Sokol v. Bernstein

• Decision Date: 28 October 1986
• Docket Number: No. 85-6357,85-6357
• Citation: 803 F.2d 532
• Parties: , 7 Employee Benefits Ca 2321 Bernice SOKOL, Plaintiff-Appellee, v. Jacob L. BERNSTEIN, M.D., Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 532

803 F.2d 532

55 USLW 2271, 7 Employee Benefits Ca 2321

Bernice SOKOL, Plaintiff-Appellee, v. Jacob L. BERNSTEIN, M.D., Defendant-Appellant.

No. 85-6357.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted June 5, 1986.

Decided Oct. 28, 1986.

James E. Hornstein, Greenberg, Glusker, Fields, Claman & Machtinger, Los Angeles, Cal., for plaintiff-appellee.

Stuart R. Mandel, Beverly Hills, Cal., for defendant-appellant.

On Appeal from the United States District Court for the Central District of California.

Before PREGERSON and HALL, Circuit Judges, and ORRICK, ^* District Judge.

ORRICK, District Judge:

The chief question presented in this case is whether a beneficiary of a pension plan governed by the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Secs. 1001 et seq., can recover extra-contractual damages, such as damages for emotional distress, caused by the arbitrary and capricious acts of the trustee of the plan. We hold that such extra-contractual damages cannot be recovered, and hence we reverse and remand.

I

Plaintiff-Appellee, Bernice Sokol, is the widow of Defendant-Appellant Jacob Bernstein's partner in medical practice. She is the sole beneficiary of her husband's pension plan, which Bernstein administered. Sometime in early 1982, Bernstein ordered the plan's trustee to distribute to Sokol the benefits in her account. The district court found that this disbursement violated an express written agreement dated December 6, 1979, to the effect that the funds would be distributed to Sokol only upon her request.

Realizing that the disbursement would create adverse tax consequences for her, Sokol requested on or about May 21, 1982, that Bernstein redeposit the funds. Bernstein refused to redeposit the funds unless Sokol agreed to waive her claims for breach of fiduciary duty against him, and agreed to pay administrative fees attributable to her portion of the plan. On July 25, 1982, Bernstein redeposited the funds.

Sokol then brought this action in the United States District Court for the Central District of California under ERISA, and after a two-day bench trial, the district court awarded Sokol $1,996.29 for loss of interest stemming from the wrongful failure to redeposit funds, $4,000 in medical expenses and damages for emotional distress, and $5,150 in attorney's fees.

II

Preliminarily, we must determine whether the district court erred when it held that Bernstein breached his fiduciary duty toward Sokol. We have held that a trustee's actions may be reversed when they are arbitrary, capricious, or made in bad faith, not supported by substantial evidence, or erroneous on a question of law. Elser v. I.A.M. National Pension Fund, 684 F.2d 648, 654 (9th Cir.1982), cert. denied, 464 U.S. 813, 104 S.Ct. 67, 78 L.Ed.2d 82 (1983); Fentron Industries, Inc. v. National Shopmen Pension Fund, 674 F.2d 1300, 1307 (9th Cir.1982). Here, the trustee's violation of an express contract requiring beneficiary approval of disbursements, along with his failure to redeposit the funds promptly upon the plaintiff/beneficiary's request, constitute sufficient evidence for the district court to make a finding of fact and thus conclude that Bernstein acted in an arbitrary and capricious manner, and on this point we affirm the district court.

III

A.

We turn now to the core question of whether a beneficiary to a pension plan can recover damages for emotional distress under ERISA. In Russell v. Massachusetts Mutual Life Insurance Co., 722 F.2d 482, 490 (9th Cir.1983), we held that a beneficiary of a pension plan could recover damages for mental or emotional distress under Sec. 409 of ERISA, 29 U.S.C. Sec. 1109. The Supreme Court reversed, stating that "we do not find in Sec. 409 express authority for an award of extra-contractual damages to a beneficiary." Massachusetts Mutual Life Insurance Co. v. Russell, 473 U.S. 134, 105 S.Ct. 3085, 3092, 87 L.Ed.2d 96 (1985) (hereinafter cited as "Russell "). It is important to note that, mechanically applied to the present case, Russell is not dispositive; the district court herein relied on Sec. 502(a)(3) of ERISA, 29 U.S.C. Sec. 1132(a)(3), rather than on Sec. 409. ¹ However, a textual exegesis of the Russell opinion, combined with careful examination of the statute's structure and legislative history, compels the conclusion that damages for emotional distress are unavailable under Sec. 502(a)(3) as well as under Sec. 409.

