Amicus Curiae Brief — LaRue v. DeWolff, Boberg & Associates, Inc.

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No. 06-856 J

In the Supreme Court of the Gnited States

JAMES LARUE, PETITIONER

DEWOLFF, BOBERG & ASSOCIATES, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

JONATHAN L. SNARE

Acting Solicitor of Labor

TIMOTHY D. HAUSER

Associate Solicitor

ELIZABETH HOPKINS

Acting Counsel for Appellate

and Special Litigation

Department of Labor

Washington, D.C. 20210

PauL D. CLEMENT

Solicitor General

Conusel of Record

EDWIN S. KNEEDLER

Deputy Solicitor General

MATTHEW D. ROBERTS

Assistant to the Solicitor

General

Department of Justice

Washington, D.C. 20580-0001

(20.2) 514-2214

QUESTIONS PRESENTED

1. Whether Section 502(a)(2) of the Employee

Retirement Income Security Act of 1974 (ERISA), 29 U.S.C.

1132(a)(2), authorizes a participant in a defined contribution

pension plan to sue to recover losses to the plan caused by a

fiduciary breach when the losses affected only the

participant’s individual plan account.

2. Whether an action by a plan participant against a fidu-

ciary to recover losses caused by a fiduciary breach seeks

“equitable relief” within the meaning of ERISA Section

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

(1)

TABLE OF CONTENTS

Page

I EE re Fr ee nn rT e 1

a as arta a leh 2 i ld i a Di 4

A. The question about the scope of Section 502(a)(2)

warrants this Court’s review ................eeee0- 5

B. The question about the scope of Section 502(a){3)

also warrants this Court’s review ................. 13

a he i een eee 20

TABLE OF AUTHORITIES

Cases:

Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) .... 17,18

Bona v. Barasch, No. 01 Civ. 2289, 2003 WL 1395932

CE oie os ccc couseuedn 18

Borst v. Chevron Corp., 36 F.3d 1308 (5th Cir. 1994),

cert. denied, 514 U.S. 1066 (1995) ................. 18

Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574

I a ti 17

Broadnax Mills, Inc. v. Blue Cross & Blue Shield,

876 F. Supp. 809 (E.D. Va. 1995) .................. 18

Calhoon v. Trans World Airlines, Inc., 400 F.3d 593

ED cise ick dnd nnd een euenea bekeuseee 16

Callery v. United States Life Ins. Co., 392 F.3d 401

(10th Cir. 2004), cert. denied, 126 S. Ct. 333 (2005) ... 16

Cicio v. Does 1-8, 321 F.3d 83 (2d Cir. 2003), vacated,

I ee eee eonunes 19

Clews v. Jamieson, 182 U.S. 461 (1901) ............... 15

Coan v. Kaufman, 457 F.3d 250 (2d Cir. 2006) ......... 16

(IIl)

IV

Cases—Continued Page

DiFelice v Aetna U.S. Healthcare, 346 F.3d 442

DED da neevidide meng hupewndentesesacsne 19

Duvall v. Craig, 17 U.S. (2 Wheat.) 45 (1871) .......... 15

Goeres v. Charles Schwab & Co., No. 05-15282, 2007

WL 495191 (9th Cir. Feb. 14, 2007), petition for

cert. pending, No. 06-1521 (filed May 15, 2007) ...... 16

Grreat-West Life & Annuity Ins. Co. v. Knudson,

ee ED po ib odd duneedks sGnddaseconces 4,14

Griggs v. EJ. DuPont de Nemours & Co., 237 F.3d

Re ree 19

Helfrich v. PNC Bank., Ky., Inc., 267 F.3d 477

(6th Cir. 2001), cert. denied, 535 U.S. 928 (2002) ..... 16

Kuper v. Iovenko, 66 F.3d 114 (6th Cir. 1995) ........... 8

Manhattan Bank v. Walker, 130 U.S. 267 (1889) ....... 15

Massachusetts Mut. Life Ins. Co. v. Russell, 473 US.

SED aduvcats snes sbaehcneseusdaceedes 1, 3, 5, 20

Matassarin v. Lynch, 174 F.3d 549 (5th Cir. 1999),

cert. denied, 528 U.S. 116 (2000) .................. 10

McDonald v. Household Int, Ine., 425 F.3d 424

aii, eee ce evakwe aaa bes 17

McFadden v. R&R Engine & Mach. Co., 102 F. Supp.

EEE cvccceccovccsesssesecevess 19

Mertens v. Hewitt Assocs., 508 U.S. 248

Dh tddc ice piceehinedsvieeterdiwcass 4, 13, 14, 16

Milofsky v. American Airlines, Inc.:

404 F.3d 338 (5th Cir. 2005), vacated on reh’g

en bance, 442 F.3d 311 (5th Cir. 2006) ........... g

GR te CGA MD occccccccceceececesces 3]

Mosser v. Darrow, 341 U.S. 267 (1951) wee eee 15

Cases—Continued Page

Nachman Corp. v. PBGC, 446 U.S. 359 (1980) .......... 2

Pereira v. Farace, 413 F.3d 330 (2d Cir. 2005),

cert. denied, 528 S. Ct. 2286 (2006) ................ 18

Phelps v.C.T. Enters., Inc., 394 F.3d 213 (4th Cir.

ED v0ncenneseneceepvedead Giueeemtterecsised 18

Princess Lida v. Thompson, 305 U.S. 456 (1939) ....... 15

Schering-Plough Corp. ERISA Litig., In re, 420 F.3d

Sn RIOD 4664400 60s-c0vencncmuseneweuees 8,9

Sereboff v. Mid Atlantic Med. Servs., Inc., 1268S. Ct.

DED i bevetedscenessdasecauswuesennseel 14

Smith v. Sydnor, 184 F.3d 356 (4th Cir. 1999),

cert. denied, 528 U.S. 1116 (2000) ................. 10

Steinman v. Hicks:

252 F. Supp. 2d 746 (C.D. Ill. 2008) ................. 8

fe Ff Le | errr rr 8

Strom v. Goldman, Sachs & Co., 202 F.3d 138 (2d Cir.

