MERTENS v. HEWITT ASSOCIATES
Legal provision: Employee Retirement Income Security
Argument of Alfred H. Sigman
Chief Justice Rehnquist: We'll hear argument next in number 91-1671, William J. Mertens v. Hewitt Associates.
Mr. Sigman: Mr. Chief Justice, and may it please the Court:
This case presents the Court with the issue of whether a person who knowingly participates in a breach of fiduciary duty under ERISA is liable to restore losses suffered by a retirement plan.
In 1987, the Pension Benefit Guaranty Corporation imposed a distress termination on the Kaiser Steel retirement plan because of what it described at the time as its gross underfunding.
Petitioners, and all other retirees similarly situated, suffered substantial losses in their retirement income.
Mr. Mertens, for example, suffered a reduction in his monthly benefit from $2,000 to $500.
Petitioners brought this action to recover all losses to the plan.
Petitioners sued the plan's fiduciaries, officials of Kaiser, for allegedly breaching their fiduciary duties to the plan, and also sued the plan's actuary, in a separate action which the district court consolidated, for allegedly knowingly participating in that fiduciary breach.
Essentially, plaintiffs allege that the Kaiser fiduciaries and Hewitt acted together to purposefully underfund the plan by failing to change the plan's actuarial assumptions to reflect Kaiser's decision to essential terminate its steel-making operations.
As a consequence of that decision, a great number of Kaiser employees were... were forced to take full early retirement benefits, which in turn greatly increased the funding costs to the plan.
Because Kaiser did not fund the plan in a manner to pay for the increased retirements caused by the closing down of its steel operations, the plan became insolvent.
I'd like to argue three points to the Court today, the first being that under ERISA section 502(a)(3), which provides for all appropriate equitable relief to redress violations of the act, that that statute is broad enough to encompass redress against a person who knowingly participates in a breach of fiduciary duty.
And that principle also is a fundamental principle of the common law of trusts, which should be incorporated into ERISA.
Secondly, I'd like to argue that when Congress in 1989 enacted the so-called OBRA amendment to ERISA, it made... which had explicitly referred to a preexisting underlying cause of action under section 502 for recovery of losses to a plan caused by any person who knowingly participates in a breach of fiduciary duty, that that amendment had confirmed that the right on the part of participants and beneficiaries to sue knowing participants in fiduciary breaches had always existed under section 502.
Finally, Your Honors, I would like to argue that the liability that we argue for here today is essential in order to further the remedial purposes of the statute, the primary function being to deter fiduciary breaches in the first place, so as to secure the interests of retirees in their pension benefits.
Unknown Speaker: If there were a suit under State law... and I think this question relates on all three of the points you want to bring up, or at least it... it gives me an initial grasp of the case.
If there were a suit under State law, what would your position be on whether or not there's preemption?
Mr. Sigman: Well, in fact we did raise a claim under State law.
We sued Hewitt for malpractice under State law.
And after this Court granted certiorari, the district court denied Hewitt's motion to mission on preemption grounds.
I think that the answer to that question in part's going to depend on the resolution of this case.
I would point out to the Court, however, that ERISA does provide specifically that plans can be sued and can sue.
And there are many instances where district courts have held that malpractice actions against attorneys, against other service providers to plans, are not preempted.
But, once again, that issue is not presented by this case because Hewitt did not raise it until after the cert petition had been granted.
Unknown Speaker: Mr. Sigman, what provision of ERISA did the respondent violate?
Mr. Sigman: We contend that the respondent, Hewitt, violated... that... that the violation involved was the violation of the fiduciaries to adequately fund the plan.
And we contend that 502(a)(3) is broad enough, because it is an open-ended provision, to provide relief against Hewitt for aiding and abetting the fiduciaries in that violation.
Unknown Speaker: And what's the section of ERISA that the fiduciary violated?
What would we look to?
Mr. Sigman: That would be section 404 and 409, Your Honor.
Unknown Speaker: 404 and 409?
Mr. Sigman: Right.
Section 404 broadly sets forth the fiduciary standards of ERISA and 409 is the provision of the act which provides for an action against fiduciaries on behalf of the plan.
Congress provided in section 502(a)(3) of ERISA that pension plan participants and beneficiaries could recover, in addition to the remedies explicitly set forth in that section, other appropriate equitable relief to redress ERISA violations.
The wording is very broad.
Unknown Speaker: Yes.
It's... it's very broad, but not universal.
It... it does say other appropriate equitable relief.
What do you deem to be excluded by that adjective equitable?
Mr. Sigman: I would say that damages, for example, for emotional distress would be excluded from that... by that term.
Unknown Speaker: Well, that's simply because there's... that doesn't go to the relief, it goes to where there's a cause of action, doesn't it?
Mr. Sigman: Yes, Your Honor.
Unknown Speaker: What... what relief for an available cause of action is excluded by... by putting in the term equitable?
Now, the other side has... you know, has an explanation.
It says, you know, equitable relief doesn't include money damages.
But you say it includes any relief that could be provided--
Mr. Sigman: To redress.
I think that that's--
Unknown Speaker: --To... but... but to redress a breach of fiduciary duty since that breach would be sued for in a court of equity, and therefore any relief provided would be equitable relief.
So then why would you put in the adjective?
Mr. Sigman: --Well, Your Honor, I think that the... that the limitation is, first, there must be a violation.
And I think that the limitation relates to... to the remedy.
In other words, the... the 502(a)(3) provides that--
Unknown Speaker: Well, tell me what remedy would otherwise be available but for this adjective equitable?
Mr. Sigman: --Well, in this case we'd say make-whole relief, and we say that make-whole relief is encompassed within the adjective, within the term equitable relief, Your Honor.
Unknown Speaker: Yes, so... so you might as well have dropped the adjective.
Mr. Sigman: Well, I don't think so, Your Honor, because equitable relief traditionally has encompassed make-whole relief in situations such as this.
Beneficiaries of a trust who are wronged by the fiduciaries have historically had the relief... had the relief available to them to be restored, to be made whole.
Exactly, Your Honor.
