Pereira
Amicus Brief Supporting Appellant's Rehearing Petition
Nos. 03-5035, -5055
IN THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
TRACE INTERNATIONAL HOLDINGS,
Debtor,
JOHN S. PEREIRA, As Trustee of Trace International Holdings, Inc,& Trace Foam
Sub, Inc.
Plaintiff-Appellee,
vs.
ANDREA FARACE , FREDERICK MARCUS, PHILLIP SMITH & KARL WINTERS
Defendants-Appellants,
MARSHALL S. COGAN, ROBERT NELSON, SAUL SHERMAN & TAMBRA KING,
Defendants,
(caption continued on inside cover)
On
Appeal from the United States District Court
for
the Southern District of New York
BRIEF FOR THE SECRETARY OF LABOR AS AMICUS CURIAE SUPPORTING APPELLANT'S
PETITION FOR PANEL AND EN BANC REHEARING
HOWARD M.
RADZELY
Solicitor of
Labor
TIMOTHY D.
HAUSER
Associate
Solicitor for Plan Benefits Security
ELIZABETH
HOPKINS
Counsel for
Appellate and Special Litigation
U.S.
Department of Labor
Room N-4611
Washington,
D.C. 20210
(202) 693-5584
22500500030
TAMBRA KING,
Defendant,
ANDREA FARACE , FREDERICK MARCUS
Defendants-Third Party-Plaintiffs-Appellants,
MARSHALL S. COGAN, ROBERT NELSON, SAUL SHERMAN & TAMBRA KING,
Defendants,
SAUL S. SHERMAN,
Defendant-Third-Party-Plaintiff,
DOW CHEMICAL CO.,
Third-Party-Defendant.
TABLE OF CONTENTS
Introduction and interest of the Secretary
Argument
Conclusion
Certificate of Service
Certificate of
Compliance
TABLE OF AUTHORITIES
Federal
Cases:
Aetna Health
Inc. v. Davila, 124 S. Ct. 2488 (2004)
Berry v.
Ciba-Geigy Corp., 761 F.2d 1003 (4th Cir. 1985)
Blau v. Del
Monte Corp., 748 F.2d 1348 (9th Cir. 1984)
Bona v.
Barasch, No. 01 Civ. 2289, 2003 WL 1395932 (S.D.N.Y. Mar. 20, 2003)
Boone v.
Lightner, 319 U.S. 561 (1943)
Borst v.
Chevron Corp., 36 F.3d 1308 (5th Cir. 1994)
Bowerman v.
Wal-Mart Stores, Inc., 226 F.3d 574 (7th Cir. 2000)
Broadnax
Mills, Inc. v. Blue Cross & Blue Shield,876 F. Supp. 809 (E.D. Va. 1995)
Callery v. U.S. Life Ins. Co., 392 F.3d 401 (10th Cir. 2004), petition
for cert. filed, 73 U.S.L.W. 3632 (U.S. Apr. 11, 2005) (No.
04-1366)
Central States, Southeast & Southwest Areas Pension Fund v.Central Transp. Inc.,
472 U.S. 559 (1985)
Cox v. Keystone Carbon Co., 894 F.2d 647 (3d Cir. 1990)
Daniel v. Eaton Corp., 839 F.2d 263 (6th Cir. 1988)
Donovan v. Bierwirth, 680 F.2d 263 (2d Cir. 1982)
Dwyer v. Tracy, 118 F. Supp. 289 (N.D. Ill. 1954)
Geller v. County Line Auto Sales, Inc., 86 F.3d 18 (2d Cir. 1996)
Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002)
Griggs v. E.I. DuPont De Nemours & Co., 237 F.3d 371 (4th Cir. 2001)
Health Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703 (7th Cir.
1999)
Hecht Co. v. Bowles, 321 U.S. 321 (1944)
Helfrich v. PNC Bank, Ky., Inc., 267 F.3d 477 (6th Cir. 2001)
Howard v. Parisian, Inc., 807 F.2d 1560 (11th Cir. 1987)
In re Evangalist, 760 F.2d 27 (1st Cir. 1985)
In re Vorpahl, 695 F.2d 318 (8th Cir. 1982)
Katsaros v. Cody, 744 F.2d 270 (2d Cir. 1984)
Kerr v. Charles F. Vatterott & Co., 184 F.3d 938 (8th Cir. 1999)
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)
Morrissey v. Curran, 650 F.2d 1267 (2d Cir. 1981)
Mosser v. Darrow, 341 U.S. 267 (1951)
Muller v. First Unum Life Ins. Co., 341 F.3d 119 (2d Cir. 2003)
Pereira v. Farace, Nos. 03-5035(L), 03-5055(CON), 2005 WL 1532318 (2d Cir.
