Opposition Brief — Powell v. Chesapeake & Potomac Telephone Co.

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Supreme Court, U.S.

FILED

No. 85-1701 MAY 22 1956

JOSEPH F. SPANIOL, JR.

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

ELEANOR POWELL,

Petitioner,

Vv.

CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA,

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, and

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

Respondents.

ON WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

RESPONDENTS’ BRIEF IN OPPOSITION

STEPHEN M. COLANGELO JEFFERY ANNE TATUM

BOOTHE, PRICHARD & DUDLEY ADAMS, DUQUE & HAZELTINE

8280 Greensboro Drive 1920 N Street, N.W.

Suite 900, Tysons Corner Suite 420

McLean, Virginia 22102 Washington, D.C. 20036

(703) 356-2200 (202) 833-8334

Counsel for Respondents Counsel for Respondent

The Chesapeake and Connecticut General Life

Potomac Telephone Insurance Company

Company of Virginia

and American Telephone

and Telegraph Company

Pet ii icsissncensni ee

QUESTIONS PRESENTED

1. Whether a participant in a self-funded employee benefit

plan, who has received all of the benefits to which she is

entitled, may recover extracontractual or punitive damages for

breach of fiduciary duty in an action brought under the

Employee Retirement Income Security Act.

z. Whether state law causes of action alleging mishandling

of a claim for benefits under a self-funded employee benefit

plan “relate to” the plan and are therefore preempted by the

Employee Retirement Income Security Act.

3. Whether, by merely providing some administrative

services to a self-funded employee benefit plan, an insurance

company thereby engages in “the business of insurance.”

LIST OF PARENTS, SUBSIDIARIES,

AND AFFILIATES OF RESPONDENTS

Please see Appendices B through D.

ill

TABLE OF CONTENTS

TABLE OF AUTHORITIES ................. ESE LE

NE PE RUM GPR oes c.csscccssscesssncccsnesscesesssrces

REASONS FOR DENYING THE WRIT.............0..00..

There is No Conflict Among the Circuits Con-

cerning the Availability To a Participant of Extra-

contractual and Punitive Damages Under ERISA.

Petitioner Has Not Raised Any Important Ques-

tion of Federal Law Concerning Recovery By a

Participant of Extracontractual or Punitive Dam-

ages That Has Not Already Been Settled By This

eae akanedonisocsdddinsiackanscsinsssinenesess

a. This Court Has Recently Held That Extra-

contractual and Punitive Damages Are Not

Recoverable By a Participant for Breach of

ice cacsiskuashsnahchviesanerappoove

b. Extracontractual and Punitive Damages Are

Not Recoverabie As “Equitable” Relief..........

There is No Conflict Among the Circuits Con-

cerning ERISA Preemption of Petitioner’s

Claims; the Issue Has Already Been Resolved by

TEES EEE REE

There is No Important Question Pertaining to the

Scope of ““The Business of Insurance” That Has

Not Already Been Resolved by This Court............

is sabhisl sinasnencoravaccnosenecsscnatsseenesiorenen

TABLE OF AUTHORITIES

CASES:

Authier v. Ginsberg, 757 F.2d 796 (6th Cir. 1985),

cert. denied, 106 S.Ct. 208 ( 1985 ) ...........-.ssseeceeeceeees

Bell v. Southern Oregon Log Scaling & Grading

Bureau, | Empl. Bens. Cas. (BNA) 1439 (D. Or.

FP A cicinstosevaiendiiidladeed costae nian ncehncaoreinoncipmmmaeeonaieneste

Bittner v. Sadoff & Rudoy Industries, 728 F.2d 820

B, ) Reishee om aera nes err ee

Bittner v. Sadoff & Rudoy Industries, 490 F. Supp.

Se Fe Eo ie cence animes

Bone and Bone v. Association Management Services,

Inc., No. J85-0408( B) (S.D. Miss. Apr. 3, 1986)...

Calhoun v. Falstaff Brewing Corp., 478 F. Supp. 357

CE Be eintein ces Uinta cairn tipiniiesuittemmeteernentien

California v. Sierra Club, 451 U.S. 287 (1981)...........

Cae 6 a Ee UA 1 TT a DP vcnkisissiccncnasdencctnndnncexsesenes

Cowden v. Montgomery Courty Soc. for Cancer Con-

trol, 591 F. Supp. 740 (S.D. Ohio 1984) .............. me

Curtis v. Loether, 415 U.S. 189 (1974) ........cc ee eeeeeeee

De Grace v. Rumsfeld, 614 F.2d 796 ( Ist Cir. 1980)...

Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208

(8th Cir. 1981), cert. denied, 454 U.S. 968 (1981)..

Diano v. Central States, etc., 551 F. Supp. 861 (N.D.

I IE Focaccia vaticendenicnsenae causa emenctvecbdeceohadoncsrtuns

arog v. Brockway, Inc., 763 F.2d 1091 (9th Cir.

| os sa rpasaten thas locediieisccaneiesiameniaaceniniol piemietbcagaauliiinsse

Foltz v. U.S. News & World Report, Inc., 627 F. Supp.

SE Ce. EE rocoto rcsintentnesedeemcaimnssorsie

Gilbert v. Burlington Industries, 765 F.2d 320 (2d

a Re case craneestatcernnieancricianentseneenememiationgsses

Gilliken v. Hughes, 609 F. Supp. 178 ( D. Del. 1985)..

Group Life and Health Ins. Co. v. Royal Drug Co..

440 deg 205 (1979). reh’g denied, 441 U.S. 917

OI cck cps hicces Sieaeeseaaan die ainakanauudidsinknaianniaaapneers

Hancock v. Monigomery Ward Long Term Disability

Trust, No. 84-4201. ( 9th Cir. Apr. 17, 1986)...........

Harrington v. Vandalia—butler Board of Education,

585 F.2d 192 (6th Cir. 1978). cert. denied, 441

a ee recs les ceca saint erentcacpniescesees

Page

3,9,10,11

Hayden v. Texas-U.S. Chemical Co., 557 F. Supp.

eC Ps SE icine eeien

Hewlett-Packard Co. v. Barnes, 571 F.2d 502 (9th

Cir. 1978), cert. denied, 439 U.S. 831 (1978) wow.

Hurn v. Retirement Fund Trust of Plumbing, Heating

& Piping Industry, 424 F. Supp. 80 (C.D. Cal.

9S FAB ciecticnvsnsinbeiannecsntsienisiinaseihlaniaaieaiainameane

Jackson v. Occidental Life Ins., C-80-4288 SW (N.D.

ie Os caicnths dessins has tcebgises-dlaanceednellie de aa iedetemieciabaeaanaasan

Massachusetts Mutual Life Insurance Co. v. Russell,

a a Wes Be 8 PD sncoracccsasidcsbisnnecicotacnnensiouins

Maxfield v. Central States, Southeast & Southwest

Areas Health, Welfare & Pension Funds, 559 F.

SIONS. Ree 0 Gis 0 IED hnckshnsechseancccnnres Aneeeuecone

Metropolitan Life Insurance Co. v. Massachusetts,

aa ee OP i cin cechasorsanevtiaastouaneenneaciannintin

Meyer v. Phillip Morris, Inc., 575 F. Supp. 1232 (E.D.

ek ee NERE 2 SALE CE EDT ete ARN OL IRV SLM te

Miner v. International Typographical Union, etc., 601

we MR ae ee em eee errr

Moore v. Provident Life and Accident Ins. Co., Nos.

85-1887, 85-1957, (9th Cir. Apr. 17, 1986) .....00.0...

Northwest Airlines, Inc. v. Transport Workers, 451

Fee FG PE Ucncccctatnciotncdccka aashonanindashaninmebiemicanees

Ogden v. Michigan Bell Telephone Co., 571 F. Supp.

