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Callery Amicus Brief No. 03-4097 ______________________________________ UNITED COURT OF
APPEALS FOR THE TENTH CIRCUIT ______________________________________ SANDY CALLERY, Plaintiff-Appellant v. THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, J.B’S RESTAURANTS,
INC., J.B.’S FAMILY RESTAURANTS, INC., and STAR
BUFFET, INC., Defendants-Appellees ______________________________________ Appeal from the United States District Court for the District of Utah, Central Division The Honorable Judge Tena Campbell _____________________________________ BRIEF OF THE SECRETARY OF LABOR AS AMICUS CURIAE IN SUPPORT OF THE APPELLANT AND REVERSAL OF THE DISTRICT COURT _____________________________________ HOWARD M. RADZELY Acting Solicitor of Labor TIMOTHY D. HAUSER Associate Solicitor ELIZABETH HOPKINS Counsel for Appellate and Special Litigation Plan Benefits Security Division ADRIENNE K. DWYER Trial Attorney KAREN L. HANDORF Deputy Associate Solicitor Office of the Solicitor Plan Benefit s Security Division P.O. Box 1914 Washington, DC 20013 (202)693-5600 (202)693-5610 - Telefax Counsel for Amicus Curiae TABLE OF CONTENTS "Equitable
Relief" Within the Meaning of Section 502(a)(3) of
ERISA Includes the Recovery from a Fiduciary of Any
Direct Monetary Losses Caused by the Fiduciary’s Breach
of its Duties Federal Cases: Bast v. Prudential Ins. Co. of America, 50 F.3d
1003 (9th Cir. 1998), cert. denied, 528
U.S. 870 (1999) Bowen
v. Massachusetts, 487
U.S. 879 (1988) Bowerman
v. Wal-Mart Stores, Inc., 226
F.3d 574 (7th Cir. 2000) Central
States, Southeast & Southwest Areas Pension Fund v. Central Transp. Inc., 472
U.S. 559 (1985) Curtis
v. Loether, 415
U.S. 189 (1974) Donovan
v. Bierwirth, 680
F.2d 263 (2d Cir.), cert. denied, 459
U.S. 1069 (1982) Firestone
Tire & Rubber Co. v. Bruch, 489
U.S. 101 (1989) Great-West
Life & Annuity Ins. Co. v. Knudson, 534 U.
S. 204 (2002) passim Griggs
v. E.I. DuPont De Nemours & Co., 237
F.3d 371 (4th Cir. 2001) Harris
Trust & Sav. Bank v. Salomon Smith Barney Inc., 530
U.S. 238 (2000) Health
Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703 (7th Cir. 1999), cert.
denied, 528 U.S. 1136 (2000)) Hecht
Co. v. Bowles, 321
U.S. 321 (1944) Kerr
v. Charles F. Vatterott & Co., 184
F.3d 938 (8th Cir. 1999) McDannold
v. Star Bank, N.A., 261
F.3d 478 (6th Cir. 2001) McFadden
v. R & R Engine & Mach. Co., 102 F.
Supp. 2d 458 (N.D. Ohio 2000) Mertens
v. Hewitt Assocs., 508
U.S. 248 (1993) passim Michael
H. v. Gerald D., 491
U.S. 110 (1989) Moffett
v. Haliburton Energy Servs., Inc., 291
F.3d 1227 (10th Cir. 2002) Pilot
Life Ins. Co. v. Dedeaux, 481
U.S. 41 (1987) Ream
v. Frey, 107
F.3d 147 (3d Cir. 1997) Rego
v. Westvaco Corp., 319
F.3d 140 (4th Cir. 2003) Shade
v. Panhandle Motor Serv. Corp., 91 F.3d
133 (unpublished disposition), No. 95-1129, 1996 WL
386611 (4th Cir. July 11, 1996) Strom
v. Goldman, Sachs & Co., 202
F.3d 138 (2d Cir. 1999) Varity
v. Howe, 516
U.S. 489 (1996) Federal Statute and Rules: Employee
Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq.
Section 2(b), 29 U.S.C. § 1001(b) Section 409, 29 U.S.C. § 1109
Section 502(a)(2), 29 U.S.C. §
1132(a)(3) Section 502(a)(3), 29 U.S.C. §
1132(a)(3) passim Federal
Rules of Appellate Procedure 29 Other Authorities: H.R.
Rep. No. 93-533 (1973), reprinted in 1974 U.S.C.C.A.N. 4649 S. Rep.
