No. 01-3801
_________________________________________________________
UNITED COURT OF APPEALS FOR THE SEVENTH CIRCUIT
_________________________________________________________
JANICE OSTLER, as trustee of the
Timothy J. Ostler Living Trust dated
January 14, 2000,
Plaintiff-Appellant
v.
OCE-USA, INC.,
Defendant-Appellee
_________________________________________________________
Appeal From the United States District Court
for the Northern District of Illinois, Eastern Division
Case No. 00 C 7753
The Honorable Judge Kocoras
_________________________________________________________
BRIEF OF THE SECRETARY OF LABOR
AS AMICUS CURIAE IN SUPPORT OF THE APPELLANT
_________________________________________________________
EUGENE SCALIA |
KAREN L. HANDORF |
Solicitor of Labor |
Deputy Associate Solicitor |
|
|
TIMOTHY D. HAUSER |
ADRIENNE K. DWYER |
Associate Solicitor |
Trial Attorney |
Plan Benefits Security Division |
U.S. Department of Labor |
|
Office of the Solicitor |
ALLEN H. FELDMAN |
Plan Benefits Security Division |
Associate Solicitor |
P.O. Box 1914 |
Special Appellate and Supreme Court |
Washington, DC 20013 |
Litigation Division |
(202) 693-5600 |
|
(202) 693-5610 - Telefax |
|
Counsel for Amicus Curiae |
|
Secretary of Labor |
TABLE OF CONTENTS
STATEMENT OF INTEREST
STATEMENT OF THE CASE
ARGUMENT
A. "Equitable Relief" Within the Meaning of Section 502(a)(3)
of ERISA Includes the Recovery From a Fiduciary of Any
Direct Monetary Loss Caused by The Fiduciary's Breach
of Its Obligations
1. A Monetary Award Against a Fiduciary to Redress a Fiduciary Breach Was Typically Available in Equity
2. Mertens and Great-West Support the Conclusion That a Monetary Award to Remedy A Fiduciary's Breach Is "Equitable" Under Section 502(a)(3)
3. A Beneficiary May Recover the Direct MonetaryLosses Resulting From a Fiduciary Breach Regardlessof Whether or Not the Fiduciary Was Unjustly EnrichedBy Its Misconduct
CONCLUSION
CERTIFICATE OF COMPLIANCE
CERTIFICATE OF SERVICE
TABLE OF AUTHORITIES
Cases:
Bast v. Prudential Ins. Co. of America,
150 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 Pension Fund v. Central Transport, Inc.,
472 U.S. 559 (1985)
Firestone Tire & Rubber Co. v. Bruch,
489 U.S. 101 (1989)
Great-West Life & Annuity Ins. Co. v. Knudson
122 S. Ct. 708 (2002) passim
Griggs v. 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)
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 and Machine 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)
Ostler v. Oce-USA, Inc.,
No. 00 C 7753, 2001 WL 1191183 (N.D. Ill. Oct. 4, 2001) Pilot Life Ins. Co. v. Dedeaux,
481 U.S. 41 (1987)
Ream v. Frey,
107 F.3d 147 (3d Cir. 1997)
Shade v. Panhandle Motor Serv. Corp.,
91 F.3d 133, 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 Statutes:
Employee Retirement Income Security Act of 1974, as amended,
29 U.S.C. § 1001 et seq.
Section 404(a)(1)(A), 29 U.S.C. § 1104(a)(1)(A)
Section 404(a)(1)(B), 29 U.S.C. § 1104(a)(1)(B)
Section 409, 29 U.S.C. § 1109
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) passim
Other Authorities:
Fed. R. App. P. 29
3 A. Scott & W. Fratcher, The Law of Trusts (4th ed. 1988)
§ 199, at 203-04 § 199, at 206 § 199.3, at 206 § 282.1, at 30
George Gleason Bogert, The Law of Trusts and Trustees,
§ 861, at 3-4 (Rev. 2d ed. 1995) Restatement (Second) of Trusts § 2
Restatement (Second) of Trusts § 74 ... 6,10
Restatement (Second) of Trusts § 197
Restatement (Second) of Trusts § 197, at 433
Restatement (Second) of Trusts § 199, at 437
Restatement (Second) of Trusts § 205, at 458
Restatement (Second) of Trusts § 205, at 458 cmt. a
Restatement (Second) of Trusts § 205, at 459 cmt. c
Restatement (Second) of Trust § 205(a)
Restatement (Second) of Trust § 205(b)
Restatement (Second) of Trusts § 282, at 45 cmt. e
STATEMENT OF INTEREST
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 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.
