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ERISA'S DARK SIDE: RETIREE HEALTH BENEFITS, FALSE
EMPLOYER PROMISES AND THE PROTECTIVE JUDICIARY

Henry H. Rossbacher, Esq.(1)
James S. Cahill, Esq.
Linda L. Griffis, Esq.

I. INTRODUCTION

The Employee Retirement Income Security Act ("ERISA") of 1994(2) was intended by Congress to protect employees, retirees and their beneficiaries in pension and employee benefit plans through a uniform body of federal law. In regulating plans, ERISA distinguishes between two types of employment benefits: welfare benefits and pension benefits.(3) A welfare benefit plan includes any plan, fund or program for providing medical benefits.(4) An employer must establish and maintain a welfare benefit plan pursuant to a written instrument(5) and must give the participants and beneficiaries a written "summary plan description" or "SPD" describing their plan.(6) Vested benefits are those which are nonforfeitable.(7) While ERISA contains vesting requirements for pension plans, ERISA does not require automatic vesting of welfare benefit plans.(8)

One of Congress' main goals in ERISA was the replacement of state-by-state regulation of employee benefit plans with a comprehensive federal statute covering such programs. This intent is expressed in 29 U.S.C. section 1144(a) which states, in part: "The provisions of this title . . . shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan." The scope of ERISA's preemption provision has been found "deliberately expansive" and "conspicuous for its breadth." It includes state statutes, rules, regulations and common law causes of action that "relate to" ERISA plans.(9)

ERISA "completely preempts" state law in order to create uniform federal law governing employee benefit plans.(10) Remedies for breaches of ERISA rights are provided under ERISA's civil enforcement scheme in 29 U.S.C. section 1132(a)(1)-(3). Since ERISA displaces state law claims and substitutes federal claims, claims pleaded as state law causes of action are "recharacterized" as federal and, consequently, are removable to federal court.(11) However, ERISA preempts only state, not federal, claims; causes of action founded on other federal laws or state laws paralleling other federal laws are not displaced.(12)

ERISA's preemption provision was not supposed to leave plan participants worse off than they had been under pre-ERISA state law. The Supreme Court in Firestone Tire & Rubber Co. v. Bruch(13) rejected an interpretation of ERISA's enforcement provisions that "would afford less protection to employees and their beneficiaries than they enjoyed before ERISA was enacted,"(14) stating that "ERISA was enacted 'to promote the interest of employees and their beneficiaries in employer benefit plans' and 'to protect contractually defined benefits.'"(15)

It is the thesis of this article that ERISA has had effects on benefits plan participants and beneficiaries which are the obverse of those intended by Congress. First, the lower federal courts have turned ERISA's requirement of a written plan instrument and Congress' failure to require vesting of benefit plans into a presumption against finding that contractually enforceable benefits exist. This development is analyzed in Part II of this article.

Second, the federal courts have attempted to constrict the scope and applicability of the remedies provided by ERISA's enforcement provisions, virtually rejecting the creation of federal common law claims to replace preempted state remedies and severely restricting the available estoppel causes of action. These decisions are discussed in Part III.

Third, the courts have not filled the gaps with consistent decisions either defining fiduciary duties or the remedies for their breach. The case law in this area, including the Supreme Court's decisions in Varity Corp. v. Howe(16) and Lockheed Corp. v. Spink,(17) is discussed in Part IV.

II. THE ENSHRINEMENT OF THE ERISA PLAN DOCUMENT AS AN INDEFEASIBLE BAR TO THE CREATION AND ENFORCEMENT OF EMPLOYEE RIGHTS

A. INTRODUCTION

Motivated by their "bottom line," many companies discovered with the advent of Financial Accounting Standard 106 ("FAS 106") a timely pretext to phase out predominantly company-funded retiree health care.(18) This trend started in late 1992, spawning ERISA litigation throughout the country.(19) Underlying the subsequent spate of federal court decisions favoring the employer's flexibility to reduce or end company-sponsored retiree health care appears to be an overriding judicial determination that retiree health care is wildly expensive, threatening the solvency of corporate America.(20) The judicial response to this perceived catastrophe in the making has been to shape the law to protect corporations. The result has been to transfer healthcare costs to retirees, often with tragic results.

B. THE PLAN CLAIM

In most ERISA benefits litigation, employees and retirees seek to regain their company-sponsored welfare benefits which the employer has reduced or eliminated by showing that their employer breached representations made to them about the quality or duration of welfare benefits in violation of 29 U.S.C. section 1132(a)(1)(B). This provision empowers a plan participant or beneficiary "to recover benefits due to him under the terms of the plan, or enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." A claim against the employer under section 1132(a)(1)(B) to furnish promised benefits "is the equivalent of a breach of contract action."(21)

The Supreme Court has yet to pass squarely on the ability of employees and retirees to enforce employer representations under section 1132(a)(1)(B). In Varity,(22) the Supreme Court limited its review to the employer's fiduciary duty under 29 U.S.C. section 1132(a)(3).(23)

The Supreme Court in Curtiss-Wright Corp. v. Schoonejongen(24) found effective specific reservation of rights language in a welfare benefit plan and held that employers may adopt, modify or terminate welfare benefit plans. The dispute was remanded to the district court to decide whether the plan had been amended by an authorized person of the company.(25) Significantly, the Supreme Court in Curtiss-Wright did not analyze whether or how the employer had promised its retirees lifetime health benefits. Neither Varity nor Curtiss-Wright impedes employees or retirees from proving that their health benefits were contracted for and, thus, vested.(26) Indeed, the Supreme Court recently recognized that welfare benefits can be promised by employers in Inter-Modal Rail Emp. Ass'n v. Atchison, Topeka & Santa Fe Rlwy. Co., ___ S.Ct. ___, 1997 WL 235079 (May 12, 1997) (No. 96-491), reversing in part, 80 F.3d 348 (9th Cir. 1996) (per curiam). Despite an absence of Supreme Court decisions mandating a restrictive view of employees' rights, the federal judiciary has been virtually unanimous in finding technical and policy reasons to deny ERISA "breach of contract" claims for aggrieved employees and retirees

1. The Lack of Vesting

The courts have been vigilant to protect employers from "inadvertently" creating contract claims to plan benefits. The courts have refused to find the employers' conduct or representations sufficient to create or vest benefits. Thus, the mere fact that a welfare benefit continues through retirement does not indicate that the benefit becomes vested for life at the moment of retirement, especially if the employer reserved the right to amend or end coverage.(27) The Sixth Circuit has held that even the employer's statement that coverages would continue after retirement with no contribution from the retiree did not promise "lifetime paid-up medical insurance" but merely described the benefit plan as it existed at a given time.(28) "Accordingly, a plan participant's interest in welfare benefits is not automatically vested, and employers have a statutory right to 'amend the terms of the plan or terminate it entirely.'"(29) Thus, "[a]n employer may unilaterally modify or terminate health benefits 'absent the employer's contractual agreement to the contrary,' even if some benefits have been paid."(30) The bar the employer must jump to create vesting is, according to the courts, quite high.

The courts have premised their policy defenses of their employer-protecting decisions on their finding that Congress' rationale in not imposing vesting requirements on welfare benefit plans was its determination that "'[t]o require the vesting of those ancillary benefits would seriously complicate the administration and increase the cost of plans whose primary function is to provide retirement income.'"(31) As the Second Circuit observed:

Automatic vesting was rejected because the costs of such plans are subject to fluctuating and unpredictable variables. Actuarial decisions concerning fixed annuities are based on fairly stable data, and vesting is appropriate. In contrast, medical insurance must take account of inflation, changes in medical practice and technology, and increases in the cost of treatment independent of inflation. These unstable variables prevent accurate prediction of future needs and costs.(32)

The courts have turned a congressional finding that Congress would not require vesting by legislation into a rationale for preventing vesting to occur through the company's own conduct. The decisions operate as a one-way filter, blocking recognition of employers' conduct implying or creating benefits while relying on employers' actions and intent denying or failing to create benefits.

2. The Written Employer "Waiver"

Under only limited circumstances have the courts found a welfare plan may provide a vested benefit.(33) "An employer may 'waive[] its statutory right to modify or terminate benefits,' however, by voluntarily undertaking an obligation to provide vested, unalterable benefits."(34) "Employers and employees are therefore free to set out, by agreement, welfare benefit plans which vest irrevocably at retirement."(35) But because the vesting of rights in a welfare plan constitutes an extra-ERISA commitment, "courts may not lightly infer the existence of an agreement to vest employee welfare benefits."(36) This supposed limitation on inferences is, in practice, turned into a presumption against both vesting and "waiver."

By judicial fiat, complaining employees must bear the burden of proving that the contested ERISA plan features vested benefits.(37) The courts have required that since an employee benefit plan must be established by a written instrument, the employer's promise to furnish vested benefits "must be incorporated in some fashion into the formal written ERISA plan."(38)

The congressional requirement that employees be shielded by a written document setting forth their rights has been turned into an employer sword. What the courts view as extra-ERISA commitments, such as the vesting of health benefits, must be found in the plan documents (which may include SPDs) and stated in clear and express language to be enforceable.(39) A court must examine only the plan documents to decide if the employer intended to confer vested benefits.(40)

3. The Prohibition of Non-Plan Evidence

"Extrinsic" or "informal" evidence is prohibited to vary the unambiguous plan terms but evidence of communications outside of the plan document may be considered by the court to divine the parties' intent when the plan document is ambiguous on the question of vesting.(41) Thus, clear plan documents denying benefits prevent even judicial consideration of equally clear non-plan documents and oral commitments granting benefits.

The Ninth Circuit, especially, adheres to the rule that informal representations concerning prospective benefits cannot alter the terms of the formal written benefit plan. A contrary result "would run counter to ERISA's overriding interest in avoiding side agreements that deviate from a plan applicable to all employees."(42) The Ninth Circuit there found a company letter stating how pension benefits would be calculated insufficient to create employee rights where a later-adopted comprehensive plan did not accord with the letter. "Informal" or "extrinsic" communications by the employer to its workers not present in the formal plan document or SPD are ignored by the courts in a section 1132(a)(1)(B) claim.(43) As one Ninth Circuit court has held: "If the court were [to] find that all of these materials were plan documents, it would no longer be dealing with one ERISA plan, but with as many separate plans as there are class members. Such a result contradicts both the rationale behind ERISA, and the purpose of granting class certification."(44)

4. Summary Plan Descriptions as "the Contract"

SPDs, which are to be written in understandable language, are the primary means of informing participants and beneficiaries about their benefits.(45) As a consequence, many of the circuits have held that, as a matter of law, SPD provisions take precedence over the oftentimes incomprehensible and technical text of official plan communications.(46)

Typically, the employer asserts that because the formal plan or SPD explicitly reserves to the employer the right to change or discontinue the plan, any promise to continue benefits is subject to the rights reserved by the company ("ROR" clause).(47) The employees or retirees, usually argue that the employer made contradictory promises during their company careers that company-funded benefits would continue for their lives, creating an ambiguity in the official plan document or SPD or overriding it.

ROR clauses, often in the back of multi-page printed books delineating health plan details (even multiple health plans), are only a part of the employer-employee communications at issue. Employers often issue newsletters describing benefits, benefit statements and exit packages as well as make a myriad of oral and written communications with their employees through their personnel departments, senior and junior management, and recruiting officers. Not surprisingly, these "informal," "extrinsic" communications often bear little relationship to the "formal" rights supposedly delineated and reserved in the SPDs.

SPDs themselves have been known to be inconsistent, promising or describing lifetime benefits in one part while containing RORs in, typically, a later part. The ROR clause figures prominently in ERISA benefit litigation. The situations litigated vary: (i) a clear promise of benefits coupled with an ambiguous ROR in the SPD or plan document, (ii) a clear promise and clear ROR in plan documents and (iii) an unequivocal ROR in plan documents coupled with clear lifetime promises in non-plan documents and oral communications. These litigations have predominantly resulted in pro-employer victories.

