# Opposition Brief — Harley v. 3M Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2003
- **Citation:** 537 U.S. 1106

## Text

No. 02-566 |
ao
IN THE | 7 |

Supreme Court of the Gnited States

CAROL HARLEY, et al...
Petitioners,
V.

3M COMPANY, et al.,
Respondents.

On Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Eighth Circuit

BRIEF IN OPPOSITION

JOHN D. FRENCH JOHN G. KESTER *
STEVEN L. SEVERSON J. ALAN GALBRAITH

; . ELLINGBOE
DEBORAH A. ELLINGBOE WILLIAMS & CONNOLLY LLP

FAEGRE & BENSON LLP 725 12th Street, N.W.
2200 Wells Fargo Center Washington, D.C. 20005
9%) South Seventh Street (202) 434-5000

Minneapolis, Minnesota 55402
(612) 766-7000

Attorneys for Respondents

* Counsel of Record

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 -— WASHINGTON, D.C. 20001

QUESTIONS PRESENTED

1. Were participants in a “robust, richly-funded” defined-
benefit pension plan that had a substantial surplus never-
theless authorized under ERISA 29 U.S.C. § 1132 to sue to
obtain additional surplus, following an investment loss that
had no effect on the adequacy of the plan’s funding to pay
benefits, and that the defendant employer already had volun-
tarily restored by excess contributions?

2. Did the Court of Appeals properly affirm unanimously
the District Court’s factual finding that a particular fee paid to
an investment adviser of an ERISA plan, when there was no
claim of intentional misconduct, was not unreasonable, and
therefore was not actionable under ERISA?

(i)

ii
LIST OF PARTIES

Respondent 3M Company is a publicly-held corporation.
It has no parent companies, and no publicly-held corporation
owns 10% or more of its common stock. Other parties are
stated in the petition.

TABLE OF CONTENTS

Page
QUESTIONS PRESENTED..........:ccccssssssseseressesereeseees i
LIST OF PARTIES. .....0:scscoscoscssesssssonscocescesensvsvesnsovesssoses ii
TABLE OF AUTHORITIEG ...............cssccsssessrsesseessesens iv
ST ATE T vessveveccesscssvsssscassesercessssscecosoveccnencesocoonenscese I
REASONS FOR DENYING THE WRIT ............:ee0e0+ 5
I. THIS CASE INVOLVES UNUSUAL FACTS
AND LACKS GENERAL SIGNIFICANCE .... 5
Il. THE DECISION OF THE COURT OF
APPEALS CONFORMS TO THIS COURT'S
DICTION G oeesivcssseseseiccccssesecavoveebsvevcsovevsesesessones 9
A. The Decision Correctly Interprets ERISA
in Light of This Court’s Holdings................ 10
B. The Decision Is Clearly in Accordance
With the Trust Principles Upon Which
ERISA Is Based ............ccccccssscsessssreresseecners 12
C. Petitioners’ Interpretation Would Under-
~ mine the Purposes of ERISA ...........:csseessees 14
Ill. THERE IS NO CIRCUIT CONFLICT.............. 15
IV. THE RULING CONCERNING REASON-
ABLENESS OF AN INVESTMENT AD-
VISER’S COMPENSATION WAS NOT
ERRONEOUS AND DOES NOT MERIT
THIS COURT'S REVIEW. .......ssssssssssnseressesesees 17
CONCLUSION .......0cesccscsssssssvccrccscccceseressvessssssrssecsescssees 20
ADDENDUM
Opinion of district Court, Dec. 7, 2000 ..........s:sese00 la

(ili)

iV

TABLE OF AUTHORITIES
Cases: Page
ABF Capital Met. v. Askin Capital Met., L.P.,
957 F. Supp. 1308 (S.D.N.Y. 1997).......cccccseesees 2
Alessi v. Raybestos-Manhattan, Inc., 451 U.S.
FIG CIO EP vsnsecsescnitesnaiasveiatinitinseviaintmicaentvisesnaniannse 15
Amalgamated Clothing & Textile Workers Union
v. Murdock, 861 F.2d 1406 (9th Cir. 1988)....... 16
Astoria Fed. Sav. & Loan Ass'n v. Solimino, 501
PS, BG CEE Piciinteninsnevicisecininnicnncineniartnenebiintes 13

Bennett v. Conrail Matched Sav. Plan Admin
Committee, 168 F.3d 671 (3d Cir.), cert.
denied, 528 U.S. 871 (1999) .....cccccccseeeseeseees 9

Brink v. DaLesio, 667 F.2d 420 (4th Cir. 1981)... 16

Call v. Sumitomo Bank, 881 F.2d 626 (9th Cir.

Central States, SE & SW Areas Pension Fund v.
Central Transport, Inc., 472 U.S. 559 (1985) ... 12

DeFunis v. Odegaard, 416 U.S, 312 (1974).......... 11,12
Diamond v. Charles, 476 U.S. 54 (1986) .............. 7
FEC v. National Conservative Political Action

Committee, 470 U.S. 480 (1985) 00... eeeeeeeees 14
Financial Institutions Retirement Fund v. OTS,

SEG Fe BE ae aly ee intertetdaneceennnieentiniin 17
Firestone Tire & Rubber Co. v. Bruch, 489 U.S.

FE vetcinicinnnnietccaclindinniedknddiatbincnddibinisn 12

Friends of the Earth, Inc. v. Laidlaw Environ-
mental Services (TOC), Inc., 528 U.S. 167

CHIE cinssiindakinmstentiioniincneatitoniavceltintia sciiatinalsbiaeiine 7
Granny Goose Foods, Inc. v. Brotherhood of

Teamsters, 415 U.S. 423 (1974) .....ccccccccesesseeees 11
Hall v. Beals, 396 U.S. 45 (1969)........ccccsccssesseesees 12
Hughes Aircraft Co. v. Jacobson, 525 U.S. 432

CFI cnnccsseniiiitiicahincniiinicapiilicadamibitinitanininnalatinte GS

ENS ¥.. St. Cy, S53 UB. Be RF ricternentcrenns 12

Vv
TABLE OF AUTHORITIES—Continued
Page
Isbrandtsen Co. v. Johnson, 343 U.S. 779

(9D Z) .nnersscrsrrescrssenstessinsentvcenmesrsninansessanionnanseniern 13
Katsaros v. Cody, 744 F.2d 270 (2d Cir.), cert.
denied sub nom. Cody v. Donovan, 469 U.S.

