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In Thole v. U.S. Bank N.A., No. 17-1712, 2020 U.S. LEXIS 3030 (June 1, 2020), the U.S. Supreme Court ruled, 5-4, that defined pension plan participants lacked constitutional standing to sue over a $750 million loss to their plan because they had not yet missed a benefit payment. Justice Kavanaugh, writing for the majority, brought a new approach.  He analyzed the dispute as if it were a simple contractual matter involving an un-breached contract– i.e., no damages at present, no case at present. This might strike some ERISA practitioners as unusual since the last three decades of ERISA jurisprudence has focused on analyzing fiduciary actions under the law of equity. Under an equitable analysis, a fiduciary would, arguably, have a duty to protect a trust fund, like a pension fund, from preventable erosion.

Justice Clarence Thomas’ Concurrence was, perhaps, the most honest assessment of the Court’s ruling where he wrote, effectively, ‘did we really want to spend so much time in the law of equity?’ Thomas has been on the Court for 30 years – about two-thirds of ERISA’s statutory existence.

Now the Court’s newest members, Justices Kavanaugh and Gorsuch, are giving ERISA a look through new legal eyes. Justice Kavanaugh wrote that a pension shortfall, alleged to be the result of fiduciary mismanagement, was not an actual case because:

“Win or lose, they would still receive the exact same monthly benefits they are already entitled to receive.”

Given the Court’s broad ruling, it may be that pension funds have to be squandered and lost before there is a “case or controversy” under Article III of the U.S. Constitution.  The opinion details several of ERISA’s regulatory protections and discusses the backup insurance provided by the Pension Benefit Guaranty Company as a potential safety net to retirees.  (Although it should be noted that the PBGC has announced it will be insolvent by 2025).

In the dissent, Justice Sonia Sotomayor said:

“The Court holds that the Constitution prevents millions of pensioners from enforcing their rights to prudent and loyal management of their retirement trusts. Indeed, the Court determines that pensioners may not bring a federal lawsuit to stop or cure retirement-plan mismanagement until their pensions are on the verge of default. This conclusion conflicts with common sense and longstanding precedent.”

One fact that was obscured from the Court’s majority opinion, that figured prominently in the lower court decisions, was the important and operative fact that U.S. Bank transferred money into the plan to effectively overfund it during the litigation.  U.S. Bank’s self-corrective measure seemed persuasive to the judges below.  The move, which a healthy plan sponsor can pull off, may be more challenging for struggling plans. For those plans, the pensions may erode, and there is seemingly little that can be done under ERISA to remedy this after Thole.  The Court’s holding of the case is considerably broader than what was happening factually in Thole.

As the Court’s majority continues to emphasize texts, not the history behind the texts, it was not thinking about the Studebaker Automobile Company bankruptcy or other abuses that led to ERISA’s passage.  (ERISA took nearly ten years to pass after Studebaker went bankrupt and its workers lost everything in their retirement).  The Court, at least for the moment, seems content to let the federal government mop up any pension plan problems through its taxpayer supported pension insurance program.

On January 22, 2019, the United States Secretary of Labor filed an amicus curiae brief in support of the plaintiff-appellants/ cross-appellees Ivan and Melissa Mitchell in the matter of Mitchell, et al. v. Blue Cross Blue Shield of North Dakota, et al.

Blue Cross Blue Shield of North Dakota filed a cross-appeal in the matter arguing that the Mitchells, despite being fully insured for medical claims by Blue Cross, had ‘no legal or constitutional standing’ to sue for payment of their benefits.

Ms. Mitchell was transported by air ambulance during a winter storm between two medical facilities owing to the fact that the receiving hospital did not have the capability to treat her emergency medical condition.

Blue Cross, despite having provided the Mitchells with coverage documents indicating it would pay 80% of “allowed” air ambulance charges, paid only about 20% of those charges.

The Secretary argued:

1.  “A denial of a participant’s or beneficiary’s right to have a benefits claim determined in accordance with plan terms is an injury sufficient to establish constitutional standing. The Mitchells suffered an injury in fact when Blue Cross denied benefits they contend were promised by the Plan by failing to fully reimburse their medical service provider”; and

2.  In accordance with Supreme Court precedent, an ERISA participant “may include a former employee with a colorable claim for benefits.” (quoting LaRue v. DeWolff, Boberg & Assocs., Inc., 552 U.S. 248 (2008)).  The Mitchells advanced a “colorable argument that Blue Cross interpreted the Plan terms to deprive them of rights promised under the Plan” and, accordingly, established statutory standing to bring an ERISA action under Section 502(a)(1)(B).

The Secretary of Labor emphasized the fact that the four United States Circuits to consider the issue have each held that a denial of a benefits claim which is alleged to constitute a violation of the plan terms constitutes injury for Article III purposes.  Uniformly, “whether a provider decided to seek payment for services from a plan participant or whether the participant actually paid is irrelevant to the injury that the participant suffers from the deprivation of benefits owed under the plan.”  This also comports with Congressional intent underlying ERISA, common law precedent,[1] and Spokeo v. Robins, 136 S. Ct. 1540 (2016).  A ruling contrary to that of the district court’s on the issue of standing would “create an unnecessary circuit split and deny a participant the only recourse for judicial review of a plan’s denial of a benefit.”

The amicus brief also argues that, consistent with all circuit court decisions, a “provider’s actions are not determinative to an injury in fact analysis: “Whether the Mitchells assigned the proceeds of this litigation to (but not their underlying claim) to another party is irrelevant to their injury in fact… That injury is not eliminated if the provider decides not to balance bill the patient for the amount the plan did not pay.”

A copy of the Secretary of Labor’s brief is available here.

[1] “A breach of a promise in a plan is analogous to a breach of contract, and courts have always considered breaches of contractual promises to constitute Article III injuries.”