VI.  Under Fifth Circuit Precedent, Plaintiffs are Not Required to Prove that Defendants' Fiduciary Breaches Caused the Plans' Losses; Defendants Have the Burden of Proof on Causation

The Administrative Committee Defendants argue that Plaintiffs have not alleged that Defendants' fiduciary breaches caused the plans' losses. AC Mot. to Dismiss at pp. 25-29. Citing cases from the Second and Sixth Circuits, Defendants claim in this regard that Plaintiffs have the burden of proving causation.⁽¹⁰⁾ The Fifth Circuit, however, is among the several courts that have

rejected this approach. In McDonald, the Fifth Circuit held that once a plaintiff proves a breach of fiduciary duty and a prima facie case of loss to the plan, the burden of persuasion shifts to the fiduciary to prove that the loss was not caused by the breach of duty. 60 F.3d. at 237; accord Leigh, 727 F.2d at 138-139; Martin v. Feilen, 965 F.2d 660, 671 (8th Cir. 1992); Kim v. Fujikawa, 871 F.2d 1427, 1430-1431 (9th Cir. 1989); Davis v. Torvick, No. C-93-1343 CW, 1996 WL 266127, at *5 (N.D. Cal. May 2, 1996); see also Ehlmann v. Kaiser Found. Health Plan, 20 F. Supp. 2d 1008, 1011 (N.D. Tex. 1998) ("[E]ven if Plaintiffs had failed to plead causation, the burden of proof on that element in an ERISA breach-of-fiduciary case lies with Defendants."), aff'd, 193 F.3d 552 (5th Cir.), cert. dismissed, 530 U.S. 1291 (2000). For this reason, Plaintiffs' purported failure to plead causation provides no basis for dismissal.

VII.  The Complaint States a Claim that Administrative Committee Members, Lay, and Northern Trust Breached Their Fiduciary Duties to the Enron Savings Plan with Regard to the Lockdown Period

A. Plaintiffs Have Alleged Sufficient Facts for Purposes of Establishing Article III Standing to Challenge the Defendants' Conduct in Relation to the Lockdown Period

The Administrative Committees (AC Mot. to Dismiss 29-32), Kenneth Lay (Lay Mot. to Dismiss 18-19), Administrative Committee member Cindy Olson (Olson Mot. to Dismiss 14-16), and Northern Trust (Northern Trust Mot. to Dismiss 43-44) have moved to dismiss Count II of the Complaint on the ground that the Plaintiffs have failed to allege personalized injury from the alleged fiduciary breaches regarding the lockdown period, and hence lack standing under Article III to maintain the claim. Count II challenges the Defendants' conduct in relation to a "lockdown period," during which the plans were switching from one administrator (Northern Trust) to another (Hewitt Associates) and participants were not permitted to direct any sale of shares in their accounts.

A party invoking federal jurisdiction bears the burden of establishing the elements of Article III standing: (1) the plaintiff must have suffered an injury in fact, i.e., an invasion of a legally protected interest that is concrete and particularized, and actual or imminent; (2) there must be a causal connection between the injury and the conduct complained of, i.e., the injury has to be fairly traceable to the challenged conduct of the defendant (and not some third party); and (3) it must be likely as opposed to merely speculative that an injury will be redressed by a favorable judgment of the court. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).

In this case, Plaintiffs allege that the failure to provide adequate information about the lockdown, or to postpone the lockdown in light of the news about Enron's unraveling financial situation, was a fiduciary breach. They allege that this prevented participants from directing the sale of Enron stock during this period, and "[a]s a direct result" the plan, and indirectly the participants, suffered loss in the form of the diminished value of the stock during the lockdown period. Complaint at ¶ 754. The count thus plainly alleges that Defendants committed fiduciary breaches that caused loss to the plan and its participants, and the count seeks an order, available under §§ 409(a) and 502(a)(2) of ERISA, 29 U.S.C. §§ 1109(a) and 1132(a)(2), to redress that loss. Complaint at ¶ 760. The Complaint thus plainly alleges the requisites of Article III standing: injury, causation, and redressability.

Defendants argue that Plaintiffs have not alleged a constitutionally adequate personal injury because they have not alleged that they would have directed the sale of their Enron stock during this period.⁽¹¹⁾ Although Defendants characterize this as a deficiency in the Plaintiffs' pleading of "injury," Defendants' argument instead seems to be directed at the Plaintiffs' allegations of causation, i.e., whether plaintiffs' loss is fairly traceable to the alleged fiduciary breach. Defendants do not dispute, for example, that Plaintiffs allege a decrease in the value of plan-held Enron stock during the lockdown period, and do not (and of course could not) deny that this loss in value is an injury cognizable under Article III. Rather they contend that the fiduciaries' decision to implement the lockdown (as well as any failure to provide adequate information about it) could not have caused the loss to the participants unless the participants would have directed the sale of plan-held Enron stock during this period.

Whether Defendants' argument is viewed as addressing injury or causation, the argument plainly lacks merit because it conflicts with Supreme Court teaching that a plaintiff's burden of establishing standing at the pleading stage of litigation is "relatively modest." Bennett v. Spear, 520 U.S. 154, 171 (1997). As the Court has explained:

[E]ach element of Article III standing "must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation." . . . Thus, while a plaintiff must "set forth" . . . "specific facts" to survive a motion for summary judgment, Fed. R. Civ. P. 56(e), and must ultimately support any contested facts . . . at trial, "[a]t the pleading stage, general factual allegations of injury . . . may suffice, for on a motion to dismiss we 'presume . . . specific facts that are necessary to support the claim.'"

