ERISA Litigation Landscape Mapped by LexisNexis

Lex Machina, a LexisNexis company, announced the latest expansion of its legal analytics platform, featuring the addition of Employee Retirement Income Security Act (ERISA) litigation cases.

The firm offered PLANSPONSOR a sneak peek at some of the first findings generated by the ERISA analytics platform. According to the firm, the module encompasses nearly 83,000 cases filed in federal district court since 2009.

Carla Rydholm, director of product at Lex Machina, says cases initiated by plan participants or beneficiaries involve alleged disputes over the administration or funding of various types of ERISA-protected employee benefits plans, including life, health, retirement, pension, profit-sharing, health care savings accounts and more.

With the launch of its latest module, she says Lex Machina already uncovered a variety of trends across all the flavors of ERISA litigation. Notably, the vast majority of ERISA cases are either settled pre-trial or were dismissed via summary judgment or contested dismissals. According to the analytics platform, fewer than 2% of cases proceed to trial.

“ERISA cases resolve with a default judgment about 11% of the time,” the firm says. “This is a large percentage of default judgments compared to other practice areas. A sizeable amount of these defaults are probably delinquent contribution claims, because employers who are unable to pay their contributions likely are unable to pay to defend a lawsuit.”

As the firm explains, a delinquent contribution case “usually involves a union or employee suing an employer for failure to pay contractually obligated contributions into a pension.” In looking at cases based on a delinquent contribution claim, defendants are receiving favorable judgment on the pleadings nearly six-times more often than claimants. However, if the case gets to summary judgment, claimants win about 58% the time. The firm finds more than $4 billion in damages have been awarded in ERISA cases since 2009.

“On the other hand, cases involving a claim denial are rarely resolved with a default judgment and have a significant number of summary judgment case resolutions,” the firm finds. “This may affect the length of a case, as the median time to summary judgment in a claim denial case is 471 days.”

According to the new analytics platform, the U.S. Department of Labor (DOL) is very active in the filing of enforcement actions on behalf of employees; these cases result in a consent judgment 60% of the time.

In running this analysis, Lex Machina found the Northern District of Illinois is the top venue for ERISA cases with 10% of all ERISA cases.

“This can be attributed to external factors such as region’s heavy union presence and having the large metropolitan area of Chicago as part of the federal district,” Rydholm says.

ERISA industry context

The move to do more ERISA analysis at LexisNexis comes after years of increased concern about litigation from retirement plan fiduciaries and their service providers. ERISA litigation experts agree the glut of lawsuits has been a long time coming and is the result of several concurrent trends—and steam has clearly picked up in recent years thanks to a highly active plaintiffs’ bar.

Emily Costin, partner at Alston & Bird, says the roots of current litigation trends go back to at least 2005 and the start of a new regulatory focus on fee and conflict of interest disclosures.

“Then came the financial crisis of 2008, which ushered in a wave of stock drop litigation,” she explains. “At this stage, those early stock drop cases have largely been litigated or settled and have faded as we get further away from 2008. In addition, the Supreme Court’s influential decision in Fifth-Third Bank vs. Dudenhoeffer has made it a lot more difficult for plaintiffs in stock drop cases to prove standing.”

With stock drop cases fading somewhat to the background, the new hot topic for litigators has become self-dealing by providers and conflicts of interest in recordkeeping and investment management arrangements. All of the cases center on the deceptively simple question of whether a tax-qualified retirement plan is profiting the plan sponsor (directly or indirectly) to the expense of participants.

Attorneys and insurance experts like Costin say that federal court judges have tended to allow more of these self-dealing type cases to move forward compared with the earlier stock drop wave, and plaintiffs have also had some success getting beyond the summary pleading and dismissal stage in cases focused on reasonableness of fees for recordkeepers.

According to Rydholm, ERISA litigation will remain one of the most complex and intricate areas of the law, with the majority of cases decided pre-trial or on bench decisions. As with all the firm’s legal analytics practice areas, the ERISA module spotlights the track records of opposing counsel and parties, the experience and behaviors of judges, case outcomes by federal district, and other critical factors, such as case timing, findings, and damages, which play a critical role in determining case strategy.

For more information, visit www.lexmachina.com.