Amicus Curiae Brief — Massachusetts Mutual Life Insurance v. Russell

MOTION FILED

ANG a 3 No. 84-9

SS

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,

and CECILIA STEVENSON,

y. Petitioners,

DorIS RUSSELL,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

MOTION FOR LEAVE TO FILE A BRIEF

AMICI CURIAE AND BRIEF FOR

ALASKA FISHERMEN’S UNION—

SALMON CANNERS PENSION TRUST,

ALASKA FISHERMEN’S UNION—

SALMON CANNERS WELFARE TRUST,

ALASKA PLUMBING &

PIPEFITTING INDUSTRY PENSION TRUST FUND,

MONTANA TEAMSTER EMPLOYERS TRUST,

NATIONAL SHOPMEN PENSION FUND,

NORTHWEST METAL CRAFTS TRUST FUND,

OREGON TEAMSTER EMPLOYERS TRUST,

PRINTING SPECIALTIES AND

PAPER PRODUCTS JOINT EMPLOYER AND

UNION HEALTH AND WELFARE FUND,

RETAIL CLERKS PENSION TRUST,

RETAIL CLERKS WELFARE TRUST,

SOUTHERN CALIFORNIA LUMBER INDUSTRY

HEALTH AND WELFARE FUND,

SOUTHERN CALIFORNIA LUMBER

INDUSTRY RETIREMENT FUND,

AND SPOKANE AREA HOTEL

AND RESTAURANT EMPLOYEES TRUST FUND

[Counsel listed on inside cover ]

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

@ >

THOMAS J. HART

(Counsel of Record)

LENA §S. ZEZULIN

THOMAS Hart & ASSOCIATES

Suite 302

1625 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 797-8700

RICHARD P. DONALDSON

DONALDSON & ROBERTS

2716 Fifth Avenue

San Diego, California 92103

(619) 297-7062

IN THE

Supreme Court of the initrd States

OCTOBER TERM, 1984

No. 84-9

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,

and CECILIA STEVENSON,

v. Petitioners,

DoRIS RUSSELL,

Respondent.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

MOTION FOR LEAVE TO FILE A BRIEF

AMICI CURIAE FOR

ALASKA FISHERMEN’S UNION—

SALMON CANNERS PENSION TRUST,

ALASKA FISHERMEN’S UNION—

SALMON CANNERS WELFARE TRUST,

ALASKA PLUMBING &

PIPEFITTING INDUSTRY PENSION TRUST FUND,

MONTANA TEAMSTER EMPLOYERS TRUST,

NATIONAL SHOPMEN PENSION FUND,

NORTHWEST METAL CRAFTS TRUST FUND,

OREGON TEAMSTER EMPLOYERS TRUST,

PRINTING SPECIALTIES AND

PAPER PRODUCTS JOINT EMPLOYER AND

UNION HEALTH AND WELFARE FUND,

RETAIL CLERKS PENSION TRUST,

RETAIL CLERKS WELFARE TRUST,

SOUTHERN CALIFORNIA LUMBER INDUSTRY

HEALTH AND WELFARE FUND,

SOUTHERN CALIFORNIA LUMBER

INDUSTRY RETIREMENT FUND,

AND SPOKANE AREA HOTEL

AND RESTAURANT EMPLOYEES TRUST FUND

The above-captioned movants hereby respectfully move

this Court, pursuant to Rule 36.1 of the Supreme Court

Rules, for leave to file the attached brief amici curiae in

this case. The consent of the attorney for the petitioner

has been obtained. The consent of the attorney for the

respondent was requested but refused.

The interest of the movants arises because they are

multiemployer pension and health and welfare plans

organized under the authority of the Taft-Hartley Act

and the Employee Retirement Income Security Act

(ERISA).

The Alaska Fishermen’s Union—Salmon Canners Pen-

sion Trust is a pension plan with 1,191 participants and

13 contributing employers. It received 40 claims during

its last reporting year. The Alaska Fishermen’s Union—

Salmon Canners Welfare Trust is a health and welfare

plan with 1,122 participants and 13 contributing employ-

ers. It received 893 claims during its last reporting year.

The Alaska Plumbing & Pipefitting Industry Pension

Trust Fund is a pension plan with 1,357 participants and

200 contributing employers. It received 49 claims during

its last reporting year. The Montana Teamster Employ-

ers Trust is a health and welfare plan with 1,904 partici-

pants and 179 contributing employers. It received 28,600

claims during its last reporting year. The National

Shopmen Pension Fund is a pension plan with 17,000

participants and 283 contributing employers. It received

480 claims during its last reporting year. The North-

west Metal Crafts Trust Fund is a health and welfare

plan with 5,695 participants and 139 contributing em-

ployers. It received 20,000 claims during its last report-

ing year. The Oregon Teamster Employers Trust is a

health and welfare plan with 17,600 participants and

993 contributing employers. It received 58,200 claims

during its last reporting year. The Printing Specialties

and Paper Products Joint Employer and Union Health

and Welfare Fund is a health and welfare plan with

8,400 participants and 126 contributing employers. It

received 102,000 claims during its last reporting year.

The Retail Clerks Pension Trust is a pension plan with

25,153 participants and 738 contributing employers. It

received 258 claims during its last reporting year. The

Retail Clerks Welfare Trust is a welfare plan with

17,100 participants and 667 contributing employers. It

received 222,672 claims during its last reporting year.

The Southern California Lumber Industry Health and

Welfare Fund is a health and welfare plan with 8,200

participants and 560 contributing employers. It received

42,000 claims during its last reporting year. The South-

ern California Lumber Industry Retirement Fund is a

pension plan with 7,600 participants and 460 contribut-

ing employers. It received 420 claims during its last

reporting year. The Spokane Area Hotel and Restaurant

Employees Trust Fund is a health and welfare plan with

659 participants and 25 contributing employers. It re-

ceived 4,263 claims during its last reporting year. To-

gether, these plans processed 479,775 claims during their

last reporting year.

The movants seek to file a brief in this matter because

of the important public issues that are raised by the peti-

tion. This case has extraordinarily severe implications

for the administration and financial well-being of all

employee benefit plans. Petitioners, who are a single em-

ployer plan and an employee of the plan spensor, have

raised these issues from the perspective of single employer

plans. The movants seek leave to inform the court of

the particularly severe consequences which the Ninth Cir-

cuit’s ruling wi!l have for multiemployer employee bene-

fit plans.

