No. 04-15328
_____________________________________________________________
IN THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
_____________________________________________________________
TOMMIE GLANTON, on behalf of the ALCOA Prescription Drug Plan, and other
similarly-situated plans, and
TARA MACKNER, on behalf of the KMart Comprehensive Health Plan
Plaintiffs-Appellants
v.
ADVANCEPCS
HEALTH, L.P.
Defendant-Appellee
_____________________________________________________________
ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
_____________________________________________________________
BRIEF OF THE SECRETARY OF LABOR AS AMICUS
CURIAE IN SUPPORT OF APPELLANT AND REQUESTING REVERSAL
HOWARD M. RADZELY
Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division
ELIZABETH HOPKINS
Counsel for Appellate and Special Litigation
MARY F. WILLIAMS
Trial Attorney
U.S. Department of Labor
200 Constitution Avenue, N.W.
Washington, DC 20210
(202) 693-5600
TABLE OF CONTENTS
STATEMENT OF INTEREST
QUESTIONS PRESENTED
STATEMENT OF THE FACTS
PROCEDURAL BACKGROUND
SUMMARY OF ARGUMENT
I. Participants and beneficiaries are authorized
under section 502(a)(2) and (a)(3) of ERISA, 29 U.S.C. § 1132(a)(2) and (a)(3),
to bring an action on behalf of their plans against a functional fiduciary for
breach of duty
II.
Participants and beneficiaries who sue under section 502(a)(2) and (a)(3)
have standing to sue on behalf of their plans and thus need not show that they
personally have suffered injury in fact
III. The remedies that Appellants seek
are recoverable under section 502(a)(2)
CONCLUSION
TABLE OF AUTHORITIES
Cases:
Acosta v. Pac. Enters.,
950 F.2d 611 (9th Cir. 1991)
Adamson v. Armco, Inc.,
44 F.3d 650 (8th Cir. 1995)
Amalgamated Clothing & Textile
Workers Union, AFL-CIO v. Murdock, 861F.2d 1406 (9th Cir. 1988)
Bast v. Prudential Ins. Co. of Am.,
150 F.3d 1003 (9th Cir. 1998)
Beddall v. State Street Bank & Trust
Co.,
137 F.3d 12 (1st Cir. 1998)
Blatt v. Marshall & Lassman,
812 F.2d 810 (2d Cir. 1987)
Brock v. Hendershott,
840 F.2d 339 (6th Cir. 1988)
Brock v. Self,
632 F. Supp. 1509 (W.D. La. 1986)
Bryant v. Int'l Fruit Prod. Co.,
886 F.2d 132 (6th Cir. 1989)
Carr v. Malcolm & Riley, P.C.,
No. 90-6407, 1991 WL 67749 (E.D. Pa. Apr.
25, 1991)
Cavellini v. Harris,
188 F.3d 512 (9th Cir. 1999)
Diduck v. Kaszycki & Sons Contractors, Inc.,
874 F.2d 912 (2d Cir. 1989)
Donovan v. Mazzola,
716 F.2d 1226 (9th Cir. 1984)
Donovan v. Mercer,
747 F.2d 304 (5th Cir. 1984)
Drinkwater v. Metro. Life Ins. Co.,
846 F.2d 821 (1st Cir. 1988)
Eaves v. Penn,
587 F.2d 453 (10th Cir. 1978)
FW/PBS, Inc. v. City of Dallas,
493 U.S. 215 (1990)
Fernandez v. Brock,
840 F.2d 622 (9th Cir. 1988)
Great-West Life & Annuity Ins. Co.
v. Knudson,
534 U.S. 204 (2002)
Harley v. Minnesota Mining & Mfg.
Co.,
284 F.3d 901 (8th Cir. 2002), cert.
denied, 537 U.S. 1106 (2003)
Hozier v. Midwest Fasteners,
Inc.,
908 F.2d 1155 (3d Cir. 1990)
John Hancock Mut. Life Ins. Co. v.
Harris Trust & Savings Bank,
510 U.S. 86 (1999)
Jones v. American Gen. Life &
Accident Ins. Co.,
370 F.3d 1065 (11th Cir. 2004)
Lee v. Burkhart,
991 F.2d 1004 (2d Cir. 1993)
Lowen v. Tower Asset Mgmt., Inc.,
829 F.2d 1209 (2d Cir. 1987)
Lujan v. Defenders of Wildlife,
504 U.S. 555 (1992)
Massachusetts Mut. Life Ins. Co v.
