William H. Rehnquist: We'll hear argument next in Number 94-1471, Varity Corporation v Charles Howe. Mr. Abrams, you may proceed whenever you're ready.
Floyd Abrams: Mr. Chief Justice, and may it please the Court: This is an ERISA case, and I think it's useful at the outset to make clear what the case is not about. This case does not involve any breach by Varity of any promise it made in any of its ERISA documents, or with respect to the nature and scope of any ERISA plan. There was no dispute in any of the judicial opinions below about the proposition that the official ERISA plan documents did not provide for vested or lifetime welfare benefits, and there was a ruling, from which certiorari has not been sought from counsel for the plaintiffs in this case, that there was no entitlement to benefits in this case under section 502(a)(1)(B), the benefits section of ERISA. The questions before this Court, then, are not whether benefits were due, or whether ERISA was violated because in some way there were improper misrepresentations made about plan documents.
William H. Rehnquist: Well, Mr. Abrams, in your view, if you prevail here, would the respondents have some sort of remedy for these rather obviously fraudulent statements?
Floyd Abrams: If we were to prevail in this court, respondents would have the following potential remedies. They have a case pending in the Federal court in Iowa in which they purport to assert, and we will oppose it, of course, certain common law claims which they maintain are not preempted under ERISA, claims of nonfair dealing, claims of constructive dismissal.
William H. Rehnquist: And your position is that those claims are preempted?
Floyd Abrams: Actually, we have not argued that those claims are preempted. It is not our position that those claims are preempted. They also have a claim for fraud, and fraudulent misrepresentation and the like. We believe those claims are preempted, but... so they have those potential claims. There are two claims as to which the district court ruled against us on, as to which the court of appeals did not reach, and which are not before this Court because they weren't reached, a section 510 claim under ERISA, and an estoppel claim under ERISA.
Ruth Bader Ginsburg: Did those go to the group to whom no misrepresentations were made but who were under a plan... unknown to them, they are placed under some other plan in another entity that proves insolvent? Mr. Abrams, there was one footnote in your reply brief that I must say took me aback, and that was the one that said that, surely these people who were transferred from one entity to another without a word of notice, surely they have no complaint because no misrepresentation was made to them. It was just done without even giving them any notice, any opportunity to say no.
Floyd Abrams: There's no provision in ERISA, and there is no provision in any contract in this case, providing for notice. We had an absolute right to terminate these individuals.
Ruth Bader Ginsburg: But this wasn't a terminate.
Floyd Abrams: It was... what happened here in fact was a termination and--
Ruth Bader Ginsburg: Let me ask you this--
Floyd Abrams: --Yes.
Ruth Bader Ginsburg: --so we can be very clear that we're talking about the same, not entirely hypothetical case. Employees work for a company under a plan, and they retire, and while they are in retirement, the trustee... we're dealing with a single employer plan... takes that plan, duplicates it, identical plan, puts it in another entity, which is tottering on the brink of bankruptcy, and then when these people claim their benefits tells them, oh, sorry, you're no longer under the entity that was able to pay for your benefits.
Floyd Abrams: That is absolutely what you cannot do under a pension plan. With respect to health benefits, since you have an absolute right to terminate, a right which was reserved explicitly here and which the law assumes any--
Ruth Bader Ginsburg: But when you terminate, don't you have to give people notice so that they can find other insurance?
Floyd Abrams: --This is not a case involving an alleged failure of disclosure. This is not a disclosure claim by them.
Ruth Bader Ginsburg: I'm not asking you about disclosure. I'm asking if--
Floyd Abrams: If they're--
Ruth Bader Ginsburg: --we're in the termination mode, if you terminate a plan, don't you have to give the beneficiaries notice that they're being terminated so that they can get alternate protection for themselves?
Floyd Abrams: --If they're entitled to benefits, it is our position the place to go is the benefits section of ERISA. That is what it is there for.
Ruth Bader Ginsburg: Are you... I just... if you tell me that that's what your position is and that's what the law is, that there is nothing in the whole of ERISA that stops an employer from putting people under an umbrella that is going to be swiftly bankrupt without telling them, that there's nothing in ERISA that stops that, and moreover, because ERISA is preemptive, these people have nothing to complain about--
Floyd Abrams: Well, what I'm--
Ruth Bader Ginsburg: --Is there nothing in ERISA... what happened here with respect to the ones--
Floyd Abrams: --Yes.
Ruth Bader Ginsburg: --who were already retired, where they got no notice of this transfer--
Floyd Abrams: Retirement, as I understand it, is not a vesting point under ERISA. Retirement has no more clarity for ERISA purposes than any time when they were employed, or after they ceased to be employed. If it is true that my client had an absolute right to cancel these people, to terminate these people, to alter the plan of these people without telling them, without their consent, and that is, as I understand it, ERISA law--
Ruth Bader Ginsburg: --So you're saying that the Employees Security... Income Security Act allows an employer to do this. The misrepresentations, then, are beside the point. They don't have to say anything.
Floyd Abrams: --The misrepresentations, indeed, are beside the point with respect to these people. The misrepresentations are entirely irrelevant with respect to these people. There people had no--
Ruth Bader Ginsburg: So that Congress, when it set up the Employee Retirement Income Security Act, gave employees no security against what happened here, against waking up one morning and find that they have no coverage because they are now under some umbrella that they never heard of.
Floyd Abrams: --No more protection than waking up some morning and finding they have no coverage at all. These employees were paid for 22 months. Suppose... because the new company paid them. Suppose they'd not been. Suppose what had happened here--
Ruth Bader Ginsburg: All right, I think I have your answer.
Floyd Abrams: --Sorry.
Ruth Bader Ginsburg: They don't have to get any notice so that they can get... that ERISA simply allows this to happen, and that's--
Floyd Abrams: That is my position, and that ERISA--
Speaker: --Mr. Abrams--
Floyd Abrams: --Yes.
Sandra Day O'Connor: --does it require, however, that the health plan be terminated or amended as opposed to simply moving people around to another company? Does it require some action by the plan manager?
Floyd Abrams: It does require some... something has to happen, Justice O'Connor. I mean, a real act.
