# Opposition Brief — Harris Trust & Savings Bank v. John Hancock Mutual Life Insurance > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_2024%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1993 - **Citation:** 507 U.S. 986 ## Text No. 92-1259 hegre Qed, us. | IN THE Supreme Court of the United state | OcToBER TERM, 1992 | Wide Ue a HARRIS TRUST AND SAVINGS BANK, as Trustee of the Sperry Master Retirement Trust No. 2, Cross-Petitioner, v. JOHN HANCOCK MU TUAL LIFE INSURANCE COMPANY, Cross-Respondent. ON CROSS-PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT FTiy. ED BRIEF IN OPPOSITION TO CROSS-PETITION FOR A WRIT OF CERTIORARI Howarp G. KRISTOL Counsel of Record Rosert M. PEAK Jerrrey N. LEIBELL Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza Rosauig A. HAILey New York, New York 10111 John Hancock Mutual (212) 841-5700 Life Insurance se Attorneys for Cross-Respondent Company orneys f ? p RICHARD J.J. SCAROLA Of Counsel February 22, 1993 393 | sm Parties The parties to the action below were Cross-Respondent John Hancock Mutual Life Insurance Company (“Hancock”); Cross- Petitioner Harris Trust and Savings Bank (“Harris Trust”); counterclaim defendant Chase Manhattan Bank, N.A. (“Chase”), which was succeeded as trustee of the Sperry Master Retirement Trust No. 2 on October 1, 1987, by Harris Trust; and third-party defendants Sperry Corporation (“Sperry”) and The Retirement Committee of Sperry Corporation (“Sperry Retirement Committee”). Hancock is a mutual insurance company; it does not have any parent companies or subsidiaries to list pursuant to Rule 29.1. In 1986, Sperry merged with Burroughs Corporation and became Unisys Corporation (“Unisys”). The Sperry Retirement Committee was succeeded by the Unisys Pension Investment Review Committee. Hancock is informed and believes that shares of Unisys and shares of Chase are publicly traded. Additional- ly, petitioner is informed and believes that Harris Trust is acting as a party only in its capacity as trustee of the Sperry Master Retirement Trust No. 2 and is not otherwise affected by the out- come of this litigation, and that the Bank of Montreal is a parent of Harris Trust. Hancock is not aware of any other parent companies or sub- sidiaries to list pursuant to Rule 29.1. iia lilac TABLE OF CONTENTS Reasons for Denying the Cross-Petition.......... 2 I. THE CONTENTION THAT HANCOCK SHOULD BE DEEMED A FIDUCIARY UNDER ERISA WITH RESPECT TO GAC 50 ITSELF DOES NOT MERIT eS Se 3 A. There Is No Conflict between the Second Circuit’s Decision and the Decisions of Other Circuit Courts ..... 4 B. Harris Trust’s Contention Is in Conflict with Numerous Decisions in Other Se ee ~] Il. THE CONTENTION THAT HANCOCK IS SUBJECT TO ERISA FIDUCIARY DUTIES WITH RESPECT TO ALL THE ASSETS HELD UNDER GAC 50 DOES NOT MERIT REVIEW................. 9 A. The Second Circuit’s Decision Does Not Conflict with the Decision of Any Other Circuit Court................. ) B. Harris Trust’s Contention Is Wholly at Variance with the “Guaranteed Benefit wamey Meeeption................... 13 A Se 15 TABLE OF AUTHORITIES Cases Page Amato v. Western Union Int'l, Inc., 596 F. Supp. 963 (S.D.N.Y. 1984), aff'd in part, revd in part, 773 F.2d 1402 (2d Cir. 1985), cert. dismissed, 474 U.S. 1113 (1986) .............. 8 Associates in Adolescent Psychiatry, S.C. v. Home Life Ins. Co., 941 F.2d 561 (7th Cir. 1991), cert. denied, 112 S. Ct. 1182 (1992) .......... 6 Chicago Bd. Options Exch., Inc. v. Connecticut Gen Life Ins. Co., 713 F.2d 254 (7th Cir. rrr errs res rrr rr 4,5 Ed Miniat, Inc. v. Globe Life Ins. Group, Inc., 805 F.2d 732 (7th Cir. 1986), cert. denied, 482 if 7. ; Beer rrr Sree ere 4,5,6 F.H. Krear ¢> Co. v. Nineteen Named Trustees, 810 F.9d.1900 (24 Cir. 1067) .........2.05... 6-7 Hagan v. Kaiser Aluminum & Chem. Corp., 668 F. Supp. 1298 (E.D. Mo. 1987) .............. 