Reich, LABR v. Rowe

UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT

No. 93-1567

ROBERT B. REICH, SECRETARY OF LABOR,
UNITED STATES DEPARTMENT OF LABOR,

Plaintiff, Appellant,

v.

RICHARD ROWE, ETC., ET AL.,

Defendants, Appellees.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Edward F. Harrington, U.S. District Judge]

Before

Torruella, Cyr, and Stahl,

Circuit Judges.

Edward D. Sieger, Senior Appellate Attorney, with whom

Thomas S. Williamson, Jr., Solicitor of Labor, Allen H. Feldman,

Associate Solicitor for Special Appellate and Supreme Court
Litigation, and Joseph S. Ackerstein, U.S. Department of Labor,

Office of the Solicitor, were on brief for appellant.
William H. Kettlewell, with whom Dwyer, Collora & Gertner,

was on brief for appellees.

March 31, 1994

TORRUELLA, Circuit Judge. We address in this case

whether the civil enforcement provisions of the Employee

Retirement Income Security Act ("ERISA"), 29 U.S.C. 1132(a) -

(l), provide for equitable relief against a nonfiduciary who

knowingly participates in a fiduciary breach. This issue comes

to us in the shadow of a recent United States Supreme Court

opinion, Mertens v. Hewitt Associates, 113 S. Ct. 2063 (1993),

which addressed the availability of remedies against

nonfiduciaries under ERISA and concluded, albeit only in dicta,

that no cause of action like the one brought in this case exists.

Id. at 2067. After conducting our own analysis of the statute,

we find that, although ERISA may allow for some types of actions

against nonfiduciaries, it does not authorize suits against

nonfiduciaries charged solely with participating in a fiduciary

breach.

I. BACKGROUND

The genesis of this appeal was a lawsuit brought by the

United States Secretary of Labor (the "Secretary") on March 11,

1991, against several corporate and individual defendants

involved in the failed OMNI Medical Health and Welfare Trust

("OMNI"). In the complaint, the Secretary alleged a number of

ERISA violations in relation to OMNI's failure to pay

approximately two to three million dollars in medical benefits to

eligible employees of companies participating in the OMNI health

plan. The Secretary also contended that appellee, H. James

Gorman, Jr. ("Gorman"), a financial consultant who provided

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professional services to OMNI, knowingly participated in the

fiduciary breaches of several of OMNI's administrators. The

district court dismissed the action against Gorman for failure to

state a claim under ERISA and the Secretary brought this appeal.

We accept all the factual allegations in the

Secretary's complaint as true in order to review the district

court's dismissal under Rule 12(b)(6). Garita Hotel Ltd.

Partnership v. Ponce Federal Bank, F.S.B., 958 F.2d 15, 17 (1st

Cir. 1992).

Between 1986 and 1990, OMNI provided group medical,

dental, and life insurance and other benefits to a number of

small, unrelated business employers in Massachusetts. The

employers participating in OMNI established employee welfare

benefit plans (the "welfare plans") within the meaning of ERISA

3(1), 29 U.S.C. 1003(1). By collecting premiums from the

participating employers, OMNI held and controlled the assets of

the welfare plans and was responsible for paying benefits to the

employees.

The Secretary claimed that OMNI falsely represented

itself to be a "tax-exempt ERISA covered benefit plan" under

ERISA 3(1), 29 U.S.C. 1002(1), in order to avoid governmental

regulation and oversight. According to the Secretary, OMNI was a

multiple employer welfare arrangement ("MEWA") within the meaning

of ERISA 3(40)(a), 29 U.S.C. 1002(40)(a), but not an ERISA

plan exempt from state insurance regulation.

Count I of the complaint alleged that Harbor Medical

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Administrators, Inc. ("HMA"), the administrator of OMNI, and

HMA's President (Mr. Richard Rowe), Executive Vice-President (Mr.

Phillip Carpenter) and Vice President (Ms. Ann Dunlop) acted as

fiduciaries with respect to the employers' welfare plans. The

Secretary asserted that these four defendants breached their

fiduciary obligations under ERISA by engaging in a variety of

imprudent and self-serving activities. The activities included

engaging in prohibited transactions, mismanaging and misusing

assets of the welfare plans, falsely representing the status of

OMNI to employers and state regulators, and operating an illegal

insurance company.

