Case Study:
[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. (Because the lower courts found that Varity and Massey-Ferguson were “alter egos,” the Supreme Court referred to them interchangeably.) These employees were all 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-1980s, Varity became concerned that 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 moneylosing 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 Combines’ failure would not only eliminate several of Varity’s poorly performing divisions, but would also eradicate various debts that Varity would transfer to Massey Combines and which, in the absence of 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 had retained the right to do), Varity attempted to avoid the undesirable fallout that could have accompanied cancellation by inducing the failing divisions’ employees to switch employers and thereby voluntarily release Massey-Ferguson from its obligation to provide them benefits. To persuade the employees of the failing divisions to accept the change of employer and benefits, Varity called them together at a special meeting and talked to them about its likely financial viability and the security of their employee benefits. The thrust of Varity’s remarks was that the employees’ benefits would remain secure if they voluntarily transferred to Massey Combines. As Varity knew, however, the reality was very different. Indeed, the district court found that Massey Combines was insolvent from the day of its creation and that it hid $46 million negative net worth by overvaluing its assets and underestimating its liabilities. After the presentation, about 1,500 MasseyFerguson employees accepted Varity’s assurances and voluntarily agreed to transfer. Unfortunately for these employees, Massey Combines ended its first year with a loss of $88 million and ended its second year in a receivership, under which its employees lost their nonpension benefits. Many of those employees (along with several retirees whose benefit obligations Varity had assigned to Massey Combines) brought this lawsuit, seeking the benefits they would have been owed under their old Massey-Ferguson plan had they not transferred to Massey Combines. The U.S. district court ordered appropriate equitable relief to address the harm caused by the deception, including reinstatement to the old plan. The court of ap peals affirmed. The Supreme Court granted certiorari.] BREYER, J…. ERISA protects employee pensions and other benefits by providing insurance (for vested pension rights, see ERISA § 4001 et seq.), specifying certain plan characteristics in detail (such as when and how pensions vest, see §§ 201–211), and by setting forth certain general fiduciary duties applicable to the management of both pension and nonpension benefit plans. See § 404. In this case, we interpret and apply these general fiduciary duties and several related statutory provisions. In doing so, we recognize that these fiduciary duties draw much of their content from the common law of trusts, the law that governed most benefit plans before ERISA’s enactment…. We begin with the question of Varity’s fiduciary status. In relevant part, the statute says that a “person is a fiduciary with respect to a plan,” and therefore subject to ERISA fiduciary duties, “to the extent” that he or she “exercises any discretionary authority or discretionary control respecting management” of the plan, or “has any discretionary authority or discretionary responsibility in the administration” of the plan. ERISA § 3(21)(A). Varity was both an employer and the benefit plan’s administrator, as ERISA permits…. Varity argues that when it communicated with its Massey-Ferguson workers about transferring to Massey Combines, it was not administering or managing the plan; rather, it was acting only in its capacity as an employer and not as a plan administrator. The District Court, however, held that when the misrepresentations regarding employee benefits were made, Varity was wearing its “fiduciary,” as well as its “employer,” hat…. … The ordinary trust law understanding of fiduciary “administration” of a trust is that to act as an administrator is to perform the duties imposed, or exercise the powers conferred, by the trust documents. See Restatement (Second) of Trusts § 164 (1957); 76 Am.Jur.2d, Trusts § 321 (1992). Cf. ERISA § 404(a). The law of trusts also understands a trust document to implicitly confer “such powers as are necessary or appropriate for the carrying out of the purposes” of the trust…. Conveying information about the likely future of plan benefits, thereby permitting beneficiaries to make an informed choice about continued participation, would seem to be an exercise of a power “appropriate” to carrying out an important plan purpose. After all, ERISA itself specifically requires administrators to give beneficiaries certain information about the plan…. … [R]easonable employees, in the circumstances found by the District Court, could have thought that Varity was communicating with them both in its capacity as employer and in its capacity as plan administrator. Reasonable employees might not have distinguished consciously between the two roles. But they would have known that the employer was their plan’s administrator and had expert knowledge about how their plan worked. The central conclusion (“your benefits are secure”) could well have drawn strength from their awareness of that expertise, and one could reasonably believe that the employer, aware of the importance of the matter, so intended. … The second question—whether Varity’s deception violated ERISA-imposed fiduciary obligations— calls for a brief, affirmative answer. ERISA requires a “fiduciary” to “discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries.” ERISA § 404(a). 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.” As other courts have held, “ [l]ying is inconsistent with the duty of loyalty owed by all fiduciaries and codified in section 404(a)(1) of ERISA,”….
The remaining question before us is whether or not the remedial provision of ERISA that the beneficiaries invoked, ERISA § 502(a)(3), authorizes this lawsuit for individual relief…. “Sec. 502. (a) A civil action may be brought— …” (3) by 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 en force any provisions of this title or the terms of the plan; … The District Court held that the third subsection … authorized this suit and the relief awarded. Varity concedes that the plaintiffs satisfy most of this provision’s requirements, namely that the plaintiffs are plan “participants” or “beneficiaries,” and that they are suing for “equitable” relief to “redress” a violation of § 404(a), which is a “provision of this title.” Varity does not agree, however, that this lawsuit seeks equitable relief that is “appropriate.” … … [W]e believe that granting a remedy is consistent with the literal language of the statute, the Act’s purposes, and pre-existing trust law. For these reasons, the judgment of the Court of Appeals is Affirmed.
Q1. Was Varity acting as a fiduciary at the special meeting held with workers, or was it acting as an employer giving an optimistic view of a new venture?
Q2. Did Varity’s deception violate ERISA-imposed fiduciary duties?
Q3. Does ERISA § 502(a)(3) authorize lawsuits for individualized equitable relief for breach of fiduciary obligations?
Your answer must be, typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.