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

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No. 06-856 SEP 13 2007

[ SUPREN cotet ER

IN THE —

Supreme Court of the Anited States

JAMES LARUE,

Petitioner,

V.

DEWOLFF, BOBERG & ASSOCIATES, INC. and

DEWOLFF, BOBERG & ASSOCIATES, INC.

EMPLOYEES’ SAVINGS PLAN,

Respondents.

On Writ oF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FourtTH CIRCUIT

BRIEF OF AMICUS CURIAE

THE AMERICAN COUNCIL OF LIFE INSURERS

IN SUPPORT OF RESPONDENTS

PETER J. RUSTHOVEN Car B. WILKERSON,

Counsel of Record Vice President & Chief Counsel,

Bart A. KARWATH Securities & Litigation

Mark J. CRANDLEY Lisa TATE,

Barnes & THORNBURG LLP Associate General Counsel, Litigation

11 South Meridian Street AMERICAN COUNCIL OF LéFE INSURERS

Indianapolis, Indiana 46204 101 Constitution Ave., N.W.

(317) 236-1313 Suite 700

Washington, D.C. 20001-2133

Barnes & THORNBURG LLP

750 17th Street, N. W.

Suite 900

Washington, D.C. 20006-4607

(202) 371-6366

Counsel for Amicus Curiae

The American Council of Life Insurers

210925 g

COUNSE: PRESS

(800) 274-3321 + (800) 359-6859

i

TABLE OF CONTENTS

Page

TABLE OF CITEDAUTHORITIES ............ ii

BEATE MEI OF ENTERS E ccc ccc cece cceces l

SUMMARY OF ARGUMENT ................. 2

EE - <n: 05 ob-06-bb a On ben ook eee ede eun +

1. LaRue’s “Bookkeeping” Theory Has No

Application Outside Of His 401(k) Plan And,

If Adopted, Should Be Explicitly Rejected

For Claims Outside That Context. ........ 5

Il. LaRue’s Claim For Consequential Damages

Is Not What Congress Meant By “Equitable”

Relief And Allowing That Relief Would

Cause A Host Of Consequences Contradicting

The Limitation On Remedies Under ERISA

D citebucdkdpesctnuee ewe beves 6

A. LaRue’s claim for consequential “lost

profit” damages is in no sense the type

of relief that was “typically” available

SPL Sub bee Raee eee edmee es aes 8

B. LaRue’s proposed expansion of

502(a)(3) has a host of negative

consequences that Congress did not

intend in enacting ERISA. ........... 13

ET 6664S AS OND eenweseeeetes be enn 19

il

TABLE OF CITED AUTHORITIES

Page

Cases

Aetna Health Inc. v. Davila, 542 U.S. 200 (2004) ... 14, 15

Brown v. Blue Cross & Blue Shield of Alabama, Inc.,

898 F.2d 1556 (11th Cir. 1990) .............. 9

De Vargas v. Mason & Hanger-Silas Mason Co., Inc.,

911 F.26 1377 (i@th Cis. 1990) 2... ccc wees 18

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

PE sctbdnus dad kk be ebch eke etacnes 15

Forsyth v. Humana, Inc., 114 F.3d 1467 (9th Cir.

8, STOTT eer Tere es Se eee er er eer 16

I ee er re err eaeree ee ne 16

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

SE: EE 60.6 6544-06 cawaesonee ine 8. 10

Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145

REE Peer er eT rrr: ee pee 8

LaRocca v. Borden, Inc., 276 F.3d 22 (1st Cir. 2002)

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S.

SD Caewey cosenknvavdegneceene 4,5,13. 14

iil

Cited Authorities

Page

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

Pension Benefit Guaranty Corporation v. LTV Corp.,

Pr cctsevboKen stab seedanes 11

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 54 (1987) .. 11, 17

Sereboff v. Mid Atlantic Medical Servs., Inc.,

PE cts cee de desebedenas 10

Tolson v. Avondale Indus. Inc., 141 F.3d 604 (Sth

ME 216 620s ie ete bh eees hue eke sane h-4 16

Varity Corp. v. Howe, 516 U.S. 491 (1996) ...... 10, 15

Wachtel v. Health Net, Inc., 482 F.3d 225 (3d Cir.

