Opposition Brief — Goeres v. Charles Charles Schwabab & Co Co., Inc. (No. 06-1521)

®

No. 06-1521

;

;

CHARLES SCHWAB & CO., INC., SCHWAB RETIREMENT

PLAN SERVICES, INC., and ADMINISTRATIVE

COMMITTEE OF THE SCHWABPLAN RETIREMENT

SAVINGS AND INVESTMENT PLAN,

Respondents.

On Petition ror A Wart OF CERTIORARI TO THE

Unrrep States Courr or ApreaLs

For THE NINTS Ciacurr

BRIEF IN OPPOSITION

Kim Ze2LDIn

Counsel of Record

RONALD S. KRavirz

LINER YANKELEVITZ SUNSHINE

& Recenstremr LLP

199 Fremont Street, 20* Floor

San Francisco, CA 94105

(415) 489-7700

Counsel for Respondents

211815 g

COUNSEL PRESS

(800) 774-3321 + (BOO) 399-6859

i

QUESTION PRESENTED

Whether this Court should grant certiorari to review a

question as to which the circuits are not in conflict, i.e.,

whether a former beneficiary of a 401(k) plan can recover,

as “equitable relief’ under Section 502(a)(3) of ERISA,

monetary damages allegedly resulting from a breach of

fiduciary duty affecting the value of his plan account.

ii

LIST OF PARTIES AND DISCLOSURE

STATEMENT PURSUANT TO RULE 29.6

The names of all parties to this proceeding are contained

in the caption of this case.

Respondent Charles Schwab & Co., Inc. is a 100%-

owned subsidiary of Schwab Holdings, Inc., which is a 100%-

owned subsidiary of The Charles Schwab Corp., a publicly

held corporation.

Respondent Schwab Retirement Plan Services, Inc. is a

100%-owned subsidiary of The Charles Schwab Corp., a

publicly held corporation.

Respondent Administrative Committee of The

SchwabPlan Retirement Savings and Investment Plan has no

parent corporation and no publicly held corporation owns

10% or more of its stock.

lil

TABLE OF CONTENTS

OF) EG 8) Bg do” ots yc: » Ee

LIST OF PARTIES AND DISCLOSURE

STATEMENT PURSUANT TO RULE 29.6 ....

TARA A GRIER GEERT: Ae nS east ew eeu wanes.

COUNTERSTATEMENT OF THE CASE ........

REASONS FOR DENYING THE PETITION .....

I. The Court Of Appeals Correctly Applied This

Court’s Settled Construction Of ERISA

OURO ET hs cae va wes avekes eee’

A. Great-West And Mertens ............

B. Petitioner Improperly Seeks Monetary

Losses Caused By The Decline In The

Value Of Schwab Stock And The Alleged

Delay In Receiving His Benefits ......

C. Trust Principles Do Not Support

PUtbOner S PORMION 266i ese aaas.

Il. The Court Of Appeals’ Determination That

Section 502(a)(3) Does Not Provide For

Monetary Relief Does Not Create A Conflict

Sl ane GE ob wk ea ses ewes

Page

iil

iv

Contents

Page

Ill. Petitioner’s Interpretation Of Section

$02(a)(3) Does Not Create An Issue Of

Exceptional Importance ..........05005: 1]

CRAIN CEM Wace Soke: NAL Se ee EMEA ADS 12

TABLE OF CITED AUTHORITIES

Page

Cases “

Armstrong v. Jefferson Smurfit Corp., 30 F.3d 11

COREE SE STN Sis hed bcs oe es te ee ees 10

Bowen v. Mass., 487 U.S. 879 (1988) ........... 6

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

SG IE 0 hoya 4 0s thd SARC a wR. 9

Callery v. U.S. Life Ins. Co. , 392 F.3d 401 (10th Cir.

4 ke Eis OOS Re eK VERE READS Ae 8

Carpenters Health & Welfare Trust for S. Cal. v.

