Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-94-04096/USCOURTS-ca10-94-04096-0/pdf.json

Nature of Suit Code: 791
Nature of Suit: Employee Retirement Income Security Act (ERISA)
Cause of Action: 

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PUBLISH . F i L E D 

Un1ted States Court or App~:.:; 

UNITED STATES COURT OF APPEALS Tenth Circuit 

ROBERT B. REICH, Secretary 

of Labor, United States 

Department of Labor, 

Plaintiff-Appellant, 

v. 

FRANZ G. STANGL I 

Defendant-Appellee, 

TENTH CIRCUIT 

DAVIDSON LUMBER SALES, INC., 

EMPLOYEES RETIREMENT PLAN, 

and DAVID R. DAVIDSON, JR., 

Defendants. 

JAN 1 0 1996 

PATRICK FISELR C~er!~ 

No. 94-4096 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF UTAH 

(D.C. No. 90-C-716W) 

Michael Alan Schloss, United States Department of Labor, 

Washington D.C. (Thomas S. Williamson and Karen L. Handort, United 

States Department of Labor, Office of the Solicitor, Washington 

D.C. and Marc I. Machiz, Associate Soliciter, Plan Benefits 

Security Division, Washington D.C. (with them on the briefs) 

appearing for Plaintiff-Appellant. 

Dean C. Andreasen (Robert E. Mansfield with him on the briefs), 

Campbell, Maack & Sessions, Salt Lake City, Utah, appearing for 

Defendant-Appellee. 

Before BRORBY, KELLY, and HENRY, Circuit Judges. 

HENRY, Circuit Judge. 

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Plaintiff-appellant, the Secretary of Labor (the Secretary), 

appeals the district court's summary judgment order dismissing his 

claims against the defendant-appellee Franz C. Stangl. The 

Secretary brought this action under the Employee Retirement Income 

Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001-1461, alleging 

that Mr. Stangl was a party in interest who had engaged in 

prohibited transactions. The Secretary sought restitution of plan 

assets and other equitable relief. Relying upon legislative 

history, the district court held that Congress did not intend to 

create such a cause of action. We exercise jurisdiction pursuant 

to 28 U.S.C. § 1291 and reverse the decision of the district 

court. 

I. BACKGROUND 

Mr. Stangl was general partner of the Bowling Property 

Limited Partnership, an entity formed with other investors to 

develop real property in Sandy, Utah. Mr. Stangl and David R. 

Davidson were partners in the S & D Limited Partnership ("S & D"). 

Mr. Davidson held a fifty percent limited partnership interest in 

S & D, while Mr. Stangl held a forty-eight percent limited 

partnership interest and a two percent general partnership 

interest in S & D. In addition to his business association with 

Mr. Stangl, Mr. Davidson was trustee of the Davidson Lumber Sales 

Inc. Employees Retirement Plan (the Plan), an employee welfare 

benefit plan under section 2(1) of ERISA, 29 U.S.C. § 1002(1). 

In 1979, the Plan made a $200,000 loan to the Bowling 

Property Limited Partnership. In exchange for the loan, Mr. 

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Stangl executed a note on behalf of the Bowling Property Limited 

Partnership secured by a trust deed on the Sandy, Utah property in 

favor of the Plan. Although the note was renewed several times 

between 1979 and 1985, the Bowling Property Partnership made no 

payments to the Plan. 

In 1985, Mr. Davidson and Mr. Stangl entered into a series of 

agreements purporting to reconcile their business relationship. 

Under the terms of one agreement, Mr. Davidson personally assumed 

the Bowling Property Limited Partnership's obligations on the loan 

from the Plan. Mr. Davidson also caused the Plan to reconvey the 

trust deed securing that loan back to the Bowling Property Limited 

Partnership. One consequence of this "reconciliation" was 

therefore that the Plan fiduciary personally assumed a note to the 

Plan and then released the mortgage securing that note. 

In 1990, the Secretary filed a civil action against Mr. 

