Amicus Curiae Brief — Mertens v. Hewitt Associates

No. 91-1671 4 nead

eee oeesea SLEKA 3

In the Supreme Court of the Chuted States —

Oc rorneR Terni, 1992

Witt tans J. MEbERTENS. ET AL... PETITIONERS

Hewitt ASSOCIATES

ON WRIT OF CERTIORARI TO THI

UNITED STATES COURT OF APPEALS

POR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETLEIONERS

Ki nnt itt W. STARR

Solicitor General

NTAUC REEN FO MAHONEY

MARSHALL J. BRIEGER Deputy Solicitor General

Solicuor of lLahor RONALD J. MANN

ALT EN H. FELDMAN Issistant to the Solicitor General

Associate Solicitor Department of Justice

NATHANIEL T. Srirer HW ashington, D.C. 20530

Counsel for Appellat (202) 814-2217

l itivation

NTARK S. FLYNN

Wirornes

Department of dl abhor

HWashineton, 10.0 -20210

OUERSTION PRESENTED

Whether a nonfiduciary who knowingly participates ina

breach of a fiduciary duty imposed by the Employee Re

tirement Income Security Act of 1974, 29 U.S.C. 1001 ef

seq., 1S liable for losses that an employee benefit plan sus

tains as a result of the breach.

LABLE OF CONTENTS

Interest of the United States .

Statutory provisions involved

Statement

Summary of argument

Argument:

ERISA authorizes claims against nonfiduciaries

who knowingly participate in fiduciary breaches __

A.

B.

1).

Section $02(a)(3) of ERISA authorizes federal

courts to award “appropriate equitable relief

** *to redress * * * violations” of ERISA

Appropriate equitable relief includes a monc-

tary judgment requiring a nonfiduciary who

knowingly participates in a breach of fiduct-

ary duty to redress losses suffered by the plan

asaresult ofthe breach. .........

1. Traditional equitable principles provide

make-whole relief to beneficiaries of a

trust harmed by a nonfiduciary who par

ticipates in a breach of trust ....

tN

The relief sought by petitioners 1s appro

priate because it ensures that ERISA af-

fords beneficiaries no less protection than

they would have had in courts of equity

before ERISA

The availability of a civil penalty against non

fiduciaries under Section S02(/) of ERISA

demonstrates the propriety of awarding such

relief under Section SO02(a)(3)

This Court's decision in Massachusetts

Mutual Life Insurance Co. v. Russell does not

foreclose the claim for relef im this case

(I1t)

Page

Nm hw

A

10)

10

16

tN

ty

IV V

Page Cases — Continued: Page

FOOT CO Ep AE EEN eas 25 Nieto v. Ecker, 845 F.2d 868 (9th Cir. 1988)... .. 4, §,

IE So io steiner la 10, 20, 22

Novak \. Andersen Corp., 962 &.2d 787 (8th Cir.

TABLE OF AUTHORITIES 1992), petition for cert. pending, No. 92-352

; ES ey ee os eee li

Cases: Patterson \. Shumate, 112 S. Ct. 2242 (1992) |. . 20

Albemarle Paper Co. v. Moody, 422 U.S. 405 Pension Benefit Guaranty Corporation .. LTV

SE bskcuneesadaceiesckousunuee eee 13 ig We rs CP IED wow cdccccpacncnuace 11, 2)

Brock v. Gerace, 635 F. Supp. 563 (D.N.J. 1986) .. 18 Pilot Life Insurance Co. v. Dedeaux, 481 US.

Brock v. Hendershott, 840 F.2d 339 (6th Cir. SE a se cc eke wae eee ees ee 17

DEE néek pheneeeackbeenaebcesnaae dene 10 ~ Seminole Nation v. United States, 316 U.S. 286

Cahall v. Lofland, 114 A. 224 (Del. Ch. 1921), DED Peau cess ch oe eae aaa moe 1S, 16

rk, Ce , I ns ei eck cena 16 Shaw \. Delta Aur Lines, Inc., 463 U.S. 85 (1983) 16

Central States, Southeast & Southwest Areas Sokol. Bernstein, 803 F.2d $32 (9th Cir. 1986) 1

Pension Fund v. Central Transport, Inc., 472 Thornton v. Evans, 692 &.2d 1064 (7th Cir.

Ls GEE cc nccncnapnadeescaccsbnuhiaes il 1982) ra ates aha tahoe eae an eur 10

Diduck v. Kaszycki & Sons Contractors, Inc., 974 United States \. Wise, 370 U.S. 405 (1962) ~ 21

- » > _ ap rS ns ees 10, 17 Useden v. Acker, 947 F.2d 1863 (lth Cir 1991),

Estate of Cowart v. Nicklos Drilling Co., 1128. Ct. petition for cert. pending, No. 91-1944 (filed

Tt > fun Seas teaes Eaaa RnR eae aeaees 20 7 June 1, 1992) Pry fa 10, 13

Fink v. National Savings & Trust Co., 772 F.2d Wechsler ». Bowman, 34 N.E.2d 322 (NY.

ee ee eae aidaw hs 10 1941) | 1s

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. Whitfield \. Lindemann, 853 &.2d 1298 (Sth Cir

SN td Ce oes a eee a ao wis 11, 16, 17 IORR), cert. denied su/ nom. Klepak v. Dole, 490

First National Bank of Kingman v. Byrnes, 59 P. LS. 1OR9 (1989) ce ae ee oe 1. 10

I eo tan ae ee ae 15 HMhitford v. Reddeman, 219 NW Wl (Wis.

Fort Halifax Packing Co. v. Coyne, 482 U.S. 1 | 1928) ; 16

PE nda ceases dnuedcdausee ots nee 17 |

Ingersoll-Rand Co. v. McClendon, 111 S. Ct. 478 | Statutes:

|) 14, 17, 25 Employee Retirement Income Security Act of 1974,

Lessee of Smith v. McCann, 65 U.S. (24 How.) 29 U.S.C. 1001 et seq. 12

398 (1861) ............. Pet es Fe tees 13 | $8 1-608. 29US.C 1001-1168 y

Massachusetts Mutual Life Insurance Co. v. § 1b). 291 S.C. 100K(b) | 16

Russell, 473 U.S. 134 (1985)... oe 7, 13, 22, 23, 24 § 414) B), 29 U.S.C. 100201408) 2

Mertens v. Black, 948 F.2d 1105 (9th Cir. 1991). . 3 § 10%d). 29U S.C. 102d) 1

Moskal v. United States, 111 S. Ct. 461 (1990)... 19, 24 S WIAcMIWB), I9U SC. LORWeEMIMB) 2

Vi

§ 2101(a), 103 Stat. 2123

Statutes Continued: Page

§§ 401-414, 29 U.S.C. HOL-1114 R

§ 404, 29U S.C. 1104 8

§ 406, 29U. S.C. 1106 ........ 18

§ 406(a 10), 29 USC. 1106taM TO) 3

§ 408(b)(2), 29 USC. LLOR(by2) | 3

§ 409, 29U S.C. 109... : 8,9, 19, 23,24

§ 409(a), 29 U.S.C. 1109¢a) 8, 9, 22, 23, 24

§ 412, 29U.S.C. 1112 ...... 8

§§ SOL-SIS, 299US.C. PEAE-114S e)

} & — 5 of ee 0)

§ $02, 29U.S.C. 1132 ...... camennne &, 9

§ SO2(a), 29 US.C. 1132fa) . —_, §, 7,9, 23

§ SO2(aM 1B), 29US.C. 132taM ti MB). 22). (7, 22

§ S02(aK2), 29 U.S.C. 1132(aM2) ........ 7,9, 19, 22

§ S02(ax3), 29 USC. 1132(and) -... passim

§ §02(aWS), 29US.C. 1132(anS) | 7, 8, 19, 22

§ S020), 29 U.S.C. 1132) (Supp. IE 1290) 8, 64,

7, 18

§ S021), 29 USC. 11320)01) (Supp.