Vonderharr, 384 F.3d 667 (9th Cir. 2004) ...... 6

Crosby v. Bowater Inc. Ret. Plan, 382 F.3d 587

RES os ob ek oo Kod a eR RA ENE 8, 10

Great-West Life & Annuity Co. v. Knudson, 534 U.S.

RI BR haa eu ae be a eS passim

Harris Trust & Sav. Bank v. Salomon Smith Barney,

Pg Bae Ae OD 6 8 hk ob ek bnew ewer 5

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

SR EE i tes WA eee aa ee dn ee 9

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

Ree es BE Fie kOe wk paw aee dss ees 10

vi

Cited Authorities

Page

LaRue v. DeWolff, Boberg & Assocs., Inc. , 450 F.3d

570 (4th Cir. 2006)

Mathews v. Chevron Corp., 362 F.3d 1172 (9th Cir.

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

Peralta v. Hispanic Bus., Inc., 419 F.3d 1064

(9th Cir. 2005)

Rego v. Westvaco Corp., 319 F.3d 140 (4th Cir.

Sereboff v. Mid Atl. Med. Servs., Inc., 1268S. Ct. 1869

(2006)

Tittle v. Enron Corp. (In re Enron Corp. Sec.,

Derivative & “ERISA” Litig.), 284 F. Supp. 2d

511 (S.D. Tex. 2003)

Todisco v. Verizon Commc’ns, Inc., No. 06-1957,

2007 WL 2231733 (1st Cir. Aug. 6, 2007)

Watkins v. Westinghouse Hanford Co., 12 F.3d 1517

(9th Cir. 1993)

vii

Cited Authorities

Page

Statutes

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

l

COUNTERSTATEMENT OF THE CASE

Petitioner Louis Gerard Goeres (“Petitioner”) alleges that

he was the beneficiary of the plan account of his domestic

partner, Stephen M. Ward, a participant in the SchwabPlan

Retirement Savings and Investment Plan (the “Plan”).'

Petitioner further alleges that Respondents Charles Schwab

& Co., Inc., Schwab Retirement Plan Services, Inc.,? and

Administrative Committee of the SchwabPlan Retirement

Savings and Investment Plan (“Respondents”) breached their

fiduciary duties with respect to his right to benefits under

the Plan, resulting in monetary losses exceeding $1,000,000.°

Specifically, in his complaint filed on May 14, 2004 in

the Northern District of California (“District Court”),

Petitioner alleges that Mr. Ward completed a beneficiary

designation form naming Petitioner as his primary beneficiary

under the Plan.‘ In January 2000, Petitioner informed Schwab

of Mr. Ward’s death and later provided Schwab with the death

certificate.° Petitioner then alleges he contacted (in January

or February 2000) Schwab Retirement Plan Services and

erroneously was told that he was not Mr. Ward’s beneficiary. °®

' Pet. App. 3.

2 Schwab Retirement Plan Services, Inc. is a record keeper and

not a fiduciary under the Plan.

> Pet. App. 5.

* Pet. App. 3-4.

* Pet. App. 4.

® Pet. App. 4.

2

Petitioner claims he did not receive notice he was the

beneficiary until May 15, 2001, and that the notice did not

adequately inform him of his distribution options as a non-

spouse beneficiary.’

Petitioner further alleges that these acts caused him

monetary harm through “investment losses.” He alleges that

the value of Mr. Ward’s plan account was $1.2 million in

December 1999, the month of Mr. Ward’s death, that the value

of the stock in the account increased to $1.6 million as of

June 30, 2000, and that the value of the stock decreased to

approximately $565,000 in 2004 when Petitioner requested

a distribution of the then-full value of the account from the

Plan.* Petitioner asserts that the investment losses would have

been avoided had Respondents provided him with an

application for benefits in a timely fashion after Mr. Ward’s

death and had Respondents adequately informed him of his

benefit distribution options.’

Petitioner sought “injunctive and other equitable relief”

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

Security Act of 1974, 29 U.S.C. § 1132(a)(3)."° In particular,

Petitioner asked that the District Court:

[o]rder that Defendants, and each of them, take

all steps necessary to place Plaintiff in the position

” Pet. App. 4.

