Amschwand? Or am not Schwand?

It's that Dean guy again.  Sheesh. 

In Amschwand v Spherion Corp., 505 F.3d 342, 41 EBC 2697 (5th Cir. 2007), Mr. A was on medical leave for terminal cancer and still covered by Spherion's life insurance plan.  At the end of the year, Spherion changed to a new insurance carrier and was supposed to list Mr. A as one of the carryovers to the new policy -- but didn't.  Mr. A was reassured time and again, orally and in writing, that he would still be covered by the new policy, and there were no writings yet issued from which he would have learned otherwise.  He dies and the life insurance benefits were denied.  Widow sues and loses, because the Circuit says she's seeking damages, not benefits.  Supreme Court asks the Solicitor of Labor for opinion on cert petition, and SOL says they should grant and hold (a) that Mertens/Great-West/Sereboff don't apply because fiduciaries were not defendants in those cases and, since fiduciaries are a creature of trusts which are solely a creature of equity, all remedies against a fiduciary are necessarily "equitable." (b)  in any event, where the action is against a messing up fiduciary, plaintiff is entitled to have the fiduciary make good by way of "surcharge," an equitable remedy.

I think two additional arguments should have been made:  (1) That because Mr. A was no longer a participant in the plan, having been unceremoniously bounced from it, there is no ERISA preemption of a state law claim.  In Miller v Rite-Aid, 504 F.3d 1102, 41 EBC 2537 (9th Cir 2007) on nearly identical facts (apparently the 9th Circuit exists in a parallel universe -- hey, watch your language), the court held that since Miller wasn't a participant there could be no preemption, with that wonderful quote: "Unlike the Cheshire cat, one cannot have the stripes of preemption without the smile of participation."  I think we all know why the Solicitor doesn't like that argument.  (2) Sereboff said money was equitable relief if it were based on an "equitable lien established by agreement."  This is so even if the "fund" on which the lien existed had not yet come into being, as long as it was identifiable.  Here, insurance companies create "reserves" to pay expected benefits.  If I took discovery from the new insurance company, I would find out that if Spherion included one more participant in their list, someone who was terminal with a life expectency of months and whose benefit would be $426,000, I would also learn that Spherion's premium would have been increased by $426,000.  Thus, Spherion had an ill-gotten gain of $426,000, and the "fund" is the diamonds in the lockbox -- with the diamond Spherion kept for itself being worth $426,000.  The indentifiable fund is the whole of the premiums, and the equitable lien by assignment (the reassurances) is on the diamond Spherion kept for itself.

Roy Harmon's blog today mentioned Fitzgerald v. H&R Block Fin. Advisors, 2008 U.S. Dist. LEXIS 45472 (E.D. Mich. June 11, 2008) (115 PBD, 6/16/08) where the district court, upholding an arbitration award, said that under ERISA § 510, where plaintiff said he was prevented from obtaining shares of company stock, plaintiff was indeed claiming equitable relief by identifying a specific fund upon which he claimed an equitable lien by assignment -- the pool of company stock owned by the company. 

So?  Whaddya think?

Comments

[Law Student]

Could someone please explain to me why it was / was not a bad decision in Miller v. Rite-Aid to determine that the employee was no longer a participant? I've read both opinions and Amschwand seems spot on with Mertens/Great-West (even if they do yield a crummy result), but then again, Miller seems to be in line with Firestone. How can this work? I'd really appreciate an insight you can offer. Thank you.

[Andrew Oringer]

I'm frankly surprised that cert. was denied in Amschwand. I thought it was a good opportunity for the Court to pursue the issues raised in the Davila dissent and elsewhere regarding the way in which ERISA, as interpreted, leaves almost concededly good claims out in the cold. It seemed like a good opportunity for the Court to continue its trend towards user-friendly interpretations of existing rules, so that the gap could at least be narrowed, even if not closed. And that was after soliciting a DOL amicus and being asked to take the case. I guess I shouldn't be assuming they'll take West v. AK Steel, either.

[Ron Dean]

Never mind. Cert. denied.

[Ron Dean]

Even the Supreme Court would like a better route. They even took the Amschwand case in the hopes someone would come up with one. So far, no luck. As for the Cheshire Cat, well, you just never know. One pill gives you equity, another makes you small.

[Judy Mazo]

Ron, I don't understand the Cheshire Cat allusion, so I don't know why the Solicitor would dislike it. As an arrangement of words, though, it is charming.

Also charming is the intricate thread of reasoning underlying the suggestion that a fund exists, on which Mrs. A has an equitable lien, equal to the amount Spherion would have paid in extra premium had Mr. A actually been enrolled for coverage. It is the same reasoning that has led plans to argue that the attorney holding her client's tort recovery is a fiduciary holding plan assets if the plan has a claim for reimbursement for the client's medical costs incurred in the accident. Also analogous are multiemployer plans' claims that delinquent employers are fiduciaries to the extent of their retention of contributions owed to the plans.

Personally, notwithstanding Frank's unquestionably correct statement of what Senators Javits et al. meant about pre-emption, I think the reasoning is stronger, and my sense is that courts have been more supportive of, the no-cause-of-action=no-pre-emption argument.

The idea of an equitable lien arising specifically because there is in fact NO fund set aside for the benefits is Cheshire-cat-like. It reminds me of the actuaries' intriguing concept of a "negative unfunded", which more normal people (if such there be) would call a surplus.

[Frank Cummings]

Ron, as T.S. Eliot has said, "The last temptation is the greatest treason: to do the right deed for the wrong reason."

Of your two additional reasons, the first is utterly wrong (as a matter of legislative policy), and the second is quite right.

Your first point is just one more effort to have the plaintiff win by gutting preemption. Be careful what you wish for -- you might get it. And then you'd open the door to the very balkanization that ERISA preemption was enacted to avoid.

On the other hand, your second reason -- basically that "equitable" is a much broader term than it might seem to be under the currently governing (and misconceived) jurisprudence -- is quite right.

Come on Ron -- get there by the better route. It will make you feel so much better in the long run.

Frank C.