Amicus Curiae Brief — Mertens v. Hewitt Associates

No. 91-1671 ; OV 19 1992

| BBFi0: OF Tre GEAR

IN THE

Supreme Court of the United States

OCTOBER TERM, 1992

WILLIAM J. Mertens, ALEX W. BANDROWSKI,

JAMES A. CLARKE. and RUSSELL FRANZ

Py pith ners.

HEWITT ASSOCIATES, an Illinois Partnershi;

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF AMICUS CURIAE OF

AMERICAN ASSOCLATION OF RETIKED PERSONS

IN SUPPORT OF PETITIONERS

STEVEN S. ZALEZNICK

CATHY VENTRELL-MONSEES

(Counse! of Record)

AMERICAN ASSO! ON

OF RETIRED PERsoO°

601 E Street, N.W

2 Washington, DC 20049

(202) 454-2000

° NORMAN PS

P.O. Box 870582

Tuscaloosa, AL 35487

(205) 348-1136

Counsel for Amicus Curiasg

American Association of

November 1992 Ret | Persons

= .

Wiieon - Eras PeintTinge Co inc. - 769-0096 WaseinocTow. D.C. 20001

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TABLE OF CONTENTS

TABLE OF AUTHOR it...

INTEREST OF AMICUS CURIAE

STATEMENT OF THE CASE

SUMMARY OF ARGUMENT

ARGUMENT

ERISA SECTION 502(a) (3) CREATES FED-

ERAL JURISDICTION OVER A’ PARTICI-

PANT’S CIVIL ACTION AGAINST A PER-

SON WHO KNOWINGLY PARTICIPATES

IN A FIDUCIARY’S BREACH OF TRUST

A. ERISA Section 502(a) (3) Embodies Trust

Law Principles, Which Recognize A Cause

Of Action Ayainst A Person Who Know-

ingly Participates With A Fiduciary In A

Breach Of Trust

B. The Language And Purpose Of ERISA Sup-

port Equitable Relief Against Non-Fiduci-

aries

1. The Ninth Circuit's Artificial Limitation

On Equitable Relief Under ERISA See-

tion 502(a) (3) Is Inconsistent With The

Intent of Congress In Enacting ERISA

2. Equitable Remedies Under Section 502

(a) (3) Are Available, Irrespective of

ERISA Section 409(a)

OBRA’S CREATION OF A CIVIL PENALTY

AGAINST NON-FIDUCIARIES WHO KNOW-

INGLY PARTICIPATE IN A BREACH OF

TRUST MAKES CLEAR THAT COURTS MAY

ASSESS PENALTIES AGAINST SUCH NON-

FIDUCIARIES

6

10

ii

TABLE OF CONTENTS-—-Continued

Page

Ill. RECOGNITION OF A REMEDY AGAINST

A NON-FIDUCIARY IS CONSISTENT WITH

THIS COURT'S HOLDING IN MASSACHL-

SETTS MUTUAL INSURANCE CO. ».

RUSSELL SAS ae 4 13

es isbdansessemsonebocosncocs 14

iii

TABLE OF AUTHORITIES

CASES Page

Blankenship v. Boyle, 329 F. Supp. 1089 (D.D.C.

1971) 5

Blythe v. Fleadale, 1 Ch. 337 (1889) 5

Brock ¢. Gerace, 635 F. Supp. 563 (CD. NJ. 1986) 4

Brock v. Hendershott, 840 F.2d 339 (6th Cir.

1988) 4,12

Donovan v. Schmoutey, 592 F. Supp. 1361 (D.Nev.

1984) 4

Diduck v. Kaszycki & Sons Contractors, lne., 974

F.2d 270 (2d Cir. 1992) 1

Estate of Cowart v. Nicklos Drilling Co... —— US.

. 112 S. Ct. 2589 (1992) 12

Fink wv. National Sar. & Trust Co. T72 F.2d 951

(D.C. Cir, 1985) 4,12

Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101 (1989) 3,7. 8,9

Frevnd v. Marshall & Isicy Bank, 485 F. Supp.

