Goodwin Insights July 15, 2021

Supreme Court Grants Certiorari Regarding Pleading Standards for Fiduciary Breach Claims

Key Takeaway: The U.S. Supreme Court granted certiorari in a case that concerns what types of circumstantial allegations can state a plausible claim for breach of fiduciary duties in cases challenging a defined contribution plan investment line-up or the plan’s administrative expenses.

On July 2, 2021, the Supreme Court granted a petition for certiorari in Hughes v. Northwestern University, which presents an important question about the allegations necessary to state a plausible claim for breach of ERISA’s fiduciary duties. Hughes, captioned as Divane v. Northwestern University while the case was pending before the Seventh Circuit and in district court, challenges the investments and fees of Northwestern University’s 403(b) retirement plan. The Seventh Circuit affirmed dismissal of the complaint for failure to state a claim and the plaintiffs asked the Supreme Court for another look. The petition for certiorari was premised in part on the argument that different circuits have seemingly taken varying approaches to evaluating fiduciary breach claims premised on circumstantial allegations (e.g., allegations that funds in the plan line-up underperformed alternatives available in the market, or that the plan’s administrative fees exceeded the fees paid by other defined contribution plans).

Earlier this year, the Supreme Court had asked the Solicitor General to weigh in on whether it should grant certiorari in Hughes. The Solicitor General’s brief recommended that the Court do so, though it reframed the question more narrowly than the plaintiffs had framed it. Whereas the plaintiffs’ petition asked the Supreme Court to review “[w]hether allegations that a defined-contribution retirement plan . . . fees that substantially exceeded fees for alternative available investment products or services are sufficient to state a claim . . . for breach of the duty of prudence,” the Solicitor General argued that certiorari should be granted to instead address “[w]hether participants in a defined-contribution ERISA plan state[_] a plausible claim for . . . breach of the duty of prudence by alleging that the fiduciaries caused the participants to pay investment-management or administrative fees higher than those available for other materially identical investment products or services.” Additionally, the Solicitor General’s brief made clear that the United States did not agree with the plaintiffs that “an ERISA plaintiff could state a claim for relief by alleging merely that alternative investment funds with lower management fees than those included in a plan were available in the marketplace.” Ultimately, the Supreme Court granted certiorari without adopting any particular framing of the question presented, so it will be up to the parties (and the United States, which is likely to continue to participate in the case) to advocate for their own positions about how courts should evaluate the barrage of excessive-fee complaints that have flooded federal courts over the last several years. This will be an important case to watch for the Supreme Court’s next term and will likely be argued in late fall or early winter.

Additionally, on June 28, 2021, the Supreme Court denied a petition for certiorari in PricewaterhouseCoopers LLP v. Laurent, the other ERISA petition that the Supreme Court had asked the Solicitor General to weigh in on this year. That case concerned a question about ERISA’s remedies provisions, and specifically whether two of ERISA’s separate remedial sections (Section 502(a)(1)(B) and Section 502(a)(3)) can effectively be combined to create a new remedy that is not expressly made available by ERISA. The Solicitor General’s brief had recommended that the Supreme Court deny that petition.