And I'd point out that we're not seeking money directly for the individuals affected.
We're seeking money on behalf of the plan.
We're seeking to restore losses to the plan, and that is an appropriate equitable remedy, one which Congress had intended the courts to apply when--
Unknown Speaker: This is not make-whole relief.
You... you say make-whole relief is not available.
Mr. Sigman: --We are saying that make-whole relief is available.
Unknown Speaker: So all relief is available.
What isn't available?
I'm not looking for what is available.
Mr. Sigman: Well, we're saying what would not be available would be relief available to the participants of the plan for the emotional injuries that they've suffered as a result of having their pension reduced so substantially, that that would be excluded, for example, Your Honor.
Unknown Speaker: Not because--
Mr. Sigman: --That punitive damages would be excluded.
Unknown Speaker: --Well.
Mr. Sigman: We're saying that the limitation imposed is--
Unknown Speaker: But they're excluded not... not because of the... the manner of relief, but because there... there's no cause of action for them.
I mean it seems... this is a remedial section.
It... it's talking about what kind of relief to address violations.
I don't want to take too much of your time.
Well, a short answer, I suppose, is that inequitable relief is excluded.
Or inappropriate equitable relief.
And what do you make out of the (a)(5), where it gives the Secretary the power to sue, doesn't it?
Isn't it (a)(5)?
Mr. Sigman: --Yes.
(A)(5) gives the Secretary the power to bring a suit--
Unknown Speaker: And it... it says "any other appropriate relief", doesn't it?
Mr. Sigman: --No.
It's equitable relief.
I apologize to the Court.
The term equitable was mistakenly omitted from the... from our briefs.
Unknown Speaker: So it's--
Mr. Sigman: On my part.
Unknown Speaker: --Still is equitable relief.
Mr. Sigman: Yes, yes.
(A)(3) and (a)(5), in terms of the release... relief available, is identical.
And equitable relief is provided for and I apologize to the Court for the mistake, the omission in the brief.
Unknown Speaker: Well, that's interesting.
I thought you were going... I thought we could make the big argument about Congress must have intended something different.
Mr. Sigman: I'm sorry to disappoint the Court.
As this Court has stated in the Firestone case, ERISA's legislative history further demonstrates that Congress had intended Federal courts to develop Federal common law in fashioning the additional appropriate equitable relief described in section 502.
The legislative history also demonstrates that Congress intended to engraft traditional trust law principles into ERISA's remedial scheme.
Moreover, a fundamental concept of trust law is that courts will give to the beneficiaries of a trust those remedies which are necessary to... for the protection of their interests.
And it's also a fundamental concept and principle of trust law that a knowing participant in a breach of fiduciary duty is as responsible as the fiduciary for the breach.
In this particular case, the relief which we urged the Court to approve is essential in order to fulfill the act's remedial purposes, among the most important being to deter fiduciary breaches which frequently could not happen without the assistance of a knowing participant in that breach.
In addition, as I've stated earlier the fundamental and most important remedial feature of ERISA is to assure the interests of retirees in the pension benefits that they were promised under the terms of the plan.
Imposing the liability which we seek here on knowing participants would thereby further ERISA's remedial goals.
It would eliminate any incentive that a nonfiduciary might have to assist or to induce a fiduciary to breach his ERISA responsibilities.
I'd like to turn to the OBRA argument, if I may.
Unknown Speaker: Let... let me ask you, Mr. Sigman, if I may, section 409(a) talks about the liability of... of a fiduciary.
Is that correct?
Mr. Sigman: That's correct.
Unknown Speaker: And as to him, a court can offer... can order... he is subject to such equitable or remedial relief as the court may deem appropriate.
Mr. Sigman: That's correct.
And I think that 409, Your Honor, also demonstrates that that relief can encompass monetary relief.
Unknown Speaker: Well--
Mr. Sigman: Because the... at the beginning of the section it says
"shall be personally liable to make good to such plan any losses to the plan resulting from each such breach. "
Unknown Speaker: --And--
Mr. Sigman: "And to restore to such plan any profits-- "
Unknown Speaker: --But it's... it's phrased in the... in the disjunctive there.
Is... is that correct?
Mr. Sigman: --Yes, it is, Your Honor.
Unknown Speaker: And then 502(a), section (1)(3), if the civil action brought by a participant benefit a fiduciary, that can be brought to obtain other appropriate equitable relief.
Mr. Sigman: That's correct.
Unknown Speaker: So that in one... in 509 it talks about equitable or remedial relief, then this section talks about appropriate equitable relief.
Do you think Congress was really being careful in the terms it used?
Mr. Sigman: I would say that the statute could have been more carefully crafted.
For example, the... for the phrase "equitable or remedial relief", I don't really think, frankly, that there's much difference between equitable and remedial.
Unknown Speaker: It just sounds like someone was talking off the top of their head that had been to first year law school.
Mr. Sigman: It sounds... I believe that it's a redundant phrase.
But I do think, despite the sloppiness in the drafting of the statute, that 409 does establish that it's appropriate to seek relief which would provide all losses or restore all losses lost to the plan.
In the 1989 OBRA amendment to ERISA, which added a new subsection, 502(l), Congress--
Unknown Speaker: May I just ask one question before you go on to the other argument?
Your claim is that the... the breach of fiduciary obligation, not exactly negligence but the work of the actuary in combination with the fiduciary, caused the plan to be underfunded.
Mr. Sigman: --That's correct, Your Honor.
Unknown Speaker: And is the relief that you're asking for that those individuals should pay the amount of the underfunding into the plan?
Mr. Sigman: Actually, it... it could go beyond just the amount of the underfunding into the plan.
We're seeking to... relief which would make the plan whole.
And, in other words, we're seeking relief that would result in a full benefit, a full retirement benefit, as originally provided for in the terms of the plan, to the retirees of the plan.
Unknown Speaker: What are we talking about in dollars?
Mr. Sigman: Well, it's not in the record, Your Honor, but in terms of the out-of-pocket loss which my clients have suffered--
Unknown Speaker: Not... not the individuals.
I'm talking about the... the whole group.
