Plaintiffs’ Attorney in Thole v. U.S. Bank Predicts Victory in Supreme Court

The Supreme Court will weigh in on the question of whether an adequately funded pension that is not in immediate danger of insolvency could have wronged participants and breached ERISA in the selection of poorly performing investments offered by an affiliate company.

The U.S. Supreme Court has agreed to take up Thole v. U.S. Bank, a pension-focused case arising under the Employee Retirement Income Security Act (ERISA). Oral argument is expected to occur in late 2019.

As one of the lead plaintiffs’ attorneys in the case, Karen Handorf, partner at Cohen Milstein and chair of the firm’s employee benefits and ERISA practice group, said she is gratified to see the Supreme Court taking up this matter. Speaking with PLANADVISER about this development, she said she believes the case will help determine whether the millions of Americans whose pensions are held in defined benefit plans have the right to sue the fiduciaries of their plans for mismanaging assets. U.S. Bank declined to comment on the matter, noting it is the firm’s policy not to publicly discuss active litigation.

Specifically, the Supreme Court will weigh the following questions: “(1) Whether an ERISA plan participant or beneficiary may seek injunctive relief against fiduciary misconduct under 29 U.S.C. § 1132(a)(3) without demonstrating individual financial loss or the imminent risk thereof; and (2) whether an ERISA plan participant or beneficiary may seek restoration of plan losses caused by fiduciary breach under 29 U.S.C. § 1132(a)(2) without demonstrating individual financial loss or the imminent risk thereof.”

By way of background, plaintiffs filed this lawsuit in 2013. In October 2017, the U.S. 8th Circuit Court of Appeals upheld a lower court’s dismissal of the case based on the fact that, despite some significant investment losses suffered by the plan after investments in affiliated investment funds, the Court believed that U.S. Bancorp Pension Plan had enough money left over to keep paying benefits. Thus the participants could not prove, in the Court’s eyes, that they had the sufficient standing to move ahead on fiduciary breach claims.

Handorf suggested the case has far reaching implications for working and retired Americans. She argued that multiple circuit courts, including the 8th Circuit here, have wrongly denied participants in defined benefit plans their right to hold fiduciaries accountable for even the most egregious misconduct.

“Federal courts have taken this matter up in a few different contexts, and at this stage a number of circuit courts have said you don’t, generally speaking, have standing to sue an adequately funded pension plan for harming its participants,” Handorf said. “To me, that’s a really strange and unfortunate stance to take, because it essentially wipes out a big portion of ERISA, which was written to give people the right to sue plan fiduciaries for breaches of their fiduciary duty and to prevent prohibited transactions. The whole idea that the funding level of the plan somehow means fiduciary breaches can’t occur is hard to grasp, because we all know that the funding level of a plan can change quite quickly, depending on the markets and everything else.”

Getting a bit technical, Handorf suggested the case, depending on how the ruling is structured, may help to clarify what she sees as some confusion that exists in terms of how pension plan participants can establish two different types of standing—ERISA statutory standing and Article III standing under the U.S. Constitution. If the Supreme Court were to rule to clarify Article III standing, she said, the case could take on even broader implications well beyond the retirement marketplace. However, she expects the Court can and will rule narrowly to avoid creating sweeping change to the way claims can be brought based on the Constitution.

“I personally think that the Supreme Court will rule in our favor, which won’t surprise you. I think even the conservatives on the Court are going to respond well to our arguments,” Handorf said. “Looking specifically at the 8th Circuit ruling and whether this will be vacated narrowly, we feel confident it will be, because no other court has said that you don’t have statutory standing in a matter like this. It’s an anomaly for them to say that a statute that was specifically put in place to protect people more stringently than trust law doesn’t give you a right to sue when you could have sued under trust law. It makes my head spin, frankly.”

Handorf cited a brief filed by the U.S. Solicitor General following a request for input from the Supreme Court.

“The brief is extremely strong and it asks the same questions we ask. How does it make sense to say that if you are a dollar over-funded, there is no risk of harm to the participants, but if you are a dollar under-funded, there is risk of harm or wrongdoing? It’s an illogical way to analyze this issue,” Handorf said. “Further, what are the funding level formulas we are going to use in this discussion? The statute doesn’t define that. And if you file when the plan was under-funded, like we did, and then it becomes over-funded, does that mean you don’t have standing anymore?”

Handorf said the case also has big implications from a statute of limitations perspective.

“What if a plan becomes under-funded, giving you standing to sue, but the alleged breach of the fiduciary duty happened longer ago that than the relevant statute of limitations? Are you just out of luck in that case?” Handorf asked. “If this is cemented as the standard it will mean that plan fiduciaries can basically get away with anything, so long as they have a well-funded plan during the period that the statute of limitations is running.”

Handorf suggested that a ruling against these arguments would mean it could become impossible to sue pension plans, because no one will have standing to sue until it’s too late.

“Under that sort of standard, it’s not absurd to say that plan fiduciaries could literally steal money from the plan so long as it was adequately funded or more than fully funded,” she said. “Remember, this case also ties back to self-dealing. We believe that the plan fiduciaries made certain investment choices because they wanted to seed the mutual funds of an affiliate. It’s a critically important case in terms of making sure pension plan fiduciaries really pay attention to how they are managing the plan and meeting their duties.”