Amicus Curiae Brief — Massachusetts Mutual Life Insurance v. Russell

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Office Supreme Court U8

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NOV 43 i984

No. 84-9

ALEXANDER? L STEVAS,

In the Supreme Court ne

OF THE

United States

Ooroser Term, 1984

Massacuusetts Mutvat Lire Insurance Company,

and Crcriia STEVENSON,

Petitioners,

vs.

Doris Russet,

Respondent.

BRIEF OF 35 MULTI-EMPLOYER TRUST FUNDS

AS AMICI CURIAE SUPPORTING REVERSAL

*James P. Watson

Gerorce M. Cox

Joun S. Mrtter, JR.

Cox, Castize & NicHOLsoNn

2049 Century Park East

Suite 2809

Los Angeles, California 90067

(213) 277-4222

LrionEL RIcHMAN

Law Offices of Lionel Richman

1625 West Olympic Boulevard

Suite 810

Los Angeles, California 90015

(213) 388-5232

Attorneys for Amici Curiae

* Counsel of Record

Bowne of Los Angeles, Inc., Law Printers. (213) 742-6600

~ BEST AVAILABLE COPY #

i

QUESTION PRESENTED

Whether, under the Employee Retirement Income Secu-

rity Act, a fiduciary to an employee benefit plan may be

held personally liable to a plan participant or beneficiary

for punitive damages for impreper or untimely processing

of benefit claims?

il

TABLE OF CONTENTS

Question Presented

I.

Interest of the Amici Curiae

II.

Summary of Argument

ITT.

Argument

A. Asa Matter of Statutory Construction, the Ninth

Cireuit Erred in Holding That Punitive Damages

are Recoverable Under Sections 409 and 502 of

ERISA

1. The Plain Language of the Statutes and the

Legislative History Do Not Support the In-

ference that Punitive Damages are Available

The Court Should No Engraft A Right to

Punitive Damages Ontu The Existing Statu-

tory Scheme

3. The Absence of a Rationale for Punitive

Damages

B. As a Matter of Public Policy, Punitive Damages

Should Not be Recoverable for ERISA Violations

1. Impact on Trustee Service

2. Impact on Costs of Administration

3. The Unlimited Nature of Punitive Damage

FO Pe re

ww

Goncbusiom .... 25.0 ccc wenden cde

Page

we)

19

— - ——

iii

TABLE OF AUTHORITIES

Cases Page

Anderson v. Continental Insurance Co., 85 Wis.2d 368

(1973) 18

Ashland Oil, Ine. v. Miller Oil Purchasing Co.,678 F.2d.

1293 (5th Cir. 1982) 13

Badon v. General Motors Corporation, 679 F.2d 93 (6th

Cir. 1982) &

Beaver v. Country Mutual Insurance Co., 95 Ill. App.3d

1122, 420 N.H.2d 1058 (1981) | 14

Brown v. Western Casualty and Surety Co., 484 P.2d

1252 (Colo.App. 1971) 14

Central Microfilm Service v. Basic/Four Corporation,

668 F.2d 1206 (8th Cir. 1982) 17

City of Newport v. Fact Concerts, Inc., 453 U.S. 247

(1981) 10, 15, 18

City Products Corp. v. Globe Indemnity Co., 88 Cal.

App.3d 31 (1979) | 14

Collend v. New Canaan Water Co., 155 Conn. 477 (1967) 12

Crull v. Gleb, 382 S.W.2d 17 (Mo.App. 1964) 14

DeGrace v. Rumfeld, 614 F.2d 796 (1st Cir. 1980) re)

de Haas v. Empire Petroleum Company, 435 F.2d 1223

(10th Cir.1971) af 16

Ernst and Ernst v. Hochfelder, 425 U.S. 185 (1976) 6

Ford Motor Co. v. Home Insurance Co., 116 Cal. App.3d

es ., ., a a

Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) . 16,17

Globus v. Law Research Service, Inc., 418 F.2d 1276

SO Care 16

iv

TABLE OF AUTHORITIES

Cases Page

Green v. Wolf Corporation, 406 F.2d 291 (2d Cir.

1968) 7,17

Harrington v. Vandalia-Butler Board of Education,

585 F.2d 192 (6th Cir. 1978), cert. denied, 441 U.S.

392 (1979) 9

Hartford Accident and Indemnity Co. v. Village of

Hempstead, 48 N.Y.2d 218 (1979) 14

Hartford Accident and Indemnity Co. v. U.S. Concrete

Pipe Co., 369 So.2d 451 (Fla.App. 1979) 14

Hotel and Restaurant Employees and Bartenders Inter-

national Union, AFL-CIO v. Michaelson’s Food

Services, Inc., 545 F.2d 1248 (9th Cir. 1976) ry: 8

International Brotherhood of Teamsters v. Daniel, 439

U.S. 551 (1979) 6

International Brotherhood of Electrical Workers v.

Foust, 442 U.S. 42 (1979) wu 10

Nachman v. Pension Benefit Guaranty Corporation,

446 U.S. 395 (1980) . em ca ayes

National Semiconductor v. Allendale Mutual Insurance

Co., 549 F.Supp. 1195 (D.Conn. 1982) hes 12

Neal v. Farmers Insurance Exchange, 21 Cal.3d 910

| ESS Pi fs eceee oe: ra 16

Northwest Airlines, Inc. v. Piaitalilin Workers Union,

ec ee es - 10

Northwestern National Insurance Co. v. MeNulty, 307

F.2d 432 (5th Cir. 1962) . | ane | 14

Oregon- Washington eecihias Pension Trust v. R.A.