No. 93-127 (1973), reprinted in 1974 U.S.C.C.A.N. 4639 1
Pomeroy, A Treatise on Equity Jurisprudence, § 109 (5th ed. 1941) G.
Bogert, The Law of Trusts and Trustees,
§ 861 (rev. 2d ed. 1995) G.
Bogert, The Law of Trusts and Trustees,
§ 870 (rev. 2d ed. 1995) I. A.
Scott, The Law of Trusts, § 1 (4th ed. 1988) I. A.
Scott, The Law of Trusts, § 2.7 (4th ed. 1988) III. A.
Scott, The Law of Trusts, § 197 (4th ed. 1988) III. A.
Scott, The Law of Trusts, § 199 (4th ed. 1988) III. A. Scott, The Law of Trusts § 199.3 (4th
ed. 1988) IV. A.
Scott, The Law of Trusts, § 282.1 (4th ed. 1988) Restatement
(Second) of Trusts, § 2 (1959) Restatement
(Second) of Trusts, § 74 (1959) Restatement
(Second) of Trusts, § 197 (1959) Restatement
(Second) of Trusts, § 205 (1959) Restatement
(Second) of Trusts, § 205(a) (1959) Restatement
(Second) of Trusts, § 205(b) (1959) Restatement
(Second) of Trusts, § 282 (1959) The Secretary of Labor is charged with
interpreting and enforcing the provisions of Title I of the Employee Retirement
Income Security Act of 1974 ("ERISA"), as amended, 29 U.S.C. § 1001, et
seq. As the Federal officer with
primary enforcement authority for numerous provisions of ERISA, the Secretary
has a significant interest in the proper application of ERISA's remedial
provisions. This case presents an
important and recurring remedial issue:
whether Section 502(a)(3) of ERISA, 29 U.S.C.§ 1132(a)(3), authorizes
actions to recover monetary losses from fiduciaries who have breached their
obligations and harmed individual beneficiaries. Under the district court's interpretation of Section 502(a)(3),
fiduciaries could violate ERISA's stringent obligations, injure beneficiaries,
and evade liability for the losses they caused. The Secretary disagrees with the district court's interpretation
and, therefore, pursuant to Federal Rule of Appellate Procedure 29,
respectfully submits this brief as amicus curiae. Sandy
Callery was employed by J.B.'s Restaurants, Inc., J.B's Family Restaurants,
Inc. and Star Buffet, Inc. ("Star Buffet"). Complaint ¶ 1. Star
Buffet offered life insurance coverage to its employees through a policy issued
by United States Life Insurance Company ("U. S. Life"). Complaint ¶ 8. In 1994, Sandy Callery elected to obtain life insurance coverage
worth $100,000 on her husband, John Callery, through the U.S. Life policy. Id.
Although she and her husband divorced in 1997, she continued to pay life
insurance premiums for Mr. Callery's life insurance until the date of his death
on February 28, 2000. Complaint ¶ 10. Callery applied for the life insurance
benefits from U.S. Life upon Mr. Callery's death. Complaint ¶ 11. On May
19, 2000, U.S. Life denied the claim, stating that the policy had terminated on
August 29, 1997, the date of the Callery's divorce. Complaint ¶ 12. According
to U.S. Life, termination of a spouse's eligibility for life insurance upon
divorce was outlined in an exclusion in the insurance policy. Id.
Callery was never provided with a summary plan description that outlined
the life insurance policy's scope of coverage and exclusions, nor had the
insurance policy itself been distributed to Callery or other Star Buffet
employees. Complaint ¶¶ 14-15. Accordingly, Callery was unaware of the
exclusion until U.S. Life denied her claim.
Complaint ¶15. Callery brought an action against Star
Buffet under Section 502(a)(3) of ERISA for allegedly breaching its fiduciary
obligations by failing to inform her of the insurance policy's exclusion. She contends that if she had been informed
of the exclusion, she would have made other arrangements to obtain coverage to
protect her ability to provide financially for the Callery's children. Affidavit of Sandy Callery ¶¶ 3-5. Callery seeks equitable relief in the form
of $100,000, the face amount of the policy, prejudgment interest, and attorney
fees and costs. Complaint ¶ 24. Star Buffet moved for judgment on the
pleadings, arguing that Callery was seeking money damages, not equitable
relief, and that, because money damages are not available under ERISA Section
502(a)(3), her complaint should be dismissed.
