Happy New Year. We wrap-up 2019 with an article that reflects on significant developments in ERISA litigation during 2019, and takes a look at what's on the horizon for 2020. The courts (at all levels) were quite busy in 2019 attending to ERISA issues and all indications are that they will be in 2020 as well. Most notably, the Supreme Court has agreed to consider a number of ERISA cases. Our article discusses a trilogy of cases that the Supreme Court will consider—company stock fund litigation, statute of limitations, and standing. And, as we go to print, the Supreme Court agreed to hear a fourth ERISA case dealing with issues of preemption. More to come on that case on our blog. But, the Supreme Court has declined (again) to consider issues bearing on who has the burden of proof in proving losses resulting from a fiduciary breach—a significant issue as to which there is a deep split among the circuit courts.
Also of note in this Newsletter is a reproduction of a ten-part blog series on best practices in benefit claim administration. Our blog posts often discuss many complex, and sometimes esoteric, substantive and procedural ERISA issues, as well as related agency guidance and case law. In this ten-part blog series, however, we take a step away from the complex and esoteric in order to review some of the fundamentals of benefit claim administration.
As always, the balance of our Newsletter presents highlights from our blog and addresses a variety of topics, including the Affordable Care Act, arbitration, attorneys' Fees, disclosure, health plan compliance, HRAs, multiemployer funds, plan qualification, venue, and vested health care benefits.
A Reflection on ERISA Litigation in the Year Gone By
As we head into the New Year, we take time to reflect on some of the highlights in ERISA litigation, the effects of which are likely to have an impact in 2020 and beyond. For the first time in several years, the U.S. Supreme Court has agreed to consider multiple ERISA cases and, depending on how the Supreme Court rules in each of these cases, we may see a substantial uptick in the filing of ERISA class actions and/or the trial courts being less inclined to dismiss cases prior to discovery taking place. The circuit courts also have been quite busy. One of the most notable ERISA litigation decisions of the year came from the Ninth Circuit where it concluded that, not only are ERISA claims arbitral, but that a plan can prohibit a participant from pursuing anything but individual relief in arbitration. Finally, the district courts have been addressing all sorts of ERISA claims from challenges under the Mental Health Parity Act to novel claims asserting violations of ERISA's anti-cutback rules. We review each of these areas below.
The U.S. Supreme Court's ERISA Trilogy
This term's Supreme Court docket takes on three important issues dealing with the litigation of ERISA claims that, regardless of their ultimate rulings, are likely to shape the future of ERISA litigation on multiple fronts.
Company Stock Fund Cases. On November 6, 2019, the Justices heard oral argument in Retirement Plans Committee of IBM v. Jander. In this case, the Supreme Court will determine whether the Second Circuit incorrectly applied the pleading standard for claims challenging the prudence of 401(k) plan participant investments in company stock funds. The Second Circuit concluded that, consistent with the pleadings standard previously set by the Supreme Court, plaintiff's allegation that the IBM defendants could have publicly disclosed that IBM's microelectronics business was impaired plausibly pled an alternative action the plan fiduciaries could have taken that would not have caused more harm than good to the plan. See Jander v. Ret. Plans Comm. of IBM, 910 F.3d 620 (2d Cir. 2018). (A more in-depth discussion of the Second Circuit's opinion is available here.) The Second Circuit's decision was significant because it was the first (and remains the only) circuit court decision to permit fiduciary breach claims in connection with investment in a company stock fund to survive a motion to dismiss and proceed into discovery since the Supreme Court re-defined the pleading standard for such claims in 2014. Depending on the scope of the Court's ruling, this could be the final nail in the coffin for these types of claims; alternatively, it could once again open the floodgates to these types of claims being brought every time there is a downtick in a company stock's price.
Statute of Limitations. On December 4, 2019, the Justices heard oral argument in Intel Corporation Investment Policy Committee v. Sulyma. The Supreme Court agreed to consider whether the Ninth Circuit erred when it split from the Sixth Circuit and found that, to have the "actual knowledge" needed to trigger ERISA § 413(2)'s three-year limitations period, a plaintiff must read and understand plan information provided to him by the ERISA plan. If the Supreme Court adopts the Ninth Circuit's interpretation, it may be more difficult in some cases to obtain dismissal of a case based on the three-year limitations period. But, at the same time, the need for individualized inquiries into what each participant actually knew may make class certification quite difficult to obtain in many cases.
Statutory Standing. The Supreme Court agreed to consider whether pension plan participants have Article III and ERISA standing to bring fiduciary breach claims without first demonstrating actual or imminent injury to their financial interests. The Eighth Circuit held that a participant in a fully-funded defined benefit plan lacked standing under ERISA to assert breach of fiduciary duty claims based on the failure to diversify investments because the participants had not suffered any individual financial harm. See Thole v. U.S. Bank, 873 F.3d 617 (8th Cir. 2017). (A more in-depth discussion of the Eighth Circuit's opinion is available here.) The Second, Third, and Sixth Circuits had reached the opposite conclusion, holding that no individual financial loss is necessary, and a violation of the participants' rights under ERISA is enough to establish standing. The Supreme Court is scheduled to hear oral argument on January 13, 2020. The Court's decision could have a significant impact on who can bring ERISA claims against pension plans. With respect to defined benefit plans, participants are generally not at risk of losing their benefits when the plan loses money—though the investment losses may make future benefit enhancements less likely—and thus a requirement of individual harm, whether for statutory or constitutional standing purposes, could effectively preclude participants of these plans from pursuing recovery of plan losses. With respect to defined contribution plans, a pro-defendant ruling could increase the likelihood for mounting an effective argument in defined contribution litigation that plaintiffs lack standing to sue to recover for investment losses in funds in which they did not invest.
Loss Causation (maybe). It remains to be seen whether the Court will agree to consider a petition submitted by Putnam Investments concerning a case in which the First Circuit concluded that once a plaintiff asserting an ERISA fiduciary breach claim establishes a breach and loss to the plan, the burden of disproving that the breach caused the loss shifts to the defendant. See Brotherston v. Putnam Investments, LLC, 907 F.3d 17 (1st Cir. 2018) (A more in-depth discussion of the First Circuit's opinion is available here.) Interestingly, the district court previously found the opposite and dismissed the case in the middle of trial. The First Circuit aligned itself with the Fourth, Fifth, and Eighth Circuits, and departed from the Second, Sixth, Seventh, Ninth, Tenth, and Eleventh Circuits. Acknowledging that plaintiffs typically bear the burden of proving all elements of their claim, the First Circuit explained that, in its view, the default rule has exceptions where, as here, the facts are "peculiarly within the knowledge of" the defendant. Though the issue is seemingly "procedural," who bears the burden of proof can be outcome-determinative, and a ruling from the Supreme Court (regardless of its outcome) would likely have a broad impact on ERISA fiduciary litigation. While the deep circuit split on the issue may lead some to believe that the case is a good candidate for Supreme Court review, the government recommended against review because, in its view, the case is a "poor vehicle" to resolve the circuit split, given the mid-trial disposition of the case.
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