Gray & Co., U.S. __, 104 S.Ct. 2709 (1984) .. _ 15

Vv

TaBLE oF AUTHORITIES

Cases Page

Pearson v. Western Electric Co., 542 F.2d 1150 (10th

Cir. 1976) N)

Pfeiffer v. Essex Wire Corp., 682, F.2d 684 (7th Cir.),

cert. denied, 459 U.S. 1039 (1982) N)

Postill v. Booth Newspapers, Inc., 118 one 608

(1982) 12

Rehmar v. Smith, 555 F.2d 1362 (9th Cir. 1976) s

Roginsky v. Richardson-Merrell, Inc., 378 F.2d 832

(2nd Cir. 1967) 16

Russell v. Massachusetts Mutual Life Ins. Co., 722 F.2d

482 (9th Cir. 1983) 3, 4, 5, 6, 7, 9, 12, 138, 14, 15

Sanabria v. International Longshoremen’s Association

Local 1575, 597 F.2d 312 (1st Cir. 1979) 8

Schiller v. Strangis, 540 F.Supp. 605 (D.Mass. 1982) 13

Schwartz v. Sears, Roebuck & Co., 669 F.2d 1091 (5th

Cir. 1982) 18

Shah v. Mt. Zion Hospital and Medical Center, 642 F.2d

268 (9th Cir. 1981) _.. 9

Silberg v. California Life Insurance Co., 11 Cal.3d 452

(1974) | oi vrs 18

Smith v. Wade, U.S. ——, 103 S.Ct. 1625 (1988) . 11, 18

Toole v. Richardson-Merrell, Inc., 251 Cal.App.2d 689

(1967) . ee eee RAY ere 11

Transamerica Mortgage Advisors, Inc. v. Lewis, 444

og eee By a aloe catia yc uh Ee On ee

Variety Farms v. New Jersey Manufacturers Insurance

Co., 172 N.J. Super. 10, 410 A.2d 696 (1980) ... ‘14

Walker v. Ford Motor Co., 684 F.2d 1355 (11th Cir.

ok ao na | 3 4 oe

vi

TABLE OF AUTHORITIES

CasEs Page

Wardle v. Central States, Southeast and Southwest

Areas Pension Fund, 627 F.2d 820 (7th Cir. 1980)

cert. denied, 499 U.S. 1112 (1981)

Willett v. Ford Motor Co., 400 Mich. 65 (1977) 12

Miscellaneous

H. R. Rep. No. 93-533, 93d Cong., 1st Sess. 17, reprinted

in 1974 U.S. Code Cong. and Ad. News, pp. 4639,

4655 ) 7

Sen. Rep. No. 93-127, 93d on: 1st Sede 35, venbibel

in 1974, U.S. Code Cong. and Ad. News, pp. 4838,

4871 : i

~~!

Rule

Rules of Supreme Court, Rule 36.2 .. | 2

Statutes

California Civil Code, See. 3294... sss 12

Civil Rights Act of 1964, Sec. 706(g) (42 Uv S.C.

§ 2000(e)-5(g) ) 9

Employee Retirement Income tite Act of 1974,

ee 4 RS, A ee 7

Employee Retirement Income Security Act of 1974,

Sec. 408(c)(2) (29 U.S.C. §1108(¢)(2)) ..... ds

Employee Retirement Income Security Act of 1974,

Sec. 409 ress FC

Employee aetna ee Sendo Act of 1974,

EO eT re 6

Employee Retirement neue Security Act of 1974,

Te EE re

Employee Retirement Income Security Act of 1974,

ie a a iis ce a a ba # oe aie 7

Vil

TaBLE oF AUTHORITIES

STATUTES Page

Employee Retirement Income Security Act of 1974,

See. 502 5, 6, 9, 10, 11, 12, 18

Employee Retirement Income Security Act of 1974,

Sec. 502(a)(1)(B) 8

Employee Retirement Income Security Act of 1974,

See. 502(a) (2) | , oe

Employee Retirement Income Security Act of 1974,

Sec. 502(a)(3) (29 U.S.C. § 1132(a)(3)) . 8, 11

Employee Retirement Income Security Act of 1974,

Sec. 502(c) | pa ae |

Employee Retirement Income Security Act of 1974,

See. 502(g)(1) (29 U.S.C. § 1132(g) (1)) | 12

Labor Management Relations Act of 1947, Sec. 301

(29 U.S.C. § 185(a))

Labor Management Relations Act of 1947, See. 302(e)

DP

(29U.S.C.§186(c)) st 3

Securities Exchange Act of 1934, Sec. 10( b) (15 U. S. C.

§$78(j)(b)) ...... | 7

United States Code, Title 29, mi 1001 oom. ...... 3

United States Code, Title 29, Sec. 1002(21) ( A) Fe oy 5s lee

Textbooks

Ellis, Fairness and Efficiency in the Law of Punitive

Damages, 56 So.Cal. L.Rev., pp. 1, 52-53 (1982) .... 17

Ghiardi and Kircher, Punitive — See. 2.11

(Callaghan 1983) . . 3 i 12

Presser, Torts (4th Ea. ),p. p. 2 Re at ans chee oe 14

Prosser, Torts (4th Ed.) Sec.2, pp.13-14. 16, 17

Restatement (2nd) of Contracts, Sec. 369 (Tentative

Draft No. 14, March, 1979)

~!