8 Harris Trust ¢> Sav. Bank v. John Hancock Mut. Life Ins. Co., 722 F. Supp. 998 (S.D.N.Y. Peer eer eer rere re ctr errr 13, 14 Harris Trust ¢ Sav. Bank v. John Hancock Mut. Life Ins. Co., 767 F. Supp. 1269 (S.D.N.Y. | err rrr ewer: fon ore 3-4, 5 Harris Trust ¢¢ Sav. Bank v. John Hancock Mut. Life Ins. Co., 970 F.2d 1138 (2d Cir. 1992)... passim Jacobson v. John Hancock Mut. Life Ins. Co., 662 F. Supp. 1103, withdrawn, set aside and vacated, 662 F. Supp. 1112 (D. Conn. 1987) ..__ 10, 12 Levy v. Lewis, 635 F.2d 960 (2d Cir. 1980) ..... 8 Mack Boring and Parts Corp. v. Meeker Sharkey Moffitt, 930 F.2d 267 (3d Cir. 1991) ......... 10 vi Cases (cont'd) Page Peoria Union Stock Yards Co. Ret. Plan v. Penn Mut. Life Ins. Co., 698 F.2d 320 (7th Cir. ea SC ee 9-10, 1] Schulist v. Blue Cross of lowa, 717 F.2d 1127 Tk EERE eee ere ot Ae 6 Sutton v. Weirton Steel Div. of Nat7 Steel Corp., 567 F. Supp. 1184 (N.D. W. Va.), aff'd, 724 F.2d 406 (4th Cir. 1983), cert. denied, 467 ee ean 8 United Indep. Flight Officers, Inc. v. United Air Lines, Inc., 756 F.2d 1262 (7th Cir. 1985) .... 8 Useden v. Acker, 947 F.2d 1563 (11th Cir. 1991), petition for cert. filed sub nom. Useden v. Greenberg Traurig Hoffman Lipoff Rosen ¢- Quentel, 60 U.S.L.W. 3843 (U.S. June 1, 1992) 8 ee yr PPro he eae A 8 Statutes Employee Retirement Income Security Act of 1974, 29 U.S.C. § 1001 et seg................ passim 29 U.S.C. § 1101(b)(2)(B) ................... 13, 14 Legislative Material H.R. Rep. No. 1280, 93d Cong., 2d Sess., reprinted in 1974 U.S. Code Cong. & Admin. SR ee iy ote SMa ete - A ot, 4 Rules and Regulations Department of Labor cial Opinion 78-8A SS, WUE 2h Sa ua w coe ee hake’ 14 Department of Labor Advisory Opinion 83-51A Me MR WRI 6 bs 5a Quentel, 60 U.S.L.W. 3843 (U.S. June 1, 1992) (No. 91-1944).” The reasoning of Useden and of these other cases applies with equal force here. * See, e.g., Levy v. Lewis, 635 F.2d 960 (2d Cir. 1980); United Indep. Flight Officers, Inc. v. United Air Lines, Inc.. 756 F.2d 1262, 1268 (7th Cir. 1985): see also Hagan v. Kaiser Aluminum ¢ Chem. Corp., 668 F. Supp. 1298, 1301 (E.D. Mo. 1987); Amato v. Western Union Int1, Inc., 596 F. Supp. 963, 968 (S.D.N.Y. 1984), affd in part, rev'd in part, 773 F.2d 1402 (2d Cir. 1985), cert. dismissed, 474 U.S. 1113 (1986); Sutton v. Weirton Steel Div. of Nat Steel Corp., 567 F. Supp. 1184, 1201 (N.D. W. Va.), affd, 724 F.2d 406 (4th Cir. 1983), cert. denied, 467 U.S. 1205 (1984). ” The questions presented in the pending Petition for Writ of Certiorari in Useden do not affect the proposition for which that case is cited here. Those questions concern whether ERISA authorizes a monetary remedy against a non-fiduciary who knowingly participates in a fiduciary’s breach of duty. See 61 U.S.L.W. 3093 (U.S. Aug. 11, 1992). An insurer does not act in a fiduciary capacity when it exer- cises its rights under a General Account group annuity contract, because it cannot act “solely in the interest of” any one contrac- tholder without simultaneously breaching its obligations to its other contractholders. The Second Circuit’s holding merely con- firmed the conclusion reached by all the other courts that have considered this issue. I. THE CONTENTION THAT HANCOCK IS SUBJECT TO ERISA FIDUCIARY DUTIES WITH RESPECT TO ALL THE ASSETS HELD UNDER GAC 50 DOES NOT MERIT REVIEW Having persuaded the court below that Hancock should be subject to ERISA fiduciary duties with regard to the “free funds” under GAC 50, Harris Trust now claims that the Second Cir- cuit “did not go far enough.” Cross-Petition at 12. It contends that the Second Circuit should have held that Hancock is a fiduciary with regard to all the assets under GAC 50. Cross- Petition at 3. Despite Harris Trust’s assertions to the contrary, no circuit court has gone that far. There is no conflict, therefore, and no other reason why this Court should grant review. A. The Second Circuit’s Decision Does Not Conflict with the Decision of Any Other Circuit Court. The Second Circuit rejected Harris Trust’s contention that Hancock should be considered a fiduciary with respect to all