Two recent Supreme Court decisions, and a recent Sixth Circuit analysis on remand from the Supreme Court, offer a roadmap of sorts on ERISA litigation. In both decisions, the Supreme Court did away with presumptions, and at the same time made it more difficult for plaintiffs to sue.
In Amgen, Inc. v. Harris, 2016 WL 280886 (Jan. 25, 2016), the Supreme Court affirmed its 2014 decision in Fifth Third Bancorp v. Dudenhoeffer, 134 S.Ct. 2459 (2014) that a claim for a breach of fiduciary duty of prudence against ERISA fiduciaries who manage publically-traded employee stock investments in 401(k) plans need not overcome a presumption of prudence. But the Court reversed a Ninth Circuit decision that imposed too low a burden on plaintiffs when arguing that the ERISA fiduciaries should have “done something” to halt a decline in stock values. The Court affirmed this critical Dudenhoeffer pleading standard for plaintiffs: The complaint must “plausibly allege” that “a prudent fiduciary in the same position could not have concluded that [ ] alternative action would do more harm than good.” (Emphasis added; internal quotation marks omitted.) There are two points to note with this affirmation of the Dudenhoeffer phrasing of the plaintiff’s burden: (1) “plausibility” has become at catch-word for specificity, and (2) alleging a negative with specificity is very hard to do.
In Tackett v. M&G Polymers USA, Inc., 2016 WL 240414 (6th Cir. Jan. 21, 2016), the Court of Appeals for the Sixth Circuit remanded a case to the District Court in light of the Supreme Court’s decision in M&G Polymers USA, LLC v. Tackett, 135 S.Ct. 926 (2015) that did away with a presumption of vesting of collectively bargained retiree welfare benefits. The Sixth Circuit instructed the District Court to evaluate the vesting issue under “ordinary principles of contract law.” The Sixth Circuit then listed many of these ordinary principles. Of note is the principle that “traditional rules of contractual interpretation require a clear manifestation of intent before conferring a benefit.” Combining this principle with plausibility means that plaintiffs must allege with specificity a plan sponsor intention to vest. A collective bargaining agreement’s durational language or incorporation of a plan document with a reservation of rights will make it hard for a plaintiff to allege with specificity the existence of vested benefits, even if the other governing language is vague.
So, what do these decisions suggest about the future of ERISA litigation? Expect a tougher road for plaintiffs to state claims upon which relief may be granted. Also expect stock drop and retiree welfare benefits litigation to shine a spotlight on an ERISA plan’s privately-held stock investments, the ERISA duty of loyalty (which was not the focus of the Amgen decision), and plans and collective bargaining agreements that, from a plan sponsor perspective, are badly drafted.