The U.S. District Court for the District of Columbia reminds plaintiffs that they may have standing under ERISA for their suit, but they also must have standing to sue under Article III of the U.S. constitution.?á Article III requires plaintiffs to allege a personal stake in the outcome in order to have standing to sue.?á The court followed previous cases which have held that multiemployer plan participants do not have Article III standing to sue plan trustees for breach of fiduciary duty unless the financial viability of the plan is at stake.?á The trustees had failed to collect contributions from the long-delinquent employer, but there was no allegation that those failures adversely affect the plaintiff?ÇÖs benefits under the plan. Although the employees sued on behalf of the Plan, because they could not show that the trustees?ÇÖ failure directly harmed their benefits, there was no injury, and the suit was dismissed… Continue Reading
A former employee sued for denied benefits and breach of fiduciary duty when his employer-provided long-term disability insurance benefits were denied.?á The U.S. Court of Appeals for the Sixth Circuit affirmed the district court?ÇÖs award of the denied benefits.?á The Sixth Circuit also affirmed disgorgement of $3.8 million of the insurer-defendant?ÇÖs profits on the unpaid disability amount.?á The disgorgement was appropriate as ?Ç£equitable relief?Ç¥ for breach of fiduciary duty to prevent defendant?ÇÖs unjust enrichment.?á The $3.8 million was calculated based on defendant?ÇÖs return on average equity, as opposed to returns on investment income, because the defendant held the unpaid benefits in its general account where it could be used for any business purpose, as opposed to a segregated investment account. Rochow v. Life Insurance Co. of North America, No. 12-2074 (6th Cir. Dec. 6, 2013).
Delaware Chancery Court ?Ç£Green Lights?Ç¥ Claims against Directors for Approving Excessive Stock Option Grants
The Delaware Chancery Court denied a motion to dismiss a shareholder derivative action claiming that the company?ÇÖs directors breached their fiduciary duty to shareholders by approving stock option grants to the president in excess of amounts permitted under the company?ÇÖs stock incentive plan and by issuing a materially misleading 2012 proxy statement.?á The action also asserted claims against the company?ÇÖs president for breaching his fiduciary duty and for unjust enrichment by accepting the grant.?á The directors sought to dismiss the claims for demand futility and failure to state a claim.?á The court denied the motion to dismiss for futility because the grants were a clear violation of the terms of the plan.?á The motion to dismiss for failure to state a claim was dismissed because the clear violation of the stockholder-approved plan implicates the duty of loyalty and therefore states a viable claim.?á Pfeiffer v. Leedle, C.A. No. 7831-VCP (Del.… Continue Reading
Seventh Circuit Holds that ERISA Fiduciary Breach Claims under Defined Contribution Plan May Be Brought as Class Action
Participants in a 401(k) plan filed a class action suit in federal district court claiming that their employer breached its ERISA fiduciary duty to the plan relating to the plan?ÇÖs investments. Ultimately, the U.S. Court of Appeals for the Seventh Circuit held that an action for breach of fiduciary duty under ERISA Section 502(a)(2) may be maintained as a class action. Abbott v. Lockheed Martin Corp., No. 12-3736 (7th Cir. Aug. 7, 2013).
In Hi-Lex Controls Inc. et al. v. Blue Cross Blue Shield of Michigan, Blue Cross Blue Shield of Michigan (?Ç£BCBSM?Ç¥), as the third-party claims administrator of various self-funded ERISA group health plans, was withholding as additional administrative fees a portion of the amounts transferred by plaintiffs to BCBSM to fund claim payments (?Ç£Disputed Fees?Ç¥). ?áIn a prior ruling, the court held that BCBSM was a fiduciary of the plans because the amounts involved were plan assets over which BCBSM exercised practical control.?á With respect to plaintiffs?ÇÖ breach of fiduciary duty claims, the court found that BCBSM violated its ERISA fiduciary duty of loyalty by supplying false and misleading information to plaintiffs about the nature and extent of the Disputed Fees and by supplying false information for plaintiffs?ÇÖ Form 5500 filings, and ordered BCBSM to pay plaintiffs the full amount of the Disputed Fees plus costs, interest, and attorneys?ÇÖ fees, totaling… Continue Reading
Court Finds Breach of Fiduciary Duty Against Broker for Failure to Explain Interaction of Stop-Loss and Self-Funded Health Plan Coverage
In Express Oil Change, LLC v. ANB Insurance Services, Inc., the sponsor of an employee health plan (the ?Ç£Employer?Ç¥) decided to convert its funding for the plan from a fully-insured to a self-funded basis. In preparation for the conversion, the Employer sought the advice and expertise of ANB Insurance Services, Inc. (the ?Ç£Broker?Ç¥) with implementation of the self-funded plan (the ?Ç£Plan?Ç¥) and procurement of the associated stop-loss insurance coverage. Apart from providing benefit consulting services to the Employer, the Broker had a long-standing and close relationship with the Employer as its agent for various other types of insurance coverage. The terms of the newly self-funded Plan provided for a $1 million lifetime maximum per participant on out-of-network benefits, but no such limit on in-network benefits. The Employer erroneously thought that the lifetime maximum applied to both in-network and out-of-network benefits and purchased a stop-loss policy with a deductible of $75,000… Continue Reading