Sandra Day O'Connor: What this looks like is that what happened was something that had the result of causing the plan not to be funded, but it was not technically an amendment or a termination of the health plan, am I correct?
Floyd Abrams: It was not technically an amendment to the health plan itself. What it was--
Sandra Day O'Connor: Or a termination of it.
Floyd Abrams: --What it was... I believe it was a term--
Speaker: There was no--
Floyd Abrams: --Sorry.
Sandra Day O'Connor: --There was no action taken by Verity saying, as of date X, we terminate this plan. It was done very indirectly, in a sense.
Floyd Abrams: It was done in a purchase agreement as between Verity and MCC, which explicitly provided for the termination by Verity, then Massey-Ferguson, if its obligations, and the taking over of those obligations by the new company.
Stephen G. Breyer: But you don't... sorry.
Floyd Abrams: I'm sorry.
Stephen G. Breyer: You don't necessarily have a right in the questionnaire, when they say, what happens to my benefits and pensions, to say, they'll stay the same, the company has a bright future, and your benefits are quite secure. I mean, that might be to mislead them, I take it, in respect to their decision about whether to stay with the company and have a plan, or go to a new one, and I thought this case is about whether those statements are fraudulent in... where you didn't think they were true, in respect to a pension plan information, and that is a cause of action there. In fact, it's a breach of fiduciary obligation, arguably, right?
Floyd Abrams: The second issue in this case is just what you've described. Is what you've described a breach of fiduciary obligation, or is it, because it is not a part of plan administration--
Stephen G. Breyer: And if it is a breach of fiduciary obligation, then why can't the person whose duty was breached bring an action, because isn't there an obligation that a fiduciary under ERISA has the same obligations as a fiduciary at common law, and those obligations run to the beneficiaries, and so forth.
Floyd Abrams: --I would reverse the questions, but those are indeed the questions, and the first of them, as we see it, is, is there a cause of action here at all? Is there an individual cause of action which can be brought by somebody, or his or her or a group's own relief, as opposed to a plan's relief. Now, this Court has not addressed that question directly. It has addressed the section of ERISA which is next to (a)(3). It's addressed (a)(2).
Ruth Bader Ginsburg: Mr. Abrams, in that respect, a plan is only helped by having a lot of people drop out of it so the plan has assets, so there's a dysjunction there. The people who have brought this action are the people who were injured. The plan isn't injured by having fewer people to cover. So these people are claiming that we have an injury because of what this trustee did.
Floyd Abrams: Right.
Ruth Bader Ginsburg: And are you saying, again, that ERISA does not protect these employees, it only protects plans?
Floyd Abrams: I am saying that ERISA does not provide a private cause of action for an individual on his own behalf to assert--
Ruth Bader Ginsburg: Yes, I could see--
Floyd Abrams: --breach of fiduciary duty.
Ruth Bader Ginsburg: --If the plan is a stand-in for the individual... in many situations, it is. If the plan gets the relief, then the beneficiary will get the relief. But here, it doesn't work that way. It's... the plan hasn't been deprived of any assets.
Floyd Abrams: That will always be the case. That will always be the case when an--
David H. Souter: Then there's always going to be the potential for a hiatus in recovery, because the plan is going to do very well by getting rid of these people. The plan as a plan has no obligation, I suppose, to claim any harm, and the individuals, on your theory, can't sue.
Floyd Abrams: --Well, what the individuals can sue for--
David H. Souter: Isn't that correct?
Floyd Abrams: --Subject only, Justice Souter, to the proposition that an individual can sue for loss of benefits. That is precisely... I mean, the whole structure of ERISA is arranged so that the first provision of civil remedies--
David H. Souter: He would sue... on your theory, he would sue... the fiduciary and require the fiduciary to pay him benefits month--
Floyd Abrams: --If he's--
David H. Souter: --by month?
Floyd Abrams: --Yes.
David H. Souter: That's... that's--
Floyd Abrams: Yes.
Speaker: --what his remedy is?
Floyd Abrams: If he has improperly been deprived of benefits, the claim he should make, the claim ERISA sends him to, is a claim for lost benefits, and if he is not entitled to lost benefits under ERISA, you've already held in Russell that he cannot claim under subpart (2), which is a plan-oriented claim, so this Court has found, with respect to fiduciary obligations. The question here, then, is can the individual sue under subpart (3) for the same thing he cannot sue for under subpart (2), breach of fiduciary obligations.
Sandra Day O'Connor: Well, Mr. Abrams, under subpart (3), it must mean something. It does say that a participant or a beneficiary can bring a civil suit to enjoin an act or practice violating the law or the terms of the plan, or to obtain other appropriate equitable relief, whatever that is. Does that mean, for instance, that the people who were transferred without their knowledge from the original plan to the new corporation could, perhaps, at least bring a suit to enjoin that action and require that they be returned to the original plan?
Floyd Abrams: Not, we think, for breach of fiduciary duty. They can bring the action, and we have not argued to the contrary, under section 510. Section 510 of ERISA does allow an employee who is wrongly discharged to seek back pay, reinstatement, and the like. That action can be brought through (a)(3), but the reason, as we see it, that the (a)(3) cannot be used to seek fiduciary responsibility is all the potential for duplication overlap and inconsistency--
Sandra Day O'Connor: Well, perhaps not to seek damages, certainly. That seems to be limited, as the Court has described in Russell, but is there anything left under (3) by way of a right to get an injunction, or some kind of equitable order?
Floyd Abrams: --We read section 409 to be the exclusive place to get an injunction. Of course you can get an injunction under 409, but it's a plan that can get an injunction under 409. As we understand 409, it is the remedy Congress chose to deal with breaches of fiduciary obligation, and all breaches.
Ruth Bader Ginsburg: I can understand that very well with respect to plans. Assets have been managed, assets have dwindled, and so we build up the plan. I don't understand that... it's certainly no remedy for people who have the complaint that these people have. You said that they could sue for benefits wrongfully withheld, but there are no benefits wrongfully withheld on your theory that they're under this new umbrella, and it's too bad the umbrella, that company's gone bankrupt.
Floyd Abrams: My theory is not just that they had a new umbrella, but that they never had entitlement to benefits, never for a moment had entitlement to benefits.