The Ninth Circuit ruled that fiduciaries of employee

benefit plans may, under ERISA, be personally liable to

a plan participant or beneficiary for punitive or com-

pensatory damages for improper or untimely processing

of claims. This ruling, if not reversed, will profoundly

alter the administration of multiemployer plans. The

ruling is inconsistent with the plain language of ERISA

and with the holdings of other circuits.

Respectfully submitted,

THOMAS J HART

(Counsel of Record)

LENA S. ZEZULIN

THOMAS HART & ASSOCIATES

Suite 302

1625 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 797-8700

RICHARD P. DONALDSON

DONALDSON & ROBERTS

2716 Fifth Avenue

San Diego, California 92103

(619) 297-7062

QUESTION PRESENTED

Whether, under the Employee Retirement Income Se-

curity Act a fiduciary of an employee benefit plan may

be held personally liable to a plan participant or bene-

ficiary for punitive or compensatory damages for im-

proper or untimely processing of claims?

(i)

ii

TABLE OF CONTENTS

PARTIES TO THE PROCEEDING

Page

Massachusetts Mutual Life Insurance Company* QUESTION PRESENTED ....o......-----:-----cosscecessceeseoees i

Cecilia Stevenson

: PARTIES TO THE PROCEEDING ..........................--.-. ii

Doris Russell

TABLE OF AUTHORITIES ....................----.------cceseeeeee+s Vv

OPINIONS BELOW ............ SE ey SUE Be ea 2

JURISDICTIONAL STATEMENT ...........................-.... 2

STATUTES AND REGULATIONS INVOLVED ......... 2

STATEMENT OF THE CASE ..............2222------0--c00e-20--000++ 2

REASONS FOR GRANTING THE WRIT ..................... 6

I. The Ninth Circuit’s Ruling that Punitive Dam-

ages are Available to Plan Participants and Ben-

eficiaries Conflicts with Rulings of the Eighth

Circuit and Numerous District Courts ................ 6

II. The Ninth Circuit’s Ruling is Inconsistent with

the Statutory Scheme and Language of ERISA

oli and Gives a Windfall Reward to Participants... 6

* The following are non-wholly owned subsidiaries of the Massa- . * sate? . . .

pert gs Life Insurance Company as well as companies that ann chant ee egg dy eatige

ma ed affiliates thereof: :

. ee ee 5% Multiemployer Benefit Plans and their Partici-

MML Blend Investment Company, Inc. a auibiind 10

MML Equity Investment Company, Inc. A. The Nat al f Multi

MML M . e Nature and Importance o ultiem-

ARGS SER SERENE SPOR, Has. ployer Benefit Plans to the Retirement Se-

MML Money Market Investment Company, Inc. curity and to the Health and Welfare Ben-

MML Bay State Life Insurance Company fits of Millions of Employees .....................-..--- 10

MassMutual Corporate Investors, Inc. B. The Ninth Circuit’s Ruling will Severely In-

MassMutual Income Investors, Inc. jure Multiemployer Benefit Plans and their

MassMutual Mortgage and Realty Investors Participants because it will Deter the Pru-

MassMutual Liquid Assets Trust “9 and Careful Administration of Such ‘

Maslif One & Co. ocean ea oe aummrea acme aneaemeanaaeaala

lV

TABLE OF CONTENTS—Continued

Page

C. The Ninth Circuit’s Ruling will Deter Quali-

fied Persons from Serving as Fund Trustees

Om Ty I i in 14

D. The Ninth Circuit’s Ruling is Injurious to

the Dispute Resolution Process Favored by

IR cedsdicdsinnteediiphedas PRES Ra AN ERs Art 16

E. Compensatory and Punitive Damages are

not Uniformly Awarded and are Frequently

Large and Inconsistent ......... Te ee a Ce 19

CONCLUSION ............... sate < -necslidiseacaceeadpainiatiaispaniicasdieliniiae 20

Vv

TABLE OF AUTHORITIES

CASES Page

Bayles v. Central States, Southeast, Etc., 602 F.2d

97 (5th Cir. 1979) . oh 14

Bittner v. Sadoff & Rudoy Dadiuetrice. 728 FP. 2d 920

o£ 0 ere eae 6

Brime wv. Morse, 475 F.2d 858 (th Cir. 1973) 14

Depe ndahl v. Falstaff Brewing Corp., 653 F.2d

1208 (8th Cir. 1981) __. 6

Mlectrical Workers v. Foust, 442 U.S 42 (1979) 9

Feathers v. U.M.W. Health and Retire ment Funds,

99 L.R.R.M. 2287 (D.D.C. 1978) . ae 14

Kross v. Western Electric Co., Inc., 701 F.2d 1288

(7th Cir. 1983) 17

Lucas v. Warner & Swasey Compony, 475 F.Supp.

1071 (E.D. Pa. 1979) . | 17

Moglia v. Geogheghan, 403 F.2d 110 (2d Cir.

