Amicus Curiae Brief — Massachusetts Mutual Life Insurance v. Russell

FILED

NOV 24 1964

No. 84-9

ALEXANDE? L. STEVAS

In the CLE =

Supreme Court of the United-Statez

OCTOBER TERM, 1984

MASSACHUSETTS MUTUAL LIFE INSURANCE

COMPANY and CECILIA STEVENSON,

Petitioners,

v.

DORIS RUSSELL,

Respondent.

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

BRIEF OF AMICUS CURIAE

MOTION PICTURE HEALTH & WELFARE FUND

IN SUPPORT OF PETITIONER

WILLIAM L. COLE »

(Counsel of Record)

HENRY E. FARBER

MITCHELL, SILBERBERG & KNUPP

11377 West Olympic Boulevard

Los Angeles, California 90064

Telephone: (213) 312-2000

Attorneys for Amicus Curiae

Motion Picture Health & Welfare Fund

Westside Law Publishers Los Angeles, California (213) 477-0491 Sj

QUESTION PRESENTED

Whether the Employee Retirement Income Security

Act permits an employee benefit plan participant or

beneficiary to recover punitive damages or extra-contractual

compensatory relief from a plan fiduciary for improper or

untimely processing of benefit claims?

ill

TABLE OF CONTENTS

Page

Interest Of The Amicus Curiae. | l

Opinions Below... - 4

Summary of Argument... SS

Argument

A. The Plain Language And Detailed Scheme Of

ERISA Demonstrate That Extra-Contractual

Damages Cannot Be Awarded To A Rarticipant

Or Beneficiary In The Benefit Claim Context. 7

B. ‘the Ninth Circuit’s Decision Is Not Supported

By The Legislative History of ERISA... ....... 12

C. Public Policy Militates Against Allowing Bene-

ficiaries And Participants To Obtain Extra-

Contractual Damages From Fiduciaries. 15

D. Sections 409 And 502(aX2) Of ERISA Do Not

Provide For The Recovery Of Punitive Damages

By A Participant Or Beneficiary From A

es coacaensatsesecvaccncossces 19

PT sn . ccaccuccccocccccsccccceccecevcencecceccscces 20

iV

TABLE OF AUTHORITIES

Cases

Page

Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820

4° 3. . eepeeeibernposage rst ry) 0 ie eae 8

Curtis v. Loether, 415 U.S. 189 (1974)... Y

Davidson v. Cook, 567 F.Supp. 225 (E.D. Va.

1983) aff'd, 734 F.2d 10 (4th Cir.), cert. denied

sub nom. Accardi v. Davidson, 53 U.S."‘..W.

PE hcp anc cn acne Civ tbon sea Dien ona 11

Eaton v. D’Amato, 581 F.Supp. 743 (D.D.C.

RAS ROR Serre RNR tena ene ee 13

Eversole v. Metropolitan Life Insurance Co., 500

F.Supp. 1162 (C.D.Cal. 1980)... 17

Federal Maritime Commission v. Seatrain Lines,

Wwe gk Bee Fs! 4 See 11

Gilliam v. Edwards, 492 F.Supp. 1255 (D.N.J.

RSS a ey ena Sel Re 11

International Union, United Automobile Workers v.

Federal Forge, Inc., 583 F.Supp. 1350 (W.D.

I oo eee ea ata 12-13

Jarecki v. G.D. Searle & Co., 367 U.S. 303(1961).... 10

Marshall v. Kelly, 465 F.Supp. 341 (W.D. Okla.

RTS ESP. crits Seep ® a reins Rene pe oe rn 1}

McLaughlin v. Connecticut General Life Insurance

Co., 565 F.Supp. 434 (N.D. Cal. 1983)... 17

National Railroad Passenger Corp. v. National

Association of Railroad Passengers, 414 U.S.

RSE Pea Acres Sart tier ta ny Dee 7

Northwest Airlines, Inc. v. Transport Workers Union,

nn i i oe ad's « 7

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

ERR Kaen py Seppe Ie oes Ve OPE )

Richerson v. Jones, 55! F.2d 918 (3d Cir. 1977) a

Russell v. Massachusetts Mutual Life Insurance

Company, 722 F.2d 482 (9th Cir. 1983)... passim

Stamps v. Michigan Teamsters Joint Council No.

43, 431 F.Supp. 745 (C.D. Mich. 1977).......... )

CLS oe Bem ESe eee Cees... cs ollbas... de 11

Walker v. Ford Motor Co., 684 F.2d 1355 (1 1th Cir.