At a January 7, 2003 hearing, the district court held in favor of Star
Buffet. Callery timely appealed. "Equitable
Relief" Within the Meaning of Section 502(a)(3) of ERISA
Includes the Recovery from a Fiduciary of Any Direct Monetary
Losses Caused by the Fiduciary's Breach of its Duties ERISA was designed to protect the interests
of participants and beneficiaries of employee benefit plans by establishing
standards of conduct, responsibility, and obligations for fiduciaries. ERISA § 2(b), 29 U.S.C. § 1001(b). "Congress invoked the common law of
trusts to define the general scope of [fiduciary] authority and
responsibility" under ERISA. Central
States, Southeast & Southwest Areas Pension Fund v. Central Transp. Inc.,
472 U.S. 559, 570 (1985), citing S. Rep. No. 93-127, p. 29 (1973), reprinted
in 1974 U.S.C.C.A.N. 4639, 4865 ("'The fiduciary responsibility
section, in essence, codifies and makes applicable to these fiduciaries certain
principles developed in the evolution of the law of trusts.'"); H.R. Rep.
No. 93-533, p. 11 (1973), reprinted in 1974 U.S.C.C.A.N. 4649 (identical
language). At the core of ERISA's
fiduciary obligations are the duties of loyalty and prudence, which are based
on trust law principles and are among the "highest known to the law." Donovan v. Bierwirth, 680 F.2d 263,
272 n.8 (2d Cir.), cert. denied, 459 U.S. 1069 (1982). Section
502(a)(3) of ERISA, 29 U.S.C. § 1132(a)(3), allows participants and
beneficiaries to sue for "equitable relief" for breaches of fiduciary
duty that cause them individual harm. Varity
v. Howe, 516 U.S. 489 (1996).
Although "equitable relief" is not defined in ERISA, the
Supreme Court has held that, to determine whether relief is equitable, courts
should look to standard texts on remedies and trusts in order to determine how
the relief was characterized when the bench was divided between equity courts
and law courts. Great-West Life
& Annuity Ins. Co. v. Knudson, 534 U. S. 204, 212 (2002). To qualify as equitable under Section
502(a)(3), the relief must have been
"typically" available in equity and not simply
"occasionally" available in equity.
Id. at 214. Thus, Section
502(a)(3) does not authorize damages against non-fiduciaries, which were
"occasionally awarded in equity cases," but were classically legal in
nature and typically awarded in a court of law. Id. at 215.
However, as discussed below, because the relief that Sandy Callery seeks
is against a fiduciary, it was exclusively available in equity and
treated as equitable by standard texts on remedies and trusts. Accordingly, the relief she seeks is
"equitable relief" within the meaning of ERISA Section 502(a)(3). A. A monetary award against a fiduciary to redress a fiduciary
breach is an equitable remedy because it was typically available in equity Trust relationships "are, and
have been since they were first enforced, within the peculiar province of
courts of equity." III. A. Scott, The
Law of Trusts, § 197, at 188 (4th ed. 1988). See G. Bogert, The Law of Trusts and Trustees, §
870, at 123 (rev. 2d ed. 1995) ("The court of equity first recognized the
trust as a legal institution and has fostered and developed it"). "In a trust there is a separation of
interests in the subject matter of the trust, the beneficiary having an
equitable interest and the trustee having an interest which is normally a legal
interest." Restatement (Second)
of Trusts, § 2, at 9 (1959); id. § 74, at 192 (beneficiary has
equitable interest in the trust).
"The duties of the trustee with respect to trust property are
equitable duties. By this [it] is meant
that they are enforceable in a court of chancery or a court having and
exercising the powers of a court of chancery." I. A. Scott, The Law of Trusts, § 2.7, at 48-49. As the Restatement of Trusts
emphasizes, "the remedies of the beneficiary against the trustee are exclusively
equitable." Restatement
(Second) of Trusts, § 197, at 433 (emphasis added). During the days of the divided bench,
beneficiaries could not obtain relief in a court of law because they did not
hold legal title to the property of the trust.
I. A. Scott, The Law of Trusts, § 1, at 4; III. Scott, The Law
of Trusts, § 197, at 188. They
could only seek relief in a court of equity to enforce their equitable
interests. I. A. Scott, supra, §
1; III. A. Scott, supra, § 197.
The equity court, unlike the law court, could compel the trustee to act
in accordance with its fiduciary duties and compensate the beneficiary for
losses when the trustee's action
caused the beneficiary to suffer harm.
III. A. Scott, The Law of Trusts, §§ 197; 199. As the Supreme Court has explained,
"[t]he essence of equity jurisdiction has been the power of the Chancellor
to do equity and to mould each decree to the necessities of the particular
case. Flexibility rather than rigidity
has distinguished it." Hecht
Co. v. Bowles, 321 U.S. 321, 329 (1944).
