-defendant, Nelson Langer Engle, PLLC (“NLE”), dismissing NLE from the action. CGI also appeals the district court’s grant of proportional fees and costs to NLE, deducted from CGI’s recovery from Rose. We affirm in part and reverse in part, remanding the matter to the district court for further proceedings consistent with our decision.
I
Rose was employed by CGI which provides to its employees and their dependents a self-funded welfare benefits plan (“the Plan”) governed by ERISA. The Plan includes a subrogation and reim
In 2003, Rose was seriously injured in a car accident with a drunk driver, аnd consequently she had nerve damage and neck and back injuries that required surgical intervention. From this accident Rose also suffered several types of damages including past and future medical expenses, past and future loss of wages, and pain and suffering. The parties stipulated that her personal injury claim was at least $1,757,943.08. With the assistance of NLE, Rose recovered a combined total of $376,906.84 from her action against the third party tortfeasor and from her under-insured motorist claim with her automobile insurance provider. The parties stipulated that this recovery represents only 21.44% of Rose’s total damages.
Between 2007 and 2010, the Plan, on behalf of Rose, paid about $32,000 in medical exрenses incurred as a result of Rose’s injuries related to the accident. After Rose’s recovery of these damages partially compensating her for her injuries, CGI asserted a first priority of payment and demanded to be reimbursed for the full amount the Plan had paid in medical expenses on Rose’s behalf. Rose, through her counsel, declined to reimburse the Plan, and NLE placed the disputed amount in trust. CGI filed suit in the district court against both Rose and NLE seeking “appropriate equitable relief,” under § 502(a)(3) in the form of a constructive trust and/or an equitable lien.
The parties filed cross-motions for summary judgment. The district court granted partial summary judgment in favor of NLE, concluding that the Plan’s reimbursement provision сould not be enforced against NLE. The district court granted partial summary judgment in favor of CGI, concluding that under § 502(a)(3), CGI, per the express terms of the Plan, was entitled to recover the full amount it paid in medical expenses on Rose’s behalf. Finally, despite the Plan’s language to the contrary, the district court also ruled that CGI was responsible for a proportional amount of the costs and fees incurred by NLE in recovering damages on Rose’s behalf, and that this amount would be deducted from CGI’s recovery from Rose. The parties now cross-appeal.
II
We consider the parties’ cross-appeals in turn.
A
We first address CGI’s appeal of the district court’s grant of partial summary judgment in favor of NLE. The district court dismissed NLE from the action, concluding that NLE wаs not a proper defendant under § 502(a)(3). Section 502(a)(3) states:
A civil action may be brought ... by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this sub-chapter or the terms of the plan, or (B) to obtain*1117 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. § 1182(a)(3) (emphasis added). The district court concluded that equitable relief under § 502(a)(3) could not be enforced against NLE because NLE, as Rose’s counsel, was not a signatory to the Plan with its reimbursement provision. In reaching this conclusion, the district court relied principally on Hotel Employees & Restaurant Employees International Union Welfare Fund v. Gentner,
Here, although we agree with the district court’s conclusion that CGI may not enforce the Plan’s reimbursement provision against NLE, we clarify that Gentner’s holding is no longer valid after the Supreme Court’s ruling in Harris Trust and Savings Bank v. Salomon Smith Barney,
[I]t has long been settled that when a trustee in breach of his fiduciary duty to the beneficiaries transfers trust property to a third person, the third person takes the property subject to the trust, unless he has purchased the property for value and without notice of the fiduciary’s breach of duty. The trustee or beneficiaries may then maintain an action for restitution of the property (if not already disposed of) or disgorgement of proceeds (if already disposed of), and disgorgement of the third person’s profits derived therefrom.
