I was surprised not to find anything in the news about this appellate decision–Millsap et al. v. McDonnell Douglas Corporation (issued May 21, 2004) after there was so much publicity around the lower court decision last year. (Previous post here.) The case is notable due to the fact that it represents one of the few ERISA section 510 plant closing cases where employees have prevailed. The 510 claims were brought by former employees in a class action suit against their employer, alleging that the employer closed one of its plants for purposes of preventing employees from attaining eligibility for benefits under their pension and health care plans.
ERISA Section 510. For those not familiar with ERISA section 510, it provides as follows:
It shall be unlawful for any person to discharge, fine, suspend, expel, discipline, or discriminate against a participant or beneficiary for exercising any right to which he is entitled under the provisions of an employee benefit plan. . . or for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan. . .
District Court Decision. After a ten day bench trial, the lower court (no link available) had ruled in favor of the former employees, holding that the employer had indeed violated ERISA section 510 in closing the plant. Some of the most damaging evidence used to prove the ERISA 510 claims were memos from the actuaries analyzing the reduction in benefits which would occur if the plant were closed. One such memo prepared by the actuaries considered “various ‘what if’ scenarios, analyzing the effect on costs and savings if the company decided to reduce heads.” The kinds of costs analyzed included “pension cost, savings cost, savings plan cost, health care cost, and just direct overhead cost.” (This previous post discusses the attorney-client privilege aspect of the decision.)
The lower court held that plaintiffs could recover backpay because the award constituted “equitable relief” under ERISA section 502(a)(3).
The Settlement. The parties subsequently entered into a “Stipulation of Settlement” compensating plaintiffs in the amount of $36 million for their lost pension and health care benefits. (The court awarded attorneys’ fees in the total amount of $8.75 million and costs in the amount of $1 million to class counsel.) However, the settlement stipulation required judicial resolution of the availability of backpay under ERISA section 502(a)(3). The district court approved the settlement and certified the controlling question of law for appeal.
On Appeal. The question before the court, as stipulated by the parties, was this:
[W]hether, in this ERISA section 510 case and as a result of Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002), backpay (and, as a result, any other damages based upon backpay) are available as “appropriate equitable relief” to the class members pursuant to ERISA section 502(a)(3).
The controversy stemmed from the remedies provided under ERISA section 502(a)(3):
A civil action may be brought . . . by a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of [Title I of ERISA] or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of [Title I of ERISA] or the terms of the plan[.]
On appeal, the Tenth Circuit reversed the district court and ruled that the award of backpay was not recoverable under the statute because it did not constitute “equitable relief.” In reversing the lower court, the Tenth Circuit emphasized that under ERISA section 502(a)(3), unlike Title VII section 706(g) and NLRA section 10(c), Congress did not specifically make backpay part of an equitable remedy. The court also noted that the remedial purpose of section 502(a) was not to make the aggrieved employee whole, as plaintiffs had argued.
Circuit Judge Lucero dissenting. The dissent states as follows:
Under the majority’s result, the class plaintiffs are entitled to neither reinstatement nor back pay. Not only does the majority’s holding fail to deter ERISA violations, it also encourages employers who violate ERISA to delay proceedings as long as possible, “lead[ing] to the strange result that . . . . the most egregious offenders could be subject to the least sanctions.” Pollard v. E.I. du Pont de Nemours & Co., 532 U.S. 843, 853 (2001). Because I disagree that Congress intended this result or that precedent demands it, I respectfully dissent. . .The majority’s result is similarly disconcerting. Here, reinstatement would have been an appropriate equitable remedy had [the defendants] not so delayed proceedings as to make reinstatement impossible. Thus, through no fault of their own, the class plaintiffs find themselves devoid of the undeniably appropriate equitable remedy of reinstatement. Back pay, which was integral to the relief sought by the plaintiffs at the onset of this litigation, provides an appropriate equitable alternative.
Both the Department of Labor (here) and the AARP (here) filed Amicus Briefs in the case, arguing that backpay should be awarded. The United States Chamber of Commerce filed an Amicus Brief (here [pdf]), arguing that the lower court decision should be overturned and that backpay should not be awarded under ERISA section 510.