A Commentary on Great West Life & Annuity Co.

v. Knudson, And ERISA Section 502(a)(3)

By
Edward X. Clinton, Jr.
Copyright 2004

In Great West Life & Annuity Co. v. Knudson, 122 S.Ct.

708 (1/08/2002), the Supreme Court held that Section 502(a)

(3) of the Employee Retirement Income Security Act

(“ERISA”) does not authorize an award of compensatory

damages. This decision, the third in a line of Supreme

Court decisions on the relief authorized by Section 502(a)

(3), has important implications for much of the ERISA

jurisprudence. As we shall see, the Great West decision

will (1) prevent some plaintiffs from obtaining money

damages for violations of ERISA; (2) prevent health plans

from recovering the costs they incurred on behalf of

certain injured insureds.

Congress enacted the Employee Retirement Income

Security Act, (“ERISA”)1 to protect the rights of

participants in company-sponsored and multi-employer

retirement plans. ERISA contains numerous requirements for

employer-sponsored retirement plans. The act also contains

enforcement provisions in § 502 that allow a beneficiary to

bring a lawsuit to obtain benefits or challenge other

adverse decisions of plan administrators. Section 502(a)

1 The Act’s title is the Employee Retirement Income Security Act of

1974, P.L. 93-406.
(1)(B) allows a plan participant or beneficiary to bring an

action “to recover benefits due to him under the terms of

this plan, to enforce his rights under the terms of the

plan, or to clarify his rights to future benefits under the

terms of the plan.”2 This section limits the beneficiary to

recovering benefits he is entitled to under the terms of

the plan. The plan documents will determine the outcome of

the lawsuit. What happens if a plan administrator misleads

the beneficiary as to the terms of the plan? Section

502(a)(1) provides no remedy because any recovery is

limited to the terms of the plan documents. Similarly,

section 502(a)(2) does not allow individual beneficiaries

to sue for a remedy.3

Section 502(a)(3) allows a participant, beneficiary,

or fiduciary “(A) to enjoin any act or practice which

violates any provision of this title or the terms of the

plan, or (B) to obtain other appropriate equitable relief

(i) to redress such violations or (ii) to enforce any

provision of this title or the terms of the plan.”4 The

key question raised by § 502(a)(3) is what type of relief

2 § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B).

3 See Strom v. Goldman Sachs, 202 F.3d 138 (2d Cir. 1999)(“Plaintiff
cannot sue under section 502(a)(1)(B) because there are no benefits due
her under the plan. She cannot proceed under section 502(a)(2) because
it affords no remedies to individual beneficiaries.”).

4 ERISA § 502(a)(3).

2
 is permitted by the phrase “other appropriate equitable

relief to redress such violations.”5

This commentary will discuss ERISA’s civil recovery

provisions, the relief provided to civil litigants by

Section 502, the debate surrounding Section 502(a)(3) and

the Supreme Court’s resolution of that debate in Great

West. The article will also discuss various commentators’

views of Section 502(a)(3).

I. ERISA’s Civil Recovery Provisions

A. The Fiduciary Standard

ERISA contains numerous provisions regulating the

conduct of plan fiduciaries. Section 404(a) is the most

important provision regulating fiduciary conduct. It

requires that a fiduciary:

shall discharge his duties with respect to a plan

solely in the interest of the participants and
beneficiaries, and

(A) for the exclusive purpose of: (i) providing

benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering
the plan;

(B) with the care, skill, prudence, and diligence

under the circumstances then prevailing that a prudent
man acting in a like capacity and familiar with such
matters would use in the conduct of an enterprise of a
like character and with like aims;

5 Id.

3
 (C) by diversifying the investments of the plan so as
to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so; and

(D) in accordance with the documents and instruments

governing the plan insofar as such documents and
instruments are consistent with the provisions of this
title and Title IV.

Section 409(a) makes a fiduciary personally liable to

the plan for any breach of fiduciary duty. It provides:

Any person who is a fiduciary with respect to a plan

who breaches any of the responsibilities, obligations,
or duties imposed upon fiduciaries by this title shall
be personally liable to make good to such plan any
losses to the plan resulting from each such breach,
and to restore to such plan any profits of such
fiduciary which have been made through use of assets
of the plan by the fiduciary, and shall be subject to
such other equitable or remedial relief as the court
may deem appropriate, including removal of such
fiduciary.6

Section 409 only creates a standard by which to measure

the conduct of a fiduciary. It does not allow any

individual plaintiff to sue to recover benefits.

Congress intended that ERISA’s fiduciary obligations

should be interpreted according to the law of trusts, where

the law of trusts does not conflict with a specific

statutory provision of ERISA. The House Committee on

Education and Labor stated: “The fiduciary responsibility

section, in essence, codifies and makes applicable to these

fiduciaries certain principles developed in the evolution

6 ERISA § 409.

4
of the law of trusts.”7 The Committee expressed concern

that some plans were structured so that the law of trusts

did not apply. Moreover, traditional trust law allowed the

settlor to draft an exculpatory clause, under which the

trustee would not be subject to liability for certain

actions.8

In Varity Corp. v. Howe, however, the Supreme Court

noted that traditional trust law does not always provide

the correct answer. The majority opinion comments: “[i]n

some instances, trust law will offer only a starting point,

after which courts must go on to ask whether, or to what

extent, the language of the statute, its structure, or its

purpose require departing from common-law trust

requirements.”9 Indeed, the House Committee noted that the

statute had modified certain principles of trust law to

make them more suitable to employee benefit plans.10 Thus,

the common law of trusts may provide helpful information in

construing the fiduciary standard set forth in § 409, but

it does not provide all the answers.

7 House Report No. 93-533, 3 U.S. Code Congressional and Administrative
News at 4649 (1974); see also Senate Report, No. 93-127, 3 U.S. Code
Congressional and Administrative News at 4865 (1974) (containing an
identical statement).

8 Id. at 4650.

9 516 U.S. 489, 116 S. Ct. 1065, 1070 (1996).

10 House Report, No. 93-533, 3 U.S. Code Congressional and

Administrative News at 4651 (1974); see also Varity, 116 S.Ct. at 1070.

