Harris Trust & Savings Bank v. Salomon Smith Barney Inc.
The Court ruled that a pension plan's trustees can sue a non-fiduciary business partner under ERISA's civil-enforcement provision for taking part in a transaction that was barred because it involved a party with a conflict of interest, even though that provision does not expressly impose a duty on such partners.
The decision resolves a split with every other circuit, confirming that ERISA plans and beneficiaries can go after not just the plan managers who improperly approved bad deals but also the outside companies on the other side of those deals, broadening who can be held financially responsible for harm to retirement plans.
How it got here: A trial court allowed the suit to proceed and certified the issue for appeal; the Seventh Circuit reversed, ruling no such suit was allowed; the Supreme Court took the case to resolve a circuit split.
The Case in Depth
What happened
A pension plan for a phone company's employees hired an investment manager, which bought motel property interests worth nearly $21 million from a brokerage firm that also handled trades for the plan. The motel interests turned out to be nearly worthless. The plan's trustee and administrator sued the brokerage firm, arguing the purchase was an illegal transaction between the plan and a company with a conflicting relationship to it.
The question before the Court
Can a pension plan sue a company that wasn't managing the plan, but that took part in an illegal deal with the plan's manager, to get the money back?
Why it matters
Pension plans and their beneficiaries gain a clearer path to recover losses directly from outside firms that participated in prohibited deals, not just from the plan's own managers. Companies that do business with pension plans — banks, brokers, and other service providers — face a real risk of being sued and forced to return profits if a deal with a plan turns out to violate ERISA's conflict-of-interest rules.
What changes now
The case goes back to the lower courts, where several issues remain open: whether the brokerage firm actually qualified as a 'party in interest,' whether a regulatory exemption applied to the deal, whether the firm knew or should have known the transaction was improper, and who bears the burden of proving that. This is a final ruling on the legal question of who can be sued, but the underlying facts of the dispute still need to be resolved.
What this does not decide
The Court did not decide whether the brokerage firm actually violated any duty, whether it truly qualified as a 'party in interest,' or whether a regulatory exemption covered the sale. It also left open who bears the burden of proving the firm knew or should have known the deal was improper.
How the Court got there
The legal reasoning, step by step
- The Court agreed that the ERISA provision barring deals with 'parties in interest' (§406(a)) only directly restricts the plan's own fiduciary — the person managing the plan — not the outside company on the other side of the deal.
- But the Court held that a separate ERISA provision, §502(a)(3), which lets plan participants and fiduciaries sue for 'appropriate equitable relief' to redress ERISA violations, does not require that the person being sued already have an express duty under some other part of ERISA; the remedy provision can itself supply the basis for suing someone.
- The Court found support for this reading in another ERISA provision, §502(l), which lets the government collect a civil penalty from an 'other person' — someone besides the fiduciary — who knowingly took part in a violation, which only makes sense if such a person can already be sued and made to pay money back in a court case.
- The Court then turned to long-standing common-law trust rules, which have always allowed the original trust or its beneficiaries to recover property (or its value) from someone who received it knowing the transfer breached a trustee's duty, even though that recipient wasn't the original wrongdoer.
- Applying that common-law framework, the Court concluded that a company that received plan property in a barred transaction, knowing or having reason to know the transaction was improper, can be sued for giving the property back or handing over any profit it made from it.
- The Court rejected arguments that this reading would create absurd results or unfairly burden ordinary business partners, noting that the 'appropriate equitable relief' requirement in the statute, combined with common-law limits on who counts as a liable recipient, keeps the remedy narrow and targeted.
Doctrinal impact
Cases affected by this decision
Distinguishes Mertens v. Hewitt Associates (508 U. S. 248)
The Court said Mertens' narrower dictum about nonfiduciary liability didn't control this different situation involving prohibited-transaction rules.