629 (W.D. Wise. 1979) 4

Gilbert e. El Pase Co., 490 A2d 1050 (Del. Ch.

1984) 5

(irever v. Commissioner, 142 F.2d 363 (4th Cir.

1944) 9

Inqersoll-Ravd Co. v. McClendon, U.S.

111 S. Ct. 478 (1990) 10

International Community Corp. v. Vietor Young,

186 So. 24 629 (Fla. Dist. Ct. App. 1986) 5

Lowen v. Tawer Asset Manage ment, lnc... 829 F.2d

1209 (2d Cir. 1987) 4,12

Massachusetts Mutual Lite lus. Co. v. Ressell, 473

U.S. 134 (1985) 8,13

Menhorn v. Firestone Tire & Rubber Co., 738 F.2d

1496 (9th Cir. 1984) 8

Nieto ev. Reber, 845 F.2d 868 (9th Cir, 1988) 7, 12,18

Pension Benefit Guar. Corp. ¢. Ross, 733 F. Supp.

1005 (M.D.N.C. 1990)

Pension Fund Local 701 ©. Omni Funding Group,

731 F. Supp. 161 (DN LJ. 1990)

Pilot Life lee. Ca. ev. Dedeauwsr, 481 US. 41 C1987)

4

t

2.8

iv

TABLE OF AUTHORITIES—Continued

Page

Reiter v. Sonotone Corp. 442 U.S. 330 (1979) 10

Shaw v. Delta Air Lines, lne., 463 U.S. 85 (1982) 6,7

Shuster v. North American Mortgage Loan Co., 40

N.E. 130 (Ohie 1942) 5

Smith v. Wede, 461 U.S. 30 (1983) 6

Tertile Workers Union v. Lincoln Mills, 353 U.S.

448 (1957) 9

Thornton v. Evans, 692 F.2d 1064 (7th Cir.

1982) 4,12

Wihittield «. Lindemann, 853 F.2d 1298 (5th Cir.

1988), cert. denied sub nom. Kicpak v. Dole, 490

U.S. 1089 (1989) 4,12

STATUTES AND LEGISLATIVE HISTORY

120 Cong. Rec. 829.932 (daily ed. Aug. 22, 1974) 9

120 Cong. Rec. 829.942 (daily ed. Aug. 22, 1974) 2

Employee Retirement Income Security Act

(ERISA), 29 U.S.C. § 1001 ef seq. 2

ERISA § 2(b), 29 U.S.C. § 1001 (b) 3.7.9

ERISA § 499(a), 29 U.S.C. § 1109(a) 6, 9, 10

SWRISA § 502(a), 29 U.S.C. § 11382(a) 13

ERISA § 502(a) (3), 29 U.S.C. § 1132(a) (3) passim

ERISA § 502(a) (5), 29 U.S.C. § 1182(a) 05) 11, 12

ERISA § 502(/), 29 U.S.C. 5 11320/) 10, 11, 12

ERISA § 502(/) (1), 29 U.S.C. § 11320) 01) 11

ERISA § 502(/) (2), 29 U.S.C. § 1132¢/) (2) 11

ERISA § 4022, 29 U.S.C. § 1322 2

H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess.,

reprinted in 1974 US. Code Cong. & Admin.

a News, 5038 8

H.R. Rep. Rep. Noe. 247, 101st Cong... Ist Sess.,

reprinted in 1989 U.S. Code Cong. & Admin.

News, 1906 = 13

Omnibus Budget Reconciliation Act of 1989

(OBRA). Pub. L. No. 101-239, 108 Stat. 123 10

S. Rep. No. 127, 93d Cong., 2d Sess. 29, reprinted

in 1974 U.S. Code Cong. & Admin. News 4838 2

v

TABLE OF AUTHORITIES— ontinued

MISCELLANEOUS

A. Seott & W. Fratcher, The Law of Trusts (Ath

ed. 1989)

G. Bogert & G. Bogert, The Law of Trusts and

Trustees (2d ed. 1982)

Note, Liability of Bank for Aiding Fiducoary in

Purchase of Now-Leqal Securities, 47 Yale LJ.

