The Seventh Circuit recently affirmed the trial court victory for GreatBanc Trust Company and Segerdahl Corporation’s (sg360°) Board members in the ESOP case, Rush v. GreatBanc Trust Co., et. al, ___ F. 4th __, 2026 U.S. App. LEXIS 21177 (7th Cir. July 17, 2026).  In Rush, the former vice president of manufacturing challenged the December 2016 sale of the ESOP-owned company sg360° to a private equity buyer.  Rush claimed the ESOP’s trustee GreatBanc and sg360°’s Board would have gotten a better price for sg360° had they marketed it to competitors and managed the sales process differently.  Rush also claimed it was a “prohibited transaction” under ERISA for sg360°’s CEO to continue investing in sg360° post-sale.

Discussion

After a three-week bench trial, Judge Andrea Wood rejected Rush’s claims challenging this sale in their entirety.  On appeal, the Seventh Circuit found Judge Wood’s fact findings rejecting Rush’s claims were amply supported and rejected Rush’s attempt to retry the case on appeal.  The Seventh Circuit also made several rulings of broader import.

First, applying “well-settled trust law principles,” the Court ruled that an ERISA fiduciary’s decisions in an ESOP transaction should receive judicial deference when there is no conflict of interest.  This should apply to an independent trustee’s decision making in all forms of ESOP transactions.  In this case, the Segerdahl Board and the ESOP’s interests were also aligned because they all benefited financially from a higher price for the ESOP-owned company.    

Second, the Court concluded that GreatBanc’s careful and impartial investigation of the sale fulfilled its fiduciary duty under ERISA, including relying on sg360°’s investment banker JPMorgan’s judgment (who was financially incentivized to maximize sg360°’s sales price) in how it shopped sg360°. 

Third, the Court rejected the notion that sg360°’s CEO’s continued investment in sg360° post-sale constituted a per se prohibited transaction.  The Court noted a contrary rule would harm ESOPs by making ESOP-owned companies less attractive to buyers, who expect senior managers to commit to the company that the outside buyer is purchasing.

Takeaways

Rush v. GreatBanc recognizes and gives judicial deference to common practices involved in selling ESOP-owned companies.  This should benefit both the ESOP-owned companies (who will be protected from unfounded litigation), and the trustees and board members involved in selling these companies.

GreatBanc Trust Company and certain members of sg360°’s Board are represented by Jackson Lewis.  If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist.  Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work. 

ERISA litigation continues to expand in unprecedented fashion, reshaping the landscape for employers, plan sponsors, and service providers. As we move into 2026, all indications suggest that this trend will accelerate. Four lawsuits filed in late December may represent the beginning of a significant new wave of cases. 

These four suits, filed by plaintiff’s firm Schlichter Bogard LLC, allege violations of ERISA Section 502 (29 U.S.C. §§ 1132(a)(2) and (a)(3)) attacking the purported high costs of voluntary benefits insurance — including accident-only, critical illness, hospital indemnity, and cancer insurance. In particular, the complaints assert that defendants, acting as fiduciaries, breached their duties in managing and administering these voluntary benefit insurance programs, which are covered by ERISA. The allegations include failure to monitor and identify lower-cost benefit options for employees and engaging in prohibited transactions through the payment of excessive commissions to consultants. Because employers do not subsidize these insurance coverages, the implication is that companies failed to oversee these offerings prudently and loyally.  

What makes these cases particularly noteworthy is that they do not focus exclusively on employer-defendants. Plaintiffs are now advancing claims that target benefit consultants as defendants, claiming these entities, sometimes referred to as brokers, are ERISA fiduciaries.  Plaintiffs seek to shift the traditional understanding of these roles. Historically, benefit consultants functioned primarily as intermediaries between employers and insurance carriers and did so under the protection of ERISA’s fiduciary exemption. But here plaintiffs allege that consultants exercise discretion in selecting insurance carriers and insurance policies, and also in structuring voluntary benefit plans to gain sizeable commissions — actions that, plaintiffs argue, make these consultants plan fiduciaries. 

Because these lawsuits have just been filed, the ultimate implications for plan-broker relationships are unknown. However, the potential consequences could be significant, perhaps opening the door to widespread claims and heightened scrutiny industry-wide.

