Nos. 98-758 and 98-762
In the Supreme Court of the United States
OCTOBER TERM, 1998
WILLIAM A. FICKLING, JR., ET AL.,
PETITIONERS
v.
ALEXIS M. HERMAN, SECRETARY OF LABOR
SOUTH CAROLINA NATIONAL BANK,
PETITIONER
v.
ALEXIS M. HERMAN, SECRETARY OF LABOR
ON PETITIONS FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
BRIEF FOR THE RESPONDENT IN OPPOSITION
HENRY L. SOLANO
Solicitor of Labor
ALLEN H. FELDMAN
Associate Solicitor
EDWARD D. SIEGER
Attorney
Department of Labor
Washington, D.C. 20210
SETH P. WAXMAN
Solicitor General
Counsel of Record
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTIONS PRESENTED
1. Whether res judicata bars a suit by the Secretary of Labor under Section
502(a) of the Employee Retirement Income Security Act of 1974 (ERISA), 29
U.S.C. 1132(a) (1994 & Supp. II 1996), insofar as the Secretary seeks
monetary relief against defendants who have previously settled ERISA claims
brought against them by private parties.
2. Whether Section 502(a)(5) of ERISA, 29 U.S.C. 1132(a)(5), authorizes
an action by the Secretary for equitable relief against parties in interest
who have engaged in a transaction prohibited by Section 406(a) of ERISA,
29 U.S.C. 1106(a).
In the Supreme Court of the United States
OCTOBER TERM, 1998
No. 98-758
WILLIAM A. FICKLING, JR., ET AL.,
PETITIONERS
v.
ALEXIS M. HERMAN, SECRETARY OF LABOR
No. 98-762
SOUTH CAROLINA NATIONAL BANK,
PETITIONER
v.
ALEXIS M. HERMAN, SECRETARY OF LABOR
ON PETITIONS FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
BRIEF FOR THE RESPONDENT IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (98-758 Pet. App. 1a-30a; 98-762 Pet.
App. 1a-28a) is reported at 140 F.3d 1413. The orders of the district court
granting partial summary judgment to the petitioners in No. 98-758 (98-758
Pet. App. 35a-37a) and dismissing the Secretary's claims for monetary relief
against the petitioner in No. 98-762 (98-758 Pet. App. 38a-50a; 98-762 Pet.
App. 29a-39a, 43a-45a) are unreported.
JURISDICTION
The judgment of the court of appeals was entered on May 15, 1998, and a
petition for rehearing was denied on August 10, 1998 (98-758 Pet. App. 31a-34a;
98-762 Pet. App. 40a-42a). The petition for a writ of certiorari in No.
98-758 was filed on November 9, 1998 (a Monday), and the petition in No.
98-762 was filed on November 5, 1998. The jurisdiction of this Court is
invoked under 28 U.S.C. 1254(1).
STATEMENT
1. The petitioner in No. 98-762, South Carolina National Bank (SCNB), was
the trustee of an employee stock ownership plan (ESOP) created by the Charter
Medical Corporation (Charter). 98-758 Pet. App. 3a.1 As such, SCNB was a
fiduciary under the Employee Retirement Income Security Act of 1974 (ERISA),
29 U.S.C. 1001 et seq. Among other things, ERISA requires a fiduciary to
exercise its responsibilities solely in the interest of the plan's participants
and beneficiaries, for the exclusive purposes of administering the plan
and providing benefits, and with a high degree of prudence. 29 U.S.C. 1104(a)(1)(A)
and (B).
A plan fiduciary also must not cause the plan to engage in certain "prohibited
transactions," including (with some exceptions) a sale or exchange
of property involving, or a transfer or use of plan assets to or for the
benefit of, a "party in interest." 29 U.S.C. 1106(a)(1)(A) and
(D). The petitioners in No. 98-758 include William A. Fickling, Jr., the
President and Chairman of the Board of Directors at Charter, and some of
his relatives and related entities (the Ficklings), who at relevant times
were parties in interest under 29 U.S.C. 1002(14) with respect to the Charter
ESOP. Pet. App. 3a, 8a n.9.2
In February 1990, SCNB paid $80 million from plan assets to the Ficklings
for stock in Charter, a closely held corporation. Pet. App. 3a. Under ERISA,
that purchase was exempted from the "prohibited transaction" rules
of 29 U.S.C. 1106 if, but only if, it met certain statutory conditions,
including that it be for "adequate consideration." 29 U.S.C. 1108(e);
see Pet. App. 9a n.10, 24a n.20. As trustee of the plan, SCNB was responsible
for determining the value of the stock to be received in the transaction,
which was not publicly traded and had no established market price. See id.
at 3a n.2. After a subsequent investigation, see 29 U.S.C. 1134, the Secretary
of Labor determined that SCNB had improperly evaluated the effect of more
than $1.5 billion in corporate debt on the value of Charter's stock, and
that a reasonable investigation by SCNB would have disclosed that the stock
was essentially worthless. See Pet. App. 3a n.2, 4a. Charter later filed
for bankruptcy. See id. at 54a; 98-758 Pet. 3.
2. While the Secretary was investigating the 1990 transaction, participants
and beneficiaries of the ESOP brought a class action against Charter, a
number of the Ficklings, SCNB, and others (the Knop action). Pet. App. 4a.
That suit alleged violations of ERISA, federal securities laws, and state
law in the February 1990 stock purchase and in a similar $375 million purchase
in 1988. Ibid. In March 1992, the Secretary, who was not a party to the
Knop action, learned that the private litigants were settling with all defendants.
Ibid. The Secretary informed the parties to the Knop action that she was
conducting an investigation, that she might bring suit, and that she would
not be bound by any private settlement in Knop. Ibid. On April 6, 1992,
the Secretary received fully executed settlement documents entered into
by the parties to the Knop action. Id. at 4a, 60a. On April 9, 1992, the
Secretary restated her position in a letter to counsel for all the private
litigants:
We have also been informed that the parties to the Knop Action may have
the understanding that the Secretary can, may, or will be bound in some
way by the terms of any settlement entered into in the Knop Action. Such
an understanding is unfounded.