EGE 46 0ceddéevsiekesensduesdetereeee 16, 17, 19

Tullis v. UMB Bank, N.A., 464 F. Supp. 2d 725

REED vc.nvcuadavawensananceuneeine 12, 19

United States v. Williams, 504 U.S. 36 (1992) ......... 13

United States v. Mason, 412 U.S. 391 (1973) .......... 15

Statutes and rule:

Employee Retirement Income Security Act of 1974,

Pub. L. No. 93-406, 88 Stat. 829 (29 U.S.C. 1001

WOR) ccccdvinssdcscicceveseanscuaseeensaseenn 1

Web, £, ee WK. TIO EGE. cccccnccevciceess 1,2,5

PRs DEED ov. cc tuiveveecsauskesoues 1, 20

Statutes and rule—Continued Page

vecedndduaededseheesseten 2,7

i indie cs encddnadendebuess 7

BP We BIIPOGD co ccccccccccceces 1,5, 7,8

29 U.S.C. 1109(a) (2000 & Supp. IV 2004)

Cie iicereinéecoesuveue 1, 5, 7, 12, 13

29 U.S.C. 1132(a) (2000 & Supp. IV 2004)

A 1

29 U.S.C. 1132(a)(2) (2000 & Supp. IV 2004)

REED NS passim

29 U.S.C. 1132(a)(3) (2000 & Supp. IV 2004)

ty ccicdsedtennecentisenees passim

EE d

26 U.S.C. 401(a) (2000 & Supp. IV 2004) ............... 7

Tee ee eicceyeedevaseesoceenes 2

ee ie i peetedeeeteieseeceesous 3

Miscellaneous:

Board of Governors of the Fed. Reserve Sys., Flow of

Funds Accounts of the United States: Flows and

Outstandings, Fourth Quarter 2006, Statistical

Release Z.1 (Mar. 8, 2007) <http://www.

federalreserve.gov/releases/Z1/current/Zl.pdf> .... 10

Employee Benefits See. Admin., U.S. Dep’t of Labor:

Fact Sheet: Retirement Security Initiatives

(Jan. 2007) <http:/Awww.dol.gov/ebsa/

| 1}

Field Assistance Bulletin 2003-3 (May 19, 2003)

<http://www.dol.gov/ebsa/regs/fab_ 2003-3.

gE a 6

Vil

Miscellaneous—Continued Page

Private Pension Plan Bulletin (Mar. 2007)

<http://www.dol.gov/ebsa/PDF/

2004pensionplanbulletin. pdf> ................. 12

John N. Pomeroy, A Treatise on Equity

Jurisprudence (5th ed. 1941) ...........2....2000. 15

Restatement (Second) of Trusts (1959) ............... 15

Restatement (Third) of Trusts (1992) ................ 15

a A GRE OED cocccnndsccccccsceds 2,7

3 Austin W. Scott & William F. Fratcher, The Law of

EE oO Jaccdvdubsdoucenduddedeaseus 15

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

This brief is submitted in response to the Court’s invitation

to the Solicitor General to express the views of the United

States. In the view of the United States, the petition for a

writ of certiorari should be granted.

STATEMENT

1. Congress enacted the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. 1001 et seq., “to pro-

tect * * * the interests of participants in employee benefit

plans * * * by establishing standards of conduct, responsi-

bility, and obligation for fiduciaries of [those] plans, and by

providing for appropriate remedies, sanctions, and ready ac-

cess to the Federal courts.” 29 U.S.C. 1001(b). To that end,

ERISA Section 502(a), 29 U.S.C. 1132(a) (2000 & Supp. IV

2004), provides “six carefully integrated civil enforcement

provisions.” Massachusetts Mut. Life Ins. Co. v. Russell, 473

U.S. 134, 146 (1985). As relevant here, Section 502(a)(2) pro-

vides that “[a] civil action may be brought” by a plan “par-

ticipant”—as well as a beneficiary, plan fiduciary, or the Sec-

retary of Labor—to obtain “appropriate relief” under ERISA

Section 409 (29 U.S.C. 1109). 29 U.S.C. 1132(a)(2). Section

409(a), in turn, provides that “[a]ny person who is a fiduciary

with respect to a plan who breaches any of the responsibili-

ties, obligations, or duties imposed upon fiduciaries by [Title

I of ERISA] shall be personally liable to make good to such

plan any losses to the plan resulting from each such breach

* * * and shall be subject to such other equitable or reme-

dial relief as the court may deem appropriate, including re-

moval of such fiduciary.” 29 U.S.C. 1109(a). The other en-

forcement provision at issue in this case, Section 502(a)(3),

allows a participant, beneficiary, or fiduciary to sue “to enjoin

any act or practice which violates” ERISA or the terms of the

plan or “to obtain other appropriate equitable relief (i) to re-

(1)

2

dress such violations or (ii) to enforce any provisions of [Title

I of ERISA] or the terms of the plan.” 29 U.S.C. 1132(a)(3).

2. Petitioner James LaRue is a participant in an ERISA-

covered 401(k) pension plan sponsored by his employer, re-

spondent DeWolff, Boberg & Associates, Inc. Pet. App. 2a;

see 26 U.S.C. 401(k). Respondent administers the plan and,

in fulfilling that role, acts as an ERISA fiduciary. /bid. The

plan is a “defined contribution” or “individual account plan.”

29 U.S.C. 1002(34). In a defined contribution plan, the em-

ployer or employees make a fixed contribution to the plan,

“which provides for an individual account for each participant

and for benefits based solely upon the amount contributed to

the participant’s account, and any income, expenses, gains and

losses, and any forfeitures of accounts of other participants

which may be allocated to such participant’s account.” 29

U.S.C. 1002(34); see Nachman Corp. v PBGC, 446 U.S. 359,

364 n.5 (1980). Although each participant has an individual

account, all of the assets are held in trust by plan trustees

who retain legal title to and authority over the assets. See 29

U.S.C. 1103(a); see Rev. Rul. 89-52, 1989-1 C.B. 110.