299 (1937)

N. Singer, Sutherland Statutory Construction (oth

ed. 1992)

Restatement (Second) of Trusts (1959)

Scott, Participation in a Breach of Trvst, 34 Harv.

L. Rev. 454 (1921)

IN THE

Supreme Court of the United States

OcToRER Term, 1992

ee

No. 91-1671

WittiaM J. Merrens, ALEX W. BANDROWSKI,

JaMes A. CLARKE, and RUSSELL FRANZ,

‘ Petitioners,

Hewitt Associates, an Illinois Partnership,

Responden f.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF AMICUS CURIAE OF

AMERICAN ASSOCIATION OF RETIRED PERSONS

IN SUPPORT OF PETITIONERS

—————S

INTEREST OF AMICUS CURIAE

The American Association of Retired Persons is a non-

profit membership organization of approximately 34

million working and retired persons age 50 and older.

(xe of AARI’s primary objectives is to promote the

economic security of individuals as they age. Through

educational and advocacy effort=. AARP seeks to increase

the avoilability, security. equity, and adequacy of public

and private pension and health plans

AARP’: members, and other older Americans who de-

pend on private employer-sponsored pension and health

plans subject to the Employce Retirement Income Seeurity

Act (ERISA), 20 ULS.C. 5 1001 ¢f sey., have a stake in

the reversal of the decision below, which holds that indi-

viduals who knowingly participate in a breach of trust

by «a fiduciary have no liability under federal law to

the plan participants they harm. The result of the alleged

breach in this case, and of respondent's alleged “knowing

particination” in the breach, was the insolvency of Peti-

tioners’ pension plan. The Pension Benefit Guaranty Cor-

poration assumed responsibility for paying plan benefits,

but only to the extent benefits were guaranteed under

Tithe IV of ERISA, see ERDSA § 4022, 20 USC. & 1322.

Because Petitioners’ plan benefits exceeded the maximum

guarantee amounts, Petitioners Jost significant portions

of the pensions that they earned during their working

lives and on which they depend to support themselves in

retirement.

The decision below, which is contrary to the holdings of

four other circuit courts of appeals, threatens the security

of retired and working Americans’ interests in hundreds

of thousands of pension and welfare benefit plans subject

to ERISA. AARP has a substantial interest in the reso-

‘ution of the issue, which has a direct and vital bearing

on our members’ retirement security.

STATEMENT OF THLE CASE

AAR adopts Petitioners’ Statement of the Case.

SUMMARY OF ARGUMENT

Construing ERISA to authorize a cause of action

against « non-lidnciary for its knowing participation in

a fiduciary breach is consonant with the language and

urpore of the statute. Congress provided for “appro-

priate equitable relief” under ERISA Section 502141 +3)

and this Court's precedents make clear that the courts

may derive that relief from the emerging federal common

law. Pilot Lite tne. Co. «. Dedeaux, 451 UWS. 41, 56

”

(1987). Under trust law principles, with which ERISA

“ahounmds,” Firestone Tire & Rubber Co, v. Bruch, Ano

U.S. 101, 110 (198%), equitable relief can inelude com-

pensatory damages against a person who knowingly par-

ticipates in another person’s breach of trust. The con-

trary interpretation of the court below is wrong because

it ignores these traditional equity and trust principles

and the broad language of Section 502ta+ (3).

The decision below also undermines the primary pur-

pose of ERISA to protect the interests of participants

by providing appropriate remedies and sanctions. See

ERISA Section 2+b+ 29 UUS.C. £ 1001tbs. The effect

of the court of appeals’ holding is’to deny participants

recourse against those whese improper actions enabled

a fiduciary to violate its statutory duties. Reversing the

decision below and applying traditional trust rules which

impose liability on non-fiduciaries would further ERISA's

purposes by preventing and deterring violations of the

statute’s fiduciary requirements.

ARGUMENT

I. ERISA SECTION W2(ajCh) CREATES FEDERAL

JURISDICTION OVER V PARTICIPANTS CIVEL

ACTION AGAINST A PERSON WHO KNOWINGLY

PARTICIPATES IN A FIDUCIARY’S BREACH OF

TRUST.