EE CSs ewe neseredetesedesevendcceanees 10

Wilkins v. Baptist Healthcare Sys., Inc. , 150 F.3d 609

PPT Ty ere ey eT TTT ere 16

iv

Cited Authorities

Page

Statutes

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ee ree ee re 11

AED. 6G 640 a5 040 060d eS ORES l

DE. betunxebveewsdnenaesasesbs 9

EE “id's toes oud esbn badness da oe 5,14

i -¢ bets pans whveneae eee ke bane 5

Pa PEE 6605 60 abn es daeendns esate passim

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STATEMENT OF INTEREST '

The American Council of Life Insurers (*ACLI’”) is the

nation’s largest life insurance trade association, representing

the interests of 373 legal reserve life insurers operating in

the United States. ACLI member companies are the leading

providers of financial and retirement security products

covering individual and group markets. They provide life,

disability income and long-term care insurance, annuities,

pension products for 401(k), 403(b) and 457 plans, individual

retirement accounts and reinsurance. In the United States,

ACLI members account for 93% of the life insurance

industry’s total assets, 91% of life insurance premiums, and

95% of annuity considerations. Life insurance policies issued

by ACLI members include employer-sponsored group

disab*!'ty insurance policies and group life policies. Annuities

issue include group annuities issued to employer-sponsored

retirement plans. The vast majority of products sold by ACLI

members in the group employee benefits market are subject

to the requirements of the Employee Retirement Income

Security Act of 1974, as amended, 29 U.S.C. §§ 1001 ef seg.

(“ERISA”).

Resolution of the questions presented, involving which

remedies Congress did and did not authorize in crafting

ERISA, could have legal and practical ramifications

extending far beyond the parties to this case. Given the

1. In compliance with Rule 37.6, amicus curiae states that no

person or entity other than amicus curiae, its members or its counsel

made a monetary contribution to preparation or submission of this

brief, and no attorney for any party authored this brief in whole or

in part. In compliance with Rule 37.3(a). amicus curiae states that

petitioner and respondents have separately filed with the Clerk their

consent to filing of amicus briefs.

2

extensive and vital involvement of ACLI’s members in the

employee benefits field regulated by ERISA, ACLI is well

positioned to address the practical impact on employer-

sponsored benefit plans if currently available ERISA

remedies are expanded, as petitioner and his supporting amici

urge, to expose ERISA fiduciaries to claims for monetary

damages by plan participants based on losses allegedly

suffered by individuals with respect to their benefit plan

accounts. Allowing erosion of the statutory limits to ERISA

remedies may have significant adverse consequences for

ACLI members. These include increased costs for employer-

sponsored plans and a concomitant decrease in the number

of employers able and willing to sponsor and administer them

— thereby decreasing the number of employees participating

in those plans.

SUMMARY OF ARGUMENT

Petitioner James LaRue seeks compensatory damages for

lost profits he claims his individual 401(k) account would

have gained had a putative fiduciary for the plan carried out

his investment directions. Because ERISA has a single

provision governing all available remedies under the statute,

the consequential damages LaRue seeks threaten to expand

ERISA’s remedies to a host of contexts alien to LaRue’s

single 401(k) account. Neither of his two avenues for

claiming this expanded relief are supported by the language

Congress used to describe the limited remedies available

under ERISA or this Court’s cases construing those remedies.

First, LaRue’s belief that ERISA § 502(a)(2), 29 U.S.C.

§ 1132(a)(2), allows damage claims based on injuries to his

individual 401(k) account is contradicted by this Court's

3

cases holding that any relief under that section must redress

harm to the plan as a whole. LaRue’s theory ignores the fact

that Congress provided a single remedy provision for all

ERISA fiduciaries with language that did not create an

exception for 401(k) plans with individual accounts.

Moreover, even if the Court were to grant LaRue’s proposed

remedy, his basis for seeking that relief — the existence of

individual accounts — is not a feature of virtually any other

type of plan and that remedy should not be extended to plans

that do not hold assets in individual accounts.

Second, LaRue invokes the equitable remedies available

under ERISA § 502(a)(3) as a basis for seeking his lost

profits. The type of consequential damages he seeks is

monetary compensation, the classic legal remedy. His

surcharge theory is itself a remedy not “typically” available

in equity as a whole. Surcharge was instead a form of relief

available only in the subset of equity cases addressing the

abuse of trust assets.

