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Perez v. Silva

United States District Court, D. Maryland

May 6, 2016

THOMAS E. PEREZ, SECRETARY OF LABOR, U.S. DEPARTMENT OF LABOR, Plaintiff
v.
RICARDO SILVA, et al., Defendants

MEMORANDUM

James K. Bredar United States District Judge.

Thomas E. Perez, the Secretary of the United States Department of Labor (“the Secretary”), by and through counsel, brought an action under the Employee Retirement Income Security Act (“ERISA” or “the Act”) of 1974, as amended, 29 U.S.C. §§ 1001 et seq., naming as Defendants Ricardo Silva (“Silva”); the Maryland Association of Correctional and Security Employees, Inc. (“MACSE”); the MACSE Health & Welfare Plan and the MACSE Retirement Plan (together, “the Plans”); Charles Ezrine (“Ezrine”); State Employee Benefits, Inc. (“SEBI”); and AmeriGuard Security Services, Inc. (“AmeriGuard”). The Secretary alleges that (1) MACSE, a labor union that represents security guards employed at the Centers for Medicare and Medicaid Services, sponsored the Plans for the benefit of its members; (2) Silva, MACSE, Ezrine, SEBI, and AmeriGuard (“the Fiduciary Defendants”) qualify as fiduciaries, as defined by ERISA, with respect to the Plans;[1] and (3) the Fiduciary Defendants violated various provisions of ERISA and breached their fiduciary duties, resulting in losses to the Plans. The Secretary seeks monetary and injunctive relief pursuant to sections 502(a)(2)[2] and (5)[3] of ERISA, 29 U.S.C. § 1132(a)(2), (5).

Now pending before the Court are two procedural motions: (1) the Secretary’s Motion to Strike [AmeriGuard’s] Demand for a Jury Trial (ECF No. 27), filed pursuant to Rule 12(f) of the Federal Rules of Civil Procedure; and (2) AmeriGuard’s Motion to Strike [Silva’s] Answer on Behalf of Other Defendants (ECF No. 35), also filed pursuant to Rule 12(f).[4] The issues have been briefed, and no hearing is required, see Local Rule 105.6 (D. Md. 2014). For the reasons explained below, both motions will be GRANTED.

I. Motion to Strike [AmeriGuard’s] Demand for a Jury Trial (ECF No. 27)

The Secretary moves pursuant to Rule 12(f) to strike AmeriGuard’s demand for a jury trial, which demand it included in its Answer. (See ECF No. 19 at 11.)[5] The Secretary’s motion also implicates Rule 39(a), which provides that when a jury trial has been demanded, “[t]he trial on all issues so demanded must be by jury unless . . . the court . . . finds that on some or all of those issues there is no federal right to a jury trial.”

Jury trials are available in some federal civil cases as a matter of congressional grace and in others as a matter of constitutional guarantee. Where, as with ERISA, a statute is silent as to the availability of a jury, [6] a party may nevertheless demand one if the action would vindicate inherently legal, as opposed to equitable, rights. See U.S. Const. amend. VII (“In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved . . . .”); see also Fed. R. Civ. P. 38(a) (“The right of trial by jury as declared by the Seventh Amendment . . . is preserved to the parties inviolate.”); Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41 (1989) (“We have consistently interpreted the phrase ‘Suits at common law’ to refer to ‘suits in which legal rights were to be ascertained and determined, in contradistinction to those where equitable rights alone were recognized, and equitable remedies were administered.’” (citation omitted)). The Supreme Court of the United States has expressly recognized that the Seventh Amendment’s guarantee applies to “actions enforcing statutory rights . . . if the statute creates legal rights and remedies, enforceable in an action for damages in the ordinary courts of law.” Curtis v. Loether, 415 U.S. 189, 194 (1974). “To determine whether a statutory action is more similar to cases that were tried in courts of law than to suits tried in courts of equity . . . the Court must examine . . . the nature of the action and . . . the remedy sought.” Tull v. United States, 481 U.S. 412, 417 (1987). First, the Court must “compare the statutory action to 18th-century actions brought in the courts of England prior to the merger of the courts of law and equity.” Id. Second, the Court must “examine the remedy sought and determine whether it is legal or equitable in nature.” Id. at 417-18. The second inquiry is more important than the first. Chauffeurs, Teamsters and Helpers, Local No. 391 v. Terry, 494 U.S. 558, 565 (1990).

In this case, the Secretary brings his suit under two prongs of ERISA’s civil-enforcement section: section 502(a)(2), which authorizes the Secretary to seek redress for breach of duty by any plan fiduciary; and section 502(a)(5), which more broadly authorizes the Secretary to sue to enjoin practices made unlawful by title I of ERISA or to “obtain other appropriate equitable relief” to redress any such violation. To the extent that AmeriGuard demands a jury with respect to the Secretary’s section 502(a)(5) claim, such a demand is foreclosed by the language of that section (which plainly authorizes equitable-and only equitable-relief) and by controlling authority.[7] Therefore, the viability of AmeriGuard’s jury demand turns on whether claims brought under section 502(a)(2) are inherently legal or equitable. The United States Court of Appeals for the Fourth Circuit has not squarely addressed this question;[8] consequently, the Court must conduct the two-step Tull inquiry.