Petitioners seek relief against Hewitt Associates, whom

Petitioners allege knowingly participated in an ERISA

fiduciary’s breach of Wrust. (J.A. 38+. Section 50214143)

of ERISA, 20 U.S.C, £113264163). provides that a par-

ticipant may bring a civil action to obtain appropriate

equitable relief to redress violations or enforce provisions

of ERISA. The statutory question before the Court is

thus «tra ghtforward: i< “equitable relief” under Section

Wi2ia (5) available against a person who knowingly

issists a fiduciary in a breach of the tiduciary’s responsi-

bility? The answer, under traditional equity jurisdiction,

is that such relief is available.

Ignoring traditional equity principles, the court of ap-

peals held that Congress intended to apply the term

“equitable relief” narrowly under ERISA, limiting it to

non-compensatory forms of relief. This restrictive inter-

pretation of equitable relief is not only historically in-

accurate, but is at loggerheads with the remedial pur-

poses of ERISA. Moreover, four of the six courts of

appeals that have considered the question have held to

the contrary. Diduck +. Kaszychi & Sons Contractors,

lne., O74 F.2d 270 12d Cir, 1992); Whitfield v. Linde-

mann, 853 F.2d 1298 (Sth Cir. 1988), cert. denied sub

wont Alepak e Dole, 490 U.S, 1089 (19891: Brock +.

Hendershotl, 840 F.2d 339, 342 (6th Cir. 19881; Lowen

re Tower Asset Management, lne., 829 F.2d 1209, 1220-

1221 ‘2d Cir. 19ST): Thornton «+. Evans, 692 F.2d 1064,

1078 «7th Cir. 1982); see also Fink v. National Sav. &

Trust Co,, 772 F.2d 951, 958 «D.C. Cir, 1985).'

A. ERISA Section 502(a)(3) Embodies Trust Law

Principles, Which Recognize A Cause Of Action

Against A Person Who Knowingly Participates

With A Fiduciary In A Breach Of Trust.

Courts of equity in both England and the United

States have historically exercised jurisdiction over trusts.

A. Seott & W. Fratcher, The Law of Trusts ‘Ath ed.

1s) £197, at ISS. (“Trusts are, and have been since

‘Tt is also a view that has been rejected by a number of district

courts in other cireuits. See, e.g. Pension Benefit Guar, Carp.

*, Ross, 733 FL Supp. 1005, 1008 (M.DIN.C, 1990); Pension Fund

Local 70! « Omni Funding Group, T31 F. Supp. 161, 176-179

(DN. 1900): Rroek ¢. Gerace, 685 F. Supp. 568, 566° CDN.

1986): Dongron «. Sehmouten, 502 F. Supp. 1861, 13895-13806 CD.

Nev. 1984): Freand ¢. Marshal! & Isley Bank, ASS Fo Supp. 629,

641-42 (WD. Wise. L9T7o),

vr

they were first enforced, within the peculiar province of

courts of equity.”'. The remedies utilized by equity courts

concerning when trusts are in their purview are thus,

by definition forms of equitable relief and are within

the power of a federal court to award under ERISA

Section 502(a1(3), 29 U.S.C. £ 1132¢a1 63),

There is no historical dispute concerning whether equity

courts could award money damages against a person who

knowingly participated in another person’s breach of

trust.

Anyone who participates with a trustee in a breach

of Uvust may be held liable in a court of equity to

the cestui que trust. If he has received and still holds

the Lrust property or its proceeds. he may be held as

constructive trustee thereof; (f l+ has never received

or no longer holds the trust property or its proceeds,

he may be held lichle in equity for damages,

Scott, Participation in a Breach of Trust, 34 Harv. L.

tev, 454, 454 11921) (emphasis added). See, e.g., Blythe

. Flagdale, 1 Ch. 337, 351-52 (1889); Blankenship rv.