The Secretary was not a party to the settlement and will not be bound by
any part of the settlement; in fact, the Secretary is continuing her investigation
of the Charter [ESOP] regarding possible violations of [ERISA].
In the event the Department concludes that ERISA violations occurred, you
should be aware that we will take whatever enforcement action, including
litigation, which we deem to be appropriate. While we do not wish to make
the chances of settling the Knop Action any less likely, we feel that it
would be disingenuous to allow it to go forward without making the above
clear to the parties to such settlement.
Id. at 60a. None of the parties to the Knop action sought to join the Secretary
as an additional party. Id. at 4a.3
On April 30, 1992, counsel in Knop informed the district court that the
Secretary "had no desire to impede the proposed settlement but that
[her] silence should not be taken as restricting whatever [she] might do
in the future." Pet. App. 5a. The district court then approved the
settlement of the class action, contingent upon confirmation by the bankruptcy
court of a plan of reorganization for Charter. Id. at 51a-55a. Under the
settlement, claims against all defendants, including the Ficklings and SCNB,
were dismissed with prejudice. Id. at 5a, 54a. In return, Charter provided
certain benefits to the ESOP and its participants and beneficiaries, primarily
$12.3 million paid into a new retirement plan established as a subplan of
the ESOP. Id. at 5a, 42a-43a. The Ficklings and SCNB did not contribute
any cash to the settlement. Id. at 5a.4
In June 1992, the Secretary informed petitioners' attorneys that, although
her investigation had not concluded, she had determined that the 1990 stock
purchase violated ERISA. R19-1, Exh. A; see Pet. App. 43a. She outlined
the relief she sought, and asked petitioners to discuss the matter with
a view to resolving it through a consent order. R19-1, Exh. A. SCNB responded
by filing both a third-party complaint against the Secretary in the Knop
action and a separate action for declaratory relief, in each case alleging
that the Knop settlement barred the Secretary from obtaining additional
relief. Pet. App. 5a.
On July 24, 1992, the Secretary filed her own action against petitioners,
alleging that SCNB had transferred $80 million in plan assets to the Ficklings
in exchange for essentially worthless stock, in violation of Sections 404(a)(1)(A)
and (B) and 406(a)(1)(A) and (D) of ERISA, 29 U.S.C. 1104(a)(1)(A) and (B),
1106(a)(1)(A) and (D). See Pet. App. 3a, 6a. The Secretary sought damages
from SCNB and disgorgement of the $80 million paid to the Ficklings in the
1990 transaction (both subject to being offset by sums recovered in the
Knop litigation) and injunctive relief, pursuant to Sections 502(a)(2) and
(5) of ERISA, 29 U.S.C. 1132(a)(2) and (a)(5). Pet. App. 6a; see also ERISA
§ 502(l), 29 U.S.C. 1132(l) (civil penalties).5 The Secretary's suit
was later consolidated with SCNB's two actions against the Secretary. Pet.
App. 6a.
3. In June 1993, the district court granted summary judgment to the Ficklings
on the Secretary's disgorgement claim, without analysis other than a citation
to Useden v. Acker, 947 F.2d 1563 (11th Cir. 1991), cert. denied, 508 U.S.
959 (1993). Pet. App. 35a-37a. Useden held that 29 U.S.C. 1109(a) and 29
U.S.C. 1132(a) (1994 & Supp. 1996) do not create a cause of action for
money damages against a non-fiduciary for participation in a fiduciary breach.
947 F.2d at 1582.
In November 1996, the district court granted a further partial summary judgment
to SCNB, denying the Secretary's claim for monetary relief against SCNB.
Pet. App. 38a-50a. The court held that its judgment implementing the Knop
settlement precluded the Secretary's claim under Section 1132(a)(2), on
the grounds that the Secretary's claim was the same as one asserted by the
Knop plaintiffs, that there was "substantial identity of the parties"
in the two cases (id. at 47a), and that the Secretary could have intervened
in the Knop action under 29 U.S.C. 1132(h), but chose not to do so. Pet.
App. 46a-50a. The court reserved judgment, however, on whether the Secretary
could sue for "appropriate equitable relief" under Section 1132(a)(5).
Id. at 48a n.1.6
In January 1997, the Secretary settled her claims for injunctive relief
against SCNB, after SCNB agreed never to serve as trustee for the Charter
ESOP and not to serve as a trustee for any ESOP for three years. See Pet.
App. 7a & n.7. The district court then entered final judgment, and the
Secretary appealed. Id. at 7a; 98-762 Pet. App. 46a-47a.
4. The court of appeals reversed in part, vacated in part, and remanded.
Pet. App. 1a-30a. The court first held that the Secretary could sue the
Ficklings, as parties in interest, for equitable relief under Section 1132(a)(5),
including disgorgement of profits from the 1990 stock transaction. Id. at
9a-17a. The court relied (id. at 14a-17a & n.14) on its earlier decision
in Useden, on the holdings of other courts of appeals, and on portions of
this Court's opinions in Lockheed Corp. v. Spink, 517 U.S. 882, 889 n.3
(1996), and Mertens v. Hewitt Associates, 508 U.S. 248, 253-254, 262 (1993).
The court also held that the private settlement in Knop did not bar the
Secretary's separate action. Pet. App. 17a-27a. Noting that Section 1132(a)
gives the Secretary "an independent and unqualified right to sue and
seek redress for ERISA violations because ERISA plans significantly affect
the 'national public interest,'" the court explained that, unlike private
litigants, the Secretary sues:
not only to recoup plan losses, but also to supervise enforcement of ERISA,
to guarantee uniform compliance with ERISA, to expose and deter plan asset
mismanagement, to protect federal revenues, to safeguard the enormous amount
of assets and investments funded by ERISA plans, and to assess civil penalties
for ERISA violations.
