Recently, the Supreme Court provided clarification on pleading standards under the Employee Retirement Income Security Act (ERISA), resolving a technical query that had perplexed lower courts. The case, Cunningham v. Cornell University, although not one of the most notable decisions of the term, has significance for the way courts will handle ERISA litigation going forward. ERISA imposes strict rules on retirement plans, heavily influenced by traditional trust law, including a prohibition on transactions between the plan and parties deemed insiders. More specifically, Section 1106 restricts fiduciaries from causing plans to transact with “parties in interest,” a broad term encompassing entities providing services to the plan.
The central question addressed by Justice Sonia Sotomayor in her opinion concerned whether plaintiffs need to allege only a violation of Section 1106 by transactions with service providers, or also need to assert that the transaction fails to qualify under Section 1108 exemptions. Justice Sotomayor affirmed that beneficiaries only need to claim a Section 1106 breach. The defendant, typically the service provider, must demonstrate any applicable exemptions under Section 1108, as these are treated as affirmative defenses to be pleaded and proved by the defense. This decision aligns with a typical statutory construction, where the burden of proving an exemption lies with the party claiming its benefit.
Justice Sotomayor tackled criticisms about the possibly low threshold set by this decision, allowing plaintiffs to survive motions to dismiss lightly. She proposed several judicial tools to counterbalance concerns. For instance, courts might demand plaintiffs provide “specific, nonconclusory factual allegations” to counter exemption defenses. Additionally, dismissal might be warranted if no injury is cited, especially if compensation for services was reasonable. Where exemptions clearly apply, sanctions could be imposed on plaintiffs and their counsel under Rule 11.
The resolution of this issue is noteworthy as it standardizes ERISA pleading requirements across jurisdictions, an outcome likely intended given the conflicting interpretations among lower courts. While not destined to alter the landscape significantly, the decision offers a procedural guide for trial courts handling ERISA cases. For more details, Ronald Mann provides an analysis on SCOTUSblog.