Dae CUE CU BP TE Pte citvervenstindatrannereasaeiactin

Pearson v. Western Electric Co., 542 F.2d 1150 (10th

CUR ee aa cicicibaviaa canes Laencmaoeicaeweaia sacdiaaacemneae

Powell v. C&P Telephone Company of Virginia, Inc.,

ete, THO FAG GUD CAR Cit. T9GS ) vvccnscsesveccecsccsnsvesee

Richerson v. Jones, 551 F.2d 918 (3d Cir. 1977) .........

Russell v. Massachusetts Mutual Life Ins. Co., 722

F.2d 482 (9th Cir. 1983). rev'd, Massachusetts

Mutual Life Ins. Co. v. Russell. 105 S.Ct. 3085

(1985). vacated, 778 F.2d 542 ( 9th Cir. 1985) .......

SEC v. National Securities, Inc., 393 U.S. 453

Shah v. Mt. Zion Hospital & Medical Center, 642

P20 cee (Pt TET icine

Page

10,12,13

11,13

Page

Shaw vy. Delta Airlines, Inc., 463 U.S. 85 (1983 )......... 10

Sheahan v. Leahy, 591 F. Supp. 629 (E.D. Mo. 1984) 10

Union Labor Life Insurance Co. v. Pireno, 458 U.S.

NII Tien nina otc hae naa piremicgadinsuacpamsedsaoaasemanbiies 12

Walker v. Ford Motor Co., 684 F.2d 1355 (11th Cir.

i ARAB CS RRL RE tele ere REO rm ae DCD CUA Were oe 7,9

Wardle v. Central States, Southeast and Southwest

Areas Pension Fund, No. 77-144-C, 239 Pens. Rep.

(BNA) pp. D-1-2 (S.D. Ind. 1979), aff'd, 627

F.2d 820 (7th Cir. 1980), cert. denied, 449 US.

RET WIE Pion icin dhassenashieerenelienecemnguaebintedsendesaeantlaxaien I)

Whitaker v. Texaco, Inc., 566 F. Supp. 745 (N.D.

EE 5 RI ep RA re ON eS AORN IS On OSI os)

Wilson, et al. v. Allegheny International, Inc., No.

83C-9254, (N.D. Ill. Nov. 12, 1985)...... ene 9

Winterrowd v. David Freedman & Co., 724 F.2d 823

pb 8s RR EN een a a eee ee” 3,4

Ziskind v. Retail Clerks International Association, 3

Empl. Bens. Cas. (BNA) 1012 (E.D. Cal. 1982).. 10

Zittrouer v. UARCO, 582 F. Supp. 1471 (N.D. Os.

DUNNE. -ssncshie chics deueciinsverecathaauedtamianisamadaanaas aeons 10

EMPLOYEE RETIREMENT INCOME SECURITY ACT, 29

U.S.C. §§ 1001 et seg. (1982):

eee Oe ee, OUP P acc nc cosncannseasacnapiusavéinacsennseons 2

§ 404(a)(1) (29 U.S.C. § 1104(a)( 1) )...................... 2.10

te re a i sccuaeuenusmeuvegen 7

Gee Cw Gi tars Ae RE asc cranninitcnsdpnaigcindabadeaacanmasaosons 2.6.8

S $021 a)(Z).(29 U.S.C. © 1 USZC a 2) ) vccccercccesisescsss. 4,6

§ 502(a)(3)(B) (29 U.S.C. § 1132(a)(3)(B))......... 4,5,6,7,9

Br Nt oe Wiis © WETS iiiidicsscccnsdiosdeuanciristions 7

Bh, BoP 2 alk FS |: SONG Cnn amen Anaaane) 2.10

Bt Dh, BOF 8 ake 0S” |) RRR omen O Rtn ie nes 5

Oe £26 a ie PONE Tsocanos 7

Le ees 0 PUES PO sissssisssccsctcnectoceen 10

§ 514(b)(2)(A) (29 U.S.C. § 1144(b)(2)(A)) oe. i2

§ 514(b)(2)(B) (29 U.S.C. § 1144(b)(2)(B)) ....... 13

Vil

OTHER STATUTES:

Be a ae PI WI Ns sciniaicosccsenesavenasvcustecnscsncaducccuns

Bae es Te UE BORE EOE © WOTEEE D . cerctachecccacoccsdnnwtccecencensce

15 U.S.C. §§ 1681n, 169le(b) (1982)...

Be ee Te I WEED vacsiinivcbicnestianacovnenonevancdickedannseamn

42 U.S.C. § 2000( € )-5( g) (1982 ).........cccccccccccecsscsses

REGULATIONS:

29 C.F.R. §§ 2560.503-1 e¢ seg. (1985) woe

LEGISLATIVE MATERIALS:

S.4, 93d Cong., Ist Sess., § 603 (1973), reprinted in

Legislative History of the Employee Retirement

Income Security Act of 1974, at 3816 (1974) oo...

H.R. Rep. No. 533, 93d Cong., Ist Sess. 11 (1973),

reprinted in 1974 U.S. Code esl & Ad. News

DPT sch cplctbuhssh ovcccannscobedslnehiiachstbaoectbedeeccabeacunnMmidaisniaiaunncniaten

TREATISES:

3 A.W. Scott, The Law of Trusts (3d ed. 1967)...........

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

Pe GO FINE Pc rnaidcca nica rents salbccanclecanstisssensetacs

Restatement (Second ) of Trusts (1959).............0...0005.

Page

IN THE

Supreme Court of the United States

OCTOBER TERM, 1985

No. 85-1701

ELEANOR POWELL,

Petitioner,

Vv.

CHESAPEAKE AND POTOMAC TELEPHONE COMPANY OF VIRGINIA,

CONNECTICUT GENERAL LIFE INSURANCE COMPANY, and

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

Respondents.

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

TO THE HONORABLE CHIEF JUSTICE AND ASSOCIATE

JUSTICES OF THE SUPREME COURT OF THE UNITED

STATES:

Respondents The Chesapeake and Potomac Telephone

Company of Virginia, Connecticut General Life Insurance

Company, and American Telephone and Telegraph Company

respectfully request that this Court deny the Petition for Writ of

Certiorari seeking review of the Fourth Circuit’s Opinion in this

case. That Opinion is reported at 780 F.2d 419 (1985).!

' The Opinion attached as Appendix A to petitioner’s bref is incorrect.

A portion of the Opinion, contained at p. 16 of petitioner’s Appendix A, was

revised by the Court before the Opinion was pubiished. The revised Opinion

is set forth as Appendix A to Respondents’ Brief.

STATEMENT OF THE CASE

Petitioner’s claims arise under a self-funded long-term

disability benefit plan (“the Plan”) sponsored by The Chesa-

peake and Potomac Telephone Company of Virginia (“C&P”)

for its non-management employees. (Appendix, p.6).2 C&¥# is

the Plan administrator end provides all of the funding for

benefits under tiie Plan. (App., p. 21). There is no insurance

policy or insurance coverage. All benefits are paid from a fund

maintained by C&P for that purpose. (App., p. 21). Pursuant

to an Administrative Services Only Agreement (‘“‘the ASO

Agreement”), C&P designated Connecticut General Life Insur-

ance Company (“Connecticut General”) as claims adminis-

trator to process claims made by C&P employees under the

Plan. (App., pp. 122-130).

Petitioner was paid long-term disability benefits for every

month from February, 1978 through May, 1983. (App. pp.

133-134). The payments ceased in June of 1983 because

Petitioner received a substantial retroactive award of Social

Security disability benefits. (App., pp. 135-139). As a result of

this award, under the terms of the Plan, Petitioner had no

entitlement to any further benefits and, in fact, had been

substantially overpaid. (App., pp. 140-146). Petitioner filed

an action in the United States District Court for the Eastern

District of Virginia after Respondents requested that she refund

the overpayment.