Id. at 18a. After reviewing other cases that have held that the Secretary
is not bound by prior private litigation when she files her own ERISA enforcement
action (id. at 20a-22a), the court concluded that that result is "consistent
with the well-established general principle that the government is not bound
by private litigation when the government's action seeks to enforce a federal
statute that implicates both public and private interests" (id. at
22a-23a). Applying that principle to ERISA, the court reasoned:
The national public interest in deterrence of asset mismanagement suffers
if private parties can release claims against ERISA violators for negligible
financial recovery and thereby immunize plan trustees and 'parties in interest'
from ERISA violations. Furthermore, the public treasury is ill-served by
denying the Secretary the opportunity to assess civil penalties, expressly
authorized by Congress to deter ERISA violations, as well as the occasion
to ensure that the Plan receives full value for the millions of dollars
in tax subsidies.
Id. at 26a.
The court of appeals rejected the district court's view that the Secretary
must intervene in private litigation under Section 1132(h) in order to avoid
preclusion of her own claims. Pet. App 26a-27a. The court concluded that
the Act leaves the decision whether to intervene to the discretion of the
Secretary, and that, given the volume of ERISA cases the Department monitors,
it would be "unreasonable and unwise to require the Secretary to intervene
in every ERISA action or be precluded." Ibid. The court accordingly
remanded the case for further proceedings on the merits of the Secretary's
claims.
ARGUMENT
The decision below is correct and does not conflict with any decision of
this Court or of any other court of appeals. The case, moreover, is in an
interlocutory posture, because the court of appeals at this stage has merely
remanded for consideration of the Secretary's claims on the merits. There
is accordingly no reason for further review.
1. a. Petitioners argue that their settlement with plan participants in
the Knop action precludes any claim by the Secretary for monetary relief.
98-758 Pet. 10-22; 98-762 Pet. 6-25. The general rule, however, is that
a prior judgment binds only parties to the proceeding in which it was entered.
See, e.g., Richards v. Jefferson County, 517 U.S. 793, 798 (1996). Although
there is an exception to that rule "when it can be said that there
is 'privity' between a party to the second case and a party who is bound
by an earlier judgment," in this context "privity" is essentially
a matter of identity of interests. Ibid. As the court of appeals recognized,
no such identity generally exists between public and private plaintiffs
"when the government's action seeks to enforce a federal statute that
implicates both public and private interests." Pet. App. 22a-23a; see
18 C.A. Wright et al., Federal Practice and Procedure § 4458, at 520
& n.40 (1981) (citing City of Richmond v. United States, 422 U.S. 358,
373 n.6 (1975), and Durfee v. Duke, 375 U.S. 106, 115-116 (1963)); 18 J.W.
Moore, Moore's Federal Practice § 131.40[3][e][ii][B], at 131-149 &
n.89 (3d ed. 1998) (citing Sam Fox Publ'g Co. v. United States, 366 U.S.
683, 690 (1961)); see also Mississippi v. Louisiana, 506 U.S. 73, 78 (1992)
(State not bound by private litigation to establish property boundaries).
The court of appeals correctly concluded that, although 29 U.S.C. 1132 (1994
& Supp. II 1996) authorizes suits both by the Secretary and by private
parties, the Secretary represents national public interests that are separate
and distinct from those of any private litigant. Pet. App. 18a-19a. In enacting
ERISA, Congress found that plans like the Charter ESOP "are affected
with a national public interest"; that they directly affect the well-being
of millions of employees and their dependents and are important to the national
economy; and that they substantially affect the revenues of the United States
because they are afforded preferential tax treatment. 29 U.S.C. 1001(a);
see 26 U.S.C. 401(a) (1994 & Supp. II 1996) (requirements for tax-qualified
pension plans, including ESOPs), 404(a)(9) (1994 & Supp. II 1996) (deductibility
of employer contributions to an ESOP), 501(a) (tax-exempt status for qualified
plans). Accordingly, when the Secretary sues under ERISA, she seeks not
only to recoup losses for a plan, but to further the government's interests
in ensuring uniform compliance with ERISA, exposing and deterring plan asset
mismanagement, protecting the integrity of the federal tax system, safeguarding
the enormous amount of money held in and invested by ERISA plans, and assessing
civil penalties in the circumstances intended by Congress. See Pet. App.
18a; compare General Telephone Co. v. EEOC, 446 U.S. 318, 326 & n.8
(1980). Because private litigants cannot adequately represent those governmental
interests, they are not in "privity" with the Secretary, and the
resolution of a private suit such as the Knop action cannot bar an independent
action by the Secretary. Id. at 20a-26a; accord Secretary of Labor v. Fitzsimmons,