The Second Circuit has set the bar unequivocally high. In Moore,(48) the Second Circuit met a claim by employees that their contract with their employer constituted more than plan documents. The Circuit responded with chilling clarity:

Plaintiffs are therefore driven to argue that the "contract" between themselves and Metropolitan "consists of the totality of the representations made to employees by the Company, and the actions of the employees in accepting those representations by remaining with the Company." We disagree.

The rationale for this approach is highly questionable. The benefits situation is idiosyncratic in that the relevant conduct is overwhelmingly that of corporate management. It is management alone that creates benefit plans, communicates the plan's terms to employees both orally and in writing and memorializes those terms in formal plan documents and so-called informal or extrinsic written communications. Thus, most of the evidence is created by acts of management.

Only managers write the plan documents, publish the benefits brochures, draft and send the correspondence, publish and disseminate the intra-corporate newsletter, conduct the hiring and exit interviews, provide the benefits counseling, answer the employees' and retirees' questions and address the employees on the virtues of their current employment. Management staffs and trains the personnel departments. No retiree can create a communication stating the company's policy. If this is all true, and it is, why do the courts not apply traditional concepts of corporate law to determine whether a corporate manager's representations were authorized, or apparently authorized, and, thus, bind the corporation?(49)

The Supreme Court in Curtiss-Wright(50) recognized that principles of corporate law should be consulted by federal courts for determining the express and implied authority of corporate officers and agents to bind the corporation in welfare benefit matters. Why are the company's plan documents held to override other authorized management communications? Since it is the company's acts that have produced the dilemma, why is the company excused the results of their own actions? Where is this result written in ERISA?

This result is particularly difficult to justify when it is realized that ERISA sought to protect plan participants and beneficiaries by making administrators their fiduciaries. Congress conferred unwaivable duties on management, not employees. ERISA solely confers fiduciary powers and duties on management. It would seem that all conduct and representations by fiduciaries relating to the terms of the contract which management alone defines would be material to the contract claims. The courts have regularly decided otherwise.

In Krishan,(51) two former presidents of Douglas Aircraft, two former vice presidents of human relations, three former controllers, and at least four other senior executives testified without equivocation that promises of lifetime benefits were made by management to the Douglas employees. Numerous employees and retirees testified to receiving those promises. Yet, pursuant to the dictates of Moore and its ilk, all of this evidence was held to be completely irrelevant to ERISA plan claims and was insufficient to establish an estoppel claim on a class basis.(52) No analysis was found to be appropriate as to the effect of this corporate conduct on the employees and retirees who were its targets. No analysis was needed to consider whether or not this conduct had been undertaken by authorized executives or pursuant to corporate policy. As in Moore, so in Krishan, the talismanic plan documents prevail, erasing years of corporate representations to the contrary.(53)

5. Conflicting Plan Provisions and Promises

The conflict between an employer's reservation of rights to change or discontinue a plan appearing in the same document as a promise of interminable benefits to qualifying participants presents difficult issues of interpretation. A number of courts have addressed similar cases where a ROR clause appeared within the same document as a promise of lifetime benefits continuing after employees reach retirement.(54)

Not surprisingly, retirees prevail on their claims to recover lost health care benefits if "the SPDs promulgated by the [employer] made clear, unambiguous promises of lifetime coverage and they contained no valid provisions reserving the right to modify or terminate the benefits conferred."(55) In Helwig, a cancellation clause in a master insurance agreement was held not to be an effective reservation of rights clause even through the SPD stated that the master insurance agreement between the employer and the carrier contained the terms of the employees' benefits.(56)

As a rule, the courts have concluded that an unequivocal ROR clause in the official plan document or SPD will trump informal statements made to employees that their benefits will last for their lifetimes.(57) In In re Unisys Corp. Retiree Medical Ben. ERISA Litigation,(58) the Third Circuit concluded that a ROR clause unambiguously controlled a promise of continued health care benefits to retirees:

[a]n employer who promises lifetime medical benefits, while at the same time reserving the right to amend the plan under which those benefits were provided, has informed the plan participants of the time period during which they will be eligible to receive benefits provided the plan continues to exist.(59)

Ambiguous promises and reservations have been more difficult. Jensen(60) is an example. There, the Eighth Circuit found two ROR clauses to be "not facially unambiguous -- they leave at least some doubt as to whether [the employer] intended to reserve the right to change or terminate benefits to already retired pensioners, or only the right to make prospective changes for those covered by the Plan but not yet retired." Having reached its decision, the Eighth Circuit then examined "overwhelming" extrinsic evidence proving that the employer indeed intended medical benefits to vest upon retirement.(61) The results have been mixed in these cases.(62)

6. The External Contract

In a departure from the rule that only the unambiguous terms of an ERISA plan document control, one panel of the Sixth Circuit in Sprague v. General Motors Corp.(63) found, in part, that written statements of acceptance signed by 50,000 employees taking early retirement created independent bilateral contracts which were enforceable under ERISA entitling those early retirees to vested, lifetime health care benefits. The retirees agreed to give up their jobs and, in some instances, waived potential claims against General Motors.(64)

In determining the terms of those ERISA contracts, the district court was deemed to have properly relied on extra-ERISA plan assurances, in the form of oral and informal written communications, that full health care coverage would be provided for life at no cost to the retirees. "We agree with the district court that the information on health care supplied to early retirees formed the basis of an agreement apart from the company's regular health care plan to provide early retirees with vested health care benefits in exchange for defined consideration . . . ."(65) For the early retirees, General Motors was bound by its "informal" communications which were held to constitute binding agreements vesting benefits made outside the official plan document and barred from instituting plan modifications increasing deductibles and co-payments for retiree health coverage.

This line of authority is, however, quite limited in application. An ERISA breach of contract claim for loss of welfare benefits under 29 U.S.C. section 1132(a)(1)(B) or under the vacated Sprague opinion on an independent bilateral contract theory must originate from an employer's express, unreserved commitment vesting such benefits in the employees.(66)

C. CONTRACT CLAIMS SUMMARIZED

Deliberate fraudulent promises or even promises and representations consistently made negligently by an employer in "informal" communications to employees deceiving employees about their welfare benefits are not actionable as an ERISA breach of contract claim.(67) ERISA's vesting and disclosure requirements as construed by the lower federal courts have operated to shield both the unscrupulous and incompetent employers who systematically lie, conveniently dissemble or ineptly mislead their employees about company-sponsored welfare benefits. The courts have held employers escape civil liability to their labor force simply by (i) refusing to memorialize the lifetime, vesting promise in an ERISA plan document; or (ii) inserting a boilerplate ROR clause in the plan document which will trump any perceived benefit promise.

III. THE REFUSED OPPORTUNITY TO DEVELOP OR IMPLEMENT FEDERAL COMMON LAW AS A METHOD TO ENFORCE EMPLOYER PROMISES

Assuming that the employer was circumspect by not acknowledging its guarantee to employees in a plan document or by retaining in the plan the right to terminate the benefits, the injured employees has a potential avenue under ERISA to redress the employer's fraud or misconduct independent of the employer's contractual obligations under the plan: federal common law claims. These remedies will now be discussed.

In Alday v. Container Corp. of America,(68) the Eleventh Circuit observed in dicta that an employer acting as a fiduciary may not insulate itself from liability on the basis of the SPD for the purpose of deceiving employees about their benefits. "In such a case, there may be valid reasons for a court to look beyond the unambiguous language of the SPD in interpreting the plan."(69) Similarly, some federal courts have found in federal common law innovative approaches such as equitable estoppel to remedy an employer's fraud or deception. Federal courts, however, have not employed this opportunity to develop a federal common law to protect employees who have been assured post-employment welfare benefits by deceitful employers.

A. EMPOWERMENT OF THE FEDERAL JUDICIARY TO APPLY FEDERAL COMMON LAW DOCTRINES IN ERISA DISPUTES

Where ERISA's "bare terms" are found inadequate to establish the comprehensive scheme of relief necessary to achieve the salutary goals delineated by the Supreme Court in Firestone Tire,(70) federal courts have been charged with the duty to develop a body of federal common law to supplement the statutory scheme "in light of reason and experience."(71) For particular areas that ERISA did not specifically address, the Supreme Court itself has held that Congress empowered the federal judiciary to apply common law doctrines in ERISA actions; indeed, Congress' express intent was for "courts . . . to develop a federal common law of rights and obligations under ERISA-regulated plans."(72)

In performing this duty, federal courts were to develop federal common law when "necessary to effectuate the purposes of ERISA."(73) "The authority of courts to develop a 'federal common law' under ERISA . . . is not the authority to revise the text of the statute."(74) To this end, where federal principles are lacking or inappropriate, federal courts may adopt and apply state law concepts (not as an independent source of rights) but only if compatible with the policies of ERISA.(75) In the words of the Supreme Court, "[f]ederal interpretation of the federal law will govern, not state law. But state law, if compatible with the purpose of [the statute] may be resorted to in order to find the rule that will best effectuate the federal policy."(76)

Many federal courts considering ERISA plans have applied general tenets of contract law, insurance law or trust law. For example, several circuits have embraced the rule of contra proferentum (borrowed from state insurance law) in ERISA benefit claims.(77) In Saltarelli v. Bob Baker Group Medical Trust,(78) the Ninth Circuit absorbed from state insurance law the doctrine of reasonable expectations refusing to enforce a preexisting conditions limitation that was "buried" in an SPD. Significantly, the Supreme Court in Curtiss-Wright(79) looked to principles of corporate law outside of ERISA to help determine who has decision-making authority on behalf of a company to amend an ERISA plan.

1. The Reach of Preemption

Conversely, most federal courts have been reluctant to import common law fraud or negligence into disputes challenging employers' statements concerning the nature of a benefits plan. The courts label such suits as state common law claims for fraudulent or negligent misrepresentation and dismiss them out of hand as preempted.(80) No state law claim survives preemption which holds corporate management responsible for their deliberate or negligent misrepresentations. There is no compelling rationale stated in these cases for this result. The analysis is perfunctory at best. Since by definition a state law claim does not survive preemption, these do not. This is a tautology, not an analysis. However, few courts have given thought to whether the wrongful conduct gives rise to federal redress.(81) There are almost no cases thoughtfully discussing whether these "preempted" causes of action are necessary to fairly and effectively implement ERISA.

2. A Fraud Defense?

Bizarrely, in Nash v. Trustees of Boston University,(82) the First Circuit recognized the affirmative defense of fraud in the inducement as a matter of federal common law to a lawsuit relating to the formation of an early retirement agreement that the court construed as an ERISA plan. The plaintiff, a former tenured professor, had falsely represented to his employer that he would not be taking a job at another school. The court held that Congress' purpose and the public policy of ERISA would be promoted by allowing such an affirmative defense, reasoning that this defense protected employers from unfairness and thereby encouraged employers to offer benefit programs.(83) The court reasoned:

[W]ere we to conclude that so fundamental a principle as fraud in the inducement may not be asserted in defense to a claim for the enforcement of a putative ERISA benefit plan, the congressional purpose in chartering federal court development of a body of ERISA-related federal common law would be diminished to insignificance.(84)

The state of the law now appears to be that employers have common law defenses based on fraud while employees' and retirees' fraud claims are "preempted."(85)

3. Avoiding Preemption

Other courts navigate away from the preemption morass altogether by deciding that the misconduct did not "relate to" an ERISA plan.(86) The Eleventh Circuit in Morstein v. National Ins. Services, Inc.(87) recently allowed state law claims of fraud and negligence against an insurance agent and his agency where the plaintiff had been fraudulently induced to purchase an inadequate policy for an ERISA-governed insurance plan for her company and where the broker then negligently processed the plaintiff's claim. Observing that the Supreme Court in New York State Conference of Blue Cross & Blue Shield Plans v. Travelers Ins. Co.(88) had "turned the tide on the expansion of the preemption doctrine,"(89) the Eleventh Circuit held that the common law claims did not affect relations among ERISA entities and were not preempted. In particular, the court viewed the economic impact of exposing insurance agents to common law tort liability could not provide a reason to shield them from fraud claims and reasoned that preemption of a fraud claim against an insurance agent would not promote Congress' purpose in adopting ERISA.(90)

