UPenn Petitions Supreme Court to Review 403(b) Plan Case

The university argues that other courts would have required more than an appellate court did in its lawsuit to state a plausible claim.

The University of Pennsylvania has filed a petition for a writ of certiorari in the U.S. Supreme Court asking whether the pleading standard the court established in its decision in Bell Atlantic Corp. v. Twombly governs breach of fiduciary duty claims under the Employee Retirement Income Security Act (ERISA).

The petition also asks, “Whether a complaint states a plausible claim for breach of fiduciary duty under ERISA if it alleges that a retirement plan’s investment options charged excessive fees and underperformed, but does not allege any fiduciary conduct inconsistent with lawful management of the plan.”

The university points out that in Twombly, the high court held that allegations that are “merely consistent with” antitrust violations—but “just as much in line with” lawful behavior—fail to state a claim for relief. It reaffirmed that principle in Ashcroft v. Iqbal, stressing that Twombly provides “the pleading standard for ‘all civil actions.’” And, in Fifth Third Bancorp v. Dudenhoeffer, it held that “the pleading standard as discussed in Twombly and Iqbal” governs breach of fiduciary duty claims under ERISA.

The university argues that the 3rd U.S. Circuit Court of Appeals failed to use Twombly’s pleading rule in the lawsuit against the University of Pennsylvania, and that it “reversed the dismissal of respondents’ claims based on allegations that other courts of appeals have found insufficient as a matter of law.”

In May, the 3rd Circuit revived the lawsuit against fiduciaries of the University of Pennsylvania’s 403(b) plan which had been fully dismissed by a District Court in 2017. The appellate court agreed with the dismissal of most claims, but when it came to claims about excessive fees and improper investments, the court found the plaintiff plausibly alleged a breach of fiduciary duty under ERISA.

The petition notes that the appellate court majority held that the relevant principle from Twombly “is specific to antitrust cases,” and the majority “decline[d] to extend Twombly’s antitrust pleading rule to breach of fiduciary duty claims under ERISA.” The university says its conclusion conflicts with decisions from the Supreme Court and many circuits.

According to the petition, the 2nd, 7th, 8th and 9th Circuits have all recognized that Twombly fully applies to these ERISA claims. “And it is no accident that decisions in those four circuits have also dismissed complaints resting on the sorts of allegations that the Third Circuit allowed past the pleading stage here,” it says, noting that the majority even conceded that respondents “may not have directly alleged how [petitioners] mismanaged the Plan.”

The university argues that other courts would have required more to state a plausible claim.

“This Court should grant certiorari to reaffirm Twombly’s applicability and resolve the numerous circuit splits created by the Third Circuit,” the petition says.

A decision to “weed out meritless claims”

In its petition, the University of Pennsylvania, citing Conkright v.Frommert, points out that ERISA was not meant to generate “litigation expenses” that “unduly discourage employers from offering [such] plans.” It also cites the Dudenhoeffer decision in which the Supreme Court identified the motion to dismiss as an “important mechanism for weeding out meritless claims.”

The petition notes that in the last few years, there has been a new wave of ERISA class action litigation against universities and the men and women who agree to serve as fiduciaries for their retirement plans. “In a single week in 2016, respondents’ counsel sued fiduciaries at seven different schools—including the University of Pennsylvania and its co-petitioners here. All told, about twenty universities have been hit with such lawsuits,” the petition states.

The university notes that all the cases have “substantively identical allegations and target retirement plan features that are commonplace among prominent universities.” It says the wave of litigation is not a sign that retirees’ savings are in jeopardy. One judge dissenting in the 3rd Circuit’s opinion against the University of Pennsylvania noted that plan assets increased by more than $1 billion during the class period. In addition, the petition points out that only one of these cases produced a trial verdict thus far, establishing that the plan features that the plaintiff’s criticism does not constitute a breach of fiduciary duty under ERISA. A judge presiding over the case of Sacerdote v. New York University ruled that “plaintiffs have not proven that the Committee acted imprudently or that the Plans suffered losses as a result,” even though she found deficiencies in the retirement plan committee’s processes.

The University of Pennsylvania argues that “even though no plaintiff has prevailed on the merits of these allegations, universities face immense pressure to quickly settle any claims that survive the pleading stage,” due to the cost of litigation. It says two settlements came after the decision in its case, “and more will follow if that decision stands.”

In a conversation with PLANSPONSOR, Mayer Brown attorneys Nancy Ross and Brian Netter explained that the pressure to settle cases means there is little helpful legal insight from the courts for plan fiduciaries.