Petition for Writ of Certiorari — Reich v. Continental Casualty Co.

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OFFICE. OF THE CLERK

In the Supreme Court of the Giuted States

OCTOBER TERM, 1994

{OBERT B. REICH, SECRETARY OF LABOR, PETITIONER

CONTINENTAL CASUALTY COMPANY

AND

AMERICAN CASUALTY COMPANY OF READING,

PENNSYLVANIA, MEMBERS OF THE CNA INSURANCE

COMPANIES

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

DREW S. DAYS, III

Solicitor General

EDWIN S. KNEEDLER

Deputy Solicitor General

RICHARD P. BRESS

Assistant to the Solicitor

THOMAS S. WILLIAMSON, JR.

Solicitor of Labor

ALLEN H. FELDMAN

Associate Solicitor

NATHANIEL I. SPILLER General

Counsel for Appellate Department of Justice

Litigation Washington, D.C. 20530

INP) 474-9917

JUDITH D. HEIMLICH (202) 514-2217

Attorney

Department of Labor

Washington, D.C. 20210

QUESTION PRESENTED

Whether Section 502(a)(5) of the Employee Retirement

Income Security Act of 1974, 29 U.S.C. 1132(a)(5),

authorizes a cause of action by the Secretary of Labor

for equitable relief against a nonfiduciary who

knowingly participates with a plan fiduciary in a

violation of fiduciary duties under the Act.

(I)

TABLE OF CONTENTS

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ERMEUIEEEY MEOVIRIOINS EVORVOE ........ccccccccsesscccececccccccecscsccceses

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Reasons for granting the petition .................ceeesseeceeeeseeees

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TABLE OF AUTHORITIES

Cases:

Airparts Co. v. Custom Benefit Servs. of Austin, Inc.,

828 F. Supp. 870 (D. Kan. 1993), rev’d, 28 F.3d 1062

a ca desonamnsbbeneannninones

Amoco Prod. Co. v. Village of Gambell, 480 U.S. 531

i sees babenindutoedecnesceusees

Arakelian v. National Western Life Ins. Co., 755

Be Es MEME sciscctknxcechatacstociessensescocsscayes

Arakelian v. National Western Life Ins. Co., 755

Bg EE CIEE, BIED ecinuenhvicecarecsecssdcerencrcesecnssess

Blevins Screw Prods., Inc. v. Prudential Bache Sec.,

Inc., 835 F. Supp. 984 (B.D. Mich. 1998) .....................

Brock v. Gerace, 635 F. Supp. 563 (D.N.J. 1986) ..........

Brock v. Hendershott, 840 F.2d 339 (6th Cir. 1988) ......

Brock v. Lindemann, 689 F. Supp. 678 (N.D. Tex. 1987),

rev'd, 853 F.2d 1307 (5th Cir. 1988) .............ccccsccsccsccsees

Brown v. Gardner, No. 93-1128 (Dec. 12, 1994) ............

Casper Air Service v. Sun Life Assurance Co., 752 F.

I PE, BED nchinciednbecesecesecieveceveceseescsscenens

Central Bank v. First Interstate Bank, 114 S. Ct. 1439

ENE A REEREL ES SE SCE RO On

Central States, Southeast & Southwest Areas Pension

Fund v. Central Transport, Inc., 472 U.S. 559 (1985) ..

(III)

Cases—Continued: Page

Department of Revenue of Oregon v. ACF Indus., Inc.,

Se hs Gk Ie Ge eeanstaccteintietniianseticotiniieinninniinne 17-18

Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d

Be a as tasaaicintnastaiisectaaichcladicnla aiiaedaeasinds 11

District of Columbia v. Greater Washington Bd. of Trade,

OR Te ke re RE centiaahatilicaauanctaicicnee 21

Dole v. Compton, 753 F. Supp. 563 (E.D. Pa. 1990) ... 9, 20

Donovan v. Bryans, 566 F. Supp. 1258 (E.D. Pa.

ED vei ninaherscaccdsniccunsniansansnabiiebadisishianepadiebinslitag didi 10, 20

Donovan v. Daugherty, 550 F. Supp. 390 (S.D. Ala

PIE sitenisvicosssteleaudsislicinceltnsauniaaeaaiiabanssedgebbiaiaibiebiaaiie teks 10, 20

Donovan v. Schmoutey, 592 F. Supp. 1361 (D. Nev

PUUED . ‘csinsccasshiciatuiobenniansdudesnaiatamentdaneamniiaadiaetibinsiwendabae 10

Donovan v. Unicorn Group, 3 Employee Benefits Cas.

(Bred: SERe Tes 0 Se iii 10

Estate of Cowart v. Nicklos Drilling Co., 112 S. Ct. 2589

CUD <ducouccdtatsens oeunmtiasuasaredandaunimanbee ta labatsbiiatnes 17

Fink v. National Sav. & Trust Co., 772 F.2d 951

CEE 5s ED se citisnaichianisnacinxinlacxeeeaeniasnadies 11

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

CRETE -sxsisuscoussdesanamasiccpancesinnedtiemacdiaaasen 14, 19, 21

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

RE Ti Se. sade thitinccincciiatsbiaedbndidcnaunid 10

Framingham Union Hosp., Inc. v. Travelers Ins. Co.,

721 F. Supp. 1478 (D. Mass. 1989) .............cssscccscsssssees 10, 22

Framingham Union Hosp., Inc. v. Travelers Ins. Co.,

T44 F. Bape. BO (ED. Team GGG) coceecccscsseciececesecsczseccescess 9-10

Freund v. Marshall & Ilsley Bank, 485 F. Supp. 629

COE a ac Ie | aia sncencechonictoicnascaneneietatnadincess 10

Gruby v. Brady, 838 F. Supp. 820 (S.D.N.Y. 1998) ....... 12

Grun v. Pneumo Abex Corp., 808 F. Supp. 632 (N.D. IIl.

SUD svinesardickaicdacsaidsid bie aadtedaaaaenta ennai 10

Hecht Co. v. Bowles, 321 U.S. 321 (1944) ...... 15

Ingersoll-Rand Co. v. McClendon, 498 U.S. 133 (1990) .. 22

Kuper v. Quantum Chemical Corp., 838 F.Supp. 342

CRD. DR SEED nicehcticcintiitnnnmemniinnnes 12

Cases—Continued: Page

Kwatcher v. Massachusetts Serv. Employees Pension

Fund, 879 F.2d 957 (Ist Cir. 1989) ............ccccccccssseceeeees 23

Lowen v. Tower Asset Management, Inc., 829 F.2d 1209

CR Gai. REE sidecdahcreddidcclittiaichendndidibtendiiinsbahianaens 20

Martin v. Lundberg, 13 Employee Benefits Cas. (BNA)

1713 (N.D. Tex. 1991), aff’d in part, 18 F.3d 935

CEE Sa Te aki chs cenipeaanhetennlaindadate ln eed tintiesacinsins 9

McDougall v. Donovan, 5389 F. Supp. 596 (N.D. III.

SO ivncsvccdnnschisesssccsvsdandbdhasanasitalin’ dambanigsedaeadsassiin 10

McLaughlin v. Bendersky, 705 F. Supp. 417 (N.D. IIl.

BOTT — :\cinssncnncnencingiansnsaniddctvwisipamanaieliasaaadapiitadbeasinadennitel 10

McLaughlin v. Compton, 834 F. Supp. 743 (E.D. Pa.

1993), appeal pending, No. 93-2019 (8d Cir.) ................ 12, 13

McManus v. Gitano Group, Inc., 851 F. Supp. 79

CR tats. EE Hateade readin daanencknsaieihamnnciiiitiadsseninniiiin 12

Mertens v. Hewitt Associates:

948 F.2d 607 (9th Cir. 1991), aff’d, 118 S. Ct. 2063

CE satelite ettasnennaphncedenenntaunaciaeanacusbelians 11

113 S. Ct. 2063 (1998) ...............00 2, 6, 7, 9-10, 15, 17, 20, 22

Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288

CRIED bsinisacensiuaens caddiabhscnddcehdencasiienia cei themisiabinibaaastaets 20

New York State Teamsters Council Health & Hosp. Fund

v. Estate of DePerno, 816 F. Supp. 138 (N.D.N.Y.

1993), aff’d in part, 18 F.3d 179 (2d Cir. 1994) ............. 10

Nieto v. Ecker, 845 F.2d 868 (9th Cir. 1988) .............00+ 11, 18

Pension Fund—Mid Jersey Trucking Industry—Local

701 v. Omni Funding Group, 731 F. Supp. 161 (D.N.J.

TED. cnciscibcdidotnsessnstinitiacreanitaisessestaliedsaala tl cis tnktecdanniees 10

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987) ........ 22, 23

Porter v. Warner Holding Co., 328 U.S. 395 (1946) . 14, 15, 20

Reich v. Davidson Lumber Sales, Inc., Employees Retire-

ment Plan, Nos. 90-C-716W and 91-C-870J (D. Utah

BOIS BRAT VAP RUS theo fit slg Sn aes ek SIE 12

Reich v. Rowe, 20 F.3d 25 (1st Cir. 1994) .................00 12

Safe Deposit & Trust Co. v. Cahn, 62 A. 819

Es SPUN siccniadtciasdasisstsenacasctsicasadsianinisedahiadarwasiecsnennsedeas 19

Cases—Continued: Page

Secretary of Labor v. Fitzsimmons, 805 F.2d 682

EEE Gals TUENED sicceinavacnapansesdianbeinenibbinelanbabilaaaingiabidenes 22

Shaw v. Delta Air Lines, Inc., 463 U.S. 85 (1983) ........ 21, 23

Shofer v. Stuart Hack Co., 595 A.2d 1078 (Md. 1991),

Gout. Gemied, FEE BH. CR. URGE CHIR ccccccccccestssscosscccscccece 22

Strauss v. United States Fidelity & Guaranty Co.,

63 F.2d 174 (4th Cir.), cert. denied, 289 U.S. 747

GIETTD ‘nercunticensssanbopsansusdinuiphiacensea ede mabebanspiessodenies 19

Thornton v. Evans, 692 F.2d 1064 (7th Cir. 1982) ..... 8, 11, 20

UIU Severance Pay Trust Fund v. Local Union

No. 18-U, United Steelworkers, 998 F.2d 509

SE Ga EEE Picsdacuiptunatecndcauedidudbacchinnbatigeniidestwestiini 23

Useden v. Acker, 947 F.2d 1563 (11th Cir. 1991), cert.

