# Amicus Curiae Brief — Mertens v. Hewitt Associates > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0265%3A10 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1993 - **Citation:** 508 U.S. 248 ## Text 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 ® «fs co ~~ 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