4. Preemption Triumphant

Despite the pervasive refusal of most courts to permit common law fraud or negligent misrepresentation claims in ERISA litigation (independent of equitable estoppel), the tort principles of these common law claims are: (i) consistent with the congressional goals of ERISA; (ii) part of American jurisprudence well known to the federal judiciary; and (iii) would be effective tools to rectify employer misconduct in benefit disputes. It is unlikely, though, that the lower federal courts, without further guidance from the Supreme Court, will reverse their retreat from developing federal common law to redress employer fraud and negligence in ERISA benefit disputes.(91)

The Ninth Circuit, for instance, has resisted the Supreme Court's directive in Firestone Tire, supra, to develop a federal common law for ERISA by declaring that "[t]he federal common law that the [Supreme] Court envisioned relates to rights and obligations under the ERISA plan and not to causes of action . . . ."(92) The majority observed that the claimed federal common law cause of action for reimbursement did not invoke any remedy listed in 29 U.S.C. section 1132 and, thus, declared that the complaint failed to state an ERISA claim. The dissent faulted the majority for having dismissed the lawsuit simply because it was labelled a "federal common law cause of action" without considering whether the plaintiff alleged and could prove "facts sufficient to establish an equitable claim for unjust enrichment under 29 U.S.C. § 1132(a)(3) . . . ."(93)

Along this same line, the Eighth Circuit in Howe(94) was presented with egregious employer fraud yet flatly disallowed "the free-standing claim of fraudulent misrepresentation." The Circuit opined that "[a]cts of fraud may be relevant to an ERISA claim" and "may even be actionable under ERISA, but if they are, it is because they violate the statute, not because they would be tortious under the common law of any state."(95) The court then analyzed the employer's fraud solely within the context of the fiduciary obligations created by ERISA, i.e., 29 U.S.C. sections 1104(a)(1) and 1132 (a)(3).(96) The fraud claim itself was rejected. The Supreme Court's review of the Eighth Circuit's decision finding a fiduciary breach is discussed in Part IV(A)(2).

B. THE LIMITATION OF THE FEDERAL COMMON LAW OF ESTOPPEL IN THE ERISA CONTEXT

1. Estoppel - Equitable and Promissory

A number of circuits have employed the federal common law claim of estoppel in actions based on ERISA fraud or misrepresentation. Estoppel is an equitable doctrine that protects individuals who reasonably rely to their detriment on statements that otherwise would not be legally binding. The key elements of equitable estoppel under federal common law are: (i) a misrepresentation of a material fact by the party to be estopped; (ii) an intention or reasonable belief that the party asserting the estoppel would rely on the misrepresentation; and (iii) reasonable and detrimental reliance on the misrepresentation by the party asserting the estoppel.(97) The elements of promissory estoppel are similar, but while equitable estoppel requires the misrepresentation of an existing fact, promissory estoppel requires the existence of a promise intended or reasonably expected to induce reliance and reasonable and detrimental reliance on the promise.(98)

A number of circuits have held that ERISA precludes oral or informal written modifications of employee welfare plans and, thus, estoppel is not available to vary the unambiguous provisions of formal written plans.(99) Some courts have applied estoppel in welfare benefit cases, however, based on oral or written statements that contradict unambiguous plan language.(100) Estoppel claims have also been accepted when they are based on inconsistent statements or omissions in summary plan descriptions,(101) when they are based on oral or written statements that interpret ambiguous plan provisions,(102) or when the case involves "extraordinary circumstances."(103)

While some plan participants have successfully alleged estoppel claims, the circuits are far from uniform in their willingness to allow claims for federal common law estoppel under ERISA. Whether an alleged estoppel claim survives first depends on the circuit in which the case is brought. Additional factors are whether the plan is one for pension or welfare benefits, whether the plan is ambiguous, and whether the employer's statement modifies the plan as written. Even when estoppel claims are cognizable, the claims are often rejected based on a determination that one of the requisite elements for federal common law estoppel is missing.(104)

2. The Ninth Circuit Test

A recent Ninth Circuit case, Pisciotta v. Teledyne Industries, Inc.,(105) illustrates how hostilely the federal courts treat estoppel claims. In 1972, Teledyne established a medical insurance policy for certain employees which provided that upon their retirement the company would pay all health care insurance premiums for the remainder of the employee's and spouse's life.(106) Teledyne distributed booklets containing the lifetime benefits promise. Subsequently, Teledyne announced that it was placing a cap on the amount of premiums it would pay. In the class suit that followed, the district court denied the employees' motion to amend the complaint by adding a promissory estoppel cause of action on the basis that the employees could not allege that the plan language was ambiguous.

Citing In re Unisys Corp.,(107) the Ninth Circuit first noted that an ERISA beneficiary may recover benefits under an equitable estoppel theory only upon establishing a material misrepresentation, reasonable and detrimental reliance upon the representation and extraordinary circumstances.(108) The Ninth Circuit, however, interpreted the circuit's prior decision in Greany v. Western Farm Bureau Life Ins. Co.(109) to require two additional prerequisites: the provisions of the plan at issue must be ambiguous and the representations must involve an oral interpretation of the plan.(110)

On appeal, the Teledyne employees contended that the insurance booklets containing the promise should be enforced, especially since Teledyne had failed to issue SPDs for the period in question. The court disagreed, going on to find that even if the company-issued booklets were SPDs, the underlying insurance contract had contained an effective reservation of rights. The court held the insurance contract to be a plan document. The court barred all employee claims, finding that the employees were not excused from the necessity of pleading that the provisions of the plan were ambiguous, a fact which the retirees conceded they could not properly plead.(111)

C. SUMMARY OF COMMON LAW CLAIMS

A fair consideration of the estoppel litigation under ERISA shows it to be extremely limited in its compass. The federal courts first look to the plan documents; by and large, if the documents deny benefits or reserve the right to terminate, no amount of misrepresentation by the employer, whether written or oral, will require payment of the employees' promised benefits. Fraud and misrepresentation claims are "preempted," with no federal analogue recognized by the federal judiciary.(112) The preemption shield afforded to employers against inconsistent state rights and responsibilities has been turned into a razor-sharp sword available to employers to cut the bonds of their promised obligations. The promise of the federal common law is unfulfilled.

IV. THE UNCERTAINTY OF CLAIMS BASED ON ERISA BREACH OF FIDUCIARY DUTY

The third area of employee benefits litigation has centered on the duties plan administrators and sponsors assume by virtue of their statutorily mandated duties as plan fiduciaries. Here the lower court decisions have varied widely, some circuits even denying that plan beneficiaries and participants have the right to enforce fiduciaries' duties under ERISA.

A. THE SCOPE OF FIDUCIARY DUTIES AND REMEDIES

1. Pre-Varity Litigation

Under 29 U.S.C. section 1104(a)(1), plan fiduciaries have a basic duty to act "solely in the interest" of plan participants and beneficiaries. The measure of liability is set forth in 29 U.S.C. section 1109(a). The specific intent of Congress in enacting this provision was "to provide the full range of legal and equitable remedies available in both state and federal courts."(113) ERISA's civil enforcement provisions are included in 29 U.S.C. section 1132(a). Specifically, sections 1132(a)(2) and (a)(3) have been deemed the avenues for enforcing ERISA's fiduciary standards.

The Supreme Court first reviewed the issue of relief for breach of fiduciary duties in Massachusetts Mutual Life Ins. Co. v. Russell.(114) In that case, the Court held that when a plan participant or beneficiary sues under 29 U.S.C. section 1132(a)(2) for appropriate relief under section 1109, the relief inures only to the plan as a whole, and not to the individual participants. Since the plaintiff in that case expressly disclaimed reliance on 29 U.S.C. section 1132(a)(3), the Court noted that it had "no occasion to consider whether any other provision of ERISA authorize[d] recovery of extra-contractual damages."(115) Justice Brennan, joined by three other justices, wrote separately to emphasize the limited reach of the majority opinion and explained that individual recovery for breach of fiduciary duty was available under section 1132(a)(3).(116)

After the Russell decision, the availability of individualized actions for fiduciary breach under ERISA fraud became a tangle of contrasting determinations. For example, the Third Circuit determined that an individual claim for relief existed under 29 U.S.C. section 1132(a)(3) in four cases.(117) The Fifth,(118) Sixth,(119) and Seventh(120) Circuits appeared to agree. The District of Columbia Circuit seemed to assume that individual claims were authorized.(121)

The Ninth Circuit, on the other hand, flatly refused to recognize the right.(122) Similarly, in Simmons v. Southern Bell Tel. & Tel. Co.,(123) the Eleventh Circuit barred individual recoveries under ERISA for breach of fiduciary duties. The First Circuit in Armstrong v. Jefferson Smurfit Corp.(124) noted that it was "not at all clear" that section 1132(a)(3) allowed plan participants or beneficiaries to sue fiduciaries for fiduciary breach rather than on behalf of the plan, but then concluded that even if such suits were permitted, the plaintiffs could not recover because they had sought legal rather than equitable relief. The result was to close many courthouses to suits against fiduciaries. Corporate America was safe in Los Angeles, Seattle, Boston and Atlanta.

Since Russell, much of the fiduciary breach litigation has focused on allegations that participants were promised a benefit which was not, in fact, provided under the express terms of the plan. Some ERISA fraud or misrepresentation claims have succeeded based on a theory of breach of fiduciary duty; but again, the circuit court decisions have been anything but uniform. Until recently, most circuit courts have followed the lead of the Eleventh Circuit in Nachwalter v. Christie(125) in holding that ERISA itself provides no remedy for benefits promises since ERISA requires that the written terms of the plan shall govern. More recently, however, some circuits have held that a fiduciary who affirmatively, or even by omission, misrepresents material facts about a benefit plan, or who fails to disclose material information to plan participants outside the disclosure requirements of ERISA, can be held liable on a theory of breach of fiduciary duty.(126)

2. The Varity Decision

The Supreme Court reopened the doors of the courthouses to individual claims based on fiduciary breach in Varity Corp. v. Howe.(127) The Court concluded that an individual remedy is created by section 1132(a)(3). In Varity, the company was found to have deliberately deceived a number of employees with respect to the security of their benefit plans in the course of persuading them to participate in a corporate reorganization. The real goal of the reorganization was to transfer Varity's money-losing businesses and their benefit plans into one entity which was insolvent on the day it was created. Participants brought action requesting equitable relief in the form of the benefits that they would have received had they not transferred to the new company. The Supreme Court affirmed that a fiduciary's "deliberate deceit" while communicating future benefits is a breach of fiduciary duty under ERISA.

The Supreme Court explicitly held that the language in 29 U.S.C. section 1132(a)(3) is broad enough to encompass individual relief for breach of fiduciary obligations.(128) Justice Breyer further concluded that the "catchall" provisions of the section "act as a safety net, offering appropriate equitable relief for injuries caused by violations that section 502 [section 1132] does not elsewhere adequately remedy."(129) Finally, the Court held that ERISA's underlying purpose of protecting the interests of participants and beneficiaries by imposing standards of conduct and remedies to ensure that fiduciaries appropriately discharge their duties is consistent with the Court's reading of section 1132(a)(3).(130)

The lessons of Varity are, however, bittersweet. Application of controlling case law in, at least, the First, Ninth, and Eleventh Circuits would have barred the Varity claims for "deliberate deceit." Why? Because the federal courts have refused to view ERISA in the benefits area as an act that provides protection to employees, retirees and their beneficiaries. ERISA was seen as a defense of corporate prerogative. A few thousand retirees fraudulently shuffled off to an insolvent spinoff are a small price to pay for a prosperous parent.