Section 409, which the Russell Court construed and relied upon, states in pertinent part: ²

(a) 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....

(Emphasis added.) Section 502, relied upon by the district court in the present case, states in pertinent part: ³

(a) Persons empowered to bring a civil action

A civil action may be brought--

* * *

(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 violations or (ii) to enforce any provisions of this subchapter or the terms of the plan....

(Emphasis added.)

The Russell majority held squarely that a beneficiary may not recover extra-contractual damages, including damages for emotional distress, under Sec. 409(a)'s provision for appropriate "equitable" relief. However, as Sokol stresses, Justice Stevens' majority opinion (joined by Justices Powell, Rehnquist, and O'Connor, and Chief Justice Burger), expressly disclaimed any determination of whether Sec. 502(a)(3)'s similar provision for "appropriate equitable relief" authorizes recovery of extra-contractual damages. Russell, 105 S.Ct. at 3089, n. 5. Justice Brennan's separate opinion concurring in the judgment, joined by Justices Marshall, White and Blackmun, also emphasized that the majority opinion did not expressly decide the availability vel non of damages for emotional distress under Sec. 502(a)(3). Id. at 3095. Urging this Court to discount footnote 5 of the majority opinion and the admonitions of Justice Brennan's separate opinion, Bernstein argues that the rationale of the majority opinion in Russell requires the conclusion that damages for emotional distress cannot be recovered by a beneficiary under Sec. 502(a)(3).

There is considerable support in Russell for the proposition that no provision in ERISA authorizes the award of extra-contractual damages. First, Russell held that the fiduciary duties set forth in Sec. 409 run only to the plan, and not to individual beneficiaries. Id. at 3091-92. In so holding, the Russell Court used language implying that all of the statute's provisions relating to fiduciary duties run only to plans, and not to beneficiaries as individuals:

It is of course true that the fiduciary obligations of plan administrators are to serve the interest of participants and beneficiaries and, specifically, to provide them with the benefits authorized by the plan. But the principal statutory duties imposed on the trustees relate to the proper management, administration, and investment of fund assets, the maintenance of proper records, the disclosure of specified information, and the avoidance of conflicts of interest.

Id. at 3091 (footnote omitted). This language observes that the statute focuses not on the direct protection of a beneficiary's interests, but on the protection of the integrity of the plan in which the beneficiary is enrolled. Put another way, ERISA grants no private right of action by a beneficiary qua beneficiary; rather, it accords beneficiaries the right to sue on behalf of the entire plan if a fiduciary breaches the plan's terms. It should be noted that nothing in the above-quoted passage limits the rationale of Russell to Sec. 409.

Russell sheds light on another major reason to disallow recovery of extra-contractual damages under Sec. 502(a)(3)--Congress' glaring omission of any mention of extra-contractual damages in general, or emotional distress damages in particular:

Significantly, the statutory provision explicitly authorizing a beneficiary to bring an action to enforce his rights under the plan--Sec. 502(a)(1)(B) * * *--says nothing about the recovery of extra-contractual damages, or about the possible consequences of delay in the plan administrators' processing of a disputed claim.

Id. at 3091. Again, there is nothing in this excerpt to indicate that the underlying reasoning does not apply to Sec. 502(a). On the contrary, the passage explicitly considers the remedies laid out in Sec. 502(a)(1)(B). Although we presume the district court herein relied on Sec. 502(a)(3), it must be noted that Sec. 502(a)(3) also "says nothing about the recovery of extra-contractual damages," Russell, 105 S.Ct. at 3091, and emphasizes protection of the plan, not the direct protection of beneficiaries. So viewed, the catch-all phrase of "other appropriate equitable relief" in Sec. 502(a)(3) provides no more foundation for an award of emotional distress damages than does the same catchall phrase in Sec. 409(a).

The Russell Court also rejected the argument that Congress meant to authorize damages for emotional distress, but simply forgot to mention them. The Court examined the six "carefully-integrated civil enforcement provisions" of Sec. 502(a) and characterized those provisions as an "interlocking, interrelated, and interdependent remedial scheme, which is in turn part of a 'comprehensive and reticulated statute.' " Russell, ...