Supreme Court

Participants in Defined-Benefit Retirement Plan Lack Standing to Sue Over Alleged Mismanagement

The Supreme Court shows a willingness to enforce limits on Article III standing.

|The Volokh Conspiracy |

Among the five opinions handed down today by the Supreme Court was Thole v. U.S. Bank, in which the Supreme Court concluded that participants in a defined-benefit retirement plan lacked Article III standing to sue the plan alleging it was mismanaged. As a consequence, the Court affirmed the dismissal of a putative class action by plan participants against U.S. Bank.

The case split the Court along traditional ideological lines, 5-4, as has often happened in cases concerning Article III standing and class action litigation. Justice Kavanaugh wrote for the Court. Justice Thomas concurred, joined by Gorsuch. Justice Sotomayor dissented, joined by the Court's three liberal justices.

Justice Kavanaugh explained why participants in a defined-benefit plan—as opposed to a defined-contribution plan—could not claim to have suffered a cognizable injury sufficient to confer standing.

Thole and Smith have received all of their monthly benefit payments so far, and the outcome of this suit would not affect their future benefit payments. If Thole and Smith were to lose this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny less. If Thole and Smith were to win this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny more. The plaintiffs therefore have no concrete stake in this lawsuit. To be sure, their attorneys have a stake in the lawsuit, but an "interest in attorney's fees is, of course, insufficient to create an Article III case or controversy where none exists on the merits of the underlying claim." . . . Because the plaintiffs themselves have no concrete stake in the lawsuit, they lack Article III standing.

As Justice Kavanaugh noted, although the plaintiffs could not allege any financial injury to themselves, they sought over $30 million in attorney's fees.

Justice Kavanaugh concluded his opinion:

Courts sometimes make standing law more complicated than it needs to be. There is no ERISA exception to Article III. And under ordinary Article III standing analysis, the plaintiffs lack Article III standing for a simple,  commonsense reason: They have received all of their vested pension benefits so far, and they are legally entitled to receive the same monthly payments for the rest of their lives. Winning or losing this suit would not change the plaintiffs' monthly pension benefits. The plaintiffs have no concrete stake in this dispute and therefore lack Article III standing. . . .

Justice Kavanaugh's opinion was quite brief: Eight pages. Justice Thomas authored a three-page concurrence, joined by Justice Gorsuch. Justice Sotomayor's dissent, on the other hand, was twenty-five pages long.

Justice Sotmayor's dissent began:

The Court holds that the Constitution prevents millions of pensioners from enforcing their rights to prudent and loyal management of their retirement trusts. Indeed, the
Court determines that pensioners may not bring a federal lawsuit to stop or cure retirement-plan mismanagement until their pensions are on the verge of default. This conclusion conflicts with common sense and longstanding precedent.

It concluded:

The Constitution, the common law, and the Court's cases confirm what common sense tells us: People may protect their pensions. "Courts," the majority surmises, "sometimes make standing law more complicated than it needs to be." Ante, at 8. Indeed. Only by overruling, ignoring, or misstating centuries of law could the Court hold that the Constitution requires beneficiaries to watch idly as their supposed fiduciaries misappropriate their pension funds. I respectfully dissent.

One reason this case is potentially significant is because it represents one of the more serious standing cases to reach the Court since the death of Justice Scalia, who was quite the standing hawk. The Court's refusal to find or expand an exception to Article III's injury requirement in ERISA or trust principles suggests that the Court still has five justices on the Court who would like to keep a tight leash on Article III. If so, it will be interesting to see how the Court handles the aggressive standing claims in the Texas ACA case, among other cases. After all, the plaintiffs in that case—like the plaintiffs here—suffer the same financial injury whether they win or lose: absolutely nothing.

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  1. Ignoring the Article III issues themselves, I think the majority of the Court just basically called the lawyers for the plaintiffs ambulance-chasing shysters.