eh a a rs a’ 14

Nachman Corp. v. PBGC, 446 US. 356 (1980),

reh. denied, 448 U.S. 908 (1980) pr Onde 7

N.L.R.B. v. Amar Coal Co., 453 U.S. 322 (1981)... 12

Russell v. Mass. Mut. Life Ins. Co., 722 F.2d 482

(9th Cir. 1983). RE NG a,

Winterrowd v. Freedom & Ca. 724 F.2d 823 (9th

RIT is ak fe. re ak eS 6

STATUTES

26 U.S.C. $ 4975 (ERISA § 2003) Sinead 7

I A el i Sse ptacccnthcmveseussecsas cesta 2

| eee ee 4

ye Le BL | ena aedeiad > 4

29 U.S.C. § 186(c) (5) and (6) ................000 12

29 U.S.C. § 1104, (ERISA § 404) 8

29 U.S.C. § 1106, (ERISA § 406)... 7

29 U.S.C. § 1108, (ERISA § 468 (a) (2) ) . 9,15

29 U.S.C. § 11098, (ERISA § 409) Px. passim

29 U.S.C. § 1131, (ERISA § 501) : TPES 2

29 U.S.C. § 11382, (ERISA § 502) eae piwbe: passiin

29 U.S.C. § 1132(a) (1) (B), (ERISA § 502(a) (1)

RMR acti s EGTE Seca at Se 6, 8, 14

29 U.S.C. § 1132(e) (1), (ERISA § 502(e) (1)) _.. 4

29 U.S.C. § 1133, (ERISA § 508) ............................... passim

vi

TABLE OF AUTHORITIES—-Continued

IN THE

Supreme Court of the United States

Page

OCTOBER TERM, 1984

AEA A ALE OT TE 9

Pub. L. No. 96-364, 94 Stat. 1208- 1311 (1980) 11 No. 84-9

REGULATIONS

ere eee 2, 16 MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,

i co cceceseceonceeosesemsensesee 5 and CECILIA STEVENSON,

29 C.F.R. § 2650.508-1 (h) (4) ..............2.2..2.... 2.2 5 4 Petitioners.

LEGISLATIVE HISTORY DoRIS RUSSELL,

H. Conf. Rep. No. 1280, 93d Cong., 2d Sess. 320 Respondent.

(1974) n-ne ennereeeeee cence cence , 8 On Petition for a Writ of Certiorari to the United States

S. Rep. No. 127, 93d Cong., ‘Ist Sess. 33 (1973) . nee 8 Court of Appeals for the Ninth Circuit

House Labor Committee Report on H.R. 3904

(Rept. 96-869, Part I, April 2, 1980) .......0000000..... 11 BRIEF AMICI CURIAE OF

House Ways and Means Committee Report on H.R. IN SUPPORT OF PETITIONER

Senate Labor Committee Summary and Analysis SALMON CANNERS PENSION TRUST,

of Consideration of S$.1076 (April 1980) U.S. ALASKA FISHERMEN’S UNION—

Code Cong. & Admin. News, p. 2985 ................ 11 SALMON CANNERS WELFARE TRUST,

ALASKA PLUMBING &

DOGRS AND TERRENC ALS PIPEFITTING INDUSTRY PENSION TRUST FUND,

22 Am. Jur. 2d, Damages § 11, n.12 _...... seeeeeeeenecees 19 MONTANA TEAMSTER EMPLOYERS TRUST,

22 Am. Jur. 2d, Damages §§ 109, 195, 198, 236, 237, NATIONAL SHOPMEN PENSION FUND,

ene noveneunvnnavovoensovovoneensevvnnveseceneessesennsnnnoneene 19 NORTHWEST METAL CRAFTS TRUST FUND,

38 Am. Jur. 2d, Fright, Shock, and Mental Dis- OREGON TEAMSTER EMPLOYERS TRUST,

turbance, § 45 —...........-------ecesssvseesseeeeeeeecessseeeeee 19 PRINTING SPECIALTIES AND

Cooper, Robert D., Pension Fund Operations and PAPER PRODUCTS JOINT EMPLOYER AND

Expenses (1980) International Foundation of UNION HEALTH AND WELFARE FUND,

Employee Benefit Plans, Inc. Brookfield, Wis- RETAIL CLERKS PENSION TRUST,

COMBI. ---nannan-----vnnnnnvennvssssseseeeeeeecncncnssceeeeeeeececntee 12 RETAIL CLERKS WELFARE TRUST,

Cooper, Robert D., Multiemployer Health and Wel- SOUTHERN CALIFORNIA LUMBER INDUSTRY

fare Plan Operations and Expenses (1983) In- HEALTH AND WELFARE FUND,

ternational Foundation of Employee Benefit SOUTHERN CALIFORNIA LUMBER

Plans, Inc. Brookfield, Wisconsin —...................... 12 INDUSTRY RETIREMENT FUND.

Jury Verdicts Weekly, Vols. (26) (1982), (27) AND SPOKANE AREA HOTEL

(1983), and (28) (1984) Jury Verdicts, Inc. AND RESTAURANT EMPLOYEES TRUST FUND

SN III, RINNE co cas csisttccascdecstonnsenpeendsis 19

The amici curiae respectfully submit this brief in sup-

port of the petition filed for a writ of certiorari in the

above-captioned case.

2

OPINIONS BELOW

The opinion of the Court of Appeals is reported at

722 F.2d 482 (9th Cir. 1983), and appears in the Ap-

pendix to the petition at pages la to 25a. The order of

the United States District Court for the Central District

of California granting petitioner’s motion for summary

judgment, as well as the findings of fact and conclusions

of law issued in connection therewith, are unreported

and appear in the Appendix to the petition at pages 26a

to 32a.

JURISDICTIONAL STATEMENT

The judgment of the Court of Appeals for the Ninth

Circuit was entered on December 16, 1983. A_ timely

petition for rehearing and suggestion for rehearing en

bane was denied by that Court on April 6, 1984. Appen-

dix to petition at page 34a. The petition for writ of

certiorari was docketed on July 5, 1984. The jurisdiction

of this Court is invoked by petitioners pursuant to 28

U.S.C. § 1254(1).

STATUTES AND REGULATIONS INVOLVED

This case involves Sectiens 409, 501, 502 and 503 of

the Employee Retirement Income Security Act of 1974,

as amended (ERISA), 29 U.S.C. $$ 1109, 1131, 1132,

and 1133, and 29 C.F.R. § 2560.503-1 promulgated pur-

suant to ERISA Section 503. These provisions are re-

produced in the Appendix to the petition at pages 35a

to 84a.

STATEMENT OF THE CASE

Respondent, Doris Russell (Russell), was an employee

of a California office of the petitioner, Massachusetts

Mutual Life Insurance Company (Mass Mutual). Mass

Mutual sponsors two employee benefit plans which pro-

vide disability benefits to eligible employees. Both plans

are provided at no cost to employees and are funded by

3

the general assets of the company. Both plans are cov-

ered by ERISA.!

Russell filed a disability claim under the salary con-

tinuance plan in May, 1979, asserting that she could not

work because of a back problem. Mass Mutual began

payment of benefits.

In August, 1979, the claim was reviewed by Mass

Mutual’s Disability Committee. The Disability Commit-

tee referred Russell to an orthopedic surgeon. In Sep-

tember, 1979, this specialist examined Russell and con-

cluded that, from an orthopedic perspective, she was not

physically disabled. On October 17, 1979, Russell was

notified that disability payments would be discontinued

upon the recommendation of the Disability Committee.

