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Ostler Amicus Brief, in support of the appellant

No. 01-3801
_________________________________________________________

UNITED COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

_________________________________________________________

JANICE OSTLER, as trustee of the
Timothy J. Ostler Living Trust dated
January 14, 2000,

Plaintiff-Appellant

v.

OCE-USA, INC.,

Defendant-Appellee

_________________________________________________________

Appeal From the United States District Court
for the Northern District of Illinois, Eastern Division
Case No. 00 C 7753
The Honorable Judge Kocoras
_________________________________________________________

BRIEF OF THE SECRETARY OF LABOR
AS AMICUS CURIAE IN SUPPORT OF THE APPELLANT

_________________________________________________________

EUGENE SCALIA
Solicitor of Labor

TIMOTHY D. HAUSER
Associate Solicitor
Plan Benefits Security Division

ALLEN H. FELDMAN
Associate Solicitor
Special Appellate and Supreme Court
Litigation Division

KAREN L. HANDORF
Deputy Associate Solicitor

ADRIENNE K. DWYER
Trial Attorney
U.S. Department of Labor
Office of the Solicitor
Plan Benefits Security Division
P.O. Box 1914
Washington, DC 20013
(202) 693-5600
(202) 693-5610 - Telefax
Counsel for Amicus Curiae
Secretary of Labor

TABLE OF CONTENTS

TABLE OF AUTHORITIES

STATEMENT OF INTEREST

STATEMENT OF THE CASE

ARGUMENT

A.    "Equitable Relief" Within the Meaning of Section 502(a)(3) of ERISA Includes the Recovery From a Fiduciary of Any Direct Monetary Loss Caused by The Fiduciary's Breach of Its Obligations

1.    A Monetary Award Against a Fiduciary to Redress a Fiduciary Breach Was Typically Available in Equity

2.    Mertens and Great-West Support the Conclusion That a Monetary Award to Remedy A Fiduciary's Breach Is "Equitable" Under Section 502(a)(3)

3.    A Beneficiary May Recover the Direct Monetary Losses Resulting From a Fiduciary Breach Regardless of Whether or Not the Fiduciary Was Unjustly Enriched By Its Misconduct

CONCLUSION

CERTIFICATE OF COMPLIANCE

CERTIFICATE OF SERVICE

TABLE OF AUTHORITIES

Cases:

Bast v. Prudential Ins. Co. of America, 150 F.3d 1003 (9th Cir. 1998), cert. denied, 528 U.S. 870 (1999)

Bowen v. Massachusetts, 487 U.S. 879 (1988)

Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574 (7th Cir. 2000)

Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559 (1985)

Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101 (1989)

Great-West Life & Annuity Ins. Co. v. Knudson, 122 S. Ct. 708 (2002) passim

Griggs v. DuPont De Nemours, & Co., 237 F.3d 371 (4th Cir. 2001)

Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238 (2000)

Health Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703 (7th Cir. 1999), cert. denied, 528 U.S. 1136 (2000)

Kerr v. Charles F. Vatterott & Co., 184 F.3d 938 (8th Cir. 1999)

McDannold v. Star Bank, N.A., 261 F.3d 478 (6th Cir. 2001)

McFadden v. R & R Engine and Machine Co., 102 F. Supp. 2d 458 ( N.D. Ohio 2000)

Mertens v. Hewitt Assocs., 508 U.S. 248 (1993) passim

Michael H. v. Gerald D., 491 U.S. 110 (1989)

Ostler v. Oce-USA, Inc., No. 00 C 7753, 2001 WL 1191183 (N.D. Ill. Oct. 4, 2001)

Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41 (1987)

Ream v. Frey, 107 F.3d 147 (3d Cir. 1997)

Shade v. Panhandle Motor Serv. Corp., 91 F.3d 133, 1996 WL 386611 (4th Cir. July 11, 1996)

Strom v. Goldman, Sachs & Co., 202 F.3d 138 (2d Cir. 1999)

Varity v. Howe, 516 U.S. 489 (1996)

Federal Statutes:

Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. 1001 et seq.