Russell,
473 U.S. 134 (1985) passim
McKinnon v. Cairns,
698 F. Supp. 852 (W.D. Okla. 1988)
Mertens v. Hewitt Assocs.,
508 U.S. 248 (1993)
In re Occidental Petroleum Corp.,
217 F.3d 293 (5th Cir. 2000)
Olsen v. E.F. Hutton & Co.,
957 F.2d 622 (8th Cir. 1992)
Pegram v. Herdrich,
530 U.S. 211 (2000)
RJR Cab, Inc. v. Hodel,
797 F.2d 111 (3d Cir. 1986)
Secretary of Labor v. Fitzsimmons,
805 F.2d 682 (7th Cir. 1986)
Sierra Club v. Morton,
405 U.S. 727 (1972)
Sladek v. Bell Sys. Mgmt. Pension
Plan,
880 F.2d 972 (7th Cir. 1989)
Sokol v. Berbstein,
803 F.2d 532 (9th Cir. 1986)
Struble v. New Jersey Brewery
Employees' Welfare Trust Fund,
732 F.2d 325 (3d Cir. 1984)
Trafficante v. Metro. Life Ins. Co.,
409 U.S. 205 (1972)
Varity Corp. v. Howe,
516 U.S. 489 (1996)
Vermont Agency of Natural Resources
v. United States,
529 U.S. 765 (2000)
Wald v. Southwestern Bell Corp.
Customcare Med. Plan,
83 F.3d 1002 (9th Cir. 1996)
Waller v. Blue Cross of California,
32 F.3d 1337 (9th Cir. 1994)
Warth v. Seldin,
422 U.S. 490 (1975)
Westaff (USA) Inc. v. Arce,
298 F.3d 1164 (9th Cir. 2002)
Federal statutes:
Employee Retirement Income Security Act
of 1974, as amended, 29 U.S.C. § 1001, et seq
Section 3(21)(A), 29 U.S.C. §
1002(21)(A)
Section 402(a), 29 U.S.C. §
1102(a)
Section 402(a)(2), 29 U.S.C. §
1102(a)(2)
Section 404, 29 U.S.C. § 1104
Section 406(b), 29 U.S.C. §
1106(b)
Section 409, 29 U.S.C. § 1109
passim
Section 409(a), 29 U.S.C. §
1109(a)
Section 502, 29 U.S.C. § 1132
Section
502(a)(2), 29 U.S.C.§ 1132(a)(2) passim
Section 502(a)(3), 29 U.S.C.§
1132(a)(3) passim
Section 502(g)(2), 29 U.S.C. § 1132(g)(2)
Section 515, 29 U.S.C. § 1145
S. Rep. No. 93-127, 93d Cong., 2nd Sess.,
reprinted in
1974 U.S.C.C.A.N. 4838
Other Authorities:
A. Scott, 4 Law of Trusts §
282.1 (3d ed. 1967)
STATEMENT OF
INTEREST
The Secretary of the
United States Department of Labor has primary enforcement authority for Title I
of the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. § 1001,
et seq. The Secretary's interests include promoting uniformity of
law, protecting beneficiaries, enforcing fiduciary standards, and ensuring the
financial stability of employee benefit plan assets. Secretary of Labor v.
Fitzsimmons, 805 F.2d 682 (7th Cir. 1986) (en banc).
The issues in
this case are: (1) whether ERISA authorizes plan participants and beneficiaries
to bring an action for a fiduciary breach under section 502(a)(2) and (a)(3)
against a defendant that is not a "named plan fiduciary" with respect to the
ERISA covered plan, but that allegedly is a functional fiduciary under ERISA;
(2) whether the participants and beneficiaries have constitutional standing to
bring such a suit where they have not personally suffered an injury in fact; and
(3) whether they must establish their right to equitable remedies in order to
maintain such a suit. The Secretary has a significant interest in these issues,
both as a general matter in order to ensure that ERISA section 502(a)(2) and
(a)(3) are interpreted broadly to protect participants, beneficiaries and/or
fiduciaries who uncover and attempt to remedy statutory violations, and more
specifically to protect her own enforcement role under section 502.
QUESTIONS PRESENTED
1. Whether
plan participants are authorized under section 502(a)(2) and (a)(3) of ERISA, 29
U.S.C. § 1132 (a)(2) and (a)(3), to bring an action on behalf of the Plan for a
fiduciary breach by a party that is a functional rather than a named fiduciary.
2. Whether
the participants, as plaintiffs in this case, lack constitutional standing
because they cannot personally show injury in fact.
3. Whether
the alleged losses to the Plans and other remedies that the participants seek
are recoverable under section 502(a)(2) and (a)(3).
STATEMENT OF THE
FACTS
Tommie Glanton is a
participant in and a beneficiary of the ALCOA Prescription Drug Plan. Glanton's
Second Amended and Restated Complaint, p. 2 [Record Excerpts, p. 32]. Tara
Mackner was, but no longer is, a member and beneficiary of the KMart
Comprehensive Healthcare Plan. Order, p. 2 [Record Excerpts, p. 112]. Both
Plans are self-funded with each employer paying for its employees' prescription
drug benefits. Since January 1, 2000, Glanton has contributed to the purchase
of various prescription drugs in the form of co-payments. Glanton Complaint, p.
5 [Record Excerpts, p. 35].
