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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1995
- **Citation:** 513 U.S. 1152

## Text

94109 4 DEC 2 0 19%

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See

OFFICE. OF THE CLERK
In the Supreme Court of the Giuted States

OCTOBER TERM, 1994

{OBERT B. REICH, SECRETARY OF LABOR, PETITIONER
v.

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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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)

IV

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

VI

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
© Oe Ss ED seinsevtnttnncetaverincinienssnennene 17
§ 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)

2

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

3

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.

4

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.

5

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.

6

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

7

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.

8

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

9

“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.

10

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.

11

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.”).

12

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

13

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,

14

“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.

15

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,

16

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.

17

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

18

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

19

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.

20

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

21

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).

22

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).

23

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.

24

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)

2a

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

3a

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,

4a

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.,

Te

5a

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

6a

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

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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,

8a

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.

9a
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

V.

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;

ra

(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.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1021%3A1. Public record. Not legal advice.