The Amended Complaint invoked federal question

jurisdiction, asserting that Petitioner’s claims arose under the

Employee Retirement Income Security Act of 1974

(“ERISA”), 29 U.S.C. §§ 1001, et seg. The Amended Com-

plaint specifically alleged that, by mishandling Petitioner’s

benefit claim, Respondents breached *heir fiduciary duties to

her under ERISA Sections 404(a)(1), 101 and 503.2 The

Amended Complaint did not refer to ERISA’s civil enforcement

provision, Section 502,4 nor did it invoke any particular subsec-

tion thereof, as the basis for her claims.

2 All references to “Appendix” in this brief are references to the Joint

Appendix filed by the parties with the Fourth Circuit as the record in the case.

All references to the Appendix will be abbreviated as “App.”

329 U.S.C. §§ 1104(a)(1), 1021, and 1133 (1982).

429 U.S.C. § 1132 (1982).

The Amended Cor plaint also set forth four claims under

Virginia law: intentionai infliction of emotional distress, viola-

tion of Virginia’s Unfair Trade Practices Act, breach of an

implied duty of fair dealing, and breach of contract. In her

prayer, Petitioner sought cornpensatory and punitive damages.

She did not seek any statutory penalties or equitable relief

under ERISA.

It should be noted that Petitioner conceded in her Brief to

the Fourth Circuit that her claim for breach of contract was

preempted by ERISA.5 Accordingly, that question is not

properly before this Court.

REASONS FOR DENYING THE WRIT

1. There is No Conflict Among the Circuits Concerning the

Availability To a Participant of Extracontractual and

Punitive Damages Under ERISA.

All of the circuits that have considered whether punitive

damages are available to a plan participant for breach of

fiduciary duty under ERISA agree that no such damages are

available. Moreover, following this Court’s decision in

Massacausetts Mutuai Life Ins. Co. v. Russell, 105 S. Ct. 3085

(1985), there is not even a conflict among the district courts.

Contrary to Petitioner’s assertions, the Ninth Circuit and

the Eighth Circuit are not in conflict. In Dependahi v. Falstaff

Brewing Corp., 653 F.2d 1208 (8th Cir. 1981), cert. denied, 454

U.S. 968 (1981), the Eighth Circuit expessly determined that

Congress did not intend punitive damages to be available under

ERISA. Jd. at 1216. The Ninth Circuit’s determination in

Russell v. Massachusetts Mutual Life Ins. Co., 722 F.2d 482

(9th Cir. 1983) that such damages were recoverable was

explicitly reversed by this Court in Massachusetts Mutual.®

Following this Court’s decision in Massachusetts Mutual, the

5 Bnef of Appellant at p. 23.

6 The other Ninth Circuit case cited by Petitioner, Winterrowd v. David

Freedman & Co., 724 F.2d 823 (9th Cir. 1984), was decided by the Ninth

(footnote continues)

Ninth Circuit reversed its earlier position and has fallen into

line with the Fourth and Eighth Circuits’ view that extra-

contractual and punitive damages are not available under

ERISA. In Hancock v. Montgomery Ward Long Term Disability

Trust, No. 84-4201 (9th Cir. Apr. 17, 1986), the Ninth Circuit

affirmed the denial by a district court of a request by a plaintiff

for additional discovery to support a claim for extracontractual

damages for breach of fiduciary duty under ERISA. Acknowl-

edging this Court’s ruling in Massachusetts Mutual, the Ninth

Circuit noted that no such damages are available to a partici-

pant for breach of fiduciary duty under Section 502(a)(2),’

and then also found, in accord with the Fourth Circuit in this

case, that no such damages are available under Section

502(a)(3)(B).® Accordingly, there is no conflict at all among

the circuit courts as to the availability of extracontractual or

punitive damages to a participant under an ERISA plan who

asserts claims based on the mishandling of benefit claims.

None of the district court opinions cited by Petitioner to

support her claim of conflict is applicable here. Both Miner v.

International Typographical Union, etc., 601 F. Supp. 1390 (D.

Colo. 1985), and Gilliken v. Hughes, 609 F. Supp. 178 (D. Del.

1985), rely on the Ninth Circuit’s opinion in Russell, subse-

(footnote continued)

Circuit after its decision in Russell, but prior to this Court’s reversal. Relying

on Russell, the Winterrowd Court heid that an ERISA fiduciary could recover

punitive damages on behalf of the pian from an employer who willfully,

wantonly, and maliciously withheld its contributions to a multi-employer

plan. Jd. at 826. Thus, both because of its reliance on the Russell opinion

that was subsequently reversed, and because the recovery was to the plan and

not to participants, Winterrowd is inapplicable to the question presented to

this Court.

729 U.S.C. § 1132(a)(2) (1982).

829 U.S.C. § 1132(a)(3)(B) (1982).

quently reversed by this Court, in finding punitive damages

available for breach of fiduciary duty. In Bittner v. Sadoff &

Rudoy Industries, 490 F. Supp. 534 (E.D. Wis. 1980), an action

for retaliatory discharge under Section 510,9 the district court

made an equivocal comment that punitive damages might,

under some circumstances, be available under Section 510. In

reversing another part of the court’s ultimate ruling, however,

the Seventh Circuit expressed a strong disinclination toward the

award of such damages. See Bittner v. Sadoff & Rudoy

Industries, 728 F.2d 820, 825-26 (7th Cir. 1984). All of the

remaining district court cases cited by Petitioner decline to

award extracontractual or punitive damages, consistent with

this Court’s ruling in Massachusetts Mutual.

2. Petitioner Has Not Raised Any Important Question of

Federal Law Concerning Recovery By a Participant of

Extracontractual or Punitive Damages That Has Not

Already Been Settled By This Court.

Petitioner’s argument that she should be permitted to

recover extracontractual and punitive damages under Section

502(a)(3)(B), which permits recovery of “appropriate equi-

table relief” to redress violations of ERISA, fails to acknow!l-

edge that the Fourth Circuit’s opinion in this case is fully

consistent with the law as enunciated by this and other courts.

a. This Court Has Recently Held That Extra-

contractual and Punitive Damages Are Not Recov-

erable By a Participant for Breach of Fiduciary Duty.

The question of recoverability of extracontractual and

punitive damages for breach of fiduciary duty was recently

resolved by this Court in Massachusetts Mutual Life Ins. Co. v.

Russell, 105 S. Ct. 3085 (1985). Section 409(a) of ERISA 1°

explicitly sets forth the parameters of liability for breach of

fiduciary duty, including any breach of the responsibilities,

929 U.S.C. § 1140 (1982).

029 U.S.C. § 1109(a) (1982).

obligations, or duties imposed upon fiduciaries by this subchap-

ter....” In Massachusetss Mutuai, this Court carefully consid-

ered the question whether a successful claim made by a

participant under Section 502(a)(2) for liability based on

Section 409(a), which permits certain relief to the plan,

including “such other equitable or remedial relief as the court

may deem appropriate,” could include recovery of extra-

contractual or punitive damages. This Court concluded that it

could not. Jd. at 3094. Consequently, regardless of the statutory

section allegedly violated by an ERISA fiduciary, recovery by a

participant of extracontractual or punitive damages under

Section 409( a) has been held by this Court to be impermissible.

