Supreme Court Weighs Pleading Standards in Defined Contribution “Fee” Cases

Regular followers of ERISA litigation know that the so-called 401(k)/403(b) “fee” cases have dominated the ERISA litigation space ever since the first tranche was filed in 2006.  Literally hundreds of cases have been filed against defined contribution plan fiduciaries, resulting in the payment of billions of dollars in damages and in settlements.   The pace of filings has hardly slowed down.

Probably the critical issue in these cases is what exactly a Plaintiff needed to allege in order to get past the early pleading stage and into the onerous and costly discovery stage of the case.  Once the case gets into discovery, the costs increase exponentially, the case demands far more from executives and employees, and the pressure to settle even meritless claims becomes much harder to resist.

In  Hughes v.  Northwestern University, the Supreme Court finally agreed to determine exactly what the standards for pleading a viable claim would be.  Oral argument was held on December 6, and the case should be decided in the spring.   Not surprisingly, at oral argument the case predictably broke down on ideological lines.  The liberals, including Sotomayer and Kagan, believed that the Complaint alleged a straightforward claim that plan’s fiduciaries failed to take reasonable steps to limit the plan’s fees and make investments more accessible and less costly to participants.   The conservative wing, including in particular Thomas, Alito, and Gorsuch worried that meritless lawsuit would force excessive and unmerited settlements, and that the judicial branch simply did not have the expertise to second guess investment decisions made by investment professionals.  The case will likely break on ideological lines, turning on Chief Justice Roberts and Justice Barret, who will be dealing with her first fully briefed ERISA case while on the Court.

Andrew Holly

Andrew represents clients in a wide range of complex civil matters.

You may also like...