Ruth Bader Ginsburg: They had an entitlement to notice of termination if that's what happened.
Floyd Abrams: If they had an entitlement to notice of termination, they certainly received that when they were told that they were part of a new company. If the problem here--
Ruth Bader Ginsburg: They weren't told.
Floyd Abrams: --They were told--
Speaker: They weren't told.
Floyd Abrams: --when they were told they weren't getting any more benefits.
Speaker: Oh.
Floyd Abrams: I'm saying, they received benefits for the entire period. There was no hiatus here. There was no period when Massey-Ferguson plan was going on and the new company was out there and they didn't get benefits.
David H. Souter: But after they stopped getting benefits, in answer to my earlier question you said, well, they can sue for benefits, and now you're saying, but they're not entitled to any benefits.
Floyd Abrams: Yes, it is my position--
David H. Souter: So the practical matter is, there's nothing to sue for. There is no alternative--
Floyd Abrams: --What I'm--
David H. Souter: --to what they're claiming now.
Floyd Abrams: --What I'm saying is that they did sue for benefits. They lost. They should have lost. There's no petition for certiorari pending--
David H. Souter: So that get's back, I guess, to my question, and that is for the particular claim that is being made here, there is no remedy. There is in fact a gap in the possibility of recovery, because the plan is doing fine. It could care less that it has to pay fewer benefits, and the individuals, on your theory, have nothing that they can recover for. End of issue.
Floyd Abrams: --That certainly is our position, Justice Souter.
Speaker: Well, your position... yes.
Floyd Abrams: That's... that's the position that we took below and now. Now--
Stephen G. Breyer: It's even more than that, not just that there's no remedy. You say there's been no right violated, that 1109 establishes a fiduciary duty to the plan but not to the individual members of the plan. You say there's no fiduciary duty of these individuals that's been violated.
Floyd Abrams: --That is our--
Stephen G. Breyer: It's not just that it's been violated but there's no remedy for it. You say there's been no violation--
Floyd Abrams: --We believe--
Stephen G. Breyer: --The duties as set forth in 1109.
Floyd Abrams: --Yes. Now, 404, of course--
Stephen G. Breyer: Or 1104.
Floyd Abrams: --which they're relying on either leads into 409 or should be viewed, they maintain, separately. It's our view that 404 is a part of a scheme. 404 imposes, sets forth the prudent... "the prudent man standard of care. "
Anthony M. Kennedy: Under your view of 404, Mr. Abrams, does the fiduciary have an obligation to refrain from giving fraudulent information to a person who requests information about the future of the plan and the advisability of the participant remaining in the plan?
Floyd Abrams: If there were false information given of that sort, then if we were to lose on point 1... that is to say, if there is a... an individualized cause of action here, we agree we should lose on point 2 on that. I mean, one still has to address the first question of whether they have a claim at all for individualized relief, but if they do, then I agree that the answer to your question is, that would, indeed, constitute a brief of fiduciary obligation. Now--
John Paul Stevens: May I ask one technical question?
Floyd Abrams: --Yes.
John Paul Stevens: You do not dispute, as I understand it, that the relief granted in this case was (2)?
Floyd Abrams: That's correct. That's not something that we've raised.
John Paul Stevens: But you argue it's not appropriate.
Floyd Abrams: We do not argue that. Now, the first question, then, is, is there a cause of action? Does 409 mean what we think it means? Are we correct in our overview that 409 should be read as the culmination of these various sections of ERISA, including section 404, and if that is correct, as we maintain it is, if that's correct, then we think that there should be a ruling of this Court that there's no individualized cause of action.
Ruth Bader Ginsburg: Mr. Abrams, if both readings, yours and the one that's being put forward by the other side, if both are plausible, do we take into account at all what was the underlying purpose of the entire ERISA that's expressed in its very title... employee security? If we're in equipoise between your interpretation and the other side's, shouldn't we look at the underlying purpose of this whole scheme,?
Floyd Abrams: I think it's entirely appropriate to look at the underlying purpose, but I would disagree that that is the only underlying purpose. ERISA, as this Court has indicated, was the result of a bundle of compromises, and not all the compromises were made in favor of the members of the participants in ERISA plans.
Ruth Bader Ginsburg: Well, certainly not, but the overarching purpose--
Floyd Abrams: The overarching purpose of welfare benefits, as opposed to pension benefits, was at one and the same time to encourage employers to offer and to perpetuate what they need not offer and need not perpetuate--
Ruth Bader Ginsburg: --But for the purpose--
Floyd Abrams: --which is welfare plans.
Ruth Bader Ginsburg: --of providing employees with security.
Floyd Abrams: Yes. With the view that if you allow employers to cut off plans, if you allow employers to do all sorts of things impossible and illegal with respect to pensions, that you'll wind up with more plans and more benefits, but I do not agree that ERISA in this area, in the welfare area, can properly be read as simply designed to assure more security for individuals, except in the sense that I've said it. It was to do it--
Ruth Bader Ginsburg: I didn't ask you that. I didn't ask if every call in the statute is in favor of the employees. I asked you if we are in the situation of saying, we read your brief and your interpretation of these provisions, and we read the other side, could we use--
Floyd Abrams: --You certainly can use the purpose of ERISA, and I would add to that, the structure of ERISA. You really have to look, in our view, at how ERISA was crafted, what this Court said was the carefully crafted nature of ERISA, and the interrelationship of the sections. Does it make sense to say that what Congress intended, in what the Court has said was a very thoughtful and careful creation of this, that what Congress meant to do is to have two lines, sometimes quite inconsistent, with respect to the breach of fiduciary duties, have only one section of law which defines when you commit a breach of fiduciary duty, when you do not commit a breach of fiduciary duty, what is it that you're supposed to do about fiduciary duty, which applies only to plans, for Congress not to have adopted any other section for individuals. Well, we think that the way to make sense of ERISA if you're in equipoise, or even if you're not, the way to make sense of it is to read it all, and that we think when you read it all that that's the way that you should read it. Now, if we're wrong on that, then you reach the second issue, and then you reach the issue of whether this is a matter of plan administration. It's not an open question that employers that are on ERISA plans are permitted at one and the same time to think of their own benefits, their own interests, and the interests of those who are in ERISA plans. That's a proposition of longstanding. The question here, the narrow, legal question is, when my client made various statements designed to persuade people to join MCC, the new corporation, was that... is that fairly reasonably described as a part of plan administration. We don't think it is, and--
Ruth Bader Ginsburg: --And that goes also for the group that was--
Floyd Abrams: --Yes.