5
 B. Enforcing The Fiduciary Standard

Section 502 provides certain person with rights to

sue to enforce the provisions of ERISA. Section 502(a)(1)

(B) allows a participant or a beneficiary to sue to obtain

benefits due under the plan, to enforce his rights under

the terms of the plan, or to clarify his rights to future

benefits under the plan. Of course, a beneficiary or

participant has no right to recover any benefits under

this section if the plan documents do not create a right

to a benefit.

Section 502(a)(2) allows a participant, beneficiary or

fiduciary to obtain “appropriate relief under section 409.”

This section also provides limited relief to a participant

or beneficiary because § 409 requires that a fiduciary who

breaches a fiduciary duty make the plan whole for his

breach. Section 409 does not require the breaching

fiduciary to make the participant or beneficiary whole. If

the plaintiff is no longer a participant or a beneficiary

under the plan’s terms, the plaintiff will not be able to

recover lost benefits under this section.

Section 502(a)(3) allows a participant, beneficiary

or fiduciary to sue to enjoin any act or practice that

violates ERISA or the terms of the plan or “to obtain

other appropriate equitable relief (i) to redress such

6
 violations or (ii) to enforce any provision of this title

or the terms of the plan.”11 This section is very

important to beneficiaries of pension plans because it may

allow direct recovery from a party, which breached ERISA

or a fiduciary duty. Unlike § 502(a)(1), §(a)(3) is not

specifically limited to the actual terms of the benefit

plan. Section 502(a)(3) allows the plaintiff to obtain

direct relief rather than the relief provided by §(a)(2),

which allows the plan to obtain reimbursement.

C. The Legislative History

A review of the legislative history indicates that

Congress intended that § 502 would give the courts broad

powers to enforce the new statute. The House Education and

Labor Committee stated:

The enforcement provisions have been designed

specifically to provide both the Secretary [of Labor]
and participants and beneficiaries with broad remedies
for redressing or preventing violations of the Act.
The intent of the Committee is to provide the full
range of legal and equitable remedies available in
both state and federal courts and to remove
jurisdictional and procedural obstacles which in the
past appear to have hampered effective enforcement of
fiduciary responsibilities under state law for recover
of benefits due to recipients.12

11 ERISA § 502(a)(3).

12 House Report No. 93-533, 93rd Congress, 2d Sess., reprinted in 3

U.S.Code Congressional and Administrative News 4639, 3655 (1974). The
Senate Report, S. Rep. No. 93-127, 93d Congress, 2d Sess., which
contains an identical statement is reprinted in 3 U.S.C.C.A.N. 4838,
4871 (1974).

7
 The Senate Finance Committee dealt with the remedial

provisions in greater detail and defined "appropriate

equitable relief" as follows:

Appropriate equitable relief may be granted in a civil

action. For example, injunctions may be granted to
prevent a violation of fiduciary duty, and a
constructive trust may be imposed on the plan assets,
if needed to protect the participants and
beneficiaries. Also, the bill specifically provides
that a fiduciary may be removed through civil action
brought by the Secretary or participants or
beneficiaries if he has violated any of the specified
fiduciary obligations . . .. It is expected that a
fiduciary . . . may be removed for repeated or
substantial violations of his responsibilities, and
that upon removal the court may, in its discretion,
appoint someone to serve until a fiduciary is properly
chosen in accordance with the plan.13

The Senate Report suggests that §502(a)(3) was intended to

offer plaintiffs equitable relief, not compensatory

damages. The legislative history is consistent with the

plain language of the statute.

II. Supreme Court Decisions Interpreting Section

502(a)(3)

The Supreme Court has decided several cases

interpreting § 502(a)(3) in different contexts. These

cases have provoked a complex debate concerning the relief

available under that section.

13 Senate Report No. 93-406, 93d Cong., 2d Sess. 105-06, reprinted in 3

U.S. Code Cong. & Admin. News 4890, 4989 (1974).

8
 A. Massachusetts Mutual Life Insurance Co. v. Russell

In Russell,14 the plaintiff was an employee of Mass

Mutual and was governed by the company’s short-term

disability plan. Russell injured her back in May 1979 and

was granted disability benefits until October 1979, when

the company decided to terminate her benefits. Russell

requested that the decision be reviewed. Four months

later her benefits were reinstated and she was paid

retroactive benefits. Russell then filed suit pursuant to

§409, arguing that she was entitled to damages for

emotional distress and that she should recover punitive

damages. The Ninth Circuit held that an award of

compensatory damages would “`remedy the wrong and make the

aggrieved individual whole.’”15

The Supreme Court reversed the Ninth Circuit and held

that § 409 did not authorize any award of extra-

contractual damages. Moreover, § 502(a)(1) did not

authorize the recovery of extracontractual damages either.

The Supreme Court also rejected Russell’s argument that it

should create a private right of action for

extracontractual damages. It noted that the remedies

14 473 U.S. 134, 105 S.Ct. 3085 (1985).

15 Id. at 139, 105 S.Ct. at 3090.

9
 provided in § 502 were carefully drafted: “The six

carefully integrated civil enforcement provisions found in

§ 502(a) of the statute as finally enacted, however,

provide strong evidence that Congress did not intend to

authorize other remedies that it simply forgot to

incorporate expressly.”16 A plaintiff under ERISA could

even recover attorney’s fees under subsection (g).

Justice Brennan concurred in the judgment.17 He argued

that courts should broadly construe the provisions of

section 502. His concurrence suggests that § 502(a)(3)

would authorize extracontractual damages:

ERISA’s legislative history also demonstrates beyond

question that Congress intended to engraft trust-law
principles onto the enforcement scheme… and a
fundamental concept of trust law is that courts ‘will
give to the beneficiaries of a trust such remedies as
are necessary for the protection of their interests.’18

Justice Brennan concluded that § 502 should authorize the

same relief that a beneficiary could obtain at common law,

unless that relief conflicts with a provision of ERISA.

The concurrence suggests that a beneficiary could obtain

extra-contractual damages, in the same fashion that a

16 Id. at 147, 105 S.Ct. at 3092.

17 Id. at 158, 105 S.Ct. at 3094.

18 Id. at 148, 105 S.Ct. at 3095 (quoting Austin Wakeman Scott, Law of
Trusts, § 199, p. 1638 (1967)).

10
 beneficiary can obtain compensatory and punitive damages

where a trustee breaches a fiduciary duty.

