Sixth Circuit Court of Appeals Largely Affirms Grant of Motion to Dismiss

Key Takeaway: The Sixth Circuit largely affirmed the grant of a motion to dismiss, but reversed the district court’s dismissal of the plaintiffs’ claim that the defendants had failed to select the lowest-cost share class of the at-issue investments.

On July 13, 2022, the U.S. Court of Appeals for the Sixth Circuit affirmed in part and reversed in part the district court’s dismissal of a lawsuit against TriHealth, Inc. (TriHealth). The complaint alleged that the fiduciaries of TriHealth’s 401(k) plan had violated ERISA’s duty of prudence by (i) selecting underperforming, high-cost funds for that plan, (ii) failing to offer cheaper institutional share classes of investments in the place of more expensive retail share classes, and (iii) allowing the Plan to pay excessive administrative fees. The district court granted TriHealth’s motion to dismiss.

The Sixth Circuit affirmed in part and reversed in part. With regard to the plaintiffs’ allegations concerning selection of underperforming and high-cost funds, and excessive administrative fees, the Sixth Circuit affirmed the district court’s dismissal, holding that the plaintiffs’ arguments were foreclosed by the Sixth Circuit’s recent decision in Smith v. CommonSpirit Health, discussed in a prior Goodwin ERISA Litigation Update. The Sixth Circuit reversed, however, with respect to the plaintiffs’ share-class allegations, the only set of allegations the plaintiffs had made that were not present in Smith. The court reasoned that, “taken in their most flattering light,” the plaintiffs’ share-class allegations permitted an inference that “TriHealth failed to exploit the advantages of being a large retirement plan that could use scale to provide substantial benefits to its participants.” However, the court recognized that the claim might ultimately fail at a later stage of the case, if the evidence ultimately shows, for example, that the plan could not qualify for institutional share classes or if the plan’s revenue-sharing arrangement made the retail share classes less expensive than the institutional share classes.

The case is Forman v. TriHealth, Inc., No. 21-3977, in the Sixth Circuit Court of Appeals, and is available here.