Harris Trust left open “the universe of possible defendants” in an action for “appropriate equitable relief’ under § 502(a)(3), which, contrary to our holding in Gentner, could include an attorney who was not a signatory to the plan. Id. at 246,
Under the principles of liability expressed in Harris Trust, we conclude that there is no unlawful transaction that would support CGI’s action against NLE under § 502(a)(8). In Harris Trust, the third party defendant, Salomon Smith Barney, induced the plan’s fiduciary to enter into a transaction prohibited under another provision of ERISA. Id. at 243,
The Fifth Circuit has interpreted Harris Trust to recognize a cause of action under § 502(a)(3) against an attorney who, on behalf of his client, holds disputed funds in trust pending adjudication of the rightful owner. In Bombardier Aerospace Employee Welfare Benefits Plan v. Ferrer, Poirot and Wansbrough,
We disagree with the Fifth Circuit on the merits because as Harris Trust counsels, we find no unlawful transaction on the part of NLE to support NLE as a defendant. As did the attorneys in Bombardier, NLE has placed the entire disputed amount in trust pending the outcome of CGI’s litigation. It has not asserted a right to the specific funds, nor appropriated the funds in any unlawful way.
We next consider together Rose’s appeal from the district court’s grant of partial summary judgment in favor of CGI and CGI’s appeal from the district court’s grant of partial summary judgment in favor of Rose, with respect to CGI’s responsibility for its proportional share of NLE’s attorneys’ fees. The Plan called for full reimbursement to CGI regardless of whether Rose was made whole and disclaimed the application of the common fund doctrine to require CGI to contribute to attorneys’ fees incurred in recovering funds from a third party tortfeasor. The district court concluded that under § 502(a)(3), CGI was entitled to full reimbursement of its outlay of the funds for medical expenses based on the Plan’s express terms, but that notwithstanding the express terms of the Plan, CGI was responsible for its proportional share of the attorneys’ fees that permitted Rose’s recovery on her tort claim. Rose argues that full reimbursement was not “appropriate equitable relief,” as mandated by § 502(a)(3), because it amounted to simple contract interpretation, a classic form of legal relief. She contends that “appropriate equitable relief’ must encompass traditional equitable principles, including consideration of applicable traditional equitable defenses such as the make-whole doctrine which Rose argues should reasonably limit CGI’s relief to less than full reimbursement.
1
The parties do not dispute that CGI’s claim is equitable in nature, as is required for relief under § 502(a)(3). See Sereboff v. Mid Atlantic Med. Servs., Inc.,
This question of ERISA interpretation has not been decided previously by our circuit. Section 502(a) of ERISA describes who may enforce ERISA plans by bringing civil actions. 29 U.S.C. § 1132(a). Section 502(a)(1)(B) gives a legal cause of action to plan participants and beneficiaries but excludes plan fiduciaries from similarly enforcing the terms of the plan. A plan fiduciary’s only means to seek relief is found in § 502(a)(3) which expressly limits a fiduciary’s cause of action to one based on equitable principles that govern injunction and other equitable relief. See 29 U.S.C. § 1132(a)(1)(B), (a)(3); Knudson,
The Supreme Court has held that equitable principles must be satisfied for an ERISA fiduciary to gain relief under § 502(a)(3), but in considering such suits the Court has not yet squarely addressed whether the statutory term “appropriate equitable relief’ requires consideration of traditional equitable defenses. Stated another way, we do not read the Supreme Court’s precedents to have clarified if in giving “appropriate equitable relief’ a court must take into account all or some traditional equitable defenses and considerations. See CIGNA Corp. v. Amara, — U.S. -,
2
The Supreme Court’s decisions regarding § 502(a)(3) highlight the traditional division between law and equity that evokes § 502(a)(3)’s authorization of “appropriate equitable relief;” such relief must be based on relief traditionally available at equity. See Knudson, 534 U.S. at 216-17,
The statutory term “appropriate equitable relief’ thus places an “unmistakable limitation” on the availability of equitable relief, and the scope of this Congressionally-established limitation is set by referring to the differences between law and equity. A court must assess the degree to which the traditional equitable defenses that Rose raises here, namely the make-whole doctrine and the common fund doctrine, are applicable in delimiting those categories of relief that were typically available in equity and that therefore hem in what is “appropriate equitable relief’ within the meaning of § 502(a)(3).
