Massachusetts Mutual Life Insurance Company v. Russell

PETITIONER:Massachusetts Mutual Life Insurance Company
RESPONDENT:Russell
LOCATION:New Mexico State Police Headquarters

DOCKET NO.: 84-9
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 473 US 134 (1985)
ARGUED: Jan 16, 1985
REARGUED: Apr 24, 1985
DECIDED: Jun 27, 1985

ADVOCATES:
Brad N. Baker – on behalf of Respondent
John E. Nolan, Jr. – on behalf of Petitioners

Facts of the case

Question

Audio Transcription for Oral Argument – January 16, 1985 in Massachusetts Mutual Life Insurance Company v. Russell

Warren E. Burger:

We will hear arguments next in Allis-Chalmers Corporation v. Lueck.

We will hear arguments next in Massachusettse Mutual Life v. Russell.

Mr. Nolan, you may proceed whenever you are ready.

John E. Nolan, Jr.:

Mr. Chief Justice, and may it please the Court:

This case arises under an important federal statute, ERISA, and it is safe to say that if the statute was working the way Congress intended that it should, the case would not be here today at all.

The Respondent Russell received all of the benefits to which he was entitled under the plan, under the statute, all of the benefits that she had claimed in March of 1980, just short of five years ago.

Shortly after that, this suit was filed.

It was filed in state court.

It was removed to the Federal District Court in California where the Court granted summary judgment for Petitioners, ruling that punitive damages and extracontractual compensatory damages in this case including damages for pain and suffering and emotional distress, were not available under ERISA.

The Ninth Circuit reversed, holding that they were, and this Court granted certiorari.

First, with regard to punitive damages, that issue is squarely presented by this case, whether or not they are available under ERISA.

We contend that they are not, essentially for two reasons, that that is not what Congress said, and quite plainly, after review of the legislative history, that is not what Congress intended, and secondly, that if punitive damages were available, they would interfere with the proper functioning of the employee benefit system in the federal courts.

ERISA is a long, complex, comprehensive statute, but the provisions directly involved in this case are only two, and they are relatively simple.

Section 502 provides that a civil action is available to the Secretary of Labor and to participants, beneficiaries and fiduciaries for relief under Section 409.

Section 409, which deals with fiduciary breach, provides that fiduciaries who breach their duty will be personally liable to the plan to make good the losses that their breach occasioned or to restore to the plan–

William J. Brennan, Jr.:

Are you suggestion, Mr. Nolan, that under 409 the duties imposed run only for the plan, not for beneficiaries?

John E. Nolan, Jr.:

–I am suggesting that, yes, Justice Brennan.

Section 409 deals with fiduciary responsibility, and it talks about personal liability of fiduciaries, but it is our position that recovery under 409 is limited to the plan as distinguished from the individuals.

William J. Brennan, Jr.:

Now, it talks about duties imposed upon fiduciaries by this subchapter.

What are they?

John E. Nolan, Jr.:

Some of them are defined explicitly, Justice Brennan, and others are to be inferred from the law of trusts to which Congress committed the entire statute of ERISA for its administration.

409, in addition to requiring that fiduciaries make good to the plan any loss occasioned by the breach, it requires that fiduciaries restore to the plan any gains that they have made from the use of plan assets.

William J. Brennan, Jr.:

Well, didn’t trust law generally provide for recognizing that a beneficiary should be made whole?

You just suggested, I think, that Congress delegated to the law of trusts much of what ERISA was intended to accomplish.

John E. Nolan, Jr.:

That’s correct, Your Honor.

William J. Brennan, Jr.:

The beneficiaries under the old law were always entitled to be made whole.

John E. Nolan, Jr.:

Well, I think in the context of ERISA, Justice Brennan, to be made whole means to get the benefits to which they are entitled under the statute.

William J. Brennan, Jr.:

And that’s all.

John E. Nolan, Jr.:

And that’s all.

And that–

William J. Brennan, Jr.:

And anything else has to be for the benefit of the plan only.

John E. Nolan, Jr.:

–Well, under Section 409, it is our position that it does, Your Honor.

There are a lot of provisions in ERISA.

As you know, it is a very long statute, and the liabilities that it establishes run in many different ways.

But 409 in our view is properly read to be a safeguard for the plan, the plan assets, and that, as a matter of fact, is what the four types of plaintiffs that are authorized to bring actions under 409.

William J. Brennan, Jr.:

Well, and I can’t… there’s nothing else in ERISA you suggest that could be read as providing for something more to beneficiaries than what the plan provides for them in the way of benefits?

John E. Nolan, Jr.:

I believe that’s correct, Your Honor, but the provision of ERISA that provides for individual rights for participants and beneficiaries is in 502, specifically 502(a)(1)(B), and that section which provides that participants and beneficiaries have the right to enforce their benefits under the plan, to determine what they are, to clarify their rights under the plan, has its comparable provision referring to equitable remedies in Section 502(a)(3).

And when you look at that, we would suggest that you would view that as part of the overall comprehensive statutory scheme where individual rights are provided for there in 502.

William J. Brennan, Jr.:

But only to the extend of the benefits that the plan provides.

John E. Nolan, Jr.:

But only to the extent of the benefits of the plan.

William J. Brennan, Jr.:

And there is no remedy for beneficiaries, for something more anywhere else?

John E. Nolan, Jr.:

Other than the equitable remedies provided there, I think that’s right.