AdvancePCS Health, L.P.
(Advance or Appellee), America's leading pharmacy benefit service organization,
is the pharmacy benefit manager ("PBM") for the Plans. Glanton Complaint, p. 8
[Record Excerpts, p. 38]. Appellants allege that, as the PBM, Advance
administers prescription drug benefits to Appellants and other members and
beneficiaries of the Plans. Glanton Complaint, p. 8 [Record Excerpts, p. 38].
Advance provides the Plans, among other things, with data integration and
analysis, mail service and online pharmacies, and healthcare discount programs
for uninsured and underinsured consumers. Glanton Complaint p. 8 [Record
Excerpts, p. 38].
The complaints
further allege that, in its role as a PBM, Advance is a Plan fiduciary with
access and control over Plan assets. Glanton Complaint, pp. 2, 8, 10 [Record
Excerpts, pp. 32, 38, 40]; Mackner Complaint, pp. 2-3, 19 [Record Excerpts, pp.
3, 4, 20]. Appellants argue that Advance serves as a third party administrator
with regard to Plan assets in connection with the Plans' prescription drug
benefits and the prescription drug benefits of thousands of other plans
throughout the United States, and is paid administrative fees for these
services. Glanton Complaint, p. 8 [Record Excerpts, p. 32].
In this role,
Advance contracts with retail pharmacies and drug manufacturers to provide
prescription drugs at a discounted rate for the benefit of the Plans. Glanton
Complaint, pp. 2-3 [Record Excerpts, p. 32-33]. Advance also receives money
from pharmaceutical companies in the form of rebates, discounts, and other
compensation when Plan participants use particular pharmaceutical drugs.
Glanton Complaint, pp. 2-3 [Record Excerpts, p. 38]. Advance does not pass
this compensation or savings through to the Plans and does not disclose the
nature or extent of its relationship with the retail pharmacies or manufacturers
to the Plans or their participants and beneficiaries. Order, p. 2 [Record
Excerpts, p. 112]. Thus, Appellants contend that Advance has acted in its own
financial interests, at the expense of the Plans and their participants, in its
dealings with the retail pharmacies and manufacturers, and has thereby violated
both its general duty of loyalty under ERISA section 404, 29 U.S.C. § 1104, and
has engaged in various prohibited transactions in violation of ERISA section
406(b), 29 U.S.C. § 1106 (b). Glanton Complaint, pp. 10-12 [Record Excerpts,
p. 38].
Advance
acknowledges that it acts as a PBM to the Plans at issue in this case, but
denies that it is a fiduciary in this role. Order, p. 2 [Record Excerpts, p.
112]. It asserts that it has not taken any rebate monies from the Plans that
are the subject of this lawsuit. Rather, Advance maintains that it receives the
funds in question from pharmaceutical companies pursuant to the terms of the PBM
contracts between Advance and its customers.
PROCEDURAL BACKGROUND
Appellant Glanton
brought suit on behalf of himself and other similarly situated plan participants
and beneficiaries of self-funded welfare benefit plans against Advance under
ERISA sections 409 and 502(a)(2) and (a)(3), alleging that Advance engaged in
self-dealing and other prohibited transactions, and was unjustly enriched with
rebates, administrative fees, and other unlawful and unreasonable compensation.
Likewise, Appellant Mackner filed her complaint as a class action on behalf of
similarly situated participants and beneficiaries of the KMart Comprehensive
Healthcare Plan. The two cases, which have been consolidated, seek an
injunction, an accounting, disgorgement of profits, as well as the imposition of
a constructive trust for disposition to the Plans.
Advance sought dismissal
of the cases below on two alternative grounds. First, Advance argued that
Appellants lacked Article III standing because they have not been personally
injured and a judgment against Advance would not inure to their benefit.
Second, Advance argued that Appellants' consolidated complaint must be dismissed
for failure to state a claim since they failed to petition ALCOA or any other
responsible plan fiduciary to institute this action. Defendant's Motion to
Dismiss, pp. 5, 16 [Record Excerpts, p. 57-59].
In an opinion dated
November 7, 2003, the district court dismissed the actions for somewhat
different reasons. Specifically, the district court held that ERISA does not
authorize participants or beneficiaries to seek relief on behalf of a plan
against an entity that is not a named fiduciary.
The district
court began its discussion with the well-settled principle of law that "standing
cannot be inferred argumentatively from averments in the pleadings; it must
affirmatively appear in the record." FW/PBS, Inc. v. City of Dallas, 493
U.S. 215, 231 (1990). The court then noted that the irreducible constitutional
minimum of standing contains three elements: (1) the plaintiff must have
suffered an injury in fact – an invasion of a legally protected interest which
is concrete and particularized and actual or imminent, not conjectural or
hypothetical; (2) the injury must be fairly traceable to the challenged action
of the defendant, and not the result of the independent action of some third
party not before the court; and (3) it must be likely, as opposed to merely
speculative, that the injury will be redressed by a favorable decision. Order,
p. 3 [Record Excerpts, p. 152].