Mr. Sigman: --Well, because the PBGC has taken over the plan, the whole group has not suffered economic loss.
Of the approximately 2,000 participants in the plan, only 143 fell above the threshold that the PBGC has required... in other words, the PBGC will pay a full benefit to each participant or retiree--
Unknown Speaker: But doesn't the PBGC have a subrogation claim against the actuary here?
Mr. Sigman: --The PBGC is in the litigation but it did not appeal.
The PBGC is not here today.
Unknown Speaker: Well theoretically, I would think, they would be entitled... don't they stand in the shoes of the... of the plan?
Mr. Sigman: --Well, the PBGC is now the statutory trustee of the plan.
And it is surprising that the PBGC was so disinterested as not to appeal this issue.
Unknown Speaker: What I'm trying to find out, if you can tell me just in rough figures, is by how much was the plan underfunded, which I suppose would measure the aggregate potential liability in this kind of a lawsuit?
Mr. Sigman: Once again, it's not in the record, but the best answer I can give you is that in the context of the litigation, the PBGC produced what it called a termination report, indicating that the losses to the plan were in excess of $50 million.
Unknown Speaker: $50 million.
Mr. Sigman: That's correct.
Unknown Speaker: And the actuary would be liable for that amount if your theory is correct.
Mr. Sigman: --Jointly and severally liable with the fiduciaries.
Unknown Speaker: With the... and all of whom are individuals, right?
Mr. Sigman: Correct.
The company itself, Kaiser, was also, we contended, a fiduciary of the plan.
But given the fact that Kaiser was in bankruptcy, we did not bring suit against Kaiser originally.
Just very briefly in terms of the OBRA argument, I wanted to point out to the Court that the OBRA argument provides that the Secretary may impose a civil penalty, not only on a fiduciary who commits a breach, but also on any other person who knowingly participates in such a breach.
The civil penalty was set at 20 percent of the recovery amount, which was defined in the statute as an amount recovered by the Secretary in an action brought by him under section 502(a)(2) or (a)(5).
The OBRA amendment, we contend, also confirms that the term appropriate equitable relief includes the remedy of restoring all losses to the plan.
Under OBRA the Secretary may reduce or waive the civil penalty if he finds that its imposition would impair the ability of the fiduciary or, in the language of the statute, the other person, to restore all losses to the plan.
We believe that that demonstrates that Congress' primary purpose was to assure that losses to the plan would be restored, and not only restored by the breaching fiduciary, but restored also by those who knowingly participate or participated in the breach of fiduciary duty.
In closing, I would urge the Court to reverse the decision of the court of appeals so as to leave these retirees in a position that is better than they would have been in, rather than worse than they would have been in prior to the enactment of ERISA.
Unknown Speaker: Hold it a second.
Who was the secretary referred to in... in (l)?
Mr. Sigman: I'm sorry?
Unknown Speaker: Which secretary are we talking about?
Mr. Sigman: Secretary of Labor.
Unknown Speaker: Secretary of Labor.
Mr. Sigman: Correct, Your Honor.
Unknown Speaker: And he is permitted to bring... bring the kind of a suit that--
Mr. Sigman: Exactly.
Unknown Speaker: --We're talking about.
Mr. Sigman: The Secretary is authorized under section 502(a)(5), and 502(a)(5) has the identical language as 502(a)(3).
It would be, indeed, anomalous if the liability of a knowing participant would be dependent upon whether or not the plaintiff is the Secretary of Labor or if the plaintiff is the individual plan participant or the fiduciary.
Unknown Speaker: But your opponent doesn't agree the Secretary has a claim, does he?
Mr. Sigman: Correct.
Unknown Speaker: Thank you, Mr. Sigman.
Mr. Mann, we'll hear from you.
Argument of Ronald J. Mann
Mr. Mann: Thank you, Mr. Chief Justice, and may it please the Court:
The question in this case is whether ERISA deprived beneficiaries of their traditional equitable remedies against parties who knowingly participate in a breach of trust.
In our view, the answer is found in the text of section 502(a)(3), which authorizes courts to award appropriate equitable relief to redress violations of ERISA and ERISA plans.
Although compensatory damages normally are considered legal relief, it is clear in the trust context that equitable relief includes a right to compensatory relief which accordingly should be available under section 502(a)(3).
That reading of the statute is bolstered by indications from related provisions of the statute, as well as the practical consequences of a contrary reading.
Unknown Speaker: Mr. Mann, if you go to the subsection immediately before the one you're talking about, section 502(a)(1)(2), I guess, is where it talks about
"A civil action may be brought by the Secretary or by a participant for appropriate relief under section 1109. "
What does 1109 provide?
Mr. Mann: 1109... I'm looking at the appendix to our brief, which is page la to the appendix of our brief.
Unknown Speaker: That's what I'm looking at.
Mr. Mann: Okay.
It has 409(a) and 502(a) on the same page.
409(a) is the provision which is in part 4, that deals with fiduciaries, that establishes the types of relief that can be secured against fiduciaries by the plan.
That is carried forward into 502(a) and 502(a)(2), at which you look.
I assume that you're referring to the phrase 409(a).
And as you noted, it is somewhat different from the phrase 502(a)(3), which is--
Unknown Speaker: Well--
Mr. Mann: --The provision at issue here.
Unknown Speaker: --Yes, but then 502(a)(2) speaks simply about appropriate relief without using the term equitable.
So we have in 409(a) equitable or remedial used in the disjunctive.
In subsection (2), appropriate relief without any modifying adjective.
Mr. Mann: That--
Unknown Speaker: And then in (3) we have appropriate equitable relief.
Are we talking about three different things?
Mr. Mann: --No, no.
I think that... I think that what you look at is in... ERISA, traditionally, has been understood to refer to traditional principles of trust law.
If you look at traditional principles of trust law, the most likely source and the source this Court has looked at is the restatement of trusts.
And the restatement of trusts establishes two types of remedies.
There are some legal remedies and there are some equitable remedies, and they are described in different sections.
In our view, the relief under 502(a)(3), the reference to equitable relief should refer to the equitable remedies that were available at trust law.
