Court Partially Rejects Exhaustion Defense in ERISA Fiduciary-Breach Case

In Bechtel v. Wexford Health Sources Inc., et al., No. CV-25-08006-PCT-DLR, 2025 WL 3537563 (D. Ariz. Dec. 10, 2025), the district court addressed whether the plaintiff failed to exhaust administrative remedies before bringing ERISA claims related to Wexford’s Short-Term Disability (“STD”) and Long-Term Disability (“LTD”) plans.

Background

Wexford provided medical services at the Mohave County Adult Detention Center and became Plaintiff Bechtel’s employer in July 2022. It sponsored both an ERISA-governed STD Plan and LTD Plan, funded through policies issued by Lincoln Financial Group. Only full-time employees were eligible for benefits under the Plans.

Bechtel experienced serious medical issues in late 2022 and received STD benefits through November 28, 2022. He returned to work on January 4, 2023, but his symptoms recurred. On January 30, 2023, Wexford reduced his weekly hours from 40 to 24 and reclassified him as a part-time employee. He later took unpaid leave from April 12 to June 1, 2023, and did not return thereafter. Wexford retroactively terminated his employment effective June 3, 2023.

Bechtel applied again for STD benefits, but Lincoln denied the claim because he was a part-time employee and therefore ineligible. Lincoln affirmed that denial on appeal in March 2024, and Bechtel did not submit a second appeal. In January 2025, he filed suit asserting (1) a denial-of-benefits claim under ERISA § 1132(a)(1)(B), and (2) a breach-of-fiduciary-duty claim under § 1132(a)(3), alleging Wexford failed to advise him of his disability benefit options and failed to report proper information to Lincoln. He sought surcharge and reformation as equitable relief.

Failure-to-Pay Claim under § 1132(a)(1)(B)

Wexford argued that Bechtel failed to exhaust administrative remedies because he did not pursue the Plan’s second-level review before bringing suit. The court did not reach the exhaustion question because Bechtel effectively abandoned this claim. In opposing summary judgment, he stated that Wexford was not the correct defendant under § 1132(a)(1)(B) because it did not owe the benefits at issue and further acknowledged that Lincoln’s denial of his STD claim “was…proper.” Based on this concession, the court granted summary judgment to Wexford on the § 1132(a)(1)(B) claim.

Breach of Fiduciary Duty under § 1132(a)(3)

Wexford next argued that Bechtel’s fiduciary-breach claim was a disguised benefits claim, such that exhaustion should apply. The court rejected this argument.

The court held that the requested relief—surcharge and reformation—constituted “appropriate equitable relief” under § 1132(a)(3), even though the remedy could ultimately involve a monetary award. Citing Amara, the court explained that equitable surcharge is distinct from compensatory damages and remains an equitable remedy even when it involves a payment of money. Thus, the claim could not be recharacterized as a benefits claim simply because of the form of relief sought.

The court further found that the fiduciary-duty allegations—specifically, that Wexford failed to advise Bechtel of disability options and failed to inform him of the consequences of becoming a part-time employee—implicated duties imposed by ERISA rather than interpretation of Plan language. Because the asserted duty arises from ERISA itself, the claim did not depend on construing the Plans and therefore was not a disguised § 1132(a)(1)(B) claim.

Wexford also argued that equitable relief under § 1132(a)(3) was unavailable because Bechtel had an adequate remedy under § 1132(a)(1)(B). The court disagreed, noting that Bechtel could not pursue a benefits claim since, as a part-time employee, he was ineligible for benefits under the terms of the Plans. As such, § 1132(a)(3) provided his only potential avenue for relief.

Because exhaustion is not required for a true fiduciary-duty claim, the court concluded that Bechtel was not obligated to pursue a second plan appeal. It therefore denied Wexford’s motion as to the § 1132(a)(3) claim.

The court granted summary judgment to Wexford on the § 1132(a)(1)(B) denial-of-benefits claim and denied summary judgment on the § 1132(a)(3) fiduciary-breach claim.