ER reat 7 RES SiN Teepe ee 9

Wilson v. Motion Picture Health and Welfare Fund,

et al., Case No. CV 83-8516 RMT(Kx).......... 4

Zink v. Heiser, 109 Misc.2d 354, 438 N.Y.S.2d 209

ee ge ene Waa nienpyenkae pga hoe 11

Statutes

29 U.S.C.

I sos sock ian cate sosvndaneog legit cade hap teens 2

io ns nda cas wap atenddns sae enaeev raphael 18

nn ical ont na bie bh dieteiiallllde 18

en i sa aes siaakenenediiveiad 2, 16

ae cx cusksuguadians cavsons Ou passim

io scl ica scvanscneeavenent- <aStasmekee 17

in es ssunbnsverraseceenesssaneeetes 18

idk hui wns donne denavdesuncetoevuunenan’ 8

aa aestpahiperonemasinie 13

i Re 8, 13, 18

i nnns seve dniestnSipaereasn¢oaiemils 7, 10

i wenden declan 9, 13, 18

css dosdiiecnboandayee sectiensWeAie 13

oni cj evksweyakeadvcneeesunhiannnaal 13

iis csni cont snssyncsoovaseesenysoe 15-16

sores nchnegveys st eybcanoryysny Aeaibeoes 18

ian Sueveecersebovannes dsenencesynuynns 3

IU 5 doc eds acsscer sens soadensiverese | 17

I isc, da cyeudabs epdhanindendinene sae 18

vi

Congressional Material

Legislative History of the Employee Retirement

Income Security Act of 1974 (Comm. Print 1976)

H.R. Rep. No. 93-533,93dCong., IstSess.. 12,13

pe NE erika kde cde ee ee estates cee. 14

“Private Pension Reform Legislation, 93d

Congress, March, 1974 — Comparison of

Senate-passed and House-passed versions

of H.R. 2” (Congressional Research Ser-

vice, Library of Congress)... .......... 14

S. Rep. No. 93-127,93dCong., IstSess....__. 12,14

Treatises

G. Bogert, The Law of Trusts and Trustees, §861,

I 1]

C. Sands, 2A Sutherland Statutes and Statutory

Construction §4717 (4th ed. 1973)... 11

D. Dobbs, Handbook of the Law of Remedies, §1.1

RRS ae RR apr EW tl cco N Re eM 9

No. 84-9

In the

Supreme Court of the United States

OCTOBER TERM, 1984

MASSACHUSETTS MUTUAL LIFE iNSURANCE

COMPANY and CECILIA STEVENSON,

Petitioners,

v.

DORIS RUSSELL,

Respondent.

BRIEF OF AMICUS CURIAE

MOTION PICTURE HEALTH & WELFARE FUND

IN SUPPORT OF PETITIONER

INTEREST OF THE AMICUS CURIAE

The Motion Picture Health and Welfare Fund (“‘Fund’’)

is a multi-employer, multi-union health and welfare fund

created pursuant to collective bargaining agreements in

the motion picture industry in Los Angeles, California.

The Fund was created pursuant to Section 302 of the

Labor Management Relations Act of 1947, as amended,

29 U.S.C. §186, and is administered by a Pvard of

Trustees consisting of an equal number of management

and union trustees. The management and union trustees

serve on a voluntary basis and receive no compensation for

their services.'! The Fund provides health and welfare

benefits to more than 25,000 active and retired employees

in the motion picture industry and to the dependents of

said employees.

For many years, the Fund provided all benefits to its

participants and beneficiaries through the purchase of

‘nsurance policies. While the Fund maintained a full

complement of employees for claims processing, the final

decisions in disputed benefit claims cases were left to the

insurance company which issued the policy in question.

The utilization of insurance companies to administer the

Fund’s pian of benefits provided some insulation to the

Fund and its Trustees from actions by participants and

beneficiaries claiming extra-contractual and punitive dam-

ages in Cases involving the denial of benefits. Such actions

were typically brought against the insurance carrier

administering the relevant portion of the plan, and the time

and expense involved in defending against such claims

were the responsibility of the carrier.

This method of providing benefits, however, proved

unduly expensive in light of the Fund’s size and ability to

self-fund the benefits. Accordingly, effective July 1, 1983.

the Trustees of the Fund decided to pay most of the

'Seventeen of the eighteen trustees are full-time paid employees of

employers, associations of employers and employee organizations

whose employees and members are participants in the Fund. Accord-

ingly, they would be prohibited by ERISA from receiving compensation

from the Fund even if the Fund’s plan document otherwise provided

for compensation. 29 U.S.C. 4 1108(c) (2).

medical benefits provided under the Fund’s plan of

benefits itself and to administer benefit claims internally.

The self-funding of benefits results in very substantial

Savings to the Fund and inures to the benefit of all

participants by bolstering the Fund's financial stability. If

the Ninth Circuit’s opinion below is permitted to stand,

however, the Trustees will be forced to reconsider the

prudence of se!f-funding in light of the significant risks that

would be faced by the Fund and its fiduciaries.

Pursuant to Section 503 of ERISA, 29 U.S.C. § 1133,

the Fund has created a Claims Review Committee vested

with final authority to decide whether or not benefits are

payable for a disputed claim. Four members of the Board

of Trustees serve as the Committee, without pay. Under

the Ninth Circuit’s opinion, these committee members

can expect to be named individually in suits for extra-

contractual and punitive damages in any action in which a

participant or beneficiary contests a denial of benefits,

since such damages would not be available from the plan

itself.