Bennett, 520 U.S. at 167-68, quoting Lujan, 504 U.S. at 561; see also National Org. for Women, Inc. v. Scheidler, 510 U.S. 249, 255 (1994) (complaint must be sustained against motion to dismiss if there are any facts establishing standing that could be proved consistent with the complaint's allegations).⁽¹²⁾

Furthermore, it would be particularly inappropriate to impose detailed pleading requirements, such as Defendants advocate, regarding whether the fiduciary breach caused a loss to the plan and Plaintiffs. As stated earlier, supra, at 38, under Fifth Circuit precedent, if Plaintiffs carry their burden of establishing a breach and a prima facie case of loss – i.e., prove that the fiduciaries violated their duties of loyalty or prudence with regard to the lockdown, and that the value of the stock declined during the lockdown period – liability could be established in this case without Plaintiffs' producing evidence that they would have directed the sale of stock, since the burden of persuasion would shift to the Defendants. McDonald, 60 F.3d at 237. Thus, it would be inappropriate to require that Plaintiffs' Complaint contain allegations concerning a matter which Defendants may have to prove. Cf. Swierkiewicz, 122 S. Ct. at 997 (it would be "incongruous to require a plaintiff, in order to survive a motion to dismiss, to plead more facts than he may ultimately need to prove to succeed on the merits if direct evidence of discrimination is discovered").⁽¹³⁾

Moreover, to the extent Defendants are arguing that a particular showing of loss to Plaintiffs' individual accounts or benefits, as opposed to a loss to the plan, is a prerequisite to Article III standing, they are in error. Defendants, for example, rely (AC Mot. to Dismiss 30; NT Mot. to Dismiss 43) on Harley v. Minnesota Mining & Mfg. Co., 284 F.3d 901, 906 (8th Cir. 2002), which held that a participant in an over-funded defined benefit plan did not have standing to sue under Article III to recover losses to the plan caused by a fiduciary breach, because the plan's surplus was sufficiently large that the loss did not cause actual injury to the participants' interests in the plan (consisting of their accrued benefits). As Plaintiffs explain (Plaintiffs' NT Opposition 46), Harley is easily distinguishable from this case, which does not involve a defined benefit plan (let alone an overfunded one), but instead involves defined contribution plans that have been decimated by the loss in value of Enron stock.⁽¹⁴⁾

A participant's interest in the security of his benefits under the plan is sufficiently concrete and personal that an invasion of that interest is a cognizable injury under Article III standing, and falls well within the scope of standing principles articulated by the Supreme Court.⁽¹⁵⁾ Thus, plan participants have Article III standing to recover losses to their plan resulting from a fiduciary breach whenever that recovery contributes to the value or security of the participant's interest in a plan.⁽¹⁶⁾

B. The Complaint Sufficiently Alleges that Northern Trust was a Fiduciary and that It Had Discretionary Control with Respect to the Lockdown

Northern Trust asserts that the Complaint fails to state a claim that it was a fiduciary in connection with the lockdown of the Savings Plan.[17] The determination of a person's fiduciary status requires specific fact-finding concerning the person's conduct and the surrounding circumstances in each case to decide whether the person exercised the requisite control. Lancaster, 55 F.3d at 1046-50. Accordingly, fiduciary status generally is not an issue that is appropriate for resolution by a Rule 12(b)(6) motion before discovery. Moreover, the Complaint alleges facts that, if true, state a claim that Northern Trust had fiduciary control with respect to the lockdown, and breached its obligations under ERISA.

The following facts alleged in the Complaint are undisputed: (1) Northern Trust was the trustee of the Savings Plan and held the plan's assets; (2) plan participants normally could direct Northern Trust to sell Enron stock owned by the plan and allocated to their accounts and to purchase other available investment alternatives; and (3) from October 26 to November 14, 2001, the Savings Plan participants were prevented from selling their shares of Enron stock. See NT Brief, at 2, 7. Count II additionally alleges that Northern Trust had the ability to postpone the lockdown until the price stabilized and that it could have refused to participate in the lockdown; Northern Trust knew or should have known the true facts concerning the value of Enron's volatile stock; it knew that the Savings Plan and the Plan's participants would lose money if they were prevented from selling during the lockdown; and participants had asked for a postponement of the lockdown. Complaint at ¶¶ 413-16, 723, 755, 759. As a result of Northern Trust's failure to postpone the lockdown, the Savings Plan allegedly lost hundreds of millions of dollars. Complaint at ¶ 759.

Thus, the Plaintiffs allege that Northern Trust had the authority to stop the lockdown, was aware that the Savings Plan would lose money if the lockdown proceeded, and had knowledge of a number of red flags that should have alerted it to danger. These allegations – that Northern Trust knew or should have known that Enron stock was in a precarious condition, had reason to think that Enron's financial condition was about to be uncovered, and knew that at least some participants wanted out – are sufficient to state a claim that Northern Trust had a duty to act, even if it was acting as a "directed trustee"⁽¹⁸⁾ in this matter, as it claims. The allegations are additionally bolstered by a number of publicly known facts that immediately predated the lockdown, and are recited in the Complaint, as matters of public knowledge that should have been known to Northern Trust (e.g., Enron had just reported that it had lost $618 million and written down $1.2 billion of its net worth, and the SEC was opening an investigation of its accounting practices). Id. at ¶¶ 413, 414, and 416.

Although Northern Trust disputes that it was a fiduciary for the purposes of the lockdown, the Complaint alleges that Northern Trust, in fact, exercised authority and control over the plan assets by imposing the lockdown, thus preventing the participants from selling the Enron shares allocated to their accounts. Plaintiffs specifically allege that Northern Trust had "the power to stop the lockdowns from going forward as scheduled" but failed to do so. Id. at ¶ 723. Thus, the Complaint can fairly be read to assert that Northern Trust exercised discretionary control over the timing and length of the lockdown and that Northern Trust was a fiduciary under § 3(A)(ii) or (iii), 29 U.S.C. § 1002(A)(ii), (iii), as to the lockdown.

