Sponsors, participants both increasingly ask justices to rule on suits
In what has become a monthly occurrence, sponsors and participants are asking the U.S. Supreme Court to settle ERISA disputes that could have a profound impact on defined contribution plan management.
In each of the first four months of 2019, separate petitions for court review were filed covering company stock, burden of proof in fiduciary breach claims, communication about investments and standards for convincing judges that claims should go to trial.
Attorneys who represent sponsors said the influx to the Supreme Court reflects a trend of greater litigation as a variety of ERISA complaints works through the federal court system.
"The common thread is the proliferation of litigation over retirement and benefits," said Nancy Ross, a Chicago-based partner at Mayer Brown LLP. "In the system of benefits, the regulations are so unclear. There's so much room for challenges."
Like the other sponsors' attorneys interviewed for this article, Ms. Ross doesn't represent sponsors in the four petitions before the court.
Acknowledging Supreme Court rulings on key ERISA matters in recent years, Ms. Ross said many issues should be addressed by legislation rather than interpreted by the judiciary. "It's time for an overhaul" of ERISA to clarify ambiguities, she said.
The steady stream of ERISA lawsuits "creates uncertainty" for sponsors, making it "difficult to know what their duties are," said Aliya Robinson, senior vice president, retirement compensation policy for the ERISA Industry Committee, Washington.
Attorneys for sponsors and for trade groups supporting sponsors said the most likely reason for a Supreme Court review is a circuit split — clearly defined differences in rulings among federal appeals circuits on fundamental interpretations of ERISA.
Plaintiffs' attorney Jerome Schlichter agreed that circuit splits are a key factor, adding that issues of "extraordinary importance" play a major role "even if there was no circuit split." Mr. Schlichter is founder and managing partner of Schlichter Bogard & Denton, St. Louis.
An example of "extraordinary importance" was the 2015 ruling for participants in Tibble et al vs. Edison International Inc., in which the Supreme Court said sponsors' expanded responsibilities include "a continuing duty to monitor trust investments and remove imprudent ones." Mr. Schlichter, who represented the participants, said this guideline represented not only an issue of "extraordinary importance" but also "a common sense obligation" for sponsors.
Doubtful for this term
Despite the flow of ERISA cases, very few are taken by the Supreme Court. Research shows the court agrees to review about only about 6% of all petitions in any year, excluding pro se petitions, which are filed by individuals.
Given the Supreme Court's current calendar, attorneys doubted there would be enough time for oral arguments during the term, which ends June 30, regardless of cases justices might agree to hear.
The cases are:
Putnam Investments LLC et al. vs. Brotherston et al., filed Jan. 11. Seeking to overturn an appeals court ruling against its 401(k) plan, Putnam wants the Supreme Court to settle a circuit split on loss causation: Must the plaintiff prove an ERISA breach caused a loss, or must the sponsor disprove an alleged loss was caused by the ERISA breach?
Intel Corp. Investment Policy Committee et al. vs. Christopher Sulyma, filed Feb. 26. Seeking to overturn an appeals court ruling, Intel has asked the court to clarify ERISA rules for sponsors' duties and participants' responsibilities in understanding investment menu changes and policies.
Retirement Plans Committee of IBM et al. vs. Larry W. Jander, et al., filed March 8. In appealing an appellate court decision, IBM said the court incorrectly interpreted the standards for stock-drop cases as established by the Supreme Court in a key 2014 ruling.
Charles E. White Jr. et al. vs. Chevron Corp. et al., filed April 3. Participants in a Chevron 401(k) plan want the Supreme Court to review what they allege is inconsistent rulings by several appeals courts. They say the Supreme Court should clarify the strictness of standards that lower courts use to determine if cases can proceed to trial or be dismissed.
ERISA attorneys said the Putnam case appears most likely to attract high court interest. "There is no dispute that there is a clear split of authority among the circuits," said Marcia Wagner, founder and managing partner of The Wagner Law Group, Boston.
"The circuit courts have analyzed in detail the arguments in favor of placing the burden of proof to establish loss upon a plaintiff or for placing it upon the defendant fiduciary," she said. "One of the objectives under ERISA was to obtain uniformity in outcome, so this is a ripe area for the Supreme Court to render a final opinion."
