Cunningham v. Cornell Univ.

Majority — Sotomayor

Joined by: Roberts, Thomas, Alito, Kagan, Gorsuch, Kavanaugh, Barrett, Jackson

The majority held that §1106(a)(1)(C) contains exactly three elements — a fiduciary caused the plan to enter a transaction it knew involved furnishing goods or services between the plan and a party in interest — and its prohibition is categorical, with nothing in that section carving out transactions that are necessary or reasonably compensated. The Court reasoned that §1108's exemptions are written in the standard format of affirmative defenses — listed separately from the prohibitions, in a section explicitly titled "Exemptions from prohibited transactions" — and under well-settled law, affirmative defenses are the defendant's burden to plead and prove, not the plaintiff's burden to anticipate and negate. The majority relied on its prior decision in Meacham v. Knolls Atomic Power Laboratory, which established that when exemptions are laid out apart from prohibitions and expressly refer to the prohibited conduct, they function as affirmative defenses. The Court also rejected the argument that the phrase "[e]xcept as provided in section 1108" in §1106(a) incorporates the exemptions as elements of the offense, noting that this reading would illogically require plaintiffs to plead around all 21 statutory exemptions plus hundreds of regulatory exemptions — many of which turn on facts held exclusively by the defendant. Finally, the majority acknowledged defendants' concerns about meritless litigation but said Congress already "set the balance" by writing the exemptions as affirmative defenses, and district courts have existing tools — such as requiring plaintiff replies under Rule 7(a), limiting discovery, imposing Rule 11 sanctions, and shifting costs — to screen out weak claims.

Dissent reasoning

There was no dissent — the ruling was unanimous. However, Justice Alito, joined by Justices Thomas and Kavanaugh, wrote separately to agree with the legal outcome while expressing serious concern about its practical consequences. The concurrence acknowledged that the result follows straightforwardly from established pleading rules: because §1108 sets out affirmative defenses, a plaintiff cannot be required to plead around them. But Justice Alito warned that this will likely produce harmful real-world results, because ERISA plan administrators are almost always required as a practical matter to hire outside service providers, and those providers automatically become "parties in interest" under the statute — meaning any plaintiff can file a lawsuit simply by alleging something the administrator was essentially required to do. The concurrence noted that in modern litigation, surviving a motion to dismiss is often decisive because discovery costs are so high that defendants frequently settle even meritless cases, resulting in windfalls for plaintiffs and their attorneys while passing costs on to other plan participants. Justice Alito credited the Second Circuit with trying to solve a real problem, even if its legal workaround was not permissible, and urged district courts to make active use of the alternative safeguards the majority described — particularly requiring plaintiffs to file a reply addressing any exemption raised as an affirmative defense.