# Amicus Curiae Brief — Massachusetts Mutual Life Insurance v. Russell

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0403%3A10

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1985
- **Citation:** 473 U.S. 134

## Text

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Office Supreme Court U8
FiLeE Dp

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0403%3A10. Public record. Not legal advice.