Legal Docket: A case for retirement security

NICK EICHER, HOST: It’s Monday, February 24th. Glad to have you along for today’s edition of The World and Everything in It. Good morning, I’m Nick Eicher

JENNY ROUGH, HOST: And I’m Jenny Rough. Time now for Legal Docket.

About a week and a half ago I went up to the Library of Congress. The Supreme Court Fellows Program hosts an annual lecture that typically features a Supreme Court justice. This year, it was Justice Ketanji Brown Jackson.

Her lecture began with a reading from her memoir.

JACKSON: Are you prepared to take the oath?, he said, his tone more formal than it had been a moment before. I am!, I said in a voice that sounded firmer than I felt.

As she continued, one part caught my attention. It was about the Bibles she used when she took her Supreme Court oaths. Two Bibles. On top, a cherished family Bible.

Underneath, a Bible known as the Harlan Bible.

In speaking with the court’s public information office, I found out it’s a King James Version. It’s printed by Oxford University Press ,and it’s bound in black leather.

JACKSON: Donated to the court in 1906 by Associate Justice John Marshall Harlan. This tome had been used for the oath-taking by every Supreme Court appointee since then. Each new justice had also signed one of the book’s fly leaves after being sworn in.

As a footnote here, Justice Harlan was a Presbyterian and a Calvinist. One legal scholar said the argument that Harlan’s “Calvinism contributed to his distinctiveness as a judge … [is grounded in] the unusual intensity of Harlan’s beliefs.”

That unusual intensity shows itself in the nickname Harlan earned: The Great Dissenter—for his lone dissent in the case Plessy versus Ferguson. That landmark 1896 decision approved the principle of separate but equal. Harlan objected, writing the famous line that the Constitution ought to be color blind.

AUDIO: [Cornell Alma Mater played by the Cornell chimesmasters]

EICHER: Those are the famous Cornell Chimes—a 21-bell chorus in McGraw Tower on the Cornell campus in Ithaca, New York. When the university opened its doors in 1868, there were just nine bells. But like a good investment, they’ve more than doubled over time—filling the air with even richer music.

Today on Legal Docket, a case involving Cornell’s management of investments of a different sort: its employee retirement plans.

A group of current and former employees is suing Cornell. Those employees say the University let outside companies nibble at their nest eggs.

ROUGH: They claim the university violated a federal law that protects people who invest in employer-based plans. That law is known by the acronym ERISA. You'll hear it quite a bit today as we listen to the arguments. ERISA stands for Employee Retirement Income Security Act. Under ERISA, Cornell is a “fiduciary.” That just means the school is responsible for using care and skill in managing employees’ funds.

EICHER: And that’s why employees sued. They say Cornell didn’t exercise proper care and skill. Instead, it allowed investment companies Fidelity and TIAA to charge excessive fees on their retirement accounts. And that eroded their savings over time.

ERISA contains a list of “prohibited transactions.” Generally, employers are not allowed to outsource certain plan services, like recordkeeping. There is an exception: If the service is necessary and the fees reasonable, then it’s okay. But the employees say Cornell failed that test and ought to be held liable.

ROUGH: Let me add here, I spoke with an ERISA lawyer who has served as an expert witness in cases just like this. She said as a practical matter, all plans have some sort of service provider. You can’t maintain a plan without one.

But the way the provisions work has been the subject of many lawsuits.

They’re not easy to judge. Different appeals courts have ruled differently, and the resulting circuit split is a virtual guarantee that the Supreme Court is going to have to get involved.

CORNELL: We’ll hear argument next in case 23-1007, Cunningham versus Cornell University.

EICHER: The legal issue centers on the pleading standard. Meaning, what must a plaintiff allege in the complaint to make the lawsuit valid?

Some circuits say all you have to allege is “Hey, Cornell hired an outside provider for the plan,” and that’s enough. You simply point to the prohibited transaction. The employer then has to prove it’s covered by the exception—namely, that fees were fair and the services were needed. But the burden is on the employer.

Other circuits say, “Not so fast, you can’t sue just because a plan uses an outside provider—everyone does that. You also have to claim something was truly off about the arrangement, like unreasonably high fees.”