805 F.2d 682, 688-694 (7th Cir. 1986) (en banc).
b. Petitioners concede the lack of privity with respect to nonmonetary relief,
such as the restrictions ultimately imposed, in settlement of the Secretary's
suit, on SCNB's ability to serve as an ESOP fiduciary. They argue, however,
that the public interests represented by the Secretary do not extend to
any monetary relief that, although obtained by the Secretary's suit, would
be paid to the plan. In that context, they contend, the Secretary has no
broader interest than any private litigant who sues solely to vindicate
the immediate monetary interests of the plan. See 98-758 Pet. 12-13; 98-762
Pet. 6, 8, 9-10.7
That contention is without merit. When the Secretary chooses to bring suit
to remedy violations of ERISA, her interests in obtaining any and all relief
authorized by the Act are independent of, and transcend, the interests of
any private party, including those of the particular plan or plans to which
all or part of a monetary recovery might be paid. That result does not change
simply because some of the Secretary's interests may coincide with those
of an injured plan or its participants or beneficiaries. See Fitzsimmons,
805 F.2d at 691-692 n.12; cf. General Telphone, 446 U.S. at 326 ("When
the EEOC acts [by bringing a suit seeking both injunctive relief and backpay],
albeit at the behest of and for the benefit of specific individuals, it
acts also to vindicate the public interest in preventing employment discrimination.").8
Moreover, and quite concretely, a suit by the Secretary for monetary relief
seeks not only to recoup losses or to secure equitable monetary relief on
behalf of the plan, but also to provide the basis for assessing the civil
penalties required by 29 U.S.C. 1132(l), which Congress has determined are
necessary to deter ERISA violations and to enhance the legal protection
of all plan participants and beneficiaries. See H.R. Conf. Rep. No. 386,
101st Cong., 1st Sess. 432-433 (1989). Those penalties, which are payable
to the United States, are calculated as a percentage of any amount recovered
in a suit by the Secretary, and there is no comparable provision for penalties
based on awards in private suits. Thus, even with respect to monetary relief
that is itself payable only to a particular plan, an action by the Secretary
is never solely representative of the financial interests of that plan or
its participants or beneficiaries.9
For the same reasons, SCNB errs in relying (98-762 Pet. 9-10, 13-16) on
this Court's decision in Massachusetts Mutual Life Insurance Co. v. Russell,
473 U.S. 134 (1985). Russell held (id. at 138) that a fiduciary may not
be held liable for compensatory or punitive damages in an action by a participant
under 29 U.S.C. 1109(a) and 1132(a)(2). The Court reasoned that the Act's
detailed provisions for securing relief that inures to the benefit of the
plan as a whole indicate that Congress did not intend to authorize the award
of extracontractual damages to particular participants. 473 U.S. at 139-148.
It was in that context that the Court noted, as SCNB points out (98-762
Pet. 16), that "[i]nclusion of the Secretary of Labor [as an authorized
plaintiff under Section 1132(a)(2)] is indicative of Congress' intent that
actions for breach of fiduciary duty be brought in a representative capacity
on behalf of the plan as a whole." 473 U.S. at 142 n.9. That observation
accurately reflects the fact that when the Secretary litigates under ERISA
she acts in the interests of plans and all their participants and beneficiaries,
not on behalf of particular individuals who may have been specially injured
by a violation of the Act. It does not, however, suggest that the Secretary's
interest in ERISA enforcement litigation is limited to obtaining relief
for plans, or that she sues, under the Act, only in some narrow representative
capacity analogous to that of the named plaintiff in a private class action.
See Fitzsimmons, 805 F.2d at 691-692 n.12; cf. General Telephone, 446 U.S.
at 326, 332-333.
Similarly, petitioners err in arguing (see 98-758 Pet. 10-13; 98-762 Pet.
6, 8, 10-11) that the court of appeals' decision departs from principles
of res judicata that this Court has recognized in other cases, primarily
Heckman v. United States, 224 U.S. 413 (1912), and Chicago, Rock Island
& Pacific Railway v. Schendel, 270 U.S. 611 (1926). Heckman held in
part that individual Indian recipients of federal allotments of tribal land
were not necessary parties to a suit by the United States to set aside conveyances
made in violation of the federal law governing the allotments, and that
the decree in such a suit would nonetheless bind the Indian allottees. 224
U.S. at 444-447. That conclusion was based in large part on the federal
government's unique trust relationship with the Indians, "the plenary
control of Congress in legislating for the protection of the Indians under
its care," and the details of the particular federal statutory scheme
involved-matters that find little analogue in the ERISA context. Id. at
444-445; see id. at 444-446 (citing cases involving binding effect on beneficiaries
of suits by or against trustees); see also, e.g., id. at 442 (relying on
the United States' "interest springing from its peculiar relations
to the Indians and the [relevant historical] course of dealing"). There
is no similar relationship of trusteeship, guardianship, or dependency between
the Secretary and the private litigants who are authorized to sue under
29 U.S.C. 1132(a) (1994 & Supp. II 1996). And even if Heckman could
be read to support preclusion of private ERISA litigation on the basis of
a prior suit by the Secretary (a reading we do not suggest), it surely would
not support the converse argument-i.e., that litigation by interested private
parties could ever take the place of suit by the public "trustee."
See 224 U.S. at 445 (Indians were "precluded from taking any position
in the legal proceedings instituted by the Government * * * which would
render such proceedings ineffectual or give support to the prohibited acts.
* * * [T]hey could not compromise [the claim]; nor could they assume any
attitude with respect to their interest which would derogate from its complete
representation by the United States. This is involved necessarily in the
conclusion that the United States is entitled to sue, and in the nature
and purpose of the suit.").
Petitioners' reliance on Schendel is likewise unavailing. That case involved
the preclusive effect of a worker's compensation judgment in one case, in
which the employee's widow was a party, in a second case brought "in
the name of [a] personal representative, for the sole benefit of the widow."
270 U.S. at 617. In discussing the applicable principles of res judicata,
the Court described with apparent approval a lower-court decision in which
"a suit in the name of the government was brought to enforce the right
of a private party, [and] it was held that a prior adverse adjudication
by a state court in a suit against him personally, determining the same
issues, was available as an estoppel against the government." Id. at
619, discussing United States v. Des Moines Valley R.R., 84 F. 40 (8th Cir.