LaRue’s position overlooks the consequences his

expansion of remedies under ERISA § 502(a)(3) would cause

in other contexts in which fiduciaries provide services to

ERISA plans. Congress provided only one remedy provision

under ERISA and any monetary remedy crafted for LaRue

would arguably extend to other plaintiffs in contexts far

removed from his 401(k) plan. In many contexts, an insurer

might be deemed to be a fiduciary when it determines whether

a participant has a valid claim for benefits. LaRue’s theory

threatens virtually limitless liability for consequential

damages when those insurers apply plan language to deny

benefits under a plan. Similarly, despite Congress’s stated

purpose to limit ERISA’s remedies, this expansion of

consequential damages proposed by LaRue would have the

4

natural consequence of discouraging employers from offering

plans, thereby further eroding the availability and scope of

health, life and other welfare plans on which employee

participants have come to rely.

ARGUMENT

The purpose of LaRue’s lawsuit is to recover money he

claims he might have had if the fiduciaries for his 401(k)

pension plan followed his investment directions. He asks the

Court to allow him to pursue a claim for “consequential”

or “make whole” damages that were the result of an

alleged breach of duty he describes in his complaint.

E.g., Pet. Br. 11.

To convince the Court that this form of relief should be

available under ERISA §§ 502(a)(2) and (3), LaRue wraps

his arguments wholly within the confines of the specific

401(k) plan at issue in this case and ignores the effects his

arguments could have outside of that limited context. If the

Court authorizes consequential damages for an alleged

omission in the management of LaRue’s individual 401(k)

account, it threatens to create a broad judicial expansion of

ERISA’s remedial scheme respecting all forms of fiduciary

activity under all forms of ERISA-regulated pension and non-

pension welfare arrangements. This result would be

inconsistent with the “carefully integrated” set of

enforcement provisions found in 29 U.S.C. § 1132, see

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134,

146 (1985), and should be rejected.

5

I. LaRue’s “Bookkeeping” Theory Has No Application

Outside Of His 401(k) Plan And, If Adopted, Shory'd Be

Explicitly Rejected For Claims Outside That Context.

This Court has determined that any remedy under ERISA §

502(a)(2) — and, in turn, ERISA § 409 — must “inure[] to the

benefit of the plan as a whole.” Russell, 473 U.S. at 139. LaRue

believes the Court should set aside this authority for his claims

because individual accounts in 401(k) plans are a mere

“bookkeeping” fiction and the interests of the individual and

the plan are indistinguishable in those plans. See Pet. Br. 19.

Far from a mere “bookkeeping” entry, the establishment of

individual accounts is the critical feature of many 401(k) plans.

Individual account arrangements such as 401(k), thrift, and

savings plans are distinctly regulated by ERISA, and precisely

because of their separate accounting feature. E.g., 29 U.S.C.

§ 1107(d)(3) (defining “eligible individual account plan”);

29 U.S.C. § 1104(a)(2) (excusing eligible individual account

plans from certain prudence and diversification requirements

in connection with qualifying employer securities). In contrast,

there are no separate accounts for most traditional pension and

welfare benefit plans. The fact that Congress provided a single

remedial provision for all plans with no exception for 401(k)

plans shows that LaRue’s proposed expansion of the remedies

available under ERISA § 502(a)(2) — and the related effective

rejection of the “plan as a whole” limitation — should be denied.

2. See also Br. for the United States as Amicus Curiae 10-11

(relying on nature of defined contribution plans to expand remedies

under ERISA § 502(a\(2)); Br. of Amicus Curiae AARP 10; Br. of

Amicus Curiae Air Vine Pilots Ass'n, Int'l 8.

6

Even if the Court were inclined to set aside the well-

established law holding that claims under ERISA § 409 must

be for relief to the “plan as a whole” and create an exception

for 401(k) plans, any such holding should not extend outside

the context of 401(k) plans with separate accounts. LaRue’s

basis for asking the Court to unwind the restrictions Congress

placed on ERISA § 502(a)(2) is his focus on the nature of

his own 401(k) plan. There is no basis either in LaRue’s

arguments or Congress’s policy to expand his damages theory

to the various other species of ERISA plans. To do so would

have widespread and unintended consequences for fiduciaries

in those plans and the employees who rely on and need the

benefits they provide.’ Even if the Court were to find LaRue’s

arguments persuasive, it should cabin any holding to the

context of 401(k) plans with “bookkeeping” accounts and

make clear that LaRue’s theory cannot erode the specific

limitation on remedies Congress provided for every other

species of ERISA plan.

Il. LaRue’s Claim For Consequential Damages Is Not

What Congress Meant By “Equitable” Relief And

Allowing That Relief Would Cause A Host Of

Consequences Contradicting The Limitation On

Remedies Under ERISA § 502(a)(3).