Many responsible labor and management officials will

decline to serve as fiduciaries for the Fund and other self-

funded benefit plans if, by serving, they subject themselves

to the risk and expense of defending against such actions.

Those officials who do agree to serve will inevitably

consider the potential! for individual liability as a factor in

their benefit decisions, thereby increasing the likelihood

that unmeritorious claims will be paid. In either event, the

Ninth Circuit’s decision operates to the detriment of the

participants in the plan as a whole.

The foregoing problems created by the Ninth Circuit’s

opinion are real, not hypothetical. Within two months of

becoming self-funded, the Fund was sued by a participant

claiming that the Fund wrongfully denied him benefits.

This action is presently pending in the United States

District Court for the Central District of California and

involves a claim for approximately $17,000 in benefits.

While the benefit claim is relatively small, the plaintiff

seeks unspecified damages for pain and suffering, as well

as punitive damages, thereby subjecting the Fund and its

fiduciaries to substantial potential liability. Wilson v.

Motion Picture Health and Welfare Fund, et al., Case

No. CV 83-8516 RMT(Kx). It is respectfully submitted

that unless the decision below is reversed, such lawsuits

against the Fund and other employee benefit plans will

multiply as disgruntled participants and their attorneys

anticipate the prospect of obtaining substantial damage

awards and extracting large sums in settlement.

Petitioners and Respondent have consented to the filing

of this brief, and their respective letters of consent have

been filed with the Court.

OPINIONS BELOW

The opinion of the Ninth Circuit Court of Appeals is

reported at 722 F.2d 482 (9th Cir. 1983). In that decision,

the Ninth Circuit held that punitive and compensatory

damages may be awarded to a participant or beneficiary of

an employee benefit plan against a plan fiduciary under

Section 409 of ERISA, 29 U.S.C. §1109. The Ninth

Circuit concluded that the phrase “other equitable or

remedial relief as the court may deem appropriate”’ in

Section 409 authorized awarding such relief. The Ninth

Circuit reasoned, inter alia, tha: if such damages were not

available, fiduciaries would have no incentive to act

responsibly in making decisicns on benefit claims.

The order of the United States District Court for the

Central District of California granting Petitioners’ motion

for summary judgment, as well as the findings of fact and

conclusions of law issued in connection therewith, are

NS

unreported and appear in the Appendix submitted by the

parties to this case at 26a through 32a.

SUMMARY OF ARGUMENT

Amicus curiae joins with Petitioners in seeking reversal

of the decision below that a participant or beneficiary may

recover extra-contractual and punitive damages under the

Employee Retirement Income Security Act (“ERISA”)

from an individual fiduciary of an employee benefit plan.

The Ninth Circuit’s holding ignores the comprehensive

scheme of remedies provided by ERISA and is contrary to

the plain language of Section 409. By its terms, Section

409’s remedies may only inure to the benefit of the plan

itself. The Ninth Circuit’s construction of Section 409 as

permitting the award of damages directly to participants

and beneficiaries is based upon isolated language taken

out of context. When the statute is read as a whole, it is

apparent that the Ninth Circuit’s reading of the statute is

erroneous and that the only remedies available to partici-

pants or beneficiaries in the benefit claims context are

those set forth in Sections 502(a) (1) (B) and 502(a) (3),

which do not include the recovery of extra-contractual or

punitive damages.

The legislative history of ERISA also fails to support the

Ninth Circuit’s conclusion. The one citation to legislative

history made by the Ninth Circuit did not refer to Section

409, but to another section of ERISA that provided a much

broader range of remedies. Moreover, the reference was to

earlier versions of ERISA that had different remedial

provisions. Further, the legislative history indicates that

Congress intended any relief available under Section 409

to go only to the plan. In short, the legislative history of

ERISA is in accord with the clear language of the statute

and compels the conclusion that extra-contractual and

punitive damages are not available to a participant or

beneficiary in a benefit claims action.

Moreover, significant policy reasons require the reversal

of the Ninth Circuit’s decision. By holding fiduciaries

personally liable for extra-contractual damages resulting

from a denial of a claim for benefits, the Ninth Circuit

placed the risk of administering a benefit plan on the

fiduciaries themselves. Because such damages are not

recoverable against a plan, a claim for extra-contractual

damages against the fiduciaries will inevitably be added

whenever a claim for wrongful denial of benefits is brought

against the plan. Few persons will agree to act as

fiduciaries if they are subject to personal liability for

erroneous decisions. Further, those who do agree to act as

fiduciaries will be encouraged to award benefits in all

questionable cases. Accordingly, the Ninth Circuit's

decision would unnecessarily increase the cost of operating

employee benefit plans, and is thereby contrary to the

intent of ERISA.