Section 404(a)(1)(A), 29 U.S.C. 1104(a)(1)(A)
Section 404(a)(1)(B), 29 U.S.C. 1104(a)(1)(B)
Section 409, 29 U.S.C. 1109
Section 502(a)(1)(B), 29 U.S.C. 1132(a)(1)(B)
Section 502(a)(2), 29 U.S.C. 1132(a)(2)
Section 502(a)(3), 29 U.S.C. 1132(a)(3) passim

Other Authorities:

Fed. R. App. P. 29

3 A. Scott & W. Fratcher, The Law of Trusts (4th ed. 1988)

199, at 203-04
199, at 206
199.3, at 206
282.1, at 30

George Gleason Bogert, The Law of Trusts and Trustees, 861, at 3-4 (Rev. 2d ed. 1995)

Restatement (Second) of Trusts 2

Restatement (Second) of Trusts 74

Restatement (Second) of Trusts 197

Restatement (Second) of Trusts 197, at 433

Restatement (Second) of Trusts 199, at 437

Restatement (Second) of Trusts 205, at 458

Restatement (Second) of Trusts 205, at 458 cmt. a

Restatement (Second) of Trusts 205, at 459 cmt. c

Restatement (Second) of Trust 205(a)

Restatement (Second) of Trust 205(b)

Restatement (Second) of Trusts 282, at 45 cmt. e

STATEMENT OF INTEREST

    The Secretary of Labor is charged with interpreting and enforcing the provisions of Title I of the Employee Retirement Income Security Act of 1974 (ERISA), as amended, 29 U.S.C. 1001 et seq. As the Federal officer with primary enforcement authority for numerous provisions of ERISA, the Secretary has a significant interest in the proper application of ERISA's remedial provisions. This case presents an important and recurring remedial issue - whether Section 502(a)(3) of ERISA authorizes actions to recover monetary losses from fiduciaries who have breached their obligations and harmed individual beneficiaries. Under the district court's interpretation of Section 502(a)(3), fiduciaries could violate ERISA's stringent obligations, injure beneficiaries, and evade liability for the losses they caused. The Secretary disagrees with the district court's interpretation and, therefore, pursuant to Federal Rule of Appellate Procedure 29, respectfully submits this brief as amicus curiae.

STATEMENT OF THE CASE [1]

    Tim Ostler worked for Oce-USA, Inc. (Oce) until December 3, 1999, when he took short-term disability leave because of non-Hodgkin's lymphoma. At the time that Mr. Ostler took disability leave, Oce offered supplemental life insurance benefits through an ERISA-covered plan. Mr. Ostler signed up for the plan and elected $491,000 in life insurance benefits to be provided by Reliastar, an insurance company. Ostler v. Oce-USA, Inc., No. 00 C 7533, 2001 WL 1191183, at *1-2 (N.D. Ill. Oct. 4, 2001). Because the policy paid less than $500,000, Reliastar did not require a medical examination. Oce sent Mr. Ostler a benefits confirmation statement confirming his coverage under the life insurance policy as of January 1, 2000 and began deducting premiums from his paycheck. Mr. Ostler died on March 3, 2000, without ever returning to work. Id. at *2.

    Mr. Ostler's widow, Janice Ostler, applied for the life insurance benefits. Reliastar denied the claim because the policy required Mr. Ostler to be "active at work" for at least one day before coverage would take effect. Mr. Ostler had been on disability leave and failed to meet the requirement. After the denial, Mrs. Ostler for the first time received a copy of the actual policy, which contained the active-at-work requirement. Previously she and her husband had only seen benefit highlights materials provided by Oce, which did not include that information. Oce told Mrs. Ostler that they had not informed her husband about the active-at-work requirement before his death because they were not aware of it. Oce refunded the premium payments to Mrs. Ostler. Id. at *2-3.

    Mrs. Ostler brought an action against Oce under Section 502(a)(3) of ERISA for allegedly breaching its fiduciary obligations by failing to inform her husband of the insurance policy's active-at-work requirement. She contends that if he had been so informed, he would have returned to work for at least one day so that his policy would have been effective. Id. at *3. The district court granted summary judgment for Oce. The court opined that Oce's provision of erroneous information about whether

    Mr. Ostler was covered by the policy did not give rise to a fiduciary breach. Id. at *8. The court also held that ERISA bars Mrs. Ostler's request for recovery of the alleged monetary loss. The court stated that Mrs. Ostler's claim for monetary relief under Section 502(a)(3) was an "ordinary benefits claim dressed up in fiduciary duty clothing," and that a loss remedy was unavailable. Id. at *2.