Speaker: --not told anything.
Floyd Abrams: Yes. I mean, I think basically it's the same... you have to address the same question, is it plan administration for everyone, because if it's not plan administration, you're not acting in a fiduciary capacity. The Court has made clear that you are acting... that things which would be unthinkable for a trustee of a will, say, who is supposed to be thinking only of the interests that the trustee is serving, are entirely appropriate with respect to ERISA.
Anthony M. Kennedy: It seems to me that on this part of your argument what you're saying is, is that the defendants below are wearing their corporate executive hat--
Floyd Abrams: Yes, Your Honor.
Anthony M. Kennedy: --and not their fiduciary hat.
Floyd Abrams: Yes, Your Honor.
Anthony M. Kennedy: But if they mislead, and they then mislead about the participation in the plan, the solvency of the plan, the future of the plan, and so forth, it seems to me the very fact that they're misleading helps us to determine which hat that they're wearing, because the employee has the justified expectation that he or she will receive accurate information about the plan whenever the fiduciary talks, no matter what his hat is.
Floyd Abrams: I agree with that, Justice Kennedy, and they did. There is no claim here that they received inaccurate information about the plan. The brief amicus curiae of the United States, for example, makes very clear, and very honorably, although we disagree wich them, that the one statement made to the individuals about the plan was true, that the plan would be the same after, as it was before, that there would be no changes in the plan terms after as before. All the allegations of falseness and of false statements, every single one of them, relates not to statements about the plan, but as to why you should join the new company, and the good qualities of the new company, and looking forward to a bright future, et cetera, and that is indeed one of the reasons why we maintain that this is not plan administration, whatever plan administration is.
David H. Souter: Well, except that isn't there sort of a common sense of plan administration that the plan is going to be better administered for those whom it will benefit if it has fewer people to benefit, and therefore there is a good administrative objective, I suppose, in theory, in simply reducing the plan's liabilities. And if these statements were made about the new corporation and its rosy future and so on for the purpose, or in part for the purpose of causing this exodus out of the old plan and the reduction of the old plan's liabilities, why doesn't that fit within a concept of administrative purpose? You make it easier for the old plan to pay its benefits because you've got fewer benefits to pay.
Floyd Abrams: At some level of abstraction everything, or almost everything, can relate to the plan that relates to the company. A healthier company has a healthier plan. A plan with fewer people in it has more money to spend, and the like. We think that when the representations that are involved are, we think you should go to the new company because it has a bright future, we think that you ought to go to the new company because it will be a good company, that that... it tortures the language, with all respect, of plan administration to say that that is plan administration. I mean, we--
David H. Souter: Well, I don't think we know whether it tortures it or not unless we first answer the question, and I guess it's the question which was behind one of Justice Ginsburg's questions to you, should we read the concept of plan administration, if in doubt, in a more expansive or a less expansive way, and her suggestion was that there is an overarching object in the statute which would be a good reason for reading it in an expansive way which would bring these acts within the concept of administration, and I guess your answer is going to be the same as to her, there is no overarching scheme by which you can make that choice.
Floyd Abrams: --Yes, Your Honor, that would be my answer, and I would give the rest of my answer as well about the nature of ERISA as a whole, the nature of welfare benefits, the schema about welfare as opposed to pension benefits and the like. I'd like to save the rest of my time.
William H. Rehnquist: Very well, Mr. Abrams. Mr. Smith, we'll hear from you.
H. Richard Smith: Mr. Chief Justice, and may it please the Court: Let me respond to some of the things petitioner has argued. This is not a termination case. They do not have an inherent right to terminate. They must proceed under the terms of the plan, and that has not been done. Section 404 subparagraph (d) makes it a fiduciary duty that they proceed under the terms of the plan. The plan that they were on with MF, Inc., the viable plan continues today, and they've taken no action under the terms of the plan. In fact, the MCC plan they've taken no action. What happened, it was a self-funded plan. The self went bankrupt. Secondly--
Antonin Scalia: I think his point was simply when you're dealing with a statute that permits termination, it's very hard to think that somehow employees have been deprived of statutorily required security by not being given notice of the transfer to a new company. Under the statute they could have been terminated. They... you know, it's sort of hard to talk about their deprivation of some security that the statute assured to them. The statute allowed them to be terminated completely.
H. Richard Smith: --The statute did, Justice, and they could have been, and they chose not to do that to further their own interests. As the district court found under facts that are not challenged on the appeal, there were practical reasons why petitioner did not want to proceed under the plan, and they used these people in an improper, unlawful way, and the fact that they could do it lawfully should not be justification for permitting them to do it unlawfully.
Antonin Scalia: It's justification for saying that you cannot reasonably argue that they have been deprived of some security interest which the statute guarantees to them.
H. Richard Smith: That's correct, if I understand it, and that moves us to what our (a)(1)(B) claim was. We have not been denied benefits under our (a)(1)(B) claim. Our (a)(1)(B) claim was a security claim. We took the position that our retirement benefits contractually vested on retirement under the section 7.4 of the plan. We read it, we thought you could read it that way, and the court held we were wrong, but the court neither at the district court nor at the circuit court level has found that we were not entitled to benefits under (a)(1)(B). What we're trying to do is to be restored to the viable plan that we removed ourselves from due to the fraudulent misrepresentations. We want to get restored to that plan, and then--
David H. Souter: But you don't argue that you were guaranteed any benefits under that plan, do you? I take it your position is not that you were guaranteed benefits of which you were deprived, but that you simply had benefits of which you were fraudulently deprived.