ARGUMENT

A. THE PLAIN LANGUAGE AND DETAILED

SCHEME OF ERISA DEMONSTRATE THAT

EXTRA-CONTRACTUAL DAMAGES CAN-

NOT BE AWARDED TOA PARTICPANT OR

BENEFICIARY IN THE BENEFIT CLAIM

CONTEXT.”

This Court has long recognized that when Congress has

enacted a comprehensive statute containing a detailed

remedial scheme, the courts should be loathe to “expand the

coverage of the statute to subsume other remedies.” National

Railroad Passenger Corp. v. Naticnal Association of

Railroad Passengers, 414 U.S. 453, 458 (1974). As th's

Court stated in Northwest Airlines, Inc. y. Transport

Workers Union:

The presumption that a remedy was deliberately

omitted from a statute is strongest when Co:. gress

has enacted a comprehensive legislative scheme

including an integrated system of procedures for

enforcement... . The judiciary may not, in the face

of such comprehensive legislative schemes, fashion

new remedies that might upset carefully considered

legislative programs.

451 U.S. 77, 97 (1981).

In the decision below, the Ninth Circuit failed to heed

this advice. Rather, the Ninth Circuit attempted to

manufacture statutory authority for awarding extra-

contractual and punitive damage remedies to participants

and beneficiaries by reading in isolation the clause

2Since the briefs of Petitioners and other amici focus on the

unavailability of punitive damages under ERISA, this brief will

concentrate on the issue of whether a participant or beneficiary may

recover extra-contractual damages, such as damages for pain and

suffering, in a suit against a fiduciary brought pursuant to Sections

409 and 502(a) (2) of ERISA, 29 U.S.C. § §1109, 1132(a) (2).

8

contained in Section 409 of ERISA that provides for the

award of “other equitable or remedial relief as the court

may deem appropriate.” See Russell, 722 F.2d at 490. As

shown below, the Ninth Circuit's conclusion neither

comports with ERISA’s detailed remedial scheme nor

properly interprets the statutory language in issue. An

examination of those remedial provisions demonstrates

that Section 409, and the phrase permitting “equitable or

remedial relief,” provide remedies only to the plan itself,

not to individual participants and beneficiaries contesting

a benefit claim decision.

The civil enforcement provisions of ERISA are contained

in Section 502, 29 U.S.C. §1132, and include both

individual actions available to participants and beneficiaries

and general enforcement actions which may be brought on

behalf of the plan by the Secretary of Labor or by a

participant, beneficiary, or fiduciary acting in a representative

capacity. Compare Section 502(a) (1) (A) and (B) and (a)

(3) with Section 502(a) (2), (4), (5) and (6). Among the

actions available to a participant or beneficiary for individual

relief under Section 502 is one for wrongful denial of

benefits. The remedies available to a participant or beneficiary

in such a benefit claim action are set forth in Section 502(a)

(1) (B), which provides that an action may be brought:

to recover benefits due to him under the terms

of his plan, to enforce his rights under the terms of

the plan, or to clarify his rights to future benefits

under the terms of the plan... .

29 U.S.C. §1132(a) (1) (B). As this section makes clear,

Congress has specifically limited the monetary remedy

available to a participant or beneficiary to the recovery of the

amount of benefits due. Bittner v. Sadoff & Rudoy

Industries, 728 F.2d 820, 825 (7th Cir. 1984) (money

damages beyond the amount of benefits due are not

available in an action under Section 502(a) (1) (B)).

<>

>

7 «a

However, Congress did not leave participants and bene-

ficiaries without redress in the event of wrongdoing on the

part of a plan or its fiduciaries. Section 502(a) (3) specifically

permits a participant, beneficiary or fiduciary to bring an

action for equitable relief:

(A) To enjoin any act or practice which

violates any provision of this subchapter 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 subchapter or the

terms of the plan... .

29 U.S.C. §1132(a) (3) (emphasis added). As the court

noted in Stamps v. Michigan Teamsters Joint Council No.

43,‘‘|s]ubsection (a) (3) clearly and specifically creates a

civil action for equitable relief.” 431 F.Supp. 745, 747

(C.D. Mich. 1977) (einphasis added).

In sum, Congress specifically deait with the question of

the remedies available to a participant or beneficiary

claiming a wrongful denial of benefits or a violation of the

provisions of ERISA or of the plan, and limited them to the

recovery of benefits due and other equitable relief. It is well

established, of course, that equitable relief does not include

compensatory damages for pain and suffering or other

traditional legal relief. D. Dobbs, Handbook of the Law of

Remedies, §1.1 at 1-3 (1973).

Unlike sections 502(a) (1) (B) and (a) (3), the other

subsections of Section 502 are general enforcement

4As Petitioners make clear in their brief, punitive damages are

also a legal rather than an equitable remedy and therefore are not

available to a participant or beneficiary in a benefit claim action. See

Curtis v. Loether, 415 U.S. 189, 196 (1974); Walker v. Ford Motor

Co., 684 F.2d 1355, 1364(11th Cir. 1982); Richerson v. Jones, 551

F.2d 918, 927 (3d Cir. 1977): Pearson v. Western Electric Co., 542

F.2d 1150, 1152 (10th Cir. 1976).