Northern Trust's argument that Plaintiffs should not have the opportunity to conduct discovery and prove these allegations because Northern Trust was a "directed" trustee is without merit. As discussed below, even if Northern Trust were a directed trustee in connection with the lockdown, it could not escape its fiduciary responsibilities by following directions that it knew or should have known were contrary to ERISA or the terms of the plan. Furthermore, as explained below, there is a factual dispute as to whether Northern Trust was a directed trustee with respect to the investments at issue under the terms of the Plan and Trust Agreement, as set forth in detail in the parties' briefs. NT Brief, at 9-13, Plaintiffs' Reply, at 27. Although Northern Trust points to a number of provisions showing that it was subject to direction by the Administrative Committee, the plan documents and trust agreement appear to have given it discretionary authority and control over plan assets and administration in the absence of such direction. NT Brief, at 9, 11-13, Plaintiffs' Reply, at 12, 17, 26. At this stage in the proceedings, there is a factual issue as to the scope of Northern Trust's control over the length and duration of the lockdown that cannot be resolved on a 12(b)(6) motion to dismiss.

C. Even if Northern Trust was Given Written Instructions Concerning the Lockdown, the Complaint States a Claim for Relief

Even if the Administrative Committee gave written instructions to Northern Trust as to the specific length and timing of the lockdown, the Complaint still states a claim for relief. The Complaint alleges, apparently in the alternative, that any such lockdown instructions were improper and contrary to ERISA and that Northern Trust knew or should have known that the directions violated ERISA. Complaint at ¶¶ 750, 755. Thus, the Complaint adequately states a claim that Northern Trust breached its duties by following a direction that was improper or contrary to ERISA.

ERISA § 403(a), 29 U.S.C. § 1103, provides that the trustee "shall have the exclusive authority and discretion to manage and control the assets of the plan." ERISA § 403(a)(1), however, contains an exception to that exclusive authority:

[T]o the extent that the plan expressly provides that the trustee or trustees are subject to direction of a named fiduciary who is not a trustee, . . . the trustees shall be subject to the proper directions of such fiduciary which are made in accordance with the terms of the plan and which are not contrary to the Act.

ERISA § 403(a)(1), 29 U.S.C. § 1103(a)(1) (emphasis added). Under this provision, the trustee may not follow the directions of the named fiduciary if they are contrary to the terms of the plan or ERISA. See Koch v. Dwyer, No. 98 CIV. 5519 RPP, 1999 WL 528181, at *9 (S.D.N.Y. July 22, 1999); Herman v. NationsBank Trust Co. (Georgia), 126 F.3d 1354, 1361-62, 1370 (11th Cir. 1997).

Northern Trust's argument that the trustee need only determine whether it is "clear on its face" that the direction violates the plan or ERISA is wrong and contrary to the language of § 403(a)(1). NT Brief, at 22. Under the standard urged by Northern Trust, the trustee would only have a duty to disregard the direction if, for example, the plan document did not authorize the named fiduciary to make such a direction or the transaction was a per se prohibited transaction with a party in interest under § 406(a), 29 U.S.C. § 1106(a). Section 403(a)(1), however, is not so limited and requires the fiduciary to disregard any directions that are "contrary to the Act." Accordingly, even if Northern Trust had no discretionary role under the Savings Plan, as it asserts, it could not follow directions that it knew or should have known were imprudent or disloyal in violation of ERISA §§ 404(a)(1)(A) and (B), 29 U.S.C. §§ 1104(a)(1)(A) and (B).

Certainly where, as here, the trustee allegedly already has actual knowledge of the facts and circumstances that cause the direction to violate the prudence or loyalty requirements (without any additional investigation), the trustee has the same duty to disregard the direction that he has if the violation were clear on its face. Koch, 1999 WL 528181, at *10 (neither the statute nor the case law uses a "clear on their face" test; directed trustee can be held liable for following a direction that he knew was imprudent). Congress could not have intended directed trustees to disobey directions that on their face violate ERISA or the plan but to obey directions that they otherwise know violate ERISA.

This interpretation is consistent with the common law of trusts, which imposed a duty of inquiry when there were sufficient red flags to alert the directed trustee to a potential breach:

[W]here the holder of the power [to direct the trustee] holds it as a fiduciary, the trustee is not justified in complying with his directions if the trustee knows or ought to know that the holder of the power is violating his duty to the beneficiaries as fiduciary in giving the directions. . . .

IIA Scott on Trusts § 185, at pp. 574-55 (4th ed. 1987) (emphasis added). Essentially, the common law imposed a duty on the directed trustee to disregard directions where it knew or should have known that the direction was contrary to fiduciary duties.

This is not to say, however, that a directed trustee has an independent obligation to verify the prudence of every transaction or to duplicate the work of the plan fiduciaries that have discretionary authority over the management of plan assets. See Nationsbank, 126 F.3d at 1361-62, 1370-71 (directed trustee does not have a direct obligation of prudence under ERISA § 404, 29 U.S.C. § 1104; its obligation is simply "to make sure the directions are proper, in accordance with the terms of the plan, and not contrary to ERISA," id. at 1371). See also Maniace v. Commerce Bank of Kansas City, N.A. v. Zeller, 40 F.3d 264, 267-268 (8th Cir. 1994) (holding that directed trustee did not act as a fiduciary when following directions of named fiduciary but was subject to the obligations of ERISA § 403(a)(1)), cert. denied, 514 U.S. 111 (1995); but see FirsTier Bank, N.A. v. Zeller, 16 F.3d 907, 911 (8th Cir.)(directed trustee had to adhere to the duty of prudence under ERISA § 404 to inquire into the merits of participant loans, even though directed by another fiduciary), cert. denied, 513 U.S. 817 (1994).