In section 409 when they refer to equitable or remedial relief, we believe they also intended to include... include the legal remedies that were available at trust law.
Unknown Speaker: What does remedial relief mean that the word relief by itself wouldn't mean?
Mr. Mann: Well, I... I share your view that remedial relief is... remedial is probably not the best word.
I would assume, though, that what that word has to mean is a reference to legal relief, and what they're trying to say is equitable or legal relief.
It seems to me remedial is an adjective that means having to do with relief.
Unknown Speaker: It means relief.
Mr. Mann: But to make sense out of the statute, it seems to me that we should assume that when Congress says equitable in one place and equitable or remedial next to it, that we have to find some meaning of the word remedial.
And the most obvious meaning--
Unknown Speaker: You're just kind of throwing up your hands.
Mr. Mann: --Well, no, but I mean the most... the most obvious meaning of... of the word in context is those things that are not equitable, which is the legal relief described in the restatement.
And it also makes some sense because if you look at the types of things that are legal relief and are not equitable relief, they are actions that would lie solely against the fiduciary.
And so it would make some sense that when Congress drafted section 409 for remedies against the fiduciary, it would say you get not only equitable relief but also the very limited types of legal relief that were available at the common law.
In section 502(a)(3), which is not directed solely at fiduciaries, there would be no reason to... to have that included, because anything that you can get against a fiduciary has already been included in section 409.
Unknown Speaker: What... what do you... what do you refer to when you say you... legal relief does not mean to you money damages; money damages against the fiduciary is not legal relief?
Mr. Mann: Ordinarily, money damages are legal relief.
But ERISA is a statute that is enacted in the trust context, and in the trust context it's extremely clear... it is extremely clear in the trust context that equitable relief includes compensatory... you can call it compensatory damages, because that's really what it is.
Unknown Speaker: Right.
But what... what is the legal relief that's available in the trust context then?
Mr. Mann: The... the restatement describes two types of legal relief.
One of them is for disbursement of money that is immediately and unconditionally due to the beneficiary under the terms of the trust.
For example, if you have a classic spendthrift trust under which the beneficiary is not supposed to relieve any... receive anything until he turns 25, and at 25 the corpus of the trust is to be disbursed to him.
If he files a lawsuit, he's 26 years old, he can go into a... could go to a court of law and get that relief.
And the second one--
Unknown Speaker: Well, but that's no longer available.
I... I mean the trust is over, the trust is at an end.
Mr. Mann: --But if the... but if the trustee refuses to give him the property, before ERISA was passed he would have a lawsuit to get the property.
Unknown Speaker: It's not a lawsuit under the trust, however.
It's a lawsuit quite apart from the trust, so of course it's at law.
Mr. Mann: --That... that's... that is exactly right.
But that is the legal--
Unknown Speaker: Okay, what's... what's the second one?
Mr. Mann: --The second... the second one is actually quite similar.
The second one is if the... if the thing to be disbursed is not money but a chattel, which, I mean, has basically the same type of analysis.
Unknown Speaker: If the thing... but what was the common law legal remedy for breach of fiduciary duties such as... as alleged in this case?
Mr. Mann: There... you... you would have an action... in the restatement it's under section 199(c) and it's an action... an action which actually uses words very similar to section 502(a)(3).
It's an action to compel the trustee to redress a breach of trust.
This... and if you look at the... the commentary to section 199, it makes clear that the relief was compensatory relief.
One of the examples, for example, is if the trustee has invested money in a bank that he should have known would fail.
The bank fails, the money is no longer there, the trustee is personally obligated to make the trust whole for the loss.
In... this case involves a suit where the trustee did not breach the trust by himself, but there is a person who knowingly participated with the trustee in the breach of trust.
Now, at common law the understand... before ERISA, the understanding was we can't expect the trustee to sue the person who participated with him in the breach of trust, so we will allow the beneficiary himself to sue to recover the money for the trust.
And... and that is the action that's at issue here, and that's described in another part of the restatement, in section 326, and it's also referred to in the treatises cited in our brief.
We think that the statute very clearly was referring to this particular cause of action because section 502(a)(3) uses the word "redress", which is exactly the word that's used in the particular section of the restatement and the natural meaning of the word, if you look in dictionaries, is to compensate or to pay back.
One further point I'd like to make, which I think is one of the key considerations in this case, is the practical consequences of a contrary reading of the statute.
ERISA has its remedies for... civil remedies set forth in section 502(a), which this Court has described as very comprehensive.
Except for section 502(a)(3), there is no provision that generally allows a civil action to recover for a breach of ERISA.
There are quite a number of important provisions of ERISA for which there is simply no remedy outside of section 502(a)(3).
We could look at the provision at issue in Ingersoll-Rand, for example, which made it a violation of ERISA to fire an employee to prohibit his pension plan from vesting.
If individuals who are harmed by violations of those provisions cannot sue under section 502(a)(3) for compensatory damages, then ERISA has effectively left them without a remedy.
Unknown Speaker: Well, can't the Secretary bring a suit?
Mr. Mann: The Secretary can bring a suit, but those... but those... that suit, under section 502(a)(5), is also for appropriate equitable relief.
And if equitable--
Unknown Speaker: Well, I know, but just because a beneficiary couldn't sue him or herself doesn't mean that he or she is without a remedy.
Mr. Mann: --No.
But the problem is that there's no remedy.
Unknown Speaker: Isn't that right?
Mr. Mann: Well, just because the Secretary can sue doesn't mean the individual is without a remedy.
But the Secretary has no greater right to compensatory damages than the individual.
Unknown Speaker: That's a different argument, yeah.
Mr. Mann: Well, I... I understand.
Unknown Speaker: Right.
Mr. Mann: But respondents have conceded that... that persons other than fiduciaries can be sued under section 502(a)(3).
The issue really is whether in their... is whether or not you can get compensatory relief.
Unknown Speaker: May I just ask one thing to be sure I'm right?
Under 502(a)(3), it's for violations of a plan or a provision of this subchapter.
Of course, this is a violation of the subchapter we're talking about, and what is the section of the subchapter?
