In Gabriel v. Alaska Electrical Pension Fund, 755 F.3d 647 (9th Cir. 2014), a venal claimant met a not-very competent plan administrator, and the result was a helpful discussion of limits on make-whole equitable claims. [Note, on December 16, 2014, the Ninth Circuit panel withdrew this opinion, and replaced it with a new one, at 773 F.3d 945]

In the 1970s, plaintiff received pension benefits from the plan to which he was not entitled.  After the plan discovered its mistake, it recovered the overpayment, and plaintiff returned to work. Almost 20 years later, plaintiff reapplied for benefits, and was paid, again, though he was no more entitled than he had been before. When the plan administrator discovered its second mistake, plaintiff sued for breach of fiduciary duty, seeking the benefits the plan had mistakenly told him he qualified for.

The divided decision included an extensive analysis of Supreme Court and Ninth Circuit precedent on the equitable remedies of reformation, equitable estoppel and surcharge.

The court held that equitable estoppel could not be used to vary plan terms, and required, inter alia, proof that the plan provisions at issue were ambiguous, and that the statement by the plan fiduciary was an “interpretation of the plan, not an amendment or modification of the plan.” The court rejected plaintiff’s claim because he “failed to show that the plan representative’s … letter was an interpretation of ambiguous language in the Plan, rather than a mere mistake in assessing Gabriel’s entitlement to benefits.” The court specifically held that a representation that conflicted with clear plan language did not “cast doubt on the meaning and effect of those sections[.]”

Next, the court held that reformation was not available, because there was no evidence that the settlor made a mistake of fact or law that affected plan terms. The court specifically rejected the argument that it could order reformation of plan records (about plaintiff’s length of service) to conform to misinformation provided to him by the plan: “reformation does not extend so far.”

Finally, the court held that surcharge was available only when the plan itself was injured, or the trustee was unjustly enriched:

Amara did not suggest that the remedy of surcharge is available to provide any sort of make-whole relief for breach of fiduciary duty against a trustee regardless whether or not traditional trust law would have provided that relief under the “surcharge” terminology. .. Rather, the Supreme Court followed its prior interpretation of “appropriate equitable relief” as including only traditional equitable remedies. … As the very section of Scott and Ascher on Trusts cited in Amara explains, “[t]he trustee is not subject to surcharge for a breach of trust that results in no loss to the trust estate.” 4 Scott and Ascher on Trusts § 24.9, p. 1693.

The court then held that its own precedent made surcharge available “to redress losses of value or lost profits to the trust estate and to require a fiduciary to disgorge profits from unjust enrichment.”

The court rejected the plaintiff’s argument that McCravy v. Met. Life Ins. Co., 690 F.3d 176 (4th Cir.2012), Kenseth v. Dean Health Plan, Inc., 722 F.3d 869 (7th Cir.2013), and Gearlds v. Entergy Servs., Inc., 709 F.3d 448 (5th Cir.2013), held that surcharge was appropriate equitable relief “even if it comes at the expense of the trust estate.” The court explained that these cases did not hold that surcharge was an appropriate remedy under the facts of the cases, but merely held that the district courts had erroneously concluded that monetary relief could never be an appropriate remedy. The court concluded: “We are bound by our own precedent, which correctly identifies surcharge as including only unjust enrichment and losses to the trust estate.”

After that helpful analysis, the court held that plaintiff had not alleged any harm to the plan itself, nor unjust enrichment of the fiduciary.