Our law previously has set some guidelines about equitable relief in other
Relying on our decision in Barnes v. Indep. Auto. Dealers Ass’n of Cal. Health & Welfare Benefit Plan, CGI argues that the district court must remain faithful to the terms of the Plan that disclaim the application of traditional equitable defenses.
3
The Circuits have split on whether strict adherence to the terms of an ERISA plan that disclaims the application of traditional equitable defenses constitutes “appropriate equitable relief.” Several circuits, and notably the Eleventh, Eighth, Seventh and Fifth Circuits, have stressed the primacy of an ERISA plan’s express language, and have decided that in balancing the equities, simple contract interpretation that provides for full reimbursement per the plain terms of a plan that disclaims the appliсation of traditional equitable defenses such as the make-whole doctrine and the common fund doctrine, constitutes “appropriate equitable relief’ under § 502(a)(3). See, e.g., Zurich Am. Ins. Co. v. O’Hara,
By contrast, only the Third Circuit, in US Airways v. McCutchen, has concluded “that Congress intended to limit the equitable relief available under § 502(a)(3) through the application of equitable defenses and principles that were typically
Like Rose here, McCutchen argued that notwithstanding the plan terms, it was unfair to grant the plan full reimbursement because he was not fully compensated for his injuries and the plan did not contribute to attorneys’ fees and costs. Id. at 674. The Third Circuit agreed, finding no indication in ERISA or in the Supreme Court’s jurisprudence that Congress intended to limit relief under § 502(a)(3) to “traditional equitable categories” yet not limit relief “by other equitable doctrines and defenses that were traditiоnally applicable to those categories.” Id. at 676-79.
We agree with the Third Circuit that under § 502(a)(3), the district court, in granting “appropriate equitable relief,” may consider traditional equitable defenses notwithstanding express terms disclaiming their application. Id. at 679 (stating that in equity, “contractual language was not as sacrosanct as it is normally considered to be when applying breach of contract principles at common law ... [, and] equitable principles can apply even where no one has committed a wrong”). While a weighing of the equities, including the consideration of equitable defenses, might support that full reimbursement per the Plan’s terms is “appropriate equitable relief,” like the Third Circuit we disagree with the other circuits tо the extent that they have held that § 502(a)(3) categorically excludes the application of traditional equitable defenses where the plan disclaims their application and requires reimbursement as set by the plan. Id. at 678. Congress in § 502(a)(3) empowered district courts to consider equitable principles in granting injunctive relief to a plan fiduciary against a plan beneficiary, and we will not read out of the statute the limitation that equitable relief be appropriate.
CGI argues, however, that under Sereboff “appropriate equitable relief’ is consistent with simple interpretation of the express terms of the plan provision in question requiring full reimbursement without reference to traditional limitations to recovery such as the make-wholе doctrine and the common fund doctrine. In Sereboff, the parties did not raise the issue below, and the Court expressly declined to address whether “appropriate equitable relief’ encompasses equitable defenses such as the make-whole doctrine or the common fund doctrine. Sereboff,
We do not see good reason in interpreting § 502(a)(3) to recede from the traditional broad powers of a court in equity. We therefore hold that the parties may not by contract deprive the district court of its power to act as a court in equity in a § 502(a)(3) action. Contract terms should be considered by the court in assessing what is the proper scope of equitable relief. But notwithstanding the express terms of the Plan disclaiming the application of the make-whole doctrine and the common fund doctrine, it is within the district court’s broad equitable powers under § 502(a)(3) not to give those provisions a controlling weight in fashioning “appropriate equitable relief.”
We express no opinion at this time on what result the district court, in exercising those powers, should reach. We do not restrict the ability of the district court to hold further hearings and take further evidence relevant to how the phrase “appropriate equitable relief’ should be interpreted in § 502(a)(3) and applied in this case to the claim of CGI аgainst Rose.
Ill
We AFFIRM the district court’s grant of summary judgment in favor of NLE, dismissing NLE from the action. However, because we see no indication that in fashioning “appropriate equitable relief’ for CGI, the district court did more than interpret the plain terms of the reimbursement provision, and no indication that the district court considered traditional equitable principles in assigning responsibility to CGI for attorneys’ fees and costs, we VACATE the judgment in favor of CGI, VACATE the judgment that NLE deduct fees
AFFIRMED in part and VACATED and REMANDED in part for further proceedings consistent with our decision. Each party shall bear its own costs.