Russell was aso advised of her right to appeal that de-

cision to the Plan Administrator.

On October 22, 1979, Russell wrote to the Director of

Group Claims (not to the Plan Administrator) and asked

for additional information regarding the termination of

her benefits and for an application for long-term dis-

ability benefits. She also stated her intention to appeal

the termination of her disability benefits and to submit

additional medical information.

On November 27, 1979, Russell wrote to the Plan Ad-

ministrator concerning her appeal and submitted addi-

tional evidence, including a report from her psychiatrist

which indicated that she was suffering from a psycho-

somatic disability with physical manifestations rather

than an orthopedic disability.

The Mass Mutual Plan Administrator treated Rus-

sell’s letter of November 27, 1979 as a formal appeal and

referred it to the Disability Committee. Russell was ex-

amined by an independent psychiatrist, who confirmed

' Petitioner Cecilia Stevenson, an employee of Mass Mutual, was

Russell’s supervisor at Mass Mutual. Amici Curiae accept peti-

tioner’s statement of the case, but provide a synopsis of it herein.

* Other employment-related claims were also asserted: the only

claim addressed herein by the amici curiae is Russell's claim with

respect to her disability benefits.

4

that Russell suffered from a psychiatric disability in a

report dated February 15, 1980. On the basis of this re-

port, the Disability Committee recommended that Rus-

sell’s benefits be reinstated retroactively. The Plan Ad-

ministrator adopted this recommendation and informed

Russell of his decision on March 11, 1980. Payment of

all benefits due was made two days later.

Although she received full benefits from both plans,

Russell sued Mass Mutual in California Superior Court

on December 9, 1980 for compensatory and punitive dam-

ages for the untimely and improper handling of her

benefit claim,” which allegedly resulted in economic loss

and mental 2nguish.*

After removal of the case to the United States Dis-

trict Court for the Central District of California on the

ground that the case was governed by ERISA,‘ the Dis-

trict Court granted a motion by Mass Mutual for sum-

mary judgment. The court first held that all of Russell’s

state law claims arising from the processing of her claim

for disability benefits were pre-empted by ERISA. The

court then concluded that, as a matter of law, punitive

and compensatory damages are not available to plan par-

ticipants under ERISA. By so ruling, the court tacitly

acknowledged that a plan participant only has a claim

against the plan for non-payment of benefits and costs

of litigation, including fees. Because Russell had been

paid benefits in full, she was not entitled to any addi-

tional relief. The court found that Russell’s appeal was

filed on November 27, 1979 and rejected her contention

3 Russell claimed, inter alia, that Mass Mutual’s delay forced her

husband, who was also unemployed on the grounds of disability, to

cash out his retirement savings plan. Russell alleged that she and

her husband lost the security of lifetime benefits. Russell also

sought damages for emotional distress and claimed that her pre-

existing psychosomatic illness was aggravated as a result of the

improper and untimely handling of her claim.

*Mass Mutual removed this action pursuant to 28 U.S.C.

§ 1441(a), alleging the existence of federal jurisdiction under 29

U.S.C. § 11382(e) (1) and 28 U.S.C. § 1831 (a).

5

that she was entitled to damages because her claim had

not been processed in 120 days, as required by regulations

promulgated under ERISA Section 503, 29 U.S.C. § 1133.

See 29 C.F.R. $ 2560.503-1(h) (1983).°

The Ninth Circuit affirmed the District Court’s holding

that Russell’s state law claims were pre-empted by

ERISA. However, the Ninth Circuit reversed the Dis-

trict Court’s grant of summary judgment. The appel-

late court held that Russell’s complaint had stated a

claim under ERISA for breach of fiduciary duty based

on the allegedly improper or untimely handling of her

appeal. The Court of Appeals determined that Russell’s

appeal began with her initial letter of October 22, 1979

and that Mass Mutual, therefore rendered its final deter-

mination twelve days beyond the 120-day limit.

The Court of Appeals went on to hold that such a

claim could support an award of both compensatory and

punitive damages. The appellate court based its opinion

on an interpretation of ERISA Section 409, 29 U.S.C.

$1109. It held that Section 409, which expressly im-

poses personal liability to the plan for fiduciary breaches,

also make fiduciaries personally liable to individual par-

ticipants with respect to benefit claims. The Ninth Cir-

cuit is the only appellate court to have held that Section

409 authorizes punitive damages against plan fiduciaries

by individual participants for denial of a benefit claim.

5 The regulations which require benefit claims to be decided

within 120 days do not provide affirmative relief. These regulations

simply provide that, in the event of the plan’s failure to render a

decision within that time, “the claim shall be deemed denied on

review.” 29 C.F.R. § 2560.503-1(h) (4). The participant can then

file suit under ERISA Section 502 without fear that a defense of

failure to exhaust remedies can be raised.

6

REASONS FOR GRANTING THE WRIT

I. The Ninth Circuit’s Ruling that Punitive Damages are

Available to Plan Participants and Beneficiaries Con-

flicts with Rulings of the Eighth Circuit and Numerous

District Courts

The Ninth Circuit’s holding in Russell v. Mass, Mu-

tual Life Ins. Co., 722 F.2d 482 (9th Cir. 1983) that

awards of punitive damages are permissible under

ERISA was subsequently restated in Winterrowd v.

Freedom & Co., 724 F.2d 823 (9th Cir. 1984). In the

latter case, the Court affirmed an award of punitive

damages against a contributing employer to a multi-

employer fund. Russell and Winterrowd directly con-

flict with the Eighth Circuit’s reasoning in Dependhal v.

Falstaff Brewing Corp., 653 F.2d 1208 (8th Cir. 1981),

cert. denied, 454 U.S. 968 (1981), in which that court

stated:

We do not think that punitive damages are provided

for in ERISA. Ordinarily punitive damages are not

presumed; they are not the norm; and nowhere in

ERISA are they mentioned. If Congress had desired

to provide for punitive damages; it could have easily

so stated, as it had in other acts.

653 F.2d at 1216; see also Bittner v. Sadoff & Rudoy

Industries, 728 F.2d 820, 825-26 (7th Cir. 1984), which

held that punitive damages are not available in an action

for plan benefits under ERISA Section 502(a) (1) (B).

