Opinion ID: 702291
Heading Depth: 4
Heading Rank: 2

Heading: Participation in Prohibited Transactions

Text: 47 The Conchas also challenge the district court's dismissal of their ERISA claim for equitable relief based on their allegation that the defendants engaged in prohibited transactions. We conclude that, under our decision in Nieto v. Ecker, 845 F.2d 868 (9th Cir.1988), the Conchas are entitled to pursue that claim (count seven) against all defendants. 48 The Brady and Jacobs Defendants argue that because they are not fiduciaries they cannot be held liable under ERISA. We disagree. Under our decision in Nieto, nonfiduciaries may be held liable for equitable relief under ERISA, if they are parties in interest and they engaged in transactions prohibited by ERISA section 1106. 845 F.2d at 873. 49 Nieto concerned lawyers retained by a covered plan who had failed to prosecute lawsuits and had been paid for services they did not render. We held that, although the defendants were not fiduciaries they could nevertheless be held liable as parties in interest. Id. Included in the definition of a party in interest is a person providing services to a covered plan. 29 U.S.C. Sec. 1002(14)(B). In Nieto, we concluded that the plan's lawyers were parties in interest and could be sued for equitable relief under section 1132(a)(3) for certain prohibited transactions, including receiving excessive compensation for legal services, obtaining a loan from the Funds, and engaging in similar activities in violation of ERISA Secs. 406(a)(1), 408(b), 29 U.S.C. Secs. 1106(a)(1), 1108(b). 845 F.2d at 873. 50 Even though section 1106(a)(1) on its face appears to apply only to fiduciaries, Nieto holds that the section is also applicable to parties in interest who engage in transactions enumerated in section 1106. Id. at 873-74. That section specifically prohibits: (1) the sale or lease of property between the plan and the party in interest; (2) the lending of money between the plan and party in interest; (3) the furnishing of goods to the party in interest; (4) transfer to the party in interest of any plan assets; and (5) acquisition on behalf of the plan of any employer security in violation of ERISA section 1107(a). 29 U.S.C. Sec. 1106(a)(1). 51 The allegations contained in the second amended complaint are sufficient to state a claim for participation in prohibited transactions as to all the defendants. The complaint alleges that the London and Southland Defendants were employed to administer the Plan, and that the Brady and Jacobs defendants were retained by and acted as attorneys to the Plan. Under section ERISA section 1002(14)(B), all the defendants are parties in interest because they all provided services to the Plan. See Nieto, 845 F.2d at 873. The complaint also alleges that all the defendants, including the Brady and Jacobs defendants, engaged in prohibited transactions. Specifically, the complaint accuses all the defendants of taking Plan assets for their personal use, engaging in self-dealing, and loaning out assets on prohibited terms. These allegations are sufficient to state a claim for participation in prohibited transactions. 52 We emphasize that, under Nieto, equitable relief is the sole recourse for ERISA claims against nonfiduciaries. In Mertens v. Hewitt Associates, the Supreme Court held that relief under ERISA section 1132(a)(3) is limited to remedies available in equity, such as injunction, mandamus, and restitution. Such relief does not include compensatory or punitive damages. --- U.S. ----, ---- - ----, 113 S.Ct. 2063, 2068, 2071-72, 124 L.Ed.2d 161 (1993). In this case, the Conchas' second amended complaint requests appropriate equitable relief, including restitution to the Plan. Contrary to the defendants' suggestion, section 1132(a)(3) of ERISA permits such remedies against nonfiduciaries as well as against fiduciaries. Gibson v. Prudential Ins. Co. of America, 915 F.2d 414, 417 (9th Cir.1990); Nieto, 845 F.2d at 873. While Mertens prevents the Conchas from seeking damages, they are entitled to pursue their claim for restitution and other equitable relief against all the defendants, including the Brady and Jacobs Defendants.