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.

Dismissal of ACA Lawsuit Based Only on Standing Grounds

Seyfarth Synopsis:  In Texas v. California, the Supreme Court rejected another challenge to the Affordable Care Act (“Obamacare” or “ACA”). The Court never reached the merits of the challenge, relying instead on its now robust Article III standing doctrine. The plaintiffs failed to allege injury traceable to the allegedly unlawful conduct and likely to be redressed by their requested relief.

On June 17, in Texas v. California, the Supreme Court dismissed the declaratory judgment challenge to the ACA’s constitutionality brought by Texas and 17 other states (and two individuals), finding that the plaintiffs lacked Article III standing. Our earlier blog post on this case after oral argument explained that the plaintiffs alleged that the ACA’s “individual mandate” was unconstitutional in the wake of Congress reducing the penalty for failure to maintain health insurance coverage to $0.

The Court side-stepped all issues on the merits, and ruled 7-2 that the plaintiffs did not have standing because they failed to show “a concrete, particularized injury fairly traceable to the defendants’ conduct in enforcing the specific statutory provision they attack as unconstitutional.” The majority said that the plaintiffs suffered no indirect injury, as alleged, because they failed to demonstrate that a lack of penalty would cause more people to enroll in the state-run Marketplaces, driving up the cost of running the programs. Similarly, the majority found no direct injury resulting from the administrative reporting requirements of the mandate. The majority found that those administrative requirements arise from other provisions of the ACA, and not from the mandate itself.

Justices Alito and Gorsuch dissented, opining that the states not only have standing, but that the individual mandate is now unconstitutional and must fall (as well as any provision inextricably linked to the individual mandate).

This is the third significant challenge to the ACA over the last decade.

Moreover, the latest ACA decision has implications beyond just that statute. A solid majority of the Court has emboldened its already tough standing requirements that precondition any merits consideration in federal court. Our prior blogs here and here, have explained that the Court is intent on narrowing the door to the courthouse for many cases, including ERISA cases. This is significant because ERISA fiduciary breach cases, in particular, can be brought only in federal court. As such, we expect to see more ERISA defense arguments based on Article III standing deficiencies. And it certainly will not be enough for plaintiffs to mount a challenge under the Declaratory Judgment Act as a way to avoid the very stringent Article III injury in fact requirement.

By Mark Casciari and James Hlawek

Seyfarth Synopsis:  A federal district court denied a motion to dismiss an ERISA complaint that was based in large part on secondhand “information and belief” allegations about the defendants’ business operations.  The decision serves as a warning to defendants that they may be forced into costly discovery based on allegations that a plaintiff merely believes to be true.    

We have commented on a Supreme Court decision making it more difficult for ERISA plaintiffs to withstand motions to dismiss in federal court and to proceed with expensive discovery.  See The Supreme Court Further Narrows Federal Court Jurisdiction Over an ERISA Complaint, Relying on Article III of the Constitution | Beneficially Yours.  A recent district court decision on a routine motion to dismiss, however, underscores that defendants continue to face challenges in obtaining dismissals of ERISA claims in federal court and avoiding discovery.

In Teamsters Local Union No. 727 Health and Welfare Fund v. De La Torre Funeral Home & Cremation Services, Inc., No. 19-cv-6082, 2021 U.S. Dist. Lexis 42046 (N.D. Ill. Mar. 5, 2021), the court refused to dismiss an ERISA and LMRA complaint seeking to hold defendants, who did not sign a collective bargaining agreement, liable for a settlement agreement related to delinquent contributions to various health, welfare, and pension funds.  The plaintiff brought the allegations under alter ego, joint employer, and successor liability theories.  The complaint was based in large part on “information and belief” allegations about the defendants’ business operations.  The court noted that the allegations relied on secondhand information that plaintiff merely believed to be true, and that the allegations regarded matters particularly within the knowledge of the defendants.  The court denied the defendants’ motion to dismiss, finding that such allegations were sufficient to allow the plaintiff’s claim to proceed.

