Harris Trust & Savings Bank v. Salomon Smith Barney Inc.

Background

The dispute involves a pension plan for Ameritech employees and retirees (the Ameritech Pension Trust), its fiduciaries (the plan trustee and administrator), the plan’s investment manager (a fiduciary called NISA), and a broker-dealer (Salomon Smith Barney) that sold motel interests to the plan. The plan later discovered the motel investments were nearly worthless. The plan’s trustee and administrator sued Salomon under ERISA, alleging the purchase was a transaction barred by ERISA section 406(a) and seeking rescission, restitution, and disgorgement of profits from Salomon.

Reasoning

The Court addressed whether ERISA’s remedial provision, section 502(a)(3), allows a participant, beneficiary, or fiduciary to sue a non-fiduciary party who participated in a transaction barred by section 406(a). The Court said section 406(a) imposes duties on fiduciaries but section 502(a)(3) focuses on redressing violations and does not limit who may be sued. The opinion relied on related provisions that let the Secretary of Labor pursue penalties against “other persons,” and on trust-law principles that permit restitution from a transferee of ill-gotten trust property unless that transferee bought for value without notice. The Court concluded equitable remedies like rescission and restitution are available against a non-fiduciary transferee, subject to traditional equitable limits.

Real world impact

The ruling reverses the Seventh Circuit and allows plans, beneficiaries, or fiduciaries to seek court-ordered recovery from non-fiduciary counterparties who took plan assets in prohibited transactions. The case was sent back for further proceedings to resolve factual issues (e.g., whether Salomon was a party in interest, whether an exemption applies, and what the transferee knew).