Amicus Curiae Brief — Society National Bank v. Warren

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FELED

(3) } MAY 13 1991

No. 90-870

ete THE CLERK

}

In the Supreme Court of the United States

OCTOBER TERM, 1990

SOCIETY NATIONAL BANK AND JOEL A. PANDON,

PETITIONERS

Vv,

ROBERT WARREN AND CAROLE Z. WARREN

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

KENNETH W. STARR

Solicitor General

DAV L. SHAPIRO

Deputy Solicitor General

CHRISTOPHER J. WRIGHT

Assistant to the Solicitor General

Department of Justice

ALLEN H. FELDMAN Washington, D.C. 20530

Associate Solicitor (202) 514-2217

Kerry L. ADAMS

Counsel for Appellate Litigation

NATHANIEL I. SPILLER

Senior Appellate Attorney

Department of Labor

Washington, D.C. 20210

ROBERT P. DAVIS

Solicitor of Labor

QUESTION PRESENTED

Respondents, a participant in two employee benefit

plans and his beneficiary, brought a civil action under

Section 502(a)(3) of the Employee Retirement Income

Security Act of 1974 (ERISA), 29 U.S.C. 1132(a) (3),

for damages that allegedly occurred because petitioners,

the plans’ trustee and administrator, disregarded respond-

ents’ instructions and distributed their share of the plans’

assets in a manner that resulted in the loss of significant

tax advantages that were contemplated by the plan docu-

ments. The question presented is whether respondents

may recover monetary damages for an economic loss of

this nature as “other appropriate equitable relief” under

Section 502 (a) (3).

(I)

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TABLE OF CONTENTS

Page

a sevisppatenpubauseouenevsonste 1

i cabpeneannooosvesesccbuene 5

SS 19

TABLE OF AUTHORITIES

Cases:

Albemarle Paper Co. Vv. Moody, 422 U.S. 405

Cee snesciniaeenipnasiocsininocs 14

Amos Vv. Blue Cross-Blue Shield, 868 F.2d 430

(11th Cir.), cert. denied, 110 S. Ct. 158 (1989)... 19

Audio Fidelity Corp. v. Pension Benefit Guaranty

Corp., 624 F.2d 513 (4th Cir. 1980) —........... 15

Bittner v. Sadoff & Rudoy Indus., 490 F. Supp. 534

Ee 7

Carroll v. General Acc. Ins. Co., 891 F.2d 1174

LEE ST a 11

Chicago Dist. Council vy. Exhibition Contractors

Co., 618 F. Supp. 234 (N.D. Ill. 1985) 15

Davis v. Kentucky Finance Cos. Retirement Plan,

887 F.2d 689 (6th Cir. 1989), cert. denied, 110

os cennneneasosenenecnonssonens 18

Donovan V. Mazzola, 716 F.2d 1226 (9th Cir.

1983), cert. denied, 464 U.S. 1040 (1984)... 17

Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d

821 (ist Cir.), cert. denied, 488 U.S. 909

ac csniondionamnsonenmiene 19

Estate of Talbot, 141 Cal. App. 2d 309, 296 P.2d

ns. enncmnsscensnsnceces 14

Firestone Tire & Rubber Co. v. Bruch, 489 US.

go eeencmsnccamn 7, 8,11, 15, 16

Folz v. Marriott Corp., 594 F. Supp. 1007 (W.D.

CES 7

Franchise Tax Bd. v. Construction Laborers Vaca-

EE ES S| 15, 16

Goldberg v. Medtronic, Inc., 686 F.2d 1219 (7th

STE 2 14

(111)

Cases—Continued : Page

Goss Vv. Exxon Office Systems Co., 747 F.2d 885

a 2 see desbanbaiaicnemetostenoetns 11

Hadley v. Baxendale, 156 Eng. Rep. 145 (1854) ..11, 12, 18

Hancock v. Montgomery Ward Long Term Dis-

ability Trust, 787 F.2d 1302 (9th Cir. 1986) .... 19

Hoefel v. Atlas Tack Corp., 581 F.2d 1 (1st Cir.

REEL A ANE RIN Cs AID ad DP 15

Ingersoll-Rand Co. v. McClendon, 111 S. Ct. 478

1 RESIS Senin Ae Meson A al oR 6, 7, 8, 10

Massachusetts Mutual Life Insurance Co. v. Rus-

sell, 473 U.S. 184 (1985) .................. 3, 7, 8, 9, 14, 17, 18

McRae v. Seafarers’ Welfare Plan, 920 F.2d 819

aa aes 18

Pilot Life Ins. Co. V. Dedeauz, 481 US. 41

SUIIIEE canatth bashccahostonievuctiniesasbicen cen cecum iaiie teas 7,8, 15,16

Porter v. Warner Co., 328 U.S. 395 (1946) ............ 15

Powell v. Chesapeake & Potomac Tel. Co., 780 F.2d

419 (4th Cir. 1985), cert. denied, 476 US. 1170

RI Scales ihn ctinds tints pecerae ulckesachnk caer aeieds eto Pa cadendadeacis 19

Rochester Corp. v. Rochester, 450 F.2d 118 (4th

RN I coc oar lan a ee ee ao 15

Shaw Vv. Delta Air Lines, Inc., 463 U.S. 85 (1983).. 8

Sinai Hosp. of Baltimore, Inc. v. National Benefit

Fund for Hosp. & Health Care Employees, 697

Pe Be A | enn n EE 15,17

Smith v. Evening News Ass’n, 371 U.S. 195

GRRE ASE SS Aa ret en Se Se or UTS AP 16

Sokol v. Bernstein, 803 F.2d 532 (1986) ............... 9-10, 19

Textile Workers Union v. Lincoln Mills, 353 U.S.