Mr. Mann: It's... it's section 404.
Section 404 establishes the--
Unknown Speaker: 404 is what is the... is the duty-creating section that was violated.
Mr. Mann: --Right.
It's the duty of care for fiduciaries.
But as I was explaining, in considering the--
Unknown Speaker: That is only a duty on the fiduciaries.
Where... where is the duty created on the part of the nonfiduciaries?
I mean you have a section 409(a) which creates a duty on the part of fiduciaries.
It gives a cause of action.
Where... where is the section that would be the equivalent creating a duty and a cause of action with respect to nonfiduciaries.
It just isn't there, is it?
Mr. Mann: --Okay.
There are... there two answers to that.
The first answer is if you look at section 502(a)(3), and in particular at 502(a)(3)(b)(i), this is on page la of the appendix to our brief, the... the relief is to redress the violation.
And we submit that in determining what is appropriate equitable relief to redress the violation, you should look to what relief was available before ERISA was passed under principles of equity, which includes relief against not only the fiduciary, but against a third party.
The second point, which is very important, is that section 502(l)(1)(a), (l)(1)(b), makes it a violation of ERISA for another person to knowingly participate in a breach.
So at least in this type of situation, the party has violated ERISA because, if nothing else, he's violated section 502(l)(1)(b).
Unknown Speaker: Thank you, Mr. Mann.
Mr. Frankel, we'll hear from you.
Argument of Steven H. Frankel
Mr. Frankel: Mr. Chief Justice, and may it please the Court:
As you now have heard, the petitioners' and the Solicitor General's argument is based on two fundamental premises.
First, that equitable relief includes money damages.
And second, unless the 1989 amendment to the statute is read to provide that equitable relief includes money damages, it will be rendered, in essence, a nullity.
I will demonstrate why neither of those premises can be sustained, since they violate ERISA's language and are inconsistent with its structure.
One of the first things each of us learned as law students is that equitable relief does not include money damages.
Yet petitioners' and the Solicitor General's interpretation turns to the--
Unknown Speaker: Well, do you say it never... it never includes money... it never includes a remedy which... which is... is a recovery of money.
Mr. Frankel: --No, I do not say that, Justice White.
Unknown Speaker: So... so you're going on damages, dama--
Mr. Frankel: Money damages.
Unknown Speaker: --Well--
Mr. Frankel: And--
Unknown Speaker: --Can you get... but you can get a money judgment on... in equity.
Mr. Frankel: --You can get a money judgment in equity, Justice White.
But ERISA did not adopt lock, stock, and barrel, the exclusive jurisdiction of common law equity courts.
At common law, equity courts had exclusive jurisdiction over trust cases, and they were able to award both legal and equitable remedies because they had the exclusive jurisdiction over those cases.
ERISA, while influenced by the common law of trusts, only selectively incorporated certain of those principles.
Unknown Speaker: You're saying, in essence, that the word equitable relief does not mean all relief that a court of equity in these circumstances could give.
Mr. Frankel: That is correct, Justice Scalia.
Unknown Speaker: That there's a difference between equitable relief and the relief which a trust... court supervising a trust, which happens to be a court of equity, can provide.
Mr. Frankel: That's absolutely correct.
Unknown Speaker: Well, do you think you can find in ERISA an intention to narrow the meaning of, quote, equitable relief, unquote?
Mr. Frankel: Yes.
Yes, I can, Justice White.
And let me try to show that to you by contrasting what Congress provided for in assessing the liabilities of fiduciaries under section 409 with the relief provided for in section 502(a)(3), which does not apply to fiduciaries.
409 first says that a fiduciary is personally liable for making good to the plan any losses that the plan sustains as a result of a breach, restoring profits to the plan made through use of plan assets, and shall be subject to such other equitable or remedial relief as the court deems appropriate.
Conspicuously absent from section 502(a)(3) are any mention of the so-called make-whole remedy or any mention of the term remedial relief.
Unknown Speaker: Who... who can sue to enforce 409?
Mr. Frankel: Plan participants and fiduciaries, as well as the Secretary of Labor.
Unknown Speaker: Under... under what provision does the Secretary of Labor sue?
Mr. Frankel: Under section 502(a)(2).
Section 502(a)(2) says that plan participants, fiduciaries, and the Secretary of Labor can sue for appropriate relief under 409, which is the fiduciary provision.
Unknown Speaker: And what about section (5), (a)(5)?
Mr. Frankel: Section (a)(5) gives the Secretary of Labor the right to seek injunctive and other appropriate equitable relief, just as section 502(a)(3) gives plan participants the right to seek injunctive--
Unknown Speaker: So the only part of... the only part of section (a) that... that provides for recovery of money from a fiduciary is (a)(2).
Mr. Frankel: --That's correct.
And money damages, make-whole relief, can only be obtained from fiduciaries, not against nonfiduciaries like Hewitt.
ERISA was enacted to establish standards of conduct, obligation, and responsibility for fiduciaries.
And in certain carefully circumscribed areas, it dealt with nonfiduciaries as well.
But what ERISA did, and really the fundamental distinction around which this whole statute is crafted, is the distinction that ERISA draws between fiduciaries and nonfiduciaries.
Unknown Speaker: Mr. Frankel, am I... am I correct... I don't recall whether you made the argument, I guess I should have asked the other side, but they have very little time left.
In... it would not have been... it would not have been necessary to mention the Secretary... in (a)(2), which says that the Secretary, a participant, or a beneficiary or fiduciary can sue under 409(a), it wouldn't have been necessary to mention the Secretary in... in 1132(a)(2) if (a)(3) and (a)(5) mean what the Government says it means.
Mr. Frankel: That is absolutely correct, Justice Scalia.
Unknown Speaker: Because (a)(5) would automatically... if it included all relief, legal as well as equitable, the Secretary would have all the power he needed under... under (5) and he wouldn't have to have been given anything under (2).
Mr. Frankel: That's correct.
To contrast what ERISA did with fiduciaries as to what existed at common law, I think it's important to note that at common law only trustees were in a fiduciary relationship with a trust and its beneficiaries.