Under the plan, participants are permitted to choose from

a number of investment options and to direct respondent, as

plan administrator, to invest the amounts allocated to their

individual accounts in specified percentages among those op-

tions. Pet. App. 2a. Petitioner claimed that, in 2001 and 2002,

respondent failed to make certain investments that petitioner

directed with respect to his account, causing a loss of approxi-

mately $150,000 to his “interest in the plan.” Br. in Opp. App.

2a-4a. Claiming that respondent had breached its fiduciary

obligations by failing to carry out his instructions, petitioner

sought reimbursement of the resulting losses. /d. at 3a-4a;

see id. at 50a (asking court to order respondent “to reimburse

to the plan amounts necessary so that | petitioner’s] interest

in the plan is what it should have been, but for the breach of

3

fiduciary duty”). In his complaint, petitioner relied on ERISA

Section 502(a)(3), 29 U.S.C. 1132(a)(3), which authorizes “ap-

propriate equitable relief.” Br. in Opp. App. 3a-4a. Respon-

dents, arguing that the monetary remedy sought by petitioner

is unavailable under ERISA, moved for judgment on the

pleadings under Federal Rule of Civil Procedure 12(c). The

district court agreed and granted judgment for respondents.

Pet. App. 15a-21a.

3. In the court of appeals, petitioner argued that respon-

dents are liable for the $150,000 loss to the plan under ERISA

Sections 502(a)(2) and 409(a), which together make a fiduciary

liable for “losses to the plan” resulting from breaches of fidu-

ciary duty. Petitioner also argued, as he had in the district

court, that he was entitled to recover the losses to his account

as appropriate equitable relief under Section 502(a)(3). The

Fourth Circuit rejected both bases for recovery and affirmed

the district court’s judgment. Pet. App. la-14a.

The court of appeals held that, “[elven if the [Section

502(a)(2)] argument were not * * * waived,” petitioner could

not state a claim under that provision because “[rjecovery

under [Section 502(a)(2)] must ‘inure[| to the benefit of the

plan as a whole,’ not to particular persons with rights under

the plan.” Pet. App. 5a (quoting Russell, 473 U.S. at 140) (em-

phasis added by court of appeals). The court concluded that

petitioner’s suit would not benefit the plan for three reasons:

(1) he sought “recovery to be paid into his plan account, an

instrument that exists specifically for his benefit;” (2) “(t]he

measure of that recovery is a loss suffered by him aione;” and

(3) “that loss itself allegedly arose as the result of |respon-

dent’s] failure to follow [petitioner’s| own particular instruc-

tions, thereby breaching a duty owed solely to him.” /d. at 6a.

The court stated that petitioner’s suit was “different from a

[Section 502(a)(2)] action in which an individual plaintiff sues

on behalf of the plan itself or on behalf of a class of similarly

4

situated participants,” because, in that other kind of case, the

remedy “does not solely benefit the individual participants.”

/bid. (citation omitted).

The court of appeals also held that petitioner could not

state a claim under Section 502(a)(3). Pet. App. 7a-13a. In

the court’s view, petitioner’s suit sought compensatory dam-

ages, which the court concluded were not available under Sec-

tion 502(a)(3). Jd. at 9a-10a. The court rejected petitioner's

argument that he was seeking equitable relief because he was

suing a fiduciary to recover losses caused by a fiduciary

breach—relief that ws historically available only in equity.

Id. at 10a-13a. The court concluded that petitioner’s argu-

ment was foreclosed by Mertens v. Hewitt Associates, 508

U.S. 248 (1993), and Great-West Life & Annuity Insurance

Co. v. Knudson, 534 U.S. 204 (2002). Pet. App. Ia-13a.

4. Petitioner sought panel and en bane rehearing on the

Section 502(a)(2) issue, and the Secretary of Labor filed an

amicus brief in support of his petition. In an opinion denying

the petition, the court reiterated its conclusion that petitioner

could not proceed under Section 502(a)(2). Pet. App. 22a-29a.

DISCUSSION

This case presents this Court with the opportunity to re-

solve two important and recurring issues about the scope of

the civil enforcement provisions of the ERISA. The Fourth

Circuit held that ERISA Section 502(a)(2), 29 U.S.C.

1132(a)(2), does not permit a participant in a defined contribu-

tion pension plan to sue based on losses to the plan caused by

a fiduciary breach when the losses affected only the partici-

pant’s individual plan account. The court also held that such

a participant cannot sue under Section 502(a)(3), 29 U.S.C.

1132(a)(3), to restore assets lost as a result of the fiduciary

breach because such a suit does not seek “equitable relief”

within the meaning of that provision. The court decided both

issues incorrectly, and both issues have divided the courts of

5

appeals. Moreover, because of ERISA’s expansive preemp-

tion provision, which broadly supersedes all state laws insofar

as they relate to any ERISA plan, 29 U.S.C. 1144, the Fourth

Circuit’s decision threatens to leave many plan participants

without any effective redress for breaches of ERISA’s fidu-

ciary duties. This Court’s review is therefore warranted.

A. The Question About The Scope Of Section 502(a)(2) War-

rants This Court's Review

1. The court of appeals erred in holding that Section

502(a)(2) does not authorize petitioner to sue to recover losses

to his defined contribution p!an account that were caused by

respondent’s alleged breach of fiduciary duty. Section

502(a)(2) authorizes a “participant” to bring suit for appropri-

ate relief under ERISA Section 409. That section, in turn,

imposes personal liability on any plan fiduciary for “any losses

to the plan” resulting from “each * * * breach” of “any of

the responsibilities, obligations, or duties imposed” by Title

lof ERISA. 29 U.S.C. 1109(a). Petitioner’s suit falls squarely

within the text of those provisions. Petitioner has alleged that

respondent, acting as a plan fiduciary, failed to invest assets

in his plan account in accordance with his directions and that,

as a result of that breach of fiduciary duty, the plan and his

account within the plan held approximately $150,000 less than

they would otherwise have held. Pet. App. 2a-3a; Br. in Opp.

