Bloomberg News
WASHINGTON - Brokerages and insurers can be sued under a federal law over questionable dealings with employee benefit plans, the Supreme Court ruled.
The justices unanimously reinstated a $20 million claim against Citigroup Inc.'s Salomon Smith Barney unit and opened the way for other lawsuits against financial services companies that do business with plans.
The fight involved a federal rule barring plan trustees from buying property from, or selling it to, a "party in interest." That label applies to service providers, employees, shareholders, and others who Congress feared might get special treatment at the expense of plan beneficiaries.
The question for the high court was whether parties in interest can be sued for violating the ban on asset sales. The court today said they could, ruling in a 9-0 opinion written by Justice Clarence Thomas.
The decision is a victory for a pension plan established for 118,000 employees of Ameritech Corp., now part of SBC Communications Corp. The plan, acting on behalf of the workers, accuses Salomon of making a $21 million profit from the sale of securities that turned out to be almost worthless. The case now returns to a lower court, which will consider the substance of those allegations.
Lower courts had been split on the rights of plans to sue parties in interest for engaging in improper transactions under the federal Employee Retirement Income and Security Act, or ERISA.
In Salomon's case, the broker was a party in interest because it pocketed hundreds of thousands of dollars in commissions every year from the Ameritech Pension Trust, according to the lawsuit.
The controversial transactions took place from 1987 to 1989. Salomon owned four "fee agreements" that it had received as compensation for work it performed for two motel companies. The brokerage then sold most of its interest in those agreements to the Ameritech plan for $21 million.
The motel companies went into bankruptcy, and the Ameritech trust lost all but about $1 million of the money it spent. In July a Chicago-based federal appeals court said even though the sale by Salomon might have been improper under ERISA, that law doesn't give the plan the right to sue to recover the money it lost.
