July 19, 2023

ERISA Litigation Update

Welcome to Goodwin’s ERISA Litigation Update. Litigation involving ERISA-governed benefits plans has exploded in recent years. Lawyers in our award-winning ERISA Litigation practice have extensive experience litigating these cases across the country, as well as representing clients in Department of Labor investigations. The ERISA Litigation Update will gather notable developments in this space, including important court decisions and appeals as well as regulatory guidance, and provide information regarding those developments on a quarterly basis.

For more information about Goodwin’s ERISA Litigation practice or to read our publications, please visit our practice page.

0Yale University Prevails in Jury Trial

Key Takeaway: After a rare ERISA jury trial, a jury found that the plaintiffs had not proven that Yale University, its Retirement Plan Fiduciary Committee, and an individual Yale defendant (collectively “Yale”) breached their duties with regards to the Yale plan’s investments, and that the defendants had proven that any breaches of duties with regards to plan recordkeeping fees had not harmed the plan.

On June 28, 2023, a jury empaneled in the US District Court for the District of Connecticut ruled for Yale after a nearly four-week jury trial. The plaintiffs had alleged that Yale failed to prudently monitor its 401(k) plan’s recordkeeping fees, retained certain underperforming investments in the plan, and failed to switch to lower-cost share classes of other investments. On October 21, 2022, Yale’s summary judgment motion was granted with respect to prohibited transaction claims and a duty to monitor claim, but it was otherwise denied. Yale then moved to strike the plaintiffs’ jury demand, but that motion was denied on March 17, 2023, and the case proceeded to a jury trial.

The jury found for Yale on all counts. With respect to the recordkeeping allegations, the jury determined that the plaintiffs had proven a breach of duties but that Yale had proven that a fiduciary following a prudent process could have made the same decisions as to the plan’s recordkeeping fees. With respect to the allegations about plan investments, the jury determined that the plaintiffs had not proven that Yale breached any duties. Yale introduced evidence that plan investments were monitored, including during a period of time in which there was no formal committee overseeing the plan, and that Yale moved to lower-cost share classes as soon as practicable.

The case is Vellali v. Yale University, No. 16-1345, in the District of Connecticut.

0District Court Grants Defendants’ Motion for Summary Judgment in Case Regarding Management of Multiple Employer Plan

Key Takeaway: A district court entered summary judgment for defendants where the plaintiffs did not rebut the defendants’ evidence of a prudent process to select and monitor the plan’s recordkeeper and investments.

On April 26, 2023, the US District Court for the Middle District of Florida granted the defendants’ motions for summary judgment and to exclude the plaintiffs’ expert’s opinions, in one of a handful of cases to date involving a multiple employer plan. In the complaint, the plaintiffs alleged that plan fiduciaries caused the plan to pay excessive recordkeeping fees, failed to conduct a request for proposals for recordkeeping services, and selected and retained high-cost and underperforming investment options.

The court granted the defendants’ motion for summary judgment in full. In dismissing the plaintiffs’ recordkeeping claims, the court found that the undisputed evidence showed that the defendants acted prudently by monitoring the plan’s fees on a regular basis and by conducting multiple competitive requests for proposals for recordkeeping services. With respect to the plaintiffs’ investment selection claims, the court held that summary judgment was warranted for the defendants because the plaintiffs failed to introduce any evidence of an imprudent process. In ruling on the plaintiffs’ claims, the court also excluded expert testimony regarding reasonable recordkeeping fees from an expert retained by the plaintiffs, finding that the expert was not qualified to provide the opinions and had failed to explain his methodology.

The case is Huang v. TriNet HR III, Inc., No. 20-2293, in the Middle District of Florida. The decision is available here.

0District Court Denies Defendants’ Motion for Summary Judgment in Case Regarding Management of 401(k) Plan

Key Takeaway: A district court ruled that defendants were not entitled to summary judgment where they had failed to present evidence of monitoring the challenged investment option.

On April 20, 2023, the US District Court for the Southern District of New York denied a motion for summary judgment filed by fiduciaries of a 401(k) plan sponsored by Verizon. The plaintiff, a former Verizon employee, alleged that the fiduciaries had violated ERISA’s duty of prudence by offering the Global Opportunity Fund as an investment option in the plan.

The court denied the defendants’ motion because, although the defendants had presented evidence of a robust monitoring process in general, they had failed to put forth evidence that this monitoring extended to the Global Opportunity Fund. The court also denied the defendants’ motion to exclude opinions of the plaintiff’s damages expert. Subsequent to the denial of the motion for summary judgment, the court set the case for trial on July 10, 2023. Before the trial was set to commence, the parties announced a settlement of the case for $30 million.