the assets held under GAC 50. Rather, it found that “Hancock provides guarantees with respect to one portion of the benefits derived from the contract” (A-8 to A-9) and that, at least to the extent it provides for benefits guaranteed by Hancock, GAC 50 is a guaranteed benefit policy and Hancock does not act as a fiduciary in administer- ing it. (A-8) (emphasis added). Contrary to Harris Trust’s contention, that determination is not inconsistent with the opinions in Peoria Union Stock Yards Co. Ret. Plan v. Penn Mut. Life Ins. Co., 10 698 F.2d 320 (7th Cir. 1983), and Jacobson v. John Hancock Mut. Life Ins. Co., 662 F. Supp. 1103, withdrawn, set aside ¢> vacated, 662 F. Supp. 1112 (D. Conn. 1987), the two decisions ostensibly in conflict with the decision below! In any event, the opinions in Peoria Union and Jacobson are of limited preceden- tial value, as even the courts that issued them recognized. Peoria Union involved a contract which the Seventh Circuit described, on the basis of the pleadings before it, as one that (unlike GAC 50) did not provide guarantees with respect to any of the benefits derived from the contract.” Instead, the contract was said to involve a so-called “accumulation phase” during which the insurer did not guarantee any benefits. 698 F.2d at 327. As described by the Seventh Circuit, the employer could use funds accumulated in that phase to purchase annuities from the defendant insurance company or withdraw them to pur- chase the annuities from another insurer. Id. at 322. The employer had in fact withdrawn funds to purchase annuities on behalf of retired employees. Id. at 323. The sole issue considered in Peoria Union was whether the “guaranteed benefit policy” exception applied to the funds held by the insurer during the “accumulation phase.” It did not ad- dress whether the exception applied in any respect to benefits guaranteed under the contract or to the annuities purchased with funds withdrawn from the contract. While the Second Circuit found that GAC 50 has at all times had “free funds,” i.€., assets that the court characterized as “not referable to guaranteed benefits,” it is undisputed that GAC 50 " Peoria Union and Jacobson, to the extent that they hold that an insurance company has any fiduciary duty with respect to a General Account contract that provides for guaranteed benefits, are substantively incorrect for the reasons stated in Mack Boring and Parts Corp. v. Meeker Sharkey Moffitt, 930 F.2d 267 (3d Cir. 1991), and urged by Hancock in its Petition in Docket No. 92-1074. ° Peoria Union involved an appeal from the district court's dismissal of the complaint on the ground that it did not state a claim for relief under ERISA. 698 F.2d at 328. The Seventh Circuit reversed, holding that a claim for ERISA had been stated. Jd. at 327. 11 also contained substantial assets supporting guaranteed benefits (A-8)" Peoria Union does not conflict with the decision below, therefore, because it does not address ERISA’s applicability to that portion of a group annuity contract that supports guaranteed benefits.” Harris Trust’s argument, to the extent that it relies upon Peoria Union, fails for other reasons as well. Upon motion for rehear- ing, the Seventh Circuit expressly acknowledged the limited nature of its opinion, which “merely reverse[d] the dismissal of the complaint,” and it reserved judgment on a “number of arguments” concerning ERISA’s applicability that the court had not considered. 