GORENG, TED B. GCe, BERG GEIIGD ccctnrecccccccsnesscrssntssnsoserensans 11, 13

Weinberger v. Romero-Barcelo, 456 U.S. 305 (1982) ....... 15

Weir v. Northwestern National Life Ins. Co., 796 F.

RN, Se Cece ie DEED cuiccncbnlavecancstacesdamredcasiniedibtersvns 10

Whitfield v. Lindemann, 853 F.2d 1298 (5th Cir. 1988),

cert. denied, 490 U.S. 1089 (1989) ..................ccccseceeseeees 11

Statutes and regulation:

Employee Retirement Income Security Act of 1974,

Bee es Ge TI I ci bichinccstsececerceenstintaecsinniennenrnsdtnions 2

Bly ee es aad nbcanscipietvniocintntadensbehinaineninanen 20

i ee ele, IE siteiinenseesncinicanticinastnsinnenionson 17

De ks EE Kceenesastdeiccnencnndinindstesaneien 11

§ 3(21)(A)(i), 29 U.S.C. 1002(21)(A)(i) «2.00... 21

ni TE - sussineeitiquiptndénndtinapiaainmaninbamaalaeslaiamiaininiiiis 2, 17, 18

§§ 401-414, 29 U.S.C. 1101-1114 (1988 & Supp. V

TD iciacnienidsnecieesiaiiiaiaadaialsniaitianidadinaniniad tatiana tien 2,17

§ 404, 29 U.S.C. 1104 (1988 & Supp. V 1993) ............. 18

§ 404(a)(1)(A), 29 U.S.C. 1104(a)(1)(A) «0. 6

§ 404(a)(1)(B), 29 U.S.C. 1104(a)(1)(B) ....... ee. 6

SD SER Be TARA: TIRED vetcevecsnncctisnceccinescemeseennceese 2, 15a

§ 405(a)(1), 29 U.S.C. 1105(a)(1) 2.0... cece eens 17, 15a

S GORA), SD U.K. TATE) cccsencescecsecnsesinvicesscess 6

Vil

Statutes and regulation—Continued: Page

A ie Ns PID anenitetsceciecctecncsccncncnsnensenseus 2, 16a

Ms Ge CPEs, BED cistenctecrvnessasesernesveesenseennnsss 5

Pt. 5:

§ 502(a), 29 U.S.C. 1132(a) (1988 & Supp. V

ST ishnhcsiiiiasbadenanepelintinidsiehNbiabdcbsemensannbahinscentt 2, 10, 16a

$ GOZ(aNZ), 2B US.C. LIBB(aMZ) ........cc.cccccccrceeess 5, 16, 16a

§ 502(a)(3), 29 U.S.C. 1132(a)(8) ...............eeeeeeeee 2, 3, 6, 8,

10, 11, 16, 23, 17a

§ 502(a)(5), 29 U.S.C. 1132(a)(5) ............cecsccceeseees passim

§ 502(/), 29 U.S.C. 1132(l) (Supp. V 1998) ................. 16, 18a

§ 502(1)(1), 29 U.S.C. 11382()(1) (Supp. V 1993)... 2, 16, 18a

§ 502(1)(1)(A), 29 U.S.C. 1132(1)(1)(A) (Supp. V

PTET Ios teceinstinicakchienelsiccshianecbinhadeaiimmmeaibiailiaadaescabaanesein 17, 18a

§ 502(1)(1)(B), 29 U.S.C. 1132(1)(1)(B) (Supp. V

SUIT ls alicisatinstsbincinatiadainatiicannsiabuniiaimadasdiiennbesainbiinit, 17, 18a

§ 502(1)(2)(B), 29 U.S.C. 1132(1)(2)(B) (Supp. V

I ictal bi inset ee tinal ldcansadianrceiantniandnaiie 2, 16, 18a

FR le PEA, BOOED resenscosntinnicnncestosneceonnssiiotone 21

S BIST), BO UBC. TIAA D) ..cccccccscccceccceccncecescess 21

ie es. SID Giiiiecnisanincapundsiitiniintnistiniehinienslbeinendesneietn 5

Miscellaneous:

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

rs A a al cetanmnmnsciiiebunmnl 15, 19, 20

H.R. Rep. No. 533, 93d Cong., Ist Sess. (1973) ............... 21

Restatement of Restitution (1937) ..............cccceeeeeeeeeeeeeeees 8, 19

2 Restatement (Second) of Trusts (1959) ...........0. ee 15, 19

S. Rep. No. 127, 93d Cong., Ist Sess. (1973) .............:eeeeees 21

S. Rep. No. 383, 93d Cong., Ist Sess. (1973) ...............00000 19

A. Scott, Participation in a Breach of Trust, 34 Harv. L.

RFR ESE LEE ECO nT mS RTO 15

A. Scott & W. Fratcher, The Law of Trusts:

i Oe ID siisciiivancsctscsnsmcnbiniiniinenesdaaseecssaessnnie 15

ee I aisdenoss eninieitcbieedenns iaeehiitcseasticinenntess 15, 19

The Random House Dictionary of the English Language

OF i TED atciicsnccnccenteitiadlibeniiitenaisiacadantitiiiadeabibdeabinninetniviinsnss 13

Webster’s Third New International Dictionary (19886) ..... 13

In the Supreme Court of the Giited States

OCTOBER TERM, 1994

No.

ROBERT B. REICH, SECRETARY OF LABOR, PETITIONER

Vv.

CONTINENTAL CASUALTY COMPANY

AND

AMERICAN CASUALTY COMPANY OF READING,

PENNSYLVANIA, MEMBERS OF THE CNA INSURANCE

COMPANIES

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

The Solicitor General, on behalf of the Secretary of

Labor, petitions for a writ of certiorari to review the

judgment of the United States Court of Appeals for the

Seventh Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App., infra, la-8a)

is reported at 33 F.3d 754. The opinion of the district

court (App., infra, 9a-14a) is reported at 17 Employee

Benefits Cas. (BNA) 1099.

JURISDICTION

The judgment of the court of appeals was entered on

August 22, 1994. On November 14, 1994, Justice Stevens

(1)

extended the time within which to file a petition for a

writ of certiorari to and including December 20, 1994.

The jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

STATUTORY PROVISIONS INVOLVED

The pertinent provisions of the Employee Retirement

Income Security Act of 1974, 29 U.S.C. 1105(a), 1109(a),

1132(a), and 1132(/)(1) and (2), are reproduced at App.,

infra, 15a-18a.

STATEMENT

The Employee Retirement Income Security Act of

1974 (ERISA), 29 U.S.C. 1001 et seq., is the compre-

hensive federal statute that governs employee benefit

plans. The provisions of ERISA relating to fiduciary

responsibility are set forth in Part 4 of the Act,

29 U.S.C. 1101-1114 (1988 & Supp. V 1993). The civil

enforcement provision of ERISA, Section 502(a),

authorizes plan participants, beneficiaries, fiduciaries,

and the Secretary of Labor to bring various causes of

action. 29 U.S.C. 1132(a) (1988 & Supp. V 1993). In

particular, Section 502(a)(5) of ERISA authorizes the

Secretary of Labor to bring an action—

(A) to enjoin any act or practice which violates any

provision of this subchapter, or (B) to obtain other

appropriate equitable relief (i) to redress such

violation or (ii) to enforce any provision of this

subchapter.

29 U.S.C. 1132(a)(5). In Mertens v. Hewitt Associates,

113 S. Ct. 2063 (1993), a case involving claims against a

nonfiduciary for knowing participation in a fiduciary

breach, this Court held that the authorization of

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

29 U.S.C. 1132(a)(3) (the private party analog to Section

502(a)(5)) does not permit an award of compensatory

damages. This case raises a logically prior, and more

fundamental, issue that was discussed but left open in

Mertens: Whether the cause of action created under

Section 502(a)(3) (and thus under Section 502(a)(5) as

well) authorizes a suit for equitable relief against a

nonfiduciary who knowingly participates in a fiduciary

breach.

1. This case arises from the purchase of fiduciary

liability insurance by 21 individual trustees of the Hotel

Employees and Restaurant Employees International

Union Pension Pian and the Hotel Employees and

Restaurant Employees International Union Welfare

Plan (Plans) from Continental Casualty Company and

American Casualty Company of Reading, Pennsylvania,

Members of the CNA Insurance Companies (CNA).

Compl. 4 1, 4, 6 (A. 9, 10). In October 1984, the Plans

renewed a fiduciary liability insurance policy from CNA

that had been in effect since 1974. Compl. 9 7 (A. 11);

Stip. 74 7-8 (A. 37). The new policy, which covered

claims made during the period from October 18, 1984, to

October 18, 1987, provided $5 million for indemnity

coverage and $5 million for defense costs per year. The

Plans paid a total premium of $92,070 for the three-year

policy. Compl. ¥ 7 (A. 11); Stip. ¢ 10 (A. 37-38).

In September 1985, CNA notified the Plans that it was

cancelling the policy, effective October 17, 1985. Compl.

1 As discussed below, during an adjournment in the trial, the

district court dismissed the Secretary’s action against CNA for

failure to state a claim upon which relief can be granted, in light of

this Court’s intervening decision in Mertens. App., infra, 9a-14a.

Inasmuch as the court made no findings of fact, the references

herein are to various documents in the record. “A.” and “S.A.”

refer to the Appendix and Supplemental Appendix filed in the

court of appeals.

7 8 (A. 11); Stip. J 14 (A. 39). The cancellation followed

shortly after the presentation to CNA of a claim for

defense costs in Brock v. Gerace, 635 F. Supp. 563 (D.N.J.

1986), an ERISA action brought by the Secretary

against the Welfare Plan trustees and others. Stip.

{{ 12-13 (A. 38-39). In response to CNA’s cancellation of

the policy, the trustees caused the Plans to exercise an

option that, upon payment of a premium of $7531,

extended the policy period for claims filed against the

Plans and trustees for one year beyond the October 17,

1985, cancellation date. Compl. ¥ 9 (A. 11); Stip. 44 15-16

(A. 39-40). That extension applied, however, only to

claims based on wrongful acts committed by the trustees

before the cancellation date. bid.