* Pet. App. 5. The account held Schwab stock and a few smail

mutual fund positions.

9 Pet. App. 5.

'© Complaint 4 37, R.E. 7.

3

he would have been in had Defendants not

breached their fiduciary duty, including, but not

limited to, modifying the Retirement Plan’s

records to reflect Plaintiff's entitlement to a

distribution of Mr. Ward’s account valued as of a

date no later than June 30, 2000."

On July 1, 2004 Respondents moved to dismiss the

Complaint for failure to state a claim upon which relief could

be granted.’* In a Memorandum and Order dated September

28, 2004, the District Court granted Respondents’ motion to

dismiss, except as to Petitioner’s request for an injunction.'°

Petitioner appealed the case to the United States Court of

Appeals for the Ninth Circuit.'* After briefing and oral

argument, the Ninth Circuit affirmed the District Court’s

opinion.'* Petitioner filed a timely petition for a writ of

certiorari.'°

" Complaint § C of Prayer for Relief, R.E. 7.

'2 See Pet. App. 3; see U.S. District Court, California Northern

District, Civil Docket for Case # 3:04-cv-01917-CRB Doc. 5, R.E.

a2.

' Pet. App. 13. Petitioner subsequently withdrew his prayer

for injunctive relief pursuant to a stipulation of the parties. See U.S.

District Court, California Northern District, Civil Docket for Case #

3:04-cv-01917-CRB Doc. 31, R.E. 24.

4 Notice of Appeal, R.E. 17-18.

'S Pet. App. 1-2.

6 See Pet. Br.

4

REASONS FOR DENYING THE PETITION

I. The Court Of Appeals Correctly Applied This Court’s

Settled Construction Of ERISA Section 502(a)(3)

The Ninth Circuit Court of Appeals unanimously

affirmed the District Court’s decision for the reasons stated

by the District Court in its order granting the motion to

dismiss, noting that Sereboff v. Mid Atlantic Medical Services,

Inc., 126 S. Ct. 1869, 1875 (2006) did not undermine the

decision and that Peralta v. Hispanic Business, Inc., 419 F.3d

1064, 1076 (9th Cir. 2005) supports it."’

To dismiss Petitioner’s cor laint, the District Court

followed Great-West Life & A:. uity Insurance Co. v.

Knudson, 534 U.S. 204 (2002), underscoring that the

substance of the remedy Petitioner seeks is monetary

compensation (the loss in profits caused by the decline of

the Schwab stock) and rejecting Petitioner’s claim that

monetary relief typically was available in claims against

fiduciaries in courts of equity. The District Court noted that

suing a fiduciary does not transform monetary damages into

appropriate equitable relief.'*

Ignoring the plain language of Section 502(a)(3) and

misconstruing Supreme Court and Ninth Circuit precedent,

Petitioner argues that monetary relief against “breaching

fiduciaries was typically and exclusively available in equity”

and therefore all actions by participants or beneficiaries

against fiduciaries are “equitable” and within the meaning

'7 Pet. App. 1-2.

'§ Pet. App. 10.

5

of ERISA Section 502(a)(3), regardless of whether the relief

would be legal in nature if sought against a non-fiduciary.

Petitioner’s unsupported arguments have no basis in existing

law and should by rejected by the Court.

A. Great-West And Mertens

In Great-West and Mertens v. Hewitt Associates, 508 U.S.

248 (1993), the Supreme Court made clear that only equitable

relief may be obtained for breach of fiduciary duty under

ERISA Section 502(a)(3), which authorizes a civil action

by a participant, beneficiary, or fiduciary (A) to

enjoin any act or 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) (2004).'° The phrase “equitable relief”

refers “to those categories of relief that were typically

available in equity (such as injunction, mandamus, and

restitution, but not compensatory damages).” Mertens, 508

U.S. at 256. On the other hand, money damages, such as

those Petitioner seeks, are “the classic form of legal relief.”

