Cunningham v. Cornell Univ. (No. 23-1007)
Summary
The Supreme Court case Cunningham v. Cornell Univ. (2025) addresses pleading standards for prohibited transaction claims under the Employee Retirement Income Security Act of 1974 (ERISA). The court held that plaintiffs only need to plausibly allege the elements of a prohibited transaction under §1106(a)(1)(C) of ERISA. They are not required to anticipate and disprove potential exemptions listed in §1108.
The Court reversed the Second Circuit's decision, which had required plaintiffs to plead that a transaction was unnecessary or involved unreasonable compensation to state a claim. The Supreme Court determined that the exemptions in §1108 are affirmative defenses, which defendants must plead and prove.
Justice Sotomayor delivered the unanimous opinion, with a concurring opinion from Justice Alito, joined by Justices Thomas and Kavanaugh, expressing concerns about potential for increased litigation despite agreeing with the legal conclusion.
Expected Effects
This ruling lowers the bar for plaintiffs to bring ERISA prohibited transaction claims against plan fiduciaries. It shifts the burden to defendants to prove that their actions fall under a statutory exemption. This may lead to an increase in ERISA litigation related to plan fees and services.
Potential Benefits
- Easier for plan participants to bring claims against fiduciaries for potentially self-dealing transactions.
- Increased scrutiny of plan fees and expenses, potentially leading to lower costs for participants.
- Clarification of pleading standards under ERISA, reducing uncertainty for plaintiffs.
- May incentivize fiduciaries to ensure transactions are clearly exempt under §1108.
- Provides a check on potential fiduciary misconduct.
Most Benefited Areas:
Potential Disadvantages
- Potential increase in frivolous litigation, burdening the courts and plan fiduciaries.
- Increased litigation costs for plan fiduciaries, potentially passed on to plan participants.
- May discourage fiduciaries from offering certain services or investments due to increased litigation risk.
- Could lead to settlements even in cases with weak evidence, simply to avoid high litigation costs.
- May create uncertainty in plan administration.
Constitutional Alignment
The ruling primarily concerns statutory interpretation of ERISA, and does not directly implicate constitutional principles. The Court's decision focuses on the procedural aspects of pleading standards in federal court, which are governed by the Federal Rules of Civil Procedure.
While the case doesn't directly address constitutional rights, it indirectly relates to due process by clarifying the burden of proof in civil litigation. The decision aims to ensure fair access to courts for ERISA plaintiffs, aligning with the broader principles of justice and fairness.
There is no direct conflict with any specific article, section, or amendment of the US Constitution.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).