In addition to this conflict between Circuit courts,

there is sharp conflict among the numerous district court

decisions that address the availability of punitive dam-

ages under ERISA. These decisions are comprehensively

listed at pages 7-8 of the petition, and we respectfully

refer the Court to those citations.

II. The Ninth Circuit’s Ruling is Inconsistent with the

Statutory Scheme and Language of ERISA and Gives

a Windfall Reward to Participants

ERISA specifically differentiates between remedies

available to plans as a whole and to individual par-

7

ticipants and beneficiaries. The Ninth Circuit has com-

pletely ignored these distinctions and, in effect, has re-

written the remedial provisions of the Act.

As this court has observed, ERISA is a “comprehensive

and reticulated statute” in which Congress established

many detailed rules to further “the well-being and secu-

rity of millions of employees and their dependents” and

to remedy the nuinerous flaws in the private pension plan

system. Nachman Corp. v. PBGC, 446 U.S. 356, 361

(1980), reh. denied 448 U.S. 908 (1980). Among the

most significant changes wrought by ERISA were the

strict rules for fiduciary behavior and the personal lia-

bility imposed upon fiduciaries for any breach of their

duties. The rules of fiduciary behavior are extensive,

and include the following:

a rule which prohibits sales or exchanges between

the plan and “parties in interest” and “disqualified

persons” (ERISA Section 406; ERISA Section

2003) ;

a prudent person rule which provides a standard by

which fiduciaries’ investment and other asset dis-

position decisions are judged (ERISA Section 404

(a) (1) (B));

an “exclusive purpose” rule, which requires that a

plan be administered with the exclusive purpose of

providing benefits (ERISA Section 404(a) (1) (A));

a prohibition agairst compensation for fiduciaries

who are full time employees of unions or employers

(ERISA Section 408(a) (2)); and

a prohibition against any self-dealing by fiduciaries

(ERISA Section 406(b)).

These fiduciary rules have one thing in common: they

are obligations to the plan as a whole, rather than simply

to individual participants.

All breaches of the fiduciary rules are grounds for an

enforcement action against plan fiduciaries, even if the

breaches do not cause monetary damage to the plan.

Fiduciaries are “personally liable to make good to [the]

8

plan any losses to the plan resulting from each such

breach. and to restore to such plan any profits of such

fiduciary which have been made through use of assets of

the plan by the fiduciary.” ERISA Section 409(a), 29

U.S.C. $1109(a). Fiduciaries are subject to removal for

fiduciary breaches and to “other equitable or remedial

relief” deemed appropriate by the court.

It is important to note that ERISA Section 409 pro-

vides equitable and remedial relief for fiduciary breaches

only to plans as a whole, not to individual participants.®

Relief for individual participants and beneficiaries who

have been denied benefits is exclusively pursuant to

ERISA Section 502(a)(1)(B), 29 U.S.C. $ 1182(a) (1)

(B). This provision does not permit the imposition of

personal liability upon fiduciaries for any compensatory

or punitive damages to individual participants or bene-

ficiaries. It limits benefit claimants to recovery of bene-

fits due from the plan and costs of litigation, including

attorneys’ fees.

The different remedial provisions of Section 409 and

502 reflect the delicate balance struck by Congress among

the significant purposes served by ERISA: (1) the deter-

rence of fiduciary malfeasance; (2) the promotion of the

expansion of the private pension plan system; and (3)

the securing of benefits due to individual participants and

beneficiaries. Congress balanced the prophylactic effect

of the imposition of personal liability upon fiduciaries as

a deterrence for malfeasance against the need to promote

expansion of pension plans. Congress determined that

personal liability to the plan for fiduciary breaches would

deter malfeasance, but that excessive imposition of per-

ERISA’s legislative history confirms that any recovery under

Section 409 necessarily benefits the plan as a whole. See, e.g.

H. Conf. Rep. No. 1280, 938d Cong., 2nd Sess. 320 (1974) (personal

liability of fiduciary for losses to the plan resulting from fiduciary

breach) and S. Rep. No. 127, 938d Cong., Ist Sess. 33 (1973) (per-

sonal liability of fiduciary to reimburse fund for losses resulting

from fiduciary breach and to turn over any profits obtained by

use of fund assets).

9

sonal liability (such as was created by the Ninth Circuit)

would hamper creation of new plans, the expansion of ex-

isting ones, and the recruitment of plan trustees.

Congress, in balancing competing concerns clearly felt

that the prophylactic measures (of personal liability) de-

signed to deter abuses of plan resources were not an appro-

priate way of dealing with errors made in the processing

of individual claims. Balancing the need for encouraging

accuracy in individual claim processing against its pol-

icy of promoting pension plan expansion, Congress au-

thorized full recovery of benefits due to individuals from

plans as well as costs of litigation (including attorneys’

fees), but did not go so far as to impose personal lia-

bility upon plan fiduciaries for either compensatory or

punitive damages. Thus, ERISA deters malfeasance in

the management of plans, provides remedies to individual

claimants, and yet does not set up barriers to the expan-

sion of the private pension system. This Court has previ-

ously affirmed, in similar sorts of statutes, the need for a

“careful balance of individual and collective interests.”

Electrical Workers v. Foust, 442 U.S. 42, 48 (1979)

‘which case holds that punitive damages are not available

for claims of breach of duty of fair representation under

the Railway Labor Act, 45 U.S.C. §§ 151 et seq.).

The Ninth Circuit upset the careful balance struck by

ERISA without any justification. The imposition of per-

sonal liability upon plan fiduciaries for prior errors in

claims processing does not significantly add to the pro-

phylactie effect of the measures expressly provided by

Congress to deter fiduciary malfeasance. Neither does it

add to the ability of individual participants to secure

benefits. Benefits are already well secured under the bene-

fit recovery provisions of Section 502.7 But, the Ninth

Circuit’s ruling has extremely deleterious effects on plans.

It adversely alters the decision-making procedures of plan

trustees and, by discouraging responsible persons from

‘Indeed, an award of punitive damages would be a windfall to

a benefit claimant.

10

serving as trustees, discourages the expansion of the pri-

vate pension plan system. The amici curiae now turn to

a discussion of these consequences as they apply to multi-

employer plans.

