Cunningham v. Cornell Univ.

Background

A group of current and former Cornell University employees sued in 2017 after participating in two defined‑contribution retirement plans from 2010 to 2016. They alleged Cornell and other plan fiduciaries caused the plans to pay recordkeeping firms (TIAA and Fidelity) substantially more than a reasonable fee—roughly $115–$200 per participant versus an alleged reasonable fee near $35. The District Court dismissed the complaint, and the Second Circuit affirmed, holding that plaintiffs must plead that a statutory exemption in §1108(b)(2)(A) does not apply.

Reasoning

The Court addressed whether a plaintiff must plead that §1108 exemptions are inapplicable to state a claim under §1106(a)(1)(C). It held no: §1106(a)(1)(C) itself has three elements (causing a plan to engage in a transaction, that the transaction furnishes goods or services, and that it was with a party in interest), and those elements alone are enough at the pleading stage. The Court explained that §1108’s exemptions are set out separately and operate as affirmative defenses that defendants must plead and prove, so plaintiffs need not anticipate and negate them in their complaint.

Real world impact

After this decision, participants who allege prohibited transactions need only plausibly allege the §1106 elements to survive a motion to dismiss; defendants still can avoid liability later by proving a §1108 exemption. The Court noted courts can use procedural tools—reply orders, standing review, discovery limits, Rule 11 sanctions, and fee shifting—to screen meritless suits. The ruling changes pleading strategy but not the ultimate ability of defendants to win if an exemption applies.

Dissents or concurrances

Justice Alito (joined by Justices Thomas and Kavanaugh) concurred, agreeing with the outcome but warning that the rule may prompt more suit filings and settlements. He urged courts to use procedural safeguards, including requiring a targeted reply when defendants assert exemptions.