BOT2 CADE) secerincrrvsnpizerenseivscesensesepneneorenenenseresense 11
Lewis v. Continental Bank Corp., 494 U.S. 472

CDI) .cececscconvereineventeseesesntminentnonerenenarsosenvevesounene 7
Lujan v. Defenders of Wildlife, 504 U.S. 555

€BDOE) snrncariciciinesininiasiiisiinhannisennmaniguinntiteaninccnes 1]
Massachusetts Mut. Life Ins. Co. v. Russell, 473

U.S. 134 (1965S). <ceccvosevereccosescrssocesconnsvsccsvnssoceses 1]

Mertens v. Hewitt Assocs., 508 U.S. 248 (1993)... 13
Nachman Corp. v. Pension Ben. Guaranty Corp.,

4A U.S. 359 (19B0).....recrccccrcccrccerccescererserersrsees 14
North Carolina v. Rice, 404 U.S. 244 (1971)........ 11
Patelco Credit Union v. Sahni, 262 F.3d 897 (9th

Cig, DUDA) va cacinvssesceccesscsvevises simasatcstesensevonboveccescoes 19
Pilot Life Insurance Co. v. Dedeaux, 481 U.S. 41

(BIBT) necesearaciessvorenicrecnsnntvonntavsnreesbeontntecsstgesngisiens 15
Simon v. Eastern Ky. Welfare Rights Organi-

Zation, 426 U.S. 26 (1976)......sccsseeereesrneeseeeeeees 12
Steel Co. v. Citizens for a Better Environment,

$23 U.S. 83 (199B)....cccccosororosoovecscccereveseceroeeess y AD te

United Food & Comm'l Workers Union Local
751 v. Brown Group, Inc., 517 U.S. 544

(1996) ....cocoreccesscceesscovescoesensosccossosescensoosnsoscasooosose 12
Varity Corp. v. Howe, 516 U.S. 489 ti, ) 12,15
Vermont Agency v. United States ex rel. Stevens,

529 U.S. 765 (2000).........cccccscccsssccessersesessesssoees ~

Constitutional Provisions:
U.S. Constitution, Art. TET ....ccccccoccsccccsceccsoscosscseeeees 7,11

vi
TABLE OF AUTHORITIES—Continued

Statutes: Page
2D Uthhn | CU itiinnuiidbininniiiaidiaanaees 2
yy BRE ol % | SRR Una ee 4,17, 18
oF UE. F Ue inctintnittioiiandiamal 3, 4, 18, 19
29 Uados © 1 COO cannnisttnainaae 6, 10
29 USES UD eb ciiininiucnttivivicaiamaaaa 5, 8, 13
2D Ut dhs B POS incatnasceenceessnadiadnans 8
Rules:
FOG, Be. CAV. We Gp cccctsidisiicidiaincdieiatthlacbaiabeaan 11
Miscellaneous:
G. BOGERT & G. BOGERT, LAW OF TRUSTS AND
TRUSTEES CGR OG) FE istrinnnbiien 13

Joint Committee on Taxation, Background Infor-
mation Relating to the Investment of Retire-

ment Plan Assets in Employer Stock (2002) ......
RESTATEMENT (SECOND) OF TRUSTS (1959).......... 13
A. Scott & W. FRATCHER, LAW OF TRUSTS

(GU OG. TIE ccceccctusenceevcietiedenveinianiesietatsiiaiinanilidadiads 13

Sirkin, The 20 Year History of ERISA, 68 ST.
JOHNS L, REV. 521 (19D) wrccoccsscscsvesesceecossssscetes 9

IN THE
Supreme Court of the Anited States

No. 02-566

CAROL HARLEY, et ai.,
Petitioners,
Vv.

3M COMPANY, et al.,
Respondents.

On Petition for a Writ of Certiorari to the
United States Court of Appeals
for the Eighth Circuit

BRIEF IN OPPOSITION

STATEMENT

The petition covers two lawsuits, which -were decided
separately in the District Court, but in a single opinion by the
Court of Appeals.

1. The first case was a class action brought in 1996 against
3M Company’ in the United States District Court for the
District of Minnesota. The three plaintiffs, petitioners here,
were participants in the 3M Employee Retirement Income
Plan, a defined-benefit pension plan for 3M employees, of
which 3M was the sponsor and sole contributor. Petitioners
alleged that because of an imprudent investment, 3M had

'3M Company at that time was called Minnesota Mining and
Manufacturing Company.

2

violated the federal ERISA statute by failing to discharge its
fiduciary duty “with the care, skill, prudence, and diligence . . .
that a prudent man acting in a like capacity and familiar with
such matters would use... .” 29 U.S.C. § 1104(a)(1)(B).

That alleged violation was based on an investment in 1990
of $20 million—out of the Plan’s then assets of $2.3 billion—
in a hedge fund called Granite Corporation, which held a
portfolio of mortgage-related derivative securities. The value
of the Plan’s investment in Granite climbed to $34 million in
February 1994; but in April 1994, because of an unfore-
seen interest-rate rise, Granite became insolvent and bank-
rupt, and the Plan’s investment consequently worthless.
Granite’s manager admitted to having improperly valued
and structured the portfolio. A. 3a. Petitioners alleged that
3M had failed adequately to investigate and monitor the
Granite investment.’

In September 1994, five months after the failure of Granite,
3M contributed to the Plan $101 million in excess of the
amount required by the federal ERISA law. Voluntary over-
payments to the Plan, which had been made in previous years,
continued thereafter. From 1993 to 1998, 3M contrib-
uted to the Plan a total of $683 million in excess of legal
requirements.’ At all relevant times, the 3M Plan was in an
“overfunded” condition, with the surplus funding rising from

? The petition in its “Statement of the Facts” states, Pet. 3, that as of
1998 “the cumulative investment loss to the Plan was approximately $80
million,” citing the District Court opinion at P.C.A. 48a. That opinion
made no such finding; it simply recited what petitioners were arguing. /d.
Respondents wholly disagree with that number, which far overstates the
real loss.

* In addition, besides making the $101 million voluntary overpayment,
the Plan fiduciaries also brought suit on the Plan’s behalf against invest-
ment advisors and broker-dealers associated with the Granite investment.
See P.C.A. 3a n.4; ABF Capital Mgt. v. Askin Capital Mgt., L.P., 957 F.
Supp. 1308 (S.D.N.Y. 1997).

3

$430 million in 1994 to $1.4 billion in 1999. The total
assets of the Plan rose to $3.4 billion in 1995 and $6.3 billion
in 1999, T oaks

On March 29, 2000, having earlier referred to “the unique
circumstances of this case,” P.C.A. 69a, the District Court
granted summary judgment for 3M on the claim for allegedly
imprudent investment. Citing this Court’s decision in Hughes
Aircraft Co. v. Jacobson, 525 U.S. 432 (1999), the court
explained that because this was a defined-benefit plan, the
rights of plan participants were to specified benefits, and did
not include any interest in the size of the surplus. There was
no evidence whatsoever that the ability of the Plan to pay had
been affected or jeopardized by the loss in the Granite -
investment, because the Plan at all times had a very
substantial surplus resulting in part from very large voluntary
extra payments by 3M. P.C.A. 37a.