1897). The clear premise of the Court's discussion in Schendel, however,
was that the nominal plaintiff in the second suit at issue-like the government
in Des Moines Valley-had "statutory authority * * * to sue, not in
his own right or for his own benefit or that of the estate, but in the right
and for the sole benefit of the widow." 270 U.S. at 620; see also id.
at 619 (government sued "for the sole benefit of [a private party],"
and as "a merely nominal plaintiff" (quoting Des Moines Valley
R.R., 84 F. at 44, 45)); id. at 620-622 (discussing other cases).10 Reference
to Schendel thus begs the question in this case, which is whether the Secretary
represents more than merely private interests whenever she brings an enforcement
action under ERISA. The court of appeals correctly determined that she does.
c. The court of appeals' decision in this case is consistent with the decisions
of all other courts of appeals that have considered the preclusive effect
of private litigation on an action by the Secretary under ERISA. See Beck
v. Levering, 947 F.2d 639, 642 (2d Cir. 1991), cert. denied, 504 U.S. 909
(1992); Fitzsimmons, 805 F.2d at 688-694; Donovan v. Cunningham, 716 F.2d
1455, 1462-1463 (5th Cir. 1983), cert. denied, 467 U.S. 1251 (1984). Two
of those courts have expressly recognized that res judicata does not prevent
the Secretary from obtaining monetary relief in a subsequent action. See
Beck, 947 F.2d at 642 (argument that res judicata bars the Secretary is
"frivolous"); Fitzsimmons, 805 F.2d at 692-694 (Secretary not
bound by res judicata), 696 (Secretary sought both injunctive relief and
money lost through trustees' mismanagement); cf. Cunningham, 716 F.2d at
1462-1463 n.10 (district court to consider scope of relief on remand).11
Petitioners err in contending that the decision below conflicts with appellate
decisions that have applied claim preclusion principles under other statutes.
98-758 Pet. 13-16; 98-762 Pet. 11-12. Most of the cases petitioners cite
hold or suggest that, while private litigation will not bar actions by the
Equal Employment Opportunity Commission (EEOC) for injunctive relief under
Title VII of the Civil Rights Act of 1964, 42 U.S.C. 2000e et seq., and
the Age Discrimination in Employment Act of 1967 (ADEA), 29 U.S.C. 621 et
seq., it can bar the EEOC from obtaining back pay for individuals who resolved
their back pay claims in earlier litigation. See, e.g., EEOC v. Kidder,
Peabody & Co., 156 F.3d 298, 301-302 (2d Cir. 1998) (ADEA); EEOC v.
Harris Chernin, Inc., 10 F.3d 1286, 1289-1293 (7th Cir. 1993) (ADEA and
Title VII); EEOC v. United States Steel Corp., 921 F.2d 489, 493-497 (3d
Cir. 1990) (ADEA); EEOC v. Cosmair, Inc., 821 F.2d 1085, 1091 (5th Cir.
1987) (ADEA); EEOC v. Goodyear Aerospace Corp., 813 F.2d 1539, 1542-1543
(9th Cir. 1987) (Title VII). Even if those decisions are correct, however,
the court below properly recognized that petitioners' argument "ignores
the different statutory enforcement schemes of Title VII and the ADEA."
Pet. App. 25a n.22.
Title VII and the ADEA require individuals to file charges with the EEOC,
which must then investigate and attempt to eliminate statutory violations
by conference, conciliation, and persuasion. See 29 U.S.C. 626(d); 42 U.S.C.
2000e-5(b), (e) and (f). Private litigants cannot sue until the EEOC issues
a right to sue letter under Title VII, and cannot sue at all under the ADEA
if the EEOC chooses to sue with respect to their claim. 29 U.S.C. 626(c)(1);
42 U.S.C. 2000e-5(b). In contrast, ERISA gives participants, beneficiaries,
fiduciaries, and the Secretary entirely independent authority to bring suit,
and nothing in ERISA requires private litigants to present claims to the
Secretary, vests conciliation authority in the Secretary, or otherwise limits
a private litigant's ability to bring (or compromise) a court action. See
29 U.S.C. 1132 (1994 & Supp. II 1996).
We may assume for present purposes that the protection for broader public
interests that is afforded by the EEOC's mandatory pre-litigation involvement,
and its large degree of control over the initiation of private litigation,
may justify according such litigation some limited preclusive effect with
respect to later public suits. But see General Telephone, 446 U.S. at 332
(actions by EEOC need not comply with class-action requirements; "We
are sensitive to the importance of the res judicata aspects of Rule 23 judgments,
but we are not free to depart from what we believe the statutory design
to be.") However that may be, under ERISA the public interest is protected
primarily by the Secretary's right to sue (or, at her option, to intervene
in private litigation); and her enforcement of ERISA must not be prejudiced
by the actions of private litigants who are unaccountable to the Secretary
or to the public interests that she represents.12
d. Contrary to petitioners' arguments (98-758 Pet. 21-22; 98-762 Pet. 24-25)
the decision below will not disrupt the "sound administration of justice"
by interfering with private settlements under ERISA. Individuals who are
responsible for ERISA violations have known at least since the Seventh Circuit's
1986 decision in Fitzsimmons that a settlement with private litigants will
not preclude a suit by the Secretary. They also continue to be subject to
injunctive relief in actions brought by the Secretary (as petitioners concede),
and to possible criminal sanctions for willful violations of ERISA. See
18 U.S.C. 664, 1001 (Supp. II 1996), 1027; 29 U.S.C. 1131; Martin v. Rutledge,
807 F. Supp. 693, 697 (N.D. Ala. 1992) (requiring restitution of plan losses,
following a criminal conviction, pursuant to 18 U.S.C. 3663(e)(2)), aff'd,
996 F.2d 1232 (11th Cir. 1993) (Table), cert. denied, 510 U.S. 1191 (1994).
In any event, the greater threat to the "sound administration of justice"
is the position advocated by petitioners, which would allow private litigants
to settle claims involving serious ERISA violations in a way that affords
affected plans a minimal recovery of their losses, immunizes wrongdoers
from liability even if they themselves contribute little or nothing of value
to the settlement, and gives no consideration to the public interests in
safeguarding the stability of tax-subsidized pension funds, ensuring that
the government receives full value for those subsidies, and allowing the
Secretary to assess the civil penalties that Congress has determined are
necessary to deter mismanagement of plan assets. See Pet. App. 24a-27a (discussing
proceedings in this case).13
2. The Ficklings also argue that 29 U.S.C. 1132(a)(5) does not authorize
the Secretary to seek equitable relief against a nonfiduciary party in interest
who has engaged in a transaction prohibited by 29 U.S.C. 1106(a). 98-758
Pet. 22-28. The court of appeals correctly rejected that contention (Pet.