No. 84-9

In the Supreme Court

OF THE

United States

Octoper Term, 1984

Massacavusetts Mutua Lire Insurance Company,

and Ceciuia STEVENSON,

Petitioners,

vs.

Doris RussELL,

Respondent.

BRIEF OF AMICI CURIAE SUPPORTING REVERSAL

Now come the Amici Curiae, Construction Laborers

Pension Trust for Southern California, Laborers Health &

Welfare Trust for Southern Califernia, Construction Labor-

ers Vacation Trust for Southern California Laborers Train-

ing and Retraining Trust for Southern California, Califor-

nia Field Ironworkers Pension Trust, California Field

Ironworkers Welfare Plan, Carpenters Pension Trust for

Southern California, Carpenters Health & Welfare Trust

for Southern California, 11 County Carpenters Vacation

Savings Holiday Plan, Southern California Provision

Industry Health & Welfare Trust Fund, Butchers and Pro-

vision Workers Pension Fund of Southern California, Joint

Council of Teamsters No. 42 Welfare Trust Fund, Team-

sters and Food Employers Security Trust Fund, Southern

California United Food and Commercial Workers Unions

and Food Employers Benefit Fund, Southern California

United Food and Commercial Workers Unions and Food

2

Employers Supplementary Unemployment and Supplemen-

tary Disability Benefit Fund, Southern California United

Food and Commercial Workers Unions and Food Employ-

ers Joint Pension Trust Fund, U.F.C.W. Local 711 and

Retail Food Employers Benefit Fund, Retail Food Employ-

ers and U.F.C.W. Local 711 Pension Trust Fund, Retail

Food Employers and Meatcutters Local 457 Benefit Fund,

Food Employers and Bakery and Confectionery Workers

Benefit Fund of Southern California, Valley Clerks Health

& Welfare Trust Fund, Northern California Retail and

Food Clerks Unions and Food Employers Joint Pension

Trust Fund, Northern California Retail Clerks Unions-

Employers Vacation Fund, Northern California Retail

Clerks Union and Food Employers Supplemeatary Payment

Fund, Northern California Food Employers and Retail

Clerks Unions Benefit Fund, Retail Clerks Specialty Stores

Pension Fund, Northern California Area Retail Clerks

Unions-Employers Welfare Fund, Northern Califorma

Pharmacists, Clerks and Drug Employers Pension Fund,

Northern California Registered Pharmacists Pension

Fund, Southern California Meatcutters Unions and Food

Employers Benefit Trust Fund, Southern California Meat-

eutters Unions and Employers Pension Fund, Gemco-

Re‘ail Clerks Unions Pension Fund, Gemco-Retail Clerks

Unions Welfare Trust, California Butchers Pension Trust

Fund, and Northern California Butchers Unions and Em-

ployers Health Trust Fund (the “Trust Funds”) and sub-

mit this brief in support of reversal in USSC No. 84-9, pur-

suant to Rule 36.2.

TLe written consents of the parties has previously been

filed with the Clerk of the Court.

3

I,

INTEREST OF THE AMICI CURIAE

1. The Trust Funds are multiemployer trust funds es-

tablished pursuant to the provisions of Section 302(c) of

the Labor Management Relations Act of 1947, as amended,

29 U.S.C. Section 186(c). All of the Trust Funds are

employee benefit funds within the meaning of the Employee

Retirement Income Security Act of 1974 (“ERISA”), 29

U.S.C. 1001, et seg., and are subject to federal regulation

pursuant to the provisions of ERISA.

2. There are over two hundred fifty thousand partici-

pants in the Trust Funds; annually, over $40,000,000.00 is

contributed to the Trust Funds on behalf of these partici-

pants.

3. Each of the Trust Funds is administered by a board

of trustees; the trustees, who serve without compensation,

are “fiduciaries” within the meaning of ERISA, 29 U.S.C.

Section 1002(21)(A). The trustees of each Trust Fund

are charged with the responsibility of administering the

benefit plans promulgated by the Trust Funds in a manner

consistent with the terms of such plans and in compliance

with ERISA and other applicable provisions of federal law.

The trustees of the Trust Funds annually process thousands

of benefit claims.

4. The Trust Funds believe that the Ninth Circuit's

holding in Russell that punitive damages may be awarded

against the trustees of ERIS A-regulated trust funds for

failure to properly process benefit claims is incorrect as

a matter of law, and should be reversed by this Court.’

They further believe that the practical effect of the

‘Russell involved two single-employer employee benefit plans.

But the across-the-board rule announced by the Ninth Circuit re-

garding liability for punitive damages would apply to fiduciaries of

multiemployer trust funds, as well.

4

hoiding of the Ninth Circuit in Russell will be to discourage

all responsible individuals from serving as trustees of

ERISA-regulated benefit plans, because such service would

expose thein to liability for punitive damages for which they

may not obtain insurance and for which, in some circum-

stances, they may not seek reimbursement from the trust

funds. The Trust Funds further believe that the ultimate

impact of the Ninth Circuit’s decision will be to undermine

the financial stability of ERISA-regulated trust funds, in

ways described in ietai! in the accompanying brief.

5. These amici curiae are in a unique position to advise

the Court with regard to the implications of the Russell

decision, because of their intimate familiarity with the role

of fiduciaries in the handling of employee benefit claims

in ERISA-regulated employee benefit trust funds.