The Supreme Court on April 22 asked the U.S. solicitor general to present views on the case.
Participants sued Putnam Investments in November 2015, alleging the company's 401(k) plan favored proprietary products without adequately considering cheaper, similar alternatives. A U.S. District judge dismissed some claims in March 2017. After a bench trial, the judge ruled in June 2017 for Putnam on the other complaints, saying plaintiffs failed to prove loss causation.
However, the 1st U.S. Circuit Court of Appeals sent the case back to the judge in October 2018, telling him to examine his decision in light of the panel's view of loss causation. The appellate judges said Putnam must disprove loss causation.
Nine business organizations have flocked to support Putnam by filing amicus briefs with the Supreme Court — separately or collaboratively — maintaining that a pro-plaintiff ruling would cause havoc among DC plans.
Loss and loss causation regarding fiduciaries' duties "are two of the chief bulwarks for stemming the tide of meritless ERISA litigation," said an amicus brief filed by seven organizations including the American Benefits Council, Washington, supporting Putnam. "The First Circuit's decision guts both of these requirements."
Proving that an alleged breach of fiduciary duties caused a loss "should always" be a plaintiff's responsibility, Jan Jacobson, senior counsel for retirement policy at the American Benefits Council, Washington, said in an interview. "Too often plaintiffs will offer hindsight" to prove a fiduciary breach claim, she said. "Anyone with the benefit of hindsight will do better."
Time limits scrutinized
The Intel case features the interplay of an ERISA statute of limitations rule for filing fiduciary breach suits with another statute assessing plaintiffs' knowledge of an alleged breach.
If courts say a plaintiff had sufficient knowledge, then they would reject a complaint filed after the statute's three-year limit. If courts believed the plaintiff lacked such knowledge, they would rule that time limit doesn't apply.
A U.S. magistrate judge ruled for Intel in March 2017. The judge rejected a 401(k) plan participant's argument that plan disclosures about investments were inadequate and that the participant lacked enough information about the plan's alternative investments.
However, the U.S. Circuit Court of Appeals for the 9th Circuit reversed and remanded the decision, saying the participant didn't have sufficient knowledge and that the statute of limitations didn't apply.
Intel asked for a Supreme Court review because the appeals court's concept of participant knowledge clashed with the ruling of a different appellate court. "All of the relevant information was disclosed to the plaintiff by the defendants more than three years before the plaintiff filed the complaint," Intel said. "The plaintiff chose not to read or could not recall having read the information."
The 9th Circuit decision "really renders the statute of limitations in ERISA meaningless," said Emily Costin, a Washington-based partner at Alston & Bird LLP.
The appeals court ruling "puts defendants in a really difficult position," added Sarah Adams, a Washington-based principal for Groom Law Group, referring to the legal definition of knowledge for ERISA purposes. "It's a really tough question that we deal with all of the time from a defense point of view."
Meeting legal standards
In the Chevron case, participants in a company 401(k) plan asked the Supreme Court to rule on legal standards that plaintiffs must meet so their complaints can proceed to trial.
They sued Chevron and its retirement plan investment committee in February 2016, saying the 401(k) plan should have offered a stable value fund instead of a money market fund. They also said plan managers should have acted faster to remove an allegedly underperforming small-cap value fund and claimed that the plan charged excessive administrative and investment management fees.
A District Court dismissed the complaint in 2016 and 2017. The 9th Circuit appellate court supported the lower court in 2018.
Participants told the Supreme Court that other appeals courts have endorsed less rigid standards. "Outside of the Ninth Circuit, petitioners' complaint would have survived dismissal," said the plaintiffs' petition. "In most cases, as in this case, participants do not have access to facts that satisfy the Ninth Circuit's stringent standard."
Mr. Schlichter's firm represents the participants. He declined to comment on this or the other ERISA cases
However, sponsors' attorneys backed stricter standards. "The plaintiffs are trying to ask the Supreme Court to lower pleading standards," said Ms. Costin of Alston & Bird. "You have to have enough facts to get (a case) into discovery. Otherwise, anyone could plead without facts."