As to the first step, there is little doubt that actions brought under section 502(a)(2) are more akin to those actions traditionally adjudicated by the Chancellors at equity than to those adjudged in courts of law. This is so because “issues raised under [section 502(a)(2)] for breach of fiduciary duty are examined under trust law principles and fiduciary standards.” Broadnax Mills, Inc. v. Blue Cross & Blue Shield of Va., 876 F.Supp. 809, 816 (E.D. Va. 1995); see also Firestone Tire & Rubber Co. v. Bruch, 489 U.S. 101, 110 (1989) (observing that “ERISA abounds with the language and terminology of trust law” and that the Act’s legislative history confirms that its fiduciary-responsibility provisions codify and make applicable to ERISA fiduciaries certain principles originating in the law of trusts). In Mertens v. Hewitt Associates, 508 U.S. 248, 256 (1993), the Supreme Court recognized that “at common law, the courts of equity had exclusive jurisdiction over virtually all actions by beneficiaries for breach of trust.” More recently, the Court observed that a “suit by a beneficiary against a plan fiduciary (whom ERISA typically treats as a trustee) about the terms of a plan (which ERISA typically treats as a trust)” is the kind of suit that, before the merger of law and equity, “could have [been] brought only in a court of equity, not a court of law.” CIGNA Corp. v. Amara, 563 U.S. 421, 439 (2011). In light of this authority, the Court has no difficulty concluding, as other courts have done, that section 502(a)(2) proceedings are “inherently equitable, ” Broadnax Mills, 876 F.Supp. at 816; accord Ehlen Floor Covering, Inc. v. Lamb, No. 2:07-cv-666-FtM-29DNF, 2012 WL 1698351, at *2 (M.D. Fla. May 14, 2012).[9]

That conclusion does not end the Court’s analysis, however, because under Tull, the Court must also consider the nature of the remedy sought. As noted above, this second step of the Tull inquiry is “more important” than the first, Terry, 494 U.S. at 565. And it is here that AmeriGuard concentrates its firepower, arguing that “the remedies the Secretary is seeking against AmeriGuard are legal in nature” because the Secretary has prayed, inter alia, for an order requiring AmeriGuard to “restore all losses to the Plans as a result of its alleged fiduciary breaches.” (ECF No. 32 at 4-5.) In AmeriGuard’s view, because the Secretary has not alleged that AmeriGuard presently holds property rightfully belonging to the Plans (or funds derived therefrom), traditional equitable remedies have no bearing here, and the Secretary has effectively prayed for damages at law. (Id. at 5.)

In pressing its argument, AmeriGuard relies on Great–West Life & Annuity Insurance Co. v. Knudson, 534 U.S. 204 (2002), an ERISA case which concerned neither a claim for breach of fiduciary duty nor relief under section 502(a)(2) nor, for that matter, the Seventh Amendment right to a jury trial. Rather, Great–West involved an attempt by an insurer to enforce a contractual reimbursement provision against a beneficiary through section 502(a)(3).[10] The insurer characterized its prayed-for relief as equitable restitution, but the Court saw through the insurer’s façade, holding that it was essentially “seeking legal relief[, ] the imposition of personal liability on [the beneficiary] for a contractual obligation to pay money, ” which relief is unavailable under section 502(a)(3). Id. at 221. In reaching this determination, the Court noted that “not all relief falling under the rubric of restitution is available in equity, ” and it distinguished traditional forms of equitable restitution (such as a constructive trust or an equitable lien on property wrongfully held by the defendant) from restitution at law as derived from the writ of assumpsit (i.e., a judgment imposing personal financial liability for breach of an express or implied contract). Id. at 213.

True enough, there is no allegation here that “money or property identified as belonging . . . to the [Plans] could clearly be traced to particular funds or property in [AmeriGuard’s] possession, ” id. But equitable remedies extend beyond constructive trusts and liens-and AmeriGuard’s reliance on Great–West is misplaced for several reasons.

First, as the United States District Court for the Northern District of Illinois observed in a closely analogous case, AmeriGuard

places too much weight on the Supreme Court’s statement that restitution is considered legal when a plaintiff seeks to obtain a judgment imposing personal liability on a defendant to pay money, and too little on the accompanying portion of the analysis observing that “[s]uch claims were viewed essentially as actions at law for breach of contract . . . .”

George v. Kraft Foods Global, Inc., No. 07 C 1713, 2008 WL 780629, at *3 (N.D. Ill. Mar. 20, 2008) (alterations in original) (quoting Great–West, 534 U.S. at 213). In this case, unlike in Great–West, the Secretary has invoked no contract rights whatsoever; rather, the Secretary proceeds against AmeriGuard and the other Fiduciary Defendants in their capacities as fiduciaries, capacities that are defined by ERISA itself. It takes no remarkable erudition to conclude that a restitutionary remedy for breach-of-contract (which is perhaps the epitome of a legal claim) sounds in law rather than equity. But the “Great–West analysis does not suggest (much less hold) that a claim for restitution . . . for breach of fiduciary duty is a legal rather than equitable claim.” Id.; see also In re YRC Worldwide, Inc. ERISA Litig., No. 09-2593-JWL, 2010 WL 4920919, at *4 (D. Kan. Nov. 29, 2010) (“[I]n Great–West, the Supreme Court was considering a claim more akin to a breach of contract action, arising from a contractual duty ...


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