III. Mertens v. Hewitt Associates.

In Mertens v. Hewitt Associates19 the Supreme Court

considered the meaning of the term “other appropriate

equitable relief” in the context of a claim by a plan

beneficiary against a benefit plan’s actuary. The actuary

was not an ERISA fiduciary. The plaintiff in Mertens was a

retired employee of Kaiser Steel who participated in Kaiser

Steel’s retirement plan. The defendant was the actuary for

the Kaiser pension plan in 1980 when Kaiser began to phase

out its steel operations. The phase out caused many of the

participants in the plan to opt for early retirement.

Mertens alleged that Hewitt failed to alter its actuarial

assumptions when Kaiser began phasing out its steel

operations. Hewitt’s failure to alter its actuarial

assumptions caused the plan to be severely underfunded.

Eventually, the plan’s assets could not satisfy its

liabilities and the Pension Benefit Guaranty Corporation

terminated the plan. As a result, Mertens and his co-

workers lost substantial benefits they would have received

had the Kaiser Steel retirement plan remained solvent.

19 508 U.S. 248, 113 S.Ct. 2063 (1993).

11
 Mertens sued the plan fiduciaries for breach of

fiduciary duty. Mertens also brought suit under §502(a)(3)

alleging that Hewitt knowingly participated in the breach

of fiduciary duty by the Kaiser Steel plan trustees.

However, Mertens conceded that Hewitt was not a plan

fiduciary. Mertens requested that Hewitt be required to

make the plan whole for the losses its negligence caused.

Hewitt argued that Mertens could not recover money damages

under § 502(a)(3) because the phrase “other equitable

relief” limited a successful plaintiff to traditional

equitable remedies such as an injunction.

The plaintiffs argued that they were only seeking

equitable relief. The court disagreed: “[a]lthough they

often dance around the word, what petitioners in fact seek

is nothing other than compensatory damages -- monetary

relief for all losses their plan sustained as a result of

the alleged breach of fiduciary duties. Money damages are,

of course, the classic form of legal relief.”20 The court

held that the plaintiffs were not entitled to money damages

under § 502(a)(3). In response to the argument that the

purpose of ERISA was to protect beneficiaries and that

purpose would be served by awarding compensatory damages,

Justice Scalia wrote: “vague notions of a statute’s ‘basic

20Id. at 255, 113 S.Ct. at 2068.

12
purpose’ are nonetheless inadequate to overcome the words

of its text regarding the specific issue under

consideration.”21 Thus, the specific holding of Mertens is

that plaintiffs could not recover compensatory damages

under § 502(a)(3) from a nonfiduciary. The Court

specifically did not decide whether § 502(a)(3) allowed a

plaintiff to recover compensatory damages against an ERISA

fiduciary.

IV Varity Corp. v. Howe

The Supreme Court’s decision in Varity Corp. v. Howe

provoked much debate concerning the relief authorized by §

502(a)(3). In Varity Corp. v. Howe, the plaintiffs were

employees of Massey-Ferguson, a farm equipment maker, and

were beneficiaries of that firm’s employee welfare benefit

plan.22 In the mid-1980’s Massey-Ferguson’s parent

corporation, Varity, became concerned that some of its

divisions were losing money. Varity’s management decided

to solve the financial problem by transferring money-losing

operations to a new subsidiary named Massey Combines.

Varity’s management hoped to transfer certain obligations

to Massey Combines, thus relieving Varity of the

21 Id. at 256, 113 S.Ct. at 2069. The Court also commented that holding
nonfiduciaries liable for compensatory damages “would impose high
insurance costs upon persons who regularly deal with and offer advice
to ERISA plans, and hence upon ERISA plans, themselves.” Id.

22 516 U.S. 489, 116 S.Ct. 1065 (1996).

13
liabilities.23 One of these obligations arose from the

Massey-Ferguson plan’s promises to pay medical and other

nonpension benefits to its employees.24 Instead of

terminating the benefits directly, Varity induced Massey-

Ferguson employees to voluntarily release Varity from the

medical and other obligations by promising that the newly

formed Massey Combines would promise to pay those benefits

to the employees. Shortly after the employees relinquished

their rights under the Massey-Ferguson benefit plan and

joined Massey Combines, the new company was placed in

receivership. As a result of the collapse of Massey

Combines, the employees lost their nonpension benefits.

The employees brought suit under § 502(a)(3) alleging

that Varity had breached its fiduciary duty to them by

fraudulently inducing them to relinquish their rights to

medical and other benefits from Massey-Ferguson in exchange

for worthless rights to those same benefits from Massey

Combines. After trial the district court found that Varity

had violated ERISA section 404(a) which requires that an

ERISA fiduciary manage a benefit plan “solely in the

interest of the participants and beneficiaries.”25 Pursuant

23 Id. at 493, 116 S.Ct. at 1068.

24 Id.

25 Id. at 494, 116 S.Ct. at 1068.

14
to § 502(a)(3), the district court ordered Varity to

reinstate the employees into its own employee welfare plan.

Varity argued that reinstating the employees into its

pension plan was not “appropriate equitable relief” under §

502(a)(3). The Supreme Court held that Varity breached its

fiduciary duty by deceiving its employees and that the

district court’s order that Varity reinstate the plaintiffs

into its own employee welfare plan was “appropriate

equitable relief.” The court commented:

We should expect that courts, in fashioning

‘appropriate’ equitable relief, will keep in mind the
‘special nature and purpose of employee benefit
plans,’ and will respect the ‘policy choices reflected
in the inclusion of certain remedies and the exclusion
of others.’ Thus, we should expect that where
Congress elsewhere provided adequate relief for a
beneficiary’s injury, there will likely be no need for
further equitable relief, in which case such relief
normally would not be ‘appropriate.’”26

Varity implies that federal courts will have broad

authority in fashioning equitable relief under § 502(a)(3).

The relief provided by § 502(a)(3) was essential to the

Varity plaintiffs because they could not possibly recover

damages under § 502(a)(1) because they had no right to

medical benefits under the Varity plan. The plaintiffs

could not recovery under § 502(a)(2) either because

requiring Varity to make a payment to its own plan would

26 Id. at 515, 116 S.Ct. at 1079.

15
not benefit plaintiffs because they were not members of the

plan. As in many ERISA cases, plaintiffs’ only remedy was

available under § 502(a)(3).