Davidson and Mr. Stangl.1 The Secretary alleged that Mr. Davidson 

had violated his fiduciary duty to the Plan, and that Mr. Stangl 

was a party in interest under section 2(14) of ERISA, 29 U.S.C. § 

1002(14), who participated in a prohibited transaction under 

section 406, 29 U.S.C. § 1106. Although it is not a part of the 

record in this case, it appears that the allegations against Mr. 

Davidson have been resolved. As to Mr. Stangl, the Secretary 

sought an order of restitution requiring him to return to the Plan 

1 In his original complaint, the Secretary a.lso sought legal 

damages. However, he withdrew his legal claim against Mr. Stangl 

during the course of this litigation when the Supreme Court issued 

its opinion in Mertens v. Hewitt Assocs., 113 S. Ct. 2063 (1993), 

holding that ERISA does not authorize legal damages against 

nonfiduciaries for participating in a fiduciary breach. Id. at 

2068-72. 

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the unjust enrichment that he received from the allegedly 

prohibited transactions, the imposition of a constructive trust on 

his interest in the Sandy property, and an order permanently 

enjoining him from serving as a fiduciary in any ERISA pension 

plan. 

The parties filed motions for summary judgment, and the 

district court ruled in favor of Mr. Stangl.2 Relying primarily 

on legislative history, the court held that the Secretary cannot 

bring an action in equity against a nonfiduciary party in interest 

for engaging in a prohibited transaction under section 406{a) of 

ERISA, 29 U.S.C. § 1106(a). 

On appeal, the Secretary challenges this conclusion. We 

engage in de novo review of the district court's grant of summary 

judgment. Boone v. Carlsbad BancokPoration. Inc., 972 F.2d 1545, 

1550 (lOth Cir. 1992). 

II. DISCUSSION 

ERISA is a comprehensive statute designed to protect employee 

benefit plans. See ERISA, § 1, 29 U.S.C. § 1001 (noting that 

employee benefit plans have treated beneficiaries unfairly and 

that Congress intends to establish standards to provide equitable 

retirement plans). In furtherance of that policy, ERISA 

designates as fiduciaries not only those persons expressly named 

by a plan, see ERISA, § 402(a), 29 U.S.C. § 1102(a), but also 

those persons who exercise control over the management and 

2 Because the district court held that ERISA does not provide a 

cause of action against nonfiduciaries, the district court did not 

reach the issue of whether Mr. Stangl was a party in interest. 

4 

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administration of the plan and the distribution of its assets, see 

ERISA, § 2(21) (A), 29 U.S.C. § 1002(21) (A). Individuals who 

provide "investment advice for a fee or other compensation" are 

also regarded as fiduciaries. Id. 

ERISA imposes a number of obligations on fiduciaries, 

including "'the proper management, administration, and investment 

of [plan] assets, the maintenance of proper records, the 

disclosure of specified information, and the avoidance of 

conflicts of interest.'" Mertens, 113 S. Ct. at 2066 (quoting 

Massachusetts Mut. Life Ins. Co. v. Russell, 473 U.S. 134, 142-43 

(1985)). The statute provides specific remedies for the violation 

of these obligations. Under section 409, a fiduciary "shall be 

personally liable to make good to such plan any losses to the plan 

resulting from each such breach, and to restore to such plan any 

profits of such fiduciary which have been made through use of 

assets of the plan by the fiduciary." ERISA, § 409(a), 29 U.S.C. 

§ 1109 (a) . 

ERISA also designates certain individuals as "parties in 

interest." See ERISA, § 2(14), 29 U.S.C. § 1002(14). The term 

"party in interest" is defined broadly and includes fiduciaries, 

plan employees, employers whose employees are covered by ERISA 

plans, service providers, employee organizations whose members are 

covered by a plan, and owners of fifty percent or more of stock in 

these employer and employee organizations. See id. Parties in 

interest also include employees, officers, and directors, as well 

as shareholders, partners, and joint venturers owning ten percent 

or more of entities that are themselves parties in interest. See 

5 

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ERISA, § 2(14) (H)-(I), 29 U.S.C. § 1002(14) (H)-(I). Section 406 

of ERISA, 29 U.S.C. § 1106, prohibits fiduciaries from engaging in 

certain transactions with these parties in interest. 

