The latest decision in a complicated example of Employee Retirement Income Security Act (ERISA) litigation involving the pension plan of U.S. Bank comes out of the 8th U.S. Circuit Court of Appeals.
The case has a long procedural history and involves multiple underlying allegations of mismanagement on the part of U.S. Bank’s defined benefit plan fiduciaries, concerning investment decisions made between September 30, 2007, and December 31, 2010. Plaintiffs challenged the bank’s “adoption of a risky strategy of investing plan assets exclusively in equities and its continued pursuit of that strategy in the face of a deteriorating stock market; the bank’s investment of plan assets in the bank subsidiary FAF Advisors; and FAF Advisors’ actions with regard to a securities lending portfolio.” The plaintiffs sought to recover plan losses, disgorgement of profits, injunctive relief, and/or other relief under the Employee Retirement Income Security Act (ERISA).
Reviewing the compliant, the U.S. District Court for the District of Minnesota initially dismissed certain allegations having to do with the pension’s exclusive use of a higher risk equity strategy. The court also granted summary judgment for U.S. Bank on the securities lending program claims. However, the court held that the affiliated funds allegations would survive in part and should be argued. The court found that these allegations adequately alleged an injury in fact—that as measured by ERISA’s minimum funding requirements, “the plan lacked a surplus large enough to absorb the losses at issue.”
In the subsequent district court opinion, U.S. District Judge Joan N. Ericksen noted that the plan had, during the early course of the litigation, moved from an 84% funded ratio to become overfunded by ERISA measures, and citing other court cases, she determined that the case is therefore moot. In other words, the issues presented “were no longer live and the plaintiffs lacked a legally cognizable interest in any outcome.” In addition, she found it “is impossible to grant any effectual relief now that the plan is overfunded.” The court additionally denied the plaintiffs’ motion for attorneys’ fees, determining that the plaintiffs had achieved no success on the merits. The court concluded that the plaintiffs failed to show that the litigation had acted as a catalyst for any contributions that U.S. Bancorp made to the plan resulting in its overfunded status.
Discussion in the new appellate decision lays out some important distinctions regarding the initial district court’s decision to dismiss the lawsuit, weighing arguments of standing and mootness: “The defendants based their motion on the factual development that the plan is now overfunded. The district court concluded that standing was the wrong doctrine to apply given the procedural posture of the case; instead, the applicable doctrine was mootness … The court identified the plaintiffs’ injury in fact as the increased risk of plan default, or, put another way, the increased risk that plan beneficiaries will not receive the level of benefits they have been promised … The court concluded that because the plan is now overfunded, the plaintiffs no longer have a concrete interest in the monetary and equitable relief sought to remedy that alleged injury … Thus the court dismissed the entire case as moot.”
The appellate decision on attorney fees
The appellate court further clarifies the district court decision regarding attorney fees: “The plaintiffs moved for attorneys’ fees and costs pursuant to ERISA Section 502(g), 29 U.S.C. § 1132(g)(1). The plaintiffs argued that the defendants’ voluntary contribution of millions of dollars to the plan after the commencement of the lawsuit constituted some success on the merits because the contribution was motivated by the litigation. The defendants responded that in 2014 they again made excess contributions in order to reduce the plan’s insurance premiums. The district court denied the plaintiffs’ motion, finding no evidence that defendants’ 2014 contribution is an ‘outcome’ of the litigation, as opposed to an independent decision that nonetheless affected the viability of plaintiffs’ case.”
Responding to their defeat in district court, on appeal, the plaintiffs attempted to show that the plan was underfunded at the commencement of the suit. Thus, they maintain, they have satisfied the Article III standing requirement and are not required to establish that standing again. And, according to the plaintiffs, their case is not moot because they are capable of receiving the various forms of relief sought in the complaint and authorized by ERISA.
The appellate court simply doesn’t buy it, ruling that “under both ERISA Section 1132(a)(2) and (a)(3), the plaintiffs must show actual injury—to the plaintiffs’ interest in the plan under (a)(2) and to the plan itself under (a)(3)—to fall within the class of plaintiffs whom Congress has authorized to sue under the statute. Given that the plan is overfunded, there is no actual or imminent injury to the plan itself that caused injury to the plaintiffs’ interests in the plan. For that reason, as in Harley and McCullough, the plaintiffs’ suit is not one for appropriate relief, and we hold that dismissal of the plaintiffs’ claims for relief under § 1132(a)(3) was also proper.”
Similarly, the appellate court rejects plaintiffs’ argument that they are entitled to the recovery of attorney fees: “Here, the record supports the district court’s conclusion that the plaintiffs failed to produce evidence that their lawsuit was a material contributing factor in the defendants’ making the 2014 contribution resulting in the plan’s overfunded status and any relief that the plaintiffs sought in their complaint. Accordingly, we hold that the district court did not abuse its discretion in denying the plaintiffs’ motion for attorneys’ fees and costs.”
The full text of the opinion, which includes substantial additional detail on the thinking of both the district and appellate courts—and a dissenting opinion from one judge on the appellate panel—is available here.