10

provisions designed to protect the plan itself. In particular,

Section 502(a) (2) permits the Secretary of Labor, a

participant, beneficiary, or fiduciary to bring an action “for

appropriate relief under Section 1109 [Section 409] of

this title... .””- 29 U.S.C. §1132(a) (2). The inclusion of

the Secretary of Labor in the class of persons entitled to

bring such actions demonstrates Congress’ intent that

actions for breach of fiduciary duty be brought in a

representative capacity on behalf of the plan as a whole.

The language of Section 409 eliminates any doubi that

any remedies awarded should inure ‘to the plan itself, not

to individual fiduciaries. Section 409 provides:

(a) Any person who is a fiduciary with

respect to a plan who breaches any of the

responsibilities, obligations, or duties imposed

upon fiduciaries by this subchapter shall be

personally liable to make good to such plan any

losses to the plan resulting from each such

breach, and to restore fo such plan any profits of

such fiduciary which have been made through

use of assets of the plan by the fiduciary, and

shall be subject to such other equitable or

remedial relief as the court may deem appropriate,

including removal of such fiduciary.

29 U.S.C. §1109 (emphasis added).

It is a basic tenet of statutory construction that words

are “known by the company [they] keep.” Jarecki v.

G.D. Searle & Co., 367 U.S. 303, 307 (1961). By

considering and quoting the phrase “other equitable and

remedial relief” out of context, the Ninth Circuit greatly

expanded its meaning. See Russell, 722 F.2d at 488, 490.

Read in context, the phrase “other equitable or remedial

relief’ plainly refers to other forms of relief available to

the plan. The phrase appears within the same sentence as

1]

and directly after a listing of two types of relief available to

the plan. The word “other” was obviously intended to

present an alternative to the types of relief available; it

cannot be construed as creating an entirely new class of

persons to whom the relief may be awarded.* Zink y.

Heiser, 109 Misc.2d 354, 438 N.Y.S.2d 209, 215 (1981)

(recovery against fiduciary under Section 409 available

only to the plan and not to participants or beneficiaries).

This result is supported by the well-established doctrine

of statutory construction ejusdem generis. Under this

doctrine, where general words follow specific words, *‘the

general words are construed to embrace only objects

similar in nature to those objects enumerated by the

preceding specific words.’ C. Sands, 2A Sutherland

Statutes and Statutory Construction § 4717, at 103 (4th

ed. 1973). See also Federal Maritime Commission v.

Seatrain Lines, Inc., 411 U.S. 726, 734 (1973); U.S. v.

Jones, 131 U.S. 1, 19 (1889) (“It is one of these general

expressions which must be restrained by the more special

and definite indications of intention furnished by the

context.””) In Section 409, the relief described in the

general phrase “other equitable and remedial relief must

be construed to be of the same nature as the relief

‘Thus, a court may grant other forms of relief normally

available in the enforcement of trusts, such as imposing constructive

trusts, requiring an accounting, enjoining specific activity, or ordering

specific performance. See G. Bogert, The Law of Trusts and Trustees

§861, at 2-27 (2d ed. rev. 1982). For exampies of cases in which the

courts have granted “other equitable or remedial relief’ under Section

409, see Davidson v. Cook, 567 F.Supp. 225, 240 (E.D. Va.1983),

aff'd, 734 F.2d 10 (4th Cir.), cert. denied sub nom. Accardi v.

Davidson, 53 U.S.L.W. 3270(1984) (fiduciaries personally liable to

plan for diminished value of investment); Gilliam v. Edwards, 492

F.Supp.1255 (D.N.J. 1980) (fiduciary obligated to rescind self-

dealing employment agreement and to repay fund for compensation

paid pursuant to agreement); Marshail v. Kelly, 465 F. Supp. 341,

354 (W.D. Okla. 1978) (court orders rescission of unlawful trans-

actions and appoints interim trustees).

12

previously specified in the section — relief to the plan.

Indeed, the example given, removal of a fiduciary, is

precisely the type of remedy sought for the benefit of the

plan as a whole.

In short, when Section 409 is read as a whole and is

considered in the context of the entire scheme of remedial

relief established by ERISA, it is clear that it was not

iitended to provide a remedy to a disappointed participant

or beneficiary of a plan in a case involving a claim for

benefits. To the contrary, Section 409 was designed to

protect the plan itself from breaches of duty by its

fiduciaries and Section 502(a) (2) merely permits partic-

ipants and beneficiaries to initiate actions for relief under

Section 409 on behalf of the plan.

B. THE NINTH CIRCUIT'S DECISION IS NOT

SUPPORTED BY THE LEGISLATIVE HIS-

TORY OF ERISA.