tg. SRRERSRERIG, Paerr ieee. AEA ee ot eras AEE 16

UMWA Health & Retirement Funds v. Robinson,

Cr ns 15

United Steelworkers v. Connors Steel Co., 855

F.2d 1499 (11th Cir. 1988), cert. denied, 489

U.S. 1096 (1989) ..... I AS EIS eae nts ES OOO 19

Varhola Vv. Doe, 820 F.2d 809 (6th Cir. i § 19

Vogel v. Independence Fed. Sav. Bank, 692 F.

a SS ee ene 7,15

Walters v. Marathon Oil Co., 642 F.2d 1098 (7th

Se | RSE ONE enn: TUS NNR ECCT EE 14

V

Statutes: Page

Employee Retirement Income Security Act of

1974, 88 Stat. 829

fy eS

Bly sm 8 Tie! y | nnn 5

PR ee a ee 5

ET & 8 oe ee 3,4, 9,17

§ 409 (a), 29 U.S.C. 1109 (a) ..............-------------- ia 3

§ 502 (a), 29 U.S.C. 1132 (a) ............. 4, 6, 7, 8,9, 10, 11

§ 502 (a) (1) (B), 29 U.S.C. 1132 (a) (1) (B) -...7, 8, 10

§ 502 (a) (2), 29 U.S.C. 1132 (a) (2) -................- 3

§ 502 (a) (3), 29 U.S.C. 1132 (a) (3) ...2, 3, 4, 5, 6, 7, 9,

10, 11, 13, 15, 17, 18

§ 502 (a) (3) (A), 29 U.S.C. 1132 (a) (3) (A). 10

a, Be Bats Be wien nite chancsiatdicbbssnsceoniaas 6, 10

Tit. II:

Ne Te ee nicaeaeraneaiens 2

Oe i ileesnenscomtraenetnnes 2

I os cs csenceccccieaomncenenete 2

RRR NT) ene 5

26 U.S.C. 402 (e) (4) (A) ......................- DenRA 5

BN coca oesscecinchineovmeanuupines aetna 12

AERTS EAE CER eect ueneece ene etn 2

ALAA LE REP TEE 11

Miscellaneous:

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

I I rissa sctsssenbincenveincspsninn Ramulaniitialon 14

180 Comm. Ree. BO9ED (1974) 2-2-2 cinn---nncoe nesses 16

1A A. Corbin, Corbin on Contracts (1963) ............... 15

5 A. Corbin, Corbin on Contracts (1964) .................. 11

H.R. 3299, 101st Cong., 1st Sess. (1989) ~.................. 16

H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess.

REPAIRS Bee aeNIR AR eC IEE Ditterct Stan er et Roe tn 16

H.R. Rep. No. 533, 93d Cong., 1st Sess. (1973) ....9, 16, 17

H.R. 2, 98d Cong., 1st Sess. (3978) .............---------2-02-- 9

J. Calamari & J. Perillo, The Law of Contracts

CE a TI area sersep ese iene siccieneerne 11,12 _

Note, Pension Plans and the Rights of the Retired

Worker, 70 Colum. L. Rev. 909 (1970) .............. 15

P. Cox, Employment Discrimination (1988) ........ 11

Miscellaneous—Continued:

Restatement of Contracts (1932) _............00000..

Restatement (Second) of Contracts (1981) _....

1 Restatement (Second) of Trusts (1959) _...........

S. 4, 938d Cong., Ist Sess. (1978) 00.

S. Rep. No. 127, 93d Cong., 1st Sess. (1973) :

Staff of Subcomm. on Labor of the Senate Comm.

on Labor and Public Welfare, 94th Cong., 2d

Sess., Leg. Hist. of the Employee Retirement

Income Security Act of 1974 (Comm. Print

NE inch ft acacia la tale ra cdenanacicdeeiacbbadinccad ise

11 S. Williston & W. Jaeger, Williston on Con-

a Bk | ee

W. Prosser & P. Keeton, The Law of Torts (5th

i EEN NS

11

13, 14

In the Sryprenw Court of the United States

OCTOBER TERM, 1990

No. 90-870

SOCIETY NATIONAL BANK AND JOEL A. PANDON,

PETITIONERS

Vv.

ROBERT WARREN AND CAROLE Z. WARREN

ON PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE UNITED STATES

AS AMICUS CURIAE

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

inviting the Solicitor General to express the views of the

United States.

STATEMENT

1. Petitioner Society National Bank (SNB) was the

trustee of a pension plan and a profit-sharing plan estab-

lished by the Westgate Medica] Anesthesia Group, Inc.;

petitioner Joel A. Pandon, an SNB official, was responsi-

ble for administering the plans. Respondent Robert

Warren was an employee of Westgate and a participant

in the two plans; respondent Carole Z. Warren, his wife,

was a beneficiary # the plans. Pet. App. A2-A3, A28-

A29. Under the plans, participants could, upon retire-

ment, choose to withdraw their share of plan assets in a

number of ways, including a single lump-sum distribu-

(1)

2

tion. The summary plan description informed partici-

pants that they could “reduce, or defer entirely, the taxes

due on [their] distribution through * * * [t]he rollover

of all or a portion of the distribution to an IRA [In-

dividual Retirement Account].” Jd. at A5, A33.?

According to respondents’ amended complaint, Robert

Warren selected the lump-sum distribution option and

chose to roll his benefits over into an IRA in order to take

advantage of the associated tax benefits, and so instructed

petitioners.? Contrary to those instructions, petitioners

transferred the assets in four installments, two in 1984

and two in 1985. The complaint further averred that,

because the rollover did not take place in a single calen-

dar year, the tax laws required respondents to pay in-

come taxes on the 1985 portion of the distribution, thus

losing the benefit of the tax deferral contemplated in the

plan. Consequently, respondents paid $87,205 in state

and federal taxes on the 1985 distribution. In addition,

respondents claimed, they could not keep the 1985 dis-

tribution in the IRA, and therefore they lost the benefit

of the tax-free compounding of interest available from

an IRA. They estimated that their eventual loss caused

by the failed rollover would total $375,430. Pet. App.

A3-A4, A29-A30.