I think your question, Mr. Justice Brennan, really goes to the heart of this case, and that is what Congress was trying to do when it enacted ERISA.

It is our position that Congress was enacting a benefits statute, that it was seeking to put on the books a statute which would provide for certain minimum standards, procedures and rules directed to getting pension and welfare benefits to the people who were entitled to them, that as distinguished from any number of other things, including the issues involved in this case.

It preempted state law.

It was not seeking to duplicate it or to match it.

It was not providing a state–

William J. Brennan, Jr.:

Well, where state law previously may have provided beneficiaries with a remedy for more than just the benefits under the plan, was that too preempted?

John E. Nolan, Jr.:

–To the extent that it was a state law which related to an employee benefit plan, yes, it was preempted.

Now, I know that this Court recognizes that this was not a one-way street, that the benefits that participants and beneficiaries receive under ERISA are very, very significant.

They involve the vesting and the funding and the access to the courts and all of the other provisions, review of the detailed civil and criminal sanctions that are provided, but they necessarily also involve some trade-offs and in our view, a part of those trade-offs are the state tort remedies, of which this is a classic example.

With regard to–

Sandra Day O’Connor:

Mr. Nolan, if the plaintiff below has been someone suing on behalf of the plan, would compensatory damages be available under 409?

John E. Nolan, Jr.:

–I believe they would not, Justice O’Connor.

Sandra Day O’Connor:

Well, certainly the language speaking of other equitable or remedial relief as the Court may deem appropriate as applied to a suit by the plan might result in a difference, might it not?

John E. Nolan, Jr.:

I think that it probably would, Justice O’Connor.

To the extent that it does under Title VII, for example, where in actions like that the party has a right to reinstatement with or without back pay and such other equitable remedies as the Court might provide, and I think that the reason that damages, whether they are punitive damages or in this case compensatory damages for emotional distress, are at war with this is that they involve a damages or legal concept outside of the equitable remedies provision of the statute.

Now, to the extent that your question goes to having the fund or the plan retain any losses that were occasioned by the breach, I think that that is very specifically provided by the first two clauses of Section 409, and that is the make whole concept specifically, expressly.

Sandra Day O’Connor:

Or there might be consequential damages beyond mere reimbursement of the amounts due.

John E. Nolan, Jr.:

Damages, if there were damages to the plan, I think that that might be available under the equitable part of the section.

William H. Rehnquist:

Why would it be available under the equitable part of the section, Mr. Nolan?

I thought that common law courts gave damages, chancellors gave equitable rulings.

John E. Nolan, Jr.:

That’s generally true, that’s generally true, Justice–

William H. Rehnquist:

Well, then, my question remains why would damages be available under a section providing for equitable relief?

John E. Nolan, Jr.:

–Well, I think in part this is terminology, but to the extent that it involves the restoration of the plan, it would be involved, in our view, under Section 409, and the courts in dealing with Section 409 have used, as this Court undoubtedly recognizes–

William H. Rehnquist:

Sure.

John E. Nolan, Jr.:

–a wide variety of equitable remedies to do justice.

William H. Rehnquist:

But is damages one of the wide variety of equitable remedies that they have used?

John E. Nolan, Jr.:

It is usually not.

Oh, it is always not in the context of 409, and it is usually not in equity generally.

Sandra Day O’Connor:

And it could be other remedial relief, in any event.

John E. Nolan, Jr.:

I believe that the key language, Justice O’Connor, is such other equitable or remedial relief, which ties that clause very specifically to the two preceding clauses.

I don’t think it can be read the way Respondent reads it here by skipping from the authorization at the top of Section 409 right down into that language and reading it as if it read equitable relief or remedial relief.

It is really tied together.

Byron R. White:

Well, isn’t the law of trusts historically a creature of equity?

John E. Nolan, Jr.:

The law of trusts is very definitely a creature of equity, Justice White.

Byron R. White:

And suits against trustees raise equitable questions.

John E. Nolan, Jr.:

That’s correct.

I guess the most significant point about punitive damages is that they are not mentioned anywhere, not just in 409, but not mentioned anywhere in ERISA.

They are not mentioned anywhere in the very extensive legislative history of ERISA.

William J. Brennan, Jr.:

Well, at the same time, Mr. Nolan, is there mention in the discussions in the legislative history of preemption of state remedies, that Congress intended to preempt any that gave more than just… beneficiaries more than just the benefits of the plan?

John E. Nolan, Jr.:

There is no–

William J. Brennan, Jr.:

Did Congress say that explicitly?

John E. Nolan, Jr.:

–There is nothing that I know of in the legislative history, Your Honor, that would suggest that Congress intended to give the beneficiaries anything more than their benefits under the plan.

I think that the key–

William J. Brennan, Jr.:

No, what… no, my question was whether in saying this Congress also said, and to the extent beneficiaries had any right to anything else under state law no longer, get only what ERISA provides.

John E. Nolan, Jr.:

–That is correct.

That–

William J. Brennan, Jr.:

Did Congress say that expressly?

John E. Nolan, Jr.:

–Congress said it in the statute in the preemption part of ERISA, that any law relating to employee benefit plans would be preempted, and that, of course, differentiates ERISA from a number of other federal statutes which intend expressly to leave state law standing.

John E. Nolan, Jr.:

Well, I am still wondering, was there anything said in the legislative history indicating that the Congress addressed itself specifically to the rights of beneficiaries under ordinary trust law in the states?