Varity itself fails to provide a clear blueprint of rights defining actionable fiduciary breaches. It is uncertain how the Supreme Court will resolve future ERISA benefit plan cases permeated with employer fraud in view of Justice Breyer's comment that "characterizing a denial of benefits as a breach of fiduciary duty does not necessarily change the standard a court would apply when reviewing the administrator's decision to deny benefits."(131) The Supreme Court, while upholding the right to sue, strongly suggested that lower court judges act conservatively when determining whether to allow the same kind of remedies for workers as ultimately permitted in the Varity case.(132) There have been mixed results for employees relying on the Varity protections in subsequent circuit and district court cases.(133)

3. Post-Varity Litigation - Lockheed

The Supreme Court's opinion in Varity may already have been reined in with the Court's ruling in Lockheed Corp. v. Spink.(134) The Court appeared to take a limiting view as to when an employer is subject to fiduciary standards. Lockheed had amended its pension plan to upgrade pension benefits for those participants willing to retire within a certain time period. To receive this "window benefit," participants were required to sign a waiver of all employment related claims. Spink refused to sign the waiver and claimed that use of pension plan assets to "purchase" such a waiver was a prohibited violation of Lockheed's fiduciary duties under ERISA. The Court, however, held that a plan sponsor does not act as a fiduciary when amending an ERISA plan.(135) Lockheed, thus, clarifies that when an employer is acting in its capacity as the settlor of the plan, it cannot be subject to review as a fiduciary.

4. ERISA Prevents Interference with Welfare Benefits - Inter-Modal

In addition to a claim for breach of fiduciary duty, an employer may be liable under 29 U.S.C. section 1140 for interfering with attainment of employees' welfare benefits. In Inter-Modal Rail Emp. Ass'n v. Atchison, Topeka & Santa Fe Rlwy. Co., ___ S.Ct. ___, 1997 WL 235079 (May 12, 1997) (No. 96-491), reversing in part, 80 F.3d 348 (9th Cir. 1996) (per curiam), the Supreme Court broadly interpreted ERISA, finding in section 1140 an effective remedy to protect employees' unvested benefits against an employer's improper attempt to deny benefits and endorsing strict enforcement of ERISA's procedural requirements previously expressed by the Court in Curtiss-Wright. Writing for a unanimous Court, Justice O'Connor refused to countenance an outcome-driven analysis, observing that "[t]he formal amendment process [of a welfare benefit plan] would be undermined if [section 1140] did not apply because employers could 'informally' amend their plans one participant at a time." Id. The Supreme Court is now warning employers that under section 1140 an employer cannot amend or abolish a welfare benefit plan in an "informal" fashion or for an impermissible purpose.

B. TWO EXEMPLARS

1. The Unisys Case

Notwithstanding the Varity opinion, claims before the lower federal courts based on breach of fiduciary duty may continue to fail to provide necessary relief in all circumstances of ERISA fraud or misrepresentation. A dramatic example of this failure is the district court's recent decision in In re Unisys Corp. Retiree Medical Ben. ERISA Litigation.(136)

On November 3, 1992, Unisys announced that effective January 1, 1993, it was terminating all preexisting medical benefit plans, under which Unisys had paid the entire premium for the retiree's and spouse's lives, and replacing them with a new one which would require the retirees to contribute an increasing portion of the premiums until January 1, 1995, at which time the retirees would become responsible for the entire premium. In short, Unisys was terminating company-paid retiree health care benefits.

The court originally granted Unisys' motion for summary judgment on the breach of fiduciary duty claims. The claims were reinstated, however, when the court, and the court of appeals, allowed the breach of fiduciary duty action to proceed largely because the court found "the retirees presented significant evidence that Unisys made repeated and pervasive representations that the medical benefits were 'for life' without ever mentioning the ROR clause."(137) Unisys "made the material misrepresentations" while "acting in a fiduciary capacity."(138) Indeed, the courts found that Unisys had "actively and affirmatively, systematically misinformed its employees about the duration of their benefits."(139)

The district court then applied the statute of limitations in 29 U.S.C. section 1113(1)(A) and looked to the date of the last act constituting part of the breach. The retirees argued that the cause of action did not accrue until the old plans were terminated and they were harmed by diminution and loss of benefits. The court disagreed, holding that the last action constituting part of the breach of fiduciary duty took place on the date that each plaintiff retired.(140) The court concluded that the resulting harm was not the termination of the old plans and the loss of benefits in 1992.(141)

Instead, the court found the claim arose solely from misrepresentations about lifetime benefits, misrepresentations which may have caused plaintiffs to retire earlier than they would have. The loss of benefits to the retirees, consequently, could not be the "resulting harm" of the breach of fiduciary duty because the misrepresentations neither caused nor resulted in the loss of benefits. The benefits were lost because of a non-fiduciary decision by Unisys to terminate the plans. Even if the resulting harm were not felt until the 1992 change in benefit plans, the court held that the limitations period began on the date each plaintiff retired. Thus, the claims of all retirees who retired more than six years before suit was filed were barred. The court found 29 U.S.C. section 1113(1)(A)'s statute of limitations began to run before the victim of a breach of fiduciary duty incurred any financial injury, or even knew that an injury was possible or likely.

The district court also determined that, based on the language of 29 U.S.C. section 1113, equitable tolling could be applied in ERISA breach of fiduciary duty cases only in cases of fraud or concealment.(142) The court found that the existence of an ROR negated any potential fraud or concealment. Despite deliberate misrepresentations which had as their aim, or at least their effect, the inducement in the retirees of a belief that their benefits were vested, the existence of written plan documents with the correct information (here the ROR) was held to negate any possible fraud or concealment. The court adopted this approach recognizing that a failure to toll the statute of limitations meant that the retirees were required to sue while Unisys' misrepresentations were ongoing and before the retirees felt injury.(143) The retirees had failed to perform their duty of reasonable diligence to inquire and discover the misrepresentations. The district court here follows the overall pattern of ERISA plan and estoppel decisions in its statute of limitations decision by according primacy to the written, plan word.

Unisys also argued that those plaintiffs who retired before lifetime medical benefits were offered in their divisions, those who retired when the company still enforced a mandatory retirement age of 65 and those who left the company's employ because of disability, layoffs, or other reasons, could not prove that the breach of fiduciary duty led them to retire earlier than they otherwise would have and, thus, could not demonstrate "resulting harm." In response to this contention, numerous retirees provided affidavits that they had made important decisions based on the lifetime misrepresentations: that they had forsaken the opportunity to purchase supplemental health insurance and that they had made financial decisions for their retirement based on the lifetime representations. Finding that the harm in the case was created solely by Unisys' knowledge that its employees were electing to retire based on the company's representations of lifetime benefits, the court determined that the harm suffered by those retirees who made decisions other than when to retire based on Unisys' misrepresentations were not the type of "resulting harm" capable of supporting a breach of fiduciary duty.(144)

The Unisys case is still in active litigation, and it will likely be a considerable time before it is known whether these holdings stand. The decision is hopeful in one very significant aspect. The court has upheld the legal principle that consistent corporate actions which misrepresent significant terms of benefit programs can give rise to legal redress as a breach of fiduciary duty. However limited the court has found that relief to be, the principle recognized is consistent with viewing ERISA as a shield, not a sword.

2. The Fischer Litigation

The failure of fiduciary breach claims to provide a satisfactory remedy to plan participants is also illustrated by the Third Circuit's Fischer cases. In Fischer v. Philadelphia Elec. Co.,(145) class action suits were filed by retired employees against the company ("PECo") and various managers and plan fiduciaries. On April 19, 1990, PECo's President announced that he would recommend that the company cut its payroll through early retirement. On April 26, 1990, PECo sent a letter to all employees who had announced an intent to retire, suggesting that they delay their retirement until the company's early retirement package was finalized. Finally, on May 25, 1990, PECo's Board approved an improved retirement package.

The plaintiffs claimed that they had retired while PECo was considering offering this early retirement package and that the plan administrator's failure to inform them of that prospective change deprived them of the opportunity to receive enhanced benefits. The retirees alleged that because the company and plan administrator had known of its intent to offer the package, the fiduciary duties had been breached under 29 U.S.C. section 1104 by providing material misinformation about the revisions. According to the plaintiffs, PECo breached its obligation through a "conspiracy of silence among senior management aimed at keeping confidential the considerable efforts being taken to implement an early retirement incentive program." The district court granted summary judgment to PECo.

In Fischer I, the Third Circuit held that PECo would be liable for breaching ERISA fiduciary duties as a plan administrator if it represented to workers that no early retirement plan was being considered when such a plan was under serious consideration. The court stated, "when a plan administrator speaks, it must speak truthfully." In announcing this rule, the court focused on the materiality of the plan administrator's statements, stating that a critical factor in the materiality inquiry was the seriousness with which a change was being considered at the time information was communicated to participants.

The court in Fischer I recognized the competing polices between an employee's right to information and an employer's need to operate on a day-to-day basis. Although the court's decision was clearly driven by an employee's need for truthful information, the court also recognized a concomitant "right [of] an employer to make the business decision of how much and when to enhance pension benefits,"(146) cautioning that "ERISA does not impose a duty of clairvoyance on fiduciaries."(147) Concluding that the content of the particular communications PECo allegedly made to members of the plaintiff class and whether such communications constituted affirmative misrepresentations were questions of fact properly left to the trier of fact, the Circuit remanded the case to the district court.(148)

On remand, the district court found that PECo began "seriously considering" early retirement on March 12, 1990, when the question of an early retirement sweetener as a method of reducing costs quickly was mentioned during the course of a telephone call between PECo's Manager of Compensation & Benefits and one of its consultants. Judgment was entered in favor of those retirees who had asked about an early retirement plan and retired after that date.

The appeal, however, resulted in the dismissal of the retirees' breach of fiduciary duty claims.(149) With reference back to its decision in Fischer I and noting its decisions in In re Unisys Corp.,(150) and Bixler v. Central Penn. Teamsters Health & Welfare Fund,(151) the court reiterated that the "overarching duty of truthfulness forms an important part of our ERISA jurisprudence."(152) The court then set about the task of defining when serious consideration was in fact occurring, utilizing a three-part formula, but warning that the formulation did not turn on any single factor, that the factors themselves were not isolated criteria, and that this was not a bright-line rule.(153)

In applying their formulation, the court noted that the company continually reviewed its retirement and pension benefits in the ordinary course of business and frequently consulted with a benefits consultant as it considered possible changes as well as specific options. The Circuit concluded that when the misrepresentation claim is based on a statement that no change in benefits is under consideration, the only factor to be decided is the degree of seriousness with which the change was being considered. The more seriously a plan change was being considered, the more likely a misrepresentation would be material.

The court in Fischer II concluded that "serious consideration" did not occur until a specific option was considered by senior management. The March 12, 1990 telephone call found to be the triggering date by the district court was insufficient; instead the three factors did not coincide until April 7, 1990, when senior PECo management met to discuss the consultant's report on staff reduction options. Under the rule established in Fischer I, any employee who asked about a potential early retirement plan after serious consideration began on April 7, 1990, but before the plan's formal announcement on April 19, 1990, received material misinformation. Such an employee would have established a claim for breach of fiduciary duty under ERISA. However, all of the members of the plaintiff class retired before this date. The court, therefore, reversed the holding of the district court and entered judgment on behalf of the company. Needless to say, retirees have found this result to be cold comfort.

Likewise, the newest Unisys decision limits further the effective, potential reach of the breach of fiduciary duty cause of action in the future benefits context. While recognizing a claim where a major corporation "actively and affirmatively, systematically misinformed its employees,"(154) the district court has severely limited those who may bring the claim to those who retired within six years of suit who can prove that the misrepresentation affected their decision to retire. The claims of all others are barred. The relief afforded is not analogous to that expectable under preempted state claims.

C. COMMON ASPECTS OF FIDUCIARY CASES

The fiduciary duty cases seem to have several aspects in common. Varity and the Fischer I decisions do not consider the central thrust of benefits litigation: misrepresentation as to future benefits. The decisions, thus, do not address the harshness of many of the "mainline" benefits decisions upholding and protecting employers' rights and refusing to create a federal common law to protect employees. Confining court review to the employers' plan documents and indulging a number of presumptions against recognition of benefits are not addressed in these cases. On the other hand, a number of courts have responded to employer misconduct by finding actionable breaches of fiduciary duty. Varity definitively opens the federal courthouses to individual claimants. Hopefully, it will have be the first in a series of decisions defining ERISA as what it was intended to be: an act to protect American workers and retirees.

