Cunningham v. Cornell University (23-1007)

argument 23-1007

Cunningham v. Cornell University

Supreme Court of the United States 1h 30m 8 speakers 8 chapters transcribed 1 month ago official recording ↗

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What statutory provisions define prohibited transactions under ERISA?

John G. Roberts 0:00

We'll hear argument next in case twenty three ten oh seven, Cunningham versus Cornell University. Mr Wang?

Mr. Wang 0:07

Mr. Chief Justice, and may it please the court. When Congress enacted ERISA, it identified a number of prohibited transactions and codified that understanding in twenty-nine USC Section eleven oh six. In Congress's view, these transactions posed a special risk of being potentially harmful to the plan. Generally because they involved a party in interest, which includes a fiduciary's relative, or an officer or an owner of the plan, or a person providing services to the plan. Petitioners here have identified a transaction that falls within the text of Section 1106, and the Second Circuit's decision to dismiss that claim prior to discovery was incorrect for three reasons. First, text and structure. Congress frequently writes laws where it puts liability in one part of the statute and exceptions to liability in another.

Mr. Wang 0:57

And when it does so, this court has time and again held that. Plaintiffs plead and prove liability and defendants plead and prove exceptions to liability. Second, precedent. In Keystone Consolidated Inherit's Trust, this Court made clear that the prohibited transaction provisions provide for categorical rules. But what the Second Circuits approach does is it converts those categorical rules into qualified ones. And that brings me to the final reason. for reversal, which is that they're not just Qualified prohibitions, but they're qualified based on exemptions that involve information that plaintiffs cannot know and do not know prior to discovery. Information like who the counterparties are in a cross trade, or how large a block trade is, or what asset classes are in a block trade.

Mr. Wang 1:46

Which is exactly why, when Congress wrote these provisions, it intended for petitioners to plead and prove under Section eleven. six and for defendants to plead and prove under Section eleven oh eight. For these reasons, Your Honor, the first one. we asked this court to reverse the judgment of the Second Circuit. I welcome the court's questions.

Clarence Thomas 2:06

What exa if you were if we were to read your complaint as it is, what exactly is the injury?

Mr. Wang 2:13

The injury is that the With regard to the prohibited transaction provisions, Your Honor, their injury is that uh the plans here engage fidelity and TIAA, who are parties and interest, and that violates section eleven oh six A one C.

Clarence Thomas 2:29

So how did that harm the plan?

Mr. Wang 2:31

It harmed the plan because Fidelity and TIA didn't simply just provide record keeping services to the plan. They bundled them with investment products. And those investment products in turn had operating expenses, and those operating expenses were then shared via revenue sharing to uh the plan to pay for record keeping. Now, that bundling uh resulted in Fidelity and TIA pushing, this is on page twenty-two of of the joint appendix pushing its own products, its own actively managed products, leading to higher expense ratios and therefore greater record keeping fees in the in the result.

Brett M. Kavanaugh 3:09

Your theory means, I think, or at least the other side says, that it's a prohibited track transaction just to have record keeping services.

Mr. Wang 3:21

Correct, Justice Kavanaugh. I think that's the question. And

Brett M. Kavanaugh 3:23

that seems nuts, right? That's what they say. And it does to me seem nuts too.

Mr. Wang 3:27

Um so what do we do with that? Well Justice Kavanaugh, let me try to unpack that. I think the starting point would be to to look at the text of the statute and this and I think For outside service providers, that would fall under eleven oh six A1C, something that the fiduciary shall not do. Now that doesn't sort of provide a per se bar, and we don't think it provides a per se bar. Instead it says, look, that gives plaintiffs an o opening to open the door to plead a claim. That doesn't mean that they'll succeed on liability. Eleven oh eight, that's the purpose of eleven oh eight.

Brett M. Kavanaugh 3:59

Of course, but uh um just to state what's obvious from the amicus briefs, uh and we've heard before in other contexts, uh they're worried about the expense of litigating this past the motion dismiss.