No, Justice Brennan, there was not.

There was much in the legislative history on the point that we have been discussing just the last couple of minutes.

There is much in the legislative history to suggest over and over and over again that the rights established in Section 409 are the rights of the plan, not the rights of individual beneficiaries.

Punitive damages, as I was saying, are nowhere mentioned in the statute, and that we find particularly significant because it is plain that when Congress wants to provide for punitive damages, they know exactly how to do it.

In the last fifty years since enactment of the Securities and Exchange Act in 1934, and running through TEFRA in 1982, they have done that in fourteen different statutes.

Three of those statutes were enacted in 1974, the same year that ERISA was enacted.

And that I think, as this Court has recognized on other occasions, is very strong evidence that they didn’t intend to include punitive damages and then absentmindedly overlook them.

William J. Brennan, Jr.:

Were there any states that allowed a beneficiary to recover punitive damages before ERISA was enacted?

John E. Nolan, Jr.:

Punitive damages as we know, Justice Brennan, are found in many states, not all, but many, and of course, there was a variety of state pension and welfare laws, and there were actions under those laws, and there were a variety of results.

That in part was what Congress was driving at, again, to refer to the legislative history in seeking–

William J. Brennan, Jr.:

And the variety of results in some instances–

John E. Nolan, Jr.:

–The variety of results, exactly.

William J. Brennan, Jr.:

–included punitive damages.

John E. Nolan, Jr.:

Including punitive damages in amounts that were arbitrary, inconsistent, unreliable, and including as Congress said a uniform source of law for evaluating fiduciary conduct which they sought to establish in ERISA which that kind of system would not provide for.

I think that–

Byron R. White:

Well, are you saying that it was a regular feature of trust law in one or more states or a lot of states that would award punitive damages in connection with suits against trustees who have stolen from the fund or who engaged in some kind of conduct?

Can you–

John E. Nolan, Jr.:

–No.

Byron R. White:

–As well as just surcharging them, would they award punitive damages as part of trust law?

John E. Nolan, Jr.:

No, I don’t think that it was ever any more than a rare and occasional anomaly of trust law.

I was referring to different kinds of actions under state law for wrongful termination, cases like this under state law, not employee benefits cases on trustees.

Byron R. White:

So you would say even if there was no preemption, there is no basis for awarding punitive damages against a trustee.

John E. Nolan, Jr.:

There are cases like that, Justice White, but… and we have reviewed that fairly carefully, but they are rare–

Byron R. White:

All right.

John E. Nolan, Jr.:

–And they are anomalous, and actions by a beneficiary against a trustee are ill-favored and rarely–

John Paul Stevens:

But you can’t say that in this case because California law provides such a remedy.

John E. Nolan, Jr.:

–That is correct.

John Paul Stevens:

Yes.

The Ninth Circuit held there was preemption here, didn’t it?

John E. Nolan, Jr.:

The Ninth Circuit held there was preemption, yes, Justice Rehnquist.

William H. Rehnquist:

And I don’t believe the Respondent have cross-petitioned or assigned anything in their brief that would challenge that holding.

John E. Nolan, Jr.:

I think there is quite clearly preemption in this case.

This case deals–

William H. Rehnquist:

Well, does your opponent question that, do you know?

John E. Nolan, Jr.:

–I don’t believe that our opponent does.

I would like to return again to the comprehensive legislative scheme that is ERISA, because I think that that is perhaps the most persuasive single reason for this Court holding that punitive damages are not available here.

As this Court said in the Northwest Air Lines case, where a statute is comprehensive… and ERISA is among the most comprehensive statutes… and where it provides for private remedies in some situations, and federal government remedies in other situations, that is very strong evidence that it didn’t intend that additional remedies should be grafted on to a statute like that.

The review of ERISA is convincing indeed.

Its civil and criminal penalties and sanctions providing for imprisonment, fines in various amounts for various kinds of conduct, one would have to conclude that Congress reviewed the subject that they had under consideration exhaustively and in great detail, and unlike some other statutes which do involve filling in the details by courts, this is not that case.

This is a very specific, very comprehensive act directed to providing minimum standards for pensioners and benefits for those entitled to them on a nationwide basis, and the emphasis is on the delivery of those benefits rather than on state tort claims which may be associated with the subject matter of earlier cases or like this case.

We contend also that punitive damages, if they were available, would have an adverse impact on the functioning of the employee benefit system and in fact, the federal courts.

The Congress very carefully provided in the statute and by regulation promulgated by the Secretary of Labor for an appeals process in the event that a claim is denied, and that that appeals process would effectively be scrapped if the right to damages were available to those who were applying for them.

Who will go through the appeals process if he had a right to damages for emotional distress, pain and suffering, and particularly if he had a right to punitive damages on the outside?

This case is probably as good an example of that as any.

We have talked about the remedial aspect of the statute and how that works with the individual rights provided under Section 502 and the plan rights provided in Section 409.

I would be glad to respond to any questions that any Justice might have, or to reserve the remainder of my times for rebuttal.

Warren E. Burger:

Very well, Mr. Nolan.

I think not at this time.

John E. Nolan, Jr.:

Thank you.

Warren E. Burger:

Mr. Baker?

Brad N. Baker:

Thank you, Mr. Chief Justice, and may it please the Court:

ERISA was enacted to protect participants from actions of the small percentage of fiduciaries who were not acting in good faith and were not providing the benefits that participants were rightfully entitled to.