With respect to the claim of unauthorized compensation
of the investment adviser, the District Court noted that
petitioners had never brought it as a formal claim, and had
then abandoned reliance on one statutory provision and
substituted another. P.C.A. 63a. Even if the issue had been
properly before it, the court held, the compensation
arrangement of the Granite adviser on the facts presented
clearly came within the provision of 29 U.S.C. § 1108(c)(2)
that specifically authorizes “any reasonable compensation for
services renderec.” P.C.A. 64a-65a. )

2. After 3M filed its motion for summary judgment,
petitioners on September 29, 1999 brought a second class-
action complaint in the same court. This one named as
defendants the seven individual members of 3M’s Pension
Assets Committee, to whom 3M delegated management of
Plan investments. The substance of the allegations was

4

identical to petitioners’ suit against 3M.‘ On December 7,
2000, the District Court granted summary judgment for the
defendants in this second suit, based on collateral estoppel
from the first ruling. The court did not have occasion to con-
sider numerous other defenses the defendants in the second
case had raised, including the statute of limitations, and a
stipulation by petitioners not to sue. Addendum at 4a, infra.’

3. The Court of Appeals held that in the unusual cir-
cumstances of this case, because of the large overfunding
payments voluntarily contributed by 3M, which far exceeded
the investment loss complained of, the “ongoing plan had a
substantial surplus before and after the alleged breach and a
financially sound settlor responsible for making up any future
underfunding,” so that all participants’ pension rights were
“fully protected.” P.C.A. 10a. Dismissal was proper when
“the Plan’s surplus was sufficiently large that the Granite
investment loss did not cause actual injury to plaintiffs’
interests in the Plan.” P.C.A. lla. The court observed that
“the purposes underlying ERISA’s imposition of strict fidu-
ciary duties are not furthered” by such a lawsuit, P.C.A. 10a,
and that “[iJn these circumstances, the failure to investi-
gate and monitor claims were properly dismissed because
plaintiffs suffered no injury-in-fact.” P.C.A. 12a. The Court
of Appeals also affirmed the District Court’s holding that
there was no prohibited transaction with the investment
adviser, because there was no evidence that the fee paid was
unreasonable, and therefore it was authorized under 29 U.S.C.
§ 1108(c)(2).

*See Addendum at 4a, infra. This complaint added a claim of
violation of ERISA 29 U.S.C. § 1106(b)(1), by allegedly permitting an
unreasonable fee to the investment manager.

* The District Court’s December 7, 2000, opinion, which is not repro-
duced in the Petition for Certiorari, is appended hereto.

5

Judge Bye, writing separately, agreed as to the latter point,
but believed contrary to the majority that petitioners were
authorized by 29 U.S.C. § 1132(a)(2) of ERISA to bring
claims on behalf of the Plan for breach of fiduciary duty. He
reasoned that petitioners were “statutorily designated” agents
of the Plan and permitted to sue based on what he believed
this Court had “suggested” in Vermont Agency v. United
States ex rel. Stevens, 529 U.S. 765, 773 (2000), in which a
gui tam relator was held to have standing to sue because of
assignment to him of part of the claim. P.C.A. 16a. In his
brief opinion, Judge Bye did not discuss requirements of
injury, redressability, nor the effect of the large overpayments
made by 3M, which far exceeded any loss. P.C.A. 16a-17a.

REASONS FOR DENYING THE WRIT

I. THIS CASE INVOLVES UNUSUAL FACTS AND
LACKS GENERAL SIGNIFICANCE.

The holding in this case is especially narrow. It applies
only to the small minority of pension plans that are defined-
benefit; ° and of those, only to those that are overfunded; and
of those, only to claims for imprudent investment. Claims for
breach of duty of loyalty or for intentional misconduct are not
addressed at all. Finally, it concerns only this tiny category
of claims in the context of an action brought by plan
participants and beneficiaries. The statutory authority of
fiduciaries or the Secretary of Labor to bring suit is entirely
unaffected. See P.C.A. 12a n.5.

Petitioners are quite mistaken to suggest that the present
decision broadly “precludes participant enforcement of
fiduciary standards,” and thereby conflicts “with decisions by

® Once the norm, defined-benefit pension plans now comprise only 8%
of retirement plans subject to ERISA in the United States. Joint Commit-
tee on Taxation, Background Information Relating to the Investment of
Retirement Plan Assets in Employer Stock 14 (2002). And only a fraction
of that 8% of plans is overfunded.

6

every other court that has considered the standing of par-
ticipants to enforce fiduciary standards in connection with
defined benefit pension plans.” Pet. 13. The Court of
Appeals confined its holding to participants in these circum-
stances who “seek relief under § 1109 for this particular
breach of duty, given the unique features of a defined benefit
plan,” P.C.A. 7a (emphasis supplied)—i.e., a duty to exercise
care to avoid imprudent investments. The holding has noth-
ing to do with, for instance, a claim that a fiduciary had a
conflict of interest. It has nothing to do with complaints for
breach of the fiduciary duty of loyalty. No case is cited by
petitioners, and none has been found, which addresses a suit
by participants to challenge allegedly imprudent investments
in this very narrow situation, where the plan at issue has a
substantial surplus, and where no fiduciary was ever accused
of self-enrichment.

No damage to any Plan participant was at issue.
Petitioners failed to come forward with a shred of evidence
that the investment complained of had the remotest effect on
the stability of the Plan, or its ability to pay all benefits in the
future. The Plan, as was previously noted, was overfunded
by hundreds of millions of dollars in excess of legal
requirements. The Plan was found by the District Court,
and the Court of Appeals expressly agreed, “[b]y nearly
any measure” to be “a robust, richly-funded, ongoing
plan,” P.C.A. 12a, 37a, with assets exceeding $6.3 billion,
P.C.A. 4a.

“The actuarial value of the Plan’s assets exceeded its
actuarial accrued liabilities in 1993, before Granite’s
bankruptcy, and in every year thereafter. 3M _ has
contributed $683 million more than its minimum
funding requirements since the loss of the $20 mil-
lion Granite investment. Plaintiffs failed to prove the
absence of a substantial surplus under any relevant
valuation method. In these circumstances, the failure to

7

investigate and monitor claims were properly dismissed
because plaintiffs suffered no injury-in-fact.”

P.C.A. 12a (footnote omitted). Indeed, in the 71 years since
its establishment in 1931, the Plan has never failed to make
any payment owed to any participant. Cf. P.C.A. 33a.

The complaint accused 3M of having made a bad invest-
ment of $20 million. Yet it is undisputed that 3M more than
restored the loss on that investment by then voluntarily
contributing to the Plan an additional $683 million not
required by law. So all that is really at stake in this litigation
is a hope of recovering class-action attorneys’ fees, which
would be associated with a court order that 3M had incurred
an obligation to reimburse to the Plan for loss on the Granite
investment—even though 3M long ago voluntarily made
excess contributions to the Plan several times that amount.
As the Court of Appeals pointed out, “[i]ndeed those rights
[of individual participants] would if anything be adversely
affected by subjecting the Plan and its fiduciaries to costly
litigation brought by parties who have suffered no injury
from a relatively modest but allegedly imprudent invest-
ment.” A. 10a (emphasis supplied).