    1. Exactly…..

  2. If the solvency of a plan is threatened due to mismanagement, then isn’t Kavanaugh’s assertion that

    If Thole and Smith were to lose this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny less.

    obviously wrong? Or am I missing something?

    1. Yes, it would seem that Kavanaugh has undertaken to predict the future, which is rarely a certain thing. If the bank were slapped hard against the side of their head now, might not the Ps future interests be more secure?

      1. Sotomayer and you two, and the plaintiffs, are also predicting the future: that things are going to fall apart at some undetermined time.

        1. The plaintiffs’ amici assert that defined-benefit plan participants have standing to sue if the plan’s mismanagement was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay the participants’ future benefits. The plaintiffs do not assert that theory of standing here, nor did their complaint allege that level of mismanagement. Pp. 2–8.

        2. Well, there’s predicting the future, and then there’s doing arithmetic. It’s quite possible to look at a pension plan’s assets and determine whether there is a significant risk that the plan will be unable to meet its obligations. There are actually people who make a living doing that sort of calculation.

          It does seem to me that if the plan gets to that point participants ought to have standing to sue. Should they really have to wait until they’re 75 years old and can’t pay the rent to bring a lawsuit that will take years to resolve?

          I don’t think so.

          In fact, the opinion at least suggests that the matter would be different under those circumstances.

          One last wrinkle remains. According to the plaintiffs’ amici, plan participants in a defined-benefit plan havestanding to sue if the mismanagement of the plan was so egregious that it substantially increased the risk that the plan and the employer would fail and be unable to pay theparticipants’ future pension benefits. Cf. Clapper v. Am-nesty Int’l USA, 568 U. S. 398, 414, n. 5 (2013); Lee v. Veri-zon Communications, Inc., 837 F. 3d 523, 545–546 (CA52016); David v. Alphin, 704 F. 3d 327, 336–338 (CA4 2013). But the plaintiffs do not assert that theory of standing in this Court. In any event, the plaintiffs’ complaint did not plausibly and clearly claim that the alleged mismanagement of the plan substantially increased the risk that the plan and the employer would fail and be unable to pay the plaintiffs’ future pension benefits.

          So the discussion of standing seems to be about various legal issues about trusts and so on.

          1. The arithmetic you want to do is complicated by the company’s legal obligations to a defined benefit plan. If the plan gets to the point that the participants won’t get paid what they are owed, the law requires the employer to step in and add to the plan. As the paragraph you quoted points out, the only way the plan participants are at risk is if both the plan and the employer fail.

            This leads to a logic problem. The plaintiffs claim that the plan was underfunded to the employer’s benefit. Assume for the moment that it actually did threaten the plan’s ability to pay future benefits. If you force the employer to put more money in the plan now, that will presumably threaten the employer’s future financial stability instead. Either way, you’ve got one entity able to pay and the other not. The outcome of the lawsuit leads to no difference for the plaintiffs.

        3. “Sotomayer and you two, and the plaintiffs, are also predicting the future: that things are going to fall apart at some undetermined time.”

          Skipping over the fact that if plaintiffs are allowed to proceed, they will be required to show actual mismanagement in order to recover anything (presumably, they are seeking some kind of order to end the practices they consider to be mismanagement as well as enough legal fees to choke a justice.)

          It seems odd to find a lack of standing where there is an undisputed fiduciary duty in place.

          1. Part of the problem is that the actual plaintiffs would not recover anything. The company might have to add money to the plan but the plaintiffs wouldn’t actually get anything, but piece of mind only their lawyers would get paid.

            Also the company and the bank have to undertake periodic audits and make reports. Those reports should show whether the plan is underfunded or under-performing.

            1. “Also the company and the bank have to undertake periodic audits and make reports. Those reports should show whether the plan is underfunded or under-performing.”

              Doesn’t matter if the beneficiaries aren’t able to sue and proceed to the merits of the case.

    2. Flaulus, you missed the Article III STBY doctrine. That long-established principle states that if a court wants to award a case to a preferred party without regard for the facts, then it can do so by saying, “Sucks To Be You,” to the disfavored party. The only requirement is that the court say that using fanciful circumlocution, and the court plainly met that requirement in this case.