2. Respondents brought an action under Section 502

(a) (3) of ERISA, which provides for a civil action by a

participant or a beneficiary “(A) to enjoin any act or

1A pension or profit-sharing plan that meets ERISA’s minimum

requirements for participation, funding, and vesting is exempt from

taxes as a “qualified trust.” 26 U.S.C. 401, 501. Neither the interest

earned by a qualified trust nor the contributions to the trust are

taxable until the year a distribution is received. 26 U.S.C. 402

(a) (1), fn addition, as SNB’s plans indicated, a beneficiary may

defer taxation on a distribution under certain circumstances by

rolling the proceeds over into an IRA, where interest also com-

pounds on a tax-free basis. 26 U.S.C. 402(a) (5).

* Because the district court dismissed the case on the pleadings

for failure to state a claim, the lower courts properly accepted

respondents’ factual allegations. Pet. App. A2, A31.

3

practice which violates any provision of this [title] 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 this [title] or the terms of the

plan.” 29 U.S.C. 1132(a) (3). Respondents sought to

recover the tax losses allegedly caused by petitioners’

failure to make a lump-sum distribution into the IRA

within a single calendar year. Pet. App. A31. The dis-

trict court held that the amended complaint failed to

allege sufficient facts from which to infer that petitioners

had been under specific instructions to distribute the

assets by the end of the 1984 calendar year or otherwise

had breached their duties under ERISA by failing to do

so. Id. at A34-A36.

Alternatively, the district court concluded that the

damages sought by respondents are not recoverable under

Section 502(a)(3). The court noted this Court’s holding

in Massachusetts Mutual Life Insurance Co. v. Russell,

473 U.S. 134 (1985), that extra-contractual damages are

not available under Section 409 of ERISA, 29 U.S.C.

1109, for breach of fiduciary duty.* The district court

also noted that several federal courts had extended

Russell to preclude extra-contractual damages claims

under Section 502(a) (3). Pet. App. A36-A37. While

acknowledging that the distinction between contractual

and extra-contractual damages is not clear, the court con-

cluded that respondents were seeking extra-contractual

damages because the relief they requested was “not ex-

3% Section 409(a) provides that a fiduciary who breaches his duties

“shall be personally liable to make good to such plan any losses to

the plan resulting from each such breach, and to restore to such

plan any profits of such fiduciary which have been made through

use of assets of the plan by the fiduciary, and shall be subject to

such other equitable or remedial relief as the court may deem

appropriate, including removal of such fiduciary.” Under Section

502(a)(2) of ERISA, 29 U.S.C. 1132(a) (2), suit may be brought

“by the Secretary, or by a participant, beneficiary or fiduciary for

appropriate relief under section [409].”

4

pressly provided for within the terms of an ERISA-

governed benefit plan.” Jd. at A39.

3. The court of appeals reversed. The court noted that

Russell involved a different statutory provision (Section

409) and that this Court had emphasized in that case

that it had “no occasion to consider” whether Section

502(a) (3), the provision at issue here, “‘authorizes recov-

ery of extracontractual damages.” Pet. ‘App. A8. Moreover,

four Justices had concluded in a concurring opinion in

Russell that Section 502(a)(3), by authorizing “other

appropriate equitable relief” in addition to injunctive and

declaratory relief, contemplates a make-whole remedy, in-

cluding monetary damages, under traditional trust prin-

ciples. Pet. App. A14-A17.

In any event, the court of appeals did not view the

damages sought here as “extra-contractual” within the

meaning of Russell. In that case, there had been “no

claim that the fiduciary * * * violated a contractual

duty.” Pet. App. Al4. By contrast, the alleged damages

in this case resulted from the violation of a “contractual

duty” and are “direct injuries resulting from the bank’s

failure to follow |respondents’] instructions” to distrib-

ute their money in accordance with the terms of the plan

documents. Jd. at Al3. For that reason, the court saw

no conflict with the holdings of other courts of appeals

that have disallowed extra-contractual damages under

Section 502(a)(3). In this case, unlike the other cases,

petitioners were deprived “of a benefit to which [they

were| entitled under the plans” themselves. Pet. App.

Al8. The court added that “the plain language of the

statute, the common law of trusts, and the role of courts

in equity” all supported the availability of the relief

sought by respondents. [bid.

The court of appeals also held, contrary to the district

court’s primary alternative holding, that the amended com-

plaint contained factual allegations sufficient to with-

stand a motion to dismiss. Pet. App. Al9. In a con-

curring opinion, Judge Nelson stressed that a number of

VS

5

factual issues need to be decided on remand, including

whether a competent administrator would have distrib-

uted respondents’ money in a single calendar year and

whether petitioners’ failure to do so actually resulted in

the loss of tax advantages as respondents claim. Jd. at

A20-A21.‘

Judge Wellford dissented. After emphasizing that

a number of courts of appeals have held that extra-

contractual damages are not available under Section

502(a) (3), he concluded, contrary to the majority, that

there was “no allegation in [respondents’] amended

complaint that [petitioner] SNB was under a specific

duty or specific instruction to complete the transfer of

funds by December 31, 1984.” Pet. App. A26.

DISCUSSION

Petitioners do not challenge the court of appeals’ hold-

ing that respondents alleged facts sufficient to suppcrt

their claim that petitioners violated the terms of the

plans and their duties under ERISA. Pet. 4 n.2. But

petitioners challenge the court’s holding that the relief

respondents seek may be awarded under Section 502

(a)(3).2 In our view, the court of appeals correctly

4 Petitioners suggest (Pet. 3 n.1), without explanation, that re-

spondents received “faulty tax advice” and should not have paid

taxes on the 1985 distributions. However, a “lump sum distribu-

tion” must be made “within one tavable year” to receive favorable

tax treatment. 26 U.S.C. 402(e)(4)(A). Thus, two distributions

from the same plan in different years could not both be rolled over

into an IRA unless the distributions qualified for favorable tax

treatment under the special rules governing partial distributions.

