516 U.S. 489 (1996), 94-1471, Varity Corp. v. Howe

Docket Nº:Case No. 94-1471
Citation:516 U.S. 489, 116 S.Ct. 1065, 134 L.Ed.2d 130, 64 U.S.L.W. 4138
Party Name:VARITY CORP. v. HOWE et al.
Case Date:March 19, 1996
Court:United States Supreme Court
 
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516 U.S. 489 (1996)

116 S.Ct. 1065, 134 L.Ed.2d 130, 64 U.S.L.W. 4138

VARITY CORP.

v.

HOWE et al.

Case No. 94-1471

United States Supreme Court

March 19, 1996

Argued November 1, 1995

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

Syllabus

After petitioner Varity Corporation decided to transfer money-losing divisions in its subsidiary Massey-Ferguson, Inc., to a separately incorporated subsidiary, Massey Combines, it held a meeting to persuade employees of the failing divisions to change employers and benefit plans. Varity, the Massey-Ferguson plan administrator as well as the employer, conveyed the basic message that employees' benefits would remain secure when they transferred. In fact, Massey Combines was insolvent from the day it was created, and, when it ended its second year in a receivership, the employees who had transferred lost their nonpension benefits. Those employees, including respondents, filed this action under the Employee Retirement Income Security Act of 1974 (ERISA), claiming that Varity, through trickery, had led them to withdraw from their old plan and forfeit their benefits, and seeking the benefits they would have been owed had they not changed employers. The District Court found, among other things, that Varity and Massey-Ferguson, acting as ERISA fiduciaries, had harmed plan beneficiaries through deliberate deception, that they thereby violated ERISA § 404(a)'s fiduciary obligation to administer Massey-Ferguson's plan "solely in the interest of the [plan's] participants and beneficiaries," that ERISA § 502(a)(3) gave respondents a right to "appropriate equitable relief . . . to redress" the harm that this deception had caused them individually, and that such relief included reinstatement to the old plan. The Court of Appeals affirmed, in relevant part.

Held:

1. Varity was acting as an ERISA "fiduciary" when it significantly and deliberately misled respondents. The District Court's factual findings, unchallenged by Varity, adequately support that court's legal conclusion that, when Varity made its misrepresentations, it was exercising "discretionary authority" respecting the plan's "management" or "administration," within the meaning of ERISA § 3(21)(A). The court found that the key meeting was largely about benefits, for the documents presented there described the benefits in detail, explained the similarity between past and future plans in principle, and assured the employees that they would continue to receive similar benefits in practice.

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To offer beneficiaries such detailed plan information in order to help them decide whether to remain with the plan is essentially an exercise of a power "appropriate" to carrying out an important plan purpose. Moreover, the materials used at the meeting came from those at the firm with authority to communicate as fiduciaries with beneficiaries. Finally, reasonable employees, in the circumstances found by the District Court, could have thought that Varity was communicating with them both as employer and as plan administrator. Pp. 498-505.

2. In misleading respondents, Varity violated the fiduciary obligations that ERISA §404 imposes upon plan administrators. To participate knowingly and significantly in deceiving a plan's beneficiaries in order to save the employer money at the beneficiaries' expense is not to act "solely in the interest of the participants and beneficiaries." There is no basis in the statute for any special interpretation that might insulate Varity from the legal consequences of the kind of conduct that often creates liability even among strangers. Pp. 506-507.

3. ERISA § 502(a)(3) authorizes lawsuits for individualized equitable relief for breach of fiduciary obligations. This Court's decision in Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, that § 502(a)(2)— which permits actions "for appropriate relief under [§] 409"—does not provide individual relief does not mean that such relief is not "appropriate" under subsection (3). The language that the Court found limiting in Russell appears in § 409, which authorizes relief only for the plan itself, and § 409 is not cross-referenced by subsection (3). Further, another remedial provision (subsection (1)) provided a remedy for the Russell plaintiff's injury, whereas here respondents would have no remedy at all were they unable to proceed under subsection (3). Granting individual relief is also consistent with ERISA's language, structure, and purpose. Subsection (3)'s language is broad enough to cover individual relief for breach of a fiduciary obligation, and other statutory language supports this conclusion. Nothing in ERISA's structure indicates that Congress intended § 409 to contain the exclusive set of remedies for every kind of fiduciary breach. In fact, § 502's structure suggests that Congress intended the general "catchall" provisions of subsections (3) and (5) to act as a safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy. Contrary to Varity's argument, there is nothing in the legislative history that conflicts with this interpretation. ERISA's general purpose of protecting beneficiaries' interests also favors a reading that provides respondents with a remedy. Amici's concerns that permitting individual relief will upset another congressional purpose—

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the need for a sensible administrative system—seem unlikely to materialize. Pp. 507-515.

