Cunningham v. Cornell University
Issues
Must a plan fiduciary establish that services were necessary and paid for at a reasonable cost as an affirmative defense to a 29 U.S.C. § 1106(a)(1)(C) prohibited transaction claim, or must a plaintiff plead and prove that services were unnecessary or unreasonably costly as an element of their prohibited transaction claim?
This case asks the Supreme Court to decide whether an employee can state a claim that their employer violated the Employee Retirement Income Security Act (“ERISA”) by alleging that the employer had third parties such as accountants, auditors, and financial managers provide services for their employee retirement plan. If yes, the burden of proof lies on employer defendants to establish that such services were necessary for the operation of the plan and paid for at reasonable cost if they wish to avoid liability. If no, a plaintiff alleging only that a prohibited transaction was entered into cannot survive a motion to dismiss. Casey Cunningham and other Cornell University Employees (“Cunningham”) stress that § 1106(a)(1)(C) of ERISA prohibits all transactions between plan fiduciaries such as employers and parties in interest such as service providers, regardless of whether other sections of ERISA create exemptions, so a plaintiff should not have to plead anything more than that such a prohibited transaction took place — at least to state a claim and survive a motion to dismiss. Cornell counters that common sense and other sections of ERISA — one of which § 1106(a) itself refers to — show that ERISA cannot mean even to presumptively prohibit transactions between plan fiduciaries such as employers and service providers such as accountants, auditors, and financial managers. The outcome of this case will resolve a split between the Courts of Appeals and determine how easily employee beneficiaries of retirement plans will be able to sue their employers for suspected mismanagement of those plans.
Questions as Framed for the Court by the Parties
Whether a plaintiff can state a claim by alleging that a plan fiduciary engaged in a transaction constituting a furnishing of goods, services, or facilities between the plan and a party in interest, as proscribed by 29 U.S.C. § 1106(a)(1)(C), or whether a plaintiff must plead and prove additional elements and facts not contained in the provision’s text.
Editor’s Note: The staff of the Legal Information Institute, including the students who wrote and edited this Preview, are employees of Cornell University.
Additional Resources
- Jeremiah Jung, Cornell to Face Supreme Court in Retirement Plan Case, Cornell Daily Sun (Dec. 9, 2024).
- Austin R. Ramsey, Circuit ‘Crash’ Over Benefit Plan Conflicts Cues High Court Look, Bloomberg Law (Oct. 9, 2024)
- Daniel Wiessner, In Cornell case, US Supreme Court will review bar for some ERISA claims, Reuters (Oct. 4, 2024).