See 26 U.S.C. 402(a) (5) (D). As Judge Nelson stated, this matter

remains to be addressed on remand.

5 Petitioners also contend (Pet. 23-25) that respondents lack

standing to bring suit because, in their view, Robert Warren is no

longer a “participant” in the employee benefit plans and Carole

Warren is not a “beneficiary” within the meaning of 29 U.S.C.

1002(7) and (8). In the district court, petitioners did “not dis-

pute * * * that Kobert and Carole Warren were a participant and

6

decided that Section 502(a) (3) authorizes federal courts

to award make-whole relief to participants and _ benefi-

ciaries for foreseeable losses that result directly from

the breach of the terms of a plan or from a violation of

one of ERISA’s substantive requirements. Such author-

ity, we believe, is embraced within the power to grant

“other appropriate equitable relief” because that phrase

is not limited to injunctions and declaratory judgments;

rather it extends to the range of remedies developed by

courts of equity in the enforcement and administration

of trusts. And embraced within these remedies are mon-

etary damages arising froin breaches by fiduciaries of

their contractual commitments.

That conclusion is not inconsistent with this Court’s

decision in Ru.sell and does not conflict with the deci-

sions of the courts of appeals that have held unavailable

under Section 502(a) (3) types-of damages not normally

regarded as flowing directly from a breach of a fiduciary

obligation or the terms of an employee benefit plan, e.v.,

punitive damage awards, awards for emotional distress,

and awards for certain other forms of extra-contractual

damages. Further review by this Court is therefore not

warranted.

1. This Court recently analyzed Section 502(a) gen-

erally, and Seetion 502(a) (3) in particular, in Ingersoll-

Rand Co. v. McClendon, 111 S. Ct. 478 (1990). In that

case, the Court held that a state cause of action alleging

interference with the attainment of pension benefits was

preempted because Section 510 of ERISA, 29 U.S.C.

1140, prohibits such interference and Section 502(a) (3)

provides a cause of action to enforce Section 510. 111

S. Ct. at 484-485. The Court noted that “(t]he detailed

provisions of § 502(a) set forth a comprehensive civil

a beneficiary, respectively, under the retirement plans.” Pet. App.

A31 n.1. Nor was the issue raised in, or addressed by, the court of

appeals. We think that persons such as respondents should be able

to bring suit under Section 502(a)(3), but that the issue should

not be considered initially by this Court.

7

enforcement scheme that represents a careful balancing

of the need for prompt and fair claims settlement pro-

cedures against the public interest in encouraging the

formation of employee benefit plans.” Jd. at 485, quoting

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987),

and Russell, 473 U.S. at 146.

Although the Court in Jngersoll-Rand did not discuss

in detail what remedies are available as “other appro-

priate equitable relief” under Section 502(a) (3), the

Court, in reversing the judgment below, held that “there

is no basis in § 502(a)’s language for limiting ERISA

actions to only those which seek ‘pension benefits.’” 111

S. Ct. at 486. The Court added: “It is clear that the

relief requested’”—which included a prayer for compen-

satory damages—‘“is well within the power of federal

courts to provide.” Jbid. Indeed, in cases involving in-

terference with the attainment of benefits under a plan

covered by ERISA, a number of federal courts have

awarded make-whole relief, including back pay, front

pay, restitution of forfeited benefits, and prejudgment

interest, under Section 502(a)(3). See Vogel v. Inde-

pendence Fed, Sav. Bank, 692 F. Supp. 587, 596 (D. Md.

1988) ; Folz v. Marriott Corp., 594 F. Supp. 1007, 1015-

1020 (W.D. Mo. 1984); Bittner v. Sadoff & Rudoy In-

dus., 490 F. Supp. 534, 536 (E.D. Wis. 1980).

This Court also recently analyzed Section 502(a) in

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

(1989), which was an action seeking benefi’ under Sec-

tion 502(a)(1)(B), 29 U.S.C. 1132(a) (1) (B).* The

Court held that a de novo standard of review applied

with respect to the trustee’s interpretation of the terms

of the plan. In reaching that conclusion, the Court stated

that since “ERISA abounds with the language and ter-

® Section 502(a)(1)(B) provides that a participant or a bene-

ficiary may bring suit “to recover benefits due to him under the

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

plan, or to clarify his rights to future benefits under the terms

of the plan.”

8

minology of trust law,” it would be “guided by princi-

ples of trust law” in reaching its conclusion. 489 U.S.

at 110, 111. But the Court added that prior to the enact-

ment of ERISA, a court would have reviewed a claim for

benefits under a plan “as it would have any other con-

tract claim—by looking to the terms of the plan and

other manifestations of the parties’ intent.” Jd. at 112-

113. The Court rejected the contention that an “arbi-

trary and capricious” standard applied with respect to

review of the trustees’ interpretation, and instead ap-

plied the standard that governs in contract cases, in

part because the Court considered it unlikely that

“ERISA would require us to impose a standard of re-

view that would afford less protection to employees and

their beneficiaries than they enjoyed before ERISA was

enacted.” Jd. at 114.

Under Firestone, it is clear that the federal courts

are to interpret ERISA’s enforcement provisions with

reference to the law of trusts. Contract law is also

relevant, however, because ERISA was enacted “to pro-

tect contractually defined benefits,” Russell, 473 U.S. at

148, and, in the absence of ERISA, state contract law

would govern their enforcement. Firestone, 489 U.S. at

112-113. Since Congress enacted ERISA “to promote

the interests of employees and their beneficiaries in

employee benefit plans,” Shaw v. Delta Atr Lines, Inc.,

463 U.S. 85, 90 (1983), any interpretation of Section

502(a) that limits participants and beneficiaries to

more restricted remedies than contract law would pro-

vide is suspect. See Firestone, 489 U.S. at 114.

