Amicus Curiae Brief — Massachusetts Mutual Life Insurance v. Russell

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Office - Supreme Court, U.S.

oy Py FILED

No. 84-9. / ' NOV 14 1984

IN THE ’ mR L. STEVAS.

Supreme Court of the United States ““

OCTOBER TERM, 1984

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY

and CECILIA STEVENSON,

- Petitioners,

DorIs RUSSELL,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

BRIEF AMICI CURIAE IN SUPPORT OF PETITIONERS

FOR ALASKA FISHERMEN’S UNION-

SALMON CANNERS PENSION TRUST,

ALASKA FISHERMEN’S UNION-

SALMON CANNERS WELFARE TRUST,

ALASKA PLUMBING &

PIPEFITTING INDUSTRY PENSION TRUST FUND,

MONTANA TEAMSTER EMPLOYERS TRUST,

NATIONAL SHOPMEN PENSION FUND,

NORTHWEST METAL CRAFTS TRUST FUND,

OREGON TEAMSTER EMPLOYERS TRUST,

PRINTING SPECIALTIES AND

PAPER PRODUCTS JOINT EMPLOYER AND

UNION HEALTH AND WELFARE FUND,

RETAIL CLERKS PENSION TRUST,

RETAIL CLERKS WELFARE TRUST,

SOUTHERN CALIFORWIA LUMBER INDUSTRY

HEALTH AND WELFARE FUND,

SOUTHERN CALIFORNIA LUMBER

INDUSTRY RETIREMENT FUND,

AND SPOKANE AREA HOTEL

AND RESTAURANT EMPLOYEES TRUST FUND

[Counsel listed on inside cover }

SST AE aA PEE SS

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

® ceo co yvv'

THOMAS J. HART

(Counsel of Record)

LENA S. ZEZULIN

THOMAS HART & ASSOCIATES

Suite 302

1625 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 797-8700

RICHARD P. DONALDSON

DUANE KIEL

BRUCE MCKENZIE

DONALDSON & KIEL

Vanderveer Bldg., Suite 100

2819 First Avenue

Seattle, WA 98121

(206) 682-5261

QUESTION PRESENTED

Whether, under the Employee Retirement Income Se-

curity Act, a fiduciary of an employee benefit plan may

be held personally liable to a plan participant or benefici-

ary for punitive or compensatory damages for improper

or untimely processing of benefit claims?

(i)

PARTIES TO THE PROCEEDING

Massachusetts Mutual Life Insurance Company*

Cecilia Stevenson

Doris Russell

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

chusetts Mutual Life Insurance Company as well as companies that

may be deemed affiliates thereof:

MML Blend Investment Company, Inc.

MML Equity Investment Company, Inc.

MML Managed Bond Investment Company, Inc.

MML Money Market Investment Company, Inc.

MML Bay State Life Insurance Company

MassMutual Corporate Investors, Inc.

MassMutual Income Investors, Inc.

MassMutual Mortgage and Realty Investors

MassMutual Liquid Assets Trust

Maslif One & Co.

TABLE OF CONTENTS

PARTIES TO THE PROCEEDING ...........................

po Re en

icc cecnticticenecinpatsnensineesentnntignemnsennte

STATEMENT OF THE CASE -ooo.2.oo22n.....eeseeeceneeeeees

SUMMARY OF ARGUMENT Wee

SI Riad dealcilectiicscisitnidsteictainennitcplanantnicnkine

I. The Ninth Circuit’s Ruling is Inconsistent with

ERISA’s Terms and Underlying Policy ...............

Il.

ERISA Established Interrelated but Separate

Rules to Protect Employee Benefit Plans and

their Individual Participants and Benefici-

ERISA Provides Remedies for Individuals

Which Are Different from Those Available

RRS Se Gea ET RS Pi Mirae eon es

. ERISA Does not Provide for any ee

of Punitive Damages .........

By Effectively Altering the Provisions of

ERISA, The Ninth Circuit Has Usurped the

Legislative Function ........... 20.22.

The Ninth Circuit’s Ruling Will Have a Severe

Adverse Impact on Multiemployer Benefit Plans

and their Participants .............. one . ;

(iii)

TABLE OF CONTENTS—Continued

. The Nature and Importance of Multiemployer

Benefit Plans to the Retirement Security and

to the Health and Welfare Benefits of Mil-

lions of Employees ...........—------------------------+-----

_ The Ninth Circuit’s Ruling will Severely In-

jure Multiemployer Benefit Plans and their

Participants because it will Undermine the

Prudent and Careful Administration of Such

es aioe

_ The Ninth Circuit’s Ruling will Deter Quali-

fied Persons from Serving as Fund Trustees

and Administrators .................-.--.---0:--0---------+++

_ The Ninth Circuit’s Ruling is Injurious to

the Dispute Resolution Process Favored by

n= 5. asenmnencoctatanmmeianesaneoess

. Compensatory and Punitive Damages are

not Uniformly Awarded and are Frequently

Large and Inconsistent ................-------------- =

CONCLUSION ......--.------------c-ees-nneeeesenenecenceeoennnsnnssnessnnnnnsenes

Page

TABLE OF AUTHORITIES

CASES

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

REE Se a SN 1

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

gp ta Rice RT a 2 anata et

Brune v. Morse, 475 F.2d 858 (8th Cir. 1978) ........

Clark v. Celeb Pub., Inc., 530 F.Supp. 979

ne I

Cooper v. Department of Admin., State of Nev.,

558 F.Supp. 244 (D. Nev. 1982) —...0000

Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208

(8th Cir. 1981), cert. denied, 454 U.S. 968

a aE NTE Ma Manes ee I le Ia

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

Feathers v. U.M.W. Health and Retirement Funds,

99 L.R.R.M. 2287 (D.D.C. 1978) ......0.000000000....

Freeport Sulphur Co. v. S/S Hermosa, 526 F.2d

Hysell v. lowa Public Serv. Co., 559 F.2d 468 (8th

Kross v. Western Electric Co., Inc., 701 F.2d 1238

(7th Cir. 1983), aff’g in part and rev’g in part,

— EO ne See

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

Be I I D cncitiintittsscessccencesetibteee

Moglia v. Geoghegan, 403 F.2d 110 (2nd Cir.

TE a EE Ee: a ETS a ee ee

Moore v. Greene, 431 F.2d 584 (9th Cir. 1970) ......

Nachmen Corp. v. PBGC, 446 U.S. 359 (1980),

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

Newport v. Facts Concerts, Inc., 453 U.S. 247

SES eA NR 2d SAE Se

NLRB v. Amazx Coal Co., 453 U.S. 8322 (1981) _......

Ross v. United States, 640 F.2d 511 (5th Cir.

Sy actin ie Oi se ee

Ryan v. Foster & Marshall, Inc., 556 F.2d 460 (9th

ED i ee ere

Stoleson v. United States, 708 F.2d 1217 (7th Cir.

BS ER ee ;

TABLE OF AUTHORITIES—Continued

Page

Vanelli v. Reynolds School Dist. No. 7, 667 F.2d

7173 (9th Cir. 1982) ........----------------eceeceeesesneseeneees 28

Whitaker v. Texaco, 566 F. Supp. 745 (N.D. Ga.