ARGUMENT

A.    "Equitable Relief" Within the Meaning of Section 502(a)(3) of ERISA Includes the Recovery From a Fiduciary of Any Direct Monetary Loss Caused by The Fiduciary's Breach of Its Obligations.

    ERISA fiduciaries have a duty to act prudently and with loyalty toward participants in the plan. 29 U.S.C. 1104(a)(1)(A) & (B). When fiduciaries breach that duty, Section 502(a)(3) entitles plan participants to sue them to redress the breach. 29 U.S.C. 1132(a)(3); Varity v. Howe, 516 U.S. 489 (1996).The Supreme Court has described Section 502(a)(3) as a "catchall" clause that provides a "safety net" to redress injuries that ERISA does not remedy under other provisions. Id. at 512.

    Section 502(a)(3), however, expressly limits recovery to "appropriate equitable relief." The Supreme Court has said that this excludes "legal" relief. Mertens v. Hewitt Assocs., 508 U.S. 248, 255 (1993); Great-West Life & Annuity Ins. Co. v. Knudson, 122 S. Ct. 708, 713 (2002). Thus, to succeed in a fiduciary breach claim under Section 502(a)(3), Mrs. Ostler must show that her proposed remedy is "equitable." [2]

    Nothing in the language of ERISA defines "equitable relief." However, in Great-West, the Supreme Court clarified that to determine if the requested relief is "equitable" under Section 502(a)(3), courts should look to standard texts on remedies and trusts as well as how such relief was characterized when the bench was divided between equity courts and law courts. 122 S. Ct. at 712, 714 & 716 (considering character of restitution "in the days of the divided bench.") The Court explained that to qualify as equitable under Section 502(a)(3), the relief must be the type "typically available in equity." Id. at 712 (quoting Mertens, 508 U.S. at 252). Thus, the plaintiff must not only show that the relief would have been granted in equity in the days of the divided bench, but that the relief was typically, as opposed to occasionally, available in equity. Id. at 715 (fact that damages such as those against non-fiduciaries were "occasionally awarded in equity cases" does not render them equitable relief) (emphasis omitted).

    As discussed below, the relief Mrs. Ostler seeks was "typically" available in equity. In fact, under the common law of trusts, such relief from fiduciaries was exclusively available in equity. ERISA is founded on the common law of trusts, and the Supreme Court has instructed courts interpreting ERISA to turn to the common law of trusts unless that law is inconsistent with the statute's language, structure, or purpose. See Harris Trust & Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238, 250 (2000). See also Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989) ("ERISA abounds with the language and terminology of trust law."); Central States Pension Fund v. Central Transport, Inc., 472 U.S. 559, 570 (1985) ("Congress invoked the common law of trusts to define the general scope of [fiduciary] authority and responsibility" under ERISA.)

1.    A Monetary Award Against a Fiduciary to Redress a Fiduciary Breach Was Typically Available in Equity.

    Great-West instructs courts to look at standard works, including the Restatements, to determine what relief was typically available in equity. 122 S. Ct. at 716. In actions such as this where a beneficiary sues a fiduciary for its breach of duty, the Restatement of Trusts shows that the common law required the fiduciary to restore the beneficiary to "the position he would have been if the trustee had not committed the breach of trust." Restatement (Second) of Trusts, 205, at 458 cmt. a; see also Restatement 205, at 458. The Restatement of Trusts clearly provides that monetary relief against breaching fiduciaries is "equitable" relief. Indeed, the Restatement emphasizes that "the remedies of the beneficiary against the trustee are exclusively equitable." Restatement (Second) of Trusts 197, at 433 (emphasis added); see also id. 199, at 437 (setting forth "equitable remedies of beneficiary"). As Professor George Gleason Bogert explains in his leading treatise:

Equity is primarily responsible for the protection of rights arising under trusts, and will provide the beneficiary with whatever remedy is necessary to protect him and recompense him for loss, in so far as this can be done without injustice to the trustee or third parties.