In his dissenting opinion, Justice Thomas argued that §

502(a)(3) did not allow an individual beneficiary or plan

participant to secure equitable relief for breach of

fiduciary duty. In support of that argument, Justice

Thomas noted that § 502(a)(3) does not mention the term

“fiduciary breach” and “uses language identical to that in

section(s) 409, which we have already held authorizes

equitable relief only on behalf of the plan.”27 The dissent

concluded that Congress intended to authorize equitable

relief only on behalf of the plan.

Neither Mertens nor Varity definitively resolved the

issue of whether a plaintiff can obtain money damages, or

an injunction granting relief similar to money damages,

against a fiduciary defendant. The Varity court allowed

the plaintiffs to obtain an injunction requiring the

defendant to admit them to its employee welfare plan. Such

an award is almost equivalent to allowing the plaintiffs to

recover money damages for the company’s breach of fiduciary

duty. It is, however, not an award of money damages. In

Mertens, the Supreme Court held that a plaintiff could not

27 Id. at 520, 116 S.Ct. at 1081(Thomas, J., Dissenting).

16
obtain equitable relief under § 502(a)(3) against a

nonfiduciary.

A. Commentators Struggle With the Mertens and Varity

Decisions.

The commentators who analyzed the Mertens and Varity

decisions reached different interpretations of the phrase

“other appropriate equitable relief.” Several commentators

noted that after Varity it was no longer clear whether or

not monetary relief was permitted by Section 502(a)(3).28

In his article, Equitable Remedies For Breach of

Fiduciary Duty Under ERISA After Varity Corp. v. Howe,29

Eduard A. Lopez argued that the relief provided by §502(a)

(3) “should correspond to that relief available in equity

for breach of trust.” The problem, of course, is that it is

not clear exactly what remedies were available at common

law for breach of trust. Lopez

V. “Other Appropriate Equitable Relief” Since Varity Corp.

v. Howe.

Some courts have broadly construed § 502(a)(3) to allow

the recovery of money damages, while others have held that

the section only allows traditional equitable remedies such

28 Tina Kukaza, Varity Corp. v. Howe: Will It Cause An Increase In

Litigation Against Employers Who Administer ERISA Plans? 48 Mercer L.
Rev. 965 (1997).

29 18 Berkeley Journal of Employment and Labor Law 323 (1997)

17
as an injunction. As we shall see, decisions from several

circuits are in conflict.

A. Courts Allowing Recovery of Compensatory Damages

The Second, Third and Eleventh Circuits have issued

decisions granting plaintiffs monetary relief under §

502(a)(3). These courts have based their decisions on the

broad congressional purpose in enacting ERISA to protect

beneficiaries of retirement and employee welfare plans.

The most dramatic example of a court’s decision to

allow monetary relief under § 502(a)(3) is Strom v. Goldman

Sachs.30 In Strom, the plaintiff was the surviving spouse of

an employee of Goldman Sachs. In January 1994, her husband

went to work for Goldman Sachs. As an employee Strom had

group life insurance coverage of $500,000. He applied to

increase the amount of his group life insurance from

$500,000 to $1,000,000. Goldman Sachs, however, failed to

correctly process Strom’s application and, as a result, the

effective date of his coverage under the group plan was

delayed until four days after he died.31

Strom’s wife brought suit against Goldman Sachs under

several provisions of ERISA. Her claim under § 502(a)(1)

(B) was dismissed because that section only allows a

30 202 F.3d 138 (2d Cir. 1999).

31 Id. at 141.

18
plaintiff to recover benefits that were due under the terms

of the employer’s plan. Because Goldman Sachs delayed in

submitting her husband’s application for increased life

insurance coverage, she was not entitled to the additional

$500,000 of life insurance coverage under the terms of the

plan. This portion of the court’s opinion illustrates the

limitations of § 502(a)(1)(B).

However, her breach of fiduciary duty claim under §

502(a)(3) fared better. Plaintiff argued that by failing

to submit Strom’s application for increased group life

insurance on time, Goldman Sachs breached its fiduciary

duty. The Second Circuit agreed that these allegations

stated a claim for breach of fiduciary duty. Goldman Sachs

argued that plaintiff could not recover under § 502(a)(3)

because she sought money damages, $500,000, under a section

which only allowed a plaintiff to obtain “other

appropriate equitable relief (i) to redress such

violations.” Goldman Sachs relied on Mertens and argued

that ordering it to pay $500,000 was an order to pay money

damages, which was not permitted by the statute.32

The Second Circuit disagreed. It held that Congress

intended that the phrase “equitable relief” included more

than simply an injunction. The court noted that

32 Id. at 143.

19
traditionally courts of equity were permitted to require

that a defendant who had breached his fiduciary duty

provide restitution to the plaintiff. It also commented

that courts of equity were allowed to order remedies to

make plaintiffs whole.33 In the court’s view, ordering

Goldman Sachs to pay Strom’s widow $500,000 would make her

“whole” for the company’s failure to submit Strom’s

insurance application in a timely fashion.34 In the court’s

view, such an award was consistent with the statutory

purpose and legislative history of ERISA. Accordingly, the

Second Circuit reversed the judgment in favor of Goldman

Sachs and held that if the plaintiff proved that Goldman

Sachs breached its fiduciary duty it could enter an award

of money damages to make Strom’s widow whole.

The Third Circuit has also held that a plaintiff may

obtain money damages under § 502(a)(3). In Ream v. Frey

and Fulton Bank, Jeffrey Ream was an employee of a

construction company.35 Ream participated in the company’s

profit sharing plan. By the end of 1992, Ream had a

balance of $13,829.92 in the plan. Fulton Bank was the

plan’s trustee. It held all of the plan’s funds in one of

33 Id. at 145.

34 Id. at 150.

35 107 F.3d 147 (3d Cir. 1997).

