Tetreault, Gabriel, and the First Circuit's Reluctance to Recognize Equitable Estoppel in ERISA Cases

The First Circuit issued an interesting ruling early last month that touched on a number of issues, but one that jumped out at me was its approach to the question of equitable estoppel claims under ERISA. In Tetreault v. Reliance Standard, the Court rejected an estoppel claim, but once again – as it has done a number of times in the past – refused to come out and recognize estoppel as a viable claim under the equitable relief prong of ERISA. Instead, the Court applied the logical structure of first noting that the circuit has not yet recognized estoppel as a viable cause of action, and then stating that, even if it were to be recognized as a viable cause of action, the plaintiff’s claim would still fail because the plaintiff could not show its elements, namely, in that case, reasonable reliance.

When I first read the decision, I chuckled to myself, wondering why the Court couldn’t just come out in one of its rulings and expressly acknowledge the existence of estoppel as a viable remedy under the equitable relief prong of ERISA. As I said to one fellow ERISA litigator, isn’t it time for the Court to just come right out and say equitable estoppel exists as a claim under ERISA in the First Circuit? After all, we are something like three years on now from the Supreme Court’s ruling in Amara, which clearly seemed to tell lower courts that equitable estoppel claims are part of the traditional forms of equitable remedies captured in the statute’s equitable relief prong.

In preparing for a talk on ERISA litigation to the Boston Bar Association last week, however, I think I came up with an answer to that riddle, and it rests in the Ninth Circuit’s decision in Gabriel v. Alaska Electrical Pension Fund, where that Court surveyed the post-Amara forms of equitable relief open under ERISA. That decision has received most of its attention – for good reason – for the Court’s discussion of the surcharge remedy, and whether it only applies where there was loss to the plan itself and not just to an allegedly misled plan participant. However, Gabriel has another interesting element, which is the Ninth Circuit’s discussion of the equitable estoppel remedy, which that circuit does recognize under ERISA. The Ninth Circuit explained that equitable estoppel requires, in that context, the existence of additional elements beyond the traditional two of a misstatement and accompanying harmful reliance on it, namely the existence of extraordinary circumstances, such as repeated misleading statements by a plan sponsor/employer. 

As I prepared the part of my talk that concerned Amara remedies, I posed the question of why the Ninth Circuit requires such extraordinary circumstances and, further, what that told us about the First Circuit’s reluctance to fully acknowledge equitable estoppel as a claim under ERISA. The answer, I think, lies in the institutional desire to avoid turning every ERISA denial of benefits dispute into a “participant said/employer said” back and forth dispute, with the courts forced to constantly adjudicate the factual question of whether the participant was misled whenever the participant isn’t actually entitled, under the plan’s terms, to the benefits sought by the participant. By adding on additional factors that must be proven to make out an estoppel claim, such as the Ninth Circuit’s reference to extraordinary circumstances, the courts are able to mitigate this risk and limit equitable estoppel claims to the more egregious or most factually viable circumstances. For instance, in Gabriel, when the Ninth Circuit discussed the need for extraordinary circumstances, the Court gave, as an example, repetitive misleading statements by the employer with regard to the benefits at issue or the benefit plan. As an evidentiary bar, this requirement separates the routine case where there is a random misstatement from a low level HR person upon which a plaintiff’s lawyer tries to fashion an entire estoppel claim (which federal court judges have been seeing, and for the most part rejecting, for years) from a deliberate pattern and practice of self-serving conduct that harms participants (and which federal court judges don’t see all that often). These types of additional requirements for estoppel claims under the equitable relief provision of ERISA, above and beyond the standard requirement of reasonable reliance on a misstatement of fact, allow the courts to limit this type of relief, in the ERISA context, to the more egregious circumstances only.

In many ways, doing so makes complete sense, for at least two reasons. First, it harkens back to ERISA’s grand bargain, whereby employers were to be encouraged to create benefit plans by being protected from excessive (I know, I know, the question of when litigation becomes excessive is in the eye of the beholder) litigation, and limiting estoppel claims to only the egregious ones is of a piece with this. Second, it accomplishes what many of us saw as the real benefit – and perhaps judicial purpose – of the Supreme Court’s seeming expansion of equitable remedies in Amara: the granting of a form of relief that would target ERISA’s long standing problem (again, I know, I know: whether it’s a problem is in the eye of the beholder) of harms without a remedy, which lawyers have always used to refer to the fact that ERISA’s limited bodies of remedies left some harms suffered by participants incapable of being remedied by court action. This type of a limited, restricted expansion of equitable remedies with regard to estoppel claims bars opening the courthouse doors to every unhappy participant while still allowing for the possibility of using estoppel to remediate the worst of the harms suffered by participants in circumstances where the denial of benefit and breach of fiduciary duty prongs of ERISA do not offer access to relief.

So to circle back, how does this tie into the puzzle of the First Circuit’s refusal, lo these many years after Amara, to formally recognize equitable estoppel claims under ERISA’s equitable relief prong, despite the opportunity presented, most recently, in Tetreault? The answer, I think, is that the Court is waiting, as the right vehicle for formally acknowledging the cause of action, for the type of egregious fact pattern in which relief by means of equitable estoppel is warranted. Presented with such a fact pattern, the Court will be able to explain what additional factors are present in the case that raise it above the typical type of claims that, I suspect, the Court does not want to capture within the equitable relief prong of ERISA, thus demonstrating and establishing what additional elements, beyond simply a misstatement of fact and reliance, are necessary to make out an estoppel claim under ERISA. In other words, the First Circuit, I believe, is waiting to recognize estoppel as a cause of action under ERISA for the type of case that will allow it to announce what extraordinary circumstances the First Circuit requires for a misstatement to give rise to estoppel, much as the Ninth Circuit identified in Gabriel the extraordinary circumstances that it requires. When that fact pattern finally gets before the First Circuit is when you will see the First Circuit formally recognize estoppel as a theory of liability under ERISA.