DOBB) —— onvennnccnnnecsceceersenesovnscesenscwesenennsnscesonsnenensoneneees 13

STATUTES

26 U.S.C. § 4975 (ERISA § 2008) -.......-----------------++- 11

2B U.S.C. § 1254 (1) -....------------c-eceeeeeeeeeeeeenenenenenenennnes ;

28 U.S.C. § 1381 (a) -.....-------------------eeeeneeeneneneneneeeennenens ;

2B U.S.C. § 1441 (a) -....-.--------------0-nceeneenenneeneneeneeneesenees

29 U.S.C. § 186(c) (5) and (6) ........-----------------e0ee- 18

29 U.S.C. § 1104 (ERISA § 404) ...........-.------------------ 21

29 U.S.C. § 1108 (ERISA § 408 (a) (2) ) -......-.-.-------- 23

29 U.S.C. § 1109 (ERISA § 409) -...........-------------------- passim

29 U.S.C. § 1131 (ERISA § 501) -............---.------------- ; 4

29 U.S.C. § 1182 (ERISA § 502) .............----..------------- passim

29 U.S.C. § 1182(a) (1) (B) (ERISA § 502(a) (1)

CIB) ) anannnncecccnveoccceserenerevem<nseovsernenercreneneenesenosmmncewens 12, 18, 22

29 U.S.C. § 1182(e) (1) (ERISA § 502(e) (1)) -...... 6

29 U.S.C. § 11383 (ERISA § 508) -............--.---.------ 4, 7, 22, 25

42 U.S.C. § 19GB ........-..-0----0--0---csecneeeneencereneeceeenseenssonees 13

45 U.S.C. §§ 151 et 86. ......-..------------eeeee-nenneeeneneneeneees 15

Pub. L. No. 96-369, 94 Stat. 1208-1311 (1980) ........ 18

REGULATIONS

29 C.F.R. § 2560.508-1 -............-----------0---0--eee-e2+ pssst 4, 25

29 C.F.R. § 2560.503-1 (hh) .........------------------0-eeeeeeeeneee> 7

29 C.F.R. § 2560.503-1 (h) (4) .....-------------------0--0---0-- 7

LEGISLATIVE HISTORY

Employee Retirement Income Security Act of 1974

House Education and Labor Committee Report on

H.R. 12906, 93rd Cong., 2nd Sess., reprinted

in Legislative History of the Employee Retire-

ment Income Security Act of 1974 (Legislative

History) (1976) U.S. Government Printing

Office, pp. 32938-3350 ...........-.---------------e-----ee-ee2ee-e0> 15

House Report No. 1280, 93d Cong., 2nd Sess.

(1974), reprinted in Legislative History, pp.

4277-4654 12

vii

TABLE OF AUTHORITIES—Continued

Senate Report No. 127, 98d Cong., 1st Sess. (1973),

reprinted in Legislative History, pp. 587-665

Multiemployer Pension Plan Amendments Act of 1980

House Education and Labor Committee Report on

H.R. 3964 (Rept. 96-869, Part I, April 2, 1980) ..

House Ways and Means Committee Report on H.R.

3904 (Rept. 96-869, Part II, April 23, 1980).

Senate Labor Committee Summary and Analysis of

Consideration of S.1706 (April 1980) U.S. Code

Cong. & Admin. News

BOOKS AND PERIODICALS

38 Am. Jur. 2d Fright, Shock and Mental Dis-

RT ae Fe

Robert D. Cooper, Multiemployer Health and Wel-

fare Plan Operations and Express (1983) Inter-

national Foundation of Employee Benefit Plans,

Brookfield, Wisconsin .........................--...-...-0..-....

Robert D. Cooper and Melody A. Carlsen, Pension

Fund Operations and Expenses (1980) Interna-

tional Foundation of Employee Benefit Plans,

Brookfield, Wisconsin —....000000000 00

Robert D. Cooper and Hetty K. Balanoff, Technical

Report: A Study of Taft-Hartley Health and

Welfare Trust Fund Operations Cost (1979) In-

national Foundation of Employee Benefit Plans,

Brookfield, Wisconsin .......

Jury Verdicts Weekly, Vols. 26 (1982), 27 (1983)

and 28 (1984), Jury Verdicts, Inc., Sante. Rosa,

California

ie ee

Page

IN THE

Supreme Court of the United States

OCTOBER TERM, 1984

No. 84-9

MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY

and CECILIA STEVENSON,

‘. Petitioners,

DorRIs RUSSELL,

Respondent.

On Writ of Certiorari to the United States

Court of Appeals for the Ninth Circuit

BRIEF AMICI CURIAE IN SUPPORT OF PETITIONERS

FOR ALASKA FISHERMEN’S UNION-

SALMON CANNERS PENSION TRUST,

ALASKA FISHERMEN’S UNION-

SALMON CANNERS WELFARE TRUST,

ALASKA PLUMBING &

PIPEFITTING INDUSTRY PENSION TRUST FUND,

MONTANA TEAMSTER EMPLOYERS TRUST,

NATIONAL SHOPMEN PENSION FUND,

NORTHWEST METAL CRAFTS TRUST FUND,

OREGON TEAMSTER EMPLOYERS TRUST,

PRINTING SPECIALTIES AND

PAPER PRODUCTS JOINT EMPLOYER AND

UNION HEALTH AND WELFARE FUND,

RETAIL CLERKS PENSION TRUST,

RETAIL CLERKS WELFARE TRUST,

SOUTHERN CALIFORNIA LUMBER INDUSTRY

HEALTH AND WELFARE FUND,

SOUTHERN CALIFORNIA LUMBER

INDUSTRY RETIREMENT FUND,

AND SPOKANE AREA HOTEL

AND RESTAURANT EMPLOYEES TRUST FUND

The amici curiae Alaska Fishermen’s Union-Salmon

Canners Pension Trust, Alaska Fishermen’s Union-

Salmon Canners Welfare Trust, Alaska Plumbing &

Pipefitting Industry Pension Trust Fund, Montana

Teamster Employers Trust, National Shopmen Pension

Fund, Northwest Metal Crafts Trust Fund, Oregon

Teamster Employers Trust, Printing Specialties and

Paper Products Joint Employer and Union Health and

Welfare Fund, Retail Clerks Pension Trust, Retail Clerks

Welfare Trust, Southern California Lumber Industry

Health and Welfare Fund, Southern California Lumber

Industry Retirement Fund, and Spokane Area Hotel

and Restaurant Employees Trust Fund, respectfully sub-

mit this brief in support of the petitioners in the above-

captioned case, pursuant to Rule 36.3 of the Supreme

Court rules. The amici curiae have obtained the consent

of counsel for both the petitioner and the respondent.

The amici curiae have an interest in this action be-

cause they are multiemployer pension and health and

welfare plans organized under the authority of the Taft-

Hartley Act and the Employee Retirement Income Se-

curity Act ‘ERISA).

The Alz a Fishemen’s Union-Salmon Canners Pen-

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

13 contributing employers. It received 40 claims during

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

Salmon Canners Welfare Trust is a health and welfare

plan with 1,122 participants and 13 contributing employ-

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

“he Alaska Plumbing & Pipefitting Industry Pension

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

200 contributing employers. It received 49 claims during

its last reporting year. The Montana Teamster Employ-

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

ticipants and 179 contributing employers. It received

28,600 claims during its last reporting year. The Na-

tional Shopmen Pension Fund is a pension plan with

17,000 participants and 283 contributing employers. It

received 480 claims during its last reporting year. The

Northwest Metal Crafts Trust Fund is a health and

welfare plan with 5,695 participants and 139 contribut-

ing employers. It received 20,000 claims during its last

reporting year. The Oregon Teamster Employers Trust

is a health and welfare plan with 17,600 participants

and 993 contributing employers. It received 58,200 claims

during its last reporting year. The Printing Specialties

and Paper Products Joint Employer and Union Health

and Welfare Fund is a health and welfare plan with

8,400 participants and 126 contributing employers. It

received 102,000 claims during its last reporting year.