As these cases unfold, another critical question will dominate the discussion: does ERISA govern voluntary insurance benefits? Are brokers ERISA fiduciaries? Employers have traditionally assumed these benefit policies fall outside ERISA’s scope, relying on safe harbor provisions under 29 C.F.R. § 2510.3-1(j). These new lawsuits challenge that assumption, alleging employers endorse these insurance coverages, perform more than ministerial implementation tasks, and obtain services at lower cost by allowing benefit consultants to receive excessive commissions. This development is particularly significant given the growing popularity of voluntary benefits as a means of supplementing traditional health coverage as employers help participants manage additional medical expenses. 

Against this backdrop, the central question is: will alleged employer endorsement, administration, and discretionary control over voluntary benefits be sufficient to bring these coverages under ERISA’s governance? If so, plan sponsors and benefit consultants should brace for continued litigation, as plaintiffs seek to upend long-standing assumptions about voluntary benefits and expand the scope of fiduciary liability.

If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist. Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

ERISA class action litigation did not let up in 2025. Retirement plan fee litigation – which has dominated for several years – remained steady, with new, or in some cases refined, theories targeting 401(k) forfeitures and stable value fund performance. Additionally, this year saw a boom in litigation surrounding tobacco surcharges and continued litigation concerning health plan fees.   

The takeaway is clear: ERISA disputes have expanded well beyond their traditional boundaries, with plaintiffs testing fiduciary obligations in new and unexpected ways.

Fee and Investment Litigation Continues to Evolve

Traditional excessive fee lawsuits remain a major share of ERISA filings, but the contours of those claims are shifting.

A key development in 2025 involved the growing focus on stable value funds, which historically attracted little scrutiny compared to target-date funds or actively managed equity options. Plaintiffs are now alleging that certain stable value funds delivered below market crediting rates or underperformed to allegedly comparable (but typically distinguishable) conservative alternatives. These claims often accompany the familiar allegations of unreasonable recordkeeping or administrative fees.  To date, approximately 30 cases challenging stable value funds have been filed since the beginning of the year. 

Motion to dismiss outcomes, however, remain mixed.  Some courts have dismissed complaints that rely on hindsight or fail to offer meaningful benchmarks.  Others have permitted cases to proceed based on modest allegations of underperformance or excessive fees, reinforcing the fact-specific and jurisdiction-dependent nature of these disputes.  With some exceptions, defendants have prevailed on the merits when cases proceed to summary judgment and trial.

One trend worth noting:  settlement values in fee cases appear to be declining, signaling a recalibration of litigation strategies on both sides. 

Forfeiture Litigation In Focus

One of the most notable developments of 2025 is the surge in lawsuits challenging how employers use 401(k) forfeitures — the unvested employer contributions left behind when employees depart.  Plaintiffs argue that plan sponsors breach fiduciary duties when they apply forfeitures to offset future employer contributions rather than to pay plan expenses otherwise paid by plan participants.  To date, more than 80 cases have been filed since the wave began back in 2023, with over 30 cases having been filed just since May of this year.

Courts across the country have been actively addressing motions to dismiss on forfeiture litigation, and in most instances, the motions have been granted.  As of this writing, defendants’ motions to dismiss have been granted in 25 cases and denied in just five.  

Class Action Litigation Finds Health Plans

Recent years have seen new lawsuits challenging what ERISA group health plans pay for prescription drugs.  These cases have faced major obstacles, as motions to dismiss were granted in two cases this year for lack of standing.  While these initial health plan fee cases have had a sputtering start, they remain pending and we may continue to see more activity in this area.

Conversely, litigation targeting tobacco surcharges, which took off in late 2024, continued to explode throughout 2025.  To date, over 50 cases have been filed; almost half in 2025 alone.  These lawsuits allege that tobacco surcharges violate ERISA’s anti-discrimination provision by charging plan participants more for medical benefits based on their health status.  The allegations center around the “reasonable alternative standards” that employers offer plan participants for avoiding surcharges, rewards offered for satisfying those standards, and the timing, form, and content of notices about tobacco surcharges.  Early motions to dismiss have teed up issues regarding statutory and regulatory interpretation, standing, and the reach of the DOL’s regulatory powers.  And, while some courts have trimmed certain claims – particularly fiduciary breach claims – or found that particular fact patterns warranted dismissal, courts have largely deferred on deciding the core issues until later in litigation.  