App. 3a-4a. Petitioner seeks an order requiring respondent

“to reimburse to the plan amounts necessary so that [peti-

tioner]’s interest in the plan is what it should have been, but

for the breach of fiduciary duty.” /d. at 50a. That is precisely

what Sections 502(a)(2) and 409 authorize—a suit by a “partic-

ipant” to recover for the plan “losses to the plan” resulting

from a breach of fiduciary duty. 29 U.S.C. 1132(a)(2), 1109.

The court of appeals concluded (Pet. App. 5a-6a) that peti-

tioner is not entitled to sue under Section 502(a)(2) only be-

cause the court misinterpreted Massachusetts Mutual Life

6

Insurance Co. v. Russell, 473 U.S. 134 (1985). Russell pro-

vides no barrier to a suit like petitioner’s, in which a partici-

pant in a defined contribution plan seeks to recover for the

plan losses caused by a fiduciary breach and manifested in

the participant’s plan account. The plaintiff in Russell was

not seeking a recovery payable to the plan of losses to the

plan. Instead, she sought compensatory and punitive dam-

ages payable directly to her as compensation for a delay in

her receipt of disability benefit payments. /d. at 137-138. In

holding that her suit was not authorized by Section 502(a)(2),

_ the Court distinguished the relief that she sought—damages

payable directly to her for pain and suffering—from relief

payable to the plan to recoup “losses to the plan” arising from

mismanagement of plan assets. 473 U.S. at 140-141 & n.8.

The Court recognized that a recovery for the plan of losses

arising from mismanagement of plan assets is available under

Section 502(a)(2), see 473 U.S. at 140-141 & n.8, 142, 144, and

it observed that such a recovery “inures to the benefit of the

plan as a whole,” 2d. at 140.

Petitioner is seeking the kind of recovery that Russell indi-

cates is available under Section 502(a)(2), even though the

ultimate effect of relief to the plan would be to increase the

balance in petitioner’s plan account. Petitioner seeks a pay-

ment to the plan equal to the “losses to the plan” that resulted

from respondent’s mismanagement of plan assets attributable

to petitioner’s account. That recovery will “benefit * * * the

plan as a whole” in the sense that it will directly increase the

overall amount of assets held by the plan. Indeed, a portion

of the recovered assets, like any other assets of the plan, may

be used by the plan to defray the operating costs of the entire

plan. See Employee Benefits See. Admin., U.S. Dep’t of La-

bor, Field Assistance Bulletin 2003-3 (May 19, 2003) <http://

www.dol.gov/ebsa/regs/fab_ 2003-3.html> (discussing appro-

priate methods of allocating such expenses).

7

The court of appeals incorrectly reasoned that petitioner

is not seeking recovery of losses to the plan on the grounds

that the losses were suffered only by petitioner’s plan ac-

count, and the recovery would be allocated to that account.

See Pet. App. 6a. That reasoning misunderstands the nature

of a defined contribution plan. By statutory design, the assets

of a defined contribution plan are allocated, as a bookkeeping

matter, to individual accounts within the plan for the benefi-

cial interest of the participants (whose benefits are dependent

on the amounts so allocated). 29 U.S.C. 1002(34). But the

assets are nevertheless held in a unitary trust and legally

owned by one or more trustees. See 29 U.S.C. 1103(a); 26

U.S.C. 401(a) (2000 & Supp. IV 2004); Rev. Rul. 89-52, 1989-1

C.B. 110. Thus, the necessary allocation of any recovery of

plan losses to one or more individual accounts within the plan

does not change their nature as “losses to the plan.” Because

the fiduciary breaches alleged here resulted in a reduction of

the assets held by the plan’s trust, and because the plan is

legally entitled to recover the lost assets and to hold them to

support the payment of benefits and plan expenses, the court

of appeals erred in concluding that the recovery would “solely

benefit” petitioner, see Pet. App. 6a (citation omitted).

The court of appeals also erred in concluding that peti-

tioner’s suit is not authorized by Section 502(a)(2) on the the-

ory that the losses arose from an alleged breach of a “duty

owed solely to him.” Pet. App. 6a. Sections 502(a)(2) and 409

provide a remedy for the breach of “any of the responsibili-

ties, obligations, or duties imposed upon fiduciaries” by

ERISA, not just those breaches that affect all or a majority

of plan participants. 29 U.S.C. 1109(a) (emphasis added).

Moreover, ERISA’s fiduciary duties protect all plan assets

and all plan participants. See 29 U.S.C. 1104(a). Thus, the

duty to follow a participant’s investment instructions was

owed to all plan participants, not just petitioner.

8

2. This Court’s review is warranted because the court of

appeals’ holding on the Section 502(a)(2) issue conflicts with

the decision of every other court of appeals that has ad-

dressed that issue. Those courts have all held that Section

502(a)(2) authorizes suits by participants in defined contribu-

tion plans to recover losses caused by fiduciary breaches not-

withstanding that the recovery will ultimately be allocated to

the plan accounts of a limited number of participants.

The earliest decision is Kuper v. Iovenko, 66 F.3d 1447

(1995), in which the Sixth Circuit held that a subset of plan

participants could sue under Sections 502(a)(2) and 409 to

recover losses caused by a fiduciary breach that affected only

their individual plan accounts. /d. at 1452-1453. The court

reasoned that the “argument that a breach must harm the

entire plan to give rise to liability under [Section 409] would

insulate fiduciaries who breach their duty so long as the

breach does not harm all of a plan’s participants.” /d. at 1453.

The Seventh Circuit in Steinman v. Hicks, 352 F.3d 1101

(2003), likewise held that a subset of participants in an indi-

vidual account plan may sue plan fiduciaries under Section

502(a)(2). The district court had ruled that the plaintiffs could

not maintain their action under Section 502(a)(2) because they

sought to “recover their individual losses * * * rather than

suing on behalf of the * * * [pjlan.” Ste:mman v. Hicks, 252

F. Supp. 2d 746, 756 (C.D. Ill. 2003). Although the Seventh

Circuit affirmed on other grounds, it rejected that analysis.