June 30, 2005)
Ream v. Frey, 107 F.3d 147 (3d Cir. 1997)
Secretary of Labor v. Fitzsimmons, 805 F.2d 682 (7th Cir. 1986)
Shade v. Panhandle Motor Serv. Corp., No. 95-1129, 1996 WL 386611 (4th Cir.
July 11, 1996)
Strom v. Goldman, Sachs & Co., 202 F.3d 138 (2d Cir. 1999)
Sullivan v. LTV Aerospace & Def. Co., 82 F.3d 1251 (2d Cir. 1996)
Varity v. Howe, 516 U.S. 489 (1996)
Williams Elecs. Games, Inc. v. Garrity, 366 F.3d 569, 577 (7th Cir. 2004)
State Case:
Bank of Am.
v. Superior Court, 226 Cal. Reptr. 685, 181 Cal. App. 3d 705 (Ct. App. 1986)
Statutes and
regulations:
Employee
Retirement Income Security Act of 1974, Title I, 29 U.S.C. §§ 1001 et
seq.:
Section 2(b),
29 U.S.C. § 1001(b)
Section 502, 29
U.S.C. § 1132
Section
502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B)
Section
502(a)(2), 29 U.S.C. § 1132(a)(2)
Section
502(a)(3), 29 U.S.C. § 1132(a)(3)
Section
502(a)(5), 29 U.S.C. § 1132(a)(5)
Section 505, 29
U.S.C. § 1135
Uniform Trust
Code § 1001(b)(3) (amended 2001), 7C U.L.A. (Supp. 2003)
Miscellaneous:
George G. Bogert
& George T. Bogert, The Law of Trusts & Trustees
(rev. 2d ed. 1995).
1 Dan B. Dobbs,
Law of Remedies (2d ed 1993)
Fed. R. App. P.:
Rule 35(a)(1)
Rule
35(b)(1)(A).
Rule 40(a)(2)
H.R. Rep. No.
93-533 (1973), reprinted in 1974 U.S.C.C.A.N. 4649
John H. Langbein, What ERISA Means by "Equitable": the Supreme Court's Trial
of Error in Russell, Mertens and Great-West, 103 Colum. L. Rev. 1317 (2003)
1 John N.
Pomeroy, A Treatise on Equity Jurisprudence
(5th ed. 1941)
Restatement
(Second) of Trusts
(1959)
S. Rep. No.
93-127 (1973), reprinted in 1974 U.S.C.C.A.N. 4639
Austin W. Scott
& William F. Fratcher, The Law of Trusts:
Vol. 1 (4th ed. 1987)
Vol. 3 (4th ed. 1988)
Vol. 4 (4th ed. 1989)
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INTRODUCTION AND INTEREST
OF THE SECRETARY
The Secretary of Labor (the "Secretary") has primary
authority to interpret and enforce the provisions of Title I of the Employee
Retirement Income Security Act of 1974 ("ERISA"). 29 U.S.C. §§ 1132, 1135. The
Secretary's interests include promoting the uniform application of ERISA,
protecting plan participants and beneficiaries, and ensuring the financial
stability of plan assets. Secretary of Labor v. Fitzsimmons, 805 F.2d 682
(7th Cir. 1986) (en banc). This case presents an important and recurring
remedial issue: whether actions to recover monetary losses from fiduciaries who
have breached their obligations and harmed individual beneficiaries seek
"equitable" relief. Although the issue arose here in the context of a jury trial
request by defendant fiduciaries in a state corporate law action for fiduciary
breach, the panel's decision is based on cases construing ERISA section
502(a)(3), 29 U.S.C. § 1132(a)(3), which provides, among other things, for
"appropriate equitable relief" to redress fiduciary breaches. See also
ERISA section 502(a)(5), 29 U.S.C. § 1132(a)(5) (allowing the Secretary to sue
for "appropriate equitable relief").
The panel concluded that an earlier decision by the
Second Circuit in Strom v. Goldman, Sachs & Co., 202 F.3d 138 (2d Cir.
