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HARRIS TRUST & SAV. BANK v. SALOMON BROS.

August 16, 1993

HARRIS TRUST AND SAVINGS BANK, not individually but solely as Trustee for the Ameritech Pension Trust; AMERITECH CORPORATION; and JOHN A. EDWARDSON, Plaintiffs,
v.
SALOMON BROTHERS, INC. and SALOMON BROTHERS REALTY CORP., Defendants.



The opinion of the court was delivered by: ASPEN

 MARVIN E. ASPEN, District Judge:

 Harris Trust, as Trustee for Ameritech Pension Trust ("APT"), Ameritech Corporation, and John A. Edwardson (collectively "plaintiffs") have filed their second amended complaint ("amended complaint") against Salomon Brothers, Inc. and Salomon Brothers Realty Corporation (collectively "Salomon") alleging violations of the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1961-1968, violations of various provisions of the Employment Retirement Security Act ("ERISA"), and several state law claims. In its answer to the amended complaint, Salomon filed two counterclaims, alleging that if it is liable for any breaches of duty, then Ameritech is also liable, and must contribute to any damages awarded. Having previously dismissed plaintiffs' earlier complaint, we now address Salomon's motion to dismiss APT's amended complaint and plaintiffs' motion to dismiss Salomon's counterclaims. For the reasons set forth below, we deny Salomon's motion to dismiss Count III of the amended complaint, grant its motion to dismiss Counts IV through VII, XI, and XII of the amended complaint, and deny plaintiffs' motion to dismiss the counterclaims.

 I. Factual Background *fn1"

 To avoid needless and lengthy replication, we will assume familiarity with the facts of this case as laid out in our prior opinion dismissing APT's original complaint. See Harris Trust and Savings Bank v. Salomon Brothers Inc., 813 F. Supp. 1340 (N.D. Ill. 1992) ("Harris I"). However, we highlight here a few relevant facts set forth in the amended complaint.

 Having already arranged financing for Motels of America ("MOA") to proceed with various acquisitions (Portfolios I and II), in the fall of 1989 Salomon devised yet another plan involving the issuance of mortgage notes to help MOA purchase still more properties ("Portfolio III"). In this instance, however, Salomon sent out an offering memorandum to prospective noteholders riddled with inaccuracies and misrepresentation. The offering memorandum, sent to noteholders sometime after August 1, 1989, and to APT in October, 1989, failed to disclose that since July, 1989, the financial performance of Portfolio III had been deteriorating, and MOA management was concerned that it would not perform as projected in the memorandum. Amended Complaint at P 35.

 At about the same time, Salomon was looking to sell its interest in another fee agreement. In October of 1988, Best Inns, Inc. ("Best") acquired nine hotels pursuant to a financing plan set up by Salomon ("Portfolio IV"). At the closing, Best and Salomon entered into a fee agreement ("Fee Agreement IV"). Although plaintiffs aver that soon after the deal closed, Salomon began looking for a buyer of its interest, it did not approach APT about a possible sale until the fall of 1989.

 On December 20, 1989, Salomon sent a fax to APT endorsing both Fee Agreements III and IV, stating that "based on our knowledge of the deals we believe it is highly likely that the terms will go beyond five years and returns realized will be considerably greater than 20%." Furthermore, sometime shortly before or after APT's purchase of Fee Agreement IV, Salomon sent NISA a copy of its 1988 offering memorandum, allegedly highly inaccurate as of December 1989. On December 22, 1989, the same day APT purchased its interest in Fee Agreement III, it purchased a 95% interest of Salomon's rights in Fee Agreement IV. Salomon retained a 5% monitoring interest.

 III. Discussion

 A. Salomon's Motion to Dismiss the Amended Complaint

 Salomon seeks to dismiss various counts of plaintiffs' amended complaint, including its claim for knowing participation in an ERISA breach, its RICO claims, and two state law claims.

 1. ERISA Claim

 Salomon seeks to dismiss Count III of plaintiffs' amended complaint, which alleges that Salomon knowingly participated in a fiduciary's breach of duties. The claim rests on the premise that an action for knowing participation may lie against a nonfiduciary, and thus may lie against Salomon in the event Salomon is not found to be a fiduciary under ERISA.

 Salomon argues that the Supreme Court's recent decision in Mertens v. Hewitt Associates, 508 U.S. 248, 61 U.S.L.W. 4510, 113 S. Ct. 2063, 124 L. Ed. 2d 161 (1993), eviscerates APT's claim by holding that ERISA does not authorize suits for money damages against nonfiduciaries who knowingly participate in a breach of fiduciary duties. APT disputes Salomon's reading of Mertens, contending that although the Supreme Court interpreted ERISA to prevent recovery of money damages from nonfiduciaries, it expressly allowed plaintiffs to recover restitution and other equitable relief. Asserting that it seeks restitution, not compensatory damages, APT maintains that Mertens does not bar its claim.

 We agree with plaintiffs that Mertens does not prevent a plaintiff from seeking restitution or other equitable relief from a nonfiduciary. See Mertens, 61 U.S.L.W. at 4514 (Summing up the majority's holding, dissent observes that "although it is assumed that a cause of action against a third party such as respondent is provided by ERISA, the remedies available are limited to the 'traditional' equitable remedies, such as injunction and restitution, and do not include compensatory damages."). The question, then, is whether the relief APT seeks for Count III constitutes restitution, or is simply a well-crafted plea for money damages.

 In Mertens, the Supreme Court observed that "the 'equitable relief' awardable under § 502(a)(5) includes restitution of ill-gotten plan assets or profits. Mertens, 61 U.S.L.W. at 4514. As this statement reveals, restitution is appropriate where a defendant unjustly enriches himself at the expense of another. See also Restatement of Restitution § 1. Moreover, it is clear that restitution may take the form of money.

 Here, the plaintiffs seek to recover the money they invested in Fee Agreements through IV (i.e. the purchase prices of the agreements), arguing that they were fraudulently induced to enter into the transactions. They also ask that Salomon be required to disgorge any profits it made through the use of APT's assets. Unlike a request for damages due to a breach of contract, an action for restitution seeks to put a plaintiff back in his original position. Similarly, a person who has been fraudulently induced to pay money to another and who does not obtain what he expected in return, is entitled to restitution. Restatement of Restitution § 28.

 By their first request, plaintiffs are attempting to be put back in the position they would have been in had there been no transaction. By their second, they seek to have defendants turn over any unjust profits gained. Both pleas constitute requests for restitution. See Rogers v. Loether, 467 F.2d 1110, 1121-22 (7th Cir. 1972), aff'd. 415 U.S. 189, 94 S. Ct. 1005, 39 L. Ed. 2d 260 (1972) (Court approvingly quoted Professor Moore's statement that 'in equity, restitution is usually thought of as a remedy by which defendant is made to disgorge ...


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