Ill. The Ninth Circuit’s Ruling is of Great Public Im-

portance Because it has a Severe Adverse Impact on

Multiemployer Benefit Plans and their Participants

Multiemployer plans are integral to the financial secu-

rity of millions of Americans. The Ninth C irecuit’s rul-

ing will injure multiemployer plan administration, deter

qualified individuals from serving as plan fiduciaries,

discourage the process of dispute resolution established

by ERISA, and expose fiduciaries to liabilities that they

cannot estimate and against which they may be unable to

insure themselves. The cumulative effect of this is to un-

determine the stability of multiemployer plans and

thereby effectively halt their expansion.

A. The Nature and Importance of Multiemployer

Benefit Plans to the Retirement Security and to

the Health and Welfare Benefits of Millions of

Employees

Multiemployer employee benefit plans play a vital role

in the financial well-being of millions of individual work-

ers. They enable the employees of small and medium

sized companies to obtain the level of pension and health

and welfare benefits only available from large plans.

They permit employees who work for more than one em-

ployer in the same industry to accumulate meaningful

pension benefits. They also protect pension benefits when

an employer leaves the plan. Multiemployer plans sup-

port two important features of the American economy:

small businesses and a mobile workforce.

Small and medium sized companies often cannot afford

sophisticated and generous employee benefits such as

those provided by large corporate plans. Large employee

benefit plans can profit from substantial economies of

scale and can also accurately reflect the science of “aver-

ages,” which forms the basis of actuarial predictions. An

11

increase in plan size considerably reduces the risk that a

plan may suffer financial adversity because its benefit

claims experience does not accurately mirror statistical

predictions.

Of similar importance is the need to provide a fem of

“portable” pension benefits. Because multiemployer pen-

sion plans generally include many employers in an in-

dustry, an employee moving from one employer in the

plan to another continues to accumulate benefits without

interruption. Multiemployer plans also protect pension

benefits because they provide benefits to an employee

even though his or her employer leaves the plan.

Congress has recognized that multiemployer ,.ans

“typically provide workers with greater retirement secu-

rity than single employer plans.” Senate Labor Commit-

tee Summary and Analysis of Consideration of S.1076

(April 1980) U.S. Code Cong. & Admin. News, p. 2985.

Accordingly, Congress has repeatedly passed legislation

to strengthen multiemployer plans. The most compre-

hensive effort in this regard was the Multiemployer Pen-

sion Plan Amendments Act of 1980, which amended

ERISA by imposing withdrawal liability upon employers

who withdraw from multiemployer pension plans. See-

tion 3 of the Act explicitly states that it is Congressional

policy to encourage the maintenance and growth of multi-

employer pension plans.*

Multiemployer benefit plans are established through

collective bargaining agreements. The Taft-Hartley Act

of 1947 specifically provided for the formation of trusts

to administer health and welfare and pension funds for

*The 1980 Amendments to ERISA were enacted by Pub. L. No.

96-364, 94 Stat. 1208-1311 (1980). For further discussion of Con-

gressional policy to encourage the maintenance and growth of

multiemployer pension plans, see House Ways and Means Commit-

tee Report on H.R. 3904 (Rept. 96-869. Part II, April 23, 1980)

and House Labor Committee Report on H.R. 3904 (Rept. 96-869

Part I, April 2, 1980).

12

employees represented by labor unions in collective bar-

gaining with management, 29 U.S.C. § 186(c) (5) and

(6). The law also required such plans to be managed by

trustee boards equally divided between representatives of

management and of labor organizations. See NLRB v.

Amax Coal Co., 453 U.S. 322 (1981) for a description

of the functioning of such trustees. Multiemployer trust-

ees are familiar with the particular needs of their indus-

try and are best able to design plans to fit those needs.

Multiemployer benefit plans cover millions of Ameri-

ean workers. Multiemployer pension plans are primarily

defined benefit plans While multiemployer pension plans

represent only 3.2% ef all defined benefit pension plans,

they provide coverage to 20-26% of all American non-

farm workers covered by such plans.® In 1980, there

were 1,826 multiemployer pension plans in the country,

vith a total of 10 million active and retired partici-

pants." There were also 4,500 multiemployer health

and welfare funds, of which 3,040 provided basic hos-

pitalization and other health benefits to 8.1 million par-

ticipants." Multiemployer pension plans process hun-

dreds of thousands of benefit claims each year. Multi-

employer health and welfare plans process millions of

claims annually. <All of these claims are processea by

trustees or by administrators acting on their behalf.

® Cooper, Robert D., Pension Fund Operations and Expenses

(Pension Fund Operations), p. 21 (1980) International Foundation

of Employee Benefit Plans, Inc. Brookfield, Wisconsin.

1 Cooper, Robert D., Pension Fund Operations, p. 22 n.5.

11 The other 1,460 health and welfare plans provide other bene-

fits, such as vacation, unemployment, ete. Cooper, Robert D.,

Multiemployer Health and Welfare Plan Operations and Expenses,

p. 14 n.5 (1983) International Foundation of Employee Benefit

Plans, Inc. Brookfield, Wisconsin.

13

B. The Ninth Circuit’s Ruling will Severely Injure

Multiemployer Benefit Plans and their Participants

because it will Deter the Prudent and Careful Ad-

ministration of Such Plans

The financial well-being of multiemployer benefit plans,

and of their participants and beneficiaries, is dependent

upon careful, prudent and reasonable management of all

aspects of the plan, including the area of benefit claims

processing.

Plan trustees design benefit systems and devise and

implement procedures for processing and evaluating

claims. While it is, of course, important to make prompt

payment of all justified claims, it is likewise important

to refuse payment of claims that do not meet plan re-

quirements. Indeed, ERISA Sectior 404(a) (1) (d) man-

dates this. If plan requirements were not scrupulously

followed, plan assets would be squandered and the benefit

security of all participants would be undermined. For

instance, if a pension plan has a 10-year vesting provi-

sion, and is funded accordingly, the trustees must not

pay benefits to a participant who has accumulated 9 years

and 11 months of pension service. Plan trustees must

balance the interest of the individual benefit claimant

against the interest that all participants have in safe-

guarding the plan’s assets by accurate and prudent claim

administration.

