Gomo v. NetApp, Inc.

Background

NetApp created an Executive Medical Retirement Plan, an employee welfare benefit plan governed by the Employee Retirement Income Security Act of 1974. The plan provided post-retirement health-insurance benefits to certain senior executives, their spouses, and their children. NetApp paid the premiums, and insurance companies served as the plan’s underwriter and benefits administrator.

The certificates of coverage, which NetApp treated as the plan document, stated that NetApp could terminate the plan at any time. PowerPoint presentations shown to participating executives did not make that authority clear. NetApp terminated the plan in 2016 and announced that it would provide individual insurance policies for participants for three years before ending the plan completely in December 2019.

The plaintiffs originally asserted two claims under the Employee Retirement Income Security Act: a claim for plan benefits and an alternative claim against NetApp for breach of fiduciary duty. In an earlier appeal in this case, the Ninth Circuit upheld judgment against the direct benefits claim but vacated judgment against Daniel Warmenhoven’s fiduciary-duty claim and sent that claim back for further proceedings. The remaining claim alleged that NetApp had incorrectly represented that the plan provided lifetime health-insurance benefits.

Motion and legal standard

NetApp renewed its motion for summary judgment on the second element of Warmenhoven’s fiduciary-duty claim: whether he sought appropriate equitable relief. Summary judgment is appropriate when the evidence shows no genuine dispute over a material fact and the moving party is entitled to judgment as a matter of law. The court viewed the evidence in the light most favorable to Warmenhoven, the nonmoving party.

Under the governing statute, a fiduciary-duty claim requires a remediable wrong and an appropriate equitable remedy. The parties focused on reformation and surcharge. Reformation means changing the written terms of a plan to correct a qualifying mistake or fraud. Surcharge means monetary compensation for a loss caused by a fiduciary’s breach or the return of a benefit obtained through unjust enrichment.

Reformation

Warmenhoven sought reformation based on mistake, not fraud. To obtain that remedy, he needed evidence that a mistake affected the plan’s terms and evidence of NetApp’s true intent. Because the certificates of coverage expressly allowed termination, he needed evidence that NetApp intended to give up that right but failed to reflect that intent in the plan document because of a mistake.

The court held that NetApp met its initial burden on this issue. Evidence indicated that Marg Correa, who helped create the plan, and the Compensation Committee, which approved it, knew or likely knew that NetApp could terminate the plan. The court found no evidence that they intended to surrender that right but mistakenly failed to include that intent in the plan document. Warmenhoven’s personal belief that the plan could not be terminated showed, at most, a unilateral mistake and did not establish NetApp’s intent. The court also found that the plan’s reference to an “unlimited lifetime maximum benefit” concerned the absence of a dollar cap, not an entitlement to benefits for life. NetApp’s securities filings likewise showed an original intent to provide lifetime benefits but did not show an intent to give up the right to terminate the plan.

The court therefore found that Warmenhoven had not produced evidence allowing a reasonable factfinder to conclude that reformation was an appropriate remedy.

Surcharge for actual harm

The court reached a different conclusion about surcharge based on actual harm. NetApp argued that Warmenhoven could not show harm because he testified that lifetime benefits were not the main reason he retired, that his retirement goals were unaffected, and that termination of the plan did not affect his personal net worth.

The court found that evidence insufficient to establish that Warmenhoven’s position would have been the same without the alleged promise of lifetime benefits. Warmenhoven had been NetApp’s chief executive officer, and the plan had been created at his direction. He declared that the plan influenced his decision to remain as chief executive until he met the age and service requirements for lifetime medical benefits. He stated that, had he known NetApp could terminate the plan, he might have left earlier for another company, and that he had incurred more than $4,000 per year in out-of-pocket costs for replacement health insurance after termination.

The court did not decide whether those insurance costs were the proper measure of loss. It decided only that a reasonable factfinder could determine that NetApp’s alleged misrepresentation caused actual harm that could be addressed through surcharge. Warmenhoven would still have to prove the alleged breach, causation, actual harm, and an appropriate damages calculation.

Surcharge for unjust enrichment

The court found that NetApp met its initial burden of showing there was no evidence supporting surcharge under an unjust-enrichment theory. Warmenhoven argued that NetApp retained millions of dollars and avoided future plan liabilities when it terminated the plan. The court held that any such retention resulted from the plan’s termination, which was permitted under the law and the plan documents, rather than from the alleged misrepresentation about lifetime benefits. Warmenhoven therefore had not shown that NetApp obtained a benefit from the alleged fiduciary breach.

Disposition

The court concluded that reformation and surcharge based on unjust enrichment were unavailable, but surcharge based on actual harm might be available. Because that possibility was enough to defeat NetApp’s motion, the court denied NetApp, Inc.’s motion for summary judgment. The order did not resolve whether NetApp breached its fiduciary duty or whether Warmenhoven ultimately could recover damages.