1990) . SN an ee ee ee 18

§ SO2UMIMA), 29 U.S.C. TER20 IA) (Supp.

I} 1990) | oan i? 7

§$ S021 0B), 29 USC. 11320)01)0B) (Supp.

11 1990) _. ep ep | 7

§ S020 420 B), 29 U.S.C. 113202) B) (Supp.

UN fare i at 7 7,19

§ S14(a), 29U S.C. 1144¢a) me

Internal Revenue Code:

26 U.S.C. 4975 0

26 U.S.C. 497S(a) |. 20

26 U.S.C. 497S%(b) 20

26 U.S.C. 4975(h) |. 20

Omnibus Budget Reconciliation Act of 1989, Pub.

1. No. 101-239, 103 Stat. 2106:

§ 2101, 103 Stat. 2123 | 20

S

Vil

Miscellaneous: Pave

Black's Law Dictionary (6th ed. 1990) 1-11

3 Wilham Blackstone, Conmmnentartes on the Laws

of England 13, 14

George Gleason Bogert & George Taylor Bovert,

The Law of Trusts and Trustees (2d ed. tev.

19R2) 13,15, 16

Su Edward Coke, The First Part of the Institutes

of the Laws of Eneland 13

120 Cong. Rec. 29,932 (1974) 16

135 Cong. Rec. H6006 (daily ed. Sept. 27, 1990) 21

HR. 3299, 1O1st Conge., Ist Sess. (1989) 2)

HER. Rep. No. 247, 1Otst Cong., Ist Sess. (1989) 2!

b.W. Manland, Equity (2d ed. 1936) 14

4 John Norton Pomeroy, A Treatise on Equits

Jurisprudence (Spencer W. Symons Sth ed

1941) 14, 1S

Restatement (Second) of Trusts (1959):

Vol J 12

Vol 2 14, 18

S. Rep. No. 383, 93d Cong... Ist Sess. (1973) 1]

Austin Wakeman Scott, Participation in a Breach

of Trust, 34 Wars 1. Rev 454(1921) 1S, 16

Austin’ Wakeman Scott & William Franklin

bratcher, The law of Trusts (4th ed. 1988)

Vol. 3 13

Vol. 4 1s

2 Joseph Story, Commentaries on Equity Jurts

prudence (WEL Lyon, Ir 14th ed. 1918) 13

In the Supreme Court of the Chuted States

Oc ropER TERM, 1992

No. 91-1671

Witt tant J. MERTENS. ET AL. PETITIONERS

v.

Hewitt ASSOCIATES

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

POR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE SUPPORTING PETITIONERS

INTEREST OF THE UNITED STATES

This case presents the question whether courts may en-

force the fiduciary responsibility provisions of the Em-

ployee Retirement Income Security Act of 1974 (ERISA),

29 U.S.C. 1001 ef seq., against a nonfiduciary who know-

ingly participates in a violation of ERISA’s fiduciary

duties. The Secretary of Labor has primary enforcement

authority for the fiduciary provisions of Title | of ERISA

and has filed numerous ERISA actions seeking to impose

liability on nonfiduciaries for participation in breaches of

fiduciary duties imposed by ERISA. See, e.g., Whitfield v.

Lindemann, 853 &.2d 1298 (Sth Cir. 1988), cert. denied

sub nom. Klepak v. Dole, 490 U.S. 1089 (1989). As we ex-

plained in our brief filed at the petition stage at the Court's

(1)

ty

invitation, the court of appeals’ ruling unduly restricts

ERISA’s enforcement provisions. Because the Court’s dis-

position of the case ts likely to have a significant effect on

the enforcement of ERISA, the Secretary has a substantial

interest in this case.

STATUTORY PROVISIONS INVOLVED

The pertinent provisons of ERISA are reproduced in the

Appendix to this brief, infra, la-3a.

STATEMENT

1. Petitioners are former employees of the Kaiser Steel

Corporation and participants in the Kaiser Steel Retire-

ment Plan, a qualified pension plan under the Employee

Retirement Income Security Act of 1974 (ERISA), 29

U.S.C. 1001 et seq.' In 1980, while respondent was serving

as the plan's actuary, Kaiser began to phase out its steel-

making operations. That action resulted in the early re-

tirement of a large number of employees. Respondent,

however, continued to use actuarial assumptions that did

not reflect the increased costs the early retirements would

impose on the plan. As a result, Kaiser did not adequately

fund the plan, and plan assets became insufficient to

satisfy benefit obligations. By early 1987, the Pension

Benefit Guaranty Corporation (PBGC) had determined

that the plan was underfunded and incapable of paying its

liabilities. The PBGC terminated the plan and began pay-

ing its participants substantially reduced benefits. J.A.

3-7; see Pet. App. A2-A3, A17-Al8.

2. In December 1989, petitioners filed this action

alleging that respondent had violated ERISA and state

' This case was decided on a motion to dismiss and therefore the

allegations of petitioners’ complaint are taken as true. See Pet. App

A2, Al9

malpractice law. Petitioners claimed that respondent had

caused losses to the plan by allowing Kaiser to set actuarial

assumptions, failing to disclose that it served as an actuary

for both Kaiser and the plan, and failing to disclose the

plan’s funding inadequacies.? Petitioners argued that

respondent violated ERISA by breaching respondent's

professional duties to the plan’ and by participating in an

unlawful party-in-interest transaction.* When respondent

moved to dismiss the complaint for failure to plead causes

of action cognizable under ERISA, petitioners advanced

several legal theories: (1) that respondent was an ERISA

fiduciary that breached its fiduciary duties; and (2) that

even if respondent was not a fiduciary, it was liable under

> Petitioners also filed suit against members of the Investment

C onynittee of the Kaiser Steel Retirement Plan, alleging that they had

violated their fiduciary duties. See Mertens v. Black, 948 F.2d 1105

(9h Cir. 1991) (upholding district court's refusal to dismiss peti-

toners’ claims against investment committee members).

‘ ERISA imposes various requirements concerning actuarial ser-

vices. See, e.g., 29U.S.C. 102% d) (certain ERISA plan administrators

must prepare annual reports including statements by enrolled actu-

aries) and 1OR2(c) 3B) (costs, liabilities, interest rates, and other fac-

tors are to be calculated on the basis of “reasonable” actuarial assump-

tions that offer the actuary’s “best estimate of anticipated experience

under the plan”). Petitioners alleged that respondent's actions in pro.

viding actuarial services did not comply with the obligations set forth

in ERISA and implementing regulations. J A. 9-13.

* ERISA forbids various transactions between a plan and a “party

in interest,” including the furnishing of services. 29 US.¢

11O06(an IMC). The statute defines the term “party im interest” to im

clude a “person providing services to [the] plan.” 29 U.S.C

1002014) B), but exempts from the prohibitions of Section 1106 any

service contract for which “no more than reasonable compensation is

paid.” 29U S.C. PLOR( bx 2). Petitioners claimed that respondent's fees

were not “reasonable” because respondent's conflict of interest pre

vented it from providing adequate services to the plan. J.-A. 13-14

4

ERISA (a) for breaching nonfiduciary duties imposed on

an actuary by ERISA or (b) for knowing participation in a

breach of duty by a fiduciary. J.A. 9-14; see Pet. App.