V. CONCLUSION

ERISA benefits litigation is in danger of foundering on a shoal of judicial hostility. The lower federal courts have pinched and pruned ERISA's civil enforcement scheme when confronted with disputes brought by employees, retirees and their beneficiaries contending that their employers have reneged on longstanding promises to provide employees with company-sponsored health care for their lifetimes. The courts have utilized the preemption provided by ERISA to create impenetrable bars to lawsuits redressing employees' grievances, vigorously wiping out traditional common law State causes of action and, then, refusing to create federal common law and statutory claims to fill the wasteland created by their federal preemption decisions. The effect has been to reward employers for conduct that is often fraudulent, if not merely deceptive.

Influenced by a vision of corporate America exposed to increased medical costs and individualized benefit claims, and unenthusiastic about litigating what would be immensely complex disputes, the federal courts have fashioned a rationale that solves the problem of ERISA benefits litigation. Just as judicial hostility in the 1980's found "RICO injuries," "dual patterns," "organized crime limitations" and "legitimate business requirements" to be lurking in the language of RICO,(155) the courts of the 1990's have fashioned doctrines with an equally devastating impact on ERISA litigation. Enshrinement of the company-crafted plan document as trump has dominated judicial analyses and case results.

These doctrines seem to be based on an implicit judgment that the corporations are innocent victims of changed accounting rules, extravagant medical costs, their own generosity and, perhaps, unscrupulous plan beneficiaries. In this context, the corporate progenitor of a misrepresentation is not a villain. The misled are not victims. The litigations are judged without any of the moral outrage that underlies most criminal and civil fraud decisions.

The consequences of this morally neutral view are clear. Common law causes of action based on misconduct are preempted and their federal analogues severely disfavored. No testimony is necessary or appropriate if plan documents are clear. No "informal" lies matter if there are no federal common law causes of action which can surmount the written word. Normal principles of corporate law do not seem to apply.

A number of courts have interpreted ERISA and the federal common law to protect and reward what in any other context would be regarded as unconscionable, even criminal behavior. The courts have not adopted the full panoply of fraud concepts. Retirees and employees lulled into a false sense of security by the very misrepresentations that constituted the heart of the fiduciary breach find the statute of limitations barring their claims. Placement of a duty of reasonable diligence on the victim of a course of conduct designed to allay suspicion aids only the perpetrator of the wrongdoing, not its victims. The lulling concept finds no home in ERISA.

The fact that corporations which have "actively and affirmatively, systematically" lied to their employees escape full liability is just part of life in the 1990's. Just as the Wizards of Wall Street and the Sachems of Silicon Valley put it in arguing for passage of the Private Securities Litigation Reform Act of 1995: "If you hold us liable for lying to our shareholders, it will be more difficult and expensive to raise capital." Here, in ERISA, lying to your lifelong employees should not prevent the corporation from enjoying a prosperous future. Just ask the retirees of America.

The Supreme Court should reject this pinched construction of the statute by the lower federal courts. The Supreme Court should now require the lower courts to interpret ERISA broadly and find in ERISA a source of protections rather than impediments for employees in vindicating their rights under their welfare benefit plans.

END NOTES

1. Henry H. Rossbacher is a graduate of the Wharton School of Finance and Commerce of the University of Pennsylvania and of the University of Virginia Law School. At present, he heads a ten-lawyer litigation firm in Los Angeles with a wide litigation and appellate practice, Rossbacher & Associates. The firm served as co-lead counsel in Krishan v. McDonnell Douglas Corporation, an ERISA class action in which the company's salaried retirees sought restoration of their health benefits. The case settled in 1996 for increased, vested pension benefits estimated to total $450 million over the retirees' expected lives. The firm presently is one of the counsel representing retirees in In re Unisys Corp. Retiree Medical Benefits ERISA Litigation.

James S. Cahill is a graduate of the University of California at Santa Barbara and Loyola University of Los Angeles, School of Law.

Linda L. Griffis is a graduate of the University of Arizona and Loyola University of Los Angeles, School of Law.

2. 29 U.S.C. §§ 1001 et seq.

3. Fort Halifax Packing Co., Inc. v. Coyne, 482 U.S. 1, 8, 107 S.Ct. 2211 (1987); 29 U.S.C. § 1001(1)d(2).

4. 29 U.S.C. § 1002(1).

5. 29 U.S.C. §§ 1102(a)(1) and (6).

6. 29 U.S.C. § 1022(a)(1).

7. Nachman Corp. v. Pension Ben. Guaranty Corp., 446 U.S. 359, 376, 100 S.Ct. 1723 (1980).

8. Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 115 S.Ct. 1223, 1228 (1995), on remand, 66 F.3d 312 (3d Cir. 1995); Massachusetts v. Morash, 490 U.S. 107, 119, 109 S.Ct. 1668, 1675 (1989); see also In re Unisys Corp. Retiree Medical Ben. ERISA Litigation, 58 F.3d 896, 901 (3d Cir. 1995); Gable v. Sweetheart Cup Co., Inc., 35 F.3d 851, 855 (4th Cir. 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 1442 (1995); DeVoll v. Burdick Painting, Inc., 35 F.3d 408, 411 (9th Cir. 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 1381 (1995); Land v. Chicago Truck Drivers, Helpers and Warehouse Workers Union (Independent) Health and Welfare Fund, 25 F.3d 509, 514 (7th Cir. 1994); Smith v. Hartford Ins. Group, 6 F.3d 131, 136 (3d Cir. 1993); Alexander v. Primerica Holdings, Inc., 967 F.2d 90, 95 (3d Cir. 1992), on remand, 811 F.Supp. 1025 (D.N.J. 1993), mandamus grant'd, 10 F.3d 155 (3d Cir. 1993); Reichelt v. Emhart Corp., 921 F.2d 425, 430 (2d Cir. 1990), cert. denied, 501 U.S. 1231, 111 S.Ct. 2854 (1991); Alday v. Container Corp. of America, 906 F.2d 660, 663 (11th Cir. 1990), cert. denied, 498 U.S. 1026, 111 S.Ct. 675 (1991).

9. Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 47-48, 107 S.Ct. 1549 (1987), on remand, 821 F.2d 277 (5th Cir. 1987).

10. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 65, 107 S.Ct. 1542 (1987), on remand, Taylor v. General Motors Corp., 826 F.2d 452 (6th Cir. 1987).

11. Id. at 64; Degan v. Ford Motor Co., 869 F.2d 889, 893 (5th Cir. 1989).

12. 29 U.S.C. § 1144(d); Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96, 103 S.Ct. 2890 (1983). In California Div. of Labor Standards Enforcement v. Dillingham Const., N.A., Inc., ___ U.S. ___, 117 S.Ct. 832 (1997), Justice Scalia, joined by Justice Ginsberg, in his concurring opinion suggests that ERISA preemption is broad, that it in effect constitutes "field preemption" under Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 248, 104 S.Ct. 615 (1984). Whether or not the Supreme Court ultimately adopts this terminology, the extreme breadth of ERISA's preemption is a dead issue.

13. 489 U.S. 101, 109 S.Ct. 948 (1989).

14. Id. at 114.

15. Id. at 113-14.

16. ___ U.S. __, 116 S.Ct. 1065 (1996).

17. ___ U.S. ___, 116 S.Ct. 1783 (1996).

18. FAS 106 requires employers to calculate their accumulated post-retirement benefit obligations, i.e., the cost of providing future health benefits, and to charge the entire future cost against current earnings or to accrete the liability over 20 years or more (with a correlative annual charge against current earnings).

19. The motivation for the litigation is due in large part to the fact that major American corporations did not fund their future retiree welfare benefits obligations as they were incurred. As an example, in December of 1992, Ford, Chrysler and General Motors were facing unfunded obligations of more than $28 billion (Ford, $7.5 billion; Chrysler, $3 billion to $4 billion; General Motors, $18 billion to $24 billion). Harmon, "Ford Charge Will Result in Record Loss," Los Angeles Times, 12/17/92, p. D1. A survey by Towers Perrin of 150 Fortune 1000 companies in 1992 found less than 10% had funded any part of their liability. "Those few who are funding have, on average, funded only 22% of the cost." Towers Perrin, "Facing FAS 106: Where Employers Stand," p. 6 (1992). Seventy-three percent of the companies had increased or were planning increases in retiree contributions. Id. at pp. 1, 7-8. The practice for corporations has been to pay both retiree and current welfare benefits on a pay-as-you-go basis, not from pre-funded pension or welfare funds.

20. See Wise v. El Paso Natural Gas Co., 986 F.2d 929, 932-35 (5th Cir. 1993), cert. denied, 510 U.S. 870, 114 S.Ct. 196; In re Unisys Corp. Retiree Medical Ben. ERISA Litigation, 18 EBC 1257, 1258 n.7 (E.D. Pa. 1994); Ossi, It Doesn't Add Up: The Broken Promises of Lifetime Health Benefits, Medicare, and Accounting Rule FAS 106 Do Not Equal Satisfactory Medical Coverage for Retirees, 13 J. Contemp. Health L. & Pol'y 233, 239-41 (1996).

21. Marx v. Loral Corp., 87 F.3d 1049, 1052 (9th Cir. 1996).

22. 116 S.Ct. 1065.

23. The Supreme Court did not review the Eighth Circuit's holding that unambiguous disclaimer language in the welfare benefit plan conferred on Varity the right to amend or end the plan, leaving the employees no "breach of contract" claim under section 1132(a)(1)(B). Howe v. Varity Corp., 36 F.3d 746, 752 (8th Cir. 1994), cert. granted, ___ U.S. ___, 115 S.Ct. 1792 (1995), aff'd, ___ U.S. ___, 116 S.Ct. 1065 (1996) (referring to Howe v. Varity Corp., 896 F.2d 1107 (8th Cir. 1990) as law of the case).

24. 115 S.Ct. at 1228.

25. Id. at 1231.

26. See Golden v. Kelsey-Hayes Co., 73 F.3d 648, 654-55 (6th Cir. 1996), cert. denied, ___ U.S. ___, 117 S.Ct. 49 (1996) (holding that Curtiss-Wright does not overrule the inference that retiree benefits are status benefits coined in International Union, United Auto., Aerospace, and Agr. Implement Workers of America (UAW) v. Yard-Man, Inc., 716 F.2d 1476 (6th Cir. 1983), cert. denied, 465 U.S. 1007, 104 S.Ct. 1002 (1984)).

27. Howe, 896 F.2d at 1108-09.

28. Musto v. American General Corp., 861 F.2d 897, 906 (6th Cir. 1988), cert. denied, 490 U.S. 1020, 109 S.Ct. 1745 (1989).

29. Gable, F.3d at 855 (quoting Biggers v. Wittek Industries, Inc., 4 F.3d 291, 295 (4th Cir. 1993)).

30. John Morrell & Co. v. United Food and Commercial Workers Intern. Union, AFL-CIO, 37 F.3d 1302, 1303-04 (8th Cir. 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 2251 (1995).

31. In re Unisys Corp. Retiree Medical Ben. ERISA Litigation, 58 F.3d at 901 (quoting Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1160 (3d Cir. 1990)) (citing H.R. Rep. No. 807, 93rd Cong., 2d Sess. 60, reprinted in 1974 U.S. Code Cong. & Admin. News 4670, 4726)). The Court recently amplified this point in Inter-Modal Rail Emp. Ass'n v. Atchison, Topeka & Santa Fe Rlwy. Co., ___ S.Ct. ___, 1997 WL 235079 (May 12, 1997) (No. 96-491):

The flexibility an employer enjoys to amend or eliminate its welfare plan is not an accident; Congress recognized that "requir[ing] the vesting of these ancillary benefits would seriously complicate the administration and increase the cost of plans." S.Rep. No. 93-383, p. 51 (1973). Giving employers this flexibility also encourages them to offer more generous benefits at the outset, since they are free to reduce benefits should economic conditions sour. If employers were locked into the plans they initially offered, "they would err initially on the side of omission." Heath v. Variety Corp., 256, 71 F.3d 258 (CA 7, 1997).