ERISA provides a variety of means to enforce these 

provisions. Under section 502 of ERISA, 29 U.S.C. § 1132, plan 

participants, beneficiaries, fiduciaries, and the Secretary of 

Labor may bring civil actions to redress various violations of the 

statute. In this case, the Secretary asserted claims against Mr. 

Stangl pursuant to section 502(a) (5), which authorizes civil 

actions seeking "appropriate equitable relief" to redress 

violations of ERISA. ERISA, § 502(a) (5), 29 U.S.C. § 1132(a} (5). 

In challenging the district court's dismissal of this action, 

the Secretary maintains that the plain language of the statute, 

its legislative history, ERISA'S enforcement scheme, and 

persuasive case law allow the Secretary to bring an equitable 

action to recover the Plan's assets from a nonfiduciary party in 

interest. Mr. Stangl responds that the Supreme Court's decision 

in Mertens limits the causes of action the Secretary may bring to 

those that ERISA specifically lists and that ERISA does not 

provide an equitable action against a nonfiduciary party in 

interest for engaging in a prohibited transaction. In analyzing 

the issues presented, we begin with the statutory language. Then 

we discuss the impact of Mertens, ERISA's legislative history, and 

a related provision of the Internal Revenue Code. 

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A. Statutory Language 

As noted above, section 502{a) provides that the Secretary 

may bring a civil action "(A) to enjoin any act or practice which 

violates any provision of this subchapter, or (B) to obtain other 

appropriate equitable relief (i) to redress such violation or (ii) 

to enforce any provision of this subchapter." ERISA, § 502(a) (5), 

29 U.S.C. § 1132(a) (5). Section 406(a), "a provision of this 

subchapter" to which section 502 applies, states that a fiduciary 

may not engage in certain transactions with a party in interest: 

Except as provided in section 1108 of this 

title: 

(1) A fiduciary with respect to a plan 

shall not cause the plan to engage in a 

transaction, if he knows or should know that 

such transaction constitutes a direct or 

indirect-

(A) sale or exchange, or leasing, of 

any property between the plan and a party in 

interest; 

(B) lending of money or other 

extension of credit between the plan and a 

party in interest; 

{C) furnishing of goods, services, 

or facilities between the plan and a party in 

interest; 

{D) transfer to, or use by or for 

the benefit of, a party in interest, of any 

assets of the plan; or 

(E) acquisition, on behalf of the 

plan, of any employer security or employer 

real property in violation of section 1107{a) 

of this title. 

ERISA, § 406(a), 29 u.s.c. § 1106(a). Read together, sections 406 

and 502 indicate that the Secretary's action against Mr. Stangl is 

an action under section 502 "for appropriate equitable relief" to 

redress a violation of section 406 and to enforce that section's 

prohibition of transactions with parties in interest. 

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Several other circuits have agreed with this interpretation, 

concluding that these sections authorize equitable actions against 

parties in interest who have engaged in prohibited transactions. 

In Nieto v. Ecker, 845 F.2d 868, 873-874 (9th Cir. 1988), the 

court addressed section 502(a) (3), which authorizes equitable 

actions by a participant, beneficiary, or fiduciary in language 

similar to the language used in section 502(a) (5) for actions 

brought by the Secretary.3 In concluding that section 502(a) (3) 

authorizes equitable actions against parties in interest, the 

Ninth Circuit noted that section 502(a) (3) 's language expressly 

grants equitable power to redress violations of ERISA and that 

transactions prohibited under section 406 constitute violations 

for which equitable relief may be obtained. The Ninth Circuit 

reasoned that "[c]ourts may find it difficult or impossible to 

undo such illegal transactions unless they have jurisdiction over 

all parties who allegedly participated in them." Nieto, 845 F.2d 

at 874. The Ninth Circuit has recently reaffirmed this holding. 

See Landwehr v. Dupree, Nos. 93-36166, 94-35003, 1995 WL 733155, 

at *4-5 (9th Cir. Dec. 12, 1995); Concha v. London, 62 F.3d 1493, 

1503-04 (9th Cir. 1995). The Third Circuit has reached the same 

3 Section 502(a) (3) provides that civil actions may be brought 

by a participant, beneficiary, or fiduciary 

(A) to enjoin any act or practice which 

violates any provision of this subchapter or 

the terms of the plan, or (B) to obtain other 

appropriate equitable relief (i) to redress 

such violations or (ii) to enforce any 

provisions of this subchapter or the terms of 

the plan. 