A2-A4.

The district court dismissed all of petitioners’ claims.

Pet. App. Al7-A30.° The court dismissed the claim that

respondent itself was a fiduciary based on its conclusion

that professional service providers such as actuaries, at-

torneys, and accountants do not act as fiduciaries when

they perform their ordinary duties. /d. at A20-A22. The

court also dismissed petitioners’ claim for monetary relief

based on respondent's alleged violation of its actuarial

duties. In the court's view, Section 502(a)(3) of ERISA, 29

U.S.C. 1132(a)(3), would not allow that type of relief

because petitioners had not alleged that respondent had

profited from the alleged violation. Pet. App. A23-A2S.

The court also rejected petitioners’ “prohibited trans-

action” claim, which it characterized as merely an effort to

recast the claimed breach of professional duty as a pro-

hibited transaction. /d. at A25-A26. Finally, the court dis-

missed petitioners’ claim that ERISA created a right of

recovery against respondent as a knowing participant in a

fiduciary breach, based on the Ninth Circuit's decision in

Nieto v. Ecker, 845 F.2d 868 (1988), which held that

ERISA bars such an action.® Pet. App. A22.

‘ The Pension Benefit Guaranty Corporation (PBGC) was named

as a defendant in its capacity as the plan's statutory trustee. It

answered and filed a cross-claim asserting that any recovery by pet:

tioners should be paid to it. When the district court dismissed the ac

tion, it also dismissed the PBGC's cross-claim. See Pet. n

* The district court also held that petitioners’ pendent state-law

claim for professional negligence was barred by the State's two-year

statute of limitations. Pet. App. A26-A27

4)

3. The court of appeals affirmed with respect to the

ERISA claims.’ Pet. App. Al-A13. With respect to the

claim now at issue, the court relied on its holding in Nieto

that ERISA “limits its coverage to fiduciaries, and nothing

in the statute provides any support for holding others

liable.” Jd. at A7 (quoting Nieto, 845 F.2d at 871). The

court also rejected (Pet. App. A8-AQ) petitioners’ argu-

ment that the Omnibus Budget Reconciliation Act of 1989

(OBRA), Pub. L. No. 101-239, § 2101(a), 103 Stat. 2123,

demonstrates that Section 502(a) authorizes a remedy

against nonfiduciaries for knowing participation in a

breach of fiduciary duty. OBRA amended ERISA to add

Section S02(/), 29 U.S.C. 1132() (Supp. 1 1990) (App., in-

fra, 2a-3a), which authorizes the Secretary of Labor to

assess a civil penalty against fiduciaries and “other per-

son{s]” for a breach of fiduciary duty under ERISA or for

“knowing participation” in such a breach. The court noted

that Section 1132(/) applies only to the Secretary, and

noted that the Congress that passed OBRA considered,

but did not adopt, an amendment that explicitly would

have overturned the result in Nieto. Pet. App. A8-A9.*

SUMMARY OF ARGUMENT

1. Section $02(a)(3) of ERISA grants any beneficiary

of a plan covered by ERISA the right to sue for any “equi-

table relief that is “appropriate * * * to redress * * * vio-

’ The court reversed the trial court's ruling that petitioners’ state

law professional negligence claim was barred by the statute of limita

tions. Pet. App. AlI-Al}3.

* Petitioners filed a petition for rehearing with a suggestion of re

hearing en banc, supported by the Secretary of Labor as an amicus

curiae, urging the Ninth Circuit to overrule Nieto. The court of ap

peals demed the petition and rejected the suggestion for rehearing en

hance. Pet. App. AIS-Al6

6

lations fof 29 U.S.C. 1001-1168 or the plan].” 29 U.S.C.

1132(a)(3). The sole issue in this case is whether the relief

petitioners seek —to be made whole for losses they suf-

fered because of a breach of fiduciary duty in which re-

spondent is alleged to have knowingly participated — is

“appropriate equitable relief to “redress” that breach.

2. Principles of equity traditionally applicable to cases

involving trusts support petitioners’ claim. First, courts of

equity regularly awarded make-whole monetary damages

to beneficiaries to redress violations of a breach of trust.

Although such damages resemble compensatory damages

awarded in courts of law, the equitable status of trusts

historically made courts of equity the only forum autho-

rized to provide such redress. Second, courts of equity did

not limit beneficiaries’ remedies to those against the trust's

fiduciary, but also ordered third parties who knowingly

participated in the breach of fiduciary duty to compensate

beneficiaries for resulting losses. Hence, the relief sought

by petitioners would have been available as a matter of

course In a case in equity arising before ERISA’s enact-

ment.

But the broad preemption provision set forth in Section

Si4(a) of ERISA preempts all state laws that “relate to”

any covered plan. Because the scope of the fiduciary duties

with respect to an ERISA plan is now exclusively a matter

of federal law, the States are no longer able to afford relief

for breaches of fiduciary duty that involve an ERISA

plan. Unless the general provision of Section S02(a)(3)

provides the relief formerly available in courts of equity,

ERISA will have left beneficiaries in a worse position than

they were prior to ERISA’s enactment. In light of ERISA’s

open-ended authorization to award “equitable relief in

Section $02(a)(3), ERISA should not be construed to re-

quire such a result.

3. Section $02(/) of ERISA, 29 U.S.C. 1132(/) (Supp.

Il 1990), confirms that ERISA did not abolish the equi-

table liability of nonfiduciaries. That provision explicitly

authorizes the Secretary to seek a civil penalty not only for

breach of fiduciary duty by “a_ fiduciary,” Section

SO2(/)(1)(A), but also for “knowing participation in such a

breach * * * by any other person,” Section 502(/)(1)(B).

Moreover, Section S02(/)(2)(B) defines the civil penalty to

be assessed by the Secretary in terms of the amounts

obtained in suits brought by the Secretary against “other

person[s]” under Section S02(a)(S) of ERISA. Section

502(/) thus is premised on the Secretary of Labor's ability

to secure, as “other appropriate equitable reliet * * * to

redress such violation” under Section 502(a)(S), a make-

whole monetary recovery against nonfiduciarics who

knowingly participate in a breach of fiduciary duty. Be-

cause the right of action granted to the Secretary by Sec-

tion 502(a)(S) is coextensive with the private right of action

under Section 502(a)(3) at issue in this case, the reference

in Section $02(/) to suits against “other person[s]” demon-

Strates that Section 502(a)(3) must permit such suits

against persons other than a fiduciary.

4. Finally, the relief sought by petitioners is not incon-

sistent with this Court's decision in Massachusetts Mutual

Life Insurance Co. v. Russell, 473 U.S. 134 (1985). The

Court in Russell held that a participant could not receive

damages under Section S02(a)(2) for bad-faith processing

of her claim for benefits, in excess of the damages avail-

able to her under the express terms of Section S02(a)(1)(B).

The plaintiff in that case relied expressly on Section

$02(a)(2), and the Court explicitly Jeclined to consider the

availability of relief under any other provision of ERISA.