At the same time, the trustees brought suit in state

court against CNA for its cancellation of the 1984-1987

policy. They obtained a temporary restraining order

blocking its cancellation. Stip. 94 17-18 (A. 40-41);

Hanley v. Continental Assurance Co., No. 85-CH-12468.

In March 1986, CNA issued Endorsement 7 (erroneously

referred to in the complaint as Endorsement 8) in settle-

ment of that suit, rescinded the one-year extension, and

refunded the $7531 premium that the Plans had paid for

the extension. Stip. J§ 22-25 (A. 42-44). Endorsement 7,

which is the focus of the instant case, replaced the

previous one-year policy extension with a policy

covering claims made from October 18, 1985, to October

18, 1987—the remaining two-year period covered by the

cancelled contract—for a premium of $970,000. Compl.

q 10 (A. 11-12); Stip. J] 22, 25 (A. 42-43, 44).

On its face, Endorsement 7 provided $2 million in

coverage for combined indemnity and defense costs, but

the $2 million limit was to be reduced dollar for dollar, by

up to $1 million, for claims to be paid by CNA as a result

of the litigation in Brock v. Gerace, supra. Stip. 4 22 (A.

42-43). The Secretary intended to prove at trial that,

well before March 1986, CNA knew, and the trustees

upon proper inquiry should have known, that the costs

relating to the Gerace litigation would exceed $1 million,

so that the coverage provided under Endorsement 7

would amount to no more than $1 million.2 Thus, the

Plans paid $970,000 for $1 million worth of insurance, to

cover the two-year time period for which it had initially

received $20 million worth of insurance ($5 million

indemnity and $5 million defense costs per year) at a two-

year premium cost of $61,380.°

2. The Secretary brought suit in the United States

District Court for the Northern District of Illinois

against the trustees and CNA, under Section 502(a)(2)

and (5) of ERISA, 29 U.S.C. 1132(a)(2) and (5). The

Secretary alleged that the payment of a $970,000 pre-

mium for $1 million of insurance coverage violated

ERISA’s fiduciary duty provisions. More particularly,

the Secretary alleged that, by paying nearly one dollar in

premium for each dollar of coverage, the Plans essen-

tially self-funded the risk of loss from fiduciary

breaches, in violation of ERISA’s prohibition against a

plan’s indemnification of fiduciaries for violations of

their fiduciary duties. 29 U.S.C. 1110(a); 29 C.F.R.

2509.75-4. Further, the Secretary maintained that

because Endorsement 7, at great cost to the Plans,

provided no net protection to the Plans and instead

* CNA argued below that defense costs in Gerace amounted to

$300,000 at the time Endorsement 7 was agreed to, and that CNA’s

total costs in connection with the Gerace litigation were at that

time uncertain. CNA C.A. Br. 10.

% Before agreeing to Endorsement 7, the trustees were unable

to obtain similar insurance from any insurer besides CNA. A. 50;

see S.A. 16.

served only the interests of the trustees, the trustees

acted imprudently and disloyally by renewing the policy,

in violation of Section 404(a)(1)(A) and (B) of ERISA,

29 U.S.C. 1104(a)(1)(A) and (B), and in their own

interests and to the detriment of the Plans, in violation

of Section 406(b)(1) of ERISA, 29 U.S.C. 1106(b)(1).

Compl. ¥§ 11-12 (A. 12). The Secretary alleged that CNA

knowingly and actively participated in the trustees’

breach of their fiduciary duties by selling Endorsement 7

to the Plans “for its own undue enrichment, as a result

of both the excessive premium it charged and its

avoid[a]|nce of the increased exposure to loss” that CNA

would otherwise have experienced under the initial one-

year policy extension. Compl. ¥ 13 (A. 12-13).

As relief, the Secretary sought rescission of Endorse-

ment 7, an order making the defendants jointly and

severally liable for the losses suffered by the Plans as a

result of the fiduciary breaches, disgorgement by CNA

of all payments it had received (plus interest) as a result

of the breaches, an injunction against future breaches,

and other just and equitable relief. Compl., Prayer for

Relief 44 1, 3-4, 7 (A. 13, 14). The trustees settled the

claims against them, and the case proceeded to trial

solely against CNA on the knowing participation claim.

During a lengthy adjournment in the Secretary’s case

in chief, this Court issued its opinion in Mertens v.

Hewitt Associates, 113 S. Ct. 2063 (1993); see App., infra,

9a-10a. In Mertens, before deciding that Section 502(a)(3)

of ERISA does not authorize an award of compensatory

damages, the Court noted that it was “unclear” whether

Section 502(a)(3) authorizes any relief at all against a

nonfiduciary who knowingly participates in a breach of

fiduciary duty. 113 S. Ct. at 2067.4 Because the

respondent in Mertens disclaimed reliance on that pre-

liminary point, however, the Court expressly “reserve[d]

decision” on the question whether “a remedial wrong

ha[d] been alleged.” Jd. at 2067-2068.

In light of the actual holding in Mertens, the

Secretary abandoned his request in this case that CNA

be held jointly and severally liable in damages for the

losses suffered by the Plans, and thereafter sought only

an order requiring CNA to disgorge the financial benefit

it had gained as a result of the trustees’ breaches. The

Secretary alleged that CNA was unjustly enriched by

$818,107, the amount by which Endorsement 7 reduced

the loss that CNA would otherwise have sustained.”

3. The district court dismissed the Secretary’s

claims for equitable relief. App., infra, 9a-14a. It ac-

knowledged that the discussion in Mertens questioning

the availability of equitable relief against nonfiduciaries

4 The four dissenting Justices, on the other hand, found “no

basis for doubting the validity of petitioners’ cause of action.” 113

S. Ct. at 2073 n.1.

®° CNA asserts that it lost $220,676 on Endorsement 7 due to a

May 1986 claim it paid. S.A. 22. The Secretary accepts the

$220,676 loss figure, but contends that CNA would have suffered a

far greater loss of $1,038,783 under the initial one-year extension.

Ibid. The Secretary’s allegation of the far greater loss is based on

the respective premiums ($970,000 versus $7531), interest earned,

various expenses, and the amount of the claim paid. Jbid. The

$818,107 in unjust enrichment represents the difference between

the two loss figures. Jd. at 22-24; A. 254. CNA disputes the

validity of the Secretary’s calculation, contending that the May

1986 claim related both to pre-1985 conduct and post-1985 conduct,

and that Endorsement 7 (which, unlike the original one-year

extension, covered claims based on post-1985 wrongful acts)

increased the Plans’ coverage (and CNA’s liability) with respect to

that claim. CNA C.A. Br. 10-12.

was dictum and that Mertens’ holding barring monetary

damages was not determinative of this case. /d. at 10a.

It also acknowledged that pre-Mertens Seventh Circuit

precedent recognized the existence of a cause of action

under ERISA against nonfiduciaries. J/bid. (citing

Thornton v. Evans, 692 F.2d 1064 (7th Cir. 1982)). The

court predicted, however, that the court of appeals would

follow the Mertens dictum, given the “Supreme Court’s

relatively extended and careful statement of its views on

the subject.” Jd. at 13a. On that basis, it held that

ERISA did not afford the Secretary a cause of action

against CNA.

4. The court of appeals affirmed. App., infra, la-8a.

As an initial matter, the court agreed with the Secretary

that restitution is the kind of “distinctively equitable

relief” that Mertens found authorized by Section

502(a)(3) of ERISA (and thus by Section 502(a)(5) as

well), because it “is a remedy commonly ordered in

equity cases and therefore an equitable remedy in a

sense in which damages, though occasionally awarded in

equity cases, are not.” App., infra, 4a, 5a. The court

further agreed that the relief sought by the Secretary in

this case for “the unjust avoidance of a loss” is properly

viewed as a claim for restitution. Jd. at 5a-6a.*

Turning to the question whether ERISA authorizes

equitable relief against nonfiduciaries, the court noted

that the discussion in Mertens respecting the issue was

dictum that it was not bound to follow; that the view

espoused by this Court reflected a construction of

Section 502(a)(5) that the Seventh Circuit “might not

embrace as an original matter”; and that it was

6 See Restatement of Restitution § 1 cmt. b, at 12 (1937) (a

person “confers a benefit not only where he adds to the property of

another, but also where he saves the other from expense or loss”).

Spirent rN en en ne

“impressed” by the Secretary’s argument that, absent

the availability of relief under ERISA against

nonfiduciary knowing participants, the Act’s preemption

of traditional state law causes of action would often leave

plans without any effective remedy for fiduciary

misconduct. App., infra, 3a, 6a-7a. The court stated,

however, that “[iJn areas of profound uncertainty,”

considered Supreme Court dictum “provides the best,

though not an infallible, guide to what the law is.” Jd. at

7a-8a. Solely on that ground it held that Section 502(a)(5)

precludes remedies against nonfiduciaries. bid.

REASONS FOR GRANTING THE PETITION

The court of appeals erred in holding that Section

502(a)(5) of ERISA, 29 U.S.C. 1132(a)(5), does not

authorize an action for equitable relief against a

nonfiduciary who knowingly participates in a trustee’s

violation of the fiduciary duties imposed by the Act. The

text of Section 502(a)(5) authorizes suit for “appropriate

equitable relief’ to “redress” fiduciary violations.

Nothing in that text, or in the structure or history of

the Act, suggests that, in providing such relief, the

courts are precluded from exercising their longstanding

authority to order restitution against a third party who

has profited from his knowing participation in a breach of

fiduciary duties.

The Secretary’s authority to obtain equitable relief

against nonfiduciaries is of substantial importance to his

ability to enforce the Act’s fiduciary standards and

protect the interests of covered employees and their

beneficiaries.’ Although the Court in Mertens v. Hewitt

7 See, e.g., Martin v. Lundberg, 13 Employee Benefits Cas.

(BNA) 17138, 1716 (N.D. Tex. 1991), aff’d in part, 18 F.3d 935 (5th

Cir. 1994) (Table); Dole v. Compton, 753 F. Supp. 563, 568-569

(E.D. Pa. 1990); Framingham Union Hosp., Inc. v. Travelers Ins.