This decision is important because of the substantial consequence of losing a motion to dismiss.  Losing a motion to dismiss is a ticket to the often distasteful world of discovery.  As the Supreme Court noted in Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), discovery, at least in the class action context, is so expensive that it often leads to settlement regardless of the merits of the case.  This is all the more true today given the enormous increase in electronic data a party maintains, especially after a pandemic that has created much more video and other electronic data that may be subject to discovery.

So, while the Supreme Court has made it more difficult under some circumstances for ERISA plaintiffs to withstand motions to dismiss, district courts may still favor discovery over dismissal.  Individual district courts may decide to encourage settlement and preclude appellate review by allowing claims to continue, even when the allegations are based on information that a plaintiff merely believes to be true.

Motion to dismiss litigation in ERISA cases will continue to command the attention of federal courts.  At issue is whether the plaintiff can allege enough to access substantial discovery rights.

By: Mark Casciari and Rebecca Bryant

Seyfarth Synopsis: The Supreme Court has shown a recent reluctance, as a general matter, to expand the scope of its review.  That reluctance should apply as well to cases that seek to extend the scope and enforcement of ERISA.

Is there a connection between — the Supreme Court’s December 2020 decisions dismissing Presidential election lawsuits and the Presidential policy of excluding from census apportionment immigrants not considered to be in lawful status, on the one hand, and ERISA jurisprudence, on the other hand?

These recent Supreme Court decisions reveal a strong majority of Justices who believe federal court jurisdiction is limited, and dramatically so.  Texas v. Pennsylvania, challenged, among other things, the lack of compliance with state legislative election law.  Seven of the nine justices ruled that “Texas has not demonstrated a judicially cognizable interest in the manner in which another State conducts its elections.”  In the immigration census decision, Trump v. New York, six justices ruled the case non-justiciable.  They relied on two related doctrines — standing and ripeness.  On standing, the majority said that a case must demonstrate “an injury that is concrete, particularized, and imminent rather than conjectural or hypothetical.”  On ripeness, they said that any case must not be dependent on “contingent future events that may not occur as anticipated, or indeed may not occur at all.”  To be sure, these cases may yet wind their way back to the Court for a review on the merits, but the route will be a bumpy one.

This judicial reluctance to rock the boat applies to ERISA jurisprudence as well.    In Rutledge v. Pharmaceutical Care Management Association (No. 18-540), the Supreme Court refused to strike down an Arkansas PBM law on ERISA preemption grounds. The decision was unanimous.  See SCOTUS Upholds Arkansas PBM Law Against ERISA Preemption Arguments | Beneficially Yours.

Commentators have noted that Justice Roberts, in particular, employs a strong philosophy of judicial deference or restraint.  His view is that the people should take their complaints to the ballot box, not the courthouse.  Enough of his fellow conservatives on the Court are often persuaded to agree, notwithstanding calls for a more aggressive Court.

So, as a general matter, private lawsuits that are commenced to “make new law” may increasingly be commenced in state court.  ERISA lawsuits are not so easily accommodated via state litigation, however.  All ERISA claims, other than claims for benefits, must be commenced in federal court.  29 U.S.C. 1132(e)(1).  As we have noted previously, when commenting on the Spokeo and Thole standing decisions, a number of technical ERISA violations, including some fiduciary breach claims, may be beyond the reach of private plaintiffs.  See Spokeo and the Future of ERISA Litigation | Beneficially YoursThe Supreme Court Further Narrows Federal Court Jurisdiction Over an ERISA Complaint, Relying on Article III of the Constitution | Beneficially Yours. And ERISA limits remedies, see Mass. Mut. Life Ins. Co. v. Russell, 473 U.S. 134 (1985), and that can make it tough to allege concrete injuries for technical violations.

It remains to be seen, of course, how aggressive the Department of Labor will be in enforcing ERISA violations under President Biden.  But private ERISA plaintiffs trying to extend the scope and enforcement of ERISA will have a tougher time making their case to the Supreme Court.