  3. So who is supposed to look after the Ps interests, since the Court won’t let them do it for themselves? ERISA is somehow in the background (these were employee benefit plans?), so the Dept of Labor ought to be watching over them.

    If the day comes when there is insuffient money remaining to pay the full benefits owed, then the Ps can come back to sue then? Or it will be up to the Pension Benefit Guarantee Fund to pay out some greatly reduced benefit?

    (Is it clear that US Bank has seriously failed as a fiduciary? Bad investments? Would things be any different for the standing-less Ps if fraud could be pinned on the bank, or they’re SOL in any event?)

    1. Why not let’s let everybody sue for all possible potential may be might be events, just in case? After all, there might be a change of management in 20 years. There might be an earthquake or hurricane causing so much damage that the reinsurance markets collapse and investors, including their pension fund, dry up. There might be a war, an asteroid strike, or alien invasion.

      Let’s just go ahead and sue for all these potentialities right now while there’s still money left to suck out of the pension fund for attorney’s fees. Because you know it would be a damned shame if money were left to actually pay pensions before paying attorneys who want to fish around for any old excuse to pad their own pensions.

      1. Except that isn’t what is happening, is it?

        Look, you can defend this decision on the merits (regarding standing) or not, but don’t make …. shinola … up.

        The attorney’s fees wouldn’t come from the pension. The suit was against the fiduciaries (incl. U.S. Bank) of the pension, requesting that the fiduciaries repay the amounts lost into the pension, the attorney’s fees, and also requesting injunctive relief (replacement of the fiduciaries).

        That’s all reasonable, if you believe their theory of the case and that they have standing to sue.

        1. OK, we won’t rob the pension fund … we’ll rob the bank that funds the pension fund. We’ll make it perform worse so it has fewer resources to grow and be a healthier support for the pension fund. And we’ll do ll this without improving benefits for the pensioners, just so we can collect nice attorney fees for doing nothing.

          That makes much sense. Glad you clarified that for me.

          1. ” we’ll do ll this without improving benefits for the pensioners”

            Having fiduciaries who fulfill their fiduciary duties is a benefit. So would having courts that required fiduciaries to honor their duties, but you can’t have everything
            Somebody’s looking out for President Trump. We don’t want to establish any kind of principle that people affected by mismanagement of important things should have legal recourse.

          2. The entity doing the robbing was the bank. The suit sought to return the stolen loot to its rightful place.

            1. You assume the conclusion before the fact to justify the means.

              1. Or to be clearer, you assume there was a reduction in benefits, contrary to what I read, that if the plaintiff won, they would get no increase in benefits, and if the plaintiffs lost, they would get no reduction in benefits.

                If you have information to the contrary, please tell us.

                1. I’m not assuming there was a reduction in benefits paid out to the plaintiffs, I’m assuming that there was a reduction in the fund’s assets in the aggregate. The reason for that assumption is that’s what the plaintiffs alleged, and the case was decided on a motion to dismiss.

          3. “OK, we won’t rob the pension fund … we’ll rob the bank that funds the pension fund. We’ll make it perform worse so it has fewer resources to grow and be a healthier support for the pension fund. And we’ll do ll this without improving benefits for the pensioners, just so we can collect nice attorney fees for doing nothing.

            That makes much sense. Glad you clarified that for me.”

            Look, I don’t agree with the legal principle behind the lawsuit (as I wrote below) but this is some top-grade BS here.

            This is how lawsuits work. They want the wrongdoer to make them whole (in this case including attorney’s fees), and further, they want injunctive relief to prevent the wrongdoer from doing further wrong.

            Everything else you said you are making up from whole cloth.

      2. “Why not let’s let everybody sue for all possible potential may be might be events, just in case?”

        Why not, if they still have to prove the merit of the case? (Which they do.)