The analysis used by this Court in Massachusetts Mutual in

concluding that no extracontractual or punitive damages are

recoverable by a participant under Section 409( a) is applicable

with equal, if not greater, force to Section 502(a)(3)(B). In

fact, the language of Section 502(a)(3)(B), which limits

recovery to “other appropriate equitable relief’, is narrower

than that of Section 502(a)(2) which, through its reference to

Section 409(a)}, provides for “equitable or remedial relief.” It

would be incongruous to permit a greater degree of recovery to

redress the same conduct simply because the claim is brought

under Section 502(a)(3)(B) rather than 502(a)(2), particu-

larly where the language of Section 502(a)(2) is narrower.

b. Extracontractual and Punitive Damages Are Not

Recoverable As “Equitable” Relief.

Petitioner argues, however, that the language “other

appropniate equitable relief” in Section 502(a)(3)(B) should

be construed to permit recovery of punitive damages.'! The

Fourth Circuit correctly decided that it should not.

‘1 Petitioner’s reference at p. 16 to a portion of the legislative history

stating that ERISA was intended to provide “the full range of legal and

equitable remedies available in both state and federal courts” is misleading.

That statement had its origins in an earlier version of ERISA which provided

a civil action for “legal or equitable” relief to redress breaches of fiduciary

duty. See S.4, 93d Cong., Ist Sess., § 603 (1973), reprinted in Legislative

History of the Employee Retirement Income Security Act of 1974, at 3816

(1974). Congress, however, deleted all reference to “legal relief” in passing

the far more circumscribed civil enforcement provisions found in ERISA

Section 502.

In drafting ERISA, Congress expressly included in the

remedial scheme various punitive measures against errant

fiduciaries, including removal under Section 409(a), civil pen-

alties under Section 502({c), and criminal sanctions under

Sections 501 and 511.'2 Notably absent, however, is any

express provision for recovery by a participant of punitive

damages. No remedies not expressly included should be

implied.

The language of Section 502(a)(3)(B), “other appropri-

ate equitable relief (i) to redress such violations [of ERISA],”

cannot reasonably be construed to provide for such damages.

Petitioner relies cn the suggestion in Justice Brennan’s con-

curring opinion in Massachusetts Mutual that lower courts

should look to the common law of trusts to determine the extent

of the recoverability of damages under Section 502(a)(3)(B).

The common law of trusts, however, does not provide for

punitive damages. Remedies for breach of trust have aiways

been within the exclusive province of equity courts. See, e.g., 3

A.W. Scott, The Law of Trusts § 197, at 1625 (3d ed. 1967),

Restatement (Second) of Trusts, § 197 (1959), and punitive

damages are not an equitable remedy, but a traditional form of

legal relief offered only in courts of law. See Curtis v. Loether,

415 U.S. 189, 196 (1974), Walker v. Ford Motor Co., 684 F.2d

1355, 1364 (llth Cir. 1982). The Fourth Circuit therefore

correctly concluded that the remedies generally afforded benefi-

ciaries by the common law of trusts, although they may include

the recovery of money damages, do not include the extra-

contractual or punitive damages sought by Petitioner. '3

1229 U.S.C. §§ 1109(a), 1132(c), 1131, and 1141 (1982).

13 The Fourth Circuit cited the following authorities in support of this

conclusion:

“See Restatement (Second ) of Trusts § 205 (1959) (liability for

breach of trust is limited to (a) loss in value of trust estate; (b)

profits accrued by trustee; or (c) profits lost to estate); G. Bogert

& G. Bogert, The Law of Trusts & Trustees, § 862 (2d ed. 1982)

( trustee is usually charged only with the loss in value of the trust

estate although exemplary damages are occasionally awarded in

a few states where malice or fraud is involved); A. Scott, The

Law of Trusts, § 198.1 (1967) (‘where the trustee is not under an

immediate and unconditional duty to pay money to the benefi-

ciary, the beneficiary cannot maintain an action at law against

him’).” 780 F.2d at 424.

Le ae

The legislative history of ERISA indicates that Congress

considered the remedies traditionally afforded under common

law, and modified them to fit the unique circumstances of

employee benefit plans. See, e.g., H.R. Rep. No. 533, 93d

Cong., Ist Sess. 11 (1973), reprinted in 1974 U.S. Code Cong.

& Ad. News 4639, 4649 (“The fiduciary responsibility section,

in essence, codifies and makes applicable to... fiduciaries

certain principles developed in the evolution of the law of

trusts”); Id. at 13, reprinted in 1974 U.S. Code Cong. & Ad.

News at 4651: (“The principles of fiduciary conduct are

adopted from existing trust law, but with modifications appro-

priate for employee benefit plans.”) (emphasis added).'4

Thus, to the extent the common law of trusts may be a guide,

Congress has already incorporated it, appropriately modified,

into ERISA’s remedial scheme.

As this Court stated in Massachusetts Mutual, the “six

carefully-integrated civil enforcement provisions” of Section

502 “provide strong evidence that Congress did not intend to

authorize other remedies that it simply forgot to incorporate

expressly.” 105 S. Ct. at 3093 (emphasis added). Indeed, this

Court noted that there is a “stark abser.ce” in both ERISA and

its legislative history of evidence that Congress intended puni-

tive damages to be recoverable under ERISA. Jd. On this

point, it cited pertinent language from California v. Sierra Club,

451 U.S. 287, 297 (1981): “The federal judiciary will not

engraft a remedy on a statute, no matter how salutary, that

Congress did not intend to provide.” 105 S. Ct. at 3092. See

also Northwest Airlines, Inc. v. Transport Workers, 451 U.S. 77,

94 (1981); Cort v. Ash, 422 U.S. 66, 78 (1975). Where

Congress has intended to allow punitive damages, it has

enacted provisions expressly authorizing punitive damages re-

covery. See, e.g., Securities Exchange Act of 1934, Section 21,

15 U.S.C. § 78u(h) (1982); Consumer Credit Protection Act,

Sections 616, 706, 15 U.S.C. §§ 168In, 169le(b) (1982):

Omnibus Crime Control & Safe Streets Act of 1968, Section 82,

18 U.S.C. § 2520 (1982).

14 Quoted at n.6 of Justice Brennan’s Concurring Opinion, Massachusetts

Mutual, 105 S. Ct. at 3096.

The question of what may be deemed “equitable” relief

has also already been exhaustively addressed by the circuit

courts in connection with virtually identical language contained

in Title VII of the Civil Rights Act of 1964, 42 U.S.C.

§ 2000(e)-5(g) (1982), providing for “any other equitable

relief as the court deems appropmate.” The circuit courts of

appeals are unanimous in their finding that “equitable relief”

under Title VII does not include recovery of emotional distress

or punitive damages. E.g., Walker v. Ford Motor Co., 684 F.2d

1355 (llth Cir. 1982); Shah v. Mt. Zion Hospital & Medical

Center, 642 F.2d 268 (9th Cir. 1981); De Grace v. Rumsfeld,

614 F.2d 796 (Ist Cir. 1980); Harrington v. Vandalia-Butler

Board of Education, 585 F.2d 192 (6th Cir. 1978), cert. denied,

441 U.S. 932 (1979); Richerson v. Jones, 551 F.2d 918 (3d Cir.

1977); Pearson v. Western Electric Co., 542 F.2d 1150 (10th

Cir. 1976).

Finally, varicus lower courts have examined the question

and have concluded with virtu2zl unanimity that Section

502(a)(3) permits no such recovery. Foltz v. U.S. News &

World Report, Inc., 627 F. Supp. 1143, 1166 (D.D.C. 1986)

(recovery under § 502(a)(3) measured by contract, rather

than tort, principles); Cowden v. Montgomery County Soc. for

Cancer Control, 591 F. Supp. 740, 752-53 ($.D. Ohio 1984);

Meyer v. Phillip Morris, Inc., 575 F. Supp. 1232, 1235-36 (E.D.