Count II of the complaint alleged that Gorman, who was

Director of Group Insurance and Welfare Plan Consulting Services,

Actuarial, Benefits and Compensation Consulting, at the

accounting firm of Coopers & Lybrand, provided "professional

services" to OMNI from May through October of 1989. In

particular, he provided advice to HMA regarding the legal status

of OMNI under ERISA. On several occasions, Gorman informed

Dunlop, Rowe and others at HMA that they were operating an

illegal insurance company under Massachusetts law and that OMNI

did not enjoy the protection of the ERISA provision exempting

ERISA plans from state regulation. See 29 U.S.C. 1144.

Despite his own warnings, Gorman advised Dunlop, in response to a

letter from the New Hampshire Insurance Department inquiring as

to the legal status of OMNI, that she had the option to "try the

'red herring' across the trail of the Insurance Department just

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to keep them off balance" by telling them OMNI was an ERISA

covered plan. The gist of this advice was that OMNI could avoid

state regulation by obfuscating its true legal status. Gorman

provided Dunlop with a draft letter to send to the New Hampshire

Insurance Department falsely stating that OMNI was covered by

ERISA. Gorman further advised that there was little risk of

investigation by the state once it was informed of a plan's ERISA

status. Subsequently, Rowe adopted Gorman's draft letter and

sent it to New Hampshire's Insurance Department on October 17,

1989.

The complaint stated that Gorman acted at all times

"within the scope of his employment" and by his actions

participated in the fiduciary breaches of the defendants named in

Count I. The Secretary did not allege that Gorman himself was a

fiduciary. The Secretary concluded, however, that "Gorman is

liable under ERISA to the same extent as the fiduciaries for the

breaches committed." Gorman's employer, Coopers & Lybrand, was

also named as a defendant based on the theory that it was liable

for the actions of its agent.

To remedy the alleged violations, the Secretary sought

the recovery of plan losses, the undoing of prohibited

transactions and a permanent injunction against all defendants,

including Gorman, from serving as ERISA fiduciaries or service

providers to any ERISA plans.

On September 1, 1992, the district court granted

motions to dismiss filed by Gorman and Coopers & Lybrand based on

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the failure of Count II to state a claim under Rule 12(b)(6).

The district court held that neither of the two ERISA enforcement

provisions under which the Secretary could proceed, 29 U.S.C.

1132(a)(2) and 1132(a)(5), authorized a claim against

nonfiduciaries like Gorman or Coopers & Lybrand.1 The district

1 29 U.S.C. 1132(a), entitled "Persons empowered to bring a
civil action," states in its entirety:

A civil action may be brought --

(1) by a participant or beneficiary --
(A) for the relief provided for in
subsection (c) of this subsection, or
(B) to recover benefits due to him under
the terms of his plan, to enforce his
rights under the terms of the plan, or to
clarify his rights to future benefits
under the terms of the plan;

(2) by the Secretary, or by a participant,
beneficiary or fiduciary for appropriate
relief under section 1109 of this title;

(3) 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 violation or (ii) to
enforce any provisions of this subchapter or
the terms of the plan;

(4) by the Secretary or by a participant, or
beneficiary for appropriate relief in the
case of a violation of 1025(c) of this title;

(5) except as otherwise provided in
subsection (b) of this section, by the
Secretary (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
provisions of this subchapter; or

(6) by the Secretary to collect any civil

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court found that the Secretary could not obtain relief under

1132(a)(5) because that section applies only to nonfiduciary

defendants who are "parties in interest."2 The district court

also found that no cause of action existed under 1132(a)(2),

which authorizes the Secretary to seek appropriate relief under

29 U.S.C. 1109,3 because only fiduciaries could be sued under

penalty under subsection (c)(2) or (i) or (l)
of this section.

2 A "party in interest" includes a "person providing services to
[an employee benefit] plan." 29 U.S.C. 1002(14)(B). ERISA
prohibits certain transactions between ERISA plans and their
parties in interest. 29 U.S.C. 1106(a)(1).

The complaint contained no allegation that Gorman was a party
in interest nor that he was engaged in any prohibited
transactions. The facts stated in the complaint do suggest that
Gorman satisfies the definition of a party in interest, but there
is no indication he participated in any prohibited transactions.
Although we do not decide whether the complaint must specifically
allege that the nonfiduciary defendant is a "party in interest"
in order to state a cause of action under 1132(a)(5), we do
discuss the importance, under certain circumstances, of alleging
that a defendant engaged in a prohibited transaction, see infra

at pages 15, 18-19 & 23-24.