Respondent at this time does not request the Court to imply remedies into ERISA but to interpret the language that is in ERISA right now in light of looking at the legislative history, the legislative language.

It is the traditional role of this Court to analyze the statute, and that’s what I wish to do for you at this particular point.

In the purpose of ERISA, it indicates that ERISA was created to protect participants and to provide appropriate remedies, sanctions and ready access to the federal court.

The legislative history of both the House and the Senate is unambiguous and quite clear, and it states that the enforcement provisions were created and specifically designed to provide broad remedies for participants to redress or prevent violations of the act.

It then goes on and says it is the Committee’s intent to provide the full range of legal and equitable remedies, and in both… available both in state and federal courts.

Now, at the time that this specific legislative intent created a full range of legal and equitable remedies for participants, it was quite clear that compensatory and punitive damages were part of the full range of legal remedies available to participants.

The Section 502… excuse me… (a)(2) language which refers over to Section 409 allows participants equitable or remedial relief as the Court deems appropriate, and this is for breaches of fiduciary duty.

Brad N. Baker:

Traditionally, breaches of fiduciary duty are a tort.

It is not founded in trust law, but a breach of fiduciary duty is a tort.

If you look at the ERISA the way it is set up, Section 502 provides for remedies against the plan.

Section 409 sets forth the tort remedies against the fiduciary.

The preemption which totally occupied the field and removed many tort remedies, intentional torts as well as breach of fiduciary duty torts, completely wiped the slate clean.

It would be anomalous at this particular point to so narrowly construe Section 409 as to not provide the teeth in ERISA necessary to fill that void, that preemption.

William J. Brennan, Jr.:

Then you do agree that all state law was preempted by ERISA.

Brad N. Baker:

Every court including yourself in Shaw v. Delta Air Lines, seems to be taking that position.

Our position in the Ninth Circuit was certain torts should not be preempted.

However–

William J. Brennan, Jr.:

Have there been many states that allowed punitive damages in suits by beneficiaries against fiduciaries?

Brad N. Baker:

–In the restatement of torts, a breach of fiduciary duty is a tort, and it cites many cases from differing jurisdictions in California all the way, and since 1908 they have allowed–

William J. Brennan, Jr.:

Punitive damages?

Brad N. Baker:

–punitive damages, compensatory damages, the full range of whatever you can get under a tort against the fiduciary.

William J. Brennan, Jr.:

Well, a fiduciary who faces the possibility of punitive damages hasn’t much incentive, has he, to accept the job?

Brad N. Baker:

I believe you are referring to the… all the amicus briefs on behalf of the Taft-Hartley plans where you have half of the fiduciaries from the employers and half from the employees.

You have got some checks and balances and safeguards there that themselves would immunize the fiduciaries from punitive damages.

It is also interesting to note that in the context where we are right now, that the administration of welfare plans under Section 405(c)(1) and (2), these fiduciaries may allocate their responsibilities and obligations for nontrust asset type decisions, and if they adequately in fact do delegate their authority, they are immune from liability, so that trustees who are sitting on the plans to make sure that the trust assets are being governed and that the policies themselves are being established properly, they will not be affected unless they are in there actually working on a day-to-day basis exhibiting discretion as to whether or not a participant should or should not receive a benefit.

So those obligations can be delegated to professionals who, just like insurance, and it is interesting to note that the… any participant who happens to be receiving benefits pursuant to an insurance administered plan, do have the full range of remedies in state law for their protection, compensatory damages, punitive damages.

The particular situation we are in right now is a self-funded, self-administered plan that if the benefits are not paid, the direct benefit accrues to the employer who is administering the plan.

It is a total conflict situation, and it was these types of breaches that ERISA was created to prevent.

And we are not talking about wholesale… wholesale poor actions by fiduciaries.

This is a small percentage of fiduciaries who need to be kept in line.

John Paul Stevens:

May I ask on the facts of this case, I notice one of the petitioners is a person named Cecilia Steavenson.

Who is that?

Brad N. Baker:

That is the supervisor.

She was named not with regards to ERISA but–

John Paul Stevens:

Nothing to do with the ERISA.

Brad N. Baker:

–Nothing to do with ERISA.

John Paul Stevens:

Then in the ERISA claim, who is the fiduciary, the corporation?

Brad N. Baker:

In the particular plan, we did not name the fiduciaries because we sued the plan.

We should have been suing the fiduciaries.

The fiduciaries were long-time company employees.

John Paul Stevens:

But you didn’t sue them?

Brad N. Baker:

We have an amendment before the Court to amend the complaint to sue them at this particular point.

John Paul Stevens:

So your suit really is not against Massachusetts Mutual then.

Brad N. Baker:

Massachusetts Mutual, because they exhibit or they have control over the employees and are acting in a discretionary manner in setting up the policies of ERISA, could conceivably be a fiduciary, and we contend that they are a fiduciary under the definition of fiduciary.

John Paul Stevens:

Well, say they get five or six people, whether employees or outside people, to administer the plan and this same sort of thing happened, they were slow in making payments and for whatever the reason might be, your cause of action would be against the individual trustees, wouldn’t it?

Brad N. Baker:

That is correct, unless there can be proven that the company itself is exerting such influence over these people and they have not allocated their duties pursuant to 405(c)(1) and (c)(2).