George Gleason Bogert, The Law of Trusts and Trustees, 861, at 3-4 (Rev. 2d ed. 1995) (emphasis added). See also 3 A. Scott & W. Fratcher, The Law of Trusts 199, at 203-04 & 206 (4th ed. 1988) ("Scott & Fratcher") (listing money payment designed to redress fiduciary breach as one of the "equitable remedies" available to a beneficiary); Restatement of Trusts 2, p. 9 ("In a trust there is a separation of interests in the subject matter of the trust, the beneficiary having an equitable interest and the trustee having an interest which is normally a legal interest.") p. 10 (stating that trustee owes "equitable duties" to beneficiary); Id. at 74, p. 192 (beneficiary has equitable interest in the trust). In other words, the trust relationship arises in equity and creates equitable rights and duties, which, when breached, are redressed exclusively through equitable remedies. Whether or not such a remedy consists of a money award does not change its character as an equitable remedy. [3]

    The Seventh Circuit case of Bowerman v. Wal-Mart Stores, Inc., 226 F.3d 574 (2000), exemplifies the equitable nature of a monetary award against an ERISA fiduciary for breaching its fiduciary responsibilities. There, the employer's fiduciary breach caused Ms. Bowerman to lose health insurance coverage for her pregnancy. Bowerman sued under Section 502(a)(3) seeking the amount of the pregnancy-related expenses that would have been covered but for the breach. This Court upheld Ms. Bowerman's claim for monetary relief under Section 502(a)(3) because it rested on a violation of fiduciary duty. The Court recognized that Section 502(a)(3) excludes legal relief such as damages (citing Mertens, 508 U.S. at 255), but explained, "[h]owever, when sought as a remedy for breach of fiduciary duty [, this kind of relief, which the Court viewed as restitution] is properly regarded as an equitable remedy because the fiduciary concept is equitable." Id. at 592 (quoting Health Cost Controls of Ill., Inc. v. Washington, 187 F.3d 703, 710 (7th Cir. 1999), cert. denied, 528 U.S. 1136 (2000)) (emphasis added). In support for its ruling, the Court cited Strom v. Goldman, Sachs & Co., 202 F.3d 138, 144 (2d Cir. 1999), which awarded monetary relief under Section 502(a)(3) for a fiduciary's negligent handling of life insurance application which resulted in participant's loss of coverage. The court in Strom explained that beneficiary claims against breaching fiduciaries to redress their breaches "have lain at the heart of equitable jurisdiction from time immemorial." See also Ream v. Frey, 107 F.3d 147 (3d Cir. 1997). [4]

    Mrs. Ostler seeks only recovery of the direct economic loss she allegedly incurred as a result of a fiduciary breach. As the Restatement and this Court make clear, equity imposes upon fiduciaries such as Oce the equitable duty to restore beneficiaries to their pre-breach position, and the payment of such relief by fiduciaries is exclusively equitable.

2.    Mertens and Great-West Support the Conclusion That A Monetary Award to Remedy a Fiduciary's Breach Is "Equitable" Under Section 502(a)(3).

    The Supreme Court addressed requests for monetary relief from non-fiduciaries under Section 502(a)(3) in Mertens, 508 U.S. 248 and Great-West, 122 S. Ct. 708. In Mertens, an employer allegedly underfunded its retirement plan and drove it out of existence. The plan participants sued under Section 502(a)(3) for the monetary losses to the plan resulting from their employer's alleged fiduciary breach. However, they did not seek the losses from the employer-fiduciary. Instead, they sought to recover from a non-fiduciary actuary whom they claimed had knowingly participated in the fiduciary's breach.

    The Supreme Court refused to classify the money sought against a non-fiduciary as equitable relief under Section 502(a)(3). The Court explained that the participants did not "seek a remedy traditionally viewed as 'equitable,' such as injunction or restitution ... [but] what petitioners in fact seek is nothing other than compensatory damages - monetary relief for all losses their plan sustained as a result of the alleged breach of fiduciary duties. Money damages are, of course, the classic form of legal relief." 508 U.S. at 255.

    In Great-West, a health plan sued a plan beneficiary under Section 502(a)(3) seeking a monetary award for breach of a provision in the health insurance contract which required the beneficiary to pay to the plan the proceeds from a personal injury settlement. [5] The Court held that Great-West had asserted nothing more than an ordinary contract claim for damages. As in Mertens, the monetary relief it sought for breach of contract was not "typically available in equity" and therefore was not recoverable under Section 502(a)(3). 122 S. Ct. at 712-13.