While 2026 will hopefully bring more clarity on these issues, these lawsuits highlight a broader trend: plaintiffs are increasingly scrutinizing health and welfare plan design.

What Plan Fiduciaries Should Expect in 2026

The 2025 wave of ERISA litigation continued to build upon the trends we saw last year, reaching deeply into both retirement and health plan administration.  As plaintiffs continue expanding their theories, strong plan governance, detailed documentation, and proactive compliance reviews will remain essential in limiting liability exposure. 

If you have questions about these developments, the Jackson Lewis ERISA Litigation Practice Group is available to assist.  Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work.

Earlier this year, ERISA fiduciary breach defendant Parker-Hannifin filed a petition for a writ of certiorari to the United States Supreme Court that, if granted, could settle a circuit split created by the Sixth Circuit regarding the correct pleading standard for ERISA class actions challenging defined contribution plan investment performance. Johnson v. Parker-Hannifin, 122 F.4th 205 (6th Cir. 2024). It would also allow the Court to weigh in substantively on the pleadings standard for similar claims – an issue percolating in the courts below for years. 

The Seventh, Eighth, and Tenth circuits have each held that plaintiffs asserting an ERISA fiduciary breach claim based on offering imprudent investments in a defined contribution Plan must allege in the complaint that other investment options with similar qualities, aims and goals – often called “meaningful benchmarks” – outperformed the Plan’s investments. 

The Sixth Circuit departed from this consensus in Johnson v. Parker-Hannifin.  There, participants in the Parker-Hannifin retirement plan brought various fiduciary breach claims, including the relevant claim here: that the Plan’s suite of target date funds underperformed. The district court dismissed the suit on the pleadings, but a divided panel of the Sixth Circuit reversed.  The majority held that, to state a viable imprudent investment claim based on performance, plaintiffs do not need to allege a meaningful benchmark.  The Sixth Circuit further held that, even if the meaningful benchmark standard was required, plaintiffs had properly pled one by comparing the passively managed target date funds at issue in their Plan to the S&P target date fund benchmark, even though plaintiffs had not alleged why that was a meaningful benchmark.

Parker-Hannifin thensought a writ of certiorari from the U.S. Supreme Court, posing the question of “[w]hether pleading an imprudent-investment claim under ERISA, based on how the investment’s returns compared to some performance benchmark, requires allegations showing that the benchmark is a sound basis for comparison for that investment.”  On June 30, 2025, the Court invited the Solicitor General to file a brief expressing the views of the United States on the case.  This invitation signals the Court’s potential interest in granting certiorari.

The Sixth Circuit holding in Parker-Hannifin lowers the bar for plaintiffs to plead an imprudent investment claim, which could lead to significant increases in duration and cost of litigating such claims, as well as further open the litigation floodgates.  It also creates uncertainty through a circuit split and runs afoul of the Supreme Court’s prior instructions in Hughes v. Northwestern University and Fifth Third Bancorp v. Dudenhoeffer to conduct a rigorous, context-specific analysis of ERISA fiduciary breach claims at the pleadings stage.  If certiorari is granted, Parker-Hannifin provides the Court with a clear path forward to substantively address these concerns. 

The Jackson Lewis ERISA Litigation Practice continues to monitor this area of law as it develops. If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist. Please contact a member of our team or the Jackson Lewis attorney with whom you regularly work.

A Florida district court recently gave TECO Energy, Inc. another victory in an ERISA case when it dismissed Plaintiff’s proposed class action with prejudice.  Roche v. Teco Energy, Inc., No. 8:23-cv-01571, 2025 U.S. Dist. LEXIS 95462 (M.D. Fla. May 20, 2025).  The court found that Plaintiff’s amended complaint did not state a claim because it failed to allege either (1) misrepresentative or misleading communications to the Plaintiff; or (2) that TECO was timely on notice that Plaintiff had a need for disclosure.

