Decisions coming on corporate suits, challenges against plans
Pension plan executives and other investors are watching several Supreme Court cases in the term starting Oct. 5, especially ones that could change the rules for bringing legal actions against corporations, and challenges to when and where retirement plan participants can sue.
One of the earliest such cases to be argued, on Nov. 2, is Spokeo Inc. vs. Robins et al., which asks the high court whether laws passed by Congress allow for lawsuits over violations of statutes such as the Employee Retirement Income Security Act if there is not “real and material” harm.
A ruling that such suits are not permitted would severely restrict retirement plan participants from accessing federal courts to enforce all sorts of rules, from reporting and disclosure to vesting and funding, say participant advocates.
Depending on how broadly or narrowly the court resolves the constitutional question presented, “it could affect the retirement income security of millions of employees,” the Pension Rights Center in Washington argued in its amicus brief. Other legal observers note the case already is having an impact in some lower courts, where plan sponsors want suits put on hold until the Supreme Court weighs in.
To be argued on Nov. 9 is whether ERISA fiduciaries can recover overpayments to participants. A decision in Montanile vs. Board of Trustees of the National Elevator Industry Health Benefit Plan, involving health benefits for retirees, is expected to affect retirement benefits as well.
Another case with potentially broader impact on class-action lawsuits under ERISA and other statutes, Tyson Foods Inc. vs. Bouaphakeo, will be argued Nov. 10. The case, which also has attracted a lot of amicus briefs, questions whether members of a class action who were not harmed can still join the class and be entitled to damages.
Corporations facing investor class actions could rebuff class claims by offering relief to the individual plaintiff before a class is certified, depending on how the court decides Campbell-Ewald Co. vs. Gomez, which will be heard Oct. 14. “Without the ability to pursue those claims on a class-wide basis, it is likely these claims will not be brought, and therefore remain unremedied,” said attorney Ira Schochet, a partner with Labaton Sucharow LLP in New York. “If defendants can escape class-wide accountability in cases involving small individual damages, by offering to fully pay the claims of the plaintiffs, at minimal or even nominal cost ... there will be no incentive to bring those claims,” and the statutory right to bring such claims could suffer, said Mr. Schochet.
Investors who want the ability to sue in state courts for securities violations will be closely watching Merrill Lynch Pierce Fenner & Smith Inc. et al. vs. Manning et al. The suit, brought by Escala Group Inc. shareholders against Merrill Lynch Pierce Fenner & Smith, UBS Securities LLC, Citadel Derivatives Group and others, alleges short-selling of Escala shares to profit from lower share prices. The financial institutions want the Supreme Court to move such cases to federal from state courts.
The $300 million Boca Raton (Fla.) Police & Firefighters' Retirement System gets some serious backup from Sen. Richard Blumenthal, D-Conn., in its case challenging whether a company's verifiably false statement can be dismissed as “puffery” that is not specific enough to materially harm reasonable investors, or whether it is serious enough to allow securities litigation to go forward. Mr. Blumenthal, a former Connecticut attorney general, sued ratings agencies for allegedly false statements related to the financial crisis, considers some lower court allowances for puffery too expansive.
More to come
More variations on ERISA and securities law cases are expected to be taken up by the court between now and the session's end in June, as petitions from plaintiffs, defendants and interested parties continue to roll in.
The justices have been petitioned by United Refining Co. to address a split among five District Court circuits about whether a pension plan would be required to keep paying benefits at a higher level, even if that higher level was due to a pension plan administrator's mistake that was later corrected.
Continued confusion on this issue will deter employers from offering pension plans, said Jan Jacobson, senior counsel for retirement policy at the American Benefits Council, Washington, which represents large plans. “The concern going forward is whether employers will continue to sponsor and maintain plans if a plan administrator's interpretation can permanently amend the plan and vastly increase their liability. It has very broad potential impact,” said Ms. Jacobson, whose group filed an amicus brief.
Employee stock in defined contribution plans could come up again, if the court revisits Harris vs. Amgen Inc., a case it remanded to the 9th U.S. Circuit of Appeals in San Francisco, following a pivotal 2014 Supreme Court decision in Fifth Third Bancorp et al. vs. Dudenhoeffer et al., that removed the presumption of prudence standard often used to defend the use of employer stock against fiduciary-breach lawsuits. In a joint amicus brief, the American Benefits Council and U.S. Chamber of Commerce hope the court will take it on before liability concerns hasten the decline of employer stock offerings. If the court takes a pass, there will be a groundswell of fiduciary-breach cases, Ms. Jacobson predicted.
Another petition, which is backed by Secretary of Labor Thomas Perez, seeks to clarify whether ERISA litigants can shop for legal forums to bring their cases against plan fiduciaries. The justices have reached out to Solicitor General Donald B. Verrilli Jr. to get his take on Smith vs. AEGON Cos. Pension Plan, which questions the validity of sponsors' venue selection clauses in plan documents, and could affect how plan sponsors enforce similar plan provisions for bringing lawsuits.
A closely watched insider trading conviction against hedge fund managers Todd Newman and Anthony Chiasson that was later overturned by the 2nd Circuit could be back in play, if Mr. Verrilli persuades the high court to reconsider it based on updated definitions of insider trading.
One possible sleeper issue that could come up is how the Securities and Exchange Commission handles in-house administrative proceedings, which has been challenged on constitutional grounds in an increasing number of lawsuits in numerous jurisdictions. It is considered a long shot for a Supreme Court term that already has seen thousands of cases rejected, but “the number of cases ... is becoming an avalanche, and it is quite probable that the court will take these issues up this term or next,” said attorney Michael McColloch, who represents a Houston hedge fund manager battling the SEC in court.
This article originally appeared in the October 5, 2015 print issue as, "Experts watching high court session".