ERISA, § 502 (a) (3), 29 U.S. C. § 1132 (a) (3). 

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conclusion. See Reich v. Compton, 57 F.3d 270, 285-87 (3d Cir. 

1995) . 

The First Circuit's decision in Reich v. Rowe, 20 F.3d 25 

(1st Cir. 1994), adopts the same interpretation of these ERISA 

provisions. In Rowe, the court held that ERISA did not authorize 

the Secretary to bring an equitable action against a nonfiduciary 

for participating in a breach of a fiduciary's duties. However, 

in reaching that conclusion, the court contrasted actions against 

nonfiduciaries alleging participation in a fiduciary's breach with 

actions against nonfiduciary parties in interest alleging 

participation in prohibited transactions. As to the latter, the 

court reasoned that transactions prohibited under section 406 

constituted "'acts or practices' for which [section 

502 (a) (5)] provides a remedy." Id. at 31. Importantly, the Rowe 

court found it insignificant that § 406 imposes the obligation on 

fiduciaries rather than parties in interest: 

The fact that [section 406] imposes the 

duty to refrain from prohibited transactions 

on fiduciaries and not on the parties in 

interest is irrelevant for our purposes 

because [section 502(a) (5)] reaches "acts or 

practices" that violate ERISA and prohibited 

transactions violate [section 406] . Although 

fiduciary breaches also violate ERISA, 

nonfiduciaries cannot, by definition, engage 

in the act or practice of breaching a 

fiduciary duty. Nonfiduciaries, can, however, 

engage in the act or practice of transacting 

with an ERISA plan. 

Id. at 31 n.7. 

We agree with the analysis of Nieto, Compton, and Rowe. Like 

those courts, we conclude that the fact that section 406(a) 

expressly imposes duties on fiduciaries rather than on parties in 

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interest does not limit the Secretary's authority to file 

equitable actions against those parties in interest who have 

engaged in prohibited transactions. The transactions specified in 

section 406(a) necessarily involve two parties: the fiduciary and 

the party in interest. In the absence of an express limitation as 

to who may be named as a defendant in an equitable action filed by 

the Secretary, we read the statutory prohibition of certain kinds 

of transactions to offer some protection for ERISA plans from the 

misdeeds of both parties to the prohibited transaction. 

Importantly, the Supreme Court has noted that, in enacting section 

406, "Congress' goal was to bar categorically a transaction that 

was likely to injure the pension plan." Commissioner v. Keystone 

Consol. Indus., Inc., 113 S. Ct. 2006, 2012 (1993). Interpreting 

sections 406(a) and 502(a) (5) to allow the Secretary to bring an 

equitable action against a party in interest comports with that 

goal by providing a remedy for the injurious effects of prohibited 

transactions. 

Additionally, we find it significant that the Secretary can 

bring an action to enjoin an ongoing breach of a fiduciary's duty 

to the plan. See ERISA, § 502(a) (5), 29 U.S.C. § 1132(a) (5) 

(authorizing civil actions "to enjoin any act or practice which 

violates any provision of this subchapter"). It would make little 

sense to grant the Secretary such broad enforcement powers to stop 

ongoing violations of ERISA and then to limit the Secretary's 

power to recover plan assets acquired through these same 

violations. Such an interpretation of section 502(a) (5) would 

effectively create a zone of immunity, protecting the illegitimate 

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gains of parties in interest who have completed prohibited 

transactions that the Secretary could have enjoined while they 

were occurring. We therefore conclude that the language of 

sections 406(a) and 502(a) (5) allows the Secretary to bring an 

equitable action against a party in interest who has engaged in a 

prohibited transaction. 

