Justice Ginsburg's Fiduciary Loophole: A Viable Achilles' Heel to HMOs' Impenetrable ERISA Shield

Brigham Young University Law Review, 2006 by Johnson, Charlotte

This Comment discusses how Justice Ginsburg's fiduciary "loophole"-specifically, damages claimed for the breach of fiduciary duty under ERISA in the context of HMOs-may fare before the Supreme Court in light of the delicate balance that exists among Supreme Court Justices. This Comment argues that Justice Ginsburg's loophole should be in fact a viable Achilles' heel to HMOs' impenetrable ERISA shield. The drafters of ERISA's remedial scheme intended the courts to derive its interpretation from its more readily apparent context and the purpose of the statute, as Justice Stevens has suggested, rather than encrypting it in outmoded terminology, as Justice Scalia has reasoned. Under this interpretation, Congress obviously intended to provide compensatory relief to those injured ERISA plan members. As the issue now stands, Justice Ginsburg emphasizes that there is a "rising judicial chorus urging that Congress and [this] Court revisit what is an unjust and increasingly tangled ERISA regime."21 Furthermore, as HMO liability is really an issue more far reaching than ERISA is designed to cover, this Comment argues that HMO liability truly deserves closer congressional attention.

Part II of this Comment provides a background of ERISA and its troubling application in HMO liability. Part III describes the significant case history, in which Justice Scalia and Justice Stevens clashed on the issue of what sort of remedies ERISA provides. Part IV contrasts the overarching viewpoints of Scalia and Stevens. Finally, particularly in light of the Court's two opposing approaches toward ERISA remedies, Part V implicates how Justice Ginsburg's fiduciary loophole should be the proper interpretation.

II. ERISA BACKGROUND

ERISA first made its way into the congressional limelight with the closing of the Studebaker South Bend, Indiana factory in 1963.22 Studebaker defaulted on pension payments because its pension plan was not adequately funded to compensate all of its vested pension obligations.23 This event catalyzed long-awaited congressional action in pension reform.24 Assistant Secretary Thomas R. Donahue depicted Studebaker's tangled plight before Congress as follows:

In all too many cases the pension promise shrinks to this: "If you remain in good health and stay with the same company until you are 65 years old, and if the company is still in business, and if your department has not been abolished, and if you haven't been laid off for too long a period, and if there is enough money in the fund, and if that money has been prudently managed, you will get a pension."25

As a result of the flaws in pension systems, United Auto Workers (UAW) labor union proposed legislative reform.26 UAW officials, for example, proposed legislation to protect employee benefits from default risk by creating a pension reinsurance.27 This marked the beginning of a series of employee benefit reforms that compose ERISA, which was enacted in 1974.28

Congress wanted to create a comprehensive scheme to regulate employee benefit plans-both pension plans and welfare plans.29 ERISA was intended to provide uniform regulation of employee benefit plans30 and "to protect. . . the interests of [plan] participants . . . by providing for appropriate remedies, sanctions, and ready access to the Federal courts."31 In general, ERISA's provisions ensure (1) adequate funding of pension plans, (2) vesting of benefits for plan participants, and (3) fiduciary obligations for plan administrators, arguably based in trust law, as will be explained later.32