In a recent post on an ESG lawsuit against three NYC pension funds I pointed out that its fatal flaws are lack of standing to sue because the plaintiffs have no “concrete stake in the lawsuit” since their benefits have not been affected (citing the U.S. Supreme Court decision in Thole v. U.S. Bank N.A.) and the absence of context-specific pleading (citing the U.S. Supreme Court decision in Hughes v. Northwestern) and predicted that the plaintiffs will have difficulty surviving a motion to dismiss.
The NYC pension funds have now filed a motion to dismiss. Not surprisingly, the pension funds have argued in their motion that dismissal is appropriate because the plaintiffs face no injury and lack standing and that the plaintiffs have not stated a cause of action.
Plaintiffs Lack Standing Because They Face No Injury In Fact
In their motion, the pension funds argued that plaintiffs lack standing because the plans’ divestment decision has no impact at all on plaintiffs’ retirement benefits. Specifically, they emphasized, citing Thole, that the U.S. Supreme Court explicitly held that members in defined benefit plans—like the pension funds at issue here—lack standing to sue for alleged losses of plan assets that do not impact the retirement benefits that participants will receive. The pension funds argued that, as in Thole, because plaintiffs are participants in a “defined-benefit plan” they will, upon retirement, “receive a fixed payment each month, and the payments do not fluctuate with the value of the plan or because of the plan fiduciaries’ good or bad investment decisions.” Accordingly, regardless of the outcome of the funds’ decisions to stop investing in fossil-fuel companies, plaintiffs will “receive the exact same monthly benefits”—neither “a penny more,” nor “a penny less” and therefore have “no concrete stake” in this lawsuit.
The pension funds also argued that the plaintiffs make no allegation that they will be deprived of any benefits upon retirement. To the contrary, the plaintiffs expressly admit that the City must, and will, cover any shortfall between plan assets and the benefits owed to them. Simply put, said the pension funds, the court should dismiss the complaint for the reason that a plaintiff has no standing to challenge investment decisions that, like here, have no impact on the guaranteed retirement benefits the plaintiff will ultimately receive.
Plaintiffs Have Not Stated Any Cause of Action
The pension funds also argued that the complaint must be dismissed since the plaintiffs fail to state any cause of action. According to the funds, on a motion to dismiss the court is to decide whether, assuming the truth of the acts alleged, a complaint states the elements of a cognizable cause of action. Factual allegations that consist of “bare legal conclusions,” or that are “inherently incredible or clearly contradicted by documentary evidence,” are not entitled to such consideration. For example, the funds emphasized that the plaintiffs must allege specific facts from which a reasonable factfinder can infer the plans’ carelessness or disloyalty. Plaintiffs must allege particularized facts sufficient to permit a “reasonable inference of the alleged misconduct”.
Plaintiffs’ three causes of action all involve a supposed breach of fiduciary duty, premised on the allegation that the plans violated their duties of loyalty and due care by ceasing their investments in fossil fuels. Breaches of fiduciary duty must be pled with particularity and allegations must be stated in detail. In effect, said the funds, the complaint does not contain any “facts” to support plaintiffs’ bare and conclusory assertions that the plans were careless, disloyal or imprudent. Plaintiffs have thus failed to plausibly allege any facts demonstrating a breach of fiduciary duty nor have they pled one with particularity.
This is the essence of context-specific pleading as required by Hughes which rejected arguments of fiduciary imprudence based on circumstantial evidence of what plaintiffs consider an undesirable outcome and held that courts deciding motions to dismiss must engage in a “context-specific inquiry” that gives “due regard to the range of reasonable judgments a fiduciary may make based on her experience and expertise.” In effect, Hughes requires careful, context-sensitive scrutiny of a complaint’s allegations.
Judicial Intervention in Public Pension Funds’ Discretionary Investment Decisions
The pension funds emphasized that it is important for the court to reject this “contrived” lawsuit and that “anything less than outright dismissal would permit any uninjured plan member to litigate vague, fact-bare attacks on public pension funds’ discretionary investment decisions, at significant expense and with no workable limit on such claims.”
The pension funds argued that the discretionary assessment of the market worthiness of securities in which public pension funds may invest rests “solely” with the plan trustees as the public officials legally charged with that responsibility. Administering a public pension fund involves countless judgments and predictions about the future, diversification across various risk-return profiles, and hedging risks across a wide range of industries and investment products. Those judgment-laden choices fall to financial experts, internal investment staff, and multiple third-party consultants. It is not the judiciary’s role to “second-guess” the judgments of these experts (citing the Sixth Circuit decision in Smith v. CommonSpirit Health).
Prediction
It is likely that the court will grant the pension funds’ motion to dismiss. In addition to the independent reason that the plaintiffs have no standing to challenge investment divestment decisions that have no impact on the guaranteed retirement benefits they will receive, mere allegations alone without context-specific pleading will not survive a motion to dismiss.