In this case, the Plaintiffs adequately allege that Northern Trust knew or should have known that it was imprudent to proceed with the lockdowns. As set forth in the preceding section, they allege not only that Northern Trust actually knew that the lockdown was going to injure participants, but that they were aware of numerous red flags that should have alerted Northern Trust that the lockdown would put participants' accounts at risk. Accordingly, the Complaint cannot be dismissed for failure to state a claim. Northern Trust may ultimately show that it neither knew nor should have known that anything was amiss or that the lockdown was imprudent. The issue is factual, however, and cannot be resolved on a motion to dismiss for failure to state a claim.

VIII.  Plaintiffs' Offset Claim is a Claim for Equitable Refief Under § 502(a)(3) of ERISA

Under the terms of the Cash Balance Plan, the benefits accrued by the Plaintiffs are offset by the market value of stock held in the ESOP as of certain past dates when the stock was worth more than it is today. As a result of the use of those past stock prices as an offset, retirees receive smaller benefits than they would receive if benefits were offset only by the negligible value of Enron's stock today. The Plaintiffs allege that because the Administrative Committee knew or should have known that the market value of Enron stock was substantially less than the value set by the plan, "these Defendants had a fiduciary duty to compute each component of the offset according to the true value as opposed to the artificially inflated market price; a duty to refuse to permanently fix a component of the offset on a basis that did not reflect the stock's true value on the relevant dates; and/or a duty to disclose that the price at which components of the offset would be fixed were artificially inflated or otherwise not reflective of the true value of the stock on the relevant dates." Pl. Mem. in Opp. at 71. The Defendants argue both that they did not violate any fiduciary duty with regard to the offset and that the loss remedy asserted by the Plaintiffs is unavailable under § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3).

It is not clear to the Secretary whether the Plaintiffs' offset argument, as pleaded, is sustainable. This claim, unlike the others addressed in this brief, appears to raise an issue of plan design, rather than fiduciary conduct or the management of plan assets. However, Defendants have not simply challenged their liability under the Plaintiffs' complaint, but have argued that § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), would provide no remedy even if there were a fiduciary breach. Because of the importance of the remedial issue, the Secretary addresses it here. If the claim is proven, the relief sought fits comfortably within ERISA § 502(a)(3), which provides that a participant or beneficiary may bring a civil action to obtain "appropriate equitable relief." 29 U.S.C. § 1132(a)(3). Moreover, contrary to the Defendants' argument, ERISA allows participants to bring both § 502(a)(3) and § 502(a)(1)(B) claims, in cases where a § 502(a)(1)(B) claim alone cannot provide complete relief.

A. Monetary Relief is Available Against the Administrative Committee Members Under § 502(a)(3) of ERISA

The Secretary agrees with Plaintiffs that monetary relief against breaching fiduciaries is equitable relief within the meaning of § 502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), under Great-West v. Knudsen, 122 S. Ct. 708, 712-16 (2002). Indeed, Plaintiffs' ERISA Opposition at pp. 76-82 is largely adapted from an amicus brief the Secretary of Labor filed on appeal in another case, Ostler v. OCE-USA, No. 01-380l, 2001 WL 1191183 (N.D. Ill. Nov. 4, 2001) (appeal to Seventh Circuit voluntarily dismissed and claim paid), and therefore the Secretary need not reiterate Plaintiffs' arguments here. Under the common law, monetary relief from a breaching fiduciary was traditionally, typically, and exclusively available from the courts of equity, and is therefore "equitable" under the reasoning of Great-West. As stated in the Restatement on Trusts (one of the authoritative texts which Great-West urges courts to consult in determining whether relief is equitable), monetary relief against breaching fiduciaries is equitable when it restores the beneficiary to "the position he would have been if the trustee had not committed the breach of trust." Restatement (Second) of Trusts, § 205, at 458 cmt. a.

The Administrative Committee Defendants err when they assert that Plaintiffs cannot bring a claim under § 502(a)(3) because they purportedly could assert an immediate and unconditional right of payment against the fiduciaries and therefore could bring an action at law against the fiduciaries for payment of money allegedly due. Defendants are alluding to a recognized legal remedy that is available against trustees in certain narrow circumstances not present here. See Restatement (Second) of Trusts § 198(1) (1959)("If the trustee is under a duty to pay money immediately and unconditionally to the beneficiary, the beneficiary can maintain an action at law against the trustee to enforce payment.").⁽¹⁹⁾ The Enron participants are not seeking to enforce an unconditional right to monetary payment, and have no remedy at law in any case (§ 502(a)(3) authorizes only "equitable relief" and the Plaintiffs have no cause of action at law for benefits under § 502(a)(1)(B) as set forth below). Rather, they are seeking relief for fiduciary breaches. The word "unconditional" in the Restatement is crucial: it refers to instances in which a trustee undoubtedly owes a sum certain to a beneficiary and has simply refused to pay it. As one court analyzed,

It seems to us that the word "unconditionally" [in § 198(1)] was intended to mean without the intervention of equity. This interpretation is borne out by . . . illustrations which follow the text. Each of the illustrations presents a situation in which there is no possible need for the intervention of equity, the only question being whether the trustee failed to perform a ministerial act expressly mandated by the trust instrument. The court's function in such a case is no different from that performed in the interpretation of a contract, or any other document. The instant case, on the other hand, presents the traditionally equitable question of whether or not the alleged "common law trustee" breached its fiduciary duty. Unless and until that equitable question is resolved in plaintiffs' favor, the alleged trustee is under no duty to make any payment whatsoever.

