Varity Corp. v. Howe et al.
516 U.S. 489 (1996)
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Rule of Law:
An employer that is also a plan administrator acts as a fiduciary under ERISA when it makes intentional misrepresentations about the future of employee benefit plans to induce employees to change their plan participation. ERISA § 502(a)(3) authorizes individual plan beneficiaries to sue on their own behalf for appropriate equitable relief to redress harm caused by such a breach of fiduciary duty.
Facts:
- Varity Corporation developed a business plan, 'Project Sunshine,' to address the financial losses of its subsidiary, Massey-Ferguson.
- The plan involved transferring Massey-Ferguson's money-losing divisions and their employee benefit obligations to a new, separately created subsidiary named Massey Combines.
- Varity knew from its inception that Massey Combines was insolvent, with a hidden negative net worth of $46 million.
- To persuade employees of the failing divisions to transfer, Varity held a special meeting where it assured them that their benefits would remain secure and that Massey Combines had a bright financial future.
- Relying on these assurances, approximately 1,500 Massey-Ferguson employees voluntarily agreed to transfer their employment and benefit plans to Massey Combines.
- Within two years, Massey Combines was placed in receivership due to its financial failure.
- As a result of the receivership, the transferred employees lost their nonpension benefits.
Procedural Posture:
- Charles Howe and other former employees sued Varity Corporation in the U.S. District Court.
- Following a trial, the District Court found that Varity had acted as an ERISA fiduciary and deliberately deceived the employees, thereby violating its fiduciary obligations.
- The District Court ordered Varity to reinstate the employees into its benefit plan as 'appropriate equitable relief' under ERISA § 502(a)(3).
- Varity, as the appellant, appealed the judgment to the United States Court of Appeals for the Eighth Circuit.
- The Court of Appeals affirmed the District Court's decision in relevant part, upholding the finding of a fiduciary breach and the remedy of reinstatement.
- The U.S. Supreme Court granted Varity's petition for a writ of certiorari.
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Issue:
Does ERISA § 502(a)(3) authorize individual beneficiaries to obtain equitable relief for a breach of fiduciary duty when their employer, acting as a plan administrator, intentionally misleads them about the financial security of their benefits to induce them to transfer to a new, insolvent subsidiary?
Opinions:
Majority - Justice Breyer
Yes, ERISA § 502(a)(3) authorizes individual beneficiaries to seek equitable relief for a breach of fiduciary duty in these circumstances. First, Varity was acting in its capacity as an ERISA fiduciary, not merely as an employer, when it intentionally misrepresented the security of future benefits. The communications were plan-related, came from those with authority to speak for the plan, and were intended to help employees make decisions about their continued participation. Second, Varity breached its fiduciary duty of loyalty under ERISA § 404(a), which requires fiduciaries to act 'solely in the interest of the participants and beneficiaries.' Knowingly deceiving beneficiaries to save the employer money at their expense is a quintessential breach of this duty. Third, ERISA § 502(a)(3) authorizes individual lawsuits for 'appropriate equitable relief' to redress such violations. Distinguishing Massachusetts Mut. Life Ins. Co. v. Russell, which limited § 502(a)(2) to plan-wide relief, the Court interpreted § 502(a)(3) as a 'catchall' or 'safety net' provision intended to provide remedies for individual injuries that are not adequately addressed by other parts of the statute. Without this remedy, the harmed beneficiaries would have no recourse.
Dissenting - Justice Thomas
No, ERISA does not authorize individual relief for fiduciary breach under § 502(a)(3), and Varity was not acting as a fiduciary when it made the challenged communications. The statutory scheme, particularly the specific provisions in §§ 409 and 502(a)(2) for fiduciary breaches, indicates a congressional intent to limit remedies to the plan as a whole, as held in Russell. The general 'catchall' of § 502(a)(3) should not be interpreted to override this specific, carefully constructed framework. Furthermore, Varity was acting in its corporate capacity as an employer when it discussed its business prospects, not as a plan administrator. Communications about the company's financial health and the potential effects of a business reorganization are not 'plan administration' under ERISA's functional definition of a fiduciary. The untruthfulness of a statement does not transform it from a nonfiduciary business communication into a fiduciary one.
Analysis:
This landmark ERISA decision significantly expanded protections for individual plan beneficiaries. By holding that employers can be liable as fiduciaries for business communications that intentionally mislead employees about their benefits, the case blurred the line between employer and fiduciary roles. It resolved a major circuit split by confirming that § 502(a)(3) is a 'catchall' provision that authorizes individual equitable remedies (like reinstatement or restitution) for breaches of fiduciary duty, giving plaintiffs a crucial cause of action where relief for the plan as a whole is not applicable. The ruling forces employers who administer their own plans to exercise extreme caution in communications regarding corporate changes that could impact employee benefits.