3 29 U.S.C. 1109(a) provides:

Any person who is a fiduciary with
respect to a plan who breaches any of the
responsibilities, obligations, or duties
imposed upon fiduciaries by this
subchapter 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, and shall be subject to such
other equitable or remedial relief as the
court may deem appropriate, including
removal of such fiduciary. A fiduciary
may also be removed for a violation of
section 1111 of this title.

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1109 and neither Gorman nor Coopers & Lybrand were fiduciaries.

On June 1, 1993, the Supreme Court held in a five to

four decision that ERISA does not permit a civil suit for money

damages against nonfiduciaries who knowingly participate in a

fiduciary breach. Mertens, 113 S. Ct. at 2072. The Court in

Mertens found that "appropriate equitable relief," as authorized

under 1132(a) (3),4 includes only those types of relief

typically available in equity, such as injunctions or

restitution. Such relief would not include a classic form of

legal relief like compensatory damages. Id. at 2068. The Court

discussed, but expressly refrained from deciding, whether ERISA

provides any remedy at all for nonfiduciary participation in a

fiduciary breach. Id. at 2067-68.

After the Mertens decision, the Secretary withdrew the

appeal of his claim against Coopers & Lybrand because that claim

only sought monetary damages. The Secretary pursued the appeal

of Gorman's dismissal to the extent the Secretary was seeking

only equitable relief. The four fiduciary defendants in this

case defaulted leaving Gorman as the only defendant who is party

to this appeal.

II. DISCUSSION

At the center of this case is the language of

4 Section 1132(a)(3) provides for the same remedies as 1132(a)
(5) in civil actions brought by an ERISA participant,
beneficiary, or fiduciary (as opposed to actions brought by the
Secretary under 1132(a)(5)), and contains nearly identical
language. Because the shared language in both provisions "should
be deemed to have the same meaning," Mertens, 113 S. Ct. at 2070,

most analyses of one provision apply equally to the other.

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502(a)(5) of ERISA which states 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.

The Secretary maintains that its action against Gorman for

alleged participation in the fiduciary breaches of OMNI's

administrators constitutes a claim for "appropriate equitable

relief to redress" violations of ERISA or "to enforce" provisions

of ERISA under 1132(a)(B).5 According to the Secretary, the

language of the provision does not explicitly require that the

ERISA violation must be one committed by the person against whom

the relief is sought, so long as the relief is "appropriate" for

purposes of "redressing" a violation. See Mertens, 113 S. Ct. at

2073 n.1 (White, J., dissenting). Likewise, one could arguably

bring an action against a nonfiduciary for the purposes of

"enforcing" a provision of ERISA which imposes no obligation on

that nonfiduciary but nevertheless requires some judicial relief

against the nonfiduciary in order to remain effective.

In this case, the Secretary argues that enjoining

Gorman from providing any services to an ERISA plan would be an

appropriate way of redressing the breaches committed by OMNI's

administrators and of preventing subsequent breaches by some

hypothetical group of fiduciaries who might take Gorman's advice

5 The Secretary does not dispute that it has no remedy against
Gorman under 1132(a)(2) because Gorman is not a fiduciary.

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in the future. While plausible, we find that such a broad

reading of this enforcement provision is contrary to a common

sense construction of the ERISA statute and to the established

restriction on our ability to create new causes of action.

We interpret 1132(a)(5) to authorize actions only

against those who commit violations of ERISA or who are engaged

in an "act or practice" proscribed by the statute. Section

1132(a) (5)(A) authorizes injunctions against any "act or

practice" which violates ERISA, while 1132(a)(5)(B) authorizes

other equitable remedies for such acts or practices. Section

1132(a)(5)(B) simply adds remedies to the injunction authorized

under 1132(a)(5)(A); it does not expand the substantive reach

of ERISA to encompass new parties and transactions not otherwise

covered by its substantive provisions. See Mertens, 113 S. Ct.

at 2067 (noting in dicta that identical language in 1132(a)(3)

"does not, after all, authorize 'appropriate equitable relief' at

large, but only 'appropriate equitable relief' for the purpose of

'redress[ing any] violations or . . . enforc[ing] any provisions'

of ERISA"); Call v. Sumitomo Bank of California, 881 F.2d 626,

635 (9th Cir. 1989); Nieto v. Ecker, 845 F.2d 868, 873-74 & n.7

(9th Cir. 1988); see also Kyle Rys., Inc. v. Pacific Admin.