Associates, 113 S. Ct. 2063 (1993), expressly reserved

judgment regarding the viability of a cause of action

under Section 502(a) against nonfiduciaries,” the

majority’s discussion of the issue has been treated by

many lower courts as equivalent to a holding, creating

Co., 744 F. Supp. 29, 33 (D. Mass. 1990); McLaughlin v. Bendersky,

705 F. Supp. 417, 421 (N.D. Ill. 1989); Brock v. Lindemann, 689 F.

Supp. 678, 682 (N.D. Tex. 1987), rev’d on other grounds, 853 F.2d

1307 (5th Cir. 1988); Brock v. Gerace, 635 F. Supp. 563, 569

(D.N.J. 1986); Donovan v. Schmoutey, 592 F. Supp. 1361, 1395-

1396, 1399, 1401, 1405 (D. Nev. 1984); Dovovan v. Bryans, 566 F.

Supp. 1258, 1266-1267, 1269 (E.D. Pa. 1983); Donovan v. Daugherty,

550 F. Supp. 390, 410-411 (S.D. Ala. 1982); Donovan v. Unicorn

Group, 3 Employee Benefits Cas. (BNA) 1665, 1666-1667 (S.D.N.Y.

1982); McDougall v. Donovan, 539 F. Supp. 596, 598-599 & nn.4-5

(N.D. Ill. 1982); Freund v. Marshall & Ilsley Bank, 485 F. Supp.

629, 641-642 (W.D. Wis. 1979).

The cause of action against nonfiduciary knowing participants

has also been an important component of enforcement by private

parties under Section 502(a)(3). See, e.g., New York State

Teamsters Council Health & Hosp. Fund v. Estate of DePerno,

816 F. Supp. 138, 148-149 (N.D.N.Y. 1993), aff’d in part, 18 F.3d

179 (2d Cir. 1994); Grun v. Pneumo Abex Corp., 808 F. Supp. 632,

636-637 (N.D. Ill. 1992); Weir v. Northwestern National Life Ins.

Co., 796 F. Supp. 846, 848 (E.D. Pa. 1992); Arakelian v. National

Western Life Ins. Co., 755 F. Supp. 1086, 1089 (D.D.C. 1990);

Arakelian v. National Western Life Ins. Co., 755 F. Supp. 1080,

1085-1086 (D.D.C. 1990) (aiding and abetting); Casper Air Service

v. Sun Life Assurance Co., 752 F. Supp. 1005, 1009-1010 (D. Wyo.

1990); Pension Fund—Mid Jersey Trucking Industry—Local 701 v.

Omni Funding Group, 731 F. Supp. 161, 178 (D.N.J. 1990);

Framingham Union Hosp., Inc. v. Travelers Ins. Co., 721 F.

Supp. 1478, 1488-1489 (D. Mass. 1989); Foltz v. U.S. News & World

Report, Inc., 627 F. Supp. 1143, 1168 (D.D.C. 1986).

8 The Court’s comments regarding Mertens in Central Bank v.

First Interstate Bank, 114 S. Ct. 1439, 1447 (1994), cannot be read,

therefore, to suggest that the Court definitively rejected the

availability of a cause of action against nonfiduciaries.

confusion in the lower courts respecting the validity of

pre-Mertens precedents on the question. Because the

issue is important and frequently recurring—and

because the Court expressly declined to resolve it in

Mertens—the question whether ERISA authorizes suit

against nonfiduciary knowing participants warrants

resolution by this Court.

1. Before Mertens, every court of appeals that

addressed the issue held that Section 502(a)(3) and (5)

authorizes equitable relief against nonfiduciaries who

knowingly participate in a violation of the Act’s fiduciary

requirements. See Diduck v. Kaszycki & Sons

Contractors, Inc., 974 F.2d 270, 279-281 (2d Cir. 1992);

Whitfield v. Lindemann, 853 F.2d 1298, 1303 (5th Cir.

1988), cert. denied, 490 U.S. 1089 (1989); Brock v.

Hendershott, 340 F.2d 339, 342 (6th Cir. 1988); Thornton

v. Evans, 692 F.2d 1064, 1078 (7th Cir. 1982); see also

Fink v. National Sav. & Trust Co., 772 F.2d 951, 958

(D.C. Cir. 1985) (dicta). Since Mertens, however, the

trend, as exemplified most recently by this case, is

9 Although the Ninth Circuit stated in Nieto v. Ecker, 845 F.2d

868, 873-874 & n.7 (1988), that Section 502(a)(3) permits equitable

relief only against nonfiduciaries who are “parties in interest” (as

defined by Section 3(14) of ERISA, 29 U.S.C. 1002(14)), it assumed,

without deciding, in Mertens v. Hewitt Associates, 948 F.2d 607,

612 (1991), aff’d, 113 S. Ct. 2063 (1993), that Section 502(a)(3) may

authorize restitutionary relief more generally in cases of unjust

enrichment. Similarly, the Eleventh Circuit, in Useden v. Acker,

947 F.2d 1563 (1991), cert. denied, 113 S. Ct. 2927 (1993), rejected

the availability of money damages against a nonfiduciary, but

suggested that Section 502(a)(3) and (5) may afford a cause of

action against nonfiduciaries for equitable relief. Jd. at 1580-1581

(“ERISA sections 502(a)(3) and 502(a)(5) authorize suits to enjoin

or obtain other equitable relief for ‘any act or practice’ violating

either the statute or the terms of a plan, without restricting the

types of parties who may be so sued.”).

against permitting equitable relief against a non-

fiduciary knowing participant. See Reich v. Rowe, 20

F.3d 25, 26 (1st Cir. 1994); Blevins Screw Prods., Inc. v.

Prudential Bache Sec., Inc., 835 F. Supp. 984, 986 (E.D.

Mich. 1993) (Hendershott no longer good law);

McLaughlin v. Compton, 834 F. Supp. 748, 752 n.7 (E.D.

Pa. 1993), appeal pending, No. 93-2019 (3d Cir.); Reich v.

Davidson Lumber Sales, Inc., Employees Retirement

Plan, Nos. 90-C-716W and 91-C-870J (D. Utah Dec. 22,

1993); but see Airparts Co. v. Custom Benefit Servs. of

Austin, Inc., 828 F. Supp. 870, 876-877 (D. Kan. 1993),

rev'd on other grounds, 28 F.3d 1062 (10th Cir. 1994)

(adhering to Hendershott); Gruby v. Brady, 838 F. Supp.

820, 834 n.15 (S.D.N.Y. 1993) (adhering to Diduck).

Other courts have noted, without resolving, the tension

between their Circuit’s precedents and the Mertens

dictum. E.g., McManus v. Gitano Group, Inc., 851 F.

Supp. 79, 82-83 (E.D.N.Y. 1994) (questioning whether

Diduck remains good law); Kuper v. Quantum Chemical

Corp., 838 F. Supp. 342, 347 n.1 (S.D. Ohio 1993)

(questioning whether Hendershott remains good law).

If the lower courts were merely reevaluating their

precedents in light of this Court’s actual holding in

Mertens, or in light of the reasoning underlying that

holding, it might be appropriate to postpone review to

permit the issue to percolate further in the courts of

appeals. But as the opinions of the lower courts make

clear, the decisions rejecting the availability of even

distinctly equitable relief against participating

nonfiduciaries were sparked not by this Court’s holding

on compensatory damages, but instead by its dictum

respecting the distinct threshold issue whether a cause

of action exists at all—an issue that was not fully briefed

or argued by the parties and that the Court expressly

left open. Moreover, in most cases, the courts have not

merely taken the views expressed in Mertens into

account in conducting their own independent analyses,

but have instead treated the Court’s tentative discussion

as though it were a holding precluding the application of

equitable remedies to nonfiduciaries. See, e.g., App.,

infra, Ta (Seventh Circuit expressing its unwillingness

to “buck the dictum”); McLaughlin v. Compton, 834 F.

Supp. at 746 (Mertens “compels” judgment against

Secretary); Blevins Screw Prods., 835 F. Supp. at 986

(Mertens “determined that ERISA does not authorize

suit against a nonfiduciary for knowing participation”)

(emphasis added).

2. The court of appeals’ holding that ERISA does not

authorize suits for equitable relief against non-

fiduciaries is incorrect. Section 502(a)(5) of ERISA

states that the Secretary of Labor may bring an action

“to enjoin any act or practice” that violates the fiduciary

requirements set forth in Part 4 of the Act, or “to obtain

other appropriate equitable relief * * * to redress such

violation.” 29 U.S.C. 1132(a)(5). The term “redress”

means “the setting right of what is wrong.” The

Random House Dictionary of the English Language

1617 (2d ed. 1987); Webster’s Third New International

Dictionary 1904 (1986). Nothing in the language of

Section 502(a)(5), or in the structure, history, or

purposes of the Act, limits the type of “equitable relief”

that may be granted or “the types of parties who may be

* * * sued,” Useden v. Acker, 947 F.2d 1563, 1581 (11th

Cir. 1991), cert. denied, 113 S. Ct. 2927 (1993), to “set

right” the wrongs that are committed against plans

through violations of the Act.

a. As this Court has noted, many provisions of ERISA

are phrased in expansive, general terms, consistent with

Congress’s intention and expectation that the courts

would, in fleshing out the meaning of those terms,

“develop a ‘federal common law of rights and obli-

gations’” under the Act. Firestone Tire & Rubber Co. v.

Bruch, 489 U.S. 101, 110 (1989). Recognizing that

“ERISA abounds with the language and terminology of

trust law,” ibid., this Court has looked to the

background of the common law, and particularly to its

established trust principles, in deriving that federal

common law and filling in the interstices of the Act. See,

e.g., id. at 111-115; Central States, Southeast &

Southwest Areas Pension Fund v. Central Transport,

Inc., 472 U.S. 559, 570 (1985). Here, Section 502(a)(5)’s

use of the phrase “appropriate equitable relief” is nat-

urally understood as referring to the common law for

further definition of the cause of action it creates. That

reference in turn points the way to the proper resolution

of this case, because under the law of trusts “equitable

relief” has traditionally encompassed suits for

restitution and other equitable remedies against a

nonfiduciary who knowingly participates in a trustee’s

breach of fiduciary duties.

