Skip to main content

You are here


DOL Pushes Back on Detrimental Reliance Claims


The Labor Department has weighed in on a case with significant implications for ERISA litigation cases.

The suit, brought in the U.S. District Court for the Eastern District of Pennsylvania on behalf of a potential class of terminated Wawa, Inc. employees, alleged that Wawa, its ESOP plan trustees and its plan administrators violated ERISA by amending the ESOP to “eliminate Plaintiffs’ right to own Wawa stock (which is privately held), forcing liquidation of Plaintiffs’ Wawa stock at an unfair price, and misrepresenting Plaintiffs’ rights under the Plan.”

More specifically, the suit alleged that the ESOP plan’s fiduciaries violated ERISA in implementing plan amendments that, contrary to the fiduciaries’ representations (including furnishing allegedly materially misleading summary plan descriptions, eliminated the participants’ right to hold Wawa stock through age 68. This, the participant-plaintiffs alleged, deprived them of the stock’s subsequent appreciation and forced them to sell their shares at an unfair price. 

Prior to the amendment in question, the Wawa ESOP provided terminated employee participants (including the plaintiffs) the same benefits as participants who retired from Wawa at their designated retirement date. Participants holding more than $5,000 in their plan accounts could receive their benefits in either a single lump sum payment or in installment payments over 10 years, and terminated and retired employees had a put option (which they could execute before age 68) to sell their shares back to Wawa at an appraised price. 

In August 2015, the plan was amended to divest terminated employees – but not retired employees – of their shares in Wawa stock and terminated employees were also not allowed to remain plan participants. On Sept. 11, 2015, plan fiduciaries effectuated the forced sale at $6,940 per share (below fair market value) and charged a distribution fee. According to the court, the price of Wawa shares has increased since the September 2015 forced sale, and reached $7,652 per share in December. As of April 1, 2018, it was worth $10,419.00 per share. 

 On appeal the fiduciaries raised four issues, though the Labor Department focused on only one of those, specifically “Whether the district court erred in concluding that Supreme Court dictum regarding ERISA’s equitable remedies in CIGNA Corp. v. Amara, 563 U.S. 421 (2011), eliminated the detrimental reliance element required to prove liability for a fiduciary misrepresentation claim under this Court’s longstanding precedent.”

In a “friend of the court” filing, the Labor Department disagreed (Cunningham v. Wawa, Inc., 3d Cir., No. 19-2930, amicus brief filed 12/11/19). Under the U.S. Supreme Court’s 2011 ruling in Cigna Corp. v. Amara, plan participants don’t need to show detrimental reliance in order to maintain certain disclosure and fiduciary breach claims, the DOL argued. 

After a brief discussion of the case facts and history, the Labor Department’s amicus filing states that “the district court correctly applied CIGNA v. Amara[i] in holding that participants alleging fiduciary misrepresentations do not need to show detrimental reliance to establish a violation of ERISA sections 102 and 404(a) or to seek reformation and surcharge under section 502(a)(3).”

The DOL noted that in Amara, “the Supreme Court rejected the argument that ERISA misrepresentation claims necessarily require a showing of detrimental reliance, and established a two-part framework for analyzing when such a demonstration might be required in order for a participant to obtain equitable remedies under ERISA section 502(a)(3).” That framework requires that a court first determine whether detrimental reliance is necessary to establish a violation of the substantive provision of ERISA at issue – and, if not, it should determine if reliance is required to obtain the equitable relief sought. The brief argues that – as it felt the case was here – in Amara the Supreme Court held that where the “relevant substantive provisions” of ERISA do not “set forth any particular standard for determining harm,” the justices considered and rejected the notion that either reformation or surcharge necessarily required a showing of detrimental reliance. 

Consequently, the Labor Department notes that the district court correctly applied Amara in holding that the participants were not required to show that they had relied to their detriment on the alleged breach in order to seek – and receive – a recovery on those claims.

The DOL also noted that the Second and Eighth circuits have rejected a detrimental reliance requirement in similar ERISA cases.

In buttressing their position, the Labor Department noted that the Wawa defendants’ argument that the summary plan description was distinct from the plan itself was “particularly problematic because ERISA “contemplates that [an SPD] will be an employee’s primary source of information regarding employee benefits.” Moreover, they explained that having a detrimental reliance requirement “vitiates this statutory scheme by undermining enforcement mechanisms that are designed to hold fiduciaries accountable for misrepresentations without regard to whether participants can demonstrate detrimental reliance.”

Not only, they wrote, was “a fiduciary misrepresentation about benefits to participants in SPDs and other communications is a violation of section 404(a)’s duty of loyalty,” they went on to note that “Just because a plaintiff cannot demonstrate that she relied to her detriment upon a particular misleading statement does not mean that she was not harmed.”

And ultimately concluding that, “for the foregoing reasons, the Secretary respectfully requests that the Court affirm the district court’s holding that a plaintiff need not demonstrate detrimental reliance to brings claims for fiduciary misrepresentations under ERISA sections 102 and 404(a) to obtain reformation or surcharge under section 502(a)(3)”.

Why it Matters

If participants have to establish that they actually relied to their detriment on a misrepresentation regarding the plan and their rights, it would have a significant impact, ultimately limiting their ability to bring class actions, because it would mean that they would have to establish how each individual class member responded to the misrepresentation.  

[i]In Amara, CIGNA converted its defined-benefit pension plan to a cash balance plan, but was said to have misrepresented in the plan’s SPDs and in other communications that the participants would continue to accrue benefits after the conversion, when in fact many participants temporarily stopped accruing benefits. The Supreme Court granted certiorari to address the question of whether a showing of “likely harm,” as opposed to detrimental reliance, was “sufficient to entitle plan participants to recover benefits based on faulty disclosures.”