Under ERISA, on the other hand, not only are the trustees in a fiduciary relationship with the trust, but ERISA deems any person who exercises any discretion or control over a plan or its assets to also be a fiduciary.
What it does is it greatly expands the universe of accountable persons who can be liable for plan losses under the statute for a breach of fiduciary duty.
What it does, on the other hand, is work a concomitant reduction on the relief that can be obtained from nonfiduciaries.
And that is--
Unknown Speaker: May I just... may I just get one thing clear in my mind.
Do you agree that the pleadings here allege a cause of action against the... I mean if they were named as parties to, I know they're not.
But if the fiduciaries with whom the actuary is alleged to have conspired were parties, would... would there be a... would a cause of action have been stated against them under the statute, seeking relief in the nature of recoupment to the trust of the amount that was lost?
Mr. Frankel: --I do not believe that it was properly alleged in this case, and we did make that argument to both courts below.
They nevertheless construed the complaint as if it contained allegations of a breach of fiduciary duty, as well as a knowing participation in it.
Unknown Speaker: And if the... if the complaint is in proper form, would you concede that, under the statute, that complaint would state a cause of action?
Mr. Frankel: The complaint against the fiduciary?
Unknown Speaker: Yes.
Mr. Frankel: Yes it would, Your Honor.
Unknown Speaker: So the only issue is... is whether it also states a cause of action against a knowing participant--
Mr. Frankel: That's correct.
Unknown Speaker: --In the... who is not himself a fiduciary.
Well what do you about... what do you do about 502(l), then?
Mr. Frankel: 502(l) only gives the Secretary of Labor the power to assess fines.
Unknown Speaker: Well, I know, but it's measured by... by the applicable... by 20 percent of the applicable recovery amount, which is the amount recovered from a fiduciary or other person ordered by the court.
Mr. Frankel: There are at least two forms of equitable relief which would provide the Secretary and the action that the Secretary brings under (a)(5) with a monetary recovery, though not one for monetary damages.
One is an action for restitution.
If in bringing the action under (a)(5) and the other person is being sued for... for improper conduct in connection with holding onto plan assets, the Secretary--
Unknown Speaker: Well, what if there's... what if... what if the other person is the person who got sued here?
Mr. Frankel: --The... the Secretary would not be able to assess a civil penalty against Hewitt Associates--
Unknown Speaker: Why?
Mr. Frankel: --Under these circumstances.
Unknown Speaker: Why?
Mr. Frankel: Because there is no amount under (a)(5) which could be awarded as appropriate equitable relief.
There's no equitable remedy that would provide the Secretary, or the plan in this circumstance, with a monetary recovery, as both the Ninth Circuit and the district court below found.
Unknown Speaker: May I... may I question that in this respect?
Supposing the action were against the fiduciary itself, or himself or herself?
Then the recovery would be in amount of the underfunding or whatever it might be.
That would be appropriate equitable relief against the fiduciary, would it not?
Mr. Frankel: I disagree, Justice Stevens.
I do not believe that that would be appropriate equitable relief.
It would be make-whole relief that's set forth in section 409 as specific relief that can be assessed against a fiduciary.
Unknown Speaker: Under 402.
It would be assessable against the fiduciary under... under... under... section 2, rather.
Mr. Frankel: --Under... it would be assessable--
Unknown Speaker: Plus--
Mr. Frankel: --502(l), section 2, that's correct.
Unknown Speaker: --Yep.
And so you think the Congress allowed this make-whole recovery against the fiduciary not as equitable relief but as--
Mr. Frankel: As--
Unknown Speaker: --But they called it something else.
Mr. Frankel: --They called it.
Unknown Speaker: Immediately.
Mr. Frankel: --Precisely what could be recovered against a fiduciary in section 409 and said that type of relief can only be recovered against fiduciaries for the benefit of the plan.
What it said in section 502(a)(3) is that, as to anyone else who might violate the provisions of the statute, the only relief that could be obtained is injunctive and other appropriate equitable relief.
And that is the... that is where ERISA crafts the distinction between fiduciaries and nonfiduciaries.
Congress recognized that plans would interact with professional service providers.
And while it had in earlier drafts considered making actuaries fiduciaries under the statute, it chose not to do so.
Unknown Speaker: Let me... may I just back up a little.
Let's go to common law for a second and take the example that the Solicitor General suggested of poor investment, negligence in making investments in conspiracy with an investment broker.
The two of them together are just stupid or what... they commit the fiduciary obligation.
As I... as I remember it, at common law the... they could be jointly and severally liable.
Mr. Frankel: That is correct, Justice Stevens, at common law.
Unknown Speaker: And that would be equitable relief at common law.
Mr. Frankel: That is not what ERISA adopted.
What ERISA adopted was an expansion of persons--
Unknown Speaker: I understand your theory that they made more people fiduciaries and therefore... thereby--
Mr. Frankel: --And--
Unknown Speaker: --Eliminated the participants with the fiduciaries.
Mr. Frankel: --No.
They did not eliminate--
Unknown Speaker: The professionals.
Mr. Frankel: --The participants.
What they did is limit the relief that could be obtained against a person other than a fiduciary to equitable or injunctive relief.
Unknown Speaker: Well, but as long as you say equitable you're still picking up the--
Mr. Frankel: Well--
Unknown Speaker: --The common law precedent that I suggested.
Mr. Frankel: --Well, with regard to the common law precedent, ERISA does not adopt that common law precedent within the contours of either the structure or the language that Congress chose.
In number 1 in 409 and number 2 in 502(a)(3), what Congress did was make a rational decision that allocates liability in accordance with responsibility, making the fiduciary the one who is responsible for plan losses, but cut off the monetary relief that could be obtained from nonfiduciaries, professional advisors, of... of money or property they might have obtained from the plan.
Unknown Speaker: So you--
Mr. Frankel: If they had their hand in the plan's till, they could be required to disgorge that money.
That was not the circumstance here.
Unknown Speaker: --Your argument for your construction of 502(a)(3), that appropriate equitable relief doesn't include the sort of relief that a beneficiary could have gotten from a trustee in a court of equity, is based on what section 409(a) does set out as to what can... what the... can happen to a fiduciary.