32. Moore v. Metropolitan Life Ins. Co., 856 F.2d 488, 492 (2d Cir. 1988). The Supreme Court referred to a "'tension between the primary [ERISA] goal of benefitting employees and the subsidiary goal of containing pension costs.'" Mertens v. Hewitt Associates, 508 U.S. 248, 113 S.Ct. 2063, 2072 (1993). This tension should not, however, affect determination of contract terms. Of course, dishonoring unfunded welfare benefits promises is an extremely efficient way to minimize corporate expenditures and contain benefit costs.

33. In re Unisys Corp. Retiree Medical Ben. ERISA Litigation, 58 F.3d at 901; Gable, 35 F.3d at 855; Alexander, 967 F.2d at 95; Wise, 986 F.2d at 937.

34. Gable, 35 F.3d at 855 (quoting Wise, 986 F.2d at 937); Boyer v. Douglas Components Corp., 986 F.2d 999, 1005 (6th Cir. 1993).

35. Helwig v. Kelsey-Hayes Co., 93 F.3d 243, 248 (6th Cir. 1996), cert. denied, ___ U.S. ___, 117 S.Ct. 690 (1997).

36. Gable, 35 F.3d at 855; John Morrell & Co., 37 F.3d at 1304; Anderson v. Alpha Portland Industries, Inc., 836 F.2d 1512, 1517 (8th Cir. 1988), cert. denied, Anderson v. Slattery Group, Inc., 489 U.S. 1051, 109 S.Ct. 1310 (1989).

37. John Morrell & Co., 37 F.3d at 1304; Gable, 35 F.3d at 855; Howe, 896 F.2d at 1109; Anderson, 836 F.2d at 1517; see also Tusting v. Bay View Federal Sav. & Loan Ass'n, 789 F.Supp. 1034, 1041 (N.D. Cal. 1992) (citing Howe, 896 F.2d at 1109).

38. Jensen v. SIPCO, Inc., 38 F.3d 945, 949 (8th Cir. 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 1428 (1995).

39. Moore, 856 F.2d at 491-92; see also Pisciotta v. Teledyne Industries, Inc., 91 F.3d 1326, 1329 (9th Cir. 1996); In re Unisys Corp. Retiree Medical Ben. ERISA Litigation, 58 F.3d at 901; Gill v. Moco Thermal Industries, Inc., 981 F.2d 858, 860 (6th Cir. 1992); Alday, 906 F.2d at 665 ("[A]ny retiree's right to lifetime medical benefits at a particular cost can only be found if it is established under the terms of the ERISA-governed benefit plan document"). But compare Schonholz v. Long Island Jewish Medical Center, 87 F.3d 72, 78 (2d Cir. 1996), cert. denied, ___ U.S. ___, 117 S.Ct. 511 (1996) (holding that an employer may vest severance benefits in participants by correspondence which was not part of the formal plan document provided the letters were "memorialized at the same level of formality that [the employer] chose in promulgating the [plan] in the first place.").

40. Boyer, 986 F.2d at 1002-04.

41. Id. at 1005.

42. Watkins v. Westinghouse Hanford Co., 12 F.3d 1517, 1523 (9th Cir. 1993). What happened to Firestone's command that ERISA was to protect the interests of employees in benefit plans?

43. Krishan v. McDonnell Douglas Corp., 873 F.Supp. 345, 350 (C.D. Cal. 1994).

44. Id. See also Hudson v. Delta Airlines, Inc., 90 F.3d 451, 456-457 (11th Cir. 1996), cert. denied, ___ U.S. ___, ___ S.Ct. ___, 1997 WL 73511 (Feb. 24, 1997) (class certification denied due to different representations to individual retirees).

45. See Curtiss-Wright, 514 U.S. at 1228 (emphasizing the importance of SPDs for communicating essential elements of plan benefits to employees).

46. See, e.g., Parker v. BankAmerica Corp., 50 F.3d 757, 763 (9th Cir. 1995); Jensen v. SIPCO, Inc., 38 F.3d at 952; Pierce v. Security Trust Life Ins. Co., 979 F.2d 23, 27 (4th Cir. 1992); Herrmann v. Cencom Cable Associates, Inc., 978 F.2d 978, 983 (7th Cir. 1992); Hansen v. Continental Ins. Co., 940 F.2d 971, 982 (5th Cir. 1991); Heidgerd v. Olin Corp., 906 F.2d 903, 907-08 (2d Cir. 1990); Edwards v. State Farm Mut. Auto Ins. Co., 851 F.2d 134, 136 (6th Cir. 1988).

47. See, e.g., Moore, 856 F.2d at 490 (affirming summary judgment for employer based on ROR: "The company expects to continue the Metropolitan Insurance and Retirement Program and the other employee benefit plans. However, it reserves the right to change or discontinue any portion of the benefits described in this summary").

48. 856 F.2d at 491-92.

49. In the employment context, California state law, for example, recognizes a contract cause of action for breach of an implied-in-fact promise to discharge for good cause only. The California Supreme Court in Foley v. Interactive Data Corp., 47 Cal.3d 654, 256 Cal.Rptr. 211 (1988), ruled that factors apart from consideration and express terms may be used to ascertain the existence and content of an employment agreement, including personnel policies or practices of the employer, bylaws, the employee's longevity of service, and actions or communications by the employer reflecting assurances of continued employment. Id. at 680. "Permitting proof of and reliance on implied-in-fact contract terms does not nullify the at-will [employment rule]; it merely treats such contracts in a manner in keeping with general contract law. Id. at 681. Separate consideration by the employee is not required since the employee's promise to work or actual working is adequate consideration for the employer's promise to pay a particular wage or to refrain from arbitrarily dismissing the employee. Id. at 679. Likewise, this rationale for finding an implied-in-fact contract from various factors apart from a formal agreement in labor disputes should be adopted by the federal courts to find the employer's promise of providing its employees with lifetime company-funded healthcare protection when the employer and employees in fact so contracted without the artificial constraint of "a plan document."

50. 115 S.Ct. at 1229 (citing 2 W. Fletcher, Cyclopedia of Law of Private Corporations, § 466 at 505 (rev. ed. 1990); see also Restatement (Second) of Agency § 27 (1957) (ostensible or apparent authority).

51. 873 F.Supp. 345.

52. Krishan, 873 F.Supp. at 350. Moore justifies this result by citing to ERISA's requirement that employers issue SPDs in 29 U.S.C. section 1022(a)(1). The Krishan analysis then turns this employee protection on its head by barring claims based on management communications not contained in SPDs. Id. at 350-351. Ironically, the Ninth Circuit in Pisciotta, 91 F.3d at 1330, however, found an employer's violation of the SPD requirement to be merely "procedural": "Any ERISA claimant who suffers because of a fiduciary's failure to comply with ERISA's procedural requirements is ordinarily not entitled to a substantive remedy such as the retroactive reinstatement of benefits." It is not clear that this Ninth Circuit strain of authority dismissing "procedural" requirements as a source of substantive rights can survive, given the Supreme Court's very recent decision in Inter-Modal Rail Emp. Ass'n v. Atchison, Topeka & Santa Fe Rlwy. Co., ___ S.Ct. ___, 1997 WL 235079 (May 12, 1997) (No. 96-491), reversing in part, 80 F.3d 348 (9th Cir. 1996) (per curiam). The Court's unanimous reversal of the Ninth Circuit's decision dismissing a claim under 29 U.S.C. section 1140 because the company's actions only affected unvested welfare benefits is a major reaffirmance of the importance of ERISA's procedural requirements for sponsors and plans. The Court emphasized that a sponsor "must follow the formal procedures set forth in the plan" and reemphasized its prior decision in Curtiss-Wright that ERISA creates a claim where "the company did not [amend its welfare benefit plan] in a permissible manner." The Circuit had held that the employer's actions could not violate ERISA because the employer remained free to formally or informally deprive its workers of welfare benefits because the benefits do not vest automatically. 80 F.3d at 351. The Supreme Court and Circuit had both noted the Inter-Modal decision's conflict with other circuits' decisions. Ibid. The Court found section 1140 "counterbalances this flexibility by ensuring that employers do not 'circumvent the provision of promised benefits.'" It would follow, as Curtiss-Wright held, that violating ERISA itself does give rise to a substantive remedy.

53. The courts' elevation of plan provisions over all other management acts and communications is undesirable in at least two ways. First, it rewards the deceitful employer and penalizes the trusting employee. In an economic arena which Congress in ERISA and the Supreme Court in Massachusetts Mutual Life Ins. Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085 (1985) (Brennan, J., concurring), held should be governed by fiduciary and trust principles, the lower courts have enforced the most primitive principles of caveat emptor. Those employees who do not read the fine print, who rely upon their employer's lies, lose because the lower courts believe employees have a duty to inquire beyond their employers' representations and analyze correctly the plan's legal provisions. See, e.g., discussion of Unisys, infra, at pp. 43-48.

Second, this approach ignores the purpose of ERISA which was to protect employees by regulating employer conduct and encouraging responsible, disciplined employer communication. See 29 U.S.C. § 1001(b). Court decisions which routinely excuse management from the costs of their own misconduct do not encourage management to expend resources in assuring that their representations to employees defining their rights and benefits are accurate, consistent and comprehensive. The current decisions reward management for conduct that is "bad" in both senses: wrongful and inept. Neither is a desirable result.

54. See, e.g., In re Unisys Corp. Retiree Medical Benefit ERISA Litigation, 58 F.3d 896; Jensen, 38 F.3d 945; Gable, 35 F.3d 851; Howe, 896 F.2d 1107.

55. Helwig, 93 F.3d at 251 (affirming district court's preliminary injunction preventing employer from reducing benefits for class of 1,500 retirees until their ERISA claims are tried).

56. Id. But compare Pisciotta, 91 F.2d at 1331 (ruling that insurance booklets distributed to employees which did not contain ROR referred to group insurance contract which featured ROR and, thus, employees lost).

57. See, e.g., Cinelli v. Security Pacific Corp., 61 F.3d 1437, 1444 (9th Cir. 1995) (board resolution and letter); Boyer, 986 F.2d at 1005 (exit interviews); Moore, 856 F.2d at 490 (consistent history of newsletters, memoranda, retirement letters, and oral statements).

58. 58 F.3d 896.

59. 58 F.3d at 904. No case has been located which notes the fact that the plan documents fail to give notice that other company communications are of no force or effect. There are no integrated contract clauses in SPDs.

60. 38 F.3d at 950.

61. Id. at 950-52.

62. Alexander, 967 F.2d at 94-6 (finding ROR ambiguous and remanding case to determine whether benefits were intended to be irreducible by employer); Stewart v. KHD Deutz of America Corp., 980 F.2d 698, 703, (11th Cir. 1993) (finding insurance agreement ambiguous where the "termination" section preserved employer's right to modify or terminate benefit plan, but the "extended coverage" section provided for lifetime retiree health benefits).

63. 92 F.3d 1425, 1439-440 (6th Cir. 1996). This decision was vacated and rehearing en banc was granted in Sprague v. General Motors Corp., 102 F.3d 204 (6th Cir. 1996). Reargument is scheduled for April 23, 1997.

64. Sprague, 92 F.3d at 1439.

65. Id. at 1440.

66. There is a subset of benefits litigation where bilateral contracts, in particular collective bargaining agreements, are involved. In those cases, the courts are asked to rule whether an employer intended to commit contractually to an open-ended benefit obligation to its labor force where the ERISA plan document is silent. This is a muddled problem, susceptible to a number of interpretative approaches for determining whether retiree benefits vested. The cases often involve mixed questions involving both ERISA and the nation's labor laws. For example, in Bidlack v. Wheelabrator Corp., 993 F.2d 603, 607-09 (7th Cir. 1993) (en banc), cert. denied, 510 U.S. 909, 114 S.Ct. 291 (1993), the Seventh Circuit concluded that the finder of fact may weigh extrinsic evidence when considering whether an employer's promise of company-funded retiree health care survives expiration of a collective bargaining agreement containing the entitlement if the agreement is vague or ambiguous with respect to benefit vesting; alternatively, if the agreement is silent on entitlement vesting, no extrinsic evidence should be permitted since the employer's obligation would be deemed to have expired with the agreement and it is presumed that benefits were not intended to vest. Judge Posner cautioned, "[c]ontracting parties who want to be spared the uncertainties of trial by jury have only themselves to blame if by failing to specify the limits of their undertakings they open the door to extrinsic evidence of contracted meaning." Id. at 609. This approach is of limited help in the typical benefits litigation which almost by definition concerns only company-drafted plan documents and extrinsic communications. See also Bower v. Bunker Hill Co., 725 F.2d 1221 (9th Cir. 1984).