B. Mertens 

Notwithstanding the statutory language, Mr. Stangl argues 

that the Supreme Court's decision in Mertens forecloses the 

Secretary's action against him. In Mertens, the plaintiffs filed 

a claim against the actuary of their former employer's pension 

plan. The plaintiffs argued that the actuary's advice had caused 

the pension plan to be inadequately funded and sought equitable 

relief under section 502(a} (3) of ERISA. Both parties assumed 

that the plaintiffs had pled a legally sufficient cause of action, 

and the only issue before the Court was whether the plaintiffs 

truly sought equitable relief. The Supreme Court held that the 

plaintiffs had sought legal, not equitable, relief and that they 

could not recover legal damages from a nonfiduciary for knowingly 

participating in a fiduciary breach under section 502(a) (3} of 

ERISA. Mertens, 113 S Ct. at 2066-2071.4 However, in dicta, the 

Mertens Court also expressed doubt as to whether ERISA provides 

4 Writing for four Justices in dissent, Justice White argued 

that Congress intended that ERISA provide more protection for 

employees and their beneficiaries than the common law provided, 

that the common law of trusts provided a cause of action in equity 

against nonfiduciaries for participating in a fiduciary breach, 

and that the language of ERISA did not compel the majority's 

conclusion. Id. at 2072-78 (White, J., dissenting). 

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any cause of action against nonfiduciaries for participating in a 

fiduciary breach: 

[N]o provision explicitly requires 

[nonfiduciaries] to avoid participation 

(knowing or unknowing) in a fiduciary's breach 

of fiduciary duty. It is unlikely, moreover, 

that this was an oversight, since ERISA does 

explicitly impose "knowing participation" 

liability on cofiduciaries. See § 405{a), 29 

u.s.c. § 1105(a). That limitation appears all 

the more deliberate in light of the fact that 

"knowing participation" liability on the part 

of both cotrustees and third persons was well 

established under the common law of trusts. 

In Russell, we emphasized our unwillingness to 

infer causes of action in the ERISA context, 

since that statute's carefully crafted and 

detailed enforcement scheme provides "strong 

evidence that Congress did not intend to 

authorize other remedies that it simply forgot 

to incorporate expressly." 

Id. at 2067 (quoting Russell, 473 U.S. at 146-47) (citation 

omitted) . 

For several reasons, we do not read Mertens to preclude the 

Secretary's action against Mr. Stangl. Most importantly, in 

discussing the fact that ERISA does not expressly prohibit a 

nonfiduciary from participating in a fiduciary's breach of duty, 

the Mertens Court did not suggest a similar interpretation of the 

provisions regarding prohibited transactions with parties in 

interest. In fact, like the First Circuit in Rowe, the Court 

contrasted the lack of ERISA provisions regarding a nonfiduciary's 

participation in a fiduciary's breach with various ERISA 

provisions "that can be read as imposing obligations upon 

nonfiduciaries." Id. As an example of a provision that imposes 

such an obligation, the Court cited section 406(a)'s prohibition 

on parties in interest offering services or engaging in other 

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transactions with the plan. Id. at 2067 n.4. The Court's 

reference to these provisions indicates that its statements 

regarding the lack of statutory provisions addressing a 

nonfiduciary's participation in a fiduciary's breach should not be 

read to preclude claims concerning prohibited transactions under 

section 406. 

Moreover, in reaching its conclusion regarding actions for 

money damages against nonfiduciaries, the Mertens Court discussed 

section 502(1) (1) of ERISA, 29 U.S.C. § 1132(1) (1), a provision 

added to ERISA in 1989. Section 502(1) (1) provides: 

In the case of-

(A) any breach of fiduciary 

responsibility under (or other violation 

of) part 4 by a fiduciary, or 

(B) any knowing participation in 

such a breach or violation by any other 

person, 

the Secretary shall assess a civil 

penalty against such fiduciary or other 

person in an amount equal to 20 percent 

of the applicable recovery amount. 

ERISA§ 502(1) (1), 29 u.s.c. § 1132(1) (1) (emphasis added). The 

Supreme Court rejected the plaintiffs' argument that the reference 

to "the applicable recovery amount" established that legal damages 

could be recovered from a nonfiduciary participating in a 

fiduciary's breach. However, the Court noted that "'equitable 

relief' awardable under§ 502(a) (5) includes restitution of illgotten plan assets or profits, providing an 'applicable recovery 

amount' to use to calculate the penalty." Mertens, 113 S. Ct. at 

2071 (emphasis added). The Court's definition of appropriate 

equitable relief under section 502(a) (5) is surely broad enough to 

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include the recovery of the fruits of a prohibited transaction 

from a party in interest. 