The court
expressly recognized that "the actual or threatened injury required by Article
III may exist solely by virtue of statutes creating legal rights, the invasion
of which creates standing." Warth v. Seldin, 422 U.S. 490, 500 (1975) (citing
Sierra Club v. Morton, 405 U.S. 727, 732 (1972)). Nevertheless, the
court reasoned that, "a statutory creation of rights does not eliminate the
requirement that a plaintiff have constitutional standing." Instead, the court
reasoned, in considering whether standing exists, courts must determine "whether
the constitutional or statutory provision on which the claim rests properly can
be understood as granting persons in the plaintiff's position a right to
judicial relief." Order, pp. 3-4 [Record Excerpts, pp. 152-53].
In interpreting
the enforcement provisions of ERISA, the court recognized that ERISA grants a
right of action to participants and beneficiaries, (citing
Massachusetts Mut. Life Ins. Co v. Russell, 473 U.S. 134 (1985)). Order, p.
4 [Record Excerpts, p. 153]. Nevertheless, the court concluded that the plan
participants and beneficiaries are not the proper parties to bring an action
seeking relief for the plan, because "Plaintiffs allege a breach of fiduciary
duty by an entity that is not a named fiduciary of the Plans." Id. at 6.
The court found it significant that "[a]ny funds recovered by virtue of this
lawsuit would not return to Defendant's hands. Instead, the funds would be
managed and administered by the named plan fiduciaries, who are not charged with
wrongdoing." Id. at 7. The court then rejected the Plaintiffs' argument
that they had "'representational standing' to sue for injury to their Plans,"
reasoning that "Plaintiffs are not statutorily designated as fiduciaries and are
not assigned the legal responsibility to sue others." Id. at 7.
Finally, the
Court concluded that, "even if the Court were to agree Plaintiffs were the
proper parties to bring a class action against Defendant, the Court is
unpersuaded that the remedy they seek is appropriate under the circumstances."
Order, p. 8 [Record Excerpts, p. 157]. The Court characterized the remedy
sought by Glanton and Mackner as the enforcement of a constructive trust. Since
the Court was unable to determine whether the rebates and volume discounts
retained by Advance were plan assets or "ill-gotten" profits that could be
returned to the Plans in the same sense as the money taken from the pension
plans in Amalgamated Clothing & Textile Workers Union, AFL-CIO v. Murdock,
861 F.2d 1406 (9th Cir.1988) and Waller v. Blue Cross of California, 32
F.3d 1337 (9th Cir. 1994), the Court declined to find that relief was warranted.
On November 20, Glanton
and Mackner filed a Motion to Alter or Amend Judgment, which the district court
denied on January 23, 2004. [Record Excerpt, p. 190]. From this denial,
Glanton and Mackner perfected their appeal.
SUMMARY OF THE ARGUMENT
The district court
erred in holding that the Plaintiffs lacked standing to bring their suit on
behalf of the Plans. There is no question that participants and beneficiaries
have statutory standing under section 502(a)(2) and (a)(3) of ERISA, 29 U.S.C. §
1132(a)(2) and (a)(3), to bring an action on behalf of a plan for a fiduciary
breach. See Waller v. Blue Cross of California, 32 F.3d at 1339;
Amalgamated Clothing & Textile Workers Union, AFL-CIO v. Murdock, 861
F.2d at 1409. Moreover, courts, including the Ninth Circuit have long
recognized that ERISA provides a functional, as well as a formal definition of
fiduciary, and thereby allows plaintiffs to sue not only those who are named
fiduciaries, but also anyone who acts in a fiduciary capacity. See
Acosta v. Pac. Enters., 950 F.2d 611, 618 (9th Cir. 1991) ("a person's
actions, not the official designation of his role, determine whether he enjoys
fiduciary status"). The district court simply misconstrued the statute and the
governing case law on these points.
Furthermore,
since the Appellants are statutorily authorized to bring an action on behalf of
their Plans against a functional fiduciary for breach of duty, it is immaterial
whether Appellants themselves suffered an injury in fact. Any alleged losses
are recoverable by the Plans, which have allegedly been injured by fiduciary
breaches. This is enough to establish standing for Article III purposes.
Finally, the
district court erred in concluding that the remedies that the Appellants seek
are not authorized under the statute. Even assuming that some of the remedies
sought are unavailable under section 502(a)(3), all are available under the
broad remedial provisions of section 502(a)(2).
I.
Participants and beneficiaries are authorized under section 502(a)(2) and (a)(3)
of ERISA, 29 U.S.C. § 1132(a)(2) and (a)(3), to bring an action on behalf of
their plans against a functional fiduciary for breach of duty
ERISA section
502(a)(2), the second of ERISA's "six carefully integrated civil enforcement
provisions," Russell, 473 U.S. at 146, expressly authorizes a civil
action "by the Secretary, or by a participant, beneficiary or fiduciary for
appropriate relief under section [409] of this title." 29 U.S.C. § 1132(a)(2).