Mo. 1983); Whitaker v. Texaco, Inc., 566 F. Supp. 745, 750-52

(N.D. Ga. 1983); Wardle v. Central States, Southeast and

Southwest Areas Pension Fund, No. 77-144-C, 239 Pension

Rep. (BNA) pp. D-1-2 (S.D. Ind. 1979), aff'd on other

grounds, 627 F.2d 820 (7th Cir. 1980), cert. denied, 449 U.S.

1112 (1981); Bell v. Southern Oregon Log Scaling & Grading

Bureau, : Empl. Bens. Cas. (BNA) 1439 (D. Or. 1976); Bone

and Bone v. Association Management Services, Inc., No. J85-

0408(B) (S.D. Miss. April 3, 1986); Wilson, et al. v. Allegheny

International, Inc., No. 83 C-9254 (N.D. Ill. Nov. 12, 1985).15

'S Other lower courts have held that no extracontractual or punitive

damages are available under ERISA’s civil enforcement sections generally.

See, e.g., Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208 ( 8th Cir. 1981),

(footnote continues)

eee eee re NE Ba EIEN DO NE TOT ET CR TS TN ae

3. There is no Conflict Among the Circuits Concerning

ERISA Preemption of Petitioner’s Claims; the Issue Has

Already Been Resolved by This Court.

The Fourth Circuit’s holding that Petitioner’s state law

claims are preempted by ERISA is fully consistent with the

mandates of this Court as well as with the rulings of all other

circuits that have reached the issue.

In Shaw v. Delta Airlines, Inc., 463 U.S. 85 (1983), this

Court specifically addressed the extent of ERISA preemption of

state law claims, and held that the term “relate to” in ERISA’s

preemption section, Section 514(a),*® was intended by Con-

gress in its broadest sense, encompassing laws of general

application as well as laws specifically designed to regulate

employee benefit plans. Jd. at 96-97. This Court stated that a

state law “relates to” an employee benefit plan “if it has a

connection with or reference to such a plan.” Jd. See also

Metropolitan Life Ins. Co. v. Massachusetts, 105 S. Ct. 2380,

2389 (1985).

Congress has made the processing of a claim for benefits

an integral part of an ERISA plan’s administration, and it has

comprehensively regulated claims handling to the exclusion of

state law. ERISA Sections 503, 404(a)(1), 514(a);17 29

C.F.R. § 2560.503-1(g)(1), (2), .503-1(h)(1)(ii) (1985).

Petitioner’s state law claims against C&P as plan administrator

(footnote continued)

cert. denied, 454 U.S. 968 (1981) (dictum) Zittrouer v. UARCO, Inc., 582 F.

Supp. 1471, 1478 (N.D. Ga. 1984); Diano v. Central States, Southeast &

Southwest Areas Health, Welfare & Pension Funds, 551 F. Supp. 861, 863

(N.D. Ohio 1982); Maxfield v. Central States, Southeast & Southwest Areas

Health, Welfare & Pension Funds, 559 F. Supp. 158, 160 (N.D. Ill. 1982);

Calhoun v. Falstaff Brewing Corp., 478 F. Supp. 357, 359 (E.D. Mo. 1979);

Hurn v. Retirement Fund Trust of Plumbing, etc., 424 F. Supp. 80, 82 (C.D.

Cal. 1976); Sheahan v. Leahy, 591 F. Supp. 629 (E.D. Mo. 1984); Ziskind v.

Retail Clerks Int’l Assoc., 3 Empl. Bens. Cas. (BNA) 1012, 1015-16 (E.D.

Cal. 1982); Jackson v. Occidental Life Ins., C-80-4288 SW (N.D. Cal. 1981).

1629 U.S.C. § 1144(a) (1982).

1729 U.S.C. §§ 1133, 1104(a)( 1), 1144(a) (1982).

(einai aie

and Connecticut General as claims administrator plainly relate

to claims handling and the actual payment of benefits, and

directly encroach on the administration and integrity of the

Plan itself. Thus a cause of action alleging the mishandling of a

claim for benefits by the administrator of an ERISA plan

obviously has a “connection with or reference to such a plan.”

As the Fourth Circuit noted in its opinion:

A contrary rule would undermine ERISA’s important

policy of promoting uniformity in employee benefit

laws, reflected in the legislative history, in the Act’s

declaration of policy, and in the preemption clause

itself, by creating the ‘potential . . . for conflicting

employer obligations and variable standards of re-

covery.’” 780 F.2d at 422.

The federal! circuit courts have ruled consistently in favor

of preemption of such claims, and there is no conflict about the

meaning of Shaw in this regard. The Ninth Circuit, in Russell v.

Massachusetts Mutual Life Ins. Co., 722 F.2d 482 (9th Cir.

1983), rev’d on other grounds, Massachusetts Mutual Life Ins.

Co. v. Russell, 105 S. Ct. 3085 (1985), vacated on other

grounds, 778 F.2d 542 (9th Cir. 1985), in Ellenberg v.

Brockway, Inc., 763 F.2d 1091, 1095 (9th Cir. 1985), and more

recently in Moore v. Provident Life and Accident Ins. Co., Nos.

85-1887, 85-1957 (9th Cir. April 17, 1986), has held that all

causes of action alleging mishandling of benefit claims under an

ERISA-governed plan “relate to” such plans and are therefore

preempted by ERISA, which occupies the field. The Eighth

Circuit, in Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208

(8th Cir. 1981), cert. denied, 454 U.S. 968 (1981), has similarly

held that ERISA occupies the field and preempts state law

claims for fraud and tortious interference with contract. Other

courts have likewise concluded that ERISA preempts state

common law claims filed against self-funded plans. See, e.g.,

Gilbert v. Burlington Industries, 765 F.2d 320 (2d Cir. 1985):

Authier v. Ginsberg, 757 F.2d 796 (6th Cir. 1985), cert. denied,

106 S. Ct. 208 (1985); Ogden v. Michigan Bell Telephone Co.,

571 F. Supp. 520 (E.D. Mich. 1983); Hayden v. Texas-U.S.

Chemical Co., 557 F. Supp. 382 (E.D. Tex. 1983).

4. There is No Important Question Pertaining to the Scope

of “The Business of Insurance” That Has Not Already

Been Resolved By This Court.

Petitioner’s claims are not saved from preemption by the

ERISA “saving” clause, Section 514(b)(2)(A)},'® which ex-

empts from preemption state laws regulating insurance. As this

Court noted in Metropolitan Life Ins. Co. v. Massachusetts, 105

S. Ct. 2380 (1985), which involved insured employee benefit

plans, the purpose of this “saving” clause is to preserve the

reservation by Congress in the McCarran-Ferguson Act, 15

U.S.C. §§ 1011-1015 (1982), of the regulation of the “business

of insurance” to the states, Jd. at 2392, n.21.19

In Metropolitan Life, this Court reviewed the elements

which, in its view, make up “the business of insurance,” quoting

Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 129 (1982),

as follows:

first, whether the practice has the effect of transfer-

ring or spreading a policyholder’s risk; second,

whether the practice is am integral part of the policy

relationship between the insurer and the insured; and

third, whether the practice is limited to entities within

the insurance industry.

105 S.Ct. at 2391 (emphasis in orginal). Using these criteria,

this Court held in Group Life & Health Ins. Co. v. Royal Drug

Co., 440 U.S. 205 (1979), reh’g denied, 441 U.S. 917 (1979),

that when an insurance company enters into an agreement

which does not involve the spreading and underwriting of a

policyholder’s risk, it is not engaged in the business of

insurance.