2. As this Court has repeatedly recognized, Section

502(a) provides “comprehensive” remedies. IJngersoll-

Rand, 111 S. Ct. at 485, Pilot Life, 481 U.S. at 54; Rus-

sell, 473 U.S. at 146. In addition to authorizing actions

“to recover benefits,” Section 502(a)(1)(B) authorizes

a participant or a beneficiary to bring a civil action “to

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

clarify his rights to future benefits under the terms of

9

the plan.” Section 502(a)(3) further provides for in-

junctions to remedy “any act or practice which violates

any provision of this [title] or the terms of the plan.”

Directly at issue in this case is the meaning of the next

clause in Section 502(a)(3), which authorizes “other

appropriate equitable relief * * * to redress such viola-

tions,” such violations being ‘‘any act or practice which

violates any provision of this [title] or the terms of

the plan.” ”

Petitioners’ principal] contention—that “other appro-

priate equitable relief’? does not embrace the relief

sought in this case—is based in large part on the reason-

-4g of the Ninth Circuit in Sokol v. Bernstein, 803 F.2d

‘ The legislative history of Section 502(a) (3) is not particularly

informative. The “other appropriate equitable relief” language was

drafted, without accompanying explanation, by the Conference Com-

mittee. But Congress apparently intended ERISA’s enforcement

provisions to be interpreted broadly. Both the House and the Senate

described the earlier versions of the section in identical terms:

“The enforcement provisions have been designed specifically to pro-

vide both the Secretary and participants and beneficiaries with

broad remedies for redressing or preventing violations of [ERISA].

The intent of the Committee is to provide the full range of legal

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

H.R. Rep. No. 533, 93d Cong., Ist Sess. 17 (1973), reprinted in

Staff of Subcomm. on Labor of the Senate Comm. on Labor and

Public Welfare, 94th Cong., 2d Sess., II Legislative History of the

Employee Retirement Income Security Act of 1974, at 2364 (Comm.

Print 1976) [Leg. Hist.|; S. Rep. No. 127, 93d Cong., 1st Sess.

35 (1973), reprinted in 1 Leg. Hist. 621. At the time those

statements were written, the House bill provided in terms only

for actions “to recover benefits * * * or to clarify * * * rights to

future benefits * * * [or] to enjoin any act or practice which vio-

lates any provision of this Act.” H.R. 2, 93d Cong., Ist Sess.

§503(e) (1973), reprinted in II Leg. Hist. 2334. The Senate

bill provided in terms only for actions “to recover benefits due * * *

or to clarify * * * rights to future benefits.” S. 4, 93d Cong., 1st

Sess. § 604 (1973), reprinted in I Leg. Hist. 580. Neither bill

provided for “legal remedies” in Section 502(a), unlike an early

version of Section 409 (see Russell, 473 U.S. at 145-146 & n.14),

although both congressional reports indicated that “the full range

of legal and equitable remedies” were to be available.

10

532, 538 (1986). In that case, the court refused to

authorize punitive damage awards under Section 502

(a) (3), and said that “Congress used the word ‘equita-

ble’ to mean what it usually means—injunctive or de-

claratory relief.” Relying on that statement, petitioners

argue that “other appropriate equitable relief” author-

izes courts to issue injunctions and declaratory judg-

ments only. See Pet. 20. That reading of the statute

is implausible, for a number of reasons.

First, petitioner’s construction of Section 502(a) (3)

virtually reads “other appropriate equitable relief” out

of the statute. Section 502(a)(1)(B) authorizes declar-

atory judgment actions and coercive relief by providing

that any participant or beneficiary may bring suit “to

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

clarify his rights to future benefits under the terms of

the plan.” In addition, Section 502(a)(3)(A) author-

izes courts “to enjoin any act or practice which violates

any provision of this [title] or the terms of the plan.”

Thus, the phrase “other appropriate equitable relief,” if

it is to have any significance, must authorize equitable

remedies in addition to injunctions and declaratory

judgments.

Second, in Ingersoll-Rand this Court recognized that

Section 502(a) (3) does not have the restricted meaning

that petitioners would ascribe to it. 111 S. Ct. at 486.

That conclusion follows naturally from the fact that Sec-

tion 502(a) (3) is the broadest provision in the compre-

hensive enforcement scheme set forth in Section 502(a).

While the other provisions of Section 502(a) are nar-

rowly focused on matters such as benefit claims, fiduciary

breaches, and violations of ERISA’s disclosure provisions,

Section 502(a)(3) provides for relief to redress “any

act or practice which violates any provision of this title

or the terms of the plan.” Thus, for example, partici-

pints alleging interference with the attainment of bene-

fits under a plan in violation of Section 510—the sort of

violation that was at issue in I/ngersoll-Rand—are au-

11

thorized to sue under Section 502(a) (3). As this Court

recognized, 111 S. Ct. at 486, in the case of an employee

who was fired so that his pension benefits would not

vest, “other appropriate equitable relief’ must extend

beyond injunctive and declaratory relief. In appropriate

cases, back pay, front pay, and other sorts of damages

should be available.*

Third, in Firestone this Court rejected an interpreta-

tion of Section 502(a) that “would afford less protection

to employees and their beneficiaries than they enjoyed

before ERISA was enacted.” 489 U.S. at 114. Petition-

ers’ construction of Section 502(a) (3) would have pre-

cisely that effect. “Actions challenging an employer’s

denial of benefits before the enactment of ERISA were

governed by principles of contract law.” 489 U.S. at 112.

Under contract law, damages are intended “to place the

aggrieved party in the same economic position he would

have had if the contract had been performed.” J. Cal-

amari & J. Perillo, The Law of Contracts § 14-4, at 591

(3d ed. 1987); see also Restatement of Contracts § 329

(1932) ; Restatement (Second) of Contracts § 347 (1981);

5 A. Corbin, Corbin on Contracts, § 992, at 5-7 (1964);

11 S. Williston & Jaeger, Williston on Contracts § 1338,

at 197-203 (3d ed. 1968). Contract law thus provides for

a make-whole remedy.