In 2022, Plaintiff Alejandro Roche attempted to request a December retirement date, which would have corresponded to a higher payout for an optional lump sum benefit due to required changes in interest rates used to calculate that lump sum.  However, Roche submitted his application too late to select such a date and instead received his lump sum payment in January of 2023.  Roche alleged that he would have submitted his application earlier if he had been properly notified of TECO’s method of calculating lump sum benefits and the fact that rising interest rates could reduce his lump sum payout.    

Discussion

Roche offered two theories to support his allegations: (1) TECO was on notice of Roche’s “confusion;” and (2) ERISA fiduciaries have a proactive duty to warn beneficiaries of any circumstance that might reduce their benefits.  The court rejected both theories, dismissing Roche’s suit.

Roche’s first theory was that Defendants should have known that their “silence” with respect to disclosing how rising interest rates could lower 2023 lump sum benefits caused him harm because TECO learned of his confusion during conversations about his retirement benefits.  However, ERISA fiduciaries typically have an affirmative duty to inform only if they are on notice that their failure to convey the information would be harmful.  The court concluded that Roche failed to state a claim under this theory because by the time he alerted TECO of his confusion (to which TECO had appropriately responded), it was already too late for him to choose a 2022 retirement date.  

Next, Roche argued that ERISA fiduciaries have an affirmative duty to warn beneficiaries of circumstances that might reduce their benefits.  Here, the court noted that Roche’s supporting caselaw did not stand for a blanket rule that ERISA fiduciaries have a duty to communicate material facts to participants, absent some communication or other event that puts the fiduciary on notice about the need for the disclosure.  The court noted that “absent any communication or notice from participants” it was unconvinced that TECO had a duty (1) to anticipate the possibility that participants were considering a 2022 retirement and would be taking the lump sum; and (2) to notify them that since interest rates were rising, their lump sum payment would be less if they did not retire until 2023.

Roche’s theory that ERISA fiduciaries must proactively provide participants with information that would maximize benefit outcomes would have amounted to ERISA fiduciaries being required to offer unsolicited advice.  The court held that this theory, if accepted, would be a vast expansion of ERISA’s fiduciary duties far beyond its current state and declined to do so.

Takeaways

This case reinforces the idea that ERISA fiduciaries are not required to anticipate or predict how participants will behave or offer participants unsolicited advice. 

However, this case does underscore established caselaw that can require a fiduciary to provide information when a participant has demonstrated confusion over benefit terms, or has otherwise put the ERISA fiduciary on notice that the participant needs material information to protect his benefits.  Fiduciaries should always pay close attention to communications with participants. 

TECO Energy, Inc. is represented by Jackson Lewis.  If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist.  Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney whom you regularly work with. 

The Sixth Circuit recently granted an employer win in an ERISA excessive fee case when it affirmed the dismissal of a proposed class action brought by current and former employees of DENSO International America, Inc., a manufacturer of auto parts. England v. Denso Int’l Am. Inc., No. 24-1360, 2025 U.S. App. LEXIS 10851 (6th Cir. May 6, 2025). The court reasoned that the complaint did not state a claim because it lacked detailed factual allegations showing that comparable recordkeeping services were available to the Plan at a lower price. 

Similar to other fee class actions, the plaintiffs here alleged that DENSO breached its duties of prudence and loyalty under ERISA by failing to monitor the Plan’s recordkeeping fees, which were allegedly excessive relative to the level and quality of recordkeeping services provided. In response, DENSO moved to dismiss.

Failure to State a Claim

The trial court reasoned that the complaint did not state a valid claim under ERISA because it rested on conclusory assertions unsupported by detailed factual allegations. The plaintiffs asserted that the Plan paid more than double the amount it should have for recordkeeping services, and they provided a list of fifteen comparably sized plans that paid lower recordkeeping fees. However, the complaint provided no specific details about the types or quality of services that the comparator plans received relative to those the DENSO Plan received. Instead, the plaintiffs conclusorily alleged that all “mega plans,” or plans with more than $500 million in assets, generally receive the same level and quality of services. In other words, they argued that the recordkeeping services for these mega plans are standardized and “fungible” across the industry.