1829 U.S.C. § 1144(b)(2)(A) (1982).

'9 To the extent that sections of ERISA “specifically relate” to the

business of insurance, including the ERISA fiduciary responsibility sections,

those sections control over state laws regulating insurance. See Hewlett-

Packard Co. v. Barnes, 57\ F.2d 502, 505 (9th Cir. 1978), cert. denied, 439

U.S. 831 (1978).

ats pes Fer PRE,

In SEC v. National Securities, Inc., 393 U.S. 453, 459-60

(1969), this Court stated:

The statute did not purport to make the states

supreme in regulating all the activities of insurance

companies, its language refers not to the persons or

companies who are subject to state regulation, but to

laws “regulating the business of insurance.” Insur-

ance companies may do many things which are

subject to paramount federal regulations; only when

they are engaged in the “business of insurance” does

the statute apply.

In Metropolitan Life, 105 S. Ct. at 2393, this Court expressly

distinguished self-funded plans, such as that involved in this

case, from plans in which an insurance policy funds the Plan,

stating that self-funded plans are not open to any state regu-

lation:

We are aware that our decision results in a distinction

between insured and uninsured plans, leaving the

former open to indirect regulation while the latter are

not.

Thus, in the present case, where Connecticut Genera! is

merely performing administrative duties delegated by the plan

sponsor and there is no contract of insurance, the Fourth Circuit

correctly held that Connecticut General is not engaged in the

“business of insurance.” 29 The Ninth Circuit reached exactly

the same conclusion in Moore v. Provident Life and Accident

Ins. Co., Nos. 85-1887, 85-1957 (9th Cir. April 7, 1986),

holding that “purely administrative claims processing func-

tions” engaged in by an insurance company serving as adminis-

trative overseer to the self-funded portion of an ERISA plan

“have nothing to do with the spreading or underwniting of a

20 To the extent any analogy could be drawn between an employee

benefit plan and a group insurance policy or insurance company, ERISA’s

“deemer” clause, Section 514(b)(2)(B), 29 US.C. § 1144(b)(2)(B)

(1982), explicitly dispenses with this argument, stating: “Neither an em-

ployee benefit plan. . . , nor any trust established under such a plan, shall be

deemed to be an insurance company or other insurer . . . or to be engaged in

the business of insurance . . . for purposes of any law of any State purporting

to regulate insurance companies [or] insurance contracts. . . .”

policyholder’s risk,” and therefore do not render the insurance

company engaged in the “business of insurance” within the

contemplation of the “saving” clause.

CONCLUSION

For the foregoing reasons, this Court should deny the

Petition for a Wnt of Certiorari to review the Opinion of the

Court of Appeals for the Fourth Circuit.

Respectfully submitted,

STEPHEN M. COLANGELO

BOOTHE, PRICHARD & DUDLEY

8280 Greensboro Drive

Suite 900, Tysons Corner

McLean, Virginia 22102

(703) 356-2200

Counsel for Respondents

Chesapeake and Potoimac Telephone

Company of Virginia and American

Telephone and Telegraph Company

JEFFERY ANNE TATUM

ADAMS, DUQUE & HAZELTINE

1920 N Street, N.W., Suite 420

Washington, D.C. 20036

(202) 833-8334

Counsel for Respondent Connecticut

General Life Insurance Company

May 20, 1986

ind

“x

—

APPENDIX A

IN THE

United States Court of Appeals

FOR THE FOURTH CIRCUIT

No. 85-1072

ELEANOR POWELL,

Appellant,

versus

CHESAPEAKE AND POTOMAC TELEPHONE COMPANY

OF VIRGINIA; CONNECTICUT GENERAL LIFE

INSURANCE COMPANY, A CIGNA COMPANY, AND

AMERICAN TELEPHONE AND TELEGRAPH, INC.,

A NEw YorK CORPORATION,

Appellees.

and

AT&T COMMUNICATIONS OF VIRGINIA, INC.,

Defendant.

Appeal from the United States District Court for the Eastern

District of Virginia, at Alexandria. Albert V. Bryan, Jr., Chief

District Judge. (C/A 84-554)

Argued November 8, 1985. Decided December 18, 1985

Before WIDENER and PHILLIPS, Circuit Judges, and

HILTON, United States District Judge for the Eastern District

of Virginia, sitting by designation.

Diane H. Mahshie (James R. Tate; Tate and Bywater, Ltd. on

bnef) for Appellant; Jeffrey Anne Tatum (Adams, Duque &

Hazeltine on brief); Stephen M. Colangelo ( Boothe, Prichard

& Dudley; Rodney H. Glover; Thomas & Fiske on brief) for

Appellees.

REVISED OPINION

NEW PAGE 12

PHILLIPS, Circuit Judge:

Eleanor Powell, a former employee of C&P Telephone

Company of Virginia (C&P) and a beneficiary under its self-

funded employee benefit plan (the Plan), sued that company,

its former parent, AT&T, and Connecticut General Life Insur-

ance Company (Connecticut General), the Plan’s adminis-

trator, for the breach of various fiduciary duties under the

Employee Retirement Income Security Act of 1974 (ERISA),

29 U.S.C. § 1001 ef seg., in the handling of her claim for

disability benefits.' Although she had received all of the

benefits to which she was entitled, Powell sought $5 million in

extracontractual and punitive damages under ERISA, and also

sought to invoke the court’s pendent jurisdiction over Virginia

state law claims for intentional infliction of emotional distress,

breach of an implied covenant of good faith and fair dealing,

breach of contract, and violation of Virginia’s Unfair Trade

Practices Act, Va. Code § 38.!-49, et seg. (1950), based on the

same alleged misconduct as gave rise to her federal cause of

action under ERISA. The district court granted the defendants’

motions for summary judgment and dismissed all of Powell’s

claims. We agree with the district court that Powell’s state law

claims are preempted by ERISA, and that extracontractual and

punitive damages are not, in these circumstances, available

under ERISA, and we therefore affirm.

Powell received disability benefits under the Plan from

February 1978 through May 1983. She complains of constant

harassment by C&P and Connecticut General throughout this

period, causing her and her son emotional distress and pre-

cipitating her divorce. According to Powell, the appellees

repeatedly demanded unnecessary medical reports, refused to

' Specifically, tae complaint alleges that C&P and Connecticut General

failed to discharge their fiduciary duties solely in the interest of Plan

beneficianes pursuant to 29 U.S.C. § 1104(a)(1); breached their duties of

disclosure under 29 U.S.C. § 1021; and failed to provide Powell with

adequate wnitten notice of termination, as required by 29 U.S.C. § 1133(1).

provide her attorney with copies of her claim file, and unjusti-

fiabiy withheld venefit payments on two occasions.

Powell’s benefits were terminated in June 1983, after she

received a substantial Social Security award, which represented

monthly benefits retroactive to July 1977. When combined

with the Socia! Security award, Powell’s Plan benefits exceeded

50% of her base pay prior to disability, the benefits ceiling

under the Plan. Powell refused C&P’s request to refund the

overpayment.

Thereafter, Powell filed this action and the defendants

counterclaimed for a refund of benefits. The counterclaim was

nonsuited after Powell’s complaint was dismissed, and this

appeal followed.

A. Preemption of State Law Claims.

With certain stated exceptions,? ERISA preempts “‘any and

all State laws insofar as they may now or hereafter relate to any

employee benefit plan” governed by ERISA. 29 U.S.C.

§ 1144(a). “State law” is defined to include “‘all laws, deci-

sions, rules, regulations, or other State action having the effect

of law, of any State.” 29 U.S.C. § 1144(c)(1).

In Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96-97

(1983), the Supreme Court, citing legislative history and

referring to the language and structure of the statute, construed

the preemption clause in its broadest sense, and held that “[a]

law ‘relates to’ an employee benefit plan...if it has a con-

nection with or reference to such a plan.” Thus, the scope of

§ 1144(a) is not limited to state laws “specifically designed to

affect employee benefit plans.” /d. at 98.