1999), holding that make-whole monetary relief from a breaching fiduciary to the
plan participant or beneficiary is equitable within the meaning of section
502(a)(3), has been directly undermined by the Supreme Court's decision in
Great-West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002).
Pereira v. Farace, Nos. 03-5035(L), 03-5055(CON), 2005 WL 1532318, at *8, *9
(June 30, 2005). The panel reasoned that under Great-West, a claim for
restitution (as the district court had characterized the Trustee's claim), even
from a breaching fiduciary, is only equitable if the plaintiff seeks to recover
particular funds or other property that the defendant possesses. Because the
plaintiff did not seek to recover particular funds from the defendants, the
panel concluded that the plaintiff's claim was actually for damages, a legal and
not equitable remedy, and the defendants consequently were entitled to a jury
trial under the Seventh Amendment. Id. at *9, *15.
The decision in this case effectively overrules Strom,
and thus appears to preclude the recovery by ERISA plan participants and
beneficiaries of monetary relief for the losses caused by fiduciaries who have
violated ERISA's stringent obligations. The Secretary disagrees with the panel
that this result is mandated by, or even consistent with, the Supreme Court's
decision in Great-West, and therefore submits this brief in support of
plaintiff-appellee's petition for panel rehearing and suggestion for rehearing
en banc.
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ARGUMENT
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. 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, at 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, at 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.
1982).
Section 502(a)(3) of ERISA 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 in Great-West
held that, to determine whether relief is equitable, courts should look to
standard texts on remedies and trusts to determine how the relief was
characterized when the bench was divided between equity courts and law courts.
534 U.S. at 212. In order 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 215. 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. (emphasis omitted). As discussed
below, however, where, as here, monetary relief is sought from breaching
fiduciaries, it is equitable because it was exclusively available in equity in
the days before the merger of law and equity, as this court held in Strom.
Far from undermining this holding, Great-West – by directing courts to
the standard texts on trust and remedies to determine how equity characterized
such relief in the days of the divided bench – fully supports the reasoning and
result in Strom.
Panel rehearing is appropriate to correct the panel's
misreading of Great-West and the law of trusts and remedies to which it
refers, and to allow the panel to reconcile its holding with other decisions
from the Second Circuit that the panel's decision does not discuss, which hold
that parties are not entitled to a jury trial under ERISA. See Fed. R.
App. P. 40(a)(2). En banc rehearing is appropriate because this decision is in
conflict with the Second Circuit's decision in Strom, as well as with the
Second Circuit's prior ERISA rulings disallowing jury trials. See Fed. R.
App. P. 35(a)(1), (b)(1)(A). The panel's decision is also of exceptional
importance because of its likely impact on plan participants and beneficiaries
and, in the words of Judge Newman in his concurring opinion, because it is "at
odds with centuries of equitable proceedings involving claims against trustees,
estate executors, and other fiduciaries," and more specifically "at odds with
numerous traditional equity actions that have historically been brought and
currently are being brought in probate courts throughout the country without
juries." Pereira, 2005 WL 1532318, at *12, *15.
1. As Strom explained, beneficiary claims against
breaching fiduciaries to redress their breaches "have lain at the heart of
equitable jurisdiction from time immemorial." 202 F.3d at 144; see
also 3 Austin W. Scott & William F. Fratcher, The Law of Trusts §
197, at 188 (4th ed. 1988) (trust relationships "are, and have been since they
were first enforced, within the peculiar province of courts of equity"); George
G. Bogert & George T. Bogert, The Law of Trusts & 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."). Thus, in Strom, the
Court properly considered, as the Supreme Court had earlier suggested in
Mertens v. Hewitt Associates, 508 U.S. 248 (1993), and would later expressly
require in Great-West, whether the remedy sought was an equitable remedy
in the days of the divided bench, and concluded that claims against fiduciaries
were inherently equitable. See also Bowerman v. Wal-Mart
Stores, Inc., 226 F.3d 574, 592 (7th Cir. 2000) ("[W]hen sought as a remedy
for breach of fiduciary duty, restitution is properly regarded as an equitable
remedy because the fiduciary concept is
equitable.") (quoting Health Cost Controls of Ill., Inc. v. Washington,
187 F.3d 703, 710 (7th Cir. 1999) (emphasis added)); Ream v. Frey, 107
F.3d 147 (3d Cir. 1997). Such a claim is analogous to "the conventional action
by a cestui que trust against a trustee for breach of
trust." Strom, 202 F.3d at 144.
