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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0512%3A16

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2008
- **Citation:** 552 U.S. 248

## Text

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5D | mao
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
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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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0512%3A16. Public record. Not legal advice.