In Porter v. Warner Holding Co., 328 U.S. 395, 398

(1946), this Court emphasized the breadth of a court’s

general equitable authority:

It may act so as to adjust and reconcile competing

claims and so as to accord full justice to all the real

parties in interest; if necessary, persons not

originally connected with the litigation may be

brought before the court so that their rights in the

subject matter may be determined and enforced. In

addition, the court may go beyond the matters

immediately underlying its equitable jurisdiction and

decide whatever other issues and give whatever other

relief may be necessary under the circumstances.

Only in that way can equity do complete rather than

truncated justice.

There can be no question that the courts’ equitable

powers, as described in Porter, are sufficiently broad to

permit relief against nonfiduciary knowing participants.

As the Court readily acknowledged in Mertens, “‘know-

ing participation’ liability on the part of both cotrustees

and third persons was well established under the

common law of trusts.” 1138 S. Ct. at 2067, citing 3 A.

Scott & W. Fratcher, The Law of Trusts § 224.1, at 404

(4th ed. 1988); see also 4 id. § 326, at 291 (4th ed. 1989);

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

§ 901, at 257 (rev. 2d ed. 1982); 2 Restatement (Second) of

Trusts § 326, at 124 (1959); A. Scott, Participation in a

Breach of Trust, 34 Harv. L. Rev. 454, 454 (1921).

This Court has counseled that Congress will be

understood not to have departed from traditional

principles of equity unless it has made plain its desire to

do so. Hecht Co. v. Bowles, 321 U.S. 321, 329-330 (1944);

see also Porter, 328 U.S. at 398 (“Unless otherwise

provided by statute, all the inherent equitable powers of

the District Court are available for the proper and

complete exercise of that jurisdiction.”); Weinberger v.

Romero-Barcelo, 456 U.S. 305, 313 (1982) (“[W]e do not

lightly assume that Congress has intended to depart

from established [equitable] principles.”); Amoco Prod.

Co. v. Village of Gambell, 480 U.S. 531, 542 (1987) (same).

Given the acknowledged and longstanding cause of action

in equity against nonfiduciary knowing participants,

Section 502(a)(5) of ERISA cannot, without a clear

statutory disclaimer, be read to exclude nonfiduciaries

from the scope of the Secretary’s enforcement powers.

As the dissent in Mertens noted, 113 S. Ct. at 3073 n.1,

the text of Section 502(a)(3) (which is directly parallel to

that of Section 502(a)(5)) contains no such disclaimer.

Significantly, the only other section of ERISA that

speaks to the issue, Section 502(l), 29 U.S.C. 1132(l)

(Supp. V 1993), provides strong support for reading

Section 502(a)(5) to permit relief against nonfiduciaries.

Section 502(/)(1) provides:

In the case of —

(A) any breach of fiduciary responsibility under (or

other violation of) part 4 of this subtitle by a

fiduciary, or

(B) any knowing participation in such a breach or

violation by any other person,

the Secretary shall assess a civil penalty against

such fiduciary or other person in an amount equal to

20 percent of the applicable recovery amount.

29 U.S.C. 11382(1)(1) (Supp. V 1993) (emphasis added).

Section 502(/)(2)(B) defines “applicable recovery amount”

to include “any amount * * * ordered by a court to be

paid by such fiduciary or other person_to a plan or its

participants and beneficiaries in a judicial proceeding”

initiated by the Secretary under Section 502(a)(2) or (5)

of ERISA. 29 U.S.C. 1132(1)(2)(B) (Supp. V_ 1993)

(emphasis added). The most natural reading of those

provisions, which refer specifically to amounts recovered

by the Secretary in judicial proceedings under Section

502(a)(5) against persons “other” than fiduciaries, is that

Congress understood that ERISA makes such relief

available against a nonfiduciary who participates in a

fiduciary breach, and that Section 502(/) was intended to

build upon that practice.

The Court in Mertens suggested that “other person”

in Section 502(/)(1)(B) might refer only to cofiduciaries,

who are liable for knowingly participating in a breach by

another fiduciary. 113 S. Ct. at 2070-2071. See 29 U.S.C.

1105(a)(1). That interpretation, however, is not a natural

reading of the provisicn; nor is it in harmony with the

overall structure of the Act. If Congress had intended to

refer only to cofiduciaries, it is unlikely that it would

have used the phrase “other person.” Both “person” and

“fiduciary” are defined terms under the Act. Compare 29

U.S.C. 1002(9) (“person”) with 29 U.S.C. 1002(21)

(“fiduciary”). The terms are not interchangeable. When

Congress used the far less restrictive term “person,” it

must be presumed to have done so intentionally, and to

have used that term in a manner consonant with its

meaning elsewhere in the Act. See Brown v. Gardner,

No. 93-1128 (Dec. 12, 1994), slip. op. 3; E'state of Cowart v.

Nicklos Drilling Co., 112 S. Ct. 2589, 2596 (1992).

Moreover, a reading of “other person” to mean only

“cofiduciary” is especially unlikely because it would

render Section 502(/)(1)(B) redundant. Section

502(/)(1)(A) authorizes assessment of a civil penalty

against any fiduciary who violates his duties under Part

4 of the Act, 29 U.S.C. 1101-1114 (1988 & Supp. V 1993),

which expressly includes, under 29 U.S.C. 1105(a)(1), the

duty to avoid “participat[ing] knowingly in” a breach by

another fiduciary. Because Section 502(/)(1)(A) thus

already provides the basis for assessing a civil penalty

against cofiduciaries who knowingly participate in

another fiduciary’s breach, interpreting “other person”

in Section 502(/)(1)(B) to mean only “cofiduciary” would

give no independent meaning to Section 502(/)(1)(B). “({A]

statute should be interpreted so as not to render one part

inoperative.” Department of Revenue of Oregon v. ACF

Indus., Inc., 114 S. Ct. 843, 848 (1994) (internal quotation

marks omitted).

There would of course be no question about Congress’s

intention to create a cause of action against nonfiduciary

knowing participants if it had imposed on third parties an

express duty to avoid knowing participation in fiduciary

breaches. Cf. 29 U.S.C. 1104 (1988 & Supp. V 1993)

(establishing fiduciaries’ duties under ERISA). The

absence of an express statutory duty should not be

interpreted, however, as an implied limitation on the

scope of the equitable cause of action created by Section

502(a)(5). As the Ninth Circuit explained in Nieto v.

Ecker, 845 F.2d 868, 873-874 (1988) (footnote omitted):

It is true that section 406(a) only prohibits certain

transactions by fiduciaries, and does not expressly

bar parties in interest from engaging in these

transactions. However, section 502(a)(3)’s language

expressly grants equitable power to redress

violations of ERISA; prohibited transactions plainly

fall within this category. Courts may find it difficult

or impossible to undo such illegal transactions

unless they have jurisdiction over all parties who

allegedly participated in them. In contrast to section

409(a), section 502(a)(3) is not limited to fiduciaries,

and there is therefore no reason to exempt parties in

interest from this remedial provision when they

engage in transactions prohibited by the Act.

That reasoning applies even more strongly in the

present context, in which the cause of action is

predicated on a third party’s knowing participation with

a fiduciary in a violation of the requirements of Part 4 of

the Act.

~—Moreover, the courts’ authority to afford relief against

nonfiduciaries at common law was not based on the

nonfiduciary’s violation of an independent duty to avoid

knowing participation in fiduciary breaches. Instead, the

cause of action was typically viewed as arising from the

duties imposed by equity on the breaching trustee. See,

e.g., Strauss v. United States Fidelity & Guaranty Co.,

63 F.2d 174, 178 (4th Cir.), cert. denied, 289 U.S. 747

(1933); Safe Deposit & Trust Co. v. Cahn, 62 A. 819, 822

(Md. 1906); see also, e.g., G. Bogert & G. Bogert, supra,

§ 901, at 257. Restitutionary relief against a non-

fiduciary was often accorded under a theory of con-

structive trust, whereby a third party who knowingly

gained possession of trust property as a result of a

fiduciary breach was deemed not to possess good title to

the property, but rather to hold the property for the

benefit of the trust. See Restatement of Restitution,

supra, §§ 160, 168, at 640, 684; 4 A. Scott & W. Fratcher,

supra, § 291, at 77; G. Bogert & G. Bogert, supra, § 868,

at 85; 2 Restatement (Second) of Trusts, supra, §§ 290-

297, at 56-82 (same)."°

b. The cause of action created by Section 502(a)(5)

should be construed in light of Congress’s purpose,

through ERISA, “to promote the interests of employees

and their beneficiaries in employee benefit plans.”

Firestone, 489 U.S. at 113. That principle derives from

the general precept that “[w]hen Congress entrusts to

an equity court the enforcement of prohibitions

contained in a regulatory enactment, it must be taken to

have acted cognizant of the historic power of equity to

provide complete relief in light of the statutory

1© Congress specifically contemplated that courts would have

authority to impose a constructive trust as “appropriate relief” to

redress a fiduciary violation. S. Rep. No. 383, 93d Cong., 1st Sess.

105 (1973). There is no indication that Congress intended to limit

that authority to actions against breaching fiduciaries.

purposes.” Mitchell v. Robert DeMario Jewelry, Inc.,

361 U.S. 288, 291-292 (1960); see also Porter, 328 U.S. at

398 (where the public interest is involved, courts’

equitable powers “assume an even broader and more

flexible character than when only a private controversy

is at stake”).

The central purpose of ERISA to safeguard the

interests of plan participants and beneficiaries, see

29 U.S.C. 1001, argues strongly for reading Section

502(a)(5), in a manner consistent with its text, to

authorize actions for equitable relief against non-

fiduciaries who knowingly participate in fiduciary

violations. Third parties can inflict great damage on

plans by such participation,'’ and in the absence of

authority to seek redress from nonfiduciaries the plans

will often not be made whole. Although a cause of action

always lies under ERISA against the breaching

fiduciary, as a practical matter it may be the non-

fiduciary, as in this case, who has profited from the

breach and who has the financial resources to provide

restitution.” It is doubtful that Congress intended to

1! See, e.g., Thornton, 692 F.2d at 1066-1071 (kickback scheme);

Lowen v. Tower Asset Management, Inc., 829 F.2d 1209, 1217 (2d

Cir. 1987) (transfer of plan assets to party in interest); Dole v.

