Key Takeaway: As lower courts consider the U.S. Supreme Court’s recent decision in Hughes v. Northwestern University, the impact of the decision remains unclear. Although a handful of motions to dismiss have been denied in cases alleging excessive fees and/or underperformance since Hughes was decided, only one decision has substantively relied on Hughes and dozens more motions to dismiss are still pending.On January 24, 2022, the U.S. Supreme Court issued its highly-anticipated opinion in Hughes v. Northwestern University, which reversed a Seventh Circuit decision that had affirmed the district court’s dismissal of the plaintiffs’ claims. Goodwin’s analysis of the Hughes decision can be found here.
In the months leading up to the Supreme Court’s Hughes decision, more than 20 district court cases were stayed pending the Court’s ruling. The majority of district court stays were granted in cases at the early stages of litigation — either before responses to complaints were filed or before motions to dismiss were decided. Two appellate cases concerning motions to dismiss were also stayed. Since the Hughes decision, stays have been lifted in nearly all of these cases and the parties have generally either resumed briefing motions to dismiss or filed notices of supplemental authorities explaining the impact of the decision. In those cases, members of the defense bar and plaintiffs’ bar have generally claimed that Hughes supports their side — or does not apply at all to the specific facts at issue in a given case. For example, many in the defense bar have argued that Hughes supports the proposition that fiduciary defendants are entitled to latitude in their decision-making processes, given the Supreme Court’s recognition that there is a “range of reasonable judgments [that] a fiduciary may take” regarding investment selection, and that ERISA fiduciaries must make context-specific decisions involving “difficult tradeoffs.” Not surprisingly, many in the plaintiffs’ bar disagree, arguing that this language is non-binding dicta which, at best, should be considered at the summary judgment stage. Further, some plaintiffs’ counsel have pointed to similarities between the Hughes case and their own allegations and argued that, given the Supreme Court’s decision for the Hughes plaintiffs, it is improper to decide their claims at the motion to dismiss stage.
To date, only the Lauderdale v. NFP Retirement, Inc. decision substantively relied on Hughes in denying a motion to dismiss. See No. 21-301 (C.D. Cal. Feb. 8, 2022), here. In Lauderdale, the Court denied the defendants’ motion to dismiss a claim that the defendants did not have a prudent process to select and retain certain plan investments. In so doing, the Court noted Hughes’s direction to “evaluate the allegations as a whole,” and found that the plaintiffs’ allegations that the defendants did not engage in a prudent process in retaining specific investments and the plan’s recordkeeper — combined with the totality of the plaintiffs’ other allegations — were sufficient to state a claim (though the Court also cited the Hughes “difficult tradeoffs” language and noted that, at a later stage of the litigation, the evidence might later show that the defendants had a prudent process in place). The Court also allowed the plaintiffs’ claim that the defendants failed to monitor and remove certain investments to proceed, relying on Hughes for the proposition that “[i]f the fiduciaries fail to remove an imprudent investment from the plan within a reasonable time, they breach their duty.”