Yale, Workers Peppered With Questions in Retirement Fee Appeal

Attorneys debating Yale University’s retirement plan management on Wednesday responded to a deluge of questions from a panel of Second Circuit judges focused on deciding whether the jury that sided with Yale was properly instructed.

Judges Joseph F. Bianco and Eunice C. Lee both appeared skeptical during oral arguments that the jury instructions correctly parsed the distinction between various elements of the Employee Retirement Income Security Act case, including loss and damages.

Lee in particular focused on the fact that the jury answered “yes” when asked if Yale breached its duties and caused losses to the plan through unreasonable administrative fees, but then quantified that loss at $0.

“As a practical matter, how does that happen?” she asked in an exchange with Yale’s attorney, Nicole A. Saharsky of Mayer Brown LLP.

The judges on the US Court of Appeals for the Second Circuit also drilled down into an ERISA debate that turns on a single letter: whether the standard for bringing a successful fiduciary breach claim turns on what a prudent fiduciary “could” or “would” have done in the same circumstances.

Sean E. Soyars, the Schlichter Bogard LLP attorney representing the Yale plan participants, said the jury was wrongly told to follow the more defendant-friendly “could have” standard. The Labor Department previously agreed with this argument in an amicus brief.

Bianco asked whether blessing the “could have” standard would put the court at odds with multiple other circuit court opinions on the topic. Saharsky responded that only two circuits—the Fourth and Eleventh—have squarely addressed this issue.

Assessing Fees

The dispute is on appeal after a jury determined that Yale breached its fiduciary duties under ERISA by allowing its retirement plan to pay unreasonable recordkeeping fees.

But jurors declined to award damages, ruling that this failure caused no harm because the fiduciary of a well-managed retirement plan could have made the same decisions. The jury also rejected other claims advanced by the plan participants.

Judge Steven J. Menashi posed several questions about the participants’ claims for prohibited transactions under ERISA, which the lower court rejected in a summary judgment opinion and didn’t present to the jury.

Menashi wanted to know if the jury verdict appearing to bless the Yale plan’s fees would also be fatal to prohibited transaction claims that turn in part on a showing of unreasonable fees.

He also questioned whether any fees that stem from a prudent fiduciary process are necessarily reasonable under the statute.

Rare Jury Trial

In addition to questioning the jury instructions, the judges appeared to disagree on whether the case was properly submitted to a jury in the first place.

The Yale case is an outlier among the hundreds of recent lawsuits challenging retirement plan fees—many of which have settled or been resolved by judges—because the plan participants sought and received a jury trial.

Plaintiffs in several of these cases have sought such trials, but judges have denied their requests in cases involving Anthem Inc., BB&T Corp., Duke University, Columbia University, Oracle Corp., and others.

The disputes often turn on whether the relief sought in the lawsuit is considered legal or equitable. Legal claims, which usually seek money, can be tried by jury, while equitable claims, which seek specific court-ordered remedies like reforming a plan document or disgorging profits, are typically decided by a judge in a bench trial.

Menashi’s questions during the Yale arguments suggest an inclination to see the dispute as equitable and therefore unsuitable for a jury trial.

But Bianco appeared to lean the other way, asking whether the court’s 2005 opinion in Pereira v. Farace means the case’s claims are legal and thus triable by a jury.

The case is Vellali v. Yale Univ., 2d Cir., No. 23-1082, oral arguments held 9/25/24.