June Litigation Update:

Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Court cases that were filed (or for which courts issued rulings) recently include the following, although please note that this list is not exhaustive:

• Daugherty v. The University of Chicago (filed on May 18, 2017 in the U.S. District Court for the Northern District of Illinois):  In yet another ERISA case recently filed against a major university, the plaintiffs (participants in the defendant’s retirement plans) in this proposed class action lawsuit allege that the defendant plan sponsor breached its fiduciary duties under ERISA. Specifically, the plaintiffs contend that the defendant failed to leverage the plans’ “substantial bargaining power” by failing to “adequately investigate, examine, and understand the real cost to plan participants for administrative services, thereby causing the plans and participant investors to pay grossly excessive and unreasonable fees for administrative services.” In this connection, the plaintiffs assert that the defendant’s arrangement with the plans’ recordkeeper improperly caused participants to pay an asset-based fee for administrative services that continued to increase with the increase in the value of participants’ accounts, “even though no additional services were being provided.” The defendant also allegedly retained certain investment options for the plans that “historically and consistently underperformed their benchmarks and charged excessive fees.” Interestingly, the plaintiffs also contend that the recordkeeper’s participant loan program constitutes a prohibited transaction and that the recordkeeper failed to disclose indirect fees related to that loan program. The plaintiffs mainly seek to have the defendant restore to the plans all losses resulting from each alleged breach of fiduciary duty.
• Nicolas v. The Trustees of Princeton University (filed on May 23, 2017 in the U.S. District Court for the District of New Jersey):  Put simply, this is another case against a major university in which the plaintiff’s claims are almost identical to those asserted by the plaintiffs in the Daugherty case discussed above.
• Meiners v. Wells Fargo & Company (decided on May 25, 2017 by the U.S. District Court for the District of Minnesota):  The plaintiffs in this case are participants in the defendant plan sponsor’s 401(k) plan, where the other defendants are members of several of the plan sponsor’s human resources and benefits committees. The plaintiffs mainly alleged that the defendants breached their ERISA fiduciary duties by: (1) including target date funds in the plan, which are proprietary funds managed by a Wells Fargo subsidiary and which allegedly underperformed and were more expensive than comparable funds that were available; and (2) designating Wells Fargo funds as the default for participants who enrolled in the plan but who did not select an investment option. With respect to the first allegation, the court ruled that the plaintiffs failed to provide an appropriate benchmark to support their contention that the funds at issue were underperforming and too expensive. With respect to the second allegation, the court ruled that the plaintiffs have not alleged facts showing that the defendants’ decision to have Wells Fargo funds serve as default funds was based on financial interest rather than legitimate considerations. Thus, the court granted the defendants’ motion to dismiss the case.
• Insinga v. United of Omaha Life Insurance Company (filed on May 26, 2017 in the U.S. District Court for the District of Nebraska):  This case focuses on the inclusion of guaranteed investment contracts (“GICs”) that were offered by the defendant in various retirement plans in which the plaintiffs participated. (GICs are a financial product offered by insurance companies to investors such as retirement plans, whereby the plans execute a contract with the insurance company that promises a return on participants’ investments in the GIC.) The contract in this case purportedly grants to the defendant discretionary authority to set its own compensation as a service provider to the plans and to determine the rate of return that will be credited to participants in the plans. Moreover, the contract allegedly does not disclose how that rate is determined, does not specify the credited rate, and does not specify a minimum rate of return. The plaintiffs also assert that as a result of those contract provisions and the defendant’s actions, the defendant received excessive fees in relation to its administration of the contract. Thus, the plaintiffs seek recovery for economic losses allegedly suffered by the plans, as well as certain other amounts (e.g., attorneys’ fees).
• Hodges v. Bon Secours Health System, Inc. (settlement agreement submitted on May 31, 2017 to the U.S. District Court for the District of Maryland):  The plaintiffs here (participants in seven of the defendant’s defined benefit plans) allege that the defendant denied protections under ERISA to the plans’ participants and beneficiaries by improperly claiming that the plans are ERISA-exempt “church plans.” In the plaintiffs’ view: (1) pursuant to ERISA, only a church can establish an ERISA-exempt “church plan;” and (2) the plans here are not ERISA-exempt church plans because they were established by the defendant, which is a health care corporation rather than a church. (The plaintiffs acknowledged that the U.S. Supreme Court would soon rule on this issue regarding other cases, and that such court’s ruling could support the defendant’s position. See the next bullet for a summary of that U.S. Supreme Court ruling, issued just five days after the settlement agreement in this Hodges case was filed with the District Court.) Under the settlement agreement, the defendant will pay approximately $98 million to the plans over seven years, which represents the plans’ underfunded status as of the time the settlement agreement was reached. Thus, $98 million, plus the plans’ existing assets, would result in a 100% funding ratio under ERISA. The agreement also calls for the award of an additional amount of up to $3.5 million for the plaintiffs’ attorneys’ fees. Of course, a federal judge must approve the settlement before it becomes final.