Second Circuit Reaffirms that Moench Presumption Applies Only When Plan Terms Require Investment in Employer Stock
The U.S. Court of Appeals for the Second Circuit affirmed, in part, and vacated, in part, a fiduciary breach lawsuit against the investment committees of two eligible individual account plans. Participants sued the investment committees claiming that the decision to offer an employer stock fund was imprudent. The Second Circuit recognizes the Moench presumption?Çöthe presumption of prudence when a plan fiduciary retains employer securities as an investment option as required by the terms of the plan document. Although the district court applied the Moench presumption to both plans, the terms of only one plan required investment in employer stock; the other plan merely permitted investment in employer stock. Thus, with respect to the second plan, the Second Circuit vacated the dismissal and reinstated the claims and the derivative claims against the investment committee. McKevitt v. UBS AG, No. 12-1662 (2d Cir. Feb. 27, 2013).
4th Circuit Holds that the Limitations Period for ERISA Claims of Imprudent Plan Investments Commences with Initial Fund Selection and Does Not Continue With Ongoing Monitoring of Funds, Absent Material Change in Circumstances
A group of participants in Bank of America?ÇÖs 401(k) plan sued alleging the bank engaged in prohibited transactions and breached its fiduciary duty by selecting bank-affiliated mutual funds despite the funds?ÇÖ poor performance and higher fees in comparison to other available investment alternatives. The participants conceded that the initial fund selection was outside of ERISA?ÇÖs general six-year limitations period. Nevertheless, the participants argued that the bank?ÇÖs failure to remove the bank-affiliated mutual funds at meetings of its benefits committee, which occurred within the limitations period, constituted new prohibited transactions and new breaches of its fiduciary duty to monitor plan investments. The 4th Circuit disagreed, reasoning that a decision to continue certain investments, or even the bank?ÇÖs failure to act, cannot constitute a ?Ç£transaction?Ç¥ for ERISA purposes; therefore, the only transaction upon which the participants could assert a prohibited transaction claim was the bank?ÇÖs initial selection of the bank-affiliated mutual funds.… Continue Reading
The Department of Labor (?Ç£DOL?Ç¥) sued the president of several related companies to establish his personal liability for more than $67,000 in employee contributions never remitted to the employer sponsored benefit plans and to prevent him from discharging this liability in his pending personal bankruptcy action.?á Over a nearly three-year period, the companies withheld but never remitted the employee contributions to the companies?ÇÖ group health and 401(k) plans (the ?Ç£Plans?Ç¥).?á The court concluded that, under ERISA, the president was a ?Ç£functional fiduciary?Ç¥ of the Plans because he exercised discretionary control over plan assets?Çöthe employee contributions?Çöwhen he retained those funds in the companies?ÇÖ general assets to pay other corporate debts, rather than timely remitting them to the Plans as required by ERISA.?á The president?ÇÖs conduct also violated several other ERISA provisions, including the duty of loyalty, exclusive benefit rule, and prohibited transactions rule.?á Accordingly, he was personally liable for the unremitted… Continue Reading
Presumption of Reasonableness Standard Does Not Apply at Pleading Stage and SEC Filings Incorporated by Reference in a Summary Plan Description are Fiduciary Communications
Plan participants sued claiming breach of fiduciary duty relating to an employee stock ownership plan (?Ç£ESOP?Ç¥) offered as one investment option in the employer?ÇÖs defined contribution, participant directed retirement plan.?á The trial court dismissed the suit for failure to state a plausible claim for relief.?á The 6th Circuit reversed the dismissal, holding that (1) the presumption of reasonableness standard applied to an ESOP fiduciary?ÇÖs decision to remain invested in employer securities does not apply at the pleading stage and (2) SEC filings, when incorporated by reference into a Summary Plan Description (?Ç£SPD?Ç¥), are a fiduciary communication under ERISA.?á First, the court clarified that the presumption of reasonableness standard is not appropriately applied at the pleading stage because the presumption can be overcome ?Ç£when applied to a fully developed evidentiary record.?Ç¥?á The court reasoned that while ERISA 404(a)(2) generally abrogates an ESOP fiduciary?ÇÖs duty to diversify investments, the fiduciary is not… Continue Reading