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Another ERISA Case Earns Supreme Court Review

Fiduciary Rules and Practices

The U.S. Supreme Court has agreed to take on yet another ERISA case this term.

This case – Thole v. U.S. Bank, N.A., U.S., No. 17-1712, certiorari granted 6/28/19 – involves a suit by participants in U.S. Bank’s pension plan who, after the plan fiduciaries alleged mismanagement resulted in $750 million in losses to the plan, brought suit – even though the benefits promised by the pension plan are not yet threatened, and – significantly – when the participant-plaintiffs have not yet suffered any individual harm. Indeed, it was on that basis that the plaintiffs here allege that the Eighth Circuit inappropriately affirmed the district court’s earlier dismissal of their claims.

The Issue

At issue here was U. S. Bank’s decision to invest all $2.8 billion of the pension fund’s assets (in 2007) in what was described as “high-risk” equities, including more than 40% in their own proprietary mutual funds “even though they were more expensive than similar alternatives,” which the plaintiffs allege not only “flouted” ERISA’s prohibited-transaction rules, but “violated basis fiduciary principles of prudence and loyalty.” Ultimately, when the markets crashed in 2008, the plan lost $1.1 billion, with the plaintiffs claims was $748 million more than an “adequately diversified plan would have.” That loss “left the plan reeling,” they claim, and “virtually overnight the plan went from significantly overfunded to 84% underfunded,” according to the plaintiffs.

However, the U.S. Court of Appeals for the Eighth Circuit, in rejecting those claims, noted that the bank’s pension plan had recovered (thanks in no small part to a substantial contribution to the plan by the employer) and was now in a healthy financial condition (more precisely, it was OVERfunded), which meant the participants hadn’t suffered any actual losses.

‘Split’ Decisions

The plaintiffs allege that not only did that decision veer from decisions in other districts – specifically the Second, Third and Sixth Circuits, which held that violation of ERISA rights alone was sufficient to have standing to bring suit, without establishing loss – but with the Administration’s sense of things as well. However, the Fourth, Fifth, and Ninth circuits have gone another way – denying standing to bring suit to participants in similar contexts, though they have done so on Constitutional grounds, unlike the Eighth Circuit, which cited ERISA.

If not resolved – and resolved in their favor – the plaintiffs here allege that “under the dominant view among the circuits, fiduciaries can brazenly mismanage ERISA plans without the fear of liability, so long as they stop short of putting the plan at imminent risk of default,” a result they claim “contravenes ERISA’s goals.”

Third Bases

This is the third ERISA case the nation’s highest court has agreed to take on this term. In mid-June, the U.S. Supreme Court agreed to consider the issues involved in a case (Intel Corp. Inv. Policy Comm. v. Sulyma, U.S., No. 18-1116, cert. granted 6/10/19) of a decision by the U.S. Court of Appeals for the 9th Circuit that said that “…‘actual knowledge’ means something between bare knowledge of the underlying transaction, which would trigger the limitations period before a plaintiff was aware he or she had reason to sue, and actual legal knowledge, which only a lawyer would normally possess.”

The Supreme Court has also agreed to consider (in Ret. Plans Comm. of IBM v. Jander, U.S., No. 18-1165, certiorari granted 6/3/19) “[w]hether Fifth Third Bancorp v. Dudenhoeffer’s ‘more harm than good’ pleading standard can be satisfied by generalized allegations that the harm of an inevitable disclosure of an alleged fraud generally increases over time.” Not yet on the docket – in April, the Court asked for input from the Solicitor General on a potential review of Brotherston v. Putnam Investments, LLC, a case with significant implications for the burden of proof in ERISA lawsuits. 

Should make for an interesting fall.