Congress expressly limited the remedies available under

ERISA § 502(a)(3) to those that are “equitable.” See Mertens

v. Hewitt Assocs., 508 U.S. 248, 255-56 (1993). Congress

intended this language to embody a limiting principle in the

relief available under that provision. /d. The Court has

3. For instance, as described in Section I1.B infra, expansion

of liability under ERISA has the effect of discouraging employers to

create employee welfare plans, a consequence directly contradicting

Congress's intent.

7

therefore instructed that “equitable relief” under ERISA

§ 502(a)(3) refers “to those categories of relief that were

typically available in equity (such as injunction, mandamus,

and restitution, but not compensatory damages).” /d. at 256

(emphasis in original).

LaRue now asks the Court to abandon this limiting

principle and re-write ERISA to allow claims for the type of

consequential damages that he allegedly suffered in relation

to his plan fiduciary’s purported failure to carry out his

investment instructions. This request for “make whole”

damages was not typically available in equity and is not the

type of remedy Congress provided under ERISA § 502(a)(3).

Moreover, because ERISA contains a single remedy

provision, allowing consequential damages under ERISA

could affect the broader species of benefits provided for

employees in the multitude of plans governed by ERISA.

Any expansion of these remedies threatens to creep into

claims asserted under these different types of benefit plans.

A number of direct consequences flow from LaRue’s

proposed broadening of the remedies available under

502(a)(3), including the potential availability of claims for

consequential damages as a remedy for a fiduciary’s denial

of benefits under welfare benefit plans and a reduction in

the availability of employer-sponsored plans in direct

contravention of Congress’s intent. Because these

consequences would violate the language of ERISA, the

Court’s caselaw and Congress’s goals for ERISA, the Court

should reject LaRue’s proposed expansion of the remedies

available under ERISA § 502(a)(3).

8

A. LaRue’s claim for consequential “lost profit”

damages is in no sense the type of relief that was

“typically” available in equity.

LaRue invokes ERISA § 502(a)(3) as a mechanism for

obtaining “make whole” or “consequential” relief. He therefore

characterizes his relief as an award that would make his 401(k)

account the same as it would have been “but for the breach of

fiduciary duty.” Pet. Br. 11. LaRue asks for these consequential

damages through what he deems an equitable “surcharge,” while

some of his supporting amici bluntly ask the Court to award

damages without any rhetoric sounding in equity.

However, the Court has unequivocally held that remedies

under ERISA § 502(a)(3) are limited to those that were

“typically” available in equity. Mertens, 508 U.S. at 256

(emphasis in original). LaRue’s hyper-technical “surcharge”

theory is a rhetorical device with no support in the Court’s

reading of ERISA § 502(a)(3). The Court has always recognized

that blowing the dust off of the equity treatises would almost

always allow plaintiffs to find an equitable patina with which

to gloss their claims for legal damages. See Great-West Life &

Annuity Ins. Co. v. Knudson, 534 U.S. 204, 210 (2002). The

question is not whether the participant’s claim bears some

resemblance to an equitable remedy found somewhere in the

annals of equity jurisprudence, but whether the remedy is what

Congress would understand to be among those remedies

“typically” available in equity. Monetary compensation for

consequential injuries (here, hypothetical lost profits) has long

been understood as a classic legal remedy. E.g., Hadley v.

Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854). Common

sense pierces through LaRue’s invocations to equity and shows

that what he seeks is a legal remedy.

9

Nor is “surcharge” a remedy that was “typically”

available in equity. Mertens, 508 U.S. at 256. On its face,

the surcharge theory only applies in the context of trust cases

and not all claims in equity. LaRue’s Brief to this Court

contains a section heading that makes this point crystal clear:

“Surcharge is not properly viewed as a ‘legal remedy’ that

was awarded by equity courts in trust cases.” Pet. Br. 35

(emphasis added). Because this surcharge remedy was itself

limited to one subspecies of trust cases, it does not apply

broadly to all claims in equity and was not “typically”

available in equity cases.

Many ERISA plans do not even incorporate the trust

concept on which LaRue’s theory rests. Although ERISA

generally requires that all plans have one or more trustees,

see 29 U.S.C. § 1103(a), it also explicitly exempts insurance

policies and the assets of an insurance company from that

trustee requirement. See 29 U.S.C. § 1103(b)(1) & (2)

(exempting from the trust requirement “any assets of a plan

which consist of insurance contracts or policies issued by an

insurance company” and “any assets of such an insurance

company or any assets of a plan which are held by such an

insurance company”); see generally Brown v. Blue Cross &

Blue Shield of Ala., Inc., 898 F.2d 1556, 1561-62 (11th Cir.