STATEMENT OF THE CASE(1)
Tim Ostler worked for Oce-USA, Inc. (Oce) until December 3, 1999, when he took
short-term disability leave because of non-Hodgkin's lymphoma. At the time that Mr.
Ostler took disability leave, Oce offered supplemental life insurance benefits through an
ERISA-covered plan. Mr. Ostler signed up for the plan and elected $491,000 in life
insurance benefits to be provided by Reliastar, an insurance company. Ostler v. Oce-USA, Inc., No. 00 C 7533, 2001 WL 1191183, at *1-2 (N.D. Ill. Oct. 4, 2001). Because the
policy paid less than $500,000, Reliastar did not require a medical examination. Oce
sent Mr. Ostler a benefits confirmation statement confirming his coverage under the life
insurance policy as of January 1, 2000 and began deducting premiums from his
paycheck. Mr. Ostler died on March 3, 2000, without ever returning to work. Id. at *2.
Mr. Ostler's widow, Janice Ostler, applied for the life insurance benefits.
Reliastar denied the claim because the policy required Mr. Ostler to be "active at work"
for at least one day before coverage would take effect. Mr. Ostler had been on
disability leave and failed to meet the requirement. After the denial, Mrs. Ostler for the
first time received a copy of the actual policy, which contained the active-at-work
requirement. Previously she and her husband had only seen benefit highlights
materials provided by Oce, which did not include that information. Oce told Mrs.
Ostler that they had not informed her husband about the active-at-work requirement
before his death because they were not aware of it. Oce refunded the premium
payments to Mrs. Ostler. Id. at *2-3.
Mrs. Ostler brought an action against Oce under Section 502(a)(3) of ERISA for
allegedly breaching its fiduciary obligations by failing to inform her husband of the
insurance policy's active-at-work requirement. She contends that if he had been so
informed, he would have returned to work for at least one day so that his policy would
have been effective. Id. at *3. The district court granted summary judgment for Oce.
The court opined that Oce's provision of erroneous information about whether
Mr. Ostler was covered by the policy did not give rise to a fiduciary breach. Id. at *8.
The court also held that ERISA bars Mrs. Ostler's request for recovery of the alleged
monetary loss. The court stated that Mrs. Ostler's claim for monetary relief under
Section 502(a)(3) was an "ordinary benefits claim dressed up in fiduciary duty
clothing," and that a loss remedy was unavailable. Id. at *2.
ARGUMENT
A. "Equitable Relief" Within the Meaning of Section 502(a)(3) of ERISA
Includes the Recovery From a Fiduciary of Any Direct Monetary Loss
Caused by The Fiduciary's Breach of Its Obligations.
ERISA fiduciaries have a duty to act prudently and with loyalty toward
participants in the plan. 29 U.S.C. § 1104(a)(1)(A) & (B). When fiduciaries breach that
duty, Section 502(a)(3) entitles plan participants to sue them to redress the breach.
29 U.S.C. § 1132(a)(3); Varity v. Howe, 516 U.S. 489 (1996). The Supreme Court has
described Section 502(a)(3) as a "catchall" clause that provides a "safety net" to redress
injuries that ERISA does not remedy under other provisions. Id. at 512.
Section 502(a)(3), however, expressly limits recovery to "appropriate equitable
relief." The Supreme Court has said that this excludes "legal" relief. Mertens v. Hewitt
Assocs., 508 U.S. 248, 255 (1993); Great-West Life & Annuity Ins. Co. v. Knudson, 122 S.
Ct. 708, 713 (2002). Thus, to succeed in a fiduciary breach claim under Section 502(a)(3),
Mrs. Ostler must show that her proposed remedy is "equitable."(2)
Nothing in the language of ERISA defines "equitable relief." However, in Great-West, the Supreme Court clarified that to determine if the requested relief is "equitable"
under Section 502(a)(3), courts should look to standard texts on remedies and trusts as
well as how such relief was characterized when the bench was divided between equity
courts and law courts. 122 S. Ct. at 712, 714 & 716 (considering character of restitution
"in the days of the divided bench.") The Court explained that to qualify as equitable
under Section 502(a)(3), the relief must be the type "typically available in equity." Id. at
712 (quoting Mertens, 508 U.S. at 252). Thus, the plaintiff must not only show that the
relief would have been granted in equity in the days of the divided bench, but that the
relief was typically, as opposed to occasionally, available in equity. Id. at 715 (fact that
damages such as those against non-fiduciaries were "occasionally awarded in equity
cases" does not render them equitable relief) (emphasis omitted).