Boyle, 329 FL Supp. 1089, 1112 + D.D.C. 1971): Gilbert

r El Paso Co., 490 A.2d 1050, 1057 (Del. Ch. 1984);

International Community Corp. vo Vietoruy Young, 486

So, 2d 629 (Fla. Dist. Ct. App. 19861; Shuster ve. North

American Mortgage Loan Ce., 40 NE, 180, 143° (Ohio

1942). See also G. Bogert & G. Bogert, The Law of

Trusts and Trustees £901 (2d ed, 1982) ‘trust “bene-

ficiary, 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.”+; Seott & Fratcher, supra,

£ 326.5; Restatement (Second) of Trusts £326 (1959);

Note, Liahility of Bank for Aiding Fiduciary in Purchase

of Nou-Leqgal Securities, 47 Yale Lud. 299, 299 61937)

(noting “the firmly-rooted doctrine that anyone know-

ingly aiding or participating in a breach of trust is joint-

ly and severally liable with the trustee.”).

Given the traditionally accepted meaning of equitable

reel, the language of Section 502¢ta'(3) authorizes a

participant or beneficiary in an employee benefit’ plan

to bring an action against a person who knowingly par-

ticipates in a fiduciary’s breach of duty under ERISA.

“We must give effect to this plain language unless there

is good reason to believe Congress intended the language

to have some more restrictive meaning.” Shaw v, Delta

Air Lines, lue., 463 U.S. 85. 97 11982).

Bb. The Language And Purpose Of ERISA Support

Equitable Relief Against Non-Fiduciaries.

The premise of the decision below is that if money

damages were available under Section 502¢a1(3), Section

409+ at's language requiring that fiduciaries “make good

. any losses to the plan resulting from such breach,”

29 ULS.C. § 1109+a), would be rendered superfluous. The

Ninth Cireuit’s limiting construction of Section 502

ia: (3) is wrong becnuse the provisions can be read to co-

exist to provide the full range of equitable relief as Con-

gress intended.

1. The Ninth Circuit's Artificial Limitation On

Equitable Relief Under ERISA Section 502(a)(3)

Is Inconsistent With Congressional Intent.

The object of statutory construction is to determine

the intent of the legislature. See Smith v. Wade, 461

Us. 30, 65 11985'. Canons of statutory construction

are merely aids in determining the legislature's intent.

“No single canon of interpretation can clarify with cer-

tainty exactly what the drafters intend.” N. Singer,

Sutherland Statutory Coustrvettorn £ 45.05, at 23 5th ed.

1992),

The court of appeals, however, with a single-minded

focus on one of a myriad of canons of statutory construe-

tion interpreted ERISA in a manner demonstrably in-

‘

colsistent with Congress’ intent “to promote the interests

of employecs and their beneticiaries in employee benefit

plans.” Shaw v, Delta Air Lines, lne., 463 U.S. 85, 90

(1s2). Indeed, the Ninth Cireuit’s opinions in this case

and in Nieto v, Beker, 845 F.2d 868 (9th Cir, 1988), are

utterly harven of any analysis of statutory purpose. The

opinions fail to point to a single expression of statutory

purpose in either ERISA or its voluminous legislative his-

tory that explains why Congress would want to insulate

from liability aiders and abettors of fiduciaries who breach

theiy statutory responsibilities. The result of this single-

minded focus is so inconsistent with ERISA’s purpose in

that it affords “less protection to employees and their

beneficiaries than they enjoved before ERISA was en-

acted.” Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

101, 114 (1989),

ERISA’s statement of purpose, its legislative history,

and its interpretation by this Court, all stand in stark

contrast to the rigid and mechanical approach that the

court of appeals used in limiting Section 5021a1 (37's

reach. In ERISA’s declaration of policy, Congress stated

that ERISA was intended to “protect... the interests

of participants in employee benefit plans and their bene-

ficiaries, . . . by providing for appropriate remedies,

sanctions, and ready access to the Federal courts.” 29

U.S.C. © 100Ltb+. The Ninth Cireuit, in contravention

of this purpose, would limit available remedies and, as

this cause so amply demonstrates, deny participants in

employee benefit plans recourse in the federal courts to

seek redress against parties whose improper actions en-

abled a fiduciary to violate its statutory duties. The

Ninth Cireuit’s holding is thus at odds with FRISA’s

congressiona! declaration of policy.