1990) (an “insurance policy .. . is not an asset held in trust

for the beneficiaries of the plan because the trust requirements

of section 1103(a) do not apply”; an “insurance company

pays out to beneficiaries from its own assets rather than the

assets of a trust”).

ERISA therefore expressly provides that in some

circumstances insurers might not hold assets in trust even

when they otherwise serve as a fiduciary for a plan and

exercise discretion under the plan. See 29 U.S.C. § 1103(b)(1)

10

& (2). For welfare benefit arrangements structured in this

manner, the benefits are funded instead through the issuance

of a policy for life, disability, health or other form of ERISA-

regulated welfare benefit. The benefits provided under such

plans come from the private funds of the insurance company.

Before being paid to the participants, these sums are held in

the insurer’s state-regulated general accounts. LaRue’s

surcharge theory derives solely from the trust context, which

bears no relation whatsoever to the many non-trusted ERISA

plans provided by life insurers. See Pet. Br. 34 (saying that

surcharge provides remedy against “a trustee, for breach of

trust”) (internal quotation marks and citation omitted).*

4. LaRue’s surcharge theory seeks to impose this trust law remedy

on all fiduciaries without accounting for non-trusted plans. The Court’s

cases already make clear that trust law remedies should not be expanded

into ERISA carte blanche to defendants who are not serving as trustees

in relation to the assets at issue. See Varity Corp. v. Howe, 516 U.S.

491, 496-97 (1996) (ERISA’s “fiduciary duties draw much of their

content from the common law of trusts,” but “that trust law does not

tell the entire story”). Indeed, the distinction between funds held in

trust and those not held in trust was the critical fact distinguishing the

availability of a remedy in the Court’s two most recent cases under

ERISA § 502(a)(3), Great-West and Sereboff v. Mid Atlantic Medical

Servs., Inc.,126 $.Ct. 1869 (2006). When serving as fiduciaries of non-

trusted plans, life insurers by definition exercise the discretion given to

them by those plans and by ERISA. They are not, however, automatically

deemed to be (and do not ct as) trustees of plan assets. Trust law

remedies simply have no application to these insurance company funded

arrangements. See Wachtel v. Health Net, Inc., 482 F.3d 225, 227 (3d

Cir. 2007) (“When a plan beneficiary submits a claim, the [insurer] will

process the claim and, if appropriate, pay the beneficiary frorn the

|insurer}’s own funds”). In other words, LaRue’s theory of damages

wrongfully asks this Court to make available a trust law remedy under

ERISA’s enforcement provision, which applies to all ERISA fiduciaries

regardless of whether they are trustees or are simply fiduciaries

exercising discretion over non-trusted assets.

1]

Several amici suggest that not allowing this trust remedy

in the instant case would leave those injured by a fiduciary’s

breach without any remedy in derogation of ERISA’s remedial

purpose. E.g., Br. for the United States as Amicus Curiae 9-

10.° Of course, “vague notions of a statute’s ‘basic purpose’

are nonetheless inadequate to overcome the words of its text

regarding the specific issue under consideration. This is

especially true with legislation such as ERISA, an

enormously complex and detailed statute that resolved

innumerable disputes between powerful competing interests

— not all in favor of potential plaintiffs.” Mertens, 508 U.S.

at 261-621 (quoting Pension Benefit Guar. Corp. v. LTV

Corp., 496 U.S. 633, 646-647 (1990), and citing Pilot Life

Ins. Co. v. Dedeaux, 481 U.S. 54, 56 (1987)).

LaRue in fact had a number of remedies available under

ERISA, but chose to forgo them in favor of his broader lost

profits theory. Notably, ERISA § 502(a)(1)(B) allows a

participant in LaRue’s position to seek declaratory relief in

order to enforce or clarify his rights under the plan. LaRue

could well have sought a declaration that his interest in the

plan should reflect the investment directions he claims he

ordered his fiduciary to make.

Indeed, even if ERISA § 502(a)(1)(B) did not provide

relief, ERISA § 502(a)(3) would itself have provided LaRue

5. Indeed, the worst of the horribles suggested by amici — the

naked theft of plan assets — is itself criminal. See 18 U.S.C. § 664

(making it a federal offense to convert ERISA plan assets). A civil

remedy against the perpetration of such thefts might be available

under the Racketeer Influenced and Corrupt Organizations Act,

(“RICO”). See 18 U.S.C. § 1961 (listing RICO predicate acts and

including violation of 18 U.S.C. 664); 18 U.S.C. § 1964 (creating

right to civil enforcement under RICO).