Servs., Inc., 990 F.2d 513, 516-17 (9th Cir. 1993) (holding that

relief for nonfiduciary liability is only available when

nonfiduciary is engaged in a prohibited transaction under 29

U.S.C. 1106(a)(1)).

Gorman's alleged participation in HMA's fiduciary

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breach is not an "act or practice" which violates ERISA. See

Mertens, 113 S. Ct. at 2067; Call, 881 F.2d at 635. Moreover,

the Secretary does not point to any substantive provision of

ERISA that imposes a duty on nonfiduciaries to refrain from

participating in a fiduciary breach.6 Consequently,

1132(a)(5) does not authorize the Secretary's action against

Gorman in this case.

The Secretary nevertheless asserts that we should apply

the court's broad equitable powers and the court's federal common

law-making authority under ERISA to read 1132(a)(5) expansively

to authorize equitable relief for Gorman's alleged conduct. He

invokes the established rule that the courts have power under

ERISA to fashion common law based on the law of trusts to

construe ambiguous statutory language and fill gaps in the

statute. See Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101,

110-15 (1989); Pilot Life Ins. Co. v. Dedeaux, 481 U.S. 41, 56

(1987); Kwatcher v. Massachusetts Service Employees Pension Fund,

879 F.2d 957, 966 (1st Cir. 1989). In several pre-Mertens cases,

6 The Secretary does argue that one of the enforcement
provisions which imposes civil penalties for participation in a
fiduciary breach, 29 U.S.C. 1132(l), indicates that Congress
intended 1132(a)(5) to authorize remedies against
nonfiduciaries like Gorman. We reject this argument below, see

infra pages 21-24. We note here, however, that 1132(l) is an

enforcement provision and not a substantive provision; not even
the Secretary claims that the provision itself creates a
substantive duty not otherwise provided for in the statute.
Section 1132(l) was added to ERISA in 1989, see Omnibus Budget

Reconciliation Act of 1989, Pub. L. No. 101-239, 2101, 103
Stat. 2123. Instead of extending the substantive reach of ERISA,
1132(l) explicitly based its penalty on amounts already
recoverable under existing provisions of the statute. 29 U.S.C.
1132(l)(2)(B).

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the courts have exercised this power to afford a remedy against

nonfiduciaries who participate in a fiduciary breach. See, e.g.,

Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 279-81

(2d Cir. 1992); Whitfield v. Lindemann, 853 F.2d 1298, 1303 (5th

Cir. 1988), cert. denied, 490 U.S. 1089 (1989); Brock v.

Hendershott, 840 F.2d 339, 342 (6th Cir. 1988).

We refuse to adopt a common law remedy in this case

because the Secretary's expansive application of 1132(a)(5)

creates a new cause of action and a new source of liability where

neither currently exists in the statute. As Justice Scalia

explained in Mertens,

no 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."

Mertens, 113 S. Ct. at 2067 (quoting Massachusetts Mut. Life Ins.

Co. v. Russell, 473 U.S. 134, 146-47 (1985)) (citations omitted)

(emphasis in original).

Although this discussion in Mertens is purely dicta,

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see id. at 2067-68 (reserving any decision on whether 1132(a)

