Opinion ID: 3012186
Heading Depth: 2
Heading Rank: 1

Heading: Exhaustion of Plan Remedies.

Text: This Circuit requires the exhaustion of Plan remedies in some, but not all, ERISA cases.2 In Zipf v. AT&T, 799 F.2d 889 (3d Cir. 1986), we drew a distinction between claims to enforce the terms of a benefit plan and claims to assert rights established by the ERISA statute. Id. at 891. _________________________________________________________________ 2. As we noted in Harrow, the Courts of Appeals are in sharp disagreement over whether certain ERISA claims should be excused from exhaustion requirements. 279 F.3d at 253 n.10 (comparing rule applied by the Third, Fourth, Ninth and Tenth Circuits with rule applied by the Seventh and Eleventh Circuits). 5 Exhaustion of Plan remedies is required in the former, but not the latter, category of cases. Id.3 Since Zipf, a vast majority of cases waiving the exhaustion requirement have fallen in two categories: (1) discrimination claims under section 510 of ERISA, or (2) failure to provide plaintiffs with Summary Plan Descriptions, as required by ERISA. Harrow v. Prudential Ins. Co., 279 F.3d 244, 253 (3d Cir. 2002). More recently, we have also recognized the possibility of waiving exhaustion in cases where statutory rights stem from the fiduciary duties set forth in section 404 of ERISA, 29 U.S.C. S 1104(a). See Harrow, 279 F.3d at 253-54. The exhaustion requirement for these section 404 claims arises from the fact that some of the duties established by section 404 are synonymous with a claim to enforce the terms of a benefits plan. The section describes how a  fiduciary shall discharge his duties with respect to a plan. 29 U.S.C. S 1104(a)(1). It also requires the fiduciary to discharge those duties for the purpose of providing benefits to participants, and in accordance with the documents and instruments governing the plan. 29 U.S.C. SS 1104(a)(1)(A) & (a)(1) (D) (emphases added). Thus, we still require exhaustion in cases where the alleged statutory violation-- a breach of fiduciary duty under section 404--is actually a claim based on denial of benefits under the terms of a plan. Exhaustion requirements for fiduciary allegations brought under section 404, therefore, hinge on whether the allegations amount to a claim for plan benefits. In Harrow, we explained that alleged fiduciary breaches involve a claim for benefits when resolution of the claims rests upon an interpretation and application of an ERISA-regulated plan _________________________________________________________________ 3. In general, plaintiffs bring claims to enforce the terms of a benefits plan under 29 U.S.C. S 1132(a)(1)(B) and claims to enforce rights established by ERISA under 29 U.S.C. S 1132(a)(3). Section 1132(a)(3) claims to enforce statutory rights are not automatically excused from exhaustion, however. We still require exhaustion where the statutory claim merely recasts [a] benefits claim in statutory terms. Harrow, 279 F.3d at 252. Thus, while the District Court assumed that plaintiffs wished to proceed under S 1132(a)(3), and plaintiffs rely on S 1132(a)(3) for purposes of appeal, our exhaustion analysis turns on whether plaintiffs’ statutory allegations amount to a claim for benefits under the terms of the Westinghouse Plan. 6 rather than on an interpretation and application of ERISA itself. 279 F.3d at 253-54 (quoting Smith v. Syndor, 184 F.3d 356, 362 (4th Cir. 1999)). There, we found that a fiduciary claim, brought under section 404 based on an allegedly wrongfully denial of insurance coverage for Viagra, amounted to a claim for benefits. Id. at 254.4 Here, plaintiffs allege section 404 fiduciary breaches based on CBS’s failure to vest after (1) the elimination of a significant number of Plan participants, which allegedly created a partial termination and required vesting under the Plan and under 26 U.S.C. S 411 (d)(3); and (2) a partial termination based on elimination of future benefit accruals under the 1994 amendments to the Plan.5 See, e.g., Gluck v. Unysis Corp., 960 F.2d 1168, 1178 (3d Cir. 1992) (noting that breach of fiduciary duty theory may apply based on failure to vest fully the accrued benefits upon partial termination of a plan). The vesting obligations that form the basis of plaintiffs’ fiduciary duty claims arise from S 18.B of the Plan. Although the language of S 18.B tracks the provisions of 26 U.S.C. S 411 (d)(3) and is designed to meet that federal statutory requirement, the terms of section 411 do not provide plaintiffs with a right to vesting independent of the language of the Plan.6 It is, instead, the contractual language of S 18.B of the Plan itself which gives rise to _________________________________________________________________ 4. In reaching this conclusion, we distinguished the holding from Smith v. Syndor, 184 F.3d 356, 362 (4th Cir. 1999), a case in which exhaustion was not required for allegations establishing a breach of fiduciary duty independent of the denial of benefits. In that case plaintiffs alleged a breach of fiduciary duties based on sales of preferred stock at an undervalued price. Thus, the claims in Smith are distinguishable from the plan benefits sought in Harrow and the instant case. 5. Because plaintiffs have chosen to proceed under 29 U.S.C. S 1132(a)(3), their fiduciary duty claims are limited to equitable relief. Great West Life & Annuity Ins. Co. v. Knudson, 122 S.Ct. 708 718-19 (2002). Thus, even if we held that plaintiffs were not required to exhaust their remedies, they would not be able to recover damages for any of their unexhausted claims. 6. Vornado, Inc. v. Trustees of the Retail Store Employees Union Local 1262, 829 F.2d 416, 418 n. 2 (3d Cir. 1987) (section 411 does not give plan participants an interest in the employer’s tax status). 7 Plaintiffs’ vesting rights. Indeed, we have on numerous occasions noted that an employee’s right to vesting upon partial termination arises from the terms of an ERISA plan. In Vornado, Inc. v. Trustees of the Retail Store Employees Union Local 1262, we stated that the purpose of section 411 is to force employers to include language favorable to employees in the plan; thus, employees must sue on the plan language, not on the statute. 829 F.2d at 418 n. 2 (emphasis added); see also Bruch v. Firestone Tire & Rubber Co., 828 F.2d 134, 151 (3d Cir. 1987) (in order to avoid the severe penalty of loss of section 401 qualification,all qualifying pension plans contain the assurances required by [section 411, and plaintiffs] can then sue on the basis of the plan language ),7 affirmed in part and reversed in part on other grounds, 489 U.S. 101 (1989); United Steel Workers of America v. Harris & Sons Steel Co., 706 F.2d 1289, 1299 (3d Cir. 1983) (the question whether under the terms of the Plan agreement there was a partial termination in 1972 is essentially one of contract interpretation). Thus, the fiduciary breaches alleged by plaintiffs turn on the application of S 18.B’s provisions for vesting. It follows that their allegations amount to a claim for Plan benefits and require exhaustion under Harrow. We will affirm the District Court’s ruling that exhaustion of Plan remedies is required for plaintiffs’ partial vesting allegations.