Wong v. Flynn-Kerper, No. 19-56289 (9th Cir. 2021)
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The Ninth Circuit reversed the district court's dismissal, based on the doctrine of equitable estoppel, of an Employee Retirement Income Security Act (ERISA) action in which the Trustee of the Anaplex Corporation Employee Stock Ownership Plan (ESOP) sought equitable and declaratory relief against the holder of a promissory note from Anaplex.
The panel joined the Fourth Circuit in barring the defensive use of equitable estoppel when estopping the plaintiff would contradict an ERISA plan's express terms. The panel deferred to ERISA's focus on what a plan provides, consistent with US Airways, Inc. v. McCutchen, 569 U.S. 88, 100 (2013). The panel explained that equitable estoppel has no place at any stage in this litigation, and the district court erred in dismissing the case based on it.
The panel held that, in addition to satisfying the traditional equitable estoppel requirements, a party bringing a federal equitable estoppel claim in the ERISA context must also allege: (1) extraordinary circumstances; (2) that the provisions of the plan at issue were ambiguous such that reasonable persons could disagree as to their meaning or effect; and (3) that the representations made about the plan were an interpretation of the plan, not an amendment or modification of the plan. Furthermore, a party cannot maintain a federal equitable estoppel claim against a trust fund where recovery on the claim would contradict written plan provisions. In this case, allowing the holder to assert her equitable estoppel claim against the trustee would contradict the clear terms of the ESOP. The panel remanded.
Court Description: ERISA The panel reversed the district court’s dismissal, on the ground of equitable estoppel, of an ERISA action in which David Wong, Trustee of the Anaplex Corporation Employee Stock Ownership Plan, sought equitable and declaratory relief against Danette K. Flynn-Kerper, the holder of a promissory note from Anaplex. Bernard Kerper, former trustee of the ESOP and late husband of Flynn-Kerper, acquired the promissory note in exchange for shares of Anaplex stock he sold to the ESOP. Alleging that the ESOP had paid greater than “adequate consideration” for the shares, Wong sought an adjustment to the purchase price and a declaration that the ESOP had overpaid. Flynn-Kerper moved to dismiss, arguing that Wong was equitably estopped from asserting his claims against her, based on an agreement between them that she alleged settled a prior lawsuit in which she had alleged Anaplex’s failure to repay promissory notes, including a note that Anaplex issued in connection with the challenged stock sale. The district court granted the motion to dismiss, concluding that ERISA did not bar promissory or equitable estoppel because Flynn-Kerper was not making a claim pursuant to the ERISA agreement, but instead was seeking to rebuff Wong’s claim for reformation of the promissory note. WONG V. FLYNN-KERPER 3 Reviewing under a summary judgment standard, the panel held that Flynn-Kerper could not equitably estop Wong, the ERISA Trustee, because doing so would contradict the clear terms of the ESOP. The panel held that, in addition to satisfying the traditional equitable estoppel requirements, a party bringing a federal equitable estoppel claim in the ERISA context must also allege: (1) extraordinary circumstances; (2) that the provisions of the plan at issue were ambiguous such that reasonable persons could disagree as to their meaning or effect; and (3) that the representations made about the plan were an interpretation of the plan, not an amendment or modification of the plan. The panel held that a party cannot maintain a federal equitable estoppel claim against a trust fund where recovery on the claim would contradict written plan provisions. Here, if Wong were correct that the Anaplex shares were overvalued during an appraisal, applying equitable estoppel would require Wong to pay Flynn-Kerper greater than the fair market value of the shares on the date of purchase. This would contravene Section 6(d) of the ESOP, which required that the shares be purchased at fair market value on the date of purchase. Joining the Fourth Circuit, the panel held that the defensive use of equitable estoppel is barred when estopping the plaintiff would contradict an ERISA plan’s express terms. The panel therefore reversed the district court’s judgment and remanded.
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