authorizes an action against a nonfiduciary for participating in

a fiduciary breach), its reasoning, based on the Russell

decision, accords with this Circuit's jurisprudence established

in Drinkwater v. Metropolitan Life Ins. Co., 846 F.2d 821 (1st

Cir.), cert. denied, 488 U.S. 909 (1988). In Drinkwater, we

applied Russell to hold that extra-contractual damages are not a

form of "other appropriate relief" under 1132(a)(5) because

such relief was not expressly granted and we could not conclude

"Congress intended to authorize any form of relief other than

what was expressly granted." Id. at 824; see also Russell 473

U.S. at 145-48 (refusing to imply a private cause of action for

individual beneficiaries to obtain damages caused by a fiduciary

breach because Congress had created such liability only in favor

of the ERISA plans themselves). In this case, Congress did not

expressly provide for a remedy against nonfiduciaries who

participate in a fiduciary breach. Therefore, and in light of

the potentially broad area of liability such a remedy would

create, we conclude that Congress did not intend for its grant of

equitable relief in 1132 (a)(5) to authorize the present action

against Gorman. See Framingham Union Hosp., Inc. v. Travelers

Ins. Co, 744 F. Supp. 29, 33 (D. Mass. 1990) (finding that under

ERISA, "the courts' authority to adopt trust-law principles is

limited to fashioning 'appropriate relief' under specified causes

of action, among specified parties") (citing Nieto, 845 F.2d at

872).

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The Secretary claims that the Russell and Drinkwater

decisions do not apply to this case because they involved

situations where the statutory language clearly excluded the

requested remedy. See Russell, 473 U.S. at 141-43 (language

granting damage remedies "to the plan" excluded damages to other

parties like beneficiaries); Drinkwater, 846 F.2d at 824-25

(finding express grant of "equitable relief" excluded other types

of relief such as compensatory and punitive damages). The

court's common lawmaking authority was not exercised in those

cases because that authority does not include the power "to

revise the text of the statute." Mertens, 113 S. Ct. at 2070.

The Secretary maintains that in this case, however,

where the statute is silent or ambiguous, courts should look to

ERISA's broader purposes of protecting the interests of

participants and beneficiaries, see Firestone, 489 U.S. at 113,

and provide a remedy where necessary to further those purposes;

the court should not just assume that the absence of express

authority is a deliberate omission and thus a bar to remedial

measures. According to the Secretary, our decisions in Kwatcher,

879 F.2d at 965-66, and Malden Mills Indus., Inc. v. Alman, 971

F.2d 768, 774-75 (1st Cir. 1992), are examples of this principle

because in those cases we applied common law remedies to

situations in which the ERISA statute did not specify a cause of

action. Kwatcher, 879 F.2d at 965-66 (applying federal common

law to allow restitution action for recovery of overpayments to

an ERISA pension fund); Malden Mills, 971 F.2d at 774-75

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(recognizing a common law right to "restitution for overpayment

of contributions by an employer to a Fund").

All things considered, judicial remedies for

nonfiduciary participation in a fiduciary breach fall within the

line of cases where Congress deliberately omitted a potential

cause of action rather than the cases where Congress has invited

the courts to engage in interstitial lawmaking. To begin with,

Congress proscribed several "acts or practices" in ERISA's

substantive provisions that involve nonfiduciaries but did not

include among them a nonfiduciary's knowing participation in a

fiduciary breach. See Mertens, 113 S. Ct. at 2067 & n.4. For

example, 29 U.S.C. 1106(a)(1) prohibits certain transactions

between "parties in interest," see supra, note 2, and ERISA

plans,7 and 29 U.S.C. 1023(d)(8) prohibits actuaries from

breaching their duty to certify that their actuarial statements

are "complete and accurate." In addition, 29 U.S.C. 1105

imposes liability on cofiduciaries for knowingly participating in

a fiduciary breach. It is such "acts or practices" as these for

which 1132(a)(5) provides a remedy.

If Congress desired to augment the existing remedies

against fiduciary breaches, 29 U.S.C. 1109(a), by providing for

7 The fact that 1106 imposes the duty to refrain from
prohibited transactions on fiduciaries and not on the parties in
interest is irrelevant for our purposes because 1132(a)(5)
reaches "acts or practices" that violate ERISA and prohibited
transactions violate 1106. 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.

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an action against nonfiduciaries for assisting those breaches, it

could have done so with provisions similar to those concerning

cofiduciaries and prohibited transactions. See Russell, 473 U.S.

at 147 ("'The presumption that a remedy was deliberately omitted

from a statute is strongest when Congress has enacted a

comprehensive legislative scheme including an integrated system

of procedures for enforcement.'") (quoting Northwest Airlines,

Inc. v. Transport Workers, 451 U.S. 77, 97 (1981)); see also

Useden v. Acker, 947 F.2d 1563, 1581 (11th Cir. 1991), cert.

denied, 113 S. Ct. 2927 (1993) ("[A] court should only

incorporate a given trust law principle if the statute's text

negates an inference that the principle was omitted deliberately

from the statute."). In contrast, the Kwatcher and Malden Mills

cases presented a situation not of deliberate omission, but one

where the remedy was "fully consonant with ERISA's underlying

policies as expressed in 29 U.S.C. 1103(c)(2)(A)." Kwatcher,

879 F.2d at 967 (finding common law restitution action consistent

with statutory provision allowing for the return of mistaken

contributions); see also Malden Mills, 971 F.2d at 775 (noting

that the same statutory provision supports a right of

restitution).

