Supreme Court refines pleading standard in ERISA cases

Current and former employees of Cornell University, who claimed the administrator of their retirement plans violated §1106(a)(1)(C) of the Employee Retirement Income Security Act by causing the plans to engage in prohibited transactions for recordkeeping services, were only required to plausibly allege in their complaint the elements contained in that provision itself without addressing potential exemptions applicable to such transactions under §1108, a unanimous U.S. Supreme Court has ruled in reversing a decision from the 2nd Circuit.

BULLET POINTS: “When statutory exceptions ‘are numerous,’ ‘fairness usually requires that the adversary give notice of the particular exception upon which it relies and therefore that it bear the burden of pleading. That Congress enumerated 21 separate exceptions and then authorized the Secretary [of Labor] to add additional classes of exempted transactions thereto only heightens the fairness concern, as respondents’ proposed approach would require plaintiffs to plead and dispute myriad exceptions before knowing which of them the defendant will seek to invoke. That would be especially illogical here, where several of the §1108 exemptions turn on facts one would expect to be in the fiduciary’s possession.”
— Justice Sonia Sotomayor, majority opinion

“I join all of the opinion of the Court for the simple reason that 29 U. S. C. §1108 sets out affirmative defenses, and it is black letter law that a plaintiff need not plead affirmative defenses. Here, as the Court points out,§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.
“Unfortunately, this straightforward application of established rules has the potential to cause — and, indeed, I expect it will cause — untoward practical results. The administrator of an ERISA plan like the one at issue will almost always find it necessary to employ outside firms to provide services that the plan needs. When it does so, these outside firms become ‘part[ies] in interest’ under the terms of ERISA, and as a result, their provision of services to the plan is unlawful under §1106 unless one of the exemptions in §1108 applies. The upshot is that all that a plaintiff must do in order to file a complaint that will get by a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is to allege that the administrator did something that, as a practical matter, it is bound to do.”
— Justice Samuel A. Alito Jr., joined by Justices Clarence Thomas and Brett M. Kavanaugh, concurring