698 F.2d at 328. The Seventh Circuit’s candid statement that its opinion should not be regarded as dispositive of ERISA’s applicability to the contract at issue diminishes whatever precedential value it might otherwise have. For similar reasons, Jacobson, a district court decision within the Second Circuit, does not support Harris Trust’s contention. Like Peoria Union, Jacobson involved the question whether the insurance company defendant — Hancock — was an ERISA fiduciary with respect to assets held under a group annuity con- tract that were not associated with guaranteed benefits. Jacobson did not, as Harris Trust asserts, hold that “Hancock was an ERISA fiduciary as to all of the funds held under the ® In its Brief in Opposition to Petition for a Writ of Certiorari (“Opposition Brief”) in Docket No. 92-1074, Harris Trust acknowledged that “Hancock pro- vides guarantees with respect to one portion of the benefits derived from the contract.” Opposition Brief at 3. “ Harris Trust conceded as much in its Opposition Brief in Docket No. 92-1074. There, it stated: In Peoria Union Stock Yards Co. Retirement Plan v. Penn Mut. Life Ins. Co., 698 F.2d 320, 327 (7th Cir. 1983), the Seventh Cir- cuit recognized that group annuity contracts such as GAC 50 can be divided into guaranteed and non-guaranteed aspects for pur- poses of an ERISA analysis. In Peoria, the Seventh Circuit con- cluded that the non-guaranteed portion of the contract was governed by ERISA. Opposition Brief at 5. 12 contract.” Cross-Petition at 17. Quite the opposite: Jacobson held that the “guaranteed benefit policy” exception covers “that phase of a contract in which the obligation of the insurer to guarantee the benefits payable to plan participants is fixed.” 662 F. Supp. at 1108. Thus, Jacobson is flatly contrary to Harris Trust’s argument. Jacobson lacks significance for other reasons as well. To begin with, Jacobson is only a decision of a district court within the Second Circuit. The law of the Second Circuit is expressed in the decision below, not in Jacobson. Jacobson cannot properly be used, therefore, to support Harris Trust’s claim that there is a “conflict” between the circuits. F inally, the Jacobson decision lacks any precedential value, because it was subsequently withdrawn and vacated by the district court." * Harris Trust correctly characterized Jacobson in its Opposition Brief in Docket No. 92-1074: The principles articulated in Peoria have also been applied in the context of a contract nearly identical to GAC 50. Jacobson v. John Hancock Mut. Life Ins. Co., 655 F. Supp. 1290, withdrawn pur- suant to settlement, 662 F. Supp. 1103, 1112-13 (D. Conn. 1987). In Jacobson, the pension plan trustees alleged and the Court held that Hancock was an ERISA fiduciary with respect to funds held under a contract which were not associated with guaranteed benefits. Opposition Brief at 6 (emphasis added). “ In entering its order vacating its prior decision, the district court noted that “there are genuine issues with respect to whether, in enacting ERISA, Con- gress intended that insurance companies be deemed to be fiduciaries, as defined by ERISA, with respect to assets contributed pursuant to group annuity con- tracts and held in their general investment accounts .. . .” 662 F Supp. at 1113. The district court directed that its previous decision, together with the findings and conclusions therein, [be] withdrawn, set aside and vacated, and shall be of no force or effect for use against defendant, its successors and assigns, by plaintiffs, by the Pension Fund or by third parties, for collateral estoppel or other preclusive Purposes... . Id. 13 B. Harris Trust's Contention Is Wholly at Variance with the “Guaranteed Benefit Policy” Exception. Harris Trust argues that the Second Circuit’s decision misconstrues ERISA’s “guaranteed benefit policy” exception. The Second Circuit expressly found that “Hancock provides guarantees with respect to one portion of the benefits derived from the contract” (A-8 to A-9) and that, “at least to the extent it provides for benefits guaranteed by Hancock, GAC 50 is a guaranteed benefit policy” (A-8). Harris Trust contends, however, that the “crucial question” governing the applicability of the exception “is whether the availability of funds for benefits is dependent upon Hancock’s success or failure as an investor.” Cross-Petition at 14. That contention, of course, is totally di- vorced from the language of the exception, which states that a “guaranteed benefit policy” is “an insurance policy or con- tract to the extent that such policy or contract provides for benefits the amount of which is guaranteed by the insurer.” 