Id. at 255.

“Almost invariably .. . suits seeking (whether by

[way of] judgment, injunction, or declaration) toe

'? Notably, the language of the statute does not draw any

distinction between equitable relief available against fiduciaries

versus non-fiduciaries. The Supreme Court‘has ruled that ERISA

Section 502(a)(3) actions are available against fiduciaries and non-

fiduciaries. Harris Trust & Sav. Bank v. Salomon Smith Barney Inc.,

530 U.S. 238, 249-53 (2000).

6

compel the defendant to pay a sum of money ...

are suits for ‘money damages,’ as that phrase has

traditionally been applied, since they seek no more

than compensation for loss resulting from the

defendant’s breach of legal duty.”

Great-West, 534 U.S. at 210 (quoting Bowen v. Mass., 487

U.S. 879, 918-19 (1988) (Scalia, J., dissenting)).

Through its emphasis on “categories of relief,” the Court

has made clear that in determining whether requested relief

falls within the meaning of “appropriate equitable relief”

under ERISA Section 502(a)(3), the key issue is the basis

for the plaintiff's claim and the nature of the underlying

remedy sought. See id. at 213; see Mertens, 508 U.S. at

255-59.

In Mertens, the Court specifically rejected an

interpretation of the statute that would extend the relief

obtainable under ERISA Section 502(a)(3) to whatever relief

a court of equity is empowered to provide. See 508 U.S. at

257-58. The Court concluded that such a reading would

“render the modifier [‘equitable’] superfluous.” /d. at 258.

The lower courts followed the distinction explained by

Mertens. See Carpenters Health & Welfare Trust for S. Cal.

v. Vonderharr, 384 F.3d 667, 671 (9th Cir. 2004) (the “critical

factor” is the substance of the remedy (citing Watkins v.

Westinghouse Hanford Co., 12 F.3d 1517, 1527-28 n.5 (9th

Cir. 1993)); see also Rego v. Westvaco Corp., 319 F.3d 140,

145 (4th Cir. 2003) (“Under Mertens, then, the relevant

question is not whether a given type of case would have been

brought in a court of equity, but whether a given type of relief

was available in equity courts as a general rule.”). In short,

aa

es

7

the Court’s reasoning in Great-West and Mertens directly

precludes Petitioner’s argument that whether the type of

action was historically brought in courts of equity determines

whether the relief is “equitable.”

B. Petitioner Improperly Seeks Monetary Losses

Caused By The Decline In The Value Of Schwab

Stock And The Alleged Delay In Receiving His

Benefits

Petitioner’s claim seeking the difference between the

value of his account when it was paid and what he contends

it would have been worth in the absence of Respondents’

alleged negligence is one for money damages, a

quintessentially legal remedy. Petitioner implicitly accepts

that the remedy he seeks is monetary damages and that if

Respondents were non-fiduciaries, the relief he seeks could

not be characterized as “equitable relief’ or brought under

ERISA Section 502(a)(3). He argues a suit by a beneficiary

against a fiduciary for money damages is always a claim for

equitable relief because courts of equity decided virtually

all breach of trust actions. This contention contradicts the

plain language of ERISA and the prior decisions of this Court,

which hold that it is the substance of the remedy sought, not

the type of claim or defendant, that determines whether the

requested relief is appropriate under ERISA Section

502(a)(3). See, e.g., Great-West, 534 U.S. at 213.

In addition to the Supreme Court’s decisions, all circuit

courts to have directly considered Petitioner’s argument after

this Court decided Great-West have rejected his position that

claims for monetary damages by a participant or beneficiary

against a fiduciary constitute claims for appropriate equitable

relief within the meaning of Section 502(a)(3). See infra

Part II.