Compton, supra (obtaining prohibited loans); Donovan v. Bryans,

566 F. Supp. at 1267 (acceptance by nonfiduciary of plan assets in

payment of fiduciary’s debt to nonfiduciary); Donovan v.

Daugherty, supra (acceptance by nonfiduciaries of plan coverage

and benefits to which they were not entitled); see generally

G. Bogert & G. Bogert, supra, § 901, at 262-264 (listing ways in

which third parties can knowingly participate in trustee’s breach).

2 Although ERISA has a broad, functional definition of

“fiduciary,” see Mertens, 113 S. Ct. at 2070-2072, that definition

does not include knowing participants in a fiduciary breach who

have not themselves exercised discretion regarding management

depart sub silentio from background principles of trust

law and prohibit federal courts from granting traditional

equitable relief to remedy the unjust enrichment of

nonfiduciaries.

If, despite the broad language in Section 502(a)(5) and

its clear common law antecedents, a cause of action

against nonfiduciaries for knowing participation in a

fiduciary breach is determined not to be authorized

under the Act, employees and their beneficiaries may,

contrary to Congress’s intentions, have less protection

than before ERISA was enacted, see Firestone, 489 U.S.

at 114, and nonfiduciaries may be permitted to escape

sanctions and keep the fruits of their misdeeds. That is

so because ERISA not only incorporates the common

law; it displaces the common law on matters relating to

plans.”

Section 514(a) of ERISA preempts any state laws that

“relate to” ERISA covered plans. 29 U.S.C. 1144(a). See

also 29 U.S.C. 1144(c)(1) (defining “State law” to include

decisional law); District of Columbia v. Greater Wash-

ington Bd. of Trade, 113 S. Ct. 580, 583 (1992) (Section

514(a) preempts any state law that has a connection with

or reference to an ERISA plan, even if the law is not

specifically designed to affect such plans and is

consistent with ERISA’s substantive requirements.).

Many state law causes of action that would serve to

of the plan or “any authority or control respecting management or

disposition of its assets.” 29 U.S.C. 1002(21)(A)(i).

3 Congress concluded that state laws offered inadequate

protection against fiduciary breaches, see S. Rep. No. 127, 93d

Cong., Ist Sess. 29-30 (1973); H.R. Rep. No. 533, 93d Cong., Ist

Sess. 12-13 (1973), and that employee benefit plans, which were

increasingly interstate, should not be subject to multiple and

possibly conflicting state regulation. See Shaw v. Delta Air Lines,

Inc., 463 U.S. 85, 98-100 (1983) (discussing legislative history).

remedy a nonfiduciary’s knowing participation in a

fiduciary breach might well be found to “relate to” an

ERISA plan, and therefore to be preempted by Section

514(a). See, e.g., Ingersoll-Rand Co. v. McClendon, 498

U.S. 133, 140 (1990) (state wrongful discharge action

premised on ERISA’s anti-retaliation provision pre-

empted); see also Mertens, 113 S. Ct. at 2071 (assuming

without deciding that state court actions for knowing

participation are preempted); id. at 2074 n.2 (White, J.,

dissenting) (“difficult to imagine” how any state common

law remedy could have survived ERISA’s preemption

provision); Pilot Life Ins. Co. v. Dedeaux, 481 US. 41,

48-52 (1987) (preempting state bad faith insurance

claim)."

14 That is not to say, however, that ERISA preempts all state

law claims against nonfiduciaries. See, e.g., Shofer v. Stuart Hack

Co., 595 A.2d 1078, 1083 (Md. 1991) (state law malpractice action;

citing other cases), cert. denied, 112 S. Ct. 1174 (1992); Fram-

ingham Union Hosp., 721 F. Supp. at 1489-1490 (same). State law

malpractice remedies do not obviate the need for a federal remedy

against nonfiduciaries, however, because not all nonfiduciaries owe

a professional duty to a plan that would render them answerable to

suit in a state malpractice action. Moreover, some actions of

professionals may not constitute malpractice even though those

actions may give rise to a claim for knowing participation liability.

Additionally, there may be questions regarding the capacity of

plan participants and beneficiaries, who may sue under ERISA, to

bring a state-law suit against nonfiduciaries for participating in the

breach of a fiduciary duty owed to their plan under ERISA.

Finally, the Secretary, who is responsible for enforcing the

provisions of Title I of the Act, would have no authority to bring a

suit directly under state law. See Secretary of Labor v.

Fitzsimmons, 805 F.2d 682, 690-694 (7th Cir. 1986) (en banc)

(noting that Secretary’s interest in ERISA action is separate and

distinct from that of private plaintiffs).

The necessary corollary to broad preemption, however,

is broad protection under ERISA.” UIU Severance Pay

Trust Fund vy. Local Union No. 18-U, United

Steelworkers, 998 F.2d 509, 512 (7th Cir. 1993) (the

federal courts’ “receptiveness to federal common law

notwithstanding the comprehensive character of ERISA

is the product of ERISA’s broad preemption provision”);

Kwatcher v. Massachusetts Serv. Employees Pension

Fund, 879 F.2d 957, 966 (1st Cir. 1989) (given ERISA’s

broad preemption of state law, “Congress specifically

contemplated that federal courts, in the interests of

justice, would engage in interstitial lawmaking in

ERISA cases”). To achieve the Act’s central purposes of

protecting participants and beneficiaries and preserving

plan assets, Section 502(a)(8) and (5) must be construed

to give full effect to the power that Congress conferred

on both private parties (participants, beneficiaries, and

fiduciaries) and the Secretary to redress fiduciary

violations.

The Court accordingly should grant review to settle

the question on which it expressly reserved judgment in

Mertens: Whether the courts have authority under

Section 502(a)(3) and (5) to grant “equitable relief,”

where “appropriate,” against nonfiduciaries who know-

ingly participate in fiduciary violations.

15 ERISA’s legislative history supports that view of the courts’

authority. The House and Senate passed bills that did not purport

to make employee benefit plans an exclusively federal area of

regulation. See Shaw, 463 U.S. at 98 & n.18 (discussing those bills,

which preempted only state laws relating to the specific subjects

covered by ERISA). When the conference committee changed

course and opted for broad preemption, however, id. at 98-99,

legislators expected courts to fashion a federal common law to fill

gaps in the Act. See Pilot Life, 481 U.S. at 55-56.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.

DREW S. DAYS, III

Solicitor General

THOMAS S. WILLIAMSON, JR.

on wibaty , EDWIN S. KNEEDLER

Solicitor of Labor

Deputy Solicitor General

ALLEN H. FELDMAN RICHARD P. BRESS

Associate Solicitor Assistant to the Solicitor

NATHANIEL I. SPILLER General

Counsel for Appellate

Litigation

JUDITH D. HEIMLICH

Attorney

DECEMBER 1994

BALGRAR PATHS

ESTAS ROC ITM CE HET t

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

No. 93-3467

ROBERT B. REICH, SECRETARY OF LABOR,

PLAINTIFF-APPELLANT

Vv.

CONTINENTAL CASUALTY COMPANY, ET AL.,

DEFENDANTS-APPELLEES

Argued April 22, 1994

Decided Aug. 22, 1994

BEFORE: POSNER, Chief Judge, and COFFEY and

RIPPLE, Circuit Judges.

POSNER, Chief Judge.

The Department of Labor appeals from the dis-

missal of a suit that it brought against an insurance

company for monetary relief under ERISA. The

trustees of a union pension fund had obtained from

Continental Casualty Company a one-year extension

of the fiduciary liability insurance policy that

Continental had previously issued to them. Accord-

ing to the Department of Labor, the extension

provided only $1 million in additional coverage yet

Continental charged a premium of $970,000 for the

extension and the fund paid the premium. The

(la)

Department sued both the trustees and Continental—

the trustees for having breached their fiduciary duty

to the fund by obtaining insurance for their own

protection at a price disproportionate to any possible

benefit to the fund, and Continental for having

knowingly participated in the trustees’ breach.

Relief sought included an order that “the defendants,

jointly and severally, . . . restore to the [pension

fund] all losses sustained as a result of the breaches

of fiduciary duties or participation therein” and that

Continental “disgorge all payments it received .. .

as a result of its participation in the breaches of

fiduciary duties.”

The claim against the trustees was settled, but for

less than the amount sought by the Department, so

the case proceeded to trial against Continental.

Midway in the trial the Supreme Court decided

Mertens v. Hewitt Associates, —— U.S. ——, 113

S.Ct. 2063, 124 L.Ed.2d 161 (1993), holding that the

remedial statute under which the plaintiff had

proceeded in that case—and the Department of Labor

in this one—did not, in authorizing injunctions or

“other appropriate relief,” authorize “money damages

. . . , the classic form of legal relief.” Id. —— U.S. at

——, 118 S.Ct. at 2068 (emphasis in original),

interpreting 29 U.S.C. § 11382(a)(3). The Court in

passing described restitution, in contrast to damages,

as a form of relief traditionally available in

equity, —— U.S. at ——, 113 S.Ct. at 2069, so the

Department in our case immediately reduced its

demand for relief against Continental to the net

amount that the insurance company had received for

the challenged extension, some $818,000 after

deduction from the premium of broker and other fees.

For restitution as normally understood in civil cases

seeks to deprive the defendant of money or any other

thing of value that he gained from tortious or

otherwise wrongful activity or that it would be

Egeard

unconscionable for him to retain because received

from the plaintiff in circumstances under which he

knew or should have known that the plaintiff expected

compensation. In either case the defendant would be

unjustly enriched if allowed to keep the gain; and

$818,000 is all that Continental gained from the

extension of coverage.

But en route to its interpretation of “other

equitable relief,” the Supreme Court in Mertens had

said that it was far from clear that a suit against a

party that was (in Mertens as in this case) not a

fiduciary but merely a knowing participant in a

fiduciary’s breach of duty was within the scope of the

statute, regardless of the nature of the relief sought.

The Court pointed out that no provision of ERISA,

which it described as a carefully drafted statute,

makes a nonfiduciary liable for knowing participation

in a fiduciary’s breach of duty, even though such

liability was well established under the common law

of trusts. But since the parties had assumed the

applicability of the statute and quarreled only over

the remedy, the Court decided to place decision on the

narrow ground that the statute did not authorize the

remedy of damages. Jd. —— U.S. at ——, 113 S.Ct. at

2067-68. The doubts that the Court expressed about

the existence of nonfiduciary liability under ERISA

thus were dictum, which we are not bound by and

which the Department of Labor urges us not to

follow.

