Castillo v. Metro. Life Ins. Co.

970 F.3d 1224

Juan CASTILLO, Plaintiff-Appellant,

v.METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 19-56093

United States Court of Appeals, Ninth Circuit.

Argued and Submitted July 7, 2020 Pasadena, California

Filed August 17, 2020

Elizabeth Hopkins (argued), Kantor & Kantor LLP, Northridge, California, for Plaintiff-Appellant.

Misty A. Murray (argued), Hinshaw & Culbertson LLP, Los Angeles, California, for Defendant-Appellee.

Before: Richard A. Paez and Bridget S. Bade, Circuit Judges, and Jack Zouhary,^* District Judge.

BADE, Circuit Judge:

This appeal requires us to decide whether § 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(3), authorizes an award of attorney's fees incurred during the administrative phase of the ERISA claims process. We hold that § 1132(a)(3) does not authorize an award of such fees and therefore affirm the judgment of the district court.

I

Plaintiff Juan Castillo was a participant in an employee benefit group welfare plan governed by ERISA, administered by Defendant Metropolitan Life Insurance Company (MetLife), and sponsored by his employer, Verizon Communications (Verizon). In 2013, after he became disabled, Castillo began collecting long-term disability (LTD) benefits under the plan, retired from Verizon, and rolled his pension benefits into an individual retirement account (IRA).

Four years later, in December 2017, MetLife informed Castillo it would reduce his LTD benefits, effective November 1, 2013, to account for the pension rollover. MetLife withheld future benefits and sought to recover over $50,000 in benefits paid between 2013 and 2017. Castillo retained counsel and appealed MetLife's decision administratively. In July 2018, MetLife reversed its determination, resumed LTD payments, and paid Castillo over $8,500 in withheld benefits.

Castillo subsequently filed this civil action under § 1132(a)(3). He alleged MetLife breached its fiduciary duties of prudence and loyalty by, among other things, "repeatedly failing, for nearly four years after learning that Mr. Castillo rolled over his pensions into an IRA, to determine the effect of this rollover on Mr. Castillo's LTD benefits," and "never informing Mr. Castillo during that period that it was considering an offset based on the pension rollover, and therefore that it might require him to repay a great portion of the benefits he received over that period." The complaint sought "[a]n order surcharging MetLife for the losses sustained by Mr. Castillo, ... measured by the amount of attorney's fees that he was forced to incur to get MetLife to reverse its arbitrary and unsupported reduction of his LTD benefits and demand for repayment."

MetLife moved to dismiss the complaint, arguing that it failed to state a claim for breach of fiduciary duty and, in the alternative, that Castillo was not seeking "appropriate equitable relief" under § 1132(a)(3). The district court granted the motion to dismiss, rejecting MetLife's first argument but agreeing with MetLife that "attorney's fee awards are not ‘other appropriate equitable relief’ " under § 1132(a)(3). Castillo timely appealed.

II

"We review de novo the district court's decision to grant a motion to dismiss for failure to state a claim, as well as its interpretation of ERISA." Bassiri v. Xerox Corp. , 463 F.3d 927, 929 (9th Cir. 2006).

III

To determine whether attorney's fees incurred by an ERISA plan participant or beneficiary in an administrative appeal are recoverable as "appropriate equitable relief" under § 1132(a)(3), we first consider the statutory structure. As relevant here, ERISA provides for two types of actions: a claim for denial of benefits under § 1132(a)(1)(B), and a claim for breach of fiduciary duty under § 1132(a)(3).

A

A claim for denial of benefits ordinarily begins with an administrative review procedure. ERISA mandates an opportunity for administrative review, see 29 U.S.C. § 1133(2) ; 29 C.F.R. § 2560.503-1(h)(1), and we have treated completion of this administrative review as a prudential exhaustion requirement, see Vaught v. Scottsdale Healthcare Corp. Health Plan , 546 F.3d 620, 626 (9th Cir. 2008) ("[A]n ERISA plaintiff claiming a denial of benefits ‘must avail himself or herself of a plan's own internal review procedures before bringing suit in federal court.’ " (quoting Diaz v. United Agric. Emp. Welfare Benefit Plan & Tr. , 50 F.3d 1478, 1483 (9th Cir. 1995) )).

If the administrative review affirms the denial of benefits, the claimant may obtain judicial review under § 1132(a)(1)(B), which states that "[a] civil action may be brought ... by a participant or beneficiary ... to recover benefits due to him under the terms of his plan, to enforce his rights under the terms of the plan, or to clarify his rights to future benefits under the terms of the plan." 29 U.S.C. § 1132(a)(1)(B).

Furthermore, if the claimant achieves "some degree of success on the merits" in the civil action, Hardt v. Reliance Standard Life Ins. Co. , 560 U.S. 242, 245, 255, 130 S.Ct. 2149, 176 L.Ed.2d 998 (2010) (quoting Ruckelshaus v. Sierra Club , 463 U.S. 680, 694, 103 S.Ct. 3274, 77 L.Ed.2d 938 (1983) ), "the court in its discretion may allow a reasonable attorney's fee and costs of action" to the claimant, 29 U.S.C. § 1132(g)(1). This fee award, however, applies solely to fees incurred in the judicial proceeding; fees incurred during "the administrative phase of the claims process" are not recoverable under § 1132(g). Cann v. Carpenters’ Pension Tr. Fund for N. Cal. , 989 F.2d 313, 314 (9th Cir. 1993) ; accord McElwaine v. US West, Inc. , 176 F.3d 1167, 1172 n.8 (9th Cir. 1999) (per curiam).