Nobile v. Pension Comm. of Pension Plan for Employees of New Rochelle Hosp., 611 F. Supp. 725, 728-29 (S.D.N.Y. 1985).⁽²⁰⁾ See also 76 Am. Jur. 2d Trusts § 667 (2002) ("The remedies of the beneficiaries of a testamentary trust against the trustee for a breach of trust are exclusively equitable; an action by beneficiaries for breach of trust is an equitable proceeding, even if money damages are the only remedy sought."); Vartanian v. Monsanto Co., 880 F. Supp. 63, 72 (D. Mass. 1995) ("[C]ourts have uniformly found that 'entitlement to benefits due immediately and unconditionally' applies only to straightforward breach of contract claims. . . . In this instance, a complicated claim for breach of a trustee's fiduciary duty – most certainly an equitable claim – is at the bottom of both plaintiffs'" claims.).

The Administrative Committee Defendants also err in claiming that monetary relief to an individual beneficiary, that does not inure to the benefit of the entire trust, is not equitable relief within the meaning of §§ 502(a)(3) and (5), 29 U.S.C. §§ 1132(a)(3) and (5). Indeed, Varity rejects this very argument, holding that "the sort of relief provided by both subsection (5) and, by implication, subsection (3), would include an award to 'participants and beneficiaries,' rather than to the 'plan,' for breach of fiduciary obligation." 516 U.S. at 510 (noting that § 502(l) "calculates a certain civil penalty as a percentage of the sum 'ordered by [the] court to be paid by such fiduciary . . . to a plan or its participants and beneficiaries' under subsection (5)." (emphasis and ellipses in original)).

B. There is no Bar to Bringing Both § 502(a)(3) and § 502(a)(1)(B) Claims in the Same Action when § 502(a)(1)(B) Cannot Provide Complete Relief

The Plaintiffs' offset claim does not seek benefits due under the plan under § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Section 502(a)(1)(B) authorizes a cause of action for breaches of the contractual agreements set forth in the terms of an ERISA plan and provides for remedies in the form of recovery of benefits due under the plan, enforcement of rights under the plan, and a declaration of future rights to benefits under the plan. A § 502(a)(1)(B) claim, and the remedies that provision makes available, are all essentially contractual in nature. Thus, the purpose of § 502(a)(1)(B) is to enforce the contractual terms of the plan and the remedies provided therein are intended to give the claimants the benefit of the bargain embodied in the plan. Significantly, ERISA § 502(a)(1)(B) does not provide a remedy of disgorgement of unjust enrichment or other equitable relief. Success on a claim under § 502(a)(1)(B) often turns on an interpretation of language contained in the plan and requires a showing that participants did not receive benefits promised by the terms of the plan.

The Administrative Committee Defendants are incorrect in stating that Plaintiffs' claim is truly a claim under § 502(a)(1)(B). Plaintiffs' offset claim in Count IV does not seek benefits under the plan; to the contrary, Plaintiffs admittedly have received benefits under the plan calculated using the plan formula, which defined the benefit by reference to the market price of the stock as of specified dates. Plaintiffs argue that the fiduciaries had a duty, under §§ 404(a)(1)(A) and (B), to disregard the plan documents and to compute the offset according to the "true value" of the stock, rather than the artificially inflated value that resulted from the plan formula. Plaintiffs also argue that the fiduciaries had a duty to disclose to participants and beneficiaries that the offset amount was being artificially inflated, and a duty to refuse to permanently fix a component of the offset on a basis that did not reflect the stock's true value on the relevant dates. Complaint at ¶ 773. This does not amount to a "disguised claim for plan benefits." Since Plaintiffs are not seeking benefits in accordance with the formula found in the plan documents, § 502(a)(1)(B) offers them no remedy, and equitable relief under § 502(a)(3) is their only available avenue.

The Administrative Committee Defendants also misread the law by asserting that § 502(a)(3) claims and § 502(a)(1)(B) claims may never be brought in the same action. In fact, it is permissible to assert claims, in the alternative, under both §§502(a)(1)(B) and 502(a)(3), 29 U.S.C. §§ 1132(a)(1)(B) and 1132(a)(3). See, e.g., O'Rourke v. Pitney Bowes, No. 95 CIV 10288, 1996 WL 539848, at*2 (S.D.N.Y. Sept. 23, 1996) (motion to dismiss denied because it is not "beyond doubt" that participant can prove no set of facts that would entitle him to relief under § 502(a)(3), although it may ultimately turn out that participant is entitled to legal relief under § 502(a)(1)(B) and therefore not entitled to a § 502(a)(3) remedy); Benjamin v. Morris, No. 97 C 6714, 1998 WL 299434 (N.D. Ill. May 20, 1998) (same); cf. Fotta v. Trustees of the United Mine Workers of America, Nos. 97-3619, 97-3663, 1998 WL 884503, at*5 n.1 (3d. Cir. Dec. 18, 1998) (allowing § 502(a)(3) claim to go forward, court noted that it did not reject § 502(a)(1)(B) as a possible statutory basis but did not need to reach the issue).

Defendants' argument is based on a misreading of Varity, 516 U.S. at 515. Construing ERISA's civil enforcement scheme expansively, the Varity Court held that ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), is a "catch‑all" provision guaranteeing individual ERISA plan participants the right to an adequate recovery for breaches of fiduciary duty. 516 U.S. at 509‑13. In response to arguments that Plaintiffs would simply dress up benefit claims in § 502(a)(3) clothing in order to avoid the exhaustion of remedies and standard of review applicable to benefit claims, the Court concluded that this would not happen because § 502(a)(3) authorizes only "appropriate" equitable relief. The Court concluded that lower courts would not allow fiduciary claims to go forward when the Plaintiffs could obtain adequate relief through a benefit claim and, therefore, relief under § 502(a)(3) would not be "appropriate." Id. at 515.