473 U.S. at 139 nS.

Moreover, reading Russell to preclude courts from

granting any remedies beyond the specific remedies de-

fined in detail in Section S02(a) would nullify the general

provisions for “appropriate equitable relief” set forth in

Sections 502(a)(3) and 502(a)(5). Section S02 establishes a

comprehensive enforcement scheme, with several remedies

outlined in detail and two general provisions directing

courts to develop remedies in light of underlying equitable

principles. A ruling that relief is invariably limited to the

basic remedies would contravene the language and struc-

ture of the statute as a whole.

ARGUMENT

ERISA AUTHORIZES CLAIMS AGAINST NONFIDUCTH-

ARIES WHO KNOWINGLY PARTICIPATE IN FIDUCIARY

BREACHES

A. Section $02(a}(3) of ERISA Authorizes Federal Courts To

Award “Appropriate Equitable Relief * * * To Redress* * *

Violations” of ERISA

Part 4 of Title | of ERISA, 29 U.S.C. 1101-1114, titled

“Fiduciary Responsibility,” imposes a series of duties on

fiduciaries who administer employee benefit plans. For ex-

ample, Section 404, 29 U.S.C. 1104, enumerates certain

fiduciary duties; Section 406, 29 U.S.C. 1106, specifies

certain prohibited transactions; and Section 412, 29

U.S.C. 1112, establishes bonding requirements for of-

ficials who handle plan assets. In turn, Section 409 of

ERISA, 29 U.S.C. 1109, authorizes three specific remedies

against fiduciaries who breach those duties. First, a

fiduciary is “personally liable to make good to [the] plan

any losses * * * resulting from each * * * breach” of

fiduciary duty. 29 U.S.C. 1109(a). Second, a court may

order a breaching fiduciary to “restore to [the] plan any

profits of such fiduciary which have been made through

use of assets of the plan by the fiduciary.” /bid. Third, a

fiduciary “shall be subject to such other equitable or

remedial relief as the court may deem appropriate, in-

cluding removal of such fiduciary.” /hid.

9

Part S of Title | of ERISA, 29 U.S.C. 1131-1145, titled

“Administration and Enforcement,” sets forth the general

remedial framework for Title l of ERISA. Section S01, 29

U.S.C. 1131, establishes criminal penalties; Section $02,

29 U.S.C. 1132, authorizes six different civil actions,

described in the six numbered paragraphs of subsection

502(a). This case involves the second and third of those six

paragraphs. The second paragraph, 29 U.S.C. 1132(a)(2),

authorizes an action “for appropriate relief under [Section

409].” The third paragraph, on which petitioners’ action

rests, permits an action “by a participant, beneficiary, or

fiduciary (A) to enjoin any act or practice which viclaies

any provision of this subchapter or the terms of the plan

or (B) to obtain other appropriate equitable relief (i) to

redress such violations.” 29 U.S.C. 1132(a)(3).

By contrast to Sections 409 and 502(a)(2)— provisions

limited by their terms to relief against “[aJny person who is

a fiduciary,” 29 U.S.C. 1109(a)—nothing in Section

$02(a)(3) limits the class of permissible defendants. Hence,

the language of Section $02(a)(3) establishes a general

cause of action, available to any “participant, beneficiary,

or fiduciary,” for any “equitable relief” that is “appro-

priate * * * to redress * * * violations [of subchapter | or

the plan].” Because (i) it is undisputed that petitioners

were “participants” in the plan and (ii) petitioners have

alleged that the actions in which respondents participated

violated a “provision of thle] subchapter”® or the terms of

the plan, the sole issue before the Court is whether “appro-

priate equitable relief” includes the relief sought by peti-

tioners: recovery from a nonfiduciary of losses a plan suf-

fers because of a fiduciary breach in which the nonfiduci-

ary knowingly participated. For the reasons discussed be-

* Section $02 appears in Subchapter | of Chapter 18 of Title 29,

which includes 29 tL S.C LOOL-1T1OR

10

low, we believe —as do the majority of the courts of ap-

peals'® —that it does.

B. Appropriate Equitable Relief Includes a Monetary Judg-

ment Requiring a Nonfiduciary Who Knowingly Par-

ticipates in a Breach of Fiduciary Duty To Redress Losses

Suffered by the Plan as a Result of the Breach

Under traditional equitable principles, the relief sought

by petitioners would have been available before ERISA.

Because ERISA preempts the remedies traditionally

available under state laws that relate to covered employee

benefit plans—whether based on a statute or common

law —a conclusion that Section 502(a)(3) does not provide

the relief sought in this case would require the conclusion

that Congress intended to curtail that traditional form of

relief when it acted to protect employee benefit plans in

passing ERISA. That conclusion is untenable.

1. Traditional equitable principles provide make-whole

relief to beneficiaries of a trust harmed by a non-

fiduciary who participates in a breach of trust

“ERISA abounds with the language and teri.sinology of

trust law”; as a result, courts are to consult “general prin-

ciples of trust law” developed by courts of equity'' to de-

'© See Diduck v. Kaszvcki & Sons Contractors, Inc., 974 F.2d 270,

279-281 (2d Cir. 1992); Whitfield v. Lindemann, 853 F.2d 1298, 1303

(Sth Cir. 1988), cert. denied sub nom. Klepak v. Dole, 490 U.S. 1089

(1989); Brock v. Hendershott, 840 F.2d 399, 442 (6th Cir. 1988),

Thornton v. Evans, 692 F.2d 1064, 1078 (7th Cir. 1982); see also Fink

v. National Savings & Trust Co., 772 F.2d 951, 9588 (D.C. Cir, 1985S)

(dictum). But see Nieto v. Ecker, 845 F.2d 868, 870-873 (9th Cir.

19RR); Useden v. Acker, 947 F.2d 1863, 1882 (1ith Cir. 1991), petition

for cert. pending, No. 91-1944 (filed June 1, 1992)

'' It should be beyond dispute that the reference to “equitable

relief™ refers to relief available in courts of equity. See Black's law

termine what types of “equitable relief” are “appropriate”

to “redress” violations under Section $02(a)(3). Firestone

Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110, 115

(1989); see Central States, Southeast & Southwest Areas

Pension Fund v. Central Transport, Inc., 472 U.S. 559,

570 (1985) (courts should consider “the common law of

trusts”). Two of those principles demonstrate that the

relief sought by petitioners is “appropriate equitable

relief”: courts of equity awarded make-whole monetary

relief to redress a breach of trust; and courts of equity

awarded relief against a nonfiduciary who participated in

a breach of trust by a fiduciary.'?

Dictionary $39 (6th ed. 1990) (defining “equitable relief” as “[t}hat

species of relief sought in a court with equity powers”).

'? The Eighth and Ninth Circuits have stated that the reference in

Section S02(a3) to “other appropriate equitable relief” should be

construed to include only three categories of relief: injunctions to pre-

vent violations of fiduciary duty, imposition of a constructive trust on

plan assets, and removal of trustees. See, e.g., Sokol v. Bernstein, 803

F.2d $32, S38 (9th Cir. 1986); Nowak v. Andersen Corp., 962 F.2d

757, 760 (8th Cir. 1992), petition for cert. pending, No. 92-352 (filed

Aug. 26, 1992). Those decisions rely to a significant degree on the fact

that the Senate Report offers those three types of relief as examples of

appropriate equitable relief. See S. Rep. No. 383, 93d Cong., Ist Sess.

