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Second Circuit Upholds Equitable Reformation in Connection with Intentionally Concealing Wear-Away Period from Plan Participants

Foot Locker converted its traditional pension plan to a cash balance plan. In doing the conversion, Foot Locker provided smaller initial benefits which resulted in a wear-away period until the new plan?ÇÖs benefits actually equaled the value of the traditional pension plan?ÇÖs accrued benefits. Foot Locker went to great lengths to conceal the wear-away from participants, including in the subsequent SPD that excluded any description of the wear-away or any indication that the conversion would cause a benefits freeze. Consequently, participants were not aware that their benefits had been frozen. The district court found violations of ERISA ?º?º 102 and 404(a) and equitably reformed the plan under ERISA ?º 502(a)(3).

On appeal, Foot Locker did not challenge the ERISA violations but argued the district court erred in (i) holding the participants?ÇÖ claims were not barred by the applicable statute of limitations; (ii) holding that individualized proof of detrimental reliance was not required for class-wide relief of the ERISA ?º 404(a) claims; (iii) concluding that mistake, a prerequisite to the equitable remedy of reformation, had been shown by clear and convincing evidence as to all class members; and (iv) using a formula for calculating relief that resulted in a windfall to certain plan participants.

The U.S. Court of Appeals for the Second Circuit affirmed the district court in all respects, holding (i) it was unnecessary for the court to determine whether the three-year or six-year statute of limitations should apply to the ERISA ?º 102 claim because under the facts of this case, the claim was timely filed, as under ERISA ?º 413, because the appropriate time limit in the case of concealment is six years after the date of discovery of the breach, which deadline was met in this case; (ii) ?Ç£there is no general principle that ?Çÿdetrimental reliance?ÇÖ must be proved before a remedy is decreed?Ç¥ (citing CIGNA Corp. v. Amara) and, consequently, there is no requirement to show detrimental reliance where a plaintiff alleging a violation of ERISA ?º 404(a) seeks plan reformation; (iii) evidence of mistake need not be individualized and can be shown through generalized circumstantial evidence in appropriate cases, such as where defendants have made uniform misrepresentations about an agreement?ÇÖs contents and have undertaken efforts to conceal its effect; and (iv) although the windfall argument has theoretical appeal, a district court?ÇÖs award of equitable relief is overturned only for an abuse of discretion or for a clear error of law, neither of which was shown by Foot Locker.

Osberg v. Foot Locker, Inc., No. 15-3602-cv (slip op) (2d Cir. July 6, 2017).

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July 2017