ERISA-Ninth Circuit Discusses The Availability Of Surcharge As A Type Of Equitable Relief

In Gabriel v. Alaska Electric Pension Fund, No. 12-35458 (9th Cir. 2014) (discussed in my blog of June 12), the plaintiff sued the defendants for, among other things, breach of the fiduciary duties under ERISA section 502(a)(3). The district court had granted summary judgment to the defendants on this and the plaintiffs other claims. The Ninth Circuit Court of Appeals (the “Court”) affirmed the district court’s judgment.

The Court noted that three types of remedies are available to a plaintiff, as “appropriate equitable relief”, on a claim brought under section 502(a)(3)-equitable estoppel, plan reformation and surcharge. The Court found that, in this case, the plaintiff was not entitled to any of the remedies. The remedy of surcharge has lately drawn a lot of interest, having been brought up by the Supreme Court in CIGNA Corp. v. Amara. Here is what the Court said on surcharge:

The remedy, “appropriate equitable relief” also includes “surcharge”, defined as “the power to provide relief in the form of monetary ‘compensation’ for a loss resulting from a trustee’s breach of duty, or to prevent the trustee’s unjust enrichment.” (quoting Amara). Under the traditional equitable principles specified in Amara, the surcharge remedy was available when a breach of trust committed by a fiduciary resulted in a loss to the trust estate or allowed the fiduciary to profit at the expense of the trust. Under these circumstances, a surcharge remedy can protect the beneficiaries of a trust by making the trust estate whole. If a breach of trust causes a loss, including any failure to realize income, capital gain, or appreciation that would have resulted from proper administration, the beneficiaries are entitled to restitution and may have the trustee surcharged for the amount necessary to compensate fully for the consequences of the breach. However, the trustee is not subject to surcharge for a breach of trust that results in no loss to the estate or profit to the trustee.

The remedy of surcharge is available under ERISA to the extent it has been available as a traditional equitable remedy. The remedy may be applied to redress losses of value or lost profits to the trust estate and to require a fiduciary to disgorge profits from unjust enrichment. Specifically, as the Court held earlier: (1) the remedy of surcharge is available against the fiduciary for benefits it gained through unjust enrichment or for harm caused as the result of its breach; and (2) the fiduciary could be liable for loss of value to the trust or for any profits that the trust would have accrued in the absence of the breach, in both cases in order to return the beneficiary to the position he or she would have attained but for the fiduciary’s breach.

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