“If at first you don’t succeed, try, try again” is a famous quote with unclear origins dating back over 200 years. It is a saying that plaintiff firms appear to have used as inspiration for their filings of class lawsuits against sponsors of ERISA health plans over the last few years. Last week, these plaintiff firms secured their first legal victory at the motion-to-dismiss stage via a landmark ruling that will have major ramifications for ERISA health plans.
Since the beginning of 2023, there have been four similar lawsuits alleging that ‘excessive’ costs of prescription drugs covered by health plans were due to a breach of fiduciary duty by the plan sponsor – purportedly from failing to properly select and monitor the plan’s contracted pharmacy benefits manager (PBM) which led to an inflated or excessive cost for covered prescription drugs.
The first three lawsuits were all dismissed due to lack of standing (Encore previously wrote about these three lawsuits in our October 2024 article “Standing for Health Plan Excess Fee Cases”):
- Case No. 2:23-cv-00426 Knudsen v. MetLife Group, filed in January 2023 in the District Court of New Jersey, was dismissed due to lack of standing, a ruling that was upheld in September 2024 by the Third Circuit Court of Appeals.
- Case No. 3:24-cv-00671 Lewandowski v. Johnson & Johnson, filed in February 2024 in the District Court of New Jersey, was dismissed due to lack of standing (two times, most recently in December 2025 following an amended complaint) – plaintiffs appealed to the Third Circuit in January 2026.
- Case No. 0:24-cv-03043 Navarro v. Wells Fargo & Company, filed in July 2024 in the District Court of Minnesota, was dismissed due to lack of standing (two times, most recently in March 2026 following an amended complaint) – it seems likely plaintiffs will appeal to the Eighth Circuit.
The fourth lawsuit was not dismissed due to lack of standing, although the breach of fiduciary duty allegations were dismissed:
- Case No. 1:25-cv-2097 Stern v. JP Morgan Chase, filed in March 2025 in the District Court of Southern New York, was not dismissed, with the judge ruling that participants have standing to bring prohibited transaction claims against plan fiduciaries for contracting with CVS Caremark as the Medical Plan’s PBM.
The original lawsuit in 2023 against MetLife was filed by the Morgan & Morgan and Wenzel Fenton Cabassa plaintiff firms. However, the three similar lawsuits filed since the beginning of 2024 were all filed by the Fairmark Partners and Cohen Milstein Sellers & Toll plaintiff firms. The allegations within each subsequent lawsuit were raised by these two plaintiff firms with slight differences, evolving out of and from the initial lawsuits and case rulings where standing was denied. The combination of the evolved allegations and the lower bar to plead prohibited transaction claims under ERISA (following the Supreme Court’s April 2025 decision in Cunningham v. Cornell University) has led to the first ruling in favor of the plaintiffs in this litigation trend.
Below is our analysis of the landmark ruling in Stern v. JP Morgan Chase, including how this ruling compares to the prior rulings in excessive prescription drug cost lawsuits, and what the ruling means for ERISA health plan sponsors moving forward.
Background.
In Stern v. JP Morgan Chase and the other excessive prescription drug cost cases, the basic arguments are that the employers violated their ERISA fiduciary duties with respect to selecting and monitoring the PBMs, and also caused the plans to enter into prohibited transactions by retaining the PBMs to provide services to the plans. The complaints typically include examples of alleged substantial overpayments for particular prescription drugs to support claims that the plaintiffs suffered actual harm in the form of higher out-of-pocket expenses. This showing of actual harm caused by the defendant’s conduct is necessary to establish standing, and thus be permitted to proceed with the lawsuit.
Motion to dismiss for lack of standing denied.
Like the other three district courts, the Southern District of New York in Stern v. JP Morgan Chase ruled that the plaintiffs’ claim of harm in the form of higher premiums was too speculative to confer standing. Employers typically retain discretion to set employee premium contributions, which are usually based on a variety of factors. While the cost of the prescription drug benefit may be one of those factors, there usually isn’t going to be a direct connection between annual changes to the cost of a plan’s prescription drug benefit, or the amount the plan pays for specific drugs, and how much employees pay for premiums.
However, it was the plaintiffs’ alleged harm in the form of higher cost-sharing requirements – i.e., copays, coinsurance, and deductibles – where the district court distinguished this case from the others. Unlike other cases, the district court here noted the plaintiffs’ allegations of higher cost-sharing were based on “specific overpayments, made on specific dates, at specific markups.” Among other things, the district court was impressed the plaintiffs “analyzed every one of the 404 generic drugs contained in the Plan’s two formularies” and computed an average markup of over 200% for 366 of the 404. According to the district court, the plaintiffs thus carried the burden of alleging the type of concrete, non-speculative economic injury to establish their standing to sue.