II.

SUMMARY OF ARGUMENT

1. Asa matter of statutory construction, the U.S. Court

of Appeals for the Ninth Cireuit erred in concluding that

punitive damages may be sought by claimants who allege

that the trustees of employees benefit plans improperly

processed their benefit claims.

a. Neither the text of ERISA nor its legislative

history supports the conclusion that punitive damages

may be awarded in such cases.

b. Asa matter of public policy, the courts should not

engraft a right to punitive damages on the existing

statutory scheme, which provides full relief to all

claimants.

c. The traditional rationales which support the

award of punitive damages in non-ERISA actions are

absent in cases brought by claimants against employee

5)

benefit plans seeking relief under sections 502 and 409

of ERISA.

2. Considerations of public policy overwhelmingly mili-

tate against the award of punitive damages in cases seeking

relief under sections 502 and 409 of ERISA.

a. As a practical matter, no responsible. individual

will agree to act as a trustee of an employee benefit

plan if the Russell decision is upheld. Such trustees

receive no compensation for their service, bit they

would nevertheless be exposed tw liability for punitive

damages; in most jurisdictions, they will be unable to

obtain insurance to protect themselves against direct

liability for such damages. Actively discouraging the

participation of capable people as trustees of employee

benefit plans runs counter to the principal purpose of

ERISA, which was to insure responsible fiduciary

administration of such plans.

b. Although trustees of employee benefit plans may,

in certain limited circumstances, be able to obtain in-

demnification from their funds against punitive dam-

age claims, the cost of defending such claims will be a

significant drain on the resources of the plans. Both

ERISA and the subsequent Multi-employer Pension

Plan Amendments Act of 1980 were enacted, in large

part, because of Congress’ recognition that employee

benefit plans already have severe financial difficulties.

c. Because punitive damages are an open-ended type

of remedy, and because the Russell decision invites each

benefit claimant to “tack on” a claim for punitive dam-

ages in every suit filed against an employee benefit

trust, the liability of the trustees will become im-

measurable.

6

ITI.

ARGUMENT

A. As a Matter of Statutory Construction, the Ninth Cir-

cuit Erred in Holding That Punitive Damages are

Recoverable Under Sections 409 and 502 of ERISA.

1. The Plain Language of the Statutes and the Legis-

lative History Do Not Support the Inference that

Punitive Damages are Available.

As this Court has repeatedly held, the starting point for

construing federal statutes is always the statutory lan-

guage itself; see, e.g., Ernst and Ernst v. Hochfelder, 425

U.S. 185, 197 (1976); International Brotherhood of Team-

sters v. Daniel, 439 U.S. 551, 558 (1979). In its opinion

in Russell, the Ninth Circuit quotes portions of Sections

409 and 502 of ERISA, but does not attempt to parse the

statutes to determine whether, by their literal terms, they

afford a basis for awarding punitive damages. 722 F.2d at

490-491.*

The Russell opinion notes that Section 409(a) provides

that a fiduciary “shall be subject to such . . . equitable or

remedial relief as the court may deem appropriate, in-

cluding removal of such fiduciary,? and that Section

502(a)(2) permits the Secretary of Labor, or a participant,

2The discussion of punitive damages in the Russell opinion does

not specify precisely which provisions of ERISA the court believes

would support a claim for punitive damages; Russell, supra, 722

F.2d at 490-492. The cases cited in the discussion in Russell refer to

Sections 409, 410 and various portions of Section 502 of ERISA. The

failure to specify the statutory source of the right to claim punitive

damages makes the court’s analysis all the more puzzling.

3As Petitioner notes, the language of Section 409 of ERISA indi-

cates that the rights provided therein are bestowed upon the benefit

plan itself, not upon individual beneficiaries. (See Petition p. 9).

7

beneficiary or fiduciary to seek “appropriate relief under

Section 1109 of this title.” 722 F.2d at 488.

Neither of these statutory provisions contain any lan-

guage which would suggest that Congress thought that

punitive damages would be a form of “appropriate relief.”

To justify its conclusion that punitive damages should

be available as a remedy for ERISA violations, the Ninth

Circuit’s opinion notes that the Senate and House Com-

mittee reports on ERISA show that the Act was intended

to provide “the full range of legal and equitable remedies

available in both state and federal courts.* But the language

quoted by the Court begs the question of what the “range”

of remedies ought to be in an action such as Russell.’ Suits

by beneficiaries of employee benefit plans are fundamen-

tally actions in contract. The accepted rule is that actions

for breach of contract do not give rise to claims for punitive

damages. See Restatement (2nd) of Contracts, Section 369

(Tentative Draft no. 14, March, 1979).

*722 F.2d at 491, citing H.R. Rep. No. 93-533, 93d Cong., Ist Sess.

17, reprinted in 1974 U.S. Code Cong. and Ad. News, 4639, 4655,

Sen. Rep. No. 93-127, 93d Cong., Ist Sess. 35, reprinted in 1974 U.S.

Code Cong. and Ad. News, 4838, 4871.

*The Russell opinion points to the reference to “sanctions” in Sec-

tion 1 of ERISA, 29 U.S.C. Section 1001(b), as evidence of Con-

gress’ intent to provide for the imposition of punitive damages

against fiduciaries. But ERISA contains its own “sanctions,” includ-

ing removal of fiduciaries (Section 409(a)), restitution (Id.) and

monetary fines (Sections 501 and 502(c)). There is no reason to

suppose that Congress intended fiduciaries to be subject to “sanc-

tions” in addition to those explicitly set forth in ERISA. Cf. Green v.