The Retail Clerks Pension Trust is a pension plan with

25,153 participante and 738 contributing employers. It

received 258 claims during its last reporting year. The

Retail Clerks Welfare Trust is a welfare plan with

17,100 participants and 667 contributing employers. It

received 222,672 claims during its last reporting year.

The Southern California Lumber Industry Health and

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

participants and 560 contributing employers. It received

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

ern California Lumber Industry Retirement Fund is a

pension plan with 7,600 participants and 460 contribut-

ing employers. It received 420 claims during its last

reporting year. The Spokane Area Hotel and Restaurant

Employees Trust Fund is a health and welfare plan with

659 participants and 25 contributing employers. It re-

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

gether, these plans processed 479,775 claims during their

last reporting year.

The Ninth Circuit’s ruling below has extraordinarily

severe implications for the administration and financial

well-being of all employee benefit plans. But, that de-

cision has particularly severe consequences for multiem-

ployer plans.

OPINIONS BELOW

The opinion of the Court of Appeals is reported at

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

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

the United States District Court for the Central District

of California granting petitioner’s motion for summary

*4dgment, as well as the findings of fact and conclusions

of law issued in connection therewith, are unreported

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

to 32a.

JURISDICTIONAL STATEMENT

The judgment of the Court of Appeals for the Ninth

Circuit was entered on December 16, 1983. A timely

petition for rehearing and suggestion for rehearing en

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

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

certiorari was docketed on July 5, 1984. The jurisdic-

tion of this Court was invoked by petitioners pursuant

to 28 U.S.C. § 1254(1). This Court granted certiorari

on October 1, 1984.

STATUTES AND REGULATIONS INVOLVED

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

the Employee Retirement Income Security Act of 1974,

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

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

suant to ERISA § 503. These provisions are reproduced

in the Appendix to the petition at pages 35a to 48a.

STATEMENT OF THE CASE

Respondent, Doris Russell (Russell), was an employee

of a California office of the petitioner, Massachusetts

Mutual Life Insurance Company (Mass Mutual). Mass

Mutual sponsors two employee benefit plans which pro-

vide disability benefits to eligible employees. Both plans

are provided at no cost to employees and are funded by

1 Amici Curiae accept petitioner’s statement of the case, but

provide a synopsis of it herein.

the general assets of the company. Both plans are

covered by ERISA?

Russell filed a disability claim under the company’s

salary continuance plan in May, 1979, asserting that she

could not work because of a back problem. Mass Mutual

began payment of benefits.

In August, 1979, the claim was reviewed by Mass

Mutual’s Disability Committee. The Disability Commit-

tee referred Russell to an orthopedic surgeon. In Sep-

tember, 1979, this specialist examined Russell and con-

cluded that, from an orthopedic perspective, she was not

physically disabled. On October 17, 1979, Russell was

notified that disability payments would be discontinued

upon the recommendation of the Disability Committee.

Russell was also advised of her right to appeal that

decision to the Plan Administrator.

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

Group Claims (not to the Plan Administrator) and

asked for additional information regarding the termina-

tion of her benefits and for an application for long-term

disability benefits. She also stated her intention to ap-

peal the termination of her disability benefits and to

submit additional medical information.

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

ministrator concerning her appeal and submitted addi-

tional evidence, including a report from her psychiatrist

which indicated that she was suffering from a psycho-

somatic disability with physical manifestations rather

than an orthopedic disability.

The Mass Mutual Plan Administrator treated Rus-

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

and referred it to the Disability Committee. Russell

was examined by an independent psychiatrist, who con-

firmed that Russell suffered from a psychiatric dis-

ability in a report dated February 15, 1980. On the

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

Russell’s supervisor at Mass Mut~al.

basis of this report, the Disability Committee recom-

mended that Russell’s benefits be reinstated retroactively.

The Plan Administrator adopted this recommendation

and informed Russell of his decision on March 11, 1980.

Payment of all benefits due was made two days later.

Although she received full benefits from both plans,

Russell sued Mass Mutual in California Superior Court

on December 9, 1980 for compensatory and punitive

damages for the “untimely and improper” handling of

her benefit claim,? which allegedly resulted in economic

loss and mental anguish.*

After removal of the case to the United States Dis-

trict Court for the Central District of California on the

ground that the case was governed by ERISA,° the

District Court granted a motion by Mass Mutual for

summary judgment. The court first held that all of

Russell’s state law claims arising from the processing

of her claim for disability benefits were pre-empted by

ERISA. The court then concluded that, as a matter of

law, punitive and compensatory damages are not avail-

able to plan participants under ERISA. By so ruling,

the court tacitly acknowledged that a plan participant

only has a claim against the plan for non-payment of

benefits and costs of litigation, including fees. Because

Russell had been paid benefits in full, she was not en-

titled to any additional relief. The Court found that

8 Other employment-related claims were also asserted; the only

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

respect to her disability benefits.

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

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

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

and her husband lost the security of lifetime benefits. Russell also

sought damages for emotional distress and claimed that her pre-

existing psychosomatic illness was aggravated as a result of the

improper and untimely handling of her claim.

5 Mass Mutual removed this action pursuant to 28 U.S.C. § 1441

(a), alleging the existence of federal jurisdiction under 29 U.S.C.

§ 1132(e) (1) and 28 U.S.C. § 1331(a).

Russell’s appeal was filed on November 27, 1979 and

rejected her contention that she was entitled to damages

because her claim had not been processed in 120 days,

as required by regulations promulgated under ERISA

§ 503, 29 U.S.C. § 1133. See 29 C.F.R. § 2560.503-1(h)

(1983) .®

The Ninth Circuit affirmed the District Court’s hold-

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

ERISA. However, the Ninth Circuit reversed the Dis-

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

late court held that Russell’s complaint had stated a

claim under ERISA for breach of fiduciary duty based

on the allegedly improper or untimely handling of her

appeal. The Court of Appeals determined that Russell’s

appeal began with her initial letter of October 22, 1979

and that Mass Mutual, therefore, rendered its final de-

termination twelve days beyond the 120-day limit.

The Court of Appeals went on to hold that such a

claim could support an award of both compensatory and

punitive damages. The appellate court based its opinion

on an interpretation of ERISA § 409, 29 U.S.C. § 1109.

It held that Section 409, which expressly imposes upon

fiduciaries a personal liability to the plan for fiduciary

breaches, also makes fiduciaries personally liable to indi-

vidual participants with respect to benefit claims. The

Ninth Circuit is the only appellate court to have held

that Section 409 authorizes recovery against plan fiduci-

aries by individual participants for denial of a benefit

claim.