Mr. Frankel: Yes.
By having included specifically in 409, Chief Justice Rehnquist, what could be obtained from a fiduciary, and failing to include those words in section 502(a)(3), that omission is the clearest manifestation that the relief available under 409 is not available under 502(a)(3).
Unknown Speaker: But--
Mr. Frankel: Otherwise, Congress would have said so.
Unknown Speaker: --But why... why should the language in 409(a) narrow what would otherwise be the ordinary construction of appropriate equitable relief in (a)(3).
If that is the... the ordinary construction of equitable relief, that you could get some sort of make-whole relief if you were a beneficiary, from a trustee, from a court of equity.
Mr. Frankel: What... what ERISA does, Chief Justice Rehnquist, is adopt certain principles from trust law, not all of trust law.
And what it said with regard to fiduciaries was what's said in 409.
502(a)(3) is not limited in terms... to the terms of what parties can be sued under that provision.
And what I'm trying to show is that by setting forth what relief could be obtained against fiduciaries and not setting forth what relief, other than appropriate equitable or injunctive relief, could be obtained against nonfiduciaries under 502(a)(3), that Congress was making a distinction between the relief available from fiduciaries and specific... specifically set it forth and, in contrast, limited the relief that could be assessed against nonfiduciary parties.
Unknown Speaker: Well, I guess... is it true that if... if 502(a)(3) means what the Government says it means, you would not have needed 409(a)--
Mr. Frankel: That's correct.
Unknown Speaker: --At all?
If it includes... if... if... if 502(a)(3) includes all the equitable relief in the sense of whatever trust... whatever courts of equity remedying breaches of trust could give in the past, you wouldn't have had to have 409(a).
Because all of that stuff that's recited in 40... 409(a) is nothing more than standard trust remedies for breach of trust.
Mr. Frankel: That's absolutely correct, Justice Scalia.
Indeed, as the Ninth Circuit in the Nieto case, which underlied the decision in our case, recognized, that if that interpretation were adopted, 409 would be rendered unnecessary surplusage.
Unknown Speaker: Mr. Frankel, you were giving us, quite some time ago, two examples of monetary but not... of equitable relief which was monetary but not damages, and you gave one example as restitution.
What's your second example?
Mr. Frankel: The second example is that when a fiduciary and a party in interest engaged in a prohibited transaction under the statute, that is proscribed by 406, the remedy for that is correction of the transaction.
Basically, putting the plan back into the position it would have been in had the transaction essentially not taken place.
Unknown Speaker: Can either of those forms of monetary relief be recovered under ERISA against a nonfiduciary?
Mr. Frankel: Yes, they can, Your Honor.
Unknown Speaker: The second one could not, I presume.
Mr. Frankel: They would be... they would be the forms that I can identify of appropriate equitable relief, that would provide plan participants or the plan with a monetary recovery.
Unknown Speaker: But again... but against a nonfiduciary.
Mr. Frankel: Against a nonfiduciary.
Unknown Speaker: May I just ask you this question about whether there's redundancy between 409 and 502.
Is it not correct that 409 is a duty-defining section, as is 404 and 406, whereas 502 is the provision that identifies the parties who may seek relief and the like?
And you read 502, if I understand you correctly, as saying a civil action may be brought against a fiduciary.
Mr. Frankel: Well, Justice Stevens--
Unknown Speaker: But those words aren't there.
Mr. Frankel: --What 502(a)(2) says is that a plan participant, fiduciary, or the Secretary of Labor--
Unknown Speaker: Right.
Mr. Frankel: --Can bring a suit for appropriate relief under 409.
409 says that a plan fiduciary who breaches his fiduciary obligations to the plan is personally liable, and that's why there's the interaction between the two provisions.
Unknown Speaker: But it doesn't say... 409 doesn't identify the universe of prospective plaintiffs.
Mr. Frankel: It does and it only identifies fiduciaries.
Unknown Speaker: Well, those are defendants.
I said doesn't... it doesn't identify plaintiffs.
Mr. Frankel: Well, it says plan participants.
Unknown Speaker: That's 502.
Mr. Frankel: Well, 409 doesn't say that.
Unknown Speaker: That's right.
Mr. Frankel: But 502(a)(2) does.
Unknown Speaker: But one can look at the scheme as saying 409 is... 4 in general, 404, 5, 6, defines the various duties of the trustee, and 502 defines the various remedies available to parties who may sue either on behalf of the plan or themselves.
Mr. Frankel: Justice Stevens, I'd... I'd respectfully disagree.
Section 404 sets forth the duties which an ERISA fiduciary owes to the plan.
Section 409 sets forth the liabilities of a fiduciary who breaches his obligations.
Unknown Speaker: Right, yeah.
Mr. Frankel: Section 502(a)(2) gives the parties identified the right to bring a civil action for relief under section 409, the liability provision.
Unknown Speaker: Is it... is it correct that... that you read 502 as saying a civil action may be brought against a fiduciary?
Mr. Frankel: That is correct.
Unknown Speaker: And that qualifies everything that follows--
Mr. Frankel: That is correct.
Unknown Speaker: --That's interesting.
I hadn't noticed before, but nothing in the statute identifies either the potential defendants who may be sued or may not be sued.
It just simply says who can sue.
Mr. Frankel: I would agree with you that section 502(a)(2) doesn't identify the defendants who... (a)(3) does not identify the defendants who could be sued.
But I think when you read 502(a)(2) with section 409, that it's plain that only fiduciaries could be the target of 502(a)(2) actions.
Unknown Speaker: I understand your argument.
Of course, you know, if you want to be rigorously logical, I suppose you... you would say that 409(a) creates rights of action for... against the fiduciary and there is nothing creating rights of action against nonfiduciaries.
So you would say that (3) doesn't even allow any equitable relief against nonfiduciaries period.
But that's a--
Mr. Frankel: That is--
Unknown Speaker: --That's even a more bitter pill to swallow.
No, you're... you're saying that at least you can get equitable relief.
