Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Cases that were filed or for which courts issued rulings recently are outlined below, although please note that this list is not exhaustive. Also, note that two of these ERISA cases were recently filed by a Denver-based personal injury attorney. It will be interesting to see if any other attorneys who have not traditionally specialized in ERISA jump into the fray.
- Acosta v. Truss Systems, LLC (decided on June 2, 2017 by the U.S. District Court for the Middle District of Florida): The Department of Labor, which filed this case against a plan sponsor and certain individuals who administered its plan, originally mainly alleged that one such individual improperly withdrew $111,624 from the plan. She was criminally prosecuted and pled guilty to embezzlement in June of 2016, and she was ordered to restore losses to the plan. In the recently-decided related civil case, the court ordered the defendant to pay $25,253 and pre-judgment interest by July 21, 2017, to reflect applicable lost earnings and post judgment interest.
- Patterson v. The Capital Group Companies, Inc. (filed on June 13, 2017 in the U.S. District Court for the Central District of California): The plaintiff in this proposed class action lawsuit is a participant in the plan sponsor defendant’s 401(k) plan. The defendants also include the plan sponsor’s Board of Directors and benefits committee, as well as several of the plan sponsor’s subsidiaries that provided investment-related services to the plan. The plaintiff asserts that the defendants put the interests of the plan sponsor and its subsidiaries ahead of the interests of the plan and its participants “by selecting, retaining, and failing to remove the unduly expensive [plan sponsor]-affiliated investment options managed by [its subsidiaries] that generate significant revenue for [the plan sponsor] and its subsidiaries” from June 13, 2011 to the present. During that period, between 94.7% and 97.8% of the plan’s investment options purportedly consisted of the alleged “unduly expensive” plan sponsor-affiliated investment options. As a result, the plan’s participants allegedly paid “excessive and prohibited fees that substantially diminished their retirement savings, and resulted in windfall profits” for the plan sponsor and its subsidiaries. With respect to the Board of Directors, the plaintiff contends that its members (which had the responsibility of appointing benefits committee members) breached their duty to monitor the benefits committee members in the performance of their fiduciary functions. Finally, the plaintiff states that the defendants are liable to restore all losses suffered by the plan and its participants caused by the alleged breaches of fiduciary duty, and to pay for the plaintiff’s court costs and attorneys’ fees.
- Patrico v. Voya Financial, Inc. (decided on June 20, 2017 by the U.S. District Court for the Southern District of New York): The plaintiff filed this putative class action on behalf of all participants and beneficiaries of the Nestle 401(k) Savings Plan and “All Other Similarly Situated Individual Account Plans” against various entities that provided investment-related services to the plans. As background, to give plan participants access to investment advice, Nestle entered into an investment advisory agreement with defendant Voya Retirement Advisors, LLC (“VRA”). In this connection, the plaintiff claims that the defendants breached their fiduciary duties by charging excessive fees for investment advisory services offered to plan participants. In granting the defendants’ motion to dismiss the case, the court first explained that although VRA offers the plan’s investment advice programs, Financial Engines Advisors, LLC provides the actual investment advice. Also, that arrangement was apparently disclosed in the Nestle-VRA agreement and in a brochure for participants announcing the investment advice program. The court considered the plaintiff’s contention that VRA “provides no material services in connection with the advice program, and the only reason for structuring the advice service as being provided by [VRA] with sub advisory services by Financial Engines is to allow [VRA] to collect a fee to which it is not entitled.” However, the court opined that the defendants were not plan fiduciaries because Nestle was free to select a different investment advice service provider, or none at all, and thus the defendants could not have unilaterally controlled the compensation they would receive under the agreement. Moreover, the court held that the complaint against the defendants other than VRA failed to allege any specific relevant conduct that could lead to their liability.
- Schapker v. Waddell & Reed Financial, Inc. (filed on June 26, 2017 in the U.S. District Court for the District of Kansas): The plaintiff in this proposed class action lawsuit is a participant in the defendant plan sponsor’s 401(k) plan. The other defendants are the plan’s administrative committee and the plan sponsor’s Board of Directors (who purportedly appointed the plan committee members). The plaintiff asserts that the defendants forced the plan “nearly exclusively” into investments managed by the plan sponsor or an affiliated entity, which allegedly charged excessive fees that benefited the plan sponsor or its affiliated entities and which performed worse than comparable available options. That was the case, the plaintiff states, even though the defendants “could have chosen non-proprietary, less costly, better-performing investment options” for the plan. Therefore, the defendants allegedly breached their ERISA fiduciary duties and engaged in prohibited transactions involving the plan, and the plaintiff states that they should be held liable for the “substantial excess investment management and other fund-related fees” they received. The plaintiff also asks the court to order the appointment of independent fiduciaries to administer the plan, and to order the defendants to pay the plaintiff’s attorneys’ fees and court costs.