H. Richard Smith: --Exactly, Justice. We did argue it under other theories, but not under breach of fiduciary duty. we argued it and lost, but we do not argue it here. It's not part of our breach of fiduciary duty claim. Our breach of fiduciary duty claim is not attacking plan documents. We don't attempt to change or circumvent any of those term plans. All we're trying to do, again because we were fraudulently removed from the viable plan, to get restored so we can have relief in accord with those plan documents. The other thing that I... there's no record, but since it came in in petitioner's argument about our State court claim, that's based on the terminated class which we lost on in the district court, and seeking a common law actions for wrongful termination, and I was surprised to hear that they do not claim that that's preempted, because they removed it to Federal court on the basis of preemption. I don't think it has any bearing on our case here today.
Ruth Bader Ginsburg: Mr. Smith, what is your response to the argument that as to the 10 plaintiffs who never worked for MCC, that no misrepresentations were made to those individuals in connection with the transfer of their coverage to MCC, so there's no basis for affirming the decision below, your opponent argues, with respect to that belief, because they weren't told anything.
H. Richard Smith: I--
Ruth Bader Ginsburg: No misrepresentations were made to them.
H. Richard Smith: --Justice, I agree with the first part. There were no representations of any nature made to them, but that's not justifications that they have no relief. That's justification for once you get by the first question, petitioners have advanced no reason or make no argument to deny the 10 individuals, because clearly it's a breach of fiduciary duty under section 404(d) for them to proceed to unilaterally, without informing them, without their consent, to transfer responsibility for their benefits to an entity that the district court found they knew was going to go bankrupt. So our position is that if we prevail on the first question for review, we're home free with regard to the 10 individual plaintiffs, because they've not advanced any argument why there was not a breach of fiduciary duty. I would like to direct attention to the first question for review, and as you know, it is our position that if the petitioners are right in their interpretation of 502(a)(3), there is a tremendous gap in this well-crafted scheme that the courts recognized that Congress devised for enforcement and remedies, and that gap is, as has been pointed out here this morning, that you have no remedy for breaches of fiduciary duties that results in harm to participants or beneficiaries but no losses to the plan, and that takes out practically all of the breaches of fiduciary duty relating to administration.
Antonin Scalia: Yes, but I mean, indeed, except, of course, any breaches of fiduciary duty that result in loss of benefits to the individual, which he can recover for under (a), (a)(1)(B). Certainly that covers a large number of breaches of fiduciary duty, doesn't it?
H. Richard Smith: Well, it would... assuming it constitutes a breach of contract that you could under contract principles recover (a)(1)(B), but Justice, there's many other things... in fact, one of the most fundamental things about administration is determining who is a participant that has a right to make claims under (a)(1)(B), and you have these--
Antonin Scalia: Mr. Abrams' argument is not to deny that there are not individual rights that one would ordinarily have against a trustee, which are eliminated here, but rather to say their elimination is part of the scheme of the statute, just as the ability of the employer to simply terminate unilaterally, which is extraordinary, is part of the statute. It was cost-benefit analysis. We want to make these schemes easy and cheap for the employer to manage so that more employers will establish them. Why isn't that a plausible argument?
H. Richard Smith: --Justice, it's just not common sense that if Congress intended the exclusive remedy for private harm to participants and beneficiaries to be under (a)(1)(B) on contract principles, why would they make administration a fiduciary activity, why would they make it fiduciary conduct, why would they incorporate in section 404 duties out of the common law that run directly to beneficiaries, and having done all that, why would they--
Antonin Scalia: Where does it say that run directly to beneficiaries? I mean, the argument Mr. Abrams makes is that 404 just establishes the standard of care, but that it's 409 which says to whom you are liable for breach of your fiduciary duty--
H. Richard Smith: --For... where we--
Antonin Scalia: --because that's the title of 409.
H. Richard Smith: --That's correct. If we're talking about titles, we'd prefer to go back to the subchapter which says, Protection of Employee Benefit Rights, if the Court's going to focus on titles, but where we differ from Mr. Abramson, or petitioner's counsel on that is, 404 sets up the duties. His position is that 409 limits what... where you can have liability for breaches of those duties. I don't know that they dispute... in fact, I think they argue that duties were incorporated out of common law. They try to argue that the remedies were not incorporated, which again just doesn't make sense. If Congress had intended 409 to be the exclusive means of remedies for breach of fiduciary duty, they could have said so, and they do not.
John Paul Stevens: May I ask this: do you contend that the breach of fiduciary obligations that you have proved in this case, or alleged, were violations of duties defined in 404?
H. Richard Smith: Correct.
John Paul Stevens: So you do say that 404 is the source of the fiduciary duty.
H. Richard Smith: Correct.
John Paul Stevens: All right. But then, may I ask this question. If your reading of subsection (a) of 502(a)(3), I should... mean, is correct, would the plaintiffs in the Russell case have been able to prevail if they had pleaded under this section rather than just under subparagraph (2)?
H. Richard Smith: Yes, and I'm pausing... I know Mertens was a nonfiduciary. I think Russell was a fiduciary, so yes, I think they could have for equitable relief.
John Paul Stevens: But they were suing for damages there.
H. Richard Smith: I don't think they could have recovered damages under 502(a)(3).
John Paul Stevens: So one of the keys to your case is that you contend here you're getting equitable relief.
H. Richard Smith: Correct.
John Paul Stevens: And that's what distinguishes Russell.
H. Richard Smith: That's right, and we can only obtain equitable relief under 502(a)(3). We--
Sandra Day O'Connor: And we have no issue before us here as the case comes to us about whether what you did recover fits that description.
H. Richard Smith: --Correct. They have not brought that to you. We--
Sandra Day O'Connor: It looks a lot like damages.
H. Richard Smith: --Justice Hanson at the circuit level in the dissent had some thoughts along that line and wanted it sent back to have a better record developed on that. Our position is, as you know from the briefs, that you should follow the number 1, what you've said is the cardinal rule of statutory construction, and that is, when the language used by Congress is plain, you should assume Congress means what they said and said what they mean, and judicial inquiry should stop there, and we think the language of 502(a)(3) is clear. Petitioners say, but when you read it in the context of the entire act, there's a conflict between it and 409. There is not. You have to read language into 409, that language being that it is exclusive. It doesn't say that. Or language that says you can only find... have plan-based relief and not individual relief. They say, but the Russell decision puts that language in there. It does not. The Russell court made clear that 502(a)(3) had not been urged upon it in that case.