The state laws at issue in Shaw, the New York Human

Rights Law (prohibiting discrimination in empioyment, in-

cluding discrimination in employee benefit plans on the basis of

pregnancy), and New York’s Disability Benefits Law ( requir-

2 The most important of these exceptions allow continued operation of

state insurance, tanking, and securities laws, 29 U.S.C. § 1144(b)(2)(A),

and generally applicable criminal laws, 29 U.S.C. § 1144(b)(4).

ing employers to pay sick-leave benefits to employees unabie to

work due to pregnancy ), “clearly ‘relate to’ ”’ employee benefit

plans. Jd. at97. The Court observed, however, that some state

actions may affect employee benefits plans in “‘too tenuous,

remote, or peripheral a manner to warrant a finding that the

law ‘relates to’ the plan.” Jd. at 100, n21. This category

includes, for example, state garnishment of a spouse’s pension

income to enforce alimony and support orders. Id., citing

American Telephone and Telegraph Co. v. Merry, 592 F.2d 118

(2d Cir. 1979).

In this case, none of the state laws under which Powell

claims relief have any intrinsic connection with employee

benefit plans. The question is therefore whether state law

claims which relate to the administration of an ERISA-

governed plan, but which arise under general state Jaws which

themselves have no impact on employee benefit plans, are

within the scope of ERISA preemption. Given the “unparal-

leled breadth” of the preemption clause, Holland v. Burlington

Industries, Inc., No. 84-2241(L), slip op. at 17 (4th Cir. Sept.

3, 1985), and the broad remedial policy of ERISA, we hold

that state laws, insofar as they are invoked by beneficiaries

claiming relief for injures arising out of the administration of

employee benefit plans, “‘relate to” such plans and, absent an

applicable exemption, are preempted by ERISA.

The preemption clause effectuates a broad remedial policy

to protect the interests of participants in ERISA-governed plans

and their beneficiaries “by establishing standards of conduct,

responsibility, and obligation for fiduciaries of employee benefit .

plans, and by providing for appropriate remedies, sanctions,

and ready access to the Federal courts.” 29 U.S.C. § 1001(b).

Thus, ERISA imposes extensive duties on plan administrators,

29 US.C. §§ 1101-1114, and provides a comprehensive scheme

for the cnminal and civil enforcement of fiduciary obligations ,

29 U.S.C. §§ 1131-1132.3 To the extent that ERISA redresses

the mishandling of benefits claims or other maladministration

3 Under 29 U.S.C. § 1132, entitled “Civil enforcement,” a plan partici-

pant or beneficiary may sue to recover benefits due under the plan, to enforce

his nghts under the plan, or to clanfy his nights to future benefits under the

(footnote continues)

of employee benefit plans, it preempts analogous causes of

action, whatever their form or label under state law. See

Dependahl v. Falstaff Brewing Corp., 653 F.2d 1208, 1215-16

(8th Cir. 1981) (“If Congress has already provided a remedy

{under ERISA], ...the state law is preempted, regardless of

whether or not a conflict exists which involves a direct inter-

ference by the state law with [ERISA].”). A contrary rule

would undermine ERISA’s important policy of promoting

uniformity in employee benefit laws, reflected in the legislative

history, in the Act’s declaration of policy, and in the preemption

clause itself, by creating the “potential... for conflicting em-

ployer obligations and variable standards of recovery.” Hel-

land, No. 84-2241(L), slip op. at 17-18. Accordingly, the state

law claims in this case, all of which relate exclusively to alleged

breaches of fiduciary responsibility in the administration of

C&P’s employee benefit plan, “relate to” the plan and, unless

an exception applies, are preempted, leaving Powell to such

remedies as are available under ERISA.

This analysis comports with several recent Ninth Circuit

decisions in which that court concluded that state claims based

on the maladministration of employee benefit pians are pre-

empted by ERISA, even where the state statutory and common

law under which the claims arise bears no inherent connection

with ERISA-governed plans. See Ellenburg v. Brockway, Inc.,

(footnote continued}

plan, § 1132(a)(1)(B); or if the plan administrator fails or refuses to comply

with a request for certain information, a beneficiary may recover, subject to

the court’s discretion, up to $100 a day from such failure or refusal,

§ 1132(a)(1)(A); or a participant. beneficiary, or fiduciary may bring an

action to enjoin administrative acts which violate ERISA or the terms of the

plan or to obtain “other appropriate equitable relief’ to redress such

violations or to enforce provisions of ERISA or the terms of the plan.

§ 1132¢a)(3). A plan may recover from its administrator any losses resulting

from the breach of fiduciary duties and may seek “such other equitable or

remedial relief as the court may deem appropnate, inciuding removal of such

fiduciary,” § 1109(a). Any person who willfully violates the provisions of

ERISA may be fined, upon conviction, up to $5,000, or imprisoned up to one

year, or both, and in the case of violations by other than an individual, a fine

of up to $100,900 may be imposed, § 1131. For other remedies, including

those available to the Secretary, see §§ 1132(a)(4), (a)(5), (a)(6), (b); for

availability of attorney’s fees and costs see § 1132(g).

763 F.2d 1091, 1095 (9th Cir. 1985); Scott v. Gulf Oil Corp.,

754 F.2d 1499, 1504-05 (9th Cir. 1985); Blau v. Del Monte

Corp., 748 F.2d 1348, 1356 (9th Cir. 1984); Russell v.

Massachusetts Mutual Life Insurance Co., 722 F.2d 482, 487-88

(9th Cir. 1983); rev’d on other grounds, Re <<a

U.S.L.W. 4938 (U.S. June 27, 1985). See also Gilbert v.

Burlington Industries, Inc., 765 F.2d 320, 327 (2d Cir. 1985).

Poweli contends that even if her state law claims are within

the scope of ERISA’s preemption provision, her claims for

breach of an implied covenant of good faith and fair dealing

and for violations of the Virginia Unfair Trade Practices Act,

both of which purport to impose duties on insurers,4 are

nevertheless rescued from preemption by an “insurance saving

clause,” which provides that ERISA does not “exempt or

relieve any person from any law of any State which regulates

insurance....” 29 U.S.C. § 1144(b)(2)(A). We disagree.

The insurance saving clause is limited by the so-called ““deemer

clause,”” which provides that no employee benefit plan “shall be

deemed to be an insurance company or other insurer... or to

be engaged in the business of insurance... for purposes of any

law of any state purporting to regulate insurance companies

[or] insurance contracts....” 29 U.S.C. § 1144(b)(2)(B).

Thus, C&P cannot be deemed to be an insurer or otherwise

engaged in the business of insurance by virtue of its sponsorship

of the Plan and Powell’s claims against C&P under state laws

regulating insurance are not exempted from preemption by the

insurance saving clause.

4The Virginia Unfair Trade Practices Act constitutes Article 6 of

Virginia’s Insurance Code and declares as its purpose the regulation of trade

practices in the business of insurance. Specifically, Powell alleges in her

complaint that the defendants violated § 38.1-52.1 which provides that “[n]Jo

person shall make, issue, [or] circulate ... any estimate, illustration, circular,

statement, sales presentation, omission, or comparison which (1) Mis-

represents the benefits, advantages, conditions or terms of any insurc.uce

policy.”

The impiied covenant of good faith arises, in certain circumstances, from

the “relationship of confidence and trust... between the insurer and the

insured which imposes upon the insurer the duty to deal fairly with the

insured in the handling and disposition of any claim covered by the policy.”

Aetna Casualty & Surety Co. v. Price, 206 Va. 749, 761, 146 S.E.2d 220, 227-

28 (1966).

Since Connecticut General is not an “employee benefit

plan,” the deemer clause is inapplicable to it. See 29 U.S.C.