67. See, e.g., Moore, 856 F.2d at 491-492.

68. 906 F.2d at 666 n.15.

69. Id.

70. 489 U.S. at 113-114.

71. Menhorn v. Firestone Tire & Rubber Co., 738 F.2d 1496, 1499 (9th Cir. 1984) (development of federal common law under ERISA fills in the gaps of the statutory scheme and enhances ERISA's general standards).

72. Firestone Tire, 489 U.S. at 110 (quoting Pilot Life, 481 U.S. at 56). See also Franchise Tax Board of State of Cal. v. Construction Laborers Vacation Trust for Southern California, 463 U.S. 1, 24 n. 26, 103 S.Ct. 2841 (1983); Kwatcher v. Massachusetts Service Employees Pension Fund, 879 F.2d 957, 966 (1st Cir. 1989) (Congress intended for the courts to "engage in interstitial lawmaking in ERISA cases in much the same way as the courts fashioned a federal common law of labor relations" under LMRA § 301). See also Gregory, The Scope of ERISA Preemption of State Law: A Study in Effective Federalism, 48 U. Pitt. L. Rev. 427, 457-58 (1987) ("If ERISA preempted all state law relating to employee benefit plans, a dangerous vacuum would result . . . . State law is ancillary and subordinate to federal law but does play an important interstitial role.").

73. Singer v. Black & Decker Corp., 964 F.2d 1449, 1452 (4th Cir. 1992).

74. Mertens, 508 U.S. at 252-60.

75. See Russell, 105 S.Ct. at 3103 (ERISA's equitable remedies should incorporate state trust law). See also Todd v. AIG Life Ins. Co., 47 F.3d 1448, 1451 (5th Cir. 1995); Heasley v. Belden & Blake Corp., 2 F.3d 1249, 1257 n.8 (3d Cir. 1993).

76. Textile Workers Union of America v. Lincoln Mills of Ala., 353 U.S. 448, 457, 77 S.Ct. 923 (1957) (referring to § 301 of LMRA).

77. See, e.g., Wheeler v. Dynamic Engineering, Inc., 62 F.3d 634, 638 (4th Cir. 1995); Casey v. Uddeholm Corp., 32 F.3d 1094, 1096-97 (7th Cir. 1994), on remand, 1995 WL 680154 (N.D. Ill. Nov. 13, 1995); Masella v. Blue Cross & Blue Shield of Connecticut, Inc., 936 F.2d 98, 107 (2d Cir. 1991); Kunin v. Benefit Trust Life Ins. Co., 910 F.2d 534 (9th Cir. 1990), cert. denied, 498 U.S. 1013, 111 S.Ct. 581 (1990).

78. 35 F.3d 382 (9th Cir. 1994).

79. 115 S.Ct. at 1226.

80. See, e.g., Carlo v. Reed Rolled Thread Die Co., 49 F.3d 790, 794 (1st Cir. 1995) (preempting negligent misrepresentation claim where in electing coverage under an early retirement plan, defendant misinformed plaintiff of the amount of benefits available); Vartanian v. Monsanto Co., 14 F.3d 697, 700 (1st Cir. 1994) (state law claim for oral misrepresentation concerning availability of future plan preempted but court acknowledged that plaintiff had ERISA standing to sue for breach of fiduciary duty based on misrepresentation); Sanson v. General Motors Corp., 966 F.2d 618, 621-23 (11th Cir. 1992), cert. denied, 507 U.S. 984, 113 S.Ct. 1578 (1993) (state claim for fraud preempted where employees alleged that they had taken standard early retirement after being told that they would not be eligible for special early retirement, only to discover later that they would have been eligible for the subsidy); Olson v. General Dynamics Corp., 960 F.2d 1418, 1422-23 (9th Cir. 1991), cert. denied, 504 U.S. 986, 112 S.Ct 2968 (1992) (claim challenging oral misrepresentation regarding the level of benefits provided by a plan is preempted); Christopher v. Mobil Oil Corp., 950 F.2d 1209, 1218 (5th Cir. 1992), cert. denied, 506 U.S. 820, 113 S.Ct. 68 (1992) (claim based upon an employer's misrepresentations regarding the terms of a plan itself is preempted); Consolidated Beef Industries, Inc. v. New York Life Ins. Co., 949 F.2d 960, 964 (8th Cir. 1991), cert. denied, 503 U.S. 985, 112 S.Ct. 1670 (1992) (state law claims for misrepresentation in plan billings, interest rates, and annual statements are preempted); Degan v. Ford Motor Co., 869 F.2d at 894-95 (claim for breach of an oral agreement to pay early retirement benefits is preempted); Phillips v. Amoco Oil Co., 799 F.2d 1464, 1470 (11th Cir. 1986), cert. denied, 481 U.S. 1016, 107 S.Ct. 1893 (1987) (claim challenging failure to disclose the terms of a benefit plan is preempted).

81. Several courts have indicated some fraud or negligence claims might exist. See, e.g., Kuntz v. Reese, 760 F.2d 926, 935 (9th Cir. 1985) (while a state law claim for misrepresentation by the plan administrator to employees about their entitlement to benefits was preempted, "misrepresentation of fact and/or quality of plan coverage" gives rise to a federal cause of action under ERISA), vacated on other grounds, 785 F.2d 1410 (9th Cir. 1986) (per curiam), cert. denied, 479 U.S. 916, 107 S.Ct. 318 (1986); Slice v. Norway, 978 F.2d 1045, 1047 (8th Cir. 1992), aff'd, Slice v. Sons of Norway, 34 F.3d 630 (8th Cir. 1994) (although the district court held that a state law claim for misrepresentation was preempted, the court should have addressed whether the allegations stated a federal claim for relief). However, no body of law recognizing federal analogues to state claims has developed.

82. 946 F.2d 960, 967 (1st Cir. 1991).

83. Id. at 965-66. Implication of a fraud defense is fully justified. The refusal to find correlative fraud claims is what defeats the congressional purpose.

84. Id. at 966-67.

85. The deficiency here is clear. By artificially restricting contract claims to provisions of plan documents, the courts jettisoned the normal contract interpretation methods available where there are a mix of communications defining the employment/benefit relationship. The courts have, in effect, held that Congress, sub silentio, enacted a statute of frauds applicable solely to employee benefit relations. By then rigorously eschewing the logical common law claims for misconduct (fraud, negligent misrepresentation, unjust enrichment, reformation, restitution, specific performance, etc.) as "preempted," the federal courts have made it very difficult to respond to undesirable management conduct that, absent ERISA, state courts would find actionable and remediable.

86. See, e.g., Farr v. US West, Inc., 58 F.3d 1361, 1366-67 (9th Cir. 1995) (state fraud suit not preempted because plaintiffs focussed on employer's failure to disclose adverse tax consequences resulting from enhanced, early retirement package rather than fraud regarding the pension plan); Forbus v. Sears Roebuck & Co., 30 F.3d 1402, 1406 (11th Cir. 1994), cert. denied, ___ U.S. ___, 115 S.Ct. 906 (1995) (where employer's general manager misrepresented to plaintiffs that facility would close to induce employees to accept early retirement benefits package, court concluded that claim arose from employer's fraud to eliminate plaintiffs' jobs rather than the benefit package).

87. 93 F.3d 715 (11th Cir. 1996) (en banc).

88. ___ U.S. ___, 115 S.Ct. 1671 (1995), on remand, Travelers Ins. Co. v. Pataki, 63 F.3d 89 (2d Cir. 1995),

89. New York State Conference, 93 F.3d at 721.

90. Id. at 723-24.

91. Dissenting from the majority's refusal to create a federal common law fraud claim under ERISA for an individual who was defrauded out of his pension, Judge Birch called for additional guidance in the "preemption thicket" from the Supreme Court:

In concluding I acknowledge the sage observation of the Fifth Circuit in Gonzales v. Prudential Ins. Co. of America, 901 F.2d 446 (5th Cir. 1990), that "any court forced to enter the ERISA preemption thicket sets out on a treacherous path." Id. at 451-52. Perhaps I have entered the thicket and lost the path that my brothers have found and followed. However, if nothing else is clear it is that the "path" is not; obviously the Supreme Court needs to do some serious bushhogging in the ERISA preemption thicket.

Sanson, 966 F.2d at 625.

92. Pacificare Inc. v. Martin, 34 F.3d 834, 836 (9th Cir. 1994) (quoting Lea v. Republic Airlines, Inc., 903 F.2d 624, 632 n. 11 (9th Cir. 1990)).

93. Id. at 838.

94. 36 F.3d 746.

95. Id. at 753.

96. Id. at 753-56.

97. See, e.g., Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 59, 104 S.Ct. 2218 (1984), cert. denied, Community Health Services of Crawford County v. Travelers Insurance Companies, 474 U.S. 1056, 106 S.Ct. 795 (1986).

98. See, e.g., DeVoll v. Burdick Painting, Inc., 35 F.3d at 412 n.4.

99. See, e.g., Parker v. BankAmerica Corp., 50 F.3d 757, 769 (9th Cir. 1995) (severance plan); Coleman v. Nationwide Life Ins. Co., 969 F.2d 54, 59-60 (4th Cir. 1992) (group health insurance plan); Pierce v. Security Trust Life Ins. Co., 979 F.2d 23, 29 (4th Cir. 1992) (retiree health plan); Rodrigue v. Western and Southern Life Ins. Co., 948 F.2d 969, 971 (5th Cir. 1991) (group health plan); Hozier v. Midwest Fasteners, Inc., 908 F.2d 1155, 1164 (3d Cir. 1990) (severance plan); Alday v. Container Corp. of America, 906 F.2d at 665 (retiree health plan); Moore v. Metropolitan Life Ins. Co., 856 F.2d at 492 (retiree health plan).

100. See, e.g., Armistead v. Vernitron Corp., 944 F.2d 1287 (6th Cir. 1991); Black v. TIC Investment Corp., 900 F.2d 112 (7th Cir. 1990). See also Smith v. Hartford Ins. Group, 6 F.3d 131 (3d Cir. 1993); Slice v. Sons of Norway, 34 F.3d 630 (8th Cir. 1994).

101. See, e.g., Aiken v. Policy Management Systems Corp., 13 F.3d 138 (4th Cir. 1993); Hansen v. Continental Ins. Co., 940 F.2d 971 (5th Cir. 1991); Heidgerd v. Olin Corp., 906 F.2d 903 (2d Cir. 1990); Edwards v. State Farm Mut. Auto Ins. Co., 851 F.2d 134 (6th Cir. 1988); McKnight v. Southern Life and Health Ins. Co., 758 F.2d 1566 (11th Cir. 1985). But see Gridley v. Cleveland Pneumatic Co., 924 F.2d 1310 (3d Cir. 1991), cert. denied, 501 U.S. 1232, 111 S.Ct. 2856 (1991) (SPD does not fall within definition of "plan" as contemplated by 29 U.S.C. § 1132(a)(1)(B)); Branch v. G. Bernd Co., 955 F.2d 1574 (11th Cir. 1992) (no evidence of participant's reliance on SPD); Bachelder v. Communications Satellite Corp., 837 F.2d 519 (1st Cir. 1988) (same).

102. See, e.g., Greany v. Western Farm Bureau Life Ins. Co., 973 F.2d 812 (9th Cir. 1992); National Companies Health Ben. Plan v. St. Joseph's Hosp. of Atlanta, Inc., 929 F.2d 1558 (11th Cir. 1991); Kane v. Aetna Life Ins., 893 F.2d 1283 (11th Cir. 1990), cert. denied, 498 U.S. 890, 111 S.Ct. 232 (1990).