A careful examination of trust law supports this
conclusion. "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." 1 Austin W. Scott & William F. Fratcher, The Law of
Trusts § 2.7, at 48-49 (4th ed. 1987).
As the Restatement of Trusts emphasizes, "the
remedies of the beneficiary against the trustee are exclusively
equitable." Restatement, supra, § 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. 1 Scott & Fratcher, supra, § 1, at 4; 3 Scott & Fratcher,
supra, § 197, at 188. They could only seek relief in a court of equity to
enforce their equitable interests. 1 Scott & Fratcher, supra, § 1; 3
Scott & Fratcher, 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. 3 Scott & Fratcher, supra, §§ 197, 199;
Bogert & Bogert, supra, § 861, at 3-4 ("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.") (emphasis added). Moreover, courts
of equity had the power to fashion whatever remedy was necessary under the
circumstances to best protect the beneficiary, without regard to the rigid,
technical constraints that governed the ability of courts of law to fashion
legal relief before the fusion of law and equity. See Hecht Co. v.
Bowles, 321 U.S. 321, 329 (1944); Bogert & Bogert, supra, § 861, at
3-5; 1 John N. Pomeroy, A Treatise on Equity Jurisprudence § 109, at 140
(5th ed. 1941).
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, supra, § 205 cmt. a
at 458; see also id. § 205, at 458; 3 Scott & Fratcher,
supra, § 199.3, at 206 ("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."); id. §199, at 203-04 & 206 (listing money payment designed
to redress fiduciary breach as one of the "equitable remedies" available to a
beneficiary). In many cases described by the comments, the Restatement
makes clear that the breaching trustee is liable for monetary payment as part of
putting the plaintiff back in the position he would have been in without the
breach. See, e.g., Restatement, supra, § 205 illus.
1, at 459 ("A is trustee of $10,000 in cash. As a result of his negligence the
money is stolen. A is liable for $10,000."). Indeed, there is every reason to
think, as one leading commentator has put it, that ERISA's "drafters presupposed
the long familiar practice, which has recently been codified in the Uniform
Trust Code, that 'the court may . . . compel the trustee to redress a breach of
trust by paying money.'" John H. Langbein, What ERISA Means by "Equitable":
The Supreme Court's Trail of Error in Russell, Mertens and Great-West, 103
Colum. L. Rev. 1317, 1338 (2003) (citing Uniform Trust Code § 1001(b)(3)
(amended 2001), 7C U.L.A. 221 (Supp. 2003)).
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2. Nothing in Great-West undermines this
conclusion. In both Mertens and Great-West, the plaintiffs sought
monetary relief against non-fiduciaries, and the Court concluded that this was
not "equitable relief" within the meaning of section 502(a)(3). Mertens,
508 U.S. at 256; Great-West, 534 U.S. at 219.[1]
This case, however, like Strom, involves relief that was exclusively (and
therefore "typically") available in equity: relief (albeit monetary) 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
could have granted it, but because only a common law court of equity
could have granted it. See Restatement, supra, § 197.
Justices Ginsburg and Breyer have acknowledged this very point in a recent
preemption decision, noting, as the government had argued, that the availability
of monetary remedies against breaching fiduciaries could, in appropriate cases,
ameliorate the harsh effects of the preemption of otherwise applicable state
tort law. Aetna Health Inc. v. Davila, 124 S. Ct. 2488, 2503 (2004)
(Ginsburg & Breyer, JJ., concurring) ("'Congress . . . intended ERISA to
replicate the core principles of trust remedy law, including the make-whole
standard of relief.' Langbein [at] 1319. I anticipate that Congress, or this
Court, will one day so confirm."). Moreover, the majority in Aetna noted
that the government's amicus brief, relying in part on the Strom
decision, had suggested that monetary relief was available
under section 502(a)(3). Although the Court concluded that the issue was not
before them and need not be addressed, it certainly treated this as an open
issue. Id. at 2502 n.7.