There is an initial question whether restitution

should be classified as an equitable remedy; if not, the

Department cannot succeed, because the statute

confines it to equitable relief. Restitution is a

remedy historically and today dispensed in law and

equity proceedings alike. First National Bank v.

Warren, 796 F.2d 999, 1000 (7th Cir.1986); Medtronic,

Inc. v. Intermedics, Inc., 725 F.2d 440, 443 (7th

Cir.1984); 1 Dan R. Dobbs, Law of Remedies § 1.2,

p. 11; § 4.1(1), p. 556; § 4.1(3), pp. 564-65; §§ 4.2-4.3 (2d

ed. 1993). Whether it is equitable depends merely on

whether it is being sought in an equity suit. If the

beneficiary of a trust sought an accounting of the

profits of a defalcating trustee—a form of

restitutionary relief—the accounting if ordered

would be ordered in a suit in equity, and the remedy

thus would be equitable, while a suit seeking the

identical relief against a nonfiduciary would normally

be a suit at law and the relief sought therefore legal.

1 Dobbs, supra, § 4.3(5), pp. 608-14. A special wrinkle

here, however, is that the concept of liability for (in

effect) aiding and abetting a fiduciary’s misconduct

comes out of the law of trusts (as noted in Mertens,

see —— U.S. at ——, 118 S.Ct. at 2067; see also

Seminole Nation v. United States, 316 U.S. 286, 296,

62 S.Ct. 1049, 86 L.Ed. 1480 (1942); 4 Austin W. Scott

& William F. Fratcher, The Law of Trusts § 326,

p. 291 (4th ed. 1989)) which along with the closely

related concept of fiduciary obligation was invented

by equity judges. Mertens v. Hewitt Associates,

supra, —— U.S. at ——, 113 S.Ct. at 2068;

Chauffeurs, Teamsters & Helpers, Local No. 391 v.

Terry, 494 U.S. 558, 571 n. 8, 110 S.Ct. 1339, 1348 n. 8,

| 108 L.Ed.2d 519 (1990); 3 Scott & Fratcher, supra,

§ 197, p. 188. It is thus an equitable concept, so it can

be argued that the Department of Labor is seeking

restitution as an equitable remedy in an equity suit.

The Court’s search in Mertens was, however, for

distinctively equitable relief on the one hand and, on

the other, distinctively legal relief, such as damages,

which though sometimes awarded by a court of equity

under the “cleanup” doctrine, Medtronic, Inc. v.

Intermedics, Inc., supra, 725 F.2d at 442-43, is the

classic remedy at law; unfortunately restitution

straddles this divide. The Court may have seemed to

place it on the equitable side; other cases, too, have

described restitution as an equitable remedy. E.g.,

Chauffeurs, Teamsters & Helpers, Local No. 391 v.

Terry, supra, 494 U.S. at 570, 110 S.Ct. at 1347; Tull

v. United States, 481 U.S. 412, 424, 107 S.Ct. 1831,

1838, 95 L.Ed.2d 365 (1987). But we think it more

likely that all the Court meant in any of these cases

was that restitution, in contrast to damages, is a

remedy commonly ordered in equity cases and

therefore an equitable remedy in a sense in which

damages, though occasionally awarded in equity

cases, are not. Restitution is merely not an

exclusively equitable remedy like an injunction.

Granfinanciera, S.A.v. Nordberg, 492 U.S. 33, 49

n. 7, 109 S.Ct. 2782, 2794 n. 7, 106 L.Ed.2d 26 (1989);

United States v. Fountain, 768 F.2d 790, 801 (7th

Cir.1985); Austin v. Shalala, 994 F.2d 1170, 1176 n. 6

(5th Cir.1993). On this interpretation, which seems

the more plausible and conforms to a correct

understanding of both historical and current practice,

restitution is a legal remedy when ordered in a case

at law and an equitable remedy (rather than a legal

remedy pressed into service to provide complete relief

in an equity case—the rationale of the “clean up”

doctrine) when ordered in an equity case. This

interpretation helps the Department of Labor in this

case, since, although it was seeking restitution

against a nonfiduciary, the basis for its claim was a

duty founded on equitable rather than legal

principles. Had the Department’s claim gone to trial,

therefore, neither party would have been entitled to a

jury trial. Cf. Wardle v. Central States, Southeast &

Southwest Areas Pension Fund, 627 F.2d 820, 829

(7th Cir.1980); In re Vorpahl, 695 F.2d 318 (8th

Cir.1982).

But was the Department of Labor seeking

restitution? It was seeking not a profit, but merely a

receipt, an insurance premium, net of some expenses;

to call this a “profit,” it could be argued, would

convert every suit for the price of a contract into a

suit for restitution, contrary to the law. 1 Dobbs,

supra, § 4.1(2), p. 559. But what the Department was

really seeking, and what the concept of unjust

enrichment and its remedial corollary restitution do

encompass, was to recover a “negative unjust

enrichment,” consisting of the unjust avoidance of a

loss. 1 id., § 509, pp. 802-03; Dan B. Dobbs, Handbook

on the Law of Remedies: Damages-Equity-

Restitution § 4.5, p. 278 (1973). The Department’s

argument is that Continental Casualty was already

liable for the claims against the trustees that the

$1 million extension of coverage was ostensibly

obtained to cover, so that the $818,000 net premium

reduced its underwriting losses by that amount. It

benefited to that extent, and at the expense of the

pension fund. “Negative unjust enrichment” is a

clumsy term, but the concept is straightforward. If A

steals from B to pay a debt to C,A is unjustly

enriched at B’s expense, even though the conse-

quence of the theft was to reduce A’s obligation to C

rather than to put money in A’s pocket.

Why, if Continental was already liable for the

claims against the trustees, the trustees would pay

for the extension of coverage is not explained by this

theory; but we need not worry about this, for quite

apart from any doubts about the character of the

remedy sought the Department of Labor has no claim.

A niajority of the Supreme Court has made clear its

view that Congress’s omission to impose on

nonfiduciaries a duty not to participate knowingly in

an ERISA fiduciary’s breach of fiduciary obligations

was not inadvertent; that Congress knew that at

common law (including in that term the judge-made

law of equity) nonfiduciaries were subject to

“knowing participation” liability in trust cases, and

knowing this decided not to cast the net of ERISA

liability that wide. This is a strict constructionist’s

approach that we might not embrace as an original

Leen duende eee ee

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matter. ERISA is a detailed and carefully drafted

statute, true. But Congress is not omniscient, and

even its detailed and carefully drafted statutes

contain inadvertent omissions that courts might

properly undertake to rectify if satisfied that by

doing so they would not be upsetting a compromise—

satisfied, that is, that the omission was indeed

inadvertent rather than deliberate. We are impressed

by the Department’s argument that the scope of

ERISA’s preemption provision is so broad that

pension funds may well be remediless against know-

ing participants in fiduciary misconduct (its remedy

against the misbehaving fiduciaries themselves may

be inadequate because of the limitations of their

solvency, and proved to be so in this case), though the

force of this point is diminished by the fact that the

holding in Mertens, which we are not free to

question, strips the pension funds, or here their

surrogate the Department of Labor, of their principal

remedy—a suit for damages.

The Supreme Court considered all these points in

Mertens and found them unimpressive. The majority

opnion goes out of its way to throw cold water on the

idea of an implied liability of nonfiduciaries for

knowing participation in fiduciaries’ misconduct.

The discussion is dictum, but it is considered dictum.

If we thought the Court had overlooked some point

that might have altered its view, we would be less

reluctant to buck the dictum. But it appears not to

have. The Department’s brief in our case devotes

only a few pages to criticism of the Mertens dictum,

and the points it makes were addressed and rejected

by the Court.

Justice Holmes has been derided for claiming in

“The Path of the Law,” 10 Harv.L.Rev. 457, 461

(1897), that the law is merely a prediction of what the

courts will do. The theory has many weaknesses, but

also a valid core. In areas of profound uncertainty,

such as whether a statute that does not explicitly

impose duties on nonfiduciaries should be interpreted

as doing so implicitly because of the background of

trust law against which it was enacted and the

vagueness and breadth of “other appropriate relief”

with no specified limitation as to whom the relief can

be sought from, federal law is for all practical

purposes what the Supreme Court says it is. When

the Court’s view is embodied in a holding, the Court’s

reluctance to overrule its precedents enables a

confident prediction that that holding is “the law.”

When the view is embodied in a dictum, prediction

cannot be made with the same confidence. But where

it is a recent dictum that considers all the relevant

considerations and adumbrates an unmistakable

conclusion, it would be reckless to think the Court

likely to adopt a contrary view in the near future. In

such a case the dictum provides the best, though not

an infallible, guide to what the law is, and it will

ordinarily be the duty of a lower court to be guided by

it.

Thornton v. Evans, 692 F.2d 1064, 1078 (7th

Cir.1982), decided by this court many years before

Mertens, held that an ERISA plaintiff could obtain

relief against nonfiduciaries who conspired with a

fiduciary to violate the statute. The line between

conspiracy and knowing participation is so fine that

we have grave doubts, unnecessary however to

resolve in this case, that Thornton survived Mertens.

But we have no doubt that the district judge was

right to dismiss the Department’s suit on the

authority of Mertens.

AFFIRMED.

APPENDIX B

UNITED STATES DISTRICT COURT

N.D. ILLINOIS, E.D.

No. 89 C 7692

ROBERT REICH, SECRETARY OF THE UNITED

STATES DEPARTMENT OF LABOR, PLAINTIFF

CONTINENTAL CASUALTY COMPANY, ET AL.,

DEFENDANTS

July 2, 1993

MEMORANDUM OPINION AND ORDER

LINDBERG, District Judge.

Plaintiff, Robert Reich, Secretary of the United

States Department of Labor, brought this action

alleging violations of the Employee Retirement

Income Security Act of 1974 (ERISA), 29 U.S.C.

