U.S. Supreme Court review of an Eighth Circuit decision could have a significant bearing on the future conduct of ERISA litigation on several fronts. The petition has also garnered significant attention in part due to the Supreme Court’s request that the Solicitor General submit a brief expressing the views of the United States.
The case, Thole v. U.S. Bank, 873 F.3d 617 (8th Cir. 2017), appears to present an opportunity for the Supreme Court to rule on whether an Employee Retirement Income Security Act participant or beneficiary who has not experienced individual financial harm lacks standing under Article III of the Constitution to pursue his or her claim and/or lacks a plausible claim for relief under ERISA Sections 502(a)(2) and (3)—which the Eighth Circuit treated as a lack of ERISA statutory standing.
These issues have been a subject of considerable debate, and in Thole, the Eighth Circuit concluded that plan participants did not have statutory standing to assert breach of fiduciary duty claims against defined benefit plan fiduciaries based on their failure to diversify investments because the participants had not suffered any individual financial harm.
In so ruling, the Eighth Circuit explained that its earlier decision in Harley v. Minn. Mining & Mfg. Co., 284 F.3d 901 (8th Cir. 2002) resolved the statutory standing issue—not the Article III standing issue—as it pertains to Section 502(a)(2) claims, and then reached the same conclusion with respect to Section 502(a)(3) claims for injunctive relief.
This article reviews the Eighth Circuit’s decision and the issues presented by the plaintiffs’ petition for review to the Supreme Court.
The District Court’s Opinions
In Thole, two participants in U.S. Bank’s defined benefit pension plan filed a putative class action alleging that defendants breached their fiduciary duties and violated ERISA’s prohibited transaction rules by failing to diversify the plan’s investments, i.e., by investing the entire plan’s portfolio in equities managed by entities affiliated with U.S. Bank. According to the complaint, the investments substantially underperformed, resulting in plan losses of $1.1 billion and causing the plan to become underfunded.
The plaintiffs sought to recover plan losses, disgorgement of profits, injunctive relief, and other remedial relief under ERISA §§ 502(a)(2) and (a)(3). Section 502(a)(2) provides that a plan participant may commence a civil action for appropriate relief under Section 409 of ERISA, which, in turn, provides that plan fiduciaries are personally liable to the plan for any losses to the plan resulting from fiduciary breaches, must restore to the plan any profits generated by such breaches, and are subject to other equitable or remedial relief, including removal as a plan fiduciary.
Section 502(a)(3) is a catchall provision that provides that a plan participant may commence a civil action to enjoin any violation of ERISA or to obtain other appropriate equitable relief that Section 502 does not elsewhere adequately remedy.
U.S. Bank initially moved to dismiss the complaint on a number of grounds, including that plaintiffs lacked Article III constitutional standing—a prerequisite to commencing any action in federal court.
To establish Article III standing, a plaintiff must show an injury-in-fact, a causal connection between the injury and the ERISA misconduct, and a likelihood that the injury will be redressed by a favorable decision in the plaintiff’s favor. Injury-in-fact exists when (i) there is “an invasion of a legally protected interest,” (ii) that is “concrete and particularized,” and (iii) is “actual or imminent, not conjectural or hypothetical.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).
The district court denied the motion to dismiss because, as alleged, defendants’ actions increased the risk that participants will not receive the level of benefits that had been promised them under the plan due to the plan being underfunded.
U.S. Bank subsequently renewed its motion to dismiss, arguing that the plaintiffs did not suffer an injury-in-fact because the plan became overfunded as a result of several voluntary contributions to the plan made by U.S. Bank.
The district court concluded that the issue raised was not one of constitutional standing, but one of mootness, and determined that plaintiffs no longer had a concrete interest in the monetary and equitable relief sought to remedy the alleged injury, i.e., the increased risk that in the future plan beneficiaries would not receive the level of benefits promised. It accordingly dismissed the complaint.
The Eighth Circuit’s Opinion
On appeal, plaintiffs argued that the plan was underfunded at the time they filed the lawsuit and thus they had satisfied the Article III standing requirement. In plaintiffs’ view, that was all that was required by the Eighth Circuit’s prior decision in Harley (discussed below).
Plaintiffs also argued that, notwithstanding their inability to receive the monetary relief they originally sought when the plan was underfunded, their case was not moot because they were capable of receiving the other forms of relief sought in the complaint and authorized by ERISA, including an injunction barring the defendants from continuing to act as plan fiduciaries.
The Eighth Circuit began by reviewing its decision in Harley, which it stated was decided under principles of statutory standing, not under Article III standing principles. According to the court, Harley held that when a plan is overfunded, a participant in a defined benefit plan no longer falls within the class of plaintiffs authorized under Section 502(a)(2) to bring suit because the investment loss does not cause actual injury to the plaintiffs’ interest in the plan.
Therefore, ERISA’s primary purpose of protecting individual pension rights is not furthered, and allowing costly litigation by parties who have suffered no injury would run counter to ERISA’s purpose.
The court also observed that the Harley court also explained that a contrary construction of Section 502(a)(2) would raise serious Article III concerns, given that the limits of judicial power imposed by Article III counsel against permitting participants who have suffered no injury-in-fact from suing to enforce ERISA’s fiduciary duties. With that said, the court made it clear that Harley was not decided on Article III grounds.