The two cases cited by Defendants, Tolson v. Avondale, 141 F.3d 604 (5th Cir. 1998) and Rhorer v. Raytheon Eng'g, 181 F.3d 639 (5th Cir. 1999), which found that relief was not available under both §§ 502(a)(1)(B) and 502(a)(3), are distinguishable.⁽²¹⁾ In those cases, participants brought suit under both § 502(a)(1)(B) and § 502(a)(3) asserting an erroneous denial of benefits. The court in both cases held that because adequate relief was available under § 502(a)(1)(B), Varity did not allow relief to be obtained under § 502(a)(3). Here, in contrast, adequate relief is not available under § 502(a)(1)(B).

IX.  Plaintiffs Sufficiently Alleged a Claim Against Anderson for Knowing Participation in a Fiduciary Breach

In Count I of the Complaint, Plaintiffs allege that various Defendants breached their fiduciary duties under ERISA by accepting, acquiring, and retaining (at their initiative or at the direction of the participants) Enron stock as an investment under the Enron Savings Plan and ESOP. Complaint at ¶ 740. Plaintiffs also allege (as clarified in Plaintiffs' ERISA Opposition at 53) that Arthur Andersen LLP (Andersen), although not a plan fiduciary, was a knowing participant in these fiduciary breaches. Complaint at ¶ 714. Anderson seeks dismissal on the ground that ERISA does not provide a cause of action for knowing participation in a fiduciary breach under § 404, 29 U.S.C. § 1104. Whether Anderson is liable as a knowing participant is a factual question that should not be resolved on a motion to dismiss.

The Supreme Court has expressly held that a nonfiduciary party-in-interest who has actual or constructive knowledge of the circumstances that made the fiduciary's actions a breach of duty and participates in that breach can be liable for appropriate equitable relief under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3). Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 248 (2000). Defendant Andersen is therefore incorrect that, under Mertens v. Hewitt Assocs., 508 U.S. 248 (1993), it is "questionable" whether ERISA provides a cause of action against a nonfiduciary for knowing participation in a fiduciary breach of duty. Andersen Mem. at 15. The Court in Harris Trust specifically stated that it was "merely flagging the issue" in its allusion to "knowing participation" in Mertens, which constituted "dictum." Harris Trust, 530 U.S. at 248. After Harris Trust, the viability of such a cause of action can no longer be questioned.

In its Reply Brief, Anderson argues that Harris Trust only applies to cases brought under ERISA § 406, 29 U.S.C. § 1106, not under § 404, 29 U.S.C. § 1104. While Harris Trust, as a factual matter, concerned a claim under § 406, this purported distinction is contrary to the broad language of Harris Trust, which states that "§ 502(a)(3) admits of no limit . . . on the universe of possible defendants . . . the focus, instead, is on redressing the 'act or practice which violates any provision of [ERISA Title I].'" Harris Trust, 530 U.S. at 246 (emphasis added). Title I of ERISA includes § 404 as well as §406. Indeed, the Court noted that § 502(l), 29 U.S.C. § 1132(l), allows the Secretary to assess a civil penalty against any "'other person'" who "'knowing[ly] participat[es] in'" "any . . . violation of . . . part 4 . . . by a fiduciary." 530 U.S. at 248 (ellipses in original, emphasis added). The amount of such penalty, according to the Court, is defined by reference to the amount ordered by a court to be paid by such other person in a suit instituted by the Secretary under subsection (a)(2) or (a)(5). Therefore, the Court reasoned, the "plain implication is that the Secretary may bring a civil action under § 502(a)(5), 29 U.S.C. § 1132(a)(5), against an 'other person' who 'knowing[ly] participat[es]' in a fiduciary's violation." The plain meaning and logic of this language applies with equal force to violations of § 404 as to § 406 violations, and applies to § 502(a)(3), which is the corollary to §502(a)(5).

The Fifth Circuit, even before Harris Trust, had held that nonfiduciaries who knowingly participated in a breach of trust under § 404, 29 U.S.C. § 1104, could be held liable. Whitfield v. Lindemann, 853 F.2d 1298, 1303 (5th Cir.)(attorney, who was not yet acting as plan counsel at time of fiduciary breach, was liable as nonfiduciary), cert. denied sub nom., Klepak v. Dole, 490 U.S. 1089 (1998).⁽²²⁾ When the Mertens decision left it unclear whether the Supreme Court would permit recovery against knowing participants, the Fifth Circuit stated that if a knowing participation claim was permissible, it would permit recovery on such a claim. Lancaster, 55 F.3d at 1043, n.9 ("[t]o the extent that liability as a knowing participant to a breach by a fiduciary is a valid theory of recovery, [defendants can be] liable . . . on that basis"). Now that the Harris Trust decision has put to rest the question of whether knowing participation is a valid theory of recovery, there can be no doubt that the Fifth Circuit would again allow it in a § 404 case.

Plaintiffs sufficiently allege that Andersen knowingly participated in the fiduciary breaches of the other Defendants. Plaintiffs allege that Andersen "knowingly participated in the Enron Defendants' breaches of fiduciary duty by actively concealing from the Plan fiduciaries and Plan participants the true financial condition of the Company and the imprudence of investing in Enron stock." Complaint at ¶ 744. This suffices to state a claim that Andersen is "an 'other person' who 'knowing[ly] participat[es]' in a fiduciary's violation," as required by the Supreme Court in Harris Trust. 530 U.S. at 248.

