U.S. District Judge William Alsup of the U.S. District Court for the Northern District of California ruled equitable remedies under Section 502(a)(3) of the Employee Retirement Income Security Act (ERISA) can be used to enforce provisions of a top-hat retirement plan.

The case involves Steven K. Buster, former president and chief executive officer of Mechanics Bank, who in 2012, when terminated, was presented with a separation agreement that released the bank of all claims including “claims arising under the Employee Retirement Income Security Act.” During his employment with the bank, Buster participated in several of Mechanic Bank’s retirement plans including the Mechanics Bank Supplemental Executive Retirement Plan (SERP). In 2008, Mechanics Bank froze the accrual of new benefits pursuant to the SERP, and adopted a separate Executive Retirement Plan (ERP), in which Buster also participated.

Upon termination, the agreement provided for a lump-sum payment to Buster of one million dollars designated as “Retirement Pay,” as well as a separate payment of $1.8 million under the ERP, and a one-year severance payment of just over one million dollars, for a total payment of $3.8 million. The agreement made no mention of the SERP. Allegedly, Buster was expressly informed by Mechanics Bank Board Member Diane Felton that his benefits under the SERP, his 401(k) plan, and his pension plan would be unaffected by the agreement.

Relying on that representation, Buster signed the agreement. That evening, after Buster signed the agreement, Garrett Lambert, senior vice president and treasurer of Mechanics Bank, sent an email to Daniel Albert, chairman of the Directors Compensation Committee, quantifying the amount of benefits Buster accrued under his pension, SERP and ERP plans. Buster was copied as a recipient on that email. The email made no mention of the agreement.

In May 2015, Buster sent an inquiry to the director of human resources at Mechanics Bank asking for an estimate of his retirement benefits. She responded stating that Mechanics Bank had no obligation to pay any benefits under SERP due to the release in the agreement. After an appeal, Buster filed a lawsuit in March 2016.

Buster’s first amended complaint alleges three claims for relief: (1) denial of benefits under ERISA, (2) equitable estoppel, and (3) reformation of the agreement. Defendants moved to dismiss the second and third claims.

Alsup noted in his opinion that Section 502(a)(3) of ERISA provides that a civil action may be brought: “[b]y a participant, beneficiary, or fiduciary (A) to enjoin any act or practice which violates any provision of this subchapter or the terms of the plan, or (B) to obtain other appropriate equitable relief (i) to redress such violations or (ii) to enforce any provisions of this subchapter or the terms of the plan.” He added that Section 502(a)(3) does not, however, “authorize ‘appropriate equitable relief’ at large, but only ‘appropriate equitable relief’ for the purpose of ‘redress[ing any] violations or . . . enforc[ing] any provisions’ of ERISA or an ERISA plan.”

He pointed out that ERISA exempts top-hat plans from several requirements of Title I of ERISA, which address participation, vesting, funding, and fiduciary duties. All agreed that the administrator of a top-hat plan is exempt from ERISA’s fiduciary duties, and all agreed that the terms of the SERP are unambiguous. However, Buster does not seek any equitable relief as to the SERP; he seeks equitable estoppel and reformation regarding the agreement, which defendants have interpreted as waiving benefits under the SERP.

Defendants argued that Buster failed to identify any ambiguity in the agreement that could give rise to a claim for equitable remedies. Alsup found that it is plausibly ambiguous whether the term “claims arising under the Employee Retirement Income Security Act” in the agreement encompassed claims for benefits from a plan governed by ERISA, as defendants now contend. Alsup noted that Felton’s alleged statement unambiguously disclaiming that scope exacerbated that ambiguity. In addition, the Lambert email, which detailed the extent of Buster’s pending SERP benefits, lends further plausibility to the allegation that Felton informed Buster the agreement had no effect on his SERP benefits.

Defendants contended that the equitable relief that Buster seeks is not available because he does not allege an interpretation of a plan provision, citing Gabriel v. Alaska Elec. Pension Fund. “Defendants myopically read Gabriel to limit equitable estoppel to interpretations of ambiguous terms in the plan document as against any other statement relating to a plan. But Gabriel does not reach so far,” Alsup wrote in his opinion. He held that “appropriate equitable relief” under ERISA Section 502(a)(3) may extend to remedy inequitable conduct pertaining to a supposed waiver of plan rights.

Defendants also argued that Section 502(a)(3) cannot apply in the context of a top-hat plan, in as much as the fiduciary duties of ERISA do not extend to such a plan. According to Alsup, the plain language of Section 502(a)(3) does not support defendants’ interpretation. By its terms, that section authorizes “appropriate equitable relief . . . to enforce any provisions of this subchapter or the terms of the plan.” Defendants contend they need not make payments required by the terms of the SERP in reliance on the agreement, but Alsup said to the extent equitable relief is otherwise available, Section 502(a)(3) authorizes the appropriate relief to enforce the terms of the SERP.

He noted that defendants’ arguments primarily rest on a narrow understanding of CIGNA Corp. v. Amara, as well as Gabriel. Those decisions discussed the availability of equitable remedies under Section 502(a)(3) in the context of information provided by a fiduciary. Neither decision required a fiduciary breach. Each merely addressed the defendant as the plan fiduciary as appropriate under the circumstances. Nothing in those decisions excluded the possibility that the administrator of a top-hat plan could escape the reach of equitable remedies under Section 502(a)(3) simply because it was exempt from the higher fiduciary standard of care. Alsup held, consistent with the uniform trend of decisions addressing Section 502(a)(3) in the context of a top-hat plan, that equitable remedies there under are available for a breach of the general good faith standard of contract law by the plan administrator.