Because the U.S. Bank plan was overfunded, the court held that Harley was applicable and the Thole plaintiffs no longer fell within the class of plaintiffs authorized to bring suit. Although the district court had dismissed the case on mootness grounds, the Eighth Circuit determined that dismissal of the Section 502(a)(2) claim was warranted for lack of statutory standing. (The court could affirm dismissal of the action for any reason supported by the record.)
The court then concluded that the analysis it applied under Section 502(a)(2) applied equally to plaintiffs’ claim under Section 502(a)(3): plaintiffs were required to establish actual injury and, given that the plan was overfunded, there was no actual or imminent injury to the plan that caused injury to the plaintiffs’ interests in the plan.
In so ruling, the court relied on a similar conclusion reached by the Sixth Circuit that had been decided on Article III grounds. And, while the court recognized that other circuits had concluded that a plan participant may seek injunctive relief under Section 502(a)(3) even when a plan is overfunded, the court was unpersuaded by those cases.
In a separate opinion, Judge Jane L. Kelly dissented from the court’s opinion as it pertained to plaintiffs’ Section 502(a)(3) claim. In Kelly’s view, the allegations showed actual or imminent injury because some of the plan fiduciaries continued to serve and remain in positions to resume their alleged ERISA violations notwithstanding the plan’s current funding status. Accordingly, Kelly believed that plaintiffs were authorized to sue for injunctive relief under Section 502(a)(3).
Plaintiffs’ Petition for Certiorari
Plaintiffs petitioned the Supreme Court for review, asking the court to resolve two questions:
- May an ERISA plan participant or beneficiary seek injunctive relief against fiduciary misconduct under Section 502(a)(3) without demonstrating individual financial loss or the imminent risk thereof?
- May an ERISA plan participant or beneficiary seek restoration of plan losses caused by fiduciary breach under Section 502(a)(2) without demonstrating individual financial loss or the imminent risk therefore?
In their petition, plaintiffs argued that the Eighth Circuit created a circuit split with the Second, Third, and Sixth Circuits in holding that participants cannot seek injunctive relief under Section 502(a)(3) absent individual financial injury. See Loren v. Blue Cross & Blue Shield of Mich., 505 F.3d 598, 607–10 (6th Cir. 2007); Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care LLC, 433 F.3d 181, 199 (2d Cir. 2005); Horvath v. Keystone Health Plan E., Inc., 333 F.3d 450, 455–56 (3d Cir. 2003).
Those courts, according to plaintiffs, held that no individual financial loss is necessary and that violation of plaintiffs’ rights under ERISA is enough to establish statutory standing under Section 502(a)(3).
Plaintiffs also argued that this case provides an opportunity for the court to resolve confusion over whether a plan participant has standing to sue to restore plan losses under Section 502(a)(2) without alleging individual financial harm.
Plaintiffs explained that the U.S. Department of Labor had taken the view for decades that a participant has standing in these circumstances, and that, while the courts had historically disagreed with the Department of Labor, the Second Circuit recently adopted the Department of Labor’s position in an unpublished decision. Fletcher v. Convergex Grp., LLC, 679 F. App’x 19 (2d Cir. 2017) (unpublished), cert. denied 138 S. Ct. 644 (Jan. 8, 2018).
The court’s intervention also was necessary, according to plaintiffs, because the Eighth Circuit had inappropriately dismissed their claim for want of statutory standing, as opposed to constitutional standing, in an effort to bypass the Article III analysis altogether.
Defendants submitted a brief in opposition to the petition, which argued that review was unwarranted because plaintiffs’ benefits are fixed under the defined benefit plan, the purported plan losses will have no effect on the plaintiffs themselves, and there was no reasonable possibility that the challenged investment decisions will reoccur.
In defendants’ view, the Eighth Circuit’s Section 502(a)(2) ruling was based on a straightforward statutory standing interpretation. The defendants argued that there likewise was no circuit split concerning the Section 502(a)(3) claim because no circuit court has held that an uninjured plan participant has standing under Section 502(a)(3) to seek to enjoin all breaches of fiduciary duty. Rather, the Second, Third, and Sixth Circuits have addressed only questions of Article III standing.
Following briefing on the petition, the Supreme Court asked the Solicitor General to file a brief expressing the views of the United States. That brief has not yet been submitted.
Because in most instances defined benefit plan participants are not at risk of losing their benefits when the plan loses money—though the investment losses may make future benefit enhancements less likely—a requirement of individual harm, whether for statutory or constitutional standing purposes, could effectively preclude participants of these plans from pursuing recovery of plan losses.
Second, if the Supreme Court were to rule that individual harm is required as a condition for having statutory standing under Section 502(a)(2) or (3), the ruling could increase the likelihood for mounting an effective argument in defined contribution litigation that plaintiffs lack standing to sue to recover for investment losses in funds in which they did not invest—an argument that has not faired very well when asserted under Article III grounds.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Tulio D. Chirinos is an associate at Proskauer Rose LLP in New Orleans in the firm’s Labor & Employment Law Department and a member of the firm’s Employee Benefits & Executive Compensation Group.