It held that the suit “clearly” arose under Section 502(a)(2)

“because the plaintiffs are asking that the trustees be ordered

to make good the losses to the plan caused by their having

breached fiduciary obligations.” 352 F.3d at 1102.

The Third Circuit agreed in /n re Schering-Plough Corp.

ERISA Litigation, 420 F.3d 231 (2005). The court held that

the plaintiff could “seek money damages on behalf of the fund,

notwithstanding the fact the alleged fiduciary violations af-

9

fected only a subset of the saving plan’s participants.” /d. at

232. The court reasoned that a “fiduciary’s liability is not

limited to plan ‘losses that will ultimately redound to the ben-

efit of all participants.’” Jd. at 235 (citation omitted).

Similarly, the Fifth Circuit, sitting en banc, vacated a panel

decision that had held that a subset of the participants in a

401(k) plan, who comprised less than one percent of all the

plan participants, could not sue under Section 502(a)(2). The

panel had reasoned that the plaintiffs sought to recover for

breaches that were not, in the panel’s view, “targeted [at] the

plan as a whole.” Milofsky v. American Airlines, Inc., 404

F.3d 338, 343-344 & n.16 (5th Cir. 2005), vacated on reh’g en

bane, 442 F.3d 311 (5th Cir. 2006). In a per curiam decision,

the en bane court held that the claims should not have been

dismissed. 442 F.3d at 313.

Contrary to the reasoning of the Fourth Circuit in this case

(Pet. App. 6a, 26a-27a), those decisions are not distinguishable

on the ground that they involved suits by a class or subset of

plan participants rather than a single participant. Although

the number of affected participants differs, the nature of the

relicf—the payment of money to the plan—is the same

whether the recovery is allocated to the account of one partic-

ipant, a number of participants, or every participant in the

plan. The argument rejected by the other courts of appeals

is, in substance, little different from the argument accepted

by the Fourth Circuit here—that a participant may not sue

under Section 502(a)(2) to recover losses caused by fiduciary

breaches where the recovery will be allocated to his individual

account. See, e.g., Schering-Plough, 420 F.3d at 235 (“the fact

that the assets at issue were held for the ultimate benefit of

Plaintiffs does not alter the fact that they were held by the

Plan”). In those cases, as here, any recovery would be allo-

cated among only a fraction of the participants’ accounts

within the plan. Indeed, in Milofsky, in which the suit was

10

brought by only 218 participants in a plan with more than

85,000 members, the impact of the recovery on participant

accounts was smaller on a percentage basis than in this case.

Petitioner’s account represents .33% of all plan accounts, as

distinguished from the Milofsky plaintiffs’ stake in .26% of

plan accounts. This Court’s review is warranted to resolve

the conflict among the courts of appeals.’

3. This Court’s review is also warranted because the ques-

tion whether Section 502(a)(2) authorizes an individual partic-

ipant in a defined contribution plan to sue to recover losses

attributable to his plan account is an important one. The

court of appeals’ holding that such suits are not authorized

imposes a significant and unwarranted limitation on the abil-

ity of participants in defined contribution plans to obtain re-

dress for a violation of fiduciary duties. That limitation could

skew decisions about the forms of plan benefits offered and

selected, and would have a substantial impact on pension plan

participants because defined contribution plans are the pre-

dominant type of pension plan in the United States and hold

approximately $3.2 trillion in assets. See Board of Governors

' The Fourth Circuit erred in asserting (Pet. App. 27a-28a) that a

holding that petitioner may sue under Section 502(a\2) would conflict

with appellate decisions recognizing that a claim for individual loss is

not cognizable under Section 502(a)(2). Almost all of the cases cited by

the Fourth Circuit are cases in which plan participants or other indi-

viduals sought compensation for themselves rather than restoration of

losses to the plan. Smith v. Sydnor, 184 F.3d 356 (4th Cir. 1999), cert.

denied, 528 U.S. 1116 (2000), did involve a claim for restoration of losses

to the plan, but the court of appeals permitted the suit to go forward.

Id. at 363. The only other case that arguably involved a claim for losses

to the plan is Matassarin v. Lynch, 174 F.3d 549 (Sth Cir. 1999), cert.

denied, 528 U.S. 1116 (2000). To the extent Matassarin suggests that

Section 502(a)(2) does not authorize a suit to recover losses to a defined

contribution plan that affected a subset of plan participants, that

decision has been superseded by the Fifth Circuit’s en bane ruling in

Milofsky.

11

of the Fed. Reserve Sys., Flow of Funds Accounts of the

United States: Flows and Outstandings, Fourth Quarter

2006, Statistical Release Z.1, at 113 (Mar. 8, 2007) <http://

www.federalreserve.gov/releases/Z1/current/Z1.pdf>.

At a minimum, the court of appeals’ decision will immunize

fiduciaries operating in the Fourth Circuit from liability for

breaches of fiduciary duty, no matter how egregious, so long

as the breaches primarily involve the account of a single par-

ticipant in a defined contribution plan. And the decision will

leave plan fiduciaries, participants, and even the Secretary of

Labor without the ability to recover losses caused by those

breaches. Currently, the Secretary brings many cases each

year against plan fiduciaries who fail to forward employee

contributions to their plans. See Employee Benefits Sec.

Admin., U.S. Dep’t of Labor, Fact Sheet: Retirement Secu-

rity Initiatives (Jan. 2007) <http://www.dol.gov/ebsa/news-

room/fseep.html>. In the Fourth Circuit, the Secretary may

now be precluded from recovering losses caused by a fidu-

ciary’s deliberate diversion of contributions to a single partici-

pant’s plan account, even though the plan clearly received

fewer assets than its entitlement. Moreover, as petitioner

notes (Pet’r Reply Br. 7), approximately 91% of all private

retirement plans have fewer than 100 participants, and fidu-

ciary breaches with respect to those plans will, therefore,

affect correspondingly smaller numbers of participants. As

a result, the impact of the decision below is likely to be signifi-

cant even if it is given its narrowest possible reading as apply-

ing only to suits brought for the primary benefit of a single

participant’s account.

