Supreme Court: Pension Plans Can Sue Non-Fiduciaries

June 12, 2000 ( - In a unanimous decision Monday, the Supreme Court ruled that employee benefit plans can sue parties in interest, even if they are not fiduciaries.

The decision means Ameritech and its pension plan trustee, Harris Trust and Savings Bank , can continue to try to recoup $21 million lost in a late 1980s real estate deal with Salomon Brothers Smith Barney (SSB).

The pension plan made the investments at the direction of investment manager (and fiduciary of the Ameritech plan) National Investment Services of America (NISA), which allegedly caused the plan to engage in a prohibited transaction with SSB. That transaction involved SSB’s sale of interests in two motel chains to the pension plan, interests that were wiped out after the motel chains failed.

Motel “Deep-Sixed”
Ameritech and Harris had sued SSB, alleging that the sale had been a prohibited transaction under ERISA.  They sued seeking a return of the purchase price with interest, and a disgorgement of profits made by SSB as part of the transaction. 

SSB contended that it could not be sued under ERISA, claiming that since the law did not expressly impose a duty on a nonfiduciary party-in-interest, it could not be sued by the Ameritech plan.  The 7th US Circuit Court agreed, and dismissed the case.

Not Who, But What

However, the Supreme Court held that the focus of the law was not on the parties that could be sued, but on the actions that violate ERISA.  Further, that the “plain implication” is that an action could be brought against an “other person who knowingly participates in a fiduciary’s violation…”.  In sum, while ERISA only imposes the affirmative duty on a fiduciary, an involved party can still be sued.

The case is Harris Trust and Savings Bank vs. Salomon Smith Barney, 99-579 . (You need Adobe Acrobat to read this file).

Doctor Treatments Not Fiduciary Acts

In another unanimous decision today, the Supreme Court has ruled that patients cannot sue health maintenance organizations (HMOs) under ERISA when they give doctors financial bonuses to cut costs that result in improper medical treatment.
In a major victory for the Justice Department and the health care industry, the Court held that treatment decisions were not fiduciary acts within the meaning of ERISA, noting that state rather than the federal law governed this relationship. The Court said that an inducement to ration care was the very point of any HMO scheme, and rationing necessarily raises some risks while reducing others.

The case is Pegram vs. Herdrich, 98-1949. (You need Adobe Acrobat to read the case).

– Nevin Adams