Posted January 10th, 2020.
By Emily Brill
Law360 (January 10, 2020, 10:11 PM EST) — U.S. Bank and its retirees will go toe to toe before the U.S. Supreme Court on Monday in a case that could take away workers’ ability to sue over pension plan mismanagement if they haven’t personally lost retirement savings, setting the stage for a ruling that could result in more ERISA class actions getting thrown out of court.
Depending on how the justices write their opinion, the case could also affect suits outside the Employee Retirement Income Security Act litigation realm, since it may help clarify what constitutes standing to sue under Article III of the U.S. Constitution.
The justices don’t necessarily have to take up that issue, since the Eighth Circuit solely addressed the workers’ statutory standing under ERISA, but they could, because the district court’s opinion spoke to constitutional standing.
The high court asked U.S. Bank NA and the retirees to offer arguments related to both kinds of standing, indicating they’re interested in considering both, but giving no clues as to what their opinion will ultimately address.
Monday’s oral arguments may provide some clues, however. Here, ahead of these, Law360 breaks down the arguments and what might happen in this case.
What Are the Arguments?
Thole v. U.S. Bank arrives at the high court from the Eighth Circuit, which ruled in 2017 that U.S. Bank’s alleged pension mismanagement didn’t inflict the type of injury on retirees that would justify an ERISA fiduciary-breach suit.
James Thole and Sherry Smith could only proceed with their proposed class action if they showed they lost money because of actions U.S. Bank took between 2007 and 2010, the Eighth Circuit wrote.
Even though U.S. Bank allegedly squandered $750 million of the pension plan’s money during that time, the plan still counted as “fully funded” as of 2014. So Thole and Smith didn’t technically lose any money, because they still received their pension checks as usual, the court wrote. This lack of a “concrete and particularized injury” doomed the suit.
The retirees blasted the ruling, saying it misinterpreted ERISA. ERISA authorized workers to sue whenever employers’ actions threatened the plan, and defining “injury” as “financial loss” interprets the term too narrowly, they said.
The ruling undermines ERISA’s usefulness as a law, too, the retirees argued. If companies can’t be held accountable for their bad plan management decisions until those choices tank the plan, ERISA’s fiduciary-breach provisions don’t protect retirement savings the way they were designed to, Thole and Smith said.
Letting the decision stand would allow companies to turn pension plans into their “personal piggy bank[s]” without recourse, the retirees argued. AARP, the AARP Foundation, the Pension Rights Center, Public Citizen and a group of law professors filed amicus briefs supporting the retirees.
U.S. Bank pushed back in November, saying Thole and Smith have no stake in the case because they aren’t at risk of losing their own benefits.
Contrary to the retirees’ assertion, the bank’s alleged fiduciary breach doesn’t constitute an injury in and of itself, because it did not cause a tangible loss, U.S. Bank argued. The “intangible” loss represented by risk to the plan is not enough of a “concrete and particularized” injury to grant the workers standing under the high court’s 2016 ruling in Spokeo v. Robins , the bank argued.
The bank wrote off the lawsuit as a project of money-hungry lawyers, saying the only people who would come out ahead would be the retirees’ attorneys, who requested $31 million in fees.
Business interests assembled behind the bank, saying the retirees’ interpretation of “injury” authorizes ERISA suits by “people who were not actually injured and who do not face any reasonable prospect of injury.”
The U.S. government has also filed a brief in the case and intends to represent itself at oral argument. Though the government’s brief technically supports neither party, its arguments back the workers’ position.
What Might Happen?
Attorneys are waiting for the Supreme Court to clear up what constitutes an injury in an ERISA fiduciary-breach case against a pension plan.
“It will be very interesting to see what the justices think constitutes an injury here, because this is really one of the first test runs of the Spokeo decision, and in a very complicated context,” said Dara Smith, senior attorney for the AARP Foundation.
Smith said Friday that it’s hard to predict how the court will come down, because even though some justices have made it clear they think “injury” constitutes “financial loss,” “there are new members of the court who have not weighed in on this stuff at all.”
If the court upholds the Eighth Circuit, the door will slam on ERISA fiduciary-breach suits against overfunded pension plans, said Charles Field, a partner at Sanford Heisler Sharp LLP.
“It would diminish the number of ERISA suits that could be filed, I would think,” Field said. “It would certainly send a signal to the employer side that you’re given a wide berth here to do with the plan what you want as long as you keep it overfunded.”
The door could also inch closer to shutting out other types of ERISA fiduciary-breach suits, because the defense bar would likely use a win to challenge retirees’ standing in suits against 401(k) plans, attorneys said.
“The defense bar absolutely would use this case as authority to argue that if a participant in a defined-contribution plan was in a fund that didn’t lose money, then they don’t possess standing to sue on behalf of the plan to recover the losses of other funds within the plan,” Field said.
Because of this potential extension of the ruling, a win for employers could “have impact throughout the entire ERISA area,” Field said.
The justices’ potential consideration of Article III standing issues — as opposed to just ERISA standing issues — could also affect other types of litigation, said Darren A. Shuler, a partner at King & Spalding LLP.
He said the case’s “screwy” procedural history allows the justices to duck the Article III standing question if they want, but it also gives them room to address it. This could expand the ruling’s effects significantly.
“The intrigue here is whether the court reaches the issue of Article III standing,” Shuler said. “It’s one thing for the Supreme Court to delineate what constitutes standing under the federal statute that governs employee benefit plans, and quite another for the Supreme Court to delineate what constitutes standing in all federal cases.”
–Additional reporting by Danielle Nichole Smith. Editing by Brian Baresch and Michael Watanabe.