Wolf Corporation, 406 F.2d 291, 303 (2d Cir. 1968) [punitive dam-

ages not recoverable for a violation of Section 10(b) of the Securities

Exchange Act of 1934, 15 U.S.C. § 78(j)(b) since, inter alia, “the

Securities Exchange Act of 1934 contains provisions imposing crim-

inal penalties on violators”).

8

Moreover, Section 502(a)(3) of ERISA, 29 U.S.C. See-

tion 1132(a)(3), contains language suggesting that Con-

gress intended disappointed benefit claimants to be limited

to equitable and injunctive relief.* Section 502(a)(3) auth-

orizes a beneficiary to bring an action “to enjoin any act or

practice which violates any provision of this sub-chapter or

the terms of the plan or (B) to obtain other appropriate

equitable relief (i) to redress such violations or (ii) to

enforce any provisions of this sub-chapter or the terms of

the plan ...” [Emphasis supplied]. Courts which have

considered the issue have concluded that suits by benefic-

iaries under Section 503(a)(1)(B) and 503(a)(3) to obtain

plan benefits are equitable, rather than legal, in nature; see

e.g., Wardle v. Central States, Southeast and Southwest

Areas Pension Fund, 627 F.2d 820, 829 (7th Cir. 1980),

cert. denied, 499 U.S. 1112 (1981) [“We conclude that

Congress’ silence on the jury right issue reflects an intention

that suits for pension benefits by disappointed applicants

are equitable.” 627 F.2d at 829]. Punitive damages are al-

most universally considered to be a form of legal, rather

than equitable, relief. See, e.g., Walker v. Ford Motor Co.,

684 F.2d 1355 (11th Cir. 1982).

_ Participants and beneficiaries of multiemployer benefit plans may

also have a cause of action under 301 of the Labor Management

Relations Act of 1947, as amended 29 U.S.C. Section 185(a), when

plan benefits are wrongfully denied. See, e.g., Rehmar v. Smith, 555

F.2d 1362 (9th Cir. 1976). In such cases, the instrument creating the

multiemployer benefit trust is, itself, a form of collective bargaining

agreement. Many lower courts have held that actions under Section

301 do not give rise to a claim for punitive damages; see, e.g., Hotel

and Restaurant Employees and Bartenders International Union,

AFL-CIO vw. Michaelson’s Food Services, Inc., 545 F.2d 1248, 1254

(9th Cir. 1976); Badon v. General Motors Corporation, 679 F.2d 93

(6th Cir. 1982); Sanabria v. International Longshoremen’s Associa-

tion Local 1575, 597 F.2d 312, 314 (1st Cir. 1979).

9

An analogous statutory construction has been made by

the courts in interpreting Section 706(g) of the Civil Rights

Act of 1964, 42 U.S.C. Section 2000(e) -5(g). That statute

provides that a court, upon a finding of liability, may “order

such affirmative action as may be appropriate, which may in-

clude, but is not limited to, reinstatement or hiring of em-

ployees, with or without backpay ... or any other equitable

relief as the court deems appropriate.” The courts have

held, with near unanimity, that this language does not

authorize the award of punitive damages; see Shah v. Mt.

Zion Hospital and Medical Center, 642 F.2d 268, 272 (9th

Cir. 1981) ; DeGrace v. Rumsfeld, 614 F.2d 796, 808 (1st Cir.

1980) ; Harrington v. Vandalia-Butler Board of Education,

585 F.2d 192, 194 (6th Cir. 1978), cert. denied, 441 U.S. 392

(1979) ; Pearson v. Western Electric Co., 542 F.2d 1150 (10th

Cir. 1976). See also Pfeiffer v. Essex Wire Corp., 682 F.2d

684 (7th Cir.), cert. denied, 459 U.S. 1039 (1982) [no puni-

tive damages awardable under Age Discrimination in Em-

ployment Act.] By parity of reasoning, punitive damages

also should not be available under the similar provisions of

Section 502 of ERISA.

2. The Court Should Not Engraft A Right to Punitive

Damages Onto The Existing Statutory Scheme.

The Ninth Cireuit’s decision in Russell ignores this

Court’s repeated warnings to lower courts not to gratutious-

ly expand detailed statutory remedial schemes. The remed-

ial scheme set forth in ERISA is complex and extensive;

there is simply no basis for the assumption that Congress

intended the courts to add additional remedies:

“The presumption that a remedy was deliberately omit-

ted from a statute is strongest when Congress has en-

acted a comprehensive legislative scheme including an

integrated system of procedures for enforcement.”

10

Northwest Airlines, Inc. v. Transport Workers Union, 451

U.S. 77, 97 (1981).

See also Transamerica Mortgage Advisors, Inc. v. Lewis,

444 U.S. 11, 19:

“It is an elemental canon of statutory construction that

where a statute expressly provides a particular remedy

or remedies, a court must be chary of reading others

into it.”

Amici have searched the legislative history in vain for

any indication that Congress expected punitive damages

would be awardable under Section 502. So far as amici can

ascertain, there are no statements in the record which

directly authorize such damages. ERISA is not an act

which was drafted in haste; see generally Legislative His-

tory of The Employee Retirement Income Security Act of

1974 (Committee print compiled by the Senate Committee

on Labor and Public Welfare). It is highly improbable

that Congress intended the extraordinary remedy of puni-

tive damages to be available to disappointed benefit claim-

ants bringing suit under Section 502, but simply “forgot” to

mention it in both the statute and its legislative history.

