The Supreme Court recently ruled in two Employee Retirement Income Security Act cases: one addressing remedies and one addressing the prudence standard.
Charles Seemann of Jackson Lewis, New Orleans, told Bloomberg BNA that from the viewpoint of plan sponsors and fiduciaries, the recent rulings in Montanile v. Bd. of Trs. of Nat’l Elevator Indus. Health Benefit Plan, U.S., No. 14-723, 1/20/16, and Amgen Inc. v. Harris, U.S., No. 15-728, per curiam 1/25/15, appear to confirm the Court’s ongoing awareness that ERISA balances the competing interests of participants, on one hand, and employers or plan sponsors, on the other. It is well settled that ERISA was intended, in part, to promote an environment that encourages employers to offer employee benefits programs voluntarily. “In these two cases, the Supreme Court is curtailing the trend towards a litigation free-for-all that we’ve seen elsewhere, such as in mass-tort litigation,” he said.
In Montanile, the high court held in an 8-1 opinion authored by Justice Clarence Thomas that an employee benefit plan can’t assert a lien on a participant’s settlement proceeds if the participant has already spent the amounts in question.
The Supreme Court grounded its opinion in a long-standing rule of equity: namely, that a plaintiff can't enforce an equitable lien against a defendant who once possessed—but has since dissipated—the funds in question.
Two issues left in question by the ruling are whether it applies to both health and pension plans, and what is to stop participants from spending the settlement money before the plan can recover it.
Seemann said that in Montanile, “we see the Court begin to embrace the premise that ERISA’s equitable remedies apply to identifiable funds in the defendant’s possession--the so-called `tracing requirement’--instead of the general assets of a defendant. While some have questioned whether this would apply to prevent participants from pursuing a recovery from a liable fiduciary’s assets, it’s not clear that there is a principled basis for distinguishing such a scenario from the legal rules applied in Montanile. Similarly, the tracing rules applied in Montanile, which involved a welfare plan, would seem to apply equally in the context of pension-plan litigation.”
The high court in the second ERISA case, Amgen, clarified that workers challenging losses in their employer stock plans face a higher hurdle than some lower courts have used.
The ruling, which was a four-page, unsigned decision issued without the benefit of oral argument, reversed the decision of the Ninth Circuit Court of Appeals and sent the case back to the district court to determine whether the workers should be allowed to amend their complaint alleging breach of fiduciary duty for failure to remove the company stock from the list of investment options in light of inside information about the stock.
Amgen was the first appeals court to apply the ruling in Fifth Third Bancorp v. Dudenhoeffer (134 S.Ct. 2459, 58 EBC 1405 (U.S. 2014), which found that “To state a claim for breach of the duty of prudence on the basis of inside information, a plaintiff must plausibly allege an alternative action that the defendant could have taken that would have been consistent with the securities laws and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.”
In Amgen, Seemann said, “the Court embraces an earlier decision requiring an ERISA plaintiff to have a plausible basis for bringing fiduciary claims arising from a plan’s investment in employer stock. Before there was a legislative fix in the mid-1990s, securities plaintiffs could file class-action suits any time a stock had a bad day, bad quarter or bad year. There have been similar situations in the ERISA context, where a participant class simply rattled off an assortment of vague allegations, then engaged in extensive (and expensive) discovery to cobble together evidence supporting one or more of those vague theories. The Amgen decision reaffirms earlier jurisprudence that requires a plaintiff or plaintiff class to articulate a claim that withstands some thoughtful scrutiny, before the litigation moves into more costly phases.”
Taken together, these decisions appear to be encouraging news for plan sponsors and plan fiduciaries, because lower courts cannot simply accept broad-brush liability theories or remedial demands. Rather, courts should take these decisions as a reminder of ERISA’s larger context, which includes a policy goal of cost-containment, Seemann said.
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