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On January 27, 2026, the US Federal District Court for the Western District of North Carolina, in Peeler v. Bayada, rejected plaintiffs’ claims that defendant plan fiduciaries violated ERISA’s prudence and prohibited transaction rules, dismissing them based on plaintiffs' failure to show they suffered “a non-speculative financial loss” and thus did not have standing to sue.
The decision – and the theory on which it is based – represents one of several emerging procedural tools courts (and defendants’ lawyers) are developing to deal with (among other concerns) a possible “avalanche of meritless litigation” following the Supreme Court’s decision in Cunningham v. Cornell University.
In this article, we provide a brief note on the case, focusing on the court’s standing rulings.
The case was brought by plaintiffs Donna Peeler and Kathleen Hanline, on their own behalf and on behalf of all plaintiffs similarly situated. The ERSIA prudence claim related to two specific funds – the JP Morgan Large Cap Growth Fund A Class and the T. Rowe Price New Horizons Fund. Plaintiffs claimed that there was an identical JP Morgan fund with a lower expense ratio, and that the performance record of the T. Rowe Price fund rendered its selection imprudent.
The court held that under Article III of the Constitution, to show standing to sue, plaintiffs must show they “suffered an injury in fact that is concrete, particularized, and actual or imminent.” On that basis, the court dismissed the claim with respect to the JP Morgan fund because neither plaintiff had ever invested in it. Only one plaintiff, Peeler, had invested in the T. Rowe Price fund, and the court found that Peeler had not adequately alleged that she had “suffered a non-speculative financial loss traceable to the T. Rowe Price New Horizons Fund.” We’re going to quote this part of the decision at length because it illustrates the higher bar this court is setting for claims challenging the prudence of fund selection by a fiduciary:
[A]s relevant to the standing inquiry, the Plaintiffs … specifically allege that (1) the “fund’s management charged 79 basis points (0.79%), regardless of performance, in 2023,” (2) the fund’s “explicit costs total[ed] $758,612.42 since 2018,” (3) the fund’s manager “never earned their portfolio manager’s compensation,” (4) the fund was managed by “an untested manager” starting in 2019, (5) the new manager increased turnover “so that 53% of holdings that he had bought were sold in 2023,” and (6) in 2020, “the Committee was aware that over a 35 year look-back period, the risk and reward relationship showed that risk was 10% versus a mean historical return of 1.1%.”
Nevertheless, those allegations fail individually and collectively to support a reasonable inference that Plaintiff Peeler suffered a non-speculative financial loss traceable to the T. Rowe Price New Horizons Fund. The management charge, the explicit costs, the manager’s compensation, and the manager’s lack of experience, without more, do not enable the Court to draw a reasonable inference that Plaintiff Peeler’s account suffered a loss. All similar funds have expense ratios, costs, and managers of varying experience receiving compensation. Moreover, the relationship between risk and reward is an inadequate basis for inferring that the alleged excessive risk resulted in actual, non-speculative losses during the Class Period. Similarly, the fact of increased turnover does not raise a plausible inference that increased turnover produced better or worse actual, non-speculative returns.
This is (arguably) a higher standard for what constitutes a non-speculative loss than many courts have applied, and imposes a burden on plaintiffs to develop granular and specific data that plausibly establishes that the alleged underperformance of a challenged fund “in real life” cost a plaintiff money. In this regard, we also note that it’s not unusual that we see putative class representatives who are not well chosen to make the case at hand. Broad adoption of the rule in this case is likely to make plaintiffs’ lawyers do more work finding appropriate plaintiffs.
The Supreme Court, in Cunningham v. Cornell University, held that, to survive a motion to dismiss, a plaintiff bringing an ERISA prohibited transaction claim against plan fiduciaries need not plead that there was no available exemption with respect to it. The problem this ruling creates for defendant fiduciaries is particularly acute with respect to the selection of service providers. Technically, ERISA “prohibits” any retention of a service provider and then provides a (generous) exemption where the services are necessary, the terms of the contract are reasonable, and the service provider’s compensation is reasonable. The fear, after Cornell, was that any plaintiff could sue any plan fiduciary by simply alleging the fiduciary had retained a service provider, surviving a motion to dismiss because the issue of the reasonableness of the service provider arrangement/availability of the exemption could not be decided at the motion to dismiss stage.
In Peeler v. Bayada, the court held that, quite aside from the issue of the availability of an exemption, the defendant can move to dismiss a complaint on the basis that the plaintiff had not adequately pleaded that there was an injury in fact. Again, we quote the court at length:
The presumptive unlawfulness of a transaction, however, does not relieve a plaintiff of the burden to establish standing. Despite seemingly lowering the pleading requirements for [prohibited transaction-related] claims, the [Cornell] Court nevertheless exhorted district courts to “dismiss suits that allege a prohibited transaction occurred but fail to identify any injury.” Relying on Cunningham, the District Court for the District of Massachusetts recently dismissed a prohibited transaction claim for lack of standing because the complaint “point[ed] to no instance in which a tangible loss of value was actually incurred by [the plaintiff].” The Taylor court stated that “[w]ithout a showing that any harm flowed from the Transaction to [the plaintiff], including any post-Transaction decline in the value of [the plaintiff’s retirement] account, the court cannot conclude, beyond mere speculation, that [the plaintiff] has suffered a constitutionally cognizable injury.”
With this framework, the court found that plaintiffs’ “allegations provide no more than a speculative basis for inferring that the Plaintiffs themselves incurred an actual loss because of the Plan’s payments for [the challenged] services.”
Not to put too fine a point on it: this standard for prohibited transaction claims effectively guts the Supreme Court’s holding in Cornell, allowing defendants, at the motion to dismiss stage, to require that plaintiffs “make their case” by showing actual damages, generally (with respect to service providers) by requiring plaintiffs to show that service provider compensation was unreasonable.
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This is just one District Court case – but the Bayada court’s holding is in line with the Supreme Court’s invitation in Cornell: “[t]o the extent future plaintiffs do bring barebones [prohibited transaction] suits, district courts can use existing tools at their disposal to screen out meritless claims before discovery.” And that “[d]istrict courts must also, consistent with Article III standing, dismiss suits that allege a prohibited transaction occurred but fail to identify an injury.”
We will continue to follow this issue.