3. The Absence of a Rationale for Punitive Damages.

When ambiguity exists with regard to whether punitive

damages may be awarded, this Court has frequently looked

to considerations of public policy to determine whether

such damages are available. See, e.g., Smith v. Wade,

U.S. —__, 103 S.Ct. 1625 (1983) ; International Brotherhood

of Electrical Workers v. Foust, 442 U.S. 42 (1979) ; City of

Newport v. Fact Concerts, Inc., 453 U.S. 247 (1981). The

Ninth Circuit’s decision in Russell betrays no serious effort

to balance the competing policy considerations which are

traditionally weighed in determining whether punitive

damages should be permitted.

——

seenamn eieshceneneneetnataae ancien

11

Moreover, none of the traditional public policy rationales

for permitting punitive damages would appear to apply to

claims by beneficiaries under Section 502 of ERISA.

This Court has often stated that punitive damages are

designed to punish and deter outrageous conduct. Smith v.

v. Wade, USS. , , 103 S.Ct. 1625, 1636 (1983).

It is extremely difficult to ascertain how “punishment” of

fiduciaries will further any legitimate purpose of ERISA.

As already noted, the trustees of multiemployer plans serve

without compensation ;’ they derive no material benefit from

the grant or denial of any benefit claim by a trust fund

participant. In such a context, it is difficult to imagine that

a trustee would engage in “outrageous” conduct. If the

trustee fails to perform his obligations in a timely manner,

or according to the trust provisions, injunctive relief may

be obtained from a federal court to compel him to do so.

See ERISA Section 502(a)(3). If the trustee’s conduct

constitutes a breach of fiduciary duty, he may be per-

manently removed. See ERISA Section 409. In these cir-

cumstances, the traditional concepts of “punishment” and

“deterrence” would appear to have little utility. A trustee’s

dereliction of an ERISA imposed duty entitles a trust

participant to prompt and effective injunctive and equitable

judicial relief.

A second policy rationale for the imposition of punitive

damage awards arises in cases where the defendant may

derive great profit from outrag: ous conduct. See, e.g.,

Toole v. Richardson-Merrell, Inc., 251 Cal.App.2d 689, 698

(1967). In such circumstances, the courts reason, the de-

fendant may find ii financially attractive to run the risk

of paying mere general damages for wrongful conduct, since

such damages will be small in comparison to the profits

such conduct generates. In these circumstances, punitive

"ERISA Section 408(c)(2), 29 U.S.C. Section 1108(c)(2).

12

damages may be the only effective tool for curtailing such

actions. But no such considertaion is present here. The

trustees do not profit from the grant or denial of individual

benefit claims, and have no prospect of realizing any

financial gain, great or small, from administration of an

employee benefit plan.

Several states recognize a third public policy rationale

for the award of puntive damages. In such jurisdictions,

punitive damages may be granted because the “ American

rule” generally precludes successful plaintiffs from recover-

ing attorneys’ fees. See, Ghiardi and Kircher, Pumitive

Damages, § 2.11 (Callaghan 1983). That consideration is

not present in suits brought under Section 502 of ERISA,

since federal courts will have the diseretion to award at-

torneys’ fees to a successful claimant in appropriate cases.

ERISA Section 502(g)(1), 29 U.S.C. Section 1132(g) (1).

The Russell opinion implies that federal courts iight

“borrow” principles of state law in evaluating punitive

damage claims under Section 502 of ERISA. 722 F.2d

at 491-492. The difficulty with this approach is that the

state courts are in wide disagreement over the availability

of punitive damages. Some states, such as Connecticut and

Michigan, appear to view punitive damages as compensatory

in nature; see, e.g., Collend v. New Canaan Water Co., 155

Conn. 477 (1967) [Connecticut law] ; National Semiconduc-

tor v. Allendale Mutual Insurance Co., 549 F.Supp. 1195

(D.Conn. 1982) [same]; Willett v. Ford Motor Co., 400

Mich. 65 (1977) [Michigan law]; Postill v. Booth News-

papers, Inc., 118 Mich.App. 608 (1982) [same]. Other

states, such as California, view punitive damages as a means

of punishment and deterrence of future misconduct; see,

e.g., California Civil Code Section 3294. Still other states,

such as Massachusetts and Louisiana, do not permit an

award of punitive damages at all, except in narrow cate-

gories of cases where they are specifically authorized by

15

statute, see, e.g., Schiller v. Strangis, 540 F.Supp. 605 (D.

Mass. 1982) [Massachusetts law]; Ashland Oil, Inc. v. Mil-

ler Ow Purchasing Co., 678 F.2d 1293 (5th Cir. 1982)

{Louisiana law].

To the extent that the Russell opinion suggests that state

law doctrines may furnish guidance on the awardability of

punitive damages, it invites federal courts to thread their

way through a maze of hopelessly inconsistent and con-

flicting state doctrines. Such a course is grossly inconsistent

with Congress’ desire to provide for uniformity in the ad-

ministration of ERISA-regulated trust funds.

B. Asa Matter of Public Policy, Punitive Damages Should

Not be Recoverable for ERISA Violations.