- Schmitt v. Nationwide Life Insurance Company (filed on June 27, 2017 in the U.S. District Court for the Southern District of Ohio): In this proposed class action case, the plaintiff is a participant in a 401(k) plan that at the end of 2015 had 27 participants and $1,100,000 in plan assets. She proposes to represent that plan and “all other similarly situated individual account plans” against the defendant for alleged prohibited transactions under ERISA. The plaintiff seeks “the return of the excessive and unreasonable asset-based fees charged by Nationwide for recordkeeping and administrative services, and to prevent Nationwide from charging those excessive fees in the future.” Based on a recent survey by an independent investment consulting firm, the plaintiff contends that the defendant’s fees are approximately ten times more than the reasonable amount of compensation that should have been charged to her plan. Therefore, the plaintiff argues that those fees violate ERISA in that the defendant’s contract for services charges more than reasonable compensation in light of services the defendant provided. The plaintiff seeks restoration to the plans of all losses resulting from the allegedly excessive, unreasonable fees charged by the defendant for recordkeeping services, as well as attorneys’ fees and court costs. Perhaps the most interesting aspect of this case is that one of the plaintiff’s attorneys is a Denver personal injury attorney.
- Barrett vs. Pioneer Natural Resources USA Inc. (filed on June 28, 2017 in the U.S. District Court for the District of Colorado): The plaintiff in this putative class action case, who is a participant in the defendant plan sponsor’s 401(k) plan and who is represented by the above-referenced Denver personal injury attorney, also named the plan administrator (the plan committee) as a defendant. The plaintiff asserts that instead of using the plan’s bargaining power – as of December 31, 2015 the plan had 4,410 participants and $500,187,123 in assets – the defendants “chose inappropriate, higher cost mutual fund share classes and caused the Plan to pay unreasonable and excessive fees for recordkeeping and other administrative services.” Thus, the plaintiff states that the defendants breached their ERISA duties by: (1) failing to offer institutional class shares for mutual funds (which allegedly resulted in participants paying excessive costs to invest in the funds); (2) failing to ensure that plan recordkeeping fees were reasonable; and (3) failing to remove the poorly-performing money market fund when a stable value fund was available (which allegedly caused losses to participants who invested their plan accounts in money market funds instead of a stable value fund, which offered higher investment returns but with the same risk level). The plaintiff seeks to have the court find the defendants liable to restore the plan’s losses so the plan is placed in the position it would have been in if the alleged breaches of fiduciary duty had not occurred. The plaintiff also seeks to have the defendants reimburse the plaintiff and the proposed class for their attorneys’ fees and court costs.
- Yates v. Nichols (filed on June 30, 2017 in the U.S. District Court for the Northern District of Ohio): The plaintiff in this proposed class action lawsuit, which involves an unusual set of facts, is a participant in his employer’s defined contribution plan. The defendants are the individual who serves as the plan administrator and the plan’s investment committee. The plan at issue was established on July 1, 2011 when Marathon Petroleum Company LP (“MP”) was spun-off from Marathon Oil. The interesting twist is that after the spin-off, the defendants purportedly wrongfully invested MP plan assets in Marathon Oil stock because of their incorrect belief that Marathon Oil was a “qualifying employer security” under ERISA that was proper to include in the MP plan’s ESOP. The defendants thus allegedly allowed $88 million of the MP plan’s assets to be invested in Marathon Oil, which was then an independent company that no longer employed any of the plan’s participants. Also, as you might expect, “Marathon Oil stock dramatically underperformed the market since the spin-off, causing the [MP] Plan to lose tens of millions of dollars.” The plaintiff also contends that the defendants’ classification of Marathon Oil stock as an “employer security” and their inclusion of it in the MP plan “was part of their overall failure to independently assess each investment option in the Plan to ensure it was prudent and to continually monitor those options.” Based on those allegations, the plaintiff mainly seeks to have the court order the defendants to restore losses to the MP plan resulting from breaches of their fiduciary duties (e.g., profits the plan and its participants would have made if not for the defendants’ conduct).
- Osberg v. Foot Locker, Inc. (decided on July 6, 2017 by the U.S. Court of Appeals for the Second Circuit): In this case’s latest proceeding, the appeals court considered the lower court’s ruling that the defendant (a defined benefit plan sponsor) violated ERISA by failing to disclose “wear-away” caused by the defendant’s conversion of a traditional defined benefit plan to a cash balance plan. That “wear-away” amounted to a freeze in affected participants’ pension benefits that the defendant failed to communicate properly to them, per the lower court. (The lower court thus ordered reformation of the plan to conform to affected participants’ reasonably mistaken expectations, which were based on the defendant’s improper communications regarding the amount of their benefits). The defendant argued that the case is barred by the applicable statute of limitations because the plaintiff could have timely discovered the “wear-away” effect based on the defendant’s communications. The appeals court rejected that argument, ruling that the defendant’s communications were actually designed to conceal “wear-away.” The defendant also argued that the lower court erred by awarding class-wide relief without requiring individualized evidence that participants relied to their detriment on the defendant’s misstatements and omissions. The appeals court also rejected that argument, relying on U.S. Supreme Court precedent to conclude that the plaintiff does not have to show detrimental reliance when seeking plan reformation under ERISA. Furthermore, the court rejected the defendant’s position that mistake (i.e. participants’ mistaken understanding of the pension plan) was not proven by clear and convincing evidence and, therefore, the plan should not be reformed per the lower court’s ruling. In this connection, the appeals court stated that a plaintiff can prove ignorance of a contract’s terms “through generalized circumstantial evidence in appropriate cases” where the defendant has “made uniform misrepresentations about an agreement’s contents and have undertaken efforts to conceal its effect.” The court concluded that “is precisely the case here…”