SUMMARY OF ARGUMENT

The ruling of the Ninth Circuit is inconsistent with

doth the terms of ERISA and the Act’s underlying legis-

*The regulations which require benefit claims to be decided

within 120 days do not provide affirmative relief. These regula-

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

render a decision within that time, “the claim shall be deemed

denied on review.” 29 C.F.R. § 2560. 508-1(h) (4). The participant

can then file suit under ERISA Section 502 without fear that a

defense of failure to exhaust remedies can be raised.

lative policy. ERISA, which is a “comprehensive and

reticulated statute”, provides two distinct and separate

sets of remedies: one for employee benefit plans them-

selves and one for benefit claimants. The remedies avail-

able to employee benefit plans are contained in ERISA

Section 502. That provision expressly authorizes awards

of personal liability against plan trustees and other fi-

duciaries who breach their fiduciary obligations to the

plan. The exclusive remedies available to persons claim-

ing that benefits were erroneously denied them or that

claims were improperly processed are set forth in ERISA

Section 409. The latter provision specifically limits re-

lief to the benefits due plus attorneys’ fees and other costs

of litigation. Remedies under Section 409 are awarded

against plans only. Section 409 does not authorize awards

of damages against trustees or other fiduciaries person-

ally. Neither of these carefully crafted remedial pro-

visions authorizes awards of either punitive or extra-

contractual compensatory damages.

Congress, by creating a separate remedial provision for

persons seeking benefits, balanced the need to encourage

care in the administration of benefit claims with its

express policy of encouraging the growth of the private

pension system. The Ninth Circuit’s rewriting of

ERISA’s remedial scheme has upset the balance struck

by Congress. Unless it is overruled, the decision below

will cause serious injury to multiemployer benefit plans

and hence to their participants. |

The ruling below will severely injure multiemployer

plans because it will undermine the prudent and care-

ful administration of such plans. Out of a fear of liti-

gation and concomitant risk of personal liability, trus-

tees and fiduciaries will become likely to acquiesce in

questionable claims to the detriment of a plan’s financial

soundness. The ruling will also injure multiemployer

funds by effectively deterring responsible persons from

serving as trustees and fiduciaries.

The ruling below will further injure multiemployer

plans by irretrievably damaging the informal dispute

resolution process favored by the Act. With the prospect

of personal liability facing them in every case of benefit

determination or administration, plan trustees are likely

to become far less flexible in resolving benefit claims out

of a concern that a change of mind will later be asserted

as evidence of impropriety. The lack of flexibility will

inevitably result in increased litigation. Indeed, some

benefit claimants may be encouraged to forego an in-

formal resolution in the hope of also obtaining a wind-

fall award of punitive damages.

ARGUMENT

I. The Ninth Circuit’s Ruling is Inconsistent with

ERISA’s Terms and Underlying Policy

The Ninth Cireuit’s ruling that punitive and extra-

statutory compensatory damages may be awarded to plan

participants and beneficiaries is contrary to the plain

words of ERISA. It is, moreover, inimical to the care-

fully tailored policies established by federal pension law.

The Ninth Circuit’s ruling is in error principally for

two reasons. ERISA was carefully crafted by Congress

to provide that awards of damages against trustees or

other fiduciaries personally were to be only in favor of

the funds themselves and not individual participants and

beneficiaries. And, ERISA does not authorize the award-

ing of punitive damages to anyone.

In this section of our brief we first outline (in Part

A) the different rules established by ERISA to protect

plans as a whole and individuals entitled to benefits. We

next (in Part B) review the remedial provisions of

ERISA and show that they do not permit recovery by

individual claimants from fiduciaries for benefit claims

decisions. We then demonstrate (in Part C) that ERISA

contains no authorization for awards of punitive dam-

ages. Finally (in Part D), we show that the Ninth Cir-

cuit’s ruling has upset, without justification, the care-

fully crafted statutory scheme enacted by Congress.

A. ERISA Established Interrelated but Separate Rules

to Protect Employee Benefit Plans and their Indi-

vidual Participants and Beneficiaries

As this court has observed, ERISA is a “comprehen-

sive and reticulated statute” in which Congress estab-

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

security of millions of employees and their dependents”

and to remedy the numerous flaws in the private pension

plan system. Nachman Corp. v. PBGC, 446 U.S. 359,

361 (1980), reh. denied, 448 U.S. 908 (1980). ERISA

improved the benefit security of Americans in two dis-

tinct ways: it promoted the financial integrity and

growth of employee benefit plans and it established rules

protecting the receipt of benefits by individuals. The two

approaches were clearly interrelated, since the financial

stability of plans ultimately protects the benefits of par-

ticipants entitled to benefits under the plans.

ERISA protects individual benefits through partici-

pation and vesting requirements, and through reporting

and disclosure rules. The vesting and participation rules

protect individuals’ entitlement to benefits. The report-

ing and disclosure rules protect the right of individuals

to receive information about plan benefits.

Congress also wanted to promote the growth of em-

ployee benefit plans because such growth would lead to

improved benefit security for millions of Americans.

ERISA promotes the growth and stability of employee

benefit plans by establishing funding requirements for

plans and rules for fiduciary behavior. The funding

rules require plans to provide adequate long-term fund-

ing for benefits payable in the future. The fiduciary

rules impose strict requirements of prudence and im-

partiality upon all persons having discretionary author-

ity over plan assets. However, the fiduciary rules, while

stringent, do not deter qualified individuals from serving

as plan fiduciaries because they are clear and do not

penalize fiduciaries for informed good faith discretionary

decisions. \

B. ERISA Provides Remedies for Individuals Which

Are Different from Those Available to Plans

ERISA differentiates between remedies available to

plans themselves and remedies available to individual

participants and beneficiaires who are claiming bene-

fits. The statute expressly imposes personal liability

upon fiduciaries to make plans whole for any loss result-

ing from a breach of a fiduciary obligation or to disgorge

any profit made as a result of such breach. Indeed,

ERISA also provides for payment of excise taxes by fi-

duciaries and other parties in interest who violate the

prohibited transaction rules (which prohibit self-dealing).

The excise taxes are assessed and collected by the Internal

Revenue Service. 26 U.S.C. § 4975. But, ERISA does not

authorize the assessment of personal liability in favor of

a plan beneficiary who has sued with respect to a benefit

determination.

The remedies of personal liabilty are reserved for

breaches of fiduciary duties to plans themselves because

ERISA’s rules of fiduciary conduct were designed prin-

cipally to protect plans from losses caused by fiduciary

malfeasance or negligence. An erroneous benefit deter-

mination or inappropriate administration of a claim

does not result in an economic loss to an employee bene-

fit plan. The Fund would, in any event, eventually be

required to pay the claim. Neither does an erroneous

benefit determination result in any personal financial

benefit to a plan fiduciary. An assessment of personal

liability against a fiduciary in favor of a benefit claim-

ant simply is not consistent with the Act’s fiduciary

scheme.

The separateness of the Act’s two remedial schemes

is especially evident when one notes that ERISA § 409

provides equitable and remedial relief for fiduciary

breaches only to plans themselves. That provision is not

applicable to relief sought by individual participants.’

Relief for individual participants and beneficiaries who

have been denied benefits is exclusively pursuant to

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

This latter provision does not authorize the imposition

of personal liability upon fiduciaries for any compensa-

tory or punitive damages to individual participants or

beneficiaries. Rather, it limits benefit claimants to re-

covery ot benefits due from the plan and to cosis of

litigation, including attorneys’ fees.

The Ninth Circuit’s ruling effectively rewrites the

latter provision. By imposing upon plan fiduciaries ex-

trastatutory personal liability for their benefit determi-

nations and administration, the Ninth Circuit substituted

its judgment for the policy choices made by Congress

when it enacted and amended ERISA.

