Groups lobby Supreme Court for uniform standard on ERISA violation claims

Representatives of employee benefits trade groups and record keepers have asked the Supreme Court to establish a uniform standard for determining if federal courts should dismiss ERISA complaints or allow them to go to trial.

The requests from the American Benefits Council, the U.S. Chamber of Commerce and TIAA-CREF were filed in January.

These friend-of-the-court briefs support a petition by the University of Pennsylvania, which asked the Supreme Court to overturn an adverse ruling by a federal appeals court in Philadelphia in a fiduciary breach case involving its 403(b) plan.

The university argued that the appeals court ignored or misunderstood legal precedents, including two Supreme Court rulings, that established legal standards for plaintiffs pleading their allegations.

The appeals court's "conclusion conflicts with decisions from (the Supreme Court) and many circuits," said the university's Dec. 19 petition, filed by five attorneys at Morgan Lewis & Bockius LLP.

"ERISA's promise of 'uniform standards of primary conduct' cannot be fulfilled when courts treat identical allegations differently under inconsistent pleading standards," the petition said. Because this ruling creates a "circuit split," the Supreme Court should make sure all courts interpret the law consistently, the petition said.

"This inconsistency undermines ERISA's promise of predictability and uniformity," said the American Benefits Council and the U.S. Chamber of Commerce in a Jan. 17 friend-of-the-court brief filed jointly.

The Supreme Court "has provided similar guidance to lower courts on numerous occasions in the ERISA stock-drop context," they wrote. "And those cases arise less frequently than cases, like this one, challenging the investment options in a plan lineup or a fiduciary's choice of service providers."

The justices are scheduled to review the case at a weekly conference on Feb. 21 to determine if they want to hear it.

The initial lawsuit covered in the petition to the Supreme Court, University of Pennsylvania et al. vs. Sweda et al., contained some common features of other ERISA lawsuits brought by participants against 403(b) plans, such as allegations of poor-performing investments, excessive investment fees and high record-keeping fees. The University of Pennsylvania Matching Plan had $4.4 billion in assets of as of Dec. 31, 2018, according to the latest Form 5500 filing.

However, the university and its supporters said the appeals court ruling could have a greater impact beyond just the university because it addresses the gatekeeper policy that courts use when deciding if plaintiffs' arguments are legally sufficient to go to trial. Sponsors seek dismissals, knowing that any case that clears this hurdle will lead to an expensive discovery process.

Plan participants criticized the university and its fiduciaries in an August 2016 lawsuit, alleging a series of ERISA violations. A U.S. District Court in Philadelphia dismissed all five counts of the complaint in September 2017, saying plaintiffs' arguments failed to meet the "plausibility threshold" established by a U.S. Supreme Court decision in 2007.

A three-judge panel of the Philadelphia federal appeals court, in May 2018, reversed the dismissal of two counts covering allegedly excessive administrative fees, high investment fees, some poor-performing investments and failure to "comprehensively review" plan management.

The appeals court, in a 2-1 vote, said the District Court had incorrectly applied the legal pleading standard established by the 2007 Supreme Court ruling.

However, the university and its supporters contend that the appeals court made the mistake about the pleading standard. They said the appeals court incorrectly ruled the standard applied only to antitrust cases. The 2007 Supreme Court decision and a 2009 Supreme Court ruling said the pleading standard covers other civil cases as well.

The Philadelphia appeals court "departed from those decisions and erroneously allowed (plan participants') claims against Penn to move past the pleading stage," said the TIAA brief, which was filed Jan. 15. The appeals court ruling means "Penn will be subject to burdensome discovery and enormous settlement pressure." Unless the ruling is reversed, other universities could be affected, the document said.

The two Supreme Court rulings cited by the university and its supporters didn't involve ERISA cases. The 2007 decision, Bell Atlantic Corp. et al. vs. Twombly, covered a restraint-of-trade complaint by consumers regarding the telecommunications industry. "Factual allegations must be enough to raise a right to relief above the speculative level," said the Supreme Court in its ruling against the consumers.

The 2009 case, Ashcroft et al. vs. Iqbal et al., addressed a complaint by a Pakistani Muslim that he was arrested and detained by U.S. officials due to his race, religion and national origin. Mr. Iqbal's complaint "fails to plead sufficient facts to state a claim for purposeful and unlawful discrimination," said the court in ruling against him.

What linked these disparate decisions and their application to ERISA cases is how the Supreme Court said lower courts should interpret federal rules of civil procedure in establishing pleading standards.

"Our decision in Twombly expounded the pleading standard for 'all civil actions,' and it applies to antitrust and discrimination suits alike," the Supreme Court said in its Iqbal ruling.

The University of Pennsylvania case represents the second 403(b) ERISA dispute to come before the Supreme Court since 2019.

In February 2019, the Supreme Court declined to review a petition by the University of Southern California to review lower courts' rulings that rejected its effort to compel arbitration in an ERISA lawsuit filed by participants in two retirement plans.

In the University of Southern California et al. vs. Munro et al., participants in two 403(b) plans alleged that plan managers had breached their fiduciary duties by, among other things, having too many record keepers and fees that were too high.

The university said the lawsuit should be dismissed because employees had signed arbitration agreements as a condition of employment. Both a federal district court and a federal appeals court ruled for the participants.

The participants were represented by Jerome Schlichter, who also represents the plaintiffs in the University of Pennsylvania case. On Dec. 26, 2018, he submitted a notice to the Supreme Court saying he wouldn't file an answer to the University of Pennsylvania's petition. He gave no reason.

Mr. Schlichter is the founding and managing partner of Schlichter Bogard & Denton LLP. In the last four years, Mr. Schlichter has represented participants in many of the two dozen fiduciary breach cases that have been filed against 403(b) plans of large universities and some medical institutions.

Eight sponsors have settled — two medical institutions and six universities, including one that offered a 401(k) plan.