Notes
. We review the district court's grant of summary judgment de novo. Gonzales v. Arrow Fin. Servs., LLC,
. By contrast, an attorney who before adjudication pays himself out of the disputed funds, effectively reducing the available amount to less than the plan's claim, would be an appropriate defendant under Haris Trust. See Wal-Mart Stores, Inc. Assocs.' Health and Welfare Plan v. Wells,
. Accordingly, Rose invokes a derivative version of the make-whole doctrine by arguing that CGI is entitled to a pro rata share in line with her limited recovery of 21.44% of her total damages estimate instead of arguing that CGI is not entitled to any recovery because she was not made whole.
Concurrence Opinion
concurring:
I concur in Judge Gould’s good opinion. It reaches the right result, and reconciles ERISA’s statutory language, giving courts power to fashion “appropriate equitable relief,” ERISA § 502(a)(3), with Supreme Court discussions of the statute. The ERISA Plan document in this case provided that if the Plan paid out benefits to a beneficiary who later recovered tort damages from a third party, the Plan would have a first priority for total reimbursement from the recovery — even when, as in this case, the recovery represented a small fraction of the beneficiary’s damages and the beneficiary would be left with very little. This unfairness was magnified by a provision purporting to disclaim the equitable common fund doctrine — a provision that, if enforced, would mean the Plan would not have to contribute to the fees of the attorneys who rеcovered the money from which the Plan would be reimbursed.
The district court considered itself bound to apply the provisions of the Plan document. The result — leaving the beneficiary here vastly undercompensated for her actual damages, and the Plan unjustly enriched — is manifestly unfair. It is also inconsistent with Congress’s purpose in enacting ERISA: “promot[ing] the interests of employees and their beneficiaries in employee benefit plans.” Shaw v. Delta Air Lines, Inc.,
“[T]he judgment requiring McCutchen to provide full reimbursement to U.S. Airways constitutes inappropriate and inequitable relief. Because the amount of the judgment exceeds the net amount of McCutchen’s third-party recovery, it leaves him with less than full payment for his emergency medical bills, thus undermining the entire purpose of the Plan. At the same time, it amounts to a windfall for U.S. Airways, which did not exercise its subrogation rights or contribute to the cost of obtaining the third-party recovery. Equity abhors a windfall.”
US Airways, Inc. v. McCutchen,
We are therefore correctly vacating the district court’s judgment and remanding for the district court to fashion “appropriate equitable relief,” pursuant to § 502(a)(3). “Appropriate” relief would presumably include applying the equitable make-whole doctrine, or fashioning other
Dissenting Opinion
dissenting:
I respectfully dissent. While the majority reaches a fair result under the facts presented, it does so at the expense of the plain language of the Plan and effectively usurps the role of Congress in establishing restrictions on how such plans may manage themselves. In my view, the District Court granted “appropriate equitable relief’ when it enforced the reimbursement provision of the Plan. The majority expresses no opinion as to whether CGI is entitled to reimbursement, but simply states that, in the interest of eliminating unjust enrichment, the District Court should have considered the make-whole doctrine and the common fund doctrine in its determination of what constituted an appropriate equitable remedy under 29 U.S.C. § 1132(a)(3). Yet, in reaching its conclusion, the majority disregards the fact that both doctrines are disclaimed in the language of the Plan. By expressly abandoning both doctrines, the Plan precludes their application. While I can understand the merits of these doctrines, I do not believe that we can now inject principles into the Plan that the Plan purposefully and specifically excluded. I do not view the “appropriate equitable relief’ provision as a mechanism for courts to rewrite ERISA plans. Such an interpretation invites litigation and unnecessarily complicates management of these plans. If Congress intended ERISA plans to include these equitable defenses notwithstanding the express terms of the plan disclaiming them, it certainly could have said so.
I would, therefore, AFFIRM the District Court to the extent it applied the plain language of the Plan and REVERSE to the extent that it did not.