12

the remedy of an injunction for the purported breach of

fiduciary duty that occurred in this case. ERISA § 502(a)(3)

allows a participant to seek an injunction to require a

fiduciary to carry out his duties, including acting on an

investment direction under a 401(k) plan. See 29 U.S.C.

§ 1132(a)(3)(A) (allowing suit “to enjoin any act or practice

which violates any provision of this subchapter or the terms

of the plan”). LaRue did not invoke this remedy, but instead

waited to exercise his ERISA rights until he incurred the

consequential damages that he now seeks to recover.°

These examples are only some of the available remedies

under ERISA that already adequately protect his interests

under the limited facts of this case. Obviously, a galaxy of

other examples exist in the broader context of defined

contribution plans and a universe of other remedies exist

when the view ts expanded to include the management of all

ERISA pension and welfare plans.

Out of this universe of remedies available to LaRue,

Congress barred LaRue from pursuing only the lost profits

he now believes maximizes the potential financial recovery

in this lawsuit. The maximum monetary recovery may not

6. Allowing damages in light of LaRue’s failure to invoke the

available injunctive relief puts LaRue squarely in the proverbial

catbird seat. He would benefit directly if his investment direction

proved unwise, and the fiduciary’s failure to carry out the command

protected him from an adverse market downturn. If the fiduciary’s

failure did result in injury because his investment decision proved

wise, he would then have the option to sue to recover his damages.

He could not lose in either pesition. Granting LaRue relief in this

case would encourage other pian participants to do the same. Denying

the relief LaRue seeks would ensure that a plan participant who

claims his investment directions were not followed will take prompt

action to compel that his directions are followed.

13

always be the optimal policy choice, and the balance of available

remedies and the consideration of the societal costs posed by

those remedies is a uniquely legislative function. Congress

engaged in this balance in 1974 when it passed ERISA after a

“decade of congressional study of the Nation’s private employee

benefit system.” Mertens, 508 U.S. at 251. Congress has not

seen fit to grant plaintiffs the right to consequential damages in

the intervening decades or in the years since Mertens first

construed ERISA § 502(a)(3). There is no basis to infer such a

right at this late date, and no basis retroactively to expose ERISA

fiduciaries to claims for consequential damages. Mertens, 473

U.S. at 146-147 (the Court is “unwilling[] to infer causes of

action in the ERISA context, since that statute’s carefully crafted

and detailed enforcement scheme provides ‘strong evidence that

Congress did not intend to authorize other remedies that it simply

forgot to incorporate expressly””) (quoting Russell, 473 U.S. at

146-47).

B. LaRue’s proposed expansion of 502(a)(3) has a

host of negative consequences that Congress did

not intend in enacting ERISA.

While LaRue’s argument arises in the context of his

401(k) plans (which are themselves a subspecies of ERISA

defined contribution plans), his proposed remedy threatens

a broadening of all remedies available under ERISA

§ 502(a)(3), thereby contravening the protection Congress

intended for ERISA fiduciaries and the balance it struck in

enacting ERISA § 502(a)(3). While a host of effects could

be created by this expansion of those remedies, at a minimum

|_aRue’s theory: (1) threatens to allow consequential damages

for the denial of benefits in welfare plans; and (2) discourages

the creation of plans because of the virtually limitless

exposure of consequential damages claims.

14

First, LaRue’s theory threatens to expand fiduciary

liability into the context of benefits claims administration.

The life insurers who are members of ACLI provide life,

disability income and health insurance as part of a variety of

employer-sponsored plans. They are therefore called upon

to carry out a number of functions that may be deemed to

involve fiduciary duties under ERISA, including determining

whether individual participants are entitled to benefits under

those ERISA welfare plans. Mertens, 508 U.S. at 251-52

(identifying “the proper management, administration, and

investment of [plan] assets, the maintenance of proper

records, the disclosure of specified information, and the

avoidance of conflicts of interest” as fiduciary functions

under ERISA) (quoting Russell, 473 U.S. at 142-143); see

also Aetna Healtn Inc. v. Davila, 542 U.S. 200, 220 (2004).

