The ability of retirement plan participants and institutional investors to pursue ERISA and securities class-action lawsuits could be significantly altered, following two Supreme Court actions that have sent both groups back to the circuit courts to make their respective cases.
For plan participants, the high court's decision last month in Spokeo Inc. vs. Robins raised the bar for such lawsuits by requiring greater proof of harm to even get a day in court.
For institutional investors, the Supreme Court's eleventh-hour decision to not take up a case addressing the timeliness of securities class actions left the issue up to deeply divided circuit courts and has invest-ors anxious. “It is an enormously significant issue,” said Chris Supple, deputy executive director and general counsel for the $60 billion Massachusetts Pension Reserves Investment Management Board, Boston, who co-chairs the National Association of Public Pension Attorneys' securities litigation committee. “And there's a tremendous amount of investor capital at stake in these cases.”
In Spokeo, Justice Samuel Alito wrote in the majority opinion for the 6-2 decision that the “"irreducible constitutional minimum' of standing consists of three elements. ... The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.”
To lawyers defending plan sponsors in cases stemming from alleged violations of the Employee Retirement Income Security Act, the decision raises the bar for plan participants to pursue such claims, although the question of actual harm will have to be decided case by case.
“Spokeo will bolster the argument by the defense bar that for an ERISA claim to survive, harm must actually exist or there must be plausible evidence of a risk of real harm. That is going complicate the pleading ability of the plaintiffs' bar to allege a claim under ERISA where they can't show that,” said Nancy Ross, a Chicago-based Mayer Brown partner. She thinks the decision will cast doubt particularly on claims involving plan amendments that did not yet result in harm, claims over the funding of defined benefit plans, or those seeking statutory penalties for failure to provide plan documents in a timely fashion.
The Pension Rights Center in Washington, in its amicus brief, warned that the narrower interpretation “could affect the retirement income security of millions of employees.”
The potential sea change the ruling represents became apparent just one week later, when the court cited its Spokeo decision as it gave a class of Verizon Communications Inc. retirees another chance to challenge a pension buyout annuity deal by vacating a lower court decision and ordering the 5th U.S. Circuit Court of Appeals in New Orleans to reconsider it in light of Spokeo. Some ERISA defense lawyers, who worry that vacating the decision could discourage other employers from considering annuity buyouts, are braced for challenges.
While many court observers see Spokeo as making it tougher for participants to sue, Karen Handorf, a Washington-based partner at Cohen Milstein Sellers & Toll PLLC, which represented the participants in their Supreme Court petition, saw the order to vacate as a green light to bring such suits. “It reaffirms that participants in plans don't have to wait for actual losses” before suing plan fiduciaries, Ms. Handorf said.
In the second case, institutional investors were counting on the Supreme Court to weigh in on two key questions regarding the timeliness of securities litigation: how much time investors have to sue for damages and whether they have to go it alone before the class-action opt-out deadline is up.
But a last-minute settlement in the case brought by the $23.8 billion Mississippi Public Employees' Retirement System, Jackson, against IndyMac MBS Inc. challenging the time limits for investors to join or opt out of class-action lawsuits, prompted the court to remove the case shortly before scheduled arguments.
That leaves the timing question to lower courts, which have been split. Investors have been relying on an even older Supreme Court decision. In 1974, the court ruled in American Pipe and Construction Co. et al. vs. State of Utah et al. that the filing of a class-action lawsuit suspends — or tolls — the running of a filing deadline for all class members. That works for situations where there are clear statutes of limitations, but cases involving securities purchases raise another legal concept, statute of repose.
“Before IndyMac, everybody understood that everything was tolled. Once the class action was filed, all the institutional investors knew they could wait and see how the class action was resolved, and then decide whether to take individual action or not,” said Javier Bleichmar, a partner in the New York law firm Bleichmar, Fonti & Auld LLP, which represents institutional investors in securities litigation.