103. See, e.g., Lee v. Burkhart, 991 F.2d 1004, 1009 (2d Cir. 1993); In re Unisys Corp.Retiree Medical Ben. ERISA Litigation, 58 F.3d at 907.

104. See, e.g., Averhart v. U.S. West Management Pension Plan, 46 F.3d 1480, 1486-87 (10th Cir. 1994).

105. 91 F.3d 1326 (9th Cir. 1996).

106. "CONTINUATION OF SERVICE. Retired Employee and Surviving Spouse Benefits. Insurance Continued . . . . Period of Continuation - During the lifetime of you and your spouse. Monthly Contributions - None. Surviving Spouse . . . . Period of Continuation - During her lifetime. Spouse's Monthly Contribution - None." 91 F.3d at 1330.

107. 58 F.3d at 907.

108. 91 F.3d at 1331.

109. 973 F.2d 812.

110. In re Unisys Corp., 91 F.3d at 1331.

111. The court also held that the fact that a number of the retirees had been promised lifetime benefits before the adoption of ERISA was "immaterial."

112. The difference between potential state and federal litigation is startling. In a companion case to Krishan involving only pre-ERISA retirees maintained in California state courts, the complaint alleged, inter alia, breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation and bad faith and asked for an injunction and punitive damages.

113. HR Rep. No. 533, 93rd Congress, 2d Session, reprinted in 1974-3 U.S. Code Cong. & Admin. News 4639, 4655.

114. 105 S.Ct. 3085.

115. Id., 105 S.Ct. at 3088 n.5.

116. Id. 105 S.Ct. at 3094.

117. In re Unisys Corp. Retiree Medical Ben. ERISA Litigation, 57 F.3d 1255, 1267-1269 (3d Cir. 1995), cert. denied, ___ U.S. ___, 116 S.Ct. 1316 (1996); Fischer v. Philadelphia Elec. Co., 994 F.2d 130 (3d Cir. 1993), cert. denied, 510 U.S. 1020, 114 S.Ct. 622 (1993); Kurz v. Philadelphia Elec. Co., 994 F.2d 136 (3d Cir. 1993), cert. denied, Philadelphia Elec. Co. v. Fischer, 510 U.S. 1020, 114 S.Ct. 622 (1993); and Bixler v. Central Penn. Teamsters Health & Welfare Fund, 12 F.3d 1292, 1298 (3d Cir. 1993).

118. Corcoran v. United Healthcare, Inc., 965 F.2d 1321, 1334-1338 (5th Cir. 1992).

119. Warren v. Society Nat'l Bank, 905 F.2d 975 (6th Cir. 1990); see also Drennan v. General Motors Corp., 977 F.2d 246 (6th Cir. 1992), cert. denied, 508 U.S. 940, 113 S.Ct. 2416 (1993).

120. See Anweiler v. American Elec. Power Service Corp., 3 F.3d 986, 992-993 (7th Cir. 1993)

121. Eddy v. Colonial Life Ins. Co. of America, 919 F.2d 747 (D.C. Cir. 1990).

122. Farr, 58 F.3d at 1364.

123. 940 F.2d 614, 617 (11th Cir. 1991).

124. 30 F.3d 11 (1st Cir. 1994).

125. 805 F.2d 956 (11th Cir. 1986).

126. See, e.g., Taylor v. Peoples Natural Gas Co., 49 F.3d 982 (3d Cir. 1995) (plan administrator can be liable for breach of fiduciary duty for misrepresentations by company employee responsible for benefits matters); In re Unisys, 57 F.3d at 1266; Maez v. Mountain States Tel. and Tel., Inc., 54 F.3d 1488 (10th Cir. 1995); Howe v. Varity Corp., 36 F.3d 746 ("in some instances a fiduciary's duty goes beyond merely refraining from making affirmative misrepresentations [and includes] a duty to inform a beneficiary of the fiduciary's knowledge"); Curcio v. John Hancock Mut. Life Ins. Co., 33 F.3d 226 (3d Cir. 1994) (employer breached fiduciary duty by materially misrepresenting coverage under the plan); Mullins v. Pfizer, Inc., 23 F.3d 663 (2d Cir. 1994) (fiduciary will breach his duties if he makes affirmative misrepresentations about changes to plan); Anweiler, 3 F.3d at 991 ("Fiduciaries must also communicate material facts affecting the interests of beneficiaries. This duty exists when a beneficiary asks fiduciaries for information, and even when he or she does not."); Bixler, 12 F.3d 1292 (fiduciary obligated to remind beneficiary who inquired only about death benefits of COBRA rights if fiduciary knew of unpaid medical expenses that would be paid if COBRA election returned); Fischer, 994 F.2d 130 (employer may be subject to fiduciary liability if it fails to inform plan participants of contemplated changes in the terms of the plan); Drennan, 977 F.2d at 250-251 (fiduciary's failure to disclose its consideration to permit plaintiffs' participation in the plan); Eddy, 919 F.2d at 750-752 (fiduciary has affirmative duty on inquiry to convey correct and complete information about beneficiary's options); Berlin v. Michigan Bell Telephone Co., 858 F.2d 1154 (6th Cir. 1988) (misleading communications to participants constitute breaches of fiduciary duty).

127. 116 S.Ct. 1065.

128. 116 S.Ct. at 1068.

129. Id. at 1078.

130. Id. at 1077.

131. Id., 116 S.Ct. at 1079.

132. Justice Thomas expressed this sentiment in his dissent. He argued that the ruling should be confined to its facts and be understood as "modest" in its effect. See id. at 1091 (Thomas J., dissenting). "Application of the Court's holding in the many cases in which it may logically apply could result in significantly increased liability, or at the very least, heightened litigation costs, and an eventual reduction in plan benefits to accommodate those costs." Id. at 1090.

133. See, e.g., in an Eighth Circuit case, Shea v. Esensten, ___ F.3d ___, 1997 WL 78350 (8th Cir. February 26, 1997), a plan participant's widow was found to have standing to assert her husband's ERISA claims, which, in this case, included fiduciary breach by HMO for failing to disclose all material facts about her deceased husband's health care interests. A pension plan beneficiary, the only beneficiary to sue a bank for breach of its fiduciary duty, was permitted to proceed with his suit under 29 U.S.C section 1132(a)(3) in Ream v. Frey, 107 F.3d 147 (3d Cir. 1997). In Ream, the Third Circuit concluded that the beneficiary had suffered a "direct, clearly defined personal loss," and, like the plaintiffs in Varity, he had no alternative means of recovering for his losses. The court, emphasized, however, that this was not a case in which an individual plan beneficiary was charging a fiduciary with breach of fiduciary duties with respect to a functioning plan; a situation in which it might be inappropriate to permit a beneficiary to seek personal relief as a recovery by the plan effectively would make the beneficiary whole. "We emphasize, therefore, that a court must apply ERISA §502(a)(3)(B) cautiously when an individual plan beneficiary seeks "appropriate equitable relief."

In McLeod v. Oregon Lithoprint Inc., 102 F.3d 376, 378-379 (9th Cir. 1996), a case which had been remanded by the Supreme Court for further consideration in light of the Varity opinion, the Ninth Circuit held that compensatory damages were not "appropriate equitable relief" under ERISA for breach of fiduciary duty in failing to notify an employee in a timely manner of her right to elect cancer coverage. In Holsey v. Unum Life Insurance Company of America, ___ F.Supp. ___, 1997 WL 60820 (E.D. Mich., February 11, 1997), the court concluded that the company was not acting in a fiduciary capacity when it communicated to the plaintiff about his disability benefits: "This court declines to broaden the definition of an ERISA fiduciary to include anyone who distributes a benefits booklet or who talks, generally, about employment benefits."

134. ___ U.S. ___, 116 S.Ct. 1783 (1996), on remand, 105 F.3d 1320 (9th Cir. 1997).

135. 116 S.Ct. at 1789.

136. ___ F.Supp. ___, 1997 WL 115390 (E.D. Pa. March 10, 1997). At the time of this article, this opinion had not been published yet in the Federal Supplement.

137. Id. at *2.

138. In re Unisys, 57 F.3d at 1261 n.10.

139. Id. at 1266.

140. In re Unisys Corp., 1997 WL 115390 at *8.

141. Id. at *9.

142. Id. at *11.

143. The court agreed with the conclusion reached by other courts refusing to apply the fraud or concealment exception to section 1113. In re Unisys Corp., 1997 WL 115390 at *5, citing J. Geils Band Employee Ben. Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245, 1255-60 (1st Cir. 1996), cert. denied, ___ U.S. ___, 117 S.Ct. 81 (1996) (no fraud or concealment justifying tolling under section 1113 where alleged oral misrepresentations giving rise to breach of fiduciary claim were belied by information in written documents available to plaintiffs); Wolin v. Smith Barney, Inc., 83 F.3d 847, 854 (7th Cir. 1996) (oral representations contradicting clear written statements cannot constitute fraudulent concealment under section 1113).

144. Id. at *16.

145. 994 F.2d 130 (3d Cir. 1993) ("Fischer I"), cert. denied, 510 U.S. 1020, 114 S.Ct. 622 (1993).

146. Id. at 133.

147. Id. at 135.

148. A companion class action was filed by former employees alleging that PECo breached its fiduciary duties as plan administrator by affirmatively misrepresenting potential amendments to the employee pension benefit plan which substantially increased pension benefits. Kurz v. Philadelphia Electric Co., 994 F.2d 136 (1993), cert. denied, 510 U.S. 1020, 114 S.Ct. 622 (1993). Governed by their approach in Fischer, the Circuit also remanded this case, finding that whether the employer violated its fiduciary duties as plan administrator by affirmatively misrepresenting that no plan amendments were being considered was a fact question.

149. Fischer v. Philadelphia Elec. Co., 96 F.3d 1533 (3d Cir. 1996), cert. denied, Herbert L. Fischer v. Philadelphia Electric Company, ___ U.S. ___, ___ S.Ct. ___, 1996 WL 757411 (Mar. 17, 1997) ("Fischer II"). In Kurz II (Kurz v. Philadelphia Elec. Co., 96 F.3d 1544 (3d Cir. 1996)), the court found the claims of the plaintiff class untimely and barred.

150. 57 F.3d 1255.

151. 12 F.3d at 1298.

152. 57 F.3d at 1538.

153. Id. at 1539-1540. In contrast to the "true bright-line rule" adopted by the Court of Appeals for the Second Circuit in Pocchia v. NYNEX Corp., 81 F.3d 275, 278 (2d Cir. 1996) (adopting bright-line rule where employee fails to request information about changes in benefits, finding no duty to disclose changes until new plan goes into effect), and Mullins v. Pfizer, Inc., 23 F.3d at 668-69 (following Fischer I and adopting materiality standard for affirmative misrepresentations).

154. In re Unisys Corp., 1997 WL 115390 at *16; In re Unisys Corp., 57 F.3d at 1266.

155. The Supreme Court rescued the Racketeer Influenced and Corrupt Organizations Act from judicially crafted limitations in its decisions in Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 499-500, 105 S.Ct. 3292 (1985), judgment vacated in part by Haroco, Inc. v. American Nat. Bank and Trust Co. of Chicago, 1987 WL 17486 (N.D. Ill. Sept. 23, 1987); H.J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 249, 109 S.Ct. 2893 (1989), and U.S. v. Turkette, 452 U.S. 576, 101 S.Ct. 2524 (1981), on remand, 656 F.2d 5 (1st Cir. 1981). See generally K.P. RODDY, RICO IN BUSINESS AND COMMERCIAL LITIGATION, Vol. I, § 1.02 "Judicial Attempts to Limit RICO" (Shepard's/McGraw Hill 1994); Blakey & Perry, An Analysis of the Myths that Bolster Efforts to Rewrite RICO and the Various Proposals for Reform, "Mother of God - Is This the End of RICO?," 43 Vand. L. Rev. 851, 860-869 (1990); Kenny, Escaping the RICO Dragnet in Civil Litigation: Why Won't the Lower Courts Listen to the Supreme Court?, 30 Duq. L. Rev. 257, 259 (1992).

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