Mr. Frankel: --That's correct, Justice Scalia.
Unknown Speaker: Well, I'm saying if you were rigidly... rigidly logical, and I would say reckless.
You would... you would probably argue that you can't get anything from nonfiduciaries here.
Mr. Frankel: We don't agree with that position, Justice Scalia.
Unknown Speaker: I didn't think you did.
Mr. Frankel: In fact, what your position really is is that what the petitioners and the Solicitor General are asking this Court to do is to take the words that appear in 409 and imply them into 502(a)(3).
That position cannot be sustained, since it will result in destroying a carefully comprehensive structure that Congress crafted.
It will destroy the distinction between fiduciaries, on the one hand, and nonfiduciaries on the other hand.
Unknown Speaker: But you are willing to imply into... into 502(a)(3) the cause of action that's set forth in 409(a), just not the remedies.
Mr. Frankel: That... that... that is not our... our position, Justice Scalia.
Our position is that the issue presented to the Court is what kind of relief can be obtained against a nonfiduciary.
What cause of action that may account for is really irrelevant.
I should note, however, that our amici did make a powerful argument that no knowing participation cause of action exists under the statute.
We don't take a position on that because our focus is on the relief that is available against a nonfiduciary.
With regard to the balance that ERISA struck, I just want to make a couple of points.
Like all statutes, ERISA was the result of a balance that was struck by Congress.
They sought to protect and promote the interests of plan beneficiaries and participants on the one hand, but they also, Congress, wanted to encourage the voluntary formation of employee benefit plans without unduly increasing costs.
Now while plan fiduciaries retain professional service providers, as the plan fiduciaries in this case retained Hewitt, the issue is where does the line get drawn between fiduciaries and service providers.
ERISA provides that answer.
ERISA says that a plan professional service provider is not a fiduciary, so long as the service provider exercises his normal professional functions and does not exercise any discretion or control over the administration or... administration of a plan or its assets.
Here, the courts below found that Hewitt was not a fiduciary.
What petitioners are asking this Court to do is to impose fiduciary liability on Hewitt, even though it's been determined as a matter of law that Hewitt was not a fiduciary.
Unknown Speaker: May I state what I understand to be... I didn't understand from the briefs, quite frankly, but in response to my last question to Mr. Mann, he said the provision of the subchapter that they said was violated was 404.
And that... you then read 502(a) is saying
"A civil action may be brought by a participant. "
and so forth,
"to enjoin any act or practice that violates any provision of this subchapter. "
namely 404, "and to obtain", blank, blank, blank, "appropriate equitable relief".
Now, why can't that... why can't "appropriate equitable relief" in such an action include conspirators with the fiduciary?
Mr. Frankel: For two reasons.
Unknown Speaker: Ignoring 409 entirely.
Mr. Frankel: --Ignoring... ignoring 409.
What... what... what ERISA says is that a person is either, in essence, a fiduciary or not a fiduciary.
And given that ERISA expands the universe of fiduciaries, it says that only fiduciaries can be held liable for losses sustained by the plan, while working a concomitant reduction on what relief can be obtained from nonfiduciaries.
And to accept a conspiracy or other theory, one would have to conclude that by conspiring with the plan fiduciaries, then in essence--
Unknown Speaker: The became a fiduciary.
Mr. Frankel: --That they became a fiduciary.
Unknown Speaker: Well either you have to conclude that or conclude that Congress meant by the words appropriate relief, relief that would have been appropriate under common law precedents.
Mr. Frankel: That is a possible interpretation.
That is one with which we strongly disagree.
Unknown Speaker: You disagree, of course.
Mr. Frankel: And I think the whole structure of the statute shows that Congress didn't decide to take the common law of trusts and the exclusive jurisdiction of equity courts and import that into ERISA.
Unknown Speaker: What is your position on the preemption question that Justice Kennedy asked earlier?
Does a cause of action remain against the actuary at... under State law, or has it been preempted?
Mr. Frankel: That... that issue has not been presented to this Court before, as to whether actions against nonfiduciary service providers are preempted.
Unknown Speaker: Do you have a position on the question... I know it hasn't... and I know it isn't before us, but it affects our thinking.
Mr. Frankel: However, this Court may conclude if it holds, as we think it should, that money damages are not encompassed with appropriate equitable relief, that it would agree with the district court in this case, in an appropriate case, that professional malpractice claims or common law tort claims against nonfiduciary service providers may not be preempted by ERISA.
Unknown Speaker: Well, Mr. Frankel, is it... we have ERISA cases coming out our ears these days.
And I'm glad to find that there's a section here that is crystal clear.
Or at least allegedly so.
Mr. Frankel, clarify your last answer.
You... you are of the position that any... any common law State action against nonfiduciaries based on trust obligations are precluded.
Mr. Frankel: I believe that that is a... is... would be consistent with existing law, although--
Unknown Speaker: The only thing you're conceding is that there may be some tort claims against them or some extra trust claims remaining.
Mr. Frankel: --Extra trust claims.
I mean, what obligations are imposed by the statute on fiduciary... nonfiduciary service providers?
I think there would a strong argument that claims based on that would be preempted.
Unknown Speaker: Of course, the question will be whether that action relates to an ERISA plan, the way this Court's been construing this.
Mr. Frankel: I... I agree with you, Justice Stevens.
However, whether common law tort claims or other claims against nonfiduciary service providers fall within the conspicuous breadth of ERISA's preemption clause is really a matter that Congress may ultimately have to decide.
If, for example, this Court were to conclude in an appropriate case that such common law claims against nonfiduciaries would be preempted and would leave people without a place to go to get the money damages they might otherwise be entitled to, but with which they cannot obtain it under ERISA.
If there are no further questions, I have nothing further.
Unknown Speaker: Thank you, Mr. Frankel.
Mr. Sigman, you have 2 minutes remaining.
Rebuttal of Alfred H. Sigman
Mr. Sigman: The case... we submit the case, Your Honor.
Chief Justice Rehnquist: Very well.
The case is submitted.
Unknown Speaker: The Honorable Court is now adjourned until tomorrow at ten o'clock.