It is also at odds with ERISA’s legislative history. The

bili that emerged from conference to become ERISA

authorized participants to bring actions for equitable re-

lief. The committee reports <tate that Congress intended

S

Section 502ta118+ to provide “the full range of

equitable vemedics available in both state and federal

courts.” As discussed above, equity courts have long

granted relief against non-fiduciaries for knowing par-

ticipation in a trustee’s breach. Therefore, interpreting

ERISA to limit equitable relief would undermine the

protection of employee interests that is at ERISA’s core.

Moreover, this Court, reviewing ERISA’s legislative

history, has found that Congress intended for the federal

courts “to develop a federal common law of rights and

obligations under ERIDSA-regulated plans,” Firestowe

Tire & Rebheor Co. ce. Bruch, 489 US. at 110. quoting

Pilot Life lus. Co. v. Dedeaus, 481 U.S. 41, 56 (1987).

This authority includes the fashioning of appropriate

equitable relief under ERISA Section 502(a113), Masse-

chusclts Mutual Life Ins, Co. ve. Russell, A473 USS. 134,

155 11985) (Justice Brennan, concurring). Sce also 120

Cong. Ree. S20.942 «daily ed. Aug. 22. 1974) (remarks

of Senetor Javits, ranking minority member of Senate

Labor Committee: Congress “intend|s| that a body of

Federal substantive law will be developed by the courts

to deal with issues involving rights and obligations under

private Welfare and pension plans.” )."

ERISA’s legislative history points to the Labor-

Management Act as a model for its own enforcement

sechome., ThE. Conf. Rep. No. 1280, 98d Cong., 2d Sess.

(1974). reprinted ty 1974 US. Code Cong. & Ad. News

5038, 5109. This Court has instructed that federal com-

2S. Rep. No. 127, 93d Cong., 2d Sess. 35, reprinted in 1974 U.S.

Code Cong. & Admin, News 4838.

‘The Ninth Circuit has itself observed that the congressional

invitation to develop a bedy of common law granted “authority to

the courts to develop princ’ples governing arens of the low regu-

lating employee benefit plans that had previously been the exclusive

province f state law.” Menhorn ev. Firestone Tire & Rubber Co.,

TBS Fd 1406, 1490 (oth Cir, 1o84).

9

mon law in the context of the Labor-Management Act

involves

looking at the policy of the legislation and fashioning

a remedy that will effectuate that policy. The range

of judicial inventiveness will be determined by the

nature of the problem... . state law, if compatible

. may be resorted to in order to find the rule that

will best effectuate the federal policy.

Textile Workers Union v. Lincoln Mills, 353 U.S. 448,

457 (1957) ‘citations omitted).

As this Court has noted, ERISA “abounds with the

language and terminology of trust law.” Firestone Tire

& Rubber Co. v. Bruch, A886 U.S. at 110. ERISA’s over-

riding purpose is to protect the interests of participants

in employee benefit plans. ERISA Section 2¢bi, 29

U.S.C, 1001(b). Therefore, it is natural for courts to

turn to trust law for remedies that will enhance the pro-

tection of employee interests in pension and welfare

plans. See 120 Cong. Rec. $29,932 ‘daily ed. Aug. 22,

1974) ‘comments of Senator Williams, Chair of the

Senate Labor Committee: Congwress intended in ERISA

“to make applicable the law of trusts.”). Such relief is

“consonant with the purpose of the Act as declared by

Congress and plainly disclosed by its structure.” Gruver

ve. Commissioner, 142 F.2d 363, 366 (4th Cir, 1944).

2. Equitable Remedies Under Section 502(a)(3) Are

Available, Irrespective of ERISA Section 109(a).

The premise of the court of appeals’ analysis—that

giving full effect to ERISA Section 502+a''3) would

render ERISA Section 409(a+ a superfluitv—is based

on a mistaken understanding of the statute and how its

enforcement provisions were constructed by Congress.

The separate provisions do not limit the relief available

to participants, but co-exist to provide a full range of

remedies under ERISA.