As Professor George Gleason Bogert explains in his leading treatise: Equity is primarily responsible for the protection of
rights arising under trusts, and will provide the beneficiary with whatever
remedy is necessary
to protect him and recompense him for loss, in so far as this can be done without injustice to the trustee or third
parties. The trust relationship, therefore,
arises in equity and creates equitable rights and duties, which, when breached,
are redressed exclusively through equitable remedies. Whether or not such a remedy against a fiduciary consists of a
money award does not change its character as an equitable remedy. In actions such as this where a beneficiary
sues a fiduciary for its breach of duty, the fiduciary could be required
to restore the beneficiary to the "position in which he would have been if
the trustee had not committed the breach of trust." Restatement (Second) of Trusts, § 205,
at 458, cmt. a; see also id. § 205, at
458. See also III. A.
Scott, The Law of Trusts, § 199.3, at 206-07 ("If the trustee has
committed a breach of trust the beneficiaries can maintain a suit in equity to
compel him to redress the breach of trust, either by making specific reparation
or by the payment of money or otherwise."). See III. A. Scott, The Law of Trusts, §199, at
203-04 & 206 (listing money payment designed to redress fiduciary breach as
one of the "equitable remedies" available to a beneficiary).[2] At least two circuit courts have held
that monetary relief is equitable relief within the meaning of ERISA Section
502(a)(3) when the relief is sought against a fiduciary. In Bowerman v. Wal-Mart Stores, Inc.,
226 F.3d 574 (7th Cir. 2000), the employer's fiduciary breach caused Ms.
Bowerman to lose health insurance coverage for her pregnancy. Bowerman sued under Section 502(a)(3)
seeking the amount of the pregnancy-related expenses that would have been covered
but for the breach. The Seventh Circuit
upheld Ms. Bowerman's claim for monetary relief under Section 502(a)(3) because
it was based on a violation of fiduciary duty.
The court recognized that Section 502(a)(3) excludes legal relief such
as damages (citing Mertens v. Hewitt Assoc., 508 U.S. 248, 255 (1993),
but explained that "when sought as a remedy for breach of fiduciary duty
[, this kind of relief, which the Court viewed as restitution] is properly
regarded as an equitable remedy because the fiduciary concept is equitable." Bowerman, 226 F.3d at 592 (quoting Health
Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703, 710 (7th Cir.
1999), cert. denied, 528 U.S. 1136 (2000)) (emphasis added). In support for its ruling, the court cited Strom
v. Goldman, Sachs & Co., 202
F.3d 138, 144 (2d Cir. 1999), which awarded monetary relief under Section
502(a)(3) for a fiduciary's negligent handling of life insurance application
which resulted in the participant's loss of coverage. The court in Strom explained that beneficiary claims
against breaching fiduciaries to redress their breaches "have lain at the
heart of equitable jurisdiction from time immemorial." See also Ream v. Frey,
107 F.3d 147 (3d Cir. 1997).[3] Star Buffet argued below that this
Court has already held in Moffett v. Haliburton Energy Servs., Inc., 291
F.3d 1227, 1234 (10th Cir. 2002), that monetary relief against a fiduciary is
not equitable. In Moffett, a
participant in a disability plan sued under state law and ERISA after he was
redetermined eligible for benefits. Although
the plaintiff sought statutory penalties and attorney fees, as well as any
other "remedial or equitable remedies available under ERISA," id.
at 1230, the court noted that "he did not identify in his complaint the
specific equitable relief that he desires." Id. at 1234.
Relying on Mertens and Great-West, this Court stated that
"to the extent [that] we read his complaint as seeking non-statutory
remedies and/or damages, in the form of monetary compensation for economic
[and] other harm suffered because of the delay in [the] receipt of his
benefits," that relief was not available under ERISA. Id.
This Court had already concluded, however, that Moffett's
"conclusory allegations fail to establish the basis for an alleged breach
of fiduciary duties." Id.
at 1233. Moreover, the court was
speaking generally about the availability of damages under the plaintiff's
numerous theories and was not specifically addressing remedies in terms of
fiduciary breach. Id. at 1234
("Moffett seeks a variety of remedies for all of the alleged ERISA
violations"). Thus, fairly read, Moffett
says nothing about whether monetary relief is available to remedy a fiduciary
breach, and given that the court found no fiduciary breach, the court certainly
did not hold such relief to be unavailable if there is a breach of fiduciary
duty.