Under the classic formulation of contract damages, an

aggrieved party may recover the damages directly stem-

ming from a breach of contract if the damages were

foreseeable. Hadley v. Baxendale, 156 Eng. Rep. 145

(1854). That condition is satisfied when the damages

“may fairly and reasonably be considered * * * arising

* Title VII’s authorization of “back pay * * * or any other equi-

table relief the court deems appropriate” (42 U.S.C. 2000e-5(,) )

has been construed to authorize such damages, but not extra-

contractual relief. See, ¢.g., Carroll v. General Acc. Ins. Co., 891

F.2d 1174, 1177 (5th Cir. 1990) (no pain and suffering award) ;

Goss V. Exzon Office Systems Co., 747 F.2d 885, 889-890 (3d Cir.

1984) (front pay award affirmed); see generally P. Cox, Employ-

ment Discrimination 23-1 to 23-14 (1988).

12

naturally, i.e., according to the usual course of things,

from such breach of contract itself” or when they “may

reasonably be supposed to have been in the contempla-

tion of both parties, at the time they made the contract,

as the probable result of the breach of it.” 156 Eng. Rep.

at 151; see J. Calamari & J. Perillo, supra, § 14-5, at

594; see also Restatement (Second) of Contracts, supra,

§ 351. Moreover, the general rule is that the extent of

the losses must be reasonably certain to be recoverable.

J. Calamari & J. Perillo, supra, § 14-8, at 599-600.°

In this case, respondents’ expectation interest was

both foreseeable and reasonably certain. Tax benefits

are at the heart of Congress’s scheme for encouraging

participation in pension plans.’® Moreover, the expecta-

tion that participants would take advantage of the avail-

able tax benefits was specifically announced in the plan

documents, which informed participants that “[t]he roll-

over of all or a portion of the distribution to an IRA”

would reduce their tax liability. Pet. App. A5, A33.

Accordingly, the tax benefits of a rollover “‘may reason-

ably be supposed to have been in the contemplation of

both parties, at the time they made the contract,” and

the loss of those advantages was a “probable consequence

of the breach” respondents alleged. Hadley v. Baxen-

dale, 156 Eng. Rep. at 151. Moreover, the loss of the

* Because foreseeability and reasonable certainty are limitations

on recoveries for breach of contract, the damages available in a

contract action differ from the liability imposed in tort for all the

damages proximately caused by the tortfeasor. See W. Prosser &

P. Keeton, The Law of Torts § 92, at 665 (5th ed. 1984). As a rule,

damages for emotional distress—which are generally available in a

tort action—are not recoverable in a contract action. Nor are puni-

tive damages. Ibid.; J. Calamari & J. Perillo, supra, §§ 14-3, 14-

5(b), at 595-596.

10 As the court of appeals stated, petitioners’ actions “directly

result[ed] in the loss of one of the most significant benefits avail-

able under ERISA”. Pet. App. A18. In fact, ERISA requires plan

administrators, “when making an eligible rollover distribution,” to

“provide a written explanation * * * of the provisions under which

such distribution will not be subject to tax.” 26 U.S.C. 402(f).

13

tax advantages was reasonably certain in that the im-

mediate tax loss on the 1985 distribution ($87,205) could

be precisely calculated and the total loss ($375,430) could

readily be projected.

Thus, if in fact petitioners failed to make a single

lump-sum payment, as respondents requested, and if that

failure directly resulted in the tax losses that respondents

allege, respondents would be entitled to be made whole,

under contract law principles, for their losses. Such a

remedy, in our view, is available under Section 502

(a) (3).

3. In light of Firestone and the language of the provi-

sion itself, Section 502(a)(3) should be construed with

reference to the trust principles developed by courts of

equity. Since Section 502(a) (3) speaks of “other appro-

priate equitable relief * * * to redress” violations of the

Act or the terms of a plan, the provisions of Section 199

of the 1 Restatement (Second) of Trusts (1959) (entitled

“equitable remedies of beneficiary”), and especially Sec-

tion 199(¢e) (providing for a suit “to compel the trustee

to redress a breach of trust”), are therefore particularly

relevant. 1 Restatement (Second) of Trusts 437 (1959)

(emphases added). Section 199(c) provides damages as

an “equitable” remedy in appropriate cases: the comment

to Section 199/c), referencing Section 205 of the Re-

statement, explains that a “beneficiary can maintain a

suit to compel the trustee to redress the breach of trust.”

1 Restatement (Second) of Trusts 438 (1959). Section

205 provides monetary relief exclusively—in each of the

ten examples illustrating Section 205 a trustee is re-

quired to pay money to a beneficiary."

Moreover, like the traditional contract remedy, Section

205 provides make-whole relief. In addition to providing

1! For example, Illustration 5 provides: “A is trustee of $10,000

in cash. He deposits the money in a bank which he knows or has

reason to know is insolvent. The bank fails and A recovers only

$4000 from the bank. A is liable for the loss.” 1 Restatement

(Second) of Trusts 459 (1959). Illustration 6 similarly states:

“A is trustee of a house. In breach of trust he fails to insure it

against fire. The house burns. A is liable for the loss.” Jhid.

14

that a trustee must turn over any profit he made by com-

mitting a breach of trust, Section 205 provides that a

beneficiary has “the option of pursuing a remedy which

will put him in the position in which he was before the

trustee committed the breach of trust” or “of pursuing

a remedy which will put him in the position in which

he would have been if the trustee had not com-

mitted the breach of trust.” 1 Restatement (Second) of

Trusts 458 (comment a) (1959). Thus, “the general rule

[is] that the object of damages is to make the injured

party whole, that is, to put him in the same condition in

which he would have been if the wrong had not been

committed and the trustee had done his duty. Both direct

and consequential damages may be awarded.” G. Bogert

& G. Bogert, The Law of Trusts and Trustees § 701, at

-198 (1982) (liability for breach of investment duties) .’?