William H. Rehnquist: But there is some... certainly some language in Russell that suggests the plaintiffs wouldn't have fared any better under 502(a)(3).
H. Richard Smith: Well, that's correct, and the concurring opinion points that out, that it's broader than it needs be, but I think that can be explained by the argument that was being presented to get a private cause of action under 409, where they were focusing on... they recognized it said, losses to the plan, so they focused on the catch-all at the end that said, other equitable or remedial relief, and they said that means that Congress wanted to have private cause of actions there, and I believe it was in that context that the Court used that broader language as it did.
Ruth Bader Ginsburg: In any event, we do have a footnote 5--
H. Richard Smith: Correct.
Ruth Bader Ginsburg: --that says that exclusively that we're not passing on that question.
H. Richard Smith: That's right. With regard to the second question for review, I was pleased to hear petitioner say that this isn't a disclosure case. This is a duty of honesty case. While this Court may choose to speak to a broader duty, all that's required to affirm in this case is to find that when an employer administrator of a plan exercises its discretion to speak to its employee participants about administration plan benefits, it has a duty to be honest, and that's not a burdensome duty. There's been a lot of concerns raised in petitioner and amici's brief about the burden this is going to place on employers. This is not a clairvoyance case. That simple minimal rule that the circuit could be affirmed on doesn't require clairvoyance to speak about future events. Here, the district court--
Antonin Scalia: I don't see... I mean, what they're contesting is whether it is part of the administration of the plan. I don't see how it becomes more administration if you lie and less administration if you tell the truth, or less administration if you just remain silent. I mean, it--
H. Richard Smith: --We--
Antonin Scalia: --The point is, was this part of the administering of the plan.
H. Richard Smith: --You're exactly right, and we don't base it being fiduciary conduct and that they were acting as a fiduciary because they lied, although I think that could be a legitimate basis.
Antonin Scalia: Why? You've just undone what you just conceded.
H. Richard Smith: Well--
Antonin Scalia: How can the fact that you're lying cause it to be administration when if you were telling the truth it wouldn't be administration?
H. Richard Smith: --Justice, that two hats doctrine, they always have both hats in their hand. They put one on to speak as an employer as a nonfiduciary, but they're lying in a manner that they... it's reasonably foreseeable that the participants are going to act on it to their detriment. They hear that as a fiduciary. They have a duty to put the other hat on and say, participants, you're not being told the truth, but that's not our case, of course, because the district court found--
Antonin Scalia: Well, I worry that it's your case. I mean, this is an enormously important issue. Every employer who runs a single employer plan is going to be at risk with respect to everything he says in the operation of his business, because he is a trustee at all times, and he is subject to lawsuits by people saying, well, when you made this representation you had a trustee's obligation. I think we need an absolutely clear line, and if the line is going to be something like, well, if you're lying it somehow moves closer to administration, I don't know how an employer would know how to behave.
H. Richard Smith: --For purpose of affirming, I do... we do not urge the rule that it be based on lying. It's based on whether or not they're talking about plan administration or plan benefits. That should be the rule, and when they do, they're acting as a fiduciary, and they have a duty to be honest. In this case the unchallenged factual findings are that they were talking about benefits, they were talking about plan administration. Given those findings, it necessarily has to be that they were acting as a fiduciary.
Antonin Scalia: What were those findings based on? I mean, I thought we had the words that they said.
H. Richard Smith: You have the words that they said--
Antonin Scalia: And what were those words--
H. Richard Smith: --They said--
Antonin Scalia: --that you're relying on?
H. Richard Smith: --your benefits will continue unchanged.
Antonin Scalia: That's true. That's not what you're suing on.
H. Richard Smith: Well, it certainly is. They did not remain unchanged.
Antonin Scalia: The plan benefits were changed? The plan benefits were--
H. Richard Smith: No, we didn't... if I said plan benefits, I misspoke, because we agreed we're not attacking the plans. We're talking about administration and benefits, and we told... not talking about plan terms, but we're talking about benefits continuing in the future with this new corporation which had such a bright future and excitement they had about how it was going to do.
Stephen G. Breyer: --I'm sorry, I don't mean to... I thought that there is a piece of paper, questions and answers, what happens to my plan benefits, pension, et cetera? Answer: when you transfer to MCC they will stay the same, et cetera. And then at the bottom of the page it says we are very optimistic, our company has a bright future, we are, et cetera. So it comes in a context, I thought your point was. The question: what happens to my benefits? When you answer that question, you are answering in your capacity as administrator.
H. Richard Smith: Exactly, Justice--
Stephen G. Breyer: I mean, I--
H. Richard Smith: --and it was in the four documents that was presented to them--
David H. Souter: --The misrepresentation is not that the new piece of paper on which the new plan is written has the same words as the old piece of paper. Your claim is that the misrepresentation was, you're going to continue to enjoy them with the same probability or expectation that you would enjoy them if you remained under the old plan. That's the nub of your claim, isn't it?
H. Richard Smith: --That's exactly right, and it's in that context and in the context that in the short, brief meeting they said, you need to sign this today to transfer so you be sure those benefits will not be interrupted.
Stephen G. Breyer: But the question on that point is simply that the ponit about the Massey Combines Corp. comes in response to the next question and on a separate page, so is he still answering with his hat as the fiduciary?
H. Richard Smith: That's correct.
Stephen G. Breyer: Oh, I'm... that's not correct, that's a question. [Laughter]
H. Richard Smith: You're asking that if, when they switch over to talking about the business matters, that they're still talking about, and I say yes, that's true, they're still talking as a beneficiary. You have to set this in the context of the factual findings, unchallenged, that they wanted to rid themselves of these without exercising their right of termination, and they had a second and dual purpose of, they wanted to persuade their lenders that they had an up and going viable entity, and in that setting, where they talked about the benefits and then talked about the prospects of the entity that was going to be the source of the funds to fund this self-funded plan, that was all, in our judgment, fiduciary conduct, and again,--
David H. Souter: But it was because... I think you're saying it would have been very odd... it would have been unreasonable for employees to say, oh, now that he's talking about the rosy future, he's not making any statement that might be relevant to my decision about joining the new plan.
H. Richard Smith: --That's--
David H. Souter: Isn't that the nub of what you're saying?