20
its accounts. The plan administrator was Jeffrey Frey, the

owner of the construction company. Under the plan the

trustee was to receive and invest contributions and to make

distributions in accordance with instructions from the

company.36 In the early 1990’s the company began struggling

financially. The company often delayed sending employer

contributions for the profit sharing plan to the trustee

bank. The company also failed to provide the Fulton bank

with necessary information. On several occasions the bank

threatened to resign as trustee for the plan.37 In 1993, the

bank resigned as trustee and requested that the company

appoint a successor trustee. The company never designated

a successor trustee. However, Fulton Bank sent Frey a

check for the full amount of all money in the plan and

designated him as the successor trustee. Frey endorsed the

check and converted all of the plan’s money to his own use.38

Ream and the other employees of the construction

company were unaware that the bank had resigned as the

trustee. Ream continued making contributions to the plan

after the proceeds of the plan were returned to Frey. In

1994, the construction company filed a bankruptcy petition.

36 Id. at 149.

37 Id. at 150.

38 Id.

21
Ream sued Frey, but Frey agreed to make partial payment to

reimburse Ream for the converted plan money. Ream did not

obtain full recovery from Frey.

Ream then sued Fulton Bank for the remainder of the

benefits he was owed, alleging that the bank had breached

its fiduciary duty to plan beneficiaries by returning the

proceeds of the plan to Frey. Ream argued that Fulton Bank

was also liable as a co-fiduciary for Frey’s own breach of

fiduciary duty. The district court granted summary

judgment to Ream and entered a money judgment in his favor.

Fulton Bank appealed on the ground that it did not

breach its fiduciary duty and on the ground that Ream could

not obtain monetary relief under § 502(a)(3). The Third

Circuit disagreed and held that the bank breached its

fiduciary duty to Ream by turning over the proceeds of the

retirement plan to Frey. The Third Circuit held that Ream

had a cause of action under § 502(a)(3).39 The court noted

that the employee benefit plan was no longer in existence

because Frey converted its assets. If the plan were still

in existence and could pursue its own remedies, “it might

be inappropriate to permit a beneficiary to seek personal

39 Id. at 156.

22
relief as a recovery by the plan effectively would make the

beneficiary whole.”40

In Blue Cross v. Sanders,41 Blue Cross sued Doyle and

Tina Sanders to recover sums spent on health care for Tina

Sanders after an auto accident. The Sanders participated

in a health plan offered by Doyle’s employer, Nichols

Research Corporation. The plan required that any

participating member for whom the plan had incurred costs

reimburse the plan for its expenses in the event the member

obtained a settlement from a third party.

In 1991, Tina was injured in an accident. Blue Cross

authorized the health plan to pay $12,678.69 to reimburse

various health care providers. In 1992, the Sanders filed

a personal injury lawsuit against the driver of the other

vehicle involved in Tina’s accident. They obtained a

default judgment in the amount of $200,000. Blue Cross

requested that the Sanders reimburse the health plan for

the expenses it had incurred on Tina’s behalf. The Sanders

refused to reimburse the plan and Blue Cross filed suit

pursuant to § 502(a)(3). The court held that Blue Cross

40 Id. But see Kemmerer v. Ici Americas, 70 F.3d 281 (3d Cir. 1995),
cert. denied, 517 U.S. 1209, 116 S.Ct. 1826 (1996) (plaintiffs sued the
administrator of an employee benefit plan where they received full
payment from the plan on an accelerated schedule which caused them
additional tax liabilities; the court implied, but did not rule on the
issue, that plaintiffs’ damages were not recoverable under §502(a)(3)
because they were money damages).

41 138 F.3d 1347 (11th Cir. 1998).

23
could obtain a money judgment requiring the Sanders to

reimburse the plan for its expenses on behalf of Tina.

Blue Cross could not obtain relief under § 502(a)(1)

because it was not a participant or beneficiary of the

plan.42 Blue Cross could not obtain relief under § 502(a)(2)

because that section only allows recovery for breach of

fiduciary duty and does not allow a plan administrator to

recover costs incurred by a plan for a participant. Thus,

§ 502(a)(3) provided the only avenue to relief for Blue

Cross. The court was not troubled by the fact that it was

awarding money damages to Blue Cross when § 502(a)(3)

apparently allows only “appropriate equitable relief.”43

B. Cases Awarding Prejudgment Interest.

The Third and Eighth circuits have affirmed money

judgments for prejudgment interest to plaintiffs. In

Mansker v. TMG Life Insurance Co.,44 the plaintiff and her

son received medical coverage from the defendant insurance

company. Plaintiff’s son was injured in an accident and

incurred enormous medical bills, but the defendant would

42 Id. at 1350.

43 Id. at 1352, n. 5. See also, Administrative Committee v. Gauf, 188

F.3d 767 (7th Cir. 1999) (in a case with facts virtually identical to
Sanders the Seventh Circuit held that the health plan could obtain an
injunction requiring the defendant to reimburse the plan in the amount
of $9,870 and held that the injunction requiring the payment of money
damages was appropriate equitable relief.)

44 54 F.3d 1322 (8th Cir. 1995).

24
not pay them. After trial, the court held that the son’s

injuries were covered under the policy and that defendant

had wrongfully withheld payment. The court awarded

prejudgment interest to Mansker on the ground that the

interest award would make plaintiff whole, promote

settlement of cases, and would deter defendants from

attempting to benefit from the delays inherent in the

litigation process.45

In Fotta v. Trustees of United Mine Workers of

America,46 the plaintiff was a miner who suffered a disabling

injury. The pension fund withheld his disability benefits

for nine years and, after adverse legal rulings in other

cases, granted Fotta his benefits. Fotta sued for

prejudgment interest and the court entered a judgment for

interest on the award. The Third Circuit held that an

award of prejudgment interest would make Fotta whole and

prevent the plan from being unjustly enriched by the delay

in payment. The court noted that: “[a] late payment of

benefits effectively deprives the beneficiary of the time

45 Id. at 1330-31.

46 165 F.3d 209 (3d Cir. 1998).

25
value of his or her money.”47 The Court regarded the award

as an equitable award of restitution.48

C. No Compensatory Damages Allowed Because § 502(a)

(3) Does Not Permit It.

The First, Sixth and Eighth Circuits have held that

compensatory damages cannot be recovered under § 502(a)(3)

because compensatory damages are not “appropriate equitable

relief.” As we shall see, these decisions are in conflict

with Strom and Ream, but not Sanders.

In Kerr v. Vatterott, the plaintiff was hired by the

defendant to manage a partnership in the real estate

development business.49 The plaintiff elected to participate

in defendant’s 401k plan. Under the plan, the defendant

made matching contributions to the plan on behalf of its

employees. In July 1991, the defendant decided to

terminate its involvement in the real estate business and

it terminated all of its employees, including plaintiff.