In Strom, this Court recognized this precise distinction between
monetary damages from a non-fiduciary, which is not equitable relief, and
make-whole monetary relief from a fiduciary to redress a breach, which is
quintessentially equitable. The plaintiff in Strom sought monetary relief
under section 502(a)(3) for a fiduciary's negligent handling of a life insurance
application which resulted in the participant's loss of coverage. 202 F.3d at
141. The Court distinguished its earlier decision in Geller v. County Line
Auto Sales, Inc., 86 F.3d 18 (2d Cir. 1996):
The
district court's reliance on Geller was misplaced. The critical fact that
distinguishes Geller from this case is that this is an action against an
alleged fiduciary whereas Geller involved a suit by a fiduciary
against nonfiduciary wrongdoers. And that distinction is material.
Geller was an appeal from the dismissal of a complaint brought by trustees
of an employee benefit plan to recover from nonfiduciaries the amount of
benefits paid by the trustees to an ineligible person by reason of the
defendants' alleged fraud.
Id. at 143 (emphasis added). That distinction
holds here, and ought to lead to the same conclusion: monetary relief to redress
a breach by a fiduciary is equitable relief under section 502(a)(3).[2]
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3. At the heart of the panel's error is its assumption
that because Great-West "reconfigured the legal landscape of
restitution," Pereira, 2005 WL 1532318, at *8, restoration of losses to a
trust beneficiary (in ERISA terms, "participant" or "beneficiary"), can no
longer be considered an equitable remedy. Again, the fact that the Supreme Court
in Aetna treated this as very much an open issue, see, supra
pp. 9-10, strongly suggests that the panel overread Great-West and erred
in overruling Strom on this basis. A close reading of Great-West,
and its treatment of restitution, confirms the panel's mistake.
Great-West concludes that, historically,
"restitution" is equitable only when it seeks to recover, through a constructive
trust, particular funds or property in the defendant's possession that belong in
good conscience to the plaintiff. Because the plaintiff in this case is seeking
losses to the corporate creditors that resulted from the defendants' breach of
trust, the panel concludes that he is seeking legal relief. In other words, the
court assumed that equitable restitution through a constructive trust is the
only available monetary remedy after Great-West, and that if the monetary
relief sought is not equitable restitution, it is therefore legal damages.
This analysis misreads both Great-West and the
law of trusts and remedies. First, the loss remedy sought here could not
possibly be restitution, of either the legal or equitable variety. Restitution
always measures losses based on a defendants' gain, and not on losses suffered
by a plaintiff, as sought here. See 1 Dan B. Dobbs,
Law of Remedies § 4.1(1), at 555 (2d ed. 1993) ("Restitution measures the
remedy by the defendant's gain and
seeks to force disgorgement of that gain. It differs in its
goal or principle from damages, which measures the remedy by the plaintiff's
loss and seeks to provide compensation for that loss."). It does not follow,
however, that the plaintiff is simply seeking legal damages, since, as discussed
above, a trust beneficiary could not sue a trustee in a court of law in the
pre-merger days.
In fact, the recovery of losses from a breaching
fiduciary was really a third category of equitable relief, known at common law
as surcharge, that sought to put the trust beneficiary back in the position he
would have been if not for the breach. Restatement, supra, §
205(a); Williams Elecs. Games, Inc. v. Garrity, 366 F.3d 569, 577 (7th
Cir. 2004); see also id. (pointing out that fiduciary
breach claims were "traditionally actionable in suits at equity [because]
fiduciary obligations were an invention of the English chancery court");
Morrissey v. Curran, 650 F.2d 1267, 1282 (2d Cir. 1981) ("At common law, an
accounting surcharging a trustee for breach of his fiduciary duty was a readily
available remedy."); see also Mosser v. Darrow, 341 U.S.
267, 268, 274 (1951) (in remanding for a determination of whether "a
reorganization trustee who, although making no personal profit, permitted key
employees to profit from trading in securities of the debtors' subsidiaries,"
should be liable for surcharge, the Court noted that "trusteeship is serious
business" and "[t]he most effective sanction for good administration is personal
liability for the consequences of forbidden acts"). Although surcharge is akin
to the legal remedy of damages in that it can include monetary relief for losses
suffered by the plaintiff (rather than restitution of improper gains by the
defendant), it was clearly equitable: it was typically, and indeed, exclusively,
granted in courts of equity. Cf. Langbein, supra, at 1353 ("it may
once have been technically correct to say that damages were exclusively a common
law remedy, but only because damages in equity were called surcharge").[3]
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4. Recognizing the inherently equitable nature of ERISA
claims for breach of fiduciary duty, most courts have long denied requests for
jury trials. See, e.g., Borst v. Chevron Corp., 36 F.3d
1308, 1323-24 (5th Cir. 1994); Broadnax Mills, Inc. v. Blue Cross & Blue
Shield, 876 F. Supp. 809, 816 (E.D. Va. 1995) (collecting cases); cf.
