No Standing to Sue Defined-Benefit Plan Fiduciaries for Alleged Mismanagement of Plan Assets
Yesterday, the Supreme Court affirmed the dismissal of a purported class action complaint under the Employee Retirement Income Security Act of 1974 (“ERISA”) by two pensioners under a defined-benefit retirement plan, holding that, because they had suffered no monetary injury, they lacked Article III standing to sue plan fiduciaries for alleged mismanagement of plan assets. Thole v. U.S. Bank, N.A., No. 17-1712, 2020 WL 2814294 (U.S. June 1, 2020).
Thole involved two participants in U.S. Bank’s defined-benefit retirement plan, which guaranteed the participants a fixed payment each month. The participants brought a putative class action lawsuit alleging that the bank and other fiduciaries had improperly invested plan assets through funds affiliated with the plan’s sponsor, resulting in the plan being underfunded for a period of time. The poor investing of the plan assets, the participants’ allege, resulted in a violation of ERISA’s fiduciary duties of loyalty and prudence.
While the case was pending in the district court, additional contributions to the plan changed its financial status from underfunded to overfunded. Defendants moved to dismiss the case, arguing that the plaintiffs lacked standing to pursue their claims. The district court granted defendants’ motion to dismiss, finding that the case had been mooted because the plan could pay all the benefits plaintiffs were entitled to. Adedipe v. U.S. Bank, Nat’l Ass’n, No. 13–2687 (JNE/JJK), 2015 WL 11217175 (D. Minn. Dec. 29, 2015). The district court also denied plaintiffs’ subsequent motion for attorney’s fees, finding that plaintiffs were not prevailing parties and had not achieved any success on the merits of their claims. Adedipe v. U.S. Bank, Nat’l Ass’n, No. CV 13-2687 (JNE/JJK), 2016 WL 7131574 (D. Minn. Mar. 18, 2016).
Plaintiffs appealed the dismissal to the Eighth Circuit, which affirmed, finding that plaintiffs could not show an actual injury because the plan was overfunded and there was no “actual or imminent injury to the plan itself” that caused injury to the plaintiffs’ interest. Thole v. U.S. Bank, N.A., 873 F. 3d 617, 630 (8th Cir. 2017). Because an actual injury is a statutory prerequisite for asserting a claim under ERISA Section 502(a)(2) and 502(a)(3), plaintiffs had no standing to assert their claims under ERISA. Id.
In a 5 to 4 decision authored by Justice Brett Kavanaugh, the Supreme Court affirmed the Eighth Circuit’s judgment, holding that plaintiffs lacked Article III standing to assert their claims because they had not suffered any injury in fact. The Court explained that, win or lose, plaintiffs would still receive the exact same monthly benefits they are already entitled to receive; plaintiffs had received all of their monthly pension benefits so far and they would continue to receive those monthly payments. The Court acknowledged that the plaintiffs’ lawyers had a substantial interest (of at least $31 million in attorneys’ fees) in the outcome of the lawsuit but held that this was insufficient to create an Article III case or controversy where none exists on the merits of the underlying claim.
In rejecting plaintiffs’ policy arguments, the Court emphasized that defined-benefit plans were categorically different from defined-contribution plans. As the Court explained, a defined-benefit plan is similar to a contractual obligation: regardless of how well or poorly the plan is managed, a plan participant’s benefits are fixed and will not change. As a result, defined-benefit plan participants possess no equitable or property interest in the plan itself. Defined-benefit plans are further subject to extensive regulatory oversight, which protects against mismanagement.
The Supreme Court’s decision in Thole underscores the barriers to participants and beneficiaries under defined-benefit plans seeking to assert claims under ERISA by requiring a participant to suffer an actual injury, such as a deficient or missed payment, in order to prevail.