As discussed below, the relief Mrs. Ostler seeks was "typically" available in
equity. In fact, under the common law of trusts, such relief from fiduciaries was
exclusively available in equity. ERISA is founded on the common law of trusts, and the
Supreme Court has instructed courts interpreting ERISA to turn to the common law of
trusts unless that law is inconsistent with the statute's language, structure, or purpose.
See Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 250 (2000).
See also Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989) ("ERISA abounds
with the language and terminology of trust law."); Central States Pension Fund v.
Central Transport, Inc., 472 U.S. 559, 570 (1985) ("Congress invoked the common law of
trusts to define the general scope of [fiduciary] authority and responsibility" under
ERISA.)
1. A Monetary Award Against a Fiduciary to Redress a Fiduciary Breach Was Typically Available in Equity.
Great-West instructs courts to look at standard works, including the
Restatements, to determine what relief was typically available in equity. 122 S. Ct. at
716. In actions such as this where a beneficiary sues a fiduciary for its breach of duty, the
Restatement of Trusts shows that the common law required the fiduciary to restore the
beneficiary to "the position he would have been if the trustee had not committed the
breach of trust." Restatement (Second) of Trusts, § 205, at 458 cmt. a; see also
Restatement § 205, at 458. The Restatement of Trusts clearly provides that monetary
relief against breaching fiduciaries is "equitable" relief. Indeed, the Restatement
emphasizes that "the remedies of the beneficiary against the trustee are exclusively
equitable." Restatement (Second) of Trusts § 197, at 433 (emphasis added); see also id. §
199, at 437 (setting forth "equitable remedies of beneficiary"). 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.
George Gleason Bogert, The Law of Trusts and Trustees, § 861, at 3-4 (Rev. 2d ed. 1995)
(emphasis added). See also 3 A. Scott & W. Fratcher, The Law of Trusts § 199, at 203-04
& 206 (4th ed. 1988) ("Scott & Fratcher") (listing money payment designed to redress
fiduciary breach as one of the "equitable remedies" available to a beneficiary);
Restatement of Trusts § 2, p. 9 ("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.") p. 10 (stating that trustee owes
"equitable duties" to beneficiary); Id. at § 74, p. 192 (beneficiary has equitable interest in
the trust). In other words, the trust relationship arises in equity and creates equitable
rights and duties, which, when breached, are redressed exclusively through equitable
remedies. Whether or not such a remedy consists of a money award does not change its
character as an equitable remedy.(3)
The Seventh Circuit case of Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574
(2000), exemplifies the equitable nature of a monetary award against an ERISA
fiduciary for breaching its fiduciary responsibilities. There, 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. This Court upheld Ms.
Bowerman's claim for monetary relief under Section 502(a)(3) because it rested on a
violation of fiduciary duty. The Court recognized that Section 502(a)(3) excludes legal
relief such as damages (citing Mertens, 508 U.S. at 255), but explained, "[h]owever,
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." Id. 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 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).(4)
Mrs. Ostler seeks only recovery of the direct economic loss she allegedly incurred
as a result of a fiduciary breach. As the Restatement and this Court make clear, equity
imposes upon fiduciaries such as Oce the equitable duty to restore beneficiaries to their
pre-breach position, and the payment of such relief by fiduciaries is exclusively
equitable.
2. Mertens and Great-West Support the Conclusion That A Monetary Award to Remedy a Fiduciary's Breach Is "Equitable" Under Section 502(a)(3).
The Supreme Court addressed requests for monetary relief from non-fiduciaries
under Section 502(a)(3) in Mertens, 508 U.S. 248 and Great-West, 122 S. Ct. 708. 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. However, they did
not seek the losses from the employer-fiduciary. Instead, they 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
which 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). 122 S. Ct. at 712-13.
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, 122 S. Ct. at 717;
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 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 Scott & Fratcher § 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 which were sometimes awarded by courts of equity.
Mertens, 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.1 (pp. 5-7).(7)
Nevertheless, Oce can be expected to argue 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, Oce can point 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, 122 S.
Ct. at 718. The courts of equity had power to award legal as well as equitable remedies
against non-fiduciaries. Supra pp. 9-10.
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. 122 S. Ct. at 712-13 & 718. By way of contrast, the
common law claim most closely paralleling Mrs. Ostler'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, 489 U.S. at 110. 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, 530 U.S. at 251 (emphasizing that "the common law of trusts sets limits on
restitution actions against defendants other than the principal wrongdoer" (referring to
the fiduciary as the "principal wrongdoer")). 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," 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, 481 U.S. at 51-57 (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.