It is unlikely, however, that the decision will in fact be lim-

ited to cases that involve losses to a single participant's ac-

count. As discussed above, there is no statutory or logical

basis on which to draw a line between a case involving losses

to a single plan account and the many other cases involving

12

losses to the accounts of more than one, but less than all, of a

plan’s participants. Indeed, at least one district court has

already employed the reasoning on which the court of appeals

relied here to dismiss a suit that affected two plan accounts.

Tullis v. UMB Bank, N.A., 464 F. Supp. 2d 725 (N.D. Ohio

2006). And respondents suggest that relief under Section

502(a)(2) “ean only be pursued where the alleged fiduciary

breach affects a significant number of participants,” Br. in

Opp. 8, but offer no guidance on how courts are to determine

what constitutes a “significant” number.

Thus, in contrast to the clear text of the statute, which

allows a participant to sue to recover “any losses to the plan,”

29 U.S.C. 1109(a) (emphasis added), the Fourth Cireuit’s deci-

sion establishes an unclear and unworkable standard. That

uncertain standard will mire courts in litigation as they seek

to draw a line between suits that are impermissible because

they involve too few participants and suits that are permissi-

ble because the participants “serve as a legitimate proxy for

the plan in its entirety.” Pet. App. 6a. Moreover, the logic

underlying the court of appeals’ decision may ultimately re-

sult in a rule that Section 502(a)(2) suits are permissible for

a defined contribution plan only if all or virtually all of the

plan’s participants have been affected by the breach. That

will seldom be the case for 401(k) plans, which comprise the

majority of all ERISA-covered pension plans, because those

plans generally offer an array of investment options, and dif-

ferent participants elect different options. See Employee

Benefits Sec. Admin., U.S. Dep’t of Labor, Private Pension

Plan Bulletin 2, 44 (Mar. 2007) <http://www.dol.gov/ebsa/

PDF/2004pensionplanbulletin.pdf>. Certainly it makes no

sense to adopt a rule that would make the consequence of

expanded employee choice a reduction in employees’ ability to

redress violations of fiduciary duties. Because the rule

adopted by the court of appeals is likely to constrict signifi-

13

cantly the available relief for breaches of fiduciary duties to

ERISA plans, this Court’s review of the Section 502(a)(2)

issue is warranted.”

B. The Question About The Scope Of Section 502(a)(3) Also

Warrants This Court’s Review

The Court should also grant review of the second issue

presented by the petition for a writ of certiorari—whether a

suit against a fiduciary to recover losses caused by a breach

of fiduciary duty seeks “equitable relief” and is therefore au-

thorized by Section 502(a)(3) of ERISA.

1. The court of appeals erred in holding that Section

502(a)(3) does not permit a suit against a fiduciary to recover

losses caused by a breach of fiduciary duty. Contrary to the

conclusion of the court of appeals, such a suit seeks “equitable

relief” as authorized by Section 502(a)(3).

In Mertens v. Hewitt Associates, 508 U.S. 248 (1993), this

Court held that the “equitable relief” authorized by Section

502(a)(3) is relief that was “typically available in equity.” /d.

* This case is an appropriate one in which to address the issue even

though the court of appeals suggested that petitioner may have for-

feited reliance on Section 502(a)(2) by failing to invoke that specifie pro-

vision in the district court. See Pet. App. 5a. Despite the court of

appeals’ statement about “waiver,” /bid., the court went on to address

and to resolve the Section 502(a)(2) issue. That issue is therefore prop-

erly before this Court. See l/nited States v. Williams, 504 U.S. 36, 41

(1992). Moreover, it is unclear that the court of appeals actually held

that petitioner had forfeited reliance on Section 502(4)(2). Respondents

do not argue that the court did so, but state only that the court “sug-

gest{ed| thle] claim may have been waived.” Br. in Opp. 5. Nor do

respondents argue that the court’s statement about “waiver” is a rea-

son to deny the petition. See, e.g., id. at 1-2 (summarizing reasons to

deny the petition and not mentioning forfeiture or waiver). Thus, the

court of appeals’ passing reference to “waiver” should not <lissuade this

Court from granting review of the court of appeals’ ruling on the

Section 502(a)(2) issue.

14

at 256 (emphasis removed). Applying that standard, the

Court concluded that Section 502(a)(") does not permit a suit

against a non-fiduciary to recover money damages. See id. at

256-263. The Court provided further elaboration on the scope

of Section 502(a)(3) in Great-West Life & Annuity Insurance

Co. v. Knudson, 534 U.S. 204 (2002). In Great-West, the

Court held that Section 502(a)(3) does not authorize an

ERISA plan to sue to enforce a plan provision requiring bene-

ficiaries to reimburse the plan for medical benefits for which

they received a recovery from third parties. See id. at 206,

221. In reaching that holding, the Court rejected the plan’s

argument that restitution is necessarily “equitable relief.”

See id. at 212-218. The Court explained that, in the days of

the divided bench, restitution was available at both law and

equity, and, therefore, “whether it is legal or equitable de-

pends on ‘the basis for [the plaintiff's] claim’ and the nature

of the underlying remedies sought.” /d. at 213 (citation omit-

ted; brackets in original). Most recently, in Sereboff v. Mid

Atlantic Medical Services, Inc., 126 S. Ct. 1869 (2006), the

Court held that a suit to enforce a plan reimbursement provi-

sion could be brought under Section 502(a)(3), because the

plan beneficiary had agreed to preserve a portion of the funds

received from the third party in a segregated investment ac-

count until resolution of the plan’s claim against the funds.

The Court coneluded that both the plan’s claim and the relief

it sought would have been considered equitable in the days of

the divided bench because the plan sought to enforce “an eq-

uitable lien established by agreement.” /d. at 1877; see id. at

1873-1877.

