In ERISA Class Actions, Defendants Should Take a Close Look At Whether Article III Standing Issues Could Lead to Early Adjudication

As class action litigation under ERISA continues its upward trend across the country, could Article III standing serve as a means through which a Court can fairly assess claims before costly discovery is imposed on defendants and judicial resources are expended? Several recent federal court decisions suggest as much.

ERISA, which provides protection to employees who participate in employee benefit plans, confers statutory standing on plan participants and beneficiaries to seek relief against their benefit plans as well as fiduciaries of these plans in federal court. Although the statute gives all plan participants the green light to seek recovery, it does not relieve them of their burden to establish constitutional standing as a prerequisite to that relief.

Article III requires a plaintiff to allege a concrete injury to demonstrate standing to bring a claim in federal court. Putative class actions under ERISA typically allege that plan sponsors and fiduciaries have breached their fiduciary duties under the statute by selecting high-cost or underperforming investment options, for example. Like class members in other federal lawsuits, to establish Article III standing in the ERISA class action context, plan participants cannot rely on theoretical injuries they might have suffered by virtue of participating in the plan—rather, they must show that they themselves suffered an actual injury due to the alleged mismanagement of the plan. The Supreme Court’s decision in Thole v. U.S. Bank, N.A., 140 S. Ct. 1615 (2020), and subsequent lower court cases illustrate how courts are using Article III standing to both adjudicate cases early, as well as ensure putative classes comprise only those plan participants who suffered a personal harm.

In Thole, the Supreme Court stated plaintiff’s burden plainly by insisting that plan participants show they have a “concrete stake” in the lawsuit to establish standing. In that case, two retired participants in a pension plan brought a putative class action to recover losses caused by alleged fiduciary breaches. Plaintiffs were participants in a defined benefit plan, which provides a defined benefit (or payment) upon retirement, usually paid out of a trust. Plaintiffs alleged the trust was underfunded for a period of time. While the case was pending in district court, the defendants made contributions to the plan, causing it to become overfunded as measured by ERISA’s minimum actuarial standards. After the Eighth Circuit affirmed the district court’s dismissal based on lack of statutory standing, the Supreme Court concluded the plaintiffs lacked Article III standing because they had, at all times, received the benefits due to them under the plan and were therefore unable to show they suffered harm. The consequence of Thole’s ruling was the Court’s confirmation that in the ERISA context, plan participants who lack individualized injury have no concrete stake in the lawsuit’s outcome and therefore cannot clear Article III’s hurdle.

Although Thole involved a defined benefit plan, the Supreme Court’s reasoning there has had broad implications for ERISA class actions involving other types of employee benefit plans. In re LinkedIn provides an example of how Article III’s concrete injury standard has been applied in the defined contribution plan context. In re LinkedIn ERISA Litig., 2021 WL 5331448, *4 (N.D. Cal. Nov. 16, 2021). In that case, the district court dismissed plaintiffs’ claims for lack of Article III standing because the plaintiffs did not allege they actually invested in inadequate funds. Because plaintiffs did not assert they invested in underperforming funds, they could not establish a concrete injury and therefore lacked standing to bring fiduciary duty claims under ERISA.

Other district courts have similarly used Article III standing to dismiss or limit the scope of claims concerning benefit plans on motions pursuant to Fed. R. Civ. P. 12(b)(1).  For instance, in Wilcox v. Georgetown, 2019 WL 132281, at *9 (D.D.C. Jan. 8, 2019), the United States Court of Appeals for the District of Columbia Circuit dismissed plaintiffs’ complaint and held that plaintiffs, who alleged their retirement plan paid excessive fees and included underperforming investment options, lacked Article III standing to assert such claims because they were based on investment options neither plaintiff had in fact selected. Likewise, in In re Omnicom ERISA Litig., 2021 WL 3292487, at *1, 10 (S.D.N.Y. Aug. 2, 2021), plaintiffs brought a breach of fiduciary duty claim relating to their defined contribution plan and alleged they had standing to challenge any injury to the plan, even arising from investment options in which they did not invest personally. The court, however, held that plaintiffs lacked standing to sue on the basis on injuries stemming from funds in which they personally did not invest because they could not have suffered any cognizable injuries in fact with respect to those funds. Elsewhere, the United States District Court for the District of Connecticut has also emphasized that “ERISA’s statutory cause of action alone cannot endow a plaintiff with standing; she must also show that she has standing under Article III.” Garthwait v. Eversource Energy Co., 2021 WL 4441939, at *7 (D. Conn. Sept. 28, 2021). In that case, the court dismissed plaintiffs’ complaint related to the management, retention, and performance of specific funds in which they did not invest and could therefore not allege an adequate injury in fact with respect to those funds. These cases highlight the scrutiny to which constitutional standing continues to be subjected as defendants seek to dismiss ERISA claims pursuant to Fed. R. Civ. P. 12(b)(1).

District courts have also applied these principles to dismiss ERISA cases based on other claims of malfeasance by ERISA fiduciaries. For example, the plaintiffs in Anderson v. Intel Corp. brought claims challenging the adequacy of disclosures under a defined contribution plan.  The district court held that plaintiffs lacked Article III standing because they could not demonstrate that supposedly inadequate disclosures caused injuries to them personally. Anderson v. Intel Corp., 2021 WL 229235, *13 (N.D. Cal. Jan. 21, 2021).

These cases arising in the ERISA context should be viewed as part of a larger trend in recent Supreme Court standing decisions that have clarified Article III standing requirements in the class action context. In 2021, the Supreme Court considered Article III standing under the Fair Credit Reporting Act (“FCRA”) in a decision that narrowed the putative class to only those plaintiffs who could establish a concrete harm by eliminating those putative class members who merely faced a risk of future harm. TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021). As we have explained in this post, plaintiffs in Ramirez alleged they had been injured by the disclosure of their credit reports containing misleading information to third parties. Ultimately, the Court held that the uninjured plaintiffs—those individuals whose credit reports were not disseminated—did not have standing under Article III, regardless of their inclusion in the putative class.

The full extent of Thole’s influence will undoubtedly be seen in ERISA class actions for years to come as courts continue to use Article III to weed out claims early in litigation, before wading into discovery and class certification. As ERISA class complaints continue to roll in, class action defendants should keep Thole and its progeny in mind and ask the simple question posed by Thole: Do these plaintiffs genuinely have a concrete stake in the outcome of this litigation?