8

C. Trust Principles Do Not Support Petitioner’s

Position

Lacking any argument based on the plain meaning of

Section 502(a)(3) and valid case law to support his position,

Petitioner argues that the monetary remedy he seeks is

“equitable relief’ because courts of equity historically

resolved suits against fiduciaries for breach of trust. This is

irrelevant. The Supreme Court has noted that in Mertens it

specifically considered and “rejected the claim that the special

equity-court powers applicable to trusts define the reach of

§ 502(a)(3).” Great-West, 534 U.S. at 219; see Mertens, 508

U.S. at 256-57. Therefore, Petitioner’s blanket reliance on

statements made in trust law treatises regarding the type of

causes of action historically decided by equity courts is

misplaced.”°

2 See Callery v. U.S. Life Ins..Co., 392 F.3d 401, 409 (10th

Cir. 2004) (“While the arguments of amici that we should look to

the common law of trusts and award monetary damages pursuant to

an equitable breach of trust by a fiduciary may have been compelling

before Great-West, they are not so now.”); Crosby v. Bowater Inc.

Ret. Plan, 382 F.3d 587, 596 (6th Cir. 2004) (“If it be argued that

Mr. Crosby’s position should be likened to that of a beneficiary of a

trust, who could invoke the jurisdiction of an equity court to enforce

a right to receive money from the trust, the short answer is that just

such an argument has been explicitly rejected by the United States

Supreme Court.”) (citing Great-West, 534 U.S. at 219); Rego, 319

F.3d at 145 (“[T]he scope of [available] relief is emphatically not

defined by reference to the ‘many situations’ at common law ‘in

which an equity court could establish purely legal rights and grant

legal remedies which would otherwise be beyond the scope of its

authority.’” (quoting Mertens, 508 U.S. at 256)); Tittle v. Enron Corp.

(In re Enron Corp. Sec., Derivative & “ERISA” Litig.), 284 F. Supp.

2d 511, 607-12 (S.D. Tex. 2003) (explaining and rejecting detailed

(Cont’d)

9

II. The Court Of Appeals’ Determination That Section

502(a)(3) Does Not Provide For Monetary Relief Does

Not Create A Conflict In The Circuit Courts

The six Courts of Appeal (the First, Fourth, Sixth, Eighth,

Ninth, and Tenth Circuits) to consider Petitioner’s argument

after the Supreme Court decided Great-West have flatly

rejected it. See Todisco v. Verizon Commc’ns, Inc., No. 06-

1957, 2007 WL 2231733 (Ist Cir. Aug. 6, 2007) (rejecting

plaintiff's claim for compensatory monetary damages to

which plaintiff claimed she was entitled due to defendant’s

failure to honor its oral representations); LaRue v. DeWolff,

Boberg & Assocs., Inc., 450 F.3d 570, 574-77 (4" Cir. 2006),

cert. granted 127 S. Ct. 1393 (Feb. 26, 2007) (affirming

denial of monetary damages for amount by which plaintiffs

retirement account would have appreciated had defendant

implemented plaintiff's investment strategy as instructed);

Calhoon v. Trans World Airlines, Inc., 400 F.3d 593, 598

(8th Cir. 2005) (rejecting attempted distinction between

fiduciaries and non-fiduciaries, the court noted that

Great-West’s broadly phrased reasoning forecloses

such an argument, .. . for the Court looked only

to “the nature of the relief sought” and whether it

was a Category of relief that was typically available

in equity); Callery v. U.S. Life Ins. Co., 392 F.3d

(Cont’d)

argument based on trust law treatises discussing actions against

trustees in equity); see also Helfrich v. PNC Bank, Ky., Inc., 267

F.3d 477, 482 (6th Cir. 2001) (money damages are not available in

an action based on Section 1132(a)(3) (citing Mertens, 508 U.S. at

255)). Moreover, the Ninth Circuit applied Great-West to an ERISA

fiduciary breach action in Mathews v. Chevron Corp., 362 F.3d 1172

(9th Cir. 2004) and gave no credence to Petitioner's argument.

10

401, 408-09 (10th Cir. 2004) (affirming judgment

on the pleadings in favor of defendant on claim

brought against fiduciary for face value of

insurance policy); Crosby v. Bowater Inc. Ret.