105-106 (1973). There is no indication in the report, however, that the

passage was intended as an exhaustive catalogue of the types of relief

that would be available under Section $02(a)3); indeed, the relevant

passage begins with the phrase “[flor example.” /d. at 105. The best

guide for determining what types of relief should be available is the

Statutory language — which refers generally to the readily compre-

hensible concept of “equitable relief — not a list of examples offered

in the legislative history. See Pension Benefit Guaranty Corporation

\ LTV Corp., 4996S) 633, 649 (1990)

12

a. In the realm of trust law, make-whole monetary

relief has long been a traditional equitable remedy. The

Second Restatement of Trusts illustrates this conclusion.

Section 199 sets forth the “equitable remedies” available to

the beneficiary of a trust. The third of these, set forth in

Section 199(c), allows the beneficiary “to compel the

trustee to redress a breach of trust.” | Restatement (Sec-

ond) of Trusts 437 (1959). The comment to Section 199(c)

explains that the suit to gain redress should be governed by

Section 205 of the Restatement, see id. comment c, at 438,

which permits an award of monetary relief by making the

trustee liable for any “loss” to the trust caused by a breach

of fiduciary duty.'* Indeed, each of the ten illustrations in

the comments to Section 205 involves a monetary award

against the trustee. /d. comments c-h, at 459-462.'4

Moreover, it is clear that the monetary relief available

under Section 20S included a right to “make-whole”

damages. Comment a explains that the beneficiary has a

number of options, one of which is “the option * * * of

pursuing a remedy which will put him in the position in

which he would have been if the trustee had not committed

the breach of trust.” 1 Restatement (Second) of Trusts 458

(1959). Thus, “the general rule fis] that the object of

damages is to make the injured party whole, that is, to put

'* Section 205 provides that a trustee who has committed a breach

of trust “is chargeable with (a) any loss or depreciation in value of the

trust estate resulting from the breach of trust; or (b) any profit made

by him through the breach of trust; or (c) any profit which would have

accrued to the trust estate if there had been no breach of trust.” | Re-

statement (Second) of Trusts 458.

‘* For example, Ilustration § provides: “A is trustee of $10,000 in

cash. He deposits the money in a bank which he knows or has reason

to know is insolvent. The bank fails and A recovers only $4000 from

the bank. A is liable for the loss.” 1 Restatement (Second) of Trusts

489

13

him in the same condition in which he would have been if

the wrong had not been committed and the trustee had

done his duty. Both direct and consequential damages may

be awarded.” George Gleason Bogert & George Taylor

Bogert, The Law of Trusts and Trustees § 701, at 198 (2d

ed. rev. 1982) [hereinafter Bogert & Bogert] (footnote

omitted) (liability for breach of investment duties): see

Russell, 473 U.S. at 187 (Brennan, J., concurring); see

also Albemarle Paper Co. v. Moody, 422 U.S. 408,

418-419 (1975) (application of similar principles of equity

to Title VII).

As the materials discussed above demonstrate, respond-

ent errs in suggesting (Br. in Opp. 8-9) that the make-

whole relief requested by petitioners constitutes a

“damage[s]” remedy not cognizable in equity.'’ “Trusts

are, and have been since they were first enforced, within

the peculiar province of courts of equity.” 3 Austin Wake-

man Scott & William Franklin Fratcher, The Law of

Trusts § 197, at 188 (4th ed. 1988) [hereinafter Scott &

Fratcher].'© Thus. although a beneficiary's action to

'* Respondent's analysis resembles the analysis of the Eleventh Cir

cuit in Useden v. Acker, 947 F.2d 1563, 1880 (1991), petition for cert

pending, No. 91-1944 (filed June 1, 1992).

'* See Lessee of Smith v. McCann, 658 U.S. (24 How.) 998, 407

(1861) (equity has “exclusive jurisdiction of trusts and trust estates”); 2

Joseph Story, Commentaries on Equity Jurisprudence § 1302, at 648

(WH. Lyon, Ir. 14th ed. 1918) (“For the most part indeed matters of

trust and confidence are exclusively cognizable in Courts of Equity:

there being few cases except bailments, and rights founded in contract

* * *in which a remedy can be administered in the Courts of Law.”):

3 William Blackstone, Commentaries on the Laws of England *43\

(“fraud, accident, and trust are the proper and peculiar objects of a

court of equity”); Sir Edward Coke, The First Part of the Institutes of

the Laws of England § 464, at 272b* (beneficiary of trust “had no

remedie by the common law, but for breach of trust, his remedie was

only by subpoena in chancerie”)

14

recover losses resulting from a breach of duty superficially

resembles an action at law for damages, such relief tradi-

tionally has been obtained in courts of equity.'’ Hence,

hecause that relief is, by definition, “equitable relief,”

there is no reason it should not be available in an action

under Section S02(a)(3) of ERISA, 29 U.S.C. 1132(a)(3).

See Ingersoll-Rand Co. v. McClendon, 1118S. Ct. 478, 486

(1990) (noting that “there is no basis in § 502(a)’s language

for limiting ERISA actions to only those which seek ‘pen-

sion benefits,’ " and explaining that “[i]t is clear that the

relief requested” in that case — which included a prayer for

compensatory damages—“is well within the power of

federal courts to provide” under ERISA).

b. It also is clear that equitable remedies for a breach

of trust included monetary awards against nonfiduciaries

who knowingly participated in a breach of trust. Again,

the Second Restatement of Trusts is explicit. Section 326

provides that “[a] third person who * * * has notice that

the trustee is committing a breach of trust and participates

therein is liable to the beneficiary for any loss caused by

the breach of trust.” 2 Restatement (Second) of Trusts 124

'* See, e.g., 4 John Norton Pomeroy, A Treatise on Equity Juris

prudence § 1080, at 229 n.18 (Spencer W. Symons Sth ed. 1941) [here

inafter Pomeroy] (explaining that the equitable liability for breach of

trust is “of the same nature as that arising from breach of contract”); 3

William Blackstone, Commentaries on the Laws of England *4%9

(“The form of a trust * * * gives the courts of equity an exclusive

jurisdiction as to the subject-matter of all settlements and devises in

that form, * * * but the trust is governed by very nearly the same

rules, as would govern the estate in a court of law, if no trustee was in

terposed.”); see also F.W. Maitland, Equity 110-111 (2d ed. 1936) (ex

plaining that the historical reason trusts were not enforced at law ap

parently was that “the Chancellors were beforehand in this matter

and, by giving a far more perfect remedy than the common law courts

could give, made any remedy in those courts unnecessary”)

1S

(1959).'* This Court also has recognized that principle.

Seminole Nation vy. United States, 316 U.S. 286, 296

(1942) (“It is a well established principle of equity that a

third party who pays money to a fiduciary for the benefit

of the heneficiary, with the knowledge that the fiduciary

intends to misappropriate the money or otherwise be false

to his trust, is a participant in the breach of trust and liable

therefor to the beneficiary.”).'? Thus, if a trustee’s agent

knowingly participates and assists in a breach of fiduciary

duty, the agent could be held liable for losses arising from

the breach. See, e.g., 4 Scott & Fratcher, supra, § 326.4, at

310-313; 2 Restatement (Second) of Trusts, supra, § 326

comment a, at 124. Allegations such as those made by

petitioners —that an actuary knowingly participated in a

breach of fiduciary duty while acting as the fiduciary’s

'* Treatises and commentators uniformly have supported this view

as well. Bogert & Bogert, supra, § 9O1, at 257 ("[ The beneficiary, as

equitable owner of the trust res has the right that third persons shall

not knowingly join with the trustee in a breach of trust."); 4 Scott &

Pratcher, supra, § 326.8, at 314 (“Wher ‘be third person knowingly

and actively participates in the breach of vere 1s no difficulty in

holding him liable.”); Austin Wakeman |, Participation in a

Breach of Trust, 34 Wary. 1. Rev. 454, 481 (1921) [hereinafter Scott}

(“If third persons knowingly participate with a fiduciary in a breach of

his obligations it is proper to hold them liable."); 4 Pomeroy, supra,

§ 1080, at 230: ("If third persons are parties to a breach of trust, thes

are equally lable with the trustee.”).