    Mertens and Great-West thus both involved Section 502(a)(3) suits against non-fiduciaries, and in each case, the plaintiffs contended that the monetary relief they sought from non-fiduciary defendants was "equitable" because courts of equity could have granted such relief under the common law of trusts. Great-West, 122 S. Ct. at 717; Mertens, 508 U.S. at 255-56. Together these decisions stand for the proposition that monetary relief in such suits cannot be considered "equitable" just because courts of equity had the power to grant such relief under the common law of trusts. As the Supreme Court explained in Mertens, courts of equity sometimes granted purely legal remedies, and the money damages sought from the non-fiduciary defendant in Mertens was just that -- legal relief that would have been available in a court of equity under the common law of trusts. Id. at 256. [6]

    Courts of equity often granted legal relief under the common law of trusts. For example, when both a trustee/fiduciary and a non-fiduciary harmed the trust in the same transaction, the beneficiary could bring an equity action to enforce equitable rights against the fiduciary and a law action to enforce legal rights against the non-fiduciary. See Scott & Fratcher 282.1, at 30. However, the common law did not force the beneficiary to bring two separate suits - one in equity and one at law. Instead, the beneficiary could sue both parties in the equity court in order to avoid multiple suits. Id.; see also Restatement of Trusts 282, at 45 cmt. e.

    Accordingly, the Court reasoned in Mertens that it would effectively read the "equitable" limitation out of Section 502(a)(3) if it expanded the scope of available relief to include these legal remedies which were sometimes awarded by courts of equity. Mertens, 508 U.S. at 256. The present case, by contrast, involves relief that was typically available in equity (and only in equity): monetary relief against a fiduciary to restore to a beneficiary losses resulting directly from a fiduciary breach. Such relief is equitable not simply because a common law court of equity would have granted it, but because any relief, monetary or otherwise, in favor of a beneficiary against a fiduciary to remedy that fiduciary's own breach is and always has been equitable relief. See Restatement of Trusts 197; supra Section A.1 (pp. 5-7). [7]

    Nevertheless, Oce can be expected to argue that relief is "equitable" under Great-West and Mertens only if the particular category of relief sought was available in equity without regard to the law of trusts or the existence of a fiduciary relationship. Under this reading of the Supreme Court's decisions, "equitable relief" refers to such remedies as injunctions, equitable liens and constructive trusts, but not the recovery of direct economic losses, irrespective of whether the defendant is a fiduciary or the claim arises from a breach of trust. In support of this view, Oce can point to the Supreme Court's rejection of the idea that "equitable relief" encompasses every kind of relief that a court of equity could grant under the special powers applicable to trusts. Great-West, 122 S. Ct. at 718. The courts of equity had power to award legal as well as equitable remedies against non-fiduciaries. Supra pp. 9-10.

    As discussed above, however, the recovery of losses from breaching fiduciaries is a separate category of relief that was typically (indeed exclusively) available in equity, and is therefore available under Section 502(a)(3) of ERISA. Under the common law, Great-West's claim against a non-fiduciary defendant was purely a claim for liability for breach of contract -- a legal claim normally remedied by legal relief, irrespective of the special powers of trust-law courts. 122 S. Ct. at 712-13 & 718. By way of contrast, the common law claim most closely paralleling Mrs. Ostler's is that of a beneficiary against a trustee for breach of trust - an equitable claim typically, historically and exclusively remedied in the courts of equity. Neither Mertens nor Great-West support the proposition that Congress intended that the courts should ignore settled trust-law understandings dating from the days of the divided bench in fashioning remedies against fiduciaries who breach their trust-law obligations. Indeed, "ERISA abounds with the language and terminology of trust law." Firestone, 489 U.S. at 110. See also Michael H. v. Gerald D., 491 U.S. 110, 127 n. 6 (1989) (Scalia, J.; plurality opinion) (when historical practice determines content of current legal rule, pertinent historical practice is to be identified with specificity, not generality). Here, the "most specific tradition available," id. , is the unbroken historical tradition of permitting precisely the recovery from fiduciaries sought here, at equity and only at equity.