When viewed outside the limited context of LaRue’s

401(k) plan, LaRue’s consequential damages theory threatens

to revamp fiduciary relationships in a way that is inconsistent

with the limited remedies Congress intended under ERISA

§ 502(a)(3). Nowhere is the tension created by LaRue’s

consequential damages theory more acute then when viewed

in the context of benefits decisions that insurers are asked to

make on a daily basis. In many contexts, an insurer might be

deemed to be a fiduciary when it determines whether a

participant has a valid claim for benefits. See Davila, 542

U.S. at 220 (“the ultimate decisionmaker in a plan regarding

an award of benefits must be a fiduciary and must be acting

as a fiduciary when determining a participant’s or

_ beneficiary’s claim”); see also 29 U.S.C. § 1104(a)(1).

ERISA explicitly provides a right to sue plans for the

recovery of benefits owed to participants. See ERISA

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

15

authorizes a civil action “by a participant or beneficiary” to

“recover benefits due to him under the terms of his plan, to

enforce his rights under the terms of plan, or to clarify his

rights to future benefits under the terms of the plan.” As this

Court has explained, “[t]his provision is relatively

straightforward... . If a participant or beneficiary believes

that benefits promised to him under the terms of the plan are

not provided, he can bring suit seeking provision of those

benefits.” Davila, 542 U.S at 210.

This remedy is itself limited. By its terms, the only

monetary remedy av ‘able under section 502(a)(1)(B) is the

benefits due “under the terms of the plan.” Firestone Tire &

Rubber Co. v. Bruch, 489 U.S. 101, 109 (1989). Because

ERISA § 502(a)(1)(B) claims are limited to the actual benefits

owed by the plan and not all consequential injuries, an

enterprising plaintiff wanting to expand its recovery would

naturally attempt to rely on LaRue’s consequential damages

theory to go beyond the remedies Congress provided under

ERISA § 502(a)(1)(B).

The Court has previously warned against conflating

claims for benefits with claims for breach of fiduciary duty.

See Varity Corp. v. Howe, 516 U.S. 491, 512 (1996); see

aiso Davila, 542 U.S. at 219 (“a benefit determination is

part and parcel of the ordinary fiduciary responsibilities

connected to the administration of a plan”). Instead, the Court

has explained that claims based on the denial of benefits

should be asserted under ERISA § 502(a)(1)(B). The Varity

Court ruled that ERISA § 502(a)(1)(B) “specifically provides

a remedy for breaches of fiduciary duty with respect to the

interpretation of plan documents and the payment of claims,”

while ERISA § 502(a)(3). in contrast, is a “*catchall””

provision that “act[s] as a safety net, offering appropriate

16

equitable relief for injuries caused by violations that § 502

does not elsewhere adequately remedy.” ’

Because the denial of benefits can arguably be a breach

of fiduciary duty in some circumstances, LaRue’s

consequential damage theory threatens to reopen the

availability of damages for the denial of benefits and

serve as an end-run to the limitations imposed by ERISA

§ 502(a)(1)(B). Thus, LaRue’s expansion of remedies under

502(a)(3) could expose life insurers (and all persons or

entities making claims decisions) to an entirely new species

of claims for damages despite the Court's earlier rulings.

Although LaRue ostensibly desires to limit his theory only

to 401(k) cases, Congress gave ERISA a single remedy

provision and whatever relief LaRue might be afforded could

be deemed available to all ERISA participants regardless of

the nature of the plan. See 29 U.S.C. § 1132. Because it is

clear that participants in welfare benefit plans do not have

the right to recover the type of consequential damages LaRue

seeks in this case, the Court should reject LaRue’s backdoor

attempt to change the remedies available in all ERISA plans

based on his status as a participant in a 401(k) plan.

7. Courts of Appeal addressing the issue have universally come

to the same conclusion. E.g., LaRocca v. Borden, Inc., 276 F.3d 22,

28 (Ist Cir. 2002) (collecting authority) (“federal courts have

uniformly concluded that, if a plaintiff can pursue benefits under

the plan pursuant to Section 502(a)(1), there is an adequate remedy

under the plan which bars a further remedy under Section (a)(3)°);

see also Tolson v. Avondale Indus., |41 F.3d 604, 610 (Sth Cir. 1998);

Geissal v. Moore Med. Corp., 338 F.3d 926, 933 (8th Cir. 2003);

Wilkins v. Baptist Healthcare Sys., Inc., 150 F.3d 609, 615 (6th Cir.

1998); Forsyth v. Humana, Inc., 114 F.3d 1467, 1475 (9th Cir. 1997).