§ 1144(b)(2)(B). Powell contends that as an insurance com-

pany, Connecticut General is subject to state laws regulating

insurance, including the implied covenant of good faith and fair

dealing and the Virginia Unfair Trade Practices Act, and that

these claims are therefore saved from preemption by the

insurance saving clause, § 1144(b)(2j(A).

We read the insurance saving clause, however, to exempt

from ERISA’s preemptive effect only those state insurance laws

that regulate the “‘business of insurance.” Regulation of the

“business of insurance” is expressly reserved to the states by

the McCarran-Ferguson Act, 15 U.S.C. §§ 1O11-1115,5 and

ERISA’s insurance saving clause, which is similarly worded and

which reflects the concerns of McCarran-Ferguson, is most

reasonably construed to cover the same category of state

insurance regulation. See Metropolitan Life Insurance Co. v.

Massachusetts, U.S. , 53 U.S.L.W. 4616, 4621 n.21 (USS.

June 3, 1985) (“The ERISA saving clause... appears to have

been designed to preserve the McCarran-Ferguson Act’s reser-

vation of the business of insurance to the States.”’).

The primary features of an insurance contract are the

spreading and underwniting of a policyholder’s msk. Group Life

& Health Insurance Co. v. Royal Drug Co., 440 U.S. 205, 211

(1979). In enacting the McCarran-Ferguson Act, “Congress

was concerned with the type of state regulation that centers

around the contract of insurance... .”” SEC v. National Secu-

rities, Inc., 393 U.S. 453, 460 (1969). The Act did not,

however, “purport to make the States supreme in regulating all

the activities of insurance companies; ...only when they are

engaged in the ‘business of insurance’ does the statute apply.”

Id. at 459-60.

5S The McCarran-Ferguson Act provides, in pertinent par, that “No Act

of Congress shall be construed to invalidate, impair, or supersede any law

enacted by any State for the purpose of reguiating the business of insur-

ance....” 15 U.S.C. § 1012(b).

In its role as Plan administrator, Connecticut General

neither spreads nor underwrites insurance risks; there is no

insurance policy or contract. Rather, Connecticut General

provides certain purely administrative claims processing func-

tions pursuant to an administrative services agreement with the

Plan’s sponsor, C&P.§ Thus, notwithstanding that Virginia’s

implied covenant of fair dealing and Unfair Trade Practices Act

may in some circumstances reach even the purely adminis-

trative activities of insurers,’ such reguiation would not bear

upon the “business of insurance” within contemplation of

ERISA’s insurance saving clause and thus is not saved from

preemption by ERISA.

B. Availability of Extraco:tractual and Punitive Damages

under ERISA

Having received all of the benefits to which she is entitled,

_ Powell seeks extracontractual and punitive relief under ERISA

to compensate her for various alleged physical ailments, the

decline of her marriage, her son’s emotional distress, and the

deterioration of her mental health, on account of the mis-

handling by C&P and Connecticut General of her disability

claim. Powell contends that such extraordinary relief is avail-

able under 29 U.S.C. § 1132(a)(3) which authorizes a civil

action by a plan beneficiary “‘( A) to enjoin any act or practice

which violates any provision of [ERISA] or the terms of the

plan, or (B) to obtain other appropriate equitable relief, {i) to

redress such violations or (ii) to enforce any provisions of

[ERISA] or terms of the plan.” (Emphasis added.) In

6 Under the administrative services agreement, Connecticut General

agreed, among other things, to provide standard claim forms for the

administration of the plan; to determine the propmety of claims in accordance

with C&P’s claims administration procedures and practices; to issue checks,

drawn against C&P’s funds. in payment of claims; to prepare monthiy and

annual reports; and to review each claim that has been denied for compliance

with ERISA when the claimant requests such review.

7 We express no opinion whether such private causes of action, in

another context, would be cognizable under Virginia law. It is worth noting,

however, that the Virginia Unfair Trade Practices Act also purports to

regulate “the business of insurance in accordance with the intent of Congress”

as expressed in the McCarran-Ferguson Act. Va. Code § 38.1-49 (1950).

Massachusetts Mutual Life Insurance Co. v. Russell, ____U.S.

. 53 U.S.L.W. 4938 (U.S. June 27, 1985), the Supreme

Court held that extracontractual and punitive damages are not

available to a participant or beneficiary under § 1132(a)(2),

which authorizes a civil action by the Secretary or by a plan

participant, beneficiary, or fiduciary “for appropriate relief

under § 1109,” which relates to liability for breach of fiduciary

duty. The question whether or to what extent extracontractual

and punitive relief is authonzed by way of the catchall provi-

sion in § 1132(a)(3) for “other appropriate equitable relief”

was expressly reserved. Jd. at 4940 n.5.

Powell urges that notwithstanding the use of the word

“equitable” in § 1132(a)(3) and its implications for excluding

the damage remedies she seeks, ERISA incorporates the fidu-

ciary standards and principles of trust law, the violation of

which, although ordinanly redressed in equity, may never-

theless give rise to monetary damages in appropriate cases.

The legislative history supports Powell’s theory that Congress

intended to import into ERISA principles of trust law, see H.R.

Rep. No. 533, 93d Cong., Ist Sess. 11 (1973), as does the

language of 29 U.S.C. § 1104(a), which expressiy incorporates

a general “prudent man” standard of care for ERISA

fiduciaries.

Powell’s argument is self-defeating, however, because even

assuming that “other appropriate equitable relief’ may, in

certain circumstances, include extracontractual or punitive dam-

ages, such relief is generally not available in an action by a

beneficiary against a trustee for breach of trust. See Restate-

ment (Second) of Trusts § 205 (1959) (liability for breach of

trust is limited to (a) loss in value of trust estate; (b) profits

accrued by trustee; or (c) profits lost to estate); G. Bogert & G.

Bogert, the Law of Trusts & Trustees, § 862 (2d ed. 1982)

(trustee is usuaily charged only with the loss in value of the

trust estate although exemplary damages are occasionally

awarded in a few states where malice or fraud is invoived); A.

Scott, The Law of Trusts. § 198.1 (1967) (‘‘where the trustee is

not under an immediate and unconditional duty to pay money

to the beneficiary, the beneficiary cannot maintain an action at

10a

law against him.”). Thus, the provision for “other appropriate

equitable relief,’ whatever it embraces, cannot be held to

authorize extracontractual or punitive damages for the breach

of a plan administrator’s fiduciary duties under ERISA.8

Accordingly, the district court properly granted the defen-

dants’ motions for summary judgment as to Powell’s claims for

extracontractual and punitive damages under ERISA, and her

complaint was properly dismissed.

AFFIRMED.

8 We observe that the ma'administration alleged by Poweil does not rise

to a “willful” violation of ERISA for purposes of the Act’s criminal

enforcement provision, 29 U.S.C. § 1131}.

APPENDIX B

THE CHESAPEAKE & POTOMAC TELEPHONE

COMPANY OF VIRGINIA

The following are parent companies, subsidiaries or affil-

iates of The Chesapeake and Potomac Telephone Company of

Virginia:

Bell Atlantic Corporation

Bell Atlantic Corporate Services, Inc.

Bell Atlantic Management Services, Inc.

The Chesapeake and Potomac Telephone

Company of Maryland

The Chesapeake and Potomac Telephone

Company of Virginia

The Chesapeake and Potomac Telephone

Company of West Virginia

The Bell Telephone Company of Pennsylvania

The Diamond State Telephone Company

New Jersey Bell Telephone Company

Bell Atlantic Mobile Systems, Inc.

Bell Atlantic Ventures, Inc.

Bell Atlantic Financial Services, Inc.

Bell Atlanticom Systems, Inc.

Bell Atlantic Leasing Company