Section 409(a), 29 U.S.C. § 1109(a), in turn, makes fiduciaries liable for
breach of these duties, and specifies the remedies available against them: the
fiduciary is personally liable for damages ("to make good to [the] plan any
losses to the plan resulting from each such breach"), for restitution ("to
restore to [the] plan any profits of such fiduciary which have been made through
use of assets of the plan by the fiduciary"), and for "such other equitable or
remedial relief as the court may deem appropriate," including removal of the
fiduciary. As the Supreme Court in Russell put it "[t]here can be no
disagreement with the Court of Appeals' conclusion that § 502(a)(2) authorizes a
beneficiary to bring an action against a fiduciary who has violated § 409." 473
U.S. at 140. Nor can there be any disagreement that section 502(a)(3), by its
terms, authorizes a cause of action for "appropriate equitable relief" by "a
participant, beneficiary or fiduciary." Great-West Life & Annuity Ins. Co.
v. Knudson, 534 U.S. 204, 209-10 (2002); Mertens v. Hewitt Assocs.,
508 U.S. 248, 253-55 (1993). Thus, the district court erred to the extent it
concluded that only plan fiduciaries and not participants and beneficiaries are
"assigned the legal responsibility to sue others." Order, p. 7, [Record
Excerpt, p. 156].
More fundamentally,
the court erred in dismissing the Complaint merely because the Appellants were
suing an entity that is not a named fiduciary of the Plans. Under ERISA, a
"named fiduciary" is "a fiduciary who is named in the plan instrument, or who
... is identified as a fiduciary (A) by a person who is an employer or employee
organization with respect to the plan or (B) by such an employer and such an
employee organization acting jointly." 29 U.S.C. § 1102(a)(2). ERISA, however,
"provides that not only the persons named as fiduciaries by a benefit plan,
see 29 U.S.C. § 1102(a), but also anyone else who exercises discretionary
control or authority over the plan's management, administration, or assets,
see § 1002(21)(A), is an ERISA 'fiduciary.'" Mertens, 508 U.S. at
251.
Thus, ERISA
expands the definition of fiduciary beyond the common law's formalistic approach
to encompass all those who function as fiduciaries. To this end, section
3(21)(A), 29 U.S.C. § 1002(21)(A) provides:
[A] person is a fiduciary with
respect to a plan to the extent (i) he exercises any discretionary authority or
discretionary control respecting management of such plan or exercises any
authority or control respecting management or disposition of its assets, (ii) he
renders investment advice for a fee or other compensation, direct or indirect,
with respect to any moneys or other property of such plan, or has any authority
or responsibility to do so, or (iii) he has any discretionary authority or
discretionary responsibility in the administration of such plan.
Many courts have
recognized the broad sweep of this functional definition. Beddall v. State
Street Bank & Trust Co., 137 F.3d 12, 18 (1st Cir. 1998) ("the statute also
extends fiduciary liability to functional fiduciaries"); Olsen v. E.F. Hutton
& Co., 957 F.2d 622, 625 (8th Cir. 1992); Acosta v. Pac. Enters., 950
F.2d at 618 ("a person's actions, not the official designation of his role,
determine whether he enjoys fiduciary status"); Sladek v. Bell Sys. Mgmt.
Pension Plan, 880 F.2d 972, 976 (7th Cir. 1989); Brock v. Hendershott,
840 F.2d 339, 342 (6th Cir. 1988); Blatt v. Marshall & Lassman, 812 F.
2d 810, 812 (2d Cir. 1987); Donovan v. Mercer, 747 F.2d 304, 305 (5th
Cir. 1984) ("If it Talks Like a Duck…"); Eaves v. Penn, 587 F.2d 453,
458-59 (10th Cir. 1978); McKinnon v. Cairns, 698 F. Supp. 852, 860 (W.D.
Okla. 1988); Brock v. Self, 632 F. Supp. 1509, 1521 (W.D. La. 1986).
Under this definition, persons who carry out the basic fiduciary functions
relating to asset management, plan administration, and provision of investment
advice for a fee are routinely held to be fiduciaries. See, e.g.,
Lowen v. Tower Asset Mgmt., Inc., 829 F.2d 1209 (2d Cir. 1987); Jones
v. American Gen. Life & Accident. Ins. Co., 370 F.3d 1065, 1072 (11th Cir.
2004).
While the district court
in the present case appears to assume that Advance is not a fiduciary, see
Order, p. 7 n.2 [Record Excerpts, p. 117], this issue is not properly disposed
of on the pleadings. Instead, because Appellants have alleged that Advance is
both a functional fiduciary and a named fiduciary, they should be allowed to
proceed to the merits of their case. See ALCOA Retiree Benefits
Handbook, p. 4 [Records Excerpts, p 66] supporting Appellants' allegations that
Appellee's predecessor-in-interest, PCS Health Systems, Inc., is designated in
the ALCOA Retiree Benefits Handbook as the Prescription Drug "Claims
Administrator" for the ALCOA Plan.