Attorneys’ hopes for class-action fees-are not a sufficient
basis for maintaining litigation or distorting the ERISA
statute, much less a reason for this Court to grant certiorari.
This Court has explained more than once that “courts should
use caution to avoid carrying forward a moot case solely to
vindicate a plaintiff's interest in recovering attorneys’ fees.”
Friends of the Earth, Inc. v. Laidlaw Environmental Services
(TOC), Inc., 528 U.S. 167, 192 n.5 (2000). An “interest in
attorney’s fees is, of course, insufficient to create an Article
III case or controversy where none exists on the merits of the
underlying claim... .” Lewis v. Continental Bank Corp.,
494 U.S. 472, 480 (1990), quoted in Steel Co. v. Citizens for
a Better Environment, 523 U.S. 83, 107 (1998). See also
Diamond v. Charles, 476 U.S. 54, 70-71 (1986).

8

Nor is any substantial enforcement concern at issue. The
Secretary of Labor plainly is authorized by statute to bring
suit for ERISA violations in 29 U.S.C. § 1132(a)(2), as an
enforcement function without the restrictions applied to
private parties. Hence, if rare situations like the present one
were to arise, and the Department of Labor believed the
conduct of a fiduciary sufficiently serious or troubling, the
Secretary could elect to bring suit. Petitioners observe that
“the Secretary’s enforcement resources are limited.” Pet. 19.
But all government resources are limited, not least of all this
Court’s. How they are allocated for various enforcement
ends is a matter decided by Congress and the Executive
Branch officials assigned to make those policy decisions.
There is no evidence that Congress in ERISA prescribed a
proliferation of suits by undamaged participants, to recover
monies already reimbursed, addressed to alleged violations of
prudence that federal administrators deemed unworthy of
their own action. If the Secretary of Labor truly believed that
the anomalous facts of this case were important enough to
warrant an enforcement action, she could have chosen to
bring suit. She did not do so. A relatively small case of an
unfortunate investment, insufficiently significant to engage
the enforcement staff of the Department of Labor, scarcely
seems an appropriate candidate for the limited time of
this Court.

Nor need this Court assume the responsibility to address
minor or anomalous disagreements of construction occurring
in unusual situations like this one concerning the ERISA
statute. Congress is the primary body to address statutory
issues if they seem important or recurrent enough, and it
exercises its legislative oversight over ERISA. ERISA is one
of the most frequently and constantly amended statutes ever
enacted. It was significantly amended in 1980, 1984, 1986,
1991, 1994 and 1997. See references collected at 29 US.
Code Ann. at § 1001. In 1994 it was observed that as of then
“Since 1974, ERISA has grown from 200 pages of legislation

ee

9

and legislative history to 700 pages of legislation, 3600 pages
of regulations, and countless pages of cases and
commentary.” Sirkin, The 20 Year History of ERISA, 68 ST.
JOHN’S L. REV. 321, 321-22 (1994).

II. THE DECISION OF THE COURT OF APPEALS
CONFORMS TO THIS COURT’S DECISIONS.

As this Court explained in Hughes Aircraft Co. v.
Jacobson, 525 U.S. 432, 439 (1999), a defined-benefit plan—
unlike the far more common defined-contribution plans (such
as § 401(k) plans), in which an employee’s interest is to a
share of the fluctuating value of a fund’s investments—
promises a predetermined retirement obligation, which does
not vary according to the success of the Plan’s investments.
If a defined-benefit plan is overfunded, “the employer may
reduce or suspend his contributions.” 525 U.S. at 440. See
also Bennett v. Conrail Matched Sav. Plan Admin. Comm.,
168 F.3d 671, 677 (3d Cir.)(participants in employee stock
ownership plan may not bring breach-of-fiduciary-duty
claims because they are not entitled to surplus assets), cert.
denied, 528 U.S. 871 (1999).

This Court in Hughes Aircraft emphasized that “it is essen-
tial to recognize the difference between defined contribution
plans and defined benefit plans,” for in the latter, because the
benefit is predetermined, “the employer typically bears the
entire investment risk and—short of the consequences of plan
termination—must cover any underfunding as the result of
a shortfall that may occur from the plan’s investments.”
525 U.S. at 439.

If the assets of a defined-benefit plan are greater than the
amount of the accrued benefit obligation, calculated on an
actuarial basis, the plan possesses a surplus. Participants in a
defined-benefit plan “have no entitlement to share in a plan’s
surplus.” Hughes, 525 U.S. at 440. The employer may,
among other things, cease making contributions to the plan
until the surplus has been exhausted, id. at 440, or add

10

benefits for a new class of participants. /d. at 442. Existing
participants, in short, have no expectation that a surplus will
persist or be used for their benefit. In the present case, no
shortfall in funding ever occurred; the Plan was at all relevant
times comfortably in surplus. And even the relatively small
loss from the Granite investment was more than made up by
voluntary additional contributions by 3M that exceeded the |
required amount.’ - - |

A. The Decision Correctly Interprets ERISA in
Light of This Court’s Holdings. |

As the Court of Appeals’ opinion pointed out, the decision
here is based on interpretation of the ERISA statute, not on
Article III of the Constitution. See P.C.A. 8a. The decision
reflects that petitioners ultimately could show no injury for
which ERISA provided a claim. The remedy prescribed by
ERISA for violation of the “prudent man” standard is “to
make good to such plan any losses to the plan resulting from
each such breach.” 29 U.S.C. § 1109(a). That is exactly
what already occurred here. The overpayments by 3M to the
Plan are the equivalent—and indeed far exceed—the very
payments petitioners’ complaint, if successful, would have
required. The statute does not “authorize any relief except for

’The petition now adds a new assertion—with no support in the
record—that currently “the Plan is underfunded.” Pet. 24. But the
relevant period, on which the record was made and the case was addressed
by the District Court and Court of Appeals, was 1994-1999. See P.C.A.
38a n.6. Moreover, petitioners’ new assertion, made for the first time in
this Court, is quite incorrect. The Plan has continued to be overfunded by
the measures applied by the courts below, as reflected in its most recent
required annual ERISA reports on Form 5500. Cf. P.C.A. 25a. Unlike the
valuation method used in the SEC filing petitioners rely upon (FAS 87),
these annual reports reflect the surplus funding of the Plan using valuation
methods required by ERISA (AAL and RPA ’94). See P.C.A. 12a, 27a,
29a, 30a. Indeed, petitioners themselves did not propose the FAS 87
method in either the District Court or the Court of Appeals, and neither
court addressed it.