In re Evangalist, 760 F.2d 27, 29 (1st Cir. 1985) (Breyer, J.) (denying a
request for jury trial in a corporate fiduciary breach case because "[a]ctions
for breach of fiduciary duty, historically speaking, are almost uniformly
actions 'in equity' – carrying with them no right to trial by jury"); but
see Bona v. Barasch, No. 01 Civ. 2289, 2003 WL 1395932, at *35
(S.D.N.Y. Mar. 20, 2003) (under Great-West, relief that plaintiffs sought
under section 502(a)(2), the loss to the plan, was legal relief that entitled
them to a jury trial). Indeed, it has long been the rule in this Circuit that a
party is not entitled to a jury trial in an ERISA case, see Katsaros
v. Cody, 744 F.2d 270, 278 (2d Cir. 1984), as confirmed, post-Great-West
in Muller v. First Unum Life Insurance Co., 341 F.3d 119, 124 (2d Cir.
2003). See also Sullivan v. LTV Aerospace & Def. Co., 82
F.3d 1251, 1258 (2d Cir. 1996) (finding no right to a jury trial in case brought
under ERISA section 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B), for benefits due
and under section 502(a)(3) for fiduciary breach). In fact, until this decision,
it appears that it was so well-established a principle in this Circuit, that the
Muller court simply noted, without further discussion, that "there is no
right to a jury trial under ERISA." 341 F.3d at 124.[4]
These decisions, which the panel's decision does not discuss, would appear to
directly conflict with the decision in this case and provide a strong basis for
either en banc or panel rehearing.
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5. Finally, this case is appropriate for en banc
rehearing because the issue it presents – the equitable nature of monetary
relief to remedy fiduciary breaches – is of extraordinary importance, both in
the Seventh Amendment context in which it was decided, and in its impact on the
ability of ERISA participants and beneficiaries who have been harmed by
fiduciary breaches to bring claims for make-whole monetary relief. As the
concurring opinion suggests, Pereira, 2005 WL 1532318, at *12, *15, the
panel's decision calls into question the equitable nature of numerous actions
against trustees, estate executors and other fiduciaries that seek monetary
relief but have never been brought before juries. See, e.g.,
Bank of Am. v. Superior Court, 226 Cal. Reptr. 685, 693, 181 Cal. App. 3d
705, 719 (Ct. App. 1986) (action against guardian of estate for wrongdoing must
proceed in probate court and plaintiff was not entitled to a jury trial or
punitive damages; "appropriate remedy for losses caused the guardianship estate
by the wrongdoing of a guardian is to order the guardian to reimburse the estate
for its losses"); see also Boone v. Lightner, 319 U.S. 561
(1943) (surcharge action against trustee of his daughter's trust fund for losses
caused by illegal mismanagement); Dwyer v. Tracy, 118 F. Supp. 289 (N.D.
Ill. 1954) (corporate director liable for salary payments to children of
deceased officer).
Moreover, if the panel is correct, plan participants and
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 panel's decision remains
standing. See, e.g., McFadden v. R&R Engine & Mach. Co.,
102 F. Supp. 2d 458 (N.D. Ohio 2000) (permitting cancer patient to recover his
health expenses after he lost coverage because fiduciary-employer failed to
submit premiums to 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 a
determination of appropriate equitable relief where employer had informed
participant that his lump sum early retirement payout would be tax deferred when
it was not); Shade v. Panhandle Motor Serv. Corp., No. 95-1129, 1996 WL
386611, at *4 (4th Cir. July 11, 1996) (unpublished) (ordering employer whose
misconduct excluded plaintiff from his health plan to pay for his $161,000 liver
transplant). These awards of make-whole monetary relief to plan participants and
beneficiaries who have been injured by fiduciary breaches are typically,
historically, and exclusively equitable. The panel's narrow and, we believe
erroneous, interpretation of equitable relief would permit fiduciaries to ignore
their statutory obligations, injure beneficiaries, and evade liability.
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CONCLUSION
For the foregoing reasons, the panel or the en banc
court should grant rehearing and reverse.