If employers allocate their duties properly and truly do have independent people administering the plans, then they will be exempt from liability for these types of damages, compensatory or punitive.

The legislative history or the legislative intent is quite clear that the whole range of legal and equitable remedies are available to participants.

Sandra Day O’Connor:

Well, despite the language in the legislative history, Congress nevertheless enacted a very specific series of remedies and didn’t incorporate expressly any provision for a beneficiary to obtain punitive or extracontractual compensatory relief, and our normal presumption, is it not, in those circumstances, would be not to read into the act additional remedies.

Brad N. Baker:

Looking at the language of Section 409, you have an equitable or remedial relief in there, and the opposite–

Sandra Day O’Connor:

Well, but looking at 409, it does appear to be addressed to relief for the plan itself, not a beneficiary.

Brad N. Baker:

–No federal court has ever taken that position, even the cases–

Sandra Day O’Connor:

Well, reading the language of it, at least, that’s what one would normally think it meant.

Brad N. Baker:

–With regards to an earlier Senate version that Petitioners contend cast aspersions upon the intent of Congress since that earlier version was not adopted, and the earlier version had the words

“civil action for legal or equitable relief can be granted to participants. “

the… that was a section for breach of fiduciary duty, and that was the Senate version under S. 4 at Section 693.

That language there specifically lines up with the language of 409 such that the only consistent reading you can have, looking at the legislative intent along with an earlier version, and what you actually end up with under 409–

Sandra Day O’Connor:

Well, the earlier version, of course, wasn’t adopted.

Brad N. Baker:

–That is correct.

In fact, when the House of Representatives committee said that they intended to provide the full range of legal and equitable remedies, the precise language that is in ERISA now was before them.

It was the original version of the statute that was before the committee when the committee said it is our intent to provide the full range.

If it is not provided under Section 409, there is no other provision in ERISA which would allow legal remedies.

Sandra Day O’Connor:

But that might mean Congress didn’t provide for any, and that gets down to the question I asked you.

Our normal presumption would be that we don’t read in additional remedies that Congress did not provide for.

Brad N. Baker:

The definition of remedial is quite… it is a very nebulous definition.

It can mean punitive, compensatory, whatever it takes to remedy the wrong that is perceived.

So–

Sandra Day O’Connor:

Well, again, that makes the assumption that 409 is addressed to remedies of the beneficiary as opposed to the plan.

Brad N. Baker:

–That is correct.

Sandra Day O’Connor:

Now, assuming we think it applies only to the plan, then where are we?

Brad N. Baker:

At that particular point, a tribal right of action argument would indicate that the statute was specifically provided, the benefit of that statute was for participants.

State law has completely preempted all state causes of action therefore making it a federal concern, and there should be an implied remedy for the participants.

There they would be… they would also, if you do not–

Sandra Day O’Connor:

Well, that brings you to Transamerica Mortgage Advisors, to Shaw v. Delta Air Lines, to cases where we have not implied additional remedies.

Brad N. Baker:

–Absent specific legislative intent, and the legislative intent here by both the House and the Senate was to provide the full rage of legal and equitable remedies, and if you do not read remedial to mean legal, then there have been no legal remedies afforded to the participants.

William H. Rehnquist:

Supposing Congress in either a Senate report or a House report says we intend to provide the full range of legal and equitable remedies, and then in the statute itself you just have a very specific section that says the plan shall have a right to recover from Defendants type A, B, and C, nothing else.

Now, would that… would you think that the legislative… statement in a committee report would justify inferring a private right of action in the face of statutory language like that?

Brad N. Baker:

If in fact… no, there is a presumption you do not want to create a private right of action, and I–

William H. Rehnquist:

There is also a presumption that what Congress had to say was said primarily in the statute, not in the legislative history, isn’t there?

Brad N. Baker:

–Also correct.

The–

Byron R. White:

Well, why… Congress did provide for a participant or a beneficiary to have a… to be able to sue.

Brad N. Baker:

–That is correct.

Byron R. White:

But it rather carefully said what he could sue for.

Brad N. Baker:

Under Section 409 or under Section 502, or both?

Byron R. White:

502.

Brad N. Baker:

Section 502 says against the plan you can only sue for equitable relief or benefits, and the purpose of that was because you don’t want to… you do not want to jeopardize the assets of the plan which would then jeopardize all beneficiaries.

Byron R. White:

No, I know, but Congress did provide for a civil action by participants or beneficiaries.

Brad N. Baker:

Correct.

Byron R. White:

And said what they could sue for.

This is just another argument, perhaps Congress didn’t intend participants and beneficiaries to have any other kind of a cause of action.

Brad N. Baker:

Except that under 502 they specifically say for appropriate relief, the participants or beneficiaries may sue for appropriate relief under Section 409.

Byron R. White:

To enjoin any act or practice which violates any provision of this title or the terms of the plan, or to obtain other appropriate equitable relief, to redress such violations, or to enforce any provision.

Brad N. Baker:

That’s a–

Byron R. White:

Do you think punitive damages falls within those words?

Brad N. Baker:

–No, not at all.

Those are remedies that are available against the plan under Section 502.

Brad N. Baker:

You must refer it over to Section 409 to find out the remedies against a fiduciary.

Byron R. White:

Well, I know, but that section doesn’t say anything about a participant or a beneficiary suing.