The Ninth Circuit’s selective reading of the statute is

rivaled only by its cavalier use of inapplicable portions of

ERISA’s legislative history to support its erroneous con-

clusion. To justify its assertion that Section 409 contem-

plates awards of extra-contractual and punitive damages,

the Ninth Circuit relied heavily upon language in early

Senate and House Committee reports that Congress

intended ERISA to provide “the full range of legal and

equitable remedies available in both state and federal

courts.”” Russell, 722 F.2d at 490, 491, quoting H.R.

Rep. No. 93-533, 93d Cong., Ist Sess. 17 and S.R. Rep.

No. 93-127, 93d Cong., Ist Sess. 35, reprinted in

Legislative History of the Employee Retirement Income

Security Act of 1974 (Comm. Print 1976) (hereinafter

“Legis. Hist.”’)621, 2364. See also International Union,

United Automobile Workers v. Federal Forge, Inc., 583

13

F.Supp. 1350, 1356-57 (W.D. Mich. 1984); Eaton vy.

D'Amato, 581 F.Supp. 743, 747, (D.D.C. 1980).

This quote, however, does not reflect Congress’ intentions

with regard to the interpretation of Section 409. Indeed, it

does not even relate to Section 409. In both the Senate and

House reports, the quoted language is found in a section

describing the enforcement provisions of the bills. Legis.

Hist. at 621, 2364. In the bills under consideration by the

Senate and House at that time, it was the predecessors of

Section 502 that were contained in the enforcement

sections of the bills. Legis. Hist. at 577, 579, 2331,

2334. In contrast, the predecessors of Section 409 were

contained in sections of the bills entitled “Disclosure

and Fiduciary Standards”’ and “Fiduciary Responsibility

and Disclosure,” respectively. Legis. Hist. at 540, 2259.

Thus, the language relied upon by the Ninth Circuit below

refers to the breadth of remedies provided by Section 502

of ERISA, not to the limited remedy contained in Section

409.>

More importantly, the language quoted by the Ninth

Circuit sheds no light on ERISA as finally enacted. The

quoted language appeared in early Senate and House

reports, which were published before debates, before the

bills went be ore a Senate- House Conference Committee,

and before the remedy provisions of the Act were

finalized. Indeed, the sections providing remedies for

breach of fiduciary duty in the Senate version of the bill at

the time of the report called for considerably greater relief

than is presently provided in ERISA. The Senate version of

‘The many types of relief encompassed in Section 502 include

statutory penalties, §502(a) (1) (A), 29 U.S.C. §1132(a) (1) (A),

suits for benefits due, §502(a) (1) (B), 29 U.S.C. §1132(a) (1) (B),

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

equitable relief, §502(a)(3) and(4), 29 U.S.C. §1132(a)(3),(4), as

well as civil penalties, §502(a) (5), 29 U.S.C. §1132(a) (5).

14

Section 502 specified that beneficiaries and participants

could bring “‘[c]ivil actions for appropriate relief, /ega/ or

equitable, to redress or restrain a breach of any responsi-

bility, obligation, or duty of a fiduciary, including but not

limited to, the removal of a fiduciary. . . .”- H.R. 4200,

Legis. Hist. at 2099 (emphasis added). The elimination of

this reference to legal relief in the final bill indicates that

Congress did not intend to permit the recovery of com-

pensatory or punitive damages.

Moreover, nothing in the quoted phrase indicates an

intent that any relief available under Section 409 should

be awarded to participants or beneficiaries rather than the

plan. To the contrary, the legislative history is consistent

with the language of the statute and confirms Congress’

intent that the remedies available under Section 409 inure

to the plan, not to individuals. S. Rep. No. 93-127, 93d

Cong, Ist Sess. 33, Legis. Hist. at 619 (‘‘a fiduciary is

made personally liable for his breach of any responsibility,

duty, or obligation owed to the fund, and must reimburse

the fund for any loss resulting from such a breach’’);

“Private Pension Reform Legislation, 93d Congress,

March, 1974 — Comparison of Senate-passed and House—

passed versions of H.R. 2,”” prepared by Congressional

Research Service of Library of Congress, Legis. Hist. at

4265 (both House and Senate versions provide that a

fiduciary is personally liable to the fund for any losses

resulting from a breach of fiduciary obligations). Accord-

ingly, even if the legislative history cited by the Ninth

Circuit were applicable to Section 409, it would not

detract from the inevitable conclusion that Section 409

provides relief only to the plan.

C. PUBLIC POLICY MILITATES AGAINST

ALLOWING BENEFICIARIES AND PARTI-

CIPANTS TO OBTAIN EXTRA-CONTRAC-

TUAL DAMAGES FROM FIDUCIARIES.