C. ERISA Does not Provide for any Imposition of

Punitive Damages

While ERISA provides detailed remedies to plans and

beneficiaries and imposes the payment of excise taxes as

a penalty for some violations, it makes absolutely no

provision for the imposition of any punitive damages

payable to plans or to individual claimants. The personal

liability of fiduciaries for fiduciary breach is designed to

compensate the plan for any actual loss or for income

7 ERISA’s legislative history confirms that any recovery under

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

Conf. Rep. No. 1280, 93d Cong., 2nd Sess., p. 320 (1974), reprinted

in Legislative History of the Employee Retirement Income Security

Act of 1974 (Legislative History) (1976) U.S. Government Printing

Office, p. 4587 (personal liability of fiduciary for losses to the plan

resulting from fiduciary breach) and S. Rep. No. 127, 93d Cong.,

1st Sess. 33 (1973), reprinted in Legislative History, p. 619 (per-

sonal liability of fiduciary to reimburse fund for losses resulting

from fiduciary breach and to turn over any profits obtained by use

of fund assets).

that should have inured to the plan but for the breach.

Similarly, a plan’s liability to an individual entitled to

a benefit is limited to the benefit and the costs incurred

in any litigation to obtain the benefit.

The Eighth Circuit has recognized that punitive dam-

ages are not available to individual benefit claimants

under ERISA. In Dependahl v. Falstaff Brewing Corp.,

653 F.2d 1208 (8th Cir. 1981), cert. denied, 454 U.S.

968 (1981), that court stated:

We do not think that punitive damages are provided

for in ERISA. Ordinarily punitive damages are not

presumed; they are not the norm; and nowhere in

ERISA are they mentioned. If Congress had desired

to provide for punitive damages, it could have easily

so stated, as it has in other acts.

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

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

held that punitive damages are not available in an ac-

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

The Eighth Circuit zecognized that the extraordinary

remedy of punitive damages could not be added to

ERISA by judicial fiat. So too has a strong majority of

the district courts that have considered the question.

See Whitaker v. Texaco, 566 F. Supp. 745 (N.D. Ga.

1983) and cases cited therein.

This court has also held, in a recent decision, that

punitive damages cannot be recovered from a munici-

pality under 42 U.S.C. § 1983 (the Civil Rights Act of

1866) because nothing in that law or its legislative his-

tory indicated that Congress intended to abolish the

traditional municipal immunity from punitive damages.

Newport v. Facts Concerts, Inc., 453 U.S. 247, 263-64

(1981). This Court found, in that case, that “the ex-

clusion of punitive damages was no oversight,” but,

rather, a deliberate Congressional choice. 453 U.S. 265.

Similarly, in the case of ERISA, Congress’ exclusion of

punitive damages from the statutory framework of

ERISA was not an oversight that should be remedied

by judges. It was a deliberate policy choice. Congress

considered, and adopted, a myriad of remedial measures

designed to secure the financial integrity of employee

penefit plans and the rights of individuals entitled to

benefits under those plans. Congress simply did not find

that the draconian remedy of punitive damages was nec-

essary for its purposes.

D. By Effectively Altering the Provisions of ERISA,

The Ninth Circuit Has Usurped the Legislative

Function

The different remedial provisions of Sections 409 and

502 reflect the delicate balance struck by Congress among

the multiple purposes served by ERISA. Among the

most important of those purposes are: (1) the promo-

tion of the expansion of the private pension plan sys-

tem; (2) the deterrence of fiduciary malfeasance; and

(3) the securing of benefits expected by individual par-

ticipants and beneficiaries. Congress balanced the pro-

phylactic effect cf the imposition of personal liability

upon fiduciaries as a deterrence for malfeasance against

the need to promote expansion of pension plans. Con-

gress determined that personal liability to the plan for

fiduciary breaches would deter malfeasance, but that

excessive imposition of personal liability (such as was

created by the Ninth Circuit) would hamper the crea-

tion of new plans, the expansion of existing ones, and

the recruitment of plan trustees.

Congress, in balancing competing concerns, clearly felt

that deterrent measures (such as the imposition of per-

sonal liability) designed to prevent abuses of plan re-

sources were not an appropriate way of dealing with

errors made in connection with benefit claims by par-

ticipants. Balancing the need for encouraging the exer-

cise of care in benefit claim determinations and adminis-

tration against its policy of promoting pension plan

expansion, Congress authorized full recovery of benefits

due to individuals from plans, as well as costs of litiga-

tion (including attorneys’ fees). But, it did not go so

far as to impose personal liability upon plan fiduciaries

for either compensatory or ~unitive damages. ERISA is

carefully crafted to deter aalfeasance in the manage-

ment of plans, provide remedies to individual claimants,

and yet not create barriers to the exp-nsion of the

private pension system. This Court has, ‘in other circum-

stances, observed that there must be a “careful balance

of individual and collective interests” in Electrical

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

damages are not available for claims of breach of duty

of fair representation under the Railway Labor Act, 45

U.S.C. §§ 151 et seq.). Congress created such a balance

in ERISA.

One additional point must be made concerning the

Ninth Circuit’s rewriting of ERISA’s remedial provi-

sions. Congress designed ERISA to be a nationwide,

uniform system of administration for employee benefit

plans. Prior to ERISA, such plans were governed by the

principles of trust law, which varied considerably from

state to state. Such state variation precluded uniform

plan administration and was particularly prejudicial to

large nationwide plans, such as collectively bargained

multiemployer plans. One of Congress’ purposes in pass-

ing ERISA was to remedy this problem:

The uniformity of decision which the Act is designed

to foster will help administrators, fiducidries and

participants to predict the legality of proposed ac-

tions without the necessity of reference to varying

state law.

Report of House Education and Labor Committee or.

H.R. 12906, 93rd Cong., 2nd Sess. 1974, reprinted in

Legislative History of the Employee Retirement Income

Security Act (1976) U.S. Government Printing Office,

p. 3308. The grafting of punitive damages onto the

framework of ERISA would subvert the goal of national

uniformity. This is so because punitive damages are

generally awarded pursuant to state law principles. The

exposure of plan fiduciaries to such damages will result

in divergent, inconsistent rulings throughout the many

courts of this country.

The Ninth Circuit upset the careful balance struck

by Congress without any justification. The imposition of

personal liability upon plan fiduciaries for prior errors

in claims processing does not significantly add to the de-

terrent effect of the measures expressly provided by

Conzress to prevent fiduciary malfeasance. Neither does

it add to the ability of individual participants to secure

benefits. Benefits are already secured under the benefit

recovery provisions of Section 502. But, the Ninth Jir-

cuit’s ruling has extremely deleterious effects on plans.

Unless it is reversed, the decision will adversely alter the

decision-making procedures of plan trustees and, by dis-

couraging responsible persons from serving as trustees,

significantly inhibit the expansion of the private pension

plan system. We now turn to a discussion of these con-

sequences as they apply to multiemployer plans.

II. The Ninth Circuit’s Ruling Will Have a Severe Adverse

Impact on Multiemployer Benefit Plans and their

Participants

Multiemployer plans are integral to the financial se-

curity of millions of Americans. The Ninth Circuit’s

ruling will injure multiemployer plan administration,

deter qualified individuals from serving as plan fiduci-

aries, discourage the process of dispute resolution estab-

lished by ERISA, and expose fiduciaries to liabilities

that they cannot estimate and for which they may be

unable to insure themselves. It is likely, moreover, to

result in increased litigation against plans (with a con-

comitant increase in plan administrative costs) since

benefit claimants may file suit or refrain from compro-

mise so that they might seek the windfall of an award

of punitive damages. The cumulative effect of this is to

undermine the stability of multiemployer plans and effec-

tively halt their expansion. In this section of our brief,

we first provide the Court with a brief summary of the

structure of multiemployer benefit plans and a discussion

of the vital role they play in the benefit security of mil-

lions of Americans. We then review the ways in which

the Ninth Circuit’s decision will adversely affect such

plans.