    The Secretary's interpretation of Section 502(a)(3) draws additional support from ERISA's sensible allocation of responsibility between fiduciaries and non-fiduciaries as described by the Supreme Court in Mertens. As the Supreme Court explained, ERISA "allocates liability for plan-related misdeeds in reasonable proportion to respective actors' power to control and prevent the misdeeds." 508 U.S. at 262; see also Harris Trust, 530 U.S. at 251 (emphasizing that "the common law of trusts sets limits on restitution actions against defendants other than the principal wrongdoer" (referring to the fiduciary as the "principal wrongdoer")). Accordingly, the Court explained that the Act provides only limited relief against non-fiduciaries ("persons who had no real power to control what the plan did," 508 U.S. at 262), as opposed to the fiduciaries who have primary responsibility for the administration and control of benefit plans:

All that ERISA has eliminated * * * is the common law's joint and several liability for all direct and consequential damages suffered by the plan, on the part of persons who had no real power to control what the plan did. Exposure to that sort of liability would impose high insurance costs upon persons who regularly deal with and offer advice to ERISA plans, and hence upon ERISA plans themselves.

Id. (emphasis in original). Since the primary responsibility for control of the plan rests with the fiduciary, so too does the attendant liability.

    Contrary to the statutory scheme, therefore, the more restricted reading of "equitable relief" adopted by the district court would leave beneficiaries without any remedy for serious violations of ERISA's fiduciary provisions. A fiduciary, for example, could deliberately mislead a participant (e.g., by misrepresenting the terms or existence of health coverage), cause the participant to incur substantial medical bills in reliance on the misrepresentation, and evade responsibility for the loss. The participant would have no remedy under ERISA if the recovery for the loss were not "equitable" relief. [8] Moreover, any state-law claims based on the fiduciary's misconduct would be preempted. See Pilot Life, 481 U.S. at 51-57 (ERISA's civil enforcement scheme is exclusive and preempts alternative state remedial schemes). Such a result is neither consistent with ERISA's remedial purposes, nor compelled by Mertens or Great-West. To the contrary, as the Supreme Court stated in its post-Mertens opinion in Varity, "it is hard to imagine why Congress would want to immunize breaches of fiduciary obligation that harm individuals by denying injured beneficiaries a remedy." 516 U.S. at 513.

3.    A Beneficiary May Recover the Direct Monetary Losses Resulting From a Fiduciary Breach Regardless of Whether or Not the Fiduciary Was Unjustly Enriched By Its Misconduct.

    A fiduciary has an equitable duty to pay monetary losses caused by a fiduciary breach, regardless of whether it was unjustly enriched. As explained above, a fiduciary must remedy all harm a beneficiary suffers from its breach. Whether that remedy comes in the form of a money payment, injunction or both, the common law of trusts considers it "equitable." See Restatement of Trusts, 197. A fiduciary's equitable obligation to redress losses caused by a breach derives directly from the fiduciary duty itself, not from unjust enrichment. See supra Section A.1 (pp. 5-7).

    The Restatement of Trusts confirms that a money award redressing a fiduciary breach maintains its status as equitable relief even absent unjust enrichment. The Restatement enumerates several categories of equitable remedies beneficiaries may obtain from a trustee-fiduciary for breach of duty. One category rests on unjust enrichment. Restatement (Second) of Trusts 205(b). As an entirely separate category, the Restatement sets forth relief based on harm to the trust caused by the fiduciary breach.Id. 205(a). The Restatement gives several examples of this latter category, all of which involve monetary awards fiduciaries must pay to remedy losses caused by their breaches, and none of which involves an unjustly enriched fiduciary. See id. 205, cmt. c. and illustrations at 459. The Restatement makes plain that these remedies are equitable. See 197.

    Several federal appellate decisions illustrate the application of the Restatement's rule in ERISA cases. In Bowerman, 226 F.3d at 592 , this Court required an employer to pay as equitable relief within the meaning of Section 502(a)(3) health expenses which were not covered by insurance because of its fiduciary breach. However, the Court did not require that the plaintiff first show that the employer's breach resulted in unjust enrichment. Similarly, the Second Circuit in Strom, 202 F.3d at 144-45, awarded a beneficiary monetary relief under Section 502(a)(3) against a breaching fiduciary who had not been unjustly enriched. The Court explained that such a claim against a fiduciary has always stood within the exclusive province of equity and "never has required a showing of unjust enrichment." See also Ream, 107 F.3d 147; McFadden v. R & R Engine & Machine Co., 102 F. Supp. 458 (N.D. Ohio 2000). None of these courts required plaintiffs to show unjust enrichment.