While the plain language of the statute and its legislative

history amply demonstrate that the decision below should

be reversed, this conclusion is buttressed by important

public policy reasons relating to the administration of

employee benefit plans. If the Ninth Circuit’s decision

were permitted to stand, it would inevitably lead to

increased litigation in the federal courts, a reluctance by

responsible individuals to serve as plan fiduciaries, and

an inequitable shifting of the costs of operating benefit

plans from the plan and its sponsors to the shoulders of

individual fiduciaries.

As previously noted, the touchstone of the Ninth

Circuit’s decision is its holding that the authority to award

compensatory and punitive damages emanates from the

language of Section 409. Section 409, however, only

provides a remedy against individual fiduciaries and is

inapplicable to actions against the plan itself. Russell, 722

F.2d at 490 n. 8. Accordingly, under the Ninth Circuit’s

decision, a participant or beneficiary seeking an award 01

compensatory damages for pain and suffering must sue the

individual fiduciaries responsible for the benefit decision,

rather than the plan. In light of the nebulous proof

requirements and high recoveries associated with claims

for pain and suffering, it is inevitable that any individual

filing a claim against a plan alleging wrongful denial of

benefits will also assert a claim against the plan’s fidu-

ciaries for compensatory damages.® Indeed, it would be

©This would also lead to the anomalous result that all benefit claim

actions would be brought in federal court despite the fact that

Congress specifically provided for concurrent state court jurisdiction

over actions brought under Section 502(a) (1) (B). 29 USC.

16

tantamount to malpractice for an attorney to fail to advise

his client to bring such a double-barrelled action.

In short, since extra-contractual damages would be

available only against fiduciaries and not the plan,

adoption of the Ninth Circuit’s interpretation of ERISA

would imply that Congress intended to shift a major

portion of the risk of operating benefit plans to fiduciaries.

The impact of such risk shifting would be particularly

troublesome in light of the court’s further holding that a

breach of fiduciary duty, and thus a right to compensatory

damages, can be established by a showing of mere

negligence — the failure to exercise “reasonable care.”

722 F.2d at 489 & n. 7. In the benefit claims context

where the issue is often a close question of whether

benefits should be awarded under a specific set of facts,

fiduciaries could find themselves facing potential personal

liability whenever they make a good faith but erroneous

decision to deny benefits.

Significantly, it is primarily uncompensated individuals

who would be affected by the opinion below. In the

majority of self-insured employee benefit plans, the plan

sponsors appoint their own full-time employees to serve as

fiduciaries. Such individuals are prohibited from receiving

compensation for the performance of fiduciary duties. 29

U.S.C. §1108(c)(2). On the other hand, the Ninth

Circuit’s decision would have no effect on insurance

companies acting as fiduciaries under insured welfare

benefit plans, since several courts have held that such

carriers remain subject to state law actions for com-

pensatory and punitive damages because ERISA does not

§1132(e) (1). The federal courts have exclusive jurisdiction over

actions alleging a breach of fiduciary duty under Section 502(a) (2)

and, therefore, provide the only appropriate forum when the two

claims are joined in a single action.

17

preempt state laws regulating insurance. 29 U.S.C.

§ 1144(b)(2)(A); see, e.g., Eversole v. Metropolitan Life

Insurance Co., 500 F.Supp. 1162, 1170 (C.D. Cal.

1980); McLaughlin v. Connecticut General Life Insur-

ance Co., 565 F.Supp. 434, 443-44 (N.D. Cal. 1983).

Moreover, a plan cannot effectively insure such un-

compensated fiduciaries against losses arising out of a

breach of fiduciary duty. 29 U.S.C. §1110. The Ninth

Circuit points out in Russell that while liability under

Section 409 is against the individual fiduciary p ._ sonally,

29 U.S.C. §1110 allows for “certain for.us of fiduciary

indemnification.” 722 F.2d at 490 n. 8. The Ninth

Circuit’s decision fails to consider, however, that while 29

U.S.C. § 1110 permits a plan to purchase insurance for its

fiduciaries to cover liability or losses occurring by reason

of the act or omissions of the fiduciary, the insurance

policy must permit recourse by the insurer against the

fiduciary in the case of a breach of fiduciary obligations.

29 U.S.C. §1110. Since compensatory damages under

Section 409 would be predicated upon a finding of breach

of fiduciary duty, the exception would necessarily swal-

low the rule in this situation.’

In these circumstances, holding individual fiduciaries

liable under ERISA for extra-contractual and punitive

damages in the benefit claims context can only have the

undesirable result of deterring qualified individuals from

volunteering to serve as fiduciaries. Few people would

agree to be placed in a position in which they were

regularly required to make decisions as to the propriety of

benefit claims if they risked personal liability for each

™While the fiduciaries or their employers may purchase insurance

without such a recourse provision, they must bear the costs of the

insurance and, thus, the costs of operating the plan are still shifted

away from the plan itself. Moreover, as discussed in Petitioners’ brief,

in many states no insurance is available for punitive damages.