But in a somewhat bizarre twist, the district court completely dismantled the plaintiffs’ overpayment analysis in a footnote at the end of the standing discussion. The footnote states that “on the merits, Plaintiffs’ allegations that they overpaid for their prescriptions fall apart on closer inspection.” The court goes on to point out the overpayments are “premised solely on the difference between each drug’s pharmacy acquisition cost … and Plaintiffs’ out-of-pocket costs for the same,” but that the pharmacy acquisition cost the plaintiffs used was an average based on survey data, and not the actual amount their pharmacy paid for a specific drug. Furthermore, the plaintiffs’ attempted comparison was to what pharmacies paid, and not to what other similarly situated group health plan participants paid for the same drug.
In other words, by the district court’s own admission the plaintiffs failed to plead any actual harm. But the district court denied the motion to dismiss for lack of standing, anyway.
That is a big deal, because the district court would not have needed to address the fiduciary breach and prohibited transaction claims if it had found the plaintiffs lacked standing to bring suit. After the Supreme Court’s ruling in Cunningham v. Cornell University, it is generally enough to plead that an ERISA plan hired a service provider in order to overcome a motion to dismiss a prohibited transaction claim. Thus, it is no surprise the district court allowed the plaintiffs’ prohibited transaction claims to proceed in this case.
However, the district court did grant JP Morgan’s motion to dismiss the fiduciary breach claims because it determined the plaintiffs’ allegations focused on non-fiduciary settlor functions, such as plan design.
Conclusion.
As written in Encore’s article “ERISA Fiduciary Litigation in 2025: Plaintiff Law Firms Continue the Frenetic Pace, With Broader Allegations Against Both Retirement Plans and Health Plans,” class litigation against ERISA health plans has increased in frequency since the Consolidated Appropriations Act of 2021, which included provisions to increase fee disclosure requirements from service providers to health plans. More recently, the U.S. Department of Labor (DOL) published a proposal under ERISA to improve transparency in direct and indirect fees and compensation received by PBMs. Such disclosures would contain a description of the pharmacy benefit management services as well as information on the direct compensation received by the PBMs, including:
- payments from drug manufacturers,
- spread compensation (i.e., when the price that the plan paid for a prescription drug exceeds the amount that is reimbursed to the pharmacy),
- payments recouped from pharmacies in connection with prescription drugs dispensed to the plan (“claw-backs”),
- price protection arrangements, and
- other similar compensation agreements
DOL specifically stated “the proposal appropriately tailors the PBM disclosure requirements to give fiduciaries of self-insured group health plans the information that is necessary to evaluate PBM compensation arrangements, which pose unique complexities due to the structure of the pharmaceutical supply chain. The goal of this proposed rule is to ensure plan fiduciaries have access to clear information that helps them understand PBM compensation flows, identify conflicts of interest, and determine whether PBM contracts or arrangements are reasonable under ERISA section 408(b)(2).”
A few days after the DOL’s proposal was published, Congress passed the Consolidated Appropriations Act of 2026, which will also require PBMs to provide regular reports to group health plans with specific information about their prescription drug benefits, including how much participants and beneficiaries are paying out-of-pocket for drugs, the plan’s cost, and the amount the PBM reimbursed the pharmacy.
As health plan fees and PBM arrangements are scrutinized more by plan participants and plaintiff firms, we anticipate a continued increase in the number of class action lawsuits filed against ERISA health plans. Following the Supreme Court’s ruling in Cunningham v. Cornell University, the lower bar to plead prohibited transaction claims under ERISA portends that such lawsuits will likely survive the motion to dismiss if plaintiffs are able to establish standing. This means that documents governing the fiduciary process concerning oversight of service providers, including but not limited to PBMs, will not only be brought to light during discovery but will increasingly be of critical importance as a defense to prove a prudent fiduciary process. It is imperative that fiduciaries of health plans understand the contract with their PBMs, and understand all costs associated with prescription drugs and other health and welfare benefits. As is the case with retirement plans, health plans need to monitor service providers, perform RFPs, review fee disclosures, and document their fiduciary process robustly. The threat of litigation is real and the cost is expensive. Prudent fiduciaries should act accordingly to be prepared and stay ahead of this litigation trend.
