Recent Decision Broadens the Relief Offered by ERISA for Breaches of Fiduciary Duties
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On September 13th, 2021, the United States Court of Appeals for the Ninth Circuit issued an important ruling under ERISA for Daniel Warmenhoven v. NetApp, Inc. The appeals court ruling affirmed in part and vacated in part the district court’s summary judgment in favor of the Defendant.
The Case: Daniel Warmenhoven v. NetApp, Inc.
The Court: United States Court of Appeals for the Ninth Circuit
The Case No.: 19-16960
The Plaintiff: Daniel Warmenhoven v. NetApp, Inc.
Daniel Warmenhoven, the plaintiff in the case, was one of seven retired executives who sued NetApp (and the Plan, together referred to as NetApp) alleging that termination of the Plan violated ERISA since the plan members were promised lifetime benefits in PowerPoint presentations given to employees by plan administrators.
The Defendant: Daniel Warmenhoven v. NetApp, Inc.
In 2005, NetApp, Inc., the Defendant in the case, created the NetApp Executive Medical Retirement Plan, an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974 (“ERISA”), 29 U.S.C. §§ 1001–1461. The plan was intended to provide health insurance benefits to its retired senior executives. However, in 2016, NetApp implemented a phased termination of the Plan, which would eliminate benefits Warmenhoven and other retired executive’s planned to have in place for life.
Summary of the Case on Appeal: Daniel Warmenhoven v. NetApp, Inc.
The district court granted summary judgment to NetApp on both claims. Of the seven named plaintiffs, only one appealed: Warmenhoven. On appeal, the court affirmed in part and vacated in part the district court’s judgment. The appeals court’s decision restated 9th Circuit authority that there is no scienter requirement for breach of fiduciary claims. The appeals court’s findings also continued to expand equitable remedies available for breach of fiduciary claims under ERISA.
Details of the Appeals Court Decision: Daniel Warmenhoven v. NetApp, Inc.
The court quickly dismissed the legal claim under Section1132 (a) (l) (B) based on controlling circuit authority requiring any change to the vesting schedule from the default position at any time (such as plan termination or amendment), must be in writing in a plan document (citing Cinelli v. Security Pac. Corp. , 61 F. 3d 1437, 1441 (9th Cir. 1995)). The plaintiff also claimed that if the Power Points presented by the fiduciaries stating lifetime benefits did not actually vest lifetime benefits, he was entitled to equitable relief based on misrepresentation of plan benefits by NetApp fiduciaries. When considering this claim, the appeals court noted that a claim under Section 1131(a)(3) has two parts: 1) the existence of a remedial wrong for which the plaintiff seeks relief to redress in connection to an ERISA violation or violation of the plan terms, and 2) that the relief the plaintiff seeks is both appropriate and equitable. The court had no problem acknowledging the evidence of a remedial wrong. They quickly found the evidence Warmenhoven presented as adequate to overcome summary judgment. The court explained that Barker v. American Mobil Power Corp., 64 F. 3d 1397, 1403 (9th Cir. 199 5), held that fiduciaries breach their duties if they mislead plan participants, if they misrepresent the terms of a plan, or if they misrepresent the administration of a plan. It was also noted that intent to deceive is not a requirement under current circuit law. In conclusion, the appeals court found that the district court erred in finding that NetApp did not breach a fiduciary duty.
The Importance of the Ruling: Tort Law Versus Trust Law
Under King v. Blue Cross & Blue Shield of Ill. , 871 F.3d 730, 744 (9th Cir. 2017) and Mathews v. Chevron Corp. , 362 F. 3d 1172, 1183 (9th Cir . 2004), the fiduciary duty of loyalty is rooted in trust law, not tort law. As such, there is no reason to transplant the law of torts’ element of scienter. The court’s decision in Mathews followed a line of cases from other circuits that did not require a showing of intent to mislead plan participants. The Mathews court followed 6th Circuit precedent in James v. Pirelli Armstrong Tire Corp. , 30 5 F. 3d 439 (6th Cir. 2002).
What Happens Next: Daniel Warmenhoven v. NetApp, Inc.
ERISA’s remedies are equitable in nature and drawn from the law of trusts, where strong fiduciary duties are imposed on those who are in a position of trust and responsibility. However, the court did not address whether Warmenhoven would be entitled to appropriate equitable relief to redress the alleged wrong (one of the requirements for an equitable claim under Section 1132 (a)(3)). They left that up to the district court on remand. Warmenhoven v. NetApp is the latest case to expand equitable relief for plan participants and plan participant beneficiaries under ERISA for breach of fiduciary duties. The court’s finding reinforces existing law that imposes potential liability for misrepresentations to employees on plan sponsors and plan administrators.
If you have questions about California employment law or if you need to discuss ERISA violations, please get in touch with Blumenthal Nordrehaug Bhowmik DeBlouw LLP. Experienced employment law attorneys are ready to assist you in various law firm offices located in San Diego, San Francisco, Sacramento, Los Angeles, Riverside, and Chicago.