More importantly, we do not find it appropriate to

authorize a common law cause of action in this case because

nonfiduciary participation in a fiduciary breach is most likely

to involve, as it does here, service providers and other

nonfiduciary professionals who provide advice or expertise to

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ERISA fiduciaries. The advice and expertise provided by these

individuals -- whether actuaries, lawyers, accountants, or

consultants -- is vital for the successful operation of ERISA

plans which must function in a highly complex and regulated

environment. At the same time, such advice is particularly

vulnerable to remedies that impose liability like the one

requested by the Secretary. We do not mean to countenance the

action of someone who advises a fiduciary to break the law, but

we are concerned that extending the threat of liability over the

heads of those who only lend professional services to a plan

without exercising any control over, or transacting with, plan

assets will deter such individuals from helping fiduciaries

navigate the intricate financial and legal thicket of ERISA.

Congress recognized this danger and was purposefully

circumspect about limiting the liability of those providing

professional services to ERISA plans. See, e.g., 29 U.S.C.

1108 (b)(2) (exempting from the list of transactions prohibited

under ERISA, contracts or arrangements with a party in interest

for "legal, accounting, or other services necessary for the

establishment or operation of the plan"). The text of ERISA

allocates liability for plan-related
misdeeds in reasonable proportion to
respective actors' power to control and
prevent the misdeeds. . . . Professional
service providers such as actuaries
become liable for damages when they cross
the line from advisor to fiduciary, [and
they] must disgorge assets and profits
obtained through participation as
parties-in-interest in transactions
prohibited by [ 1106(a)] and pay related
civil penalties, see 502(i), 29 U.S.C.

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1132(i) . . . .

Mertens, 113 S. Ct. at 2071-72.

While we recognize that our decision to limit liability

for nonfiduciaries may provide less protection than existed

before ERISA was enacted and that the decision may appear

contrary to ERISA's purpose of protecting the interests of

participants and beneficiaries, we also recognize that the

present structure of ERISA was the outcome of certain cost-

benefit analyses that Congress undertook in order to fashion a

comprehensive regulatory scheme. Exposure not only to liability

for damages but to other forms of liability as well "would impose

high insurance costs upon persons who regularly deal with and

offer advice to ERISA plans, and hence upon ERISA plans

themselves." Id. at 2072. We will normally not attempt to

adjust the balance between the competing goals of protecting

employees' interests and containing pension costs that Congress

has struck in the ERISA statute. Id. (citing Alessi v.

Raybestos-Manhattan, Inc., 451 U.S. 504, 515 (1981) and Russell,

473 U.S. at 148 n.17)); see also Pilot Life Ins. Co. v. Dedeaux,

481 U.S. 41, 54 (1987). Congress decided that the best approach

was to limit liability for nonfiduciaries, especially service

providers, while at the same time increasing the number of

fiduciary parties and the scope of fiduciary responsibility. See

Mertens, 113 S. Ct. at 2071. We decline to upset this decision

by invoking our common law authority in this case.

We are more willing to create common law remedies that

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are directed toward undoing specific transactions or recovering

assets of an ERISA plan. In those situations, the parties are

more likely to be in control of plan assets and thus functionally

more like fiduciaries. As we demonstrated in Kwatcher and Malden

Mills, the provision of restitution remedies to seek the return

of plan assets can be a proper exercise of our common lawmaking

authority. Kwatcher, 879 F.2d at 965-67; Malden Mills, 971 F.2d

at 774; accord Provident Life & Accident Ins. Co. v. Waller, 906

F.2d 985, 992-94 (4th Cir.), cert. denied, 498 U.S. 982 (1990);

Luby v. Teamsters Health, Welfare, & Pension Trust Funds, 944

F.2d 1176, 1185-87 (3d Cir. 1991).

In this case, however, no restitution remedy exists.