ROUGH: And that’s the question before the Supreme Court: How much detail must plaintiffs include in their lawsuit to survive an early dismissal?

This is no small issue: Plaintiffs have to get the allegations right. Because if a complaint doesn’t state a valid claim, the court will dismiss it.

Xiao Wang represented the plan participants at oral argument. He said the statute’s plain text and structure supports his client’s position.

CORNELL; Congress frequently writes laws where it puts liability in one part of the statute and exceptions to liability in another. And when it does so, this Court has time and again held that plaintiffs plead and prove liability and defendants plead and prove exceptions to liability.

Your theory means, I think, or at least the other side says that
it's a prohibited transaction just to have recordkeeping services.

WANG: Correct, Justice Kavanaugh. I think our theory—

KAVANAUGH: And that seems nuts, right? That's what they say. And it does to me seem nuts too.

The whole game for plaintiffs here is to get the case to discovery. That costs time and money, and lots of both. If the plaintiffs can escape a motion to dismiss and move the case to discovery, well, that may motivate the university to settle. That may be the cheaper route even if, down the road, it might be able to show the fees were not excessive or unreasonable.

KAVANAUGH: You’re not alleging excessive or unreasonable amounts paid for these recordkeeping services; you're just alleging that we had them. Well, of course, we have them, right? Everyone has them. You have to have them. So it's an automatic ticket, pass go, go immediately to discovery, summary judgment, huge expense. These universities, other defendants are saying that's just completely absurd and ridiculous…

EICHER: It’s worth noting the same law firm who represents the retirement plan participants here has filed similar cases across the country. Cases against schools like Duke, Vanderbilt, and Penn.

Justice Samuel Alito wanted to hear more about that.

ALITO: And then, you know, how many lawsuits just like this one did the Schlichter Bogard law firm in St. Louis file against universities? … How many lawsuits just like this did that law firm file against different universities?

WANG: I think it's filed a significant number. I don't have the specific number off the top of my head, but I would say
that — 12, excuse me, and — but I would
say, in the complaint itself –

ALITO: I thought it was 20, but it doesn't matter.
So, you know, you file all these lawsuits, and maybe the universities are going to say: Look, it's going to cost us a lot of money to go through the discovery, we're just
going to settle. And so there's a payday for the law firm.

Nicole Saharsky argued for Cornell. She called the plaintiffs’ lawsuit too thin. Her point is that the ERISA section on “prohibited transactions” leads directly to the exception that allows outsourcing if the fees are fair. In Saharsky’s view, that means the plaintiffs have to claim something was actually wrong before they can sue. The burden’s on the plaintiffs to show the fees are unreasonable or the services unnecessary. Justice Clarence Thomas pressed Saharsky to explain exactly what a valid lawsuit ought to say.

THOMAS: What should be pled?

NICOLE SAHARSKY: So, here, it's that the fiduciary caused the plan to enter into a transaction with a party in interest, which a service provider is, and either that the services were unnecessary or that the fees are unreasonable. So, you know, it's just a question of can they just come to court and say service provider transaction with nothing wrong with it, as opposed to service provider transaction with some kind of wrongdoing…  If you come to court, you've got to have done some investigation and have done some, you know, have some plausible allegation of wrongdoing.

ROUGH: We’ve got a retirement crisis in this country. People are living longer, but they’re not saving enough. And it’s harder for many people to keep working as they age. That’s why it’s so important to protect their retirement accounts from mismanagement.

On the other hand, if the courts allow every ERISA lawsuit to go forward, even ones with weak claims; that’s a different kind of mismanagement. It could be a waste of time and money that could’ve helped those same plan participants.

So there’s a balance to strike, and I’m curious to see how the justices handle it.

EICHER: Along with hearing this Cornell case, the Supreme Court handed down three opinions on Friday: First, the court held that Hungarian Holocaust survivors did not meet the exception allowing them to sue Hungary in U.S. courts.

Second case involves a whistleblower: The court agreed that a telecom fraud case under the False Claims Act can proceed.

And third, a 5–4 ruling says unemployed workers can sue Alabama for long wait times on benefits.

ROUGH: And that’s this week’s Legal Docket.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.