Although Kerr was fully vested in the defendant’s 401k plan

when he was terminated, the defendant refused to distribute

47 Id. at 214.

48 Id. at 213. See also M. Stacey Bach, The Awarding Of Interest As

“Other Equitable Relief” Under ERISA: The Third Circuit Enlarges
Interest Recovery In Fotta v. Trustees of the United Mine Workers, 44
Villanova L. Rev. 807, 835 (1999) (noting that the Third Circuit was
“confident” that the award of prejudgment interest was “other equitable
relief” under section 502(a)(3)). Ms. Bach’s article, however, does
not comment on whether the award of prejudgment interest was
appropriate under the statute.

49 184 F.3d 938 (8th Cir, 1999).

26
his 401k funds until he repaid defendant for the employer

matching contribution it had made on his behalf.50 Kerr

refused to reimburse the plan for the amount of the

matching contributions and the defendant continued to

withhold his money. Three years later the defendant

authorized the transfer of Kerr’s 401k plan account to

another trustee. By this time, however, Kerr’s 401k

account was worth several thousand dollars more than it had

been worth when he was terminated. The money had grown at

an annual rate of 8.6%.

Kerr sued under § 502(a)(3) arguing that the defendant

breached its fiduciary duty by wrongfully withholding his

funds for three years. Kerr argued that he could have

earned an additional amount had he been able to invest the

money when he left the company. The district court granted

summary judgment on Kerr’s § 502(a)(3) claim on the ground

that Kerr could not recover money damages under § 502(a)

(3).51 Kerr appealed.

The Eighth Circuit held that § 502(a)(3) “provides

relief for the individual harm that Kerr may have suffered

from Vatterott & Co.’s breach of its fiduciary duties, but

50 Id. at 942.

51 The district court also granted summary judgment on Kerr’s claim

under § 502(a)(1)(B) because Kerr had ultimately received all of the
money that was due him.

27
limits his recovery to ‘appropriate equitable relief,’

which includes injunctive, restitutionary, and mandamus

relief, but does not include compensatory damages.”52 The

Eighth Circuit characterized Kerr’s request for relief as

follows: “Kerr is seeking monetary damages for the

difference between what he says he could have earned and

what he in fact earned, or ‘lost opportunity costs.’”53 The

court noted that restitution may be viewed as either an

equitable award or as compensatory damages. According to

the court an award of equitable restitution “focuses on the

defendant’s wrongfully obtained gain while a compensatory

award focuses on the plaintiff’s loss at the defendant’s

hands.”54 Because the defendant did not gain anything by

withholding Kerr’s money, Kerr was not seeking equitable

restitution. Indeed, Kerr had obtained all of the money in

his plan account after a lengthy delay. Kerr was seeking

compensation, a form of money damages. Therefore, § 502(a)

(3) barred his claim. The court reasoned:

Vatterott & Co. gained nothing by withholding Kerr’s

money. Kerr received the earnings in his account. If
we focus on Vatterott & Co.’s zero gain, rather than
Kerr’s alleged loss, there is nothing to disgorge.
Thus, Kerr’s claim is not a claim for restitution.55
52 Id. at 944.

53 Id. at 945.

54 Id. at 944.

55 Id. at 945.

28
 The Eighth Circuit distinguished Mansker, which allowed

ERISA plaintiffs to obtain prejudgment interest on the

ground that an award of prejudgment interest is an

equitable as well as a compensatory award. The court noted

that “a common thread throughout the prejudgment interest

cases is unjust enrichment – the wrongdoer should not be

allowed to use the withheld benefits or retain interest

earned on the funds during the time of dispute.”56 In other

words, the court concluded that an award of prejudgment

interest was proper equitable restitution and was not an

award of compensatory damages.57

In Allinder v. Inter-City Products Corp., the

plaintiff became a computer systems analyst for the

defendant and enrolled in its long-term disability plan.58

According to the policy, the insurance company was

56 Id. at 946

57 In Novak v. Andersen Corp., 962 F.2d 757 (8th Cir. 1992), cert.
denied, 508 U.S. 959, 113 S.Ct. 2928 (1993), the Eighth Circuit also
rejected an argument for compensatory damages under § 502(a)(3). Novak
quit his job and elected to cash out his interest in the company’s
employee stock ownership plan. The plan neglected to inform him that
he could avoid paying income tax if he elected a rollover to another
retirement plan. As a result, Novak was required to pay income tax.
The court rejected his breach of fiduciary duty claim on the ground
that he was seeking compensatory damages, not equitable relief. The
court reasoned that the statute allowed a plaintiff to obtain an
injunction, a declaration of rights, or the imposition of a
constructive trust. “We are not inclined to legislate by adding
monetary damages to this already complete list.” Id. at 761.

58 152 F.3d 544 (6th Cir. 1998), cert. denied, 525 U.S. 1178, 119 S.Ct.
1115 (1999).

29
obligated to make long-term payments of disability benefits

once it received proof that the employee became totally

disabled while insured. In March 1990, Allinder became ill

after the company hired an exterminator to spray for

termites in her work area. Allinder was initially moved to

another work area, but the company decided that she should

return to her normal work area. She then began

experiencing tremors in her legs and hands. At one point

she was hospitalized for treatment. Allinder then took

some time off work. In July 1990, Allinder met with

company management to discuss her health condition. At the

end of the meeting the company decided to terminate

Allinder’s employment.59

Three months later Allinder filled out the employee’s

portion of the long-term disability benefits claim form and

requested that the company fill out the remainder of the

form. The company declined on the ground that Allinder was

not an active employee when her request for benefits was

made. The company’s action was inconsistent with the terms

of the plan. Allinder then contacted the insurer that

administered the company’s long-term disability plan. The

59 Id. at 547.

30
insurer provided Allinder with a lump-sum payment of the

long-term benefits to which she was entitled.60

Allinder then sued the company for compensatory and

punitive damages. The district court granted summary

judgment and the Sixth Circuit affirmed on the ground that

§ 502(a)(3) did not authorize an award of compensatory or

punitive damages. Allinder argued that § 502(a)(3)

authorized compensatory damages because courts of equity

have traditionally had the right to award compensatory

damages for a breach of trust.61 The Sixth Circuit,

following Mertens, held that the statute did not authorize

any form of compensatory damages.62

In Armstrong v. Jefferson Smurfit Corp., 30 F.3d 11

(1st Cir. 1994), plaintiffs were disabled retirees of the

defendant who were members of its group medical insurance

plan. In 1992, defendant offered plaintiffs an offer of

either (1) continuing participation in the medical plan at

current premium costs or (2) discontinuing participation in

exchange for a lump-sum payment. Defendant did not tell

plaintiffs that if they chose the second option, the lump-

sum payment would be subject to income tax. Plaintiffs

60 Id. at 548.

61 Id.

62 Id. at 552.

31
chose the lump-sum payment and incurred substantial income

taxes.63 They then brought suit for breach of fiduciary duty

under § 502(a)(3), arguing that the defendant should have

informed them that the lump-sum payment would be taxable.