ERISA safeguards individual rights by providing the

right to obtain accurate data regarding plan benefits

and by requiring prompt claim processing. ERISA sec-

tion 503 provides that plans must provide “adequate no-

tice” of any benefit denial, “written in a manner calcu-

lated to be understood by the participant,” and that plans

must provide “reasonable opportunity” for a “full and

fair review” of any benefit denial.

ERISA Section 404, § 29 U.S.C. § 1104, requires that

fiduciaries act prudently with respect to the plan. They

must not make benetit determinations arbitrarily or ca-

priciously, “The trustees of a .. . fund have, not only

the authority, but the duty to insure that payments are

14

made to only those who are eligible.” Feathers v. U.M.W.

Health and Retirement Funds, 99 L.R.R.M. 2287 (D.D.C.

1978). The fiduciaries of a plan must jealously guard

the benefit security of all participants.

ERISA imposes far more severe liability for breach of

fiduciary duties to the plan than for making errors in

particular benefit determinations. ERISA Section 502

(a)(1)(B) 29 U.S.C. § 1182(a)(1)(B), protects the

rights of individual participants by providing for full

recovery of benefits due from the plan, but does not pro-

vide for any recovery from plan fiduciaries. The strong-

est remedy is reserved by ERISA Section 409 to fiduciary

breaches against the benefit security of all participants.

That section authorizes recovery from plan fiduciaries only

on behalf of the plan as a whole for the benefit of the plan

itself. Section 409 does not provide for recovery from trus-

tees (or other fiduciaries) by individual beneficiaries.

The Ninth Circuit’s interpretation of ERISA Section

409 substantially ignores the fact that fiduciary responsi-

bility under ERISA is to the plan as a whole as well as

to individual participants. Its decision, if allov-ed to

stand, will lead plan fiduciaries to be fearful of litigation

and of personal liability whenever they review claims.

This very justified fear will significantly distort the en-

ire decision making process concerning claims. Trustees

will be far more likely to acquiesce in the payment of

questionable claims. While the approval of one question-

able claim will not likely weaken a plan, the cumulative

effect of trustee acquiescences to such claims over time

will have that effect.

C. The Ninth Circuit’s Ruling will Deter Qualified

Persons from Serving as Fund Trustees and Ad-

ministrators

Multiemployer benefit plans are primarily labor-

management finds that are administered by joint boards

12 See also Moglia v. Geogheghan, 403 F.2d 110, 116 (2nd Cir.

1968); Brune v. Morse, 475 F.2d 858 (8th Cir. 1973) ; Bayles v.

Central States, Southeast, Etc., 602 F.2d 97 (5th Cir. 1979).

15

of labor and management trustees. Multiemployer plans

are frequently administered by management trustees who

work for geographically dispersed companies (many of

them quite small) and by union trustees who are also

frequently dispersed geographically.

Labor and management trustees generally do not get

paid for their time because such payments are prohibited

by ERISA Section 408(a) (2), 29 U.S.C. § 1108(a) (2).

Trustees of multiemployer plans receive no institutional

rewards for their service. Employer trustees must forego

management of their business and may lose income because

they take time to serve as trustees; union trustees must

forego their organizing tasks. Multiemployer plan trustees

agree to serve because of a serious commitment to employee

benefit security and because of a desire to perform a

service to their union members or to their employees.

Trustees are well aware that the fiduciary require-

ments of ERISA mandate prudent, honest and selfless

plan administration. They are also aware that fiduciary

breaches injurious to the fund may result in the imposi-

tion of personal liability against them to remedy any

injury caused to the fund. Generally speaking, fiduci-

aries can fulfill their obligations and avoid breaches of

fiduciary duty by carefully selecting investment man-

agers, accountants, and administrators to perform the

day-to-day administrative tasks of the fund, and by

periodic review of plan reports, operations, and policies.

Prior to the decision of the Ninth Circuit in this mat-

ter, trustees did not fear that personal liability might

arise from every ministerial task performed by plan em-

ployees or agents. Thus, prior to the Ninth Circuit’s

decision, responsible individuals with sound financial and

administrative skills have been willing to serve as trus-

tees of multiemployer funds because they could ade-

quately perform their fiduciary duties by providing man-

agement and direction without direct involvement in

claim processing details.

By drastically expanding the scope of personal liability

of trustees beyond that contemplated by ERISA, the

A

16

Ninth Cireuit has provided a powerful disincentive for

any reasoning person from serving as trustee of a multi-

employer plan. Now, the otherwise responsible, prudent

trustee is perscnally liable for any delays or errors of

judgment in r utine individual claims processing. The

Ninth Circuit has made it virtually impossible for the

traditional multiemployer trustee to function. Trustees

will fear that, unless they maintain personal involve-

ment in daily fund activiuies, they will not be able to

monitor their own exposure to liability. Since multi-

employer trustees are generally not compensated, it will

‘be virtually impossible to find competent labor and man-

agement trustees willing to serve in the face of such risk.

Similarly, competent individuals with administrative

and financial expertise will be deterred from serving as

administrators of multiemployer plans because each daily

task that they perform may result in substantial per-

sonal liability.

D. The Ninth Circuit’s Ruling is Injurious to the Dis-

pute Resolution Process Favored by ERISA

ERISA Section 503, 29 U.S.C. § 1133, and regulations

promulgated thereunder, favor internal administrative

resolution of disputes concerning benefit claims. Section

503 requires plans to provide adequate notice and ex-

planation of any denial of benefits and a “full and fair

review” to all claimants who appeal denials of benefits.

This general provision is further elaborated by regula-

tions set forth at 29 C.F.R. § 2560.503-1.

The regulations impose certain requirements for rea-

sonable claims procedures established by plans. Plans

must provide for reasonable claim filing procedures that

must be communicated to participants. If such proce-

dures are not established, a claim is deemed filed when

the participant brings it to the attention of the plan.

Plans must also provide notice and explanation of any

denials of claims within 90 days, or, at the most, within

180 days if special circumstances exist. The notice must

set forth (1) the reason for benefit denial; (2) the plan

. a

17

provisions on which denial is based; (3) a description of

any additional information or materials needed to per-

fect the claim; and (4) information about how to obtain

a review of the denial of benefits.