The appellate court affirmed the district court’s dismissal of the complaint, holding that the plaintiffs’ conclusions alone did not allow the court to reasonably infer a breach of the duty of prudence. The court further held that the plaintiffs’ conclusions were contravened by their own data; the very fact that the comparator plans each paid different fees undermined the notion that a cost disparity categorically implied imprudence. In rejecting these conclusory allegations, the court relied on the weight of authority from the Second, Eighth, and Tenth Circuits, which have all dismissed similar excessive fee complaints that failed to provide detailed comparisons of challenged services. 

Takeaways

This case serves as another example of a federal Court of Appeals dismissing an ERISA complaint that relies on conclusory assertions. The Second Circuit joins several other circuits across the country in rejecting this commonly raised assertion as an inadequate substitute for detailed factual allegations. Motions to dismiss remain a valuable tool for defendants faced with substantively empty complaints, potentially resolving litigation in its early stages and barring plaintiffs from conducting “fishing expeditions” in discovery on mere supposition.

DENSO International America, Inc. was represented by Jackson Lewis.  If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist.  Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work.

On April 17, 2025, the U.S. Supreme Court, in a unanimous opinion, resolved a circuit split and established a plaintiff-friendly pleading standard for ERISA prohibited transaction claims in Cunningham v. Cornell University, No. 23-1007.

Background

The plaintiffs in Cunningham accused Cornell’s retirement plans of engaging in prohibited transactions by paying excessive fees for recordkeeping and administrative services, among other claims. The university contended that these transactions were exempt under ERISA Section 408(b)(2), which permits certain transactions with parties in interest if the compensation is reasonable. The Second Circuit had previously affirmed the district court’s dismissal of the participants’ prohibited transaction claims, ruling that plaintiffs must plead and prove the absence of such exemptions to state a claim under ERISA Section 406(a)(1)(C).​

Supreme Court’s Ruling

In a decision authored by Justice Sonia Sotomayor, the Supreme Court reversed the Second Circuit’s ruling. The Court held that plaintiffs are not required to preemptively allege that ERISA’s exemptions do not apply. Instead, the burden is on the plan fiduciaries to raise and prove these exemptions as affirmative defenses. The Court reasoned that:

  • Affirmative defenses, such as the exemptions at issue, must be plead by the defendant seeking to benefit from them.
  • It is an undue burden to require plaintiffs to plead the non-application of exemptions since these facts are typically within the defendant’s knowledge and control.
  • Such preemptive requirement could unfairly force plaintiffs to engage in discovery before having the necessary information.

Implications for ERISA Litigation

The Cunningham decision resolved a circuit split and aligned with the Eighth and Ninth Circuits to treat ERISA exemptions as affirmative defenses rather than necessary elements of the claim to be initially plead by plaintiffs. This standard seemingly makes it easier for plaintiffs to state a prohibited transaction claim and may increase the number of lawsuits surviving motions to dismiss, as plaintiffs are no longer required to anticipate and address potential exemptions. An overall uptick in 401(k) fee litigation is also possible.

The Cunningham court acknowledged that defendants may feel increased pressure to engage in expensive discovery and settlement talks — even in cases they believe are meritless — and pointed to tools to help screen meritless claims, including:

  • Dismissing claims where Plaintiffs do not have Article III standing;
  • Limiting discovery;
  • Rule 11 sanctions;
  • Cost shifting under ERISA Section 1132(g)(1); and
  • Using Fed. R. Civ. P. 7(a) to order plaintiffs to address exemptions by filing a reply to answers raising this issue.

Justice Alito’s concurrence echoed the importance of such safeguards while highlighting that Rule 7(a) may be the most promising tool. Still, Justice Alito recognized that Rule 7(a)’s reply mechanism is not a “commonly used procedure,” and thus its effective usage “remains to be seen.”

Ultimately, employers and plan fiduciaries should take note of the Supreme Court’s clarified pleading standard for prohibited transaction claims. Employers should review service provider fee arrangements for reasonableness and confirm that policies are in place to maintain detailed records of fiduciary decision-making.

If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist. Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work.