A. The Nature and Impe: tance of Multiemployer Bene-

fit Plans to the Re? rement Security and to the

Health and Welfare Benefits of Millions of Em-

ployees

Multiemployer employee benefit plans play a vital role

in the financial well-being of millions of workers. They

enable the employees of small and medium sized com-

panies to obtain the level of pension and health and wel-

fare benefits only available from large plans. They per-

mit employees who work for more than one employer in

the same industry to accumulate meaningful pension

benefits. They also protect pension benefits when an em-

ployer leaves the plan. Multiemployer plans support two

important features of the American economy: small bus-

inesses and a mobile workforce.

Small and medium sized companies often cannot afford

sophisticated and generous employee benefits such as

those provided xy large corporate plans. Large employee

benefit plans can profit from substantial economies of

scale and can also more accurately reflect the science of

“averages,” which forms the basis of actuarial predic-

tions. An increase in p'an size considerabiy reduces the

risk that a plan may suffer financial adversity because

its benefit claims experience does not accurately mirror

statistical predi-tions.

Because multiemployer pension plans generally include

many employers in an industry, an employee moving

from one employer in the plan to another continues to

accumulate benefits without interruption. By their very

nature, multiemployer plans provide a form of “portable”

benefits which do not exist elsewhere. These portable

benefits result in greater benefit security. Multiemployer

plans also protect pension benefits because they provide

benefits to an employee even though his or her employer

leaves the plan.

Congress has recognized that multiemployer plans

“typically provide workers with greater retirement se-

curity than single employer plans.” Senate Labor Com-

mittee Summary and Analysis of Consideration of 8.1076

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

Accordingly, Congress has repeatedly passed legislation

to strengthen multiemployer plans. The most compre-

hensive effort in this regard was the Multiemployer Pen-

sion Plan Amendments Act of 1980, which amended

ERISA by imposing withdrawal liability upon employ-

ers who withdraw from multiemployer pension plans.

Sectic.: 3 of the Act explicitly states that it is Congres-

sional policy to encourage the maintenance and growth

of multiemployer pension plans.®

Multiemployer benefit plans are establishea through

collective bargaining agreements. The Taft-Hartley Act

of 1947 specifically provided for the formation of trusts

to administer health and welfare and pension funds for

employees represented by labor unions in collective bar-

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

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

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

Congressional policy to encourage the maintenance and growth

of multiemployer pension plans, see House Ways and Means Com-

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

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

Part I, April 2, 1980).

(6). That statute also required such plans to be man-

aged by trustee boards equally divided between revresen-

tatives of management and of labor. See NLRB v. Amazx

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

functioning of such trustees.

Collectively bargained multiemployer benefit plans pro-

vide coverage to millions of American workers. Multi-

employer pension plans are primarily defined benefit

plans. Multiemployer pension plans represent only 2.3%

of all pension plans and 3.2% of all defined benefit pen-

sion plans. Nonetheless, defined benefit muitiemployer

pension plans provide pension coverage to 20-26% of all

defined benefit pension plan participants.® In 1980, there

were 1,826 multiemployer defined benefit pension plans in

the country. These pension plans covered 8.5 million ac-

tive workers and over 10 million total participants and

beneficiaries.”°

Multiemployer health and welfare funds provide a sim-

ilarly large proportion of benefits to American workers.

Collectively bargained multiemployer health and welfare

plans represent about 10% of all health and welfare

plans. Such plans include about 25% of all workers with

health and welfare coverage." In 1980, there were 4,500

multiemployer health and welfare funds, of which 3,040

provided basic hospitalization and other health benefits to

8.1 million participants.”

® Robert D. Cooper and Melody A. Carlsen, Pension Fund Opera-

tions and Expenses (Pension Fund Operations), p. 21 (1980)

International Foundation of Employee Benefit Plans, Brookfield,

Wisconsin.

10 Cooper, Pension Fund Operations, p. 22 n.5, pp. 28 and 85.

11 Robert D. Cooper, Multiemployer Health and Welfare Plan

Operations and Expenses (Multiemployer Health and Welfare Plan),

p. 14 (1983) International Foundation of Employee Benefit Plans,

Brookfield, Wisconsin.

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

fits, such as vacation, unemployment, etc. Cooper, Multiemployer

Health and Welfare Plan, p. 14 n.5.

Multiemployer pension plans annually process hun-

dreds of thousands of benefit claims. Multiemployer

health and welfare plans annually process millions of

claims. A conservative estimate of monthly average claims

processed by multiemployer health and welfare funds in

1979 was between 1,130 and 1,166."* The monthly aver-

age of claim checks written by such funds was between

1,070 and 1,090.%* All of these claims are processed by

trustees or by acministrators acting on their behalf or

through insurance carriers. Even when claims are proc-

essed by insurance carriers, trustees usually reserve the

right to supervise the handling of claims.

Multiemployer trustees are familiar with the particu-

lar needs of their industry and are best able to design

plans to fit those needs. They frequently devise claims

processing and review procedures that meet the needs of

individuals working within their industry. While plan

trustees and administrators closely monitor the establish-

ment and administration of claims processing rules, they

cannot personally handle the volume of claims that must

be processed. Some delegation of routine ministerial

tasks is essential in order for plan trustees and other

fiduciaries to provide for prompt review of all submitted

claims.

18 Robert D. Cooper and Hetty K. Balanorf, Technical Report: A

Study of Taft-Hartley Health and Welfare Trust Fund Operations

Cost (Technical Report), p. 41 (1979) International Foundation

of Employee Benefit Plans, Brookfield, Wisconsin. This source,

in all likelihood, underestimates the number of claims processed

on account of the great variation among plans as to what is con-

sidered a “claim.” For example, “if an illness generated six bills,

each of which was submitted individually, was this six claims? Or

if the same six bills were submitted all at once, were these only

one claim?” (p. 18). Some funds (46.4%) consider each check a

claim, some (39.3%) consider each illness a claim, and some

(10.3%) consider each separate piece of paper a claim (p. 41).

14 Cooper, Technical Report, p. 41. Again, these numbers may

underestimate the number of actual claims because some plans

write one check for several claims submitted by one claimant.

Multiemployer benefit plans perform a valuable pub-

lie service. They provide- benefit coverage to millions of

Americans who might otherwise be in dire financial need

and process a tremendous volume of benefit claims. The

Ninth Cireuit’s decision will weaken the multiemployer

benefit plan system, thereby affecting the benefit security

of all workers.

B. The Ninth Circuit’s Ruling will Severely Injure

Multiemployer Benefit Plans and their Participants

because it will Undermine the Prudent and Careful

Administration of Such Plans

The financial well-being of multiemployer benefit plans,

and of their participants and beneficiaries, is dependent

upon careful, prudent and reasonable management of all

aspects of the plan, including the area of benefit claims

processing.

Plan trustees design benefit systems and devise and

implement procedures for processing and evaluating

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

payment of all justified claims, it is likewise important

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

quirements. Indeed, ERISA § 404(a)(1)(D) mandates

this: “. . . a fiduciary shall discharge his duty ... in

accordance with the documents and instruments govern-

ing the plan... .” If plan requirements were not scru-

pulously followed, plan assets would be squandered and

the benefit security of all participants would be under-

mined. Plan trustees must balance the interest of the in-

dividual benefit claimant against the interests of all other

participants in safeguarding the plan’s assets through ac-

curate and prudent claim administration.

