Thole v. U.S. Bank, N.A.

NATURE OF PETITIONERS’ INJURY

Petitioners Thole and Smith assert that they have suffered an injury sufficient to confer Article III standing. Brief for Petitioners, James J. Thole and Sherry Smith at 20. According to Thole and Smith, ERISA requires employee benefit plan fiduciaries to “discharge their duties in the interest of the [plan] participants.” Id. Any breach of these duties, Thole and Smith continue, harms a plan participant’s “substantive rights” which supports standing to sue. Id. Thole and Smith also point to the common law of trusts, which they contend defines the scope of fiduciary duties under ERISA. Id. at 21. As such, Thole and Smith argue that ERISA fiduciaries owe plan participants, who are analogous to trust beneficiaries, the traditional duties of loyalty and prudent investment. Id. And like trust beneficiaries, Thole and Smith go on, plan participants hold equitable title to the managed property. Id. at 23–24. Thole and Smith therefore conclude that any breach of fiduciary duties results in “concrete” harm to a plan’s participants, who have a personal interest in redressing any breach. Id. at 23. Whether a plan is overfunded is irrelevant, Thole and Smith assert, because plan participants hold an equitable interest in plan assets regardless; a breach of fiduciary duties still gives rise to a concrete injury. Id. at 25–28.

Respondent U.S. Bank counters that Thole and Smith lack Article III standing because they have not suffered the required “injury-in-fact” necessary to support standing. Brief for Respondents, U.S. Bank, N.A., et al. at 18. U.S. Bank explains that an injury-in-fact must be “concrete and particularized,” meaning that the injury must “actually exist” and “affect the plaintiff in a personal and individual way.” Id. at 19–20. U.S. Bank claims that Thole and Smith never suffered a concrete injury because U.S. Bank’s ability to deliver Plan benefits on time was never in question, even when the Plan was underfunded. Id. at 21. U.S. Bank furthermore argues that, even if the Plan’s underfunded status was sufficient to create a “cognizable risk” that could support Article III standing, then that risk disappeared once the Plan became overfunded. Id. U.S. Bank also argues that Thole and Smith’s injury is not sufficiently particularized because their suit is not needed to ensure that they receive their retirement benefits. Id. According to U.S. Bank, merely suing to ensure ERISA compliance represents a “generalized” and “wholly abstract” concern. Id. U.S. Bank thus concludes that Thole and Smith have “no direct stake in the outcome” of the case because they will continue to receive their retirement benefits regardless of the case’s outcome. See id. at 22.

BREACH OF FIDUCIARY DUTIES

Thole and Smith assert that they have standing because the common law of trusts allows trust beneficiaries to bring suits for breaches of fiduciary duties without a beneficiary having to show an “individualized financial loss.” Brief for Petitioners at 28–29. For example, Thole and Smith explain, the common law has allowed beneficiaries to sue to restore trust losses that result from a fiduciary’s breach of the duty of loyalty. Id. at 29. Here, Thole and Smith claim that U.S. Bank violated its duty of loyalty by investing Plan assets in (1) only equity securities and (2) mutual funds managed by a U.S. Bank subsidiary, FAF Advisors (“FAF”). Id. Thole and Smith contend that this investment strategy enabled U.S. Bank to increase its profits, in part via additional management fees that FAF collected. Id. In this way, Thole and Smith argue that U.S. Bank inappropriately advanced its own interests over those of the Plan participants. Id. at 29–30.

Thole and Smith further argue that, when assessing a breach of fiduciary duty, the focus is on the financial loss to the trust itself and not the loss to the beneficiary. Id. at 31. Whether a beneficiary has suffered personal financial loss is irrelevant, Thole and Smith continue, because a beneficiary who sues for breach of fiduciary duty “sues as representative of the trust.” Id. at 33. Thole and Smith assert that requiring a personal financial loss to the beneficiary is incompatible with this representative capacity. Id. at 34. And in any case, Thole and Smith contend, the common law “no further inquiry” rule applies here to grant standing. Id. at 35. Under this rule, Thole and Smith explain, a trustee automatically breaches the duty of loyalty when the trustee engages in self-dealing. Id. Thole and Smith assert that this rule of strict liability shows that beneficiaries need not demonstrate personal financial loss in order to sue. Id. Thole and Smith point to extensive case law and other authorities for support, also arguing that these authorities provide for several forms of relief. Id. at 39­–41. According to Thole and Smith, a breaching fiduciary may be replaced, and any improper investments may be unwound. Id.