The Supreme Court addressed requests
for monetary relief under Section 502(a)(3) in Mertens, 508 U.S. 248 and
Great-West, 534 U.S. 204. Both
of these cases involved suits against non-fiduciaries and, consequently,
do not answer the precise question presented here. While some courts have read Mertens and Great-West
as barring a monetary recovery against fiduciaries as well as non-fiduciaries, see,
e.g., Rego v. Westvaco Corp., 319 F.3d 140 (4th Cir. 2003), the
rationale of the Mertens and Great-West decisions do not support
that conclusion.[4] In
Mertens, an employer allegedly underfunded its retirement plan and drove
it out of existence. The plan participants sued under Section 502(a)(3) for the
monetary losses to the plan resulting from their employer's alleged fiduciary
breach. They did not seek the losses
from the employer-fiduciary but, instead, sought to recover from a
non-fiduciary actuary whom they claimed had knowingly participated in the
fiduciary's breach. The Supreme Court
refused to classify the money sought against a non-fiduciary as equitable relief
under Section 502(a)(3). The Court
explained that the participants did not "seek a remedy traditionally
viewed as 'equitable,' such as injunction or restitution . . . [but] what
petitioners in fact seek is nothing other than compensatory damages -- monetary
relief for all losses their plan sustained as a result of the alleged breach of
fiduciary duties. Money damages are, of
course, the classic form of legal relief." 508 U.S. at 255. In
Great-West, a health plan sued a plan beneficiary under Section 502(a)(3)
seeking a monetary award for breach of a provision in the health insurance
contract that required the beneficiary to pay to the plan the proceeds from a
personal injury settlement.[5] The Court held that Great-West had
asserted nothing more than an ordinary contract claim for damages. As in Mertens, the monetary relief it
sought for breach of contract was not "typically available in equity"
and therefore was not recoverable under Section 502(a)(3). 534 U.S. at 210. Mertens and Great-West
thus both involved Section 502(a)(3) suits against non-fiduciaries, and in each case, the plaintiffs contended
that the monetary relief they sought from non-fiduciary defendants was
"equitable" because courts of equity could have granted such relief
under the common law of trusts. Great-West,
534 U.S. at 219; Mertens, 508 U.S. at 255-56. Together these decisions stand for the proposition that monetary
relief in such suits cannot be considered "equitable" just because
courts of equity had the power to grant such relief under the common law of
trusts. As the Supreme Court explained
in Mertens, courts of equity sometimes granted purely legal
remedies, and the money damages sought from the non-fiduciary defendant in Mertens was
just that -- legal relief that would have been available in a court of
equity under the common law of trusts. Id.
at 256.[6]
Courts
of equity often granted legal relief against non-fiduciaries under the common
law of trusts. For example, when both a
trustee/fiduciary and a non-fiduciary harmed the trust in the same transaction,
the beneficiary could bring an equity action to enforce equitable rights
against the fiduciary and a law action to enforce legal rights against the
non-fiduciary. See IV. A.
Scott, The Law of Trusts, § 282.1, at 30. However, the common law did not force the beneficiary to bring
two separate suits -- one in equity and one at law. Instead, the beneficiary could sue both parties in the equity
court in order to avoid multiple suits.
Id.; see also Restatement of Trusts § 282,
at 45, cmt. e. Accordingly, the Court reasoned in Mertens
that it would effectively read the "equitable" limitation out of
Section 502(a)(3) if it expanded the scope of available relief to include these
legal remedies that were sometimes awarded by courts of equity. 508 U.S. at 256. The present case, by contrast, involves relief that was typically
available in equity (and only in equity):
monetary relief against a fiduciary to restore to a beneficiary losses
resulting directly from a fiduciary breach. Such relief is equitable not simply
because a common law court of equity would have granted it, but because any
relief, monetary or otherwise, in favor of a beneficiary against a fiduciary
to remedy that fiduciary's own breach is and always has been
equitable relief. See Restatement of
Trusts, § 197; supra, Section A. (pp. 5-7).[7]
Nevertheless, Star Buffet argued below
that relief is "equitable" under Great-West and Mertens
only if the particular category of relief sought was available in equity without
regard to the law of trusts or the existence of a fiduciary relationship. Under this reading of the Supreme Court's
decisions, "equitable relief" refers to such remedies as injunctions,
equitable liens and constructive trusts, but not the recovery of direct
economic losses, irrespective of whether the defendant is a fiduciary or the
claim arises from a breach of trust. In
support of this view, Star Buffet pointed to the Supreme Court's rejection of
the idea that "equitable relief" encompasses every kind of relief
that a court of equity could grant under the special powers applicable to
trusts. Great-West, 534 U.S. at
219-20. The courts of equity had power
to award legal as well as equitable remedies against non-fiduciaries. As discussed above, however, the
recovery of losses from breaching fiduciaries is a separate category of relief
that was typically (indeed exclusively) available in equity, and is therefore
available under Section 502(a)(3) of ERISA.
