Goodwin Insights October 12, 2021

Petitioners and Amici Submit Briefs to the Supreme Court in the Case Challenging Northwestern’s 403(b) Plan

Key Takeaway: Petitioners, the plaintiffs in the underlying litigation, continue to ask the U.S. Supreme Court to recognize a liberal pleading standard, which would make it more difficult for defendants to dismiss claims challenging plan investments or administrative expenses at early stages of a litigation. 

In our previous ERISA Litigation Update, we highlighted that the Supreme Court had granted certiorari in Hughes v. Northwestern University, a case presenting an important question about the allegations necessary to state a plausible claim for breach of ERISA’s fiduciary duties in cases challenging a defined contribution plan’s investment line-up or the plan’s administrative expenses. The petitioners challenged the investments and fees of Northwestern University’s 403(b) retirement plan, and the Seventh Circuit previously affirmed the dismissal of their complaint for failure to state a claim. 

On September 3, 2021, the petitioners filed their opening brief to the Supreme Court. Unlike the more narrow approach taken by the U.S. Solicitor General in its May 25, 2021 brief to the Supreme Court in which the Solicitor General suggested that the underlying dismissal should be reversed as to a subset of the petitioners’ allegations regarding a failure to offer the cheapest share class of certain plan investments, the petitioners’ brief argued that the Supreme Court should vacate the Seventh Circuit’s entire ruling for several reasons. First, the petitioners characterized the Seventh Circuit’s decision as holding that plan fiduciaries satisfy their duties, and can prevail on a motion to dismiss, simply by arguing that they have offered a wide range of investment options. The petitioners argued that such a ruling runs contrary to the Supreme Court’s Tibble v. Edison International decision, which held that plan fiduciaries have a duty to monitor every investment on a plan’s investment menu. Second, in further reliance on Tibble, the petitioners also argued that their challenge to the plan’s inclusion of retail share classes should be allowed to proceed because the Tibble plaintiffs had challenged the same conduct. Third, the petitioners argued that the Seventh Circuit failed to draw reasonable inferences in the petitioners’ favor and improperly made a merits decision when it credited Northwestern University’s explanation for why it used the recordkeeper that it did. Fourth, and finally, the petitioners also argued that facts discovered while their motion to dismiss was pending substantiated their allegations of imprudence.

Several amici filed briefs in support of the petitioners, including the American Association for Justice, the Investment Law Scholars, and the AARP Foundation (which was joined by several other entities). The American Association for Justice argued that the Seventh Circuit had adopted too lenient a view of ERISA’s fiduciary duties, and the AARP’s brief similarly argued that the Seventh Circuit had imposed too stringent a pleading standard in affirming dismissal of the petitioners’ claims. The Investment Law Scholars’ amicus brief argued that large retirement plan menus are harmful to participants.

The defendants in the case below, the respondents before the Supreme Court, will file their brief by October 21, 2021, and any amici in support will file their briefs by October 28. The case is set for oral arguments on December 6, 2021. The petitioners’ brief is available here