II.
Participants and beneficiaries who sue under section 502(a)(2) and (a)(3) have
standing to sue on behalf of their plans and thus need not show that they
personally have suffered injury in fact
It is not enough that
Appellants have a statutory cause of action. They must also, of course,
establish Article III standing, the requirements of which are injury in fact,
causation and redressability. Lujan v. Defenders of Wildlife, 504 U.S.
555, 560 (1992). Advance argues that Appellants have failed to establish injury
in fact because they cannot show that they personally have been injured by any
arrangements that Advance may have had with pharmaceutical companies. They note
that the primary harm alleged is to the Plans and not directly to the
participants and beneficiaries, and any increased costs (or conversely savings)
would not necessarily be passed on to the participants and beneficiaries.
However, "[t]he actual or threatened injury required by Article III may exist
solely by virtue of statutes requiring legal rights, the invasion of which
creates standing." RJR Cab, Inc. v. Hodel, 797 F.2d 111, 118 (3d Cir.
1986) (quoting Warth v. Seldin, 422 U.S. at 499-500. Thus, where, as
here, an entity is alleged to have violated its statutory duties as a fiduciary
to ERISA plans, that violation creates standing in those (such as the
participants) who are authorized to sue to enforce those duties. See
Trafficante v. Metro. Life Ins. Co., 409 U.S. 205, 212 (1972) (White, J.,
with whom Blackmun and Powell, J.J., join, concurring) (statute conferred
standing that would have been doubtful under Article III in the absence of the
statute).
Similarly, the
Supreme Court has recognized that a statute may create representational
standing, whereby the statutorily-designated party sues to redress an injury
suffered by another. Thus, in a False Claims Act case brought by a private
party (a "qui tam relator "), who personally suffered "no…invasion " of any
"legally protected right," the Supreme Court held "that adequate basis for the
relator's suit for his bounty is to be found in the doctrine that the assignee
of a claim has standing to assert the injury in fact suffered by the assignor."
Vermont Agency of Natural Resources v. United States, 529 U.S. 765, 773
(2000).
More specifically, in
the ERISA context, the Supreme Court has expressly recognized that:
§ 502(a)(2), the enforcement provision for § 409,
authorizes suit by four classes of party-plaintiffs: the Secretary of Labor,
participants, beneficiaries, and fiduciaries. Inclusion of the Secretary of
Labor is indicative of Congress' intent that actions for breach of fiduciary
duty be brought in a representative capacity on behalf of the plan as a whole.
Indeed, the common interest shared by all four classes is the financial
integrity of the plan.
Russell, 473 U.S. at 142
n.9. Thus, Russell clarified that the enumerated parties are authorized
by ERISA to bring suit on behalf of the plan, and each is statutorily empowered
with representational standing to do so. See Hozier v. Midwest
Fasteners, Inc., 908 F.2d 1155, 1162 n.7 (3d Cir. 1990) (sections 409 and
502(a)(2) only allow "individual participants to sue 'in a representative
capacity on behalf of the plan'"). There is no need to show that the party
authorized to sue personally has suffered an injury in fact. Rather, the party
need only show that the plan may be entitled to relief.
Indeed, in holding that
ERISA does not permit claims for compensatory damages (which it termed "extra
contractual"), or for punitive damages, the Supreme Court reasoned that those
who sue under section 502(a)(2) may do so only to recover for an injury to the
plan. Russell, 473 U.S. at 148; accord In re Occidental
Petroleum Corp., 217 F.3d 293, 297 n.14 (5th Cir. 2000); Adamson v.
Armco, Inc., 44 F.3d 650, 654 (8th Cir. 1995); Lee v. Burkhart, 991
F.2d 1004 (2d Cir. 1993); Hozier, 908 F.2d at 1162 & n.7; Bryant v.
Int'l Fruit Prod. Co., 886 F.2d 132, 135 (6th Cir. 1989) (per curiam);
Drinkwater v. Metro. Life Ins. Co., 846 F.2d 821, 824 (1st Cir. 1988);
Sokol v. Berbstein, 803 F.2d 532, 537 (9th Cir. 1986). Given that section
502(a)(2) therefore does not encompass claims for individual relief at all,
courts following Russell have denied recovery to participants and
beneficiaries suing for relief under this provision. See, Hozier, 908
F.2d at 1162 n.7 (claim to recover individual benefits not authorized under
sections 409 and 502(a)(2) because these provisions only allow "individual
participants to sue 'in a representative capacity on behalf of the plan'");
Carr v. Malcolm & Riley, P.C., No. 90-6407, 1991 WL 67749, at *8 (E.D. Pa.
