Litigation Update: As ERISA litigation continues to proliferate, this article provides a summary of some (but not all) cases filed, decided, or set for further proceedings during approximately the past month.
Department of Labor Cases:
- Perez v. Bridgeport Health Care Center, Inc.: On September 8, 2016, the DOL filed this lawsuit in the U.S. District Court for the District of Connecticut. The DOL alleges that the defendant (a retirement plan sponsor) and its chief officer improperly diverted millions of dollars from the plan to a religious corporation and to themselves. The DOL also asserts that in October of 2011, a promissory note worth $3.8 million, made payable to the plan, was executed on behalf of the religious corporation. However, the note allegedly provides for payment of minimal interest to the plan, no collateral was offered to secure the payment, and the obligation to pay the note (which has represented more than seventy-five percent of the plan’s assets) has been extended to September 30, 2016 without any consideration. The DOL is mainly asking the court to require the defendants to undo prohibited transactions and restore to the plan losses incurred as a result of their fiduciary breaches (including lost earnings and appropriate interest).
- Perez v. Steven Keares Inc.: On September 22, 2016, the DOL filed this suit in the S. District Court for the Eastern District of Pennsylvania. The DOL alleges that the individual defendant (a retirement plan fiduciary) failed to remit participants’ contributions and the employer’s contributions to the plan. Specifically, from April of 2012 to December of 2014, participants’ contributions were withheld from their pay, but $33,411 in employee contributions and $9,311 in employee loan repayments were not remitted to the plan. Also, from December of 2011 to April of 2014, the company failed to pay $111,403.29 in prevailing wage contributions to the plan. According to the DOL, the total amount owed to the plan equals $166,021.71 (including lost earnings). One remedy the DOL seeks is to use the individual defendant’s plan account to restore the plan’s losses.
- Perez v. Weinhagen Tire Co. Inc.: In another late remittance case, the DOL filed this lawsuit in the United States District Court for the District of Minnesota on September 27, 2016. From at least February of 2010 to May of 2015, the defendants purportedly withheld $35,363.86 from employees’ pay for their elective deferrals to the company’s 401(k) plan, retained approximately $29,058 of those contributions in the company’s corporate bank account, and used that money for general operating expenses. The DOL asks the court to order the defendants to restore all losses to the plan and to pay all reasonable fees and expenses incurred by an independent fiduciary in administering the plan.
Non-Department of Labor Cases:
- Patrico v. Voya Financial, Inc.: In this lawsuit, filed on September 9, 2016 in the S. District Court for the Southern District of New York, the plaintiff seeks class action status on behalf of the Nestle 401(k) Savings Plan and all other similarly-situated qualified retirement plans for which the defendants provide investment management, recordkeeping, and other administrative services. Important in this case is the allegation that Financial Engines Advisors L.L.C. (“FE”) claims to fulfill the role of a registered investment adviser independent of, and unrelated to, the defendant financial institution whose funds have been included as investment choices in the plans. Thus, given FE’s role, the arrangement purportedly ensured that the defendant fund provider did not have a financial stake in the outcome of FE’s advice. According to the plaintiff, however, “in breach of duty, Voya devised a strategy that would satisfy the need for a supposedly independent investment advisor while preserving Voya’s ability to collect fees for the [investment advice] program.” Stated differently, “Voya provides no material services in connection with the advice program, and the only reason for structuring the advice service as being provided by Voya with sub advisory services by [FE] is to allow Voya to collect a fee to which it is not entitled.” The complaint seeks to have the defendants restore alleged losses to the plans and to award the plaintiff reasonable attorneys’ fees.
- Marshall v. Northrop Grumman Corp.: This lawsuit was filed against the defendant plan sponsor, as well as its retirement plan committees’ members, on September 9, 2016 in the U.S. District Court for the Central District of California. The plaintiffs allege that “Rather than complying with their strict fiduciary obligations, Defendants acted to benefit themselves and Northrop by paying Plan assets to Northrop purportedly for administrative services Northrop provided to the Plan, which were not necessary for administration of the Plan or worth the amounts paid.” The defendants also allegedly “caused the Plan to pay unreasonable recordkeeping fees to the Plan’s recordkeeper and mismanaged the Plan’s Emerging Markets Equity Fund.” The plaintiffs assert that the defendants are personally liable under ERISA for restoring to the plan all losses resulting from their breach of fiduciary duty.