Seyfarth Synopsis: Yesterday, the Supreme Court heard oral arguments on the most recent challenge to the Affordable Care Act. The case has the potential to invalidate the entire law. While the Court’s decision isn’t expected soon, the oral arguments may provide some clues as to which way the Justices are leaning. We stress, however, that statements made during oral argument are not binding, and Justices remain free to rule as they deem appropriate.

On November 10, 2020, the Supreme Court heard oral argument on the constitutionality of the ACA. The case is captioned California v. Texas, No. 19-10011.

The case was brought by a group of state attorneys general in the wake of the 2017 Tax Cuts and Jobs Act, which reduced the individual tax for failure to maintain health insurance coverage to $0. The Trump Administration chose not to defend the law, but the lower courts granted leave to other states’ attorneys general and to the House of Representatives to defend the law. The arguments in the case addressed the following three issues:

  1. Do the plaintiff states have standing to challenge the constitutionality of the individual mandate?
  2. If so, did Congress’s actions in “zeroing out” the penalty for the mandate render the mandate an unconstitutional exercise of Congressional power?
  3. If so, is the mandate severable from the remainder of the ACA, or should the entire law fall?

The Court had previously ruled in 2012 that the ACA’s individual mandate was constitutional, as it represented an exercise of the lawful power of Congress to tax, and provide citizens with a reasonable choice of purchasing approved health insurance or paying a tax as a penalty. In that ruling, however, five Justices found that Congress cannot rely on its Commerce Clause power to enact the ACA. In other words, the Court upheld the mandate only by finding that the mandate was a tax, not a penalty. So, the question before the Court at present is whether the mandate can truly be considered a tax if it generates no revenue.

The Court under Chief Justice Roberts has shown an aversion to wading into politically sensitive rulings, given the current politically polarized climate. And this case has a complicated political overlay. The Court’s ruling here takes on heightened significance in the wake of the recent election in which Republicans appear to have maintained control of the Senate, because that takes away the Democrats’ avenue to “cure” the challenged provision by simply implementing a tax above $0 to enforce the individual mandate.

There are two ways that the Court can avoid a finding of unconstitutionality.

First, there is the issue of Article III standing. As we have previously opined, there is a substantial question whether there is a sufficient injury traceable to the actions of the defendants to justify a lawsuit on the merits. The November 10 oral argument focused on whether an injury could be said to have occurred because of increased reporting requirements, Medicaid payments by the state and the ACA restriction on what health policies an American can purchase in the marketplace. But a failure to purchase insurance does not directly cause injury — the tax penalty is $0. Justice Thomas described this issue in terms that we all can understand given our COVID times. He asked whether an American could sue in federal court to challenge a mask mandate that is not enforced. Justice Gorsuch and some of the more liberal Justices, however, expressed some concern that if the Court were to grant standing in this case, it would open the door to more challenges to federal law.

Look for the Court to limit any finding of standing to the peculiar facts of California v. Texas, given the concern about the federal judicial chaos that could result from a broader ruling on standing.

Second, there is the issue of severability. It is true that the individual mandate remains a part of the ACA, and it does state that all Americans “shall” purchase compliant insurance. It is also true that the constitutionality of that mandate is based on Congress’s taxing power that now is exercised at $0. It is true as well that a future Congress might increase the tax above $0, which might explain why the 2017 reduction to that level was not accompanied with a repeal of the individual mandate.

Justice Thomas pressed the attorney for the House of Representatives on how he could argue that the mandate is severable when, in 2012, he had argued that it was the “heart and soul” of the law. On the other hand, many Court observers honed in on statements from Chief Justice Roberts and Justice Kavanaugh, both of whom seemed to express reservation at “reading into” Congressional intent rather than simply looking to the actions taken by Congress in zeroing out the individual mandate (while leaving the rest of the law intact). Justice Alito offered a hypothetical involving a plane that is presumed to be incapable of flight without a crucial instrument, but that then continues flying without issue once that instrument is removed.

While it is impossible at oral argument to discern how nine Justices will rule, hints from the arguments suggest the Court may have the votes to find standing (in a limited way) and declare only the individual mandate (and not the remainder of the law) to be unconstitutional as long as it is enforced by a $0 tax. We anxiously await the decision of the Court, and its reasoning.