The court held that defendant did not breach any duty to

plaintiffs and alternatively held that plaintiffs were

seeking compensatory damages, which were not recoverable

under § 502(a)(3).64 The court cited Mertens and held that

compensatory damages were not recoverable in claims under §

502(a)(3).65

Moreover, in Choi v. Massachusetts General Physicians

Organization,66 the plaintiffs were former employees of

Massachusetts General Hospital. Under the Hospital’s

deferred compensation plan an employee who left the

Hospital’s employ was entitled to a deferred bonus. Choi

quit his job and was denied the bonus. Choi ultimately

filed an administrative claim against the Hospital and was

63 Id. at 12.

64 Id. at 13.

65 Id. The court rejected plaintiffs’ argument that Merten’s holding

applied only to claims against nonfiduciaries because the relief
allowed by the statute should not depend on the identity of the
defendant. Id. See also Rogers v. Hartford Life, 167 F.3d 933 (5th Cir.
1999) (where defendant denied plaintiff’s application for long-term
disability benefits, plaintiff could not recover his medical expenses
under § 502(a)(3) because that section does not permit recovery for
compensatory damages).

66 66 F. Supp. 2d 251 (D. Mass 1999).

32
awarded the bonus. He filed suit in federal court to seek

restitution for the attorney’s fees necessary to recover

the bonus. Choi’s claim was denied on the ground that an

award of attorney’s fees was not an award of equitable

restitution, but an award of compensatory damages. The

court agreed with the defendant that while Choi was

required to hire an attorney to obtain the bonus, the

hospital was not unjustly enriched. The Hospital never

withheld the attorney’s fees from Choi.

VI. The Conflict In The Circuits

From our review of the foregoing cases, it appears

that there may be a conflict in the circuits as to the

relief allowed under § 502(a)(3). Strom, Sanders and Ream

allowed plaintiffs to obtain money damages under § 502(a)

(3) while Kerr and Allinder hold that no such relief is

available. Moreover, the Mansker and Fotta courts held

that plaintiffs could receive prejudgment interest on

wrongfully withheld benefits. To more carefully determine

whether there is a direct conflict in the circuits we will

review each case granting monetary relief under the

reasoning of Kerr and Allinder.

Kerr and Allinder each held that a plaintiff cannot

recover compensatory damages under § 502(a)(3) of ERISA.

In Kerr, however, the court notes that ERISA may permit a

33
judgment of restitution because a court of equity could

award restitution. According to the Kerr opinion an award

of equitable restitution “focuses on the defendant’s

wrongfully obtained gain while a compensatory award focuses

on the plaintiff’s loss at the defendant’s hands.”67

Explained more fully:

Restitution seeks to punish the wrongdoer by taking

his ill-gotten gains, thus, removing his incentive to
perform the wrongful act again. Compensatory damages
on the other hand focus on the plaintiff’s losses and
seek to recover in money the value of the harm done to
him.68

Under this standard, was the relief awarded by the courts

in Strom, Sanders and Ream compensation or restitution?

In Sanders, the defendants were covered by an employer

sponsored health plan administered by Blue Cross. The plan

contained a provision that provided that a covered person

would reimburse all plan expenses if that person obtained

an injury settlement. Mrs. Sanders was injured in an

automobile accident and obtained treatment which Blue Cross

paid for. The Sanders then obtained a settlement of their

personal injury action, but they refused to reimburse Blue

Cross. Blue Cross obtained a money judgment against the

defendants on the ground that it was entitled to be

67 184 F.3d at 944.

68 Id. at 945(citing Dan B. Dobbs, Law of Remedies §4.1(1), at 369-71

(Abridged 2d edition 1993)).

34
reimbursed for the money it spent on their behalf.69 The

award of damages to Blue Cross appears to be a form of

restitution. By receiving the award, Blue Cross recovered

the amount of money it spent on health care for Mrs.

Sanders. To view it another way, it was unfair for Mrs.

Sanders to accept the benefit of the Blue Cross health

insurance (her medical bills were paid) without also

accepting the burden (complying with her agreement to

reimburse Blue Cross). As the Kerr court noted: “the

wrongdoer should not be allowed to use the withheld

benefits or retain interest earned on the funds during the

time of the dispute.”70 Under the reasoning of the Kerr

opinion, the judgment in favor of Blue Cross would be

allowed as appropriate restitution.

In Ream, the court allowed the plaintiff to recover a

money judgment against a bank which had allowed plaintiff’s

money to be converted by plaintiff’s employer. The court

held that Ream could recover a money judgment against the

bank for the amount of money he lost when his 401k plan was

converted.71 Under the reasoning in Kerr, Ream’s recovery

more closely resembles compensatory damages than

69 138 F.3d at 150.

70 184 F.3d at 946.

71 107 F.3d at 156.

35
restitution. The court was not focusing on the defendant’s

wrongfully obtained gain because the defendant bank gained

nothing by its actions. Instead, the court appeared to

focus on the bank’s negligence and the loss incurred by

Ream as a result of the bank’s negligence.72 The holding of

Ream is thus inconsistent with Kerr.

In Strom, the Second Circuit held that Mrs. Strom

could recover a money judgment against Goldman Sachs where

that company negligently processed her husband’s

application for group life insurance. Under the reasoning

of the Kerr opinion, the award in Strom was an award of

compensatory damages. Goldman Sachs gained nothing by its

failure to properly process Strom’s insurance application.