Apr. 25, 1991) (same). It would be irrational, indeed, to conclude that
participants must show individual harm in order to have standing to sue under
section 502(a)(2), but that they cannot individually recover for that harm under
that very provision.
Advance, however, relies
on the Eighth Circuit's holding in Harley v. Minnesota Mining & Mfg. Co.,
284 F.3d 901, 906-07 (8th Cir. 2002), cert. denied, 537 U.S. 1106
(2003) that the participants and beneficiaries in that case lacked standing to
bring fiduciary breach claims following an investment loss of close to $20
million to their defined benefit plan. The court there reasoned that the
participants and beneficiaries were unable to show that they had suffered any
harm from this loss because, under a defined benefit plan, the employer must
cover any under-funding, and because, in this particular case, the employer (who
was one of the parties being sued) had infused the plan with sufficient funds to
create a sizable surplus. Id. at 903-04.
This Court should not
apply the reasoning of Harley to this case for two reasons. First,
Harley itself limits its holding to the "unique circumstances" of a suit
against an over-funded defined benefit plan. Harley, 284 F.3d at 905.
Second, and more fundamentally, the decision is simply wrong and cannot be
squared with the statute or with the Supreme Court's reading of it in Russell,
as we discuss above.
We note that in
the present case, however, the participants and beneficiaries may well show that
they have or will likely suffer an injury in fact. The participants and
beneficiaries in the Alcoa Plan are subject to a co-payment. Also, they are
restricted to the use of certain formularies. If the rebates and discounts are
returned to the Plans, it is possible that the resulting cost reductions or
monetary relief to the Plans will benefit the participants and beneficiaries in
the form of lower co-payments and less restrictive formularies, and possibly a
more comprehensive benefit structure. Although the Plans' sponsors may take any
recovered rebates and discounts and use these funds at their own disposal, this
does not foreclose the possibility that the Appellants may benefit directly from
a judgment in their favor.
III. The
remedies that Appellants seek are recoverable under section 502(a)(2)
In their Complaints, the
Appellants seek to:
• Enjoin Appellee from engaging in the
unlawful activities;
• Require Appellee to give an accounting to the Plans for (1) all Plan
assets retained by Appellee for Appellee's own benefit and (2) all profits
earned through the receipt of rebates and kickbacks;
• Require Appellee to account for and restore all losses suffered by the
Plans; and
• Provide any other general, equitable, or remedial relief the Court
deems just and appropriate under the circumstances.
Glanton Complaint, p. 25 [Record
Excerpt, p. 55]; Mackner Complaint, p. 28 [Record Excerpt, p. 29]. Simply
stated, the Appellants here seek an order that their Plans be made whole and
that Advance, a breaching fiduciary, be enjoined from illegal practices in the
future and be held liable to return any ill-gotten profits obtained through the
use of Plan assets. In the Appellants' view, the rebates and discounts in this
case represent an increased profit to Advance generated through the use of Plan
assets.
The district
court, however, reasoned that all these remedies are unavailable under ERISA.
The court appears to have relied on language in ERISA section 502(a)(3), under
which plaintiffs are limited to seeking injunctive or "other appropriate
relief," a term the Supreme Court has interpreted as being limited to the type
of relief that was typically available in equity in the days of the divided
bench. Mertens, 508 U.S. at 254; Great-West, 534 U.S. at 209.
Appellants here,
however, have sued not just under section 502(a)(3), but also under section
502(a)(2), as noted above. The relief available under section 502(a)(2) is not
limited, as is section 502(a)(3), to "appropriate equitable relief." Instead,
through reference to section 409(a), 29 U.S.C. § 1109(a), section 502(a)(2)
permits courts to impose personal liability on breaching fiduciaries for any
"losses" to the plan, and subject them to "such other equitable or remedial
relief as the court may deem appropriate." Under the express terms of these
provisions, the available relief encompasses the return of "losses suffered by
the Plans" and the just and appropriate "equitable, or remedial relief" sought
by Appellants here. Likewise, the injunction that Appellants seek is clearly
"equitable" relief under section 502(a)(2) (as it is under section 502(a)(3)).
Moreover, even
if there is any doubt whether the disgorgement of profits that Appellants seek
constitutes "appropriate equitable relief," as the term is used in section
502(a)(3), there can be little doubt that it is available under section
502(a)(2), given the broad remedial language of section 409. Taken together,
these provisions grant courts the "broad authority to fashion remedies for
redressing the interest of participants and beneficiaries." Donovan v.
