Verizon Pension Buyout Lawsuit Dismissed for Second Time

The 5th U.S. Circuit Court of Appeals has reaffirmed its previous dismissal of a class-action lawsuit that arose from the decision by Verizon Communications in October 2012 to purchase a single premium group annuity contract from The Prudential Insurance Company of America to settle approximately $7.4 billion of Verizon’s pension plan liabilities.

The case includes two classes of pension plan participants: those whose benefit liabilities were transferred to Prudential and those whose liabilities remained in the plan. The appellate court agreed with the dismissal of claims of the non-transferee class by a district court because the class did not prove individual harm and, therefore, lacked standing to sue.

Its affirmance was driven, in part, by the determination that plaintiff-appellant Edward Pundt lacked Article III standing to sue for purported fiduciary misconduct pursuant to the Employee Retirement Income Security Act (ERISA). Specifically, the 5th Circuit previously held that “standing for defined-benefit plan participants requires imminent risk of default by the plan, such that the participant’s benefits are adversely affected,” and it noted that Pundt failed to “allege the realization of risks which would create a likelihood of direct injury to participants’ benefits” in this case. The court also rejected Pundt’s argument that “he directly suffered constitutionally cognizable injury through invasion of his . . . statutory rights [under ERISA] to proper [p]lan management,” concluding that standing based on invasion of a statutory right must still “aris[e] from de facto injury, which is not alleged by a breach of fiduciary duty.”

Pundt then filed a petition for writ of certiorari in the United States Supreme Court. Subsequently, the Supreme Court decided Spokeo, Inc. v. Robins, which clarified the relationship between concrete harm and statutory violations for purposes of assessing Article III standing. After deciding Spokeo, the Supreme Court granted Pundt’s petition for writ of certiorari, vacated the appellate court’s judgment in the case, and remanded the case for further consideration in light of Spokeo.

In its new opinion, the appellate court noted that the Supreme Court reaffirmed in Spokeo that violation of a procedural right granted by statute may in some circumstances be a sufficiently concrete, albeit intangible, harm to constitute injury-in-fact without an allegation of “any additional harm beyond the one Congress has identified.” However, the Supreme Court also took care to note that “Congress’[s] role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” Rather, “Article III standing requires a concrete injury even in the context of a statutory violation.”

In Spokeo, the Supreme Court held that a bare allegation of a Fair Credit Reporting Act violation based on inaccurate reporting of consumer information was insufficient to establish injury-in-fact, as “not all inaccuracies cause harm or present any material risk of harm.” In the same way, the 5th Circuit recognized that Pundt’s allegation of an “invasion of [a] statutory right[] to proper [p]lan management” under ERISA was not alone sufficient to create standing where there was no allegation of a real risk that Pundt’s defined-benefit-plan payments would be affected.

In short, because Pundt’s “concrete interest” in the plan—his right to payment—was not alleged to be at risk from the purported statutory deprivation, Pundt had not suffered an injury that was sufficiently “concrete” to confer standing. “A bare allegation of improper defined-benefit-plan management under ERISA, without concomitant allegations that any defined benefits are even potentially at risk, does not meet the dictates of Article III; concluding otherwise would vitiate the Supreme Court’s explicit pronouncement that ‘Article III standing requires a concrete injury even in the context of a statutory violation,’” the appellate court wrote.

It reinstated and published its prior opinion.