B

ERISA also provides a claim for breach of fiduciary duty. Just as trust law imposes duties on trustees, ERISA imposes duties on plan fiduciaries. A fiduciary, for instance, must "discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and ... with the care, skill, prudence, and diligence ... [of] a prudent man." 29 U.S.C. § 1104(a)(1).

A fiduciary who breaches these duties is subject to suit, and a claim for breach of fiduciary duty may be brought under § 1132(a)(3).¹ As the Supreme Court explained in Varity Corp. v. Howe , 516 U.S. 489, 492, 116 S.Ct. 1065, 134 L.Ed.2d 130 (1996), § 1132(a)(3) "authorize[s] ERISA plan beneficiaries to bring a lawsuit ... that seeks relief for individual beneficiaries harmed by an administrator's breach of fiduciary obligations."²

An individual bringing a claim under § 1132(a)(3) may seek "appropriate equitable relief," which refers to " ‘those categories of relief’ that, traditionally speaking (i.e. , prior to the merger of law and equity) ‘were typically available in equity.’ " CIGNA Corp. v. Amara , 563 U.S. 421, 439, 131 S.Ct. 1866, 179 L.Ed.2d 843 (2011) (quoting Sereboff v. Mid Atl. Med. Servs., Inc. , 547 U.S. 356, 361, 126 S.Ct. 1869, 164 L.Ed.2d 612 (2006) ). This relief may include surcharge—the relief Castillo seeks here. See Gabriel v. Alaska Elec. Pension Fund , 773 F.3d 945, 955–58 (9th Cir. 2014).

Because § 1132(a)(3) "act[s] as a safety net, offering appropriate equitable relief for injuries caused by violations that § 502 does not elsewhere adequately remedy," Varity , 516 U.S. at 512, 116 S.Ct. 1065, relief is not available under § 1132(a)(3) "where Congress elsewhere provided adequate relief for a beneficiary's injury," id. at 515, 116 S.Ct. 1065. Thus, a claimant may not bring a claim for denial of benefits under § 1132(a)(3) when a claim under § 1132(a)(1)(B) will afford adequate relief. Claims under § 1132(a)(1)(B) and § 1132(a)(3), however, "may proceed simultaneously so long as there is no double recovery." Moyle v. Liberty Mut. Ret. Benefit Plan , 823 F.3d 948, 961 (9th Cir. 2016) (as amended).

Like a claimant asserting a denial-of-benefits claim under § 1132(a)(1)(B), a claimant asserting a claim for breach of fiduciary duty under § 1132(a)(3) may obtain an award of attorney's fees under § 1132(g). This award, however, does not include fees incurred in an underlying administrative proceeding. See McElwaine , 176 F.3d at 1172 n.8 ; Cann , 989 F.2d at 314–17.

C

In this case, Castillo won his claim for denial of benefits at the administrative level. Accordingly, he does not assert a claim for denial of benefits under § 1132(a)(1)(B). He does, however, assert a claim for breach of fiduciary duty under § 1132(a)(3), and the remedy he seeks is an order surcharging MetLife for the attorney's fees he incurred during the administrative proceedings.

Castillo contends this award of attorney's fees is "appropriate equitable relief" under § 1132(a)(3). This contention rests, up to a point, on valid premises. First, surcharge is an available remedy under § 1132(a)(3). As the Supreme Court explained in Amara :

Equity courts possessed the power to provide relief in the form of monetary "compensation" for a loss resulting from a trustee's breach of duty, or to prevent the trustee's unjust enrichment. Restatement (Third) of Trusts § 95, and Comment a (Tent. Draft No. 5, Mar. 2, 2009) ...; [J.] Eaton[, Handbook of Equity Jurisprudence] §§ 211–212, at 440 [ (1901) ]. Indeed, prior to the merger of law and equity this kind of monetary remedy against a trustee, sometimes called a "surcharge," was "exclusively equitable."

563 U.S. at 441–42, 131 S.Ct. 1866 ; see also 4 Spencer W. Symons, A Treatise on Equity Jurisprudence § 1080, at 229–30 (5th ed. 1941); George Gleason Bogert & George Taylor Bogert, The Law of Trusts & Trustees § 862, at 34–36, 49 – 50 (Rev. 2d ed. 1995 and 2019 Cumulative Supp.). Through surcharge, a beneficiary may seek "make-whole relief," Amara , 563 U.S. at 442, 131 S.Ct. 1866 —"the remedy that will put the beneficiary in the position he or she would have attained but for the trustee's breach." Skinner v. Northrop Grumman Ret. Plan B , 673 F.3d 1162, 1167 (9th Cir. 2012).

Second, the surcharge remedy may, in a court's discretion,...