Accord Russell, 473 U.S. at 157 (Brennan, J., concur-

ring); Albemarle Paper Co. v. Moody, 422 U.S. 405,

418-419 (1975).

Thus, as the court of appeals ascertained, in appro-

priate circumstances monetary relief against a fiduciary

is available in equity “if necessary to do complete jus-

tice.” Pet. App. A17, citing Goldberg v. Medtronic, Inc.,

686 F.2d 1219, 1229 (7th Cir. 1982), and Walters v.

Marathon Oil Co., 642 F.2d 1098, 1100 (7th Cir. 1981);

see Russell, 473 U.S. at 154 n.10 (Brennan, J., concur-

ring). and Albemarle Paper Co., 422 U.S. at 418. Mone-

tary relief is thus not an exception to, but a particular

application of, general equitable principles, and it re-

quires no deviation from traditional trust doctrine to find

such relief included within “other appropriate equitable

relief.” To the contrary, “/u]nless a statute in so many

words, or by a necessary and inescapable inference, re-

12 For illustrative purposes, the treatise cites Estate of Talbot,

141 Cal. App. 2d 309, 296 P.2d 848 (Ct. App. 1956), in which the

trustees were liable for a breach that imposed a capital yains tax

burden on the beneficiaries of a trust.

15

stricts the court’s jurisdiction in equity, the full scope

of that jurisdiction is to be recognized and applied.”

Porter v. Warner Co., 328 U.S. 395, 398 (1946).

Construing Section 502{a)(3) to provide a remedy

that makes participants and beneficiaries whole for losses

directly and foreseeably resulting from violations of the

statute or the terms of a plan is particularly appropriate

in the case of employee benefit plans because a plan has

a dual character as both a contract and a trust.’* Con-

gress’s intent was for “courts * * * to develop a ‘federal

common law of rights and obligations under ERISA-

regulated plans.’” Firestone, 489 U.S. at 110, quoting

Pilot Life, 481 U.S. at 56; see also Franchise Tax Bu. V.

Construction Laborers Vacation Trust, 463 U.S. 1, 24

Prior to ERISA’s enactment, the courts and commentators

increasingly recognized the contractual nature of employee benefit

plans. Rochester Corp. v. Rochester, 450 F.2d 118, 120-121 (4th

Cir. 1971) (by rendering service for the period required under a

plan, the employee’s right is “no less contractual than if the plan

were expressly bargained for’ and “{wlhether the plan be con-

tributory or non-contributory, the benefits, thus earned, are not

gratuities”). Accord, Hoefel v. Atlas Tack Corp., 581 F.2d 1, 4-7

(Ist Cir. 1978) (endorsing the ‘modern view” as set forth in

Rochester over the “discredited ‘gratuity’ theory” and holding that

the plaintiffs had a “contractual right to their pensions’); Note,

Pension Plans and the Rights of the Retired Worker, 70 Colum. L.

Rev. 909, 916-919 (1979); 1A A. Corbin, supra, § 153, at 18-20

(1963). Since ERISA’s enactment, courts have continued to

recognize the relevance of contract law. Audio Fidelity Corp. v.

Pension Benefit Guaranty Corp., 624 F.2d 513, 517 (Ath Cir. 1980)

(refusing equitable reformation of plan because “|t|he plan was a

contract between [the employer] and its empioyees”) ; Chicago Dist.

Council V. Exhibition Contractors Co., 618-F. Supp. 234, 237-23

(N.D. Dl 1985); Vogel v. Independence Fed. Sav. Bank, 692 F.

Supp. 587, 591-592 (D. Md. 1988). Cf. UMWA Health & Retire-

ment Funds vy. Robinson, 455 U.S. 562, 573-575 & n.14 (1982)

(invoking trust and contract principles to delimit trustees’ obliga-

tions under post-ERISA collectively-bargained plan); Sinai Hosp.

of Baltimore, Inc. v. National Benefit Fund for Hosp. & Health Care

Employees, 697 F.2d 562, 565-566 (4th Cir. 1982) (reconciling

contract and trust principles as applied to employee benefit plan).

16

n.26 (1983); 120 Cong. Rec. 29,942 (1974) (remarks of

Sen. Williams) ; see Report of the Comm. on the Budget,

H.R. 3299, 101st Cong., Ist Sess. 55-56 (1989). In fact,

Congress expressly intended all actions brought under

ERISA “to be regarded as arising under the laws of the

United States in similar fashion to those brought under

section 301 of the Labor-Management Relations Act of

1947.” H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess.

327 (1974), reprinted in III Leg. Hist. 4594. Section

301, of course, not only confers jurisdiction on the fed-

eral courts, but also mandates recognition and develop-

ment of a substantive law of labor contracts. Pilot Life,

481 U.S. at 55-56; see Smith v. Evening News Ass’n, 371

U.S. 195, 199-200 (1962); Textile Workers Union v.

Lincoln Miils, 353 U.S. 448, 456-457 (1957). Thus, as

this Court indicated in Firestone, although “ERISA

abounds with the language and terminology of trust law”

(489 U.S. at 110), that law is not mutually exclusive of

contract law. Rather, in the context of construing ERISA

plans and “dealling] with issues involving rights and

obligations under private welfare and pension plans”

(Franchise Tax Bd., 463 U.S. at 24 n.26), the trust law

incorporated into ERISA is built on a solid foundation

of contract law.

Moreover, in enacting ERISA, Congress recognized

that “the typical employee benefit plan, covering hun-

dreds or even thousands of participants, is quite different

from the testamentary trust both in purpose and in na-

ture.” S. Rep. No. 127, 93d Cong., Ist Sess. 29 (1973),

reprinted in I Legislative History of the Employee Re-

tirement Income Security Act of 1974, at 615 (Comm.

Print 1976) [Leg. Hist.]; H.R. Rep. No. 533, 93d

Cong., Ist Sess. 12 (1973), reprinted-in II Leg. Hist.