    These judicial decisions, along with the Restatement, confirm that the fiduciary must do whatever is necessary to redress its breach, including paying losses to the beneficiary. Supra Section A.1 (pp. 5-7); Scott & Fratcher, 199.3, at 206. Regardless of how the courts label such a money payment - "monetary relief," "restitution" or even "damages" - the duty to make the payment arises in equity, not from unjust enrichment, but from the fiduciary relationship itself. [9]

    By contrast, claims for monetary awards against non-fiduciaries demand a showing of unjust enrichment in order to be considered equitable under Section 502(a)(3). Great-West, 122 S. Ct. at 714-15; Harris Trust, 530 U.S. at 251; McDannold v. Star Bank, N.A., 261 F.3d 478, 486 (6th Cir. 2001). Unjust enrichment is necessary to recover money from non-fiduciaries because the relief qualifies as "equitable" only if it constitutes "equitable restitution" (i.e., if the circumstances warrant imposition of a constructive trust or equitable lien). Unjust enrichment must lay the foundation for ordering non-fiduciaries to pay monetary relief as restitution, because unlike fiduciaries, they have no independent duty in equity to redress a breach. Indeed the constructive trust remedy (recognized as equitable by the Supreme Court in Great-West), rests on the fiction that the person who possesses the property holds it in trust for the beneficiary. Strom, 202 F. 3d at 144. There is no need for such a fiction to support equitable relief against an actual fiduciary.

CONCLUSION

    Under the district court's interpretation of Section 502(a)(3), beneficiaries could be left without a remedy against fiduciaries who have committed serious violations of ERISA's provisions and directly injured the people they were charged to protect. Even a cursory review of the cases suggests the range of injuries which could go unredressed if the district court's view became law. See, e.g., McFadden, 102 F. Supp. 2d 458 (N.D. Ohio 2000) (permitting cancer patient to recover his health expenses after he lost his health coverage because fiduciary-employer failed to submit premiums to the insurance company); Strom, 202 F.3d at 144 (authorizing recovery of life insurance proceeds which were lost because of fiduciary's negligent handling of life insurance application); Griggs v. DuPont De Nemours Co., 237 F.3d 371, 385 (4th Cir. 2001) (remanding for determination of appropriate equitable relief where employer had informed participant that his lump sum early retirement payout would be tax deferred when it knew that it was not); Shade v. Panhandle Motor Serv. Corp., 91 F.3d 133, Unpublished Disposition, 1996 WL 386611, at *4 (4th Cir. July 11, 1996) (ordering employer whose misconduct excluded plaintiff from its health plan to pay for his $161,000 liver transplant) (copy attached).This Court should not interpret ERISA's remedial provisions to permit fiduciaries to ignore their statutory obligations, injure beneficiaries, and evade liability. The award of make-whole monetary relief to beneficiaries who have been injured by fiduciary breaches is typically, historically, and exclusively equitable.

    If the Court concludes that Oce breached its fiduciary duty under ERISA, and finds that the breach caused Mrs. Ostler to lose $491,000 in life insurance proceeds, the Secretary respectfully requests that the Court hold that a monetary award in the amount of lost insurance proceeds constitutes "equitable relief" under Section 502(a)(3).

Respectfully submitted,

___signed________
Adrienne K. Dwyer
Trial Attorney
U.S. Department of Labor
Office of the Solicitor
Plan Benefits Security Division
P.O. Box 1914
Washington, DC 20013
(202) 693-5600
(202) 693-5610 - Telefax

Dated: February 8, 2002

CERTIFICATE OF COMPLIANCE

    Pursuant to Fed. R. App. P. 32(a)(7)(C), the attached Brief of the Secretary of Labor As Amicus Curiae In Support of Appellant contains 4,950 words.

    I further certify that the enclosed document was created using Word Perfect 8, and the diskettes have been scanned for viruses and are virus free.

___signed________
Adrienne K. Dwyer

Dated: February 8th, 2002

CERTIFICATE OF SERVICE

    I hereby certify that on this 8th day of February, 2002, two copies of the Brief of the Secretary of Labor As Amicus Curiae In Support of Appellant and one diskette each were mailed, via federal express courier service, to the parties listed below:

Mark D. DeBofsky
DeBofsky & DeBofsky
77 W. Washington St., Suite 500
Chicago, Illinois 60602
(312) 372-5718

Summer E. Heil
Jeffrey H. Lipe
Williams Montgomery & John Ltd.
20 North Wacker Drive
Suite 2100
Chicago, Illinois 60606-3094
(312) 443-3200

___signed________
Delores E. Durham
Paralegal


Footnotes

[1]    The Secretary takes no position on the factual matters presented by this case or the legal issue of whether or not Oce breached its fiduciary duty under ERISA. The "Statement of the Case" is taken from the district court's opinion and is not intended to express the Secretary's opinion about how the Court should rule on any particular fact. Ostler v. Oce-USA, Inc., No. 00 C 7533, 2001 WL 1191183 (N.D. Ill. Oct. 4, 2001).