The Secretary never alleged that Gorman received or controlled

ERISA plan assets, and we would not consider the salary Gorman

presumably earned8 as ill-gotten profits. Instead, we would

consider Gorman's salary as a part of the ERISA plan's cost of

operations. Furthermore, the facts of this case do not present a

situation where the court must use its equitable powers, as the

Secretary warns, "to stop an ongoing bribery or kickback scheme,

or [provide] restitution and a constructive trust to recover

funds transferred from a plan to a nonfiduciary." In those

situations, unlike the present case, the act or practice being

remedied is either expressly proscribed by the statute (by

8 The Secretary makes no allegation that Gorman received
unreasonable compensation for his services. If such had been the
case, the Secretary might have stated a cause of action based on
Gorman's engagement in a prohibited transaction, 29 U.S.C.
1106, but not for participation in a fiduciary breach.

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1106, for example, which prohibits certain transactions between

the plan and a "party in interest"), and thus explicitly covered

under 1132(a)(5), or else within our recognized powers of

granting restitution.

On a somewhat different tack, the Secretary attempts to

characterize the suit against Gorman as merely a request for the

court to exercise its equitable powers to remedy an existing

violation of ERISA and not a request for creating an independent

cause of action or imposing new liability. This assertion

ignores the allegations made in the complaint and the essential

nature of the charge against Gorman. The complaint states:

Gorman at all times herein acted within
the scope of his employment and by his
actions participated in and furthered
what he knew or should have known were
the fiduciary breaches of [the fiduciary
defendants]. Accordingly, Gorman is
liable under ERISA to the same extent as
the fiduciaries for the breaches
committed after September 13, 1989.

The Secretary makes no claim that enjoining Gorman from

working for any ERISA plans in the future is necessary to redress

the breaches committed by OMNI's administrators or is necessary

to enforce the ERISA provisions imposing fiduciary duties.

Instead, the Secretary is asking that Gorman be held liable "as

the fiduciaries," a result plainly at odds with Russell and

Drinkwater as discussed above. If the Secretary really intended

merely to remedy the acts committed by other individuals, the

complaint would not have focussed on Gorman's alleged misdeeds

but rather on how Gorman is in a position to remedy the

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fiduciary's misdeeds. In fact, under the Secretary's theory

Gorman's misdeeds would be irrelevant -- "innocent" and well-

meaning parties would be reachable as long as they were in some

position to help redress the fiduciaries' breaches.

Moreover, even if the Secretary were to rephrase the

complaint as a request for an injunction against Gorman

specifically for the purpose of redressing past, and preventing

future, fiduciary breaches, the Secretary would still fail to

state a cause of action. The Secretary's claim would still, in

substance, constitute a request for the imposition of liability

for an act that is not proscribed by the statute.

The suit against Gorman constitutes an appeal to the

court to impose liability for committing a specific act -- giving

improper advice to fiduciaries. It is not an appeal to the court

to remedy the subsequent breaches committed by the fiduciaries

themselves. The appropriate equitable relief for redressing

those breaches is not the action against Gorman but the remedy

already requested from the fiduciaries in Count I, which sought,

among other things, the restoration of plan losses and the

reversing of prohibited transactions. We see nothing that makes

Gorman a particularly suitable target for this type of relief as

he was not party to any prohibited transactions nor the recipient

of plan assets. For similar reasons, the assertion that

equitable relief against Gorman is necessary to prevent some

hypothetical fiduciary breaches committed by those whom Gorman

may advise in the future is unpersuasive. ERISA extensively

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regulates and polices fiduciaries, see 29 U.S.C 1101 - 1114,

and it provides ample remedies to prevent future fiduciary

breaches, see 29 U.S.C. 1132(a)(2), 1109. Should Gorman

advise future fiduciaries to break the law, we should think

ERISA's existing provisions are sufficient to deter those

fiduciaries from following his advice.

It is in light of the foregoing that we can best

understand the apparent fly in our analytic ointment, 29 U.S.C.

1132(l).9 The Secretary argues that this civil enforcement

9 29 U.S.C. 1132(l) provides in relevant part:

(1) 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.