Under the common law, Great-West's claim against a non-fiduciary
defendant was purely a claim for liability for breach of contract -- a legal
claim normally remedied by legal relief, irrespective of the special powers of
trust-law courts. 534 U.S. at 209-11
& 219-20. By way of contrast, the
common law claim most closely paralleling Callery's is that of a beneficiary
against a trustee for breach of trust -- an equitable claim typically,
historically and exclusively remedied in the courts of equity. Neither Mertens nor Great-West
support the proposition that Congress intended that the courts should ignore
settled trust-law understandings dating from the days of the divided bench in
fashioning remedies against fiduciaries who breach their trust-law
obligations. Indeed, "ERISA
abounds with the language and terminology of trust law." Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101, 110 (1989). See also
Michael H. v. Gerald D., 491 U.S. 110, 127 n.6 (1989) (Scalia, J.,
plurality opinion) (when historical practice determines content of current legal
rule, pertinent historical practice is to be identified with specificity, not
generality). Here, the "most
specific tradition available," id., is the unbroken historical
tradition of permitting precisely the recovery from fiduciaries sought here, at
equity and only at equity. The Secretary's interpretation of
Section 502(a)(3) draws additional support from ERISA's sensible allocation of
responsibility between fiduciaries and non-fiduciaries as described by the
Supreme Court in Mertens. As the
Supreme Court explained, ERISA "allocates liability for plan-related
misdeeds in reasonable proportion to respective actors' power to control and
prevent the misdeeds." 508 U.S. at
262; see also Harris Trust & Sav. Bank v. Salomon Smith
Barney, Inc., 530 U.S. 238, 251 (2000) (emphasizing that "the common
law of trusts sets limits on restitution actions against defendants other than
the principal 'wrongdoer,'" which the Court referred to as the
fiduciary). Accordingly, the Court explained that
the Act provides only limited relief against non-fiduciaries ("persons who
had no real power to control what the plan did," Mertens, 508 U.S.
at 262), as opposed to the fiduciaries who have primary responsibility for the
administration and control of benefit plans: All that ERISA has eliminated . . . is the common
law's joint and several liability for all direct and consequential
damages suffered by the plan, on the part of persons who had no real power to
control what the plan did. Exposure to
that sort of liability would impose high insurance costs upon persons who
regularly deal with and offer advice to ERISA plans, and hence upon ERISA plans
themselves. Id. (emphasis in
original). Since the primary
responsibility for control of the plan rests with the fiduciary, so too does
the attendant liability. Contrary to the statutory scheme,
therefore, the more restricted reading of "equitable relief" adopted
by the district court would leave beneficiaries without any remedy for serious
violations of ERISA's fiduciary provisions.
A fiduciary, for example, could deliberately mislead a participant (e.g.,
by misrepresenting the terms or existence of health coverage), cause the
participant to incur substantial medical bills in reliance on the
misrepresentation, and evade responsibility for the loss. The participant would have no remedy under
ERISA if the recovery for the loss were not "equitable" relief.[8] Moreover, any state-law claims based on the
fiduciary's misconduct would be preempted.
See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 51-57
(1987) (ERISA's civil enforcement scheme is exclusive and preempts alternative
state remedial schemes). Such a result
is neither consistent with ERISA's remedial purposes, nor compelled by Mertens
or Great-West. To the contrary, as
the Supreme Court stated in its post-Mertens opinion in Varity,
"it is hard to imagine why Congress would want to immunize breaches of
fiduciary obligation that harm individuals by denying injured beneficiaries a
remedy." 516 U.S. at 513. C. A beneficiary may recover the direct monetary losses
resulting from a fiduciary breach regardless of whether or not the fiduciary
was unjustly enriched by its misconduct A fiduciary has an equitable duty to pay monetary losses
caused by a fiduciary breach, regardless of whether it was unjustly
enriched. As explained above, a
fiduciary must remedy all harm a beneficiary suffers from its breach. Whether that remedy comes in the form of a
money payment, injunction or both, the common law of trusts considers it
"equitable." See Restatement
of Trusts, § 197. A fiduciary's
equitable obligation to redress losses caused by a breach derives directly from
the fiduciary duty itself, not from unjust enrichment. See, supra, Section A. (pp.