U.S. Bank responds that not every breach of fiduciary duty necessarily creates standing for a beneficiary to sue. Brief for Respondents at 22. According to U.S. Bank, only fiduciary breaches that harm a beneficiary’s “interest in the trust” are actionable. Id. at 24. While conceding that fiduciary breaches create standing in simple trusts where there is only one beneficiary, U.S. Bank contends that trusts with multiple beneficiaries must be considered differently. Id. at 25–26. For example, argues U.S. Bank, a remainder beneficiary’s interest in a trust will not be harmed if a trustee breaches its duty by failing to support a life beneficiary. Id. at 26. In that case, U.S. Bank continues, only the life beneficiary’s interest in the trust would have been harmed. Id. U.S. Bank implies that this reasoning extends here, because plan participants do not have an interest in the surplus of an overfunded plan. Id. at 42.

U.S. Bank also counters that Thole and Smith have misconstrued trust law. See id. at 32–33. According to U.S. Bank, trust law has historically granted trustees standing to sue to protect trust assets. Id. It does not follow, U.S. Bank contends, that beneficiaries also have a personal right to sue on behalf of the trust for every breach of fiduciary duty. Id. U.S. Bank similarly asserts that the “no further inquiry” rule does not excuse beneficiaries from having to demonstrate personal financial injury. Id. at 29–30. According to U.S. Bank, the rule merely indicates that certain breaches necessarily harm the trust itself; it is not always the case that such breaches also result in a “concrete harm” to the beneficiary. Id. U.S. Bank also asserts that, in any case, the common law of trusts does not overlap perfectly with ERISA. Id. at 34. In particular, U.S. Bank continues, ERISA contemplates the fiduciary relationship as running between only the fiduciary and the given employee benefit plan, not between the fiduciary and the plan participants. Id. at 34–35. For example, explains U.S. Bank, ERISA’s provisions frame fiduciary obligations as “duties with respect to a plan.” Id.

STATUTORY STANDING

Thole and Smith argue that Congress explicitly provided for ERISA plan participants to have standing here. Brief for Petitioners at 41. Thole and Smith point to Section 1132(a)(2), which authorizes “participants” and “beneficiaries” to sue for breaches of fiduciary duties. Id. at 44. In addition, Thole and Smith state that Section 1132(a)(3) similarly authorizes participants and beneficiaries to seek injunctive or other equitable relief. Id. According to Thole and Smith, the right to sue under Section 1132 is not conditioned on a plan being underfunded. Id. Rather, they continue, the statute unambiguously gives participants and beneficiaries the right to sue for any fiduciary breach. Id. Because Section 1132’s meaning is so clear, Thole and Smith argue, the Eighth Circuit was wrong to interpret participants in an overfunded plan as being outside that statute’s “zone of interests.” Id. at 46–47. Thole and Smith additionally contend that they have met the remaining two requirements of Article III standing: causation and redressability. Id. at 49. Thole and Smith claim that U.S. Bank’s fiduciary breach caused the Plan to lose “hundreds of millions of dollars,” and that the requested relief—restoring these losses, replacing the Plan’s fiduciary managers, and withdrawing Plan assets from FAF’s management—are the appropriate ways to “make good” the Plan’s losses. Id. at 50–51.

U.S. Bank disagrees that Section 1132 provides Thole and Smith with any sort of “statutory standing” to sue. Brief for Respondents at 58–59. While recognizing that Section 1132 provides plan participants with a cause of action generally, U.S. Bank argues that this cause of action is available only to plaintiffs whose interests are within the “zone of interests” that Congress sought to protect. Id. at 59. According to U.S. Bank, this does not include the interests of plaintiffs like Thole and Smith, whose interests in the Plan were never injured. See id. at 59–60. U.S. Bank further argues that, even if Thole and Smith have an injury, that injury cannot be redressed by removing the Plan’s fiduciaries. Id. at 56­–57. According to U.S. Bank, this sort of forward-looking relief is appropriate only where the plaintiff demonstrates “a real and immediate threat [that] the challenged conduct will recur,” and there is no likelihood of any future misconduct here. Id. at 56–57. U.S. Bank also asserts that any supposed injury will not be redressed by forcing it to make additional payments to an already overfunded plan. Id. at 58. Any such payments, U.S. Bank explains, would only reduce its future funding requirements, which is tantamount to U.S. Bank paying itself. Id.