The case is Jacobs v. Verizon Communications, Inc., No. 16-1082, in the Southern District of New York, and the summary judgment decision is available here.

0District Court Again Dismisses Lawsuit Challenging Georgetown University’s Retirement Plans

Key Takeaway: The district court denied plaintiffs’ motion seeking leave to file an amended complaint because it found that the proposed amendments did not allege facts sufficient to support a plausible inference that defendants breached their fiduciary duties under ERISA.

On March 31, 2023, the US District Court for the District of Columbia denied plaintiffs’ motion seeking leave to amend a previously dismissed ERISA lawsuit against Georgetown University. The lawsuit claimed that defendants breached their duty of prudence by offering investment options in a manner that resulted in unreasonable administrative and recordkeeping fees, alleging that defendants’ use of three recordkeepers for the plans created additional expense and complexity. Additionally, plaintiffs alleged that defendants breached their duties of prudence by retaining certain underperforming or expensive investment options. In January 2019, the district court dismissed plaintiffs’ claims in full and denied plaintiffs’ motion to amend their complaint. On appeal, the US Court of Appeals for the District of Columbia Circuit vacated the district court’s denial of plaintiffs’ motion for leave to amend because it determined that the dismissal order did not clearly state that the dismissal was with prejudice. However, the circuit court did not opine whether amendment would be futile, and remanded the case to allow the district court to make that determination in the first instance.

On remand, the district court again denied plaintiffs’ motion for leave to file an amended complaint, holding that any amendment would be futile because the amended complaint would not withstand a motion to dismiss. First, the court held that plaintiffs’ new allegations did not address standing issues identified in the first dismissal order. Second, the court rejected plaintiffs’ recordkeeping fee claims, holding that simply identifying other universities that operate their plans differently did not itself support an inference that the decision to consolidate recordkeeping services to a single service provider would be equally beneficial or feasible for the Georgetown plans, much less that defendants mismanaged the plans by not doing so. Third, the court rejected plaintiffs’ challenge to the asset-based recordkeeping fees for the plans, finding that plaintiffs’ data blurred the distinction between recordkeeping and administrative expenses. The district court then rejected plaintiffs’ attempt to amend to add new allegations, holding, for example, the following: no facts suggested plan participants were unreasonably burdened or that a broad array of approximately 400 investments was not appropriate for plans of Georgetown’s size; plaintiffs’ allegations concerning defendants’ purported failure to investigate or disclose certain information in the plans’ 408(b)(2) disclosures and Form 5500s did not state a claim for breach of fiduciary duties; and plaintiffs provided no factual allegations supporting their assertion that the structure of variable annuities contributed to excess recordkeeping fees.

The case is Wilcox v. Georgetown University, No. 18-0422, in the District Court for the District of Columbia, and the opinion is available here. Plaintiffs, again, filed a notice of appeal with the District of Columbia Circuit on April 28, 2023. The appeal, No. 23-7059, is currently pending.

0District Court Denies Class Certification in Case Challenging 401(k) Plan Management

Key Takeaway: Class certification was denied due to the plaintiffs’ failure to show that the two putative class representatives, who both had prior criminal convictions and lacked understanding of basic facts about the case, were adequate class representatives.

On March 27, 2023, the US District Court for the Eastern District of Michigan denied certification of a class of participants in Magna International of America’s 401(k) plan. The plaintiffs alleged that the plan’s fiduciaries violated their duties of loyalty and prudence by failing to review the costs of the plan’s investments and by failing to switch to lower-cost share classes of such investments. Plaintiffs moved to certify a class of plan participants with two individuals named to serve as class representatives.

The district court denied the plaintiffs’ motion to certify a class, holding that the two putative class representatives would not be adequate representatives of the class. Both had criminal histories. One of the two had previously pleaded guilty to conspiracy to commit wire fraud. The second of the two also had a criminal history, regarding which he gave vague and potentially misleading answers at his deposition. The court further held that neither of the two was an adequate class representative due to their lack of knowledge about the case. Both lacked an understanding of basic details about the case, and one testified that he had never read the complaint in its entirety. The court gave plaintiffs 30 days to name new class representatives; plaintiffs then named four new individuals. No new motion to certify a class has been filed to-date.

The case is Davis v. Magna International of America, Inc., No. 20-11060, in the Eastern District of Michigan, and is available here.