  4. To reiterate the basic point that should seem obvious:

    I am a big fan of constitutionalized standing. I agree with Scalia’s approach, and in terms of actual practice, I think that strict enforcement of Article III requirements (along with Iqbal/Twombly) have been the two greatest things that conservative jurisprudence has done for this country in terms of making the law better.

    ….that said, I am constantly amazed at the cognitive dissonance on display in the comments section. Either you understand and appreciate standing, or you don’t. I can understand either approach. And yet, we get so many yahoos who are completely results-oriented; “Oh, I don’t like ambulance chasers suing, but when there is something I don’t like, who cares about standing? Let ’em sue!”

    1. ” I am constantly amazed at the cognitive dissonance on display in the comments section. Either you understand and appreciate standing, or you don’t.”

      How about the yahoos who can’t see any standing resulting from (if proven) violation of fiduciary duty? The only people who should be cheering this decision are people who owe fiduciary duties to others which they’d prefer not to honor, because those duties no longer have any meaning.

      1. If there is not cognizable threat to the participant’s benefits from the alleged mismanagement is it in fact a breach of fiduciary duty?

        1. If your financial manager screws up and breaches their fiduciary duty but in a way that actually winds up netting you more money, do you have standing to sue? No. Why would it be different if it had no effect on how much money you are getting?

        2. “If there is not cognizable threat to the participant’s benefits from the alleged mismanagement is it in fact a breach of fiduciary duty?”

          How do you know there’s no threat to the plaintiff’s benefits if you won’t let them put on evidence to prove it?

  5. Congress explicitly granted beneficiaries the substantive right to sue for these sort of losses. Under any sane standing jurisprudence, that ought to be the end of the matter. Unfortunately, following Spokeo, we will see more courts becoming more aggressive in deciding for themselves what sort of substantive rights are worthy of vindication under article III.

    The good news is that state courts are not bound by the strictures of article III, and most have plenary jurisdiction to decide cases, including federal causes of action, without regard to a “concrete injury in fact”. Hopefully this proves to be a pyrrhic victory for self-dealing fiduciaries, and these suits simply migrate to state courts.

    1. Congress explicitly granted beneficiaries the substantive right to sue for these sort of losses. Under any sane standing jurisprudence, that ought to be the end of the matter.

      Can Congress give me the right to sue for these sorts of losses, even though I’m not a beneficiary of the plan, on the grounds that I’m offended by them? If not, you recognize that Congress can’t create Article III standing simply by fiat.

      Unfortunately, following Spokeo, we will see more courts becoming more aggressive in deciding for themselves what sort of substantive rights are worthy of vindication under article III.

      You can disagree with Spokeo, of course, but I don’t think it makes sense to criticize lower courts for doing what Spokeo tells them that they must do.

      1. I think Congress can create substantive rights, whose violation gives rise to an injury in fact for article III purposes. That is a traditional function of legislative bodies, and that was the general rule prior to Spokeo. If Congress determines that your offense is a cognizable injury and creates a cause of action, then yes, federal courts should be required to effectuate that law as written.

        My disagreement is with Spokeo (and other SCOTUS decisions like this one) more so than lower courts attempting to apply them. My point is that the Supreme Court is requiring lower federal courts to decide for themselves what substantive rights warrant vindication (substituting their own preferences for those of Congress), and that that’s a bad thing.

    2. But there are no losses.

      That was why this was so easy to decide.

      1. “But there are no losses. ”

        Then the defendent wins on the merits, and doesn’t have to resort to collateral attack via standing.

    3. “the substantive right to sue for these sort of losses” You accidentally identified the problem with your argument. They didn’t suffer losses, because they have gotten and are getting all the money they are entitled to.

      1. The losses were to the pension fund as a whole – allegedly to the tune of $750 million – not to the individual beneficiaries. The law authorizes the beneficiaries to sue to recover the losses regardless of whether they are personally out any money.

        That they will (maybe) end up getting the money to which they are entitled, likely via collateral sources, doesn’t really solve the problem of their fiduciary misappropriating the money in the first place.

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