By Namrata Kotwani and Mark Casciari

Seyfarth Synopsis: In this post, we discuss the implications of the Fifth Circuit’s holding that a plaintiff challenging the ACA has Article III standing to bring suit when her injury amounts to an “increased regulatory burden,” even though she faces no other penalties.

The authors are well-aware of the COVID-19 pandemic and its human toll. We extend our well-wishes to the readers of this post, and hope for everyone’s wellness and safety, and a marked improvement to public health.

On March 2, 2020, the United States Supreme Court granted certiorari in California v. Texas, No. 19-840, which appeals the decision of the Court of Appeals for the Fifth Circuit that struck down the individual mandate to the Affordable Care Act (ACA). We previously shared an overview of the Supreme Court’s decision to grant certiorari here.

In Texas v. United States (as the case was styled previously), the Fifth Circuit held that the two individual plaintiffs who were self-employed residents of Texas had standing to challenge the ACA, despite not being subject to a financial penalty. There was no penalty because the 2017 Tax Cuts and Jobs Act (TCJA) set the penalty for not maintaining individual health insurance at zero dollars. According to the Fifth Circuit, the individual plaintiffs had standing because they demonstrated the “increased regulatory burden” that the individual mandate imposes.

As we have discussed, the Supreme Court is keenly interested whether a federal court plaintiff has a sufficient injury to sue in a federal forum when she can show no other harm besides a technical statutory violation. In Spokeo v. Robbins, the Supreme Court held that, although Congress can create federal claims, those claims can only be litigated in federal court as long as the plaintiff alleges a “concrete” injury (i) that affects the plaintiff in a personal and individual way, (ii) that is traceable to the defendant, and (iii) that is repressible by the federal judge. And now pending before the Supreme Court is Thole v. U.S. Bank, which will decide whether plan participants and beneficiaries in a fully-funded ERISA pension plan have Article III standing to sue a plan for alleged breaches of their statutory fiduciary duties. The Thole plaintiffs faced no injury in the form of reduced pension benefits but alleged that investment decisions made by the plan fiduciaries in breach of their duties of loyalty and prudence caused the plan to lose more than $758 million.

It is possible that the Supreme Court may dismiss the individual plaintiffs in Texas v. United States for lack of standing, finding that they have not been harmed by a mere obligation to maintain individual health insurance without a corresponding penalty. Such a ruling would seemingly comport with Spokeo, which suggests that private plaintiffs may not sue to enforce statutory obligations when they have not yet been harmed by violations of those obligations. ERISA fiduciaries thus might expect a drop in class action filings, especially as all private claims for breaches of fiduciary duty under Section 502(a)(2) and (a)(3) may be brought only in federal court, and not in a state court. A technical ERISA statutory violation may not be found “concrete and particularized,” or “actual or imminent,” and may instead be considered “conjectural” or “hypothetical,” buzz words used to determine the outcome of Spokeo arguments to dismiss.

By: Sam Schwartz-Fenwick and Chris Busey

Seyfarth Synopsis: The Eighth Circuit upheld dismissal of Title VII claims challenging an employee benefit plan’s blanket transgender exclusion because the exclusion impacted the  employee’s transgender son, not the employee. The Eight Circuit overturned the dismissal of the employee’s claim against the plan’s third-party administrator under the Affordable Care Act, finding the complaint sufficiently alleged an actionable claim against the TPA.

The Eighth Circuit granted a potentially short-lived reprieve to a plaintiff challenging a blanket exclusion for transgender services contained in her employer’s health plan. The case, Tovar v. Essentia Health, et al, No. 16-3186 (8th Cir. May 24, 2017), allowed part of the plaintiff’s claim alleging a violation under Section 1557 of the ACA to proceed by remanding it to the district court.

The Section 1557 regulations at issue in Tovar are currently subject to a nationwide injunction issued in the Northern District of Texas. The Department of Health and Human Services is party in that suit, and has indicated that it may seek to repeal that regulation through the typical notice and comment rulemaking procedures. The Circuit Court did not address the precarious nature of Section 1557 in its decision.