App. 9a-17a), as has every other court of appeals that has addressed the
issue. This Court has previously denied review in a case raising a similar
challenge to the Secretary's authority under Section 1132(a)(5), and there
is no reason for a different result here. See Stangl v. Reich, 519 U.S.
807 (1996).
a. By its terms, Section 1132(a)(5) authorizes the Secretary to bring an
action:
(A) to enjoin any act or practice which violates any provision of this subchapter
[29 U.S.C. 1001-1191c], or (B) to obtain other appropriate equitable relief
(i) to redress such violation or (ii) to enforce any provision of this subchapter.
The term "redress" means "the setting right of what is wrong."
The Random House Dictionary of the English Language 1203 (1966); see also
Webster's Third New International Dictionary 1904 (1976). And the equitable
relief "appropriate" to obtain such redress "includes restitution
of ill-gotten plan assets or profits." Mertens v. Hewitt Assocs., 508
U.S. 248, 260 (1993).
Section 1106(a) is within the relevant subchapter of the United States Code
(codifying Title I of ERISA). It prohibits a plan fiduciary from causing
a plan to engage in certain enumerated transactions with (or benefitting)
"part[ies] in interest." 29 U.S.C. 1106(a); see 29 U.S.C. 1002(14)
(defining "party in interest"). Among other things, it prohibits
the sale, transfer, or exchange of plan assets between a plan and a party
in interest. 29 U.S.C. 1106(a)(1)(A) and (D). In making such transactions
illegal per se, Congress sought "to bar categorically * * * transaction[s]
that [were] likely to injure the pension plan." Commissioner v. Keystone
Consol. Indus., Inc., 508 U.S. 152, 160 (1993). In this case, the Secretary
alleges that the February 1990 stock transaction between the ESOP and the
Ficklings violated Sections 1106(a)(1)(A) and (D). See Pet. App. 7a. The
Secretary's action against the Ficklings is an action for "appropriate
equitable relief" (the disgorgement of tens of millions of dollars
in wrongful profits) to redress that violation, and to enforce the Act's
prohibition against transactions between a plan and a party in interest.
Petitioners point out (98-758 Pet. 24-25) that Section 1106(a) imposes the
duty to avoid prohibited transactions on the fiduciary, rather than on participating
parties in interest. They suggest, however, no persuasive reason why Congress,
in authorizing the Secretary to obtain redress for prohibited transfers
of plan assets to parties in interest, would have intended to limit that
authority in a way that would prevent the Secretary from recovering those
assets from the party who received them.14 To the contrary, Section 1132(a)(5)
is a broadly-worded, "catchall" provision that acts "as a
safety net, offering appropriate equitable relief for injuries caused by
violations that [Section 1132] does not elsewhere adequately remedy."
Varity Corp. v. Howe, 516 U.S. 489, 512 (1996); see also Pet. App. 10a-13a
(contrasting Section 1132(a)(5), which provides only equitable relief but
does not limit the persons who can be sued, with Section 1132(a)(2), which
permits claims for broader relief, but only against fiduciaries). Because
the "act or practice" of engaging in a transaction prohibited
by Section 1106(a) by definition requires the participation of a party in
interest, authorization of an action to provide equitable relief "to
redress such [a] violation" and to "enforce" the prohibition
necessarily includes authorization of relief against such parties. 29 U.S.C.
1132(a)(5); see, e.g., Reich v. Stangl, 73 F.3d 1027, 1031 (10th Cir.) (contrary
result would "create a zone of immunity, protecting the illegitimate
gains of parties in interest who have completed prohibited transactions"),
cert. denied, 519 U.S. 807 (1996); Nieto v. Ecker, 845 F.2d 868, 874 (9th
Cir. 1988) ("Courts may find it difficult or impossible to undo such
illegal transactions unless they have jurisdiction over all parties who
allegedly participated in them."). Indeed, even if the statutory language
were amenable to differing interpretations, it is hard to conceive of "any
ERISA-related purpose that denial of a remedy would serve." Varity
Corp., 516 U.S. at 515.
Petitioners also contend (98-758 Pet. 24-28) that Congress limited the Secretary
of Labor's enforcement authority under Title I of ERISA to actions against
fiduciaries, delegating to the Secretary of the Treasury the sole authority
to proceed against parties in interest through the assessment of excise
taxes. The tax treatment of prohibited transactions instead supports the
Secretary's position. Before imposing an excise tax on a party in interest,
the Secretary of the Treasury must provide the Secretary of Labor with an
opportunity to obtain "correction" of the prohibited transaction.
26 U.S.C. 4975(h).15 The term "correction" is defined as "undoing
the transaction to the extent possible, but in any case placing the plan
in a financial position not worse than that in which it would be if the
disqualified person were acting under the highest fiduciary standards."
26 U.S.C. 4975(f)(5). The clear implication of those provisions is that
the Secretary of Labor has the authority to seek equitable relief against
a party in interest when such relief is necessary to "correct[]"
the prohibited transaction.16
b. As petitioners acknowledge, every court of appeals that has considered
the issue has rejected petitioners' constricted interpretation of Section
1132(a)(5). See 98-758 Pet. 9-10 & n.7, 23; Pet. App. 9a-17a; LeBlanc
v. Cahill, 153 F.3d 134, 149-153 (4th Cir. 1998); Stangl, 73 F.3d at 1030-1031;
Landwehr v. DuPree, 72 F.3d 726, 734-735 (9th Cir. 1995); Reich v. Compton,
57 F.3d 270, 285-287 (3d Cir. 1995); see also Reich v. Rowe, 20 F.3d 25,
31 n.7 (1st Cir. 1994) (dicta).17 Petitioners nevertheless contend (98-758
Pet. 24) that this Court's review is necessary in order to "reaffirm"
the "basic teaching" of Mertens v. Hewitt Associates. Mertens,
however, supports the decision below.