Plan, 382 F.3d 587, 596 (6th Cir. 2004) (rejecting

claim by plan participant against plan

administrator under ERISA Section 502(a)(3) for

additional lump sum benefits allegedly owed and

noting that it “is a distinction without a difference”

that the case does not involve liability that is contractual in

nature); Rego, 319 F.3d at 145 (noting the Supreme Court

has “squarely rejected” the argument that any remedy when

sought for breach of fiduciary duty is always an equitable

remedy); see also Tittle v. Enron Corp. (In re Enron Corp.

Sec., Derivative & “ERISA” Litig.), 284 F. Supp. 2d 511,

610-12 (S.D. Tex. 2003) (same).*!

Petitioner cites no post Great-West cases that have

considered his argument and accepted it.

The clear lack of a conflict in the circuit courts regarding

Petitioner’s Section 502(a)(3) argument warrants denial of

his petition for certiorari. This case, unlike the LaRue case

currently pending before this Court, does not involve a claim

under ERISA Section 502(a)(2). The LaRue decision created

a conflict in the circuit courts regarding the application of

502(a)(2). See, e.g., In re Schering-Plough Corp. ERISA

Litig., 420 F.3d 231 (3d Cir. 2005). If the Court does not

21 See also Armstrong v. Jefferson Smurfit Corp., 30 F.3d 11,

13 (ist Cir. 1994) (pre-Great-West, but post-Mertens, case rejecting

“rather weak” argument focused on distinction between suits against

fiduciaries and those against non-fiduciaries).

1]

reach the distinct Section 502(a)(3) question presented in

LaRue, it should not grant certiorari to address that question

here because there is no circuit conflict warranting review.

III. Petitioner’s Interpretation Of Section 502(a)(3) Does

Not Create An Issue Of Exceptional Importance

Petitioner incorrectly argues that the interpretation of

“other equitable relief’ Section 502(a)(3) is a significant and

recurring remedial issue that has generated pervasive

confusion and conflicting results in the lower courts.

Pet. Br. 13, 21-22. In fact, Great-West and Mertens set forth

a clear rule based on a plain reading of Section 502(a)(3).

Petitioner may wish to change Section 502(a)(3) to allow

claims for legal relief against fiduciaries who breach their

fiduciary duties under ERISA; however, it is a matter for

Congress and not the courts to change the law.

Petitioner incorrectly argues that should the Court not

overturn the Ninth Circuit’s decision, he and others like him

would not have a remedy. In fact, Petitioner had several

options available to him to remedy the issues relating to the

delay in receiving his benefits. First, as a beneficiary,

Petitioner had the option of filing a claim under Section

502(a)(1)(B) to recover benefits due under the Flan, to

enforce his rights under the Plan, or to classify his rights to

future benefits under the Plan. Thus, upon learning (in

January or February 2000) Respondents were not going to

immediately pay him, Petitioner could have made a claim

for benefits instead of waiting sixteen months to receive his

benefits and waiting over four years to request a distribution

of the account assets. He elected not to do so. Alternatively,

Petitioner immediately could have sued under Section

502(a)(3) to enforce the terms of the Plan. Instead, Petitioner

12

did nothing while the value of Schwab’s stock (and Mr.

Ward’s account) plummeted.

ERISA’s enforcement provision provided adequate

remedies to Petitioner had he elected to pursue them in a

timely manner. Petitioner’s effort to expand the relief

available under Section 502(a)(3) to include monetary relief

is nothing more than an inappropriate attempt to change the

plain meaning of Section 502(a)(3) and to shift the risk of

investment loss on Respondents.

CONCLUSION

For these reasons, the petition for a writ of certiorari

should be denied.

Respectfully submitted,

Kim ZELDIN

Counsel of Record

RONALD S. Kravitz

LINER YANKELEVITZ SUNSHINE &

REGENSTREIF LLP

199 Fremont Street, 20" Floor

San Francisco, CA 94105

(415) 489-7700

Counsel for Respondents