})

A plausible explanation for the interplay between See-

tions JO9 and 502ta+ 63) is evident from the statute itself.

Part dof Tithe Tof ERISA establishes standards for the

behavior of fiduciaries. Section 409ta). which appears

in this part of ERISA, mandates monetary awards against

breaching fiduciaries Who cause loss to a plan. By speci-

fving the types of relief available against fiduciaries undey

Section 409, Congress established a floor of relief for

specific cases, irrespective of the relief available under

the federal common law.

The provision of relief against fiduciaries under Section

Wa), however, does not mean that Congress intended

to preclude courts from awarding similar remedies

against non-fiduciaries under Section 5021a1(3). In See-

tion S02 tat t3+, Congress gave the courts the authority

to determine the type and scope of equitable relief neces-

sary to effectuate ERISA’s purposes. See lngersoll-Rand

Co. «. McClendon, 111 8S. Ct. 478, 486 (19904. Thus, in

uppropriate situations, the federal common law may pro-

vide for relief that meets the floor of specified remedies

under Section 409(a+. This construction of ERISA See-

tions 502(a) 13) and 409+) allows both provisions to co-

eXist, consistent with the principle of giving effect to all

of a statute’s provisions, See, eg., Reiter v. Sonotone

Corp, 442 US, 330, 3389 11979),

Il. OBRA’S CREATION OF A’ CIVIL PENALTY

AGAINST NON-FIDUCTARIES WHO KNOWINGLY

PARTICIPATE IN A BREACH OF TRUST MAKES

CLEAR THAT COURTS MAY ASSESS PENALTIES

AGAINST SUCH NON-FIDUCTARIES.

In 1980, Congress enacted the Omnibus Budget Recon-

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

£2101, 108 Stat. 123, which among other provisions, added

a new Section 502¢/), 29 U.S.C, £ 113821/) to ERISA. See-

tion 502i) provides that

1]

In the case of (Ay any breach of fiduciary responsi-

hility under tor other violation of) part four by a

fiduciary, or (Bi any knowing participation in such

* breach or violation by any other person, the Secre-

tary shall assess a civil penalty against such fiduciary

oy other person in an amount equal to 20 percent of

the applicable recovery amount.

ERISA § 5021/1115, 29 U.S.C. § 1121/1661) Cemphasis

added).

The term “applicable recovery amount,” in turn, is

defined as

. any amount which is recovered from a fiduciary

or other porsenr with respect to a breach or violation

described in paragraph (1)—pursuant to any settle-

ment agreement with the Secretary, or (Bi ordered

by a court to be paid by such fiduciary or other

person to a plan or its participants and beneficiaries

in a judicial proceeding instituted by the Secretary

under subsection (a) (2!) or tarde,

ERISA £ 5021/) 1:2), 29 U.S.C. £11821/162)) emphasis

added),

Thus, Section 50211) imposes an award of civil penalties

when the Secretary recovers damages under Section

HOZial (5+, 20 ULS.C. £ 1182¢a1 15). Section 502¢a) 15)

authorizes the Seeretary to bring a civil action “to enjoin

any act or practice which violates any provision of this

subchapter, or (Br to obtain other appropriate equitable

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

provision of this subchapter.” Thus, Congress premised

the civil] penalty under Section 502'/) on the existing

availability of money damages as a form of “equitable

relief” against a person who knowingly participated in

a fiduciary’s breach of trust.'

‘Tn 1989, four of the five circuits that had considered the issue

had held that a participant could bring a civil ectlon for money

damages against a person who knowingly participated in a fidu-

12

In the case now before the Court, the court of appeals

rejected this apparent confirmation of the statute’s reach.

The court of appeals held that Section 502(/) “applies to

the Secretary only, not to plan participants.” (J.A. 43.)

Based on this construction, the court below reasoned that

only the Seeretary may obtain make-whole relief against

a non-fiduciary.