H. Richard Smith: --That's correct.
William H. Rehnquist: Thank you, Mr. Smith. Mr. Kneedler, we'll hear from you.
Edwin S. Kneedler: Thank you, Mr. Chief Justice, and may it please the Court: First, just to put in context the nature of the fiduciary breach claim here, we think it is precisely as Justice Souter stated it. The statement that plan benefits will remain unchanged might have accurately described the plan on paper, but a plan in the real world consists of more than just the paper the document is written on. It consists of the funds that will be available to pay the benefits, and in this case it's the same, analytically, as if the welfare benefits were paid out of a separate corpus, and it would take 50 million dollars to fund the benefits, but the employer had only put 1,000 into it. If the employer said, your benefits will remain unchanged, and the plan looked the same on paper, that would not be a fully accurate description to the employees who were being induced to leave a secure plan to go to an unsecure plan to say that their benefits have remained unchanged. So this was quite clearly a representation about the current status of the benefit plan.
Antonin Scalia: But that's not the point. The point is whether it is not undertaken, whether it is of interest to people who were in the plan, whether it would affect their actions in the plan, the issue is whether it... the representation is made in the administration of the plan.
Edwin S. Kneedler: Yes. Now, I--
Speaker: That's the issue.
Edwin S. Kneedler: --I understand that. I was simply trying to describe what the nature of the misrepresentation was, but by the same token, when an employer wearing two hats is asked to describe what the employees' benefits will be under the current plan, this is not a statement of an intent to amend the plan in the future. This is a statement of what employees' benefits are or will be under the current plan. This is a statement of current plan benefits availability. In that situation we think it's quite clear that the employer is speaking in a fiduciary capacity, or at least would be understood by the reasonable employees in a meeting such as this, where the employer through all of the communications constantly referred to the benefit consequences of the switch, that the employer... employees were being spoken to about their benefits, which is after all a classic administrator responsibility under the act. It is the administrator of the plan that is responsible for disclosing documents to plan participants, these summary plan description and notice of material modifications, so that the employees would have been used to, and in fact in this case did receive their communications about plan benefits--
Speaker: But not--
Edwin S. Kneedler: --From the employer.
Antonin Scalia: --It's certainly not his duty to disclose the financial health of the company, is it?
Edwin S. Kneedler: Not... certainly not as a general matter.
Antonin Scalia: And anticipated future prospects for the company.
Edwin S. Kneedler: No. Our position is not that that's true as a general matter. In the Borst case, for example, where the employer is not speaking to the employees but speaking in another context, there's certainly no duty to disclose, but where the employer is having a meeting face-to-face with the employees, asking them to switch from one arm of the company to another, and talking about the benefit consequences of that, we believe that that is plan participation, where the viability of the company is the same as saying there won't be funds available to pay the benefits.
Speaker: He's administering the plan when he does that.
Edwin S. Kneedler: When he is speaking to the employees about what's going to happen to them under the plan--
David H. Souter: Which plan is he administering? He's administering the first plan when he makes the misrepresentation, isn't he?
Edwin S. Kneedler: --We frankly think he's administering both plans.
David H. Souter: He's administering both. What if you assume... just assume for the sake of argument that he's administering the first plan. I threw out a suggestion which Mr. Abrams said was... really relied on too high a level of generality of the concept of administration. What's your theory of the administrative character of... with respect to the first plan in making statements intended to induce people to leave that plan? How does that relate to administration, on your theory?
Edwin S. Kneedler: Well, I think ordinarily, when an administrator has people sign up or exit a plan, it may be incident to leaving employment, but it's typical fiduciary responsibility for... to handle the paperwork coming and going from a plan, and that's what we think would have been happening here, that the fiduciary under the existing plan would have been describing or been understood by the employers to be describing the benefit consequences of leaving one plan run by MF and joining another plan, essentially run by MF, so we think that the employer was really wearing an administrative hat under both plans at the time it was speaking.
Sandra Day O'Connor: Mr. Kneedler--
Edwin S. Kneedler: Yes.
Sandra Day O'Connor: --How do you interpret what is it, 501(a)(3)? Do you think that the Russell case somehow pointed the way to a more limited meaning?
Edwin S. Kneedler: No, we don't. First of all, the Court in footnote 5 of Russell specifically noted that the employee... that the participant there was not suing under 502(a)(3). It was suing under--
Sandra Day O'Connor: If they had, could they have recovered?
Edwin S. Kneedler: --Not the damages that were being sought there. That was straight compensatory damages, and we think that's significant in looking at the operation of 502(a)(3). Since Russell was decided, this Court held in Mertens that other appropriate equitable relief does not include compensatory damages, so the relief available under 502(a)(3) is considerably more limited than what would be available for compensatory damages claimed in Russell or under section 409 of the plan on behalf of the plan, so we think that that explains the differences between 502(a)(2) and 502(a)(3).
Stephen G. Breyer: But if you were starting on that you'd say, look, 404 says a fiduciary has obligations to participants and beneficiaries. It doesn't speak of obligations to a plan.
Edwin S. Kneedler: That's correct.
Stephen G. Breyer: A trustee has obligations to the fiduciaries and participants.
Edwin S. Kneedler: Yes.
Stephen G. Breyer: Then when you looked at the remedial part it would look as if (1) is somewhat special. You sue under (1) to get benefits.
Edwin S. Kneedler: Right.
Stephen G. Breyer: You sue under (2) where there's a breach of fiduciary obligation, and you sue under (3) for some other thing.
Edwin S. Kneedler: Well, you sue under--
Stephen G. Breyer: And so what they're worried about is, they're saying Russell blocks (2), and (3) never covered it.
Edwin S. Kneedler: --That's what they're saying, but we think that's--
Stephen G. Breyer: Well, isn't it easier to say (2) does cover fiduciary--
Edwin S. Kneedler: --No, I think--
Stephen G. Breyer: --and 409 covers certain obligations to individuals?
Edwin S. Kneedler: --409... no, 40... excuse me, 404 covers obligations to individuals.
