The
OPINION ANALYSIS
Cunningham v. Cornell University will not go into the history books as one of the most important 30 decisions of the 2024-25 term. The case involves a technical problem about pleading standards under the Employee Retirement Income Security Act, and the court’s resolution of the problem was, in a word, technical.
ERISA establishes a series of detailed rules to deal with retirement plans, much of which tracks traditional rules of trust law. Not To be specific, the rule (in Section 1106) says that, “
xcept as provided in Section 1108,” the fiduciary of the plan “shall not cause the plan to
party in interest.” Section 1108, in turn, has an exemption that permits “reasonable arrangements with a party in interest … if no more than reasonable compensation is paid therefor.”
The problem is that the definition of “party in interest” is quite broad, including among other things all entities “providing services to [e] plan.” To read Section 1106 with that definition in mind, you would conclude that it violates Section 1106 to transact with any entity that is providing services to the plan. In this case, for example, beneficiaries sued Cornell to complain about transactions with Fidelity and the Teachers Insurance Annuity Association.[transact with a]The question the courts are grappling with is whether the beneficiaries can state a complaint merely by alleging that Cornell has violated Section 1106 itself – by transacting with somebody from whom it is buying services – or whether they also must allege that the transaction is not protected by Section 1108, perhaps because compensation for those services is unreasonably high.
Justice Sonia Sotomayor’s opinion picks the first approach. She It would make no sense to require a plaintiff, in every case, to disprove each of those exceptions, as “fairness usually requires that the adversary give notice of the particular exception upon which it relies and therefore that it bear the burden of pleading” the particular exception.[the]The most important part of the opinion is the last few pages, where Sotomayor grapples with the reality that the court has validated a rule that will allow a plaintiff to survive a motion to dismiss merely by alleging that a plan fiduciary has purchased something from an entity from whom it purchases things. She First Second Third I I