5-7). The Restatement of Trusts confirms that a money
award redressing a fiduciary breach maintains its status as equitable relief
even absent unjust enrichment. The Restatement
enumerates several categories of equitable remedies beneficiaries may obtain
from a trustee-fiduciary for breach of duty.
One category rests on unjust enrichment. Restatement (Second) of Trusts § 205(b). As an entirely separate category, the Restatement
sets forth relief based on harm to the trust caused by the fiduciary breach. Id. § 205(a). The Restatement gives several
examples of this latter category, all of which involve monetary awards
fiduciaries must pay to remedy losses caused by their breaches, and none
of which involves an unjustly enriched fiduciary. See id. § 205, cmt. c. and illustrations at
459. The Restatement makes plain
that these remedies are equitable. See
id. § 197 Several federal appellate decisions illustrate the
application of the Restatement's rule in ERISA cases. In Bowerman, 226 F.3d at 592 , the
Seventh Circuit required an employer to pay as equitable relief within the
meaning of Section 502(a)(3) health expenses that were not covered by insurance
because of its fiduciary breach.
However, the Court did not require that the plaintiff first show that
the employer's breach resulted in unjust enrichment. Similarly, the Second Circuit in Strom, 202 F.3d at
144-45, awarded a beneficiary monetary relief under Section 502(a)(3) against a
breaching fiduciary who had not been unjustly enriched. The Court explained
that such a claim against a fiduciary has always stood within the exclusive
province of equity and "never has required a showing of unjust
enrichment." See also
Ream, 107 F.3d 147; McFadden v. R & R Engine & Mach. Co.,
102 F. Supp. 2d 458 (N.D. Ohio 2000).
None of these courts required plaintiffs to show unjust enrichment.
By contrast, claims for monetary
awards against non-fiduciaries demand a showing of unjust enrichment in order
to be considered equitable under Section 502(a)(3). Great-West, 534 U.S. at 213-14; Harris Trust, 530
U.S. at 251; McDannold v. Star Bank, N.A., 261 F.3d 478, 486 (6th Cir.
2001). Unjust enrichment is necessary
to recover money from non-fiduciaries because the relief qualifies as
"equitable" only if it constitutes "equitable restitution"
(i.e., if the circumstances warrant imposition of a constructive trust
or equitable lien). Unjust enrichment
must lay the foundation for ordering non-fiduciaries to pay monetary relief as
restitution, because unlike fiduciaries, they have no independent duty in
equity to redress a breach. Indeed the
constructive trust remedy (recognized as equitable by the Supreme Court in Great-West),
rests on the fiction that the person who possesses the property holds it in
trust for the beneficiary. Strom,
202 F.3d at 144. There is no need for
such a fiction to support equitable relief against an actual fiduciary. Under
the district court's interpretation of Section 502(a)(3), beneficiaries could
be left without a remedy against fiduciaries who have committed serious
violations of ERISA's provisions and directly injured the people they were
charged to protect. Even a cursory
review of the cases suggests the range of injuries that could go unredressed if
the district court's view became law. See,
e.g., McFadden, 102 F. Supp. 2d 458 (permitting cancer patient to
recover his health expenses after he lost his health coverage because
fiduciary-employer failed to submit premiums to the insurance company); Strom,
202 F.3d at 144 (authorizing recovery of life insurance proceeds which were
lost because of fiduciary's negligent handling of life insurance application); Griggs
v. E.I. DuPont De Nemours & Co., 237 F.3d 371, 385 (4th Cir. 2001)
(remanding for determination of appropriate equitable relief where employer had
informed participant that his lump sum early retirement payout would be tax
deferred when it knew that it was not);
Shade v. Panhandle Motor Serv. Corp., 91 F.3d 133, Unpublished
Disposition, No. 95-1129, 1996 WL 386611, at *4 (4th Cir. July 11, 1996)
(ordering employer whose misconduct excluded plaintiff from its health plan to
pay for his $161,000 liver transplant).
This Court should not interpret ERISA's remedial provisions to
permit fiduciaries to ignore their statutory obligations, injure beneficiaries,
and evade liability. The award of
make-whole monetary relief to beneficiaries who have been injured by fiduciary
breaches is typically, historically, and exclusively equitable. This Court should therefore reverse and
remand to the district court for further proceedings.
