Notwithstanding its mounting backlog, the U.S. Supreme Court resolved only one case today, an unsurprising unanimous decision in Cunningham v. Cornell University.
The case concerns pleading causes of action under the Employee Retirement Income Security Act of 1974 (ERISA), but provides a useful reminder to litigants more generally.
ERISA prohibits plan fiduciaries from causing a plan to engage in certain transactions with parties in interest. 29 U.S.C. §1106. However, another provision, §1108(b)(2)(A), provides an exemption for transactions that involve “[c]ontracting or making reasonable arrangements with a party in interest for office space, or legal, accounting, or other services necessary for the establishment or operation of the plan, if no more than reasonable compensation is paid therefor.”
The question considered by the Court is whether a viable claim under §1106 requires a plaintiff to plead that §1108(b)(2)(A) does not apply to an alleged prohibited transaction. A unanimous Court, led by Justice Sotomayor, held that a plaintiff is not required to do so.
The case involved a suit by present and former employees of Cornell University, claiming that plan fiduciaries caused prohibited transactions for recordkeeping services by paying excessive fees. The U.S. Court of Appeals for the Second Circuit, affirming the dismissal of the suit by the U.S. District Court for the Southern District of New York, had held that §1108(b)(2)(A) is incorporated into §1106(a)’s prohibitions, thus requiring plaintiffs to plead that a transaction was “unnecessary or involved unreasonable compensation.”
Reversing the Second Circuit, the Supreme Court held that “[t]o state a claim under §1106(a)(1)(C), a plaintiff need only plausibly allege the elements contained in that provision itself, without addressing potential §1108 exemptions.”
While Justice Sotomayor wrote for the entire Court, Justice Alito filed a concurring opinion, which Justices Thomas and Kavanaugh joined. Notwithstanding Justice Sotomayor’s lengthy disquisition on the statutory text and its background, I am sympathetic to Justice Alito’s more succinct analysis. Insofar as all the Justices agreed that the statute’s “exemptions” functioned as affirmative defenses, it was useful for Alito to point out that “it is black letter law that a plaintiff need not plead affirmative defenses. . . . Here, . . . §1108 sets out a long list of affirmative defenses, and it would make no sense to require a complaint to anticipate and attempt to refute all the affirmative defenses that a defendant might raise.”
The concurrence also reluctantly predicts that this otherwise proper textual resolution of the case is likely to lead to an unfortunate number of cases in which protracted litigation will be required to dispose of meritless complaints. To counter this (which had also been a concern of the Second Circuit), Justice Alito suggests a potential remedy that might be effectuated by trial court orders at the outset of the case—i.e., a trial court could insist that a plaintiff file a reply to an answer that raises one of the §1108 exemptions as an affirmative defense.
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