Cornell Workers’ Win Set to Rattle ERISA With Extra Steps, Costs

The justices’ recent decision making it easier for workers to challenge 401(k) arrangements may force lawyers to confront a seldom-used procedural step, throwing a wrench in ERISA litigation by making it longer and costlier.

The US Supreme Court’s decision in Cunningham v. Cornell University is a clear victory for employees because it allows them to successfully allege that routine arrangements for retirement plan services violate ERISA’s prohibited transaction rules. Plan fiduciaries can avoid liability for these common transactions by pleading and proving a statutory exemption applies, Justice Sonia Sotomayor said for the unanimous court.

The justices acknowledged the decision could supercharge litigation under the Employee Retirement Income Security Act by reducing the chances cases will be dismissed before the costly and time-consuming discovery phase. Judges should therefore consider adopting the unusual step of ordering plan participants to file replies once defendants raise an ERISA exemption as an affirmative defense, according to both the majority opinion and a concurrence by Justice Samuel Alito.

The justices pitched this idea as an attempt to address concerns over costly and lengthy litigation, but attorneys say injecting a seldom-used and poorly-understood procedural step into an already complex legal landscape could cause more problems than it solves.

“At the end of the day, this doesn’t change what is a prohibited transaction,” said Jordan Bock, a litigator in Goodwin Procter LLP’s Boston office. “It just makes it more difficult to resolve the case at the pleading stage and makes these cases more expensive and more difficult without changing the scope of the claim.”

What Reply?

Federal rules dictate what filings can be made in the early stages of a civil lawsuit. Defendants can respond to a complaint with an answer listing their affirmative defenses, and plaintiffs can respond with a reply only “if the court orders one.”

Court-ordered replies aren’t common, Alito acknowledged in his concurrence. In fact, it’s difficult to find examples of them being used outside of very specific legal contexts, Bock said.

“District courts just aren’t accustomed to having this built into a case,” she said.

There’s also little guidance on what information replies should include. In a 1998 qualified immunity case, the Supreme Court advised that replies include “specific, non-conclusory factual allegations” responding to an affirmative defense.

In the ERISA context, an affirmative defense to claims under the statute’s prohibited transaction rules—which put guardrails on arrangements between benefit plans and interested parties—would likely argue the plan received necessary services at a fair price. A reply casting doubt on that defense might include examples of other plans that paid less for the same services, said Tulio D. Chirinos, an ERISA litigator and owner of Chirinos Law Firm PLLC in Florida.

Adding Steps

It’s unclear how many additional procedural steps will arise if district judges begin ordering replies.

According to Lindsey R. Camp, an ERISA litigation partner with Holland & Knight LLP, defendants may need to ask that the court order a reply, which is likely to be opposed by plaintiffs. After a reply is filed, defendants may choose to seek judgment on the pleadings or move to strike information contained in the reply, according to Chirinos.

But if courts don’t pause discovery while this back-and-forth plays out, “it’s just an extra procedural step that won’t ultimately impact the litigation,” Camp said.

One complicating factor is that claims under ERISA’s prohibited transaction rules are typically accompanied by claims of fiduciary breach, Chirinos said. Defendants may be loathe to file an answer and seek a reply on prohibited transaction claims because doing so may force them to waive arguments typically made when seeking dismissal of fiduciary breach claims, he said.

Defendants may be tempted to “layer” their response by filing a partial motion to dismiss accompanied by an answer and a request for a reply. But this might not fly with district judges, who could be disinclined to give defendants “multiple bites at the apple,” Chirinos said.

Other Ideas

In addition to court-ordered replies, the Supreme Court advised judges to consider imposing sanctions, ordering plaintiffs to pay attorneys’ fees, and carefully scrutinizing whether cases should be dismissed on standing grounds.

Attorneys say these ideas may address the court’s concerns—but only if district judges actually use them.

Sanctions—court-ordered penalties for frivolous or unsupported filings—tend to be imposed only in “extreme circumstances” and thus aren’t likely to meaningfully tamp down on meritless ERISA cases, José M. Jara, counsel for Fox Rothschild LLP in Morristown, N.J., said.

Jara was also skeptical that attorneys’ fee awards could effectively deter meritless litigation, because they’re not routinely imposed on losing plaintiffs and tend to be reduced when they are assessed.

Waiting Game

Court-watchers likely won’t have to wait long to see how district judges grapple with the justices’ suggestions.

There are plenty of pending cases filed under ERISA’s prohibited transaction rules, Chirinos said, and we’re likely to see a defendant attempt to force a reply later this year.

Even the Supreme Court isn’t sure how its suggestions will land.

Alito said it “remains to be seen” whether these measures “will be used in a way that adequately addresses the problem.”

The case is Cunningham v. Cornell Univ., 2025 BL 130356, U.S., No. 23-1007, 4/17/25.