BENEFITS LITIGATION UPDATE
A Quarterly Publication From Epstein Becker Green & The ERISA Industry Committee
Issue 6Summer 2014
Recent experience and the nightly news tell us that much of our government has
turned dysfunctional and perhaps non-functional in recent years. Our government
has three branches and we know that Congress and the federal agencies can have
a significant impact on our activities when they do act. However, it is perhaps the
courts that have had the greatest impact on our society and our benefit system in
recent times. The Supreme Court and the lower courts continue to issue rulings in
a variety of cases that directly and indirectly affect employee benefit plans. Over
the last several years, the Supreme Court has issued such important decisions as
ones upholding the ACA individual mandate and overturning key provisions of the
Defense of Marriage Act. Plan sponsors continue to grapple with such rulings.
ERIC recognizes the importance of the courts to the design, administration and
communication of benefit plans. We have an active Legal Committee (and, if you
are not a member, we invite you to join). We recently had a day long legal seminar
where we offered CLE credit and were joined by several of our law firms who led
interactive discussions on a variety of critical legal and litigation issues. ERIC also
continues to file amicus briefs in important benefit cases, such as ones involving
equitable remedies, deference to administrator decisions, and vesting of bargained
for retiree health benefits. We discuss the most recent briefs and cases in this
Benefits Litigation Update.
Recently, the Supreme Court issued its controversial ruling regarding the
contraceptive mandate under the ACA and its decision holding there is no
presumption of prudence for fiduciaries who manage stock funds under 401(k)
plans when the stock has fallen in value. We will review these decisions and their
likely impact in this issue. The limitation of the contraceptive mandate when it
conflicts with religious rights may not directly impact most ERIC members, but
its potential for broader lower court rulings in response could. The loss of the
presumption of prudence seems adverse on its face, but the Court in its decision
also outlined several key hurdles that plaintiffs must overcome to escape a motion
to dismiss. We also address in this issue the meaning of the ruling and several
related cases involving employer stock investments.
In the last issue of the Update, we included an article summarizing the developments
regarding equitable remedies since the Supreme Court’s 2011 decision in Amara
v. Cigna. We include an update on that summary in this issue. And, we have
included an editorial from one of our senior law firm colleagues focusing on
possible challenges to the basic deference principle.
A Short Message from ERIC President Scott Macey:
EXECUTIVE EDITORS
Joan A. Disler
jdisler@ebglaw.com
Adam C. Solander
asolander@ebglaw.com
Scott J. Macey
smacey@eric.org
- FEATURED ARTICLES -
Recent Supreme Court Decisions
Revise Rules for Stock Drop Cases
Hobby Lobby and the
Questions Left Unanswered
Post-Amara Landscape
Continues to Evolve
Supreme Court to Decide Whether
A Failed Class Action May Extend
Deadline to Bring Follow-on Claims
By Individual Plaintiffs
Supreme Court Indicates
That It Will Review "Tibble"
Challenges Could Threaten
Individual Subsidies and Employer
Mandate Penalties in States
with Federal Exchanges
Supreme Court Accepts Cert. in
Retiree Health Vesting Case
Third Circuit Urged to Correct
Misapplication of Fiduciary
Deference Standard
Will the Plaintiffs’ Bar Ask the Courts to
Declare Deferential Judicial Review of
ERISA Benefits Denials Unconstitutional?
NOTEWORTHY
PENDING CASES
- -
PERSPECTIVE
OF COUNSEL
- -
CONTRIBUTING EDITORS
Debra A. Davis
ddavis@eric.org
John Houston Pope
jhpope@ebglaw.com
Kenneth J. Kelly
kkelly@ebglaw.com
BENEFITS LITIGATION UPDATE
Benefits Litigation Update
Summer 2014
2
As with prior issues of the Update, we are joined by our colleagues from Epstein Becker Green. Debra Davis, my
colleague at ERIC, and I join in hoping that you find this issues informative and interesting and we also invite you
to register for our Focus On call on July 23 during which counsel from Epstein Becker, Debra and I will discuss the
issues and cases addressed in this issue of the Benefit Litigation Update.
ERIC members and trial members can register for the call at http://bit.ly/BLU-Call. Epstein Becker Green
clients who are not members of ERIC can register for the call by sending an email to acooper@eric.org.
Recent Supreme Court Decisions Revise Rules for Stock Drop Cases
By: Debra Davis
Retirement plans that invest in company stock are subject to the rules under the Employee Retirement Income
Security Act of 1974 (“ERISA”) and securities laws. The U.S. Supreme Court has recently issued two opinions that
impact litigation involving these plans under both ERISA and securities laws. In Fifth Third Bancorp v. Dudenhoeffer,
the Supreme Court analyzes ERISA’s fiduciary requirements where the value of the company stock in the plan
declined (known as “stock drop cases”). In Halliburton v. Erica P. John Fund, the Supreme Court analyzes stock drop
cases with respect to securities law issues. Both cases are likely to have significant impacts on plans that invest in
company stock. (Fifth Third Bancorp v. Dudenhoeffer, No. 12-751 (June 25, 2014); Halliburton v. Erica P. John Fund,
No. 13-317 (June 23, 2014).)
Overlap of ERISA and Securities Law Claims
In cases where the value of company stock in a retirement plan has declined, participants often allege both the
breach of fiduciary duties under ERISA and violations of securities laws.
Under ERISA, the participants typically allege that the fiduciaries breached their duties by allowing participants
to invest their plan accounts in employer stock. They often argue that the company stock became an imprudent
investment alternative because of circumstances adversely affecting the company and that the fiduciaries should
not have continued to allow investments in the stock. They may also allege that the fiduciaries knew or should have
known about these circumstances and that they either misled or failed to warn participants about the risks.
Participants often also include allegations of securities law violations. They frequently argue that they should be able
to recover damages in a securities fraud action because they relied on the defendant’s alleged misrepresentation
in deciding to buy or sell a company’s stock. About 25 years ago, in Basic v. Levinson, the Supreme Court made
class action lawsuits in securities fraud cases easier to proceed when it held that each individual plaintiff does
not have to provide direct proof that he relied on the alleged misrepresentation. (Basic v. Levinson, 485 U.S. 224
(1988).) Instead, the Court held that a plaintiff can invoke a rebuttable “presumption of reliance” using the “fraud-
on-the-market theory”. Under this approach, a plaintiff is presumed to have relied on any alleged misrepresentation
because the market price of all shares on a well-developed market is presumed to reflect all publicly available
information, including misrepresentations.
For example, in Harris v. Amgen, retirement plan participants filed a class action lawsuit against the company and
the plan fiduciaries, among others. (Harris v. Amgen, Inc., 738 F.3d 1026 (9th Cir. 2013).) After the value of the
company stock declined, the participants alleged that the defendants breached their fiduciary duties under ERISA.
FEATURED ARTICLES