(2) For purposes of paragraph (1), the term
"applicable recovery amount" means any amount
which is recovered from a fiduciary or other
person with respect to a breach or violation
described in paragraph (1) --

(A) pursuant to any settlement agreement
with the Secretary, or

(B) ordered by a court to be paid by such
fiduciary or other person to a plan or
its participants and beneficiaries in a
judicial proceeding instituted by the
Secretary under subsection (a)(2) or
(a)(5) of this section.

Under paragraph (3) of 1132(l), the Secretary may waive or
reduce this penalty if he believes that "the fiduciary or other

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provision, which authorizes civil penalties for participation in

a fiduciary breach by "other persons" based on amounts recovered

by the Secretary under 1132(a)(2) and 1132 (a)(5), indicates

that Congress intended for 1132(a)(5) to provide a remedy for

nonfiduciary violations of a fiduciary breach. Otherwise, the

Secretary claims, no civil penalties against "other persons"

under 1132(l)(1)(B) would be possible and the provision would

be rendered meaningless.

Justice Scalia rejected this argument in Mertens, 113

S. Ct. at 2070-71, by noting that

the "equitable relief" awardable under
[ 1132(a)(5)] includes restitution of
ill-gotten plan assets or profits,
providing an "applicable recovery amount"
to use to calculate the penalty, . . .
and even assuming nonfiduciaries are not
liable at all for knowing participation
in a fiduciary's breach of duty, see
supra, at 2067-2068, cofiduciaries

expressly are, see [29 U.S.C. 1105], so
there are some "other person[s]" than
fiduciaries-in-breach liable under [
1132(l)(1)(B)].

Id. at 2071.

We find it significant that the Secretary invokes the

civil penalty provision in a case where, because he is seeking an

injunction, 1132(l)'s civil penalty based on amounts recovered

under 1132(a)(5) is not applicable. Cofiduciary breaches

person will [otherwise] not be able to restore all losses to the
plan without severe financial hardship." 29 U.S.C. 1132
(l)(3)(B).

-23-

aside,10 it is difficult to imagine any case where knowing

participation in a fiduciary breach by a nonfiduciary would

occasion the type of remedy (restitution awards) that would

trigger 1132(l)(1)(B) without the nonfiduciary having engaged

in a prohibited transaction under 29 U.S.C 110611 or

otherwise having obtained some ill-gotten plan assets in a manner

not covered by the prohibited transaction section. We conclude,

therefore, that 1132(l) makes little sense as independently

authorizing equitable relief against nonfiduciaries like Gorman,

who allegedly participated in a fiduciary breach but did not

engage in an act prohibited by the statute or otherwise obtain

plan assets, when it can never be used for such relief. If

1132(l) fails to demonstrate Congressional intent to provide

money damages for nonfiduciary participation in a fiduciary

breach, see id. at 2070-71, it is even less likely to demonstrate

Congressional intent to provide nonmonetary equitable remedies

10 The Secretary takes issue with Justice Scalia's proposal that
"any other person" in 1132(l)(1)(B) could refer to
cofiduciaries. According to the Secretary, cofiduciary
liability, established under 29 U.S.C. 1105, clearly falls
under 1132(l)(1)(A) and not 1132(l)(1)(B). We need not
resolve this dispute and therefore do not.

11 We recognize that prohibited transactions are also covered by
a separate civil penalty provision, 29 U.S.C. 1132(i), but that
does not necessarily mean civil penalties for prohibited
transactions cannot be obtained under 1132(l) as well. The
penalty under 1132(i) is completely discretionary and adjusted
according to whether the prohibited transaction was corrected or
not. The penalty under 1132(l), however, is mandatory and
contains special procedures for a general waiver. Thus, the two
provisions appear to serve distinct and coextensive purposes: one
is tailored specifically to redress individual transactions while
the other is designed to penalize conduct more generally.

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for nonfiduciary participation in a fiduciary breach.

III. CONCLUSION

The Secretary's interpretation of 1132(a)(5) as

authorizing an actionable claim in any situation where an ERISA

violation has occurred and the Secretary thinks relief is

"appropriate," regardless of whether or not that relief is

directed at an act or practice addressed by the substantive

provisions of the statute, stretches the language of 502(a)(5)

past its breaking point. For this reason and because we decline

to exercise our common lawmaking authority or our inherent

equitable powers in situations where a professional service

provider assists in a fiduciary breach but receives no ill-gotten

plan assets, the judgment of the district court is affirmed.

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