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Sixth Circuit Revives ERISA Claim, Provides Opportunity for Discovery

July 19, 2022 | by Mehr Fairbanks Trial Lawyers

The 6^th Circuit recently heard a case in which participants in a TriHealth (“Defendants”) 401(k) fund (“Plan”) alleged that the administrators of the Plan breached their fiduciary duty to the participants by offering costly mutual fund options. The 6^th Circuit revived one of the class claims, though affirmed the lower court’s dismissal of other claims brought under ERISA. This case was brought by the named Plaintiff, Danielle Forman, and included allegations that TriHealth breached its fiduciary duties under ERISA by charging high fees to participants, providing funds that underperformed their counterparts, and offering expensive actively managed options. The decision to dismiss these claims relied heavily on the precedent set in Yosaun Smith v. CommonSpirit Health et al. (follow the link to see a summary of CommonSpirit: https://www.mehrfairbanks.com/blog/sixth-circuit-affirms-dismissal-of-erisa-case-holding-that-plan-management-was-not-imprudent/).

However, one of the claims against TriHealth was not governed by the CommonSpirit decision. The 6^th Circuit panel of judges stated that “[t]he gist [of the claim] is this: Even if a prudent investor might make available a wide range of valid investment decisions in a given year, only an imprudent financier would offer a more expensive share when he could offer a functionally identical share for less.” Therefore, “The plaintiffs in this last respect have stated a plausible claim that TriHealth acted imprudently.”

Forman’s attorney argued that the differences between the fees charged for the respective funds were “sort of a bulk purchase discount”, and that “[s]hare classes that were in the fund lineup were simply more expensive than other share classes of the same fund that were available to the Defendants for years.” This argument weighed into the panel’s decision to uphold this particular claim while dismissing the others. They further rejected arguments made by the Defendants that the Plaintiffs hadn’t provided a comparable plan to demonstrate that the retail share classes’ returns were lower than other options available to the Defendants. The Court stated, “Unlike a claim premised on an imprudent choice between two different mutual funds that perform differently over time, a claim premised on the selection of a more expensive class of the same fund guarantees worse returns.”

Court of Appeals Holds that Individual Arbitration Agreements do not Apply to ERISA Plans as a Whole

May 5, 2022 | by Mehr Fairbanks Trial Lawyers

The Court of Appeals for the Sixth Circuit recently held that when a claim is brought under ERISA § 502(a)(2), individual arbitration agreements signed by employees do not apply. The rationale behind this decision is that claims brought under § 502(a)(2) are brought by the Plan, not by the individual employees who had signed the agreements.

The Plan at issue in this case is the “Partner’s Plan” (Plan), a “defined contribution” plan sponsored by one of the Defendants, Cintas. Defined contribution plans offer participants the opportunity to select investment options from a “menu” chosen by the plan’s sponsor (in this case, Cintas). Individual accounts are created for each participant, their value determined by the amount they have contributed, fees associated with management of the plan, and the market performance of the investment options selected.

ERISA requires fiduciaries to fulfill certain duties to plan participants, the two at issue in this case being the duty of loyalty and the duty of prudence. The duty of loyalty requires that plans be managed “for the best interests of its participants and beneficiaries,” while the duty of prudence requires that plans be managed “with the care and skill of a prudent person acting under like circumstances.” The Plaintiffs in this case allege that these duties were breached when the Defendants only offered opportunities to invest in “actively managed funds” and when excessive recordkeeping fees were charged to participants. The Plaintiffs brought action against Cintas, as well as its Investment Policy Committee and Board of Directors. These entities within the company are responsible for administering and appointing members to investment committees. The suit is putative class action encompassing all participants in the Plan and their beneficiaries during the relevant class period.

North Carolina Court Grants Class Certification and Approves Settlement Amount in ERISA Case

March 10, 2022 | by Mehr Fairbanks Trial Lawyers

Recently, a Federal Court in North Carolina approved a settlement for over $3 million between a Coca-Cola (Defendant) bottling plant and a class of former employees. The named Plaintiffs brought the action against the Defendant alleging that the company had violated their fiduciary duties by presenting “risky” investment options to ERISA plan holders while additionally charging excessive fees. The Court held that the amount of the settlement was “fair, reasonable and adequate, taking into account the costs, risks and delay of litigation, trial and appeal.” Pursuant to this decision, the Court also ruled that the class presented by the Plaintiffs was appropriate for certification and includes all “participants and beneficiaries” under the plan in question. This totals around 13,000 individuals, according to a motion brought by the named Plaintiffs which is now moot after the Court’s certification of the class.

The details of the settlement agreement include statements that the Defendants denies any “wrongdoing or legal liability,” as well as the Defendants’ opinion that the group of 13,000 individuals was not appropriate for class certification. The specific wrongdoing alleged by the Plaintiffs is that the Defendants could have used their large size as a corporation in order to ensure that record-keeping and management fees were low for plan participants, which the failed to do. Additionally, Plaintiffs contend that the Defendants “imprudently” chose higher cost management services, though they had been presented with lower cost alternatives. According to the Plaintiffs, these decisions made by the corporation and its plan fiduciaries caused monetary losses into the millions. Lastly, the Plaintiffs contend that coupled with the breach of fiduciary duties through the above-mentioned means, the Defendants also breached their duties through their failure to disclose information concerning the fees and “risks” of the investment options they had selected. Further, the Plaintiffs state that the Defendants did not make an effort to actively monitor those in charge of administering their ERISA plans, thus further acting imprudently and in violation of their duties to the participants.

Prior to this proceeding, the Defendants had moved to dismiss the case in early 2021, a request which was subsequently denied in March the same year. The Court ruled that the Plaintiffs had presented a case that should move past the initial pleading stage of the trial process, and thus dismissal would be inappropriate. The parties will now move forward with the settlement agreement, with the Plaintiffs now as a certified class.