'* State court decisions also have recognized this principle. See,

ee, first National Bank of Kineman v. Byrnes, 89 Po 1056, 1058

(Kan. 1900) ("As a general principle, all persons who knowingly par

Hicipate or aid in committing a breach of trust are responsible for the

wrong, and may be compelled to make good the loss."); Wechsler \

Bowman, 34 N.E.2d 422, 326 (N_Y. 1941) (The principle of law

which the plaintiff urges has been reiterated by this court many times

Any one who knowingly participates with a fiduciary in a breach of

trust ts hable for the full amount of the damage caused thereby to the

cesturs que trust")

16

agent — accordingly would be sufficient to state a cause of

action in equity under traditional principles of trust law.?°

2. The relief sought by petitioners is appropriate because it

ensures that ERISA affords beneficiaries no less protec-

tion than they would have had in courts of equity before

ERISA

As this Court has explained, “ERISA was enacted ‘to

promote the interests of employees and their beneficiaries

in employee benefit plans.’ ” Firestone Tire & Rubber Co.

v. Bruch, 489 U.S. 101, 113 (1989) (quoting Shaw v. Delta

Aur Lines, Inc., 463 U.S. 85, 90 (1983)); see 29 U.S.C.

1L001(b) (“[ T]he policy of [ERISA is] to protect * * * the in-

terests of participants in employee benefit plans and their

beneficiaries.”).?' Thus, the Court has been reluctant to

interpret ERISA in a way that “would afford less protec-

** There is no doubt that the cause of action lies in equity. See, e.2.,

Seminole Nation, 316 U.S. at 296; Scott, supra, 34 Harv. L. Rev. at

454 (“Anyone who participates with a trustee in a breach of trust may

be held liable in a court of equity. * * * [I)f he has never received or no

longer holds the trust property or its proceeds, he may be held liable in

equity for damages.”); Bogert & Bogert, supra, § 901, at 257 (rights of

beneficiary rest on status “as equitable owner of the trust res”); Cahall

\. Lofland, 114 A. 224, 237 (Del. Ch. 1921) (One who participates

with a trustee in a breach of trust may be held liable in a court of equi-

ty"), aff'd, 118 A. 1 (Del. 1922); Whitford v. Reddeman, 219 NW.

361, 368-366 (Wis. 1928) (“[ T]he power to compel an accounting by a

trustee, and to hold those liable with him for mismanagement of the

trust are well-recognized and well-defined powers of a court of

equity.”).

** The legislative history underscores this purpose. See 120 Cong

Rec. 29,932 (1974) (remarks of Sen. Williams) (the objectives of

ERISA’s fiduciary-related provisions “are to make applicable the law

of trusts; * * * to establish uniform fiduciary standards to prevent

transactions which dissipate or endanger plan assets; and to provide

effective remedies for breaches of trust”)

17

tion to employees and their beneficiaries than they enjoyed

before ERISA was enacted,” Firestone, 489 U.S. at 114,

and has never interpreted ERISA to circumscribe the equl-

table remedies available at common law. Adopting the

rule established by the court of appeals, however, would

do just that.

With exceptions not relevant here, Section S14(a) of

ERISA preempts “any and all State laws insofar as they

may now or hereafter relate to any [covered] employee

benefit plan.” 29 U.S.C. 1144(a). Hence, ERISA preempts

any cause of action dependent on proof that the defendant

participated in a breach of a fiduciary duty to an ERISA

plan, because any such cause of action would “relate to”

the plan by considering the duties imposed on fiduciaries

of the plan. See Ingersoll-Rand Co. v. McClendon, 111 S.

Ct. 478, 483 (1990) (cause of action for wrongful termina-

tion to avoid paying benefits is preempted); Pilot Life In-

surance Co. v. Dedeaux, 481 U.S. 41, 47-48 (1987)

(common-law causes of action based on improper proc-

essing of a claim for benefits “undoubtedly meet the

criteria for pre-emption”). Hence, ERISA leaves the States

powerless to provide beneficiaries with a state-law remedy

against nonfiduciaries. Any right of recovery dependent

on proof that the defendant participated in a breach of a

fiduciary duty to an ERISA plan would be preempted.??

*? TE ERISA did not preempt state-law causes of action in the area.

matters would be just as unsatisfactory, because the “liability of non

fiduciaries would be assessed by varving state laws, while the conduct

and hability of the fiduciary whom the third party is claimed to have

knowingly assisted in breaching a duty would be governed by federal

law.” Diduck \. Kaszvcki & Sons Contractors, Inc., 974 F 2d 270. 281

(2d Cir, 1992). Such a result would interfere significantly with Con

eress’s patent intent to bring uniformity to the administration of

employee benefit plans. See Fort Halifax Packine Co... Cowne. 482

US. 1, 910 C1987)

18

Fiduciaries will not always have the financial capability

to provide complete relief. See, e.g., Brock v. Gerace, 635

I. Supp. 563, 569 (D.N.J. 1986). The absence of a remedy

against nonfiduciaries therefore will prevent beneficiaries

in some cases from being made whole. In our view, and in

the view expressed by common-law courts for centuries, it

is inequitable to require innocent beneficiaries to sustain

such a loss, instead of the individuals who knowingly par-

ticipated in the fiduciary’s wrongful conduct. Because

ERISA defines the scope of available relief through prin-

ciples of equity, that traditional view of what is equitable

in these circumstances should preclude dismissal of peti-

tioners’ claims.

In sum, the traditional existence of a right of equitable

recovery for individuals in the position of petitioners,

coupled with ERISA’s broad preemption clause, provides

powerful support for the conclusion that the remedy

sought by petitioners is “appropriate equitable relief to

“redress” the alleged violations of ERISA and the plan.

(. The Availability of a Civil Penalty Against Nonfiduciaries

Under Section 80201) of ERISA Demonstrates the Propriety

of Awarding Such Relief Under Section $02(a)(3)

1. Section 502(/) of ERISA, 29 U.S.C. 1132(/) (Supp.

Il 1990) confirms that Section 502(a)(3) should be inter-

preted to authorize monetary relief against nonfiduciaries.

Section $02(/)(1) provides in relevant part:

In the case of —

(A) any breach of fiduciary responsibility

under * * * part 4 of this subtitle by a fiduciary,

or

(B) any knowing participation in such a

breach * * * by any other person,

the Secretary shall assess a civil penalty against such

fiduciary or other person in an amount equal to 20

percent of the applicable recovery amount.

19

Section 502(/42)(B), in turn, defines the term “applicable

recovery amount” to include “any amount * * * ordered

by a court to be paid by such fiduciary or other person to a

plan or its participants and beneficiaries in a judicial pro-

ceeding instituted by the Secretary under subsection (a)(2)

or (a(S) of this section.” 29 U.S.C. 1132(/)(2)(B) (Supp. Il

1990).