Rather, the Eighth Circuit restricted its analysis to the decision of the district court. The District Court dismissed Tovar’s claims under Title VII, the Minnesota Human Rights Act, and Section 1557, as we covered here.

The Eighth Circuit first upheld the dismissal of Tovar’s Title VII and MHRA claims. It agreed that Tovar was not within the class of individuals protected by those statutes because she did not allege discrimination based on her own sex, but that of her transgender son.

The Court went on to overturn the dismissal of the ACA claim against the TPA. The District Court had dismissed her ACA claims for lack of Article III standing because Tovar named the wrong entity and because only the employer (not the TPA) had the ability to modify plan terms (such as the transgender exclusion). The Eighth Circuit found the plan documents did not definitively establish that the named defendant had no involvement in the administration of the plan. The Eighth Circuit further found that Plaintiff alleged sufficient facts showing that the “allegedly discriminatory terms originated” with the TPA. And thus this issue was remanded to the district court.

The Eighth Circuit specifically declined to address the argument that an administrator could not be liable for administering a plan where plan design is under the sole control of another organization. The dissent forcefully addressed this question, noting that an Office of Civil Rights interpretation of Section 1557 provides that “third party administrators are generally not responsible for the benefit design of the self-insured plans they administer and ERISA . . . requires plans to be administered consistent with their terms.”

By Mark Casciari and Chris Busey

Seyfarth Synopsis: The Supreme Court’s grant of certiorari in three Church Plan cases presents the possibility that many Church Plans thought for years to be exempt from ERISA rules, including its funding rules, will now have to comply with the statute. It also presents a possible issue of Article III standing — even though not part of the issue on which the Court granted certiorari — whether some of the plaintiffs are unable to sue in federal court because they allege the risk of an injury in the future, but not a concrete injury at present.

It has been widely reported that the Supreme Court soon could require over $1 billion in new defined benefit plan funding with the stroke of a pen when it decides whether Church Plans thought for years to be exempt from ERISA funding rules are really not exempt.  The three Courts of Appeal opinions now being reviewed by the Court are: Rollins v. Dignity Health, 830 F.3d 900 (9th Cir. July 26, 2016); Stapleton v. Advocate Health Care Network, 817 F.3d 517 (7th Cir. Mar. 17, 2016); and Kaplan v. St. Peters Healthcare System, 810 F.3d 175 (3d Cir. Dec. 29, 2015). In each of these cases, employees of the hospital systems alleged that the pension plans maintained by their employers were misclassified as ERISA-exempt.

We have been monitoring developments in these cases (see our previous blog posts here and here), and now the Supreme Court’s decision to review the Rollins, Stapleton, and Kaplan opinions presents the possibility of a nationwide reclassification of many Church Plans, with enormous consequences, especially in the funding context. The funding consequences arise because ERISA funding rules are more exacting than the funding standards under which the plans at issue have been governed.

The Supreme Court will consider a question of statutory interpretation. ERISA Section 3(33)(A) defines an exempt Church Plan as one established and maintained “by a church or by a convention or association of churches which is exempt from tax.” The issue becomes whether ERISA’s church-plan exemption applies if a plan is maintained by a tax-qualifying church-affiliated organization, or if the exemption applies only where a church established the plan. Each of the Courts of Appeal under review declined to defer to the IRS’s opinion–expressed in a 1983 memorandum from the IRS General Counsel–that Church Plans include those maintained by a church-affiliated organization regardless of the identity of the entity that established the plan. The Supreme Court’s question presented explicitly references, as well, the 30-plus-year history of Church Plan classifications by the federal Department of Labor and Pension Benefit Guaranty Corporation that correspond to that of the IRS.

