Varity Corporation v. Howe

PETITIONER: Varity Corporation
RESPONDENT: Howe
LOCATION: Rhode Island General Assembly

DOCKET NO.: 94-1471
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Eighth Circuit

CITATION: 516 US 489 (1996)
ARGUED: Nov 01, 1995
DECIDED: Mar 19, 1996

ADVOCATES:
Edwin S. Kneedler - Department of Justice, argued the cause for the United State, as amicus curiae, supporting the respondents
Floyd Abrams - Argued the cause for the petitioner
H. Richard Smith - Argued the cause for the respondents

Facts of the case

Charles Howe and others used to work for Massey-Ferguson, Inc., a farm equipment manufacturer, and a wholly owned subsidiary of the Varity Corporation. These employees all were participants in, and beneficiaries of, Massey-Ferguson's self-funded employee welfare benefit plan, an Employee Retirement Income Security Act of 1974 (ERISA protected plan that Massey- Ferguson administered itself. When certain divisions in Massey-Ferguson stared losing money, Varity decided to transfer them to a separately incorporated subsidiary, Massey Combines. Varity also persuaded the employees of the failing divisions to change employers and benefit plans, conveying the message that employees' benefits would remain secure when they transferred. Ultimately, the employees lost their nonpension benefits. The employees filed an action under ERISA, claim that Varity, through trickery, had led them to withdraw from their old plan and forfeit their benefits. The District Court found that Varity and Massey-Ferguson, acting as ERISA fiduciaries, had harmed plan beneficiaries through deliberate deception, which gave the employees to right to relief, including the reinstatement to the old plan. The Court of Appeals affirmed.

Question

Did the Varity Corporation and Massey-Ferguson, Inc. act their capacity as an Employee Retirement Income Security Act of 1974fiduciary when they significantly and deliberately misled the beneficiaries? By doing so, did Varity and Massey-Ferguson violate the fiduciary obligations that ERISA imposes upon plan administrators? Does ERISA authorize a lawsuit in such cases?

Media for Varity Corporation v. Howe

Audio Transcription for Oral Argument - November 01, 1995 in Varity Corporation v. Howe

Audio Transcription for Opinion Announcement - March 19, 1996 in Varity Corporation v. Howe

William H. Rehnquist:

The opinion of the Court in No. 94-1471, Varity Corp. against Howe will be announced by Justice Breyer.

Stephen G. Breyer:

This is basically an ERISA case in which a group of employees said that the employer had tricked them out of their benefits.

The way this trick worked was that the employer had a lot of losing assets in different corporations and his idea was to transfer them all into one sub-corporation which then might go bankrupt and all his bad debts would be gotten rid off.

One set of bad debts were the promises that he made to his employees to pay their medical benefits but in order to make the transfer, he had to get their consent, and what he did was have people tell that the set of stories about how marvelous this new corporation would be which according to the employees in the court was all untrue.

They shifted, the corporation went bankrupt, they lost their non-pension benefits and they brought suit.

Now, that was the very bad activity on the employer’s part, but the issue before use as whether or not it violated ERISA, the Employment Retirement Income Security Act, and to answer that question, we have to deal with three legal questions.

The first is, Was the employer, when he made all these statements to the employees about how marvelous this corporation would be, speaking his capacity as employer or speaking in his capacity as the fiduciary under ERISA.

We decided that after looking at all of the records that in fact, he was speaking in relevant part in his capacity as ERISA fiduciary, so that so far is under the Act.

The second part question was, whether or not this activity, namely telling a lot of false stories, violated his fiduciary duty under ERISA, and we have concluded that it did violate a fiduciary duty.

And the third which is even more technical was, whether or not the employees could bring a lawsuit under a particular provision of ERISA that allowed people participant in programs to obtain an appropriate equitable relief to redress violations of ERISA.

Now you would have thought that answer would obviously be yes because that is what the language said but it was not that clear because of other cases in their Court and because of other sections of the Act that suggested only a plan to bring a lawsuit under that provision rather employees themselves.

Well after going through it, we concluded that this provision in fact did allow employees themselves also to bring suit for violation for fiduciary obligations. though we do not think that holding opens ERISA to all kinds of lawsuits for fiduciary violations for all kinds of activities because of certain limiting principles that we have written into the opinion.

Therefore we affirm the Lower Court's decision that the employees could bring this lawsuit.

Justice Thomas has filed a dissenting opinion which Justice O’Connor and Justice Scalia have joined.