- Deschamps v. Bridgestone Americas, Inc.: This case, recently decided by the U.S. Court of Appeals for the SixthCircuit, involved the crediting of an employee’s service under a defined benefit pension plan. After working for ten years at one of the defendant’s plants in Canada, the plaintiff transferred to one of the defendant’s U.S. plants. Before accepting that position, he was assured by the defendant that he would not lose pension credit for his ten years of employment in Canada. Also, the plaintiff subsequently received various written materials confirming that his date of service for pension plan purposes would include his Canadian employment. In 2010, however, the plaintiff learned that the defendant had changed his service date to the date on which his U.S. employment began. After failed attempts to appeal this change through the defendant’s internal procedures, the plaintiff filed a lawsuit against the defendant by alleging various ERISA claims. The trial court ruled in his favor, and the appeals court agreed via a September 12, 2016 ruling. Thus, the plaintiff is entitled to the pension benefit that would have accrued if the defendant had included his Canadian employment when calculating such benefit.
- Lee v. Verizon Communications, Inc.: The U.S. Court of Appeals for the Fifth Circuit decided this case on September 15, 2016. The issue was whether the plaintiff had proved that his pension benefit was adversely affected by the defendants’ alleged improper plan management. The court began its analysis by noting that for a plaintiff to have standing to sue under Article III of the U.S. Constitution, he or she must have suffered “a concrete injury even in the context of a statutory violation.” Stated differently, “a “concrete” intangible injury based on a statutory violation must constitute a “risk of real harm” to the plaintiff .” With that rule in mind, the court held that the plaintiff’s right to pension benefit payments was not alleged to be at risk from the purported statutory deprivation of his rights (i.e. the defendants’ alleged improper plan management). Therefore, the plaintiff did not suffer an injury that was sufficiently “concrete” to confer standing. Moreover, the mere allegation of fiduciary misconduct in violation of ERISA, absent any allegation of risk to a defined benefit plan participant’s benefits, cannot constitute injury sufficient to establish constitutional standing.
- Forte v. U.S. Pension Committee: The U.S. District Court for the Southern District of New York decided this case on September 30, 2016. The plaintiffs were participants in the defendant employer’s retirement plan who invested in the company stock fund between March 21, 2013 and December 4, 2014. They alleged that that the defendants (including plan committees’ members) breached their ERISA fiduciary duties by: (1) allowing participants and beneficiaries to continue to invest in the stock fund, even though the defendants knew that such fund was no longer a prudent investment because of a purported illegal kickback scheme; and (2) failing to disclose what they knew about the scheme. The court dismissed the plaintiffs’ complaint on the grounds that they do not have standing to bring their claim. Namely, they never purchased or sold company stock fund shares, but merely held onto their shares, during the alleged period of the scheme. The court thus rejected the plaintiffs’ assertion that “[B]y holding Stock Fund shares over a period of time when Sanofi stock was artificially appreciating in value, [Plan participants like Forte] were deprived the option of transferring their shares into a different, prudent investment and thus sparing themselves greater losses when the correction ultimately took place.” Rather, the court stated that for the case to move forward, the plaintiffs would have had to demonstrate that they purchased company stock at the artificially-inflated price or that they sold such stock at a loss.
- Allen v. Wells Fargo & Company: The plaintiff, who is a participant in the defendant’s 401(k) plan and the representative of a purported class of participants, filed this case on October 7, 2016 in the U.S. District Court for the District of Minnesota. The lawsuit focuses on the plan’s investments in the defendant’s company stock from January 1, 2014 through the present. More specifically, the plaintiff alleges that the defendants “intentionally withheld material non-public information from Plan Participants invested in Wells Fargo stock and the public at large about a criminal epidemic at Wells Fargo associated with a critical component of Wells Fargo’s business model and key driver of its stock price – i.e., cross-selling…through an incentive structure that encouraged and caused employees to sign up customers for unauthorized and unwanted accounts and other banking products to generate inflated share price growth.” The plaintiff alleges that, as a result, defendants violated their fiduciary duties under ERISA, “causing no less than hundreds of millions of dollars in damages” to the plan.
- In re SunTrust Banks Inc. ERISA Litig.: On October 5, 2016, the U.S. District Court for the Northern District of Georgia issued a ruling in this case. The defendant served as in-house counsel at SunTrust during the period at issue, and he attended retirement plan committee meetings as a representative from the legal department of SunTrust (the plan sponsor). However, he was never a member of a plan committee. Thus, he opposed the plaintiffs’ lawsuit by arguing that he is not an ERISA fiduciary to the plan and, consequently, the plaintiffs’ ERISA claims against him should be dismissed. In ruling for the defendant, the court stated that “Plaintiffs concede that no facts support their only alleged basis for [the defendant’s] fiduciary status – that he was a member of the Investment Sub-Committee.” Moreover, the defendant performed the same professional services that in-house attorneys routinely provide to employee benefit plans that are sponsored by their corporate employer. Thus, “As the Department of Labor has explained and courts have agreed, attorneys “performing their usual professional functions will ordinarily not be considered fiduciaries” under ERISA.” (Note that this case will move forward against the corporate defendant. That defendant will have to defend claims that it breached its ERISA fiduciary duties by allowing artificially-inflated company stock to remain as a plan investment option while the stock’s price decreased substantially.)