• Advocate Health Care Network v. Stapleton (decided by the U.S. Supreme Court on June 5, 2017):  This case consolidates three cases that were filed regarding the issue of whether the defendants’ retirement plans qualify for ERISA’s “church plan” exemption. More specifically, in its June 5 ruling, the court ruled on the narrow issue of whether a church must have originally established its retirement plan for it to qualify as an ERISA “church plan.” The court held that ERISA does not impose that requirement. The court based its conclusion on the following statutory language: “A plan established and maintained for its employees . . . by a church…includes a plan maintained by an organization . . . the principal purpose or function of which is the administration or funding of a plan or program for the provision of retirement benefits or welfare benefits, or both, for the employees of a church…if such organization is controlled by or associated with a church or a convention or association of churches.” Thus, the defined benefit plans in this case (which were established by the defendant church-affiliated hospitals themselves, but not by a church, and which are managed by internal employee benefits committees) can fall within ERISA’s “church plan” exemption. However, the court’s second footnote states that “The employees alternatively argued in the District Courts that the hospitals’ pension plans are not “church plans” because the hospitals do not have the needed association with a church and because, even if they do, their internal benefits committees do not count as principal-purpose organizations…Those issues are not before us, and nothing we say in this opinion expresses a view of how they should be resolved.” Thus, the lower courts in these consolidated cases, as well as courts in several other similar pending cases, will have to decide whether the defendants’ plans were maintained by a church-related “organization” that has as its principal purpose the purpose set forth in the statutory language quoted above.
• Pioneer Centres Holding Company Employee Stock Ownership Plan v. Alerus Financial, N.A. (decided on June 5, 2017 by the U.S. Court of Appeals for the Tenth Circuit):  This case, on appeal from the U.S. District Court for the District of Colorado, involved the issue of whether a plaintiff or a defendant in an ERISA fiduciary breach case has the burden of proof regarding causation. In other words, does the plaintiff have to prove that the defendant’s alleged breach caused the plaintiff’s harm, or does the defendant have to disprove such causation? The defendant in this case was hired as an independent expert to determine whether, and on what terms, the plan should purchase shares in the plan sponsor from the plan sponsor’s owner. When the purchase deal fell through, the plan sued the defendant for breach of fiduciary duty in connection with the failed deal. The District Court concluded that the plan could not demonstrate a loss in connection with the defendant’s alleged conduct, and thus the plan failed to prove causation. In its opinion, the appeals court ruled that the district court properly required the plan to prove causation, rather than shifting the burden to the defendant to disprove causation. In addition, the appeals court agreed with the district court’s finding that a reasonable factfinder could not conclude that the defendant caused the purchase deal to fail in that the plaintiff’s proffered evidence “does not rise beyond speculation.”
• Davis v. Washington University in St. Louis (filed on June 8, 2017 in the U.S. District Court for the Eastern District of Missouri):  The plaintiffs in this proposed class action lawsuit, who are participants in the defendant plan sponsor’s retirement plan, mainly allege that: (1) instead of leveraging the plan’s “substantial bargaining power” to benefit participants and beneficiaries, the defendant caused the plan to pay “unreasonable and excessive fees for investment and administrative services;” (2) the defendant allegedly selected and retained plan investment options that “historically and consistently underperformed their benchmarks and charged excessive investment management fees;” and (3) the defendant selected an insurance company fixed-income account as the plan’s principal capital preservation fund, even though that fund prohibited participants from re-directing their money in that fund into other investment choices during employment (except in ten annual installments), and even though that fund prohibited participants from receiving a lump sum distribution of the amount invested in it unless participants paid “a 2.5% surrender charge that bore no relationship to any reasonable risk or expense to which the fund was subject.” The plaintiffs chiefly seek to have the defendant restore to the plan all losses resulting from each alleged breach of ERISA fiduciary duty, as well as to pay for the plaintiffs’ attorneys’ fees in this matter.
• Fernandez v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (settlement agreement submitted on June 8, 2017 to the U.S. District Court for the Southern District of Florida):  The plaintiffs in this case represent “the thousands upon thousands of small business retirement plans” allegedly adversely affected by the defendant’s failure to provide appropriate sales charge waivers for mutual fund purchases by such plans. That allegedly resulted in “millions of dollars in profits” for the defendant. The parties have agreed to settle this case for $25 million (including attorneys’ fees of $8.75 million), although a federal judge must approve the settlement before it becomes final.
• In re Northrop Grumman Corporation ERISA Litigation (settlement agreement submitted on June 12, 2017 to the U.S. District Court for the Central District of California):  This case involves alleged breaches of fiduciary duty and prohibited transactions with respect to the defendant plan sponsor’s two 401(k) plans. Via the settlement agreement, which must be approved by a federal judge, the defendants have agreed to pay a sum of $16,750,000 into a settlement fund. The defendants allegedly: (1)  obligated the plans to pay excessive management fees to ten investment funds and to pay excessive administrative fees (some of which were purportedly for services provided to the plans by certain employees of the defendant); (2) received preferential discounts and services from investment managers in exchange for their selection as managers of the plans, where the defendants mainly considered the benefits they received and did not select investment managers for the exclusive purpose of providing a benefit to participants and beneficiaries; and (3) breached their fiduciary duty to administer the plans in accordance with plan documents, by failing to follow the Investment Policy Statement’s terms.