29 U.S.C. § 1101(b)(2)(B).” The proposition urged by Harris Trust in its Cross-Petition, if adopted by this Court, would eviscerate the “guaranteed benefit policy” exception.” Vittually all General Account group " Harris Trust also argues that Hancock is a fiduciary with respect to all the funds held under GAC 50 since “Hancock has chosen to commingle assets back- ing its guarantees with those representing free funds.” Cross-Petition at 15. That argument lacks any factual basis: Hancock has not “chosen to commingle” any assets. Quite the contrary, as is clear in the record, GAC 50 expressly re- quires that the premiums received by Hancock be placed in Hancock's General Account (A-4). “ Harris Trust also urges that GAC 50 does not come within the “guar- anteed benefit policy” exception, because, in its view, GAC 50 is not an “insurance policy or contract” within the meaning of 29 U.S.C. § 1101(b)(2)(B), under tests that Harris Trust would import from cases construing the fed- eral securities laws. Cross-Petition at 20. That issue was put to rest by the district court on the basis of the undisputed facts discussed at length in Harris I (A-53 to A-56), and the Second Circuit did not disturb those findings. Moreover, the tests urged by Harris Trust have no application to an analysis of the “guaranteed benefit policy” exception. In effect, Harris Trust (Footnote continued) a 14 annuity contracts provide for some form of participation in the General Account’s investment experience, through, for exam- ple, the payment of a dividend. Every such participating con- tract will at times have associated with it what Harris Trust calls “free funds.” Under the construction urged by Harris Trust, no such participating contract would ever qualify under ERISA as a “guaranteed benefit policy,” even to the extent of guaranteed benefits. There is no support for such a result under the statute, its legislative or administrative history.” or any judicial precedent. Harris Trust’s contention that Hancock should be subject to ERISA fiduciary duties with respect to all the assets held under GAC 50 — despite the fact that the contract has at all times pro- vided substantial guaranteed benefits to plan participants — is contrary to the language of the statute and without any judicial support. The Cross-Petition fails, therefore, to present any col- orable basis for review. would have this Court engraft onto ERISA a prerequisite test for what con- stitutes “insurance” that is not required by the terms of § 1101(b)(2)(B). ” Harris Trust purports to rely upon two DOL advisory opinions, Advisory Opinions 78-8A (Mar. 13, 1978) and 83-51A (Sept. 21, 1983), to suggest that thee DOL would consider the extent to which “investments” are guaranteed in determining whether a General Account contract is a guaranteed benefit policy. Cross-Petition at 19-20. As Hancock's Petition in Docket No. 92-1074 points out, however, these opinions address separate account, not General Ac- count, contracts. Petition at 15. Moreover, as the district court noted in Harris I, they are merely advisory opinions that, under ERISA, may be relied upon only by the party submitting the request for an opinion and only to the extent the actual situation conforms to that described in the request (A-60). 15 Conclusion For all the foregoing reasons, the Court should deny Harris Trust’s Cross-Petition for a Writ of Certiorari. February 22, 1993 Respectfully submitted, . Howarp G. KrIsTou Counsel of Record Rosert M. Peak Jerrrey N. LerBeLy Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 (212) 841-5700 Attorneys for Cross-Respondent RosauieE A. HaAILey John Hancock Mutual Life Insurance Company RICHARD J.J. SCAROLA Of Counsel --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_2024%3A2. Public record. Not legal advice.