36 F.3d 746 and 41 F.3d 1263, affirmed.

Breyer, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Stevens, Kennedy, Souter, and Ginsburg, JJ., joined. Thomas, J., filed a dissenting opinion, in which O'Connor and Scalia, JJ., joined, post, p. 516.

Floyd Abrams argued the cause for petitioner. With him on the briefs were Thomas J. Kavaler, Katherine B. Harrison, Jonathan Sherman, and William J. Koehn.

H. Richard Smith argued the cause for respondents. With him on the brief were David Swinton, Michael J. Eason, and Robert J. Schmit.

Deputy Solicitor General Kneedler argued the cause for the United States as amicus curiae urging affirmance. With him on the brief were Solicitor General Days, Richard P. Bress, Thomas S. Williamson, Jr., Allen H. Feldman, Steven J. Mandel, Mark S. Flynn, and Judith D. Heimlich. [*]

Justice Breyer delivered the opinion of the Court.

A group of beneficiaries of a firm's employee welfare benefit plan, protected by the Employee Retirement Income Security

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Act of 1974 (ERISA), 88 Stat. 832, as amended, 29U.S.C. § 1001 et seq. (1988 ed.), have sued their plan's administrator, who was also their employer. They claim that the administrator, through trickery, led them to withdraw from the plan and to forfeit their benefits. They seek, among other things, an order that, in essence, would reinstate each of them as a participant in the employer's ERISA plan. The lower courts entered judgment in the employees' favor, and we agreed to review that judgment.

In conducting our review, we do not question the lower courts' findings of serious deception by the employer, but instead consider three legal questions. First, in the factual circumstances (as determined by the lower courts), was the employer acting in its capacity as an ERISA "fiduciary" when it significantly and deliberately misled the beneficiaries? Second, in misleading the beneficiaries, did the employer violate the fiduciary obligations that ERISA § 404 imposes upon plan administrators? Third, does ERISA § 502(a)(3) authorize ERISA plan beneficiaries to bring a lawsuit, such as this one, that seeks relief for individual beneficiaries harmed by an administrator's breach of fiduciary obligations?

We answer each of these questions in the beneficiaries' favor, and we therefore affirm the judgment of the Court of Appeals.

I

The key facts, as found by the District Court after trial, include the following: Charles Howe, and the other respondents, used to work for Massey-Ferguson, Inc., a farm equipment manufacturer, and a wholly owned subsidiary of the petitioner, Varity Corporation. (Since the lower courts found that Varity and Massey-Ferguson were "alter egos," we shall refer to them interchangeably.) These employees all were participants in, and beneficiaries of, Massey-Ferguson's self-funded employee welfare benefit plan—an ERISA-protected plan that Massey-Ferguson itself administered. In the mid-1980's, Varity became concerned that

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some of Massey-Ferguson's divisions were losing too much money and developed a business plan to deal with the problem.

The business plan—which Varity called "Project Sunshine"—amounted to placing many of Varity's money-losing eggs in one financially rickety basket. It called for a transfer of Massey-Ferguson's money-losing divisions, along with various other debts, to a newly created, separately incorporated subsidiary called Massey Combines. The plan foresaw the possibility that Massey Combines would fail. But it viewed such a failure, from Varity's business perspective, as closer to a victory than to a defeat. That is because Massey Combine's failure would not only eliminate several of Varity's poorly performing divisions, but it would also eradicate various debts that Varity would transfer to Massey Combines, and which, in the absence of the reorganization, Varity's more profitable subsidiaries or divisions might have to pay.

Among the obligations that Varity hoped the reorganization would eliminate were those arising from the Massey-Ferguson benefit plan's promises to pay medical and other nonpension benefits to employees of Massey-Ferguson's money-losing divisions. Rather than terminate those benefits directly (as it...

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