17

Second, LaRue’s proposed damages would inevitably

discourage both employers and third parties from providing

fiduciary services to ERISA plans. Congress enacted ERISA

in order to encourage the creation of benefit plans for

employees. Pilot Life, 481 U.S. at 54 (ERISA “represents a

careful balancing of the need for prompt and fair claims

settlement procedures against the public interest in

encouraging the formation of employee benefit plans”);

see also Mertens, 508 U.S. at 262-63. LaRue’s consequential

damages theory would have the opposite effect. Faced with

expanded (and unanticipated) liability, both employers and

third parties would inevitably withdraw from serving as

fiduciaries to employee welfare plans. Third-party fiduciaries

such as life insurers would necessarily charge more for their

services, which in turn would make their services less

attractive to employers. Employers would either absorb these

costs themselves or not offer plans to their employees at all.

These additional costs would further erode the availability

of health ané@ life insurance benefits. Whether this effect is

acceptable as a policy matter is a uniquely legislative decision

that should be left to Congress. See id. (“Exposure to that

sort of liability would impose high insurance costs upon

persons who regularly deal with and offer advice to ERISA

plans, and hence upon ERISA plans themselves. . . . We will

not attempt to adjust the balance between those competing

goals that the text adopted by Congress has struck.”).*

8. Indeed, premiums for fiduciary insurance continue to rise

even without the expanded liability sought by LaRue. F.2¢., Towers

Perrin, Navigating Today s Fiduciary Concerns, Executive Summary

of 2003 Fiduciary Liability Survey Report at 10, available at http://

www .towersperrin.com tp/getwebcachedoc?webe-TILL/USA/2004/

200407 Navigating Concerns.pdf (last viewed Sept. 11, 2007).

18

Moreover, those who presently serve as fiduciaries

accepted their duties (and have insured themselves) based

on the present scope of fiduciary liability available under

ERISA as set out in the Court’s ERISA caselaw. None of the

Court’s previous cases has allowed an ERISA § 502(a)(3)

claim for compensatory or consequential damages against

an ERISA fiduciary, much less life insurers serving as limited

fiduciaries for all forms of employee welfare benefit plans.

These fiduciaries accepted their responsibilities under that

existing law. If ERISA remedies are expanded to include

consequential damages, fiduciaries will have difficulty

obtaining insurance coverage for the retroactive exposure that

would spring to life, as they obtained coverage under the

settled existing law that does not allow for consequential

damages under ERISA. Plaintiffs asserting claims based on

events that predate any expansion of remedies would no doubt

claim entitlement to that extension of ERISA § 502(a)(3)’s

remedies even though fiduciaries had no reason to expect

that they would be exposed to those consequential damages.

See De Vargas v. Mason & Hanger-Silas Mason Co., 911 F.2d

1377, 1388 (10th Cir. 1990) (“Once the Supreme Court has

interpreted a statute, that construction becomes a part of the

statute, and the Court’s interpretation applies retroactively

to pending cases”); see also United States v. Security Indus.

Bank, 459 U.S. 70, 79 (1982) (“Judicial decisions operate

retroactively because we generally regard them as an

expression of pre-existing law”).

Because of these concerns, existing plans would face

the prospect of losing the professional services provided by

life insurers and others who presently act as fiduciaries due

to a significant and wholly unanticipated expansion of

liability beyond the terms of the statute and current caselaw.

19

CONCLUSION

By wrapping his claim for relief within the narrow

confines of 401(k) plans, LaRue’s argument that the Court

should expand the type of individual relief provided by

ERISA ignores the broader effects his consequential damages

theory could impose on welfare benefit plans and other

benefit arrangements. Placing that remedy in context, it might

create rights for recovery against ACLI’s members that

Congress did not intend and that this Court has previously

foreclosed. The Court should reject LaRue’s proposed relief

and affirm the decision of the Fourth Circuit.

Respectfully submitted,

Cari. B. WILKERSON, Peter J. RUSTHOVEN

Vice President & Chief Counsel, Counsel of Record

Securities & Litigation Bart A. KARWATH

Lisa TATE, Mark J. CRANDLEY

Associate General Counsel, Barnes & THORNBURG LLP

Litigation 11 South Meridian Street

AMERICAN COUNCIL Indianapolis, Indiana 46204

OF LIFE INSURERS (317) 236-1313

101 Constitution Ave., N.W.

Suite 700 Teresa L. JAKUBOWSK!

Washington, D.C. 20001-2133 BARNes & THornsurc LLP

(202) 624-2153 Saw Soe ee, Oe

Suite 900

Washington, DC 20006-4607

(202) 371-6366

Counsel for Amicus Curiae

The American Council of Life Insurers