ERISA does not require that plan trustees and ad-

ministrators resolve all doubts in the individual partici-

pants’ favor. Rather, ERISA § 404, 29 1J.8.C. § 1904, re-

quires only that fiduciaries act prudently with respect to

the plan. They must not make benefit determinations arbi-

trarily or capriciously. “The trustees of a. . . fund have,

hot only the authority, but the duty to insure that pay-

ments are made to only those who are eligible.” Feathers

v. U.M.W. Health and Retirement Funds, 99 L.R.R.M.

2287 (D.D.C. 1978)." The fiduciaries of a plan must

jealously guard the benefit security of all participants.

ERISA safeguards individual rights by providing the

right to obtain accurate data regarding plan benefits and

by requiring prompt claim processing. ERISA § 503 pro-

vides that plans must provide “adequate notice” of any

benefit denial, “written in a manner calculated to be

understood by the participant,” and that plans must

provide “reasonable opportunity” for a “full and fair

review” of any benefit denial. ERISA § 502(a) (1) (B),

29 U.S.C. § 1132(a) (1) (B), further protects the rights

of benefit claimants by providing for full recovery of

benefits due from a plan plus attorneys’ fees and costs.

The Ninth Circuit’s interpretation of ERISA § 409

will cause plan fiduciaries to be especially fearful of litiga-

tion whenever they review claims because of the possi-

bility that a benefit claimant may seek to assess per-

sonal liability against them individually. This very justi-

fied fear will significantly distort the entire decision-

making process concerning claims. Trustees will be far

more likely to acquiesce in the payment of questionabie

claims. While the approval of one questionable claim will

not likely weaken a plan, the cumulative effect of fiduci-

ary acquiescences to such claims over time certainly will

have that effect. |

C. The Ninth Circuit’s Ruling will Deter Qualified

Persons from Serving as Fund Trustees and Ad-

ministrators

Multiemployer benefit plans are primarily labor-man-

agement funds that are administered by joint boards of

labor and management trustees. Unlike single employer

plans, multiemployer plans frequently are administered

158 See also Moglia v. Geoghegan, 408 F.2d 110, 116 (2nd Cir.

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

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

by management trustees who work for geographically

dispersed companies (many of them quite small) and by

union trustees who are also frequently dispersed geo-

graphically.

Labor and management trustees are not compensated

for their time because such payments are prohibited by

ERISA § 408 (a) (2), 29 U.S.C. § 1108(a) (2). Trustees of

single employer plans, who generally work for the plan

sponsor, have many strong institutional incentives to

perform an important company function by service as

trustees. Such persons do not risk a loss of income by

serving as trustees. On the other hand, trustees of

multiemployer plans receive no institutional rewards for

their service. Employer trustees must forego manage-

ment of their business and may lose income because they

take time to serve as trustees; union trustees must

forego their organizing tasks. Multiemployer plan trust-

ees agree to serve because of a serious commitment to

employee benefit security and because of a desire to

perform a service to their union members or to their

employees.

Trustees are well aware that the fiduciary require-

ments of ERISA mandate prudent, honest and selfless

plan administration. They are also aware that fiduciary

breaches injurious to the fund may result in the im-

position of personal liability against them to remedy any

injury caused to the fund or to pay excise taxes to the

Internal Revenue Service. Generally speaking, fiduciaries

can fulfill their obligations and avoid breaches of fiduci-

ary duty by carefully selecting investment managers,

accountants, and administrators to perform the day-to-

day administrative tasks of the fund, and by thorough

periodic review of plan reports, operations, personnel de-

cisions and policies.

Prior to the decision of the Ninth Circuit in this

matter, trustees did not fear that personal liability might

arise from every benefit decision or ministerial task per-

formed by plan employees or agents. ‘Thus, prior to the

Ninth Circuit’s decision, responsible individuals with

sound financial and administrative skills have been will-

ing to serve as trustees of multiemployer funds because

they could adequately perform their fiduciary duties by

providing management and direction without direct in-

volvement in individual claim processing details.

By drastically expanding the scope of personal liability

of trustees beyond that contemplated by ERISA, the

Ninth Circuit has provided a powerful disincentive for

any reasoning person from serving as trustee of a multi-

employer plan. Now, the otherwise responsible, prudent

trustee is personally liable for any delays or errors of

judgment in the handling of benefit claims. The Ninth

Circuit has made it virtually impossible for the tradi-

tional multiemployer trustee to function. Since multi-

employer trustees are generally not compensated, it will

be extremely difficult, if not impossible, to find compe-

tent labor and management trustees willing to serve in

the face of such risk.

Similarly, competent individuals with administrative

and financial expertise will be deterred from serving as

administrators of multiemployer plans because each

daily task that they perform may result in substantial

personal liability. Indeed, every task delegated by a

plan administrator to a clerical employee will expose her

or him to potentially runious personal liability.

The exposure to liability which the Ninth Circuit’s fiat

has imposed is far beyond the scope of that contemplated

by Congress. Congress intended to deter fiduciary mal-

feasance. But, it did not intend to make service as a

voluntary trustee so onerous and fraught with risk as

to discourage competent and responsible persons from

serving at all.

The result of the Ninth Circuit’s decision will be the

transfer of all plan functions from labor and manage-

ment trustees (as envisioned by Congress) to large banks

and insurance companies. This result will deprive this

country of vital leadership that has previously worked

well to provide benefits to millions of Americans. It will

also diminish a major area of labor-management coopera-

tion that Congress has specifically sought to nurture.

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

pute Resolution Process Favored by ERISA

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

mulgated thereunder, favor internal administrative reso-

lution of disputes concerning benefit claims. Section 503

requires plans to provide adequate notice and explana-

tion of any denial of benefits and a “full and fair re-

view” to all claimants who appeal denials of benefits.

This general provision is further elaborated by regula-

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

The regulations impose certain requirements for rea-

sonable claims procedures established by plans. Plans

must provide for reasonable claim filing procedures that

must be communicated to participants. If such proce-

dures are not established, a claim is deemed filed when

the participant brings it to the attention of the plan.

Plans must also provide notice and explanation of any

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

180 days if special circumstances exist. The notice must

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

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

any additional information or materials needed to per-

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

a review of the denial of benefits.

Finally, plan participants must be given the oppor-

tunity to appeal denied claims to the appropriate fiduci-

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

ticipant must be given access to all pertinent plan

documents and an opportunity to submit issues and com-

ments in writing. The decision on review must be made

promptly, usually within 60 days after receipt of the

request for review, or, under special circumstances (such

as the scheduling of hearing), within 120 days after

receipt.

The procedures outlined above are designed to pro-

mote dispute resolution through the exchange of informa-

tion by plans and participants. The procedures require

a plan to disclose the reasoning behind every denial of

benefits and to state if any additional information may

change the results. This gives participants the oppor-

tunity to offer relevant information that might have been

originally overlooked. The resulting process is an essen-

tially nonadversarial dialogue between the plan and the

participant that is designed to raise all the arguments

and information pertinent to the denied claim and to

avoid unnecessary litigation.

Courts have generally required claimants to exhaust

their internal plan remedies before filing suit under

ERISA § 502. See eg. Lucas v. Warner & Swasey Com-

pany, 475 F.Supp. 1071 (E.D. Pa. 1979); Kross v.