Although the Department of the Treasury, Department of Labor, and Department of Health and Human Services believe that wellness programs are delivering on their promise of improving health and reducing costs, one type has recently become the ire of the plaintiffs’ bar: the tobacco surcharge.  To date, plaintiffs have filed nearly 30 suits against plan sponsors alleging that their health plans violate ERISA Section 702 (29 U.S.C. § 1182), which prohibits discrimination based on health status.  Notably, the DOL instituted two of these cases.  Because most of these cases have been filed in a spree since August 30, 2024, plan sponsors can likely expect to see the wave of suits continue to swell. 

At the heart of the suits is the interplay between Section 702’s prohibition on discrimination and a plan’s right to offer premium discounts, rebates, and other incentives in exchange for adherence to health promotion and disease prevention programs.  The operative DOL regulation states that a wellness program is reasonably designed if it allows a participant who does not meet the initial outcome-based standard—cessation of tobacco use—another opportunity to avoid the surcharge.  For example, under the DOL regulations, a plan provides a reasonable alternative standard if participants can avoid the surcharge by completing a tobacco cessation program, regardless of whether they stop using tobacco. 

Plaintiffs have argued that prospective avoidance of a surcharge, alone, is inadequate.  They say the DOL’s regulation requires retroactive reimbursement of surcharges—e.g., if a participant quits smoking or satisfies the alternative standard in November, plaintiffs assert not only should the December surcharge be lifted, but the participant should also receive reimbursement for the surcharges paid since January.  

Plaintiffs have also alleged that plan sponsors breached their fiduciary duties by collecting the surcharges to reduce their costs in operating the plan at the expense of the plan’s participants. 

Despite the surge of cases, the theory underlying them remains untested on the merits.  Further muddying the viability of the theory is the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (June 28, 2024), which eliminated Chevron deference.  With that deference no longer available, a court may find that the DOL’s regulatory interpretation of Section 702 is not the “best reading” of the statute.  Until courts begin to weigh in, plan sponsors operating tobacco surcharge wellness programs should monitor the cases, review their plan documents to ensure they provide reasonable alternative standards, and evaluate the sufficiency of their notification of such reasonable alternative standards to their plan participants.  

Recent scrutiny of pharmacy benefit managers, also known as “PBMs,” has resulted in various lawsuits alleging that the high drug costs they charge violate ERISA. Among the first lawsuits in what appears to be a wave of new litigation against employers is Lewandowski v. Johnson & Johnson et al., No. 3:24-cv-00671, currently pending in the District Court of New Jersey.  

PBMs serve as the middlemen between drug companies, pharmacies, insurers, employers, and patients, helping set prices for prescription drugs. PBMs help insurers and employers select and purchase medication for their health plans and negotiate discounts with manufacturers. PBMs also set payment terms for the pharmacies that buy and dispense the drugs to patients.

In Lewandowski, Plaintiff claims that her employer, Johnson & Johnson (“J&J”), breached its fiduciary duty under ERISA by overpaying for prescription drugs. Plaintiff alleges that J&J failed to demand lower prices from its PBM when establishing the arrangements for its group-medical plan. The higher drug prices, according to Plaintiff, have resulted in lower wages and higher health insurance costs for J&J employees.

In June, J&J moved to dismiss the lawsuit for lack of standing. According to J&J’s motion, Plaintiff received all the benefits she was contractually entitled to receive – that is, prescription drug benefits at the cost established in the Plan documents – which in turn shows that Plaintiff cannot establish injury-in-fact resulting from J&J’s alleged improper conduct. Moreover, J&J claims that Plaintiff’s out-of-pocket expenses would not have changed even if her prescription drugs through the Plan cost nothing. The Plan’s cost-sharing obligations associated with Plaintiff’s substantial medical (non-drug-related) expenses would have still resulted in the same out-of-pocket amount each year. Accordingly, Plaintiff has not suffered a cognizable injury that can be traced to the challenged conduct.

Plaintiff responded that the Plan’s overpayments were passed on to her in the form of monthly premiums, which she alleges were higher than they would have been absent Defendants’ fiduciary breaches. Plaintiff also asserted she incurred greater out-of-pocket costs at the pharmacy counter than she would have paid absent Defendants’ fiduciary breaches. Under Plaintiff’s theory, this harm straightforwardly satisfies Article III’s requirements. Moreover, Plaintiff claimed that at the initial pleading stage, she was not required to (1) specify the flaws in Defendants’ process for managing the Plan or (2) support her cost allegations “with any comparisons to other plans.” She also claims she was not obligated to rebut Defendants’ “explanation” for the challenged conduct.

