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Could a Quick Appeal Signal a Shift in ERISA Litigation?


A class action involving a $1.6 billion 401(k) plan has been fast-tracked to the U.S. Court of Appeals for the Third Circuit for a ruling on an issue of emerging concern in ERISA excessive fee litigation.

The case involves three participant-plaintiffs—Mary K. Boley, Kandie Sutter and Phyllis Johns—of the King of Prussia, Pennsylvania-based Universal Health Services, Inc., Retirement Savings Plan. With some $1.9 billion in assets (and nearly 42,000 participants), the plaintiffs argue that the plan “had substantial bargaining power regarding the fees and expenses that were charged against participants’ investments. Defendants, however, did not try to reduce the Plan’s expenses or exercise appropriate judgment to scrutinize each investment option that was offered in the Plan to ensure it was prudent.” The issues raised here were hardly unique—and the law firm representing the plaintiffs, Capozzi Adler PC, has been increasingly active in 401(k) litigation. 

However, the issue under consideration—(Boley v. Universal Health Servs., Inc., 3d Cir., No. 21-8014, order 5/18/21) and one that might produce a shift in litigation strategy, if not results—is the issue of whether a plaintiff who was not actually invested in the funds under scrutiny can bring suit. In this case the Universal Health Services defendants have argued that this “sweeping” class (60,000 participants) should never have been certified because the three named plaintiffs were only invested in seven of the 37 plan investment options referenced in their suit. 

Thole ‘Mien’

That question has taken on new relevance in the wake of a U.S. Supreme Court ruling last year (James J. Thole et al. v. U.S. Bank NA et al.) that dealt not with a 401(k) plan and excessive fees, but with a defined benefit plan, and allegations that the fiduciaries of U.S. Bank’s pension plan mismanaged their responsibilities, resulting in plan losses of $750 million in losses. While those losses were recovered prior to the suit, the narrow 5-4 decision by the nation’s highest court turned on what Justice Kavanaugh, writing for the court, said: “[T]he plaintiffs lack Article III standing for a simple, commonsense reason: They have received all of their vested pension benefits so far, and they are legally entitled to receive the same monthly payments for the rest of their lives. Winning or losing this suit would not change the plaintiffs’ monthly pension benefits.” 

So, what does one have to do with the other? Well, the Supreme Court took on the Thole case because it had been alleged that there was a split in federal courts—that the Eighth Circuit’s decision (where the case originated) veered from decisions in the Second, Third and Sixth Circuits in holding that violation of ERISA rights alone was sufficient to have standing to bring suit, without establishing loss. Meanwhile the Fourth, Fifth, and Ninth circuits had gone another way, denying standing to bring suit to participants in similar contexts, though they did so on Constitutional grounds—as has the Supreme Court—unlike the Eighth Circuit, which cited ERISA.

‘Stake’ Holders

The Universal Health defendants have pressed the issue, noting that the named plaintiffs “have no stake in proving claims arising from the 30 options in which they never invested because they will receive ‘not a penny more’ in benefits” if they’re successful. As you might imagine, the plaintiffs disagreed, arguing that Universal Health’s argument was “based largely on a faulty construct,” specifically the distinction between DC and DB plans. Indeed, in the majority opinion, Justice Kavanaugh pointed out that distinction, explaining that, “…participants in a defined-benefit plan are not similarly situated to the beneficiaries of a private trust or to participants in a defined-contribution plan, and they possess no equitable or property interest in the plan.” In fact, he noted that it was “of decisive importance to this case” that the plan in question was a DB plan, rather than a DC plan.

The Supreme Court’s decision, though a narrow one, seemed likely to forestall any number of potential fiduciary breach suits, if only because it limits the circumstances under which workers and retirees can sue. This would, of course, be the first attempt to apply that reasoning to a 401(k) plan—and the quick acceptance of the case by the Third Circuit suggests it’s a case worth keeping an eye on.

And we will…