[1] The Secretary takes no position on the factual matters presented
by this case. The Statement of the Case
is taken from the plaintiff's complaint and affidavit and is not intended to
express the Secretary's opinion about how the Court should rule on any
particular fact. [2] The Restatement of Trusts gives several examples of the
types of monetary awards fiduciaries must pay to redress their breaches. For instance, Illustration 1 § 205, at 459,
cmt. c of the Restatement explains: "A is [the] trustee of $10,000 in cash. As a result of his negligence, the money is
stolen. A is liable for $10,000." Illustration 3 notes: "A is [the]
trustee of a claim against B for $1,000.
B is solvent and A can collect the claim in full. A negligently fails to take steps to collect
the claim until B becomes insolvent with the result that he is able to collect
only $400 of the money owed by B. A is
liable for $600." The Restatement
makes it plain that all of these remedies are equitable. See Restatement (Second) of Trusts, §
197, at 433-34. The Restatement
goes on to explain that, if a fiduciary wrongly holds trust property, a
beneficiary can additionally recover unjust enrichment as a separate category of
relief. See id. § 205(b). [3] In Ream, the trustee conveyed pension plan assets to the
plan administrator who then absconded with the assets. The court ordered the trustee to pay the
beneficiary the amount of his vested interest in the plan, characterizing its
order as equitable restitution under Section 502(a)(3). 107 F.3d at 153. [4] In Rego, the Fourth Circuit erroneously reasoned that the
Supreme Court in Mertens had rejected the availability of monetary
relief against a breaching fiduciary, absent the ability to trace particular
funds to the fiduciary. 319 F.3d at
145. As we discuss, this decision and
the others like it that either reject monetary awards outright against plan
fiduciaries or require equitable tracing, see, infra, note 9 and
cases cited therein, misapprehend both Mertens and Great-West and
the common law of trust to which these cases refer. Moreover, the Rego decision is in conflict with the
well-reasoned decisions of the Seventh and Second Circuits in Bowerman
and Strom which recognize that monetary relief against a breaching
fiduciary is inherently equitable. See,
supra, pp. 6-7. [5] Although the plan sued the beneficiary, the disputed funds had
actually been paid to an attorney and a trust; neither the trust nor the attorney
had been named as defendants. Great
West, 534 U.S. at 208. [6] See also Great-West, 534 U.S. at 219 (the
"special equity-court powers applicable to trusts" do not define the
reach of Section 502(a)(3)). [7] Justice Scalia's dissenting opinion in Bowen v. Massachusetts,
487 U.S. 879 (1988), on which the Court relies in Great-West, bolsters
the Secretary's view. There, Justice
Scalia pointed out that "the term 'damages' refers to money awarded as
reparation for injury resulting from breach of legal duty." Id. at 913 (emphasis added). A fiduciary's duty to the beneficiary is
clearly equitable and therefore remedies for its breach fall outside of this
definition of "damages." The Restatement
of Trusts is replete with references to the "equitable duties" of
the trustee and the "equitable interests" of the beneficiaries. See, e.g., § 2, at 9-10; § 74,
at 192. [8] Although Sections 409, 29 U.S.C. § 1109, and 502(a)(2), 29 U.S.C.
§ 1132(a)(2), of ERISA expressly permit the recovery of losses sustained by the
plan as a whole, these provisions do not apply to losses sustained by
individual participants. Fiduciary
misconduct resulting in individual injuries can only be redressed by the
recovery of equitable relief under Section 502(a)(3), 29 U.S.C. § 1132(a)(3),
of ERISA. Varity, 516 U.S. at
510-15. [9] Courts that have required unjust enrichment in Section 502(a)(3)
actions for money losses against breaching fiduciaries misinterpret
background trust law as well as the import of the Mertens and Great-West decisions
for all the reasons set forth in the text above. See, e.g., Kerr v. Charles F. Vatterott &
Co., 184 F.3d 938 (8th Cir. 1999); Bast v. Prudential Ins. Co. of America, 150 F.3d 1003 (9th Cir.
1998), cert. denied, 528 U.S. 870 (1999). In addition, none of these courts had before
it the argument made by the Secretary here.
CERTIFICATE OF SERVICE I hereby certify that a
true and correct copy of the foregoing Brief of the Secretary of Labor as
Amicus Curiae in Support of the Appellant and Reversal of the District Court
has been mailed, via federal express courier service, this 20th day of August
2003, to the following: W. Mark Gavre PARSONS, BEHLE & LATIMER 201 S. Main St., Suite 1800 Salt Lake City, UT 84145 Brian S. King Attorney at Law 336 South 300 East, Suite 200 Salt Lake City, UT 84111 _____________________________ ELIZABETH
HOPKINS Counsel for
Appellate and Special
Litigation
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