Mazzola, 716 F.2d 1226, 1235 (9th Cir. 1984) (upholding a district court's
appointment of an investment manager and the requirement that the breaching
fiduciaries post a bond); accord Cavellini v. Harris, 188 F.3d 512
(9th Cir. 1999) (upholding the district court's order including in the recovery
amount notes given by plan participants to enable them to invest in other of the
defendants' ventures); Eaves v. Penn, 587 F.2d at 462-63 (upholding
rescission of purchase sale agreement and restoration of plan's original liquid
assets); S. Rep. No. 93-127, 93d Cong., 2nd Sess., reprinted in
1974 U.S.C.C.A.N. 4838, 4871 ("The intent of the Committee is to provide the
full range of legal and equitable remedies available in both state and federal
courts."). This Court has correctly recognized that "[c]ourts also have a duty
under ERISA sections 409 and 502(a)(2) 'to enforce the remedy which is most
advantageous to the participants and most conducive to effectuating the purposes
of the trust.'" Mazzola, 716 F.2d at 1235, quoting Eaves,
587 F.2d at 462. Under this precedent, it is clear that all of the remedies
that Appellants seek are available under section 502(a)(2).
CONCLUSION
For the reasons set forth above, the Secretary requests that this Court reverse
the district court's decision and conclude that participants and beneficiaries
may bring an action on behalf of the plan against a functional fiduciary under
ERISA section 502(a)(2) and (a)(3) for appropriate equitable relief.
Respectfully submitted.
HOWARD M. RADZELY
Solicitor of Labor
TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division
ELIZABETH HOPKINS
Counsel for Appellate and Special Litigation
_______________________
MARY F. WILLIAMS
Trial
Attorney
U.S. Department of
Labor
Office of the
Solicitor
Plan Benefit Security
Division
P.O. Box
1914
Washington, DC
20013
(202)
693-5600
Dated: JULY 1,
2004
CERTIFICATE
OF COMPLIANCE
Case No. 04-15328
Pursuant to Fed. R. App. P. 29(d) and 9th Cir. R. 32-1, the
attached Brief of the Secretary of Labor as Amicus Curiae in Support of
Appellant and Requesting Reversal of the District Court's Decision is
proportional spaced, using Times New Romans typeface of 14 point and contains
5772 words.
Dated: July 1, 2004
__________________________
Mary F. Williams
Trial Attorney
CERTIFICATE
OF SERVICE
I hereby certify that
copies of the foregoing Brief of the Secretary of Labor as Amicus Curiae in
Support of Appellant and Requesting Reversal of the District Court's Decision
were mailed to the following by U.S. mail, postage prepaid, on the 1st
day of July 2004.
Stephen J. Herman, Esq. Peter S. Kozinets,
Esq.
David A. McKay, Esq. Sandra K.
Sanders, Atty.
Herman Mathis Casey Cryus B.
Martinez, Esq.
Kitchens & Gerel, LLP Steptoe &
Johnson
820 O'Keefe Ave. Collier
Center, Suite 1600
New Orleans, LA 70113 201 E. Washington
Street
Phoenix, AZ 85004-2382
David S. Casey, Jr., Esq.
Herman Mathis Casey Paul J. Ondrasik,
Jr., Esq.
Kitchens & Gerel, LLP Martin D. Schneiderman, Esq.
110 Laurel Street Linda Stein,
Atty.
San Diego,
CA 92101 Steptoe & Johnson
1330 Connecticut
Ave., N.W.
Mary E. Alexander, Esq. Washington,
D.C. 20036
Mary Alexander & Associates
44 Montgomery St. Ronald S.
Goldser, Esq.
San Francisco, CA 94104 Timothy J.
Becker, Esq.
Zimmerman Reed, PLLP
David A. Kimberly, Esq. 14646 No.
Kierland Blvd.,
Cusimano, Kenner, Roberts Suite
145
Kimberly & Miles, P.C. Scottsdale,
AZ 85254
153 South 9th Street
Gadsden, AL 35901
__________________________
Mary F. Williams
Trial Attorney
Nor is this Court's decision in Fernandez v. Brock,
840 F. 2d 622, 628 (9th Cir. 1988), to the contrary. In Fernandez,
migrant farmworkers brought an action against the Secretary of the Treasury
alleging that they had been harmed by the government's failure to promulgate
regulations governing participation, accrual and vesting thresholds for
pensions for seasonal workers. The farm workers alleged that they might be
able to obtain pension benefits if new regulations were issued that lowered
the minimum hours-per-year-worked standard for participants in plans. This
Court concluded that the farm workers were required to satisfy the
injury-in-fact requirement of Article III. Fernandez and the cases that it
cites, however, all involved actions against government officials for
failure to perform a statutory duty when the statute did not expressly
provide for an action against the government. The question in those cases
was not whether the invasion of a statutory right can create a sufficient
injury for Article III purposes, but was simply "whether a statute that
imposes statutory duties [implicitly] creates correlative procedural rights
in a given plaintiff, the invasion of which is sufficient to satisfy the
requirement of injury in fact in article III." Id. at 630. Here,
the statute expressly provides that a participant may sue individually or on
behalf of his plan to redress fiduciary violations. There is no need,
therefore, to go beyond the statutory language to determine whether a
participant must show individual injury in order to bring suit.
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