See aaa

11

the plan itself.” Massachusetts Mut. Life Ins. Co. v. Russell,
473 U.S. 134, 144 (1985). To the extent the complaint sought
to make the Plan whole, the Plan already had been made
whole. After being made whole, the Plan had no damage. Cf.
Call v. Sumitomo Bank, 881 F.2d 626, 628 n.4, 632-33
(9th Cir. 1989); Katsaros v. Cody, 744 F.2d 270, 280-81
(2d Cir.), cert. denied sub nom. Cody v. Donovan, 469 U.S.
1072 (1984).*

Even if the test were simply that of Article III, which the
Court of Appeals found unnecessary to decide, it would not
be met by petitioners on the particular circumstances of this
case. Because of the overpayments, petitioners simply have
suffered no injury, a basic requirement of standing under
Article III. See Steel Co. v. Citizens for a Better Environ-
ment, 523 U.S. 83, 103 (1998). Further, another essential for
Article III standing is “redressability”—‘“a likelihood that the
requested relief will redress the alleged injury.” /d.; see also
Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992).
Here redressability is absent, because the overpayments by
3M left nothing to redress. In another sense, because of the
overpayment, the issue is simply moot. Cf. North Carolina v.
Rice, 404 U.S. 244, 246 (1971); DeFunis v. — 416
U.S. 312, 318 (1974).’

® Although the complaints included a routine request for injunctive and
other appropriate relief, petitioners did not specify particular relief or
challenge its denial in the District Court, and neither that court’s opinion
nor the opinion of the Court of Appeals addressed it. Even if it had been
adequately pleaded and preserved, the only conceivable injunction plain-
tiffs could have sought would be an order directing 3M and the other
respondents to obey ERISA. But ERISA itself already contains such a
command, and a generalized injunction would be not only redundant
but contrary to Fed. R. Civ. P. 65(d) and the principles of equity. See
Granny Goose Foods, Inc, v. Brotherhood of Teamsters, 415 U.S. 423,
444 (1974).

® Vermont Agency v. United States ex rel. Stevens, 529 U.S. 765
(2000), involved a markedly different statute that actually assigned part of
the claim to the plaintiffs. Petitioners had no statutory basis to assert such

12

Because the money the complaint sought (from 3M) would
go to the Plan—and thereby pro tanto reduce the obligation
of 3M to fund the Plan—the suit in substance seeks to impose
on 3M a judgment to pay money for the benefit of 3M, less
the portion that would be captured by attorneys’ fees.
Petitioners argue that ERISA should allow them to sue on
behalf of the Plan. But the Plan obtains no benefit whether
the suit is won or lost. Certainly neither the ERISA statute
nor the limits of standing should be distorted or stretched to
encompass recoveries by attorneys for phantom services. It is
“purely speculative” whether obtaining such relief would
achieve any benefit at all. Simon v. Eastern Ky. Welfare
Rights Org., 426 U.S. 26, 39 (1976); cf. also, e.g., DeFunis,
supra; Hall v. Beals, 396 U.S. 45, 49 (1969). And “a plaintiff
cannot achieve standing to litigate a substantive issue by
bringing suit for the cost of bringing suit.” Steel Co., 523
U.S. at 107. “[W]e are obligated to construe the statute
to avoid such problems.” JNS v. St. Cyr, 533 U.S. 289,
299-300 (2001).

B. The Decision Is Clearly in Accordance With the
Trust Principles Upon Which ERISA Is Based.

ERISA’s provisions “are guided by principles of trust law.”
Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 111
(1989); see also Varity Corp. v. Howe, 516 U.S. 489 (1996).
“Congress invoked the common law of trusts to define the
general scope of [fiduciary] authority and _respons-
ibility.” Central States, SE & SW Areas Pension Fund v.
Central Transport, Inc., 472 U.S. 559, 570 (1985). This

a claim here. United Food & Comm'l Workers Union Local 751 v. Brown
Group, Inc., 517 U.S. 544 (1996), addressed only the situation in which
an association seeks to represent its members, exactly the opposite of the
situation here.

13

Court looks to trust law in interpreting the scope of ERISA’s
remedial provisions for breach of fiduciary duty. Mertens v.
Hewitt Assocs., 508 U.S. 248, 255-59 (1993).

Under the common law of trusts, beneficiaries whose
interest in a trust are not injured after an allegedly imprudent
investment of trust assets do not have standing to bring an
action for fiduciary breach. RESTATEMENT (SECOND) OF
TRUSTS, § 214, Comment b (1959)(“A particular beneficiary
cannot maintain a suit for breach of trust which does not
involve any violation of duty to him.”); A. ScoTT & W.
FRATCHER, LAW OF TRUSTS § 214 (4th ed. 1988) (“In order to
maintain a suit . . . the beneficiary must show that his interest
is involved”). Thus, for example, “[a] remainderman cannot
sue for breach of an investment duty resulting merely in a
loss of income.” G. BOGERT & G. BOGERT, LAW OF TRUSTS
AND TRUSTEES § 871 (2d ed. rev. 1982). “[W]here a
common-law principle is well established . . . the courts may
take it as given that Congress has legislated with an expec-
tation that the principle will apply except ‘when a statutory
purpose to the contrary is evident.’” Astoria Fed. Sav. &
Loan Ass’n v. Solimino, 501 U.S. 104, 108 (1991), quoting in
part Isbrandtsen Co. v. Johnson, 343 U.S. 779 (1952).

Petitioners’ claim of imprudent investment clearly would
fail under trust law. As this Court held in Hughes, petitioners
as participants in a defined-benefit plan “have no entitlement
to share in [the] plan’s surplus.” 525 U.S. at 440. The breach
petitioners allege did not affect their interest in receiving their
defined benefits, and it did not reduce assets to which they
were entitled. Consequently, petitioners are not, under trust
law, the appropriate parties to bring suit in these cases.

Moreover, the text and structure of ERISA 29 U.S.C.
§ 1132(a)(2) confirm the expectation that the classes of
actions authorized there would be shaped by existing
principles of law. That section authorizes only suits for
“appropriate relief,” id., thus leaving for the courts, applying

14

existing principles and doctrines of trust law, to identify the
persons situated to seek relief in the circumstances of a
particular case. Cf. FEC v. National Conservative Poiitical
Action Comm., 470 U.S. 480, 486-87 (1985)(statutory author-
ization of actions “appropriate to implement” act precludes
standing for private parties when FEC was the more appro-
priate party to bring suit). And the principles and doctrines of
trust law arise entirely from the doctrines of equity, under
which such a complaint clearly fails.

C. Petitioners’ Interpretation Would Undermine
the Purposes of ERISA.

ERISA’s requirements of adequate funding are designed to
ensure that when workers retire, money will be on hand to
pay the benefits they are owed. Nachman Corp. v. Pension
Ben. Guar. Corp., 446 U.S. 359, 375-76 (1980). To hold
employers liable for unsuccessful investment decisions, as
petitioners seek, even when employers have generously
overfunded the plan, and made extra payments more than
sufficient to offset a loss, would create a perverse incentive.
Instead of encouraging overfunding, it would motivate
employers to hold back, and limit funding to the minimum
required by law, reserving other amounts for potential judg-
ments for fiduciary breach. Further, an employer like 3M,
which already has funded the plan far beyond legal require-
ments, might be encouraged instead simply to cease payments
for a year or two, until a judgment amount (plus interest and
attorneys’ fees) had been paid. In the end, contrary to the
goals of ERISA, retirement plans would receive less, rather
than more, funding. The overall effect would be to impose on
employers—and, ultimately, the plans—the transaction costs
of wholly unnecessary fiduciary litigation, and ultimately to
divert money away from ERISA plans to attorneys.