Amici have already noted the conspicuous absence of any

legislative history which would countenance the recovery

of punitive damages against fiduciaries for ERISA viola-

tions. In addition, there are positive considerations of

public policy which militate against the availability of such

damages. The following is the brief discussion of salient

considerations :

_ 1. Impact on Trustee Service.

The most dramatic and obvious result of the Ninth Cir-

cuit’s decision in Russell will be to cause responsible in-

dividuals to refuse to serve as trustees of employee benefit

plans. The possibility of being personally liable for paying

punitive damage awards without predictable limits is

enough to discourage any prudent individual from agreeing

to serve as a trustee of an employee benefit plan.*

*Permitting disappointed benefit claimants to seek punitive dam-

ages against fiduciaries of employee benefit trusts also raises the

specter of claims founded on theories of vicarious liability. In large

employee benefit trust funds, much of the day-to-day claims ad-

ministration work is performed by nonfiduciary employees, who are

14

In many jurisdictions, it appears that the trustees could

not obtain any insurance which would protect them from

a punitive damage award. As a matter of public policy,

the states of California, Dlinois, Missouri, New York, New

Jersey, Florida, Virginia and Colorado forbid defendants

from obtaining insurance reimbursement for sums awarded

as punitive damages. See, e.g., Northwestern National In-

surance Co. v. McNulty, 307 F.2d 432 (5th Cir. 1962) [ap-

plying Florida and Virginia law]; Hartford Accident and

Indemnity Co. v. U.S. Concrete Pipe Co., 369 So.2d 451

(Fla.App. 1979) [Florida law]; City Products Corp. v.

Globe Indemnity Co., 88 Cal. App.3d 31 (1979) [California

law]; Ford Motor Co. v. Home Insurance Co., 116

Cal.App.3d 374 (1981) [same]; Hartford Accident and

Indemnity Co. v. Village of Hempstead, 48 N.Y.2d 218,

(1979) [New York law]; Brown v. Western Casualty and

Surety Co., 484 P.2d 1252 (Colo.App. 1971) [Colorado law] ;

Crull v. Gleb, 382 S.W.2d 17 (Mo.App. 1964) [Missouri

law]; Variety Farms v. New Jersey Manufacturers Insur-

ance Co., 172 N.J.Super. 10, 410 A.2d 696 (1980) [New

Jersey law]; Beaver v. Country Mutual Insurance Co., 95

Il.App.3d 1122, 420 N.E.2d 1058 (1981) [Illinois law].

Given the possibility that service as a trustee might

result in a punitive damage award for which the trustee

would have no protection, it taxes the imagination to en-

vision any intelligent individual accepting such a position,

especially in view of the fact that the trustees receive no

compensation for their services.

supervised by and report to the plan’s fiduciaries. As a practical

matter, the plan fiduciaries cannot review every minute detail of

plan administration carried out by such staff personnel. Yet the rule

of Russell would suggest that plan fiduciaries may be sued by dis-

appointed benefit claimants who are displeased with the way in

which staff members have processed their claims. Such “vicarious

liability” claims have met with harsh criticism from legal commen-

tators; see, e.g., Prosser, Torts, (4th Ed.), p. 12.

15

2. Impact on Costs of Administration.

As the Ninth Circuit opinion in Russell notes, trustees

have limited rights to indemnification under section 410

of ERISA, 29 U.S.C. Section 1110. The principal mech-

anism which Section 410 permits employee benefit plans

to utilize to protect fiduciaries is the purchase of insurznce.

As discussed above, in many jurisdictions insurance is not

available to cover claims for punitive damages. But even

if one were to assume that Section 410 would permit em-

ployee benefit plans to fully protect their trustees, the

result would be far from desirable. Such protection would

be an extra cost to the plan, and thus a drain on plan re-

sources. One of the principal purposes of ERISA was

to strengthen the financial underpinning of employee bene-

fit plans; see, e.g., Nachman v. Pension Benefit Guaranty

Corporation, 446 U.S. 395, (1980); Oregon-Washington

Carpenters Pension Trust v. R.A. Gray & Co., US.

» ——, 104 S.Ct. 2709, 2713-2715 (1984). It is surely

contrary to the purpose of ERISA to saddle employee

benefit plans with open-ended liabilities which go beyond

making an employee whole. Providing adequate protection

against punitive damage claims, either through the pur-

chase of insurance or through direct indemnification of

fiduciaries, is certain to significantly increase the costs of

administering employee benefit plans, in contravention of

ERISA’s clear intent.°

In City of Newport v. Fact Concerts, Inc., 453 U.S. 247, 267, this

court stated that “an award of punitive damages against a munici-

pality ‘punishes’ only the taxpayers, who took no part in the com-

mission of the tort.” By the same token, an award of punitive dam-

ages against the fiduciaries of a trust fund really “punishes” only the

participants because (1) responsible individuals will not be willing

to serve as fiduciaries unless they are insured or indemnified against

punitive damage awards; and (2) if the trust must indemnify the

trustees against punitive damages, or purchase insurance for them,

the cost is ultimately borne by the trust beneficiaries themselves.

16

Furthermore, if punitive damages are permitted, fidu-

ciaries may be forced to defend themselves against a string

of seriatim punitive damage claims brought by individual

participants, each complaining of the same incident of

misconduct. Several circuit courts have noted that such

potential multiple punitive damage recoveries can be fi-

nancially ruinous to a defendant; see, e.g., de Haas v.

