Harris Trust & Savings Bank v. Salomon Smith Barney Inc.
530 U.S. 238, 2000 U.S. LEXIS 3962, 147 L. Ed. 2d 187 (2000)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Section 502(a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA) authorizes a civil action for appropriate equitable relief against a non-fiduciary "party in interest" who participates in a transaction prohibited by § 406(a). This liability does not depend on whether ERISA's substantive provisions impose a specific duty on the party being sued.
Facts:
- The Ameritech Pension Trust (APT) was an employee pension benefit plan.
- Salomon Smith Barney (Salomon), by providing broker-dealer services to APT, qualified as a "party in interest" under ERISA.
- During the late 1980s, National Investment Services of America (NISA), an investment manager and fiduciary for APT, directed APT to purchase interests in several motel properties from Salomon.
- APT paid Salomon nearly $21 million for these motel interests.
- This transaction between the plan (APT) and a party in interest (Salomon) was a prohibited transaction under ERISA § 406(a).
- APT's fiduciaries, Harris Trust and Savings Bank and Ameritech Corporation, later discovered that the motel interests they had purchased were nearly worthless.
Procedural Posture:
- Petitioners Harris Trust and Savings Bank and Ameritech Corporation sued Salomon Smith Barney in U.S. District Court for equitable relief under ERISA § 502(a)(3).
- Salomon moved for summary judgment, arguing § 502(a)(3) does not authorize suits against non-fiduciary parties in interest.
- The District Court denied Salomon's motion.
- The District Court then certified the question for an interlocutory appeal.
- The U.S. Court of Appeals for the Seventh Circuit reversed, holding that a non-fiduciary cannot be liable under § 502(a)(3) for participating in a § 406 transaction.
- The U.S. Supreme Court granted certiorari to resolve a circuit split on the issue.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does § 502(a)(3) of ERISA, which authorizes a plan participant, beneficiary, or fiduciary to bring a civil action for "appropriate equitable relief" to redress violations of ERISA, authorize a lawsuit against a non-fiduciary "party in interest" that participated in a transaction prohibited under § 406(a)?
Opinions:
Majority - Justice Thomas
Yes. Section 502(a)(3) of ERISA authorizes a lawsuit for appropriate equitable relief against a non-fiduciary party in interest who participated in a prohibited transaction. While § 406(a) only imposes a direct duty on the fiduciary who causes the prohibited transaction, the remedial provision of § 502(a)(3) is broader and authorizes suits to redress the unlawful "act or practice"—the transaction itself. The Court's reasoning is strongly supported by § 502(l), which allows the Secretary of Labor to assess a civil penalty against a non-fiduciary ("any other person") who knowingly participates in a fiduciary's breach, with the penalty amount based on funds recovered in a suit brought by the Secretary. This implies that such a suit against a non-fiduciary is permissible under the similarly-worded § 502(a)(5), and therefore also under § 502(a)(3). The Court further reasoned that this interpretation aligns with the common law of trusts, which permits a trust to seek restitution from a third-party transferee who receives trust property in a breach of duty, unless the transferee is a bona fide purchaser for value without notice.
Analysis:
This decision significantly expanded the range of potential defendants under ERISA, confirming that liability is not limited to fiduciaries who breach their duties. By allowing suits against non-fiduciary counterparties to prohibited transactions, the Court closed a potential loophole where a party that profited from an illegal transaction could escape having to return the plan's assets. This holding empowers plan fiduciaries to make the plan whole by pursuing restitution from all participants in a prohibited transaction, thereby reinforcing ERISA's protective purpose. The decision places a greater due diligence burden on entities that transact with ERISA plans, as they can no longer rely on the plan's fiduciary to ensure compliance.
