In the latest chapter of the Amara saga, the Second Circuit recently affirmed the district court's class-wide order to reform CIGNA's cash balance plan, as a means to remedy what the district court previously found to be CIGNA's breach of its statutory notice obligations.
Background
When CIGNA converted its pension plan from a traditional defined benefit plan to a cash balance plan, participants experienced a period of "wear-away" during which participants were not accruing additional benefits because the value of the benefit earned prior to the conversion exceeded the initial value of the cash balance benefit. In an earlier decision, the district court found that CIGNA's section 204(h) notice and summary plan descriptions (as well as related communications) issued in relation to the conversion misled participants by explicitly promising that their starting balances in the cash balance account would be "equal" to the benefits previously earned under the prior plan formula, when in fact they were not. On the basis of these findings, the district court ordered class-wide plan reformation to remove the effect of wear-away. The case made its way to the U.S. Supreme Court in 2011. The Supreme Court concluded that the district court had improperly ruled in favor of the plan participants under ERISA section 502(a)(1)(B), the provision governing claims for benefits, but instructed that similar relief might be available under ERISA section 502(a)(3), the provision that authorizes courts to award appropriate equitable relief to remedy violations of ERISA or the plan. Following remand, the district court denied CIGNA's motion to decertify the class and again ordered class-wide reformation relief, but this time under ERISA section 502(a)(3). In so ruling, the district also denied the plaintiffs' request to order reformation returning the plan to the pre-amendment traditional defined benefit plan, instead of just removing wear-away's impact.
The Second Circuit's Decision
In affirming the district court rulings, the Second Circuit first ruled that class-wide treatment of the claims was appropriate under Rule 23(b)(2) of the Federal Rules of Civil Procedure. Although Rule 23(b)(2) is limited to claims for declaratory or injunctive relief, and reformation is not itself injunctive relief, the Court determined that, in this instance, reformation served as the vehicle for obtaining an injunction requiring CIGNA to enforce the plan as reformed and that any monetary award was incidental to the injunction. In so ruling, the Court also rejected CIGNA's argument that class certification was inappropriate because some participants were better off under the cash balance plan. The Court found that the relief had been crafted so that terminated participants did not have to pay back any received benefits and that there was no evidence that any current participant had been harmed by the conversion.
Second, the Court rejected CIGNA's contention that class-wide reformation was inappropriate because the challenged communications were made by the plan administrator, rather than the plan sponsor. The Court determined that this distinction should not prevent the imposition of reformation relief where, as here, CIGNA served as both plan sponsor and plan administrator and had been found to have engaged in fraudulent conduct.
Third, the Court rejected CIGNA's contention that the named plaintiffs had failed to prove that all of the plan participants had misunderstood the plan terms, absent which reformation relief was not appropriate. The Court held that on the basis of generalized evidence, including the company-wide communications of an "equal value" benefit and the evidence indicating that the vast majority of plan participants read and relied on these communications, the Court could infer that the entire class of participants had been misled by CIGNA and thus misunderstood the plan terms and their effect.
Lastly, the Court rejected plaintiffs' argument that the district court erred in only reforming the plan to remove wear-away and refusing plaintiffs' request to reform the plan so as to return it to the pre-amendment traditional defined benefit plan. The Court found that the district court's reasoning—even though provided when relief was originally granted pursuant to ERISA section 502(a)(1)(B)—was sufficient, since it showed that the relief granted better comported with participants' expectations and involved fewer administrative difficulties than plaintiffs' requested relief.
The case is Amara v. CIGNA Corp., No. 13-447-CV, 2014 WL 7272283 (2d Cir. Dec. 23, 2014).
Second Circuit: Class-Wide Reformation Is Appropriate Equitable Relief
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