Finally, the circuits that have discussed the issue after 

Mertens have not found that the Supreme Court's decision bars 

equitable actions seeking restitution from parties in interest. 

See Concha, 62 F.3d at 1503-04; Compton, 57 F.3d at 287; Rowe, 20 

F.3d at 33. These decisions and the Supreme Court's discussion in 

Mertens establish that the Court has not foreclosed the 

Secretary's action against Mr. Stangl. 

C. Legislative History 

Through an examination of ERISA'S legislative history, the 

district court concluded that, in spite of the broad authorization 

of "appropriate equitable relief" under section 502(a) (S), 

Congress did not intend to allow the Secretary to bring equitable 

actions against parties in interest engaging in prohibited 

transactions. The court relied primarily on the initial Senate 

version of ERISA, which stated that 

[a]ny party in interest who participates in a 

transaction prohibited by this Act knowingly, 

or with reason to know that the transaction 

was a transaction to which this Act applies, 

shall be personally liable to make good to the 

fund any losses sustained by the fund 

resulting from such transaction, and to pay to 

the fund any profits realized by him from such 

transaction. 

S. 4, 93d Cong., 1st Sess., at 180 (1973). 

The district court noted that this language regarding 

personal liability of parties in interest was not included in the 

final version of the statute and that, in the final version, 

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Congress addressed the issue of prohibited transactions in section 

406(a) by imposing the obligation to avoid these transactions on 

fiduciaries rather than on parties in interest. The adoption of 

the narrower language of section 406(a) signified to the district 

court that Congress had rejected the notion that parties in 

interest were proper defendants in Secretarial actions seeking 

equitable relief.5 

5 The House Conference Report explains the differences 

between the Senate and House versions of ERISA: 

Under the House bill, fiduciaries generally 

are prohibited from dealing on behalf of a plan 

with persons known to be parties-in-interest unless 

the dealings are for adequate consideration. Also, 

the bill generally prohibits fiduciaries from 

dealing with plan assets for their own accounts, 

receiving consideration from other parties dealing 

with the plan in a transaction involving the plan, 

or acting in a transaction involving the plan on 

behalf of a person who is adverse to the plan. 

Under the House bill, a fiduciary is to be 

personally liable for losses to the plan resulting 

from violations of the fiduciary responsibility 

rules. 

The Senate amendment includes rules governing 

fiduciary responsibility in both the labor and tax 

provisions. The labor provisions of the amendment, 

as in the case of the House bill, deal with the 

basic responsibility of fiduciaries, plan 

administrators, and structure; also and [sic] these 

provisions would establish certain transactions as 

prohibited transactions. Fiduciaries (and partiesin-interest) are to be personally liable under the 

labor provisions for losses sustained by a plan 

that result from a violation of these rules. 

H.R. Rep. No. 1280, 93d Cong., 2d Sess. (1974), reprinted in 1974 

U.S.C.C.A.N. 5038, 5075. In addition, the House Conference Report 

explains that the fiduciary was the main focus of the prohibited 

transaction rules in the amended version of ERISA ultimately 

adopted by Congress: 

The conference substitute prohibits plan 

fiduciaries and parties-in-interest from engaging 

in a number of specific transactions. Prohibited 

transaction rules are included both in the labor 

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The Secretary responds by noting that the final version of 

ERISA did contain an enforcement provision significantly broader 

than the provision contained in the initial House version. In 

particular, the Secretary observes that the initial House version 

did not contain the broad authorization of civil actions seeking 

"other appropriate equitable relief" that was ultimately inserted 

into section 502(a} (5). See H.R. 2, 93d Cong., 1st Sess., at 150 

(1973) .6 

The Secretary's response is persuasive. In light of the 

broad language that Congress did include in section 502(a) (5), the 

fact that no provision of ERISA (as ultimately enacted) expressly 

and tax prov1s1ons of the substitute. Under the 

labor provisions (title I), the fiduciary is the 

main focus of the prohibited transaction rules. 