Empire Petroleum Company, 435 F.2d 1223, 1231 (10th

Cir. 1971); Globus v. Law Research Service, Inc., 418 F.2d

1276, 1285 (2d Cir. 1969) ; Roginsky v. Richardson-Merrell,

Inc., 378 F.2d 832 (2nd Cir. 1967).

Finally, if trustees of multiemployer funds are potential-

ly liable for punitive damages for mishandling of benefit

claims, the substantial in terrorem effect of such exposure

will have a deleterious effect on the administration of

ERISA-regulated employee benefit plans."° Many un-

meritorious claims may be paid in full or settled, simply

to avoid the exposure to open-ended liability for punitive

damages.

3. The Unlimited Nature of Punitive Damage Liability.

The authorities appear to be in universal agreement

that the grant of a punitive damage award is a discretion-

ary act of the trier of fact; see, e.g., Neal v. Farmers In-

surance Exchange, 21 Cal.3d 910 (1978); Prosser, Torts,

In Gertz v. Robert Welch, Inc., 418 U.S. 323, 350 (1974) this

court held that punitive damages could not be awarded against a

publisher of a defamatory article because “jury discretion to award

punitive damages unnecessarily exacerbates the danger of media

self-censorship . . .” The award of punitive damages against the

trustees of the employee benefit plans will have the same “chilling”

effect on their efficient administration of such plans.

17

(4th ed.) Section 2, pp. 13-14; Central Microfilm Service v.

Basic/Four Corporation, 688 F.2d 1206 (8th Cir. 1982).™

Because of the wide discretion which the trier of fact

enjoys in setting an award of punitive damage, there is no

practical way accurately to determine, in advance of trial,

the extent of a defendant’s exposure to such an award.”

The Ninth Circuit has attempted to limit the circum-

stances in which such an award will be available by stating

that punitive damages may only be recovered where there

is “a showing that the fiduciary, in carrying out its duties

and responsibilities under the Act, acted with actual malice

or wanton indifference to the rights of a participant or

beneficiary.” 722 F.2d at 492. But terms such as “wanton

indifference” are so nebulous that the trier of fact is given

nearly unlimited range in determining whether to award

such damages.

''The Second Circuit has referred to “huge and perhaps capricious

punitive damages which some juries have awarded.” Green v. Wolf

Corporation, 406 F.2d 291, 303 (1968).

"As this Court has noted, “In most jurisdictions jury discretion

over the amounts awarded [as punitive damages] is limited only by

the gentle rule that they not be excessive. Consequently, juries

assess punitive damages in wholly unpredictable amounts bearing

n© necessary relation to the actual harm caused.” Gertz v. Robert

Welch, Inc., 418 U.S. 323, 350 (1974). Commentators have also

noted the lack of uniform standards for the award of punitive dam-

ages: “The law of punitive damages is characierized by a high de-

gree of uncertainty that stems from the use of a multiplicity of

vague, overlapping terms.” Ellis, Fairness and Efficiency in the Law

of Punitive Damages, 56 So.Cal.L.Rev. 1, 52-53 (1982).

18

Other courts have met with little success in attempting

to crystallize the standards to be employed in determining

whether punitive damages should be assessed.”

Finally, this Court has noted that, in the absence of some

compelling purpose, punitive damages are merely a “wind-

fall” to a fully compensated plaintiff; see City of Newport

v. Fact Concerts, Inc., 453 U.S. 247, 267 (1981). The Court’s

characterization of punitive damages in City of Newport

applies with full force to the issue presented by the Petition

in this case. Section 502 of ERISA provides ample make-

whole remedies to trust fund beneficiaries; any “smart

money” they obtain through punitive damage awards is a

bonus at the expense of the trust fund, its fiduciaries, and

the fund’s other beneficiaries.

The absence of clear standards for the award of punitive

damages adds a undesirable burden to those already should-

ered by trust fiduciaries, with no clear benefit in exchange.

18This Court has recently taken note of the diverse range of touch-

stone phrases used by lower courts to analyze punitive damage

claims, and stated that the variation in standards “was exacerbated

by the ambiguity and slipperiness of such common terms as ‘malice’

and ‘gross negligence’” Smith v. Wade, __ U.S. —, —, 103 S.Ct.

1625, 1631 (1983). See, e.g., Schwartz v. Sears,‘Roebuck & Co., 669

F.2d 1091 (5th Cir. 1982) [punitive damages justified where there

was an “entire want of care which would raise the belief that the

act or omission complained of was the result or consequence of

indifference to the right or welfare of the person or persons affected

by it.”]; Silberg v. California Life Insurance Co., 11 Cal.3d 452

(1974) [to be liable for punitive damages, the defendant “must act

with the intent to vex, injure or annoy, or with a consequent dis-

regard of the plaintiffs rights”]; Anderson v. Contineutal Insurance

Co., 85 Wis.2d 675, 271 N.W.2d 368 (1978) [punitive damages avail-

able “only where the wrong was inflicted under circumstances of

aggravation, insult or cruelty, with vindictiveness or malice.”].

13

IV.

CONCLUSION

For the reasons set forth herein, the decision of the U.S.

Court of Appeals for the Ninth Circuit should be reversed.

Dated: November 10, 1984

JaMEs P. Watson*

Gerorce M. Cox

Joun S. Miter, Jr.

Cox, CastLe & NicHoLson

LioneEL RicHMaNn

Law Offices of Lionel Richman

Attorneys for Amici Curiae

* Counsel of Record