Brad N. Baker:

I believe that if it is read in conjunction with a participant or beneficiary going to 502(a) says a participant or beneficiary may sue for appropriate relief under Section 409, you then get referred over to Section 409, and it says that the participant may receive other equitable or remedial relief–

Byron R. White:

All right.

Brad N. Baker:

–as the Court deems appropriate.

So the question before the Court is how to interpret the word “remedial”.

Does it mean just equitable?

John Paul Stevens:

May I just ask one other question to be sure I am right?

Brad N. Baker:

Certainly.

John Paul Stevens:

As I understand your position, you do not claim you have any rights at all against the plan.

Brad N. Baker:

Most certainly.

John Paul Stevens:

So that always, in all of this class of cases, there will always be individual liability of the individual trustees.

Brad N. Baker:

Of the individual trustees unless an employer puts himself in a conflict situation and is actually administering a self-funded plan so that an employer becomes a fiduciary.

But then he will still be sued in his fiduciary capacity.

John Paul Stevens:

Well, presumably you could… I suppose that you might now, if the employer is kind of a third party who breached the… compelled the trustees to violate their trust, maybe you have a claim against him, but that is not… the theory of your case is wrongdoing by the trustees themselves, and you… and it is quite clear, you do not seek to impose liability against a plan for that sort of thing.

Brad N. Baker:

Not at all.

That would defeat one of the major purposes of ERISA to maintain the economic integrity of the plan.

John Paul Stevens:

In anything other than 409, is there anything else in the statute that implies that a beneficiary under this statute has a right of action against anybody not payable out of the plan?

I mean, everything else is in terms of getting his… making sure he gets his benefits.

Brad N. Baker:

409.

John Paul Stevens:

409 is your entire statutory basis for your position.

Brad N. Baker:

That’s it.

Sandra Day O’Connor:

Well, how about 502(a)(3), which gives a… the authority for a civil action to be brought by a beneficiary to obtain “other appropriate equitable relief”?

Brad N. Baker:

Okay.

Traditionally equitable relief does not include compensatory or punitive damages, and it seems to be a consistent reading of the statute that you can only get equitable relief or your benefits from the plan, which is 502.

Sandra Day O’Connor:

Well, do you read 502(a)(3) as giving a cause of action to a beneficiary against a trustee?

Brad N. Baker:

502(a)–

Sandra Day O’Connor:

(a)(3)–

Brad N. Baker:

–(a)(3) does not give any right against a fiduciary.

409 is the only right that a beneficiary participant has to sue a fiduciary.

Brad N. Baker:

The… if in fact remedial means just equitable, as must be the Court’s finding in order to determine that no compensatory or punitive damages are allowed against fiduciaries, then you have created in essence an immunization of fiduciaries.

They cannot be sued for compensatory or punitive damages no matter how willful or malicious their conduct is.

John Paul Stevens:

–Well, that doesn’t follow.

They could steal money from the trust, and on behalf of the plan you could get remedial relief which might include punitive damages.

I mean, if you take your opponent’s view of this case.

Brad N. Baker:

I am not certainly what my opponent–

John Paul Stevens:

If you say… I mean, but if you read 409 as just providing a remedy for the plan, conceivably a trustee could act in a way that would justify a damage remedy against him which would come within the word remedial.

Brad N. Baker:

–That is correct.

John Paul Stevens:

Yes.

Brad N. Baker:

That is correct.

It is not… the other equitable or remedial relief is not just provided for the benefits.

The plan also could–

John Paul Stevens:

Right.

Brad N. Baker:

–against fiduciaries receive other equitable or remedial relief.

There is nothing in the legislative intent or the legislative scheme that in any way indicates that they want to protect fiduciaries for willful, malicious actions against plan participants.

In fact, just the opposite is true, you have been set up strict standards for fiduciaries and personal liability.

The balancing of costs argument the Petitioners have advanced, the costs that Congress, when reading the legislative history, the costs that they were referring to were not the administration costs, the day in, day out.

That did not change that much when ERISA was enacted.

The true costs were the vesting and the accrual rates, and they wanted to make sure that when ERISA was established, it did not put such a financial burden on the employers with regards to making employees vested 100 percent on day one and have a 100 percent accrued benefit.

That is the cost analysis.

If compensatory and punitive damages are allowed under Section 409, these will not be costs that will be borne by the employer.

These are against the fiduciaries themselves.

Sandra Day O’Connor:

Do you think there is any difference at all for purposes of your argument in reading the statute to give you relief and punitive damages as opposed to compensatory, noncontractual damages?

Is one more difficult to find than the other?

Brad N. Baker:

Once you expand beyond equitable into legal, the facts of the case will control and the standard of review will determine whether compensatory or punitive damages should be allowed against the fiduciary.

I do not draw a distinction of compensatory or punitive damages, if the situation warrants, as the Ninth Circuit has said, and there should be a very narrow definition that only willful misconduct or wanton disregard of participants’ rights would–

Sandra Day O’Connor:

Has this Court been more reluctant to find punitive damages authorization than compensatory, in your view?

Brad N. Baker:

–Traditionally, yes.

However, usually it is when there is such unambiguous congressional intent to protect participants and provide the full range of legal and equitable remedies.

Once again, that will help interpret the word “remedial”, and it is a remedial statute.

Brad N. Baker:

It is either a remedial statute that expands the rights of participants, or it is a remedial statute that restricts the right of participants.

