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03.11.2015 Legal News

Sixth Circuit Overturns the Lower Court’s Award of $3.8 Million in Alleged Profits Arising From a Denial of Benefits


The U. S. Court of Appeals for the Sixth Circuit, sitting en banc, has overturned the decision of a divided three-judge Sixth Circuit panel which had affirmed the district court’s award of $3.8 million of “disgorged” profits, in a case involving the denial of long-term disability benefits. In Rochow v. Life Insurance Company of North America, No. 12-2074 (6th Cir. March 5, 2015), sixteen judges of the Sixth Circuit reviewed the panel’s December 2013 holding, and the majority vacated the district court’s award of damages for fiduciary breach arising from the benefit denial. In doing so, the Sixth Circuit held that the plan participant was not entitled to recover both the denied disability benefits and  “other appropriate equitable relief” in the form of an order to disgorge profits allegedly arising from the defendant’s fiduciary breach.

Background. The facts of the case have been discussed in an earlier Case Alert reviewing the Sixth Circuit panel’s 2013 holding. In summary, the plaintiff (“Rochow”) was covered by a disability plan sponsored by his employer and administered by defendant Life Insurance Company of North America (“LINA”). Rochow resigned from his employer in early 2002, and later that year he filed a claim for long-term disability benefits under the plan. LINA denied his claim on the ground that his employment ended before his disability began. Rochow filed suit under ERISA, pleading two claims: one to recover benefits allegedly due under the plan, and the other to remedy an alleged breach of LINA’s fiduciary duty, namely, an abuse of discretion in denying his benefits claim.

The U. S. district court ruled in Rochow’s favor in 2005, and LINA appealed. The Sixth Circuit affirmed the finding that LINA had arbitrarily and capriciously denied Rochow’s claims, and remanded for further proceedings. On remand, the district court held that the proper remedy was both the award of disability benefits and the equitable remedy of a “disgorgement of profits” that LINA allegedly earned on the amounts not paid to Rochow[1]. The amount of the denied benefits was determined to be approximately $900,000. The court also awarded approximately $3.8 million for profits LINA had earned on benefits the court held that it should have paid to Rochow beginning in 2002.

LINA appealed that ruling and objected that the award for fiduciary breach, in addition to the award of the disability benefits, was inconsistent with Varity Corp. v. Howe, 516 U.S. 489 (1996), and Sixth Circuit precedent. In Varity Corp., the U. S. Supreme Court held that equitable relief under ERISA § 503(a)(3) “normally would not be ‘appropriate’” where the plaintiff already had an adequate remedy under another applicable ERISA provision. ERISA § 502(a)(1)(B) provides a remedy for benefits due under a plan, and LINA argued that this remedy was enough to make Rochow whole for the denial of his claim. However, in December 2013, the two-judge majority of a three-judge panel of the Sixth Circuit held that, where a plan administrator acts “arbitrarily and capriciously,” the equitable remedy of disgorgement of profits could be “appropriate equitable relief” under ERISA § 503(a)(3), in addition to the award of benefits under ERISA § 502(a)(1)(B), and that the award of benefits alone would not redress the alleged unjust enrichment of the plan fiduciary or assure that the fiduciary acted solely in the interests of participants as ERISA requires.

LINA petitioned the Sixth Circuit to hear its appeal en banc, in other words, to conduct a review by all of the judges of the Circuit. The Court granted the request, vacated the panel’s decision, and issued this new ruling on LINA’s appeal.

 The Sixth Circuit’s En Banc Ruling. The Sixth Circuit, sitting en banc, ruled that Varity Corp. allowed Rochow to pursue other appropriate equitable relief under ERISA § 503(a)(3) only where his remedy under ERISA § 502(a)(1)(B) did not adequately provide a remedy for his benefits claim. Thus, said the Circuit, the Supreme Court had “emphasized that ERISA remedies are concerned with the adequacy of relief to redress the claimant’s injury, not the nature of the defendant’s wrongdoing.” Because Rochow was made whole by his recovery of disability benefits and an award of attorney’s fees, his award of the LINA profits resulted in “an impermissible duplicative recovery” contrary to both Varity Corp. and the Sixth Circuit’s own precedents. The denial of his benefits was the injury, and LINA’s withholding of the benefits was simply “the continuing effect of the same denial”, part of a single injury (the denial of benefits) and not a distinct injury requiring a distinct remedy.

The Sixth Circuit also rejected Rochow’s argument that the Supreme Court’s decision in CIGNA Corp. v. Amara, 131 S. Ct. 1866 (2011), had expanded his scope for recovery of equitable relief in this ERISA case. The Circuit held that Amara never allowed double recovery, and where Rochow had an adequate recovery under ERISA § 502(a)(1)(B), Amara did not allow him to also recover disgorgement as a remedy for the same injury. The Circuit also found that the district court’s concern that “LINA had wrongfully gained something” by denying benefits was beyond the scope of ERISA’s “make-whole” remedies.

The disgorgement award was therefore vacated. The case was remanded to the district court to determine whether, and to what extent, it should award prejudgment interest on Rochow’s award of disability benefits, as part of his “make whole” judgment.

The Significant Lesson: The Sixth Circuit’s en banc holding applied Varity Corp. and interpreted Amara consistently with its earlier holdings, to confirm that ERISA does not allow participants to use section 502(a)(3) to obtain a double recovery for the wrongful denial of plan benefits. The Circuit’s decision was not unanimous. Nine judges ruled for the majority opinion (including a tenth judge who concurred in part). Six other Circuit judges dissented (and were joined in part by another judge), on the ground that Rochow had suffered separate injuries and was entitled to both awards. Notwithstanding this, the majority’s opinion brings the Sixth Circuit’s application of Varity Corp. back in line with the majority view of that holding held by other circuits. The concern addressed in the earlier Rochow rulings, that a plan fiduciary would have no disincentive to deny rightful benefit claims and use the benefit money pending an appellate review, remains to be addressed, but, unless the Supreme Court reviews Rochow and clarifies the interplay of Varity Corp. and Amara, it may require Congress to resolve that concern.

[1] Rochow died in 2008; his estate was substituted as plaintiff and pursued his claims.