Although Andersen also seeks dismissal on the ground that Plaintiffs cannot establish that they are entitled to such relief because they have not alleged that Andersen received payment from the plans or otherwise obtained plan assets, Plaintiffs are entitled to prove any facts or possible theory in support of their claim consistent with the allegations of the Complaint. See generally Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999). As Plaintiffs explain, Great-West, 122 S. Ct. at 708, permits recovery of equitable restitution, and other forms of equitable relief. Plaintiffs' ERISA Opposition at 55. Their Complaint alleges that Andersen received large sums in connection with its provision of services to Enron (which, Plaintiffs allege, constituted knowing participation in a breach) and Plaintiffs should be permitted to prove that these included property that belonged to the plan. If Plaintiffs prove that Andersen obtained such assets pursuant to its knowing participation in the breach, and that in order to prevent unjust enrichment such assets should be deemed to rightfully belong to the plan, the court would be authorized to impose a constructive trust over the assets (or proceeds traceable to such assets), and order Andersen to convey those assets to the plan, along with any profits derived therefrom. See generally 1 D. Dobbs, Law of Remedies § 4.3(2), at 590-591 (2nd ed. 1993).

Conclusion

Defendants variously claim that they had no knowledge of the financial wrongdoings at Enron, no way to gain any knowledge of the financial wrongdoing, no ability to act on participants' behalf, and no responsibility to the participants. Defendants' arguments and excuses cannot be reconciled with ERISA's protection of employees' retirement security. ERISA is unambiguous in what it requires of fiduciaries: they must act to protect the interests of plan participants and beneficiaries. Such action could consist of disclosing vitally needed information to participants, investigating suspicious circumstances surrounding plans, or freezing further investment in stock that might be heavily overvalued and likely to crash, to name only some examples. Defendants could not fulfill their fiduciary responsibilities by doing nothing at all to safeguard the interests of participants and beneficiaries whom they were duty-bound to protect. Taking the Plaintiffs' allegations as true, as this Court must for purposes of a Rule 12(b)(6) motion, the Complaint states a claim that the Defendants breached their fiduciary duties under ERISA, and that the breaches caused losses to the plaintiffs.

For the foregoing reasons, the Secretary respectfully requests that the Court deny Defendants' motions to dismiss.

Respectfully submitted, for the Secretary of Labor:

Certificate of Service

I hereby certify that on the 30th day of August 2002 a true and correct copy of the foregoing Amended Brief of the Secretary of Labor as Amicus Curiae Opposing the Motions to Dismiss was: (1) served on all counsel on the attached service list electronically via the www.esl.3624.com <http://www.esl.3624.com> web site pursuant to the Court’s Orders of June 6, 2002 and August 7, 2002; (2) sent via Fax Machine to:

Ms. Carolyn S. Schwartz
United States Trustee, Region 2
33 Whitehall Street
Twenty-First Floor
New York, New York 10004
Tel 212.510.0500
Fax 212.668.2255

and (3) mailed by first class mail, postage prepaid to:

Dr. Bonnee Linden, Pro Se
Linden Collins Associates
1223 West Broadway, PO Box 114
Hewlett, New York 11557

/s/ G. William Scott
G. William Scott

Service List

Footnotes

10. Silverman v. Mutual Benefit Life Ins. Co., 138 F.3d 98, 105-06 (2nd Cir.), cert. denied, 525 U.S. 876 (1998); Kuper, 66 F.3d at 1459-60; but see Secretary v. Gilley, 209 F.2d 877 (6th Cir. 2002).

11. Defendants also suggest that the Complaint is deficient because the named Plaintiffs have failed to allege that they were harmed individually. Plaintiffs, however, allege generally that they are members of the class of participants and that their claims are typical of the class. Complaint at ¶ 729. Moreover, the Complaint, including the allegations in Count II, the lockdown claim, contains several specific references to the named Plaintiffs' losses. See Complaint at ¶¶ 750, 754, 756 (alleging with respect to Count II that "Plaintiffs and the Plans' other participants and beneficiaries" suffered losses) (emphasis added); see also Complaint at ¶¶ 23-42 (describing loss in value of named plaintiffs' plan-held Enron stock).

    Some Defendants argue (AC Mot. to Dismiss at 31) that the named Plaintiffs lack standing because they have failed to allege that they complained about the impending lockdown. Defendants do not explain, however, why such complaint is an element of either the ERISA fiduciary breach claim or Article III standing. In any event, Plaintiffs expressly allege that Defendant Northern Trust proceeded with the lockdown "despite the fact that plan participants were complaining about the [l]ockdown in light of Enron's unraveling financial situation." Complaint at ¶ 13.

12. The Supreme Court's explanation of the pleading requirements for Article III standing is in keeping with its recent decision in Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), which, although it did not address constitutional standing, strongly affirmed the principle of notice pleading under the Federal Rules of Civil Procedure. The Court held in Swierkiewicz that an employment discrimination plaintiff need not allege facts in his complaint meeting the requirements of a prima facie case of discrimination, see McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), and that requiring him to do so would be inconsistent with the principle, embodied in Rule 8(a), Fed. R. Civ. P., that a complaint need only give fair notice of the plaintiff's claim and the ground upon which it rests. 122 S. Ct. at 998-99.

13. In their reply brief, the Administrative Committee Defendants quarrel with the application of the burden-shifting principle, noting that it only comes into play once a breach has been established and applies only to the determination of the amount of loss. AC Reply, at 20 n.21. McDonald, however, states that the burden of proving causation shifts to the breaching fiduciaries. 60 F.3d at 237 (citation omitted).