Here, as in Sereboff, both petitioner’s claim, breach of fidu-

ciary duty, and the relief he seeks, surcharge of the trustee

for the losses resulting from the breach, were typi-

callv—indeed, exclusively—equitable in the days of the di-

vided bench. Historically, equity exercised exclusive jurisdic-

15

tion over claims by a trust beneficiary against a trustee for

breach of trust, subject to limited exceptions not relevant

here. See Restatement (Second) of Trusts (Second Restate-

ment) § 197, at 433 (1959); zd. § 198, at 434 (exceptions); John

N. Pomeroy, A Treatise on Equity Jurisprudence § 151, at

206 (5th ed. 1941); Duvall v. Craig, 17 U.S. (2 Wheat.) 45, 56

(1817) (“A trustee, merely as such, is, in general, suable only

in equity.”); Manhattan Bank v. Walker, 130 U.S. 267, 271

(1889); Clews v. Jamieson, 182 U.S. 461, 479 (1901).

In an action for breach of trust, equity provided a variety

of remedies, including compelling the trustee to perform his

duties, enjoining the trustee from committing a breach of

trust, and “compellling] the trustee to redress a breach.”

Second Restatement § 199, at 437; see 3 Austin W. Scott &

William F. Fratcher, The Law of Trusts (Seott) § 199, at 203-

207 (4th ed. 1988). One of the remedies, available when the

breach had caused a loss to the trust, was a “surcharge” on

the trustee in “the amount required to restore the values of

the trust estate and trust distributions to what they would

have been if the trust had been properly administered.” Re-

statement (Third) of Trusts § 205 & emt. a, at 223 (1992); see

3 Scott § 205, at 238-240 (describing circumstances under

which trustee was subject to “surcharge”); Manhattan Bank,

130 U.S. at 271 (“The suit is plainly one of equitable cogni-

zance, the bill being filed to charge the defendant, as a

trustee, for a breach of trust.”).’ Thus, a suit against a fidu-

’ See, e.g., United States v. Mason, 412 U.S. 391, 398 (1973) (holding

that United States was not subject to “surcharge” for paying state tax

on property held in trust for Indians because it acted with requisite

care (quoting 2 Scott § 176, at 1419 (3d ed. 1967))); Mosser v. Darrow,

341 U.S. 267, 270, 272, 273 (1951) (holding that district court properly

imposed a “surcharge” on bankruptcy trustee); Princess Lida v.

Thompson, 305 U.S. 456, 458, 464 (1939) (describing authority of

Pennsylvania state court, in a “suit in equity,” “to surcharge [a trustee]

with losses incurred”).

16

ciary to recover losses caused by a breach of fiduciary duty

seeks “equitable relief” under Section 502(a)(3).

Contrary to the court of appeals’ conclusion (Pet. App. 10a-

13a), neither Mertens nor Great-West indicates that Section

502(a)(3) does not authorize a suit against a fiduciary to sur-

charge the fiduciary for losses caused by a breach of fiduciary

duty. Mertens involved a suit not against fiduciaries, but

against non-fiduciaries. See 508 U.S. at 253-254, 262. More-

over, the plaintiffs in Mertens “d{id] not * * * seek a remedy

traditionally viewed as ‘equitable.’”” /d. at 255. Rather, they

sought “all damages according to proof” and “punitive dam-

ages.” J.A. at 17, Mertens, supra (No. 91-1671). Likewise,

Great-West involved neither a suit against a fiduciary nor a

suit to obtain the equitable remedy of surcharge. Instead,

Great-West involved a suit by a plan against a participant,

which the plan characterized as a suit for restitution but the

Court concluded was a suit for money damages under a con-

tract. See 534 U.S. at 212-218.

2. The court of appeals’ holding on the scope of Section

502(a)(3) warrants this Court’s review because it deepens an

existing conflict among the courts of appeals. The majority of

the courts of appeals that have addressed the issue have, like

the court below, held that Section 502(a)(3) does not authorize

suits against a fiduciary to recover losses caused by a breach

of fiduciary duty. See Coan v. Kaufman, 457 F.3d 250, 262-

264 (2d Cir. 2006) (reversing prior holding in Strom v.

Goldman, Sachs & Co., 202 F.3d 138 (2d Cir. 1999)); Calhoon

v. TWA, 400 F.3d 593, 596-598 (8th Cir. 2005); Callery v.

United States Life Ins. Co., 392 F.3d 401, 405-409 (10th Cir.

2004), cert. denied, 126 S. Ct. 333 (2005); Helfrich v. PNC

Bank., Ky., lne., 267 F.3d 477, 481-482 (6th Cir. 2001), cert.

denied, 535 U.S. 928 (2002); see also Goeres v. Charles Schwab

& Co., No. 05-15282, 2007 WL 495191 (9th Cir. Feb. 14, 2007),

petition for cert. pending, No. 06-1521 (filed May 15, 2007). In

17

contrast, the Seventh Circuit has held that Section 502(a)(3)

does authorize such suits because monetary relief, “when

sought as a remedy for breach of fiduciary duty[,] * * * is

properly regarded as an equitable remedy.” Bowerman v.

Wai-Mart Stores, Inc., 226 F.3d 574, 592 (2000) (citation omit-

ted; brackets in original).*

Respondents incorrectly argue that “Great-West effec-

tively eliminated any conflict over this issue.” Br. in Opp. 12.

As discussed above, nothing in Great-West is inconsistent with

the conclusion that Section 502(a)(3) authorizes suits against

a fiduciary to recover losses caused by a breach of fiduciary

duty. Moreover, in a decision that post-dates Great-West, the

Seventh Circuit expressly noted that “ERISA ‘as currently

written and interpreted, may allo[w] at least some forms of

“make-whole” relief against a breaching fiduciary in light of

the general availability of such relief in equity at the time of

the divided bench,” McDonald v. Household Int'l, Inc., 425

F.3d 424, 430 (7th Cir. 2005) (quoting Aetna Health Ine. v.

Davila, 542 U.S. 200, 223 (2004) (Ginsburg, J., concurring)),

and the court of appeals remanded to allow the plaintiffs to

amend their complaint to add ERISA claims.

3. This Court’s review of the Section 502(a)(3) issue is also

warranted because the issue is of substantial importance.