Defendants’ motion to dismiss has been fully briefed as of August 12. However, both Plaintiff and Defendants recently filed notices of supplemental authority citing to the Third Circuit’s decision in Knudsen v. MetLife Group, Inc., No. 23-2420 [Sept. 25, 2024], affirming the dismissal of a similar lawsuit. There, Plaintiffs alleged that Defendant retained $65 million in PBM drug rebates which allegedly caused the increased out-of-pocket costs. The Third Circuit held that Plaintiffs lacked standing to lead the suit because they couldn’t show they were owed the rebate savings, thus failing to establish an injury-in-fact. Specifically, the Court said, “Plaintiffs must show that the purported violative conduct was the but-for-cause of their injury in fact, namely, an increase in their out-of-pocket costs above what they would have been if MetLife had deposited the rebate monies into the Plan trust.”

Lewandowski argued that in Knudsen, the Court held that ERISA plaintiffs do have Article III standing if their complaint alleges they “have or will pay more in premiums, or other out-of-pocket costs” as a result of the defendant’s ERISA violations. Lewandowski attempted to distinguish Knudsen, arguing that her complaint includes specific, nonspeculative allegations that the Third Circuit held would satisfy standing. In its submission, J&J reiterated that Plaintiff has not alleged that she was charged more than the Plan documents permit. And because Plaintiff’s out-of-pocket costs were unaffected by the challenged actions, she does not have standing.

The case is pending a decision on the motion to dismiss. If Plaintiff successfully survives the dismissal, we can expect to see even more of these cases filed by plaintiffs’ firms, regardless of the merits of the allegations. 

If you have any questions, the Jackson Lewis ERISA Litigation Practice Group members are available to assist. Please contact a Jackson Lewis ERISA Litigation team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.

In its recent decision in State of Utah v. Su, the Fifth Circuit remanded a challenge to the Department of Labor’s (DOL) environmental, social, and governance (ESG) rule for investing in defined contribution retirement plans after the Supreme Court’s recent decision in Loper Bright Enterprises v. Raimondo.  In Loper Bright, the Supreme Court overturned the 40-year-old Chevron doctrine, which required courts to defer to agency interpretation of ambiguous language in statutes within the agency’s purview. 

In Utah v. Su, 26 states along with other interested parties sued the DOL, claiming that the ESG rule conflicted with the plain language of ERISA and was invalid under the Administrative Procedure Act.  The DOL ESG rule allowed plan fiduciaries to consider ESG factors when selecting investments when competing investment options “equally serve the financial interests of the plan.”  The DOL did not argue that it was entitled to deference regarding its rulemaking but instead asserted that the ESG rule was consistent with the plain language of ERISA.   

A Texas federal district court relied on Chevron when it deferred to the DOL’s analysis in finding that the ESG rule was properly promulgated.  Plaintiffs appealed the district court’s decision to the Fifth Circuit.

The Fifth Circuit did not decide whether the DOL properly promulgated the ESG rule.  Instead, the court noted that Loper Bright “upended the legal landscape” by eliminating Chevron deference and it could not consider the merits of the case because the district court relied on Chevron in deferring to the DOL’s rulemaking process.  With the removal of the Chevron duty to defer, the Fifth Circuit held that it was required to remand the case to the district court to make an independent determination of whether the rule was within the DOL’s authority to pass.

While the district court is reviewing whether the DOL validly issued the ESG rule, the rule remains in effect.  A final decision on the validity of the ESG rule will likely not occur soon, as another appeal to the Fifth Circuit is certain to follow the district court’s decision. 

Takeaways

Utah v. Su is the first ERISA test case for review of agency rulemaking in the post-Chevron environment.  The district court will reconsider the case without any deference to the DOL’s analysis and make an independent determination based on its examination of the plain language of ERISA, which both sides previously argued supports their respective positions on appeal. 

Jackson Lewis continues to monitor the impact of Loper Bright.  Click here to read more.