2359. Congress therefore expected the courts to adapt

traditional trust law, “bearing in mind the special nature

and purposes of employee benefit plans intended to be

effectuated by the Act.” Jbid. The goal was to equip a

participant with the legal tools “to safeguard either his

ai 17

own rights or the plan assets.” Jbid. “[I]n enacting

ERISA Congress made more exacting the requirements

of the common law of trusts relating to employee benefit

trust funds.” Donovan v. Mazzola, 716 F.2d 1226, 1231

(9th Cir. 1983), cert. denied, 464 U.S. 1040 (1984) (em-

phasis added) ; see Sinai Hosp. of Baltimore, Inc. v. Na-

tional Benefit Fund for Hosp. & Health Care Employees,

697 F.2d 562, 565 (4th Cir. 1982). A remedy that makes

participants and beneficiaries whole for losses directly

and foreseeably resulting from the breach of the terms

of a plan—the remedy that would have been available in

the absence of ERISA—is accordingly warranted under

Section 502 (a) (3).

4. The court of appeals’ decision that Section 502

(a) (3) authorizes the damages respondents seek does

not conflict with Russell, for the precise reasons the court

gave. Specifically, both the “statutory bases” for the

claim in this case and “the nature of the alleged injuries

and relief sought” are materially different. Pet. App.

Al2.

As an initial matter, the plaintiff in Russell relied

solely on Section 409, and this Court’s opinion expressly

left open the question of the type of damages available

under Section 502(a)(3), the provision at issue here.

473 U.S. at 1389 & n.5. This distinction is critical be-

cause Section 409 focuses exclusively on duties owed to the

plan, rather than on duties owed to participants and their

beneficiaries. In construing Section 409’s authorization

of “other equitable * * * relief,” this Court viewed that

Section’s repeated emphasis on employee benefit plans as

excluding “an entirely new class of relief available to

entities other than the plan.” 473 U.S. at 142. In con-

trast, Section 502(a) (3) provides for private actions to

obtain “other appropriate equitable relief * * * to redress”

losses suffered by individual participants or beneficiaries

as the result of any violation of the Act or the terms of

the plan. Therefore, affording respondents a remedy that

18

makes them whole for losses directly and foreseeably

resulting from a breach of the plans under Section

502(a)(3) does not constitute a new class of extra-

statutory relief, but rather is consistent with the lan-

guage and purpose of the provision.

In addition, the decision below is not contrary to

Russell because it concerns only the recovery of damages

that would be available in a traditional contract action,

rather than the “extra-contraciual damages” that Russell

rejected. The plaintiff in that case alleged that the de-

fendants had delayed unreasonably in making medical

benefit payments, and sought punitive damages, damages

for aggravation of a psychological condition allegedly

caused by the delay, and damages resulting from the

cashing out of retirement savings allegedly necessitated

by the delay. 473 U.S. at 137. As we have noted (note 9,

supra), punitive damages and damages for emotional dis-

tress are not traditional contract remedies. Nor would

damages resulting from the cashing out of spouse’s funds

due to a delay in payment under a plan appear to be the

sort of directly foreseeable damages that are recoverable

under Hadley v. Baxendale, supra. In this case, in con-

trast, respondents allegedly lost tax benefits that are both

central to ERISA and contemplated by the terms of the

plan at issue. Thus, unlike the plaintiff in Russell, re-

spondents seek traditional contract damages rather than

an “extra-contractual” remedy.

For the same reason, and as the court of appeals ex-

plained (Pet. App. A18), the appellate cases relied on by

petitioners are distinguishable. Those cases involved

claims for punitive damages, damages for emotional dis-

tress or similar injury, or unspecified extra-contractual

damages."* No case involved a claim for lost tax benefits

4 See McRae vy. Seafarers’ Welfare Plan, 920 F.2d 819, 820 (11th

Cir. 1991) (seeking damages for emotional ¢istress, embarrassment,

humiliation, and damage to financial reputacion) ; Davis v. Kentucky

Finance Cos. Retirement Plan, 887 F.2d 689, 696-697 (6th Cir.

1989) (punitive damages), cert. denied, 110 S. Ct. 1924 (1990);

19

or loss of some other benefit that was expressly contem-

plated by the terms of the plan at issue. Thus, there is

no conflict among the circuits that warrants this Court’s

review.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

KENNETH W. STARR

Solicitor General

ROBERT P. DAVIS DAVID L. SHAPIRO

Solicitor of Labor Deputy Solicitor General

ALLEN H. FELDMAN CHRISTOPHER J. WRIGHT

Associate Solicitor Assistant to the Solicitor General

Kerry L. ADAMS

Counsel for Appellate Litigation

NATHANIEL I. SPILLER

Senior Appellate Attorney

Department of Labor

May 1991

Amos V. Blue Cross-Blue Shield, 868 F.2d 430, 431 (11th Cir.),

cert. denied, 110 8. Ct. 158 (1989) (punitive and unspecified extra-

contractual damages); United Steelworkers v. Connors Steel Co.,

855 F.2d 1499, 1508-1509 (11th Cir. 1988) (unspecified extra-

contractual damages), cert. denied, 489 U.S. 1096 (1989); Drink-

water V. Metropolitan Life Ins. Co., 846 F.2d 821, 824-825 (1st Cir.)

(punitive and extra-contractual damages for misrepresentation),

cert denied, 488 U.S. 909 (1988); Varhola v. Doe, 820 F.2d 809,

817 (6th Cir. 1987) (punitive damages); Sokol v. Bernstein, 803

F.2d at 534-539 (punitive damages); Hancock v. Montgomery

Ward Long Term Disability Trust, 787 F.2d 1302, 1306-1307 (9th

Cir. 1986) (unspecified extra-contractual damages); Powell v.

Chesapeake & Potomac Tel. Co., 780 F.2d 419, 424 (4th Cir. 1985),

(punitive damages and damages for emotional distress), cert. denied,

476 U.S. 1170 (1986).

©. &. GOveenwenr reomtine orrice, 1901 202061 20534