First, the confusion about whether a suit against a fiduciary

to recover losses for a breach of duty is equitable relief autho-

rized by Section 502(a)(3) is generating additional confusion

in related areas of the law. Until recently, all the courts of

* Although the Seventh Circuit denominated the remedy in that case

“restitution,” it approved an award of the benefits that the participant

would have received but for the breach, which is the type of relief that

would have been provided by surcharge. See Bowerman, 226 F.3d at

592. Moreover, the court clearly rested its conclusion on the fact that

actions and remedies against a fiduciary for breach of fiduciary duty

have traditionally been viewed as equitable. See ibid. (citing Strom, 202

F.3d at 144-145).

18

appeals that have considered an action for monetary relief

against a breaching fiduciary under either Section 502(a)(2)

or Section 502(a)(3) of ERISA have concluded that there is no

right to a jury trial because the claims are equitable. See,

e.g., Phelps v. C.T. Enters., Inc., 394 F.3d 213, 222 (4th Cir.

2005); Borst v. Chevron Corp., 36 F.3d i308, 1323-1324 (5th

Cir. 1994), cert. denied, 514 U.S. 1066 (1995); accord Broad-

nax Mills, Inc. v. Blue Cross & Blue Shield, 876 F. Supp. 809,

816 (E.D. Va. 1995). The Second Circuit, however, has re-

cently read this Court’s decision in Great-West to require a

jury trial in a non-ERISA ease in which shareholders sought

monetary losses from corporate fiduciaries accused of breach-

ing their duties. See Pereira v. Farace, 413 F.3d 330, 339-341

(2005), cert. denied, 126 S. Ct. 2286 (2006). As the concur-

rence in Pereira pointed out, that conclusion is “at odds with

centuries of equitable proceedings involving claims against

trustees, estate executors, and other fiduciaries.” /d. at 344

(Newman, J., concurring). Against the weight of that author-

ity, but consistent with Pereira, district courts have begun to

rely on Great-West to conclude that ERISA participants who

seek to recover plan losses under ERISA Section 502(a)(2)

from breaching fiduciaries are entitled to a jury trial because

they are seeking “lega!” rather than “equitable” relief. See,

e.g., Bonav. Barasch, No. 01 Civ. 2289, 2003 WL 1395932, at

*35 (S.D.N.Y. Mar. 20, 2003). This Court’s review of the Sec-

tion 502(a)(3) issue would help correct the confusion that has

spread to the jury trial issue in the lower courts.

In addition, the Section 502(a)(3) issue is of considerable

importance in its own right. Numerous judges, including Jus-

tices of this Court, have recognized that the existing confusion

about the scope of Section 502(a)(3), coupled with ERISA’s

expansive preemption provision, has created “an unjust and

increasingly tangled ERISA regime.” Davila, 542 U.S. at 222

(2004) (Ginsburg, J., joined by Breyer, J., concurring) (quot-

19

ing DiFelice v. Aetna U.S. Healthcare, 346 F.3d 442, 453 (3d

Cir. 2003) (Becker, J. concurring)); see Cicio v. Does 1-8, 321

F.3d 83, 106 (2d Cir. 2003) (Calabresi, J., dissenting), vacated,

542 U.S. 933 (2004); Tullis, 464 F. Supp. 2d at 730. See also

Davila, 542 U.S. at 221 n.7 (declining to address United

States’ argument concerning scope of Section 502(a)(3) be-

cause respondents had not pressed an ERISA claim). In

those circuits that have precluded a surcharge remedy against

ERISA fiduciaries, many plan participants and beneficiaries

may be deprived of pecuniary redress from fiduciaries that

have committed serious violations of ERISA’s provisions and

directly injured those they are charged with protecting. A

wide range of injuries for which many courts previously

granted monetary relief under Section 502(a)(3) are likely to

go unredressed. See, e.g., Griggs v. E.J. DuPont de Nemours

& Co., 237 F.3d 371, 385 (4th Cir. 2001) (allowing relief where

employer erroneously informed participant that his lump sum

early retirement payout would be tax deferred); Strom, 202

F.3d at 144 (authorizing recovery of life insurance proceeds

that were lost because of fiduciary’s negligent handling of

insurance application); McFadden v- R&R Engine & Mach.

Co., 102 F. Supp. 2d 458, 471-475 (N.D. Ohio 2000) (permitting

cancer patient to recover health expenses after he lost cover-

age because fiduciary failed to submit premiums to insurance

company). The gap in redress for fiduciary breaches is even

greater when the court of appeals’ holding on the Section

502(a)(3) issue is combined with its holding that many partici-

pants in defined contribution plans also cannot recover for

losses to their plans under Section 502(a)(2). And there may

be benefits to the Court in addressing in a single case both

avenues for relief that may be available to an individual in

petitioner's position.

As this Court noted in Russel/, “the crucible of congressio-

nal concern” that motivated enactment of ERISA “was misuse

20

and mismanagement of plan assets by plan administrators,”

and “ERISA was designed to prevent these abuses in the fu-

ture.” 473 U.S. at 141 n.8. Indeed, Congress stated in the

statute itself that ERISA’s goal is “to protect * * * the in-

terests of participants in employee benefit plans * * * by

establishing standards of conduct, responsibility, and obliga-

tion for fiduciaries of [those] plans, and by providing for ap-

propriate remedies, sanctions, and ready access to the Fed-

eral courts.” 29 U.S.C. 1001(b). Given that explicit statement

of purpose, it makes little sense that plans and their partici-

pants should be left with no relief when plan assets are lost

through fiduciary mismanagement. The United States there-

fore urges the Court to grant review of both issues presented

in order to clarify that ERISA provides monetary remedies to

recompense plans and participants who have been harmed by

fiduciary breaches.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

PAUL D. CLEMENT

JONATHAN L. SNARE Solicitor General

Acting Solicitor of Labor EDWIN S. KNEEDLER

TimoTHY D. HAUSER Deputy Solicitor General

Associate Solicitor MATTHEW D. ROBERTS

ELIZABETH HOPKINS Assistant to the Solicitor

Acting Counsel for Appellate General

and Special Litigation

Department of Labor

MAY 2007