Varity Corp. v. Howe

Charles Howe and other employees (plaintiffs) worked for Massey-Ferguson, Inc., a subsidiary of the Varity Corporation (defendant). The employees were participants and beneficiaries of Massey-Ferguson’s self-funded employee welfare benefit plan. The plan was protected by the Employee Retirement Income Security Act (ERISA) and administered by Massey-Ferguson. Varity became nervous about Massey-Ferguson’s divisions losing money and transferred many of Varity’s debts and Massey-Ferguson’s risky divisions to a new subsidiary, Massey Combines, anticipating the subsidiary to fail. The failure would eliminate Massey-Ferguson’s promise to pay benefits to the employees of its money-losing divisions if Varity could convince the covered employees to switch to Massey Combines as their new employer and to Massey Combines’s new benefit plan. Varity met with the employees, told them about Massey Combines’s positive future outlook, and persuaded them that their benefits would be secure if they switched. However, Massey Combines was insolvent from the outset and hid its negative net worth by overvaluing its assets and underestimating its debts. Over one thousand Massey-Ferguson employees agreed to transfer to Massey Combines and lost their nonpension benefits due to Massey Combines’s poor performance in the first two years. Howe and his fellow employees filed suit in federal district court, claiming that Varity violated its fiduciary duties under ERISA by using trickery to induce the employees to forfeit their benefits. Varity claimed that it was acting as an employer and not a fiduciary when it talked with the employees and convinced them to switch plans. The district court found in favor of the employees. The case was appealed to the Eighth Circuit, which affirmed the ruling. Varity appealed to the United States Supreme Court, which granted certiorari. No facts of the case were disputed.