This corresponds to the traditional focus of trust 

law and of civil enforcement of fiduciary 

responsibilities through the courts. On the other 

hand, the tax provisions (title II) focus on the 

disqualified person. This corresponds to the 

present prohibited transaction provisions relating 

to private foundations. 

Id. at 5087 (footnote omitted) . 

6 The initial House version provided that 

Civil actions under this title may be brought--

(2) by the Secretary or by a participant, 

beneficiary or fiduciary for appropriate 

equitable relief under section lll(d) 

(3) by the Secretary, or by a participant, 

beneficiary, or fiduciary to enjoin any act or 

practice which violates any provision of this 

title. 

H.R. 2, 93d Cong., 2d Sess., at 150. (1974). 

Section lll(d) of the initial House version addressed 

a fiduciary's personal liability for breach of duty. See id. at 

42. 

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imposes "personal liability" on parties in interest (as the 

initial House version did) does not indicate that a party in 

interest can never be a proper defendant in an equitable action. 

Indeed, as we have noted, the Supreme Court has observed that 

"equitable relief" under section 502(a) (5) includes restitution of 

what parties in interest may obtain from engaging in prohibited 

transactions: "ill-gotten plan assets or profits." Mertens, 113 

S. Ct. at 2071. Moreover, the legislative history of ERISA 

repeatedly states that the statute was enacted to protect plan 

beneficiaries' interests in plan assets. See S. Rep. No. 127, 93d 

Cong., 2d Sess. (1974), reprinted in 1974 U.S.C.C.A.N. 4838, 4866-

71 (1974); H. Rep. No.533, 93d Cong., 2d Sess. (1974), reprinted 

in 1974 U.S.C.C.A.N. 4639, 4649-51 (1974). Given the language of 

section 502(a) (5) and the policy of protecting plan beneficiaries 

that underlies ERISA, we conclude that the legislative history 

does not preclude the Secretary's action against Mr. Stangl. 

E. Parallel Tax Provisions 

In challenging the district court's grant of summary judgment 

to Mr. Stangl, the Secretary also invokes certain provisions of 

ERISA that authorize the Secretary of the Treasury to assess taxes 

on persons participating in prohibited transactions. 26 u.s.c. § 

4975(h) provides that, before assessing an excise tax on a party 

in interest, the Secretary of the Treasury must notify the 

Secretary of Labor and "provide him a reasonable opportunity to 

obtain a correction of the prohibited transaction or to comment on 

the imposition of such tax." As used in section 4975(h), 

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"'correction' ... rnean[s], with respect to a prohibited 

transaction, 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 Secretary maintains that section 4975(h) 's 

reference to his "correcting" a transaction indicates that he may 

seek equitable relief against a party in interest under section 

502 (a) (5). 

Like the Third Circuit, we find this argument convincing. 

See Compton, 57 F.3d at 286 ("Since 'correction of the prohibited 

transaction' implies an order of restitution directed to the party 

who participated in the transaction with the plan, this provision 

buttresses the Secretary's position."). We therefore conclude 

that section 4975(h) 's recognition of the Secretary's authority to 

correct a prohibited transaction rebuts Mr. Stangl's contention 

that Congress did not intend to subject parties in interest to 

civil actions seeking equitable relief. 

III. CONCLUSION 

The language of sections 406(a) and 502(a) (5) of ERISA, the 

legislative history of ERISA, the decisions of other circuits, the 

Supreme Court's decision in Mertens, the policies underlying 

ERISA, and 26 U.S.C. § 4975(h) establish that the Secretary may 

bring a civil action for equitable relief under section 502(a) (5) 

against a party in interest who has engaged in a prohibited 

transaction. Accordingly, the decision of the district court 

18 

Appellate Case: 94-4096 Document: 01019280420 Date Filed: 01/10/1996 Page: 18 
granting summary judgment to Mr. Stangl is REVERSED and the case 

is REMANDED to the district court for proceedings consistent with 

this opinion. 

19 

Appellate Case: 94-4096 Document: 01019280420 Date Filed: 01/10/1996 Page: 19