One sleeping issue in these cases may have implications for ERISA litigation generally. The Court’s Church Plan decision may intersect with its recent decision in Spokeo Inc. v. Robbins, 136 S.Ct. 1540 (2016). Spokeo dealt with the U.S. Constitution’s Article III standing precondition to any federal lawsuit, and said that a plaintiff must allege a “concrete injury” to bring suit (see here and here for additional background). The plaintiffs in the Church Plan cases under review allege a number of ERISA violations that have occurred as a result of a possible misclassification of their pension plans. These include that the plans failed to meet ERISA’s funding, fiduciary and reporting and disclosure requirements. To be sure, some plaintiffs also allege a clearly concrete injury — for example, an actual loss of benefits due to the plan’s vesting schedule that fails to meet ERISA minimums. But under Spokeo, it is unclear if alleged funding, fiduciary and reporting and disclosure “injuries,” in the absence of a specific, personal harm, or non-speculative risk of harm, would pass muster as sufficiently concrete. Although the Supreme Court did not request briefing on the Article III issue, it may address a lack of Article III standing, as a question of subject matter jurisdiction may arise at any point in federal litigation. ERISA litigators should read the coming Church Plan decision to see if it contains an Article III analysis that has implications beyond the Church Plan context. If it does not, litigators nonetheless should be aware that the last word on the intersection of Spokeo and ERISA will not yet be written.

By: Mark Casciari and Ian Morrison

ERISA sets forth complex reporting, disclosure, vesting and funding rules for most private sector employee benefit plans. It also provides a private claim upon which relief may be granted in federal court for violations of these rules. For example, if a covered plan fails to provide participants with a proper summary plan description, under current law, a participant can sue, perhaps as a class representative, and ask a court to order the plan fiduciary to comply with disclosure rules. That participant could then seek an award of up to $110 per day in penalties, plus substantial attorney’s fees.

On April 20, 2015, over the objection of the Solicitor General, the Supreme Court agreed to decide, in Spokeo, Inc. v. Robbins, No. 13-1339, whether Article III of the Constitution allows Congress to permit lawsuits over a statutory violation where the violation does not necessarily result in a plausible claim of concrete injury. Our sister blog has described the case [here], and, to be sure, it arises under the Fair Credit Reporting Act, not ERISA. But the Constitutional question presented to the Supreme Court has equal applicability to ERISA claims.

If the Supreme Court finds that private plaintiffs cannot sue to enforce statutory obligations when they have not yet been harmed by violations of those obligations, that would mean that an ERISA plan participant would have no access to the federal courts to enforce the myriad of ERISA reporting, disclosure, vesting and funding rules. The participant who fails to receive a compliant summary plan description, for example, could not sue unless she could show that the failure caused her concrete injury. Alleging a possible injury down the road, or merely alleging that no fiduciary should be able to flout ERISA rules, would not suffice. The participant would need to allege that the statutory violation caused her to suffer real harm, such as purchasing a house in reliance on a false representation of benefit amounts. That type of allegation is not an easy one to make in good faith, as is required by Rule 11 of the Federal Rules of Civil Procedure. Any plaintiff lawyer contemplating a lawsuit pays close attention to Rule 11 in order to avoid sanctions for violation of the rule.

What’s more, if the Supreme Court eliminates the right to sue for enforcement of statutory rights, it might curtail a relatively new decision from the Court thought to allow more ERISA remedies. In Cigna Corp. v. Amara, the Court stated that a participant could sue a fiduciary for an ERISA disclosure violation without having to allege detrimental reliance injury. It would be tougher to make a non-reliance-based Amara fiduciary claim of “actual harm” if the Court finds that a desire to vindicate statutory rights is not Constitutionally sufficient to allow access to the federal courts.

ERISA funding rules also may become harder to enforce. Underfunding in violation of statutory rules would not provide access to the federal courts even if the plan is closing in on insolvency, as long as there are sufficient funds now to pay vested benefits. A Supreme Court decision requiring concrete injury may strengthen the cases of the defendants in the ongoing church plan litigation.

While it would surely cut back on private ERISA lawsuits, a Supreme Court ruling against a claim to vindicate statutory rights absent an allegation of plausible concrete injury could lead to more ERISA lawsuits by the Department of Labor or the Pension Benefit Guaranty Corporation to make up the shortfall. In a time of limited government funds, however, increased government litigation may not be in the cards.