3. 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.1 (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 § 197.
Several federal appellate decisions illustrate the application of the Restatement's
rule in ERISA cases. In Bowerman, 226 F.3d at 592 , this Court required an employer to
pay as equitable relief within the meaning of Section 502(a)(3) health expenses which
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 & Machine Co., 102 F. Supp. 458 (N.D. Ohio 2000). None of these courts
required plaintiffs to show unjust enrichment.
These judicial decisions, along with the Restatement, confirm that the fiduciary
must do whatever is necessary to redress its breach, including paying losses to the
beneficiary. Supra Section A.1 (pp. 5-7); Scott & Fratcher, § 199.3, at 206. Regardless of
how the courts label such a money payment - "monetary relief," "restitution" or even
"damages" - the duty to make the payment arises in equity, not from unjust enrichment, but from the fiduciary relationship itself.(9)
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, 122 S. Ct. at 714-15; 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.
CONCLUSION
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 which could go unredressed
if the district court's view became law. See, e.g., McFadden, 102 F. Supp. 2d 458 (N.D.
Ohio 2000) (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. 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,
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) (copy
attached). 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.
If the Court concludes that Oce breached its fiduciary duty under ERISA, and
finds that the breach caused Mrs. Ostler to lose $491,000 in life insurance proceeds, the
Secretary respectfully requests that the Court hold that a monetary award in the
amount of lost insurance proceeds constitutes "equitable relief" under Section 502(a)(3).
Respectfully submitted,
________________________
Adrienne K. Dwyer Trial Attorney U.S. Department of Labor Office of the Solicitor Plan Benefits Security Division P.O. Box 1914 Washington, DC 20013 (202) 693-5600 (202) 693-5610 - Telefax
Dated: February 8, 2002
CERTIFICATE OF COMPLIANCE
Pursuant to Fed. R. App. P. 32(a)(7)(C), the attached Brief of the Secretary of
Labor As Amicus Curiae In Support of Appellant contains 4,950 words.
I further certify that the enclosed document was created using Word Perfect 8,
and the diskettes have been scanned for viruses and are virus free.
____________________
Adrienne K. Dwyer
Dated: February 8th, 2002
CERTIFICATE OF SERVICE
I hereby certify that on this 8th day of February, 2002, two copies of the Brief of
the Secretary of Labor As Amicus Curiae In Support of Appellant and one diskette each
were mailed, via federal express courier service, to the parties listed below:
Mark D. DeBofsky DeBofsky & DeBofsky
77 W. Washington St., Suite 500 Chicago, Illinois 60602 (312) 372-5718
Summer E. Heil Jeffrey H. Lipe
Williams Montgomery & John Ltd. 20 North Wacker Drive Suite 2100 Chicago, Illinois 60606-3094 (312) 443-3200
____________________
Delores E. Durham Paralegal
1. The Secretary takes no position on the factual matters presented by this case or
the legal issue of whether or not Oce breached its fiduciary duty under ERISA. The
"Statement of the Case" is taken from the district court's opinion and is not intended to
express the Secretary's opinion about how the Court should rule on any particular fact.
Ostler v. Oce-USA, Inc., No. 00 C 7533, 2001 WL 1191183 (N.D. Ill. Oct. 4, 2001).
2. In addition to deciding whether the monetary relief Mrs. Ostler requests is
equitable, the Court must determine whether such relief is "appropriate" under Section
502(a)(3). Because Mr. Ostler never became eligible for the insurance policy, the district
court was mistaken when it asserted that this "is an ordinary benefit claim dressed up
in fiduciary duty clothing." 2001 WL 1191183, at *2. Thus, Mrs. Ostler has no benefit
claim under Section 502(a)(1)(B). She has no fiduciary breach claim under Section
502(a)(2) which provides relief only to the plan (see infra note 8), and of course, her state
law claims would be preempted. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 51-57
(1987). She must recover under a Section 502(a)(3) fiduciary breach claim, or not at all.
Therefore, if the Court finds that Oce breached its duty and that the breach caused Mrs.
Ostler's losses, the requested monetary relief is "appropriate." See Varity, 516 U.S. at
515.
3. 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. 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. at § 205(b).
4. 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.
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. 122 S. Ct. at 711.
6. See also Great-West, 122 S. Ct. at 718 (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, pp. 9 & 10; § 74, p. 192.
8. Although Sections 409 and 502(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)
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.
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