ERISA was intended to assure adequate funding of pension
benefits, not to be a litigation-generator. It reflects Congress’
“desire not to create a system that is so complex that

15

administrative costs, or litigation expenses, unduly discourage
employers from offering . . . benefit plans in the first place.”
Varity Corp. v. Howe, 516 U.S. 489, 497 (1996). See also
Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 54 (1987) (to
allow punitive damages under ERISA would be “contrary to
the public interest in encouraging the formation of employee
benefit plans”); Alessi v. Raybestos-Manhattan, Inc., 451
U.S. 504, 515 (1981).

Ill. THERE IS NO CIRCUIT CONFLICT.

The conflict supposed by petitioners completely ignores
the unusual facts of this case, on which the decision of the
Court of Appeals entirely depended. There is no reported
case that respondents have been able to discover with cir-
cumstances even close to the present one. None of the three
decisions cited by petitioners—nor any others, to respond-
ents’ knowledge—had any occasion to consider the unusual
situation of a defined-benefit pension plan that was
overfunded, partly as a result of a stream of voluntary
Overpayments by the employer. And all of them concerned
intentional breaches of the fiduciary duty of loyalty—not, as
.. here, a single small, allegedly imprudent, investment that
involved no conscious wrongdoing.

The contrast between the present case and the three cases
cited by petitioners, which involved vastly different facts and
claims, is striking. None_of those cases involved a claim, like
the present one, of negligent breach of the prudent-man
duty. All involved breaches—intentional breaches—of the
fiduciary’s duty of loyalty. All those cases, moreover, were
decided substantially prior to, and hence without the benefit
of, this Court’s decision in Hughes Aircraft Co. v. Jacobson,
525 U.S. 432 (1999). In Hughes this Court focused sharply
on the unique nature of defined-benefit plans. This Court
pointed out that “the employer typically bears the entire
investment risk and—short of the consequences of plan
termination—must cover any underfunding as a result of a

16

shortfall that may occur from the plan’s investments.” 525
U.S. at 439. And this Court emphasized that in the
uncommon realm of defined-benefit plans, participants
simply have no entitlement to or interest in a plan’s surplus
assets. Id. at 440-41.

Brink v. DaLesio, 667 F.2d 420 (4th Cir. 1981), involved a
gross breach of duty of loyalty, in which a plan fiduciary had
diverted part of the employer’s plan contributions to the plan
as a “consultant’s fee,” and in addition had “secretly received
a commission from the insurers who sold coverage to the
funds, and agreed to represent their interests in an adversarial
capacity.” 667 F.2d at 426. The court held that suit was
appropriate on behalf of the plan to recover amounts improp-
erly taken from it. Insofar as the court addressed standing, it
was simply the issue whether participants could intervene
after the suit already had been brought, an issue of no
relevance here.

In Amalgamated Clothing & Textile Workers Union v.
Murdock, 861 F.2d 1406 (9th Cir. 1988), the breach-of-
loyalty claim was that a fiduciary had used plan assets to
drive up the price of stock he owned, then amended the plan
to distribute assets to himself, and then terminated the plan.
The relief the court of appeals ordered was not money
damages, but rather imposition of a constructive trust of the
dishonest fiduciary’s gains. In declaring the fiduciary’s
profits to be held in constructive trust for the benefit of the
plan, the court found it “the only means available to give
effect to the goals of ERISA,” 861 F.2d at 1411, and rejected
the intentional wrongdoer’s “claim that ERISA provides no
remedy to deny the fiduciary these alleged ill-gotten profits,”
id. at 1415. The reason for imposing a constructive trust, the
court emphasized, had nothing to do with whether there was
any loss to the Plan. Rather, it was an equitable remedy to
prevent an intentional wrongdoer from profiting from his
wrongdoing, a remedy designed to deter intentional wrong-

17
doing by fiduciaries. /d. at 1411-12. In the present case, by

contrast, there is no claim of intentional wrongdoing, nor that ~

any fiduciary pocketed any assets belonging to the Plan.

Financial Institutions Retirement Fund v. OTS, 964 F.2d
142 (2d Cir. 1992), alleged a “conflict of interest,” id. at 149,
on the part of plan fiduciaries, pursuant to which they had
made an improper distribution of surplus assets, as a result of
improper influence. Fiduciaries are not likely to sue them-
selves for their own improper self-dealing; hence the partic-
pants were allowed to do so on behalf of the plan. The
present case, of course, involves no claims of self-dealing at
all. In any event, the central holding of the decision was that
there had been no breach and dismissal was proper on that
ground, quite apart from any ERISA standing issue. More-
over, the opinion scarcely mentioned the question whether
there was statutory standing under ERISA, focusing instead
on whether suit was permitted under Article III. See id.
at 1309.

Thus none of the three cases cited by petitioners contains a
conflict, much less a present one. All are markedly different
on their facts from the peculiar situation of the present case,
and all were decided well before this Court’s decision
analyzing defined-benefit plans in Hughes Aircraft Co. v.
Jacobson, 525 U.S. 432 (1999). In the present case, there
were no claims of conflict of interest or improper self-
dealing, and no defendant was enriched by the unsuccessful
investment.

IV. THE RULING CONCERNING - REASON-
ABLENESS OF AN INVESTMENT ADVISER’S
COMPENSATION WAS NOT ERRONEOUS
AND DOES NOT MERIT THIS COURT’S
REVIEW.

Petitioners’ complaint against 3M did not even mention
any claim that the fee paid to an investment advisor was
unreasonable and therefore a “prohibited transaction.” Nor

ls _ ————

18

did their amended complaint. Nevertheless, over objec-
tion they tried to add such a theory at the summary judg-
ment stage, on the theory that 3M had violated ERISA
29 U.S.C. § 1106(b)(1), by allowing an investment manager a
fee based on value of the assets. After full discovery, the
District Court granted summary judgment for 3M, holding
that even if there had been such a claim in the complaint, on
the undisputed material facts petitioners had failed to present
any admissible evidence that the fee was not reasonable; on
the contrary “there is no evidence in the record to support the
claim,” P.C.A. 63a, and “this amount [of compensation] was
reasonable.” P.C.A. 65a. Therefore no actionable violation
had occurred. P.C.A. 66a."°

On appeal, petitioners argued that the fee provision with
the investment adviser violated the prohibition against a
fiduciary dealing with plan assets, whether or not the fees
paid were reasonable. The Court of Appeals had no difficulty
rejecting that argument, based on the plain language of the
ERISA statute:

“Section 1106(b)(1) prohibits a fiduciary from ‘deal-
ing with the assets of the plan in his own interest and for
his own account.’ However, § 1108(c)(2) provides that
‘nothing in section 1106 of this title shall be construed to
prevent any fiduciary from . . . receiving any reasonable
compensation for services rendered . . . in the perform-
ance of his duties with the plan.” 3M introduced uncon-
tradicted expert testimony that the compensation paid to
ACM [the investment adviser] was reasonable.”