§ 1001, et seq., by the trustees of the Hotel Employees

and Restaurant Employees Internationa! Union

Pension and Welfare Plans in their purchase from

Continental Casualty Company (CNA) of fiduciary

liability insurance coverage and the knowing

participation by CNA in those violations. A bench

trial on plaintiff's claim against CNA was commenced

and then adjourned. During the adjournment, the

United States Supreme Court issued an opinion in

Mertens v. Hewitt Associates, 113 S. Ct. 2063 (1993),

10a

which opinion was brought to the attention of the

court by plaintiff. At plaintiff’s suggestion, the court

postponed resumption of the bench trial and ordered

the parties to submit memoranda regarding the

impact of the Mertens opinion on the claim against

CNA.

In his memorandun, plaintiff argues:

[T]he Mertens opinion in no manner impairs

the Secretary’s underlying claim for relief

against CNA as a non-fiduciary who knowingly

participated, to its financial benefit, in the

trustees’ fiduciary violations of ERISA. The

holdings in Thornton v. Evans, 692 F.2d 1064

(7th Cir. 1982), and Pappas v. Buck Con-

sultants, Inc., 923 F.2d 531 (7th Cir. 1991),

remain the controlling law in this circuit as to

the viability of such a claim. Rather, Mertens

solely addresses appropriate remedial relief

available against a non-fiduciary who

knowingly participates in a fiduciary breach to

its financial benefit. Thus, should the Secre-

tary prevail in his burden of establishing the

trustees’ breach of fiduciary responsibility and

CNA’s knowing participation in that breach,

the Court remains empowered to fashion relief

against CNA consistent with the Mertens

opinion: restitution to the Plans of the unjust

enrichment, or financial benefit, which CNA

received by reason of its knowing participation.

While it is true that the Court in Mertens did not

hold that a claim such as that against CNA is not

viable, it did very strongly suggest that this was so.

lla

Near the beginning of the opinion in Mertens, the

Court states:

We note at the outset that it is far from clear

that, even if this provision does make money

damages available, it makes them available for

the actions at issue here. It does not, after all,

authorize “appropriate equitable relief” at

large, but only “appropriate equitable relief”

for the purpose of “redress[ing any] violations

or . . . enforc[ing] any provisions” of ERISA

or an ERISA plan. No one suggests that any

term of the Kaiser plan has been violated, nor

would any be enforced by the requested

judgment. And while ERISA contains various

provisions that can be read as imposing

obligations upon nonfiduciaries, including

actuaries, no provision explicitly requires

them to avoid participation (knowing or

unknowing) in a fiduciary’s breach of fiduciary

duty. It is unlikely, moreover, that this was an

oversight, since ERISA does explicitly impose

“knowing participation” liability on

cofiduciaries. See § 405(a), 29 U.S.C. § 1105(a).

That limitation appears all the more deliberate

in light of the fact that “knowing

participation” liability on the part of both

cotrustees and third persons was well

established under the common law of trusts.

See 3 A. Scott & W. Fratcher, Law of Trusts

§ 224.1, p. 404 (4th ed. 1988) (hereinafter Scott

& Fratcher) (cotrustees); 4 Scott & Fratcher

§ 326, p. 291 (third persons). In Russell we

emphasized our unwillingness to infer causes

of action in the ERISA context, since that

statute’s carefully crafted and detailed enforce-

ment scheme provides “strong evidence that

Congress did not intend to authorize other

remedies that it simply forgot to incorporate

12a

expressly.” 473 U.S., at 146-147. All of this

notwithstanding, petitioners and their amicus

the United States seem to assume that

respondent’s action (or inaction) violated

ERISA, and address their arguments almost

exclusively to what forms of relief are

available. And respondent, despite considerable

prompting by its amici, expressly disclaims

reliance on this preliminary point. See Brief

for Respondent 18, n. 15; Tr. of Oral Arg. 46.

Thus, although we acknowledge the oddity of

resolving a dispute over remedies where it is

unclear that a remediable wrong has been

alleged, we decide this case on the narrow

battlefield the parties have chosen, and reserve

decision of that antecedent question.

Mertens v. Hewitt Associates, 113 S. Ct. 2063 (1993),

slip op at 5-6. The court, in addressing a point made

by the dissenting opinion, further states:

The dissent expresses its certitude that “the

statute clearly does not bar such a suit.” Post,

at 3, n. 1. That, of course, is not the issue. The

issue is whether the statute affirmatively

authorizes such a suit. To meet that require-

ment, it is not enough to observe that “trust

beneficiaries clearly had such a remedy

[against nonfiduciaries who actively assist in

the fiduciary’s breach] at common law.” [bid.

They had such a remedy because non-

fiduciaries had a duty to the beneficiaries not

to assist in the fiduciary’s breach. A similar

duty is set forth in ERISA; but as we have

noted, only some common-law “nonfiduciaries”

are made subject to it, namely, those who fall

within ERISA’s artificial definition of “fiduc-

iary.”

Mertens v. Hewitt Associates, 113 S. Ct. 2063 (1993),

slip op at 6, n 5.

Tiieneeeeeeneniesienemainammummalili

13a

Thus, a [sic] previously noted, plaintiff is correct to

the extent that the Court in Mertens did not hold that

claims such as the one against CNA in the case at bar

are not actionable under ERISA, and expressly

reserved decision on that issue. However, it would be

foolish for this court to ignore the Supreme Court’s

relatively extended and careful statement of its views

on the subject, which included a response to a

statement in the dissenting opinion, merely because

it is dicta. This is particularly true in light of the

strength of the statement of those views; in light of

the lack of any indication by the Court that it is

doubtful on the question.

This court believes that the Mertens opinion

precludes the claim plaintiff has brought against

CNA; and further, that, at such time as the issue is

presented to the United States Court of Appeals,

Seventh Circuit, that court will follow the view

expressed by the Supreme Court in Mertens.

Based upon the foregoing, the court concludes that

plaintiff has failed to state a claim upon which relief

can be granted against CNA, which is of course an

issue which may be raised at trial. FRCP 12(h)(2),

Rule 52 provides:

If during a trial without a jury a party has

been fully heard with respect to an issue and

the court finds against the party on that issue,

the court may enter judgment as a matter of

law against that party on any claim... that

cannot under the controlling law be maintained

... without a favorable finding on that issue ...

FRCP 52(c). Plaintiff has been fully heard with

respect to the issue of whether he has stated a claim

against CNA, the court has found against plaintiff on

that issue, and plaintiff's claim against CNA cannot

be maintained under the controlling law without a

l4a

favorable finding on that issue. The court

accordingly will enter judgment as a matter of law in

favor of CNA and against plaintiff on the claim

against CNA.

ORDERED: Judgment is entered in favor of

defendant CNA and against plaintiff, Robert Reich,

Secretary of the United States Department of Labor,

on plaintiff’s claim against CNA.

15a

APPENDIX C

STATUTORY PROVISIONS INVOLVED

The Employee Retirement Income Security Act of

1974, 29 U.S.C. 1001 et seg. (1988 & Supp. V 1993),

provides in pertinent part:

§ 1105. Liability for breach of co-fiduciary

(a) Circumstances giving rise to liability

In addition to any liability which he may have

under any other provisions of this part, a fiduciary

with respect to a plan shall be liable for a breach of

fiduciary responsibility of another fiduciary with

respect to the same plan in the following

circumstances:

(1) if he participates knowingly in, or

knowingly undertakes to conceal, an act or

omission of such other fiduciary, knowing

such act or omission is a breach;

(2) if, by his failure to comply with

section 1104(a)(1) of this title in the admin-

istration of his specific responsibilities

which give rise to his status as a fiduciary,

he has enabled such other fiduciary to

commit a breach; or

(3) if he has knowledge of a breach by

such other fiduciary, unless he makes

reasonable efforts under the circumstances

to remedy the breach.

se oe

l6a

§ 1109. Liability for breach of fiduciary duty

(a) Any person who is a fiduciary with respect

to a plan who breaches any of the responsibilities,

obligations, or duties imposed upon fiduciaries by

this subchapter 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. A fiduciary

may also be removed for a violation of section 1111

of this title.

§ 1132. Civil enforcement

(a) Persons empowered to bring a civil

action

A civil action may be brought—

(1) by a participant or beneficiary—

(A) for the relief provided for in sub-

section (c) of this section, or

(B) 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;

(2) by the Secretary, or by a participant,

beneficiary or fiduciary for appropriate relief

under section 1109 of this title;

17a

(3) by a participant, beneficiary, or

fiduciary (A) to enjoin any act or practice

which violates any provision of this subchapter

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 subchapter or the terms of the plan;

(4) by the Secretary, or by a participant, or

beneficiary for appropriate relief in the case of

a violation of 1025(c) of this title;

(5) except as otherwise provided in

subsection (b) of this section, by the Secretary

(A) to enjoin any act or practice which violates

any provision of this subchapter, or (B) to

obtain other appropriate equitable relief (i) to

redress such violation or (ii) to enforce any

provision of this subchapter;

6) by the Secretary to collect any civil

penalty under subsection (c)(2) or (i) or (Ll) of

this section;

(7) by a State to enforce compliance with a

qualified medical child support order (as

defined in section 1169(a)(2)(A) of this title); or

(8) by the Secretary, or by an employer or

other person referred to in section 1021(f)(1) of

this title, (A) to enjoin any act or practice

which violates subsection (f) of section 1021 of

this title, or (B) to obtain appropriate equitable

relief (i) to redress such violation or (ii) to

enforce such subsection.

18a

(1) Civil penalties on violations by

fiduciaries

(1) In the case of—

(A) any breach of fiduciary responsi-

bility under (or other violation of) part 4 of

this subtitle by a fiduciary, or

(B) any knowing participation in such a

breach or violation by any other person, the

Secretary shall assess a civil penalty

against such fiduciary or other person in an

amount equal to 20 percent of the applicable

recovery amount.

(2) For purposes of paragraph (1), the term

“applicable recovery amount” means any

amount which is recovered from a fiduciary or

other person with respect to a breach or

violation described in paragraph (1)—

(A) pursuant to any settlement agree-

ment with the Secretary, or

(B) ordered by a court to be paid by

such fiduciary or other person to a plan or

its participants and beneficiaries in a

judicial proceeding instituted by the

Secretary under subsection (a)(2) or (a)(5)

of this section.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.