Finally, plan participants must be given the oppor-

tunity to appeal! denied claims to the appropriate fiduc-

lary or to a person designated by the fiduciary. The par-

ticipant must be given access to all pertinent plan docu-

ments and an opportunity to submit issues and comments

in writing. The decision on review must be made

promptly, usually within 60 days after receint of the

request for review, or, under special circumstances (such

as the scheduling of hearing) within 120 days after

receipt.

The procedures outlined above are designed to pro-

mote dispute resolution through the exchange of informa-

tion by plans and participants. The procedures require

a plan to disclose the reasoning behind every denial of

benefits and to state if any additional information may

change the results. This gives participants the oppor-

tunity to offer relevant counter argumeats and to submit

relevant information that might have been originally

overlooked. The resulting process is an essentially non-

adversarial dialogue between the plan and the participant

that is designed to raise all the arguments and informa-

tion pertinent to the denied claim and to avoid unneces-

sary litigation.

P rg oo — required claimants to exhaust.

ielr internal plan remedies before filing sui

ERISA Section 502. See e.g. Lucas v. el p pce

Company, 475 F. Supp. 1071 (E. D. Pa. 1979): Kross v

Western Electric Co., Inc., 701 F.2d 1238 ( 7th Cir.

1983), aff’g in part and rev’g in part 534 F. Supp 251

( 1982). This is so because the dispute resolution mecha-

nism provided by ERISA is so well-suited for resolving

disputes that are based on a misunderstanding of plan

rules or on incomplete information. Because the inter-

nal dispute resolution mechanisms of plans so success-

18

fully accomplish their purposes, the federal courts are

not overburdened by litigation of benefit claim disputes.

The case at bar is a good example of the proper func-

tioning of internal plan dispute resolution. The par-

ticipant was advised of the specific reasons for the denial

of her claim, had the opportunity to, and did present,

additional i:formation, and was ultimately granted full

benefits on the basis of information obtained through the

dispute resolution process.

The Ninth Circuit’s decision will irretrievably dam-

age this valuable and efficient process. Since plan trus-

tees and administrators will now be subject to litigation

and to grave personal liability for the performance of

even routine ministerial plan functions, they will have

a tendency to be guarded and cautious when dealing with

benefit denial claims. They will be hesitant to set forth

all the issues frankly and will be reluctant to receive

any additional information. They will also be concerned

that any change in a benefit determination result may

be used as evidence of impropriety. Flexibility in plan

administration will inevitably be reduced, thereby re-

sulting in even more litigation. Indeed, some par-

ticipants may be encouraged to forego a settlement res-

olution without litigation in the hopes of obtaining a

windfall award of punitive damages.

Before the Ninth Circuit’s decision, litigation over

benefit claims denials could only result in full payment

of the disputed claim and costs. Now, such litigation

also threatens unknown, potentially enormous personal

liability. The change in fiduciaries’ behavior resulting

from this new liability concern will decrease the internal

resolution of benefit claim disputes and significantly in-

crease the volume of litigation in already burdened fed-

eral courts.

19

E. Compensatory and Punitive Damages are not Uni-

formly Awarded and are Frequently Large and

Inconsistent

The compensatory and punitive damages permitted by

the Ninth Circuit are entirely unpredictable in amount

and may result in inconsistent, large awards.

Compensatory damages include damages for all losses

and injuries sustained by a claimant whose claim has

been mishandled,"* including damages for mental anguish

that is accompanied by some physical injury.‘ Mental

anguish has been variously defined as nervous shock,

fright, or humiliation."* There is no standard of law by

which asserted damages of this nature can be verified or

measured. The amount to be awarded is necessarily

arbitrary,’* and may amount to thousands or hundreds

of thousands of dollars.

Punitive damages are even less predictable. They do

not compensate the claimant for any actual injuries."

Punitive damages amounts are not subject to rules of

any sort and are frequently arbitrary. The following

recent examples of punitive damages awards in Califor-

nia state court litigation illustrate this point: *

Superior Type of Actua! Punitive

cy Name of Case Court Case Damages Damages

Triple E. Machinery Norwalk Embarrass- §$ 50,000 §$ 102,327

v. Englebrecht ment and

humiliation

Spleker v. Senator Sacramento Breach of $345,310 $3,117,946

Hotel contract

13 See 22 Am. Jur. 2d, Damages § 11, n.12.

'4 See 22 Am. Jur. 2d, Damages § 195.

See 38 Am. Jur. 2d, Fright, Shock, and Mental Disturbance,

§ 45.

16 See 22 Am. Jur. 2d, Damages, $$ 109, 198.

17 See 22 Am. Jur. 2d, Damages, $§ 236, 237, 238.

18 Jury Verdicts Weekly, Volumes (26) (1982), (27) (1983).

and (28) (1984) Jury Verdicts Inc. Santa Rosa, California.

20

Superior Type of Actual Punitive

Name of Case Court Case Damages Damares

Hare v. Kearney Mesa San Diego Wrongful $ 30,000 § 275,000

Volkswagen reposses-

sion of

automobile

Sullivan v. Kaiser San Diego Failure to $ 45,000 $ 400,000

Foundation Health pay medical

Plan claim

Coconis v. Ins. Co. San Insurance $ 3,500 $ 20,000

North America Francisco _ bad faith

Gump v. Wells San Breach ot $ 34,339 $1,000,000

Bank Francisco trust

Garvey v. State Farm Sonoma Insurance $ 47,593 $1,110,000

bad faith

Thompson v. Thompson Sonoma Breach of $ 17,000 $ 30,000

fiduciary

duties—

real estate

As is evident from these examples, no fiduciary will be

able to predict the amount of his or her personal liability

exposure.

The availability of insurance coverage for punitive

and compensatory damages is doubtful at this time. But,

even if such coverage ultimately became available, it

would, no doubt, be prohibitively expensive.

~ CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted in this case. Unless the

Ninth Circuit’s decision is reversed, growth of multi-

employer plans will be effectively ended.

Respectfully submitted,

RICHARD P. DONALDSON THOMAS J. HART

DONALDSON & ROBERTS (Counsel of Record)

2716 Fifth Avenue LENA S. ZEZULIN

San Diego, California 92103 THOMAS HART & ASSOCIATES

(619) 297-7062 Suite 302

1625 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 797-8700