P.C.A. 13a (emphasis supplied). “[T]he plain language of
§ 1108(c)(2) sensibly insulates the fiduciary from liability

" Petitioners later added such a claim to their subsequent complaint
against the Pension Assets Committee members, which the District Court
dismissed on other grounds. See Addendum at 6a-7a, infra.

19

if the compensation paid was reasonable.” P.C.A. 14a.
“Moreover, the legislative history of § 1108 does not support
[petitioners’] contention... .” Jd.

All members of the Court of Appeals panel agreed with
this conclusion and that the factual ruling of the District Court
should be affirmed. P.C.A. 14a, 16a. Petitioners now argue
that that ruling is in conflict with Patelco Credit Union v.
Sahni, 262 F.3d 897 (9th Cir. 2001), a case involving
improper self-dealing on the part of a fiduciary in violation of
ERISA 29 U.S.C. § 1108(e)(2). But the record here, as
determined by the District Court and unanimously affirmed
by the Court of Appeals, showed only a fee that was
reasonable and therefore was allowed by the statute, and no
self-dealing. The statute clearly provides that “[nJothing in
section 1106 of this title shall be construed to prohibit any
fiduciary from . . . receiving any reasonable compensation for
services rendered . . . in the performance of his duties with
the plan.” 29 U.S.C. § 1108(c)(2). The Court of Appeals
rejected petitioners’ argument that that provision did not
really mean what it said. P.C.A. 13a-14a.

Moreover, even if there were a difference in reasoning
between the two cases, the issue whether this particular
adviser’s compensation was reasonable or not—an issue not
even pleaded in the principal complaint—is so narrow and
fact-specific as to fall far outside the kinds of cases this Court
considers for certiorari.

20
CONCLUSION

For the reasons stated, certiorari should be denied.

Respectfully submitted,

JOHN D. FRENCH JOHN G. KESTER *
STEVEN L. SEVERSON J. ALAN GALBRAITH
eaeesirsrmueieenin WILLIAMS & CONNOLLY LLP

FAEGRE & BENSON LLP 725 12th Street, N.W.

2200 Wells Fargo Center Washington, D.C. 20005

90 South Seventh Street (202) 434-5000

Minneapolis, Minnesota 55402

(612) 766-7000 Attorneys for Respondents

* Counse! of Record
November 14, 2002

A eR Pe ag el te hee on Me tay! — . —— an ee ee

la

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA

Civil No. 99-1481 (JRT/RLE)

CAROL HARLEY, LENORA BANASZEWSKI, MICHAEL PAYTON,
and RICHARD ZOESCH,
Plaintiffs,

Vv.

GUILIO AGOSTINI, MICHAEL J. BARRETT, LARRY E. EATON,
HARRY A. HAMMERLY, RICHARD A. LIDSTAD,
DWIGHT A. PETERSON, and JOHN J. URSU,

Defendant.

ORDER GRANTING DEFENDANTS’ MOTION
FOR SUMMARY JUDGMENT

This putative class action is the second case arising out of
defendant Minnesota Mining and Manufacturing Co.’s
(“3M”) alleged failure to invest prudently the assets of the
3M Employee Retirement Plan (“the Plan”). In the first
action, plaintiffs sued 3M, bringing claims of breach of
fiduciary duty and a prohibited transaction under ERISA, 29
U.S.C. §§ 1001 et seg. The Court certified a class, and on
March 31, 1999, the Court granted 3M’s motion to dismiss or
for summary judgment in part and dismissed the prohibited
transaction claim. On March 29, 2000, the Court granted
3M’s motion for summary judgment on the breach of
fiduciary duty claim and entered final judgment. Meanwhile,
on September 29, 1999, plaintiffs filed this action, which is
substantially similar to the first with the notable exception
that defendants in this action are the individual members of
3M’s Pension Assets Committee (“PAC’’), the body to which
3M delegated its fiduciary responsibilities for overseeing the

2a

investment of the Plan assets. This matter is now before the
Court on defendants’ motion to dismiss or, in the alternative,
for summary judgment. For the reasons set forth below,
defendants’ motion is granted.

BACKGROUND

The facts underlying this action are fully set forth in the
Court’s March 31, 1999 Order entered in the previous case,
see Harley v. Minnesota Mining and Mfg. Co., 42 F.Supp.2d
898, 900-04 (D. Minn. 1999), and the Court will only briefly
summarize them here. The Plan is a non-contributory defined
benefit plan subject to ERISA. 3M is a fiduciary of the Plan
and delegated this responsibility to the PAC. In 1990, the
PAC decided to invest $20 million of Plan assets in Granite
Corporation (“Granite”), a recently created vehicle for
investment in primarily mortgage-related derivatives. The
PAC agreed to have the Granite managers appointed as the
investment managers for the Plan. To compensate the invest-
ment managers, the Plan would pay performance-based
incentive fees equal to 15% of any increase in the value of the
Granite portfolio in excess of the London Interbank Offered
Rate (“LIBOR”’). In 1994, after a sudden rise in interest rates,
Granite’s derivative holdings plummeted in value and Granite
was drained of all its assets, including the Plan investment
and income.

In the previous action, as here, plaintiffs alleged that 3M
breached its fiduciary duties under ERISA by failing to
investigate, monitor, and understand all aspect of the Granite
investment. In its first motion for summary judgment, 3M
contended that because it made voluntary contributions to the
Plan in excess of plan funding requirements, the class could
not establish an essential element of this claim, namely, a loss
to the Plan. After oral argument on that motion but prior to
the Court’s decision, the Supreme Court decided Hughes
Aircraft v. Jacobson, 525 U.S. 432 (1999). In Hughes

3a

Aircraft, the employer used surplus plan assets to fund
newly created early retirement and non-contributory benefit
structures. See id. at 436. Among other claims, the plaintiffs
contended that this use of the surplus violated ERISA’s
vested benefits and anti-inurement provisions. See id. at 439.
The Court concluded that because participants in a defined
benefit plan have no claim to surplus funds, those claims
must fail. See id. at 441-43.

This Court found the Hughes Aircraft analysis instructive
and held that Hughes Aircraft controlled the class’s breach of
fiduciary duty claim. See Harley, 42 F.Supp.2d at 913. Thus,
the Court found that if 3M could show that the Plan had a
surplus, the Granite investment caused no loss to the Plan and
the class could not prevail. See id. at 914. Although the
Court denied 3M’s motion for summary judgment on that
claim at that time due to the incomplete state of the record,
the Court ultimately found, on the basis of the parties’ later
submissions, that the Plan was fully funded. Accordingly, the
Court granted 3M’s motion for summary judgment and
dismissed the action.

