Harris Trust & Savings Bank v. Salomon Smith Barney, Inc.

PETITIONER: Harris Trust & Savings Bank
RESPONDENT: Salomon Smith Barney, Inc.
LOCATION: US District Court for the Eastern District of Pennsylvania

DOCKET NO.: 99-579
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 530 US 238 (2000)
ARGUED: Apr 17, 2000
DECIDED: Jun 12, 2000

ADVOCATES:
Beth S. Brinkmann - Argued the cause for the United States, as amicus curiae, by special leave of court, supporting the petitioners
Peter C. Hein - Argued the cause for the respondents
Robert A. Long, Jr. - Argued the cause for the petitioners

Facts of the case

Section 406(a) of the Employee Retirement Income Security Act of 1974 (ERISA) bars a fiduciary of an employee benefit plan from causing the plan to engage in certain prohibited transactions with a "party in interest." Such a party encompasses entities that a fiduciary might be inclined to favor at the expense of the plan's beneficiaries. After the Ameritech Pension Trust (APT), an ERISA pension plan, allegedly entered into a transaction prohibited by ERISA with Salomon Smith Barney Inc., APT's fiduciaries sued Salomon under section 502(a)(3), which authorizes a fiduciary to bring a civil action to obtain appropriate equitable relief." Salomon arguing that section 502(a)(3) only authorizes a suit against the fiduciary who caused the plan to enter the prohibited transaction. Ultimately, the District Court held that ERISA provides a private cause of action against nonfiduciaries who participate in a prohibited transaction. In reversing, the Court of Appeals held that the authority to sue under section 502(a)(3) does not extend to a suit against a nonfiduciary "party in interest" to a transaction barred by section 406(a).

Question

Does section 502(a)(3) of the Employee Retirement Income Security Act of 1974, which authorizes a "participant, beneficiary, or fiduciary" of a plan to bring a civil action to obtain "appropriate equitable relief" to redress violations of ERISA, extend to a suit against a nonfiduciary "party in interest" to a transaction barred by section 406(a)?

Media for Harris Trust & Savings Bank v. Salomon Smith Barney, Inc.

Audio Transcription for Oral Argument - April 17, 2000 in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc.

Audio Transcription for Opinion Announcement - June 12, 2000 in Harris Trust & Savings Bank v. Salomon Smith Barney, Inc.

William H. Rehnquist:

The opinions of the Court in two cases will be announced by Justice Thomas.

Clarence Thomas:

First case I have to announce is No. 99-579, Harris Trust & Savings Bank versus Salomon Smith Barney.

This case comes to us on a writ of certiorari to the United States Court of Appeals for the Seventh Circuit.

Section 406 of the Employee Retirement Income Security Act, ERISA, bars a fiduciary of an employee benefit plan from causing the plan to engage in certain prohibited transactions with a party in interest, a term which is defined to encompass entities that a fiduciary might be inclined to favor at the expense of the plan’s beneficiaries.

This case comes to us on the assumption that the Ameritech Pension Trust, an ERISA Plan, entered into a transaction prohibited by Section 406 with respondent Salomon Smith Barney, a non-fiduciary party in interest, whereby Salomon received assets from the plan.

The plan's fiduciaries, petitioners Harris Trust & Ameritech Corporation brought suit against Salomon under section 502(a)(3) which authorizes a fiduciary to bring a civil action to obtain appropriate equitable relief to redress violations of ERISA Title I.

Salomon moved for summary judgment, arguing that section 502(a)(3) authorizes suit only against parties upon whom a duty is expressly imposed by one of Title I’s substantive provisions, and asserting that Section 406 does not expressly impose such a duty on a nonfiduciary in interest.

The District Court rejected this argument and denied summary judgment.

The Court of Appeals for the Seventh Circuit reversed.

In an opinion filed with the Clerk today, we reverse the judgment of the Court of Appeals and remand for further proceedings.

While we agree with Salomon that Section 406 expressly imposes a duty only on a plan fiduciary, and not on a nonfiduciary party in interest, we reject Salomon’s assumption that a section 502(a)(3) suit is available only against a defendant upon whom a duty is expressly imposed by one of Title I’s substantive provisions.

Rather, we hold that section 502(a)(3) itself imposes certain duties; in this case, it imposes a duty on a nonfiduciary party in interest who has received plan assets in violation of Section 406.

This conclusion is supported by the language of Section 502(a)(3) which authorizes a suit for appropriate equitable relief to redress a violation of Title I, but does not specify which parties may be proper defendants.

Another provision of section 502(l) confirms this conclusion in so far as it contemplates a suit by the Secretary of Labor under Section 502(a)(5) against defendants upon whom a duty is not expressly imposed by one of Title I’s substantive provisions.

As we explained in our decision in Martin, Section 502(a)(5) and Section 502(a)(3) must be interpreted similarly in light of their similar language.

Although Section 502(a)(3) as noted does not expressly indicate who may be a defendant, it does effectively impose certain limits by virtue of its caveat that the retrospective relief sought the appropriate equitable relief.

The common law of trusts informs our understanding of this phrase, that common law, a fiduciary or beneficiary of a trust could bring suit against a transferee for value of planned assets that were obtained in breach of the trust unless the transferee lack actual or constructive knowledge of the circumstances giving rise to the breach.

Here, the antecedent breach is a violation of section 406, and Salomon received planned assets by virtue of that transaction.

But it remains to be decided on remand whether Salomon possessed actual or constructive knowledge of the circumstances giving rise to the violation of Section 406.

Accordingly, we reverse the Seventh Circuit’s judgment and remand for further proceedings.

The opinion of the Court is unanimous.