Because Section 5$02(/)(2)(B) by its terms applies only to

actions instituted under Sections 502(a)(2) and $02(a)(5).

the reference to sums recovered from a fiduciary “or other

person” necessarily indicates that it is possible to recover

sums from “other person[s]” under at least one of those

two subsections. Because Section 502(a)(2) authorizes only

“relief under [Section 409],” and because Section 409 au-

thorizes relief only against “[aJny person who is a

fiduciary,” Section S02(a)(S) is t! 2 only provision under

which the Secretary plausibly could recover sums from any

“other person.” The authority granted to the Secretary by

Section S02(a)(5), however, is substantively identical to the

authority granted to beneficiaries under Section 502(a)(3)

to “obtain other appropriate equitable relief (i) to redress

such violations or (ii) to enforce any provisions of this sub-

chapter.”?* Hence, the only logical alternatives to our

reading of Section S02(a)(3) are (a) to conclude that the

reference to an “other person” in Section $02(/)(2)(B) was

erroneous, or (b) to hold that the substantively identical

passages in Sections S02(a)(3) and 502(a)(5) have different

meanings. Neither course comports with ordinary- prin-

ciples of statutory construction. See, e.g., Moskal v.

United States, WS. Ct. 461, 466 (1990) (“{A] court

“The only difference between the provisions is that Section

SO2(a 3) contains plural references to “violations” and “provisions” of

ERISA, where Section SO2aMS) contains singular references to a

“vrolation” and a “provision” of FRISA

20

should give effect, if possible, to every clause and word of

a Statute.” (internal quotation marks omitted)); Estate of

Cowart v. Nicklos Drilling Co., 112 S. Ct. 2589, 2596

(1992) (noting “the basic canon of statutory construction

that identical terms within an Act bear the same

meaning”); Patterson v. Shumate, 112 S. Ct. 2242, 2251

(1992) (Scalia, J., concurring) (“[CJonsistency of usage

within the same statute is to be presumed.”). Therefore,

Section 502(/) indicates that Section S02(a)(3)'s grant of

power to afford “appropriate equitable relief includes the

power to afford the time-honored equitable remedy grant-

ing make-whole monetary relief against nonfiduciaries

who knowingly participate in breaches of fiduciary duty.?*

2. Notwithstanding the import of Section S02(/) ex-

plained above, the court of appeals concluded that the

statute that enacted Section $02(/)—the Omnibus Budget

Reconciliation Act of 1989 (OBRA), Pub. L. No. 101-239,

§ 2101, 103 Stat. 2123 —actually supports the position of

respondent. The court noted that when Congress enacted

OBRA, it considered and did not enact an amendment to

ERISA that explicitly would have authorized claims

** Section 4978 of the Internal Revenue Code also mdicates that

Section S02(a)4) authorizes actions against nonfiduciaries. That pro

vision, which was enacted contemporanecously with Tithe Lof ERISA,

levies a tax on “disqualified person|s}]” who engage in prohibited trans

actions, a class of persons that includes nonfiducianies. 26 U.S¢

4975(a) and (b), see Nieto, 845 F.2d at 874.6. The provision provides

that before sending a notice of deficiency to such parties, the Secretary

of the Treasury shall notify the Secretary of Labor to give her a

reasonable opportunity to obtain a correction of the prohibited trans

action. 26U' S.C. 497S¢th). The only way the Secretary of Labor could

obtain a correction, however, would be by a civil action pursuant to

Section S02(aS) against the “disqualified person.” Thus, 26 US.¢

4975, like Section $02(/) of ERISA, rests on the premise that Section

SO2(anS), and thus Section SO02(a4) as well, allows actions against

parties other than fiduciaries

2)

against persons who knowingly participate in fiduciary

breaches. See H.R. 3299, 101st Cong., Ist Sess.

§ JISHeM6MA) (1989), 135 Cong. Rec. H6006 (daily ed.

Sept. 27, 1989). As this Court repeatedly has indicated,

however, Congress’s failure to act “lacks ‘persuasive

Significance’ because ‘several equally tenable inferences’

may be drawn from such inaction, ‘including the inference

that the existing legislation already incorporated the of.

fered change.’ ” Pension Benefit Guaranty Corporation \.

LIV Corp., 496 U.S. 633, 650 (1990) (quoting United

States v. Wise, 370 U.S. 405, 411 (1962)).

In this case, two of the circumstances surrounding

OBRA’s enactment support the inference that Congress

failed to act because of its view that ERISA already

authorized the relief sought by petitioners, not because it

wished to deny that relief. First, the House Report accom-

panying OBRA noted that, at the time of the proposed

amendment, “[a]ll but one of the Circuit Courts of Appeal

that ha[d] considered the issue hafd] held that the broad

remedial powers conferred on federal courts under ERISA

section SC>’a)(3) and (5) create an implied cause of action

against non-fiduciaries who knowingly participate in

breaches of fiduciary duty proscribed by ERISA.” H.R.

Rep. No. 247, 101st Cong., Ist Sess. 77 (1989). The Ninth

Circuit alone had held to the contrary. See ihid. It is im-

plausible to infer that congressional inaction reflected ac-

quiescence in what Congress apparently understood to be

the minority view of the statute. Second, the amendment

was proposed to “clarif[y]” the existence of a right of ac-

tion against nonfiduciaries. /hid. Starting from = that

motivation, it would have been reasonable for Congress to

remove the amendment when it chose to enact another

prosision — Section $02(/)—that indicated that such relief

was avarlable. Accordingly, Congress’s failure to overrule

Nieto expressly does not undermine the strong indication

22

Section S02(/) offers: Section 502(a)(3), like Section

502(a)(S), allows monetary relief against nonfiduciaries

who knowingly participate in a breach of trust with respect

to an ERISA plan.

D. This Court’s Decision In Massachusetts Mutual Life tn-

surance Co. v. Russell Does Not loreclose the Claim for

Relief in This Case

1. Interpreting ERISA to incorporate the trust-law

principles of nonfiduciary liability also is consistent with

Massachusetts Mutual Life Insurance Co. v. Russell, 473

U.S. 134 (1985), on which the Ninth Circuit relied to sup-

port its contrary conclusion in Nieto, 845 F.2d at 872. In

Russell, a beneficiary sued a plan fiduciary for bad-faith

processing of her claim for benefits, asserting a right to

recover compensatory and punitive damages that were not

available under the terms of the plan. But the remedy in

Section 502(a)(1)(B) for a beneficiary who is denied bene-

fits wrongfully allows the beneficiary only “to recover

benefits due to him under the terms of his plan.” 29

U.S.C. 1132(a)(1)(B) (emphasis added). Accordingly, be-

cause the beneficiary was seeking relief in excess of the

relief available under Section 502(a)(1)(B), the beneficiary

relied on Section S02(a)(2), 29 U.S.C. 1132(ay(2), which

permits a beneficiary to sue a fiduciary for a breach of

fiduciary duty under Section 409. See Russell, 473 U.S. at

139-140.

The Court declined to read Section 409 as enlarging the

beneficiary's “explicitly authoriz[ed]"” (473 U.S. at 144)

right to recovery for wrongful denial of benefits. Relying

heavily on the overall purpose of Section 409(a)— which

provides that a fiduciary “with respect to [an ERISA]

plan” is personally liable to “make good to such plan any

losses to the plan” that result from a breach of the fidu-

23

clary’s duties—the Court concluded that the general

reference to “other equitable or remedial relief” that ap-

pears in Section 409(a) authorizes only “ ‘plan-related’

relief,” which could not encompass a right to recover

damages on a beneficiary's own account. 473 U.S. at 142.

