Reich v. Continental Cas. Co.

• Decision Date: 22 August 1994
• Docket Number: No. 93-3467,93-3467
• Citation: 33 F.3d 754
• Parties: , 18 Employee Benefits Cas. 1769 Robert B. REICH, Secretary of Labor, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 754

33 F.3d 754

63 USLW 2156, 18 Employee Benefits Cas. 1769

Robert B. REICH, Secretary of Labor, Plaintiff-Appellant, v. CONTINENTAL CASUALTY COMPANY, et al., Defendants-Appellees.

No. 93-3467.

United States Court of Appeals, Seventh Circuit.

Argued April 22, 1994.

Decided Aug. 22, 1994.

Allen H. Feldman, Dept. of Labor, Appellate Litigation, Washington, DC, William Zuckerman, Nathaniel I. Spiller, Mark S. Flynn (argued), Dept. of Labor, Office of the Solicitor, Washington, DC, Leonard A. Grossman, Dept. of Labor, Chicago, IL, Marc I. Machiz, Suzanne Windle, Thomas S. Williamson, Jr., Nancy E. Dorf, Donna Doll, Dept. of Labor, Office of the Solicitor, Washington, DC, for plaintiff-appellant.

Gary M. Elden (argued), Donald A. Vogelsang, Michael W. Early, Grippo & Elden, Chicago, IL, for defendants-appellees.

Before POSNER, Chief Judge, and COFFEY and RIPPLE, Circuit Judges.

POSNER, Chief Judge.

The Department of Labor appeals from the dismissal of a suit that it brought against an insurance company for monetary relief under ERISA. The trustees of a union pension fund had obtained from Continental Casualty Company a one-year extension of the fiduciary liability insurance policy that Continental had previously issued to them. According to the Department of Labor, the extension provided only $1 million in additional coverage yet Continental charged a premium of $970,000 for the extension and the fund paid the premium. The Department sued both the trustees and Continental--the trustees for having breached their fiduciary duty to the fund by obtaining insurance for their own protection at a price disproportionate to any possible benefit to the fund, and Continental for having knowingly participated in the trustees' breach. Relief sought included an order that "the defendants, jointly and severally, ... restore to the [pension fund] all losses sustained as a result of the breaches of fiduciary duties or participation therein" and that Continental "disgorge all payments it received ... as a result of its participation in the breaches of fiduciary duties."

The claim against the trustees was settled, but for less than the amount sought by the Department, so the case proceeded to trial against Continental. Midway in the trial the Supreme Court decided Mertens v. Hewitt Associates, --- U.S. ----, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993), holding that the remedial statute under which the plaintiff had proceeded in that case--and the Department of Labor in this one--did not, in authorizing injunctions or "other appropriate relief," authorize "money damages ..., the classic form of legal relief." Id. --- U.S. at ----, 113 S.Ct. at 2068 (emphasis in original), interpreting 29 U.S.C. Sec. 1132(a)(3). The Court in passing described restitution, in contrast to damages, as a form of relief traditionally available in equity, --- U.S. at ----, 113 S.Ct. at 2069, so the Department in our case immediately reduced its demand for relief against Continental to the net amount that the insurance company had received for the challenged extension, some $818,000 after deduction from the premium of broker and other fees. For restitution as normally understood in civil cases seeks to deprive the defendant of money or any other thing of value that he gained from tortious or otherwise wrongful activity or that it would be unconscionable for him to retain because received from the plaintiff in circumstances under which he knew or should have known that the plaintiff expected compensation. In either case the defendant would be unjustly enriched if allowed to keep the gain; and $818,000 is all that Continental gained from the extension of coverage.

But en route to its interpretation of "other equitable relief," the Supreme Court in Mertens had said that it was far from clear that a suit against a party that was (in Mertens as in this case) not a fiduciary but merely a knowing participant in a fiduciary's breach of duty was within the scope of the statute, regardless of the nature of the relief sought. The Court pointed out that no provision of ERISA, which it described as a carefully drafted statute, makes a nonfiduciary liable for knowing participation in a fiduciary's breach of duty, even though such liability was well established under the common law of trusts. But since the parties had assumed the applicability of the statute and quarreled only over the remedy, the Court decided to place decision on the narrow ground that the statute did not authorize the remedy of damages. Id. --- U.S. at ----, 113 S.Ct. at 2067-68. The doubts that the Court expressed about the existence of nonfiduciary liability under ERISA thus were dictum, which we are not bound by and which the Department of Labor urges us not to follow.

There is an initial question whether restitution should be classified as an equitable remedy; if not, the Department cannot succeed, because the statute confines it to equitable relief. Restitution is a remedy historically and today dispensed in law and equity proceedings alike. First National Bank v. Warren, 796 F.2d 999, 1000 (7th Cir.1986); Medtronic, Inc. v. Intermedics, Inc., 725 F.2d 440, 443 (7th Cir.1984); 1 Dan R. Dobbs, Law of Remedies Sec. 1.2, p. 11; Sec. 4.1(1), p. 556; Sec. 4.1(3), pp. 564-65; Secs. 4.2-4.3 (2d ed. 1993). Whether it is equitable depends merely on whether it is being sought in an equity suit. If the beneficiary of a trust sought an accounting of the profits of a defalcating trustee--a form of restitutionary relief--the accounting if ordered would be ordered in a suit in equity, and the remedy thus would be equitable, while a suit seeking the identical relief against a nonfiduciary would normally be a suit at law and the relief sought therefore legal. 1 Dobbs, supra, Sec. 4.3(5), pp. 608-14. A special wrinkle here, however, is that the concept of liability for (in effect) aiding and abetting a fiduciary's misconduct comes out of the law of trusts (as noted in Mertens, see --- U.S. at ----, 113 S.Ct. at 2067; see also Seminole Nation v. United States, 316 U.S. 286, 296, 62 S.Ct. 1049, 86 L.Ed. 1480 (1942); 4 Austin W. Scott & William F. Fratcher, The Law of Trusts Sec. 326, p. 291 (4th ed. 1989)) which along with the closely related concept of fiduciary obligation was invented by equity judges. Mertens v. Hewitt Associates, supra, --- U.S. at ----, 113 S.Ct. at 2068; Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 571 n. 8, 110 S.Ct. 1339, 1348 n. 8, 108 L.Ed.2d 519 (1990); 3 Scott & Fratcher, supra, Sec. 197, p. 188. It is thus an equitable concept, so it can be argued that the Department of Labor is seeking restitution as an equitable remedy in an equity suit.

The Court's search in Mertens was, however, for distinctively equitable relief on the one hand and, on the other, distinctively legal relief, such as damages, which though sometimes awarded by a court of equity under the "cleanup" doctrine, Medtronic, Inc. v. Intermedics, Inc., supra, 725 F.2d at 442-43, is the classic remedy at law. Unfortunately restitution straddles this divide. The Court may have seemed to place it on the equitable side; other cases, too, have described restitution as an equitable remedy. E.g., Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, supra, 494 U.S. at 570, 110 S.Ct. at 1347; Tull v. United States, 481 U.S. 412, 424, 107 S.Ct. 1831, 1838, 95 L.Ed.2d 365 (1987). But we think it more likely that all the Court meant in any of these cases was that restitution, in contrast to damages, is a remedy commonly ordered in equity cases and therefore an equitable remedy in a sense in which damages, though occasionally awarded in equity cases, are not. Restitution is merely not an exclusively equitable remedy like an injunction. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 49 n. 7, 109 S.Ct. 2782, 2794 n. 7, 106 L.Ed.2d 26 (1989); United States v. Fountain, 768 F.2d 790, 801 (7th Cir.1...