Indeed, Strom would have been required to pay at least a

portion of the insurance premium. The court appeared to

base its decision on the damage caused by Goldman Sachs’

negligence. The court agreed that Goldman Sachs was not

unjustly enriched by its mistake. The court commented:

“[t]he absence of unjust enrichment here therefore is not

inconsistent with accurate characterization of the relief

plaintiff seeks as ‘equitable.’”73 Even though the Strom

court referred to the award as “equitable relief,” its

72 Id.

73 Strom, 202 F.3d at 145.

36
award of damages was designed not to give Mrs. Strom

restitution but instead to give her compensation. Strom is

thus inconsistent with Kerr.

The holdings of Mansker and Fotta, that a plaintiff

can recover prejudgment interest on the amount of

wrongfully withheld benefits, are consistent with the

principles of equitable restitution and are not

inconsistent with Kerr and Allinder. Both awards were

designed to prevent the defendant from being unjustly

enriched. As the court noted in Kerr, the awards focus on

preventing the defendant from earning interest on money

that rightfully belonged to the plaintiff. The award of

prejudgment interest sought to punish the defendants by

taking their “ill-gotten gains” to remove any incentive to

wrongfully withhold benefits in the future.74

In sum, there is a conflict in the circuits as to the

relief available under § 502(a)(3).75 Two courts have

74 Kerr, 184 F.3d at 946; see also Mansker, 54 F.3d at 1322; Fotta, 165
F.3d at 209. Professor Dobbs writes: “where the plaintiff is entitled
to recover restitution against a defendant, usually a fiduciary, who is
liable to account for any profits he has made by the use of the
plaintiff’s money or property, the plaintiff may ordinarily opt to
claim interest on the value of his property or money instead of the
profits derived from its use.” Dobbs, § 3.5 at 166.

75 No litigant has raised the issue of the conflict between Strom, Ream
and Kerr in the United States Supreme Court. The appropriate case for
the resolution of the conflict may not yet have arisen. Of course,
some litigants may argue that there is no conflict in the circuits,
even though two decisions awarded what appear to be compensatory
damages while the other decisions did not. As noted above, the author
disagrees with this reasoning.

37
awarded compensatory damages to successful plaintiffs after

describing the relief as “equitable.” The holdings of Strom

and Ream are inconsistent with the plain language of §

502(a)(3) and appear to ignore the Supreme Court’s opinion

in Mertens. Neither case contains a proper interpretation

of “appropriate equitable relief” under § 502(a)(3).76

VIII What Relief Does §502(a)(3) Allow?

Section 502(a)(3) allows a plaintiff to obtain

“appropriate equitable relief.” This relief includes an

injunction, which as in Varity might require that the

employer reinstate a plaintiff in its employee benefit

plan.77 Or it can be a more simple injunction requiring a

corporation to provide a group pension plan with accurate

information concerning its employee participants in the

76 Several commentators have discussed the Varity decision but none has
addressed whether Varity permits an award of compensatory damages under
section 502(a)(3). See e.g., John D. Shire, Varity Corp. v. Howe in
the Wake of Mertens v. Hewitt Associates: Did the Supreme Court
Impermissibly Authorize A Damages Award Under ERISA Section 502(a)(3)?,
102 Dickinson L. Rev. 411 (1998)(the author argues that the section
does not allow awards of consequential damages); Kukaza, 48 Mercer L.
Rev. 965 (1997) (the author comments that the Varity decision did not
resolve whether a court can award compensatory damages under section
502(a)(3))

77 Varity, 1996 S.Ct. 58 (1996) (affirming the district court’s order

requiring the defendant to reinstate certain employees in its own
retirement plan); Griggs v. E.I. Dupont De Nemours & Co., No. 99-2508
(4th Cir. January 9, 2001) (where defendant failed to notify plaintiff
of the tax consequences of a withdrawal from its pension plan, the
court held that plaintiff was entitled to an injunction reinstating him
as a member of the company’s pension plan prior to the taxable
withdrawal).

38
plan so the plan can calculate the employer’s contribution.78

The court can also enter a declaratory judgment, which

would allow plaintiffs to obtain future benefits under a

plan. A successful plaintiff can obtain attorney’s fees

under § 502(g).

Section 502(a)(3) also allows a plaintiff to equitable

restitution where the defendant has wrongfully withheld the

plaintiff’s money. Equitable restitution includes the

constructive trust remedy and the accounting remedy. It

also includes awards of prejudgment interest where benefits

have been wrongfully withheld.79 However, the phrase

“appropriate equitable relief” does not include

compensatory damages, or damages designed to compensate the

plaintiff for his loss as in Strom and Ream. This means

that in some cases, the plaintiff will not be able to

78 See Jaspan v. Glover Bottled Gas Corp., 80 F.3d 38 (2d Cir. 1996)
(holding that § 502(a)(3) allows a court to order the corporation to
give the group pension plan access to its records); Chappel v.
Laboratory Corporation of America, No. 98-17361 (9th Cir.) (November 14,
2000) (where defendant denied plaintiff’s claim for medical benefits
and failed to notify plaintiff of the 60 day deadline to seek an
arbitrator’s review of the denial, plaintiff had leave to amend her
claim to add a count for breach of § 502(a)(3); court noted that the
appropriate relief would be to order the defendant to construe the late
appeal as timely).

79 See Mansker, 54 F.3d 1322 (8th Cir. 1995) (awarding prejudgment

interest where the defendant wrongfully refused to pay plaintiff’s
medical bills on the ground that it would be unjust to allow the
defendant to wrongfully withhold payment and then earn interest on that
money); Fotta, 165 F.3d 209 (3d Cir. 1998) (holding that plaintiff
could recover interest on employee benefits that were paid after a nine
year delay on the ground that it would be unjust to enrich the plan at
the employee’s expense).

39
obtain a full recovery with an equitable remedy. Equitable

restitution for unjust enrichment would not be available

against the defendants in Strom and Ream because those

defendants were not unjustly enriched. In some cases, this

will leave an unfortunate gap in the remedies provided by

section 502. Even with this limitation, section 502(a)(3)

remains a powerful remedy for the individual plaintiff and

will allow many plaintiffs complete relief. Congress chose

to allow a plaintiff “appropriate equitable relief,” not

compensatory damages and it would be improper for courts to

expand the remedies beyond those provided for by Congress.

40