2. For several reasons, Russell is not controlling here.

birst, and most obviously, the beneficiary in Russel! sued

exclusively under Sections 409 and S02(a)(2), and placed

no reliance on Section 502(a)(3), the provision at issue in

this case. Russel/, 473 U.S. at 139 n.5 (respondent “ex-

pressly disclaim[ed] reliance on § $02(a)(3), [so] we have

no occasion to consider whether any other provision of

ERISA authorizes recovery of extracontractual

damages”); see id. at 149 (Brennan, J., concurring).

Second, the question at issue in this case is quite differ-

ent from the question at issue in Russell. As noted above,

Russell involved a claim for relief brought by a beneficiary

against a fiduciary, based on a particular violation, with

respect to which the provisions of Sections 409 and S02(a)

provided for a specified recovery that was less than the

recovery sought by the beneficiary; moreover, it was not

suggested that the relief was traditionally available under

the law of trusts. By contrast, the beneficiary here is at-

tempting to obtain “equitable relief as authorized by the

Statute; the only question is whether the statutory term in-

cludes make-whole monetary relief against nonfiduciaries.

In answering that question, we believe that it is entirely

consistent with Russe// to interpret ERISA (as the Court

did in Firestone) to carry forward traditional principles of

trust law.

binally, a broad reading of Russell barring the relict

sought in this case would render Section $02(a3)(B)

essentially useless, because Section 409 and the other pro-

visions of Section SO2(a) already authorize removal of the

trustee, as well as declaratory and injunctive relief to

24

prevent future violations. If “other appropriate equitable

relief * * * to redress * * * violations” does not include

other types of rehef courts of equity would have issued to

redress violations of fiduciary duties, then it has no

substantial purpose. See Russell, 473 US. at 18S (Bren

nan, J., concurring); compare, e.g., Moskal v. United

States, TIES. Ct. 461, 466 (1990) ([A] court should give

effect, if possible, to every clause and word of a statute.”

(internal quotation marks omitted)).

3. Although portions of the Court's opinion in Russell

reflect reluctance to recognize new remedies that Congress

“simply forgot to mecorporate” in ERISA, 473 U.S. at

146-—on the theory that implying new remedies would

render the existing remedies set forth in Sections 409 and

S02(a) 1B) superfluous — that concern is not implicated

here. Section 409 not only provides general authority to

award appropriate relief against a fiduciary who breaches

his duties under ERISA, but also provides that a fiduciary

shall be subject to certain very definite remedies for

breaching the duties imposed under ERISA: make-whole

relief for the plan, disgorgement of profits earned in

breach of trust, and removal of a fiduciary. 29 U.S.C.

110%a). Even if Section $02(a)3) authorizes courts to

derive the same remedies by incorporating equitable trust

principles into ERISA, the enumeration of certain

remedies in Section 409 would not be superfluous, because

it would ensure that the specified relief would be available

irrespective of the federal courts’ conclusions regarding

the content of the equitable principles incorporated into

Section S02(a)(3). In effect, therefore, Section 409, as im.

plemented by Section S02(a(2), places a floor under the

types of rehef available from a fiduciary.

In sum, Section S02(a)(2) and the other precise remedial

provisions Congress included in Section $02(a) form the

first part of the “comprehensive civil enforcement scheme”

- 2s

set forth in Section SO2(a), Ingersoll Rand Co. v. McC len

don, 111 S. Ct. 478, 485 (1990): they establish the basic

minimum remedies Sections SO2(a M3) and SO2aMS) com

plete the scheme, by broadly authorizing courts to develop

other remedies as appropriate im light of the equitable

principles underlying ERISA, as modified in light of

ERISA’s particular terms. Because those principles allow

heneficiarics to seck make whole relief from nonfidu

cranes, Section $02(a)3) should do the same.

CONCTEUSION

The judgment of the court of appeals should be re

versed,

Respectfully submitted

Rita W Stape

Yolu. or Greneral

Niawoseate Fo Bereae Mint erin bo Magione

Selector of Labor Deputy Solwitor General

Vere BE Brrinsgas RONALD B Mas

Wssectate Sele tter Ihestant to the Soluior General

NATHANDED TE Srurie

f ounsel for Appellat

I thivation

Maren S Brynn

Nfrornes

Department of 1 ate

NovE<ORE ew P99)

APPENDIN

ERISA § 409(a), 29 ULS.C. 1109(a), provides:

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 to 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. A fiduciary may also be removed for a

violation of section 1111 of this title.

ERISA § SO02(a), 29 U.S.C. 1132(a), provides:

Persons empowered to bring a civil action

A civil action may be brought —

(1) by a participant or beneficiary —

(A) tor the relief provided for m subsection (c) of

this section, or

(B) 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;

(2) by the Secretary, or by a participant, beneficiary

or fiduciary for appropriate relief under section 1109

of this title;

(3) by a participant, beneficiary, or fiduciary (A) to

enjom any act or practice which violates any provt-

sion of this subchapter or the terms of the plan, or (B)

to obtain other appropriate equitable relief (i) to re-

dress such violations or (ii) to enforce any provisions

of this subchapter or the terms of the plan;

(la)

2a

(4) by the Secretary, or by a participant, or bene-

ficiary for appropriate relief in the case of a violation

of 1025(c) of this title;

(S) except as otherwise provided in subsection (b) of

this section, by the Secretary (A) to enjoin any act or

practice which violates any provision of this sub-

chapter, or (B) to obtain other appropriate equitable

relief (i) to redress such violation or (ii) to enforce any

provision of this subchapter; or

(6) by the Secretary to collect any civil penalty under

subsection (i) of this section.

ERISA § $020), 29 U.S.C. 11320) (Supp. TP 1999) pro-

vides:

Civil penalties on violations by fiduciaries

(1) Inthe case of —

(A) any breach of fiduciary responsibility

under (or other violation of) part 4 of this subtitle by

a fiduciary, or

(B) any knowing participation in such a breach

or violation by any other person, the Secretary shall

assess a civil penalty against such fiduciary or other

person in an amount equal to 20 percent of the appli-

cable recovery amount.

(2) For purposes of paragraph (1), the term “ap-

plicable recovery amount” means any amount which

is recovered from a fiduciary or other person with

respect to a breach or violation described im para.

graph (1)—

(A) pursuant to any settlement agreement with

the Secretary, or

(B) ordered by a court to be paid by such fidu-

ciary or other person to a plan or its participants and

heneficiaries in a judicial proceeding instituted by the

Secretary under subsection (a)(2) or (aS) of this sec

hhon

4a

(3) The Secretary may, in the secretary's sole

discretion, waive or reduce the penalty under para-

graph (1) if the Secretary determines in writing that —

(A) the fiduciary or other person acted reason-

ably and in good faith, or

(B) it is reasonable to expect that the fiduciary

or other person will not be able to restore all losses to

the plan without severe financial hardship unless such

waiver or reduction is granted.

(4) The penalty imposed on a fiduciary or other

person under this subsection with respect to any

transaction shall be reduced by the amount of any

penalty or tax imposed on such fiduciary or other per-

son with respect to such transaction under subsection

(1) of this section and section 4975 of title 26.

ERISA § 514(a), 29 U.S.C. 1144(a), provides:

Supersedure; effective date

Except as provided in subsection (b) of this section,

the provisions of this subchapter and subchapter II

of this chapter shall supersede any and all State laws

insofar as they may now or hereafter relate to any

employee benefit plan described in section 100%(a) of

this tithe and not exempt under section 100%(b)y of this

title. This section shall take effect on January 1, 1975.