HOWARD M.
RADZELY
Solicitor of
Labor
TIMOTHY D.
HAUSER
Associate
Solicitor for Plan Benefits Security
_______________________
ELIZABETH
HOPKINS
Counsel for
Special and Appellate Litigation
U.S. Department
of Labor
Room N-4611
200
Constitution Avenue, N.W.,
Washington,
D.C. 20210
(202) 693-5584
CERTIFICATE OF SERVICE
I hereby certify that on July 25, 2005, two copies of
the amicus brief for the Secretary of Labor, Elaine L. Chao, were served using
Federal Express, postage prepaid, upon the following counsel of record:
Joseph P. Campo
Theodore J.
Fischkin
LeBoeuf, Lamb,
Greene & MacRae, L.L.P.
125 West 55th
Street
New York, NY
10019
Robert A.
Meister, Esq.
Joshua S. Sohn,
Esq.
DLA Piper
Rudnick Gray Cary
US LLP
1251 Avenue of
the Americas
New York, NY
10020
(212)835-6000
Brian E. Maas
Frankfurt Kurnit
Klein & Selz, P.C.
488 Madison
Avenue
New York, NY
10022
(212)980-0120
Guy Petrillo,
Esq.
Andrew J.
Levander, Esq.
Dechert LLP
30 Rockefeller
Plaza
New York, NY
10112-2200
(212)698-3500
Attention Martin
S. Kaufman
Atlantic Legal
Foundation, Inc.
150 East 42nd
Street
New York, NY
10017
_________________________
ELIZABETH HOPKINS
Counsel for Appellate and
Special Litigation
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(s)______________________________
Attorney for
Secretary of Labor, Elaine L. Chao, as amicus curiae
Dated: July 25,
2005
Footnotes:
[1] Courts of equity could grant 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. See4 Austin W. Scott & William F. Fratcher, The Law
of Trusts § 282.1, at 30 (4th ed. 1989). 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, supra, § 282 cmt. e at 45.
[2] One other Circuit reached the same conclusion in a pre-Great-West
decision. See Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574 (7th
Cir. 2000). However, a number of courts have held to the contrary. See,
e.g., Callery v. U.S. Life Ins. Co., 392 F.3d 401 (10th Cir. 2004),
petition for cert. filed, 73 U.S.L.W. 3632 (U.S. Apr.
11, 2005) (No. 04-1366); Helfrich v. PNC Bank, Ky., Inc., 267 F.3d 477,
481-82 (6th Cir. 2001); Kerr v. Charles F. Vatterott & Co., 184 F.3d 938,
943-44 (8th Cir. 1999).
[3] Nor is there any merit to the distinction alluded to by Judge Newman in
his concurring opinion between claims that sought to restore funds from a
breaching fiduciary to a trust and those that sought to restore benefits to a
beneficiary. Pereira, 2005 WL 1532318, at *14. "Cases awarding money
damages for consequential injury, either to the trust or the beneficiary, exist
in profusion in trust remedy law." Langbein, supra, at 1337 & n.12
(citing Bogert & Bogert, supra, § 701, at 198).
[4] Muller, like most of the cases that present the jury trial issue
under ERISA, involved a claim for benefits under ERISA section 502(a)(1)(B), 29
U.S.C. § 1132(a)(1)(B). The case for a jury trial in that context would seem
somewhat stronger, since the basis for the claim, unlike a fiduciary breach
claim under section 502(a)(3), appears at least somewhat analogous to a legal
claim for breach of contract. Yet even in this context, all eight circuits to
have to have addressed the issue have concluded that there is no right to a jury
trial for such claims. See, e.g., Cox v. Keystone Carbon Co.,
894 F.2d 647, 649-50 (3d Cir. 1990); Berry v. Ciba-Geigy Corp., 761 F.2d
1003, 1006-07 (4th Cir. 1985); Borst v. Chevron Corp., 36 F.3d 1308,
1323-24 (5th Cir. 1994); Daniel v. Eaton Corp., 839 F.2d 263, 268 (6th
Cir. 1988); In re Vorpahl, 695 F.2d 318 (8th Cir. 1982); Blau v. Del
Monte Corp., 748 F.2d 1348, 1357 (9th Cir. 1984); Howard v. Parisian,
Inc., 807 F.2d 1560, 1566-67 (11th Cir. 1987).
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