By Michael W. Stevens and Mark Casciari
Seyfarth Synopsis: The Supreme Court dismissed, prior to any discovery, claims of ERISA fiduciary breach because the plan participant-plaintiffs failed to show that the alleged breaches caused them concrete injury. As a general matter, this decision will make it more difficult for plaintiffs to claim ERISA violations in federal court, and also may have broader implications for other federal claims.
In Thole v. U.S. Bank et al., No. 17-1712 (June 1, 2020), the U.S. Supreme Court affirmed dismissal of ERISA claims brought on behalf of participants in a defined benefit pension plan. The participants alleged financial mismanagement, but suffered no financial loss. The question was: may the participants sue in federal court for monetary relief because of the alleged mismanagement? The relief demanded by the participants in their complaint was substantial — $750 million and $31 million in lawyer’s fees.
In a 5-4 decision, the majority reasoned that the plaintiffs “would still receive the exact same monthly benefit” even if they won in court, and thus had no concrete injury under the Constitution’s Article III that would allow for the lawsuit (and consequent expensive discovery and possible settlement). It thus is important to note these controlling preconditions to any lawsuit in federal court that were reiterated in Thole: (1) a concrete injury, (2) caused by the defendant, that is (3) redressable by the requested judicial relief.
We have previously blogged about current Article III jurisprudence here.
The Article III stakes are high, because the tougher the preconditions for establishing standing to sue in federal court, the harder it will be for class actions to proceed there. ERISA makes the Thole holding even more consequential because state courts have no jurisdiction to resolve claims of fiduciary breach under ERISA. That means that plaintiffs cannot resort to state court to avoid Thole when alleging claims to recover excessive 401(k) fees and claims of mere statutory violations.
The majority did say plan participants, in another case, might be able to establish Article III standing if they plausibly allege “that the alleged mismanagement of the plan substantially increased the risk” that benefits would not be paid. The precise meaning of this proviso will need to be developed in later litigation. The Court also emphasized that the plan at issue provided a defined benefit, and that a defined contribution plan participant alleging the same wrongdoing might attain Article III standing.
Of note as well is that Justice Thomas, joined by Justice Gorsuch, said that ERISA case law is too tightly bound to the common law of trusts. This may portend a new line of analysis by the Court in future ERISA cases. The Court may focus more on the plain reading of the statute, as opposed to traditional notions of trust law not grounded in that statutory language. Also of note is that Thole represents another effort by the Court, and especially Chief Justice Roberts, to limit federal jurisdiction generally.
The decision is good news for ERISA plans and their sponsors, as it will be more difficult for participants to bring individual or class actions for mere statutory violations that have not impacted benefits. Stay tuned to this blog for further developments in ERISA litigation.