Stephen G. Breyer: I know that. I'm saying (2) covers fiduciaries, breaches of fiduciary relationship, but some of those breaches of fiduciary relationship to individuals like this case where not covered elsewhere may be picked up, too, and not blocked. I mean, it's Russell. I'm still trying to get you to talk about Russell and the relationship to (3).
Edwin S. Kneedler: Well, it's possible that the concluding clause in 409 could have been understood to be available to individuals to sue, but the Court concluded that that--
Stephen G. Breyer: Blocked in Russell by other things in the act. Blocked in Russell by the fact that there's a whole scheme of how you get--
Edwin S. Kneedler: --For benefits. That's exactly right, and we think that's significant, but the Court does not have to revisit Russell, because 502(a)(3) provides for equitable relief for violation of any provision of title I, any violation of any provision of title I. That by its terms includes section 404.
Stephen G. Breyer: --And what they're worried about there, the amici, is if we say that, we open the thing up to suits in every case where a beneficiary is deprived of an operation, or whatever, and then they bring... come in under (3) and they sue, you see, you breached your fiduciary obligation to me. That's worried about, that interpretation.
Edwin S. Kneedler: Well, but because the remedy under 502(a)(3) is limited by virtue of Mertens, there will be a self-limiting principle applicable there. Where you have an intentional misrepresentation, as there was here, where the employer stands to gain--
Stephen G. Breyer: Yes, but look, somebody comes in, my heart operation, give me an injunction. Trustee: hey, this doesn't require it. Person: you breached your fiduciary obligation in not giving me my heart operation. Injunction, please.
Edwin S. Kneedler: --No--
Stephen G. Breyer: And that's the kind of thing they're worried--
Edwin S. Kneedler: --No, I don't think there's any inconsistency at all with the benefit provision, because the employer... the employer pays benefits under the act either because they're covered or they're not covered. If the employer has authority under a group to interpret the plan, then that would be reviewed under an abuse of discretion standard. That abuse of discretion is the ambit of the fiduciary's... fiduciary responsibilities. There would be no separate claim under 502(a)(3).
Antonin Scalia: --Wait, I don't understand that. Why not? I mean, it seems to me the suit would lie. I mean, if you're saying that they might lose because you'd have to give deference to the trustee's interpretation--
Edwin S. Kneedler: What I meant to say is, there would not be an inconsistent result. It would be the same result, because the fiduciary standards would be the same under each.
Antonin Scalia: --Oh, sure, but I think what Justice Breyer is concerned about, as I am, is simply the volume of litigation that is going to arise--
Edwin S. Kneedler: But in that situation--
Antonin Scalia: --when you allow individual suits.
Edwin S. Kneedler: --In that situation, if you get exactly the same relief, it wouldn't increase the litigation at all. If I could say, petitioner's theory is that somehow 502(a)(1), (2), (3), (4), (5) are airtight compartments, and there's no overlap. That's not true. All you have to do is look at (a)(1) and (a)(3), both of which refer to violations of the plan. (a)(1) refers to specific violations with respect to not paying benefits, but 502(a)(3) also includes other violations of the plan, and we're saying the same thing here with respect to fiduciary obligations. 502(a)(2) specifically covers personal liability and other equitable relief for the fiduciary to the plan, but that doesn't detract from the fact that 502(a)(3) also covers any violation of the act which includes the fiduciary responsibility provisions. Under petitioner's theory, the injunctive suit that Justice O'Connor referred to wouldn't even lie. The 10 people who were transferred to the new plan would not even have an action for injunctive relief to restore them to the old plan.
John Paul Stevens: Mr. Kneedler, could I ask you the question that the Chief Justice started out... started the argument with? In your view, if your opponent prevailed in this case, would their State law actions that they described be preempted?
Edwin S. Kneedler: Well, we think that the preemption question has to be considered in connection with the availability of the remedies under section 502, as the Court suggested in Russell, and--
John Paul Stevens: But what's your answer to my question?
Edwin S. Kneedler: --If the cause of action lies here, there would not be preemption. If the cause of action does not... excuse me, there would be preemption. If the cause of action does not lie under ERISA, then we think there should be a broader ambit of claims for fraudulent misrepresentation.
John Paul Stevens: And there would not be preemption, you think.
Edwin S. Kneedler: Yes, for misrepresentations about benefit where that's an inducement for an employment change.
William H. Rehnquist: Thank you, Mr. Kneedler. Mr. Abrams, you have 2 minutes remaining.
Floyd Abrams: I'd like to return to Justice O'Connor's observation earlier, when you said that it looked a lot like damages. It's perfectly true that we have not put at issue here, and it's not before the Court whether this is equitable relief or not. The district court basically gave the class a choice of either taking a lump sum in damages for everything, or reinstatement and the like. It looks a lot to us... and both of them look a lot to us like benefits. It is the award of benefits, and that... and it is instinct in that award of benefits. That's what they'll be getting if we lose this case, is that there's at least a potential conflict with subpart (1), or at least an overlap with subpart (1). We think subpart (1) is supposed to deal with benefits. We think that there is a clarity to the statute. Sure, there's some overlap, but this Court has praised Congress occasionally for crafting this with special care and the like. Subpart (1) is the benefit section, and it is the case that if we lose here that, in the ordinary course, any well-advised plaintiff will sue under subpart (1) and (3), under (1) for saying, I didn't get benefits, under (3) for saying, you breached your fiduciary obligations in not awarding me benefits, and we think that's not an appropriate way to interpret what Congress meant, nor do we think it's appropriate to interpret the breadth of section 409 in such a narrow way as has been suggested today. I read, in conclusion, the first line of section 409(a), any person who is a fiduciary with respect to a plan who breaches any of the responsibilities obligations, or duties, et cetera, as the start of it. We think that section 409 was Congress' effort to deal with "liability for breach of fiduciary duty. " and unless this Court is to revisit Russell... and we understand full well Russell doesn't govern here. You said it didn't govern. But unless you are to revisit Russell, it is the logic, it is the sense of Russell, and of 409, and of the statute as comprehensively viewed, that there cannot be recovery here.
William H. Rehnquist: Thank you, Mr. Abrams.
Floyd Abrams: Thank you, Your Honor.
William H. Rehnquist: The case is submitted.
Speaker: The Honorable Court is now adjourned until Monday next at ten o'clock.