Bureau Of National Affairs
Enron Litigation Likely to Illustrate Reach of Harris Trust Case, Experts Say
By Tom Gilroy
Monday, February 4, 2002
LOS ANGELES--While the U.S. Supreme Court's 2000 decision in the Harris Trust & Savings Bank v. Salomon Smith Barney Inc. opened the door for lawsuits against nonfiduciary "parties in interest" who participate in a prohibited transaction, the impact of that ruling may become clearer as the dozens of lawsuits over the collapse of Enron Corp. take shape, several experts suggested at a pension tax conference Jan. 31
In spite of the Harris Trust ruling (27 BPR 1439, 6/13/00; 24 EBC 1654), it still is an open issue whether a pension plan participant or fiduciary can bring a lawsuit against a plan service provider, like accounting firm Anderson, for violations of the Employee Retirement Income Security Act, using the theory that the service provider knew, or should have known, a prohibited transaction was taking place, said Billy Beaver, Regional Director, Los Angeles Region, Pension and Welfare Benefit Administration, Department of Labor.
The Supreme Court in Harris Trust held that there is a cause of action under Section 502(a)(3) of ERISA for equitable relief to obtain restitution from a non-fiduciary party-in-interest that engaged in a prohibited transaction.
However, the question of what constitutes equitable relief has still to be litigated, warned Bette J. Briggs, PWBA San Francisco Regional Director.
Briggs, Beaver and R. Bradford Huss, an attorney with San Francisco-based Trucker Huss, spoke on a panel at the annual Los Angeles Benefits Conference, sponsored by the Internal Revenue Service and the American Society of Pension Actuaries (ASPA).
The reach of the Harris Trust decision may become clearer in the Enron cases in which nonfiduciaries who were not parties-in-interest are sued under ERISA for failing to disclose what they knew or should have known about alleged prohibited transactions, the panelists suggested.
In light of the Harris Trust decision, "it should be anticipated that plaintiffs will now be arguing not only that nonfiduciaries who are parties in interest may be liable for prohibited transactions, but also that nonfiduciaries may be held responsible for other breaches of fiduciary duty if they participated in a transaction involving a breach of fiduciary duty and had actual or constructive knowledge of the circumstances that rendered the transaction unlawful," Huss said in written material accompanying his presentation.