Section 5021/1, however, did not, as the court of ap-

peals apparently believes, create a new civil remedy under

which the Secretary could obtain monetary relief for

damages to the plan. Rather, it tacked on a civil penalty

to damages already recoverable by the Secretary under

Section 502'a''5', which was not amended. Since the

relevant language of Sections 502:a'(5) and (aii3) is

identical, the inescapable conclusion is that Section

H021a' 13+ also authorizes make-whole relief that would

have been granted by a court of equity. Sve Estate of

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

(1992) «“identical terms within an Act bear the same

meaning.” |

clary’s breach of duty. Whitfield v. Lindemann, 852% F.2d 1298 (5th

Cir, 1988). ecort. denied suh nom. Ale pak e«. Dole, 199 US. lor

1989): Brock «. Hendere hott, $40 F.2d 399, 342 (6th Cir, 1988 }

Lowen oe. Tower Asset Management Ine, 829 F 2d 1209. 1220-1221

2d Cir, 1987): Thornton v. Evans, 692 F.2d 1064, LOTR (7th Cir,

1982). Another circuit suggested in dictum its agreement. Fink

Vationel Sav, & Trust Co, 772 F.2d 951, 98 (D.C. Cir, 1985)

Moreover, most district courts that had considered the issue with

out the henefit ef guidance from a court of appeals also agreed

See note 1, infra.

* The court of appeals also reasoned that Congress failed to ex-

pressly overrule its earlier holding in Nieto v. Ecker, 845 F.2d 868

9th Cir. 1988) when Congress enacted Section 502) 1). But Nieto and

Section 502(/) cannot coexist. ERISA Section 502(1) could not

he given effect opvainst non-fiduciaries unless Section 502/a) (3)'s

yrant of equitable relief permitted a find’ng of liability against

a person whe knowingly participetes in a fiduciary breach. The

Ninth Circuit's view that Congress acquiesced by not explicitly

13

Il. RECOGNITION OF A REMEDY AGAINST A NON-

FIDUCIARY IS) CONSISTENT WITH = THIS

COURT'S HOLDING IN MASSACHUSETTS MU-

TUAL INSURANCE CO. vc, RUSSELL.

The court of appeals in the instant case and in Nicto

opined that granting relief against a person for knowing

participation in a fiduciary breach would violate this

Court’s holding in Massachusetts Mutual Ins. Co. +.

Russell, 473 U.S. 134, 145-146 (1985). In Russell, this

Court rejec' -d an invitation to find a private right of

action for extra-contractual damages implied in ERISA.

The Court observed that

The six carefully integrated civil enforcement pro-

visions found in § 502ta) of the statute as finally

enacted .. . provide strong evidence that Congress

did not intend to authorize other remedies that it

simply forgot to incorporate expressly.

Russell, 473 U.S. at 146 ‘emphasis in original).

Russell makes clear that the federal courts will not

imply remedies that Congress did not expressly include

in Section 502(a). Petitioners in this case have not, how-

ever, asked this or any other court to imply a remedy

that Congress did not include in the statute. Section

502(a113) expressly provides for “equitable relief,”

which traditionally has included damages for knowing

participation in a fiduciary’s breach. Certainly it is

within the authority that Congress granted to the federa!

courts to find that such a remedy remains an appropriate

form of “equitable relief’ under ERISA.

rejecting its holding in Nieto is thus seriously misenided. Sve«

HR. Ren. No. 247, lOlst Cong., let Sess. 77-78, reprinted in 1989

tS. Code Cong. & Admin. News, 1906, 1969-1970

14

CONCLUSION

ror the foregoing reasons, AARP respectfully asks the

Court to reverse the holding of the court below and to

iid Uhat non-tiduciaries are liable under ERISA for know-

ing participation in a fiduciary breach.

Respectfully submitted,

STEVEN S. ZALEZNICK

CATHY VENTRELL-MONSEES

(Counsel of Record)

AMERICAN ASSOCIATION

OF RETIRED PERSONS ~

601 E Street, N.W.

Washington, DC 20049

(202) 434-2060

NORMAN P. STEIN

P.O. Box 870382

Tuscaloosa, AL 35487

(205) 348-1136

Counsel for Amicus Curias

American Association of

November 1992 Retived Persons