Mertens held that Section 1132(a)'s provisions authorizing "other appropriate
equitable relief" do not authorize the award of money damages. 508
U.S. at 251-262. In reaching that conclusion, the Court also questioned
whether ERISA authorized the award of any relief against a nonfiduciary
who merely knowingly participated in a fiduciary's breach of duty. But the
Court recognized that some provisions of ERISA, including 29 U.S.C. 1106(a),
could be read to impose particular obligations on nonfiduciaries; and, indeed,
the Mertens opinion expressly states that a service provider (normally a
party in interest, but not a fiduciary) must disgorge assets and profits
obtained through participation as a party in interest in transactions prohibited
by Section 1106. Id. at 253-254 & n.4, 262. Thus, the court of appeals
correctly read Mertens to support the Secretary's action for similar relief
against the Fickling petitioners. Pet. App. 14a-17a; see also Lockheed Corp.
v. Spink, 517 U.S. 882, 889 n.3 (1996) (noting that a number of courts of
appeals have so read Mertens, and reserving the question). In the absence
of any disagreement among the courts of appeals, that issue does not warrant
further review by this Court.
CONCLUSION
The petitions for a writ of certiorari should be denied.
Respectfully submitted.
HENRY L. SOLANO
Solicitor of Labor
ALLEN H. FELDMAN
Associate Solicitor
EDWARD D. SIEGER
Attorney
Department of Labor
SETH P. WAXMAN
Solicitor General
JANUARY 1999
1 Unless otherwise indicated, all appendix references are to the appendix
in No. 98-758.
2 It is undisputed that Mr. Fickling is a party in interest, and the court
of appeals assumed for purposes of its decision that the other Fickling
petitioners were as well. The court of appeals directed the district court,
on remand, to allow the parties to complete discovery on that issue. Pet.
App. 8a n.9, 29a n.26.
3 The Ficklings state that the Secretary was "kept informed" concerning
the Knop proceedings and offered "no further dissent" after one
settlement proposal she viewed as inadequate was "substantially sweetened."
98-758 Pet. 3. The Secretary had expressed an opinion only as to recovery
from Charter itself in bankruptcy proceedings, not as to the appropriate
liability of any of the parties the Secretary is suing here. R17-169 at
10, 50. The Ficklings also repeat (98-758 Pet. 6) the district court's inaccurate
assertion (Pet. App. 45a) that the Secretary "concedes" that she
received "all of the information and documents upon which [her] present
claims are based" before the district court's April 30, 1992, hearing
on the Knop settlement. The Secretary made no such concession in the district
court, and the court of appeals relied on other grounds in rejecting the
district court's ruling with respect to laches. Pet. App. 27a-29a, 45a-46a.
4 The Ficklings suggest that they gave up valuable rights as part of the
settlement. 98-758 Pet. 4 n.3. As the court of appeals noted (Pet. App.
5a n.4), the Secretary believes that the reverse is true, and that in any
event any contribution from the Ficklings was of negligible value.
5 Section 1132(a)(2) allows a civil action "by the Secretary, or by
a participant, beneficiary or fiduciary for appropriate relief under"
29 U.S.C. 1109. Section 1109 makes a fiduciary personally liable for, among
other things, plan losses resulting from breaches of fiduciary duty. The
Secretary's claim for monetary relief against SCNB is based on those provisions.
The Secretary's claims for injunctive relief against SCNB and for restitution
against the Ficklings are based on Section 1132(a)(5), which authorizes
an action by the Secretary to enjoin violations or to obtain "other
appropriate equitable relief" to redress violations or enforce the
Act. Section 1132(l) requires the Secretary to assess civil penalties in
cases involving breaches of duty or other violations by fiduciaries, or
knowing participation in such a breach or violation by "any other person."
6 The court also held that the Secretary's suit was barred by laches and
by a release of claims included in the Knop settlement. Pet. App. 45a-46a,
48a-49a. The court of appeals reversed those holdings, see id. at 20a n.17,
27a-29a, and petitioners do not renew them in this Court.
7 SCNB appears to concede that the Secretary has independent authority to
proceed under 29 U.S.C. 1132(a)(5); it argues only that the Secretary cannot
proceed against it under Section 1132(a)(2) because the Knop action involved,
among other things, a private claim under that Section. See 98-762 Pet.
16-17. The Fickling petitioners, who have been sued under Section 1132(a)(5),
argue more broadly that the Secretary cannot obtain monetary relief under
either provision. See 98-758 Pet. 10-16, 22-28.
8 Of course, the fact that different plaintiffs have different interests
should not lead to double recovery. The Secretary has always contemplated
that any monetary relief ordered as a result of her suit and payable to
the Charter ESOP would be offset by amounts paid to the plan as a result
of the Knop action. Compare General Telephone, 446 U.S. at 333.
9 As petitioners note (98-762 Pet. 3-4; see 98-758 Pet. 12), the Secretary
argued during investigation and discovery related to the Charter ESOP that
SCNB was required to produce certain documents because a trustee has no
privilege to withhold documents from plan participants or beneficiaries,
see, e.g., Wildbur v. Arco Chem. Co., 974 F.2d 631, 645 (5th Cir. 1992),
and the Secretary was acting on behalf of and in the interests of participants
and beneficiaries in her investigation. The Secretary never contended, however,
that her interests were limited to those of participants and beneficiaries,
or that her interests would always coincide with theirs. See also Fitzsimmons,
805 F.2d at 697 n.18 (rejecting similar res judicata argument based on the
Secretary's position in discovery).