[2]    In addition to deciding whether the monetary relief Mrs. Ostler requests is equitable, the Court must determine whether such relief is "appropriate" under Section 502(a)(3). Because Mr. Ostler never became eligible for the insurance policy, the district court was mistaken when it asserted that this "is an ordinary benefit claim dressed up in fiduciary duty clothing." 2001 WL 1191183, at *2. Thus, Mrs. Ostler has no benefit claim under Section 502(a)(1)(B). She has no fiduciary breach claim under Section 502(a)(2) which provides relief only to the plan (see infra note 8), and of course, her state law claims would be preempted. See Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 51-57 (1987). She must recover under a Section 502(a)(3) fiduciary breach claim, or not at all. Therefore, if the Court finds that Oce breached its duty and that the breach caused Mrs. Ostler's losses, the requested monetary relief is "appropriate." See Varity, 516 U.S. at 515.

[3]    The Restatement of Trusts gives several examples of the types of monetary awards fiduciaries must pay to redress their breaches. For instance, Illustration 1 205, at 459 cmt. c of the Restatement explains: "A is the trustee of $10,000 in cash. As a result of his negligence, the money is stolen. A is liable for $10,000." Illustration 3 notes: "A is the trustee of a claim against B for $1,000. B is solvent and A can collect the claim in full. A negligently fails to take steps to collect the claim until B becomes insolvent with the result that he is able to collect only $400 of the money owed by B. A is liable for $600." The Restatement makes it plain that all of these remedies are equitable. See Restatement (Second) of Trusts 197. The Restatement goes on to explain that, if a fiduciary wrongly holds trust property, a beneficiary can additionally recover unjust enrichment as a separate category of relief. See id. at 205(b).

[4]    In Ream, the trustee conveyed pension plan assets to the plan administrator who then absconded with the assets. The court ordered the trustee to pay the beneficiary the amount of his vested interest in the plan, characterizing its order as equitable restitution under Section 502(a)(3). 107 F.3d at 153.

[5]    Although the plan sued the beneficiary, the disputed funds had actually been paid to an attorney and a trust; neither the trust nor the attorney had been named as defendants. 122 S. Ct. at 711.

[6]    See also Great-West, 122 S. Ct. at 718 (the "special equity-court powers applicable to trusts" do not define the reach of Section 502(a)(3)).

[7]    Justice Scalia's dissenting opinion in Bowen v. Massachusetts, 487 U.S. 879 (1988), on which the Court relies in Great-West, bolsters the Secretary's view. There, Justice Scalia pointed out that "the term 'damages' refers to money awarded as reparation for injury resulting from breach of legal duty." Id. at 913 (emphasis added). A fiduciary's duty to the beneficiary is clearly equitable and therefore remedies for its breach fall outside of this definition of "damages." The Restatement of Trusts is replete with references to the "equitable duties" of the trustee and the "equitable interests" of the beneficiaries. See e.g., 2, pp. 9 & 10; 74, p. 192.

[8]    Although Sections 409 and 502(a)(2) of ERISA expressly permit the recovery of losses sustained by the plan as a whole, these provisions do not apply to losses sustained by individual participants. Fiduciary misconduct resulting in individual injuries can only be redressed by the recovery of equitable relief under Section 502(a)(3) of ERISA. Varity, 516 U.S. at 510-15.

[9]    Courts that have required unjust enrichment in Section 502(a)(3) actions for money losses against breaching fiduciaries misinterpret background trust law as well as the import of the Mertens and Great-West decisions for all the reasons set forth in the text above. See, e.g., Kerr v. Charles F. Vatterott & Co., 184 F.3d 938 (8th Cir. 1999); Bast v. Prudential Ins. Co. of America, 150 F.3d 1003 (9th Cir. 1998), cert. denied, 528 U.S. 870 (1999). In addition, none of these courts had before it the argument made by the Secretary here.