ANALYSIS

A. Standard of Review

Summary judgment is appropriate where there are no
genuine issues of material fact and the moving party is
entitled to judgment as a matter of law. See Fed.R.Civ.P.
56(c). Only disputes over facts that might affect the outcome
of the suit under the governing substantive law will properly
preclude the entry of summary judgment. See Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In considering
a motion for summary judgment, a court is required to view
the facts in a light most favorable to the nonmoving party.
See Lomar Wholesale Grocery, Inc. v. Dieter’s Gourmet
Foods, Inc., 824 F.2d 582, 585 (8th Cir. 1987). Summary
judgment is to be granted only where the evidence is such
that no reasonable jury could return a verdict for the non-

4a

moving party. See Anderson, 477 U.S. at 248. The moving
party bears the burden of bringing forward sufficient evidence
to establish that there are no genuine issues of material fact
and that the movant is entitled to judgment as a matter of law.
See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

B. The General Standard of Care Claim

Plaintiffs claim that defendants’ alleged failure to inves-
tigate and monitor the Granite investment and failure to
acquire suffcient knowledge regarding Granite and its invest-
ments constitute a breach of their fiduciary duties under 29
U.S.C. § 1104(a)(1)(A) and (B). Other than the identity of the
defendants, the allegations in plaintiffs’ complaint respecting
this claim are taken nearly verbatim from the amended
complaint in the previous action. Defendants move to dismiss
or alternatively for summary judgment on a number of
grounds, including res judicata, collateral estoppel, plaintiffs’
alleged stipulation not to sue the PAC members, claim
splitting, and ERISA’s statute of limitations, 29 U.S.C.
§ 1113. The Court need not address all these arguments,
because it finds that plaintiffs’ claim is barred by the doctrine
of collateral estoppel.

Under the doctrine of collateral estoppel, relitigation of an
issue is precluded if the following elements are present:
(1) the issue was identical to one in a prior adjudication; (2)
there was a final judgment on the merits; (3) the estopped
party was a party or in privity with a party to the prior
adjudication; and (4) the estopped party was given a full and
fair opportunity to be heard on the adjudicated issue. See
United States v. Gurley, 43 F.3d 1188, 1198 (8th Cir. 1994).

Plaintiffs maintain that the first and fourth elements are not
met in this case. The source of plaintiffs’ argument is
footnote 23 in the Court’s March 31, 1999 Order, in which
the Court stated:

The Court notes that while the Hughes Aircraft analysis
controls in this case, its applicability to other contexts is

Sa

limited. For example, nothing in Hughes Aircraft pre-
cludes recovery of defined benefit plan assests or profits
that have been wrongfully retained by others. Also,
because the analysis in Hughes Aircraft depends on the
relationship between participants in a defined benefit
plan and the employer-sponsor that makes contributions
to the plan, it appears to apply only to fiduciaries that
are employers.

Harley, 42 F.Supp.2d at 914 n.23. Plaintiffs argue that
because defendants in this case are the members of the PAC,
and not the employer, footnote 23 indicates that their lia-
bility is different and the issues in the two cases are thus not
identical.

It is true that the Court, in the previous case, did not need
to decide the precise boundaries between employer and non-
employer liability under Hughes Aircraft. In that sense,
plaintiffs have a colorable argument that the issues in this
case are not identical to the issues in the previous case. But,
just as the Court did not decide this issue previously, it need
not do so now. The Court’s observation in footnote 23 was
not intended to hold out the possibility of liability on the part
of the PAC in a case such as this, where the PAC consists of
the corporate employer-sponsor’s employees, it is undisputed
that the PAC’s role was to fulfill the employer’s fiduciary
responsibilities, there is no allegation or suggestion that the
PAC members were acting outside the scope of their
authority, and it is clear that the corporation itself would
ultimately bear any liability imposed on the members of the
PAC. See 3M Company Bylaws, at 5 (requiring 3M to
indemnify its employees in any action “by reason of the fact
that such person . . . is or was a Director, officer, or employee
of [3M] or serves or served at the request of [3M] any other
enterprise as a Director, officer, or employee’’) (attached as
ex. 8 to aff. of Ahna M. Thoresen). The Court was merely
noting in dicta that there may be cases in which the

6a

relationship between the fiduciary and the participants in the
plan is such that the Hughes Aircraft analysis would be
inapplicable. For example, cases where a plan is managed by
outside, independent advisers, or where the employees to
whom the employer delegated its fiduciary responsibilities
acted outside the scope of their authority, may present
exceptions to Hughes Aircraft. Under the undisputed facts
presented in this case, however, the PAC’s liability is
identical to that of the employer for the purpose of
establishing the required element of a loss to the Plan. As
such, there is an issue in this case identical to the one
previously litigated, namely, whether the Plan has a surplus
as defined in ERISA and Hughes Aircraft. Plaintiffs cannot
prevail in this case without a favorable finding on this issue,
but the Court previously decided this issue against plaintiffs
after they had a full and fair opportunity to litigate it. The
Court therefore concludes that collateral estoppel bars their
new claim of breach.

C. The Prohibited Transaction Claim

Plaintiffs claim that by agreeing to the performance-based
incentive fee, defendants enabled a prohibited transaction in
violation of ERISA, 29 U.S.C. § 1106(a), and thereby
breached their fiduciary duties. In the previous case, 3M
moved to dismiss this claim for failure to plead it, and
alternatively moved for summary judgment on the basis that
the class had failed to present any evidence that the
compensation was unreasonable. Although plaintiffs have
included additional detail respecting this claim in this action,
they conceded at oral argument that their current prohibited
transaction claim is barred by collateral estoppel if the Court
dismissed the previous claim on the merits. To avoid the
application of this doctrine, plaintiffs argue that the Court in
fact dismissed the previous claim for failure to plead.
Plaintiffs’ argument does not comport with the Court’s
decision, which clearly states that “3M is entitled to summary

7a

judgment on the [on the prohibited transaction claim] because
there is no evidence in the record to support the claim.”
Harley, 42 F. Supp. 2d at 910. In addition, the Court
explicitly dismissed the claim with prejudice. See id. at 916.
Accordingly, as plaintiffs agree that a previous dismissal on
the merits mandates the dismissal of their current prohibited
transaction claim, the Court will grant defendants’ motion for
summary judgment with respect to this claim.

ORDER

Based on the submissions of the parties the argumeni of
counsel, and the entire file and proceedings herein, IT IS
HEREBY ORDERED that:

1. Defendants’ motion to dismiss or, in the alter-
native, for summary judgment [Docket No. 8] is
GRANTED; and

2. Plaintiffs’ complaint [Docket No. 1] is DIS-
MISSED WITH PREJUDICE.

LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: December 7, 2000 /s/ John R. Tunheim
at Minnepapolis, Minnesota. JOHN R, TUNHEIM
Untied States District Judge

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_0560%3A2. Public record. Not legal advice.