14. Harley is not only distinguishable, it is also wrong, both as to its particular holding and its unduly restrictive notion of Article III standing in the ERISA context. See generally Financial Insts. Ret. Fund v. Office of Thrift Supervision, 964 F.2d 142 (2nd Cir. 1992) (participants had Article III standing to bring suit for breach of fiduciary duty even though defined benefit plan at issue was overfunded). Congress provided participants with standing under § 502(a)(2) to obtain plan-based relief for a fiduciary breach under § 409(a), so that they could police their own plans and bring suit to correct violations of the statute that injure plans. A participant is thus entitled to sue not only when the fiduciary breach can be demonstrated to have had a direct adverse effect on the value of the participant's individual benefit, but also when a breach has the effect of decreasing the security of his interest in a plan (and, by the same token, when the security of that interest would be strengthened by providing a remedy authorized by § 409(a)).

15. See, e.g. Department of Commerce v. United States House of Representatives, 525 U.S. 316, 332 (1999) (resident of Indiana had standing to challenge Census Act based on likelihood challenged procedures would result in decline in the number of Indiana representatives and the consequent dilution of resident's vote); Clinton v. City of New York, 524 U.S. 417, 432 (1998) (potato growers are injured by line item veto of provision that would have given favorable tax treatment to sellers of potato processing plants, resulting in greater willingness to sell plants to potato growers); Gollust v. Mendell, 501 U.S. 115, 123 (1991) (even investor with only one share of stock would have standing to enforce prohibition against insider trading; although recovery inures only to stock issuer's benefit, indirect interest derived through potential marginal increase in the value of one share of stock is enough to confer standing).

16. Northern Trust also challenges Plaintiffs' standing to litigate the allegations in Count III, regarding the fiduciaries' failure to diversify Savings Plan assets. Count III, however, clearly alleges that there was a fiduciary breach of failure to diversify the plan investments in accordance with the terms of the Plan, "with the result that . . . the Plan was dangerously over-weighted in Enron stock," and that "[a]s a direct and proximate result of [the breach], the Plan, and indirectly the Plaintiffs and the Plan's other participants and beneficiaries suffered losses in the hundreds of millions of dollars." Complaint at ¶¶ 765, 766. The Count seeks restoration of those losses pursuant to Section 409(a). Complaint at ¶ 767. For the reasons given above with respect to Count II, these allegations sufficiently allege the constitutional prerequisites of injury, causation, and redressability. If anything, Northern Trust's arguments about Count III have less to do with Plaintiffs' standing than those raised regarding Count II. The Count III arguments that Northern Trust raises (NT Mot. to Dismiss 44) -- that the Savings Plan contained a panoply of investment funds, that participants were by plan terms given choice of funds in which to invest, and that Northern Trust played no role in plan design -- are arguments going to the factual merits of the breach of duty claim, rather than to participants' standing.

17. Although Northern Trust correctly contends that the lockdown, as such, applied solely to the Savings Plan and not to the ESOP, Motion to Dismiss at 32-33, this does not fully join Plaintiffs' argument. Plaintiffs contend that the ESOP effectively was locked down during this time period because of the plan provision requiring participants to request a cash-out of the ESOP before the 20th of each month or else wait until the end of the following month. See Response to Motion to Dismiss, at 37-38. Plaintiffs' argument is that Northern Trust breached its fiduciary duty by following this provision, when it was clearly imprudent to do so. Id. Although Northern Trust disputes that it was a fiduciary at all under the ESOP, despite being identified as such in the relevant plan document, this appears to be a factual dispute not amenable to resolution at this stage.

18. Under ERISA § 403(a)(1), a trustee's responsibility for plan assets is lessened if "the plan expressly provides that the trustee or trustees are subject to the direction of a named fiduciary who is not a trustee, in which case the trustees shall be subject to proper directions of such fiduciary which are made in accordance with the terms of the plan and which are not contrary to the Act." 29 U.S.C. § 1103(a)(1). Thus, the plan must be explicit in order to create a "directed trustee," and such trustee is still bound by the terms of ERISA, including its fiduciary provisions.

19. While the Secretary does not agree with Defendants that the Plaintiffs have a remedy available at law, it is important to note that Defendants have ignored the Restatement's explicit statement in § 198(1) that these are "[c]oncurrent remedies. Although the beneficiary can maintain an action at law against the trustee as stated in this Section, he also has equitable remedies against the trustee. See § 199." Therefore, even if Defendants were correct that there was a remedy at law here, Plaintiffs could also have a remedy in equity.

20. The Nobile court also notes that Jefferson Nat'l Bank of Miami Beach v. Central National Bank of Chicago, 700 F.2d 1143, 1149 (7th Cir. 1983), a case relied on by Enron's Administrative Committee Defendants, inexplicably omits the word "unconditionally" from the part of its opinion that quotes the text of § 198. This material omission could account for Jefferson Bank's incorrect interpretation of § 198. As the Nobile court says of Jefferson Bank and the only other case cited by the Enron Administrative Committee Defendants, Dixon v. Northwestern Nat'l Bank, 297 F. Supp. 485 (D. Minn. 1969), "We believe that those cases misread the cited Restatement section, and that their conclusion was unsound." Nobile, 611 F. Supp. at 729.

21. Defendants' citation of McCall v. Burlington Northern/Santa Fe Co., 237 F.3d 506, 512 (5th Cir. 2000), cert. denied, 122 S. Ct. 57 (2001) is even more inapposite. In McCall, the participants simply argued that the Defendants had breached their fiduciary duty by denying them benefits. Obviously, in such a case, § 502(a)(1)(B) would be the appropriate claim, since denial of a benefit under a plan was the complaint. In contrast, Plaintiffs in this case assert that granting them the benefits under the formula used in the plan was a breach of fiduciary duty.

22. Other courts have also held nonfiduciaries liable for knowing participation in a fiduciary violation of § 404. See, e.g., McGarry v. Eastern Air Lines, Inc., No. 86-2497-CV-RYSKAMP, 1987 WL 13900, at *8-9 (S.D. Fla. July 6, 1987).

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