We or our sister blogs certainly will advise you of developments in Spokeo, including the oral argument in the case, which probably will take place in the Fall of 2015.

By: Ian Morrison and Nadir Ahmed

The Fourth Circuit’s LaRue decision went largely unnoticed until the Supreme Court decided to take the case, and the ensuing opinion has had a significant impact on the development of ERISA law.  Could the next Supreme Court ERISA decision be brewing in the Fourth Circuit?

On December 21, 2011, in David v. Alphin, Case No. 11-2181 (4th Cir.), plaintiffs, participants of Bank of America’s 401(k) Plan and Pension Plan, appealed to the Fourth Circuit after the district court partially dismissed and later entered summary judgment for the defendants on their claims that the defendants engaged in imprudence and self-dealing by offering Bank of America-affiliated mutual funds as plan investments.

Plaintiffs raise four issues on appeal.  First, they challenge the district court’s statute of limitations ruling, which held that their prudence and loyalty claims arising from the offering of  bank-affiliated mutual funds were untimely because the funds had been selected well before the applicable statute of limitations.  Plaintiffs argue that the defendants had failed to remove the funds despite alleged excessive fees and poor performance and that they had only sued defendants responsible for plan management during ERISA’s six-year statute of limitations.  Therefore, they assert it was error to treat their claims as relating solely to the initial selection of the investments, which admittedly occurred outside the limitations period.  Plaintiffs also contend that the court ignored established authority holding that the failure to remove an investment is a distinct breach of fiduciary duty giving rise to a distinct cause of action.   

Second, plaintiffs claim that the district court erred in treating their claim as one challenging the initial selection of imprudent investment options, because, according to the plaintiffs, the last act to constitute a breach was offering the investment options to participants, which had taken place within the limitations period.  Specifically, plaintiffs argue that the funds were last used as investment options on August 7, 2000, well within the six-year statute of limitations under ERISA. 

Third, plaintiffs argue that it was error for the judge, who was new to the case, to dismiss all claims with prejudice rather than allowing them to amend their complaint again.  Plaintiffs contend that this decision was premised on the judge’s incorrect impression that the court had given the plaintiffs three opportunities to amend the complaint, when only one amendment had required court approval.  However, plaintiffs concede that they had amended their complaint multiple times by the time the court dismissed the case. 

Last, plaintiffs argue that the lower court misapplied the law of standing when it dismissed plaintiffs’ Pension Plan claims.  The district court found that because the Pension Plan is a defined benefit plan, participants were entitled to fixed payments, funded by the employer, and therefore, were not harmed by the improper and excessive fees.  Plaintiffs argue that the lower court erred and that they demonstrated four distinct injuries, each of which independently conferred constitutional standing.  Plaintiffs argue at length that they satisfy the Article III standing requirements, that they have standing to sue for self-dealing transactions absent direct economic injury to themselves or the Pension Plan, that they suffered personal injuries from the Pension Plan’s losses, and that they have standing to enforce legal rights vested in them by statute.

Appellate briefing is still in its early stages, but the David case has the hallmarks of a potentially significant ERISA decision in the making.  First, the district court decision is one of very few to dismiss claims relating to the continued inclusion of allegedly imprudent investments on the theory that the claim actually focuses on the initial offering of investments.  Second, it touches on the cutting edge question of whether defined benefit plan participants have standing to sue for plan investment losses even though they do not claim the plan to be unable to satisfy benefit payment obligations.  Third, the Fourth Circuit is sure to comment on the growing trend of plaintiffs in ERISA class actions attempting to amend their pleadings to avoid dismissal.  Besides these issues, this case has already attracted the attention of a number of interested parties.  In fact, while waiting for the defendants to file their brief, the Pension Benefit Guarantee Corporation, AARP, and the Secretary of Labor each filed Amicus Curiae briefs in support of the plaintiffs.  We will continue to watch the appeal and will report back as it progresses.