George Washington University Faces ERISA Hearing

George Washington University (GWU) faces a hearing before the U.S. District Court for the District of Columbia related to a putative class action lawsuit alleging multiple breaches of fiduciary duty in the administration of employee retirement plan benefits under the Employee Retirement Income Security Act (ERISA).

According to an order filed by the district court, the parties dispute whether the plaintiff has standing to bring any ERISA claims based on a settlement agreement she entered, and, if she does, whether she has standing to bring claims based on certain investment options GWU offered to plan participants in its capacity as plan fiduciary. According to the order, Section 409(a) is particularly relevant to the matter.

With these questions as yet unsettled, the court has ordered a supplemental briefing to examine each of the issues.

By way of background, in 2016, the claimant entered a settlement agreement with GWU that included a general release of all claims against the university, including claims for violation of “any federal” law. According to the text of the new district court order, the terms of the broadly-worded 2016 release, however, expressly carve out “claims for vested benefits under employee benefit plans.”

As the court explains, the parties dispute, among other things, whether the ERISA claims are “claims for vested benefits” within the meaning of the agreement.

According to the order, if the plaintiff released her claims against GWU under the agreement, the court would lack jurisdiction to hear the case. On this point the order cites a case from 1997, Aulenback, Inc. v. Fed. Highway Admin. According to the court order, “complete settlement of claims moots an action, which renders a court without jurisdiction under Article III.”

“The court therefore must resolve the scope of the release before proceeding to the merits,” the order states.

The order notes that the settlement agreement being considered is governed by the laws of the District of Columbia. Under District of Columbia law, a release is a form of contract, and the rules of contract construction govern its interpretation. From here, the order next steps through the logic that underpins contract construction and interpretation in this context.

“GWU contends that the exception in the release preserving claims for vested benefits under employee benefit plans unambiguously refers to claims arising under the contractual terms of an ERISA plan brought pursuant to ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B),” the order states. “Because plaintiff concedes that she is not challenging a denial of benefits under the terms of an ERISA plan, GWU continues, the general release she signed—which covers everything except such a denial of benefits—plainly precludes her claims. Plaintiff disagrees, asserting that, as used in the agreement, the ‘vested benefits’ term plainly refers to ERISA claims more broadly, including her claims for fiduciary breach arising under ERISA § 502(a)(2). In short, the parties disagree about whether the ‘vested benefits’ exception was intended specifically to refer to ERISA denial-of-benefits claims arising under section 502(a)(1)(B), or also generally captures statutory claims arising under sections 502(a)(2) and (a)(3).”

According to the hearing order, the court’s analysis must be one of contract interpretation, not statutory interpretation.

“Here, however, the parties’ plain-meaning arguments are predicated on conclusory interpretations of how the term ‘claim for vested benefits under employee benefit plans’ necessarily interacts with ERISA,” the order states. “In so doing, the parties have raised more questions than they have answered. … Hence, before deciding the threshold jurisdictional question of whether the release covers plaintiff’s claims, the court will order additional briefing on that issue. The parties should also address how they propose to proceed should the court conclude that the ‘vested benefits’ term is ambiguous, including whether motions for summary judgment with extrinsic evidence would be warranted.”

Moving on to a separate issue, the court order notes that, even if the release does not bar plaintiff’s claims, GWU contends that the court lacks jurisdiction to bring claims relating to certain investment options the university offered as a plan fiduciary. Specifically, GWU argues that plaintiff lacks standing to press claims pertaining to the TIAA Real Estate Account—one of several investment options offered—for the “simple reason that she does not allege that she ever elected that investment option. She also lacks standing to pursue claims related to the TIAA Traditional Annuity, GWU claims, because while she alleges that assets in that fund are subject to an unreasonable surrender charge (i.e., penalty) if withdrawn as a lump sum, the complaint contains no allegation that she plans to withdraw.”

The plaintiff responds that the overwhelming majority of decisions have held plaintiffs do not need to allege that they sustained injury with respect to each challenged investment option in a plan, but that standing is properly established by alleging injury to the plans as a whole.

According to the court order, the plaintiff is correct that ERISA § 502(a)(2) permits plan participants to sue on behalf of the plan to help ensure that the benefits authorized by the plan are ultimately paid to participants and beneficiaries. But ERISA § 502(a)(2) does not (and cannot) permit such suits in the absence of Article III standing, the order concludes.

“The parties have only briefly addressed this key jurisdictional issue,” the order states. “Accordingly, the court will order supplemental briefing on this question. The briefing should clarify on a claim-by-claim basis the parties’ positions as to whether the complaint sufficiently alleges a relationship between the relevant claims (as opposed to the specific investment options) and a concrete and particularized injury to plaintiff (as opposed solely to the plan).”

Formally, the court’s order denies without prejudice the defense’s motion to dismiss. By no later than April 30, 2019, plaintiff and defendants each shall file one brief not longer than 15 pages addressing whether the “vested benefits” language in the release unambiguously covers (or does not cover) the plaintiff’s claims; how this case should proceed if the court were to find the release clause ambiguous; and clarify on a claim-by-claim basis the parties’ positions on whether the complaint adequately alleges a sufficient injury as to each relevant claim. Then, by no later than May 14, 2019, plaintiff and defendants each shall file one response brief no longer than seven pages.

Read the full text of the court order here.