18

erroneous decision. For the same reasons, it can be

expected that those individuals who do choose to serve as

fiduciaries will be extremely timid in the administration of

claims and will opt to award benefits whenever there is any

question as to a claim’s validity. It is respectfully submitted

that Congress never intended such a result.*

The Court below suggesis that if compensatory and

punitive damages could not be recovered against fidu-

ciaries, fiduciaries would have no incentive to abide by the

terms of the plan or of ERISA. Russell, 722 F.2d at 490.

The simple answer to this contention is that Congress did

not provide for such relief and it is not for the courts to

engraft additional remedies onto the detailed statutory

scheme. In any event, Congress did provide ample

procedures to correct any fiduciary misconduct. Partici-

pants and beneficiaries may always maintain actions to

recover benefits wrongfully denied, 29 U.S.C. §1132(a)

(1)(B), and may recover attorneys’ fees in appropriate

cases, 29 U.S.C. §1132(g)(1). Participants and benefi-

ciaries may also seek equitable relief to enjoin violations

of the plan’s terms, 29 U.S.C. § 1132(a)(3), and may seek

removal of the fiduciary for improper conduct, 29 U.S.C.

§ 1109. In sum, Congress has provided sufficient means

of relief to ensure that participants and beneficiaries have

a method of controlling the fiduciary’s conduct.

®It could be argued, of course, that a plan can avoid these problems

by simply reverting to purchasing insurance and delegating the

fiduciary duty of deciding benefit claims to an insurance company. As

amicus curiae’s experience shows, however, it can be substantially

more expensive to provide benefits through an insured plan than to

self-insure, and such a result may therefore needlessly increase the

cost of administering welfare benefit plans. See pp. 2-3, supra. In

addition, Congress clearly intended employee welfare benefit plans to

have the choice between self-insuring and purchasing insurance. See

eg., 29 U.S.C. §1023(e); 29 U.S.C. §1101(b) (2), 29 U.S.C.

§1112(a) (2) (B); 29 U.S.C. § 1144 (b) (2) (B).

19

Moreover, the decision below primarily affects those

fiduciaries who do not act in that role for personal profit

and who, therefore, have nothing to gain by wrongfully

withholding benefits. As previously noted, profit-oriented

fiduciaries are already subject to the precise sanctions

that the Ninth Circuit’s holding would add to ERISA. See

pp. 16-17, supra. Accordingly, the Ninth Circuit’s decision

would only add a deterrent where none is necessary.

In conclusion, it is apparent that adopting the inter-

pretation of the Court below would only hamper the

efficient operation of employee benefit plans without any

concomitant benefit to the participants and beneficiaries.

D. SECTIONS 409 AND 502(a)(2) OF ERISA DO

NOT PROVIDE FOR THE RECOVERY OF

PUNITIVE DAMAGES BY A PARTICIPANT

OR BENEFICIARY FROM A FIDUCIARY.

For each of the reasons set forth above, it is clear that

Congress did not intend fiduciaries to be held personally

liable for punitive damages under Section 409. Moreover,

the possibility of incurring punitive damage liability will

further discourage competent persons from serving as

fiduciaries.

Amicus curiae adopts the arguments encompassed in

Petitioners’ brief and joins Petitioners in urging that the

portion of the decision below permitting the imposition of

punitive damages be reversed as well.

20

CONCLUSION

For the reasons and on the authorities set forth above,

and for the reasons expressed in Petitioners’ Brief on the

merits, amicus curiae respectfully requests that the

decision below on the issue of extra-contractual and

punitive damages be reversed.

Dated: November 14, 1984

Respectfully submitted,

WILLIAM L. COLE

(Counsel of Record)

HENRY E. FARBER

MITCHELL, SILBERBERG & KNUPP

Attorneys for Amicus Curiae

Motion Picture Health & Welfare Fund

PROOF OF OF SERVICE BY MAIL

State of California

SS.

County of Los Angeles

I, the undersigned, say: I am and was at all times herein

mentioned, a citizen of the United States and a resident of

the County of Los Angeles, over the age of eighteen (18)

years and not a party to the within action or proceeding;

that my business address is 11333 Iowa Avenue, Los

Angeles, California 90025; that on November 13, 1984,

I served the within Brief of Amicus Curiae in said action

or proceeding by depositing true copies thereof, enclosed in a

sealed envelope with postage thereon fully prepaid, in the

United States mail at Los Angeles, California, addressed

as follows:

Clerk, United States Brad N. Baker

Supreme Court Baker and Burton, P.C.

One First Street, N.W. 515 Pier Avenue

Washington, D.C. 20543 Hermosa Beach, California 90254

(Original and 40 copies) (Three copies)

John Nolan

Paul J. Ondrasik, Jr.

Antonia B. lanniello

Steptoe & Johnson

1250 Connecticut Ave. N.W.

Washington, D.C. 20036

(Three copies)

I declare under penalty of perjury that the foregoing is

true and correct. Executed on November 1 3, 1984, at Los

Angeles, California.

Joy Rivelli Miller

(Original signed)