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

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

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

anism provided by ERISA is particularly well-suited for

resolving disputes that are based on a misunderstand-

ing of plan rules or on incomplete information. Because

the internal dispute resolution mechanisms of plans so

successfully accomplish their purposes, the federal courts

are not overburdened by litigation of routine benefit

disputes.

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

tioning of internal plan dispute resolition. The partici-

pant was advised of the specific reasons for the denial

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

additional information, and was ultimately granted full

benefits on the basis of information obtained through

the dispute resolution process.

The Ninth Circuit’s decision will irretrievably damage

this valuable and efficient process. Since plan trustees

and administrators may now be subject to litigation and

to grave personal liability for the performance of even

routine ministerial plan functions, they will have a

tendency to be guarded and cautious when dealing with

benefit claim denials. They will be hesitant to set forth

all the issues frankly and will be reluctant to receive

any additional information for fear of violating the time

requirements mandated by the regulations. They will also

be concerned that any change in a benefit determination

result may be used later against them as evidence of im-

propriety. Flexibility in plan administration will in-

evitably be reduced thereby resulting in even more litiga-

tion. Indeed, some participants may be encouraged to

forego a settlement resolution without litigation in the

hopes of also obtaining a windfall award of punitive

damages.

Before the Ninth Circuit’s decision, litigation over

benefit claims denials could only result in full payment

of the disputed claim and costs incurred in seeking plan

benefits. Now, such litigation also threatens unknown

and potentially enormous personal liability. The change

in fiduciaries’ behavior resulting from this new liability

concern will decrease the internal resolution of benefit

claim disputes and significantly increase the volume of

litigation in the already burdened federal courts.

E. Compensatory and Punitive Damages are not Uni-

formily Awarded and are Frequently Large and

Inconsistent

Compensatory damages to a claimant whose claim has

been erroneously denied or mishandled include damages

for all losses and injuries sustained by the claimant as

a result of the erroneous determination or claim proc-

essing error.* The individual elements of compensatory

damages vary widely from state to state, and may in-

clude such unpredictable elements as damages for mental

anguish.’ Mental anguish has been variously defined as

16 See e.g. Ross v. United States, 640 F.2d 511 (5th Cir. 1981) ;

Freeport Sulphur Co. v. S/S Hermosa, 526 F.2d 300 (5th Cir.

1976) ; and 22 Am. Jur. 2d Damages § 11, n.12.

17 See e.g. Stoleson v. United States, 708 F.2d 1217 (7th Cir.

1988); Hyseli v. lowa Public Serv. Co., 559 F.2d 468 (8th Cir.

nervous shock, fright or humiliation.** For instance, the

Ninth Circuit has held that under California law damages

for embarassment, humiliation, fear or other forms of men-

ta! anguish are recoverable. Moore v. Greene, 431 F.2d

584 (9th Cir. 1970) and Clark v. Celeb Pub., Inc., 530

F.Supp. 979 (S.D.N.Y. 1981) (relying on Moore as au-

thority for damages recoverable under California law).

The Ninth Circuit has also recently held that mental

or emotional distress caused by a denial of due process

may serve as a basis for recovery. Vanelli v. Reynolds

School Dist. No. 7, 667 F.2d 773 (9th Cir. 1982).”

There is no uniform standard of law by which asserted

damages of this nature can be verified or measured. And,

the amount to be awarded is particularily subjective.”

The determination of mental suffering may be “essentially

subjective” and “evidenced by one’s conduct.” Cooper v.

Department of Admin., State of Nev., 558 F.Supp. 244,

253 (D. Nev. 1982).

Punitive damages are even less predictable. By defini-

tion, they do not compensate the claimant for any actual

injuries.2* See Newport v. Facts Concerts, Inc., 453 U.S.

247, 266 (1981). Thus, awards of punitive damages

amounts are frequently arbitrary and may ke many

times greater than actual injuries. The following recent

examples of punitive damages awards in California state

court litigation illustrate this point: ”

1977); Ryan v. Foster & Marshall, Inc., 556 F.2d 460 (9th Cir.

1977) ; 22 Am. Jur. 2d Damages § 195; and Prosser, Law of Torts

§ 54, at 328 (4th ed. 1971).

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

§ 45.

19 See also Cooper v. Department of Admin., State of Nev., 558

F.Supp. 244 (D. Nev. 1982).

20 See Am. Jur. 2d Damazes §§ 109, 198.

21 See Am. Jur. 2d Damages §§ £36, 207, 238.

22 Jury Verdicts Weekly, Vol. 26 (1982) Nos. 5:8, 7:10, 12:4,

17:8 and 18:22; Vol. 27 (1983) Nos. 17:31, 44:16 and 52.21; Vol.

28 (1984) Nos. 11:8, 17:25 and 28:16. Jury Verdicts, Inc., Santa

Rosa, California.

20,000

30,000

Damages

$ 102,327

$ 3,117,946

$ 5,000,000

$15,000,000

$ 5,000,000

$13,054,479

$ 400,000

$ 1,000,000

$ 1,110,000

Punitive

$ 50,000

$ 343,310

$ 123,769.

$ 100,000

$ 659,231

$ 45,000

3,500

$ 34,339

$ 47,593

$ 17,000

Actual

Damages

$2,633,599

and humiliation

Embarrassment

Breach of

Examination

Fraud

pay medical

claim

contract

Insurance

Bad Faith

Accounting

Fraud and

Independent

Medical

Breach of

Fiduciary

Duties

Insurance

Bad Faith

Failure to

Insurance

bad faith

Breach of

trust

Insurance

bad faith

Breach of

fiduciary

duties—

reai estate

Type of

Case

Superior

Court

Norwalk

Sacramento

Los Angeles

Compteu

Los Angeles

San Diego

San Francisco

Sonoma

Triple E. Machinery

v. Englebrecht

Downey Savings &

The P.K.L. Companies

v. Eaton Corporation

Garvey v. State Farm

Thompson v. Thompson

Loan v. Ohio

Foundation Health

Spieker v. Senator

Hotel

Union Fire Ins. Co.

Sullivan v. Kaiser

Plan

Coconis v. Ins. Co.

North America

Gump v. Wells

Bank

Casualty Ins. Co.

Elmer Sprague v.

Equifax, Inc.

Berk v. National

Name of Case

As is evident fron. these examples, no fiduciary will e

able to predict the amount of his or her personal liabili. ~

exposure to such damages.

The availability of insurance coverage for punitive and

extrastatutory compensatory damages is doubtful at this

time. But, even if such coverage ultimately became avail-

able, it would, no deubt, be prohibitively expensive pre-

cisely because the risk of liability is so difficult to pre-

dict or quantify.

CONCLUSION

The amici curiae urge this Court to reverse the Ninth

Circuit because the lower court’s decision is contrary to

the language of ERISA and the Act’s underlying legis-

lative policy. It will, moreover, severely inhibit the ex-

pansion of multiemployer plans. In sum, the decision

below threatens the vitality of an institution which pro-

vides employee benefit security to millions of Americans.

Respectfully submitted,

THOMAS J. HART

(Counsel of Record)

LENA S. ZEZULIN

THOMAS HART & ASSOCIATES

Suite 302

1625 Massachusetts Ave., N.W.

Washington, D.C. 20036

(202) 797-8700

RICHARD P. DONALDSON

DUANE KIEL

BRUCE McKENZIE

DONALDSON & KIEL

Vanderveer Bidg., Suite 100

2819 First Avenue

Seattle, WA 98121

(206) 682-5261

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.