All the way through the legislative history, ERISA is something that expands the rights of participants.

Nowhere does it state we are restricting participants’ rights, or participants are forfeiting rights they already had under state law for the benefit of the common good, and the benefit of the common good in this particular situation would be the immunization of fiduciaries.

There is nothing in the legislative history that indicates the fiduciaries should be put in an immunized position, or that they should be a favored type of class.

I know of, personally know of no type of statute that as a class protects an individual group of people from willful, malicious conduct, especially when that person is supposed to be acting on behalf of participants.

Byron R. White:

Well, there is no suggestion that you can’t get compensatory damages against a defaulting trustee, is there?

Brad N. Baker:

Respondent’s position is that compensatory… you can’t get anything–

Byron R. White:

You can’t get anything.

Brad N. Baker:

–All you get are just your benefits.

Byron R. White:

And that would be you would get them from the plan or not?

Brad N. Baker:

Only from the plan, that if in fact your welfare or your disability payments are chopped off for two years and you lose your house and they turn around and give you your two years worth of back disability payments, you cannot receive compensation for an erroneous act by a fiduciary that cost you your house or that might have been a spiteful action.

Fiduciaries are completely immunized under Petitioners position.

John Paul Stevens:

May I ask this about the legislative history?

I understand there is a lot in the legislative history about concern about the integrity of the plans and misuse of assets and that sort of thing.

Is there anything in the legislative history to indicate Congress was concerned with the kind of problem you described, of trustees just being slow in payment or deliberately withholding payment for some malicious reason?

Brad N. Baker:

They really spend very little time on the remedies.

I think that that was not a key issue.

They presumed–

John Paul Stevens:

Well, was it an issue at all?

Was it–

Brad N. Baker:

–It was not discussed one way or the other.

They did not say we are picking one set of remedies over another set of remedies.

They said they wanted the full range of legal and equitable, and the full range–

John Paul Stevens:

–On the question of timing, as I understand the regulations, they do say to you that if they don’t act within three or four months, I forget what it is, you treat the application as though it had been denied, is that right, so that you may then go into court and get your action against the plan.

Brad N. Baker:

–With regards to exhaustion of administrative remedies, that is correct.

John Paul Stevens:

So that if you waited two years, it would be at the beneficiary’s option if he had a right to sue.

He had a right to benefits.

Brad N. Baker:

That is correct.

Respondent’s position is not that the administrative remedies section should be removed.

Petitioners’ argument that the internal resolution of plans will go completely out the window if compensatory and punitive damages are awarded does not follow.

Brad N. Baker:

If in fact you must or the participants still must exhaust their administrative remedies before they can sue, if the fiduciaries reverse their position and make payments within that period of time, that is the best evidence as to good faith which would immunize them from compensatory or punitive damages.

The Petitioners also indicate that there is a trade-off going here, that there is… because the participants receive certain rights under ERISA, they have to give up something else.

There is absolutely nothing in the legislative history or any case law that has been cited that takes that position.

Byron R. White:

So I guess your argument really boils down to it that punitive damages is a form of remedy.

Brad N. Baker:

Is a remedy to redress or prevent violations of the act.

It is true that punitive damages are a great preventative deterrent tool.

Byron R. White:

Well, is that a remedy to a plaintiff?

Or a deterrence to others?

Brad N. Baker:

It is more of a deterrence to others.

I think that we are not arguing here whether punitive damages are in society or not.

You discussed that in Smith v. Wade.

The standard for punitive damages I concede should be high.

I think it should be the one enumerated by the Ninth Circuit, that only for willful, malicious misconduct or for wanton disregard or indifference towards the rights of participants.

Thurgood Marshall:

Well, all of the wanton disregard and other phrases like that you have to get from the state law.

You can’t get it from ERISA.

Brad N. Baker:

You cannot get that from ERISA.

However, ERISA in the legislative history indicated that they wanted a body of federal common law to be established to fill the void created by the complete preemption of all state laws.

Thurgood Marshall:

Well, I imagine every state’s punitive damage rule is different.

Are you arguing that?

Brad N. Baker:

Well, yes, I believe it is.

Thurgood Marshall:

I didn’t think so.

Brad N. Baker:

However, it is the Court’s ability at this particular point to set the uniform standard for punitive damages under ERISA.

Nowhere does it state that state law must be followed.

In fact, state law will not be followed.

It is for federal common law to be established to fill the void created by the total preemption, and the standard that has been established by the Ninth Circuit is a willful wantonness standard.

Thurgood Marshall:

And you want us to adopt the Ninth Circuit’s rule.

Brad N. Baker:

I do not feel that a mere reckless standard would be appropriate in this situation.

I think it should be a willful standard.

It would be anomalous at this particular point to completely wipe out all remedies that participants had under state law.

John Paul Stevens:

May I ask, going back to your compensatory damages for a minute–

Brad N. Baker:

Surely.

John Paul Stevens:

–The willful and wanton business goes to punitive damages.

Brad N. Baker:

That is correct.

John Paul Stevens:

But if we put that to one side for a minute, I guess we also have to fashion the standard of reliability for prompt payment, too, because on the basic liability, your position is they were too slow in paying, and I suppose that could be just because they were negligent or had sloppy administration or anything.

Brad N. Baker:

Our particular case does not just deal with slow payment.

It–

John Paul Stevens:

Well, I understand.