10 Des Moines Valley itself expressly recognized that a claim by the government
would not be precluded if the government "had a substantial interest
in the controversy." 84 F. at 45.
11 SCNB recognizes the precedential force of Fitzsimmons, but argues that
it was wrongly decided. 98-762 Pet. 21-23. The Ficklings contend incorrectly
that Fitzsimmons involved only claims for injunctive relief. 98-758 Pet.
16-17 n.11. The district courts have also uniformly held that the Secretary
and private litigants are not in "privity" for these purposes.
See Mason Tenders Dist. Council Pension Fund v. Messera, 958 F. Supp. 869,
885 (S.D.N.Y. 1997); Jackson v. Truck Drivers' Union Local 42 Health &
Welfare Fund, 933 F. Supp. 1124, 1132 n.9 (D. Mass. 1996); Picardi v. Chicago
Truck Drivers, 581 F. Supp. 794, 797 (N.D. Ill. 1983). Lower courts have
also reached similar conclusions with regard to federal securities and fair-housing
litigation. See SEC v. Egan, 856 F. Supp. 401, 402 (N.D. Ill. 1993); SEC
v. Penn Cent. Co., 425 F. Supp. 593, 599 (E.D. Pa. 1976); Tellurian U.C.A.N.,
Inc. v. Goodrich, 504 N.W.2d 342, 345 (Wis. Ct. App. 1993).
12 None of the other allegedly conflicting appellate cases cited by petitioners
(see 98-758 Pet. 14-15; 98-762 Pet. 11-12) bears any reasonable relation
to the Secretary's prosecution of an ERISA action, pursuant to an independent
grant of litigation authority, but without any right to bar or control prior
private suits. See In re Schimmels, 127 F.3d 875, 877 n.1, 881-884 (9th
Cir. 1997) (government precluded by qui tam action under False Claims Act,
under which a private litigant sues on behalf of the government if the government
declines to do so, see 31 U.S.C. 3730(b)); In re Imperial Corp., 92 F.3d
1503, 1509 (9th Cir. 1996) (Federal Deposit Insurance Corporation, suing
in its capacity as a receiver, does not sue as the United States, but stands
in the shoes of an insolvent private institution); NLRB v. Donna-Lee Sportswear
Co., 836 F.2d 31, 34-37 (1st Cir. 1987) (National Labor Relations Board
precluded, under particular facts, from finding that a contract exists when
a district court held in a previous suit by a union that no contract existed).
13 The Ficklings also argue (98-758 Pet. 19-21) that the Secretary's suit
should be precluded because the Knop litigation was brought as a class action
and resulted in judicial approval of a class settlement pursuant to Rule
23 of the Federal Rules of Civil Procedure. That rule in fact cuts against
the Ficklings' argument, because it requires adequate representation, see
Fed. R. Civ. P. 23(a)(4), and the named plaintiffs in Knop did not even
purport to represent the Secretary's interests. See Fitzsimmons, 805 F.2d
at 693 n.13. The Ficklings also erroneously accuse the Secretary of "willfully
avoid[ing]" the class action fairness hearing after stating that the
Secretary did not want to impede approval of the private settlement. 98-758
Pet. 21. As discussed above (see pp. 4-5, supra), however, the Secretary
made it quite clear to the private litigants (and through them to the district
court) that she was continuing to investigate and would not be bound by
any settlement.
14 The Ficklings incorrectly assert that the government, in its amicus curiae
brief in Lockheed Corp. v. Spink, 517 U.S. 882 (1996) (No. 95-809), "conceded"
that "Title I of ERISA" speaks only to the lawfulness of fiduciary
conduct, rather than to the lawfulness of particular transactions. 98-758
Pet. 24. It suffices to point out that the government's brief in Spink expressly
argued that Section 1132(a) authorizes equitable relief against parties
in interest. 95-809 U.S. Br. 8 n.3. This Court noted but reserved the question.
517 U.S. at 889 n.3.
15 The Internal Revenue Code refers to "disqualified person[s],"
but the definition of that term is substantially equivalent to the definition
of "party in interest." Compare 26 U.S.C. 4975(e)(2) with 29 U.S.C.
1002(14).
16 Petitioners also cite legislative history in support of their position.
98-758 Pet. 26-27. While that history may indicate that "the fiduciary
is the main focus of the prohibited transaction rules" under Title
I of ERISA, H.R. Conf. Rep. No. 1280, 93d Cong., 2d Sess. 306 (1974), it
does not suggest that Section 1132(a)(5) provides no "other appropriate
equitable relief" against nonfiduciary parties in interest. See Stangl,
73 F.3d at 1032-1034.
17 Petitioners argue (98-758 Pet. 10, 23) that the Fourth Circuit's recent
decision in LeBlanc evinces "increasing disarray" among the courts
of appeals because it imposes liability on non-fiduciaries who participate
in transactions prohibited by Section 1106(b)-which does not require the
involvement of a "party in interest"-as well as transactions prohibited
by Section 1106(a). They also cite the Seventh Circuit's rejection, in Reich
v. Continental Casualty Co., 33 F.3d 754, 757 (1994), cert. denied, 513
U.S. 1152 (1995), of a construction of Section 1132(a) that would impose
liability on any party that "knowingly participated" in any breach
of fiduciary duty. Nothing in the decision below, however, is inconsistent
with the holding in Continental Casualty (see Pet. App. 11a-13a, distinguishing
the court of appeals' previous decision in Useden v. Acker, supra, which
is consistent with Continental Casualty); and any additional issue raised
in LeBlanc is irrelevant to this case, which involves only parties in interest
whose liability is predicated on participation in transactions prohibited
under Section 1106(a).