Ninth Circuit Uncharacteristically Takes The Lead In Limiting Plaintiffs' Rights To Recover For Breach Of Fiduciary Duty Under ERISA

In 2011, the U.S. Supreme Court recognized, for the first time, that some forms of equitable relief could lead to an award of a monetary payment for breach of fiduciary duty under section 502(a)(3) of ERISA, 29 U.S.C. section 1132(a)(3).1 Although the Supreme Court did not define the elements of each form of relief in detail, it listed three types of equitable relief: surcharge, estoppel and reformation.2 Since then, courts have struggled with the showing necessary to obtain them.

The U.S. Court of Appeals for the Ninth Circuit recently ruled in Gabriel v. Alaska Elec. Pension Fund,3 that none of these theories was available to a retiree who was incorrectly informed that he was eligible for an annuity. The court was unanimous concerning the remedies of estoppel and reformation, but divided concerning the antiquated remedy of surcharge.

Factual and Procedural Background

The plaintiff in Gabriel was a retiree who from 1968 to 1975 had worked for various electric companies that participated in the Alaska Electrical Pension Plan (the Plan) under the terms of a collective bargaining agreement. Thereafter he became the owner of Twin Cities Electric. Although he was not subject to the collective bargaining agreement as an owner, Twin Cities continued making contributions on his behalf from 1975 to 1978. He had not vested in the Plan, and he was not entitled to an annuity benefit.

Pursuant to the Plan, benefits vested after individuals completed 10 years of eligible service. Because the plaintiff was an employee for eight years, and was credited with another three years of service as owner of Twin Cities, he was initially considered a vested Participant in the Plan.

The Plan discovered its error in 1979. It sent the plaintiff notices in 1979 that it was refunding a portion of Twin Cities' contributions made on his behalf, but also offsetting other delinquent contributions that Twin Cities had failed to make for other employees. In 1980, the plaintiff signed a release agreement that memorialized this arrangement. The agreement detailed "the improper employer contributions paid from the year 1975 through 1978."4 The plaintiff never accrued any additional service credit, and, therefore, his benefits never vested.

Sixteen years later, in 1996, the plaintiff contacted the Plan to inquire about his benefits in the event he decided to retire. In 1997 a representative of the Plan sent him a letter, incorrectly informing him that his benefits had vested, based upon his service from 1968 to 1978 (thus incorrectly granting him service credit for his time as an owner). The plaintiff subsequently retired, applied for benefits, and began receiving benefits under the Plan.

In 2000, the plaintiff took a job as safety inspector to supplement his retirement income. The Plan contended that his work constituted prohibited post-retirement employment in the industry, and suspended his benefits under the Plan. The plaintiff challenged his suspension before the Plan's Appeals Committee. The Committee denied the appeal. He then appealed to an arbitrator under the terms of the Plan, who reversed and remanded the issue for further fact-finding.

Before the Appeals Committee ruled on the dispute, the plaintiff left his job as a safety instructor, and the Plan reinstated his benefits. But the plaintiff...