You make the punitive damage claim, too, but your compensatory damages, say they just took four months to process your claim because they had a sick secretary or something, I suppose you would have a compensatory damage claim.

Brad N. Baker:

–Under certain circumstances, if the–

John Paul Stevens:

Well, I have given you the circumstances.

Brad N. Baker:

–You see, the four month period is still–

John Paul Stevens:

It took four months to process your claim, and in the meantime you couldn’t pay off your mortgage.

Brad N. Baker:

–That is still within the 26–

John Paul Stevens:

Well, say eight months, say eight months.

Brad N. Baker:

–Eight months, yes.

John Paul Stevens:

We have to decide what period of time… basically we need a national rule to determine how slow a payment becomes… creates a compensatory damage liability.

Brad N. Baker:

There is a standard that has been set forth already in the regulations, and that is Regulation 2560.503.

John Paul Stevens:

That’s the 120 days, they treat the claim as denied.

Brad N. Baker:

It goes on just denied.

If no response is made, you may treat it as denied for the purposes of exhausting your administrative remedies.

John Paul Stevens:

But do you say that every claim that takes more than 120 days to process gives rise to a damage liability?

Brad N. Baker:

That’s a very difficult question.

John Paul Stevens:

But we have to answer it for the whole country.

Brad N. Baker:

I think it sets up a presumption, yes, that–

John Paul Stevens:

Well, is there a defense to it, and if so, what?

Brad N. Baker:

–Reasonable cause.

Warren E. Burger:

Do you have anything further, Mr. Nolan?

John E. Nolan, Jr.:

I have four very brief points, Your Honor.

There have been a number of questions dealing with preemption and state remedies in my argument and in my opponent’s, and that is referred to in our reply brief at pages 8 and 9, the rationale for it.

Congress essentially said that the fiduciary standard embodied in federal legislation is considered desirable because it will bring a measure of uniformity in an area where decisions under the same set of facts may vary from state to state.

John E. Nolan, Jr.:

It is evident that the operations of employee benefit plans are increasingly interstate.

The uniformity of decision which the act is designed to foster will help administrators, fiduciaries and participants to predict the legality of proposed actions without the necessity of reference to varying state laws, and I would suggest that that is fundamental, core to this case and to the issues that we have discussed here.

There have been a number of questions about making the plan whole from Justice O’Connor and Justice White and others, and there is a case that deals with that, a federal case that deals with that that I would commend to the Court.

It is called Froyen v. Marshall and Eisley.

It is a Wisconsin case decided in 1971 and found at 485 Fed. Sup.

629.

William H. Rehnquist:

Marshall and Elsely.

John E. Nolan, Jr.:

And… Elsely, is it?

It says that the Court has broad discretion in awarding equitable relief to make the plan whole, and I think that responds to what happens if the fiduciary takes something and goes away, and whether you call it damages or not is an issue.

I think that ERISA, it would be regarded as equitable relief as distinguished from damages, but the effect of it would be to restore the plan, to make the plan whole.

There have been a few cases that have gone the other way on our issue, by our count, about a half a dozen, and fifteen resolve it the way we recommend to the Court.

The interesting thing about the six is that they all ride the same horse.

They all take the same line from the legislative history, the line that refers to the full range of legal and equitable relief, and which is repeated in the House and Senate reports, and they use that as the basis for the decision.

We would suggest that that is an insubstantial basis, particularly where the bill was amended going through, and that reference which may have been accurate when the legislative history was written, was stripped from the bill before it was enacted, and there is in the present bill no reference at all to legal relief, and we would suggest therefore no reference at all to the kind of damages relief raised by Respondents here.

Justice O’Connor had a question about 502(a)(3), would it give participants or beneficiaries a right against fiduciaries.

In our view, it would.

If there are any further questions, I would be glad to respond.

Justice White?

Byron R. White:

Is there… is the claim in this case that the beneficiary should get punitive damages?

John E. Nolan, Jr.:

The claim in this case is that the participant, I believe, should get punitive damages, yes.

Byron R. White:

And not… rather than the plan.

John E. Nolan, Jr.:

Rather than the plan, clearly.

Byron R. White:

What if the beneficiary sues under (3)(a)(2) for appropriate relief under Section 409?

I understand your position is that all recoveries under 409 go to the plan.

John E. Nolan, Jr.:

That is correct.

Byron R. White:

And part of his cause of action is I am suing on behalf of the plan to get relief against this fiduciary, and I want the fiduciary to pay punitive damages to the plan.

John E. Nolan, Jr.:

Well, there are two aspects to that which make it good as a hypothetical but not very good as a case.

The first is that if you are going to go through 409, you go through 502(a)(2), I believe, which has a specific reference to 409.

Byron R. White:

Yes.

John E. Nolan, Jr.:

The other is that 502(a)(3) is by its terms expressly limited to equitable relief.

Byron R. White:

I understand that.

John E. Nolan, Jr.:

It is in our view by the individual as to–

Byron R. White:

I know that.

502(a)(2) permits the participant to sue for appropriate relief under 409, I think.

John E. Nolan, Jr.:

–I believe that–

Byron R. White:

That’s just what it says.

It says a beneficiary may sue for appropriate relief under Section 409, and you say the only appropriate relief would have to be paid to the plan, and you also say that in any event, punitive damages is never appropriate relief.

John E. Nolan, Jr.:

–That’s correct.

Byron R. White:

Okay.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.