March 2019 ERISA Litigation Update:


Given the continuing wave of ERISA litigation, this article has become a mainstay of The Speed Reader. Cases that were recently filed or decided are outlined below. Please note, however, that this list is not exhaustive.

  • Kirkendall v. Halliburton, Inc. (decided on January 24, 2019 by the U.S. Court of Appeals for the Second Circuit):  This case involved pension plan participants’ complaint that the defendant plan sponsor failed to follow the plan’s terms and thus incorrectly calculated their vesting service. As a result, the plaintiffs asserted that they received a lesser plan benefit than the one to which they were entitled. The court began its analysis by noting that the governing plan document provided the defendant with the power to interpret the document’s provisions and to resolve all questions arising under the plan. Consequently, the court stated that it would apply the employer-friendly “arbitrary and capricious” standard of review to the defendant’s plan interpretation here. (Under that standard, the court explained that it can only overturn the defendant’s interpretation if the interpretation is “without reason, unsupported by substantial evidence or erroneous as a matter of law.”) The court then ruled that the defendant’s plan interpretation was not without reason, unsupported by substantial evidence or erroneous as a matter of law. The plaintiffs also argued that the defendant’s plan interpretation should be overturned because the defendant had a conflict of interest in this matter (i.e. the defendant administers and funds the plan). However, the court stated that “such a categorical potential conflict of interest will not be given weight where the claimant has failed to demonstrate that the conflict affected the administrator’s decision making.”
  • Jammal v. American Family Insurance Company (decided on January 29, 2019 by the U.S. Court of Appeals for the Sixth Circuit):  The plaintiffs in this class action case were insurance agents for the defendant and its affiliates. The plaintiffs claimed that the defendant misclassified them as independent contractors, in order to avoid paying them benefits under the defendant’s ERISA-covered plan. Thus, the issue before the court was whether the plaintiffs were employees or independent contractors of the defendant. In concluding that the plaintiffs were independent contractors, the court noted that the plaintiffs: (1) signed a written agreement, at the outset of their tenure with the defendant, stating that they were independent contractors; (2) filed their taxes as independent contractors and deducted their business expenses as self-employed business owners; (3) received compensation from the defendant in the form of commissions, and the defendant did not provide vacation pay, holiday pay, sick pay, or paid time off; (4) worked out of their own offices, set their own hours, and hired and paid their own staff; (5) were responsible for providing most of the resources necessary to run their agencies, such as office furniture and supplies. Therefore, the court ruled that the defendant properly excluded the plaintiffs from its ERISA plan.
  • Cryer v. Franklin Resources, Inc. (settlement agreement submitted to the U.S. District Court for the Northern District of California on February 15, 2019):  This class action lawsuit was filed by 401(k) plan participants against the defendant plan sponsor and the plan’s investment and administrative committees. The plaintiffs mainly contend that the defendants violated ERISA in that: (1) the defendant’s mutual funds offered in its own plan charge fees that are unreasonable (i.e. “significantly higher than fees available from other available and comparable mutual funds”); (2) such funds “had and continue to have poor performance histories compared to prudent alternatives Defendants could have chosen for inclusion in the Plan;” (3) the plan imprudently offers its participants a money market fund instead of a stable value fund; and (4) that the total investment and administrative fees charged by the plan are excessive. Per the settlement agreement, which must be approved by the court, the defendants have agreed to pay $13,850,000. That amount will be used to pay the plaintiffs, as well as attorneys’ fees and other costs. The defendants will also add a nonproprietary target date fund option to the plan’s lineup, after a search of target date fund options that will be conducted by the plan’s independent investment consultant. In addition, the defendants will increase the plan’s matching contributions, from a rate of 75% of each participant’s eligible salary deferrals to 85%. That increase will remain in effect for at least three years. However, the settlement agreement makes it clear that the defendants do not agree with the plaintiffs’ contentions or admit that any of their conduct at issue violated ERISA.
  • Munro v. University of Southern California (defendants’ petition for a writ of certiorari denied on February 19, 2019):  The U.S. Supreme Court (the “Court”) has declined to hear this case, which the defendants sought to appeal from the U.S. Court of Appeals for the Ninth Circuit (the “Appeals Court”). The plaintiffs, who are participants in two ERISA plans sponsored by the defendants, were required to sign arbitration agreements as part of their employment contracts. The plaintiffs subsequently filed this suit based on the defendants’ alleged breaches of fiduciary duty in connection with the plans. In a 2018 decision, the Appeals Court ruled that that the dispute fell outside the scope of the arbitration agreements. That was because the parties consented only to arbitrate claims brought on their own behalf, and the plaintiffs’ claims were brought on behalf of the ERISA plans. Given the Court’s denial of the defendant’s petition, the Appeals Court’s decision stands and the defendants thus cannot force the plaintiffs to take their fiduciary breach claims to arbitration.
  • Wong v. FMR LLC (complaint filed on February 21, 2019 in the U.S. District Court for the District of Massachusetts):  The plaintiff in this lawsuit is a participant in a 401(k) plan for which the defendant provides services (e.g., offering a platform of proprietary and non-proprietary mutual funds, from which plan sponsors can select their respective plan’s investment lineup). The plaintiff alleges that beginning in or about 2017, the defendant began requiring various mutual funds offered to the plans through the defendant’s network “to make secret payments” to the defendant “in the guise of “infrastructure” payments or so-called relationship-level fees,” in violation of ERISA. Supposedly, the defendant requires payment of those “kickbacks in return for providing the mutual funds with access to its retirement plan customers.” The plaintiff also alleges that although ERISA requires the defendant to disclose those payments to plan sponsors, the defendant “does not disclose the amount of these secret payments (which amount to at least tens of millions of dollars per annum and likely in the hundreds of millions of dollars per annum) to the Plans and forbids the mutual funds from disclosing the amount of these secret payments.” Further, those “kickbacks” allegedly have the effect of increasing the expense ratios and/or other expenses of the mutual funds, and such expenses are deducted directly from the assets of the plans (i.e. from participants’ accounts). The plaintiff also contends that the defendant’s fees charged to its clients generally do not change as a result of its receipt of the “kickbacks” from the mutual funds. More specifically, those fees are not reduced in a manner that corresponds with the amount of the “kickback” payments the defendant receives. The plaintiff seeks to recover, on behalf of all affected retirement plans, the “kickback” payments and other compensation that the defendant allegedly received improperly. The plaintiff also seeks reimbursement for attorneys’ fees, costs, and other litigation expenses.